Financial Idea's Blog

Having A Smart Nest Egg!

What’s the one thing that stops most people from investing?  (I’ll count to three before I answer, in case you already know and it has ever stopped you…)

1.     2..    3…

Okay, here it is – it’s the concern, maybe even fear, that you’ll lose what you have, or if that doesn’t happen, that what you invest will be TIED UP FOREVER, or at least until you get to age 59 1/2, which for many people is the same thing as FOREVER.

On the other hand, if you take the time to do the math, it won’t be much of a stretch for you to realize that not saving and investing won’t get you to where you want to be, so it only makes sense for you to do it.   You only need to go back to a previous blog on this page to read about the Rule of 72 and how that will answer this question.

So, if you’re with me still, let’s get back to those two concerns.  First of all, regarding the “lose what you have” problem, “lose” is a relative concept.  If you are a victim of the Rule of 72 (instead of benefiting from it), then you’ve lost by default, even if your account balance never goes down, year after year.  On the other hand, if you lose in the short term via a really bad year like 2008, then it is what it is – the SHORT TERM.

The SHORT TERM is not FOREVER.

Even when stocks (or mutual funds or bonds) have a bad year, they have never historically had a bad 20 years, so if you put your focus on realistic LONG TERM goals, by which I mean 10 years, 20 years, 30 years or more depending on your age.  Don’t worry about what happened in 2008 or what might happen in 2018, because neither you nor I nor anyone else controls that.  Just do it, as they say.  Once you start, it gets easier.

Imagine, for example, that I worked with you, analyzed your specific situation, and told you that you needed to save $400 a month for the next 40 years.  You might say, “holy cow, that’s a lot of money!”, or “holy cow, that’s a long time!”,  but I guarantee you that if you do it, and the monthly number doesn’t need to go up, in five or ten years you’ll be thinking that $400 a month is nothing and you’ll be ahead of the game.  It just works that way.

So, finally, second, what about the NOW IT’S TIED UP problem?  The truth is there’s only a few ways that your money can get tied up: 1) pre-pay your mortgage, 2) put it in your company 401(k), or 3) put it in a Traditional IRA.

All of those choices MIGHT in the right cases be good ones, but, if you want to guarantee that some of your money IS NOT tied up, then consider talking to me about the advantages you might realize by contributing to a Roth IRA, or if you’ve hit the maximum allowable contributions for the year, using a regular taxable brokerage account.

Chief among those advantages is that, in a Roth IRA, you can withdraw your contributions anytime without penalty, even at ages below 59 ½.  I don’t recommend that as a normal strategy, because doing it will cause your growth to be smaller, but you can do it if you need to, and you won’t pay a penalty.

You WILL pay a penalty if you try to withdraw the growth on your contributions to a Roth IRA in less than five years, but you WILL NOT pay a penalty to withdraw just your contributions, which, under 2010 law, are up to $5,000 per year for those under age 50 and up to $6,000 per year for those 50 and over.

It’s a pretty sweet deal if you know to take advantage of it, and here I am spending the time to tell you about it.  If you’re past that stage of saving and want even better tax strategies, then we definitely need to talk, because there’s more you can do.

Want to know more?  Let’s talk, and create a plan that’s right for you and your family.

Make an appointment to speak with me here: http://whattoinvestinnow.com

or email John@financialideasblog.com

Technorati Tags: 401K, Bonds, how to invest, IRA, learning Stocks, long term investing vs short term, retirement investments, rule, rule of 72, Stocks, stocks and bonds

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