Jeremy Fulton, Financial Wellness Coach

Category: Retirement

  • How to avoid eating ramen noodles at age 65

    How to avoid eating ramen noodles at age 65

    Retirement.  If you are like me, this is decades away, and doesn’t really enter your day-to-day thinking.  You are probably putting something away for the future, but don’t really have any idea how much you really need to save to make the transition to retirement at the lifestyle you will be living at that time.

    Money in glass jar on wooden tableThe first time I calculated how much I needed to have saved at retirement, my jaw about hit the floor!  To maintain my current lifestyle I will need to be rich!

    Most people spend more time planning a vacation or kid’s birthday party than they do planning for retirement.  They have no idea what they will need to have saved to live at the level they want, nor any idea how much they will need to save each month to get there!

    I don’t know about you, but I don’t want to get to age 65 and realize I have to work to survive, not just work because I want to.  How about you?  Do you know?

    I challenge you to run the numbers in a financial calculator, such as this one to see what you realistically need to save to meet your long term goals.

    What did you learn?  What will you do now?

     

  • Mutual funds; the good, the bad, and the ugly

    Mutual funds; the good, the bad, and the ugly

    First things first, what on earth is a mutual fund?  If you remember, I said that I recommend investing in them as part of your investment portfolio.

    According to Investopedia.com, a mutual fund is:

    An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.

    In simple-speak, a bunch of people pool their money with a professional fund manager to take advantage of opportunities not normally available to small investors.

    Like all things in life, there are pros & cons to investing in mutual funds.

    The Good

    • Diversification – your invested money is spread among several stocks.  This is the opposite of “keeping all your eggs in one basket.”  If one company does poorly, the effect on you is limited.
    • Professional management – most people (myself included) don’t have the time to evaluate, in depth, all that should be evaluated in a stock before buying it.  The fund manager’s only job is to maximize performance of the fund, by picking good stocks.
    • Economies of scale – since the fund manager is buying huge amounts of stocks at a time, the transaction fees are much lower than for you or me.
    • Mutual funds are liquid assets – they are easy to convert to cash, unlike real estate or bonds.
    • Simplicity – investing in mutual funds can be as simple as an automatic bank draft, payroll deduction, or buying from the fund’s website.
    • Variety – If there is a sector, stock style, social impact, or any other area you want to invest in, there is a mutual fund for you.  In fact, there are more mutual funds than stocks!

    The Bad

    • Professional management – Not all managers do as well as they should.  Just because the fund is professionally managed, doesn’t mean it performs well.  Look at the manager’s track record, along with the funds track record before investing in it.
    • Over diversification – if the fund has too many stocks, a great performance by one or a few might have minimal effect on the overall fund value.
    • Taxes – all capital gains taxes are passed on to the investors.  If the fund is churned a lot (the manager buys and sells the fund assets a lot), investors could be liable for more capital gains taxes.  You can look at the fund’s turnover rate, or having the funds as part of a tax-preferred account such as an IRA or 401(k).

    The Ugly

    • Fees – Fund managers have to be paid.  There are costs associated with the administration of the funds.  There is no such thing as a free lunch!  Fees, referred to as expense ratios, can range from as low as 0.2% for some index funds, to over 2%!  The fees will be listed in the fund’s prospectus.  These take away from the fund’s overall performance, so look carefully at them.  Another fee to be aware of is a sales charge (load).  This is how some advisers get paid (think commission on sales); there are many different ideas on the value of advisers and what the best fee structure is (I won’t go into it here), but I will say is that a good adviser is worth his/her compensation.  With loads, the more you invest in one fund company, the lower they are, and at some point they usually go away.  If you pick a low fee fund and invest regulatory, you may end up paying less in fees than you would buying several different stocks each month on a self service site (up to $9/trade).

    Final Thoughts

    It’s important to know the details of a fund before deciding to invest in it.  A quality adviser will teach you why he/she recommends a particular fund or group of funds.  They will help you pick funds that have a low expense ratio, a good track record of performance over the long term, and are appropriate for your needs.  Mutual funds are a great investment tool for average Joes like us!

