diversification Archives - Curtis Financial Planning

Single and Thinking About Retirement? Five Tips to Help You Get There

Most of us dream about the day that we can take a break. We envision a full, long-lasting retirement that is free of financial worries and packed with more of the things we enjoy spending our time on. Whether you’re planning to retire at the traditional age of 65 or you’re aiming to get there earlier, being single doesn’t have to slow you down.

Use your unique strengths to your advantage, and plan for a retirement filled with time spent with friends and family, giving back, reading books, traveling, and everything else you enjoy. If you’re thinking ahead to your retirement, but you’re not sure where to start, here are a few tips that will help you get there:

Revisit your spending and saving

The start of your retirement planning is a great time to check in with your spending or looking at it in reverse, at your savings rate. Could you be saving more money? Are you spending on things that aren’t important to you? Are you wasting money anywhere, such as trial subscriptions you forgot to cancel that are now costing you money annually? Paying for a high-priced gym that you rarely use? Highlight anything you think can be cut out or reduced. Savings gives you freedom and it’s something you have control over, more than your investment returns or even your income. Then, use Vanguard’s handy retirement calculator to compare your current monthly income to what you’ll need in retirement.

Make small changes

Now that you’ve revisited your spending vs savings rate and identified areas that could use improvement, start making small, incremental changes. Save takeout or restaurant meals for weekends; make coffee at home instead of suffering through long drive-thru lines; cancel unused services or subscriptions. Discretionary items like these add up quickly to cost us thousands each year. Aim for improvement, not deprivation and watch your savings grow. Cutting out all discretionary spending isn’t sustainable long-term. Choose the changes and budget cuts that make the most sense to you and your goals.

Max out your savings

Reallocate the funds from your discretionary budget cuts to your retirement accounts or investment accounts. While opting for easy alternatives may have been eating up all of your extra cash, maxing out your savings opportunities will make you extra cash. When it comes to saving for retirement, compound interest is your best friend. Start spending time with her as soon as you can.

Diversify

Any personal finance expert will tell you that it’s not enough to match your employer’s contributions (or fully fund your Solo 401(k) if you’re self-employed). Investing outside of your retirement account in mutual funds, ETFs, or individual stocks can help you create additional streams of income when you’re settling comfortably into your retirement.

Work a little longer than you think you can stand

While you are working your salary funds your expenses. When you stop working you are going to rely on other income sources: social security, maybe a pension, and withdrawals from your retirement and investment accounts. If your retirement projections are at all iffy – meaning, it seems your money may not last through your retirement years, it pays to stay employed. Most people want to maintain their standard of living in retirement not have to reduce it. Staying employed and savings as much as you can in those last years of working is one way to get you closer to your goal.

No one-size-fits-all plan for retirement

There’s no one-size-fits-all plan for retirement. But if your end goal is a retirement free of financial worries, there are plenty of actionable steps you can take now to set your future self up for success. A lack of financial stress helps us better connect with the people we love, sleep better, stay healthy, and enjoy both the destination and the journey. Employ financial strategies that will help you move consistently toward your goals.

If you need a retirement plan and want to work with a trusted financial partner, we encourage you to explore our services and schedule an introductory phone call.

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The Truth About Diversification

Investment Management, Simple Truths About Money, Women and Money / By Cathy Curtis / June 17, 2018

financial planning diversification

Most investment advisors (including me) believe that building and maintaining a diversified portfolio is the most prudent way to invest clients’ money.

Not only do numerous studies of asset class* returns support this, but no matter how smart and experienced the advisor is, it’s near impossible to predict with consistency which asset will outperform in any given time frame. That isn’t to say that it doesn’t take skill and expertise to build a diversified portfolio – it does – many metrics come into play such as growth prospects, valuation metrics, and global economic trends.

* There are four broad assets classes:

Stocks or equities
Fixed income or bonds
Money market or cash equivalents
Real estate (represented by REITS)

And, within each asset class are sub-asset classes (or stock sectors) that allow for greater diversification, for example, with the stock asset class, you will find large U.S. stocks, small U.S. stocks, international stocks, and emerging markets stocks. And, within the fixed income asset class are different types of bonds: short-term, hi-yield, muni, etc.

The reality about diversification is that a truly diversified portfolio will not provide the return of the best performing asset over a given time, nor will it match the performance of the worst performing asset. The return will be somewhere in between. Which is precisely the point – the highs are less high, but the lows are less low making it more likely that an investor will not panic and change strategy at exactly the wrong time.

