Why are you investing?
It's OK if you have many different answers for this question, but there is a big problem if you have no answer at all. Investing is like driving - it is best done with your eyes open!
Having clear reasons or purposes for investing is critical to investing successfully. Like training in a gym, investing can become difficult, tedious and even dangerous if you are not working toward a goal and monitoring your progress. In this article, we examine some common reasons for investing and suggest investments that fit those reasons.
Retirement
No one knows whether the pension system will survive the coming decades. It is this uncertainty and the reality of inflation that force us to plan for our own retirement. You need only open the newspaper to find out about a company that is freezing pensions or a new bill that will cut government payouts. In these uncertain times, investing can be a tool to help you carve out a solid path to retirement. Three maxims apply to investing for your post-work years:
Investing for retirement is similar to long-term investing. You want to find quality investment vehicles to buy and hold with the majority of your investment capital. Your retirement portfolio will actually be a mix of stocks, debt securities, index funds and other money market instruments. This mix will change as you do, moving increasingly toward low-risk guaranteed investments as you age.
Achieving Financial Goals
You don't always have to think long-term. Investing is as much a tool for shaping your present financial situation as it is for forming your future one. Do you want to buy a BMW next year? Want to go on a cruise from Seattle to Morocco? Wouldn't a vacation that was paid for with dividends feel nicer?
Investing can be used as a way to enhance your employment income, helping you to buy the things you want. Because investing changes along with the investor's desired goals, this type of investing is not like retirement investing. Investing to achieve financial goals involves a blend of long-term and short-term investments. If you are investing in the hope of buying a house, you will almost certainly be looking at longer-term instruments. If you are investing to buy a new computer in the New Year, you may want short-term investments that pay dividends or some high-yield bonds. The caveat here is that you need to pinpoint your goals first. If you want to go on a vacation in a year, you have to sit down and figure out the cost of the vacation in total and then come up with an investing strategy to meet that goal. If you don't have a set goal, the money that should be going into that investment will doubtless be used for other purposes that seem more pressing at the time (Christmas presents, a night out and so on).
Investing to achieve financial goals can be very exciting and challenging. Combining the pressure of time constraints with the fact that you're not usually dealing with large sums of vital money (as in retirement investing), you may be less risk averse and more motivated to learn about higher yield investments (growth stocks, shorting, etc.). Best of all, a tangible reward is at the end.
Reasons Not to Invest
Just as there are two main reasons to invest, there are two big reasons not to invest: debt or a lack of knowledge. In the first case, it is a simple matter of math. Imagine that you have a $1,000 loan at 9% interest, and you get a $1,000 bonus. Should you invest it or should you pay down the debt? Short answer: pay down the debt. If you invest it, the money has to make a return of well over 9% (not counting commissions and fees) to make it worthwhile. It can be done, but it is much easier to find good returns on investment without having to fight losses on your debt.
There are different kinds of debt - credit card, mortgage, student loans, loan sharks - and they carry different degrees of weight when you are considering whether to invest in spite of them. When it comes to lack of knowledge, it is a matter of "Fools rush in where angels fear to tread." Throwing your money haphazardly into investments that you don't understand is a sure way to lose it quickly. Returning to the exercise analogy, you don't walk into a gym and squat 500 pounds your first day (unless having kneecaps bothers you). In other words, your introduction to investing should follow the same incremental process as weight training.
Conclusion: Allowing for Change
Your reasons for investing are bound to change as you go through the ups and downs of life. This is an important process, because the only other option is to invest with no purpose, which will likely result in investing practices that reflect your uncertainty and cause your returns to suffer. Your reasons and goals will have to be reviewed and adjusted as your circumstances change. Even if nothing significant has changed, it is always helpful to reacquaint yourself with your reasons at regular intervals to see how you've progressed. Like running on a treadmill, investing gets easier and easier once you actually start. (Sources : Investopedia )
Find out the 8 ways of Investing 101 system.
It's OK if you have many different answers for this question, but there is a big problem if you have no answer at all. Investing is like driving - it is best done with your eyes open!
