Month: July 2022

Making decisions about your retirement account can seem overwhelming, especially if you feel unsure about your knowledge of investments. However, the following basic rules can help you make smarter choices regardless of whether you have some investing experience or are just getting started.

1. Don’t lose ground to inflation

It’s easy to see how inflation affects gas prices, electric bills, and the cost of food; over time, your money buys less and less. But what inflation does to your investments isn’t always as obvious. Let’s say your money is earning 4% and inflation is running between 3% and 4% (its historical average). That means your investments are earning only 1% at best. And that’s not counting any other costs; even in a tax-deferred retirement account such as a 401(k), you’ll eventually owe taxes on that money. Unless your retirement portfolio keeps pace with inflation, you could actually be losing money without even realizing it.

What does that mean for your retirement strategy? First, you might need to contribute more to your retirement plan than you think. What seems like a healthy sum now will seem smaller and smaller over time; at a 3% annual inflation rate, something that costs $100 today would cost $181 in 20 years. That means you may need a bigger retirement nest egg than you anticipated. And don’t forget that people are living much longer now than they used to. You might need your retirement savings to last a lot longer than you expect, and inflation is likely to continue increasing prices over that time. Consider increasing your 401(k) contribution each year by at least enough to overcome the effects of inflation until you hit your plan’s contribution limits.

Second, you may consider investing a portion of your retirement plan in investments that can help keep inflation from silently eating away at the purchasing power of your savings. Cash alternatives such as money market accounts may be relatively safe, but they are the most likely to lose purchasing power to inflation over time. Even if you consider yourself a conservative investor, remember that stocks historically have provided higher long-term total returns than cash alternatives or bonds, even though they also involve greater risk of volatility and potential loss.

Note: Past performance is no guarantee of future results.

Note: Money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in such a fund.

2. Invest based on your time horizon

Your time horizon is investment-speak for the amount of time you have left until you plan to use the money you’re investing. Why is your time horizon important? Because it can affect how well your portfolio can handle the ups and downs of the financial markets. Someone who was planning to retire in 2008 and was heavily invested in the stock market faced different challenges from the financial crisis than someone who was investing for a retirement that was many years away, because the person nearing retirement had fewer years left to let their portfolio recover from the downturn.

If you have a long time horizon, you may be able to invest a greater percentage of your money in something that could experience more dramatic price changes but that might also have greater potential for long-term growth. Though past performance doesn’t guarantee future results, the long-term direction of the stock market has historically been up despite its frequent and sometimes massive fluctuations.

Think long term for goals that are many years away and invest accordingly. The longer you stay with a diversified portfolio of investments, the more likely you are to be able to ride out market downturns and improve your opportunities for gain.

3. Consider your risk tolerance

Another key factor in your retirement investing decisions is your risk tolerance — basically, how well you can handle a possible investment loss. There are two aspects to risk tolerance. The first is your financial ability to survive a loss. If you expect to need your money soon — for example, if you plan to begin

using your retirement savings in the next year or so — those needs reduce your ability to withstand even a small loss. However, if you’re investing for the long term, don’t expect to need the money immediately, or have other assets to rely on in an emergency, your risk tolerance may be higher.

The second aspect of risk tolerance is your emotional ability to withstand the possibility of loss. If you’re invested in a way that doesn’t let you sleep at night, you may need to consider reducing the amount of risk in your portfolio. Many people think they’re comfortable with risk, only to find out when the market takes a turn for the worse that they’re actually a lot less risk tolerant than they thought. Often that means they wind up selling in a panic when prices are lowest. Try to be honest about how you might react to a market downturn and plan accordingly.

Remember that there are many ways to manage risk. For example, understanding the potential risks and rewards of each of your investments and their role in your portfolio may help you gauge your emotional risk tolerance more accurately. Also, having money deducted from your paycheck and put into your retirement plan helps spread your risk over time. By investing regularly, you reduce the chance of investing a large sum just before the market takes a downturn.