    If you are ready to start investing, I can put you in touch with a qualified investment adviser who has the heart of a teacher!  If not, I can get you ready.  Contact me today:

    jeremy.fulton@me.com
    860-469-2278

  • Should you should KISS your investment strategy?

    Should you should KISS your investment strategy?

    You know what K.I.S.S. stands for

    Keep It Simple Silly

    And you thought I was going to insult you!

    We’ve both heard that “serious investors” have complicated and advanced investing products and strategies which enable them to make more than us mere mortal investors.

    • Hedge Funds
    • REITs
    • High Yield Bonds
    • FOREX trading
    • Commodities
    • Penny Stocks
    • Etc, etc, etc

    I will admit that there is potential that someone could make a lot more with these. There is also the potential that you could loose it all!

    I have one overriding investment philosophy that I teach my clients:

    Never invest in anything you don’t understand well enough to teach it to someone else.

    Think about it; if you have a thorough understanding of your investments, how they work in the market, and what makes them ‘go up’ or ‘go down’ then you are a lot less likely to panic and worry when the Dow Jones dips. In fact, you might even see a silver lining in market drops!

    It is possible to learn all the ins-and-outs of the more complex investments, but what will it gain you? Do you have the time and desire to become an expert? Or the time and desire to manage those investments?

    I’ve been trained in all that stuff (through the Certified Financial Adviser program) and I could teach you a lot of it, but I still don’t have a “sophisticated” investment strategy.

    Because I don’t have the time to manage my portfolio every day and want to keep my risk to a manageable level, while taking advantage of the long term growth of the market, I stick with mutual funds.

    Mutual funds are easy to understand, have high diversification (my eggs are in lots of different baskets), and are easy to invest with. I even invest in mutual funds that cover different market sectors to increase my diversification even more! (If you are not sure what a mutual fund is, please ask!)

    Boring? Yes. Simple? You bet! Do I know enough to teach you how they work? Of course! Give me a call and I’ll teach you today! Then you, too, can have confidence in your investments!

    What are your thoughts?

  • 5 Ways to make your future self happy

    5 Ways to make your future self happy

    Have you ever wished you could write a letter to your younger self?  I know I have!

    What would you tell yourself?

    • Don’t date that girl
    • Jump on that opportunity
    • Eat more veggies and exercise more
    • Call your mom more often

    Turns out I’ve been talking to your future self and have been sent with some things that you should know now!

    5. Forget about the Joneses.  By trying to keep up with them, you will waste so much time and money; learn to be content with what you already have.

    4. Don’t take investment, tax, spending, or other advice from your friends (or strangers on the internet).  Invest in working with a professional with the heart of a teacher.  Professionals have spent years becoming an expert in their area; what makes you think your broke friends know as good or better?  Money spent in this category will pay dividends in increased wealth, avoided tax penalties, and better money control.

    3. Stay away from debt.  Sure its nice to get things now instead of waiting, but if you play with snakes, you will get bit!  Debt is the enemy of wealth; do you want to have some money at retirement or lots of nice stuff with payments?  Get out of debt now so you can build your retirement and enjoy the income you have!

    2. Grandma was right; it will rain!  Build up an emergency fund as soon as possible.  A rainy day fund will take the stress and crisis out of anything that comes up: car broke down? Fix it without worrying how you will pay for it.  Sick relative you need to visit?  Buy the plane ticket without worrying how you will pay for it.  Broken furnace in February?  Call the repair tech and not worry about how to pay him.  Get the point?  Bonus: when you have a 6-month emergency fund, you tend to make different decisions when an ’emergency’ happens, which can save you money.

    1. Start saving NOW!  The longer you wait to start saving for retirement, the less you will have.  Money invested now is much more valuable than money invested in 5 years.  Once you are debt free and the emergency fund is built, start taking advantage of employer matched 401k’s and ROTH IRAs.  You won’t regret saving that money instead of buying that new car in 20 years, but you just might regret buying that car!

