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4 Money Mistakes Millennials Are Making

Re-posted from MSN.COM

The crushing weight of student debt and the Great Recession have shaped millennials’ relationship with money, for better or worse. In some, it has created enough anxiety about financial security that they save as much as they can and avoid any type of credit agreement that could cause them to take on more debt. Others become so preoccupied with their present expenses that they fail to save for the future.

Unfortunately, both approaches have their drawbacks. Here are a few of the most common money mistakes millennials are making — and what you can do to fix them.

1. Not preparing for the unexpected

About 46% of millennials don’t have any money set aside in an emergency fund, according to a 2017 survey by GOBankingRates. This can pose a problem when an unexpected event like a home repair, a costly medical bill, or a sudden job loss puts an extra strain on your budget. Without any savings to cover these financial emergencies, you may have no choice but to take on debt or fall behind on your rent or mortgage payment and other bills, which can have a serious impact on your creditworthiness.

Most experts recommend keeping at least three to six months’ worth of expenses in a savings account to help cover unexpected expenses. Look at your monthly bills and calculate how much you would need to cover them. Then multiply that number by three (or six if you want to be extra safe) and create a weekly savings goal to help you reach it.

2. Avoiding credit

Only 1 in 3 millennials owns a credit card, according to a recent study by Bankrate. While it’s wise not to overuse credit, avoiding it entirely can pose problems, especially when you go to buy a home or finance another big purchase.

Just about everyone will apply for a loan at some point in their lives. When you do, your lender will pull your credit reports to assess how responsible you’ve been with your money in the past. Your credit reports contain information on all active credit accounts in your name, but if you don’t have any, you’re not giving lenders anything to go on. This can make them hesitant to work with you, and they may deny your loan application or charge you a higher interest rate than someone with a well-established credit history. If you’d like to become a homeowner someday, then a nonexistent credit history will be a major obstacle.

You don’t have to use credit cards, but it is important to build up your credit history in some way. Paying off student loans can help, and if you take out an auto loan or personal loan, these will appear on your credit report as well. But for many, credit cards are the ideal credit-building tool because you can use them regularly, and as long as you pay the balance in full each month, you won’t have to pay any interest at all.

3. Not saving for retirement

For many millennials, paying off student loans is a much more pressing concern than saving for retirement. After all, they have 30 to 40 years left to work, so what’s the big deal if they put off retirement savings for a few years?

The trouble is that your most valuable retirement contributions are the ones you make while you’re young. The sooner you put funds in a retirement account, the more compound interest can make them grow. When you get a late start, your money has less time to gain interest before you need to start using it.

Say you put $10,000 in a retirement account when you’re 25 years old. Assuming your investments earn 8% per year, that $10,000 will have grown to $253,000 by the time you’re ready to retire at age 67. If you waited until age 35 to put that money in, it would only grow to $117,000. And if you waited until 45, you’d end up with only $54,000.

Waiting to start saving for retirement may not seem like a big deal, but it can mean a difference of hundreds of thousands of dollars. If you have any extra money left over after you’ve paid your bills each month, put it into your 401(k). If your employer doesn’t offer one, then open an IRA.

4. Spending frivolously

Millennials are more likely to indulge their immediate wants than baby boomers and Gen X-ers are today. In a survey by Schwab, 60% of millennials admit to spending more than $4 on their coffee (though it doesn’t specify how often), and they’re more likely to eat out and spend money on clothing and electronics they don’t need. While it’s healthy to indulge these wants occasionally, doing it frequently can take a large chunk out of your budget, leaving you less money to put toward retirement and your emergency fund.

Take a good look at how much you’re spending on the non-essentials each month and look for areas where you may be able to cut back. Making your coffee at home, rather than purchasing it at your favorite chain, will save you over $1,300 a year on average. This assumes that an average cup of Joe from a cafe is $4, while the cost of making a cup at home is $0.17, and you are drinking one cup per day. Dining in and curbing your shopping could free up even more money.

