Q: Where should I invest my money now?
— Thank you, Ralph
A: When do you need this money? You didn’t mention these investment plans, but I think you’ll retire in the next decade.
Stocks are high, real estate is expensive, bonds aren’t paying anything, but inflation is here.
Let’s get back to basics. After all, this is about the financial safety of your family.
Estimate the income you want to withdraw each year when you retire. Choose your favorite date to start getting paid from your investment. “When and how much” forecasts drive investment planning decisions for the best place to invest today.
Target date funds often convert to “cash” when the family retires. This action is not in their best interests when there is likely to be a 30-year retirement full of travel and fun. A better plan is to invest the portfolio in moderation based on annual distribution and individual risk tolerance.
An aggressive portfolio is suitable for young people who are working and accumulating. As we approach goals such as retirement, the portfolio will need to readjust the mix so that it can be distributed during the down year.
After-tax accounts are not very aggressively invested in knowing that “something will happen” and may need funds. Boring old bonds are a good placeholder for emergency funding.
Ideally, the tax deferred account will always be maximized to get matching funds and save taxes in real time. By using the highest income year and deferring it to the retirement account, it is possible to save tax at a higher marginal tax rate. Up to 37% or more. For withdrawals, plan to distribute from your “tax deferred” account (IRA and 401K) up to a meaningful marginal tax rate limit. Probably 24%, which saves 13% on the actual tax amount.
When this becomes your plan, your “after-tax” investment account must be invested and available for spending above the 24% taxable income limit. This after-tax account combines low-cost, liquidity, tax-efficient, highly diversified equity and fixed income funds to build for spending plans and risk tolerance levels.
Every investment goes through a cycle. It is best for the portfolio to hold a diverse mix to offer a choice of options during these cycles. Don’t stop spending and living to adjust the market. Liquidity is mandatory, so you cannot charge a cancellation fee on your investment. If you choose a CD, you may be penalized for early withdrawals. The account must be liquid and hold a fixed income fund with no cancellation fees or maturity dates.
The Treasury’s Inflation Protection Securities (TIP) are indexed into inflation gauges that protect investors from reduced purchasing power. Instead of buying individual bonds and storing them in a filing cabinet, buy an inflation-protected bond fund and store it in a custody account. Simple and liquid. Be aware of tax inefficiencies in non-dismissal accounts. These funds can be sold when the stock price falls and do not skip beats or salaries.
Inflation is here. If in doubt, ask the recipient of your social security benefits. They have just increased their profits by 5.9% in 2022 and the CPI (Consumer Price Index) excludes food and energy. If you live over the age of 80, there is another reason to postpone receiving social security benefits.
Today’s investment requires careful planning for the next decade. Consider your actual savings by estimating your income needs and marginal tax rates. Plan adjustments in the stock and real estate markets. I don’t know what I don’t understand, so expect something unexpected.
Mary Baldwin, CFP®, is a paid financial planner for Buckingham Strategic Wealth at Indian Harbor Beach. Contact her at 321-428-4555 or firstname.lastname@example.org.
It is for informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. The above scenario is fictitious and does not reflect the actual client experience. Individuals need to talk to qualified professionals based on their situation. The opinions expressed by the noted authors are their own and may not accurately reflect the opinions of Buckingham Strategic Wealth®. IRN-21-2999
How much do you invest? when? where?
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