JDH Blog Archives - JDH Wealth

What Are You Thankful For?

It is easy to be thankful when things are going well; when your bank account is fat and thriving; when your kids have great grades, and there’s positivity all around. You look at your life and you can easily point to ten things you’re grateful for. But what about when you look around and there’s so much negativity? 

For a lot of people, it has been a challenging year; financially, emotionally, and mentally. What with the pandemic, and numerous layoffs? And in times like this, it can be extremely difficult to find things to be thankful for. For some, even the gift of life is no longer something to be thankful for.

However, we know that gratitude is an important aspect of life that can help us see things in a new, positive light. So, as Thanksgiving approaches, what are the things to be thankful for? 

Family and friends

The people who we always have around us and we have gotten so used to that we don’t think they are a major reason to be grateful. Imagine what life would be like without a family that will stand by you no matter what, and friends that always have your back. Life would be pretty hard and lonely. 

So, if you have a family, even if it’s just one person, be thankful. 

The ability to read

If you’re reading this right now, that’s something to be thankful for. Think of the simple pleasure of reading and how difficult life would be if you couldn’t read. Then you’ll see why you should be thankful. Also, think about how books create a delightful escape from the hustle and bustle of your daily life. The ability to read and the existence of books is something to be thankful for. 

Kindness of strangers

For every random act of kindness you’ve gotten from a stranger, be thankful. It’s easy to focus on the negative things going on in the society that we develop a blind spot for the positives. Whether it is a stranger returning something you lost, or someone helping you with your extra luggage. Think back to that time when a stranger extended a helping hand when you weren’t expecting it. There are still good people in this world and that’s something to be thankful for.  

Good memories

No matter how bad things are, some memories will bring a smile to your face. That time when someone made you feel loved, or that time when someone said something so funny that you couldn’t stop laughing. I believe we all have good memories we love to relive. Be thankful for these memories, those you created them with, and the ability to recall them. 

The struggles of life

While most people see struggles as an inconvenience and something they’d rather live without, I think they are one of the things we should be grateful for. Who would you be if you didn’t go through the struggles life threw at you? Would you be this wise, thoughtful, empathic, and compassionate? Our struggles make us who we are. If you like what you’ve made of yourself, you should be thankful for the struggles that helped mold you. When you start seeing your life struggles in a new light, you’ll learn to be thankful for them.

Technology

Imagine having to wait for days to communicate with a distant loved one, or having to trek every day to work. We have gotten so used to the technology around us that we don’t see the need to be grateful for them. Just think of how easy technology makes life and how much more difficult everyday things would be without technology. Be thankful that you don’t have to spend weeks traveling to another country in a car or train. Think about the body pain you don’t have to experience and gratitude will come easy to you

Freedom

If you’re reading this from a country where you’re free to move around as you like and do whatever legal thing you want, that’s one more thing to be grateful for. There are places in the world where people are not free to do what they want or even go to certain places. Even worse are places where they have their freedom but would rather not exercise it for reasons like insecurity. So, if you’re safe enough to go wherever, and your activities aren’t restricted, be grateful for the underrated gift of freedom. Also, remember to be thankful for those risking their lives to protect your freedom.

A beautiful world

Look around you and admire the natural scenery. If you’re surrounded by buildings, take a walk out into nature and feel the calming effect of the beauty all around you. From waterfalls to fields of flowers, the world is an amusing display of beauty and that is something to be thankful for. The fact that when the world seems dark and dreary, there is still a provision in nature for something beautiful. You don’t even have to leave your house to admire the beauty in nature. Just go online and watch calming videos of nature and see why you should be grateful for the beauty in our planet. 

Breathing fresh air

If you live in a city with fresh hair, you should be extra grateful for all that clean air that you get to inhale. Being able to step out and breathe in fresh air should be a remainder of how blessed you are. And every time you remember how blessed you are, be thankful by giving out to the needy. That’s one way to show gratitude for all of life’s blessings.  

Conclusion

There’s always something to be thankful for. Most times we just don’t think so because we’ve become overfamiliar with them. From the love shown by your partner to the gentle breeze on a hot afternoon; seemingly mundane things.

If you think there isn’t anything to be grateful for, be grateful for hope. Yes, hope. Hope that things will turn around for the better, hope that next year, your life will be so full that you’ll have a long gratitude list. Because, even though it might sound cliché, if there is life, there is hope. You’re reading this right now so I know you have life. And by extension, you also have hope. Be thankful for that.

Written by Matthew Delaney

November 22, 2021/by Matt Delaney

How Do Charitable Remainder Trusts Work?

JDH Blog, Written by Eric Keating

There are various methods to help a charity or specific cause with your assets after you pass away, one of which is a charitable remainder trust (CRT). It requires a little more work than other trusts, but it has the unique ability to assist a charity, provide a tax credit, and provide income for you/your family.

What is a charitable remainder trust?

A Charitable Remainder Trusts is an estate planning tool that allows you to earn annual income from the initial contribution with benefits such as lowering taxes (most notably estate taxes). These tax-free irrevocable trusts are designed to provide income to a named beneficiary (you or someone else) for a certain period (not more than twenty years). Any remaining value in the trust is distributed to a chosen charity at the conclusion of that time period.

Here’s how a charitable remainder trust works: an appreciated asset is transferred to an irrevocable trust. This eliminates the asset from your estate, ensuring that no estate taxes are required upon your death. You’ll also get a charitable income tax deduction right away.

The trustee has the option to sell the appreciated asset at full market value with no instant capital gains tax liability. If sold, the money can be reinvested in income-producing assets. The trust will provide you with an income for the designated time period. When you pass away, the remaining trust assets are distributed to the charities you have designated. 

There are two types of Charitable Remainder Trust:

CRATs (charitable Remainder Annuity Trusts): The lead beneficiaries will receive the same cash amount each year, regardless of whether the trust value increases or declines. The trust does not accept additional contributions.
CRUTs (Charitable Remainder Unitrusts): Every year, a specified percentage of the trust value is paid out. The amount will be reassessed each year, with higher payments to lead beneficiaries if the CRUT’s rate of return exceeds the set percentage payout, and smaller payments to lead beneficiaries if the CRUT’s rate of return is less than the fixed percentage payout. There is an option of making extra donations.

Who should get a CRT?

Simply put, charitably inclined folks with appreciated assets who want the tax credit, but still maintain a portion of the asset’s future income. Typically, this would be someone over 60 years of age, typically no children, a desire to defer capital gains taxation, a need to diversify assets, and a need to lower estate taxes are some of the criteria that imply a CRT may be beneficial.

Some examples of a CRT candidate are a business owner who owns a C corporation and is planning to retire or be bought out soon; or possibly a real estate owner who is considering selling but does not want to pay capital gains tax or is tired of the 1031 exchange treadmill and wants to move cash out of the property in a tax-efficient way.

