The Tortoise and the Hare: How Fast Investments Can Slow Down Your Goals

By
Mike Loo, MBA
March 1, 2018
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Over the course of working with so many individuals and families, I’ve found that many people think financial planning, investing, and retirement planning are a sprint to the finish line. While on paper, maxing out your 401(k) each year and building an all-stock portfolio for maximum growth potential seems like a good plan, fast and big investing can actually slow down your progress to your goals. Let’s look at why.

The Dangers of Little Liquidity I always enjoy working with enthusiastic young couples who want to do everything in their power to reach their desired retirement. However, in the process of focusing on their long-term retirement goals, they neglect their short-term needs.

For many of my clients in their 20s and 30s, I may recommend contributing enough to their 401(k) to get the employer match, if one is offered, and contribute some of their paycheck to build an emergency fund and savings. This can help them avoid focusing so much on their long-term retirement goals that they neglect their short-term goals, from buying a house to paying off student loan debt. I generally recommend that my clients build a reserve fund that can cover three to six months’ worth of living expenses.

Dipping Your Toes In Versus Diving Head First

I said it earlier but I’ll say it again; investing and financial planning is a marathon, not a sprint. I’d much rather be the tortoise—slow yet steady and consistent—than the hare—fast yet unpredictable—when it comes to my investing strategy.

One of the more underrated strategies for financial security is making consistent and periodic contributions to your portfolio over a long period of time. As I mentioned earlier, younger individuals and families may not have the income yet to max out their 401(k), but they can make consistent contributions and increase them over time as their income increases. Like the tortoise, saving for retirement and other long-term goals is all about perseverance and consistency, even if it is at a slower pace.

It’s easy to let emotions get in the way, and many investors fall prey to the newest investment strategy that claims a higher return on investment. But the fact of the matter is, there is no controlling or predicting the market. I tell my clients that instead of focusing on what they can’t control, it’s helpful to focus on what they can control: the capital they invest.

Whether the markets are high or low, consistent contributions can have a powerful long-term effect. Additionally, maintaining a well-diversified portfolio and rebalancing if needed each year can help ensure your portfolio matches the appropriate level of risk you’re willing to take. Adhering to this motto and disciplined strategy can help you avoid the common trap investors fall into: buying high and selling low, and chasing high returns.

The Risks of Aggressive Investing

Too often, financial advisors tell young individuals in their 20s and 30s to keep close to 100% of their portfolio in stocks. The theory is that young investors have decades to ride out volatility and make up for any lost returns. While this may work for some individuals, I’ve had a number of younger clients who don’t feel comfortable taking such risks, even if they have decades to try to make up for losses.

Investing entirely in stocks isn’t necessarily the way to go, even if it makes sense on paper. It’s nearly impossible to entirely remove emotions from investing. Too often, I’ve seen investors give up when their portfolio takes a big hit. They lose motivation to keep investing, and they struggle to keep their eyes on the finish line of their long-term goals.

Incorporating investments, like bonds, that offer lower returns and lower risk, may help you feel more confident in your portfolio and avoid the rollercoaster of emotions if your portfolio takes a hit during a downturn.

Next Steps

Like the tortoise and the hare, fast investments don’t mean you’ll reach the finish line first. While it can be difficult, it’s important to tune out the noise of the media and focus instead on what strategies make sense for your unique situation, risk tolerance, and short and long-term goals. While not as exciting, I believe slow and steady can win the race, and without as many speed bumps along the way.

As an independent financial advisor, my mission is to make a meaningful impact on the lives of my clients and the people they love. I help families make informed decisions with their money and pursue a strong financial future. If you’re interested in learning more about balancing your short and long-term goals, I encourage you to reach out to me. Call my office at (949) 221-8105 x 2128, or email me at michael.loo@lpl.com.

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By
Jeff Motske, CFP®
March 10, 2020

It’s no surprise that I often talk about the need to have a strong, supportive financial team to pursue financial independence. These financial teams can consist of a CPA, an estate planning attorney or a real estate agent, with your trusted financial advisor acting as the general manager of your team. While each one provides a specialized level of expertise, for individuals who are married, there is another person that can make or break your route to financial independence: your spouse. Often, we underestimate the value your spouse brings to your financial house, which is why it is so important to make them the MVP of your financial team.