    Now, will you listen to your future self?  Or if you are the “future self”, what do you think?  Anything different you would tell the younger generation? Post below:

  • The 5 ‘best’ reasons to buy a new car

    The 5 ‘best’ reasons to buy a new car

    Let’s face it; there’s nothing like driving off the lot in a brand new car!  The new-car smell, the fit & finish inside feel luxurious, no strange noises, and everyone is noticing you and your new ride!

    So, what are the 5 ‘best’ reasons to buy a new car?

    5. I’ll impress my friends and strangers with a new car.
    Have you ever seen a brand new Kia or Honda on the road and said to yourself, “Wow!  Someday I hope to be as successful as that person!”  Me either.  So, unless  you are buying a Ferrari, I probably won’t give your shiny new car a second look.  And do you really care what some stranger you’ll never see again thinks?  And if you want to impress your friend, buying them dinner or clearing the snow from their driveway will do a much better job!

    4. I’m always going to have a car payment, so why not get a nice, new car?I haven’t had a car payment since 2008; and the last two cars I bought were fully loaded cars in good shape and still very nice inside.  I’m not rich, nor did I have tens of thousands of dollars saved up; I paid under $4000 each; that’s only 8.5 car payments!  There are lots of reliable, nice cars out there that you can save up for in a reasonable time frame.

    3. I want to save money on gas, so I need a more fuel efficient car.
    Yes, new cars tend to be more fuel efficient than a comparable old one.  So, you could end up saving at the pump.  But that is where the savings end.  The average car payment in America is $471; will you be saving that much every month in fuel?  Unless you trade in your Mac truck for a Honda Civic, I doubt it.

    Maybe it’s not your savings, but you are trying to be more environmentally conscious  with your MPG boost.  Will you reduce greenhouse gasses enough to offset those created by manufacturing your new car (mining the metals, pumping the oil for the plastics, the heavy metals & toxic waste created because of the electronics)?

    2. We are having a baby, so we need a safe car.
    Really?  When your 10 year old car rolled off the assembly line it surpassed all the safety requirements and whoever bought it then didn’t think it was unsafe.  Has your car become un-safe over time?  If you think so, have a qualified mechanic inspect it and replace aging components.  It will be much less expensive than even 2 car payments!

    1. I need a reliable car; old cars break down all the time.
    Yes, old cars tend to have failures more often than new cars.  Parts wear out and fail over time.  But is it really that bad?  Suppose you just had to replace the transmission at $2000.  That is a LOT of money, I agree.  But how often have you actually had your car break down and leave you stranded?  And $2000 is only about 5 car payments, and is easily covered by your emergency fund.  And a rental car is only about $20-30 a day while your car is in the shop.  The key to a reliable car is not age, but keeping up with maintenance.  Replacing parts before they fail and performing routine maintenance will keep your car running for many more years.

    Now, it is possible that your car will need a very expensive repair (such as a transmission) and you are wondering if it is worth putting that much money back into your car.  Here is a simple way to determine if it’s time to upgrade: If the value of the car as-is (in it’s broken state) plus the cost of repairs is more than the value of the car repaired, it’s time to replace it.  Sell it for what you can get for it and buy a newer, used car, for cash.

    So, why am I so against new cars and car payments?

    • Cars are depreciable assets.  They lose 10% the moment you pull out of the lot, and over 60% in 5 years.  Let someone else take the big hit and buy a 2-5 year old car.
    • $471/month.  That equals almost $40,000 in 5 years if invested instead; Invest that for 5 years starting at age 20, and that’s $2.6 million at retirement!!!  Investing it monthly for your entire working career results in $7.2 million!  Is that new car smell really worth that much?
    • Contentment.  Yes, I like new stuff, new gadgets, cars, etc.  But driving an older car can help teach you to be content with what you have and not worry about what the Jones’s think.

    What reasons do you have to buy a new car?  Or not buy one?

  • 10 things you need to know about money right now!

    10 things you need to know about money right now!

