For some of us who are new to investing, the financial world can seem like a distant planet using a foreign language, loaded with technical concepts and complicated terminology. Yet, while it may seem overwhelming to listen to a heap of investment jargon that you don’t quite understand, it’s important to get the general basics under your belt and start breaking down the gist of it. Now, more than ever, it’s easy to get started. You don’t need a degree in economics or a ton of money to be able to get into investing efficiently. Starting small and gaining an understanding of the general concepts, risk management and market techniques is a great step in the right direction of financial growth.
Whether you are just starting out or already in it feeling like you are driving blind, these 4 important practices will, undoubtedly, help you better understand your investments.
UNDERSTANDING YOUR RISK
No matter what kind of investment you choose to make, you will always run into some degree of risk. You will come to find out most investments that you make won’t have a guaranteed rate of return. So, understanding exactly what risk entails and gauging your own personal appetite for risk should be the first task of any potential investor.
In the world of investing, it’s important to realize that risk can come in several different ways. The most visible form would be concentration risk, which essentially means putting all your eggs in one basket. This is when your portfolio isn’t diversified and relies heavily on one or just a few investments. Another form would be overlapping risk which means buying similar or same sector investments that can be heavily affected by the same external event. This can blindside an investor who may think that they have a diversified portfolio. Another risk that any potential investor must take into consideration is not taking enough risk. This can mean that a person is too conservative or safe. While you may have heard the phrase “no risk it, no biscuit” being thrown around in the sports bar, it can also relate to the risk/reward paradigm of the investment world. It’s important to not invest in too many investments that are deemed “safe” to avoid the possibility of interest rate or inflation risk. It’s possible that your investments can be so conservative that you’re actually not letting your money work for you to its most potential and, therefore, could actually be losing ground to inflation. Ultimately, risk is a natural part of investing and you need to find your comfort level and build your personal portfolios accordingly.
Now that you have a better understanding of the risk involved in investing, let’s dive into how you can help mitigate it. The most crucial way to increase your investment returns and reduce your overall risk is the act of diversifying your assets. The main idea here is that you don’t want to put all your eggs in one basket. If you put all your money into just one investment and it ends up performing badly, you can then lose all your money. Alternatively, if you create a diversified portfolio that involves a variety of different investments, it’s much less likely that all of your investments will perform badly.
One of the most important ways to diversify your portfolio is to invest in several different asset classes. The three main asset classes that should round out your portfolio include stocks, bonds and cash.
• Stocks (also known as equity) is a security that represents the ownership of a fraction of a corporation. This entitles the owner of the stock to a proportion of the corporation’s assets and profits equal to how much stock they own. While stocks can offer the highest potential gains, they also carry the most inherent risk. They are the heavy hitters, if you will. Expect to hit some home runs but also, deal with some strikeouts.
• Bonds are units of corporate debt issued by companies and securitized as tradable assets. A bond is referred to as a fixed income instrument since bonds traditionally paid a fixed interest rate (coupon) to debtholders. Variable or floating interest rates are also now quite common. Bond prices are inversely correlated with interest rates: when rates go up, bond prices fall and vice-versa. These fixed-income securities have maturity dates at which point the principal amount must be paid back in full or risk default.
• Cash, or the money you have in your savings account, involves the least amount of risk with, alternatively, the least potential return.
UNDERSTANDING HOW TO BUILD YOUR PORTFOLIO
So, now you know the different asset classes and their levels of risk but how do you figure out how much to invest in each asset class? This process of divvying up your investment portfolio is referred to as asset allocation which is, ultimately, dependent on your risk tolerance, personal goals and time horizon. Asset allocation can be crucial to your portfolio because, traditionally, asset classes tend to not move together in tandem. Stocks will tend to perform better in a rising economy, whereas bonds will tend to increase their returns when interest rates are falling. Gauging the market conditions along with assessing your risk tolerance is crucial when making up your portfolio. If you have a high risk tolerance and a longer time frame to invest, you may elect to have an aggressive portfolio which features a higher allocation of stocks compared to bonds. Alternatively, if you have a low risk tolerance with a shorter time horizon, your portfolio may be more conservative with more bonds compared to stocks.