In order to pursue financial independence, couples must be on the same page and work together towards common goals. For many, though, that is just not the case. Nearly half of U.S. couples argue over finances.[i] These disagreements can be based on resentment over spending rather than saving. Sometimes arguments arise over differing risk tolerance. The heart of these issues lies in goal mismatch, a situation that arises when your combined goals are not aligned. When you and your spouse are not working together towards your combined financial independence, chances of reaching it are slim.

While some couples argue, others simply don’t communicate. Both people in a marriage need to be involved in their finances, agreeing on their financial goals and the steps they’re taking to get there. Being unaware of your financial household, whether it’s because only one person in the relationship is in charge of the household finances or because both parties have decided to keep separate financial lives, simply causes problems. When you don’t know what the other is doing with their money, you can’t be sure that you’re both working towards the same goals in the most effective way. Additionally, you may be setting yourself up for unfortunate complications if your partner unexpectedly passes or becomes incapacitated. Honestly, I’d rather have my clients argue than avoid discussing finances. At least they’re talking about it.

So how do you and your spouse get on the same page? You can start by taking my financial compatibility quiz. Not only will the quiz show you what areas the two of you are like-minded and what areas you need to work on, but it’ll also give you the conversation starters to mine those areas you may not see eye-to-eye on. If you need a little more guidance on what to talk about, you can check out my book, The Couple’s Guide to Financial Compatibility. Also, make sure to get some time for yourself for date night – particularly a Financial Date Night. Make the investment for a babysitter to ensure some consistent quality time where you can have open, honest discussions on big-picture issues and long-term goals. For those really tough topics, you can use a trusted Financial Advisor to help you navigate the conversation.

I am a firm believer in investing in your future. Whether you invest in a book, a babysitter or your time, these investments go a long way to ensure your marital financial health. It’s when you make sure that you’re working together with your spouse that you build a strong and sure route to your financial independence.

 

[i] https://nypost.com/2017/08/03/the-reasons-most-couples-argue-about-money/

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine what is appropriate for you, consult a qualified professional.

By
Jeff Motske, CFP®
November 9, 2018

I personally believe that one of the advantages of doing well financially is to be able to “give back” to causes that are near and dear to your heart. However, when we feel passionate about a cause, the emotional pull can tempt us to financially overextend ourselves. With some forethought, though, you can utilize creative measures that allow you to be generous without breaking the bank.

Your Time

Before you pull out your checkbook, perhaps consider getting your hands a little dirty. Whether it’s cleaning trash from the beach, working at a food pantry or assembling packages for our troops stationed far and wide, nonprofit organizations are powered by people. Even the simplest volunteer work can make a significant impact on an organization in need.

Your Talent

Some of us have specialized talents and skills that can be of value to a charitable organization. If you have an accounting background, perhaps you can offer your services to a nonprofit close to your heart. If you run a landscaping company, you can choose to donate your services to your alma mater. Such specialized services can be of great value to an organization and not make much of a dent in your personal finances.

Your Treasure

Just as there are different types of non-profit or charitable organizations, there are also different ways to financially contribute to them. Many of us are familiar with direct contributions, donations that may qualify to be deducted from your income tax. You could also contribute via donor-advised funds, which allows you to make charitable contributions to specially designated funds at a specific charity, receive a tax benefit from the contribution and recommend grants to be funded by the charitable fund account. Another option is to donate appreciated stock or appreciated real estate, which provides a significant tax deduction. Some choose to leave a charitable donation after they pass via a trust  These gifts in trust can be tricky, so it is advisable to meet with a professional to avoid any issues. Additionally, there are those who prefer to utilize charitable gift annuities, which allows an individual to receive a fixed income after donating money, securities or real estate.

There are as many worthy charitable organizations as there are stars in the sky. When your funds won’t allow you to do more, there are always other ways to “give”. Doing so thoughtfully and creatively can ensure that everyone benefits.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

  1. https://www.nptrust.org/what-is-a-donor-advised-fund

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