Random Thoughts about Investing

green-investment

 

Investing can be a scary word especially to those who have never done it.  There’s lots of reasons why people put it off, and usually the reasons boil down to simply fear of the unknown.  That’s how I felt before I took the plunge and started investing.  So I thought I would just casually talk about investing from someone who isn’t an expert.

 

It’s no secret that I used Dave Ramsey’s baby steps to get out of debt and start planning for my debt free future.  However, when he talked about investing I glazed over like most people.  So many thoughts came to mind – How in the world do I do that?  I’m no investing expert. Do I have enough money to start investing?  There were lots of fearful thoughts, but my favorite was the image in my head of a financial planner looking at me and shaking his head and saying “Boy you have lost a lot of time!”  The truth is, everyone has made financial mistakes.  The important piece of the puzzle is moving on and learning from our mistakes.  So let’s move on.

 

courage

After summoning the courage to let someone look at my finances, I made an appointment with an ELP (endorsed local provider) from Dave Ramsey’s website.  The financial planner had a list of things he wanted to see.  Basically everything in my life pertaining to money.  So I prepared for the worst and went to our first meeting.  He looked over everything and said we were in better shape than most people our age.  Really? I thought.  I didn’t feel like we were, but I was just glad the meeting was headed in a positive direction.  It was a very different experience from the one in my head.

 

The planner took time to show us how we needed to invest and why.  He was able to give us our numbers we would be retiring on, and they were way bigger than we ever imagined.  The planner advised us how to invest in the funds he was setting up, and the funds my husband’s job offered.  We left there more confident in our retirement, and we knew how to get there.  Plus, we didn’t pay a dime for that meeting.  So many people believe they can’t afford a financial planner, but they really can.

 

Money Tree

Okay stay with me.  You really want an investment planner that’s a fiduciary.  All that means is that they have to put you first.  So they aren’t going to just make money for themselves, but you as well.  There are a few ways your planner gets paid, but my planner is paid from Front End Load.  Basically they take their cut before investing the contributions.  For example if you invest $10,000 and the front-end load is 5.75% or $575 the remaining $9,425 is invested.  Some people like this, and some people don’t.  Dave recommends paying your advisor this way.  Some people complain about the investment fees, but honestly I don’t mind.  The bottom line is I can’t make myself the money I am making without a paid professional.  I know people are turning to online investing because the fees are cheaper. Call me old fashion, but I like looking my financial planner in the face while he explains how my money is being invested and why, and I am able to ask real time questions.

 

So what kind of advice do you get from a planner?  I know this will come as a new revelation, but diversify!!! We have all heard this somewhere or another, but it’s great advice.  If one fund goes south, chances are you have other funds doing really well.  So it balances itself out.  You want all your investments diversified – even your 401K.  We were glad all our eggs weren’t invested in my husband’s companies stock because it went down quite a bit.  So we lost a little bit, but it’s an unrealized loss considering we didn’t do anything with the stocks.  The bottom line is it hurt us on paper, but we have the next 25 years to recover.

 

time-is-money

Time is your biggest asset when it comes to investing.  Take a look at this.  www.darwinsfinance.com , but don’t let it scare you though.  I didn’t invest in my twenties.  I just want you to see how important time is.  Investing smaller amounts of money over a longer period of time is better than larger amounts over a shorter amount of time.  That’s the magic of compound interest.  Plus, it can be fun to invest in your twenties because you can invest more aggressively due to the fact have time to recover.  So if you like a little excitement, and you want to take some risks you can.  My son is in his twenties and we have talked about him taking some risks that I would never do because of my age.

 

Dave Ramsey suggests you invest 15% of your gross income.  You first want to max out the match on your 401K if you have one at work.  Then max out your Roth IRA.  If you still haven’t hit your 15% then put the rest into your 401K.  We also opened a fund to save up to pay cash for a car.  Instead of paying interest, we make interest.  Plus, the car account keeps me from doing something stupid like buy an expensive car.  Cars depreciate, so that is not where I want a huge part of my money going.  It’s better to have a more expensive home than vehicle.

