Forex is an acronym of Foreign Exchange, and Forex Trading is the global business of trading of currencies from various countries against each other. The foreign exchange market also known as FX, currency market or Forex. All of the larger international banks are major participants in Forex trading. So, is it really possible to start Forex trading without investment? What about Day Trading Forex? The answer to both of these is yes you can!
Typically Forex trading is performed by the brokers, in this business you have right to choose the currency pair that you expect to change in the value and trade accordingly. As a Forex trader, you have to place an order through broker then the broker passes the order to their partner in the Interbank Market and fills your place. In case, you close the trade the broker closes your position with the loss or profit during the trade.
Start Forex Trading Business? Why Should I?
No matter what is your actual business you can do it from home as part-time, if you know how to do business and survive in the market, start by day trading Forex. It requires practice and knowledge of different markets you want to work with.
Day Trading Forex is Easy With a 24-Hour Market
As a Forex trader, you can choose your own hours to work from the morning in Australia till the night in the United States. The Forex market never sleeps, so you can join Forex trading as a part-time business, but you must have some amount to invest. You can find your peak hours to do Forex trade according to your regional time. Find out how to combat inflation!
Low transaction costs
The physical Forex markets require large amounts to invest to survive in the market, on the other hand, online Forex trading doesn’t require anything like this. You can make transaction cost under 0.1% under standard market circumstances, and the larger markets can bid as low as 0.07%, so it depends on your investment in this market.
As a Forex trader, you don’t need to bear expenses like brokerage fees, exchange fees or government
fees. Most of the retail brokers compensate for their services, so they don’t require you the commission.
Just like other businesses, day trading Forex also has scammers who are just like a black sheep in this field.
Before you start Forex trading, you need to avoid them, following tips helps you to avoid from Forex scam or fraud.
Google the product and research for it: If you see a new product that offers high-profit, search about it in Google, for example: write “product name scam” if the results yield with too many results don’t go with it.
If it looks too good: Websites that offers high-profit, keep in mind there’s no easy money in this market.
Scamming websites usually have one page with big/blinking $ sign and serious explanations.
Demo account: As a beginner you need to care for the demo accounts. You must ask from the people who have experienced the field to start a demo account.
Check the people on LinkedIn: LinkedIn is the world’s largest professional network with a wide audience. People who looks new to the Forex and from whom you might have scam risk then they can be searched out on LinkedIn. By checking their linked profiles you will know that whether they are trusted or not.
Everything you need to know about your 401k contribution Limits 2018. Most families don’t have the advantage of multiple tax sheltering opportunities. A small business, a farm, or nine children are available to only a few, so tax reducing techniques may difficult to come by. As a result, perhaps the single greatest tax sheltering device that most families possess today is their 401k retirement plan.
In this article, we will discuss 401k contribution limits for 2017 and 2018. We will also assess 401k catch-up contributions and 401k matching rules.
401k Max Contributions
For 2018 the 401k limits are set at $18,500. This is the maximum annual 401k contribution allowed by law. This is a figure that has climbed 65% from $10,000 in 1999, thereby allowing participants to have larger retirement plan tax deductions than ever.
401k contribution limits 2018 will remain the same as in 2017. With 2018 contribution limits now attached to certain inflation indexes, the IRS and Treasury departments have determined that there will be no increase in 2018 maximum contributions. Many experts were expecting a decrease of 2018 401k contribution limits, primarily because of the somewhat deflationary environment we currently find ourselves in. It is important to note that all future adjustments will also be tied the same index. Check out our article on the rules for 401k distributions.
401k Catch-Up Contributions
In addition to the above, 2017 401k catch-up contributions are $6,000. The 401k catch-up gives participants 50 years old and older the ability to sock away a little extra before retirement. The 2018 401k catch-up will also remain at $6,000. Future catch-up contributions will be indexed for inflation in the same way deferrals are currently.
401k Matching Rules
If you’ve been a part of a retirement plan recently, you may have lost your 401k match. Many businesses, both small and large, have simply found that cutting the retirement plan match makes sense to the ongoing health of the business. Employers are looking under every stone for ways to save money, and 401k matches are not immune.
A 401k match typically involves employer contributions to the employee’s account based upon the employee’s deferral. Many employers match dollar-for-dollar, where others contribute less, i.e. 50¢ on the dollar.
