Uncategorized Archives - RealSmartica

Destination Unknown?

April 11, 2017 By admin 1 Comment

90fdb43b2d561be45bc89d8349fb0d74

Imagine you’re about to set out on a road trip. You would absolutely need to have an idea of where you wanted to go – north, south, east, or west. You would have to work within the confines of how much time you had for this trip – that would determine how far you could go.

Your financial goals are no different than that road trip; failing to plan means planning to fail.

Even if you haven’t given retirement much thought, in terms of what it looks like and feels like, chances are you have an idea of when you would like to have the freedom to walk away. For those of you bemoaning that you will need to work until you die, it’s time to see if that is really true or simply your worst fear taking over and freezing you in your tracks.

But, you have to set your goals. You have to make this a priority.

The trouble is, unlike the mortgage payment or electric bill, there are no immediate ramifications if you don’t take the time to do this. It is important, but it is not urgent. The consequences of your inaction won’t be felt for decades. That is why it is easy to procrastinate – especially if you are suffering from paralysis.

There are a number of helpful calculators on line that can gauge where you are and where you need to be in order to meet your goals, such as the ones at Vanguard.

What I like about these calculators, is that they help you nail down the answers to the questions I raised in my last blog, A Plan to Overcome Paralysis.

If you are tired of worrying about the great unknown, here are your starting steps:

Determine how much will you need. The retirement expenses worksheet will help you get a handle on what your living expenses will be in retirement. You may not have a mortgage payment in retirement, but perhaps travel or hobbies may constitute more of your budget in retirement then it currently does.
Take inventory of the money you will live off of every month from fixed sources (e.g., pension, social security, rental income etc.) and plug it into a retirement income worksheet. The end result of this exercise is you will have a better sense of how much you will need to draw from your investments in order bridge any gap from your fixed income sources.
Find out when you can retire. Vanguard’s calculator is easy to use:

Plug in how long you plan on living in retirement. It is not unreasonable to expect to live into your nineties, so don’t short-change your life expectancy.
Enter how much you currently have saved and how much you want to be able to withdraw annually to supplement social security, pensions or other sources of income (see your retirement income worksheet).
Don’t forget to adjust the pie chart to the side, which asks for how your portfolio is currently invested (stocks, bonds, cash).
Once all that data is plugged in, you can run a simulation to see the probability of achieving your goals and not outliving your money based on the amount/type of assets you have, and the time frame you need the money to last over.

In the event the results that you get are unsatisfactory, don’t get discouraged. The numbers may not work, but you then can explore what it might take to reach that goal. You may need to invest more money, increase your allocation to stocks (if that risk level is appropriate), delay retirement, or plan on working a part-time job in retirement (or some combination of things). Then you can decide which sacrifices you are willing to make and whether these actions are enough to move the needle in the right direction. The control is yours; you get to decide.

Once you have a sense of the parameters you are working with, you will no longer randomly throw money into an account without rhyme or reason. You will know what you are working towards. Most important, this will free you up to actually envision what you want your retirement to be so you can begin to enjoy the process of planning with purpose. Then, you will confidently know what your destination is and how to get there.

Why the “F” Word is so important for Women Investors

February 2, 2016 By Dina Isola 1 Comment

Ladies, it’s time to take charge of your money. You know you need to; you know you want to. So what’s holding you back?

According to a 2015 Money Fit Women Study conducted by Fidelity Investments, 92% of women want to learn more about financial planning, and yet only 47% feel comfortable discussing money with a planner on their own. What is the cause for this insecurity? Trust. They don’t trust their own knowledge and they are not sure what professional they can trust.

Here’s the “F” word that can change all that: fiduciary. Here’s another “F” word – fee-only. Put them together and you have someone who is looking out for your best interests (fiduciary), who will only receive compensation from you, their client, and not from mutual fund companies, insurance companies, and other financial institutions for selling products. This keeps their advice conflict-free, since the only criteria for investment selection is what is in your best interest (as opposed to which investment they can sell you that will pay out commissions).

When you work with someone who makes recommendations based on putting your needs first and is paid only for their advice, questioning intentions or motivations becomes unnecessary. A good advisor will put together a plan that doesn’t revolve around getting in and out of positions, as those actions generate transaction fees and can have tax consequences. In fact, a good advisor will take the time to educate you about your investment strategy so that you are better able to stay focused on your goals and tune out the panic when there is market volatility and uncertainty.

The traditional brokerage model that dominates the financial industry is often the only model people are aware of. Perhaps women shy away from seeking advice because, instinctually, they may be worried about being manipulated. After all, meetings with salesmen can often sound remarkably similar to “You have the most beautiful eyes.” It’s hard to know if a broker’s recommendations are truly beneficial to you once you know they earn commissions on what they sell and some investments will pay more in commissions than others.

But the answer isn’t to adopt an ostrich “strategy.” Reaching financial goals takes time and planning. Ignoring the task at hand is akin to squandering time and opportunities.

Financial planning for women has its own challenges. For starters, many women have taken some time off from their careers to raise children or to tend to aging parents. These absences reduce contributions to employer-sponsored retirement plans, such as 401K plans or 403B plans, as well as lower social security benefits. With higher life expectancies than their male counterparts, women are more likely to live longer in retirement, and to be single for at least a portion of their retirement.

Where to start? The Certified Financial Planner (CFP®) Board has a zip code search to find local Certified Financial Planners. To earn a CFP® designation, one must go through a stringent process that includes education, exams, professional experience, and ethics screening. Continuing education is required to maintain their status.

A word of caution, some planners are commission-based or a hybrid of fee-only and commission-based. This means they can get compensated by other financial companies for selling products to their clients. Strictly fee-only advisors are never salespeople fronting for product; they are paid solely for their time and advice. Advisors listed on the CFP® Board site must indicate how they are compensated. Look for “fee-only” advisors as they are not tempted to give advice that might benefit them even just slightly more than you.