Remember the calmness in the markets in 2017 when all stock sectors seemed to go only up? And, indeed, the returns were pretty amazing: 37.2% for emerging market stocks, 27.4% for S&P 500 growth stocks, and 24.2% for the MSCI (a global stock index) for example. Now, take a look at the chart below which shows returns year to date through June 15, 2018. You can see that the best performing sector so far this year is the Russell 2000 (an index that represents small-cap U.S. Stocks).

And, the worst performing sector is emerging markets stocks (EM Equity). The S&P 500 (representing large U.S. stocks) is up only 2.3%. I’ll wager that there aren’t too many investment advisors that could have predicted that small-cap stocks would be the best performer so far this year, but I can also almost guarantee the portfolios they manage for their clients have an allocation to small-cap stocks.

A truth about investing is that past performance does not predict future results. A great visual of this phenomenon is shown in Callan’s Periodic Table Of Investment Returns – a chart showing annual returns for key indices from 1998-2017. You can see how random the returns are and how easy it might be to try and chase top performers and then be disappointed.

You can liken diversification to the Tortoise, and the Hare story…as the Tortoise said: “slow and steady wins the race.”

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NoBody Knows – And That is Why You Diversify

Investment Management, Simple Truths About Money, Women and Money / By Cathy Curtis / January 17, 2015

– Nobody knew that the yield on the 10 year Treasury would keep going down. – Nobody knew that the price of a barrel of oil would drop by 55%. – Nobody knew the Russian ruble would crash. – Nobody knew that Japan would dip into a technical recession. – Nobody knew that Europe’s tentative recovery would falter and fail. And this week, nobody knew, including Christine LaGarde, the director of the International Monetary Fund, that Switzerland was going to un-peg the Swiss Franc from the Euro. These are just a few of the surprises that happened in the last year that even the most experienced investors didn’t predict. These unexpected events can have either a positive or negative effect on stock and bond markets worldwide. Unexpected events like these are also why most investment professionals, including me, espouse the mantra of diversification. You’ve probably read about diversification in your employee benefits package when signing up for your 401 (k) or from reading investment articles or from your financial advisor. Diversification is what it sounds like – an investment strategy that combines a variety of investments (both U.S. and international, a mix of small and large cap stocks, and a variety of bonds) designed to reduce exposure to risk. However, diversification doesn’t just reduce the downside potential it also reduces the upside potential, in the end, hopefully providing a smoother portfolio trajectory. You might say, what?, why would I want to invest in a strategy that reduces the upside potential? Well, if you knew anyone that bailed out of stocks in 2008 or early 2009 and never reinvested, you will know the answer to that question. A portfolio with 100% invested in the S&P 500 in 2008 lost 37%, and if it had a good dose of large technology stocks even more (the NASDAQ Composite was down 41%). That unfortunate time in stock market history scared off a lot of seasoned and unseasoned investors. If instead, that 2008 portfolio was diversified with a dose of bonds in it, the loss would have been less and the investor, more likely to stay in the market. Which is the point – less volatility is more likely to keep a person invested for the long haul. In 2014, the more diversified your portfolio was, the less closely it would have matched the returns of the S&P 500, which was up 13.69%. The S&P 500 is the index along with the Dow Jones Industrial Average, (up 7.52% in 2014) most often quoted in the media. Below are the 2014 returns of various indexes representing the broader asset classes and geographic areas you would find in a diversified portfolio: REITS (Real Estate Stocks) 28.0% Inter.Term Bonds 5.97% US Small Cap Stocks 4.90% Global Stocks (includes US) 4.0% Hi-Yield Bonds 2.46% Emerging Markets Stocks -1.8% International Stocks -4.90% Global Diversified Bonds -5.72% Europe Stocks -7.10% Pacific Stocks -7.10% Commodities(includes oil&gas) -17.01% Russia Stocks -44.9% As you can see, the returns were all over the map, and mostly down. It was not a great year to invest internationally and definitely not in energy stocks. But nobody could predict that going into 2014, in fact, back then it the world looked like it was poised for synchronized global growth. If you were in a diversified portfolio, you had another decent year, maybe nothing to jump up and down on the bed about, but decent. And, the good thing about decent years, even single digit ones, is that they add up over time. ——————– For additional food for thought on this topic, the attached charts illustrate the randomness of asset class and sector return year by year. Please note that the “AA” or Asset Allocator portfolio was created by novelinvestor.com and is for illustration purposes only.