Tag Archives: Financial Planning

Investment Risks and Taxes

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No investment is completely free of risk.

When it comes to investing, it’s critical to understand that no investment is 100% safe and all investments come with risk. Unlike when you store your money in a savings account, investing has no guarantees that you’ll earn a return. When you invest, experiencing a financial loss is a possibility.

Investing means that you’re putting your money to work into a financial asset in the expectation of getting a positive return. Yet, where there’s the chance of financial gain, there’s always going to be the chance of a financial loss. Investment risk and investment reward are two sides of the same investing coin.

On the other hand, saving — which is basically parking your money in an account so it’ll keep its value.

Some investments are considered safer than others, but no investment is completely free of risk, because there’s more than one kind of risk, according to SoFi.

Different Types of Risk

Investors who choose products and strategies to avoid market volatility may be leaving themselves open to other risks, including:

  • Inflation risk – An asset could become less valuable as inflation erodes its purchasing power. If an investment is earning little or nothing (a certificate of deposit or savings account, for example), it won’t buy as much in the future as prices on various goods and services go up.
  • Interest rate risk – A change in interest rates could reduce the value of certain investments. These can include bonds and other fixed-rate, “safe” investment vehicles.
  • Liquidity risk – Could an asset be sold or converted if the investor needs cash? Collections, jewelry, a home, or a car could take a while to market—and if the owner is forced to sell quickly, the price received could be lower than the asset is worth. Certain investments (certificates of deposit, some annuities) also may have some liquidity risk because they may offer a higher return in exchange for a longer term, and there may be a penalty if the investor cashes out early.
  • Tax risk – An investment could lose its value because of the way it’s taxed. For example, different types of bonds may be taxed in different ways.
  • Legislative risk- A change in law could lower the value of an investment. For example, if the government imposes new regulations on a business, it could result in higher costs (and lower profits) for the company or affect how it can serve its customers. Or, if taxes go up in the future, savers who put all or most of their money into tax-deferred accounts [IRAs, 401(k)s, etc.] could end up with a hefty tax bill when they retire.
  • Global risk – An investment in a foreign stock could lose value because of currency problems, political turmoil, and other factors.
  • Reinvestment risk – When an investment matures (think CDs and bonds), the investor might not be able to replace it with a similar vehicle that has the same or a higher rate of return.

Taxes

“Worried about an IRS audit? Avoid what’s called a red flag. That’s something the IRS always looks for. For example, say you have some money left in your bank account after paying taxes. That’s a red flag.” Jay Leno

Taxes are a key consideration for investors – and not one that investors might think about when logging into their brokerage account. Yes, $0 trades are exciting, but don’t forget about taxes — which are an investors “biggest expense” or every traders “silent partner”.

The key to taxes is to not just think about taxes in tax season, because there’s not that much you can do besides contribute to an IRA.

When it comes to tax planning, most of it has to be done before the year is over. One strategy that’s very useful is tax-loss harvesting. Essentially, it allows investors with any sort of investment losses to use that to offset any gains, reducing the amount of taxes owed.

Investors can use the tax-loss harvesting proceeds to buy something else, and it can even be very similar. Or they can use the money to rebalance. “Don’t hesitate to take losses and use them to your advantage,” said Hayden Adams, director of tax and financial planning at Charles Schwab. “You’re likely to have losses and tax-loss harvesting is a great way to rebalance to get back to proper risk tolerance.”

The key for investors is to know the rules and work within them.

References:

  1. https://www.sofi.com/learn/content/what-is-a-safe-investment/
  2. https://www.businessinsider.com/safe-investments
  3. https://finance.yahoo.com/news/what-new-stock-traders-need-to-know-and-do-before-the-end-of-the-year-192426159.html

Letter from a Dead Husband|

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If something tragic were to happen to you, would your surviving family members be able to manage the family finances without you? Motley Fool

Devoted husband Bob Hassmiller asked himself this same question because he was concerned that his spouse wouldn’t be able to take care of the household finances if he passed away, according to an article posted by Motley Fool.

So he wrote his spouse a letter, called “A Letter From Your Dead Husband,” that he updated every year. This letter was a document that contains information and instructions to help your loved ones make sense of their financial life after you die. If something happened to him, his wife would have the letter providing detailed instructions about where to find everything she needed.

In Hassmiller’s “Letter From Your Dead Husband”, he included things that were important to him. Additionally, in the letter, he described why this is important and meaningful, both for him and his spouse.