For millennials, it’s all about maintaining a balance between what you need now and what you’ll need later. By remaining mindful of how your present decisions are impacting your future finances, you’ll be able to make smart choices that will serve you well today and in all of your tomorrows.

4-benefits of holding stocks for the long-term

A LONG-TERM PERSPECTIVE . . . . . . .

A Long-Term Perspective on the
Stock Market Downturn

Prior to Feb. 2, the stock market had been through a remarkably tranquil period. Since that date, the U.S. stock market has experienced multiple days with drops of 2 percent or more in a short period of time. Here, though, we will focus on the long-term investing concepts you should keep in mind, as well as historical context for market moves of this magnitude.

Short-Term Forecasting

Markets are notoriously difficult to forecast over any horizon, and this difficulty is only amplified over shorter periods of time. Nevertheless, this won’t stop some market “professionals” from trying. You would be wise to ignore these forecasts in your own decision-making. Yes, markets are currently extremely volatile, but that volatility might not continue and no one can reliably know whether stocks will move up or down from here. In fact, no one can even clearly know what caused the drop over the last week. Some commentary we have seen points to inflationary concerns while other pundits blame anxiety around the U.S. budgetary process. Still others believe the market is concerned the Federal Reserve may raise interest rates too quickly. Who’s to say which, if any, of those explanations are correct, much less what that implies going forward. What we do know, though, is that over the long term, you can expect to be rewarded for investing in a low-cost, diversified portfolio of stock funds.

The recent past shows us just how wrong consensus, short-term forecasts can be. Two recent examples are the post-financial-crisis prediction of higher interest rates and the expectation that the stock market would decline following the 2016 presidential election. Both predictions were clearly wrong, and investors who acted on them instead of focusing on the long-run evidence that markets tend to reward risk-taking were harmed.

Your Plan Incorporates Risk

One of the advantages investors have today compared to investors in the early part of the 20th century is that we now have decades-worth of data to help us understand long-run returns and risks. Our partner, BAM Advisor Services, maintains an extensive database of the risk profiles associated with the portfolios that we recommend to clients. This data allows us to incorporate risk into the way we build your financial plan, meaning that outcomes like the market falling by 2, 3 or 4 percent over a handful of days already are reflected in our recommendation. The BAM Advisor Services Investment Policy Committee is well aware that these events — however unpredictable — will eventually happen, and we therefore imbed this knowledge in the comprehensive planning process that results in your portfolio allocation.

Putting Market Risk in Historical Context

The following graph plots the historical annual return of the U.S. stock market in each year (in blue) from 1926 through 2017 and the largest intra-year decline (in light blue outline) that occurred in each of those years.

Annual Stock Market Returns and Intra-Year Declines
There are two primary takeaways from this graph. First, as we all know, the stock market goes up far more often than it goes down. Second, but possibly less well known, virtually every year includes a period of time where markets fell precipitously. It’s clear, though, that these intra-year declines don’t necessarily signal whether the market will be up or down over that particular year. But it does show that stock markets have and always will be risky, particularly over shorter periods of time.

Are There Any Actions to Take?

Given what we know, we obviously don’t recommend making drastic changes to your portfolio allocation as a result of short-term market moves already accounted for in the planning process. Your portfolio is well-thought-through and built to be highly diversified. But are there any other actions worth considering? If you haven’t recently, now could be a good time to reassess your investment plan from a long-term point of view. We’re always here to help with that endeavor.

Interest rates

5 ways the tax bill will affect your retirement

Re-posted from marketwatch.com

The $1.2 trillion tax overhaul that was signed into law by President Trump on Friday will affect your retirement in a number of ways.

The tax plan no longer includes lowering contribution limits on retirement accounts or nixing traditional individual retirement accounts in lieu of Roth individual retirement accounts (which would have shifted when retirement savers pay taxes on their savings), but it does address individual retirement accounts and increases the standard deduction (by almost double), which could affect the way people itemize their charitable donations. These changes would be for next year’s taxes, to be filed in 2019 — 2017 tax returns are due on April 17.

