In this episode of Retirement Unpacked, Al Smith delves into essential financial strategies as the year draws to a close. Listeners will gain insight into the importance of understanding required minimum distributions and the benefits of considering a Roth conversion. Al also shares vital tips on preparing for end-of-year financial decisions, ensuring you maximize your savings and minimize your tax burdens.
Welcome to Retirement Unpacked with Al Smith, owner of Golden Eagle Financial. You want a retirement plan that alleviates your fears about the future so you know your money will last. As a chartered financial consultant, Al Smith will help you find a balance between the risk and reward of the market and the safety of your retirement income. And now, here’s your host, Al Smith.
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Welcome to another program of Retirement Unpacked. I want to thank you for tuning in. I’m sure there’s other things you could be doing. I appreciate your listenership, and I try to provide new, different, and mostly useful information so that when you’re listening, you can learn something that you didn’t already know. And before we dive too much further, if you’d like to have a conversation about anything we talk about on the show, or if you would like to find out if you’re on track in your saving for retirement, contact my office at 303-744-1128. If you’re driving or something like that, you can always reach me by contacting KLZ, going to their website, and they will put you in touch immediately. With me, there’s some important year-end planning things that need to be done. The two biggest ones are for people who have reached the age where you have to take required minimum distributions, often called RMDs. Those have to be done by December 31st. And that’s not something you want to wait till the last week in December, because if you need to contact a Fidelity or a Charles Schwab or any one of those kinds of companies that are holding your IRA, they get incredibly busy at the end of the year because they may have literally. hundreds of thousands, possibly millions of customers, clients who have IRAs. So if that’s something, if you’re needing to take out your RMDs and have not yet done that, and if you need help, contact my office. And if you’re working with someone else, get with your advisor to make sure that that happens before the end of the year, because there there are penalties if it’s not done. Also, if you’re thinking about converting from traditional IRA to Roth, that also needs to be done by the end of the year. And most people about this time of year have a pretty good idea how much income they will have earned by the end of the year. And you can also guesstimate what your tax bracket will be. I have a cheat sheet. If you need that, I can email you a tax cheat sheet that shows all the brackets for singles, couples, shows the standard deduction and so forth. So that if you’re thinking about converting traditional IRA to Roth, I can provide you with a tax cheat sheet so you can get some idea how much you’ll be paying in taxes in order to make that conversion. January isn’t that far off because we’re already in December. So it looks like about five weeks out or five and a half. January 10th at Arapahoe Community College, I’ll be holding an event, an educational event titled The Essential Tax Strategies for Retirement. It will be on January 10th, which is a Saturday at Arapahoe Community College from 10 a.m. till 1130. And it’s going to be full of good information. If you’d like to attend, call my office at 303-744-1128. Or if you’re driving, just reach out to KLZ. We’ll make sure that you get a spot because sometimes these fill up quickly sometimes. especially when they have to do with taxes and so forth. Today, I’m going to be talking about different investment strategies. And they’re not really what one could call good strategies or bad strategies. There’s just different strategies. And I researched this pretty carefully, but I think what’s most important is Before we even discuss any kind of particular strategies, and there’s quite a few different ones, is that in selecting a strategy, I think it’s important first to have a good conversation with someone like myself to determine first your risk tolerance. risk tolerance has to do with if the market were to drop 20 or 25 percent, what would you do? How would you react? More importantly than the money itself is how would that make you feel? Because sometimes selecting the right risk tolerance for your particular investment is more about preventing you from losing sleep than losing money. Because when people lose a certain percentage of their nest egg, that can be extremely troubling. And that’s why ascertaining risk tolerance is extremely important before we even consider what particular kind of investment strategy we might be looking at. And along with risk tolerance, we have investment goals. And those can be as simple as funding a college education or saving enough money to pay off your home or accumulating enough wealth to generate income in and through retirement. And the last component before we dive into any particular investment strategies is timeline. If we’re talking about retirement, for example, someone’s investment choices, the strategy they may decide on is going to be very different for someone three years from retirement as someone who is 33 years from retirement or somewhere in between. So before again, before we even look at a particular investment strategy, we got to look at risk tolerance, investment goals and timeline. All right. Some of the investment strategies include value investing. The best way to describe that is talking about Warren Buffett. Warren Buffett, one of his quotes is to buy stocks that are really solid and have value and hang on to them over a longer period. The concept of value investing is to purchase stocks or mutual funds that purchase stocks that are undervalued for whatever reason. And a lot of stocks that are in some of the portfolios that I offer are undervalued. We even have a stock basket that is value stocks. And that has served Warren Buffett extremely well. And that’s one strategy that I think people should consider because stocks that are undervalued, that makes sense that it probably could be a good place for a certain percentage of our investment portfolio of our nest egg. Growth investing could be described as a bit more aggressive, a bit more high risk. But the goal with growth investing is to invest in companies and stocks or mutual funds that are expected to grow. at a rate better than average, average being a particular index. In other words, if you’re looking at blue chip stocks that are primarily some of the components of the standard and poor’s, then growth investing might be selecting a portfolio that includes some of what are in the standard and poorest 500, but that are expected to grow better than average. And that may involve big blue-chip stocks, big companies. It could involve any one of… bunch of different sectors, technology, for example. The NASDAQ is full of technology companies that often, that usually outperform the S&P. So that’s kind of what growth investing looks like, buying stock in companies that you hope their value is going to grow. Dollar cost averaging is as much a method of how you purchase your investments as it is what those investments look like. And the best example of that is millions of you listening out there, like I wish I had millions of listeners, but millions of people in this country participate in 401Ks. And they make those purchases on a regular basis with money that’s taken out of their paycheck. And we know that the market goes up and down over long periods of time. What dollar cost averaging does, the purchases that are made in the stocks or the mutual funds over time, some of those are going to be purchased annually. at the peak value of those investments. And some of them are going to be purchased when the market is down. With dollar cost averaging, it’s nearly impossible to lose money because you have money going in over a long period at various different prices. And that’s a method of investing that’s highly recommended for people who have the opportunity to participate in their company’s 401 . At the very, very least, I would recommend that people put enough money into their 401 to reach the level of company matching. And not all companies match your contributions into your 401 . But that’s the very least level at which you should participate because you’re already starting off with 100 percent growth. If your company matches only 2 percent and you put in 2 percent, your contribution has already grown to 4 percent. With contributions in addition to that, you should probably sit down and think, well, maybe I wouldn’t want to have an IRA in addition to that. Or perhaps I would want an investment account that’s not part of a retirement plan, a brokerage account or what we also call a non-qualified account. And the non-qualified account can have a different investment strategy than the dollar cost averaging that you’re doing through your company. So a lot of choices there. Index investing is where you put your money in a particular index, and there’s a lot of those available. There are mutual funds that have relatively modest costs that basically purchase stock in one of those indices. The S&P 500 index is probably one of the most common, represents 80% of stocks the capitalization of stocks in the entire country. The NASDAQ is 100 companies that are sort of on the high-tech edge. The Russell is an index that has also done well, and there are multiple Russell indices. They have done well also. But there are literally thousands of indices in which you can invest. And it could be best described as passive investing because you put your money in and it’s spread among all of these companies in the index. And we’re going to talk more about different investment strategies after the break.
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goes further with the help of Golden Eagle Financial. Taxes don’t retire when you do, and they can eat up significant portions of your retirement savings. That’s why you need a sound strategy from Al Smith of Golden Eagle Financial. Al’s relational approach to retirement planning means he’ll get to know the whole you, including your goals and history of saving. And Golden Eagle will help you utilize financial products that will best benefit you. Saving taxes, helping you defer taxes where it makes sense, and skipping them altogether if or when that’s possible. Tax evasion is illegal, but tax avoidance is encouraged by the IRS. So let Golden Eagle Financial help you figure out how to avoid taxes where you can. using Roth IRAs and other products and be strategic in your plan for retirement. Find Golden Eagle on the advertiser’s page at klzradio.com and send out a message for a free no-obligation consultation. That’s klzradio.com slash money. Investment advisory services offered through Brookstone Capital Management, LLC. Registered investment advisor. BCM and Golden Eagle Financial Limited are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents.
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Welcome back to Retirement Unpacked, the second half of the show. We’re talking about different investment strategies. And as I mentioned at the beginning of the program, before we dive into any particular strategy, we need to have some idea of investment. the investor’s risk tolerance, investment goals, and timeline and make certain that that fits more accurately with the investment strategy that we’re considering. There is a type of investment strategy called momentum. And basically, that’s selecting investments or stocks that have been trending upward. In other words, their value has been growing on a regular basis. And if you own stock in some companies that have either been going down or are quite stagnant, the idea is to move the money into the stocks or the investments, the mutual funds that are growing. The problem with that is that if a company has been growing up to the present time, will it continue to grow into the future? And I can make a reference to the great financial sage, Will Rogers. And what he said is the way to invest in the stock market is you buy a stock and after it goes up, you sell it. But if that stock doesn’t go up, well, then you don’t buy it. Well, that’s a little bit like the momentum investing. Active management, this could also almost be described as day trading, buying and selling in an attempt to outperform the market. I had an entire program sometime back about day trading and essentially some people, one person that I’ve met paid a significant fee to take a class to learn how to day trade. And the statistics are that only 4% of people make enough money day trading to make it worthwhile. And that’s not saying that 96% of people lost money, but the 96% didn’t make enough money to make it worth their time. And so active management or day trading is not recommended. I met one gentleman quite some years ago. That’s how he spent most every morning. He would get up in the morning and have coffee. He would go to his computer and he would look at the market and buy this or sell that and so forth. And I don’t know his track record, but some people do that sort of thing more as a hobby rather than a mechanism to make money. Some people play golf, some people ski, some people go on cruises, and some people play with their money, which sounds silly, but that is accurate. That is how some people look at investing. Looking at some of the other alternative investment strategies, income investing. Income investing is selecting investments that provide income. And that’s pretty obvious. But some of those might include dividend paying stocks. Often there are portfolios available out there. that would be a collection or a basket of stocks that have paid dividends historically on a long-term regular basis. And that being the case, someone who needs income from his or her portfolio, that is a good recommendation. There are annuities that have certain guaranteed income benefits. Now, those levels of income may not be as high as someone could get from dividend-paying stocks or a combination of stocks and bonds, but most of those annuities that provide income, that income is guaranteed, and there’s a lot to be said for that. The other thing about income investing is if it’s in a brokerage account rather than an IRA, then the taxes on those dividends would have to be paid. Also, bonds that are paying interest, those would be… So it may be a taxable account. And if that is okay, then… If it’s a brokerage account, that would provide taxable income. And if that’s important, then that’s a good way to be looking at that. Now, one of the things I really haven’t talked about, but it’s probably one of the most important things in investing, is to start early. And that’s, of all the things… I’ve probably talked about this on maybe one-third of my radio shows, but the three things that will determine the size of your nest egg are the amount of money that you set aside on a regular basis, the interest rate or the return that you get on that amount of money that you set aside, but the most important one and the one that you have the least control over is how soon you start. Or for how many years will that money have the opportunity to grow? For example, if someone decides to save $1,000 a month for a period of time, that $1,000 a month in 10 years at 8% will accumulate to $25,900. In 20 years, up to $55,900. By 30 years, $120,000. And by 40 years, $260,000. So as we can see, money doesn’t grow. Compound interest doesn’t work in a linear fashion. It is a curve. It grows exponentially. because, for example, in 40 years versus 10 years, it’s not just four times the growth of 10. Four times the growth of 10 would be a little over $100,000, but in 40 years, it’s $260,000. So this exponential growth is what makes it very attractive. Now, what if you were able to get a little higher return on that $1,000 a month? Well, at 11%, In 10 years, that grows to $34,000. 20 years, $96,000. 30 years, $274,000. And by 40 years, $780,000. Well, let’s look at it even with a higher return. Some people have done Extremely well in the market. I would say this would be a really optimistic expectation. But if someone could earn 15% on his or her growth, that $12,000 a year, $1,000 a month would grow to $48,000 in 10 years, $196,000 in 20 years, $794,000 in 30 years, and $3.2 million by the time 40 years has gone by. But as good as those high returns sound, what’s actually significantly more important is the number of years that the investment grows. For example, let’s take a number that is not way far off, 12%. 12% is a little bit higher than what the S&P has done over the last 50 years. It’s done about 10%. But let’s say if you were lucky enough and able enough to get 12% and you’re still doing that $12,000 a year, $1,000 a month. Well, in 10 years, you’re at 24,000. 20 years, 77,000. 30 years, 239,000. By 40 years, 744,000. If we add five more years, which for a 25-year-old would mean investing until you are age 70, there’s 1.3 million in there. And this is saving at $1,000 a month. which sounds like a lot but given how high incomes are right now it’s important if you want to accumulate a healthy nest egg is two things well three things that i’ve already talked about you want to start early because the difference in let’s say as little as little as five years Even at a rate of 10%, five more years can grow a nest egg from 360,000 to 580,000. The difference between 45 years investing and 40 years investing. It’s quite significant. So most important thing is if you are young and you’re listening to this show, Start setting aside your money. Open up an investment account. Open up an IRA. That’s extremely important in all these different investment strategies. As I say, there’s not good ones and bad ones. There are ones that are more effective. suited to people’s risk tolerance, investment goals, and timeline. But I think the important thing for those of you who are listening, and I’m going to beat this into the ground, is to start early. I’ve met with many, many people who have sat down with me in my office, and I haven’t had the opportunity to tell any of them, you have saved too much money for retirement. I have not had that opportunity. I have met circumstances where people would like to pay a little less in tax at retirement. And if that includes you, sign up for the event January 10th, Essential Tax Strategies for Retirement. Call my office, 303-744-1128. Or if you’re driving, don’t have the opportunity to write the number down, contact KLZ if you’d like to attend the event in January or have a conversation at my office. God bless you. Thank you for listening. And let’s all be thankful for the things that we have during this holiday and Christmas season. God bless you. Hopefully you’ll be here next week.
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Thank you for listening to Retirement Unpacked with your host, Al Smith of Golden Eagle Financial. Set up a free consultation with Al today at klzradio.com slash money. Find your purpose in retirement with Golden Eagle Financial. Investment advisory services offered through Brookstone Capital Management LLC, a registered investment advisor. VCM and Golden Eagle Financial Limited are independent of each other. Insurance products and services are not offered through VCM, but are offered and sold through individually licensed and appointed agents.