But, before you begin, spend some time thinking about how you’d like to structure your letter. Do you want to create a giant table or spreadsheet in a program like Excel? Or do you prefer typing out instructions in a word processor? Maybe you want to use a hybrid of both approaches.

Before discussing the topics to include in your letter, keep in mind that federal and state laws often differ depending on where you’re located. Please use this as a basic guide — but financial and estate experts recommend you do your own research.

Have an introduction

Although it may seem self-explanatory, your letter should describe why this is important and meaningful, both for you and whomever you leave behind.

This is a good place to list the contact info for those who are part of your “financial team” (attorney, financial planner, executor, etc.).

You should also include the locations of your personal documents (Quicken files, utility bills, tax returns, etc.), as well as the locations of any legal documents and the names of anyone else who has copies. Don’t forget to include access instructions for safes, alarms, and websites.

Break down your accounts

List all the accounts that hold your money, including the account numbers. Leave no account unidentified! Be sure to note what is and isn’t automatically paid. You can also include a section for recurring and automatic payment accounts that your spouse may wish to stop — things such as Netflix, Amazon Prime, home loans, insurance, and others. Some types of accounts to consider include savings, checking, money market, CDs, brokerage accounts, retirement accounts (401(k), IRA, Roth IRA), and FSAs (health and dependent care).

List out your assets

Provide the physical locations of your non-monetary items that have value. Include identifying information such as license plates, VINs, insurance appraisals, etc.. Some assets to consider are real estate, personal property (autos, motorcycles, jewelry, artwork, etc.), stock or bond certificates held outside brokerage accounts, what’s owed you (money, goods, or services), business interests, Social Security income, and pension income.

Explain your liabilities

List all the debt or other liabilities in this section. List everything you owe, with account numbers and information about automatic payments, if applicable. Be sure to identify debts held in your name alone separately from what is held jointly by you and another person (spouse, business partner, etc.).

Liabilities to consider are credit card accounts, home equity loans or lines of credit, student loans, personal loans, mortgages, auto loans, business loans, and money, goods, or services you owe someone.

Run through your insurance

People sometimes forget how many different types of insurance they have. If you have minor children, it is wise to review your insurance needs about every three years. And be sure to list the term/renewal date of any insurance.

Some insurances to consider are life, health, disability, vehicle, home or renters, and property (you know, for Aunt Gertrude’s rubies that nobody wants to wear).

Collect your legal documents

Provide the locations of all your legal or other important documents, as well as who has hard copies.  Legal documents should include a will, a living will, instructions for final arrangements, trusts or a living trust, power of attorney, medical power of attorney or an advance directive, financial power of attorney, and account names and locations of any passwords.

You can also use this section to address the general disposition of your assets when you die.

Share your financial roadmap
Use this section to provide a summary of your existing finances. You want to give your spouse a general overview of how your finances are set up, what your short- and long-term goals are, and how those may change once you’re gone. Along with a net-worth summary and a list of all our investments.

List trusted financial advisor and their telephone number, especially if you have allowed your investments to become complicated.

Plan for your spouse’s future, and end with love
Your can dictate the disbursement items or money that you feel strongly about. But many people choose to leave everything in bulk to a spouse, giving them the flexibility to spend as they see fit. So make your general wishes known, and include any special instructions.

End your letters with a statement of love. Your completing this letter speaks of all the wonderful times you’ve planned for your future. The document should require only minimal “tweaking” in the future, though it should be a yearly reminder to you and your spouse that financial planning, too, is a sign of your love.

There’s no “right” way to write your letter, so do what makes sense for your family. Remember, this document is for them — make sure they’re comfortable using it!

References:

  1. https://www.fool.com/retirement/letter.aspx
  2. file:///C:/Users/ebrow/Downloads/DeadLetterChecklist.PDF

 

Five Money Goals to Financial Wellness | TIAA

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According to TIAA, there are five big financial goals anyone seeking financial well-being should include on their list:

  1. Max out your 401(k) / 403(b). One rule of thumb 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, it’s essential to take full advantage of your employer match, if you have one: With a $50,000 salary from an employer matching up to 6% of your contributions, you’d be turning down $3,000 (free money) each year! Letting your employer match go to waste would be like you accepting a $3,000 pay cut without a fight. In the absence of an employer plan, contribute to an IRA instead, even though the target is much lower (the annual contribution rate for 2021 is $7,000.
  2. 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. Once you’ve calculated how much you should save, set aside a certain amount from each paycheck to set you on your way.
  3. Get your financial affairs in order. Estate planning is something you can’t afford to ignore. Getting your financial affairs in order, and designating the right people to manage them in the event of your incapacity or death, takes a huge weight off your shoulders. Necessary documents include durable powers of attorney, which designate someone to manage your day-to-day affairs, and a living will or healthcare directive to instruct your doctor what to do if you’re unable to make medical decisions for yourself. Don’t forget to inform those assigned with the task of handling your estate, who need to know the location of your will and other estate planning documents.
  4. Give yourself a debt deadline. Bad debts. You know which ones they are: the loan you took out to pay for a wedding; the credit card with the sky-high interest rate whose balance keeps rolling like a New York subway car. Convincing yourself that minimum monthly payments are okay? How about setting a deadline for repayment and getting rid of this exponentially growing interest?
  5. Create a budget (and stick to it). If you find that your spending is a bit out of control, you may want to press the reset button on your out-of-control spending behavior with a budget.

Setting these five money goals is enough to start you well on your way toward financial well-being.

References:

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

Money and Happiness

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“The great Western disease is, ‘I’ll be happy when… When I get the money. When I get a BMW. When I get this job. When I get the relationship,’ Well, the reality is, you never get to when. The only way to find happiness is to understand that happiness is not out there. It’s in here. And happiness is not next week. It’s now.” Marshall Goldsmith

Research shows that after you make enough money to pay your essential expenses and save for the future, making more does little for your happiness. A 2010 study by economist and psychologist Daniel Kahneman found that, where wealth is concerned, a person’s satisfaction with their life no longer increases after about $75,000 ($90,000 in today’s dollars) a year.

If anything, once people start making a lot of money, they begin to think they’re doing worse in life, because they become obsessed with comparing themselves to those who appear richer and appear to be living a relatively larger and more luxurious social media embellished lifestyle. But, it important to remember that, “Money has never made man happy, nor will it, there is nothing in its nature to produce happiness”, Benjamin Franklin quipped. “The more of it one has the more one wants.

Instead, research suggests that spending money on experiences rather than tangible goods, giving to others with no thought of reward, and expressing gratitude for what you have, results in the greatest feelings of happiness.

Pitfalls of chasing money

Focusing on chasing the accoutrements of wealth is a trap, because it leads only to an increased focus on chasing wealth. Even multimillionaires make the mistake of believing that money, and not time, experiences and gratitude, will enrich their lives.

“These days, in our materialistic culture, many people are led to believe that money is the ultimate source of happiness. Consequently, when they don’t have enough of it they feel let down. Therefore, it is important to let people know that they have the source of contentment and happiness within themselves, and that it is related to nurturing our natural inner values.” Dalai Lama

A few thousand of the world’s wealthiest people were surveyed and asked how much money they’d needed to be “perfectly happy”, according to Harvard Business Review. Seventy-five percent (many of whom had a net worth of $10 million or more) said they’d needed “a lot more” ($5 million to $10 million, “at the very least”) to be happy.

It doesn’t take a PhD in psychology to see how misguided the mindset of “needing a lot more money” is not related to achieving happiness.

Money may not buy happiness, but there are some things you can do to try to increase happiness such as writing down what you’re grateful for. Literally “counting your blessings” can help you feel more positive. Instead of thinking about what you don’t have, think about the things you do have.

Nothing less than your health and happiness depends on reversing the innate notion that money alone leads to happiness. It’s important to start seeing time, daily habits, being grateful, and lifestyle are the main drivers that determines your happiness:

  1. Convince yourself that your time, expressing your gratitude, and your health are more important than money and your bank account balance.
  2. Remind yourself that your values and that your closely aligned goals when faced with critical life and financial decisions.
  3. Make deliberate and strategic decisions that allow you to have more time across days, weeks months, and years.

Among millionaires, past studies reveal that wealth may be likely to pay off in greater personal happiness only at very high levels of wealth ($10 million or more), and when that wealth was earned rather than inherited.

Takeaways

Research concludes that money can buy life satisfaction and that money is unlikely to buy happiness, but it may help you achieve happiness to an extent through experiences, expressing gratitude, and giving to others. Look for experiences and opportunities that will help you feel fulfilled and that are aligned with your values. And, remember to count your blessings.

And beyond that, you can find happiness through other nonfinancial means, like spending time with people you enjoy or thinking about the good things in your life. Since, “Happiness comes from spiritual wealth, not material wealth…”, according to Sir John Templeton. “Happiness comes from giving, not getting. If we try hard to bring happiness to others, we cannot stop it from coming to us also. To get joy, we must give it, and to keep joy, we must scatter it.”