Having clear reasons or purposes for investing is critical to investing successfully. Like training in a gym, investing can become difficult, tedious and even dangerous if you are not working toward a goal and monitoring your progress. In this article, we examine some common reasons for investing and suggest investments that fit those reasons.
Retirement
No one knows whether the pension system will survive the coming decades. It is this uncertainty and the reality of inflation that force us to plan for our own retirement. You need only open the newspaper to find out about a company that is freezing pensions or a new bill that will cut government payouts. In these uncertain times, investing can be a tool to help you carve out a solid path to retirement. Three maxims apply to investing for your post-work years:
- The more years between today and your retirement, the more years your money has to grow. You have to keep in mind that you are fighting inflation when you are planning to retire. In other words, if you don't invest your money to outpace inflation, it won't be worth as much in the future.
- The older you are when you start, the more risk averse you will have to be. This means that you will likely use guaranteed investments such as debt securities, which have lower returns. By contrast, if you start young, you can take larger risks for (hopefully) larger gains.
- The earlier you start learning about investing, the easier it will be to pick it up. Financial professionals are difficult to choose and costly to keep, so it is best to manage your own affairs whenever possible.
Investing for retirement is similar to long-term investing. You want to find quality investment vehicles to buy and hold with the majority of your investment capital. Your retirement portfolio will actually be a mix of stocks, debt securities, index funds and other money market instruments. This mix will change as you do, moving increasingly toward low-risk guaranteed investments as you age.
Achieving Financial Goals
You don't always have to think long-term. Investing is as much a tool for shaping your present financial situation as it is for forming your future one. Do you want to buy a BMW next year? Want to go on a cruise from Seattle to Morocco? Wouldn't a vacation that was paid for with dividends feel nicer?
Investing can be used as a way to enhance your employment income, helping you to buy the things you want. Because investing changes along with the investor's desired goals, this type of investing is not like retirement investing. Investing to achieve financial goals involves a blend of long-term and short-term investments. If you are investing in the hope of buying a house, you will almost certainly be looking at longer-term instruments. If you are investing to buy a new computer in the New Year, you may want short-term investments that pay dividends or some high-yield bonds. The caveat here is that you need to pinpoint your goals first. If you want to go on a vacation in a year, you have to sit down and figure out the cost of the vacation in total and then come up with an investing strategy to meet that goal. If you don't have a set goal, the money that should be going into that investment will doubtless be used for other purposes that seem more pressing at the time (Christmas presents, a night out and so on).
Investing to achieve financial goals can be very exciting and challenging. Combining the pressure of time constraints with the fact that you're not usually dealing with large sums of vital money (as in retirement investing), you may be less risk averse and more motivated to learn about higher yield investments (growth stocks, shorting, etc.). Best of all, a tangible reward is at the end.
Reasons Not to Invest
Just as there are two main reasons to invest, there are two big reasons not to invest: debt or a lack of knowledge. In the first case, it is a simple matter of math. Imagine that you have a $1,000 loan at 9% interest, and you get a $1,000 bonus. Should you invest it or should you pay down the debt? Short answer: pay down the debt. If you invest it, the money has to make a return of well over 9% (not counting commissions and fees) to make it worthwhile. It can be done, but it is much easier to find good returns on investment without having to fight losses on your debt.
There are different kinds of debt - credit card, mortgage, student loans, loan sharks - and they carry different degrees of weight when you are considering whether to invest in spite of them. When it comes to lack of knowledge, it is a matter of "Fools rush in where angels fear to tread." Throwing your money haphazardly into investments that you don't understand is a sure way to lose it quickly. Returning to the exercise analogy, you don't walk into a gym and squat 500 pounds your first day (unless having kneecaps bothers you). In other words, your introduction to investing should follow the same incremental process as weight training.
Conclusion: Allowing for Change
Your reasons for investing are bound to change as you go through the ups and downs of life. This is an important process, because the only other option is to invest with no purpose, which will likely result in investing practices that reflect your uncertainty and cause your returns to suffer. Your reasons and goals will have to be reviewed and adjusted as your circumstances change. Even if nothing significant has changed, it is always helpful to reacquaint yourself with your reasons at regular intervals to see how you've progressed. Like running on a treadmill, investing gets easier and easier once you actually start. (Sources : Investopedia )
Find out the 8 ways of Investing 101 system.