 When it comes to retirement, 60s are the new 50s

Here are five ways retirees will be affected:

Retirees will have to be more strategic about their IRA conversions

The new tax bill would stop what’s called “recharacterizations” of IRAs. Recharacterizations allow a person to undo their decision to rollover or convert accounts to Roth IRAs. Therefore, retirement savers who have already made these conversions this year should consider before the new year if they want to reverse them.

And contribute to charity twice every two years

Retirees likely won’t be itemizing since they don’t have many deductions, except for charitable contributions, property taxes and perhaps state income taxes, said Andrew Houte, director of retirement planning at Next Level Planning and Wealth Management in Brookfield, Wis. Some retirees may want to take advantage of Qualified Charitable Distributions, which allow them to donate directly to charity from their individual retirement accounts without having to itemize those donations (after 70 ½ years old). Because of the increase in the standard deduction, retirees may benefit from making more charitable donations, but less frequently — for example, donate twice as much, but every other year — which would help taxpayers by having more to write off than the standard deduction limit, said Scott Bishop, executive vice president of financial planning at advisory firm STA Wealth in Houston, Texas. More people may also invest in donor-advised funds instead of donating cash, he said.

Personal income tax rates are changing, but still important

Personal income taxes would be lowered for most households — to 10%, 12%, 22%, 24%, 32%, 35% and 37%. Retirees will have to watch their income to avoid ending up in a higher tax bracket, Bishop said. Income includes withdrawals from retirement accounts, required minimum distributions and ordinary income. For example, people with large balances might want to begin distributions before turning 70 ½ years old, when they’ll be required to take distributions in some accounts — that way, when they get there, they won’t be forced into a higher tax bracket. It takes a little calculating, and predicting what income will look like in the future versus now, but it could save retirees money down the road.

Also see: The four worst things about the tax bill

Small businesses may not offer retirement accounts

Most 401(k) plans and similar defined contribution benefits are offered by large employers because they’re too expensive for small businesses to administer. Under tax reform, it may become even less advantageous for small businesses to host these accounts, said Trevor Gerszt, chief executive officer of CoinIRA, a company that allows savers to convert assets into digital currency, such as bitcoin. The bill reduces the income tax rate for small businesses but does not address offering or contributing to retirement plans, which are incentives to establish these accounts, according to the American Retirement Association.

Some retirees may want to move

Deductions for mortgage interest rates were left untouched, and $10,000 in local property taxes will be deductible on a federal level. That means income tax-free states will be best for retirees, according to Brett Anderson, a financial adviser and president of St. Croix Advisors in Hudson, Wis. Retirees are more easily able to move from state to state because they have no job tying them down, he said, which also means they can be more sensitive to the various income tax rates in various states. There are a few states that soar above the rest for tax-friendly states best for retirees, such as Nevada, New Mexico and Wyoming.

The new bill also reduces the maximum amount of mortgage debt a person can acquire for their first or second residence, to $750,000 for married couples filing joint tax returns (or $375,000) for those married filing separately, down from $1 million. This won’t affect home purchases before Dec. 16, 2017 so long as the home closed before April 1, 2018.

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To Save More, Focus on Your Needs, Not Your Wants

Re-posted from Investopedia

We all know that being able to save is very important when trying to grow assets. To eventually find financial freedom and have our assets give us the income that we need to live, we need to be able to live on a smaller amount of money than what we are bringing home. However, there are a lot of forces working against us trying to make us spend more. Marketers are getting smarter and more effective in getting us to overspend.

It is true that getting what you need for a smaller price is a good thing, however more people are falling into the trap marketers plant to make us buy more. To become financially successful, you need to understand the difference between buying on sale and being frugal.

Be Aware of Marketers Techniques Use to Make You Buy More

Marketers study human behavior. They know about the mood they need to put you in so that you buy more. They use color, scents, sounds and textures to convince you that you need their products.

Pricing is also an important tool they use. For example, recent research found that coupons actually have neurological effects on customers. They impact happiness and lower stress. Marketers understand that people want a good deal and offering coupons might be a way to get customers to feel good about purchasing their products.

