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A more thorough financial retirement plan would include the question, “How much of my income should I contribute to all types of retirement plans?” But the 401(k) and Roth 401(k) are by far the most common types of retirement investments and, therefore, we will start by analyzing these specific investment plans.
An easy starting point to figuring out how much to contribute to your 401(k) depends on your employer. Many employers have a 401(k) matching program for their employees. This isn’t to say you should only invest in your 401(k) up to your employers matching percentage, but it is a good starting point. After all, if you are not taking advantage of this incentive program it is like flushing free money down the drain. A common percentage for these company match programs cap at 6%, but you may need to invest more for a comfortable nest egg.
Take Into Account Other Accounts Like Roth IRA
One reason that people like Roth IRAs is that your current tax situation will stay about the same into your retirement. The Roth IRA has a lot of extra advantages, such as the ability to make early withdrawals for a variety of reasons, as well the freedom to never make any withdrawals and leave it to your heirs as the account remains compounding away. However, if you have a Roth 401(k) the difference gets a lot slimmer; you may just go with which one offers you better investment choices. Either way, it’s good to consider the whole picture.
Taking all this information into account, a solid average amount for your retirement investments would be 10% of your total earnings, unless you have a pension or other sources of retirement income. Of course, personal finance is just that… personal. This is a good number to start with, but maybe you have outstanding debts and you can’t afford to pay 10% right now, or maybe you are planning to see the world after you retire and need to put away a higher percentage, it all comes down to personal preferences and situations.
Give Until It Hurts?
To find the nice balance, there are a couple of ways to do it:
Analyze your finances, estimate a percentage, and adjust from there. (More work.)
Start at match percentage, and keep increasing the percentageuntil it starts to hurt.
Start at a high amount (20%? 25%?), and keep decreasing it until your take-home pay is a manageable amount.
Finally, it is important to go back and reexamine your financial situation from time to time, after all, the more money you can put away now the larger your returns will be in the future. Invest as much as possible without putting any unnecessary burdens on yourself. A good example of when it would be smart to delay putting extra money into a retirement account is if you have outstanding credit card debt. With high-interest debt like this it is better to get that paid off as soon as possible and then focus on a retirement savings plan.
References: “What Percentage of My Income Should I Contribute To A 401k Plan?” mymoneyblog.com. n.a. n.d. Web. 3/13/2012.
General Disclosures
This information is provided for informational/educational purposes only. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based on any information provided herein. Past performance is no guarantee of future results.
Third Party Information
While Total Wealth Management has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, timeliness, or completeness of third party information presented herein. Any third party trademarks appearing herein are the property of their respective owners. At certain places on this website, live ‘links’ to other Internet addresses can be accessed. Total Wealth Management does not endorse, approve, certify, or control the content of such websites, and does not guarantee or assume responsibility for the accuracy or completeness of information located on such websites. Any links to other sites are not intended as referrals or endorsements, but are merely provided for convenience and informational purposes. Use of any information obtained from such addresses is voluntary, and reliance on it should only be undertaken after an independent review of its accuracy, completeness, efficacy, and timeliness.
Certain types of stock do better during recessions than in booms.
People always get sick, even in a recession: pharmaceutical stocks are a good bet.
Look to low-cost entertainment products to invest in during recessions.
During these unstable economic times everyone is worried about theUnited Statesbeing in a recession or when the inevitable next one will occur. Recessions are a natural part of the way our economy works. Understandably though, during tougher economic times people are less likely to invest in higher risk ventures and thus the stock market takes a hit as people pour money into more recession proof investments like CD’s or bonds. But, just because a recession is here doesn’t mean that there aren’t some stocks that are primed to do well in these tough times.
Consider the following recession-proof investments during a slow economic lull.
Pharmaceuticals
There are a few constants in this world, “Death and taxes,” as Benjamin Franklin put it, but we can also add illness to that list. People throughout history have always gotten sick, and people will continue getting sick—with no regard to the stability of a national economy. During a recession look to established pharmaceutical companies to make recession-proof investments.
Pfizer, Inc. (NYSE: PFE) provides a solid recession-proof investment during slower times. Pfizer has had some knocks recently, but it’s still producing a lot of cash flow, and has just raised its dividend for the 41st consecutive year. Pfizer is boasting a yield of 4.6%, which beats just about any CD, bond or high-yield savings account. The stock price may not be moving up anytime soon, but in the short-term, take advantage of the high dividend payout to provide some cash and put a floor on the stock price.