References:

  1. https://www.pnas.org/content/107/38/16489.full
  2. https://www.cnbc.com/amp/2020/10/19/even-millionaires-make-this-money-mindset-mistake-says-harvard-psychologistheres-the-real-cost-of-it.html
  3. https://www.healthline.com/health/can-money-buy-happiness

6 Habits to Build Wealth

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“If your goal is to become financially secure, you’ll likely attain it…. But if your motive is to make money to spend money on the good life,… you’re never gonna make it.” Thomas Stanley and William Danko

Your financial independence is far more important than showing off your wealth, according to authors of Millionaire Next Door, Thomas Stanley and William Danko. They assert that millionaires frequently remind themselves that those who spend all their income on high-priced luxury items often don’t have much accumulated wealth to their names and tend to live on the paycheck to paycheck treadmill.

Yet, many paths exist to building wealth which have little to do with wages and income. Wealthy people tend to practice daily habits that are designed to protect and grow their assets and help keep their body and mind in balance, according to financial experts who’ve studied subject.

They have found over and over again that you don’t have to be a high-income one-percenter to be wealthy. Many wealthy individuals never made more than $60,000 to $70,000 per year, but did a very good job of managing their expenses, cash flow and spending behavior. “Many people who live in expensive homes and drive luxury cars do not actually have much wealth”, according to Thomas and Danko. “Then, we discovered something even odder: Many people who have a great deal of wealth do not even live in upscale neighborhoods.”

Wealthy individuals generated several million dollars of net worth, simply because they started financial planning early in life, they saved as aggressively as they could afford to, and they invested that money in assets and stayed invested over the long. In short, “one of the reasons that millionaires are economically successful is that they think differently.”

Live Below Your Means and Practice Gratitude

“Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and, most of all, self-discipline.” Thomas Stanley and William Danko

Related to not showing off your wealth, authors Stanley and Danko found that the vast majority of millionaires didn’t spend a lot of money and were grateful for things they did own and the lifestyle they lived. In fact, they spent well below their means given their fortunes. In addition, the majority of the wealthy reported that they created and followed a personal budget, and created and maintain a gratitude journal. In other words, they respected their wealth, kept their spending on a tight leash and practice gratitude daily.

There are a few key habits of building wealth:

  1. Remember to pay yourself first. Basically, paying yourself first is about having your financial and budgeting ducks in a row. One key to building wealth is creating a budget and sticking to it. Wealthy people know how to hold the line on discretionary spending items that can help them increase the “invest” portion of their monthly budget.
  2. Look ahead at your goals. Wealthy people typically set concrete goals, both personal and financial, and have a long-term focus that looks years, if not decades, down the road. The more specific the goals and the longer term the goals are, the better. The wealthy understand that it begins with setting personal goals—what you want to get out of life and how you might prioritize your list. And once you have an idea what you want to accomplish personally, you can plot a financial road map to help steer you there. In other words, the path to wealth involves starting early, and focusing on the long term.
  3. Do your homework; keep your cool. Markets go up, and markets go down—often suddenly and for no apparent reason. Define your comfort level with risk, keep your emotions in check, and recognize what you can and can’t control. According to Siuty, there’s no “secret sauce,” except that, to build wealth, it helps to “stay disciplined, be methodical, and not let emotions get the better of you.”
  4. Lead a non-lavish lifestyle. Despite the popular characterization of rich people throwing money wantonly around in movies and TV, in reality, wealthier folks actually tend to look for value in their purchases. They generally understand the difference between price and value. In other words, they’re not afraid to open the pocketbook, but they tend to expect value in return.
  5. Always expand your education. Education is one of the keys to success, and reading is one of the most efficient ways to learn. According to Thomas Corley, author of Rich Habits: 67% of the rich watch TV for one hour or less a day. Only 6% of the wealthy watch reality shows, he wrote, while 78% of the poor do. And, 86% of the wealthy “love to read,” with most of them reading for self-improvement.
  6. Get up early, eat healthy, exercise. The wisdom that “time is money” goes all the way back to Benjamin Franklin, so it’s no surprise that the wealthy tend to wake early and make the most of their time. The other aphorism the wealthy take to heart is “health is wealth.” According to Corley, 57% of wealthy people count calories every day, while 70% eat fewer than 300 calories of junk food per day. Some 76% do aerobic exercise at least four days per week.
  7. Practice Gratitude. Gratitude makes people more optimistic and positive. It improves relationships, which is strongly correlated with financial success, as well as health, happiness and longevity. And, grateful people are less likely to purchase things they don’t need and that can help them save more! The bottom line is this: It doesn’t matter how much you have if you don’t appreciate it! Without gratitude, you’ll never feel successful and wealthy, no matter your net worth. So regardless of your level of financial success, practicing gratitude is essential.

