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Retirement

For the average investor you can’t, and shouldn’t, think like a day trader. I am a youngish guy. I have a lot of time before I retire so my investing outlook is extremely long term. I put the majority of my funds into my 401k and my wifes Roth IRA as long term investments for our future. i am not a day trader, or really an investor by any means. I have only recently opened my first non-tax advantaged investment account. Even this one account is still a long term investment in my mind, I am not trying to turn a quick buck it is still a relatively long term investment for me.

What gets me is these huge swings in the market. Don’t get me wrong, they are real bad but how do they really affect your outlook. I had a conversation with a relative the other day about that crazy drop in the market that seemed to scare the pants off of everyone. He and I looked at it the same way. 1.) it was a fluke and 2.) we both missed out on an opportunity to make some quick money. While that was an exception this recent recession fits the same play for me.

Like I said I am still youngish so at this point it is actually beneficial for me to have the markets hitting new lows. Last time I checked it is better to buy things when they are cheaper an sell them when they are higher. Right? Sure you may have bought some of it back when prices were high but now they aren’t and you are still buying. At the height of the markets we saw the DOW reach 14,000+ which then dropped to 6,600ish. We all bled a lot during those months but for those of us who didn’t give up we were buying into a market valued at half of what it was. My confidence in the US economy is pretty high so to me this kind of situation is an unfortunate occurrence the presents unprecedented opportunity.

I know there is probably some people out there who disagree with my though process. They are probably much closer to retirement and lost a ton of money. That is why general wisdom is that the older you get the safer you make your investments. Moving more and more away from stocks and more and more into bonds. The idea here is to keep your money safe as it gets closer to time to need it. I won’t say I buy 100% into it but it makes good sense right. You don’t just want that money to be there when you retire, you need it to be there. The people whose retirements were hurt the most by the recession were those people closest to retirement who were riding the high of the market and not thinking of the possibilities. The biggest thing to remember about investing, saving, living, working, and any decision you make is to remember.. it depends. Everyone’s situation is different so don’t buy into the hype, or think because my neighbor is doing it it must be right. You need to do what is right for and comfortable for you.

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Sensationalism is something the news media is known for. They take the most miniscule tidbdsits of information and make it into something that sounds like it is the greatest thing since sliced bread. One of the most recent things to be taken by the media and run to the ground has been the DOW breaking the 11,000 mark.  Personally I think it is nice to see my 401k go up but what does it really matter to me?

I like to think of my retirement accounts like a tree that has taken root. Trees grow slowly but steadily with little care or attention. Planting the tree is like getting started with your investing for retirement. You have to figure out where you want it go, plant the tree, and water it well that first year. As you nail down the allocation that you are most comfortable with you just keep feeding it regularly.

Just like a good tree you can’t just leave it alone forever and hope it comes out ok.  About once a year you step back and take a good look at it then prune it to make sure the tree is even growing the way you want it to. Similarly you should reassess your retirement accounts and redistribute it to get you to that magic allocation you are looking for.

The opposite of this approach is to treat your retirement like a vegetable garden. Vegetable gardens require fairly regular attention getting out there and pulling weeds, watering daily, and harvesting regularly. This kind of constant attention works great for a garden but isn’t so great for your retirement accounts. If you start worrying about every drop in the market like you do a wilted seedling then you are in for a rough ride.

When it comes to retirement savings it is about picking the right tree to grow in your area and then taking care of it but not obsessing over it. Make the environment for your tree the best you can then just clip off the dead branches each year and even things out. You have time before you retire, 100ft oak trees didn’t grow in a day and neither will your retirement.

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Not very many people have  a good solid system for organizing there important documents and financial papers. With it being tax season I thought it would be a good time to discuss some of the how’s and why’s of document organization.

messydesk

Why Should you organize your documents:

  1. The biggest reason to organize your documents is so they are easily found in the event of you die unexpectedly.  Your loved ones are going to have enough to worry about in the aftermath of your death, they don’t need to be searching through piles of crap to find the documents they need.
  2. The taxman cometh, and he don’t mess around.  Having everything organized will make surviving an IRS Audit that much easier. Make sure you maintain your tax documents for at least 6 years, which according to the IRS, is the maximum length of time they have to audit your records.
  3. If it isn’t organized you don’t really know what you have, or what it is worth.

How I do it:

  1. I use hanging folders organized into: Tax documents, Household Accounts, Banking Accounts, Insurance, Retirement, Investments, Will, Business, and Liabilities.
  2. Within each folder I have regular folders with the account name which holds the detailed documents, so for instance my tax folder has individual folders for 2002-2008 taxes which each contain a copy of my return and all supporting documentation.

You should make sure that you have accounted for all of your major accounts and streams of income, put your statements and other documents into the folders. The most important thing you can do is to make sure everyone who needs to know, knows where the documents are located.  It doesn’t help to have a great system of organization if no one else will know how to find it. Do yourself and your family a favor and get organized.

Photo (aliwest44)

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What the Down Economy Really Means for Your 401k

February 23, 2009

With the epic downturns in the economy I have wondered what this really means for my 401k. I know everyone says how “You are in it for the long haul”, “Don’t Worry you are buying cheap” etc. etc. etc.. Are they telling the truth or are they full of Poo? I ran some numbers of […]

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