Economic uncertainty usually triggers people to look into their financial plans such as 401K and to rethink the financial decisions they made in the past. In this Expert Insight interview hosted by John Golden, Mark Willis discusses what is the best primary investment.
This interview discusses:
- Volatility vs Predictability
- How to Think for Yourself
Volatility vs Predictability
There has been a grand shift from pensions which is a guaranteed income to unguaranteed, market based, tax-deferred 401(k) retirement plans. The risk became the primary and default choice by many. People believe that they will bring the lost money back fast due to market volatility. But, the time value of money says it differently. A common misconception is that if you lose 30 percent, you need 30 percent to get it back. You actually need 43 percent to make it even. Thus, swop the volatility for predictability, or at least add some predictability. There is a predictable income stream guaranteed for the rest of your life such as an annuity. In addition, the Income Maximization Strategy allows direct rollover of money from your IRA or 401(k) plan to a product that will not be affected by the next downturn of the market. People love the thrill of the chase; however, the future should not be entirely leveraged by today’s risk. The Barbell Strategy enables safety and security on one side and speculative risk on another side. Basically, if a person puts some amount of money in a predictable, risk-free asset, then he or she can afford to be more aggressive risk wise on some other side.
“If you’re based in Canada, a TFSA (Tax Free Savings Account) is a great option. This account allows for tax-free gains and can be withdrawn at any point. You can measure how much you could earn using a tsfa contribution calculator.”
Think for Yourself
The best thing you can do is to ask yourself what exactly you want from your money. It is a thought process that does not need professional financial literacy. There are some basic questions to look at. Do you want easy access to your cash or to be locked up for future years? Do you want a fixed rate of return on your investments or not? When do you want your money to be taxed, during seed time or harvest time? There are strategies that align with your specific wishes. Furthermore, the global health crisis that we are experiencing now causes the biggest financial anxiety to people who are a couple of years away from retirement. This is a great opportunity for people to start negotiating about their financials with themselves. People can be more financially immune during the crisis if they lower their cash burn rate. Even an increase of one percent in savings per quarter is good. The average American saves five percent per year, thus an increase from five to nine percent would be a substantial increase in just one year.
John is the Amazon bestselling author of Winning the Battle for Sales: Lessons on Closing Every Deal from the World’s Greatest Military Victories and Social Upheaval: How to Win at Social Selling. A globally acknowledged Sales & Marketing thought leader, speaker, and strategist. He is CSMO at Pipeliner CRM. In his spare time, John is an avid Martial Artist.