Seeking a life of balance in mind and body, creating measurable goals, and prioritizing saving and investing, can help put you on the right path, and help keep you from straying from that path. And the earlier you start, the better.

References ‘

  1. https://tickertape.tdameritrade.com/personal-finance/behavior-wealthy-habits-rich-16001
  2. https://brandongaille.com/the-millionaire-next-door-summary/
  3. https://www.fool.com/investing/best-warren-buffett-quotes.aspx
  4. https://partners4prosperity.com/thank-and-grow-rich-gratitude-and-wealth/

Successful Long Term Investing

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“All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies.” Warren Buffett

You need courage, a long term focus, and the discipline to adhere to a long term plan to buy stocks when the markets are turbulent, stock prices are melting down, and the economy is in a deep slump, and the outlook for corporate earnings over the subsequent quarters is unfavorable. In Warren Buffett’s view, “Widespread fear is your friend as an investor because it serves up bargain purchases.” Thus, smart long-term investors love when the prices of their favorite stocks fall, as it produces some of the most favorable buying opportunities. According to Buffett, “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”

“The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.” Warren Buffett

Warren Buffett

Additionally, investors must focus on the long term — a minimum of seven to ten years — and look for high-quality, blue-chip companies that have fortress like balance sheets and can generate extraordinary free cash flow. In the short term, equity markets tend to swing wildly from day to day on the smallest of news, trend and sentiment, and celebrate or vilify the most inane data points. It’s important not to get caught up in the madness but stick to your homework. Warren Buffett quipped that, “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”

Invest in well-managed, financially strong businesses that sell goods and services for which demand is consistently strong (think food, consumer goods, and medicines), since it’s essential to keep capital preservation and margin of safety at the top of your priority list when deciding how to invest your money. As Buffett says, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

Businesses that are well managed and that have strong balance sheets typically display certain characteristics:

  • They carry little or no debt.
  • They generate enough free cash flow (earnings plus depreciation and other noncash charges, minus the capital outlays needed to maintain the business) that they don’t have to raise equity or sell debt.
  • They have a proven history of management excellence.
  • They have abundant opportunities for reinvesting capital (or clear policies for returning excess capital to shareholders), and their leaders boast an outstanding record of allocating capital.
  • They have a durable competitive advantage which could mean cost advantages, a strong brand name, or something else.
  • In addition, they are global in scope. After all, 95% of the world’s population lives outside the U.S., and economic growth is likely to be greater abroad than at home.

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” Warren Buffett

To be a successful long term investor, it’s essential to filter out the short-term noise. Most of the chatter from Wall Street and in the financial entertainment media headlines is just that: chatter you can and should ignore. “We’ve long felt that the only value of stock forecasters is to make fortune tellers look good. According to Buffett, “Even now, Charlie and I continue to believe that 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.”

“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.” Warren Buffet

If You’re Not Investing You’re Doing it Wrong

“Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.” Warren Buffett

Investing in equities delivers higher returns than bond or cash investments over the long term but is accompanied by a higher exposure to market risk. Investing in fixed income investments offers more modest return potential and risk exposure. Investors can invest in cash as a low- risk, low-return strategy, which is ideal for short-term savings goals or to balance out the risks of stock and bond investments. Ideally, investors’ asset allocations should reflect their goals, risk tolerance, time horizon, income and wealth, and other personal factors.

“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.” Warren Buffett

References:

  1. https://www.kiplinger.com/article/investing/t038-c000-s002-7-blue-chips-to-hold-forever.html
  2. https://www.fool.com/investing/best-warren-buffett-quotes.aspx
  3. https://www.ruleoneinvesting.com/blog/how-to-invest/warren-buffett-quotes-on-investing-success/
  4. https://personal.vanguard.com/pdf/how-america-invests-2020.pdf

2021 Modern Wealth Survey | Charles Schwab

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“The past year has of course caused Americans to focus on their health, in particular their mental health, along with the health of their relationships. But the pandemic and the significant impact it had on the economy and stock market also taught us a valuable, and in many cases difficult, lesson about the importance of financial health and preparedness, including the importance of having a plan and emergency savings.”  Rob Williams, vice president of financial planning, Charles Schwab

A majority of Americans (60 percent) are feeling more optimistic about the state of the United States overall, including the economy, the stock market and their personal financial prospects, according to Schwab’s 2021 Modern Wealth Survey. And, more than half feel positive about the U.S. job market, economy and role as a global economic power.

