Category Archives: Financial Planning

7 ways to build wealth today, according to financial planners – Business Insider

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“The very first step to building wealth is to spend less than you make.” Brian Koslow

  • Wealth building doesn’t happen overnight, but financial planners say a few steps can put you on the right path.
  • Start by tracking your cash flow, calculating your net worth, eliminating bad debt, and, making saving and investing a habit.
  • Then, they suggest using high-yield savings accounts or a 401(k) with an employer match to keep those savings growing.

The key to accumulating wealth isn’t always simply to make more money. Sometimes, it’s about using what money you have more effectively or using what you financially control to your advantage. Maybe it’s as simple as moving your savings into an account with higher interest rates, spending less than you earn, or taking advantage of an employer’s 401(k) match.

Most importantly, experts say one of the most important elements to building wealth is to believe that it is possible and simply give it time. The best ways to start building wealth today, according to financial planners, are straightforward and simple.

The seven (7) ways, according to Business Insider, to build wealth are:

  1. Figure out your net worth
  2. Start saving automatically
  3. Take advantage of your employer’s 401(k) program
  4. Look at your cash flow
  5. Don’t just let money sit — keep it growing
  6. Make your savings, investing and accumulating wealth a priority
  7. Be patient and think long term

Financial Milestones

One rule of thumb for building and monitoring wealth says that by the time you turn 30, you should have the equivalent of your annual salary saved (that’s all savings, not just retirement assets); double your salary saved by age 35; three times the amount by age 40, and so on. If you fall short, don’t fret, it’s never too late to increase your savings rate and it never hurts to aim high—

Take full advantage of your employer match, if one exist. For example, with a $50,000 salary from an employer matching up to 6% of your contributions, you’d be turning down $3,000 each year. Most people’s pay consists of a package that includes salary and employer benefits. You wouldn’t accept a $3,000 pay cut without a fight; by letting your employer match go to waste is kind of the same thing.

Build an Emergency Fund

Each year brings economic uncertainty to many and, even for the financially secure, life happens in the form of medical bills, domestic catastrophes and other unplanned expenses. As a general rule, it’s good to maintain an emergency fund that would cover three to six months of living expenses in case you find yourself unemployed. And, once you’ve calculated how much you should save, set aside a certain amount from each paycheck to set you on your way.

Retire Bad Debts

It imperative to eliminate or reduce bad debts. We all know which ones they are: the loans used to pay for a wedding; the credit card with the sky-high interest rate whose balance keeps rolling like a Sailor at an open bar. And, making only the minimum monthly payments on credit card and consumer debt. It is recommended set a deadline for repayment and getting rid of the growing interest and debt.

Benefits of a Budget

Money is often stretched in many directions. Daily expenses, entertainment, life events and long-term goals—all competing for the same dollar. Budgeting can help ensure you’re covering the essential monthly expenses, saving for the future and, with some discipline, have some extra cash to reward yourself for your good work.

— Read on www.businessinsider.com/best-ways-to-build-wealth-starting-today-2019-8

https://www.tiaa.org/public/learn/personal-finance-101/5-must-have-financial-goals

Bill Miller 4Q 2019 Market Letter

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“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.” Warren Buffett

Bill Miller, CFA, is the founder of Miller Value Partners, and currently serves as the Chairman and Chief Investment Officer. His fourth quarter 2019 Market Letter released 13 January 2020, to clients is loaded with useful insights for investors and followers of the financial markets. The letter has been discussed thoroughly by financial pundits and the financial entertainment media.

Market forecasts delivered by economists and the financial news entertainment media pundits on networks, such as CNBC, are rarely useful or insightful or accurate.  Bill Miller cited in his letter that “…the future is not forecastable with any degree of granularity”. 

The method most forecasters use is either to follow the consensus or to “believe that tomorrow will look pretty much like yesterday.”  He further mentioned that “one of the 20th century’s greatest economists, was once asked how far into the future a good economist could forecast”. He quipped: “One quarter back.””

“Short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.” Warren Buffett

Essentially, no economist or financial guru can accurately or reliability forecast the market’s direction (rise, flat or pullback) or its relative velocity of change. Despite their self proclaimed vast financial experience and inside knowledge of the inner workings of equity stock markets, the sophisticated financial tools available to them, and their early access to market news, they remain unable to reliably forecast the market.

