Thieves of your wealth and savings
It’s not 2008 but looking at these 2018 headlines causes anyone to pause about where to put their money.
“Why the stock market is freaking out”
“Stock market falls as investors worry about the economy”
“Welcome to the longest bull market in Wall Street history”
“U.S. Stocks log worst year since 2008”
“Wall Street Hits New 2018 Lows as Fed Decision Looms Over Markets”
“Stocks fall back into negative territory”
Because of headlines like these, one of the most common questions I’m asked is - Where should I be putting my money?
As the saying attributed to Albert Einstein goes, “The definition of insanity is doing the same thing over and over again, expecting different results.”
Change is all around us -- and that includes our economy. People see it, feel it and hear about it. The current economy is in the midst of a huge shift; and as we’ve said in previous articles, your first step to adapting to change is gaining knowledge. It can be tempting not to pay attention to your financial health, to get overwhelmed, and/or tell yourself you’ll worry about it later. Making no decision is a decision that can have harmful financial impacts. The choice to thrive or remain status quo is an important choice in an ever-volatile economy.
Reacting independently to each financial opportunity can cause just as much distress. Many clients have a variety of financial accounts, yet they have questions about their overall financial picture.
With an estimated out of pocket medical costs rising to over $200,000 during your retirement, it’s critical that you have a sound strategy. You need to know your financial outlook based on liquidity of your money, continued income streams and the protection of you and your money.
Understanding the destroyers of your money is an important first step. Here are three of the top wealth destroyers that can derail your investments and financial growth:
1. Inflation
What is inflation really?
Basically, if you’re making $100,000 today, in 20 years at 3%-4% inflation your income needs to be around to $200,000 for the same buying power. To put this in perspective, think about what a candy bar cost you as a child compared to today? Now think about it in terms of your day to day living expenses.
Why is inflation important to your retirement strategy? Many of us (or at least one partner) is projected to live in retirement longer than we worked. If your money doesn’t keep up with inflation, you can only afford less! As you save and accumulate your net wealth, it may be a large sum now, but in 20 years as things get more expensive, what type of buying power will it have? Understanding a client’s inflation numbers is one of the first things we discuss with them. .
We’ve been conditioned to believe that we need inflation to build a stable economy. The Federal Reserve has an initiative to encourage inflation each year, claiming that in order to stimulate the economy, prices need to slowly increase. However, the stark reality is that inflation makes everything cost more. We have to work harder to pay for the same products or services. Our banking system contributes to that increase in inflation through its loans.
Assuming you retire at age 65, and begin to withdraw money out of your retirement funds, how will that money grow to keep up with inflation? It can’t; because inflation doesn’t stop increasing the price of things.
How does inflation relate to the value of your investments?
Three percent is a relatively small number right? When prices go up 3 percent, it doesn’t seem like a lot, but over time it compounds and has a major effect on our financial world.
So, the question to ask yourself is, “Are my investments guaranteed to keep up with inflation?”
Inflation is sometimes considered a ‘silent thief’. It’s something most of us don’t pay attention to, nor do we really understand its enormous impacts to our retirement money.
Being aware of this wealth thief, learning about strategies to beat inflation and taking the right next steps will give you the upper hand in wealth building.
— You can learn more about strategy in our Precision Strategy Learning Section —
2. Taxes
The United States “briefly” imposed income taxes during the Civil War. However, Then, in 1913, the Federal Reserve was created. Coincidentally or not, this is also when income tax and the IRS were created.
2018 brought additional tax changes. As for many Americans, it ended up being a bit of a surprise at tax preparation time. While you expect and accept that you need to pay your portion of taxes, we consider this as another thief.
Although we rely on good accountants and tax preparers, they are generally in a responsive mode, vs. proactively looking at your financial picture from a strategic perspective. The money that you’re paying in taxes could be used in several ways that would directly benefit you. If you don’t consider other options, you stand to lose a lot of money over time. It can be a massive and unavoidable “opportunity cost” . . .
So, what can you do? First, find out if you regularly pay the government more than you need to. Find out if your tax deferral accounts are costing you more than they should. Discover what other alternative investments might help leverage your tax situation.
3. Fees
We’ve previously addressed the importance of fees in several of our articles. Fees are in everything you do financially -- at the bank, with your investments, and continuing into your retirement. As noted above, you may not realize how these seemingly small commissions and fees eat away at the money you assume is growing. These minor fees can result in major damage over time, up to two-thirds of your mutual funds’ overall expense
Understanding how your money is working for you should be one of your top priorities. Ultimately, to realize how to build and maximize your accumulation of money, you must understand the factors that are eating away at your savings and investments and take appropriate steps to mitigate the damage.
By “unlearning” what you previously believed, and listening to your intuition, you can now learn how banks and brokers have conditioned us to believe that when we earn money, we need to put it into the bank or the stock market for safekeeping.
Yet, if we understand how the wealthy in our country use the power of their money, we discover that they no longer need to provide those benefits to the banks and brokers. Did you know that Senator John McCain used his personal finances in his Presidential campaign?
Who is making the money? The reality is that in traditional banking, your money is taken and used to make more money for the banks; yet they charge you fees. Individuals and business owners who understand the single concept of “being your own bank” can turn this system on its head and allow you to make that money, instead of the bankers.
— You can learn more about strategy in our Precision Strategy Learning Section —