Schwab’s 2021 Modern Wealth Survey is an annual examination of how 1,000 Americans think about saving, spending, investing and wealth. The online survey was conducted from February 1 to February 16, 2021, among a national sample of 1,000 Americans aged 21 to 75.

Recalibrating Priorities and Redefining Wealth

“More than half of Americans were financially impacted by COVID-19 in 2020”

According to Schwab’s survey, more than half of survey participants were financially impacted over the past year, whether the economic environment strained their finances (31 percent), they faced a salary cut or reduced hours (26 percent), or they were laid off or furloughed (20 percent).

In lieu of this recent reality, more than two-thirds (68 percent) of Americans have reprioritized what matters most to them, with 69 percent saying mental health is more important than it was before, followed closely by relationships (57 percent), financial health (54 percent) and physical health (39 percent).

Being financially comfortable

“Americans lowered the bar for what it takes to achieve “financial happiness” and to be “financially comfortable” in 2021”

When it comes to achieving financial peace of mind, Americans say you only need a net worth of $624,000 to be considered “financially comfortable.” That’s down significantly from the $934,000 net worth that Americans cited as the minimum needed for financial comfort last year, according to the Survey.

Additionally, the survey finds that Americans have also revised their perspective on what it takes to be wealthy. It takes $1.9M to be viewed as wealthy, more than double the national average, but down from 2020.

U.S. households had an average net worth of $748,800 prior to the pandemic, according to The Federal Reserve’s 2019 Survey of Consumer Finances. However, the median, or midpoint, net worth of all families was much lower, just $121,700 in 2019.

Some lessons learned or relearned from the pandemic include the importance of being financially prepared and being mindful (and more aware) of your financial, physical, mental and emotional health.

References:

  1. https://www.aboutschwab.com/modern-wealth-survey-2021
  2. https://www.cnbc.com/2021/05/17/net-worth-americans-say-you-need-to-be-financially-comfortable.html
  3. https://content.schwab.com/web/retail/public/about-schwab/schwab_modern_wealth_survey_2021_findings.pdf

Cash Flow in Retirement | Fidelity Investments

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Cash flow simply means the amount of cash you have coming in and going out each month.

Think about cash flow as mapping your income versus your expenses. If you anticipate risk factors that can often come with retirement (health care expense, a downturn in the market, or a family emergency) then consider increasing your position in cash (or cash equivalents like Treasury bills, CDs, and money market accounts).

How will you help maintain a steady flow of income in retirement?

You’ve spent years saving money in anticipation of retirement, and while accumulating retirement savings is indeed important, it’s only half the story. Once you stop working, your focus shifts away from saving money and toward using that money to live the retirement you want.

Generating your retirement income

Retirement is an exciting stage of life that many Americans eagerly anticipate, yet retirement as we’ve known it has changed. Different concepts of retirement are emerging — your personal vision of retirement likely differs from how your parents, neighbors, and friends expect to spend their retirement years. In addition, Americans today are living longer and are more responsible for funding their retirements than past generations.

As we navigate this continually evolving retirement landscape, it’s important that your retirement-planning process reflect your unique situation. And remember that retirement income (or cash flow) planning requires a different set of strategies, products, plans, and choices than saving for your retirement. Education and guidance can help you develop an income plan and a spending strategy that are right for you.

Understanding retirement income

While most people understand the importance of saving money for retirement, the concept of retirement income planning is less familiar. Some basic definitions are.

  • Retirement income is the money you use to cover your expenses when you stop working.
  • Potential retirement income sources include Social Security, pensions, annuities, retirement savings from a qualified employer sponsored plan (QRP) like 401(k), 403(b) and governmental 457(b) as well as IRAs.
  • Retirement income planning is the process of determining how much money you’ll need in retirement, and where your cash flow will come from each year. Retirement income planning involves four components:
    • Planning:  Write a plan that includes your expected retirement expenses to help provide a roadmap through retirement.
    • Retirement investing strategies: Determine your various retirement income sources and consider the best way to invest your assets to help meet your retirement income goals.
    • Managing your retirement money: Decide how to manage your money to help maintain a steady flow of income that will cover your expenses throughout your retirement years.
    • Ongoing monitoring: Revisit and adjust your retirement income plan whenever your circumstances change, but at least once a year.

