Tag Archives: retirement planning

Vaccinate your investments

Invisible enemies

For billions of years, virtually all living things have been fighting a war against constantly adapting and evolving, invisible enemies – viruses. Viruses are nothing new to humanity. Some of the greatest civilizations in the world have attempted to fight back, but only within the last century have we truly been able to develop and safely use effective weapons like vaccines, thanks to science. 

And yet, we know that every time scientists develop a new vaccine targeting one bad microbe or another, the next potential contagion will always be waiting for us, just around the corner. We don’t know where it will come from, what it will look like, or how harmful it may be, but we know it WILL come at some point.

We’re currently dealing with a global economic crisis while simultaneously fighting a global health crisis, both of which were sparked by a new invisible enemy – COVID-19. While the world’s greatest scientific minds race to create a vaccine to resolve our public health crisis, it is our job at blooom to help inoculate our clients and their investments from the invisible enemies of the investing world, knowing that the next new threat is always lurking right around the corner. No needles necessary!

“The reward for work well done is the opportunity to do more.”
– Jonas Salk, creator of the inactivated polio vaccine

 

Basic instincts drive investing behavior

As humans, our survival instincts are fueled primarily by two competing emotional forces within us all: fear and greed. Fear keeps us from doing overly risky things (or at least makes us think twice) that may cause harm to ourselves. Greed feeds our hunger to achieve, thrive, and generally seek more of what makes us happy, selfishly or not. 

Ideally, we would strive to live our lives each day with an appropriate balance between these two internal forces. But when it comes to investing, human beings are simply not wired for success. We’re actually wired to make terrible decisions when it comes to our investments. And yet, just as there are many ways to prevent contracting and spreading a contagious virus, there are also several ways investors can build immunity and help fight back against the battles our own biology will inevitably wage against us when markets get rocky.

“Be greedy when others are fearful and fearful when others are greedy.”
– Warren Buffett    

 

Prevention – Don’t touch!

Various studies have shown that, on average, most of us touch our own face around 16 times every hour. In the last several months we’ve all become far too familiar with just how bad this is for us when it comes to contracting contagious viruses, like COVID-19. 

Just as infectious disease experts have warned us all to minimize face touching as much as we possibly can, blooom advisors have been saying the same thing to our clients when it comes to long-term investment accounts, like their 401ks or IRAs. 

There’s no denying that a global economic catastrophe feels like the worst possible time to ignore what’s going on with your hard earned money, but that very simple “hands off” approach has proven beneficial time and again throughout the entire history of the stock market. 

If you have an appropriate long-term investment strategy in place for your retirement accounts, remember that our instinct of fear that tempts us to sell stock investments and wait out the storm is exactly what causes so many investors to consistently lock in losses and miss out on the robust recoveries that have followed EVERY single US stock market crash in history. That’s right, 100% of them.

This most recent stock market crash proves the point even better than most others. An initial 30% crash in a matter of just weeks has since been followed by a nearly 30% market recovery. Yet, who could’ve possibly predicted that some of the worst unemployment numbers in history would have the stock market sitting less than 10% away from all-time highs? Here is another friendly reminder that the stock market is not the economy and its short-term movements rarely make much sense in the moment. 

Unfortunately, we know for a fact that far too many ended up logging into their retirement accounts to sell out of their investments at the worst possible time, only to miss this quick, unanticipated rebound. 

Making adjustments to your long-term strategy based on short-term feelings of fear and panic is a temptation we all feel in times of crisis, but it tends to be a recipe for disaster when it comes to your investing goals. Taking emotions out of the equation by sticking to a proven strategy gives you the best chance of reaching your goals over time. While you may find your hands reaching for that keyboard, fight the urge to touch your retirement accounts by making these emotional decisions. Your future self will thank you.

 

Exposure

One way to develop future immunity from a virus is through exposure, whether intentional or not (this is not medical advice!). When exposed to a new virus, our bodies produce an immune response to fight back. While the battle can go on for weeks, those that were relatively healthy before exposure are often likely to recover without long-term consequences, or even death. For most viruses, those that survive and recover from the infection end up building antibodies that are designed to detect and prevent future infection from that same virus, at least for a certain period of time, typically several years.

