I believe I wrote about this a number of months ago as the election season was starting to ramp up, but I feel the need to mention it again: Don’t let politics drive your portfolio decisions. In the weeks leading up to the election, it can be easy to get caught up in the theories and predictions about what might happen if a particular candidate wins or a certain party gains power. Some will take those predictions and make portfolio decisions in the hopes of getting ahead of the curve regarding how the markets might react to certain administrations. First off, it is incredibly difficult to predict how the markets will react to elections. What economic pundits predicted at the start of the past two administrations did not come to pass with the markets performing much stronger than expected. Rather, you should make your portfolio as you normally would and ignore the election when doing so. Don’t give you portfolio any special treatment between now and Nov. 3. That can be hard to do, especially with the news cycle (and social media and conversations with friends) being filled with election talk, it won’t be easy. However, trust me, it will be worth it to keep your portfolio on the same road it’s be going on.
One of the worst things you can do when the market takes a dip (or a dive) is to immediately pull your money out. While it may seem logical–why lose any more money–it’s almost always the wrong move. Taking money out during a downturn makes it incredibly difficult to take advantage of the eventual upturn. If you understand the tax implications of losses, you further take advantage through smart tax harvesting (I’m not going to get into that here). Now, I’m not talking about divesting your money in one stock and investing it in another that you think is poised to rebound. I’m talking more about divesting to preserve your cash and then investing when you think things look better. Trust me, by the time things “look better,” you’ll probably miss out on a good chance to make money (the best place to invest in a stock is at the bottom…nowhere to go but up!). The best thing to do when markets take a dip is not to react immediately. Give it a little time and see what happens. If things don’t appear to get better over time (days, weeks), then you may want to consider diversifying your investments or making changes to your portfolio. If there are parts of your portfolio where things are struggling and another where things are strong, you may want to consider focusing on the stronger areas. If you need help with your investments or portfolio, as always, I suggest you take with a certified financial planner or wealth manager or another investment professional.
Just because you have lots of money doesn’t mean you’re necessarily a financial wizard. Society is littered with famous celebrities who have squandered massive amounts of money through various means, such as bad investments or poor spending habits. I’m not saying we need to be sympathetic to celebrities who make millions, but their stories, when looked at together, can provide an important lesson for all of us. That is, that having money and being able to properly manage it and care for it are two different things. In other words, just because you have money doesn’t mean you will know what to do with it. This can also be case for average, middle class workers that make up the backbone of American society. There’s also plenty of stories out there of retirees decimating their nest eggs once they reach retirement by spending more than they saved or making poor investment decisions. Here is where knowing what you don’t know is important. If you know you aren’t good with money, make sure you hire a wealth manager or certified financial planner who can help. They can help you set a plan and understand your appetite for risk and avoid investments that may not provide the right return for you as well as help you decide to dump certain investments that take a turn for the worst. A good wealth manager or certified financial planner can also help you to grow your nest egg by also suggesting investments that fit into your plans and meet your risk tolerance. It’s important that you find someone you are comfortable with and who you trust with your money. Now, I’m not saying here that all retirees don’t know what to do with large retirement savings accounts. Of course, there are also many stories of people out there taking a small sum of money and turning it into millions through smart financial decisions. Or of retirees being practical in retirement and making their savings last. However, it can be easy to get caught up in thinking that just because you have money means you know what to do with it.
As I’ve mentioned in the past, investing can be a great way to grow your nest egg. With a good understanding of your risk appetite and your goals–both long-term and short-term–you can make investment decisions that can put your money to work for you. However, making cautious investment decisions can seem boring at times, especially making decisions regarding long-term goals (i.e. saving for retirement while decades away). It can also be tempting at times to play with the markets a bit and experiment with taking on a little more risk than you normally do. Now, I’m not suggesting you risk thousands of dollars or that you take on huge amounts of risk. Rather, maybe you should consider investments a little bit riskier than what you are normally doing. Use it as a way to test your comfort levels and possibly determine if you are ready for a change. Also, as with any investment, be sure to do your research and educate yourself on the stocks or investments you are looking to buy. If the risk is too great, don’t invest in it. I want to be clear, though, I don’t think you should be that risky with your retirement money or any that is vital to your financial survival. Remember, it’s pretty easy to lose money in the stock market. It’s a volatile place. Again, I’m necessarily encouraging you to go full-bore into that with all your money, however I definitely think it might be worth checking out if you have some extra money you are willing to play with. That means money you are comfortable with possibly losing and which won’t impact your financials to do so. If you are serious about investing and want to learn from first hand experience, this can be a great learning opportunity. Again, I strongly discourage using retirement funds or money you actually need to live for these investing experiments. However, if you have money to spare, even if it’s just a few hundred dollars, and you want to experiment with some riskier investments, I think it could provide a lot of knowledge. Of course, if you have serious questions about the investments you intend to make, you should speak with a certified financial planner, wealth manager, or other investment professional.