UNDERSTANDING MARKET EMOTIONS
You put your money in the stock market and, inevitably, just punched your ticket to an imminent roller coaster of emotions. So, buckle up because the ups and downs are just a normal part of the investment journey. It’s important to understand that controlling your emotions during these market swings is crucial to the long-term health of your investments. When you buy a stock and it starts performing well, you are, undoubtedly, going to experience an excitement and thrill and want to see how much money you can make. Then if your stock starts declining, you may feel a rush of negative emotions like anxiety, depression and fear while wanting to sell before you lose more money. It’s all a part of the game and one must acknowledge the cycle and trust the process. It’s important to understand that time is your greatest asset when it comes to investing, specifically in stocks. Let’s say that you just have one year to invest before you need to use the funds. In this case, you may be put into a risky situation where you could lose all of your money. This could cause heightened emotions while you are watching the market closely and could take a toll on your mental health. Alternatively, if you have an extended period of time to work with and a long-term plan the day to day changes in the market will just be noise in the bigger picture of your investments.
Ultimately, psychological factors can have huge implications on, not only a personal scale, but on a larger collective scale in the market. Making rational decisions and not allowing emotions to dictate your investment decisions will greatly strengthen the long-term results of your portfolio.
WHAT IS A ROTH IRA?
One of the smartest ways that you can start saving for retirement is opening up a Roth IRA. This special retirement account is simple to start, effortlessly efficient because it’s tax-free and will have you wondering why you haven’t started investing in one sooner! Similar to other qualified retirement plan accounts, the money invested within the Roth IRA grows tax-free. But unlike traditional retirement accounts, with a Roth you pay taxes initially when you invest money in your account but withdrawals are tax-free when you cash out after you’re at least 59½ years old. This “pay now, save later” tax feature is beneficial if you expect your tax bracket to rise in the future and remain higher in your retirement years.
If you think Warren Buffet, arguably the greatest investor of all time, has a secret formula for building wealth then guess again. He has been vocal for decades on how compounding works and it is actually quite simple. The main variables to compounding that builds wealth is time, taxes and fees. If you have time (years to invest) and can minimize your taxes and fees then you have what it takes to create substantial worth through the merits of compounding.
A Roth IRA with the help of Intelligent401k is exactly the way to compound your retirement funds to build a nest egg for your retirement and it is SIMPLE. These retirement accounts can appreciate in value by compounding, which can help your money grow substantially. Whenever your investments within your account earn a dividend or appreciate in value, that amount gets tacked onto your account balance. That means your money will continue to grow even if you don’t make regular contributions to the account. This is why it is eminently important to open a Roth IRA sooner rather than later because you’ll be better set for retirement the longer your money has to grow!
THE BENEFITS OF OPENING A ROTH IRA:
Roth IRAs come with some significant advantages compared to most traditional retirement accounts. Here’s what you need to know about the perks of Roth IRAs and how it can give you financial flexibility and help you maximize your retirement savings!
Roth IRAs are a popular retirement account choice for anyone because they are simple to set up through an online broker and if properly and prudently invested can have returns consistent with investing in stocks and bonds. This will fluctuate but the average annual return of the S&P 500 index is 10.7% over the last 30 years *thefool.com. Depending on your income you can currently contribute up to $6000 per year in a Roth IRA and if you don’t have one currently setup we urge you to start today. You should be contributing every single year until you are in your late 50’s to take advantage of these benefits! Let’s say you open a Roth IRA and contribute the maximum amount of $6000 each year for 40 years. Assuming a 10% rate of return, you would amass $2,927,110! That’s the power of compounding. On the other hand, if you decided to put your money in a savings account that didn’t yield interest, you would only have $240,000 after 40 years. That’s a life-altering leap that is too good to pass up.