When it comes to investing, sometimes the best way to protect yourself in the long-run is by learning the hard way in the short-run. In the last several months, industry data has shown a significant increase in brokerage transaction volume for many individual investment accounts, particularly among younger investors with IRAs and taxable brokerage accounts. This gives a strong indication that a lot of small balance accounts have been involved in frequent buys and sells of individual stocks and ETFs. Generally speaking, we don’t advise day trading individual stocks or ETFs due to the risk involved, but the temptation to do so is completely understandable, especially after a significant decline in the overall market.

That said, painful but important investing lessons tend to result from times of crisis like this. After all, we are all human and sometimes we simply have to experience the pain of letting our emotions win out in order to understand the bigger picture and have a better perspective next time around. This particular crisis has likely taught far too many the valuable lessons of the difficulty of trying to time the market by selling after a steep decline only to miss an unexpected and robust recovery.

Nearly every successful investor has had to learn a hard lesson along the way, which likely involved them succumbing to their own emotions a time or two. Learning these lessons early can provide a lifetime of immunity that can not only help protect you and your own future, but those around you as well. 

As cliche as it may sound, when it comes to investing, if you are humble enough to admit you don’t have a crystal ball that can predict market movements, what doesn’t kill you will very likely make you a much stronger investor over time. Yet, just as a doctor would be unlikely to recommend intentional exposure to a deadly virus, we are not about to suggest that you intentionally try to teach yourselves these lessons the hard way. That’s what we’re here for. But if you happen to make a mistake, as we all have, make sure that mistake becomes the antibodies you need the next time around.

 

Vaccination

Science has shown that the single best way to prevent infection and spread of a virus is by development of, and widespread vaccination against, that virus. Some vaccines are developed for seasonal viruses, like the flu, which mutate and evolve each year. These vaccines aren’t guaranteed to prevent infection from all flu strains, but they have been shown to at least help reduce recovery time and contain the spread to a more limited population.

With investing, there is no magic potion or vaccine to protect you from your natural instincts or the constant noise of stock market media hype. But that doesn’t mean you can’t greatly reduce your risk of making mistakes that could take years or decades for your portfolio to recover from. 

The greatest threats investors face are probably most comparable to the seasonal flu. Each year different strains of the flu evolve which require new vaccines to protect against. Likewise, investors can expect a brand new, often unanticipated threat to attack their investments year in and year out. The best thing you can do as an investor is to understand that the threats against you are always evolving and that there are time-tested methods to protect yourself, or at least help mitigate our risks. Ask your advisor questions (if you have one). Stay focused on the long-term. And tune out the distractions of the financial media. 

 

Seek the best primary care

Finding a doctor you can trust can be difficult, but those that do tend to live healthier, happier lives. Knowing that you have someone in your corner is essential when it comes to opening up about your own health issues, as they arise. While many of us try to avoid going to the doctor until we absolutely must, we know that in most cases they will be able to give us the best medical advice or treatments for whatever is ailing us.

Inoculating your investment portfolio means taking emotion out of the equation using technology and automation, implementing a proven long-term investment strategy that’s appropriate for your age and risk tolerance, and finding an ally you can trust in the fight to keep you on track when times get tough, at an affordable price. Each of these are the very reasons blooom was created in the first place. 

While humanity races to defeat this Pandemic, know that you and your investments don’t have to succumb to internal forces inside of us all that often work against our financial well-being in times of crisis. Uncertainty is the greatest certainty there is when it comes to investing. And it’s actually that uncertainty that tends to reward those that fight through their natural instincts to guess the market’s next move. Sometimes all it takes is the comfort of a conversation or knowing that you have a plan in the first place. 

If you feel lost when it comes to your retirement investments, have been stressed by the recent ups and downs of the stock market, are unsure if you’re investing appropriately right now, or just need to talk to someone about a better strategy going forward, don’t hesitate to reach out to our advisors. We’re here to help you!

 

The information is provided for discussion purposes only and should not be considered as advice for your investments. Investing involves risk. Your investments are subject to loss of principal and are not guaranteed.

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How Rebalancing Your Investments during a Bear Market Works for Your Retirement

If you ask me, rebalancing has to be one of the Wonders of the World.  Ok, well maybe at least one of the Wonders of the Investing World.  The term “rebalancing” (or “optimizing” as we call it at blooom) gets loosely tossed around and often even taken for granted, but I hope to explain its elegance and how rebalancing investments can go such a long way to improving an investor’s long term rate of return.  More specifically, by leveraging the power of optimizing, especially in down markets, it is entirely possible to build more wealth in your investment portfolio over time.  

Now that I have your attention, let’s look under the hood at how this whole optimizing thing really works!

 

Take Emotion Out of It 

By far, one of the biggest enemies of the average individual investor is their own emotions.  Generally speaking, mixing high levels of emotions into financial decision making will generally turn out disastrous, regardless of how good the underlying intentions might have been. Emotions will lead us astray whether it is greed commonly experienced in periods of very strong growth in the stock market, or fear often experienced in periods of steep declines in the stock market.

The most effective way to counter the potential damage that managing your investments based on emotion can cause, is to just simply have a plan. Then, once you have a plan, to the extent possible, you should try to implement a strategy that “automates” decision making so that you minimize the chances that emotions can creep into your decision making. In fact, some of the best laid plans when it comes to investing are ones in which you have to make as few decisions as possible!

Let me explain.

 

3 Things You Should Do With Your Investments Right Now

When it comes to your retirement savings – either inside of your employer sponsored retirement account (401k, 403b) or your IRA – you need to commit to a well thought out strategy that has been battle tested not over the course of just the past few years, but over the past many decades.  When it comes to your retirement savings, because of the inherent long term time horizon that you should have, there are really just a few key things to get right.

  1. Make sure you have an appropriate mix of stocks and bonds given your time horizon to retirement and your risk tolerance.  With this, there is no “one right answer” but it is definitely possible to get this dead wrong.  (Example: 30 year old who wants to retire at age 60 with 90% invested in bonds)
  2. Make sure this mix of stocks and bonds is routinely adjusted to move slightly more conservative as you move closer and closer to retirement.
  3. Make sure you have enough diversification across your stock and bond exposure.  In other words, make sure you don’t have “too many eggs in too few baskets!”


Then, Don’t Touch It

Once you have this established, I can tell you confidently that you shouldn’t be tinkering too much with this set up.  In other words – get this dialed in and there is virtually  no need to be fiddling with it based on the inevitable ups and downs of the stock market.  This is where investment rebalancing comes in and starts to really shine.

An Example Portfolio

For ease of explanation, let’s assume that based on your age, time horizon to retirement and risk tolerance, you have the following allocation in your retirement account:

$100,000 Portfolio

Stocks: 70% Target allocation = $70,000 

Bonds: 30% Target allocation = $30,000

Now let’s assume that the stock market gets absolutely clobbered, down roughly 30%.  Which by the way, is about the average decline the stock market has experienced in the past dozen or so Bear Markets since WWII.  Remember, Bear Markets are a totally normal and expected event that inevitably comes around from time to time either due to economic cycles, bubbles, or significant external events like what we are currently experiencing with the global pandemic.

In our example here, let’s also assume that while stocks were getting clobbered, the bond side of your portfolio largely held its value.  In this case, your allocation could then look like this:

Stocks: $50,000 – 62.5%

Bonds: $30,000 = 37.5%

Often times, investors are inclined to make emotional decisions out of fear (in this case) and might actually consider SELLING OUT of stocks after this big decline. BUT, this is where optimizing can swoop in and save the day.

If you are following a regular, recurring strategy of rebalancing your investments let me show you INSTEAD what would take place

Now that your portfolio has dropped in value to $80,000 and stocks now make up just 62.5% of the portfolio as opposed to the original target allocation of 70% that you originally established.  To then properly rebalance your account back to the original Target allocation into stocks you would need to SELL some of your bonds that had held their ground and BUY more stocks at these depressed levels.  PRECISELY WHAT INVESTORS SHOULD BE DOING!  It is amazing how in times where the stock market is chugging along making new highs, most investors jubilantly pour more and more money into their portfolios and then conversely, when the stock market goes “on sale” many investors’ emotions kick in and then all rational thought goes flying out the window and fear takes over.

But when you allow the power of an automated optimizing strategy to just do its thing, it prevents emotions from creeping in and taking over.  You are not having to make decisions at all during these times.  The automated optimizing process handles all the heavy lifting and by just doing math, it automates the process of proper decision making over and over and over, throughout the course of your investing career.  

Oh, and conversely – an automated optimizing strategy also works quite well in times of growth in the stock market.  As stocks and the stock market are making new highs, automated optimizing will trim some of the profits in stocks and add to bonds, or other kinds of stocks in your portfolio that have fallen a bit behind.  Again, just letting mathematics handle the decision making process in your portfolio.

 

See “Buy Low, Sell High” in Practice

What I love most about utilizing an automated optimizing strategy is that by default, it forces investors to follow that age-old practice of buying low and selling high.  Slowly and surely, over time, portions of your retirement portfolio are shifted from the investments or asset classes that have performed well over to the investments or asset classes that haven’t done as well.  Little by little over a long period of time this adds up to extra return in your account and most importantly, gets you out of your own way when it comes to emotional decision making.

 

Reap the Benefits of Rebalancing Your Investments with Blooom

Now that you have read why rebalancing your investments is important, consider optimizing your portfolio with blooom! Our goal is to give you a solid chance to improve the allocation of your account and maximize your portfolio. Sign up today for a free analysis and see how rebalancing your investments with blooom is a no brainer!

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Pam Krueger | CEO of Wealthramp

Welcome to our first installment of… (drumroll please)… Blooom Brain Pickers!  We’re picking the brains of the best in the biz to inform, entertain, and most of all, educate you when it comes to making personal finance decisions. Pam Krueger

Pam Krueger is the creator of the award-winning MoneyTrack investor education television series that ran nationally on over 250 PBS stations.  She is the recipient of two Gracie Awards, educating the public about personal investing, and finding the right financial advice.  In 2017, Pam rolled out a one-hour special, MoneyTrack: Money for Life on PBS stations to explain what the fiduciary standard means to consumers.

Pam launched Wealthramp.com, the largest network of expertly vetted, fee-only fiduciary advisors to help consumers looking for qualified financial advisors who are independent and not commission-driven sales reps. Wealthramp is available to both individuals and employers who offer the service as a financial wellness benefit. Wealthramp uses an eHarmony style algorithm to match individual investors to the best-fit advisors and is available to consumers at no cost.

Pam has served on the board of directors of the California Jump$tart Coalition, an organization dedicated to increasing financial literacy among children and teens. She received the Financial Educator of the Year Award from the Financial Literacy Institute.

 

What is the best and/or worst financial advice you have ever received personally?

Without a doubt, the worst advice I ever got came from a very dear friend many years ago who really wanted me to invest in private mortgages ten minutes before the housing bubble burst. I never did take his advice but he did lose his shirt (or two). I just don’t consider myself wealthy enough to invest in alternative investments. I’m like a granny, I stay in my lane, and I stick to the boring basics. Best advice? Diversification wins all battles because… well… it does.

 

What are your thoughts on the future of financial advice and the direction of the industry in the coming decades?

I see the best possible combination is robo + human. The trick is finding the best available of both the robo-world and the human side. Let’s face it, we are emotional creatures and sometimes we really do need a living, breathing advisor to collaborate or to work through problems. Perhaps not now, but probably later. That’s the beauty of having robust online tools to help you manage on your own. I don’t see the future of advice as robo instead of human advisor, I see it as in addition to human advice. The older we get, the more complex our financial lives become and you may want someone to guide you one-on-one. But here’s the real challenge: human advisors are not created equal so the key is tapping the true talent, not settling for ‘just okay’ advice— especially if you’re about to retire!

