Tag Archives: Finance

Goldman Sachs’ Analysis Shows Economic Benefits of Wearing Masks

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“The fate of many lives, not to mention the U.S. and global economy, largely depends on the containment of the novel COVID-19 coronavirus.” Goldman Sachs

  • Cloth face coverings may help prevent people who have COVID-19 from spreading the virus to others.(2)
  • Cloth face coverings are most likely to reduce the spread of COVID-19 when they are widely used by people in public settings.(2)

According to a recent analysis by U.S. investment bank, Goldman Sachs, there’s one simple thing Americans can do that would boost U.S. GDP and make a huge difference to the economy, American jobs, and overall prosperity.

Illustration of people wearing cloth face masks

Goldman Sachs’ analysis, led by its chief economist Jan Hatzius, concluded that “a universal mask-wearing order can improve the U.S. GDP by a huge five percentage points”.  And according to Centers for Disease Control and Prevention (CDC), “cloth face coverings are recommended as a simple barrier to help prevent respiratory droplets from traveling into the air and onto other people when the person wearing the cloth face covering coughs, sneezes, talks, or raises their voice”.

Goldman agrees with the emerging scientific evidence that “face masks are associated with significantly better coronavirus outcomes.”  And, based on the growing evidence, the Centers for Disease Control and Prevention has expanded its mask guidance stating that Americans should wear them in all “public settings and when around people who don’t live in your household, especially when other social distancing measures are difficult to maintain”.

Goldman’s analysis concludes “a national face mask order could increase face mask-wearing by 15 percentage points, reducing the transmission growth rate of confirmed cases from 1.6% to 0.6%”. Goldman concludes that “increased face-masking would substitute for local lock downs and social distancing, which caused U.S. GDP to decline 17% between January and April”.

While anecdotal evidence does suggest strongly that universal mask-wearing can greatly benefit the economy and save lives, it has been difficult to convince Americans of this fact.  As a result of not mandating a national face mask-wearing, there has been a resurgence of COVID-19 inflections and hospitalizations in a number of southern and western states in the U.S.

From a medical expert perspective, “if everyone in the U.S. wore a mask, the coronavirus pandemic could be under control within four to eight weeks”, was conveyed by Centers for the Disease Control and Prevention director Robert Redfield in a discussion led by medical journal JAMA.

In summary, Goldman Sachs’ analysis suggests that the economic benefit from “adopting a national face mask mandate and increased face mask usage” could be sizable, especially when compared with the alternative of a return to broader societal lock downs and increasing COVID-19 infections.

Sources:

  1. https://www.nasdaq.com/articles/goldman-sachs-says-this-simple-measure-can-save-lives-and-the-economy-2020-07-14
  2. https://www.cdc.gov/coronavirus/2019-ncov/prevent-getting-sick/diy-cloth-face-coverings.html
  3. https://www.goldmansachs.com/insights/pages/face-masks-and-gdp.html
  4. https://apple.news/ApjIDbf3mR_u11IZp8goONw

Wells Fargo Cuts Its Dividend | THE STREET

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After the Fed’s stress tests on banks, buybacks are halted through at least the end of September, and common-stock dividends are capped at an average of the past four quarters’ earnings

Wells Fargo  announced it will cut its dividend, breaking rank with all of Wall Street’s other big banks, following the Federal Reserve’s move to set new restrictions on dividend payouts to shareholders.

The fourth-biggest U.S. bank by assets announced it plans to cut its dividend from the 51 cents it paid in each of the four most-recent quarters. The bank said it would announce its payout when it reports second-quarter earnings on July 14.

The move marks the first time since the financial crisis that a major U.S. bank has slashed its quarterly reward to shareholders, though it also comes as the Fed literally backstops banks and other lenders with almost free money to keep cash flowing through the economy amid the coronavirus pandemic and ensuing economic collapse.

Read more:  https://www.thestreet.com/investing/wells-fargo-wfc-dividend-cut-wall-street-banks

7 Habits to Help Build Your Wealth | U.S. News and World Report

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By Paulina Likos. — U.S.News & World Report May 18, 2020

Successful investors practice these habits to be one step ahead of the market.

Develop a routine of successful investing habits.

When you’re investing for your financial future, practicing successful habits is a fundamental step in constructing a resilient portfolio. It’s evident that in the world of investing, money management can get complex. That’s why having the right habits ingrained in your investment approaches is important in bringing clarity to your decision-making and confidence in your portfolio management. Here are seven habits that will help guide you through investing decisions during unprecedented market movements.

Read more: https://money.usnews.com/investing/portfolio-management/slideshows/habits-to-help-build-your-wealth

Periodically review your investment plan.

Know what your specific financial goals are and develop an investment policy statement. An IPS is a plan that outlines investment objectives and goals for a particular investor drafted by the portfolio manager and their client. This can be a helpful tool to guide portfolio managers on implementing strategies to grow or preserve a client’s investments. Experts advise that clients stick with the initial plan even when drastic market changes occur; however, certain benchmarks should be monitored from time to time. You should examine your risk tolerance and investment plan every six months to ensure you’re on track with your investments when a financial crisis hits. “Changes will likely need to be made in accordance with a well thought out plan that was put in place before the first punch is landed,” says Tim Bain, president of Spark Assessment Management Group.

Invest in what you know.

While experienced investors can try to evaluate the quality of a company, more often than not, it can be difficult to define its overall valuation and understand its trends. Taylor Kovar, CEO of Texas-based Kovar Capital Management, says, “Don’t invest in something you’ve never heard of just because someone online said it was going to make you a millionaire.” It’s best to focus on companies with products that you’re familiar with, that way it will be easier to predict and understand the ebbs and flows of a company and, most importantly, help in managing your portfolio effectively. “Look in your closet [and] kitchen cabinet, and invest in the brand of the products you see,” he says. “This will help you invest in companies you actually enjoy. It’s like you are paying yourself every time you buy their products.”

Stay away from the latest fads.

Investors seeking yield in a low interest rate environment should try to steer clear of fads. This short-term phenomenon is prevalent during market underperformance and tends to be pretty risky. “It is psychologically very difficult to remain true to your patient investing convictions when it seems investors speculating in the latest fad (think cannabis or tech ‘unicorns’) are being rewarded,” says Robert Johnson, professor of finance at Creighton University in Omaha, Nebraska. There are plenty of other ways to diversify your assets rather than putting your money at risk with fads. “One doesn’t need to chase the latest trend to have investment success. Quite the contrary, chasing investment trends can be hazardous to your wealth,” Johnson says.

Be honest with your risk tolerance.

At any stage of your investing journey, it’s important to know if you are a conservative or aggressive investor. Defining risk tolerance is a habit that directly aligns with your financial goals. But sometimes, it can be unclear on how to determine where you lie on the risk spectrum. “Many investors tend to overestimate their level of risk tolerance, which causes them to sell at the worst times,” says Jerry Verseput, president at Veripax Wealth Management in Folsom, California. Market sell-offs like the one in March are good opportunities for investors to assess their feelings honestly as they saw the value of their investments drop.

Keep educating yourself.

An expert tip: Keep reading about how the market is changing. With the pandemic in mind, think about how habits and behaviors are changing in the short term, how that will affect the long term and how future trends might evolve. “What is going to be long-lasting in work and personal life? Do you want to be [investing in] Kodak film or the person investing in digital cameras? Don’t believe what you hear as much as know-how and where to find the facts,” says Peter Creedon, CEO at Crystal Brook Advisors in New York City.

Save for retirement.