4. Integrate retirement with your other financial goals

Think about establishing an emergency fund; it can help you avoid needing to tap your retirement savings before you had planned to. Generally, if you withdraw money from a traditional retirement plan before you turn 59½, you’ll owe not only the amount of federal and state income tax on that money but also a 10% federal penalty (and possibly a state penalty as well). There are exceptions to the penalty for premature distributions from a 401(k), such as having a qualifying disability or withdrawing money after leaving your employer after you turn 55. However, having a separate emergency fund can help you avoid an early distribution and allow your retirement money to stay invested.

If you have outstanding debt, you’ll need to weigh the benefits of saving for retirement versus paying off that debt as soon as possible. If the interest rate you’re paying is high, you might benefit from paying off at least part of your debt first. If you’re contemplating borrowing from or making a withdrawal from your workplace savings account, make sure you investigate using other financing options first, such as loans from banks, credit unions, friends, or family. If your employer matches your contributions, don’t forget to factor into your calculations the loss of that matching money if you choose to focus on paying off debt. You’ll be giving up what is essentially free money if you don’t at least contribute enough to get the employer match.

5. Don’t put all your eggs in one basket

Diversifying your retirement savings across many different types of investments can help you manage the ups and downs of your portfolio. Different types of investments may face different types of risk. For example, when most people think of risk, they think of market risk — the possibility that an investment will lose value because of a general decline in financial markets. However, there are many other types of risk. Bonds face default or credit risk (the risk that a bond issuer will not be able to pay the interest owed on its bonds, or repay the principal borrowed). Bonds also face interest-rate risk, because bond prices generally fall when interest rates rise. Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, and economic and political risk unique to the specific country. This may result in greater share price volatility. Political risk is created by legislative actions (or the lack of them).

These are only a few of the various types of risk. However, one investment may respond to the same set of circumstances very differently than another. Putting your money into many different securities, as a mutual fund does, is one way to spread your risk. Another is to invest in several different types of investments — for example, stocks, bonds, and cash alternatives. Spreading your portfolio over several different types of investments can help you manage the types and level of risk you face.

Participating in your retirement plan is probably more important than any individual investing decision you’ll make. Keep it simple, stick with it, and value time as  a  strong ally.

 

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal professional.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

This article was prepared by Broadridge.

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Economies and markets are cyclical. They may include periods of wealth creation and times of bursting bubbles that bankrupt companies in a major downturn.

“Boom and bust” cycles may last anywhere from a few months to a few years or longer. During boom times, the economy grows, there are more jobs, and the market provides investors with healthy returns. But during a bust, the economy contracts, jobs are lost, and the market falters. Eventually, these challenges may dissipate and another boom may begin.

What should investors know about the boom-and-bust cycle and what they might do to avoid harm from the next bust?

How Long Do Boom-Bust Cycles Last?

Each boom-bust cycle has its own challenge. Think back to the last few recessions, and you see that each was precipitated by something similar but different:

• The dot-com crash, when the internet was in its infancy and the buzz led to thousands of overcapitalized, under-researched internet startups that quickly fizzled
• The Great Recession, when risky mortgage-backed securities faltered
• The COVID recession, when supply chain issues and uncertainty about the pandemic left companies scrambling to make contingency plans

Some busts are the predictable byproducts of a boom or bubble, while others, like the COVID-induced recession, are more like “black swan” events, which are rare and surprising, causing worldwide impacts.

If you go back to the 1850s, most boom-bust cycles last an average of five years.¹ This is one reason it is important for investors to maintain perspective, even when markets are roiling. No matter how bad things may seem, they may turn around if you wait long enough.

Protecting Yourself During a Bust

Knowing that busts are transient may help lower anxiety. Here are some ways to protect yourself when a boom transitions to a bust.

Do Not Make Rash Decisions

Moving investments into cash may be tempting while waiting on the sidelines for conditions to improve before jumping back in. But missing even a few major days in the market each year might hamper your overall returns. Successfully timing the market requires you to be correct twice: exiting at the top (or on the way down) and reentering at the bottom.