As a financially savvy consumer, you need to be aware of the techniques marketers use so that you can be ready to resist to the temptation. (For related reading, see: Sneaky Strategies That Fuel Overspending.)

Focus on What You Want Versus What You Need

To be smarter with your money, you need to determine the difference between what you want and what you need. Needs are everything you have to have to be able to go on with your day. Besides food, water, shelter and clothing, there isn’t much more we substantially need. Depending on your career choice or goals you are aiming for, there might be other things you need to accomplish them.

The rest of the stuff we buy are wants! To become financially successful, you need to control yourself when dealing with your wants. You need a priority list to help you stay within your budget. This will ensure you have some money to invest for later.

What Is Frugality?

Frugality is not about depriving yourself. It’s not about living a substandard life. It is actually about avoiding waste. To stop you from spending money on stuff you don’t really need, you have to find out what is important to you. There are too many things we buy every day that we end up throwing away. The few dollars you could save can make a huge difference over the long term. Would it be worth it to be frugal with your money if it meant you afford something really important to you later?

Take a hard look at all of the money that you waste on small things and make a plan to control your “want” expenses. If you still decide to purchase a certain want and are able to to buy it on sale, more power to you. It’s time for you to take control over your money. Don’t let marketers dictate how to spend it.

(For more from this author, see: How to Build Your Financial Foundation.)

 

IMPORTANT DISCLOSURES: MoneyCoach LLC and/or Patrick Traverse offer investment advisory and financial planning services through Belpointe Asset Management, LLC, 125 Greenwich Avenue, Greenwich, CT 06830 (“Belpointe), an investment adviser registered with the Securities and Exchange Commission (“SEC”). Registration with the SEC should not be construed to imply that the SEC has approved or endorsed qualifications or the services Belpointe Asset Management offers, or that or its personnel possess a particular level of skill, expertise or training. Insurance products are offered through Belpointe Insurance, LLC and Belpointe Specialty Insurance, LLC. MoneyCoach LLC is not affiliated with Belpointe Asset Management, LLC. 

 

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One thing you can do to … your retirement savings

Re-posted from MSN Money

Being able to contribute consistently enough to your retirement savings accounts is the most important aspect of any retirement plan, but it’s also by far the most challenging. So finding a way to make regular, adequate contributions easier is really the key to a successful retirement. And the best way to accomplish this is by having a written financial plan.

Why does a written plan help?

Self-help gurus uniformly urge their clients to write down their goals, plans, and dreams for a reason. Writing something down has a significant psychological impact on the writer: It makes that written declaration more “real” to us and gives us accountability. Once it’s in writing, we feel more compelled to follow through on it. For a task like saving for retirement, that feeling of accountability can make all the difference in sticking to a contribution plan versus having a plan but only contributing “when it’s convenient.” A written plan also motivates us by reminding us what we stand to gain tomorrow by sacrificing today.

The power of written financial plans

A recent study by Charles Schwab highlighted the impact that written financial plans have on retirement savings. The study compared various financial attributes of Americans with a written financial plan to those who did not have one. For many important financial tasks, the difference between the two groups was startlingly high.

For example, 27% of savers with written financial plans maxed out their contributions to their retirement savings accounts, compared to 11% of savers without plans. Thirty-four percent of savers with written financial plans had investments in addition to their retirement investments, versus only 16% of those without written plans. And 49% of savers with written financial plans felt very confident in their ability to reach their financial goals, as opposed to just 13% of those without written plans.

Starting your financial plan

Financial plans come in many forms — debt payment plans, down payment savings plans, investing plans, and so on. And while the idea of creating a financial plan may sound daunting, in reality such a plan can be extremely simple, as you’ll see shortly. We’ll focus on a retirement savings plan, but the principles are similar for creating any type of financial plan.

First, your plan needs a goal. For a retirement savings plan, the goal will typically be to save enough during your working years so that when you reach your planned retirement date, you will have enough money to live comfortably for the rest of your life. Because different savers have very different ideas of what “living comfortably” entails during retirement, the exact number you end up with as a savings goal will depend largely on your own preferences and situation.

