Retirement Guys: Four tips for a better investment planWritten by Nolan Baker Mark Clair | | firstname.lastname@example.org
Mark and I have recently started working on a new educational series for consumers that helps guide them better manage their money, protect their hard-earned assets and efficiently plan their estate.
The series is called “The Essential Series: The Essentials for Investing, The Essentials for Asset Protection, and The Essentials for Estate Planning.” The goal is to help the average investor discover where he or she stands financially, gain knowledge and continue to move forward toward creating a better comprehensive plan. As we put the final touches on “The Essentials for Investing,” we wanted to share with our readers four tips investors should be able to answer in order to create a better investment plan.
- Investors should understand the current investment plan and how it works. Often when we meet with investors, they own several different investment accounts. The primary goals of those accounts are usually either protection of principal or long-term growth. Two more in-depth answers an investor should have is what is the investment methodology and the specific purpose for each account. The methodology should describe the disciplined process used to reach the investment goals and objectives. Understanding the specific purpose and timeframe of when the account will be used will be helpful in picking suitable investment options.
- Control the total cost and yield of investment accounts. All financial products come with a cost and have the potential for yield. Both safe and risky investments have costs. Nothing is for free. In talking with thousands of investors over the years, we have found that many investors have not done a complete cost and yield analysis on their total investment picture. For example, look at the difference just 1 percent can make over time. An investor who earned 5 percent annually would need $269,000 to fund $1,000 per month for 30 years with a 3 percent annual increase. Yet, if the annual net return is increased just 1 percent, only $237,000 is needed to fund the same goal. That 1 percent means a difference of $32,000 over the long term.
- Take action to reduce the amount of income taxes paid on withdrawals from retirement accounts. In the good old days the average investor was taught to save in tax deferred retirement accounts like IRAs and 401(k)s. As the saying goes, as you get older you spend less and won’t need as much income as you do in your working years. In reality, that often is not the case for many of the seniors and retirees we meet with. That means the majority of a retiree’s income is going to come from traditional tax deferred retirement accounts that have never been taxed. Income taxes can significantly reduce the income the retiree receives. A solution is to work on building up tax-free accounts to compliment tax-deferred investments. Consider a plan that can help fund the earlier years of retirement when income needs could be higher while you are enjoying the fruits of your labor.
- If the stock market started to decline, know what specific steps should be taken to avoid losses. We call this running the fire safety drill. I, Nolan, having two young boys, have a variety of fire safety tools built into my home. From circuit breakers to smoke detectors and fire extinguishers, I have the tools in place to respond if a fire ever breaks out in our home. I also talk every year with my family about not only how those fire safety tools work, but what to do when they go off. That way, hopefully they will avoid a panic and be able to get out safely. In the investment world, the same logic applies. An investor should have a variety of tools in place to not only help prevent, but quickly put out a financial fire if one occurs. If the fire looks like it is going to get out of control, he or she should know the exit plan and who to call for help. This plan needs to be in place before the financial fire happens.
For more information about The Retirement Guys, tune in every Saturday at 1 p.m. on 1370 WSPD or visit www.retirementguysnetwork.com. Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc. does not provide tax or legal advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. 419-842-0550
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