Keep investing in your future by adding into your retirement account each month — that’s the power of dollar-cost averaging. Even if some months are fewer than others, allocating some of your income to retirement savings consistently puts long-term investors in a better position toward meeting their future financial goals. You can measure how successful you are as a saver by monitoring your retirement score, an estimate of what your retirement income may look like according to the steps you are taking to save now. This estimation will predict whether you’re on target on meeting your retirement needs or if you need to boost your allocation. It will also give you an idea of how much you will need for retirement and what changes you need to make that happen.

Know when to seek assistance.

Many individual investors try to find “do it yourself” methods for investing. There’s a misconception that successful investors should be monitoring the markets constantly and hold a finance degree, but most experts say the biggest hurdle is knowing when to seek help and how to find the right financial advisor. One tip: Find out what kind of experience the advisor has and which investing strategies they often use. “Make sure in an interview that the advisor shares your investing values and has a well-defined process to develop an investment policy statement for you and your goals,” says Jamie Ebersole, founder and CEO of Ebersole Financial in Wellesley Hills, Massachusetts. “If you and your advisor are not aligned on these important issues, it will make for a very frustrating relationship.”

Setting yourself up for investing success.

  • Periodically review your investment plan.
  • Invest in what you know.
  • Stay away from the latest fads.
  • Be honest about your risk tolerance.
  • Keep educating yourself.
  • Save for retirement.
  • Know when to seek assistance.

Sources:

  1. https://www.entrepreneur.com/slideshow/307635
  2. https://money.usnews.com/investing/portfolio-management/slideshows/habits-to-help-build-your-wealth

The Vestiges of Spending and Debt

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“Debt means enslavement to the past, no matter how much you want to plan well for the future and live according to your own standards today. Unless you’re free from the bondage of paying for your past, you can’t responsibly live in the present and plan for the future.” Tsh Oxenreider, Organized Simplicity: The Clutter-Free Approach to Intentional Living

Debt is often described as a four-letter word, burying borrowers with substantial balances and double-digit interest fees. And for many Americans, that’s the case.

Living with and accumulating debt has always been an almost certain path to financial ruin and can be a recipe for disaster. Debt can be sneaky. It is difficult to get ahead financially when you don’t have enough money to pay for something and reaching for a credit card to fund. It is no way to live in the short or long term.

Debt eats away at disposable income and limits the borrower’s ability to meet other financial goals, such as saving and investing for retirement. It also forces those who carry a monthly credit card balance to overpay for consumer goods — including furniture, clothes, and flat-screen TVs — due to the interest charges that accrue.

But debt isn’t just credit cards. It comes packaged as student loans, car payments, store credit cards, home mortgages, personal loans, business loans, payday loans, and even “buy now, pay later” deals. Essentially, anytime you owe somebody else money for anything—it’s debt.

It’s important to give debt the boot for good. First, stop taking on any kind of new debt. That means stop paying for goods and services with a credit card to make ends meet, stop leveraging your future to pay present. Stop living beyond your means.

You can’t get out of debt if you keep adding additional purchases and expenses to it. Instead, start focusing on paying off your debts with the smallest to largest balances.

Stop living with debt.

Anytime you owe somebody else money for anything—it’s debt.

Paying off debt continues to be one of the most pressing financial goal for Americans. A 2018 Transamerica Center for Retirement Studies found that nearly a third (31%) of survey participants stated that eliminating bad debt was their number one financial goal.

Paying off bad debt, and debt in general, is extremely important for consumers. It can be difficult to save for retirement and other long-term goals when a big chunk of your money is going toward debt repayment. That’s why it’s important to have a financial plan that details how to get out of debt—it can save you money in interest and ultimately help you save more money and reach your goals faster.

Student loans, credit card balances, car loans, and mortgages all represent types of debt that typical consumers must pay off. It’s important to make sure to pay at least the minimum required—and on time—to keep all loans in good status. After all, defaulting on credit cards, car loans, student debt, or home mortgages can destroy your credit rating, and risk bankruptcy.

Debts are negative bonds

A fixed rate mortgage acts like a bond with fixed payments. But, the exception is that you are the one issuing the bond instead of buying it, which makes it a negative holding. Debts are like negative bonds, you’re making interest payments in addition to principal.

