You’ve probably heard me say on this blog that the best way to save for retirement is to start early. The same goes for investing. One of the best ways to teach your kids about the stock market and get them thinking about their financial future is by allowing them to invest in the markets. Many of the major investment platforms offer custodial accounts, which allow parents to set up trading accounts for children under 18 and which require adult permission to complete transactions. Once you have the account, you can decide how to best teach your teenager the importance of risk and investing. If you have more than one teenager involved, maybe make a game out of it and see whose investments perform the best over a set amount of time. If your teenager is more goal oriented, maybe encourage them to use the account as a way to grow money for something like a car or product they want. Whatever you choose to do, be sure to guide them and set some limits. You may want to limit what investments they can put money into (no options, etc.). You will also want to encourage them to use properly vetted resources, such as popular investment books or well-sourced blogs. Heck, you yourself may want to use it as an opportunity to read back up on the latest investing trends and advice out there, if you haven’t already. Of course, you will also want to teach your children about risk as they will most likely experience some loss. It may be hard for them at first, but if you encourage them to be patient and learn from why the investment went down, then it will be a good thing in the long run. Just make sure they don’t lose too much, or for that matter, gain too much without learning about trends and why their investment performed the way it did. With the right guidance and some sound advice, your children can learn about the stock market and hopefully set themselves up for a solid financial future. What did you wish your parents taught you about investing growing up?
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.
I cannot predict the future, but I am very, very comfortable in saying that retirement will be different for future generations that it is for current retirees (and those about to retire). As to how different, I don’t know, but as with many things, it will change with each future generation as it has for past generations. Not only will retirement itself be redefined, but so too will the ways that people save for retirement. It’s already happening. For example, younger generations today have extensive resources and opportunities available to save for retirement, but they are also looking at longer careers and a delayed start to retirement savings thanks to student debt and an unpredictable economy. Their version of what retirement will be like is much different from those of their parents. This is important to keep in mind when you discuss retirement saving with younger generations, such as your children or grandchildren. It can be easy to get lost in the notion that younger generations can pull off retirement just as you and your parents might have with a little hard work and saving. However, that just won’t work. Instead, remember to talk with younger generations about how they view retirement and try to understand why they might view it that way. For those just starting out in the working world, retirement can seem a long way away and saving for something so far in the future may not take top priority compared to paying down student loans or getting a solid financial start to adulthood. If your children are in their 30s or 40s, possibly with a family of their own, they may not feel that they will ever be able to retire given the unpredictability of the economy and the cost of things such as homeownership and still having to pay down student debts. Taking the time to understand the situation of younger generations is important to having a meaningful conversation about saving for retirement and financial stability.
As you are probably well aware, not everyone understands finances. Some people just have a natural ability to understand the intricacies and formulas involved in finance and economics (chances are they’re probably good at math overall). The formulas out there regarding how much you should withdrawal for retirement alone can be downright tricky and confusing, especially for those without a financial planning background. However, just keep in mind that just because you understand how the numbers work doesn’t mean you will automatically be able to make them work for yourself. There are many Americans that don’t have the ability to get ahead with their finances for one reason or another. They may understand what they need to do for a comfortable retirement but don’t have the financial resources needed to get there. That could be because of an personal events beyond their control (i.e. a seriously ill child) or they may not have a job that provides enough income (i.e. they don’t have the proper education needed to advance). Whatever the reason, these people are unable to put their money towards their financial well-being or don’t have the money to put towards it at all. This is important to remember when watching the financial shows on television or reading articles that talk about people who “did it right” while planning their financial future. The financial industry tends to shame those who can’t save enough or who don’t have a large enough nest egg, but that isn’t fair. There may be legitimate reasons why some people can’t get ahead. This is also a good time to mention the importance of setting a good financial example for younger generations, such as our own children. Teaching children how to be responsible with their money at a young age can build a strong foundation that they can carry over into adulthood when they begin to make their own financial decisions. Sound financial decisions early on can set our younger generations up to be in a position to avoid altogether–or at least lessen the possibility–the chance that they do not find financial comfort or success. If you need help with your finances or what advice on how to bolster them for the future, you should speak with a certified financial planner.