Employers are allowed by law to match up to 6% of the employee’s salary. For example, if an employee makes $50,000 per year, the maximum employer match to the employee’s 401k account would equal $3,000. For those of you who are self employed read about the safe harbor 401k plan!
401k Contribution Limits 2018 Summary
- 401k contribution limits for 2017 and 401k contribution limits for 2018 are set at $18,000 and $18,500 respectively.
- Catchup contributions for 2017 and 2018 are set at $6,000.
- 401k Matching rules allow for matching up to 6% of the employee’s salary.
For many when starting their new job thought of participating in a 401k plan was exciting. A place to store thousands and thousands of dollars, safe and secure, awaiting retirement. Then life happened. The transmission went out. Your son broke his arm. The tree fell onto the house. And that was just last month! Now what? Well, you invade the 401k, of course. But, as a wise man once said, “It is characteristic of wisdom not to do desperate things.” So, before we do desperate things, let’s look at some of the pros and cons of borrowing from a 401k loan Fidelity.
401k Loan Fidelity – Pros & Cons
First the pros:
- 401k loans are fairly easy, if your employer offers it. Actually, it is almost too easy. Please remember, you are borrowing from your future. Your entire retirement may depend on the precedent set by you on this matter.
- No interest. If you do pay interest, it goes right back into the account. That’s a pretty good price to pay for money.
- No formal application to fill out and no waiting for approval. Since there is no credit check or waiting lines at the bank, the process can be done very quickly.
Now the cons:
- Human behavior. Yes, this is what gets us all. We are capable of deceiving ourselves into thinking, “just this time”. “It will never happen again”. Well, it generally does happen again. And when it does, we may wish we had acquired the funds from a different source. This leads us to our next bullet……
- A 401k loan default. If you terminate your employment, your loan will need to be paid back almost immediately. If you don’t pay back the loan, the borrowed funds are considered a 401k distribution. And you will have federal income tax due on your tax return, and also a 10% penalty to boot.
- Possible unforeseen fees. Pay attention to the fine print and ask questions. Several times.
- Loan Limits. Most often the amount you can borrow from your 401k plan is the lesser of $50,000 or 50% of your plan balance.
- You will have to pay it back. Now that statement seems obvious, but repeat the phrase, “I will have to pay this back” repeatedly before you initiate the paperwork.
- Not all plans allow for 401k loans. Even though the law allows borrowing from a 401k, your employer doesn’t have to.
401k Loan Fidelity – What are some alternatives?
- First, do you really need the money? Is a 401k loan absolutely necessary? Absolutely?
- Can you borrow the money from a family member?
- Can you sell something of value that you don’t really need anymore? This is often the best way to raise some cash.
- Have you considered a home equity loan?
- Can you extend the current debt that you’re borrowing against your 401k for?
- Do you have any low-interest credit cards? Yes, credit cards. Really. Not all would agree, but in most situations I would advise the use of a credit card rather than taking out a 401k loan.
Yes, 401k loans are fairly straightforward. You borrow the money from yourself, and you pay it back over time. You can do it. It is legal.
Just remember that you may not like the consequences.
My Current Position In Fitbit Inc.
I’ve been watching Fitbit Inc (symbol: FIT) over the last couple of years. During that time I’ve bought and sold shares of Fitbit here and there. During August of 2017 I began getting more serious and started purchasing shares fairly regularly. As of January 30th, 2018 I currently own 7,630 shares of Fitbit. With 1,930 in retirement accounts and the remaining 5,700 in my personal brokerage account. I have just $40k invested in Fitbit. with their current share price of $5.22. I’m currently averaging a cost basis per a share of $6.11 (I’m down just around $6,800). I plan to add an additional $5k over the next month to put my total original investment just above $50k.
Current Financial Situation of Fitbit, Inc.
There were a few things to call about about the latest earnings report for the fiscal Q3 ending on September 30th, 2017.
Highlights From Fitbit’s Q3 FY17 Financial Report
- $659 million in cash, with current assets totaling $1.23 billion
- $564 million in current liabilities
- $392 million in revenue, with $174 million and -$27 million in gross profit and operating income respectively
- -$113 million in net income
- Operating cash flow was $5.5 million, net change in cash for Q3 FY17 was -$38 million.
There’s a few important things to call out from Fitbit’s Q3 FY17 Financial Report
- Has a very strong cash position, with operating cash flow remaining positive.