Banking
Despite the negative view the banking industry has received since the housing market collapse, a good bank is not a bad industry in which to make a recession-proof investment. During slower economic times, staples of bank lending like home loans and construction may be down, but banks make up for it in other areas. Some of those who get laid off turn to starting a business, which entails getting a small business loan from a bank. Additionally, skittish investors will look towards FDIC-insured vehicles like CD’s and savings accounts.
Historically, banks are often good dividend payers and this steady dividend income can come in handy during a recession and provide some comfort. During uncertain times, it is often best to stick with larger bank names that have more staying power and are not fully exposed to one particular region or type of banking. Also, larger banks with broader cash reserves and access to capital are better able to sustain or retain much of their dividend payouts to shareholders when things are tight.
Entertainment & Vices
You might expect that during a tough economy people would be tight with their spending on recreational activities, but it turns out the opposite is true. While the real world is causing stress and grief people seek an escape from reality. During a recession people are more likely to take a big vacation, see more movies, or indulge in alcohol or tobacco products. The 1930’s, for example, was the decade of the great depression but was also known as the golden age ofHollywood. From an investment standpoint you can make recession-proof investments in companies that cater to these audiences. Consider Diageo (NYSE: DEO), which distributes a wide variety of alcohol products like Smirnoff vodka and Johnny Walker whisky. Diageo’s growing market share inChinamight also mean bright days ahead for this particular stock.
Stocking up
One of the most basic lessons we all learn in economics is that our capitalist machine moves in cycles. Recessions are a natural part of growth and provide some rest and breathing room for the economy to regain its strength for the next run. If you are smart and have a long-term plan, recessions can be one of your best buying opportunities as an investor.
Warren Buffet suggests to “look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”
General Disclosures
This information is provided for informational/educational purposes only. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based on any information provided herein. Past performance is no guarantee of future results.
Third Party Information
While Total Wealth Management has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, timeliness, or completeness of third party information presented herein. Any third party trademarks appearing herein are the property of their respective owners. At certain places on this website, live ‘links’ to other Internet addresses can be accessed. Total Wealth Management does not endorse, approve, certify, or control the content of such websites, and does not guarantee or assume responsibility for the accuracy or completeness of information located on such websites. Any links to other sites are not intended as referrals or endorsements, but are merely provided for convenience and informational purposes. Use of any information obtained from such addresses is voluntary, and reliance on it should only be undertaken after an independent review of its accuracy, completeness, efficacy, and timeliness.
CEO of Total Wealth Management, Jacob Cooper, CFP®, talks how all investments are categorized by how they are taxed as well as the tax advantages that a few hold over others.
Total Wealth Management, LLC (TWM) is an advanced financial planning and advisory firm with clients on both coasts. As an independent Registered Investment Advisor, TWM has no agenda other than what our clients bring to the table as their agenda. Our focus is helping people create a strategy that accomplishes their goals in the most efficient methods possible. Informing clients on the essential knowledge such as taxes and how they categorize your investments is a priority of Jacob Cooper and the financial advisors of Total Wealth Management.
Creating a diversified and optimized investment portfolio takes patience and insight into each industry but there is also a basic outline to follow for investor success. Working hard and following these six principles will help you reach your investment goals. The more time you have available to let your investment grow the better chance it will have to accumulate wealth. It may be stressful but ride the market swings both up and down. As we have talked about previously, spread your investments across a variety of assets and leave room for liquidity in your investments. Find a way to encourage yourself to invest consistently and often. And finally, make sure to take some time to go over your investment portfolio and rebalance if necessary.
The most basic definition for a successful investor is to maximize gains and minimize losses. Using these 6 principles will help you achieve that goal.
Long-term Compounding Will Help Your Investment Grow
In layman’s terms this strategy is the “snow-ball effect”. Basically, compounding pays you earnings on your reinvested earnings. The longer you leave this money the greater the sum will grow. There are some options to consider with these long term investments the most important of which revolves around taxes paid on the earnings. The compounded earnings of deferred tax dollars are the main reason experts recommend fully funding all tax-advantaged retirement accounts and plans available to you. Remember the point of these investments is long term gains. A long-investment has the potential for significant returns over time so make sure to plan ahead.
Endure Short-Term Pain for Long-Term Gain
This principle can be one of the hardest tips to utilize. Riding out a volatile market can be extremely stressful when you see the stock market plunge one day and think about the “money you have lost”. This term is in quotations because while you hold on to the investment you haven’t technically lost that money yet, you need to wait out the market lows. This is when your portfolio truly benefits from diversified investing because this strategy will allow you to wait out some low markets while others are thriving. It is very rare that every part of the market takes a plunge.
