Basic Investment Advice #1: Buy Low and Sell High

No one can predict the market fluctuations.  We have a 1 in 365 chance that we will buy our investments on the lowest day of the year, and sell them on the highest day of the year.  Since those are really not good odds, the best investment advice is to continuously buy into the market on a regular basis.

The strategy of regularly buying Mutual Funds on a weekly, biweekly, or monthly basis through pre authorized contributions is called Dollar Cost Averaging.  When we continuously purchase investments we are buying into the market when it is high and when it is low.  Therefore, the average cost of our investment is lower than it would be if bought into the market on a high day.

Basic Investment Advice #2: Invest for the Long Term

It is very important to start investing at a young age and stay invested during market fluctuations.  Very often people panic when the market is experiencing a downturn, and they sell their equity investments at a loss to purchase more secure fixed income investments.  This is the exact opposite of a smart basic investment strategy.  We want to buy low and sell high, not sell when the market is low and buy back in when the market is high.

We have to be comfortable with the level of risk versus return that comes with our investment options. Before you purchase your Mutual Fund or Stock Investments you have to ask yourself, am I comfortable with the potential return for the possible risk involved? If you are looking for a 7 or 8% return, then you also have to be comfortable with the possibility of your investment value declining by 7 or 8%.

If you are new to investing consider buying a Balanced Mutual Fund.  This is a medium risk fund that will experience moderate fluctuations in the daily value.  A Balanced Mutual Fund usually has a 60/40 asset allocation in Equity and Fixed Income.  Mutual Fund Investors receive their account statement on a quarterly basis, it is important to review your quarterly investment account statement to make sure that you are comfortable with the risk versus return of your Mutual Funds.

Basic Investment Advice #3: Choose Personalized Investments for Your Goals

Many Mutual Fund Companies offer Select Portfolios and Target Date Mutual Funds which are designed for specific types of investors or for a target investment date.

Select Portfolios offer the perfect asset allocation for your individual investor profile.  Select Income Portfolios, Balance Portfolios, Growth Portfolios, and Aggressive Growth Portfolios are offered by most Mutual Fund Companies.  Select Mutual Fund Portfolios are the perfect solution for investors who want a simplified investment option, and who do not want the hassle of choosing their own individual investments.

Target Date Mutual Funds are designed for investors who are going to stay invested until their specific target date in the future.  These funds are commonly used for investors who are investing for a specific goal such as saving for the down payment of a home, investing for their education, or saving for retirement.

Target Date Mutual Funds are more aggressive the farther away they are from the target date.  Every year as we approach the target investment date the Mutual Fund asset allocation is rebalanced to become more secure and less risky.

Fidelity Investments offers the Fidelity Asset Manager Mutual Funds that focus on the asset allocation.  Fidelity Asset Manager Mutual Funds are based on an Investors tolerance toward risk versus return.  Fidelity also offers Lifecycle Mutual Funds which are also known as the Fidelity Freedom Funds.  These Target Date Mutual Funds range from 2015 to 2050.

How Can I Protect My Retirement Plan in case of Divorce?

People should leave a marriage with everything that they brought into it.  I personally do not feel that personal assets should be split during divorce unless they were accumulated together.  However, my opinion is not the law.  In an ideal world couples would keep their assets separate during a marriage and equally contribute to all purchases and expense.  This ensures that all personal assets such as personal retirement plans and personal pension plans remain sole assets of the individual who contributed to them.  However, this is in an ideal world; it is not the law, nor is it reality.

Very often is the case that one spouse in a marriage earns a higher income than another spouse.  Therefore, one spouse may contribute a higher percentage to the monthly expenses and purchases than the other spouse.  Although it is advised that all contributions towards expenses are divided equally among both spouses, this is not always possible.  Upon divorce the spouse who contributed more towards the expenses may ask to be financially compensated for their contribution over the years.  Monthly expenses include housing costs, the utility bills, as well as the grocery bills.  Expenses are considered anything that is intangible and/or shared equally by both spouses.

Equally splitting purchases is not as important among spouses.  Upon divorce the spouse who paid for a purchase can take the item with them.  Purchases include household furnishings as well as vehicles and personal items.  Purchases are tangible items that we can physically possess and take with us when we leave the marriage.

What Happens to my Retirement Plan in Divorce?

Usually all assets accumulated during a marriage are split equally among both spouses.  However, this may not always be the case.  It is important to inquire on your state or provincial laws prior to getting married, this ensures the security of your personal assets and personal retirement plans.