Benefits of planning your retirement income

Developing a written income plan can help you retire with confidence by considering questions such as: What do I want to do in retirement? Where do I want to live? Do I have enough to retire when I’d like? How do I create a steady income stream to take the place of my paycheck? How can I plan for the unexpected, such as extreme market fluctuations, health care needs, and other financial needs? And, will my money last throughout my retirement years?

For illustrative purposes only.

Starting the retirement income planning process five to 10 years before you retire allows you time to develop a thoughtful, personalized plan that will help make the most of your hard-earned savings.

cash flow to help meet both your near-term liquidity needs and longer-term needs for both income and growth

One approach to consider is to bucket cash for different shorter- and longer-term needs, such as living expenses, short-term goals, and emergencies. Here are some ways to implement each:

Read Viewpoints on Fidelity.com: Budgeting for retirees

References:

  1. https://www.fidelity.com/viewpoints/retirement/managing-cash-flow

Volatility and Market of Stocks

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If you pay any attention to the stock market, you probably know that volatility is actually a normal part of investing.

Stock market volatility is a measure of how much the stock market’s overall value fluctuates up and down. A stock with a price that fluctuates wildly—hits new highs and lows or moves erratically—is considered highly volatile. A stock that maintains a relatively stable price has low volatility. according to Investopedia.

Stock market volatility is most commonly measured by standard deviation, which is a measure of the amount of variability around an average. The larger the standard deviation, the higher the volatility will be.

Volatility is often associated with fear, which tends to rise during bear markets, stock market crashes, and other big downward moves. However, volatility doesn’t measure direction. It’s simply a measure of how big the price swings are. You can think of volatility as a measure of short-term uncertainty.

“Keep it simple and avoid complications in the markets.”

  • Sooner or later, most investors realize that the stock market is actually a ‘market of stocks’ that is chaotic, dictated by investors’ emotions of fear and greed, and influenced by interest rates and macro economic conditions. Good stocks don’t always advance. Bad stocks don’t always fall. Reality is rarely ever as bullish, or as bearish, as forecasted by financial analysts and strategists.

What is certain is that a quasi-invisible force known as volatility is always always present, threatening to disrupt the market’s delicate equilibrium and sanity.

“One of the hardest parts about being a long-term investor is the fact that sometimes your money is going to get incinerated and there’s nothing you can do about it.” Barry Ritholtz

Investors have a few primary ways to respond.

  • They can sit tight and act like long-term investors. Time tends to reward such behavior, though research has shown that it is as difficult to practice as it is uncommon.
  • Most investors never hold stocks long enough to benefit from the fact that the market rises over time. Investors typically buy too late and sell too early. They routinely “greed in” and “panic out” of stocks. They hold stocks for just a few years — or worse, a few months — rather than carefully curating a portfolio over decades, which means most investors behave like salmon swimming upstream. They struggle against the stock market’s natural rhythms.
  • Rotations is when smart and retail money runs after gains in certain sectors until a rally there becomes exhausted, and then their money runs to other sectors.
  • Investors can use options to more effectively navigate the stock market. A well-placed put or call can make all the difference in an uncertain market. A well-placed options contract can turn the unpredictably of investing into a defined outcome.
  • There are two types of options. A call option gives investors the right to buy a stock at a certain price and time. A put option gives investors the right to sell a stock at a certain price and time. An easy way to remember the difference between puts and calls is that a call gives you the right to “call in” a winning stock, while a put gives you the right to “put off” a bad stock on someone else.
  • Investors buy puts when they want to protect stock that they own from losing value.
  • Investors buy calls when they want to own a stock they believe will increase in value.
  • Many investors sell puts and calls to generate income.
  • Many people pick options that expire in three months or less. When you buy an options contract that expires in a year or more, you spend more money because time equals risk.
  • Simplicity is everything. It’s important to keep your trading strategy simple and avoid complications in the markets. Since everything could change tomorrow, or not, and thus we fall back on something we learned during the dark days of the 2008-09 financial crisis: Focus on the facts that have held up over time

Consider keeping a list of stocks or exchange-traded funds you would like to buy during market sell offs or crashes.

When in doubt, always remember: “Bad investors think of ways to make money. Good investors think of ways to not lose money.”

