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  • Investing, Retirement

    The Best Asset Allocation When You Are Under 35

    Typically, people don’t start thinking about retirement savings until later in life. However, the best time to start saving is as early as possible. Ideally, this means in your 20s, the moment you leave school and start earning an income. Currently, according to the Social Security Administration, a man reaching age 65 today can expect to live, on average, until age 84. For a woman, that age is 86. However, these are just averages. One in four persons will actually live past 90.

    Therefore, if you retire at 65, the typical person should expect to live at least another 30 years. Additionally, the general advice given today is to target to replace between 70 to 90 percent of your pre-retirement income. Consequently, a person who earns $75,000 before retirement should expect to need at least $56,250 annually between their own retirement savings and Social Security. In fact, many financial advisors will advise you to plan to replace 100 percent of your income for the first 10 years of your retirement.

    How Much Should You Save for Retirement?

    That said, there is no one-size-fits-all answer for how much to save. How much you will need will depend on your personal circumstances. While these are things you may not even be thinking about yet, factors that you must try to project will include things like your future health, living expenses, and desired lifestyle. Some of these factors are based on personal goals that you can adjust over time. But, health care costs are a non-negotiable retirement expense. Even without major health issues, health and wellness costs do increase as a person gets older.

    Nevertheless, much of your retirement income needs will come down to lifestyle choices. The area where you choose to live in your retirement can have a dramatic impact. Choosing a walkable community, with easy access to public transportation, will save you a bundle. Also, starting your retirement being mortgage-free can considerably decrease your housing costs, as can downsizing to a smaller home that will cost less to maintain. Finally, you have to think about the lifestyle you want in retirement. Do you want to travel or will you be happy hanging out at the local rec center?

    So, how much will you need going into retirement? Let us presume that your goals will require $67,500 annually. It is also a good idea to project with an optimistic outlook beyond national life expectancy averages. So, plan that you will live until 95 years old. What is your “magic number”? Assuming that you will receive $2,000 per month ($24,000 per year) from Social Security, you will need $1.3 million. If at age 27, you start saving just $5,500 per year towards your retirement, you can reasonably expect $1.42 million by age 67 assuming an 8 percent annual return.

    What’s the Best Asset Allocation for Your Age?

    What is the best asset allocation for those under 35 years old? One general but well-established rule is to subtract your age from 100. This will provide you with a good idea of what percentage your retirement savings should be placed in stocks and what percentage should be placed in bonds and other “safe” investments. Therefore, if you are 27 years old, a good general strategy is placing 73 percent of your retirement savings in the stock market and 27 percent in other investments. Of course, there is no perfect allocation strategy that works for everyone, but it does create an easy to understand starting point.

    Be that as it may, many financial experts believe rising life expectancies and medical innovations will mean that younger investors need a more aggressive approach. Some are recommending asset allocations based on 110 or 120. This could mean that an individual at 27 years old should place up to 93 percent of their savings in stocks. Why stocks? With a buy and hold strategy, the stock market is one of the best ways to grow wealth. While the value can drop, a wise strategy will help to protect you.

    When you are thinking about the best asset allocation, your age should always be a prime consideration. Many 27-year-olds can weather the risk of having 93 percent of their retirement savings invested in the stock market. By the time this individual reaches 75 years old, only 45 percent of their investments should be in the stock market. It is a good idea to evaluate your investments annually, and make adjustments in order to keep yourself in line with your allocation goals. This also gives you the best opportunity to sell high and buy low, as you sell off well-performing stocks.

  • Investing

    Solid Investing Tips for Newbies

    Watching your money grow is a great feeling. Investing your money wisely is a great way to create and maintain wealth. Once you have your debt, budgeting, and savings under control, it is time to consider investing your money. However, it is easy for young, new investors to get overwhelmed quickly. For new investors there are a few things that you will want to keep in mind when starting to invest your money. Let’s explore some investment tips that anyone investing their money should take note of, especially young investors who are just beginning to invest their money.

    1. Research or Be Safe

    Making good investments takes a lot of solid research. If you are not going to take the time to do this substantial amount of research then you should strongly consider investing your money in funds instead of investing it in individual stocks. Funds are a great option for young investors without a diverse portfolio. You can invest as much money as you’d like into a mutual fund, this fund may have millions of dollars in it along with your money, a mutual fund manager will then make the investments on behalf of the fund. Investing in this manner takes a lot of the risk and responsibility out of your hands.

    2. Know What it Will Cost You

    For every transaction there are fees you will be charged in accordance to what the transaction is. There are brokerage account fees that are charged annually to maintain a brokerage account. Then there are trade commissions which are charged by brokers for trading certain investments like stocks. Expense ratios are annual fees charged by mutual funds, exchange-traded funds, and index funds as part of a percentage of your investment in the fund. In the case of mutual funds there are also sometimes sales loads which are a sales charge or commission to the broker or sales person who sold the fund.

    These are a few of the more common fees you will come across, but it is important to be aware of all of the costs you will incur by investing.

    3. Hunker Down For The Long-Term

    A lot of people have the common misconception that they can turn a quick profit by playing the markets. While it is not impossible, it is highly improbable that you will make money in this fashion. To be successful with your investments make them for the long-term. Forget about watching the market everyday. Keep an eye on your stocks and other investments to see how they are progressing. Obviously, if they grow to point where you feel it will be in your best interests to sell then sell, but remember investing is for the long-term not for a quick gains. You are investing with an eye on the future.

    4. Know Your Risk Tolerance

    Risk tolerance is how you feel about risk, the anxiety you feel when risk is present. Risk tolerance is based somewhat in genetics but it is also influenced by education, wealth, age, and income. To put risk tolerance in the simplest terms it is the extent to which one may choose a negative outcome in the pursuit of a very favorable outcome or a big win so to speak. Risk tolerance varies between people, and there is no right amount of risk tolerance one should have. The important thing you need to know is how much you are willing to risk. Be aware of the amount of risk you are willing to take on.

    Investing is a great way to shore up your future. It is very important for young people to start investing as soon as possible.

  • Financial Planning, Investing, Personal Growth

    Financial Freedom: Learning What You Never Learned in School

    “Knowledge is Power.”

    I’m sure you’ve heard that phrase many times in life.

    But is knowledge power or is the right knowledge power?

    I won’t go as far as saying that what you learned in school was wrong or a waste of time, but honestly, school did not prepare us for the “real world,” especially the world of finances.

    That is why Jim Rohn said, “formal education will make you a living, [but] self-education will make you a fortune.”

    So, the question is what type of self-education should one get? What should millennials learn about finances in order to become successful in this area? There are 5 very important areas of finances that should be part of your self-education.

    1. General Personal Finance

    This is an absolute necessity. It is essential that we learn the general financial concepts such as budgeting, money management, debt, credit and savings. These everyday aspects of finances can overwhelm us unless we get the proper foundational education in this area.  Having a good handle on your personal finances (your personal economy) is essential if you want to gain an form of financial success.

    2. Mindset

    One of the most important aspects of our financial success is the way we think, especially with regards to money. Resources that delve into “millionaire minds” and “how the wealthy think” are important to reprogramming our minds for success. Regardless of what we do externally, success will elude us unless we set our internal compasses for success.

    3. Accounting and Financial Statements

    “You have to understand accounting. It’s the language of business. Unless you are willing to put in the effort to learn accounting – how to read and interpret financial statements – you really shouldn’t select stocks yourself.” – Warren Buffet

    1 plus 1 is 3


    Ultimately, you will want to stop having to work for your money and will want your money to work for you. That is investing. However, you have to crawl before you walk. This step is basically a preparatory step for point #5 below. You don’t have to become a CPA, but if you want to eventually become financially fit, it is important to develop a general understanding of accounting and of how financial statements work.

    4. Markets and Economics

    Once you understand accounting, there is still one more preparatory step you will want to take before delving into investing. You will want to develop a solid understanding of how the general market works. You will want to learn economics.

    Again, you don’t have to “master” this and get an MBA or degree in economics.  You need to understand how markets affect investments and what impact certain changes in the market should and should not have on your investment decisions.

    5. Investing

    Now comes the fun part! You’ve laid the foundation and are ready to learn how to make your money work for you. Starting with a few resources that will give you a general understanding of investing as a whole. In other words, some straight-forward materials on stocks, bonds, real estate, etc.

    Now you specialize. Pick the type of investing that best aligns with your goals, style, and preferences. Become a master in that field. Learn whatever you can about your area and begin to prepare for investment success.


    So, is education important? Absolutely. But the education we got in school is not enough. To be financially independent, it is important that millennials learn the areas of finance that will have the biggest impact on their financial futures. Personal finance and mindset education will lay the foundation for general success. Accounting and economics will prepare the way for future planning and investing. Finally, education on investment will help you achieve success in this area and will help to minimize your losses. Overall, education is essential. And the right kind of education is necessary for future financial success.



  • Financial Planning, Investing

    Saving Versus Investing

    Time Horizon?

    As you start to earn money and set it aside, it’s important to understand the difference between “saving” and “investing” and what sorts of vehicles are most appropriate to each. You can think of saving as putting your money aside for short or medium-range goals–goals you will mostly be funding with your own cash. If you wish to buy a car, take a vacation, or scrape together the down payment on a home within a one to five-year time-frame, you have a savings objective. “Investing” on the other hand means putting money aside for long-term goals–your child’s college education, for instance, or your own retirement. Long-term investing means committing your own cash as well, but it relies most heavily on the principle of compound interest–the idea that the money you make on your money (interest) gets reinvested and continues to grow or compound over time.

    Risk Tolerance?

    When you have a shorter time horizon, you can’t afford to take as many risks with your money or you may lose part or all of your principal. This is why many people choose to stash their savings in a brick-and-mortar bank or online savings account, a money market fund, a CD, Treasury bills, or bonds. Whatever interest you earn through these vehicles will make little difference in reaching your goal–what’s important is that you are setting money aside regularly and matching or beating inflation with the interest that you do earn.

    When you have a longer time horizon, you can afford to take more risks–and potentially enjoy greater rewards–with your investments. Greater risks are incurred because the value of your investment vehicles will fluctuate more than with traditional savings vehicles. The greater time horizon of your investments, however, should protect you from short-term fluctuations in their value, which should (theoretically) rise over time. Investment vehicles typically include things like stocks, bonds, and mutual funds. Stocks, or equities, basically represent a share in the ownership of a company and a claim on the company’s assets and earnings. This doesn’t mean you’ll rate a corner office or parking space at that company–you’ll simply be one of many shareholders who own a stake or share in that business–shares that the company issues in return for capital to grow or invest in itself. A company can also raise money by borrowing it, either directly from a bank or by issuing bonds. Bonds differ from stocks in that bondholders act as creditors or lenders to companies and are therefore entitled to interest on their loan as well as repayment of their principal. Creditors or bondholders typically receive legal precedent over other stakeholders if a company files for bankruptcy, while shareholders are usually the last in line to be repaid. Bonds are often considered safer because they involve less risk, though bondholders are only entitled to receive returns based on an agreed upon interest rate. Stocks are considered riskier because their value can fluctuate much more, though shareholders can enjoy greater returns as a company’s profits soar. Historical annualized returns for stocks have averaged 8-10% while bonds have averaged 5-7% or less.

    You can buy individual bonds or shares of stock, but researching individual companies can take a lot of time and effort. An easier route is to invest in a mutual fund. A mutual fund pools the resources of many investors to collectively purchase stocks, bonds, or other assets. For instance, you can purchase a mutual fund that invests in small, medium, or large companies (also known as small, medium, or large-cap funds), a fund that invests overseas, or a fund of short or long-term bonds. This allows you to assemble a portfolio geared towards meeting your investment objectives and your tolerance for risk. A portfolio can be actively managed by fund managers (a load fund) or it can simply be a pool of assets or other funds that belong to a certain index or fund class (like the  S&P 500). This later type of “index fund” typically features lower fees. Regardless of where or how you begin to save and invest, it’s important to distinguish between your short-term and long-term goals and the best means of achieving both.

  • Budgeting, Financial Planning, Investing, Retirement, Taxes

    5 Ways to Put Your Tax Refund to Better Use

    Expecting a tax refund?  You need a good plan on how to spend the money. Of course, you may want to treating yourself “as you deserve,” but remember that the refund is not a bonus check.  Give the check a purpose by considering your financial situation and determining your top development needs. Below are five priorities to help you put your tax refund to better use and build towards greater financial security in future.

    1. Finance your emergency fund

    If you do not have an emergency fund, you need just one major expense to send you down to financial disaster. A good emergency fund is one that contains three or more months of savings in a readily available interest bearing account. Saving such an amount requires months or years of sacrifice, but a refund check can boost the fund, giving you a bit of financial security.

    2. Pay off a high-interest debt

    You can use your tax refund to pay off a high-interest debt. For instance, pay down that credit card balance. Depending on the interest rate, you can save up to 20% every year in interest on any balance that you clear. Use your refund check to create a debt elimination program that tackles those payday loans, title loans, high-interest student loans, and credit cards.

    3. Save for retirement

    You can use your refund to strengthen your financial position further by putting your check into an IRA or investment account. If you do not have one established, start on! Many institutions today may it a simple process and can all be done online.  You may be eligible for a Roth IRA if you meet certain income requirements defined by the IRS and do not have an employer-sponsored retirement plan.

    4. Invest in Real Estate

    If one of your goals is to own your home imagine how far a tax refund check would go towards a down payment.  Already purchased your home?  Consider paying down your mortgage early.  Use your tax refund to pay down the principle on your mortgage. You will save on interest payments and pay off your mortgage earlier.  Your tax refund can also go towards purchasing a second property that you can use to generate rental income.

    5. Refinance your mortgage or make home improvements

    If you already own your home you may want to look into refinancing your current mortgage to get a more favorable interest rate.  Consider using the tax refund check to pay the closing cost on the new mortgage and you will save on interest.  If you are comfortable with your mortgage rate, consider upgrades like a new roof, kitchen or bathroom upgrades, or new energy-efficient appliances to lower your electricity bills. Some of these improvement projects will not just make your home more comfortable but can also increase your home’s value.



    Remember, planning for your financial future does not have to be an all or nothing game.  You don’t have to be completely dedicated to debt elimination that you neglect your emergency fund or retirement.  Working with a financial consultant can help you balance your goals.  If you need help planning and managing your finances Schedule a Free Consultation with Abena today.