It’s the last day of 2018, which means it’s the perfect time to reflect on how the past 365 days went financially. What were your financial goals at the beginning of the year? Did they change over the 12 month period? Did you meet most, if not all, of your goals for the year? What are your goals for 2019? These are all questions that you should be asking yourself as 2018 comes to an end and 2019 begins. You should also take some time to set your financial goals for the next year. When you do so, you should set break them down into groups. Have a set of short-term goals and a set of long-term goals. Short-term goals should be goals that can be accomplished in 365 days. A good example might be saving a certain amount of your earnings or putting a certain amount on money into your retirement account. Longer-term goals are those that cannot be accomplished over one year, but rather are part of a multi-year process. A good example might be saving a certain amount of retirement savings by a certain age. You can then prioritize and focus your energies as you see fit once you have divided your goals. Remember, while it’s important to focus on your goals, failing to successfully complete a goal is not a bad thing and shouldn’t weigh upon you. Instead use it as a learning experience to see what you did right and what you may need to work on when it comes to your finances.
If you have used the markets to grow your nest egg and finances, how did you react to gains and losses? What did you do and how did you feel after market fluctuations? As with anything you interact with, your past actions and experiences with markets and investing can shape how you handle markets ups and downs in the future. This is important to understand because it can lead you to avoid making mistakes in the future as well as to understand the role that emotions play in investing. Emotions can cloud out rational thoughts, which in turn can lead to irrational–or reactive–decision-making, which is not something you want to do with your investments. Instead, you want your decisions to be well-thought out and sound–you want them based on trends and research and not just your gut. Taking the time to understand how you reacted to market movements, particularly downturns, can also help you to develop formulas and put in place protections for the future. For example, if you know that you overreact negatively to market downturns, you may want to put a process in place for how you will make decisions should a downturn occur in the future. You may want to write out what your limits for loss are and what you will do when you hit those limits or benchmarks. This will allow you to turn to that guide to help you make decisions in certain situations instead of just making up things on the fly. It can be tough to look at the past and re-hash what may have been some bad decisions, but doing so also provides an incredible learning opportunity and a chance prevent such mistakes from happening in the future.
If you want to take an active role in your retirement and financial planning, you need to be financially literate. You need to understand where your money is going, what is happening with the money you are saving, and what you need your money to do for you in the future. This is where financial literacy comes in. Being financially literate allows you to understand things such as financial statements and tax documents so that you know what is happening with your money and where it is happening. Financial literacy also provides opportunities to learn about the latest trends and best-practices within the financial field so that you can make sound and smart decisions that will maximize your savings and investments. Furthermore, there is no end to becoming financially literate–it’s a never-ending experience, even for us professionals! There is always something new to learn or read about. As you become more and more financially literate and experienced, you can better apply the practices and concepts you learn to your own life and further improve your investments and savings. Finally, financial literacy is a skill that you can take throughout your life, both when you are first starting out saving and also when you are well into retirement. So, how financially literate are you? Do you know what is happening with your money?
Planning and saving for retirement is a journey. During that journey you will most likely make a few mistakes that you will hopefully learn from and move on. Even if you plan everything out and seek professional advice, you can still make mistakes. Maybe you made an investment that didn’t quite pan-out like you hoped or you struggled to make a decision regarding a retirement plan and you didn’t like how that felt. Those mistakes happen and usually they can be easily corrected over time. What is most important is that you learn from those mistakes and use them to help make better decisions in the future. It’s also important that you have safeguards in place to avoid making major mistakes. Having a financial planner that you can lean on can help you to avoid many, if not most, mistakes, especially the crippling ones. However, that financial planner may not prevent you from making every little bad decision. After all, they can’t predict how things such as the markets will turn out either. Avoiding the major mistakes and minimizing the small ones is part of the journey to retirement. It’s okay to make a small mistake or two, so long as you learn from them and avoid making them in the future. If you are looking for a knowledgeable financial planner in the Dallas, Texas-area, please give me a call at 972-265-7990.