In order to know how much money you’ll need to save for retirement, you first need to figure out how much you’ll be spending during that time. Ideally, you’ll write up a list of the expenses that you expect to carry during retirement and add them up. If that sounds like too much work, you can get a pretty fair estimate based on your current income.

If you anticipate a fairly sedate retirement without a lot of fancy, expensive activities, you can assume for planning purposes that 80% to 90% of your current income will suffice as annual income during retirement. Aim for the low end of this range if you’re sure you’ll be debt free by the time you retire (that includes owning a home that’s completely paid off). Otherwise, aim for at least 90% of your current income. On the other hand, if you dream of an adventurous retirement touring the capitals of the world, aim for at least 100% of your current income (or possibly even more, if you have really expensive plans).

Making it official

Once you have a goal for your retirement income, you can plug that number into a retirement calculator to find out how much you need to save in order to hit your target by your planned retirement date. Let’s say that your goal is to save $1 million by age 65 and the retirement calculator tells you that in order to reach your goal, you need to save $1,000 per month. Write this down in a form that will inspire you to follow through. For example, you might write “Millionaire by age 65: $1,000 every month into the 401(k).” Then post a copy of this document somewhere you’ll see it on a regular basis, such as next to your bathroom mirror, on the front of the refrigerator, or attached to the side of your computermonitor.

Just having the plan in writing, staring you in the face on a regular basis, can work wonders to improve your follow-through.

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6 Money Saving Tips You Can’t Afford To Miss

Re-posted from AICPA.ORG

6 Money-Saving Tips You Can’t Afford to Miss

Those fun, light-hearted GEICO commercials that ask if you are tired of paying too much for car insurance hone in on the idea of wasting your money –– paying too much for something or not getting enough.

As a CPA who is passionate about making my hard-earned money work for me, it’s important to take time to critically analyze what my cash is doing. Busy lives often lend themselves to costly complacency in one’s personal finances. Basically, we want bill paying done and our retirement planning intact with as minimal effort as possible.

At least once per year, I do a serious deep-cleaning scrub on my family’s finances. I look at what we’re paying and why, and I see where we need to do better. This “scrub” saves us thousands of dollars and I suggest each of you take a few hours each year to review your finances critically. Don’t let your money run itself; it needs you to keep it on track.

Here are six tips to make your money work for you (consider sharing these with your clients):

  1. Carefully review your credit/debit card auto-drafts.

Did you join Consumer Reports to get insight on what car to buy and forget to cancel it after your purchase? Or sign up for other subscription services that you haven’t used in months? Review your statements for these $10-20 no-value bills. Though small, they add up quickly.

On the flip side, auto-draft anything you can to your credit card. You’ll consolidate bill paying, and get paid to pay your bills. Often, electricity, water, cable, etc., can be auto-drafted. One can easily earn hundreds of dollars each year (in points and rewards) by effectively using a credit card. But, don’t forget to pay off the balance each month! Interest on credit cards is extremely costly. I suggest setting up another auto-draft to pay your credit card bill directly from your bank account.

  1. Bundle your insurance (home, automobiles, etc.), and scrutinize rate increases.

These bills can significantly fluctuate each year as your insurance carrier offers new incentives or changes its rates (sometimes arbitrarily). This year, I noticed our home and auto insurance went up by about $1,500. After calling my agent, I learned that there was an explanation for some of it (insurance regulation hiked up the price), but there was no excuse for the bulk of it. After asking my agent to price shop, I decreased my bill and increased my coverage. My agent wasn’t going to do this price shopping without my nagging, but a five-minute phone call saved me over a thousand dollars.

  1. Review your investments.

Make sure you are deferring appropriately to your 401(k), taking advantage of company matches and profit sharing plans. Also, ensure you’re planning for retirement with other investment vehicles (IRAs, etc.). Review your portfolio, making sure it’s well-balanced. Consider contacting your 401(k) or brokerage adviser to confirm your investments (as a whole) keep your plans on track. Consider making serious adjustments the older you get; the closer you are to retirement, the less risk you may want to take.