How long is the CRT expected to last?

A CRT might last for the main beneficiaries’ whole lives or for a specific period that cannot exceed 20 years. It’s very important to note that the actuarial value of the CRT remaining left to charity must be at least 10% of the CRT value at the time of funding.

Through statistical analysis, this “10 percent test” establishes a minimum age for lead beneficiaries. The CRT will fail the 10% test if the lead beneficiaries are too young. The lead beneficiaries for a lifetime CRUT must be in their 40s, while the lead beneficiaries for a lifetime CRAT must be in their mid-70s. It will be mathematically impossible for the CRT to leave the minimum value to charity if the trust pays income for too long a period.

Pros of CRTs 

They allow you to donate generously to the charities of your choice, while also providing you with a tax break.
They provide tax benefits at your death. Any assets in the trust will not count against your overall estate because the charity will absorb everything. This means that the IRS will not charge estate tax on these assets. 
You will be able to, at the very least, defer capital gains tax. If the trustee decides to sell the initial investment, the government will not immediately recognize this as gain. As a result, you or the charity may choose to put the proceeds into an alternative investment that suits your risk and income goals. If you had attempted to sell the stocks yourself, however, the IRS would have taxed all profits as capital gains.

Cons of CRTs

Charitable Remainder Trusts may not provide as much benefit to those with smaller estates or if the capital is not substantial enough. 
A charitable remainder trust is irrevocable. You are unable to cancel after it has been established. As a result, it’s critical to consider all the possibilities and life scenarios before establishing this form of trust.
If you decide to open a CRT, keep in mind that most of your decisions and actions are final once you make them. There is no flexibility if your needs were to change. As an example, suppose you start your CRT with $55,000 in annual annuities. After a few years, you decide that $35,000 per year is more appropriate. You won’t be able to make this change.

A well-designed CRT can generate cash for your heirs that are substantially greater than what they would receive if they inherited your property. While there are several advantages to setting up a CRT, it is ultimately a decision that must be made based on your unique circumstances. Do you own appreciated assets that no longer fit your risk profile? Do you wish to postpone paying capital gains tax on the assets you sell? Are you charitably inclined? These are questions that can help you decide whether you should set up a CRT or not.

Written by Eric Keating

November 19, 2021/by Matt Delaney

Biggest Mistakes When Receiving an Inheritance

JDH Blog, Written by Eric Keating

So you just got a big inheritance and you don’t know what’s next. Or maybe you do, but you want to avoid making mistakes. While inheritances can be a huge blessing, there are a lot of pitfalls which usually start with people making bad or uninformed decisions. Oftentimes, the excitement and seemingly potentially large amount of the inheritance can make you squander the money. Because in your head, the money is inexhaustible. This is not the case. And after a few months, you can’t point to what you did with your inheritance. 

Let’s look at the biggest mistakes you can make when receiving an inheritance and how to avoid them. 

Neglecting Professional Counsel

You might think you know what you should do with your inheritance, but chances are that you will overlook something. Fortunately, there are people that are trained to help guide you. The first and most important thing to do is put together a financial team. Almost all mistakes that you can make after receiving an inheritance can be avoided if you have experienced people working with you. So, hire an accountant, financial advisor, estate planning attorney, and any other professional you might need. Here are a few things your financial advisor can help you with:

Creating and helping implement a detailed strategy
Investment decisions
Preparing cash flow forecasts
Setting and tracking financial goals
Making saving and spending a top priority
Reducing your tax liability
Illustrating what retirement might look like for you in various scenarios
Doing the research for you when it comes to perplexing and complicated issues

Making Emotional Decisions

Sometimes, we let our emotions get the best of us when it comes to our finances. This can become even worse when you’ve just received a huge inheritance. You might think there’s enough money to last forever. You might even get caught in the trap of trying to help people while neglecting your own finances. After getting your inheritance, the first thing on your mind might be how to help your family or friends that are currently in a tight spot. This can be damaging in the long run. No, this doesn’t make you a bad person, it makes you wise. An analogy I like to use is when the oxygen masks drop on a plane flight. They always tell you to put the mask on yourself before helping anyone else with theirs.

Hoarding Your Money

I’m not saying you should spend lavishly or indulge yourself in things you really don’t need. I’m talking about being too nervous to invest or take advantage of business ventures. You should know that if your money is not making you more money, it’s only a matter of time before it starts losing to inflation, not to mention non-discretionary spending. 

Usually, people hoard their money because of the fear of making a bad investment or financial decision. You can avoid this by having a financial team and even doing your own investment research. If you’ve never invested before, navigating the financial world can be intimidating and overwhelming. Don’t let this deter you from investing a reasonable percentage of your inheritance, nor should it urge you to invest it all just to get it over with.

Keeping an Inherited Asset You Can’t Afford

Sometimes, your inheritance comes in the form of assets like real estate. This kind of inheritance can prove to be a bit difficult especially when you have an emotional connection with the property. You might want to hold on to it because it means something to you, even though you can’t afford to maintain it – upkeep, property taxes, HOAs, insurance, etc. You will know early on if you can’t afford the property for the long haul. If you can’t, it will inevitably have to be sold. You might as well do it before you lose all your savings.

Letting Go of Other Sources of Income

You may be tempted to quit your work or modify your lifestyle. An inheritance can appear to be a significant sum of money, but it can be easy to consume in a short period of time. You can avoid this mistake by working with a financial advisor. An advisor can forecast how long the money can last for you based on how much you spend.

Not Paying Off Debts

Sinking your inheritance into paying off a loan or credit card may not seem exciting, but if you have debt with interest rates that, if flipped around, would seem like a great investment, then you should rid yourself of that debt. It has to eventually be paid back, so you might as well save yourself the extra lost money that comes in the form of interest. Always consider paying off higher-interest loans first, such as credit cards, personal loans, and vehicle loans. The one exception to being debt free is your mortgage. Those tend to be the largest in value, and paying it off all at once might leave you “cash poor.” This is different for every person and is another great reason to connect with a financial advisor.

Conclusion

The point I am trying to drive home is that having a financial team there to help you make important decisions should be step number one. Unless you’re trained in finances, you can’t know all you need to know about making the most of your newly found assets. I gave you a short list of possible pitfalls, and this is just the tip of the iceberg. Whomever left you the inheritance, I’m sure did it because they were looking out for your future. Fulfill their wishes by making it benefit you as they intended. That might mean asking for help if long-term investing is unfamiliar territory.

