Wealth and Savings Thief
Do you wonder why people are uneasy when it comes to putting their life savings in the stock market? Just take a look at just a few of these headlines in 2018.
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 for 2018 as Economic Uncertainty Grips Investors
Change is around us and our economy is no different. People see it, feel it and hear about it. The economy is in the midst of a huge shift, and as we’ve said in previous articles, your first step to adapting is gathering knowledge. It’s too easy to get overwhelmed and say that you’ll worry about it later. Making no decision is a decision and can have harmful impacts if you don’t pay attention. The choice to thrive or remain status quo is an important choice in this more volatile economy.
There are people who attend our classes and say that they’ll wait and hopefully they’ll win the lottery. (a true statement) With an estimate out of pocket costs rising to over $200,000 during your retirement, you need to start taking your future seriously. You need to do the research, learn some basic information and learn how to ask questions.
As the saying goes by Albert Einstein, “The definition of insanity is doing the same thing over and over again, but expecting different results.”
Let’s highlight three of the top wealth destroyers that can derail your investments and financial growth:
1. Inflation
What is inflation really?
In basic terms, if you’re making $100,000 today, in 20 years at 3% inflation your income needs to be around to $200,000 for the same buying power. Do you remember what a candy bar cost you as a child compared to today?
Why is it important to your retirement money? Many of us will be retired 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 help people understand.
The industry has conditioned us to believe that we need inflation to build a stable economy, and the Federal Reserve has an initiative to encourage inflation each year. They claim that to “stimulate” the economy we need prices to slowly increase. But the stark reality is that inflation makes everything cost more. We have to work harder to pay for the same products or services. And our banking system helps with the increase of our inflation through the loans.
So when you turn 65 and retire and you’re withdrawing money out of your block of money, how does it grow to keep up with inflation? It can’t but inflation doesn’t stop.
How does inflation relate to your investments?
3%...a pretty 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. (learn more about Compounding in our Precision Strategy learning section)
So the question to ask 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, and we really don’t understand the enormous impacts to our retirement money. Being aware of this wealth destroyer and learning about strategies to beat inflation will give you the upper hand in wealth building.
As you take the steps to learn more, learn more about this thief. We can help.
2. Taxes
The United States imposed income taxes briefly during the Civil War and the 1890s Did you see the word ‘briefly? In 1913, the Federal Reserve was created. Coincidentally or not, this is also when income tax and the IRS were created. In 2018 we had another tax change which if you’re like many Americans, it ended up being a surprise for many at tax time. Although many will agree that they want to pay their portion of taxes, we consider this a thief.
Although there are good accountants and tax preparers that we rely on, there are several ways in which you could be using that money for yourself. If you don’t then over time, you lose a lot of money. It’s a massive opportunity cost . . . and yes, unavoidable.
What can you do? Find out if you regularly pay the government more than you have to. Find out if your tax deferral accts are costing you more. What other alternative investments might help with a tax situation?
3. Fees
We’ve addressed the importance of fees in several of our articles. Fees are in everything you do financially, at the bank, your investments, and continue in your retirement. As we mentioned as to what you may not realize is how these seemingly small commissions and fees eat away at the money you think you are growing. Minor fees can do major damage over time. Up to two thirds of your mutual funds expense over time. Check out our other articles on fees.
The importance of understanding how your money is working for you is one of your top priorities. If you’re finally realizing that you must understand how to build and maximize your accumulation of money then you must understand the factors that are eating away at your savings and investments and take steps to limit the damage.
Again by unlearning and listening to your intuition, you may 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 function of their money we discover that they no longer need to provide benefit to the banks and brokers. Did you know that Senator John McCain financed his own Presidential campaign?
Who is making the money? The reality is that with typical banking, they take your money and use it to make more money for themselves and yet charge you fees. As many understand the single concept of “being your own bank” you can turn this system on its head and allow you to make that money instead of the bankers.
Interested in learning more? Contact us