Do Not Overleverage

One way for policymakers to curb inflation is to raise interest rates. If you carry high balances at adjustable rates, such as credit card debt or a home equity line of credit (HELOC), an increase of just a few percentage points may make it much harder to pay those bills. Pay down your high-interest debt to avoid a hefty increase in your monthly debt obligations. For example, a $5,000 credit card balance at 15% interest may take about six years to pay off at $105 per month. But if your interest rate rises to 25%, making the same payment means paying off your credit card a whopping 19.5 years later while paying nearly $20,000 in interest charges in the process.

Make a Plan To Cover Your Expenses

Busts may be toughest for the recently retired or those with a fixed income. Setting aside funds in cash may help you manage market fluctuations if you have big expenses coming up soon.

By following these tips and staying on course, you may avoid the stress of the boom-bust cycle while remaining confident in your goals.

 

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Past performance is no guarantee of future results.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by WriterAccess.

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Footnotes

¹ Boom and Bust Cycle, Investopedia,
  https://www.investopedia.com/terms/b/boom-and-bust-cycle.asp

If you own a business and want to diversify your assets by investing in stocks, today’s online brokerages make trading fairly easy. However, stock investing is risky, especially in a volatile market. Here are four key considerations small-business owners should make before investing.

Understand Why You Want To Invest

Investing may make sense for non-business owners, particularly those who do not have a pension. By investing for retirement, individuals may enjoy the benefits of compounding interest and investment returns over a long time.

For business owners, the considerations are more complex. Businesses have many demands on their working capital. Using these funds to make investments–instead of using them for inventory, payroll expenses, or expansion–may have a significant opportunity cost. Before investing business funds, consider both your goals and your available capital to ensure that investing is an efficient use of your working capital.

Determine Your Strategy

There are nearly as many investment strategies as there are investments themselves. Some businesses may want to invest in new technologies like electric vehicles. Others may prefer bond funds as a possible source of relative stability in a volatile market.

Your investment strategy should reflect these factors:

• Your investment time horizon
• Your risk tolerance
• Your non-business investments
• Your business’s cash flow and tax liability
• Your business’s legal structure

A financial professional may help you evaluate your circumstances and design an investment strategy that reflects them.

Find a Business Stock Broker

A financial professional may work with a broker to assist you in trading stocks, analyzing your portfolio’s performance, and working towards making your investments tax-efficient. One important thing to know is that you do not want to combine your business investments with your personal ones. Instead, a business investor should have a separate business brokerage account to avoid any tax or legal complications.

Evaluate and Adjust Your Strategy Over Time

Unless your plan is to hold on to your investments for a long time, evaluating your business strategy regularly is important. Adjust your financial plan as circumstances dictate. Over time, some investments may outpace others, skewing your desired asset allocation. You may need to sell some of your higher-performing assets to rebalance your portfolio in situations like this.

Your financial professional might be a good sounding board when it comes to providing guidance on how to invest and adjust your plan over time.

 

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risks including possible loss of principal.  No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

This article was prepared by WriterAccess.

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The Stock Market has been trying to teach these lessons forever….

The real value of a bear market may be that it gives investors, who are temporarily frozen within its grip, the opportunity to learn or relearn important lessons regarding risk and diversification.

For savvy investors, a bear market also creates a period for looking beyond emotional headlines and studying the hard facts – facts that can ultimately place them in a position to take advantage of coming opportunities.

Periods of falling equity prices are a natural part of investing in the stock market. Bear markets follow bull markets, and vice versa. They are considered the “ebb and flow” of wealth accumulation.

Remaining Balanced Can Pay Off

Bear markets create apprehension in the minds of many people. That’s natural. However, any feelings of anxiety should be balanced with reason for anyone seeking financial confidence.

Anyone dubious about the need for a stable outlook should consider that virtually every bear market was followed by a better than average annual rate of return from the subsequent bull market.

