Manage Your Financial Life

Planning for Retirement

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When it comes to planning and saving for retirement, you must be consistent, disciplined, and use reasonable, realistic assumptions for investment returns.  Explore the blog articles below for helpful advice during this stage of life.

Benefits of Dollar Cost Averaging

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When markets are turbulent, many ask if it is time to stop saving and investing.  The practice of saving and investing consistently has numerous benefits. The amount you save is not as important as getting into the habit of putting money aside on a regular basis. Automatic savings plans, which you can use to build an emergency reserve or save for a down payment, graduate school, or retirement, are a relatively painless way to save. You can set up an automatic transfer from your bank on the day you get paid, a practice known as “paying yourself first.” Investing a fixed-dollar amount at set intervals is called dollar-cost averaging. An advantage of these automatic plans is that you invest the same dollar amount every time. When markets are weak, or asset values have fallen, the same dollar amount will allow you to buy more shares of a mutual fund or a stock than when markets…

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Financial Credentials Matter: Which Are Most Important

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In recent years, the number of financial credentials has risen dramatically. It is important to note that the quality and usefulness vary. If you are choosing to work with a financial professional, you should understand what these credentials mean. The prestige of certifications and designations and their usefulness to clients varies considerably. The Financial Industry Regulatory Authority, or FINRA, has a designation lookup feature on its website, https://www.finra.org/investors/professional-designations. The tool is very helpful, especially because you can compare different designations side by side. FINRA does not endorse or recommend any of these designations. The list of designations on the FINRA website is extensive.  Currently, there are more than 200 listed. How do you determine which are the most meaningful? Look up what is required to achieve and maintain the various designations. If you need help with retirement planning, what are the prerequisites for becoming a Certified Retirement Financial Advisor (CRFA),…

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Take Advantage of Retirement Plan Matches

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When it comes to planning and saving for retirement, you must be consistent and save and invest every year. You also must be disciplined. Once you invest the money for retirement you cannot touch it. Because of the power of compounding investment returns, contributing to your retirement every year and allowing it to grow are the keys to building your nest egg. It is easier to put money away when you are young than when you have a mortgage or a family to take care of. Many of those that are just starting out in the work force, however, face substantial headwinds: hefty student loan payments and high—and in some cases sky-high—housing costs. Even with a tight budget, saving for the future must be a priority. Start saving for retirement through your employer as soon as possible and take advantage of corporate matches. Corporate matches are free money that help…

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Time is Your Friend – The Power of Compounding

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Especially when you are just starting out, time is your friend. It is important to save and invest every year and leave your money to grow. Consistency and discipline are key to your long-term financial well-being. Market returns and the power of compounding allow you to build your nest egg nicely over time. I have heard people refer to it as “The magic of compounding.” Personally, I don’t like the term “magic.” Magic implies something mystical beyond our comprehension. Rather than “magic,” compounding is just math – incredibly powerful math – but it is just math. Compounding means that there is growth on the growth. For example, an investment of $100 that appreciates 7 percent will be worth $107 at the end of the first year. If the investment grows 7% percent again in the second year, the return would be 7 percent on $107 or $7.49. 7% growth on…

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Market Turmoil and Diversification

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The saying “Don’t put all your eggs in one basket” applies to investments, because concentration increases risk. Whether you invest your money yourself or work with a professional, never put all your assets in the same basket—the same kind of stock, bond, mutual fund, or other investment. In addition to avoiding concentration, diversification is key to improving investment results. Various asset classes, or types of investments, tend to perform differently under certain market conditions. Some perform better, and some perform worse, depending on what is going on with the economy and financial markets. The best investment strategy is to have a diverse portfolio that includes a mixture of stocks, bonds, and international investments. Diversification across asset classes helps reduce risk; correlation illustrates this benefit. Correlation measures how things, such as investment returns, move in relation to each other. Some asset class returns are more correlated than others. Say you invest in a…

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Prioritize Regular Savings

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When you are just starting out, make a goal of saving and investing a fixed dollar amount every month. The amount you save is not as important as getting in the habit of putting money aside consistently. Automatic savings plans, which you can use to build an emergency reserve or save for a down payment, graduate school, or retirement, are a relatively painless way to save. You can set up an automatic transfer from your bank on the day you get paid, a practice known as “paying yourself first.” Investing a fixed-dollar amount at set intervals is called dollar-cost averaging. An advantage of these automatic plans is that you invest the same dollar amount every time. When markets are weak, or asset values have fallen, the same dollar amount will allow you to buy more shares of a mutual fund or a stock than when markets are strong and investable assets have appreciated. In this example,…

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Disciplined Investing

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When you make an investment, you rely on an investment thesis. The investment thesis is based on company fundamental attributes and valuation. Why is a particular stock attractive? Is there a catalyst that will improve earnings? Will the company benefit from a changing competitive landscape? Are there operational or regulatory risks on the horizon? Is the valuation attractive? Being disciplined and considering both fundamentals and valuation are essential when investing in stocks. Being undisciplined and only focusing on fundamentals or on valuation could have negative consequences. For some “hot” sectors, exuberance and a “fear of missing out” can elevate valuations across the board beyond reasonable levels. At the same time, there is a difference between buying a stock that is misunderstood or out of favor and buying a stock that is declining in value for a valid reason. Changing Fundamentals A change in fundamentals will have an impact on your…

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Prepare for the Unexpected

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Experts recommend that you have an emergency reserve equal to six months of living expenses. It should be in a safe, stable vehicle such as a savings account or a money market fund. If you don’t have a sufficient reserve, make it a top priority. The easiest way is to address the shortfall is to transfer a portion of your paycheck every pay period directly into an account. If you dip into your emergency fund, replenish it as soon as possible. In addition to an emergency reserve, you need to think about your overall liquidity. Liquidity is a term from economics that indicates how easily an asset can be converted to cash. Some asset classes are more liquid than others. Cash and money market funds are the most liquid assets. Stocks and bonds are usually liquid. During periods of financial turmoil, however, you may not want to convert these assets…

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Understanding Risk

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During the pandemic, we have seen a rise in the number of indiviual or retail investors. We have also seen an increase in the number of active traders. Firms that aim to democratize the markets have helped to fuel this trend. It is important to note that trading and investing are not the same. Traders are focused on the short run, whereas investors have a long-term perspective. Whether you are a trader or an investor, you need to understand the different types of risk you will encounter. Risk is the variability, or volatility, of expected outcomes. The weather is a good illustration. A forecast gives an average, or expected, temperature for a city on a certain day of the year. In some regions, such as Southern California, there is less variability, or volatility, in temperature for a given day of the year. In other areas, such as Chicago, there is much…

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Prioritize Your Goals

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Many recent graduates are moving into the work force. Life transitions often involve a lot of decisions – housing? car? benefits? budget? This is also a good time to consider your financial goals. Different goals have different time horizons. Some are short term—such as establishing an emergency fund—and some are long term, like retirement. Tackling all your savings goals at once is unrealistic, so you should prioritize. The most immediate savings goal is your emergency fund. Experts recommend that you have an emergency fund sufficient to cover six months living expenses. Assets in the emergency fund should be very liquid such as cash in a savings account or in a money market fund. If you are new to the workforce, it may take time to build up an adequate reserve. The easiest way is to transfer a portion of your paycheck every pay period directly into an account. You may…

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