HOW TO CHOOSE A BROKERAGE:
The world of technology has made setting up a Roth IRA simple and effortless! But how do you decide which brokerage to go through? It’s important to know that not all accounts are created equally. Where you open your Roth IRA can prove to have a big impact on the investments you’re able to access. Also, it’s important to know that the fees you pay for maintaining the account may vary widely. All of the costs associated with maintaining and trading within your account can reduce your overall investment return. Remember, every dollar you pay to fees is a dollar that doesn’t go into your investment account. Some other factors to take into consideration are quality of customer service, online tools and a user-friendly web platform. Some brokerages that we find particularly easy-to-use are Schwab, E-Trade or Fidelity!
HOW TO START A ROTH IRA:
Have you ever wanted to achieve personal goals in your life but aren’t sure how to actually get them done? Of course you have. We all have goals: career goals, relationship goals, financial goals, and fitness goals, just to name a few. There’s no debate that setting standards for yourself is necessary. After all, they give life meaning, purpose, and a drive that is undoubtedly beneficial.
However, they don’t just simply achieve themselves. It takes time, effort, sacrifice and oftentimes, help. While we are all for the universal mantra of “being strong and independent”, sometimes we’re better off with a little assistance to achieve a higher level of greatness.
You’re most likely here because you want to be proactive in setting yourself up for financial success in retirement. That’s a great goal and you’ve come to the right place to get there.
We want you to think of our 401k plan optimizer as the personal fitness trainer for your retirement fund. Take a look at how we can relate to your individual fitness program and help you achieve more out of your financial goals and, while we’re at it, reach more of your overall goals in life. It’s all related!
Just like a personal fitness plan, most people try to achieve their finance goals all by themselves without seeking any assistance. There is more than enough information out there to just figure it out alone, right? When you think about phrases like, “just eat right and exercise” it sounds a lot like “just save money and invest”. So, why doesn’t it work the same for everyone?
While the idea seems simple, it turns out not all diets and fitness plans are right for everyone. There’s a lot that factors into it. Depending on the goals you have, what works for one person, might not be a good fit for you. With an overload of information and recommendations, the options for saving for retirement can feel overwhelming too. The hardest thing can be knowing where to start.
This very concept is the foundation of Intelligent401k. We’ve developed a “fitness program” for your retirement fund that takes into consideration your personal goals and risk tolerance. That way, we can optimize your investments and keep your retirement funds in good shape.
The same way your body changes over time and needs adjustments to diet and exercise so does your retirement account. Intelligent401k is here to simplify the way you manage your 401k or IRA. Our 401k plan optimizer is the solution because it continually monitors and rebalances your investments to keep up with market trends, your age, and your personal risk tolerance. Much easier than living on kale and running three miles every day, we promise.
The first step in creating a workout program is to conduct an assessment of a person’s current fitness levels. From there, a trainer can determine the most effective method for designing a program to reach the desired exercise outcome. Retirement planning with Intelligent401k can be very similar to designing an exercise program. The first step is to conduct an assessment of your current financial status and identify certain key factors like your risk tolerance and projected retirement age.
You’re unique. We have different bodies, different experience levels, and maybe different goals than any other person at the gym. A personal trainer’s job is to create a fitness program specifically designed for you, so the workouts are catered to your own objectives. A training program to compete in an Ironman competition is going to look a bit different than training to lose twenty pounds. Intelligent401k understands that everyone is at different stages of life and levels of financial security. An IRA or 401k provided by your employer can feel one-size-fits-all but we want to tailor a personalized portfolio and plan to fit your specific wants, needs, and goals.
Typically, if you do the same workouts every day you aren’t going to achieve the best overall results. A personal trainer is there to continue to modify your personalized program and switch up the routine to optimize your fitness levels. The fitness world is continuing to adapt and it’s important to stay on top of the current trends and programs.