A bond is an investment in which you expect to get back your initial investment (principal) plus some interest. Conversely, a mortgage is a promise to pay back the borrowed amount (principal) plus some interest. Thus, it appears to be that a mortgage and all consumer loans are basically just a negative bond.

Viewing mortgages, automobile loans or student loans as a negative bond, where you are paying interest to the loan holder instead of collecting it, might change a person’s mindset regarding debt. Indeed, paying off debt almost always garners a higher after-tax return than you can earn by investing in high-quality bonds.

Before you tackle debt, pay yourself first.

Use tax-advantaged accounts like a flexible spending account or a health savings account if you have a high deductible health plan. That lets you pay for medical bills using pre-tax money.

Save enough in a workplace retirement savings plan to get the match from your employer—that’s “free money.” Set aside some cash for emergencies.

Assuming you are meeting those primary obligations, here’s a guide to help you pay off debt while saving for emergencies and long-term goals like retirement. It may seem counterintuitive, but before you tackle debt, make sure you have some “just in case” money and save for retirement.

It can be easy to run up a large credit card balance. And once you do, it’s not easy to pay it off. The minimum payments are typically low, which means you are paying mostly interest, so it will take much longer to pay off the balance. And it will cost you more. So if you can, consider paying more than the minimum each month.

Debt and Credit Reporting

Once a delinquency has been reported to a collection agency, paying it off won’t help your FICO score. The damage has already been done, and the blemish will remain on your credit report for seven years.

At this point, it is recommended that you negotiate with the debt collector so you can repay a smaller amount and keep more of your savings. Creditors will often accept far less than what is actually due. One important caveat: When you negotiate a lower payment, the IRS usually counts the forgiven amount (what you’re not required to pay) as income, which means that you’ll owe taxes on that money.

Take pleasure in saving.

Personal Financial guru Suze Orman states that the most important piece of advice she can provide regarding debt is that, “Until you can feel more pleasure from saving than you get from spending, you are going to be tempted to spend money you don’t have.” Essentially, until an individual makes saving a priority and core objective, they will be fighting a uphill battle to curb spending and to ensure the spending remains below the earnings.

It worth repeating the fact that Americans have a spending problem. Every research and survey conducted on the subject of debt reveals that conspicuous spending, or in the vernacular of a former Federal Reserve Chairman, conspicuous consumption has long been a concern of economists in American. Many of the bursting economic bubbles over the past dozen decades can be directly contributed to Americans getting over their proverbial skies with respect to debt and spending more than they earn.

Debt for appreciating and income producing assets

If used properly, debt can potentially provide the leverage to accumulate income and producing assets wealth. Very few people could afford to purchase a primary residence without a mortgage loan.

Not all property appreciates in value, of course, but for most Americans, their primary residence is their single largest asset. As of 2018, U.S. homeowners are sitting on a record $15.2 trillion of “tappable equity,” defined as the total amount of equity a homeowner with a mortgage can borrow against their home, according to Magnify Money by Lending Tree.

  1. https://www.fidelity.com/mymoney/ditch-debt-and-start-saving?ccsource=Facebook_YI&sf228845371=1
  2. https://www.transamericacenter.org/retirement-research/19th-annual-retirement-survey
  3. https://www.suzeorman.com/blog/Americans-Say-Paying-Off-Debt-is-Their-Top-Goal

3 tips to avoid locking in losses | Mass Mutual

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By Allen Wastler
Allen Wastler is a former financial journalist with over 30-years of experience, including time at CNBC, CNN, and Knight-Ridder Newspapers.
Posted on Apr 13, 2020

After a huge market downturn and a major loss of value in your investment portfolio, the temptation to do something — anything — may be hard to resist.

But in many ways, the best action may be to take no action. Why? An investment plan is a long-term project and making changes to it based on short-term considerations is often ill-advised. That’s why financial professionals encourage people to stay calm during market sell-offs and think about long-term objectives.