Miller concluded in his letter that, “stocks will not move in a straight line higher even if the bull market continues in 2020, as I believe it will.”  He stated that,  “setbacks and corrections should be expected, but unless something causes the economy to tip into recession and earnings and cash flows to decline, which I do not expect even if the geopolitical situation gets grimmer, then the path of least resistance for stocks remains as has been for a decade: higher.”

To read the entire letter, go to:  Bill Miller 4Q 2019 Market Letter

Sources:

  1. https://millervalue.com/bill-miller-4q-2019-market-letter/
  2. https://www.evidenceinvestor.com/warren-buffetts-advice-investors-25-quotes/

Stock Investing Basics

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“The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has done it successfully and consistently.” John Bogle

Investing, especially in stocks, is about putting your money to work for you with the goal of growing it over time. And, the sooner you start investing the less you may need to save because your money gets to work that much sooner. The more you invest; the more those returns can add up.

Investing does involve risk. And the stock market particularly will experience volatility, meltdowns and melt ups. But there are ways and means to mitigate that risk. The key is to choose a strategy that incorporates a broad range of investments in stocks, bonds, and cash based on your risk tolerance and time horizon and never put all your money in one particular stock.

Intelligent investing is based on the relationship between price and value. One other important factor is time.  Assessing the stock price relative to its intrinsic value remains the most reliable way to invest for the long term. To protect yourself against market downturns, a long-term approach is essential.

Important steps to smart investing

All too often, people fail to think about how to start or just fail to start investing. To stay ahead of inflation, your money needs to earn more than a typical savings account pay. Research indicates that the best action a long-term investor can take is to start investing early in life, like in their early twenties—regardless of what the markets are doing.

Create an investment plan

“The man without a purpose is like a ship without a rudder.” Thomas Carlyle

Like a ship without a rudder, trying to manage your money and achieve your long-term goals are unlikely without a plan. You would not start a trip without planning and mapping out your route in advance. So,why would you save for retirement without first planning your path to achieving your short-, intermediate-, and long-term financial goals. You will need to:

  • Have an investment plan that is realistic and actionable.
  • Understand your plan, follow it, and adjust it when things change in your life.

Put your plan into action.

  • Keep your portfolio diversified with an asset allocation that’s right for your risk tolerance—and stick with it.
  • Don’t wait. If you invest now, you’ll start earning sooner.

Stay on track.

  • Do periodic checkups to keep your portfolio healthy.
  • Keep in mind that long-term goals are more important than short-term performance.

When you invest in a stock, you are buying ownership shares in a company—also known as equity shares. Your return on investment, or what you get back in relation to what you put in, depends on the success or failure of that company. If the company does well and makes money from the products or services it sells, you expect to benefit from that success. There are two main ways to make money with stocks:

  1. Dividends. Publicly owned companies can choose to distribute some of those earnings to shareholders by paying a dividend. Shareholders can either take the dividends in cash or reinvest them to purchase more shares in the company.
  2. Capital gains. When a stock price goes higher than what you paid to buy it, you can sell your shares at a profit. These profits are known as capital gains. In contrast, if you sell your stock for a lower price than you paid to buy it, you’ve incurred a capital loss.

Both dividends and capital gains depend on the returns generated by the company—dividends as a result of the company’s earnings and capital gains based on investor demand for the stock. 

The performance of a stock can be affected by what’s happening in the market, which can be affected by the economy as a whole or by changes in investor psychology. For example, if interest rates increase, and you think you can make more money with bonds than you can with stock, you might sell off stock and use that money to buy bonds.

If many investors feel the same way, the stock market as a whole is likely to drop in value, which in turn may affect the value of the investments you hold. Other factors, such as political uncertainty at home or abroad, energy or weather problems, or soaring corporate profits, also influence market performance.

Important Element of Investing

Stock prices will be low enough to attract investors again. If you and others begin to buy, stock prices tend to rise, offering the potential for making a profit. That expectation may breathe new life into the stock market as more people invest.

