Recently, many people were stunned by the US presidential election results. The majority of the polls and the media got it wrong. The LA Times poll that did get it right was mocked throughout the election. Simply stated, many people just did not expect the election results to turn out the way they did. Many people had also feared an economic collapse and a stock market crash that would go along with a Trump presidency, and therefore warned others to pull their assets from the market right before the elections. However, I believe that this advice is dangerous. Warren Buffett says he is 100% optimistic about the stock market regardless of who is in office. I am in total agreement with his wisdom and believe that we should not stop investing in stocks, real estate, and perhaps most importantly, ourselves.
We are only given one physical body in our lifetime, so it is up to us to nourish and maintain it. It is up to us to make the effort to eat healthy and stay healthy. If we don’t, it will eventually catch up to us and we’ll struggle much more in our older years. We’ll lose the ability to perform more physical activities or enjoy time with our loved ones. We’ll lose our ability to work or vacation at our fullest. Although some things are inevitable, we still have a chance at staying healthy into our older years if we make the right decisions starting right now. Similarly, I believe that we need to make the right financial decisions that will benefit our health down the line. Regardless of the election results and the political climate, I believe that it is necessary for us to think about how to make the best financial decisions for our future. Therefore, I highly recommend getting an HSA account if it is available through your health insurance provider.
So, I recently turned 30 and have had some time to reflect on the lessons I’ve learned over the years. I was inspired to write this post after reading lessons from another blogger who also recently turned 30. It seemed like not too long ago, I was just a young college student starting off life on my own. Although many of these lessons may not be financial or career in nature, I feel that they ultimately will help people in those areas. Here are my lessons in no particular order. These are the same lessons I wish I could teach my 20-year-old self.
No one really knows which direction the market will go. I saw the stock market drop substantially back in 2008-2009 when I was still in college. Back then, I was part of a student-run investment fund and saw our portfolio lose half its value after a tremendous run in the few years prior. It was definitely a great real-world learning experience and wake up call.
Although it tends to go up in the long run, there are periods of downturn. These periods of downturn have caused significant stress in many of our personal lives and financial turmoil in our wallets. Thankfully, there are ways to decrease the losses that you’ll suffer during a recession, and perhaps even come out on top. Here are some ways to recession-proof your portfolio.
In previous articles, I wrote about exchange-traded funds and the importance of investing early to build wealth. Well, what happens if you want to start investing but can’t find a fund or individual stock that you like? Suppose that you want to invest in a certain trend. However, you don’t want to put all your money into one company since it is too risky. At the same time, there’s no index fund that properly reflects that trend or idea. You are in luck, there is something called motif investing.
People are always concerned about recessions and for good reason. People have money invested in the markets, and they want to make sure that they do not lose it. They don’t want to lose all their hard earned money. It’s a problem when people start selling stocks and other assets at the wrong times and buying at the wrong times. People sell more when the markets are tanking, thus further driving the decrease in prices during a recession. People also buy more when everyone else is excited about buying, thus further adding to an overvalued, over-inflated market. However, mixing these two together is a sure way to lose money in the long run. Warren Buffett summed this concept up beautifully, “Be fearful when others are greedy and greedy when others are fearful.”
Previously, I had talked about the importance of saving early and retirement vehicles such as a 401K. However, I didn’t go into too much detail about how they work, why they are important, and how they can help you. According to a Vanguard study, the median 401K balance of someone from the ages of 25-34 is just over $9,000. For someone from the ages of 35-44, the median balance is just over $26,000. In my opinion, those are very abysmal amounts especially considering the benefits of using one of these vehicles. If more people understood the importance of a 401K and all the benefits they bring, I’m sure that they would make a greater effort to contribute more. If you don’t have access to a 401K account, don’t worry, there are other tax advantaged retirement accounts that I will mention later.
Recently, I read the Schroder’s Global Investor Study titled “Are millennial investors facing a perfect storm?” which analyzed the expectations of investors, and in particular, millennial investors. I thought that some of the millennials’ expectations were extremely unrealistic and out of touch with reality. Unfortunately, having the wrong expectations when it comes to your investment returns and time horizons can seriously hurt you down the line. Although you won’t feel the effects until later in life, and often when it is too late, it is important to start planning correctly now since the impact of the decisions you make now will be magnified in the future.
When I started my 401K, I wanted to spend the least amount of time on it as possible while ensuring that I was making responsible financial decisions. Contributions to my 401K were already automatic, so I didn’t have to think about that. The next step was to avoid having to think about what I was investing in. I didn’t want to spend any time figuring out how to allocate my money between different funds. I was already busy enough with my day job and my post-tax investment portfolio which required researching individual stocks. Therefore, I resorted to using what are known as Target Retirement Funds (TRF).
You may not think about it, but taxes eat away at your investment returns. Most people tend to focus on their rate of return without realizing that legally avoiding taxes through a tax-advantaged retirement vehicle can easily contribute to a 25%+ return depending on their tax bracket. If you have a large dividend portfolio, your dividend income would get taxed every year. Although your qualified dividends will get taxed at a lower rate, those taxes still add up over time. Thankfully, you can use a Roth IRA to avoid taxes on your investment earnings.
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