11/22/2011 11:00 PM ET|
10 things not to do with your money
Baby boomers in particular need to avoid unwise choices with their investments and other retirement savings. These 10 aren't worth the risk to your nest egg.
In these uncertain financial times, people may be tempted to make choices with their money and investments that they normally wouldn't make.
This pertains especially to baby boomers, who are at or nearing retirement. MainStreet put together a list from the experts on 10 things baby boomers shouldn't consider doing with their money:
Don't buy what the media is selling: Fear
Josh Kadish, a partner with the Retirement Planning Group in Riverwood, Ill., says that the old quote from President Franklin D. Roosevelt, "There is nothing to fear but fear itself," applies to finances. "Fear gets people to tune in, but it affects our behavior," says Kadish. "It usually gets us to go against the grain of buying low and selling high."
Don't finance your child's education with retirement savings
Alexey Bulankov, a certified financial planner for McCarthy Asset Management in Redwood Shores, Calif., says, "You can finance your child's education, you cannot finance retirement." Look into every possible avenue to finance your child's education, including student loans, grants, scholarships and work internships, which are offered at some private colleges. It's possible your child may not get to attend the college he or she would like, but it's important that your retirement savings not be touched. There's little room for "do-overs" for your financial security at this point, the experts say.
Never give money to an acquaintance who just 'got into the business'
Kirk Shamberger of CK Financial Resources in Colchester, Vt., says this advice is at the top of his list of things never to do. All of MainStreet's experts agree that you should find a certified financial planner who has been in the business and has a proven track record of helping people at or near retirement age to meet their goals.
Don't try to catch up by raising the risk level
With portfolios taking hits in the stock market's turmoil, many boomers facing emotional distress may be compelled to chase riskier asset classes, much in the same way a gambler doubles his bets in an attempt to break even, says Guy Penn, the principal founder of G.M. Penn Wealth Management in O'Fallon, Mo. "During times of market instability, it is more important than ever to maintain a long-term outlook and stick with a prudent investment strategy."
Never invest blindly without a true plan
Kadish says that everyone seems to have a financial planner, but no real plan. "Know your objectives and how much you need to invest to make those goals," he advises.
Don't loan money to friends and probably not to family
"Neither a borrower nor a lender be, for loan oft loses both itself and friend" is from Shakespeare's "Hamlet," and financial experts agree the best way to lose your money -- and sometimes your relationship -- is to lend to a family member or friend. Harlan Platt, a professor of finance at Northeastern University and nationally recognized speaker, says neither loan is a good idea.
Don't save an inheritance for your kids
"Inheritance is a gift, not a right or entitlement," says Jean Gillis, the owner of Florida Family Estate Planning in Jupiter, Fla. "If you're 65, you're in the prime of your life. Enjoy it while you're alive. If there is some left, then fine, have backup in good estate planning."
Be smart with your inheritance
Should you receive some inheritance from your grandparents, parents or a favorite aunt and uncle, be smart with it, says Gillis. She says if you put the money into jointly held property, that money will become part of the estate should something happen to you, or become a marital asset should you get a divorce (the divorce rate among empty-nesters has doubled in the past two decades).
"Never co-mingle your inheritance unless you want it to become a part of the settlement," Gillis adds.
Don't buy the old market story of 'buy and hold,' which has become 'hold and pray'
"Investors must have an understanding of what it means to lose money regardless of age," says Kadish. "We've all been told that when we are younger we should be more aggressive and as we age we should become more conservative. Age has been sold as the primary driver of how much risk we should take. Know the return you truly need by having a financial plan created, and build a portfolio based on your own situation. If you need more than a 5% to 7% long-term return on your money to hit your goals, wake up. The ride may be bumpier than you can stand. You should readjust your goals and expectations."
Don't get on the ride before you know how wild it can be
"Someone convinces you to get on a ride because you will reach your destination in one hour versus three hours. The problem is that, once on the ride, you find you are moving too fast and there are twists, turns and it goes upside down," says Kadish. "You can't stay on this ride and have to get off. It then takes you six hours to get to your destination when it could have taken three hours if you (had) taken the ride you could have been comfortable staying on."
In other words, if you don't think you can stand the fast-moving pace of a new strategy, be safe and stay the course.
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