Focus on Five Lessons

Instead of taking a “time out” from the market, and missing out on potential opportunities, investors should focus on five key lessons the market has repeatedly been trying to teach everyone during its naturally occurring economic cycles:

1. Periods of falling prices are a common part of investing in the stock market.
2. An investment’s value will be greatly influenced by fundamental factors, such as profit and revenue growth.
3. Diversification, while it does not assure against market loss, often provides the safest haven against the ebb and flow of changing markets.
4. Invest over time, rather than make single lump-sum purchases. In other words, falling stock prices are the friends of dollar cost averaging investors (of course dollar cost averaging cannot guarantee a profit or protect against a loss in a declining market).
5. Take a long-term view when investing in the stock market. Short-term fluctuations are natural. (The investment price and underlying business often have little to do with each other over the short term.)

Planning Matters

Remember that you’ll be inundated with all kinds of economic information during both bear and bull markets.

There will be reports, for example, about inflation, interest rates, and unemployment figures that may entice you to either give up on the stock market or invest in it to the exclusion of investments paying relatively smaller returns.

To avoid being lured to either extreme, develop a financial strategy that accounts for risks you find comfortable.

Review your investments on a regular basis to help ensure they are still relevant to your overall financial plan, and that you’re staying on track.

Then trust yourself and stick with the plan.

 

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Past performance is no guarantee of future results.

This article was prepared by FMeX.

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You may know that your small business needs a written business plan—but how do you get started? What elements should your plan address, and do you need different plans for different audiences? Below we discuss a few of the key factors to consider when drafting your business plan.

Who’s Your Target Audience?

Business plans often come into play when you’re seeking funding for your business. Private investors and banks typically want to know how your business is structured, what your financial projections are, and what goals you have for growth. Though you want any business plans you have to be internally consistent, you may also consider whether it makes sense to break out your plan into several forms that vary by their audience—one for lenders or investors, one for marketing consultants, one for your tax accountant, and one for internal management and HR.

What Are Your Financial Goals?

Without concrete financial goals and projections, you may not know whether your business is on track. Consider where you want your business to be over the next few years and decades. Are you content with modest growth that allows you to support yourself comfortably? Are you OK with some lean years if it sets you up for rapid growth later? Do you want to grow your business into something that may be passed down to your children and grandchildren? By identifying your financial goals and putting them into writing, you may be able to work toward these goals with clear eyes.

What’s Your Succession Plan?

Up to three in every four small businesses lack a written succession plan, which may lead to lengthy and expensive legal battles or even the closure of the business entirely.¹ Without clear direction on what should happen if you’re no longer able to run the business yourself, your employees and investors may scramble to stay afloat.

Your succession plan should be a detailed contingency plan addressing how your business is to be transferred or managed upon your death or disability. Something as simple as passing it down to your children may lead to strife if they disagree on how the business should be run or on who has decision-making power. Your succession plan may also address your Plan B in the event of a natural disaster (including a fire, flood, or another emergency that may cause you to temporarily shut down). Having these plans in writing may help you navigate whatever the future may bring.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

LPL Tracking # 1-05195662

¹ https://www.daytondailynews.com/news/75-of-small-businesses-dont-have-succession-plan-two-groups-to-help-with-planning/4K7IHJ6CZBBMTFDSRYGD7L4ZQU/

 

If you’re retired, there’s good news in that you’ll probably live longer and perhaps better than your parents and grandparents did. The bad news: You’ll live a longer and perhaps more expensive life, too.

You face decisions your parents or grandparents likely didn’t face before you.

This means every year you need to realistically estimate your life-expectancy to manage the foundation for your retirement (which might include years of less-than-great-health). Let’s say you are 58 – you need to plan for the next 37 years – more than a third of your life.

Pointers to Help Plan During Retirement

Here are five easy pointers, in ascending order of importance:

5. Costs of advice. You probably have a lot of questions. How much do you pay someone now to help you coordinate your investments? How much do your investments cost?

