The Sky Has Fallen - NOW WHAT !?!?
Do you feel like your 401K is at ground zero? Feel like you can't recover? You're not alone!
The volatile markets have delivered many of our retirement plans to the same place: shambles. Sure, we may have traveled from different directions, but we're all here now:
1.You probably saw the markets plunging and moved your 401k holdings out of the stock markets. Now you're sitting on a load of conservative investments even though retirement is years off.
2.Perhaps you didn't have the right investment strategy to begin with—and the markets beat you up, and no one came to your rescue..
3.Maybe you liked your investment strategy but the volatile markets threw your asset allocation strategy so out of whack that you're scared to death to touch your 401k..
4.You just got your first 401k and you're nervous about getting involved with these crazy markets, .
Never mind how you got here. It's time to snap out of that dazed paralysis and start looking—and moving—forward. Here are a few ideas/ factors to consider while rebuilding your broken nest egg/ 401K.
Seize To Moment, Or Be Seized
"It's hard to predict what's going to happen," says Alyce Zollman, a financial consultant. She suggests you forget trying to time the markets and instead stick to a long-term, well-diversified investment strategy. HS Dent suggest money market and T- Bills.
Today is the time ... I mean right now! Start building that well-diversified investment plan, cash,stock, second and third streams of income. Buy low and sell high is the mantra of the investment world. While the stock markets may not have hit their bottom, they sure are low, based on historical measures. And these steep sell-offs have created some opportunity, but be cautious.
One thing is certain, a 100% of zero is zero, you have a 100 percent chance of missing a market recovery if your retirement money is sitting on the sidelines. That fact alone should encourage you to start plotting your entry back into the market, but do so understanding that the has changed, and diversity is not just different stocks,different companies,different sectors - diversity is stock, gold,oil, a home based business - a smart investment plan.
Want to wait until you're sure the markets hit bottom? Donald Trump says, "you have a better chance of seeing a flying cow!"
Easy Not Simple
If your current holdings are pretty different from your desired strategy—then you might want to transition slowly into your new plan.
Great minds like Warren Buffet note that building a position over time can decrease the effects of market swings. By gradually, and consistently moving your money into riskier investments, you'll avoid the chance of investing all your money right before the markets drop dramatically.
Known as dollar-cost averaging, this technique involves putting a certain dollar amount to work on a regular basis for a set period of time. For instance, you might give yourself twelve months to get to your desired long-term strategy. During that one year month period you could make monthly contributions of, say $250, to the new investments you want to fund. The concept of dollar-cost averaging is that your set amount of money will buy more of a mutual fund when its price is down and less when its price is high, thereby lowering the overall base cost of your investment.
The structure of "freedom" plans makes dollar-cost averaging fairly easy. Most plans allow you to adjust the asset allocation of your current holdings and of your new monthly investment separately. This means you can leave your current investments alone and change the allocation of your new 401k contributions so that over time your portfolio will reflect a smart, well diversified, long-term plan. Or, if your current holdings are very different from what you'd like them to be, you can update your current asset allocation to get you part-way there and then use your monthly 401k contributions to realize your full investment strategy over time.
Begin With Risk ... Finish With Delight
The horrible returns of most investment funds over the last few years remind us that asset classes can shoot up as fast as they burn out. It's joy to ride investments up, but you should only invest in them if you can also handle the ride down.
When figuring out your investment strategy you need to figure out how much risk your stomach and your lifestyle can handle.
There's no :easy button" way to figure out your appetite for risk. You might start by asking yourself if you order the "unknown delight"l or stick to the spaghetti and red sauce. It's likely that your tolerance for investment risk resembles your predisposition for risk in general.
Most importantly you must consider your capacity for risk. If your retirement is 20–30 years off, then your risk capacity is probably high. You can afford to increase your allocations to riskier stock markets and ride them through their ups and downs. But if you'll need a good chunk of your cash in the next few years then you should protect your assets with less risky investments like cash and bonds. capacity. It gives you an idea of what your investment plan should look like depending on your investment timeline.
BOTTOMLINE: Your new plan will require new investment strategies, new tax strategies, new income stream strategies ... no rest for the weary!
Kevin K. Hemphill LIVE !
Kevin K. Hemphill / 615.653.0679
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