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Investing

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Most people we encounter in our lives live by the ‘Deferred Life Plan’, which means putting endless hours of work in now for the hopes and dreams of a glorious retirement. History has shown us over and over again that far too often this isn’t the result. Thankfully, we’re about to share with you an investment strategy that has beaten the S&P 500 for over 100 years in a row and is profitable in ANY market environment!

Most people are truly lost when it comes to retirement planning and investment strategies that meet their individual goals, especially when they are just starting out on this venture. They simply have no idea where to begin, so don’t be one of them! Just by reading this article you will be more prepared than the rest.

How Much Money Will I Need to Retire?

The first step in a successful retirement plan is calculating how much money you’ll need when the time comes. Retirement is an expensive endeavor, and you should be prepared for that when doing your planning. Experts have estimated that you’ll need between 70% and 90% of your income before retirement in order to keep the same standard of living. Understand these needs early on in the planning process so that you won’t become frustrated later. Here’s how to do that:

Calculate your average cost of living today and multiply it by 0.7-0.9, depending on how conservative you want to be with your calculations (the higher the number in this range, the more conservative). That will tell you how much money you’ll need each year during retirement. Now, look at the tables above to find out how much you need to start saving today in order to hit your retirement goals.

Start Saving for Retirement Now!

Ask any financial adviser and they will tell you the most crucial part of building a solid nest egg for retirement is starting early! It doesn’t matter if you feel like you’re already late to the party or if you’re only 16 and making minimum wage washing dishes at a restaurant, make today the day you put thought into action. Something as little as a $50/month contribution can go a long way in the big picture.

Still not sold that you should start today? Do yourself a favor and check out this compounding interest calculator and play with monthly contributions to see how far just a few more dollars per month adds up to significant sums over 20, 30, or 40 years! Using an average annual interest rate of 7-8% is a good place to start when running various scenarios (the average returns of the S&P over the last 30 years).

Once you figure out the amount of money you need to invest on an annual (and then monthly) basis, the next step is making the decision on which investment strategy is best for you.

An Alternative ‘Time-Tested’ Investment Strategy

In a perfect world we would be able to put our money in a clearly defined place with little to no risk and a high rate of return. Unfortunately, investing for retirement is not that easy. You can invest in stocks (volatile), bonds (low interest rates), CD’s (low interest rates), and a number of other individual strategies that just aren’t ideal.

An all-to-unfamiliar investment vehicle that few utilize is something called participating whole life insurance. You might be surprised, and comforted, to hear that this alternative investment strategy is one used by some of the wealthiest individuals ever to walk the planet. Not only can this type of long-term investment provide generational wealth to be passed down, but it also provides you with a tax-free income stream!

Here’s a rough estimate of how much someone can invest with this strategy and the results they’d achieve:
*These are averages. Each person will have a different amount based on his/her overall health, family lineage, habits, etc. You will receive a personalized plan from the provider of your custom-built plan.

*Females: Your rate (investment) will typically be even lower than males!
**These investments are also going to leave hundreds of thousands, if not millions, of dollars to your family when you pass away! Retirement income AND generational wealth is the goal.

Most people look forward to their retirement, especially after they have been working for several years. They believe retirement will be a wonderful time when they can do things they could not during their working years. This can only be accomplished by taking action today with your retirement. Do yourself a major financial favor, and do some additional research on this alternative investment strategy!

Other Retirement Investment Strategies

If you choose not to partake in the participating whole life insurance investment strategy, that’s totally fine! Another step you can take is to make sure to diversify your investments over time in a retirement portfolio. This is a crucial technique, as it will reduce the amount of risk that you have when you are playing the market. If you are not having success, take some time off to study what you need to do to maximize your earnings.

Utilizing paid retirement services and managers in the beginning is well worth the investment. Find a financial manager today and begin developing a relationship. You will quickly find that the financial options for your retirement savings are nearly limitless. Working with a financial manager, who does this day in and day out, is the best way to narrow down the field and relieve the stress of starting on this endeavor. Do upfront research on management fees and find a conservative middle-of-the-road fee. This will ensure they aren’t a bottom of the barrel manager, yet won’t rob you blind through fees. The money spent early on in the retirement process will go a long way to achieving your dream retirement. Start with a quick math lesson on how compounding interest works and how even a little bit of money early on goes a very long way in the retirement process.