 

car

Think about this too when paying cash for a car. That $20,000 car looks much better than the $30,000 one, considering I have to write the check and not just sign a piece of paper to finance it.  Here is a little math to prove my point.  If you have $30,000 to buy a car, but only use $20,000 and kept investing $500 dollars a month over 11 years when you go to purchase your next car you will have around $106,000 to buy your next car!  That’s at a 5% rate of return.  That’s a pretty nice car.  Okay let’s say you decide to buy a nice car at $50,000.  You take out enough for capital gains and you are left with around $51,409.10, so you keep investing $500.00 a month for 11 more years and you have $177,429 for your next car!!  Even if your rate of return is less, it’s still better than financing a car for 6 years. Saving for 5 years with a rate of return at 5% you would have $42,000.  The point I am making is that living way below your means and investing the difference will build wealth. Get ahead of the curve, not behind it.

 

This is my favorite part.  When I first went in to see my financial planner, I was like most Americans.  I was going to save up money that I could retire on.  So most of us plan for about 30 years right.  I guess we are hoping to be dead by then.  I am not sure what we are thinking?  What about our kids?  We should be empowering the next generation financially.  The Average American inheritance is around $180,000.  Honestly, we could spend that in a day by paying off debt, house, car etc.  Besides, that’s average. Half of us aren’t going to receive that much of an inheritance.  I am one of those people.  So I wanted to change that for my son and the next generations.  Now I’m getting to the fun part.  My financial advisor informed me that I don’t have to live off my retirement savings.  What??? I didn’t know that.  Then what do I live off?  He said you live off the interest of your investments and never touch the principal.  I never thought of that.  See, a financial planner is worth every dime.  I know year to year it will go up and down, but if you are bringing in enough to put a side to handle the lower years you really could live without touching the principal.  I like to estimate low, so my husband and I could live on 3% of the interest return and be fine, and even travel.  Then my heirs will inherit the principal of my investments.  Leaving them with way more than the $180,000 the average American gets.  Now that is changing your family tree. Let me just add this…Maybe you are in debt, and don’t feel like you have anything to invest. Go see that financial advisor. He or she will help you get out of debt, and probably even show you how you CAN start investing just a very little now. Don’t wait. It will be hard work. There will be sacrifice, but just five or ten years from now you will be grateful you made those decisions today.

 

 

Okay last thought…Protecting your assets from the government.  There are lots of ways of doing this, and again, a financial advisor is there to help guide you through these obstacles.  The protection I want to hit on here is long term care insurance.  This is an important insurance to have in case you need in home nursing care, nursing home care, assisted living facility, etc.  If you don’t have this insurance then Medicaid will step in, but they will only pay out after you have exhausted all your financial resources.  In other words bye bye inheritance for your kids.  Plus you have more options for your future care with having this insurance than you have without it.  Personally I want as many options for care as I can get. When do you purchase long term care insurance?  Around 50 years old is the suggested age.  Again, talk to your financial planner about this because they will know where and how to purchase the insurance.   Check out www.nerdwallet.com if you want all the particulars.

 

 

Left Overs:  I wanted to cover things that you might not think are that important in your retirement like Long Term Care Insurance.  I hope to take the scare out of retirement and get you moving toward planning your retirement.  After I got over the fear of the unknown, I actually found I like planning and talking about retirement.  I am looking forward to traveling and doting on my grand kids.  There is so much to be said about retiring with dignity.  I highly recommend talking to an advisor.  Check out www.daveramsey.com for a list of Endorsed Local Providers in your area.  Enjoy every aspect of your life.

 

While I’m not a certified financial advisor, I’ve learned some valuable lessons about budgeting and investing. If I can help you, feel free to reach out to me. I’d be happy to do whatever I can!

You can reach me anytime at info@needfree.com

 

begood

Happy Full Plate Friday!!!!

Clarissa Hallowell

 

 

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