Secondly, during periods of market or economic turmoil, some asset categories and individual investments have, historically speaking, been less volatile than others. For example, bond price swings are usually less severe than stock prices. Diversification alone won’t be enough to save a portfolio but employing this strategy will help minimize risk.
Spread Your Wealth Through Asset Allocation
Asset allocation is the process by which you spread your dollars over several categories of investments, usually referred to as asset classes. These classes include stocks, bonds, cash (and cash alternatives), real estate, precious metals, collectibles, and in some cases, insurance products. You’ll also see the term “asset classes” used to refer to subcategories, such as aggressive growth stocks, long-term growth stocks, international stocks, government bonds (U.S., state, and local), high-quality corporate bonds, low-quality corporate bonds, and tax-free municipal bonds. A basic asset allocation would likely include at least stocks, bonds (or mutual funds of stocks and bonds), and cash or cash alternatives.
They key benefit of asset allocation is having your investments spread between various asset classes that will not respond to market forces in the same way, thus helping minimize the effects of market volatility while maximizing your chances of return in the long term. Ideally, the way this should work is that if investments in one class are doing poorly your other investments in a different class may be doing better. The gains of one will balance the losses of the other.
Consider Liquidity in Your Investment Choices
Liquidity refers to how quickly you can convert an investment into cash without loss of principal (your initial investment). Generally, the sooner you will need to liquidate an investment for cash, the wiser it is to stick to investments with less volatile price movements.
Therefore, your liquidity needs should affect your investment choices. If you’ll need the money within the next one to three years, you may want to consider certificates of deposit or a savings account, which are insured by the FDIC.You could also choose short-term bonds or a money market account, which are neither insured nor guaranteed by the FDIC or any other governmental agency. Your rate of return will likely be lower than that possible with more volatile investments such as stocks, but you’ll breathe easier knowing that the principal you invested is relatively safe and quickly available, without concern over market conditions on a given day.
Dollar Cost Averaging: Investing Consistently and Often
There are essentially two options when looking to consistently invest in the market. Dollar cost averaging is a method of accumulating shares of stock or a mutual fund by purchasing a fixed dollar amount of these securities at regularly scheduled intervals over an extended time. When the price is high, your fixed-dollar investment buys less; when prices are low, the same dollar investment will buy more shares.
Alternatively, you can try to “time the market” to keep your buying costs down. This boils down to trying to predict the future prices of shares in order to buy as low as possible. For the most part though, trying to time the market results in unprofitable guesswork. The disciplined approach of regular investing is more manageable and has the added benefit of being automated.
Buy and Hold, Don’t Buy and Forget
Your portfolios long-term success relies on periodic reviewing and updating. Maybe that hot stock tip you received fizzled or economic conditions have changed for a particular investment, or even an entire asset class.
It is important to review and make sure that your investments are keeping a diversified asset allocation. Your various investments will likely appreciate at different rates which will alter your asset allocation without any action on your part. You should occasionally review your portfolio to return your asset allocation to your original allocation.
Another reason to review your portfolio is that your circumstances change over time and your asset allocation will need to reflect that. As you near retirement age, for example, you may decide to change your allocation to less volatile investments, or to those that may provide a steadier stream of income.
References: “Six keys to more successful investing”budgeting-investing.ameriprise.com. n.a. n.d. Web. 3/5/2012.
General Disclosures
This information is provided for informational/educational purposes only. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based on any information provided herein. Past performance is no guarantee of future results.
Third Party Information
While Total Wealth Management has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, timeliness, or completeness of third party information presented herein. Any third party trademarks appearing herein are the property of their respective owners. At certain places on this website, live ‘links’ to other Internet addresses can be accessed. Total Wealth Management does not endorse, approve, certify, or control the content of such websites, and does not guarantee or assume responsibility for the accuracy or completeness of information located on such websites. Any links to other sites are not intended as referrals or endorsements, but are merely provided for convenience and informational purposes. Use of any information obtained from such addresses is voluntary, and reliance on it should only be undertaken after an independent review of its accuracy, completeness, efficacy, and timeliness.
CEO of Total Wealth Management, Jacob Cooper, CFP®, discusses what’s behind wealth, what creates it and preserves it. Rate of return, high income, great investments all help, but they are actually not the reason people have or maintain wealth.
On Uncommon Wealth tomorrow morning at 10 PST (Saturday, April 28th) on FM News and Talk 95.7 and AM 600 KOGO, radio host Jacob Cooper, CFP® will discuss how to stimulate the job market while decreasing the deficit.