It is important to note that some states and provinces allow us to split our income with our spouse during retirement.  This means that the spouse with the higher income during retirement can allocate some of their income to the other spouse.  This is a very tax advantageous retirement strategy for couples who retire together.

The best way to protect our retirement plan in case of divorce is to have a pre nuptial agreement.  This will ensure that any retirement savings accumulated during the marriage will not be split equally among spouses during a divorce.

The 5 Most Expensive Celebrity Divorces in History According to Forbes:

Kevin Costner and Cindy Silva.  After a 16 year marriage Kevin paid his ex wife an $80 million settlement upon divorce.

Harrison Ford and Melissa Mathison.  After only 6 years of marriage Harrison Ford paid his ex wife $85 million in their divorce settlement.  Melissa Mathison also receives a piece of the future earnings and royalties from the films that Harrison Ford made while they were married.

Steven Spielberg and Amy Irving.  Spielberg paid his ex wife $100 million after only 4 years of marriage because Irving contested their prenuptial agreement.

Neil Diamond and Marcia Murphey.  After 25 years of marriage Marcia Murphey filed for divorce and was awarded $150 million in a divorce settlement.  This amount represented approximately half of Neil Diamond’s net worth at the time.

Michael Jordan and Juanita Jordan.  Although their divorce is not yet finalized, it is reported that Michael Jordan earned over $350 million during their 21 years of marriage.  If Juanita Jordan is entitled to half of Michael Jordan’s fortune she could receive approximately $175 million in her divorce settlement.

Here are the Other Posts in our Retirement Planning for Young 20 Something Investors Series:

How Often Should We Review Our Retirement Plan?

What is a Financial Planner?

Saving For Retirement: An Easy How To Guide

What Are Your Retirement Needs?

Start Planning Retirement in Your 20s

Good Morning Green Panda Readers.  I hope that all of our Canadian friends are enjoying the day off from work for Victoria Day.  Today we are going to discuss the exact reason why we all wake up every day and go to work.  We work to hopefully retire financially comfortable and maintain our desired lifestyle.

How Often Should We Review Our Retirement Plan?

In order to retire comfortably we have to create and regularly review our personal retirement plan.  We should sit down with our Personal Financial Planner and review our retirement plan at least once a year.  It is a good idea to review our retirement plan at least once a year to make sure that we are on track and working towards our retirement goals.

If we are new to investing it is a good idea to review our retirement plan twice a year with our Personal Financial Planner.  This ensures that we are comfortable with the level of risk in our investment portfolio, as well as the fluctuations in the value of our investment options.  We should also visit our Personal Financial Planner after we receive our first quarterly account statement to ensure that we fully understand our investment options.

Why Should We Review Our Retirement Plan?

Reviewing our retirement plan at least once a year allows us to update or change our retirement goals as needed, as well as review our investment options.  With each year that we get closer to our target retirement date our goals may change; if they do our investment options will have to be adjusted accordingly.  The closer we get to our target retirement date, the lower risk our investment options should be.

When Should We Start to Withdraw Funds From Our Retirement Plan?

People can retire and start withdrawing funds from their retirement plan at any age between 55 and 65 years old.  Early retirement for some people can begin at 55 years old, but some people who love their job decide to continue working past the age of 65.

Two of the main aspects of our retirement plan are deciding how much retirement income we will need to live comfortably in retirement, and where our retirement income will come from.  Once we determine how much income we will need in retirement, we can start planning where our retirement income will come from, and when we should start to withdraw funds from our personal retirement plans.

Our first source of income is to withdraw funds from our government pension plans such as Old Age Security as well as the Canada or Quebec Pension Plans.  We should also start to withdraw funds from our Employer Pension Plan whether is a Defined Benefit or a Defined Contribution Pension Plan.

As a last source of retirement income we should start to withdraw funds from our personal retirement savings plans such as an RRSP or a 401k.

In Case You Missed Them, Here are the Other Posts in our Retirement Planning for Young 20 Something Investors Series:

What is a Financial Planner?

Saving For Retirement: An Easy How To Guide

What Are Your Retirement Needs?

Start Planning Retirement in Your 20s

Photo by Baltic Development

Good Morning Everyone.  It’s time for another post in our Retirement Planning For Young 20 Something Investors series.  As a Financial Planner I am often asked the question how much should I save for retirement? The honest response is that there is no easy answer.  Retirement is different for everyone, and depends on our personal situation.

How Much Should I Save for Retirement?