  1. Know the market rates for cell phone plans, cable, internet, etc., and don’t be afraid to negotiate.

Cell phone rates have actually gone down recently as more competition enters the market. If you bundle plans with family members, you may be able to save even more. Plus, many employers offer their employees discounts for certain carriers.

Cable/internet, for example, is a bill that I need to renegotiate each year. Otherwise, they go up significantly. Call your cable/internet company and ask about promotions, and let them know you’re not happy that your bill went up. Talk to someone in their customer retention group. They usually have more flexibility to keep your rates lower (or offer you freebies like premium channels) to keep you from switching to a competitor. If it doesn’t go well the first call (and you have time and patience), call back. A different representative may give you a better deal.

  1. Review your debt financing and interest rates.

Prioritize what to pay off quickest based on which item has the highest interest rate. Explore where you may be able to decrease interest rates by re-financing or consolidating debt. Make an extra payment that goes directly to principal. You can save significant money by paying off your debt sooner.

  1. Know what you’re worth (net equity).

Annually, prepare a financial statement. Add up your assets (cash, investments, property, etc.) and subtract your liabilities (loans, etc.) to yield your net worth. Are you too heavily in debt, or saving enough for retirement? These are important questions to know your true financial health.

I use Mint.com (a free application) to track our family’s progress, but a simple spreadsheet or other system works. The point is: don’t let your finances be a surprise to you.

The AICPA is committed to helping us achieve financial security. Visit feedthepig.org for additional tips and resources to help you budget, invest and reduce debt.

Susan C. Allen, CPA, CITP, CGMA, Senior Manager, Tax Practice and Ethics-Public Accounting, Association of Certified Professional Accountants

Senior woman with a piggy bank isolated on white background.

Want to Be Rich?

Reposted from www.msn.com

Money Talks News

Stacy Johnson 9 hrs ago

I’ve been offering financial advice professionally for nearly 40 years. I’m also a millionaire several times over.

During my decades in the trenches, I’ve heard every conceivable piece of financial advice, acted on many and offered some of my own. Here are the best of the best, a few simple sentences you can follow that will absolutely, positively make you richer.

  1. Never spend more than you make, ever.

When I was 10, I started cutting grass to earn money beyond my meager allowance. Minutes after earning my first buck, mom was stuffing me in the car for a trip to the bank to open my first passbook savings account.

Fifty years later, priority one is still to put something aside from every paycheck and send out less than I bring in. Of course, life being what it is, it hasn’t always worked out that way. But in general, getting richer every month is as simple as spending less than you make and getting poorer is as simple as spending more than you make.

  1. Avoid debt like the plague.

Most people treat debt as if it’s a normal part of life. They divide it into categories like “good debt” and “bad debt.” They discuss it endlessly, as if it’s some mathematical mystery.

Debt’s not complicated. Paying money to temporarily use other people’s makes you poorer. Charging money to temporarily let other people use yours makes you richer.

Since paying interest makes you poorer, you only do it two situations: first, when you have to in order to survive;  second, when you’ll earn more on what you’re financing than what you’ll pay to finance it.

Unless borrowing is ultimately going to make you richer, don’t do it.

  1. Buy when everyone is freaking out and sell when everyone thinks they can’t lose.

Rich people ring the register when the economy is booming, but that’s not when they created their wealth. You get richer by investing when nobody else will: when unemployment is high, the market is tanking, everybody’s freaking out, and there’s nothing but fear and misery on the horizon.

The cyclical nature of our economy all but ensures bad times will periodically occur, and human nature all but ensures that when bad times happen, most people will freeze like a deer in the headlights. But it’s downturns that are the time you’ve been saving for.

If you think the world is truly ending, buy canned food and a shotgun. If not, step up. As billionaire investor Warren Buffett famously advised, “Be fearful when others are greedy and greedy when others are fearful.”