- R&D spend remained at $84 million contributing to the lower net income
The Long Term Strategy Of Fitbit
If Fitbit is able to enter into the healthcare side of things. I believe there is a lot of potential for this company. During FY18 I’ll be looking for YoY sales increases and their plan for expanding their services. I still believe that Fitbit is undervalue at it’s current price. With the market cap just under $1.3 billion, this company has a lot of room to go, if they can prove to the market their value.
401k Distribution Rules
As you read thru this article keep something in mind………the IRS has permitted tax benefits to families by way of the 401k for many years. Primarily intended to permit individuals to salt away extra cash for their own retirement, participants have responded. 401k plans now make up the largest employer-sponsored retirement account type in existence. Knowing the 401k distribution rules will help you decide the best path for you.
But, you’re reading this because it is now time to retire or it is time to tap the 401k for some much needed cash.
Whatever the reason, care must be taken to abide by the 401k distribution rules. Otherwise, Uncle Sam may become more involved in your life than you ever believed he could be.
In an attempt to simplify the concepts of 401k withdrawals, I have boiled them down to two types.
1. Early 401k withdrawals and,
2. Withdrawals made at the age 59½ or older.
Let’s start with……
Early 401k Withdrawal
An early 401k withdrawal has the likelihood of creating two taxable situations on your tax return.
In addition to paying Federal income tax on the amount withdrawn, 401k early withdrawal penalties at a rate of 10% on the distribution amount will generally be required of you as well.
Congress had enough foresight (I can’t believe I actually wrote that) in the early years to understand that if participants were going to contribute to their own 401k account, they should have some access to their money.
So Congress put in a 401k hardship rule (this hardship rule also exists for 403b plans and 457 plans). These rules make allowances for early 401k withdrawals in a limited number of situations. Here are the exceptions:
- Expenses for medical care for an immediate family member.
- Costs directly related to the purchase of a principal residence.
- Payments of directly related educational fees, including room and board, for the next 12 months of post-secondary education for the employee or an immediate family member.
- Payments necessary to prevent the eviction of the employee from his/her residence.
- Funeral expenses.
- Certain expenses relating to the repair or damage of an employee’s principal residence.
“It’s important to note that the above exceptions simply specify conditions when a participant may have access to 401k funds. They are not exceptions to penalties or tax.”
401k withdrawal penalties will not apply if distributions before age 59½ are made in any of the following circumstances:
- Payments made to the beneficiary after the death of the participant.
- Disability of the participant.
- Substantially Equal Periodic Payments after separation from service.
- Payments made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55. More on this below.
- Payments made to an alternate payee under a qualified domestic relations order.
- Distributions to a participant for medical care up to the amount allowable as a medical expense deduction.
- Distributions to correct excess contributions, match, or deferral.
Although the IRS makes provisions for early distributions, your employer’s plan does not have to allow those distributions. Many employers do not allow premature distributions because of the added administration costs incurred.
As briefly noted above, a 401k withdrawal penalty does not apply to employees who separate service from their employer in or after the year they have reached the age of 55 (for qualified public safety employees that age gets moved back to age 50!)
Let’s re-phrase this exception. The 401k distribution rules state that you can begin taking a 401k early withdrawal in the year you turn 55 or later from your current employer only. Therefore, it may make good financial sense to roll older 401k’s into your current employer before you retire.
Distributions at age 59½ or Older
If your intent is to withdraw 401k assets at retirement, 401k withdrawal laws allow for these three options. Each item assumes that you’re at least 59½ and you are no longer employed by your employer.
- Take a lump sum. Your provider will write you a check after holding out 20% of the balance. This 20% is simply a required tax deposit on the 401k distribution. As you file your taxes the following year, the withdrawal will be included in your total income via a 1099 tax form. Whether the 20% Federal tax withheld is enough or too much depends on your particular tax situation for that year.
- Do nothing. Leave your plan assets with your employer. There is no tax consequence as no money is withdrawn.
- Rollover 401k to IRA. There is no tax implication of this is done correctly.
401k withdrawal rules can be extremely complicated. Contact your financial advisor or CPA for more help.
So, what do investment bankers do exactly? The simplest explanation is that investment bankers are the world’s deal makers, usually acting as a type of broker. Basically, they match projects with money. Investment Bankers find projects, analyze them, cherry-pick the best, then structure them as investments and, lastly, find the investors (or in the case of an in-house investment banker present the project to the firm’s investment committee.) Most investment bankers will review over one hundred projects per year and eventually reject 99% of them. It’s a really difficult job. A great investment banker is literally worth more than his or her weight in gold. There are few great investment bankers… and even fewer after the 2008 financial crisis.