There are often two thoughts on creating jobs and decreasing the national deficit, currently over 15.6 trillion (with a “T”). On average since September 2007, the national debt has increased by 3.96 billion per day. So each citizen owes just under $50,000 of the national debt. Is this a good discussion to be having? Without question.
Casey Mullighan, a Professor of Economics from the University of Chicago, observes that while raising taxes on high-income earners and cutting subsidies granted to low-income earners both can reduce the deficit, the former will hurt jobs and the latter will spur job growth. If more subsidies and welfare benefits are added to Americans as a whole, and higher incomes are taxed (or punished) increasingly, the gap between what gainful employment can provide and what the government provides through subsidies narrows. This narrowing of the gap disincentives people to find employment as a whole and remain on the governments feeding tube.
Further, when you cut lower income earner’s taxes and provide more subsidies, you both add to the deficit and increase unemployment. This is exactly what the American Reinvestment and Recovery Act of 2009 did.
Tune in to FM 95.7 or AM 600 KOGO in Southern California tomorrow morning at 10 PST for the full show. Or listen live anywhere in the world on kogo.com or with the iHeartRadio app. Uncommon Wealth is a weekly financial talk show hosted by CERTIFIED FINANCIAL PLANNER™ Jacob Cooper, who also serves as the CEO of Total Wealth Management, Inc, a national private wealth management firm headquartered in San Diego, CA. Uncommon Wealth has been running for over 3 ½ years and has become one of the most popular financial talk shows in the region.
Jacob Cooper appears on Fox News in San Diego and discusses retirement savings, and personal financial planning. Total Wealth Management is a local San Diego group of certified financial planners that can help you plan for your future. Learn more about us by visiting http://www.totalwealthmanagement.net
On Uncommon Wealth tomorrow morning at 10 PST (Saturday, April 21st) on FM News and Talk 95.7 and AM 600 KOGO, radio host Jacob Cooper of Total Wealth Managment, CFP® will discuss “Unquantifiable Risks” present in most investors’ portfolios and how to alleviate them.
Jacob discusses that one of the most unfortunate and devastating elements of the typical investors’ allocation is a belief that they are diversified when they actually are not diversified any where near the degree they believe they are. Even the financial planning industry and financial advisors buy into a false understanding of diversification, often called the “Diversification Myth”.
“The reason most investors lost money in 2008 isn’t because the market went down,” Jacob explains. “It’s because investors weren’t properly diversified. Most people believe that having lots of different stocks, mutual funds or ETFs, all spread out through different sectors and large cap, mid cap, small cap, etc., makes them diversified. Nothing could be further from the truth or more dangerous for investors.”
Tune in to FM 95.7 or AM 600 KOGO in Southern California tomorrow morning at 10 PST for the full show. Or listen live anywhere in the world on kogo.com or with the iHeartRadio app. Uncommon Wealth is a weekly financial talk show hosted by CERTIFIED FINANCIAL PLANNER™ Jacob Cooper, who also serves as the CEO of Total Wealth Management, Inc, a national private wealth management firm headquartered in San Diego, CA. Uncommon Wealth has been running for over 3 ½ years and has become one of the most popular financial talk shows in the region.
General Disclosures
This information is provided for informational/educational purposes only. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based on any information provided herein. Past performance is no guarantee of future results.
Third Party Information
While Total Wealth Management has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, timeliness, or completeness of third party information presented herein. Any third party trademarks appearing herein are the property of their respective owners. At certain places on this website, live ‘links’ to other Internet addresses can be accessed. Total Wealth Management does not endorse, approve, certify, or control the content of such websites, and does not guarantee or assume responsibility for the accuracy or completeness of information located on such websites. Any links to other sites are not intended as referrals or endorsements, but are merely provided for convenience and informational purposes. Use of any information obtained from such addresses is voluntary, and reliance on it should only be undertaken after an independent review of its accuracy, completeness, efficacy, and timeliness.
Total Wealth Management teaches you key concepts to managing your finances and creating a plan for your wealth. In this video, Jacob Cooper discusses 401k plans on the San Diego Fox6 News. Interested in San Diego wealth management news and information? Contact Jacob by visiting http://www.sandiegowealthmanagement.com
Total Wealth Management teaches you key concepts to managing your finances and creating a plan for your wealth. In this video, Jacob Cooper discusses debt versus savings on the San Diego Fox6 News. If you’re interested in local San Diego financial news articles, please bookmark our blog at http://www.sandiegofinancialadvisornews.com