Written by Eric Keating

November 17, 2021/by Matt Delaney

Three Simple Habits That Help You Save Money

JDH Blog, Written by Matthew Delaney

Since you made the resolution to start saving, how much have you actually saved? No judgment. But I can take a wild guess and say you haven’t saved much. Saving can be a herculean task, especially if you don’t know how to go about it. A lot of people sincerely want to save; some even set goals. But eventually, it doesn’t work out the way they thought it would. Is this because they don’t earn enough to save? Or are they simply not cut out for saving?

No, I would say they haven’t gotten the hacks of saving.

To effectively save and even meet your goals, there are habits you need to form. Honestly, saving isn’t easy, but there are ways to make it a little less difficult. There are probably personal habits that people have that help them save better. These habits might be peculiar to people and wouldn’t work for others. But there are simple habits that will work for a vast majority of the populace. Here are three simple habits that will help you save money. 

Automate savings

As humans, we tend to favor immediate gratification when making decisions; it’s a natural bias. You’d rather spend money on “important” things you want instead of actually saving. We all tend to do this. Because what you’re saving for seems to be far off, you’ll come up with a billion and one things you need to spend the money on right now. I mean, there’s always the next salary, right? And you vow to save next month. It’s called the present bias.

The present bias can be a real problem if you’re saving for something like retirement. For some people, retirement is so far off that it’s easy to keep putting it off to spend on other things they need in the present.

The way to get around this is to automate your savings. Automating your savings takes away the chance to choose between saving and spending it all. You can’t spend what’s not even in your account to start with. 

There are two simple ways to automate your savings. First, you can use a mobile app that is set to deduct a particular amount from your account at the same time, every month. If you have a set time when you get your monthly paycheck, it is better to set the deduction date very close to when you get your paycheck. The second way is to split your paycheck into two accounts; a savings account and a checking account. This way, you only have access to the money for your expenses and your savings go directly to a different bank account. 

Once you set up the automation process, you completely eliminate the temptation to spend all of your income or spend your savings on something that can, in all sincerity, wait. 

Cut back on eating out (Starbucks included)

If you’re a fan of Starbucks, this isn’t a personal attack. Or maybe it is. How often are you grabbing a Venti drink at the local coffee shop? Do you find yourself eating out on a consistent basis? You probably feel like eating out a lot isn’t affecting your savings, but let’s do a little calculation. If an average fast-food lunch costs about $7, and you eat out five days a week for a whole year, that totals about $1,800. So, you spend this amount on lunch alone in a year. This might not look too bad until you realize that most people spend money on groceries too. That’s like paying for two meal servings and wasting one. It gets even worse when people order take-out for dinner too. 

Personally, you should calculate how much you spend on eating out, and how much you spend on the groceries that you end up wasting because you eat out a lot. Don’t you think the money is better saved? If you spend on groceries and still eat out, that’s like an extra $1,800 you could be saving every year.  

One of the major reasons why people eat out is the fact that they are tired of going through the same seven dishes every week without fail. It gets boring and people want something different for a change. So, off to a local restaurant they go. If this is the case, then making a resolution to stop eating out might not solve the problem. You might want to consider spicing things up. Not literally though. Consider adding side dishes, or adding new dishes to the others. Anything to make eating at home less boring. 

Track spending

If you’re going to effectively save money, you need to know where your money goes. Especially if you feel like you can barely even survive on your income. You get your paycheck and before the month ends, you can’t tell where all the money went. You definitely spent it, but on what exactly? Are they unnecessary expenses you’re making? Or are there subscriptions you’ve forgotten about that are being deducted from your account? 

If you don’t track your savings, you can’t know where your money goes. It’s that simple. And if you want to save, you need to know where you can cut back your expenses to save more. There’s no way to do this if you don’t even know what expenses you make each month. 

There are simple ways to track your spending so you know if there are cutbacks to make. First, you can track your spending with mobile apps. There are free apps that let you record every expense you make, allow you to set spending limits, and see what you’ve been spending on. You can also check your bank statement to see purchases and payments you’ve made with your debit card. The downside is that you won’t be able to see payments you made in cash. Or you can simply write down your expenses. This might be a bit strenuous but it helps you build the habit of tracking your expenses.

So, what do you do with the details of what you spend on? Check to see what unnecessary expense you’re making. What can you spend less on? Or even completely eradicate? Do you really need both Hulu and Netflix subscriptions? 

To make the most of your tracking, make a budget and see if you’re keeping to it. Making cutbacks won’t do much if you just end up spending the money on something else instead of saving. Making a budget ensures that you don’t redirect all that spare cash to some other unnecessary purchase and that you actually save as much as possible. 

Conclusion

If you can be disciplined enough to form these habits over time, you will definitely have savings on lockdown. Consistency is the key to forming habits. Honestly, it’s not going to be a walk in the park but with time, it’ll become just another part of your life. And you’ll be proud of how much you’ve achieved by forming these habits. 

Written by Matthew Delaney

November 8, 2021/by Matt Delaney

Give it to me Straight…How Much Do I Really Need to Retire Comfortably?

JDH Blog, Written by Matthew Delaney

Only a short while ago Baby Boomers became the biggest generation in American history. Since then, Millennials and Gen Z have surpassed their number. But because the Baby Boomers are getting older, and more and more of them have reached retirement age, we are now in the middle of the biggest wave of people entering retirement in history! The mass retirement we are seeing (that will peak this very year!) is known as the ‘Silver Tsunami’.¹ Because of the silver tsunami, now, more than ever people are asking the question: Do I have enough money saved to support me in retirement? Not only are the new retirees worried about how much they have saved they’re also worried about how long what they have saved will last. What is the ‘right’ amount of money you’ll need so you can withdraw enough annually to be able to live comfortably?  

Not only do current retirees have these concerns, but so do many others, who are looking toward their future retirements.  The old standards for retirement income are becoming less certain, especially since the quality of life has been going up and with it the average life span. Many people are debating whether they should retire at the once-official retirement age (65) or wait a few more years and retire at 70, or later. Sound familiar? 

The subject of retirement is fraught with unknowns like: what is your life expectancy? Will you have unexpected medical costs? What will the markets look like in 20, 30, or even 40+ years? Will you be supporting only yourself? Or will you need to support others? Many of these questions can be uncomfortable to contemplate, and many people of all generations from Boomers to Generation Z have bleak views of the future, maybe more so than ever before.² And maybe, for you, the future may seem very bleak, indeed. But, it doesn’t have to be. In fact, once you start saving for retirement, and figuring out what you want your post-retirement life to look like, you can begin looking forward to it. Maybe, you’ll want to move closer to your future kids and grandkids and watch them grow. Or maybe you want to spend your retirement traveling the world?  Or taking that road trip you’ve been dreaming of?  Or, perhaps, relaxing at spas? The possibilities are endless when it comes to retirement as long as you begin saving sooner than later. 