    There are many things you can learn about money.  Some are cool facts and trivia that you can use for small talk at parties.  Some things will make you feel better about yourself.  And others have the potential to change your life!

    So, without further ado, here they are:

    1. The amount of money is not fixed.
      There is no “pie” that you have a slice of.  If I increase my wealth, it does not mean that I prevented someone else from increasing theirs by that much.
    2. Money is created by work.
      As we work and create and build we create value which is how we get paid.  That is why the GDP of the world is always increasing!
    3. Giving 10% of your income to a cause you care about helps you succeed financially.
      Giving causes us to become more outward focused and generous.  People who are not self-focused are more likely to get the promotion, raise, and be presented opportunities.
    4. If you have money problems, your children will most likely have money problems.
      You know that your kids are impressionable.  They will see how you handle money and mimic your habits, good or bad.  If you don’t teach them proper money management, Visa will gladly do it for you!
    5. There is no such thing as “good debt.”
      How excited do you get about making payments?  This includes Student Loans.  Can you be 100% sure that you (or your child) will land a job you love that pays enough to cover the payments and your desired lifestyle as soon as you graduate from school?  If the student is a woman, what happens if she gets married, has a child, and wants to stay at home?  Can her family support the loss of income with the debt payment?  There isn’t anything that can’t be saved up for!
    6. Rich people avoid debt; they didn’t get rich using debt.
      80% of America’s millionaires are self-made millionaires, and they say the number one key to building wealth is avoiding debt!  When you don’t have debt, you can invest in the market or your own business much more!
    7. Money ≠ evil
      Money is amoral.  It’s like a brick.  A brick is not good or bad. I can throw it through a window or build an orphanage.  Money is the same way; in the hands of good people, a lot of good can be done.  Bad people will just do more bad.
    8. Your retirement fund is more important than your kids’ college fund.
      You will retire one day, either by choice or necessity.  Not everyone goes to college.  Also, do you want to rely on your children to take care of you when you are older and be a burden to them?
    9. Budgeting gives you freedom!
      I know that the word ‘budget’ is used to imply cheap, low-rent, inferior, etc.  But that doesn’t mean that living on a budget means you can’t spend money on things you want.  All a budget is a plan on how you WANT to spend YOUR money.  You plan out your spending for the next month, deciding what you want to spend the money you worked so hard for one, and then actually following through with the plan!  You are allowed to budget money for eating out, buying ‘toys’, and hitting the local Starbucks!  The biggest result to budgeting?  You will feel like you got a raise!
    10. Investing in a financial coach will pay off bigger than any stock!

    Yes, I know it seems self-serving to tell you to hire me, but to be honest, had I hired a financial coach way back when, I would have ended up with thousands more in my retirement fund, way more in my savings, and have not wasted so much money over those years!  A coach can help you pick the proper types/amounts of insurance (saving you on payments and loss), set and reach financial goals, find areas where you can save money in day-to-day expenses, help you beat debt (how much of your income goes to payments each month?), and even help you and your spouse agree on money issues (how expensive is a divorce?)!

    Maybe you have all the answers already and are doing pretty good; good for you!  If not, what are you waiting for?  Give me a call and set up a no-cost, no-obligation consultation to see if what I’m saying is true.  What do you have to lose?

    I can be reached at 860-469-2274 and jeremy.fulton@me.com

  • Reverse Mortgages – Good retirement option or scam?

    Reverse Mortgages – Good retirement option or scam?

    We’ve all seen the commercials, the 60’s Heart Throb on TV touting how safe and great a reverse mortgage is for those in their elder years.  And for those who are older and were hurt in the “Great Recession” this may look like a great option to have a little extra money for travel, fixing up the house, or just to pay medical bills.  After all, why not use some of the equity in your home while you are still around to enjoy it?

    Sound too good to be true?   Or do your Spidey senses tingle when you see those commercials, but you’re not sure why?  Then read on!  But I’m not eligible for one, you say, but your parents and/or grand parents are!  Wouldn’t it feel good to be able to steer them in the right direction?  Good answer!

    In case you have not heard of a reverse mortgage, or not fully sure what it is, it’s basically a series of cash advances secured by your home, capped by the value of the home, that you don’t have to pay back until you vacate the home (either by moving out or dying).  To qualify for one you must be at least 62 years old and have enough equity in the home to cover the amount to be borrowed.

    You might be thinking that this is a great idea; borrow money and never have to pay it back!  You could use the money to travel, boost your life style, or do some home repairs/upgrades, right?  Sounds too good to be true, and you know what they say about that?

    Did you know:

    • That if the mortgage isn’t done correctly, a surviving spouse may have to pay back the loan or face foreclosure?
    • That the closing costs can be several thousand dollars?
    • That if you become delinquent on your insurance or property tax that the lender could call the loan (demand repayment immediately)?  (if you couldn’t pay your taxes, you for sure can’t pay the loan and WILL loose it)
    • That the housing market is not always an upward trend, and that if the value of your home falls the lender could stop payments that you started to rely on?
    • That if the home value drops (while your equity is dropping faster) and you want to move, you may not be able to afford to sell your home due to being upside-down on the loan?
    • The reverse mortgage industry is full of scam artists, so it’s possible your trusting grandma may fall for one.

    Still sound like a good plan?

    “But,” you say, “I’ll stay in this house till I die, so will my spouse, I’ve got a good pension that will more than cover taxes and insurance, and I’ll just use ‘my equity’ for fun stuff and not rely on it for meeting my needs.” That may be true and you and your spouse may never have to deal with any of the big negatives; but what about your heirs?  Did you want to leave them the family home?  They may be forced to sell it to pay back your debt when you paid on it for years and years hoping to leave a legacy.

    They may not all be scams, but they are for sure not a good option!  If you are having trouble making ends meet, please talk with me, or any other financial coach, before making what could be a very costly mistake.

  • What is a Bond?

    Last week we answered the question, “What is a Stock”.  This week lets look at Bonds.  You’ve heard of them, I’m sure as an investment, “stocks and bonds.”  But what is it?

    A bond is considered a “debt investment.”  When you purchase a bond, you are loaning a company (issuer) your money.  It’s the opposite of your mortgage or auto loan; you make money off of them.  Though bonds rarely pay the same interest rate that you pay on your debt.

    Because a bond is a loan, it pays a fixed interest rate (coupon), usually every 6 months, and after the loaned money is paid back (on the maturity date).  Because they pay a fixed rate, they are also referred to as a type of fixed income security.

    Also because the payment is fixed/predicable, they are considered a lower risk investment than stocks (we’ve all heard stories of people loosing money in stocks).

    This lower risk comes at a price, though.  Bonds rarely have the earning potential of stocks or mutual funds (we’ll learn about mutual funds in a future post), and as such, having any significant amount of them in a portfolio can limit your ability to grow it for retirement (this is contrary to most financial advisors’ recommendations).

    The bond’s coupon is a function of credit quality of the company and the duration of the maturity.  You’ve probably heard of “junk” or high-yield bonds; when you invest in those, you are loaning a company money that may not be around long enough to pay you back, and as such, they pay the highest rates, whereas companies such as GE pay very low rates.

    It is possible to sell a bond before it’s maturity date; in fact, the first exchanges (think NYSE) were to buy/sell bonds!  The Venetians were exchanging them as far back as the 1300s!  In 1531 the first exchange was started in Antwerp, The Netherlands, long before stocks existed.

    An interesting fact you may not have thought about is that Savings Bonds are debt instruments of the US Government.  The national debt is nothing more than our government issuing bonds to pay for things that tax revenue doesn’t cover.  If you want to read a little bit more on bonds and bond markets, check out Investopedia .

    Well, what did you think of this article?  Do you have any questions or comments?  I’ll answer and address anything you post in the comments below:

  • What is a Stock?

    Stocks, bonds, Wall Street, investing, stock brokers, mutual funds, commodities, futures, options, and hedge funds; words we’ve all heard on the nightly news, TV shows, movies, and radio talk shows.  Do you really understand what they all mean, not just what popular culture says they are?  If not, you are in the majority of Americans.  Most people have never been taught much, if anything about them, and are content to grab bits and pieces of info from the news and political pundits, or maybe they just watched the movie “Wall Street.”