“It is a tough and scary time, and not locking in losses by panic selling is critical,” said J. Todd Gentry, a financial professional with Synergy Wealth Solutions in Chesterfield, Missouri.

But even if you did resist the initial impulse to flee during a market retreat, you still need to keep some discipline about your portfolio as you wait for a market recovery. Here are some traps to avoid….Read more: Avoid Locking in Losses

Markets, as a whole, have historically bounced back from downturns with time, as the following chart illustrates.

Source: Bloomberg. The S&P 500 is an equity index that consists of the stocks of 500 large U.S. companies measured by market capitalization. The results here include the effect of reinvested dividends. You cannot invest directly in an index.

Guidelines for States to Reopen their Economies

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Several states, including Ohio, Texas and Florida, have said they aim to reopen parts of their economies, perhaps by May 1 or even sooner.

Trump Administration’s guidelines to reopen the economy recommend a state record 14 days of declining case numbers before gradually lifting restrictions.

The guidelines call for a phased-in, science-based strategy in keeping with the advice of leading health experts. Moreover, the plan hinges on widespread testing to gauge the scope of infections and how many people might have developed immunity to the virus.

Health experts say that to avoid a second wave of infections as people return to work, extensive testing must be available to track infections, as well as contact tracing and antibody testing to learn who had been previously infected and might have some immunity.

The governors of Michigan and Ohio have said they could double or triple their testing capacity if the federal government helped them acquire more swabs and reagents, chemicals needed as part of the testing process.

Facing economic collapse

Stay-at-home orders and the closure of non-essential businesses have strangled U.S. commerce, triggering millions of layoffs and forecasts that America is headed for its deepest recession since the economic collapse of the 1930s. The result has been mounting pressure to ease the shutdowns.

Partisan bickering is escalating between President Trump, who had touted the strength of the U.S. economy, and governors in hard-hit states who warned against lifting restrictions too quickly.

At a White House briefing on Friday, Trump’s coronavirus task force members, through statements and graphics, pushed back against criticism from some governors and lawmakers that limited testing ability is impeding the country’s return to normalcy.

  1. https://www.reuters.com/article/us-health-coronavirus-usa/u-s-coronavirus-crisis-takes-a-sharp-political-turn-idUSKBN21Z2HN

Make Money in Stocks | Forbes

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Everyone can grow life-changing wealth and have strong investment results over the long term.

Investing in stocks is one of the most important financial skills you need to master. History has shown that the earlier you start and the longer you stay invested in the market the better your investments will be. On average, stocks have given an annualized return of around 10%. At that rate, your investments would double every 7.2 years.

Let’s say you start with $10,000. After a 40 year career, that turns into at least $320K from doubling 5 times. That’s from a single $10,000 investment.

And, it is important to understand that you can’t accumulate wealth off just your salary. Savings and bonds won’t do it either, the return isn’t high enough to make an impact during your lifetime.

But, you should not invest in stocks in a vacuum. It is important to develop a financial road map to help you invest to meet a goal, whether this means sending the kids to college, retire well, buy a house, get that BMW or some marvelous combination thereof.

When you have a financial plan, you have a road map to guide your investing to help you reach your financial goals. The important thing is that you keep your investments on track in order to reach your financial goals. 

Nick Murray may have said it best when he said,

“All financial success comes from acting on a plan. A lot of financial failures come from reacting to the market.”

Whether in real estate, stocks or even owning a business, you will never be able to achieve financial freedom without investing in assets and benefiting from the magic of compounding interest.

Few people will be able to save enough for a secure retirement without investing.