The good news is that you don’t have to walk into retirement with no clue as to what your options are. And, yes, it can be daunting to think about. It can be uncomfortable to talk about with your partner or peers. Even though your retirement may seem far off, and even if you’re just now entering the workforce, it’s recommended that you begin saving for retirement by age 25!³  Starting early is important because you can invest your savings and/or build interest in the bank. The earlier you start will also help you navigate any market or financial downturns. If you start saving at 25, it’s recommended that you save at least 15% of your pretax income. Maybe that’s just not possible for you right now. But, if you don’t start till later, say, at 30, the desired amount to save would be 18%, and if you wait even longer, then I suggest you save 23% of your pre-tax income. Institutions, like Fidelity Investments, have analyzed the national data that is publicly available showing the spending habits of the average retired American citizen. They concluded that most people rely on their retirement savings to provide 45% of their ‘retirement income’. The rest of their income can be made up of Social Security and pensions. So, when you are planning how much you need, there is a lot to consider! Some things will be uncertain and you’ll have to make an educated guess about them, such as your lifespan, medical expenses, etc. Other things will depend on your plans for employment, for family, and the type of lifestyle you want to have. So, how do you calculate how much you’ll need to comfortably support the lifestyle you imagine? 

You may have seen articles online that will tell you an exact amount of money they think you need to save in order to support yourself.  But, retirement savings aren’t a ‘one size fits all’ type of thing. You have to account for your own personal spending habits; the amount of income you have and likely will have in future; how long you have available to save; what sort of pension plan you might have; or how much Social Security you will be able to rely on. There are a lot of variables here. This isn’t to say that it is impossible to calculate how much you as an individual should save, just that I can’t give you the exact number. Instead, I can tell you how to figure out how much you should save in order to meet your anticipated monthly expenses.  Once you do that, you’ll know what you need to have to support you through your retirement. 

To start, let’s go over some ‘general rules of thumb’ that can be used to guide your calculations. I will say upfront that this is often the most difficult part about saving for retirement because you have to be honest and as accurate as possible about your spending habits and how much you make. And you should also take the time to reevaluate your savings plan every couple of years to make sure it continues to fit the life you are living and want to have in retirement. So the first general rule of thumb is that if you start saving by the age of 25, you should save 15% of your pre-tax income annually.

You can assume that, when you retire, to support yourself you will need to have an annual income of 55%-80% of your pre-retirement annual income. You can derive this figure by asking yourself how much money you can take out of your savings to pay for your expenses in retirement month by month (it’s a lot more manageable to consider monthly expenses than annual ones). Then, calculate what is known as a ‘prudent withdrawal rate.’ The prudent withdrawal rate is the amount of money you take out monthly in order to support yourself without overspending. You do this by adding up your current monthly expenses like: rent/mortgage payments, utilities, groceries, clothing budget, travel expenses, insurance payments, etc.  Statistically, according to the Bureau of Labor Statistics, Americans 65-years or older spend about $3,800 a month or $45,756 annually.⁴  This isn’t necessarily the number you should be shooting for but it is a benchmark starting point for you to consider while you are deciding on what your average monthly retirement rate will be.  Now, that’s all assuming everything goes smoothly, and according to plan. But I also strongly recommend that you should set aside an emergency fund that can support you for 3-6 months. After all, life is unpredictable and it’s best to be prepared for an emergency that could occur. (And then, if you don’t need it, so much the better).⁵ 

As you begin saving for your retirement, you should already have considered the 15% rule. But to give you a more detailed guide to aim for, I suggest that when you are 30 you should have saved an amount equivalent to your annual income. By age 40 you should have saved 3x your annual income; by 50, a good rule of thumb is to have saved 5x your income; when you reach 65, the traditional age for retirement, you’ll want to have saved 7x your income or more.⁶ This isn’t a strict plan for your retirement savings, but you can use it as a guide to give you a ballpark estimate of what you want to aim for as you begin saving. Ally Bank and Fidelity Investments both recommend that if you are worried you’re behind on your retirement savings (yes, it happens), you should consider making a ‘catch up contribution’, which is essentially adjusting your retirement plan to make additional contributions to the account once you hit age fifty.

Retirement planning is fraught with so many ‘what ifs’ and unknowns that it can be difficult to plan and unpleasant to think about. However, just because it is intimidating to consider, doesn’t mean that figuring out how much you need to save is impossible. Rather, if you take your time, do your research and due diligence, and honestly assess your income and how much the retirement lifestyle you want will cost, you can plan for the future while accounting for the numerous unknowns. As you can see, it makes a lot of sense to start early, and I recommend starting sooner rather than later. But if you haven’t, it’s not the end of the world! There are plenty of retirement plans that will assist you if you start saving later.

The future will be bright as long as you are prudent, honest about your spending habits, and are aware that life is unpredictable. You’ll be able to travel the world, pick up that new hobby, or, if you aren’t the type who seeks a slowed down lifestyle you can even start a late-in-life career. The possibilities are endless once you take the time to plan! 

Written by Matthew Delaney

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¹ Deibel, Walker. (2018) Buy then Build: How Acquisition Entrepreneurs Outsmart the Startup Game. Lion Crest Publishing.
² Pew Research Center (2008). “Baby Boomers: The Gloomiest Generation” accessed on 9/31/21.https://www.pewresearch.org/social-trends/2008/06/25/baby-boomers-the-gloomiest-generation/
³Fidelity Viewpoints. (7/29/2021) How Much Should I Save for Retirement? Accessed on 10/20/21. https://www.fidelity.com/viewpoints/retirement/how-much-money-should-I-save 
⁴ Financial Samurai (09/04/2021) “The Average Spending Amount In Retirement Is Surprisingly High” accessed on 10/21/2021 https://www.financialsamurai.com/the-average-spending-amount-in-retirement-is-surprisingly-high/
⁵ Ally.com (06/24/2021) “Savings by Age: How Much to Save in Your 20s, 30s, 40s, and Beyond” accessed on 10/21/2021 https://www.ally.com/do-it-right/money/savings-by-age-how-much-to-save-in-your-20s-30s-40s-and-beyond/
⁶ Ibid

November 4, 2021/by Matt Delaney

National Parks on a Budget

JDH Blog, Written by Matthew Delaney

Everyone seems to be going to the National Parks this year! While it may feel impossible for those on a budget, these parks are within reach. Here, we’ll break down how you can see America’s nature preserves and parks without spending an arm and a leg.

National parks seem like an obvious choice to get some sun and fun. Whether you’re planning an adventure for yourself or for the whole family, one thing is for certain: trips can get incredibly expensive. Between entry fees, the cost of food, and added costs for other amenities, trips to a national park can get very pricey – fast. Things like canoe rentals, binocular rentals, or guided tours can incur costs that some families simply hadn’t prepared for.

Don’t despair, however! Trips to some of America’s greatest national parks are within reach – even for those following a very strict budget. Listed here are four ways that you and your family can visit the great natural wonders of the United States without breaking the bank.