To keep from panicking when stock market volatility ticks up, it’s important to realize that volatility comes with the territory when you decide to invest. The stock market will always have its ups and downs, and there’s no use trying to predict what’s going to happen. So if you’re investing for the long term, consider basing your decisions on your goals. timeline and tolerance for risk, rather than on what’s happening in the markets from one day to the next.

Also, remember that being diversified is one way to help manage your exposure to volatility. By spreading your money out over various asset classes you’re also spreading out your market risk, and ensuring your portfolio’s results aren’t based on the performance of one type of investment.

References:

  1. https://www.fool.com/investing/how-to-invest/stocks/stock-market-volatility/
  2. https://www.barrons.com/articles/how-to-buy-and-sell-options-without-making-a-fool-of-yourself-51600336811
  3. http://www.barrons.com/articles/how-to-use-options-to-beat-the-market-1477415121
  4. https://awealthofcommonsense.com/2021/05/sometimes-you-just-have-to-eat-your-losses-in-the-markets/

Goals

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“Most people don’t know what they want.” Jim Rohn

You can’t ask for what you want unless you know what it is you want, according to Mark Victor Hansen, co-author for the Chicken Soup for the Soul. And, the first step to creating a goal is to figure out what you want. If you don’t know what you want, you don’t know what you need to achieve to get there.

Creating a list of financial goals is necessary for managing money and financial success. When you have a clear picture of what you’re aiming for, working towards your target is easy. That means that your goals should be measurable, specific and time oriented.

There are several types and timeframes of financial goals:

  • Short term financial goals – These are smaller financial targets that can be reached within a year. This includes things like a new television, computer, or family vacation.
  • Mid-term financial goals – Typically take about five years to achieve. A little more expensive than an everyday goal, they are still achievable with discipline and hard work. Paying off a credit card balance, a loan or saving for a down payment on a car are all mid-term goals.
  • Long-term financial goals – This type of goal usually takes much more than 5 years to achieve. Some examples of long term goals are saving for a college education or a new home.

The  concept of setting “goals” can be intimidating to many individuals. It can feel so overbearing that it keeps people from even beginning the process settling goals.

Instead, a better way is to think of goals as a to-do list with deadlines and for the rest of your life. Goals can be added, subtracted and, most important, scratched off the list as you move through your life.

The major reason for setting a goal is for what it makes you do to accomplish the goal. This will always be a far greater value than what you get. That is why goals are so powerful—they are part of the fabric that makes up our lives.

“Research says that merely writing your goals down makes you 42% more likely to achieve them.”

Goal setting provides focus,  provides a deadline and measurement for your dreams, and gives you the ability to hone in on the exact actions you need to take in order to get everything in life you desire.

Goals are exciting because they provide focus and aim for your life. Goals cause you to stretch and grow in ways you never have before. In order to reach your goals, you must most do thing differently, you must become better; you must change and grow.

A powerful goal has components:

  • It must be inspiring.
  • It must be believable.
  • It must have written targets and you must measure progress against those targets.
  • It must be one you can act on.

When your goals inspire you, when you believe and act on them, you will accomplish them.

Achieving financial goals takes a little more than just luck.

It requires extreme discipline, dedication, and repeated sacrifice. It means setting short- and long-term financial goals and then following through on them. Unfortunately, these are things with which the majority of Americans seem to struggle.

Research, however, suggests that simply writing out a list of financial goals makes a person 42% more likely to achieve them, according to a study done by Gail Matthews at Dominican University.

It is widely known and accepted that if you want to achieve something, you had better set a goal.

However, very few Americans actually do or even know how to set financial goals. According to Schwab’s Modern Wealth Index, only 25% of people have some sort of written plan or goals. What’s worse, the Financial Health Network finds that only 29% of Americans are financially healthy.

Don’t wait for financial success to come knocking. Achieving your goal like affording a house, paying college tuition, or ultimately funding retirement, will most likely be on you.

References:

  1. https://www.success.com/10-tips-for-setting-your-greatest-goals
  2. https://www.forbes.com/sites/ellevate/2014/04/08/why-you-should-be-writing-down-your-goals/
  3. https://credit.org/blog/financial-goals-examples/
  4. https://www.success.com/rohn-5-simple-steps-to-plan-your-dream-life/
  5. https://www.aboutschwab.com/schwab-modern-wealth-index
  6. https://dollarsprout.com/list-of-financial-goals/
  7. https://finhealthnetwork.org