  1. You can either look rich or be rich, but you probably won’t live long enough to accomplish both.

When I worked as a Wall Street investment adviser, I quickly learned that people who have tons of money most often don’t look like it. They don’t have to. So who are the big shots wearing the fancy suits and driving the Porsches? Often it’s the people who make a living selling stuff to the rich people.

I can’t remember the last time I wore a fancy suit. I’ve never owned a new car, and I live in a house that’s worth about a third of what I could afford.

Diverting your investable cash into things like cars, clothing, vacations and houses you can’t afford will make you look rich now, but prevent you from actually becoming rich later.

  1. Live like you’ll die tomorrow, but invest like you’ll live forever.

You should always strive to get as much out of life as you can each and every day. After all, you could die tomorrow.

But here’s the thing: You probably won’t. Put something aside so you can continue soaking up what life has to offer for as long as possible.

  1. There are only six ways to get rich.

The only ways to get rich:

  1. Marry money
  2. Inherit money
  3. Exploit a unique talent
  4. Get exceedingly lucky
  5. Either own or lead a successful business
  6. Spend less than you make and invest your savings wisely over long periods of time.

Even as you’re aiming for any of the first five, practice the last one and you’re guaranteed to be rich eventually.

  1. The riskiest thing you can do is take no risk.

Whether it’s money, love or just life in general, if you want rewards, you have to take risks.

When it comes to money, taking risks means investing in things that can go down in value, like stocks, real estate or your own business. Can you get through life without taking risks? Sure, but as my dad was fond of saying, you’ll never get a hit from the dugout.

Invest $200 a month at 2 percent for 30 years, and you’ll end up with a little less than $100,000. Earn 12 percent on the same investment, and you’ll end up with nearly $900,000. Taking a measured amount of risk is the difference between getting rich and getting by.

That being said, making risky bets is simply gambling. Take measured risks. Minimize risk by knowing as much as possible before investing, not putting all your eggs in one basket and learning from your mistakes. Or better yet, learn from someone else’s.

  1. Never make your well-being someone else’s responsibility.

If you need surgery you have little choice but to trust your fate to a professional. But when it comes to your money, don’t ever turn over complete control to anyone.

Seeking advice is always a good idea. But no matter who that adviser is or how smart they are, your money is more important to you than it is to them. So if you’re not doing everything yourself, at least understand exactly what’s going on.

Virtually anyone can learn to navigate their finances. If you can’t be bothered to take responsibility for your own money, just keep in the bank. At least that way you won’t end up ripped off, broke and blaming someone else for your problems.

  1. When it comes to information, less can be more.

About 15 years ago, I put about $2,000 into Apple stock. As I write this, it’s worth about $300,000. Had I been watching financial news all day and reacting to all the pundits and market news, I’d have sold it long ago and been kicking myself today.

If you want to be rich, buy into high quality stocks and hold on to them for long periods of time. If you want to kick yourself, buy into high quality stocks, then sell them at the drop of a hat based on something or someone you saw on air or online.

  1. Time isn’t money; money is time.

Whoever said “Time is money” had it backwards.

Time is the one nonrenewable resource you have. Once your time is up, it’s up. So the trick is to spend as much of your limited time as possible doing stuff you want to do rather than working for other people doing stuff you have to do. Money is the resource that allows you to do this.

If you go to the mall and spend $200 on clothes, that’s $200 you could have invested. If you’d earned 12 percent on that $200, in 30 years you’d have accumulated a little more than $10,000. Ignoring inflation and assuming you could live on $5,000 a month, forgoing those clothes today means retiring two months earlier.

Of course, you must have clothes. But maybe you don’t need $200 worth, or maybe you could have gotten them for less at a consignment shop. It’s your choice: expensive stuff today or free time tomorrow. Those who choose the former often stay poor. Those who choose the latter often get rich.

Which will you choose?

 

Women stressed over finances

When Should You Rebalance Your Portfolio?

Reposted from MSN Money

Even if a family member’s poor money skills won’t affect your pocketbook, sometimes a money conversation is necessary.

Rebalancing is an important (and often overlooked) step in creating and maintaining a diversified investment portfolio that is also consistent with your risk tolerance.