Consider Purchasing a Pass

Families who want to visit national parks often may want to consider purchasing the America the Beautiful pass. This pass will grant access to more than 2,000 locations across the country. Included in this annual pass is a year’s worth of free admission to national parks and wildlife preservations, day fees at national forests, and free admission for up to four passengers in the car with the passholder. In comparison, a single-day ticket to a national park can cost anywhere between zero and $40. Yosemite National Park, for example, costs $35 to get in for just one day. While an America the Beautiful pass costs $80, it grants access and opportunity for you and your family to enjoy more recreational environments all year for no additional cost. For a family of four, many locations that charge per vehicle can be made back in only three visits.

Use a Fourth Grader Pass, a Veteran Pass, or a Military Pass

If you’re the parent of a fourth grader, you’re in even more luck! Fourth graders are given a free pass for eleven months starting in September of the year they begin their fourth grade year until August of the following year. This includes home-schooled children, children enrolled in private or public school, and those in a free-choice education program. By obtaining this pass for your fourth grade child, the whole family will get free admission into parks that charge by vehicle. A few of these parks include the Everglades National Park in Florida, the Vanderbilt Mansion National Historic Site in New York, and Alcatraz Island in California. A list of these parks can be found on NPS.gov – an incredibly useful tool for a family on a budget who wants to plan their next great adventure.

In a similar vein, veterans and members of the United States military get free admission to the National Parks, as well. In 2020, the military pass was expanded to include veterans, as “a way to thank America’s veterans, Gold Star Families, and current military and their dependents for their support of our country and to encourage them to explore recreational opportunities on their public lands and waters.” This means you and your family may want to enjoy a stroll with a veteran in the family. By simply presenting a military or veteran ID card, individuals can gain free access for the whole year and bring their families time and again to enjoy the natural wonders of the country.

Plan Your Trip On a Free Admission Day

There are several days every single year that admission fees are waived. In 2021, six days were announced in which admission for National Parks will be free. Each date has a significant meaning as well, including Martin Luther King Day, the first day of National Park Week, the National Park Service Birthday, National Public Lands Day, and Veterans Day. In 2021, there was also a free admission day on the one year anniversary of the Great American Outdoors Act, which was not present in the 2020 admission dates. In 2022, these dates will likely be the ones to look for, although the only confirmed free admission date to be announced as of yet has been Martin Luther King Day on January 17, 2022.

On these dates, you and your family will be able to experience the recreational sites around the country. Some families may even want to plan a road trip to National Parks located further from home on these dates in order to experience them while sticking to a budget that works for the whole family. 

Plan Trips to Free Parks

Of the many National Parks in the United States, there are plenty that offer free admission. These parks may not have all the amenities of the parks that require an admission fee to experience, but they are no less exciting and beautiful. Of course, other costs may be present in the parks that include free admission such as canoe and kayak rentals.

America’s free parks have some of the most beautiful sights in the country. North Cascades National Park, for example, is accentuated by the most stunning mountain views and a crystal clear lake filled directly from a glacier nearby.

In Crescent City, California lies the Redwood National Park, which is altogether separate from the many Redwood State Parks in the area. This National Park has free admission and can be used as a campground for free, with a permit. 

One more of the most amazing National Parks with free admission is Great Basin National Park. The area of this National Park is highlighted with archaic pines, awe-inspiring glacier mountains, and a colorful forest to admire. Guided tours are available for a small price, but this National Park is entirely free and ideal for families and adventurers who want to make their trip as inexpensive as possible.

Keeping to a budget, whether planning a solo adventure or going as a family, can be incredibly difficult. It can often feel like you’re unexpectedly shelling out tens, hundreds, or even thousands of dollars on vacations. However, going to National Parks can be relatively inexpensive by using as many of these four ways to save just a little extra money on seeing the beautiful locations the United States National Park Service has to offer. Plain and simple, the National Parks can be just as inexpensive as they can be fun.

Written by Matthew Delaney

November 1, 2021/by Matt Delaney

10 Obstacles to Investing – and How to Overcome Them

Articles, JDH Blog

By David Booth, Executive Chairman and Founder of Dimensional September 25, 2021

We’ve learned a lot about investing over the past 60 years, a period that has seen many breakthroughs in the world of finance. What we know comes from studying public markets and is grounded in serious academic research. The lessons are clear: Investing in markets is an excellent plan for meeting long-term goals, like maximizing your retirement income. When you develop a deeper understanding of public markets, you can cultivate a sense of optimism about investing.

Two ideas are at the heart of embracing this approach:

First, markets provide a way for both sides to win. In order to trade, both buyer and seller have to agree on a price. If either side felt the price wasn’t meeting his or her needs, they wouldn’t trade. This is what we mean when we say market prices are fair.

Second, markets allow all of us to invest in human ingenuity—and get paid for it. We want to help as many people as possible access what markets offer in investment opportunities and wealth generation so they can live better lives.

Even though the investment principles we run on are simple, they aren’t always easy to understand and accept. Many people struggle with some of the basic concepts behind long-term, highly diversified investing—it’s a matter of human nature.

Here are some of the objections I’ve encountered. I think most of us can relate to at least one of them.

1. “I don’t see the point of investing in the first place.”

Any decision you make with your money—even not investing—is an investment decision involving risk and rewards. You’re focused on the risk involved in investing. But what are you risking by not investing? You’re risking today’s money having less value in the future because of inflation. You’re missing out on the magic of compounding, which Albert Einstein is said to have described as the Eighth Wonder of the World. (Assuming an average 10% return, as the S&P 500 has returned historically, money invested in the stock market doubles every seven years.) You’re forgetting that diversification—spreading your investments across a large number of companies—is a powerful way to minimize risk. When it comes to personal goals, everything has a tradeoff. Most people don’t have enough money saved to be able to live adequately in retirement without earning some kind of investment return. In the simplest terms, by not investing, you risk outliving your money.

2. “I’m too late. The train has left the station.”

It’s natural to feel regret about decisions you’re unsure about. But it’s never too late to invest. Every day, we expect the stock market to go up. Otherwise, investors would find other things to do with their money.

3. “When it comes to investment advice, I don’t know who I’m supposed to trust.”

Here’s the good news: You don’t have to “trust” anyone. Just trust the market. No human being can tell you more than the market has already told you through setting prices. Markets are always reacting to new information in real time. Anything you hear a pundit say on TV or read on an internet message board is yesterday’s news. And it may seem obvious, but you have to remember: There’s a difference between fact and opinion. Cultivate a healthy sense of skepticism when it comes to financial punditry, and remember that it’s not news, but entertainment. And if you need a trustworthy sounding board, consider meeting with an independent financial advisor, whose interests are aligned with your own.

