Looking to enhance your retirement savings beyond maxing out contributions to your employer provided retirement account? Hidden deep within your 401(k) plan rules, may be an opportunity to take advantage of one of the best strategies to come along in years. It’s been dubbed the "Mega Backdoor Roth," and with a name like that, it has to be good, right?
Despite what we are sometimes led to believe, building wealth is rarely a rapid, flashy process. It doesn’t require luck, exceptional intellectual power or a network of elite connections. In fact, the truth behind how to build wealth can be explained in just one sentence – Spend less than you make and invest the difference wisely. The simplicity of that statement is likely quite disappointing. Unfortunately, there just aren’t any tricks or secrets that are going to produce overnight breakthrough results. Accumulating wealth is most often a slow, steady process that takes years. After decades of experience working as an investment advisor with people from different backgrounds, income levels and life stages, I can tell you that this pattern is not only evident, it is unmistakable.
In the next 7 days roughly 70,000 baby boomers will reach full retirement age. A similar number will cross that threshold next week…and the week after that, and the week after that, and pretty much every single week until the year 2032. For those of you doing the math at home, it works out to 3.64 million people reaching full retirement age in each of the next 14 years. What’s more, each year the life expectancy for those of us who do reach full retirement age inches out further and further. Longevity is a force multiplier that has material consequences every working American must take into account when contemplating their own income replacement number.
We spend much of our time in our writings here discussing high level topics like the importance of financial plans, why working with a fiduciary is so valuable, and the traps of behavioral finance. Rightfully so, as these are the big decisions we need to get right to achieve our goals. Nonetheless, I expect most of our readers go a level deeper in their interest and keep track of the stock market (and maybe the bond market) over long periods of time, and we write on broad market behavior now and then to help articulate what we see in our research. Sometimes, though, the market watchers among us notice market movements like we experienced at the beginning of this month and wonder "why the heck did that happen?!" Completely answering that question is almost impossible, but I believe two things:
“We have met the enemy and he is us.”
—Pogo (via cartoonist Walt Kelly)
Famous investor John Templeton once said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”
Given Templeton’s indisputable success as an investor, few would argue with this appeal. However, like much in life, this behavior discipline is easier said than done. Research shows that people tend to make rational decisions in small matters and poor ones where much is at stake. Why? Because we’re human. As humans, we are burdened with a series of nearly inescapable cognitive and emotional biases that drive us to respond to stressful events like the stock market’s ups and downs in a way that harms our financial well-being. While numerous, this article will work to consider just one: Hindsight Bias.
The informal birth of the financial planning profession took place nearly 50 years ago, when 13 businessmen gathered in a Chicago hotel room to discuss a better way to help people manage their financial lives. The idea behind the meeting was to make consulting, rather than salesmanship, the primary driver of the industry. This was a revolutionary idea at the time, as really the only “solution” available to investors were stock brokers or insurance agents who focused on commission producing transactions rather than unbiased advice.
Investors are used to struggling with the Traditional vs Roth retirement question - Do I take the tax savings now or will it be more advantageous to take it later? However, imagine a savings account that provides a tax deduction at the time of contribution, tax-deferred growth inside the account AND tax-free withdrawals.
Everyone is talking about bitcoin. Even this guy. The price movements have been staggering, and will likely continue. The underlying tech, blockchain, is both confusing and exciting (at least for those in the financial accounting world). While blockchain does have a real potential value to the world, there is an active debate regarding what bitcoin is, what it's worth, and whether you should own it.
It’s getting on towards late December and the shrink-wrapped tins of chocolate covered pretzels and canisters of gourmet popcorn that miraculously appear just before the winter solstice have been pretty well picked over in the company lunchroom. Deprived of the opportunity for mindless holiday nibbling, I'm starting to go just a bit stir crazy.
Clearly, it’s time to spice things up. Since I'm temporarily unable to find anything more productive to do, it seems like a fabulous time to join the parade of econometric forecasters, market prognosticators, and other sundry financial charlatans to spew out my own half-baked vision of exactly how things are going to be in the coming year. Forget your stocks, bonds, mutual funds, CDs, or any other dusty old-school investment. In a never-ending quest to uncover the next big thing, what’s about to be revealed here is unfiltered money-making genius. Believe me, it’s going to be HUGE!
Life can be summed up through the transitions that we experience. Whether these transitions are rewarding, like marriage or becoming a parent, or challenging, like marriage or becoming a parent, all involve an ongoing process of emotional and financial adjustment. However, when in a state of change, we often fall victim to our own weaknesses. The stress of these major life experiences can be too much for our minds and our wallets to comprehend. We are not built to only think logically. We embrace our emotions and when overwhelmed by these emotions, can make the wrong decision.