Whether you or certain pundits want to acknowledge it or not, we are in a bear market at a moment. What does that mean? It means the markets have fallen–for an official bear market the prices need to fall at least 20%–and investor sentiment reflects that downturn. You’re probably familiar with the term and understand it to be the opposite of a bull market, which is what we were in up until early March. In short, a bull market means things are on an upswing. A bear market is tough to stomach, particularly when it’s not clear when exactly things have or will bottom out, much like the situation right now. At the moment, it seems as though the markets are charting a new course almost hourly during the week. Much of this inconsistency has to do with the ever changing reports coming out of the government and the medical community regarding what is happening/going to happen with Coronavirus as well as the physical shuttering of a large portion of the economy. Being in a bear market can be scary and it’s something that should be taken seriously. However, it can also open up some opportunities to buy into the market at a low and watch your portfolio grow when the market eventually rises. Keep in mind that taking advantage of a bear market requires a long-term approach as it can be hard to tell when the markets will recover. Furthermore, the recovery itself may take some time–quite possibly years–and may not be obvious. You may need to reassess your portfolio in the process, but if you do so with a long-term approach, you may just set yourself up for some success when things recover. As always, I’d strongly encourage you to talk with a certified financial planner or wealth manager if you have questions regarding your portfolio or just discuss ways to financially make it through these difficult times.
IRAs and 401(k) are incredibly popular employer offered retirement plans. Many employers currently offer them and with the recent passage of the SECURE Act legislation, even more small businesses and enterprises will be able to offer such benefits to employees. However, IRAs and 401(k)s do have contribution limits, which can be on the lower side–especially for IRAs. Thus, if you find yourself in a situation where you want to do some serious catching up (aside from making catch-up contributions) with your retirement savings or have a sudden windfall (i.e. an inheritance), you may need to look at opportunities to help grow your nest egg outside of those traditional retirement accounts. Now, this doesn’t mean you can’t still make contributions to IRAs or 401(k)s if you have them, but rather, that you should look to open an account for the money you have left over once you’ve maxed out contributions. A very popular option is to open a taxable investment account. A good example of this would be to open an online brokerage account (i.e. E*Trade, TD Ameritrade, etc.). These types of accounts have no contribution limits and no limits on when you can withdrawal the money. They also offer a wide range of investment options (i.e. stocks, ETFs, Mutual Funds, etc.). However, these accounts are taxable and depending on the size and transactions done yearly, things might be a little confusing come tax time. A word of advice before opening a taxable investment account, do your research beforehand and take the time to assess what your tolerance for risk is, what your long-term goals are, and understand the different type of investment options. Investing can be an efficient way to grow your nest egg over time, but remember, there are risks involved. If you have questions about setting up a taxable investment account or just want to talk further about it, then you should speak with a certified financial planner or investment professional.
I’ve talked about diversification quite often in blog posts over the years. Most of that diversification talk has centered around investing in different types of investments, such as having a mix of stocks and bonds or investing in different market sectors. However, today I want to talk about diversifying the places where you actually put your money. You’re probably well aware that there limitations on how much you can contribute to an IRA or 401(k). So, what do you do if you have extra money? Well, you could put the money in a savings account or another IRA, or you could consider a brokerage account. I know investing in the stock market can seem risky, especially in the current economic climate, but there are advantages to a brokerage account, particularly a taxable brokerage account. The account is funded by after-tax dollars and any dividends, interest, or capital gains distributions are subject to taxation. Futhermore, if you hold assets in your brokerage account for more than a year, you may find they are subject to more favorable tax rates. A brokerage account can be very appealing for those who may want to supplement their retirement savings or want to have an emergency fund to tap into in the future. If you start an account in your twenties and follow a strategy designed to meet your goals, you may find that account worth a substantial amount in two or three decades. If it’s large enough, it may allow you more flexibility regarding when you retire. A brokerage account can also allow you more flexibility when it comes to taxes in retirement. Having a brokerage account combined with a IRA and/or 401(k) can allow you to choose the most favorable tax option each year when it comes to distributions or withdrawals. A brokerage account can also continue to grow in retirement as dividends and investments increase in value. Also, with a brokerage account there are no required minimum distributions (RMDs), so you can tap into in when you want as well as take out as much as you want. Now, in wrapping this up, there are numerous options for setting up a brokerage account. You can easily set one up yourself, but if you really want to make it a part of your retirement plans, you should speak with an investing professional who will help you set a strategy and plan to reach your goals.