4. “It’s too hard to figure out when to get into—or out of—the market.”

Human beings have a natural urge to transact. But getting into and out of the market is gambling, not investing. If you treat the market like a casino, and you’re picking stocks or attempting to time the market, you need to be right twice—in an aim to buy low and sell high. Fortunately, you don’t need to time the market to have a good investment experience. Professor Eugene Fama, a Nobel laureate in economic sciences, showed that it’s unlikely for any individual to be able to pick the right stock at the right time—especially more than once.¹ Once you decide to be a long-term investor, the timing debate is off the table. And that’s a big relief. When you buy the whole market, you’re investing in human ingenuity to find productive solutions to the world’s problems.

5. “I’m afraid I’m going to lose it all.”

If you’re lucky enough to live a long time, you’ll face big market downturns. You’re much more likely to “lose it all” with concentrated investments than with a well-diversified portfolio. Individual investments may go to zero, but the modern-day market has been around for almost a century, has an average annual return of 10%, and has never lost more than 43% in a year.²

6. “I don’t know what I don’t know, and that makes me nervous.”

It’s OK to be nervous! If investing were a slam dunk, there wouldn’t be a positive expected payoff. In order for an investment to offer the possibility of a return above money-market funds, it needs to carry risk. And when it comes to deciding how to grow your hard-earned money, the stakes are high. Uncertainty is scary, but without uncertainty, there would be no opportunity. Stock market behavior is uncertain, just like most things in our lives. None of us can make uncertainty disappear, but dealing thoughtfully with uncertainty can make a huge difference in investment returns and quality of life. Your challenge is to stick with an established plan. A financial advisor can help.

7. “I only want to invest in companies I’m familiar with.”

Stock markets contain all of the publicly traded companies out there. Every company has an incentive to do better. Investing in human potential across a broad range of companies is more likely to pay off than trying to predict which individual company is going to perform best. You can do well without having to outguess the market.

8. “I’m afraid there’s going to be another financial crisis.”

History shows us that there’s always going to be another financial crisis—and another recovery. Every crisis has a different cause, so it feels different every time, but the market has always delivered a positive return once things settle down. Crises, by definition, are not predictable. Markets are forward-looking and remind us of the power of human resilience.

9. “I’m overwhelmed. It’s just too much to think about.”

Inertia is a powerful force. Thinking a little bit about it right now means worrying a lot less in the future. Inaction comes with a price, but this is where a financial advisor can really help.

10. “I don’t have enough money to invest.”

When it comes to investing for your family’s future, there is no minimum. The first and most important step toward investing is saving. It’s human nature to procrastinate. Half the battle is just getting started. This can mean “paying yourself first” by directing a small percentage of each paycheck into savings. Putting money aside regularly becomes a feel-good habit, like exercise. You can witness your own incremental progress and the boost in self-esteem it brings. You’ll be surprised by how easy it is to set this in motion, and you’ll feel good—for yourself, and your family. Just look at these numbers: If you invest $100 today and then $100 per month for 30 years with a 10% return, you’ll end up with almost $200,000. ³

FOOTNOTES

¹ Eugene F. Fama and Kenneth R. French, “Luck versus Skill in the Cross-Section of Mutual Fund Returns,” Journal of Finance 65, no. 5 (2010): 1915–1947.
² In US dollars. S&P 500 Index annual returns 1926–2020. S&P data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
³ The performance reflects the growth of a hypothetical investment and assumes reinvestment of income and no transaction costs or taxes.

DISCLOSURES

Eugene Fama is a member of the Board of Directors of the general partner of, and provides consulting services to, Dimensional Fund Advisors LP.

Diversification neither assures a profit nor guarantees against loss in a declining market.

The information in this document is provided in good faith without any warranty and is intended for the recipient’s background information only. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized copying, reproducing, duplicating, or transmitting of this document are strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein. “Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.

UNITED STATES: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission. Investment products: • Not FDIC Insured • Not Bank Guaranteed • May Lose Value Dimensional Fund Advisors does not have any bank affiliates.

Original Article: https://www.dimensional.com/us-en/insights/10-obstacles-to-investing-and-how-to-overcome-them

October 22, 2021/by Matt Delaney

The Ins and Outs of Special Needs Trusts

JDH Blog, Written by Eric Keating

If someone you care about has special needs, a special needs trust will help provide support for that person over the long term. Trusts are a legal arrangement managed by a trustee – either a family member, a financial institution or a legal administrator called a fiduciary. The trustee manages the trust, the assets it contains, and explains how it will be used for the beneficiary. When you leave money through a special needs trust, you won’t jeopardize the person’s eligibility to receive benefits.

Instead, a special needs trust will protect the beneficiary’s benefit eligibility, whether the person is mentally disabled, chronically ill, or dependent upon social security income. It preserves eligibility for Medicaid as well as Supplemental Social Security Income because the beneficiary doesn’t own the trust’s assets. Essentially, it will supplement rather than replace government benefits.

 How to Know if You Need to Set Up a Special Needs Trust – and When
Special needs trusts can be set up for any adult unable to care for themselves, whether physically or mentally. It can protect against funds being lost or mishandled as well as inheritance. Financial abuse is unfortunately common and can be far more easily prevented with assets held in trust.

A trust can be put into effect anytime through an adult’s 65th birthday.

Remember, because the money doesn’t go directly to the person, government program eligibility, such as social security income, isn’t restricted.

 How Special Needs Trust Funds are to be Used

 Funds from a special needs trust do not go directly to the individual but instead to the trust, as noted, so government program eligibility has no restrictions. But within the trust there are restrictions about how money can be used. It cannot, for example, be used to pay food or housing costs that would be typically covered either through SSI or a beneficiary’s earnings. Instead, it is to be used for:  

Caregiving attendants
Expenses for education
Expenses for medical or dental procedures outside of or additional to government-provided care
Rehab services
Expenses for automobiles or other transportation
Furnishings or technology like computers for the home
Expenses for travel
Pet care expenses including food and veterinary care
Clothing
Cell phone, internet, or cleaning services

Creating the Special Needs Trust Document

Whether you choose to use a lawyer, financial advisor, or do it yourself, creating a trust document must indicate:

The person setting up the trust, or grantor
The person or persons who manages the trust, or trustee
The beneficiary of the trust – the mentally disabled or chronically ill child or adult it is set up to benefit

Note that a trust will take effect once it is signed and notarized; once the trust’s IRS tax identification number is established, a bank account should be opened with at least a minimal deposit amount. You can fund the rest of the trust through estate planning such as a will, living trust, or property ownership.

 The trust can hold everything from real estate to stocks, bonds, businesses, and valuable belongings such as jewelry, automobiles or art. Special needs trusts typically give the trustee authority to sell items such as cars or property as necessary.

