Friday, June 30, 2017

4 Things Millennials Need To Know For Retirement

As a financial planner in the Chicago suburbs I work with millennials every day and make sure that they're capitalizing on these important ideas for planning:

Max Out Employer Matches

If someone offers you free money will you slap their hand away and turn it down? Of course, not! So, make sure this isn't what you're doing with your employer match in your 401K. Not everyone has the luxury of a 401K plan that offers a match so if you're someone who does make sure you're contributing enough to take full advantage of the match they offer. If your company doesn't offer any sort of match or retirement plan, then make sure you're utilizing a Roth IRA and maxing it out if possible too ($5500/year). 


Buy When The Markets On Sale!

If you walk into your favorite store and find out they're having a 20% off everything sale what are you likely to do? Pick up all your favorite items at the bargain price! Now, why is it that when the stock market goes on sale we all have the reverse instinct? Instead of buying while many great companies are selling for a discount we tend to panic and consider selling the great companies we already own. Don't be that person! When there's a correction or even a bear market look at it as opportunity knocking at your door. Smart investors know this may be their chance to buy some great companies at a steep discount. Investors who are nearing retirement have a much shorter investment horizon and therefore will be affected more significantly by a bear market. If they are in that category, then their portfolio should have already been adjusted so that they are taking on far less risk. Being that millennials are much further away from retirement we should salivate at the first sign of a market correction because it could be a great opportunity for us to buy.


Use Monthly Deposits

I wish I could sit down with every millennial investor and talk to them about monthly deposits. I feel many millennials don't realize they can contribute to a Roth IRA the same way that they contribute to a 401K. You can set up a monthly deposit from your bank account directly into your Roth or regular investment account on the day you get paid. The reason I love monthly purchases is because it allows you to buy pieces of the market at several different prices. It's certainly easier to make one annual Roth IRA contribution right in the beginning of the year (according to Morningstar you'll end up with more by investing an annual lump sum as opposed to monthly deposits) but not everyone can afford to do that which makes this an excellent alternative strategy.


Invest For Other Reasons Than Retirement

Remember, investing is not for retirement only. The smartest investors know that any major purchase or expense they have 5 years or more down the road may be reached far quicker through investing. Home purchases, vacations and college are all common investing goals that may be reached through investing instead of holding the money in a savings account that earns you nothing. Establish different buckets of money such as; short, intermediate and long-term buckets and adjust the risk on each bucket of investments to your comfort. As your goal nears you can adjust the risk and begin implementing more conservative investments to prepare for that major purchase or expense. 


I'm giving my blog readers exclusive access to my 5 Point Financial Plan completely FREE. The concepts in this plan are one's that I utilize in every new client meeting and set the foundation for proper financial planning. It's loaded with value and not something you'll want to pass up on. Click below to get  your own PDF version!



The views expressed are not necessarily the opinion of Woodbury Financial Services, Inc., and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Individual circumstances vary. Investing is subject to risks including loss of principal invested. A Roth IRA is not appropriate for every investor. Distributions made prior to age 59 1/2 may be subject to a federal income tax penalty. If converting a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted traditional IRA contributions and on all earnings. We suggest that you discuss tax issues with a qualified tax advisor.


Friday, June 9, 2017

How To Turn $50 A Week Into $500K

Earlier this afternoon I sat down for the first time with a client who was just beginning her investment journey. She, like many that I've sat down with before, came in full of questions and eager to learn more about investing and our strategy to ensure that she can reach all her goals and enjoy a comfortable life.

Before we go further - take a second and grab my 5 Point Financial Plan completely free for being a blog reader. Trust me, you'll thank me after you do. It's loaded with useful information to make sure you have all the best tools for planning your future!


After listening intently to all the goals and plans that she had for herself I asked this simple question, "Are you able to commit $50 a week to aid you in reaching these goals?". She of course responded with a quick "Yes", going on to say $50 a week would be no problem at all. The reason I asked for $50 a week is because that $50 is what we will use to build you a half million-dollar retirement account. Yes, that's all it takes is $50 a week placed into an account earning an average return of 7% a year. In other words, $200 a month for 40 years at a rate of 7% would leave you with just a touch under $500K. I'll illustrate this below:


As you can see, the beginning balance is zero, being that she was 25 years old we set the years to save at 40, we assumed a 7% annual rate of return on her investments and last we set the monthly contributions at $200.

I also asked her to make me one more promise, to promise me that when she gets that annual raise or a bonus check that we'll sit down again just like this and increase these monthly contributions so that as she climbs her way up the corporate ladder her investment accounts climb with her. For example, let's assume that in 15 years she is now making considerably more money than she was when we began her investment journey. She is now making right around $100K per year and we'll assume that after a 20% tax rate her take home pay is about $80K per year or a little more than $3K a month. That being the case, I would then say to her let's kick this retirement savings into overdrive and start contributing $100 per week now. All other things equal, for the last 20 years leading into her retirement she'll continue to contribute the $100 a week. Bumping that up for those last 20 years now gives her an additional $100K bringing her to a retirement account of about $600K. Couple that money with her employer sponsored plan, add in any other money she may have in the bank and suddenly she's put together a pretty nice retirement number.

I tell this story because these results are far from unrealistic and can be duplicated by anyone. If you have the discipline to set money aside each month and pay yourself first you will be rewarded handsomely later in life. So please use her story as a blueprint to write your own story because there are very few things about the future that we can control but this we can control and the smart investors are doing just that.


Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary.