How to Develop Your Investment Strategy
In a sea of conflicting advice, clarity comes from crafting an investment strategy aligned with your goals, rooted in understanding each investment’s purpose.
May 12, 2021
In a sea of conflicting advice, clarity comes from crafting an investment strategy aligned with your goals, rooted in understanding each investment’s purpose.
Using multiple investment firms may seem wise, but it often leads to confusion and suboptimal results, emphasizing the importance of consolidating financial planning efforts for better outcomes.
Investing in dividend-growth stocks like Hershey can yield increasing passive income, but diversification is crucial, and it’s important to remember that dividend payments are not guaranteed
401k’s and IRA’s have different rules for penalty-free withdrawals: while age 59 ½ is commonly known, the age 55 rule allows penalty-free 401k withdrawals upon separation from employment, emphasizing the importance of understanding retirement account nuances for early planning.
Choosing between placing lottery winnings in an S&P 500 Index Fund or a 10-year treasury bond poses a dilemma: guaranteed returns versus potential dividends from a diversified portfolio.
Clients start with a strong financial plan rated “A,” but my goal is to elevate it to “A+,” adjusting for changing variables like tax laws and personal circumstances, recognizing plans become outdated upon creation.
We examine a strategy where the child owns a life insurance policy on their parents, paying annual premiums of $15k for 20 years and receiving a tax-free death benefit of $700k after their passing, achieving an 8.18% internal rate of return.
After establishing the target “nest egg” of $3.8 million, the next step is to calculate the annual savings needed, such as $77,000 per year over 20 years, accounting for tax implications, especially with various account types.
After calculating the annual portfolio need for “financial independence” at $151,713 and dividing by a 4% distribution rate, the required portfolio amount is $3,792,833, marking a significant step towards financial freedom.
Despite increased income, navigating variable earnings can feel uncertain; however, strategic planning, like averaging monthly earnings and building an emergency fund, can provide stability.
Diversification isn’t just about owning many funds; it’s about ensuring your investments are spread across various asset classes to weather market volatility and maximize returns.
Cut through investment noise, commit to a strategy, stay invested long-term, and understand market history to navigate fluctuations confidently.
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