Any person can contribute to a special needs trust, although most are created in the first place by parents for their children.

Remember, it’s important to name the trustee for a special needs trust on a designation form that controls what will happen to items such as bank accounts, retirement plans, bonds, or stocks held by the trust.

How a Trustee Administers a Special Needs Trust

Once the funded trust is established, the trustee’s work is crucial to support the mentally disabled or chronically ill person it supports. The trustee must use the trust funds in a way that does not jeopardize government benefits; pay taxes on the trust, keep records, and properly invest the property of the trust – as well as being sure to keep up with the needs of the beneficiary.

 Anyone can serve as a trustee that is over 18. The trustee does not need to be a professional fiduciary. The role can be filled by a parent, relative, friend, or professional such as a lawyer or accountant.

Do you need a Fiduciary for a Special Needs Trust? 

Whether or not you need a fiduciary is up to you. A fiduciary, who has a legal or ethical trust relationship with all the parties involved with the trust basically serves in a trustee position, managing the daily operations of the trust, and being sure to maintain the eligibility of the beneficiary for government programs.

Having a professional fiduciary will benefit the special needs trust in that experience with money management, investing, and government benefits are all extremely helpful. An additional advantage is eliminating the emotional strain of handling trust distributions for family or friends.

Preserving Medicaid and Supplemental Social Security Income

As discussed, preserving government benefits such as Medicaid and Social Security income for a mentally disabled or chronically ill person is best handled through the establishment of the special needs trust. The trustee can use the trust to supplement the beneficiary’s benefits without having to replace them, covering needed additional costs for everything from dental expenses to caregivers and transportation. 

You do need to notify Social Security and Medicaid about the trust, of course. Any change to a beneficiary’s financial situation has to be reported to these agencies no more than ten days after the end of the month when such a change took place. Some Medicaid offices may have an even shorter reporting requirement of ten days following a change.

There are two basic types of special needs trusts:  

Third party special needs trust – drafted for a beneficiary receiving government assistance, and sourced by someone other than a beneficiary
First party special needs trust – due to personal injury settlement, life insurance, or other types of assets owned by the beneficiary

Remember, the purpose of both kinds of special needs trusts is to allow the beneficiary to receive government assistance benefits while allowing the trustee of a special needs trust to provide additional funds for the beneficiary. The individual or attorney who created the special needs trust should include a cover letter to each government agency explaining that the trust and its assets are part of a special needs trust. They should also reference the beneficiary’s social security number and Medicaid number as appropriate, to make sure the information is correctly saved in the beneficiary’s government files. You should keep a copy of this cover letter and proof of mailing just in case you ever need to prove you reported the trust as required.

Summing up: a special needs trust is absolutely the best way to make sure a loved one continues to receive vital government benefits while maintaining additional needs. While the ins and outs of such a trust are not complicated, relying on a professional to create the account and potentially manage it, are key factors in making sure all a beneficiary’s needs are met.

Written by Eric Keating

October 21, 2021/by Matt Delaney

Medicare, Retirement and Health Care Costs

JDH Blog, Written by Matthew Delaney

One of the biggest concerns people have as they get older is being able to afford health care costs in retirement. But any concerns about Medicare, and what role health care costs will play in planning for retirement can be successfully addressed.

Let’s look at some pitfalls to avoid, and the best ways to mitigate retirement concerns.

Medicare Pitfalls – and How to Avoid Them

Medicare is, of course, the U.S. healthcare plan for those 65 and up. While the program covers most major health care costs, selecting the right plan can be a bit confusing.

Sign Up at the Right Time

The first and arguably the most important pitfall to avoid is not signing up for coverage at the right time. Your enrollment time period begins three months before you turn 65 and continues for three months after that time.

There are four different elements to any Medicare plan: Parts A, B, C, and D. It’s important to make sure that you have the amount of coverage you need for all your expenses, and note that if your income is beneath a certain benchmark, you might qualify for a savings program.

If you’re already receiving social security, you will be enrolled automatically into the Medicare program, with premium costs deducted monthly from your benefits. But just relying on this to happen automatically does not necessarily mean you will end up with the right plan for you.

And if you wait to enroll in social security until you’re past age 65, you’ll still have to enroll in Medicare Parts A and – or – B on your own, within three months before or three months after you turn 65.

Medicare Part A

Even if you already have health insurance through an employer, you should sign up for Medicare Part A during this six month window. Why? Because Medicare Part A is free if you’ve been paying Medicare taxes through your work; if it is not free, you can still choose to delay making that limited premium payment. And if you don’t sign up, penalties will accrue.

Medicare Part B

You must also sign up for Part B during the initial enrollment time period. This portion of Medicare does require a premium payment, but how much that will be depends on income. The only exception to enrolling in Part B is if you already have health insurance from your or a spouse’s employer.

Part B coverage provides for the health care costs of visits to doctors and outpatient care for medical procedures. This is the part of Medicare that will be automatically deducted from your monthly social security if you’ve applied for it. The standard payment amount in 2021 is $148.50.

Remember – If You Don’t Enroll in Part A and Part B, Penalties are Incurred

If you do not sign up during the initial enrollment time period, penalties are assessed. And, you may have a gap in your coverage as well.

The bottom line is that you would pay a lifetime higher premium cost for plan B, as well as a monthly penalty for Part A for twice the number of years you delayed in signing up for Medicare.

Remember, you are not covered because your spouse has Medicare. It is an individual sign-up plan.

The other point to remember is Part A and B only pays 80% of the covered medical costs. The remaining 20% is paid for via Additional Medicare Coverage

Additional Medicare Coverage

One of the additional coverages you need to consider is Medicare Part C, which covers the 20% of hospitals and doctors that Parts A and B do not cover. There are two different routes you can take for Medicare Part C. You can enroll in the Medicare Advantage Plan, or you can enroll in a Medigap Plan.

The Medicare Advantage has a low monthly premium but carries co-pays and deductibles. A Medigap plan has a higher monthly premium but no co-pays and a small annual deductible. The nuances of a Medigap plan are based on the state you live in. Which plan is best for you will depend on how much you will be accessing the hospital and doctor services. If you believe you will remain healthy in your retirement years, the Advantage plan will be your best solution. On the other hand, if you believe you will be visiting the doctors and hospitals more often in retirement, the Medigap plan may be your best bet. You or your insurance agent can research which Part C plan can work best for you.

The other additional coverage to consider is Medicare Part D, which offers the minimum standard of prescription drug coverage. You’ll want to find – or your insurance provider can help you find – the plan that covers the medications that you most usually take, as plans do vary as to the types covered.

Worried about Affordable Premiums?

You may be eligible for one of four Medicare Savings programs if you need help in affording premiums. There are also state and local programs that can help you if you qualify financially.