After you set up your initial asset allocation, the different investments in your portfolio will gain or lose value as the market goes up and down. Since your underlying holdings are not the same, they will all behave differently as the market moves, some growing much faster than others.

In order to realign your current portfolio to your target asset allocation, you must rebalance.

Rebalance to align with your target asset allocation. When you first set up your asset allocation, you (ideally) did so with your risk tolerance, investment goals, and other considerations like time horizon in mind. In evaluating these factors together, you may be able to determine how conservatively you can be invested and still reach your goals.

[See: 8 Times When You Should Sell a Stock.]

Your individual risk tolerance is a key component here. Taking on more risk than you’re comfortable with to achieve a goal more quickly can have disastrous consequences on a portfolio. Truly risk-averse investors often panic and sell when the market sustains continued losses, only to re-enter when prices are high.

Whether you are working within the confines of your retirement plan or have a vast universe of investment options available in a rollover individual retirement account or brokerage account, creating an asset allocation that is appropriate for your varied goals can be complicated. Whatever you’re investing for, if you aren’t confident in your ability to develop and maintain a risk-adjusted diversified portfolio, consider working with a fee-only financial advisor and fiduciary.

When should you rebalance your portfolio? Rebalancing is the process of realigning your current portfolio holdings to your target asset allocation. What this truly entails is counterintuitive to many investors. When you rebalance, you sell positions that outperformed and use the proceeds to buy more of a position that did not grow as quickly.

Although this may be a bit painful for some, recall two important principles of investing: past performance does not indicate future results; and that holding a diversified portfolio can help mitigate losses during the market’s inevitable ups and downs.

Here’s an example. Suppose your target asset allocation contains the following: 50 percent large-cap U.S. equity, 20 percent small-cap U.S. equity, 15 percent foreign developed markets equity, and 15 percent U.S. fixed income.

Now suppose the following year your holdings are 55 percent large-cap U.S. equity, 30 percent small-cap U.S. equity, 7 percent foreign developed markets equity, and 8 percent U.S. fixed income.

As a result of the market, your portfolio is now weighted 8 percent more heavily toward equity than originally modeled. Further, the allocation to small-cap equity had increased 50 percent from the initial asset allocation.

Asset classes with more reward potential also carry greater risk. As these holdings benefit from a favorable market cycle, rebalancing involves liquidating out a portion of your holdings and redistributing the proceeds to other assets in your portfolio. This process can not only help protect your investments by limiting your exposure during a market downturn, but it can also help ensure you maintain adequate exposure to potential gains in other asset classes.

It is possible to rebalance your portfolio at any time, although it is typically only recommended once or twice per year. As you review your holdings, try to set bands in which you’re comfortable with an asset class straying from its target allocation. In another words, your holdings will continue to shift with the market, so it may not be worth rebalancing to correct a small 2 percent variation.

Tax consequences of rebalancing a brokerage account. When you rebalance a tax-deferred retirement account like a traditional IRA, 401(k), or 403(b), there are no immediate tax consequences. However, when you rebalance a taxable brokerage account, you will owe capital gains tax on your gains, even if you reinvest the proceeds. Selling other positions at a loss can help by offsetting your gains, but there may still be tax implications to the extent your overall gains exceed your losses. As such, if you’re planning on overhauling your investment strategy, you may want to do so over two years.

There can be other costs to rebalancing as well, such as trade fees and commissions. Working with a fee-only advisor can help offset the expense of rebalancing, as they do not receive commissions or sell products like insurance or securities.

An advisor can also help you develop your investment strategy and create a financial model to integrate all of your goals together in one cohesive plan. Self-managing investors often turn to financial products, like annuities or permanent life insurance, to help put cash to work when they’re unsure of how to create an asset allocation. Unfortunately, these types of products often carry very high fees for the investor and sizable commissions for the individual selling the product.

[See: 7 Stocks That Could Save Your Portfolio.]

Whether you’re focused on growing and preserving your retirement fund, a major purchase, or are just saving for the future, give your hard-earned investments the best opportunity for success.

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