To read more: https://www.iwillteachyoutoberich.com/blog/make-money-in-stocks/

Sources:

  1. https://www.forbes.com/sites/davidrae/2020/03/10/4-investor-mistakes/#129fd4df15bb
  2. https://www.forbes.com/sites/davidrae/2020/03/22/is-now-the-time-to-buy-stocks/#3fca8a8d1829

Market Timing

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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.” Jack Bogle

During the 2008 financial crisis and economic uncertainty, global financial markets were melting down and Lehman Brothers filed for bankruptcy protection.  The resulting economic recession and global slowdown brought unemployment rates in the U.S. as high as 10 percent.  And, the U.S. stock market lost trillion of dollars in value as the S&P 500 experienced a single day drop of 90.17 points, nearly 9.04 percent.

Americans, and specifically American investors, believed inherently that the global economy and financial markets were collapsing.  Fear and panic selling took hold worldwide.  Both professional and retail investors started to sell and it didn’t matter what they sold.  Yet, Warren Buffett was buying stocks that were rapidly falling in price when everyone else was panic selling and sprinting to cash.

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” Warren Buffett

According to Buffett, “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful,” he wrote in the NY Times.

Additionally, Buffett wrote in his 2018 shareholder letter.

“Seizing the opportunities when offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta.  What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period — or even to look foolish — is also essential.”

There are several valuable lessons investors learned from the 2008 financial crisis that can be applied towards today pandemic driven crisis.  The lessons are based on the same principles that allowed Buffett to invest so effectively during the crisis. To sum them up:

  • Don’t panic and sell stocks simply because the market is crashing. When times get tough, Buffett is invariably a net buyer of stocks. For this reason, he keeps billions of dollars in cash on the sidelines — so he can take advantage during times of investors’ fear and panic selling.
  • Focus on best-in-breed companies trading at discounts. A great example was Buffett’s investment in Bank of America and Goldman-Sachs.
  • Don’t try to time the market. Just because the market has crashed doesn’t mean it can’t go down more. It certainly can. Instead of trying to invest at the absolute market bottom, focus on stocks you want to hold for the long term.
  • Understand that no stock or industry is completely immune. Back then, many investors had a disproportionate amount of their portfolio in financial stocks because they were thought to be safe.  Essentially, no stock or industry are safe.

Warren Buffett believes intrinsically that “it is a waste of time and hazardous to investment success trying to time the market”.  In a 1994 annual letter to shareholders, Buffett wrote:

“I never have an opinion about the market because it wouldn’t be any good and it might interfere with the opinions we have that are good.  If we’re right about a business, if we think a business is attractive, it would be very foolish for us to not take action on that because we thought something about what the market was going to do. … If you’re right about the businesses, you’ll end up doing fine.”


Bottom line: As long as investors keep a level head and maintain a long-term perspective as Buffett does, investors should come out of it just fine, if not stronger than they went in.

Sources:

  1. https://www.cnbc.com/2018/09/14/warren-buffetts-rule-for-investing-during-the-financial-crisis.html
  2. https://www.fool.com/investing/2018/09/23/10-years-later-warren-buffett-and-the-financial-cr.aspx
  3.  https://www.cnbc.com/2018/05/08/warren-buffett-says-he-never-tries-to-time-stocks-i-never-have-an-opinion-about-the-market.html
  4. https://www.cnbc.com/2018/02/24/highlights-from-warren-buffetts-annual-letter.html

Financial Goal Setting

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“If you are bored with life, if you don’t get up every morning with a burning desire to do things – you don’t have enough goals.” Lou Holtz

Research shows that our brains are a goal-seeking organism.  Whatever personal or financial goals we give our subconscious mind will allow it to work night and day to achieve them. However, one goal isn’t good enough for our subconscious minds.

Some goals take longer to achieve than others, like buying a house or saving for retirement. If you spend years working toward only one objective, you’re likely to get discouraged when it doesn’t happen right away.

But when you have multiple goals you’d like to achieve, goals that align with your values and beliefs, you have more to strive for, and more opportunities to check those goals off your list. And the accomplishment you feel every time you complete a goal will inspire you to accomplish even more of them

Actions overcomes fear

Jack Canfield, author of Chicken Soup for the Soul™, states categorically that “the biggest reason most people don’t achieve their goals and realize their dreams is that they don’t take action, and the number one reason people don’t take action is fear.”