My Background In Investment Banking
To better understand what do investment bankers do I’m going to provide my background. I have been an investment banker for the past thirty-eight years. I started at the ripe old age of eighteen with the purchase and syndication of two apartment buildings in Northern California, then went on to start one of the first video store chains in the United States. On my first group of syndications, I tripled my investors’ money within three years. Honestly, it was luck and timing.
Somewhere along the line, I developed a reputation and I managed to pick up hundreds of clients that I helped raise money for and manage their investor relations. Some of those clients you
might recognize: IBM, AT&T, Chevron, ADP, FMC, Motorola, Lockheed Martin, Intel, State Farm, Allstate, and 19 other Fortune 500 companies. I have personally syndicated over 100 investments in my career and helped raise billions of dollars in equity for my clients.
I also worked in the entertainment industry writing, directing and executive producing motion pictures. There are 7 motion pictures based on my screenplays, two of which I also directed. I personally invested in or helped finance over 100 independent movies and I founded several successful media services companies in Southern California. Those are my credentials.
I have had my ups and downs–2008 was particularly tough–but I have survived and even prospered. Over the years, I have learned a few secrets about investing that I would like to share with you. If you are not already wealthy, I hope this information makes you become wealthy… like REALLY WEALTHY!
And if you are lucky enough to already be in the top 1%, then I hope this information helps you stay there and sleep better at night knowing your nest egg is safe.
They Usually Specialize
Investment bankers usually specialize in industry sectors such as energy, real estate, technology, consumer goods, minerals, communications, transportation, media, etc. They also specialize in the types of deals that they put together. Some work in mergers and acquisitions (M&A), while other develop IPOs. Many work in equity placement or financing. Some investment bankers specialize in financing startups and growing companies, while others only handle mature companies. Still others stay away from corporate finance and instead specialize in project financing (my personal favorite) like commercial real estate development or acquisition financing.
To answer What do investment bankers do? We need to understand more about their education. Most investment bankers start off graduating from a prestigious university, then working for a number of years at one of the big investment banks; Goldman Sachs, , Morgan Stanley, JP Morgan, Deutsche Bank, Credit Suisse, etc. Once they gain their confidence and develop their contacts many leave to launch their own firms and develop their own projects. Some end up running investment funds, while others remain independent putting deals together for sponsors in need of capital.
Investment bankers keep massive Rolodexes or databases of investor contacts. My personal database has over 8,000 investor contacts all of which have over $100 million in assets. Investment bankers are similar to sports or entertainment agent in that their power comes from who they know and who will take their call on short notice.
An investment banker must always understand current capital market conditions, so they know which projects will get funded and which are a waste of time. They must have a keen eye and are always on the lookout for quality projects and sponsors. An investment banker must know how to structure an investment deal so that it is marketable to investors, while still leaving enough meat on the bone to incentivize the performance of the investment sponsor.
Now you should be able to answer what do investment bankers do! Most successful investments over $10 million have an investment banker behind them. The new arena for investment bankers is crowdfunding. It is the ultimate free market system for raising capital and very well could change the way American business are financed. But more about that in posts to follow….
Let me start off by saying that I truly like most financial planners. After all, they are like cousins to my own field of investment banking. I also believe they can be extremely helpful, even indispensable when planning your financial future. So, please use them. However, like most tools, they are only useful when used correctly and backed up by a certain amount of knowledge. After reading this article you’ll have a better understanding about the difference between financial planner and advisor.
A Personal Story
A few years back, a relative of mine inherited a sum of money from her late great aunt. Being an investment banker, everyone in my family assumes that I know all things financial. It’s funny, but I can invest a large amount of my own money and sleep well at night knowing that I have done my homework and calculated the risks and the rewards. But when it comes to investing family money, I get all tied up in knots and really fearful of making a mistake. My bravado and self-confidence go right out the window.
So, in the case of my relative’s request for help with her inheritance, naturally I sought help. I set up appointments with several well-established financial planners in hopes of helping my relative choose one to help her invest her newly found nest egg. It was a very enlightening experience and not what I expected.
Having gone through this process like most people trying to figure out and develop their personal investment strategy and financial plan, I would like to share my insights with you.
