Market Beat: The importance of planning
It’s one thing to buy some good stocks and be satisfied with the returns you get, but getting a good return on your investment portfolio is just part of the picture. Every investor is unique, and it is critical to follow a plan that fits your individual needs.
Knowing your investment time frame is one factor. Young people with 20 years or more to retirement should start an investment plan as soon as they start working.
If you have a retirement plan at work with some type of a matching contribution, take advantage of that. Even a small amount of money invested on a regular basis into a fund that produces market returns can grow to a substantial amount over a long period of time.
Investing on a regular schedule is known as dollar cost averaging and is a strategy that makes market volatility work in your favor.
Planning for retirement early can help you get a good start. Most advisers recommend that you withdraw no more that 4 percent per year from your retirement account adjusted each year for inflation if you want to preserve the principal. That means a $1 million retirement account will only produce $40,000 a year with an inflation adjustment.
One of the most common mistakes investors make is to underestimate their medical costs and their long-term care costs. Staying in an assisted living center can cost upward of $5,000 per month. Medical costs can rise more than the rate of inflation.
Use a team approach with your advisoes; you’ll probably need to talk with an estate planning attorney, a CPA and your financial advisor. Start your estate planning early, too. Virtually everyone can use a revocable living trust. Pay attention to the trustee selection, many people will use a family member and that can lead to potential conflicts and create a lot of work for a family member. You might want to consider using a professional trustee.
Women face some unique planning issues relative to men. On average, women will live about seven years longer than men. The average age of widowhood is just 56 years old. Most married women are younger than their spouse. The typical male born today will live 75.5 years and the average female is expected to live 80.5 years.
It is well worth the effort to educate yourself about finances and start the planning process early in life.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information on his money management service can be found at his blog at http://www.sellacalloption.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.