Planning for Retirement

When planning for retirement, taking future medical costs into consideration is one of the largest retirement concerns most people have. While Medicare will cover many health care costs, it may not cover all your needs.

And the cost of Medicare itself may be higher than your current plan, if you are currently getting assistance through a state or federal subsidized marketplace or through your employer. Of course, if your income is low enough, as noted above, you may qualify for programs that help with out-of-pocket costs under Medicare.

Among retirement concerns, medical expenses rank high, due to the additional annual costs of long-term care, and medical coverage. So, it’s vital to consider all your possible medical costs into planning for retirement.

Your age and health both affect how much retirement income you should budget for your health care costs. A healthy lifestyle may limit medical expenses while also increasing the number of years you need to allow for medical care costs.

Beyond Medicare, you also need to budget for additional health care costs including annual deductibles, premium costs, and prescription drug coverage, all of which will vary depending upon your income. Remember, a Medicare Advantage Plan, which will cost out of pocket, may or may not offer all the enhanced coverage that you need.

While some Medicare Advantage options include dental, hearing, and vision plans, others do not, and may not cover all of the expenses related to these plans. You may also need to include the cost of coverage for dental expenses or a separate dental insurance plan in your retirement planning, for example.

The Best Ways to Handle Medical Cost Retirement Concerns

One way to handle concerns is through a Health Savings Account or HSA, which offers a solid way to save money as well as many tax advantages. With deductible contributions, growth that’s tax-deferred, and withdrawals that are tax free for medical expenses that are qualified, an HSA is a great way to save for health care costs in retirement.

Already in your 50s? You can still take advantage of these plans using a system of catch-up contributions and contributions from employers. You can make up to a $1,000 per year catch- up contribution at age 55 or older, plus the regular $3,600 per individual contribution limit already allowed annually. But, once enrolled in Medicare, you can’t contribute to an HSA any longer.

Another option to pay for health care costs is the purchase of long-term care insurance or a life insurance policy that allows you to add a long-term care rider for coverage. Both can be a part of your retirement planning.

Remember, the earlier you buy your life insurance or long-term care policy, the lower you’ll find your premiums to be.

So, consult your financial advisor about the best retirement planning for you. Overall, you can alleviate many retirement concerns when you create a good strategy for medical care during retirement.

And, through smart planning for medical costs, you’ll be able to keep more of your assets available for other needs and enjoyment during retirement.

Written by Matthew Delaney

October 12, 2021/by Matt Delaney

Gambling and the Stock Market

JDH Blog, Written by Eric Keating

Is a spin of the roulette wheel the same as investing in the stock market? What about the blackjack table? Should you go to Las Vegas and play a few hands of poker, or should you find a stock whose value you hope will grow? What’s the difference between using your money for gambling, and using it to play the stock market? 

The short answer is: plenty.

For one thing, the longer you sit at the casino tables, the more the odds increase that you’ll lose. The longer you stay invested in a diversified portfolio, the better you are likely to do in the stock market, as your odds to succeed increase quite a bit. In other words, even though there is risk involved in both, the expected return at a casino is negative while the expected return in the stock market is positive.

But are you gambling with your future when you invest in the stock market? Or are you using the right tools to achieve a well-equipped retirement through successful stock market strategizing, by including market risk, asset allocation, and diversification when you make an investment?

Stock Market Risk

 Analyzing the best stocks for your portfolio can be a bit of a gamble, yes, which is why examining risk and finding the best risk management strategies for you are both important. Buying individual stocks in an attempt to make a quick buck is a risky proposition. Assessing stock market risk is vital to any form of successful investing.

The stock market always inherently has some risk, based on the economy – from the possibility of recession or inflation to economic growth. To manage this predictable risk, you can: 

Build a diversified portfolio
Don’t take more risk than you can afford
Stick with a rebalancing plan (buy low and sell high)
Develop an Investment Policy Statement and stick to it!

Asset Allocation

Asset allocation is one of the most important elements in building a successful investment portfolio. It means that your portfolio should allocate space for a variety of different kinds of assets: cash, stocks, and bonds or other types of investments, such as real estate.

You should consider the time you have to invest as well – if you have a longer time to save for your retirement, you might be able to take additional risks that potentially offer a large reward. Those with a shorter investment timeline – impending retirement is a perfect example – may be more comfortable with stable, less risky investments.

It is important to understand that possibly losing money in exchange for the potential of a larger return on your investment, also known as risk tolerance, is key to any investment strategy. Equally important is deciding how much you wish to achieve through your investment earnings. Both play a part in your asset allocation. After all, the amount of risk you take and the amount of gain you expect to achieve are correlated.

Many people choose to diversify when they consider asset allocation. They will invest in some asset classes with higher risk such as stocks and others with considerably lower risk, such as bonds and cash. Your investment choice is up to you, based on:

The amount of time you have to invest
The amount of risk you’re most comfortable with
The type of investment you are most comfortable with based on these considerations

While stocks have the highest risk, they also offer the highest expected return. Bonds are steadier investments with less volatility, but they provide less return. Cash equivalent investments, from treasury securities to a money market account are the safest but have a significantly lower rate of return on your investment and may not keep up with inflation. Within the stock universe, you can further diversify your portfolio between large and small, growth and value, etc.

Allocating your assets across different types of investments with different types of risk is important to protect you against losses and lower your overall volatility. Plus, coming up with a game plan will help making investing less risky and a lot less like gambling in Las Vegas.

The element of gambling that comes into play with any investment portfolio is based on risk. To successfully invest, you must include enough risk to allow the most possible growth; at the same time, you can’t include an overly excessive amount of risk, or you may find money unavailable when you need it. To meet your financial goals, whether short term or long term, it’s all about balance.

Good asset diversification is a real-world example of the old adage that you shouldn’t put all of your eggs in one basket.

Retirement Savings

When it comes to your retirement planning, you want to build a financial safety net or cushion to fund a comfortable lifestyle even when you stop working.

Start by planning your goals for retirement, how much money you will need, how much you want to have, and the risk that you’re willing to take with the investments. You will also want to consider just how long a time you have to make this investment in your future.

Yes, you must save money to invest it, but you have to do more with that money than merely save it in your sock drawer to make your money grow for retirement. Remember, your plan for retirement should focus on how long you have until it’s time to retire, your risk tolerance, and return on your investments after taxes. And don’t forget about estate planning – that’s important too.

 In general, a longer timeline until retirement means you can take on more risk because you don’t need the money for a longer period of time. As you approach retirement age, you may wish to shift gears to a more conservative investment approach.

 However you choose to invest, whether it is for a retirement far in the future or just around the corner, there is always an element of risk. The way you win long-term is to build a balanced and diversified portfolio.

Written by Eric Keating

October 7, 2021/by Matt Delaney