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XYZ Strategy #1

by on November 18, 2013

As a kid, my parents jokingly shouted “XYZ” if I ever exited the bathroom without zipping up my pants!  Let’s be honest, sometimes we get going so fast that we forget some of the most basic, fundamental needs we have.  As a Gen-X (ages 38-48) or a Gen-Y (ages 19-37) investor, did you know that you are a part of a group that boasts one of the highest earnings power?  Maybe you are moving along so fast that you need to stop to reconsider your plans for the future – something that seems way off, but in reality something that may come quicker than you realize.  Doing so can help you Zip-up (take care of) some essential needs in regard to your financial hopes and plans… these are the XYZ Strategies.

XYZ Strategy #1Develop a strong, sound savings strategy

Many Gen-X investors are doing this.  Many Gen-Y investors are starting (or have thought about it).  And some of you have an inheritance you unexpectedly received, providing a solid foundation on which to build.  Regardless of your situation, a key need for you is to develop a disciplined investment strategy.  This is how you accumulate net worth over time, and also build up what you need for retirement.  So what defines a strong savings strategy?  Here are some five basic criteria to consider.

1) Just begin – if you haven’t already, you need to start saving.  Do you realize it is much more difficult to save later on in life than it is today?  This, not to mention the opportunity cost of forfeited compounding, inflation, etc. are reasons to start today.  Plus, the math tells us that you shouldn’t be required to put aside as much now compared to waiting to start years later (when you get that pay raise, after you get married, once the car is paid off, etc.) saving for that goal.

2) Go automatic – systematic bank drafts work best and take the emotions out of investing.  There’s no second guessing and you don’t miss $’s that aren’t in your checking account.  If you get paid on the 15th and 30th each month, set up drafts for the 16th and 31st each month.  Before you realize it, the years pass and you could have significant accumulated savings that you funded without the pain of writing a check each month, or wondering if “now” was the right time to invest.  Dollar cost averaging is a proven, sound investment strategy.

3) Stick to your guns – in other words, don’t stop your plan… not when your car breaks down, not when the A/C unit stops working or the roof needs repair, not even when you have unexpected medical expenses.  That’s what your emergency fund is for.  Instead, benchmark that you won’t stop saving – and that you will even increase the amount you save every year.  When is the best time for this?… usually after your annual employment review (or bonus).

4) Spread it out – while you can’t argue with the tax-advantages of saving in a company retirement plan (401k, SIMPLE IRA, etc.) or a Roth IRA (tax-free growth over time), it is still important to diversify your savings.  Sound investors will also have taxable accounts (individual, joint, TOD, etc.) and disciplined families will have accounts set up for their children (UTMA, 529, ESA, etc.).  Not putting all your eggs in one basket doesn’t just apply what you invest in, but also to the type of accounts you are funding over time.

5) Ask for help – set aside the pride and work with an advisor.  It’s a sound way to receive professional, objective advice and it’s never a bad idea to have a second set of eyes on things.  Plus, they look at investments most every day – it’s what they are paid to do.  Let’s face it – life happens and before we know it time has slipped by, so enjoy the weekend and let your advisor worry about the investments.

From → 2013

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