What’s The Difference Between Financial Planner and Advisor?
First, let’s get some definitions straight. In the world of investment, there are investment advisors and there are financial planners. Most financial planners are also investment advisors, but not all investment advisors are financial planners. Both investment advisors and financial planners sell investments. However, financial planners also evaluate financial resources and situations to develop investment strategies or financial plans for their clients–all with the intent of achieving their client’s financial and life goals.
I cannot stress enough the importance of having well-defined financial and life goals. How can anyone arrive at their final destination without knowing where they are going? The guidance of a good financial planner can help you define these goals and get you on the path to success.
Salesmen in Disguise
Some investment advisors are captive–meaning that they work for a firm that only sells a certain type of investment and therefore are limited in what they may offer you. These “salesmen” may also be known as financial representatives, financial specialists, annuity specialists, life insurance specialists and a whole host of other names used to disguise the fact that they are usually paid lucrative commissions or bonuses to sell specific product or service to their clients.
Commissions and bonuses are not bad things in and of themselves. After all, we should not expect anyone to work for free. However, it is very important when choosing investments to understand the motivation of anyone offering you advice.
As you search for an investment advisor or a financial planner, you are going to hear the phrase “fiduciary responsibility”–meaning that the planner or the advisor has an ethical and, in some cases, legal responsibility to represent the best interests of their client. But hang on a minute…can an educated professional with a list of impressive acronyms following their name really be impartial and do what is right for their client when they know that selling one financial product to their client earns a higher commission than another financial product?
Call me “cynical”, but come on…it’s human nature. Even in the best case scenario of both products being relatively close in quality and price, they’re going to pick the one that pays the highest commission! And I don’t blame them. I would do it. Gandhi would do it.
Okay, maybe not Gandhi…or Mother Teresa. The point is that there is an inherent conflict of interest in the world of investment and you should be aware of it whenever you invest. It is interesting to note that there are by far more commission-based advisors than fee-based advisors.
So what’s the difference between financial planner and advisor, well, let’s get back to my story. With my relative in tow, I visited with several financial planners. During each interview I would ask the financial planner their opinion of “Vanguard Funds”. There was purpose in my question. Vanguard funds are index funds that can be purchased directly from Vanguard through their website. This means that the financial planner would not get a commission. Every single one of the financial planners that I met with suggested reasons why the Vanguard funds might not be suitable for my relative. Check out our free 401k calculator to see if you’re prepared for retirement!
Coincidence? I also asked if they would consider being paid a fee by my relative and forgoing any commissions they might receive by selling my relative a financial product. To my surprise, several of them actually got a bit irate, stating that they had a fiduciary responsibility to represent their clients fairly and that they were perfectly capable of distinguishing which financial products were best for their clients while not giving weight to their potential commission on that product. They were insulted that I would question their integrity. We left their office.
Difference Between Financial Planner and Advisor – Which Is Cheaper?
Okay, another knowledge tidbit for the uninitiated. There are two types of investment advisors, including financial planners–commission-based advisors and fee-based advisors. Both should be registered with FINRA, a self- governing organization for financial advisors whose membership in most cases is required by the Securities and Exchange Commission to work in certain parts of the investment industry.
Commission-based advisors receive commissions on the financial products that they sell. Fee-based advisors are paid a fee directly from the clients that they serve. From the outset, a commission-based advisor is going to be cheaper than the fee-based advisor. After all, the commission-based advisor doesn’t usually charge you any fees on the investments they sell you, because their fee is built into the cost of the investment. On the other hand, the fee-based advisor is charging you their fees over and above the cost of the investment. So, naturally, the fee-based advisor looks more expensive… at least in the short run.
In my experience, the better the investment, the lower the commission and visa-versa. Certain types of life insurance pay very high commissions over long periods of time. High-risk, venture capital or business startup type investments also tend to pay very high fees to the advisors that sell them. I have seen commissions as high as 10% of capital raised paid out to advisors that brought in the investors. Vanguard, the funds I mentioned earlier (and recommended by Warren Buffett), pay little to no commission to the advisors that sell them. Quality investments don’t need to pay high fees to attract investment. The product speaks for itself.
