Understanding inflation and reducing its risk to our savings

   It's important to understand the risks inflation have on our savings over time. Reducing some of these risks is possible. Be smart about debt. Pay off high interest debt first or refinance at today's lower rates. This will increase cash flow for savings or allow more of our payments to go to principal reduction. Inflation has averaged around 3% annually. The spending power of our savings is eroded over time if we don't earn at least that much on our savings. I think Treasury Inflation Protected Securities, or TIPS for short, should be at least a small part of every portfolio. TIPS pay a variable interest rate based on the inflation index so spending power of our capital is protected. This does limit our upside for growth, reducing risk also has its costs. Having the right mix of stocks and bonds like TIPS is going to be different for everyone. Generally, we should add more bonds and less stock to our portfolios as we age. We want to reduce the risks of stock market downturns just when we start to withdrawal from savings. Finwiz.

People seem to concentrate on the wrong risk when investing

    Many of us never start to invest or save because of the risk of losing money. It takes a long time to save and invest enough to retire someday. Some never start because it's not easy, and the risks just seem too high. The truth is, after saving for many years, we could end up falling short of our goals and plans. The other alternative is to live for today and not save or invest at all. This solution does take all the risk out of saving and investing. With this solution we will be guaranteed to end up with zero. We will have zero money saved, zero money earning interest income, and zero percent chance of ever retiring. The choice is up to us, Finwiz.

We can still make 2011 IRA contributions and reduce our tax bill

    We can make contributions in our IRA accounts for 2011 all the way up to the tax filing deadline of 2012. This helps in a couple ways. First this means not all tax planning needs to be done before the end of the year. Those of us just starting to save can get a jump start because of this rule too. Basically this will allow contributions to IRA accounts for both 2011 and 2012 to be made simultaneously between January and the middle of April every year giving a boost to account balances for new savers. Finwiz.

Three investment mistakes to avoid this year

1. It's our time in the market not timing the market

     Many investors try to time the stock market's peaks and valleys. Timing the market has proven difficult over long periods of time. An investor that dollar cost averages ( adding to investments on a monthly basis ) has a much better record of returns over long periods of time.

2. Being under diversified

     Don't put all our eggs in one basket. We've all heard that before. This one is true however. Allowing too much to accumulate in company stock or even one type of mutual fund could be a mistake if that company or market segment reports bad news. Review investments over time; don't allow more than ten percent of your portfolio to accumulate in    one stock or mutual fund.

3. Not watching expenses

     Reducing the cost of investing is another way to save. Find a broker with no minimum balance or inactivity fees. There are many no load mutual funds to pick from, and there is no reason to pay high fees to invest. See you next time, Finwiz.

How to get started saving with small amounts

  Most mutual funds have minimum initial investments of at least $2,000. How do we get started investing when we don't have much money to start with? I started by saving $50 a month until I reached the initial minimum investment. A second option would be to open an IRA at a local bank and have deposits automated from a checking account. If you have access to a 401K plan through your employer, sign up as soon as you're eligible. These plans usually allow contributions as a percentage amount, not dollars. The point is to get started somehow and as soon as possible. The sooner we get some kind of savings plan in place, the faster our savings can start growing. Finwiz.

The trick to a happy retirement is to start saving early.

  

   This is a repost from last year because I feel the math could be repeated. The excuses I hear for not starting savings are comical: I need to pay off my credit cards first, I'll wait until I get married, I have student loans to pay off, and my all-time favorite, I'll wait until I have more money. Don't make excuses. You need to plan for retirement as early as possible. Consider the following information on what you need to save (based on starting age) to have a million by age 65. For simplicity, I assume an 8% return.                             

                                                                                                                

Age 20 $200 mo.

Age 30 $450 mo.

Age 40 $1055 mo.

Age 50 $2850 mo.

   The cost of waiting is just too high! Einstein once said, “Compound interest is the eighth wonder of the world". You can see in the above table we only get that 30 or 40 years of compounding once. Don't just make the assumption that a million is enough either. Inflation of 3% a year will cut the dollars purchasing power in half over 25 years. My twenty and thirty something’s' readers should consider a much higher savings goal. In other words 25 years from now you guys will need two million to have the purchasing power one million has today. SAVE! SAVE! SAVE! Finwiz.

Are your retirement savings enough?

   Securing a retirement is the reason most of us start to save in the first place. Ultimately, the quality of our life in retirement is going to depend on how much we've saved beforehand. Google searches show that only about half of Americans have retirement savings. This is a huge mistake that can't be undone at the last minute. Savings accounts need to be started early because they need to grow over time. Most of us would like to know how much we'll need to save for our own retirement. The Internet is a great source to start these calculations. Find a good retirement calculator and start to play around with different monthly savings numbers. Consider seeking a professional money manager to discuss your goals and individual situation. The whole retirement process depends on our individual situations, and how we manage our income sources today. Finwiz.