This cyclical pattern—specifically, the pattern of strength and weakness in the stock market and the majority of stocks that trade in the stock market—recurs continually, though the schedule isn’t predictable. Sometimes, the market moves from strength to weakness and back to strength in only a few months. Other times, this movement, which is known as a full market cycle, takes years.

At the same time that the stock market is experiencing ups and downs, the bond market is fluctuating as well. That’s why asset allocation, or including different types of investments in your portfolio, is such an important strategy: In many cases, the bond market is up when the stock market is down and vice versa.

Your goal as an investor is to be invested in several categories of investments at the same time, so that some of your money will be in the category that’s doing well at any given time.

Savers often think they can’t afford to lose any money by investing in the market. But they don’t realize that when they don’t make their money work for them, they are losing purchasing power. Inflation, for example, creeps up over the years and steals from your savings if you’re not earning enough to make up for it.

  1. https://www.oaktreecapital.com/docs/default-source/memos/nobody-knows-ii.pdf

10 Rules for Financial Success – Barron’s

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“Wealth isn’t about how much money you make – wealth is about how much money you save and invest.”

The true measure of financial success isn’t how much money you make—it’s how much you keep. That’s a function of how well you’re able to save money, protect it, and invest it over the long term.

Sadly, most Americans are lousy at this.

Even after a decade of steady economic expansion and record-breaking stock markets, almost two-thirds of earners would be hard-pressed to cover an unexpected $1,000 expense—a medical bill, car repair, or busted furnace—and more than 75% don’t save enough or invest skillfully enough to meet modest long-term retirement goals, according to Bankrate.com.

Even wealthy families aren’t getting it right: 70% lose wealth by their second generation, and 90% by their third. “Shirtsleeves to shirtsleeves in three generations,” as a saying often attributed to Andrew Carnegie goes.

What’s at the root of these bleak data? Stagnant salaries amid rising costs of health care, education, housing, and other big-ticket necessities have put a major strain on folks of all ages. But advisors point to a deeper issue: an almost universal lack of financial literacy.

“This is a much bigger problem than most people are aware of,” says Spuds Powell, managing director at Kayne Anderson Rudnick Wealth Management in Los Angeles. “I’m constantly amazed at how common it is for clients, even sophisticated ones, to be lacking in financial literacy.”

The ten rules for financial success are:

  1. Set goals
  2. Know what you’ve got and know what you need
  3. Save systematically
  4. Invest in your retirement plan
  5. Invest for growth
  6. Avoid bad debt
  7. Don’t overpay for anything
  8. Protect yourself
  9. Keep it simple
  10. Seek unbiased advice

— Read on www.barrons.com/articles/10-rules-for-financial-success-51558742435

Personal Finance: 4 Ways to Save Money and Improve Your Money Management Skills | Brian Tracy

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“Believe you’re the person you must become…”

Virtually every single person in America who is financially independent started off with nothing. But they acquired good personal finance habits, learned how to save money, and improve their money management skills, eventually becoming some of the most successful people in their communities. And anything that anyone else has done, you can probably do as well.

Save Money By Using A Long Time Perspective

To save money and become financially independent you must begin living on less than you earn even if you are deeply in debt. One of the most important guarantors of your personal finance success is called “Long time perspective.”

Take the long view.

Develop a long term attitude toward yourself and your financial future and begin thinking in terms of where you want to be in five and ten years. This long-time perspective will have an inordinate impact on your personal finance habits and money management skills in the present, and will help you save money over the years.

The starting point of financial independence is described in George Klasson’s book, The Richest Man in Babylon, as “Pay yourself first.” He says that, “A part of all you earn is yours to keep.” If you just save 10% of your gross earnings every single paycheck over the course of your working lifetime, you will become financially independent and gain personal finance success. In fact, if you saved $100 per month from the time you started work at age 20 until the time you retired at age 65, and this $100 per month earned 10% per annum return, compounded, you would be worth more than $1,100,000 when you retired, in addition to social security pensions and everything else. Major take-away from The Richest Man in Babylon are – pay yourself first, live within your means, invest your money wisely, and prepare for the future.

— Read on www.briantracy.com/blog/financial-success/personal-finance-money-management-tips-save-money/