11/22/2011 5:59 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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There is no such thing as: "I don't make enough money so I can save any" .You got four cents, don't you? OK, put it in a jar. A few days from now, you spot a dime on the sidewalk. Put it in the jar. A few days later, you get twenty-seven cents change from the grocery store. Put it in the jar.
Saving has absolutely NOTHING to do with how much money you have. Saving is a habit you must acquire. It's called "Self-discipline".
OKay , the post below saying its self discipline is right and wrong. Yes saving is about self discipline BUT and this is a big but...saving 4 cents here and there is not a retirement! I run my own business and I work damn hard for the money I earn and I am not getting rich. I have to pay for my own medical benefits , I pay alot out of my own pocket, I get double taxed by city state and federal. Money and numbers crunching is all i do and 4 cents is nothing. The issue here has several facets. There is alot that we pay for today and consider monthly expenses that are really not necessary. Internet on your phone...waste of money. Cable or satellite. home security systems with bells and whistles, several car leases... to name a few. Saving is NOT about self discipline alone. It's about having a plan and strategy. Stop wasting so much money. Buy a car don't lease, pay it off then drives it until it falls apart. Forget about internet on your phone @ 30 a month what a rip off and the price will come down when everyone stops handing money over so willingly. Stop paying interest charges on your credit card. You can earn money from those credit card companies if you pay off in full every month and collect cash back...there's a saving right there. Stop eating out all the time. Use coupons. Shop around. Move your money from banks to credit unions who pay higher interest and don't charge fees. Make sound investments with a secure dividend yield and don't touch it. Don't buy more house than you can afford. Live within your means. Stop leaving all the lights on. Get off the budget on your utilities as then you have no idea what you are using every month. All this requires not only discipline, but patience and a little savvy and some commitment. If we would start teaching our kids about money in school and at home that would be the best lesson we could teach. Forget abut that stupid lattice math. Teach them checking account, saving, investments, how the market works, how to be savvy with money etc.
Whining is not going to get you there, action will. Take control!!! It's your life
Educate yourself about financial matters. Bond values move in reverse of interest rates. If you do not need the money but clip the coupon (take the interest) you are OK. But if you need the principal and interest rates have moved in the wrong direction, you will lose principal.
THE MAIN THING TO REMEMBER ABOUT ANY FINANCIAL PRODUCT IS -- YOU NEED TO UNDERSTAND THE FINANCIAL PRODUCT AND HOW THE MARKETS AFFECT IT. IF YOU DO NOT UNDERSTAND THE PRODUCT, THEN DO NOT PURCHASE IT UNTIL YOU DO UNDERSTAND IT.
Financial product seller are making money from your investment(s). Some have your best interest at heart and many do not. This is the reason for educating yourself about investment products.
If you leave an employer do not take your 401K and spend it. Roll it over to an IRA. If you had not left your employer, you would not have taken the money and spent it. NEVER EVER BORROW FROM AN EMPLOYER 401K. Do not load up on company stock. Be diversified with your investments.
Start saving from an early age and be consistent - what I call "FINANCIAL DISCIPLINE".
just like with a lot of things that you don't want to do but need to do:
"the only way to get started is to get started".
I think there is some terrible advice in this article.
First off, there's nothing wrong with lending to family and friends, and in fact many small business get started that way. My father is a millionaire and started his business with a loan from his father and my mother. (who he was only dating at the time.) My father is now rich and my mother and his father have reaped the benefits (many times over of that initial generosity. Good people help other good people. If you can't afford it fine, but if you can, then don't be a miserly jerk. Help others because you too might need it someday.
Second, why not try to leave your kids with something after you die? My God, so now we're just supposed to wantonly go out and blow our money on fine wine, expensive vacations and plastic surgery when we retire for no other reason than "we're in the prime of our life"? That's horribly irresponsible and self indulgent. Spend what's reasonable and if you're in the position to leave some money to your kids then by all means plan for it, but don't blow it just to blow it.
Third, you can and should up the risk level if you're broke and nearing retirement. You need to catch up and the only way that's going to happen is if you take on some more risk. You shouldn't go overboard and throw all your money on number 35 in Atlantic City, but a slightly more aggressive approach is necessary. It's obviously not ideal but what choice do you have? As long as you stay well diversified, a more aggressive approach is just going to mean higher peaks and valleys. It won't be as steady but it'll have a better shot of accomplishing your goals.
Finally, there's no reason why you can't buy and hold. A portfolio should be adjusted sparingly. Study after study has shown that investors (pros and amateurs alike) can not time the markets. It's been proven that as a general rule buying and holding (within reason of course) earns higher returns over the long haul. Tweak it as you get older and your objectives change but things like selling off all your investments in a bear market to "sit it out" in cash is a poor strategy and has rarely been effective.
You are SO right about loaning $$ to family and friends. For some reason, many of them thar folks think they really don't need to pay you back and will scam you with all kinds of sob stories to get out of it. Been there, done that , and no mas for me.
There are hard cold realities that I rarely, if ever, see in comments sections. There are tens of millions that will never save enough to retire. For those of you who write your demeaning statements re saving. etc haven't a clue. I figure you people make enough to save, are arrogant about it and like to preach at others. It's called self righteous. These folks simply don't make enough. All kinds of life's problems can put you in that position and very easily. A slip can cost you your future, especially, if you've got some years on you.
Try living on minimum wage with a couple of kids to raise. Or two minimum wage jobs raising a couple of kids. Or get sick and can't hold a job for a few years. I could go on but I suspect you're too stubborn to learn much.
I grew up in one of these situations and through a lot of good luck climbed out of it. When I was young, I was extremely arrogant about how I'd "pulled myself up by my boot straps". I bought that American crap. Now I'm old, I know better. Sure I worked like hell but so do countless others. sure I'm smart but so are countless others. There's nothing I have that countless others don't. I just happened to blunder around, make some totally blind decisions and make it.
I hope you wise a--es make it. More than anything I hope someday you gain the wisdom to know how damn lucky you are.
I lost of great deal of money trusting a young friend who just graduated with a masters in economics back in 2006. He thought he was an Investment Wiz. But everyone was doing well at the point. Then the crash of '08 came and he quietly dumped his own holdings and left the rest of us out to dry. When I found out that he saved himself I was really PO'd. I'm nearing retirement in 15 years or so but he has 40 years to go. He worked for a major investment firm too. In my opinion all investment planners are creeps. I wish I'd never put a dime in the stock market.
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