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Don't Let Emotions Derail Your Financial Plan
Tweet Share on Facebook June 30, 2011 CommentYou might be familiar with Homer's epic tale of Ulysses and the Sirens. The mythical Sirens lived on rocky islands in the middle of the sea where they sang such beautiful melodies that passing sailors could not resist their call. Following the alluring melodies, these sailors would inevitably steer their boats toward them or even jump in the raging waters to get closer, always with the same result—disaster.
Ulysses possessed uncommon wisdom. He knew that his journey required that he pass the Sirens, but he wanted to hear the Sirens' call. He knew that doing so would render him incapable of rational thought, so he put wax in his sailor's ears so that they could not hear. Then they tied him to the mast so that he could not jump into the sea. He ordered them not to change course under any circumstances, and to keep their swords upon him to attack him if he broke free of his bonds.
[In Pictures: 10 Key Retirement Ages to Plan For.]
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Use Conservative Estimates When Planning for Retirement
Tweet Share on Facebook June 29, 2011 Comment (1)What is a reasonable rate of return for your investments over the long term? How long will you live, knowing life expectancies are increasing? How much can you count on from Social Security and pension plans?
If you're concerned about running out of money during retirement, you need to be realistic and conservative with your assumptions. Here are some tips to consider:
Assume your needed retirement income will be at least 100 percent of your current income. Most rules of thumb suggest you'll need between 70 percent and 100 percent, but plan on at least 100 percent to be safe. Nowadays, retirees want to travel, pursue hobbies, and live an active lifestyle, which generally means you'll need the higher end of these estimates. Medical costs in retirement are likely to rise as well.
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Is Gold the Best Inflation Hedge?
Tweet Share on Facebook June 28, 2011 Comment (2)No, not really. So why is everyone so interested in this precious metal? And what are your alternatives?
First, there are reasons that the price of gold is, and has been, increasing. But, with gold being a commodity, prices are mostly based on supply and demand.
Let's start with the supply side. Gold must be mined and that process is expensive. If mining output decreases below the long-term trend, there will be upward pressures on the price of gold. As the price increases, miners will likely ramp up gold extraction, which puts more money into their pockets. Remember, gold is also limited in quantity: If you put all of the gold ever mined into a single cube, it would measure about 65 feet on each side.
[In Pictures: 10 Key Retirement Ages to Plan For.]
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How To Avoid Becoming a 'Collector' of Investments
Tweet Share on Facebook June 27, 2011 Comment (4)This summer, 17 of Ralph Lauren's prized vintage sports cars are on display at an exhibit at Les Arts Decoratifs museum in Paris. I'm really into cars, so I admire Lauren's collection. I also like how he put his collection together. It didn't happen by accident. The fashion mogul could probably afford to buy hundreds of vintage cars, but he didn't. Lauren crafted a strategic plan to own the most rare and historically significant cars that are perfectly restored. Now he has one of the most valuable car collections in the world.
When it comes to investing, everyone should also have a strategic plan. A lot of people believe they have an investment plan that's diversified with some sort of asset allocation. However, what they really have is a collection of investments.
[In Pictures: 10 Key Retirement Ages to Plan For.]
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Secure a Survival Fund for Retirement
Tweet Share on Facebook June 24, 2011 CommentBill Gates has a fortune estimated at $56 billion, according to Forbes 2011 Billionaires' List. While I'm sure he has a very comfortable lifestyle, every day he needs food, clothing, shelter, and healthcare. These are fundamental needs shared by everyone, and they are non-negotiable―even for the richest people in the world.
Throughout our lives, we live in two interrelated financial modes: survival and lifestyle. As financial planners, when we talk about the survival mode, we don't mean living in the wilderness and hunting for food every day. Survival mode refers to mandatory expenses that must be met without exception, regardless of market conditions. Typically, these expenses include your grocery bill, mortgage, taxes, utilities, health insurance, and clothing. And with inflation, many of these expenses may increase over time.
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Why Your Broker Doesn't Put You First
Tweet Share on Facebook June 23, 2011 Comment (1)Have your heard this old tale? During a flood, a kind-hearted frog lets a scorpion ride to safety on his back. But, just as they reach the middle of the river, the scorpion stings the frog. As they both sink beneath the waves, the frog asks, "Why did you sting me?"
"It's my nature," says the scorpion. "That's what I do."
When you choose someone to help you with financial advice, it is important to know "what they do."
[In Pictures: 10 Key Retirement Ages to Plan For.]
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6 Investing Mistakes To Avoid
Tweet Share on Facebook June 22, 2011 Comment (2)While no investment approach is successful all of the time, here are six common investing mistakes to avoid:
Inability to take a loss and move on. Psychologically, it's difficult for investors to sell an investment with a loss. Often they prefer to wait until the investment at least gets back to a break-even level. However, that may never happen or may take a long time to do so. The best approach is to forget about the past and ask yourself: "Would I make this investment today?" If the answer is no, it's time to sell and invest the proceeds elsewhere.
[In Pictures: 10 Key Retirement Ages to Plan For.]
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Why Asset Allocation Still Works
Tweet Share on Facebook June 22, 2011 Comment (2)We have all read the articles saying that asset allocation is dead. At times, many of us have seen asset allocation fail as a strategy in our portfolios. Nevertheless, asset allocation is not dead, it just requires a little adjustment and a different thought process.
Most people confuse asset allocation and diversification. Diversification means not putting all your eggs in one basket. Asset allocation is the process of building a portfolio of asset classes with varying levels of correlation. A little refresher on correlation. A correlation of positive one (+1) means that two investments will move in the same direction. A correlation of negative one (-1) means that they move in the exact opposite direction of each other. A correlation of zero (0) means that they have no impact on one another. Most investors should strive for a correlation closer to zero.
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Fund Mail: What To Keep and What To Toss
Tweet Share on Facebook June 21, 2011 Comment (3)Over the years, many people have asked me: Do I need to keep all of the mail I get from mutual fund companies? What can I keep? What can I throw out?
You should keep a few documents, but many can be thrown out.
When you buy shares of a mutual fund for the first time, the first thing you'll receive is a prospectus. Each time the fund company updates the prospectus, it will send you another copy. The fund company will also send its privacy policy and a statement about the Patriot Act.
[In Pictures: 10 Key Retirement Ages to Plan For.]
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Know Your Bond Basics
Tweet Share on Facebook June 17, 2011 Comment (1)I have been invited to countless conference calls, webinars, and conferences that promise to educate me about the outlook for municipal bonds. However, in all of that noise, some of the most important but least understood implications for today's bond market are being overlooked by many investors.
Here are some important concepts muni bond investors should be aware of:
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