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Investing Cliché of the Week

May 15, 2018

Investment analysts, financial writes, television and radio commentators and fund managers need to introduce change. Without change, the impression of their value would dissipate at best or disappear at worst. The best way change seems to be introduced is with an acronym or cliché. This method must work because it is continuously being done and the revenues for such sage advice keep rolling in.

Let’s get real. For most people the purpose of investing is to provide for specific goals or overall financial security. This security comes in two ways. Having sufficient 1) assets or 2) cash flow. Nothing else really matters. If you are investing to accumulate a certain amount of assets at a specific time such as to pay children’s college costs, start a business, buy a house or vacation home, or take a major trip you would invest one way. If you are investing to accumulate sufficient assets to provide necessary cash flow at a later period, such as when you retire or to be able to retire early or start a new career, you would invest another way. I see no other purpose of investing. If you want to make a killing or amass wealth beyond imagination, that is not investing but trading or speculating; and, in my opinion, the average person concerned about attaining their goals should stay away from this and stick to achieving their goals.

I suggest ignoring the clichés and doing the following. Note this is not new from me, I have been saying this for years and it can be found in many of my previous blogs, and it is still the right advice!

  1. Determine your goals
  2. Set aside your “rainy day” funds
  3. Pay off ASAP any credit card debt and certainly do not add to it
  4. If you have a short term goal, i.e. less than 7 years, stay out of the stock market. Stick to bank certificates of deposit, fixed annuities or corporate bonds
  5. If your goal is to have sufficient cash flow that will last you for the rest of your life after you retire, then you should invest in well-diversified stock funds, particularly index or exchange traded funds.
  6. Depending upon when you start, you might not be able to accumulate a sufficient stock account to provide the needed cash flow, then you should put as much as necessary in longer term bonds so that reasonable projections will indicate that you will attain your cash flow goal. Once that is assured, then any new investments should be in the stock market
  7. If you still will not attain your cash flow goals, then, when you reach your retirement point, you should consider an immediate annuity for up to 20% of your investments or a reverse mortgage. Note that these are only to be used if you fall short of your goals and not for any other purpose
  8. In determining the cash flow you need from your investments, you will need to consider Social Security and retirement account balances that you will have at that time
  9. Part of your cash flow projections can include withdrawing some principal. How much will depend on your age and the current dividends and interest from the investments
  10. Another factor if it appears you will fall short is to reduce spending, or to get a part time job, or to start reducing your spending prior to retirement
  11. If your goals do not include using your tax sheltered retirement accounts prior to retirement, then these should be fully invested in the stock market, again in well diversified funds
  12. Keep in mind that whatever age you retire at is not the point when your investment should change. Your investments have to last you the rest of your life which can be decades after retirement. You need a long view, not a near term perspective
  13. My definition of retirement: When you stop working and stop receiving your salary from your full time job, or business

This is a step by step model of what to consider. Each person is different and while I believe this is an excellent guide, only you [and your advisor if you consult with one] can apply it to your individual situation. Good luck!

I noticed I listed 13 steps to follow. I also posted a related blog on February 20, 2014 with 13 steps. 13 must be a lucky number. Check that out too. Here is a link.

Ed Mendlowitz emendlowitz@withum.com

One Comment leave one →
  1. Alan Zeitlin permalink
    May 15, 2018 9:01 am

    Great advice as usual.
    Straight to the point with no BS.

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