    But that’s not you; you are here trying to learn something, to expand your understanding of all things relating to Personal Finance.  Today I’ll do my best to explain a bit about Stocks.

    A stock is a share of ownership in a corporation.  The owner of a share of stock is a part owner of a company.  Yes, you can own (part of) Home Depot!  If a company has 100,000 shares of stock, each share represents 1/100,000 ownership of that company.  Most major corporations that are household names have many more than 100,000 shares; Home Depot has about 1.38 Billion!

    Because the stock represents ownership of a company, its value is based on the value of the company (I won’t go into stock valuation techniques here, it’s complicated enough to take a semester long college course to teach).  As the market values the company more or less (usually due to the company’s performance), the value of the stock increases or decreases, respectively.

    One way stock investors earn money is by the rise of the value of the stock (it’s ‘return’).  Another way is through dividends.  When a company makes a profit and decides to share it with it’s owners (stock owners), it pays out dividends.  The amount an investor receives is based on the number of shares he or she owns.

    That is basically what a stock is, pretty simple, right?  If you want to know a basic history of the stocks and the stock market, and what a stock market is, this short article on Investopedia.com  is written without a lot of industry jargon.

    Please let me know what you think of this post: was it too long, too short, too basic, too in-depth, etc.  Also, if you have any questions, post them below and I’ll respond with the answer!

  • Start Saving NOW! A story about Compound Interest

    You may think that you have plenty of time to save for retirement; after all, you are young and won’t retire for many decades!  Maybe you haven’t even given any thought to retirement and figure that you’ll worry about it later, maybe when you make more.  Or perhaps you are older and think it’s too late to save for the future, since it’s so close.

    What if I told you that money invested now is MUCH more valuable than money invested “later,” would you believe me?

    Let me introduce you to the term “Compound Interest.”  According to dictionary.com, compound interest is defined as, “interest paid on both the principal and on accrued interest.”  In simple terms it means that the money you earn on your investment (or savings) earns it’s own money.  Let’s use a simple example to illustrate:

    Suppose that our friend Bob has $100 to save.  He does his research and finds a savings account that pays 10% (yes, I know this isn’t a realistic number, but it makes the math easy, so bear with me).  He opens an account and deposits the $100.

    One year later, Bob opens his statement and sees that he now has $110 in his account!  His initial deposit earned $10. [$100×1.10=110]  Bob decides to leave his initial deposit and the earned interest alone for another year.

    The next year when he opens his statement, what does it say?  Does it say $120?  Nope!  It reads $121!  That extra dollar is due to compound interest; that $10 of interest he earned last year earned 10%, too. [$110×1.10=121]

    This happens year after year after year, each year’s interest earning interest during the following year.  If Bob left the $100, and it’s interest, alone for 40 years (i.e. age 30 to 70) he would have $4,525.93!  If he instead pulled out the $10 interest payment each year and put it in a cookie jar, he would have only $400 in that jar, to go with his $100 in the bank.  Pretty incredible, right?

    So now you are thinking, great example, but how do I apply this to my situation?  Great question, I’m glad you asked!

    Once you are out of debt and have an emergency fund saved up, start saving for retirement!  Some day you will retire, either by choice or due to health or a layoff.  Social Security will probably not pay enough (assuming it’s still there) to support you in your current lifestyle.  If you are young and start now, you should be able to retire comfortably.  If you are not so young, you need to start now so you have something to help you out.  Even a little bit invested now will help you out later.

    Now for your financial nerds out there, I know that savings accounts don’t earn anywhere near 10%; this a very basic example of how compound interest works.  Also, investments (stocks, bonds, mutual funds) don’t earn ‘interest’ but have a rate of return, which I’ll go into in much more detail in a later post, but the idea that any growth in your fund grows with the original investment still holds true.

    So, are you ready to start saving?