The same can be said about your 401k or IRA. The money that is sitting in your account is being invested in a combination of stocks and bonds but, in most cases, it’s not automatically adjusted to consider the change in market trends. Our algorithms continue to rebalance your investments with the goal to optimize your savings for a better overall outcome.
Have you ever started a fitness program and reached your goal weight but then had trouble keeping up with your healthy lifestyle? The hardest part about staying in shape is maintaining that level of activity and making it a consistent part of your life. When you and your trainer make an initial plan it is important to set specific goals, but once you reach those goals, it’s even more important to revisit them.
The same can be said about rebalancing your retirement investments. The easy part is getting into shape because, in the case of your 401k plan, that can happen instantly with Intelligent401k. The difficult part is maintaining the correct balance to help optimize your investments over time. Why would you want to spend time getting “in shape” only to stop once you met your goal?
The good news here is that, with Intelligent401k, we do all of this for you! We get your retirement fund in check and keep it in shape without even breaking a sweat. All you have to do is commit to a plan for long-term results!
When it comes to fitness goals, people often get discouraged because they are impatient and want to reach their goals instantly. Along with investing, you just have to trust the process. There will be ebbs and flows along the way but if you are consistent and persistent with a program you can really increase the probability to achieve your goals. You guessed it, the same is true for your 401k, and Intelligent401k is here to help!
If you haven’t made your retirement plan a priority yet, it’s never too late to start saving and preparing for your financial future. Maybe you didn’t follow the road of financial responsibility straight out of the gate but, rest assured, you’re not alone.
Most people feel good enough knowing that they are adding to their 401k every paycheck without realizing that there are tangible ways to help increase their investments. The money that is sitting in your retirement account is basically being invested in a combination of stocks and bonds but, in most cases, it is not being adjusted to match the change in market conditions.
Individuals who are still 20 to 30 years out from retirement are often too disconnected with their investments. They set up a 401k in their 20’s, never revisit it, and reach their 40’s with a 401k plan that has not been ideally managed. Sure, you rely on your employer to provide a retirement account but the responsibility to maximize it is yours.
If this has you feeling overwhelmed, Intelligent401k is here to help.
Every individual is on their own path to reaching their financial goals and not everyone can afford to pay a financial advisor to get there. Intelligent401k was created to help you effortlessly optimize your retirement savings. It works with your existing 401k or IRA seamlessly. Our system uses cutting-edge artificial intelligence (or AI-driven algorithms) that actively respond to fluctuations in the market to adjust your investments in order to take advantage of the current economic conditions.
To get started, our system uses a proprietary risk assessment to determine variables that are specific to each individual.
The factors that identify an individual’s personalized portfolio include their projected retirement age, personal risk tolerance and the current market conditions. After summarizing your risk and connecting to your retirement account, Intelligent401k generates a portfolio that seeks to properly and prudently invests your funds to reduce risk and maximize returns.
More importantly, a key to seeking achievable long-term results for your account is the technology that provides ongoing maintenance and adjustments. Not only does the Intelligent401k technology manage your savings and reduce management fees, it also continues to monitor your portfolio seeking optimal success!
When you feel like you are on a time constraint to complete a goal, like planning for retirement, what’s the biggest factor that comes into play? Efficiency. It’s not just about getting things done but doing it the optimal way with minimal waste of time and effort. With that being said, Intelligent401k was designed to optimize your retirement savings in an efficient manner.
Retirement funds make up a significant portion of the average American’s financial assets. Yet they are oftentimes overlooked and unmanaged. When they are left stagnant without rebalancing, individuals could lose out on substantial long-term results.
Today, people are living longer, getting married later, and putting more emphasis on present life experiences rather than focusing on their financial goals for the future. Whether you believe your 30’s are the new 20’s or your 40’s are the new 30’s, today could be your first day on the road to a sound financial future. It’s time to get your retirement plan on track with Intelligent401k. Request your access today!