Many Americans use the stock market–and other investment markets–as a way to build up their nest eggs over the long-term. After all, well thought-out investments in steady, low-risk annuities or mutual funds can produce quite a return over a long period of time, such as multiple decades. However, not all Americans have the discipline and patience to make such long-term investments. It’s not uncommon for some to attempt to outsmart the markets by either trying to predict what an investment will do next or by making risky investments that they hope will payoff in the short-term. This rarely, if ever, works. Rather, it usually ends with a loss of some sorts, which hopefully isn’t enough to derail their nest egg or retirement savings. While it can be tempting to try to approach the stock market like they do in the movies (you know, where they yell “Buy! Buy! Buy!” and “Sell! Sell! Sell!” and then walk away with a ton of money after incredibly risky investment), you really should approach it with caution and a long-term vision. That means focusing on investments that won’t make a splash right away, but rather will provide you with the boost you need to build up your retirement savings for when you will really need it–when you’re retired. Furthermore, don’t even bother attempting to outsmart the market. Just focus on your returns and making investments that are right for you. Now, this does not mean that you can’t change your investments and portfolio from time to time or that you shouldn’t track your investments. Of course, you should unload investments that have become risky over time or are trending heavily downward. However, if your investments are well researched, diversified, and are low-risk, you shouldn’t really have to worry about doing a lot of transactions or changes to your portfolio. As always, if you have questions about your portfolio or want to find better investments strategies, you should speak with a certified financial planner.
It’s been over a decade since the stock market hit the lowest point of the recession in 2009. Since then, it’s done nothing but seemingly improve. After a decade of seemingly (key word here) bullish activity, one would think that a lot of investment portfolios and retirement accounts would be reaping the benefits, but that’s not necessarily true. In fact, the majority of Americans will still struggle to save enough for retirement. The biggest reason? The majority of stocks are still owned by the richest few Americans. While many Americans were able to bolster their nest eggs by investing during that period, very few middle class Americans were able to see their investments skyrocket at the same rate as the stock market. It’s important to keep this in mind if you plan on relying on the stock market to help fund your retirement. Just because the market is doing well doesn’t mean your portfolio is performing the same. There are various reasons that could be, such as the stocks you invested in, how much you’ve invested, and current events that are outside of your control. Most likely, though, is because your portfolio just isn’t big enough to feel monumental effects from market movements. It’s also a good reminder that you may want to consider having more than one source of retirement income or savings. No, you do not want to invest all of your nest egg in the stock market. There are other ways to earn money to fund retirement, such as investing in a rental property or working a part-time job. Now, back to what I was originally talking about in this post, the fact that a bullish market doesn’t mean that your portfolio will follow the same path. It can be a sobering thought for many investors, but it’s reality. If you are considering investing, as always, talk with a certified financial planner or investment professional. They can help you diversify your portfolio and position it to best take advantage of the market while minimizing risk (or vice versa, if you prefer).
It’s easy to judge an investment in hindsight. What’s hard to do is to predict what will happen with an investment when you purchase it. If it’s stock, who knows how the company will perform over the long run? Will it’s products or services remain relevant? Will ownership continue to innovate? If you have invested in property (i.e. land or a building), will the improvements you make upon it work out? If you plan on renting it out, the rental market in the area remain strong or end up weak? These are unpredictable things that create risk with every investment. Yes, you can do your homework and due diligence, but that won’t bring forth future events and turns that just can’t be predicted. Research and trends might tell you how things will go for a few years, they may not be able to turn up how things will be decades down the road. That’s why I want to remind you that there is risk with every investment and that will never change. While there are steps you can take to minimize that risk–and certainly doing your homework helps a ton–you won’t be able to remove all the risk. Thus, it’s important that you know that and choose investments that fit your appetite for risk and that you thoroughly research your investments before making them. You won’t be happy with every investment, but that’s just how it goes sometimes. If you need help with making investments or want to discuss your appetite for risk, you should speak with a certified financial planner.