What is the most important thing you can do for building wealth?
Video recap: https://youtu.be/OVSKtk6TzB0
Recently, Jeff Levine (@CPAPlanner) put this question out into the Twitterverse: Other than saving and investing, what is the one single most important factor to financial success?
Too often when dealing with financial decisions, we try to overcomplicate what is best for us. We liked the simplicity of a single thing to focus on, so this week we are breaking down our version of the most important thing you can do in each decade to improve your financial journey.
If you are starting to build wealth in your teens and 20s you’re in luck. Time is on your side.
An often cited roadblock to getting this started, is the overwhelming debt obligations to student loans. While important to tackle high interest rate debt, carving out a small amount of automated savings can be life-changing.
For many, the first time we see a compound interest example, we are inspired. We included a powerful example below to demonstrate how much investment growth accumulates over 40 years, compared to the amount you are saving.
By saving small amounts early, compound interest becomes your super power. Automating this savings each month in an investment account with exposure to a diversified stock portfolio starting in your 20s, is arguably the single biggest impact decision you'll make in building wealth. Because of the natural discipline it creates, making it harder to stop it down the road.
During your 30s, life often becomes busier. Between new marriages, job changes and growing families, consequential decisions can pile up. These exciting changes bring curveballs you often don't expect, like childcare for remote school over the past year.
This is when deciding to pay yourself first benefits you behind the scenes when life decisions are taking priority. If your saving and investing decisions are made only after you cover your expenses, then your budget is upside down.
Automating your savings and charitable giving can leave you better positioned as you head in to your 40s.
During this decade, it's tempting to continue moving the goalposts as you reach certain levels of success.
Comparing your financial situation to others is a common derailment to your long-term success in your 40s. Keeping up with the Joneses can feel like an endless treadmill.
In the The Psychology of Money, Morgan Housel writes, “the ceiling of social comparison is so high that virtually no one will ever hit it, which means it is a battle that can never be won or that the only way to win is to not fight it to begin with, to accept that you might have enough even if it’s less than those around you.”
Determine your definition of enough. Is it a certain amount of money in the bank? A bigger house? Being laser focused on your ultimate financial goals, allows you stick to your financial plan, providing peace of mind along the way.
Successful financial planning begins with understanding potential high impact risks.
More and more, we see unexpected hurdles for people in their 50s. It could be a layoff or a loss of assets due to grey divorce, but understanding the potential impact with scenario planning beforehand can leave you more agile to adjust.
Investing in your personal and professional relationships through the years, allows for more flexibility when reinventing yourself in these circumstances. Additionally, understanding the impact of withdrawals on your assets can be valuable in the case you need temporary withdrawals to sustain you during a transition.
Hopefully, in your 60s you are reflecting on a life well lived. This is a time to gain perspective. Common rules of thumb or family recommendations may not be the best. Some common things we hear related to this are:
Having a plan in your 60s provides confidence. Hiring a financial professional can help you develop a plan and to gain perspective so that you can create a long term plan for your money.
From a historically quick bear market decline to a speedy rebound, 2020 certainly took us on a wild ride. But there is a lot we can learn from this crazy year.
Short video recap: https://youtu.be/fUfGwGk-gEY
In this episode, we are reflecting on the investment lessons we learned over the past year. What were the lessons you took away in 2020? Listen in to hear if there are any other lessons you can learn from the year.
Historically, the S&P 500 returns 8-10% per year. Since markets go up in the long term, people who focus on the long-term growth of the stock and bond markets, as well as the growth of the economy, will prosper.
This lesson was put to the test in March of 2020 when we had the shortest bear market in history. Investors that stuck it out profited greatly. From March 23 to the end of 2020 the market went up an astonishing 68%.
Since no one has a crystal ball, buying in a bear market can be scary. This is why we recommend having an investment plan or a rules-based process in place.
If you lost sleep over or sold stocks during the decline then you need to reassess your asset allocation. How did you fare in the market decline? Were you an optimist or pessimist? Did you stick to your investment plan and wait it out?
These days, the markets move at lightning speed. At this velocity, people often feel like they need to stay on top of all the latest financial news. However, listening to the financial media can hinder your ultimate goal. The media’s job is to sell advertising, not to help you reach your financial goals.
Even if all the uncertainty drives you crazy, step away from the sensationalist news. The number one predictor of long-term investment success is investment behavior, so teach yourself the discipline not to act on every little thing you hear on the news. Turn off your notifications and guard your time instead.
We all hear the rags to riches stories about the latest fads. Raise your hand if you have a friend who has struck it rich with Bitcoin lately. These stories can be so powerful, however, no one ever talks about the downside.
FOMO (fear of missing out) is real and we often want to jump on the latest bandwagon, whether it be Bitcoin, gold, or whatever the new shiny thing is. At the end of the day, the value of what you own is only what someone else is willing to pay you.
If you still want to jump on the latest bandwagon understand your motive and think about the impact of your investment on your financial plan.