“There is a one thing that 99 percent of “failures” and “successful” folks have in common — they all hate doing the same things. The difference is successful people do them anyway.” Darren Hardy

People whom achieve their goals versus those whom fail has everything to do with overcoming the paralysis of fear versus taking action. The people who achieve great success in life are the ones who are willing to take consistent action toward realizing their dreams. They consistently push through their fear and take steps to make their goals happen, no matter what others may think or say about it.

Goal achievers make countless small decisions, they plan and they take deliberate actions every single day that keep them on target toward achieving their dreams. Because without deliberate action, your goals simply are not going to be achieved.

No matter how ambitious the goals or how brilliant the plans, if you’re not prepared to take deliberate action to reach them, they’re not really goals at all—they’re just dreams.

Start with goals you can achieve

Every successful investing journey starts with a set of clear goals.

Appropriate financial goals for an investor should be specific, measurable, attainable, reasonable and timed with a deadline (SMART). Successful achievement of goals should not depend upon unrealistic or outsize market returns or upon impractical saving or draconian spending requirements.

Defining goals clearly and being realistic about ways to achieve them can help protect investors from common mistakes that often derail their progress. Here we show that:

  • Recognizing constraints, especially those that involve risk-taking, is essential to developing an investment plan.
  • A basic financial plan will include specific, attainable expectations about action steps and monitoring.
  • Discouraging results often come from not following a financial plan, chasing overall market returns, an unsound investment strategy that can seduce investors who lack well-grounded plans for achieving their goals.
  • Without a plan, investors can be tempted to build a portfolio based on transitory factors such as fund ratings—something that can amount to a “buy high, sell low” strategy.

Life financial goals

Make a list of financial goals you’d like to achieve in your life. Be as specific as possible. Include details such as when they will happen, where they will happen, how much you’ll make, what model you’ll buy, what size it will be, and so on.

Keep your goals somewhere you can review them every morning. Put your goals on a poster or piece of paper where you read each night before you fall asleep.

Keep goals at the top of mind, you’ll be more likely to make them a reality. Reaching your retirement savings goals starts with developing a retirement plan. Fidelity Investments has developed a set of retirement guidelines based on 4 key metrics:

  • Yearly savings rate,
  • Savings factor to help you see where you stand,
  • Income replacement rate, and
  • Potentially sustainable withdrawal rate.

“Unsuccessful people carry their goals around in their head like marbles rattling around in a can, and we say goals that are not in writing are merely fantasies.” Darren Hardy

Writing your goals down is the first step in turning your dreams into a reality. If you keep goals in your head you’re not likely to focus and work on them consistently. Thus, it is important to write down all your goals. Whether it’s short-term or long-term goals, it is essential to list every goal in writing.

Writing it down will have a powerful effect on your subconscious mind to help you visualize and achieve your biggest dreams. Remember, a goal is a dream defined and written down.

Make Goals Real by Writing Them Down

Goals are a very effective way to build your self-belief because properly set goals require you to stretch a little outside of your comfort zone; causing you to expand your comfort zone as you achieve the goal.

With clear and measurable goals, investors can create a realistic plan for achieving their objectives within a certain time frame. Make a list of your short-term and long-term savings goals.

If you write down your goals, you’re more likely to achieve them. Think of them as a road map to where you want to go—and make them practical and attainable. Take a simple approach:

  1. Divide your financial goals into three categories: short term (less than one year); medium term (one to five years) and long term (more than five years).
  2. Attach a dollar amount to each goal. For instance, a short-term goal might be a family vacation. How much will it cost?
  3. The more specific you can be, the more motivated you’ll be to work toward that goal.