The idea of combining technology + financial advisors also contributed to the creation of my company, Wealthramp. A viewer from our TV series, MoneyTrack on PBS. She was frustrated because after the financial crisis she felt she needed an advisor and she’d just fired her broker. She asked me point blank: why do I hate financial advisors? I told her I really don’t hate all of them. I love 5% of them. Given that so few are truly competent and put their clients’ interests first. That’s when the lightbulb went off and I had to ask myself why am I being so negative about the bad advisors when all I have to do is identify the excellent advisors and create a network of them across the country and let people come to me so I can match them to the best-fit advice that’s truly fiduciary. That’s how Wealthramp was born and it took me no less than four years to curate my network of fee-only advisors. I wanted to make sure that when a retiree worried about running out of money needs an experienced retirement income strategy, that person can turn to me. When someone comes to me and has a special needs family member to support, for example, I needed to make sure I’d be able to tap into my network and introduce that consumer to the best advisor possible for special needs planning. Or when a young software engineer at a late stage start up needs to understand his stock compensation and has only 90 days to make a life-changing decision, he knows I have the experts in private stock options and no one is going to sell them anything.

 

What is the one thing you wish more people knew about, given your experience in the industry?

As children we should have been taught the basics about how capitalism works, the economy, credit, practical money skills and an introduction to investing. These are life skills and if we’d gotten that baseline education, I probably would not be in business today. 🙂 All kidding aside, people deserve to feel more confident about their own personal finances, and too many feel embarrassed. That’s just wrong and it creates a lot of financial stress.

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5 Ways to Save for Retirement When You Have Student Loan Debt

Graduation caps have landed, tassels have been switched to the other side, and mom has all the pictures she could ever want. Graduation day is one of the most memorable occasions in a person’s lifetime, but as seventy percent of new grads know, it also starts the countdown to one of life’s most-dreaded evils: paying back student loans. Recent research suggests millennials are now spending one fifth of their annual salaries on student loans alone, and now expect to be making payments well into their forties. At the same time, most millennials know they need to start saving for retirement in their twenties – from their first day at their first job if possible – but when Sallie Mae comes knocking it can seem impossible to both pay back debt and save for retirement on an entry level salary.

 

So how can you manage your student loan debt and also make sure you have enough to retire comfortably?

 

Here are a few tips to get started:

1. Create a budget

Your first step should be to come up with a plan outlining your long-term financial priorities, including everything from paying off student loans and contributing to retirement to having immediate funds for an emergency. You can’t focus on realizing long term goals when you’re trapped lurching from one immediate crisis to the next. Take some time to breathe and focus on the future.

 

2. Manage your payment plans

While getting out of debt can seem like a more urgent priority, make sure you are on track to meet your retirement goals before accelerating your student loan debt payoff date. According to a Morningstar report, every dollar of student loan debt creates a 35 cent decrease in retirement savings. Try to put at least 10-20 percent of your income throughout your working years aside for retirement. This enables you to take advantage of compounding interest and the time value of money, so you’ll actually end up with more money by the time you retire. Automation makes managing this process easier, so you don’t need to think twice about it!

 

3. Take advantage of employer matching policies

Does your employer match contributions or participate in a pre-tax retirement saving plan? You could be earning a higher rate of return by making sure you’re participating in and capitalizing on those policies. New company, new plan? No problem! Look into rolling over your 401(k) to maximize your benefits. Sometimes money does grow on trees.

 

4. Refinance your existing debt

If you have good to excellent credit and a steady cash flow you’re a prime candidate for loan refinancing. Look for a new loan with a lower interest rate, and make sure you use all the money from the new loan to pay off the old one. Some banks and loan providers also offer loyalty and automation discounts, so you should also make sure you’re familiar with all the options available to you before you sign on the dotted line.