Being frozen into inaction is not going to get your financial plan off the ground. Finding an advisor you can trust is an important first step. Now that you know about fee-only fiduciaries there’s only one question left: What are you waiting for?

A Plan for Easing Your Worries

June 15, 2012 By Dina Isola Leave a Comment

It’s great to be aware of what is going on in the world, but if you find yourself so pre-occupied with the markets that you are wringing your hands and stressed out, it is time to meet with your financial professional, make sure you are on board with the strategy and then stop watching the day-to-day market fluctuations.

Not sure what to ask? Here are some points to raise with your financial professional:

What is my overall risk relative to the S&P 500? In other words, if the S&P loses 1 point, will I lose more, less or the same as that?
What is my overall portfolio allocation? What percentage is in stocks, bonds, cash and what are the specific types of securities within these categories? Are there any categories that should be included in the portfolio to help hedge against market fluctuations?
What is the strategy going forward, if the market continues to be volatile? What types of holdings would be sold? What types would be bought? And, is the portfolio gradually shifting towards that new allocation?
What are the fees that I pay to own these investments? Fees eat into your performance and is the one variable you can control. Average fund fees can range from 0.50% to 1%. Of course, higher fees exist too, but the good news is there are many funds with fees in the 0.20% range as well.

Remember, nothing should be absolute in a portfolio. Selling everything and holding all cash (or any one type of investment) is an incredibly risky strategy. If an asset’s price is going up wildly, it is volatile and it’s price can easily plummet just as dramatically. There is no substitute for a well-crafted asset allocation strategy; just be sure you have one.

Survival of the Fittest

September 30, 2011 By Dina Isola Leave a Comment

As hard as we try to control our environment, the reality is that things are always changing; things that are beyond our control. Adaptability becomes the great separator between surviving well, getting by, and being destroyed. How we choose to move forward, and how well we anticipate and adjust to circumstances makes all the difference to the outcome. Those things we do control. Survival mode isn’t a bad thing; it actually forces us to be more creative and look at our challenges with urgency (and perhaps, a fresh eye). Consider examining your worries and see what creative solutions you can come up with. Be an active participant in your life, and don’t wait for the ceiling to come crashing in before acting. Anticipate well and make your move before you need to, in order to strengthen your chances for success. Here are some actions you can take now:

Increase Job Security. One of the greatest fears in a weak job market is being laid-off. In addition, there are jobs that are being exported overseas. Worrying and complaining about this won’t change the situation. Take this time to formulate a Plan B, and be wise to the writing on the wall. If your job (or your spouse’s job) is always dangling by a thread, it’s time to look at the skills acquired and the contacts made. Can this experience translate to another industry? For example, an unemployed teacher might pursue a career as a corporate trainer, which requires the ability to communicate and instruct.

Consider freelance or consulting opportunities available (provided your employer doesn’t forbid this). Would an investment in more education or training improve your job prospects? Is there a side business that can be started with little or no capital (ideally, that would allow you to keep your full-time job)? Maybe you have been itching for a change and want to explore a passion. Or, maybe you see a need that isn’t being filled in the market right now. Again, use the experience and skills you already have to turn this into something profitable. Brain storm, and write down everything you can think of, no matter how far-fetched it may seem. You may end up with a clear idea of where you should be personally and professionally.

Tap Resources. Local colleges and universities and libraries have education and job placement counseling. There are small business development centers that offer free mentoring to start-ups, including assistance with fleshing out your idea, developing a business plan, marketing and management issues. Career Zone and Job Zone can help you match your talents with prospective careers. There are resources for retired/mature workers looking to transition back into the workforce. Women and veterans have agencies dedicated to working with their needs. The Small Business Administration, SCORE, and the US General Services Administration are some websites to explore.

Work Hard. This sounds obvious, I know. But, how we invest our time has a lot to do with our success. Two hours of television watching could be better spent planning a new business, or going to school to get additional training. Of course we all need to unwind and recharge, but find the time to invest in getting “fit” for the challenges that may lie ahead.

Budget Wisely. A budget is only as good as the information you put in it. That is why you have to keep track of everything that you spend and everything that you make. Only by tracking every little expense can you see where the “fat” is. Saving/investing must be a line item in your budget. Make room for it by cutting unnecessary expenses. Every month, you should aim to put away at least 10% of your income (more, if you can). If you are contributing to a retirement plan at work, this money would count toward the 10%.

Refinance. With fixed mortgage rates at unbelievable lows, you can immediately improve your cash flow by refinancing. The key here is to pocket the difference, not spend it. This money should be used to fully fund your retirement, or to build up the emergency fund. If you are branching out into a business, some of these funds can be used in that manner. This money should strengthen you, and not be used to buy more stuff.

Pay Down Credit Card Debt. Get healthy and shed as much of this debt as you can. You should aim to pay off more than just the minimum and look to consolidate the debt to one lower rate card. Talk to your card company and try to negotiate a better rate. If you still have high rate cards, be sure to pay them off first. Of course, stop using credit cards for any new purchases.

Delay. Again, if you are nervous about job security, or debt is creeping up on you, put off purchasing anything you don’t really need. Don’t eat out, don’t go on a vacation, don’t buy a new car, don’t indulge in anything that you would consider something you want (a manicure) versus a need (an annual check-up).

Difficult times provide a chance to examine your life and to truly grow and benefit from the experience. Preparing for survival mode will strengthen you and, more important, give you confidence when you do rise to the occasion. Suddenly you will see possibilities that otherwise you might have never considered. Growing pains aren’t easy to bear, but they are necessary for survival.