How much we should save for retirement depends on our pre retirement income as well as the lifestyle that we wish to maintain during retirement.  The retirement needs of someone who is mortgage free are different from someone who retires with a mortgage on their home.  The retirement needs of someone who plans to fund their grand children’s education is completely different from someone who has no financial dependents.

There are two very basic financial principals that apply to anyone who is saving for or planning their retirement.  In order to save for retirement we must Create Our Investment Portfolio as well as Start Planning for Retirement Early.   If we choose the right investments and we start saving at an early age, we are already on the right financial track towards saving for our retirement.

Retirement savings are an important part of our retirement goals.  We can determine how much we need to save for retirement by using a 401k Calculator.  In general our retirement income should be approximately 70% of our pre retirement income.  Using a 401k Calculator can help us determine the future value of our investments, as well as how much we need to save now for our future retirement.

Easy Strategies to Help Save for Retirement

The easiest way to save for our retirement is through pre authorized contributions.  This allows us to contribution a fixed amount (the minimum is usually $25) into our 401k or retirement savings plan on a regular basis.  A pre authorized contribution withdrawals money from our bank account and deposits the money into our retirement savings account.  It is an automatic transfer at the frequency that we choose, such as biweekly or monthly.

Another easy way to save for our retirement is to invest our year end or quarterly bonus directly into our 401k or our retirement savings account.  This guarantees that we will keep continuously saving throughout the years.

Retirement Planning and 401k Calculators

Many financial institutions offer a variety of 401k calculators to help clients save for retirement:

Chase Bank offers the Chase Retirement Calculator to help us work towards our retirement goals.  The Chase Retirement Calculator is complete with retirement goals, investment and savings strategies, calculations, as well as suggestions on the next steps and plan of action.

Mint is budget software that allows us to work towards various financial goals which include retirement.  We can import our current retirement savings account information from our financial institution directly to Mint and they will keep us updated on the progress of our retirement goals.

HSBC tells us that It’s Time to Prepare for The Future of Retirement.  Their website offers many helpful links for all types of retirement lifestyles such as living abroad, planning early retirement, evaluating our retirement needs, and downsizing our home.  The HSBC retirement process is done in three steps which include Planning for Retirement, Approaching Retirement, as well as Living in Retirement.

Photo by Images of Money

The Role of a Financial Planner is to assist us transition smoothly between our different financial life stages while maintaining focus on our various financial goals.  Honesty and Open Communication are two very important qualities in a good financial planner, as well as having a very strong knowledge of products and the financial services industry.

It is very important to be completely honest with our financial planner because it is their role to provide professional financial advice on our entire financial situation, not only our assets with their financial institution.  Although financial planners do have annual sales objectives, their primary role is to manage client relationships.

The main role of most financial planners is to assist clients with their investment and retirement needs. This also includes Estate Planning and Tax Planning.  It is important to consult with a financial planner to make sure that our investment and retirement goals are attainable with a professional financial plan.

The role of a financial planner is to assist us to start planning for our retirement in our 20s, and make sure that we stay on the right track over the years to come.  We should maintain regular contact with our financial planner throughout the year and meet with them in person at least once a year.  Regular communication with our financial planner ensures that we remain focused on our financial goals as well as stay on track for our retirement plan.

Between the age of 20 and the age of retirement we can have many other financial goals which may include paying off debts, buying a car, travelling the world, as well as buying a home.  The role of a financial planner is to help us achieve as many of our financial goals as possible.  If we have a financial or retirement goal that is unrealistic, it is also the financial planner’s role to tell us that certain financial goals may not be attainable. The Financial Planner role is like a psychic, we have to accept the good with the bad.

One of the benefits of the financial planner role is that we offer our clients comprehensive or simplified financial plans. A financial plan is a clear picture of our current financial situation presented with our path to achieve our various financial goals throughout the years.  As our information changes over the years, our financial plan will need to be updated to always remain current.

A simplified financial plan focuses on one or two specific goals; while a comprehensive financial plan focuses on our entire financial situation, which also includes managing our money after we have passed away.  The financial planner role does not cease upon death.  Very often a financial planner will take part in the estate process.  The relationship between a financial planner and their clients usually extends to a family relationship that includes immediate as well as extended family.  After the head of household passes away the financial planner role extends to the family and continues to manage money for the family.

The role of a financial planner and our relationship with a financial planner are crucial for determining, working toward, and achieving all of our investment, retirement, and financial goals. Most major financial institutions offer financial planning services free of charge for their clients.

Photo by D’Arcy Norman