Human Nature & Investment Advice
So, now ask yourself…what would human nature dictate to a commissioned investment advisor when they could earn 1% on one investment and 10% on another investment? Which would they recommend? Would the quality of the investment even come into play? I am sure there are many investment advisors that take the long view and value their reputation for finding good investments for their clients. But I am equally sure there are investment advisors that would sell the product that makes them the most money regardless of the product’s quality. The real question is…how do you tell the difference between the good advisor and the greedy advisor?
The Difference Between Good and Greedy Advisors
The only way is to take money out of the equation. If you pay your advisor a direct fee in lieu of them receiving commissions, you eliminate the conflict of interest and you can count on their advice being fair and unbiased. It is not easy to find a good investment advisor or financial planner willing to work based on a fee, but it is well worth the effort. You can start by looking on the NAPFA website. NAPFA (National Association of Personal Financial Advisors) is an organization of fee-only financial planners. The fee charged by a fee-only financial planner will be meniscal compared to a bad investment. Investing is one of those areas in life where you really don’t want to be penny wise and pound foolish. Now you should be able to the difference between financial planner and advisor. You next step is to determine, which if any is right for you.
You might be asking yourself if fund advisors are worth it. On the floor, index investing looks like an ideal match for do-it-your self buyers. The simplistic purchase-maintain-rebalance mantra of index fund proponents mixed with the abundance of assist from investing authors and on-line boards leads scores of knowledgeable buyers to tackle the duty of private portfolio administration annually. Many DIY buyers by no means look again; they treasure their newfound fiscal autonomy and the problem of overcoming future monetary hurdles. Others, nevertheless, uncover that they lack the time, curiosity, information or self-discipline to efficiently negotiate the damaging DIY terrain, they usually finally search assist from fund advisors. The function of this text is to obviously current the rationale for every strategy in order that index buyers can determine which tactic most accurately fits their wants and skills.
Why Investors Do it Themselves
According to a 2016 research by the Investment Company Institute, the first purpose that DIY buyers handle their very own portfolios is that they need to be in management. There is a way of empowerment that comes with making your personal funding selections, and DIY buyers, particularly males, like holding the reigns. The research additionally discovered that almost all of DIY buyers consider that they’ve the required info and mental capacity to make nicely-knowledgeable, prudent monetary selections with out the assistance of knowledgeable. In the minds of those assured buyers, advisory charges are an pointless expense. Finally, many people discover private finance to be a rewarding pastime. According to the research, nearly all of DIY buyers take pleasure in conducting their very own monetary analysis, crunching numbers and intently);
Others select the DIY path not as a result of they love the thought of managing their very own investments, however as a result of they dislike the thought of hiring fund advisors. You might fall into this class in case you place a excessive worth in your monetary privateness, consider that the majority monetary advisors are incompetent or untrustworthy, or just need to get monetary savings by not paying advisory charges. The reality that fund advisors aren’t created equal supplies little solace to these whose opinions have been formed by the quite a few investor scandals of the previous yr or by a poor previous expertise with an advisor.
Finally, there’s a group of buyers who acknowledge that they might profit from skilled assist however lack an funding account giant sufficient to seize the eye of an advisor. First-time buyers typically fall into this class and have a tendency to hunt recommendation from public sources, family members or associates. Read on How Improve Credit Score in 30 Days!
Why Would an Investor Hire Fund Advisors?
A good financial advisor can add worth to your portfolio in numerous methods. First, he acts as a gatekeeper, stopping you from making widespread return-decreasing errors. Numerous research have proven that particular person buyers routinely surrender as a lot as S% in annual returns on account of frequent buying and selling, trying to time the market and chasing previous efficiency. Even probably the most seasoned index investor wants the occasional reminder to keep away from distractions and stick together with his funding plan.
Good fund advisors offer entry to analysis, methods and funding decisions which have the potential to spice up returns. By understanding complicated points like tax administration, property planning and retirement forecasting, an advisor will help you higher perceive the probability of reaching your retirement objectives and recommend steps you could take to tilt the equation in your favor. Additionally, he could possibly increase your funding decisions by offering entry to unique fund households or share courses.
Finally, a great advisor performs laborious duties like portfolio monitoring and portfolio rebalancing so as to dedicate your time to different pursuits. An advisor who screens your portfolio incessantly can guarantee consistency together with your danger profile whereas probably squeezing extra returns from rebalancing exercise.