Goal Attainment Requires Believing in Yourself

Everything you have in your life is a result of your belief in yourself and the belief that all things are possible. According to Jack Canfield, the four most important steps to learning how to believe in yourself are:

  • Believe it’s possible. Believe that you can do it regardless of what anyone says or where you are in life.
  • Visualize it. Think about exactly what your life would look like if you had already achieved your dream.
  • Act as if. Always act in a way that is consistent with where you want to go.
  • Take action towards your goals. Do not let fear stop you, nothing happens in life until you take action.

Incorporate and practice these four steps.

Mistakes Investors Make

One of the biggest mistakes investors regularly make when goals and a plan are absent is to confuse investing with stock picking. Ask many people how their money is invested and they quickly tell you the latest hot stock they’ve purchased and the investment thesis that explains why they think it’s going to take off.

Saving for retirement and building an emergency fund should be the highest priorities, followed by other long-term financial goals, like college, travel, or a house. You can contribute a small amount to each goal or pick a couple to focus on first. Decide how much you need to save to reach those goals.

Sources:

  1. https://www.jackcanfield.com/about-jack-canfield/
  2. https://www.fidelity.com/viewpoints/retirement/retirement-guidelines

Developing Good Financial Habits

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“It’s not the big things that add up in the end; it’s the hundreds, thousands, or millions of little things that separate the ordinary from the extraordinary.” Darren Hardy, author of The Compound Effect

Financial planning in small steps doesn’t take large sums of money to start.  In fact, financial planning can have a profound impact on financial security for Americans, especially lower-income households, by helping people improve their saving and budgeting habits. A written plan helps savers prioritize their goals and provides a way to measure success.

A disciplined, steady approach to saving, investing and ruthlessly managing spending wins out. Wealth-building habits don’t involve a get-rich-quick scheme —it is a slow, gradual process to accumulate wealth,” you must be persistent and consistent.

Savings habits

“The real cost of a four-dollar-a-day coffee habit over 20 years is $51,833.79. That’s the power of the Compound Effect.” Darren Hardy

While investing may appear at times to be complicated and risky, saving is pretty straightforward. Two-pronged approach to increase the saving amount:

  • Generate more cash inflow.
  • Reduce cash outflow.

Spending and saving often go hand in hand because whatever you don’t spend is potential savings. That’s why it is important to focus on buying things that will hold value or appreciate in value instead of allowing expenses to eat into savings through continuous consumption. To accumulate wealth, it is critical to manage expenses tightly. Instead of living just within your means, it is important to live below your means.

One way to reduce outflow is to maximize tax savings through retirement plans such as the 401(k). Another is to pay off debt and prioritize by paying the debts with the highest interest rate first.

Keep an eye on the prize

“There is a one thing that 99 percent of “failures” and “successful” folks have in common — they all hate doing the same things. The difference is successful people do them anyway.” Darren Hardy

Following the adage that it becomes easier to reach your destination or to achieve a successful outcome with an end goal in mind. Those who gain wealth believe that everything they do is ultimately done to fulfill their financial goals. For example, people should set a “retirement number” and a deadline for reaching that number. That number is the goal for how much cash and investments they need for a comfortable retirement and the deadline is the date to achieve the goal. Every time you put money toward saving, you’re a step closer to the prize.

Set It, But Don’t Forget It

Setting up an automated savings and payment system is one habit highly successful people practice to keep their financial house in order. They automate their savings, investing, bill payments and money transfers. But they don’t ‘set it and forget it’ once they set up the automated system. They know it’s important to maintain awareness and manage regularly, at least weekly, where their money’s going.

Automatic saving and investing

People have to be consistently reminded that to develop habits of saving and investing. The more you do develop the habit of saving and investing for the long term, the easier it will become. Consequently, it is recommended to set automatic savings protocols, if necessary, so a portion of your earnings goes directly from your paycheck into a separate savings account.

Habitually and automatically save 10% to 20% of every paycheck.

References:

  1. https://www.bankrate.com/finance/investing/financial-habits-of-wealthy.aspx
  2. https://jamesclear.com/book-summaries/the-compound-effect