Tips For Saving on Investments & Retirement
1. Be aware of mutual fund brokers that make promises a specific monetary return. It is impossible to guarantee investment returns so anyone who makes these promises is likely out to scam you.
2. Don't assume you'll spend less in retirement than you do now. Research indicates that people spend as much in retirement as they do before retirement. Set your investment goals so that your retirement income matches your current income.
3. Don't forget the simple rule that high investment returns equate to high risks. In most cases, the higher the interest rate offered, the higher the risk of losing a part, or all, of your monetary investment.
4. Don't forget to calculate inflation when considering where to place your long term savings. Inflation has historically reduced the value of your money by 3.2% each year meaning a yield below that is actually losing money.
5. For long term savings, stocks have historically outperformed all other investments with an average annual gain over 10% since 1926. Bonds, the next best performing asset over that period, returned only 5.3%. Over the short term, however, they can be hazardous. In 1987 stocks lost 22.6% in one day.
6. If you are considering hiring a financial planner, make sure they have earned either a Certified Financial Planner or Personal Financial Specialist certification. This is important because virtually anyone can claim to be a "financial planner."
7. If you have never done so, or have not done so in the past year, take a full day to list your financial goals, along with a realistic plan for achieving them. Reaching your financial goals is much easier when you have a plan to follow and your goals are clearly defined.
8. If you plan to sell an appreciated asset such as stock to help pay for your children's college expenses, sell the asset in the year prior to applying for financial aid. Doing so will keep any capital gain from being included in your current income. If you sell it the same year you apply for financial aid, you will look more prosperous than you really are.
9. Put your pocket change at the end of each day in a jar. If you put away a $1 a day and invest it tax free (Roth IRA) and get a 10% annual return, that $1 a day will be worth over $67,000 in 30 years. Not bad for pocket change.
10. When investing in stocks, seriously consider an index fund. Actively managed funds usually have higher fees and most aren't able to consistently outperform the market by enough to cover these higher costs when compared to an index fund.
11. When planning your long term savings, don't sacrifice your retirement savings for saving for college. When your children reach college age, they will have a wider variety of money sources for their expenses than you will have after you retire.
12. When saving for retirement, don't assume you'll spend less than you do now. Research indicates that people spend as much in retirement as they do before retirement. Set your investment goals so that your retirement income matches your current income.
13. When seeking financial advice from a financial planner, seriously consider a fee-only planner. These financial planners don't receive commissions on any investments that they recommend which helps to ensure the advice you get is entirely in your best interest and not in the planner's.
14. When you have your savings in low interest paying accounts, you may actually be losing your savings even when it appears you are gaining. The yearly inflation rate for the cost of goods and services can easily outpace what banks pay in interest-bearing accounts.
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