Investing, a topic we all know about and love to discuss, but when it comes to execution most fall a bit short of expectations. For some, it’s waiting too long into their life to properly save money and for others it’s continual poor investment decisions that have put them into financial hardship. Television outlets and popular websites make investing seem intimidating and that you need professional assistance to build the best portfolio. While they may be right, many aspects of investing are easily simplified and can be figured out on your own.

Everyone’s investing objectives are different. However, there are commonalities that everyone likely shares and tips you can utilize in building your portfolio. Should you have any specific questions it certainly is a responsible decision to speak with an investing professional, but in the meantime, let us go over a few actionable ideas you can take with you.

How to Invest Wisely

The first and most broad question is how to begin investing. Simply beginning the ‘search for information’ process will open your horizon to the hundreds of possible investment options on the market. From there, you will gain exposure to what fits your needs best and you can construct a portfolio that’s tailored to you. In this section of ‘how to invest your money’, we’ll detail three different accounts you can utilize to invest your money.

401(k) Plan

First on our list is the popular 401(k) plan. Many employers offer their staff a 401(k), which is a pre-tax retirement vehicle used to help you save for retirement. Pre-tax means that you will not have any of your income withheld from your paycheck while you’re working and you will instead have to pay taxes when you make distributions during retirement. You may also have the ability to utilize the tax benefits of a Roth 401(k), which is the opposite and is constructed using post tax dollars. Many people prefer this method because it allows your income tax to be withheld from your paycheck during your working years so that when you take distributions during retirement you don’t owe anything. A 401(k) is an employer offered, qualified retirement plan and cannot be opened elsewhere.

How you begin investing in a 401(k) plan is extremely simple, beginning with your deduction amount. When selecting how much to contribute towards your 401(k), you typically select a percentage of your paycheck. If you’re lucky, your employer may offer a match up to a certain percentage, which is free money.  This can be updated at any time should you decide to contribute a different amount.

From there, your plan has a predetermined selection of investments products you can invest your money in. You will likely find target date funds, index mutual funds and a few other alternative investments to add some spice to your portfolio. Should you have any detailed questions you can always ask your plan administrator.

In 2019, your contribution limits are $19,000, which is an increase from $18,500 in 2018. Learn more about 401k plans here. 

Individual Retirement Accounts (IRA)

The next vehicle on our list is an individual retirement account, or IRA for short. An IRA works similar in that you can select a vanilla IRA or Roth IRA, depending on your tax needs. However, the main difference is nearly anyone can open an IRA if they meet the income requirements, which depend on marriage and a couple other factors.

Another difference between an IRA and a 401(k) plan are the investment selections. In an IRA, you have a much wider selection of investments you can choose from, enabling you to create a more diverse portfolio. Your investments can include stocks, bonds, options and many other investment types.

In 2019, the contribution limits for an IRA are $6,000, up from $5,500 from the year prior. Learn more about IRA plans here.

Brokerage Account

The last account you can utilize to invest is a brokerage account, which is an investment account that carries no special tax privileges, and anyone can open. There are no contribution limits and your investment options are vast. You can choose to invest in anything your broker allows, but you may incur tax consequences that vary, depending on your investment portfolio.

Investment Options

Now that you know how to invest your money it’s time to review a few products you will likely encounter through your due diligence.

Mutual Funds

The first and among the most popular is a mutual fund. A mutual fund is an asset that is built though a basket of stocks. With a mutual fund, the goal is to follow an index or market, giving you exposure to the broader market. You’ll likely find various mutual funds in your 401(k) plan as these investment products are designed for long-term, passive investing.

Also, with a mutual fund you will notice an expense ratio, which is the annual cost of investing in a mutual fund. The lower you keep the expense ratio the more money you are retaining to invest.

Exchange Traded Fund (ETF)

Similar to a mutual fund, an exchange traded fund or ETF is traded on the open market similar to a stock. ETF products are more liquid than a mutual fund, meaning you can sell the asset quicker. Like a mutual fund, ETF’s have expense ratios and charge you on an annual basis. ETF products range from index tracking to inverse market directions.

Vanguard has great depth analysis of ETFs vs mutual funds. Read their article here.

Stocks

Last on the list of options are stocks. These are the most popular and well known. Purchasing a stock gives you ownership of a company, thus granting you access to participate in the upside or downside value. Stocks can be held long-term or short-term, and well-off companies tend to pay their shareholders dividends. Stocks can increase the volatility of a portfolio, as well as the returns.

Know these data points will not only give you the ability to start investing, but you will also have confidence going into a conversation with your investment advisor. Investing early and investing often will allow your earnings to compound, slowly growing and building wealth you can pass down from generation to generation.