The Wealth Planning Dilemma
MONEY Morning News - Sat & Sun 17&18.8.2013
Family wealth management is the new buzzword in financial advisory circles. Every adviser is being urged to consider it. What this means is that the traditional role of the adviser as a product or transactional specialist is now being redefined. To offer a family wealth management service the adviser becomes a change agent who has an in depth understanding of how the client’s personal and family life is intertwined with their wealth.
There is a saying in family wealth: “the first generation makes it, the second generation spends it and the third generation loses it”.
A stepped analysis of this saying reveals.
Adopting a pro-active, clear approach to family leadership and education is likely result in pain avoidance later on. And clear communication can be expanded to include family values. Most families have a value system but this is rarely documented. Initiating these discussions builds trust in the family and helps establish you as the trusted adviser for the next generation. This will, in the long term help you refocus your practice to the family as the client. Sadly for many practices and advisers, the focus remains the primary client and when they go into care or die, the practice loses the client. Building relationships with the family and the next generation provides the opportunity for service continuation and expansion. It will build ongoing revenue and enhance the capital value of the practice. I believe that a good place to start intergenerational wealth education is with your own family. I have used it as a tool to initiate discussion about the future, my ideals and values with my children and have communicated the importance of a shared vision. Inter-generational wealth education and leadership needs to become an important part of your practice going forward. (This article is source from: EST PLAN )
How do we help clients faced with this WEALTH PLANNING dilemma? Welcome your comment; send us an email to Retire Rich.com
This e-mail address is being protected from spam-bots. You need JavaScript enabled to view it to give us your opinion on family wealth management in your practice. Read this week lesson from Robert Kiyosaki proverb below.
There is a saying in family wealth: “the first generation makes it, the second generation spends it and the third generation loses it”.
A stepped analysis of this saying reveals.
- The first generation focusses on wealth creation sometimes to the exclusion of the family. They do not educate the next generation about the responsibilities of wealth.
- As a result the next generation has a laissez faire attitude to the wealth that they have inherited. They focus on wealth maintenance and consumption and ignore accumulation. Additionally, because of the role models they have had, they no not educate their children about wealth.
- The third generation simply loses it because of poor family leadership over generations. Wealth is taken for granted and this generation is blind to the problem of ‘easy come, easy go’.
- A family’s wealth consists of human capital ( or the people who form part of the family), intellectual capital (or what they know) and their
assets. - A family seeks individual happiness as well as long term happiness of the family.
- Long term wealth preservation requires joint decision making and robust family governance. In other words most of the time the family needs to present as a cohesive unit.
- We can allow the same lack of leadership in our client base to continue.
- Or we can initiate discussion of the issues with our clients. The most important of these is educating the next generation about the management of wealth. Of course there are other associated services like family dispute resolution and negotiation but this can often be avoided by education.
Adopting a pro-active, clear approach to family leadership and education is likely result in pain avoidance later on. And clear communication can be expanded to include family values. Most families have a value system but this is rarely documented. Initiating these discussions builds trust in the family and helps establish you as the trusted adviser for the next generation. This will, in the long term help you refocus your practice to the family as the client. Sadly for many practices and advisers, the focus remains the primary client and when they go into care or die, the practice loses the client. Building relationships with the family and the next generation provides the opportunity for service continuation and expansion. It will build ongoing revenue and enhance the capital value of the practice. I believe that a good place to start intergenerational wealth education is with your own family. I have used it as a tool to initiate discussion about the future, my ideals and values with my children and have communicated the importance of a shared vision. Inter-generational wealth education and leadership needs to become an important part of your practice going forward. (This article is source from: EST PLAN )
How do we help clients faced with this WEALTH PLANNING dilemma? Welcome your comment; send us an email to Retire Rich.com
This e-mail address is being protected from spam-bots. You need JavaScript enabled to view it to give us your opinion on family wealth management in your practice. Read this week lesson from Robert Kiyosaki proverb below.