 

5. Keep an eye on pesky fees

Three in four Americans have no idea what they’re paying in 401(k) fees, and nearly 40 percent believe they’re not paying any fees at all. When’s the last time you checked what you’re paying in fees? It’s not enough to just save money if you end up losing thousands of dollars in fees you don’t even know you’re paying. Signing up for Blooom’s 401(k) robo-advisor to manage your 401(k) and minimize those pesky fees costs a flat fee of $10 per month, no matter how much you have saved. No small print, no tricks.

 

Still feel like you’re drowning in debt? Check out blooom’s free 401(k) checkup tool to see how you’re doing with your retirement savings plan.

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What Kind of 401k Lover Are You?

Valentine’s Day puts a lot of focus on being in a relationship. If you’re reading this blog it probably means that you ARE in a relationship with your 401k, which is great! But just because you’re in a relationship doesn’t mean everything is perfect.

Odds are you fall into one of these six kinds of relationships with your 401k. Let’s put them under the microscope and see what’s going well and what flaws might exist.


The Giver

You are constantly contributing to your 401k. 10%, 15%, or 20%―it doesn’t matter. Anything to keep your 401k by your side all the way to retirement. You don’t care what funds you’re in or whether you get an employer match.

Pros: Contributing is numero uno when it comes to a happy relationship with your 401k, and giving all you’ve got to your 401k can cure a lot of ills.

Cons: The $$$ you put in your 401k should be working for you and not the other way around. Throwing your hard earned cash into a money market account or a high fee investment that doesn’t do anything for you can lead to heartbreak.

Things you might say to your 401k: Oh, you only had a 2% rate of return this year? It’s not your fault. Let me just up my contribution level to make you feel better.


The Taker

You set up your 401k… isn’t that enough? Why do you need to check in on it? It should just be grateful that you contribute a few bucks every paycheck.

Pros: Not looking at your 401k and over thinking it can be a virtue.

Cons: If the foundation of the relationship isn’t there, or if you’re not properly invested, this relationship could be going nowhere.

Things you might say to your 401k: Stop complaining, I could be spending my money elsewhere.


The Controller

One look at you and anyone can tell you care about your 401k. You are very attentive, but somewhere in all that effort you’re putting towards your 401k, you may start to suffocate it with your demands and restrictions.

Pros: You care, you really REALLY do. Attention is important after all, it’s your retirement we’re talking about.

Cons: Too much attention can lead to irrational reactions.

Things you might say to your 401k: What do you mean, your balance is less this statement than last statement? This relationship is OVER!


The Enthusiast/Thrill Seeker

You are always looking for something new. Investing in the same funds just doesn’t do it for you. You’re willing to be a little reckless if it means your portfolio is different from others.

Pros: You live on the edge and are likely to take on more risk in your investments, which can net out.

Cons: 401ks are a long term deal, so changing it up constantly and seeking out the new can lead to betting it all on a potentially bad choice – see bitcoin.

Things you might say to your 401k: Bonds? What are those? Hey baby, let’s time the market.


The Overlooker

You know your relationship with your 401k has problems. Maybe you’re under-diversified or have a high expense ratio, but it’s not “that bad”.

Pros: You’re aware. As they say: knowledge is half the battle.

Cons: Close only counts in hand grenades and horseshoes. This is your retirement and every dollar counts. Every opportunity you miss to fix what you know is wrong is money left on the table.

Things you might say to your 401k: I’ve been with my financial advisor for years. Who cares if he charges me too much to rebalance you?


The Jealous One

You are constantly looking at other people’s 401ks and seeing what they have that you don’t – better funds line ups, more money, rate of return, etc.

Pros: You want your 401k to be the best. That’s why you’re always looking around.

Cons: Not all 401ks are the same and neither are individual financial situations. Measuring your 401k against someone else’s is a fool’s errand and can get you off track or distracted.

Things you might say to your 401k: Bob’s 401k grew 15% this year. Why did you only grow 12%?


Want to take your 401k relationship to the next level? Start with a free analysis with the experts at blooom.

 

Start Your 401k Analysis

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