Closing Thoughts on Fund Advisors
Many buyers need a quantitative reply to the query of whether or not to rent an advisor; they need to know definitively whether or not an advisor would offer them with greater funding returns
after charges. In order to reply this query, you need to first ask your self whether or not you will have been capable of develop and persistently implement a low-value, disciplined funding plan by yourself. Many buyers do not have sufficient curiosity, information or potential to develop a wise plan; much more lack the required self-discipline to comply with one. If you end up veering off the trail to chase a scorching new sector or time the market, there is a good probability that an advisor would deliver some return-boosting self-discipline and objectivity to your funding selections);
If you do possess the psychological and bodily fortitude to develop a sound plan and persistently keep the course, you must in all probability look to qualitative elements to make your choice. For occasion, would you moderately spend the time that you simply dedicate to funding administration on different issues, like visiting household or pursuing different pursuits? For many buyers, the reply to this query modifications later in life as monetary conditions turn into extra complicated, the results of poor selections grow to be extra extreme, and time with household turns into a much bigger precedence.
Conclusion on Fund Advisors
The backside line is that managing your personal index portfolio could also be easy, nevertheless it’s not straightforward. If you determine to supervise your personal investments, defend your self towards the tendency to stray out of your funding plan by drafting an Investment Policy Statement. If you determine to rent knowledgeable, select a payment-solely advisor who agrees together with your passive investing philosophy, embraces his fiduciary duty to behave in your greatest pursuits, and is prepared and in a position so as to add worth within the methods described above. Whichever path you select, you’ll be able to maximize your probabilities of investing success by precisely assessing your danger angle and capability, designing a diversified, low-value portfolio, and sticking together with your plan.
Always Know Your Number
Becoming financially independent will vary depending on your situation. If you have a family with a van load of kids, it’s probably more than if you are single and just need to take care of yourself. If you’re living in a big city like New York, Paris or Tokyo, you need more than those living in smaller cities and rural areas. The important thing is that you know your number. It should be one of your main goals in life. Because once you reach that number, you are financially free. Ask yourself, “How much do I need to live how I want for the rest of my life?” Everything beyond that is gravy. Personally, I like gravy. By the way, that was secret number one for wealth creation. – Always know your number. Few great things are accomplished without a well-defined goal.
My Path to Becoming Financially Independent While Living in Malibu
While in my late twenties, I lived in Malibu, California for about ten years while I raised my family. Many of my neighbors were really wealthy–like 10,000-20,000 square foot beachfront houses overlooking the Pacific Ocean, plus a 5,000 square foot vacation homes in Cabo Saint Lucas and a couple of “work” apartments in New York and London. Then there were the cars…. Malibu High School parking lot was filled with BMWs, Mercedes and Lexus. Nobody under the age of eighteen should be allowed to drive a $60,000 automobile, I don’t care how rich you are! I digress.
Many of my neighbors worked in the entertainment industry. It was common practice when a musician, actor, director or producer became famous and wealthy they would hire a business manager. Their business manager would collect their royalty checks, pay their bills and make investments for them. Many business managers were really good at their jobs and would serve their clients well. Others…not so much.
But that’s not really the point I want to make. I can remember sitting in Starbucks chatting with my friends and asking them something simple about their finances (something like “Are you leasing your car or did you buy it?) and they would say, “Oh, I don’t know about that stuff. My business manager handles that.” I would cringe. They had worked hard and took great risks to climb to the top of their field only to turn their financial future over to another person that may or may not have their best interest at heart and may or may not know anything about investing their money. Most of them did not really even know how much money they were making or, even worse, how much they were spending each month.
They Crumpled In An Emotional Heap
More than once I saw one of neighbors crumble into an emotional heap when their careers stalled and their money train slowed to a crawl. They were shocked to find that they had little to nothing in reserve. It wasn’t like their business managers were ripping them off like you see on television or in the movies. Their business managers sent them monthly reports, informed their clients of all the major decisions and in most cases even had them sign documents authorizing their actions for their client’s money. Their clients just didn’t read the reports or understand the ramifications of their investments or finances. They were lazy or at least distracted by life like many of us.
It’s easy to shove your finances off to an accountant or business managers, after all they are trained in finance. They know what to do with my money… right? Train wrecks rarely happen because of technical failure. They happen because someone is not paying attention. Take responsibility for your own finances. Cash your own pay checks. Pay your own bills. Invest your own money. It’s really not as hard as it look–plus it’s good for you. Nobody will watch your money like you.