Is your portfolio sufficiently diversified? Did you buy annuity policies that you don’t really understand and that may become expensive for you to own? Do you need someone to only manage your investments or to also provide financial planning advice?

The average American spends more time analyzing the cost of a new TV than the costs and qualities of a financial professional.

4. Social Security. Don’t decide about benefits and lump-sum pension choices without discussing your options with a financial planner – or you may leave significant money behind. Remember too that the Social Security Administration won’t necessarily provide advice on your best strategies.
5. Your home and future health. Consider the final 15-plus years of your life. Where will you live when you’re 80?

In a large home with stairs? Will most of your wealth center around your home as your retirement years tick past? Who will care for you if you can’t yourself (don’t plan on a spouse, as you may become a widow or widower)?

Get objective advice on long-term care planning and your options for a reverse mortgage to convert your home equity into cash.

2. Know what you own. Are you one of the tens of thousands with half-forgotten old 401(k) plans from previous employers? Have multiple accounts with various brokers? Outdated estate documents or long-forgotten life insurance policies?

Consolidate your holdings and paper trail, a kindness not only to your current recordkeeping but also to your future heirs.

1. Make your wants clear. Include your adult children or siblings in a frank discussion about where your assets are and your preferences for treatment if you end up in the hospital.

You don’t need to give specific dollar information, but family or friends need to know your preferences and where to find your assets if you die or can no longer communicate.

Death and taxes are inevitabilities we all face. Make that time as easy as you can for your executor and heirs.

 

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual product or security. To determine which products(s) or investment(s) may be appropriate for you, consult your financial professional prior to purchasing or investing.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by FMeX.

LPL Tracking #1-05290107

When it comes to retirement savings, the goal is quite simple for most. To accumulate as much wealth as possible so that they are able to retire in comfort and style, while they enjoy the fruits of years of labor. For those with a high-net-worth, being able to maintain their lifestyle into retirement might require a little more skill when it comes to saving. To help maintain a high-net retirement savings, below are a few mistakes that one may wish to avoid.

Failing to Diversify Taxes

For most people, the idea of paying a lot of their hard-earned money in taxes during their retirement is far from appealing. Unfortunately, once most retirees hit the age of 70 and a half, they may notice a significant hike in their tax bill, due to required withdrawals from their retirement accounts. Once withdrawn from the account, the money is considered taxable income for the year, and it will result in the retiree being taxed at their highest tax bracket. Even though certain accounts, such as 401(k)s and IRAs allow contributions tax-free, when it comes time to remove the money, the IRS will come to collect. One approach to limiting taxes is spreading out some of the investments across Roth IRAs, Roth 401(k)s, and insurance products, which may provide retirees with a steady income that is non-taxable.

Holding Fast to Traditional Strategies

Most investors know the typical strategies used to help amass wealth, such as Roths, IRAs, and 401(k)s. Yet, for investors who have high-net-worth, it may be advisable to include other products and strategies into the mix, which might provide you with a better chance of growing money faster than more traditional routes. By opting for differing strategies, you may enjoy greater benefits such as tax-free withdrawals. Some strategies will allow you to pay the taxes on your retirement money upfront and then benefit from tax-free money when it comes time to withdraw.

Another benefit of trying multiple investment strategies is that it may result in more flexibility with the money. Some options will have a lot more flexibility in their terms, allowing retirees to withdraw earlier with little to no penalties.

Not Taking Longevity Into Account

Even though trends are showing that people are living longer through the benefits of medical advancements, many people are not financially planning for an extended life. Most people will estimate the age they will live to and plan their retirement financing to that age, but ultimately if that age is exceeded, they might possibly come up short. Try planning for a decade loner than expected. For those who believe they will live to the age of 80, having enough funds to make it to 90 should be the goal. This way, if a person only lives until 80, they will still be able to live comfortably and might even be able to pass something on to their loved ones.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

 

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

 

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

Sources

https://ilafp.com/financial/5-high-net-worth-retirement-planning-mistakes-and-avoid/

 

 

Content Provider: WriterAccess

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