Two Secrets to Becoming Financially Independent & Wealth Creation
Now I am going to give you the next two secrets for wealth creation… Always do the math and avoid complexity. Don’t leave the math to someone else. Do it yourself. It is really not that hard. Most investments can be calculated on the back of a napkin. And if they cannot be calculated on the back of a napkin, then run away really, really fast and don’t look back!
If you cannot understand how an investment works, then don’t invest in it! There… I just saved you a million dollars. I hope you’re happy.
But seriously, complexity kills investments. The more complex a deal, the more likely it will fail. The main component to the financial crisis of 2008 was the failure of derivatives and guess what…almost nobody without a doctorate in mathematical analysis can really explain what derivatives do and how they function. The calculation of how a derivative works and when they “kick-in” is very complex. The failure of the derivatives caused a chain reaction that almost completely destroy the financial system of the United States and caused giant financial waves throughout the world.
So, let’s recap…
- Always Know Your Number
- Take Responsibility for Your Finances
- Do the Math Yourself
- Avoid Complexity
How to Calculate What You Need
Now you are saying “Hey, the title of this article promised to help me figure out how much money I need. So, what gives?” You right. I won’t cop out and I won’t be lazy. Here is the math.
You need to figure out how much you will spend each month once you are financially independent. That number is probably different from what you are currently spending. Here are a couple of reasons why.
What Not to Include
Once you are financially independent, you do not need to spend money each month to invest or save for retirement. That is not to say that you don’t invest. You just don’t need to include it as part of your monthly nut. Also, do you plan on having a mortgage or car payments while you’re becoming financially independent? Most of you will not. Do you need as much life insurance? Probably not. Will you have credit card payments? I sure hope not. What are you going to do with all your free time? Travel? That costs extra. How about hobbies? (I always wanted to build a fully equipped woodworking shop with every kind of lathe, saw and gig that I could possibly want to use.) If you don’t have a mortgage, then you won’t have that big tax write-off. Better budget for it (Try our Budget Calculator). You get the point.
You will usually need to spend less on a monthly basis after you reach financial independence, even with the extras. So, do the math and find the number.
For this example, let’s say that you have paid off your house, car and credit cards, plus you are a travel bug that likes to go on a nice cruise twice a year to someplace sunny. Your number is $20,000 per month or $240,000 per year not counting inflation (we will get to that in a moment.) That’s a big number for some, not so big for others. The important thing is that you find your number.
What to Deduct
Wait a minute…we can deduct some things because you probably have some future income already secured. How about Social Security? (Yeah, it will probably still be around even with all the politics). Do you have a retirement account? How about a life insurance annuity? Do you have rental income from real estate? What about dividends from a stock or bond portfolio? I get quarterly royalty payments from the movies I made. That counts! All steady future income lowers that annual $240,000 number. So, let’s say after you count all your future income, you lower the number to $160,000.
Investable Assets and Inflation
Now, how much money would you need in investable assets to generate $160,000 per year? Also, how do we take into account inflation? I believe a properly diversified investment portfolio can generate about 8% per year without taking too much risk. So, to generate $160,000 per year you would need about $2,000,000 in investable assets.
But wait… we need to take into account inflation. This is where it gets a bit tricky, because some of your future income like real estate, social security and stocks may have inflation compensation mechanisms or increases, while others like some pensions and bonds may not. Again, it is important that you do the math and figure it out now, so you don’t end up short.
So, let say we have calculated that one third of future income is covered by inflation increases and the other two thirds is not. I like the number 3% for inflation. It’s probably conservative and closer to 2%, but hey, that’s where the dart landed when I threw it at the inflation index dart board. Besides, 3% gives us a little cushion in case you live a longer than you planned. So, we need to make an extra 3% per year to cover the inflation on the $160,000 and an extra 1% on top of that to cover the loss due to inflation on some of our future income. That just cut our 8% interest in half and therefore doubled the amount of investable to about $4,000,000.
Getting to a Real Number
Now don’t panic. Yeah, that is a big number. But it is a real number. And now that you know your number, you can make a plan to achieve that number. Believe me… it’s doable. Most of us will never be able to save our way to that kind of number. However, I never liked making 2% on my money. I believe in high-yields of 12%-24% on my invested money. I know they are achievable. So, enough for today. Go get started on becoming financially independent! Follow my blog in the coming months, and with a little patience, a little math and some thoughtful consideration, I will show you how to make your number.