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How To Make The Most Out Of Your Retirement Accounts

Do – Diversify your portfolio. This may sound cliché but it is vitally important. Diversification acts as an insulator against the ups and downs of the market. If you own too much in any one company, economic sector, asset type, or country you are unnecessarily exposing yourself to additional risk. True diversification is when you own several different types of stocks (e.g. US, international, emerging market, large cap, mid cap and small cap), bonds (e.g. US, international, Floating rate, inflation protected, high yield, short term, etc.) and alternative asset classes (e.g. real estate, precious metals, oil/gas, etc.).

Don’t – Try to time the market!!! Market timing is making investment decisions based on the expectation that the market will go up or down in the short term. An example of market timing is moving assets out of the market, because you believe the market is going to go down, with the intent of reinvesting back into the market after the downturn. One of the biggest mistakes somebody can make is trying to time the market. It is next to impossible to consistently time the market even for the most educated and talented investors in the world. There is a great deal of academic research that has proven time and time again that attempts at timing the market result in worse returns and higher risk then buy and hold strategies.

Do – Make investment decisions based on your time horizon. There are two different phases to investing for retirement, the accumulation phase and the distribution phase. During the accumulation phase, you are continually making contributions to your accounts. If the market goes down by 10% that means you are getting a 10% discount (AKA dollar cost averaging). Yes, your account value goes down as well but if you have long enough to wait, the market will recover and you will be rewarded for you discipline and patience. The opposite is true during the distribution phase. As you are making withdrawals from your retirement accounts, you are continually selling. If the market goes down by 10%, you are selling at the lower price. The closer you get to making withdrawals from your accounts (the distribution phase) the more conservative you should be.

Don’t – Make decisions based on emotion. This practice is easier said than done. Think back to 2008 and early 2009 which were very challenging times in the market. I personally had many long conversations with my clients about not letting fear take control. Most of them listened and were rewarded for it. Let me give you an example. If you invested $100,000 in the S&P 500 at the peak of the market in July 2007 (the worst timing), held the investment until Sept. 30th 2014, and reinvested dividends, you would have over $158,000. That is an average return of over 6.6% per year. Pretty good for one of the worst times in US stock market history. Please don’t misunderstand me, I am not trying to say that everybody should be in the stock market. All I am trying so say is that emotions cause us to make bad decisions and being aware of this fact takes you one step closer to making good decisions.

Do – Work with a professional. I highly recommend working with somebody who is a CFP® (CERTIFIED FINANCIAL PLANNER™) and/or a ChFC® (Chartered Financial Consultant®). These designations show that the advisor has advanced training, is committed to the profession and is required to do continuing education. Even if you are a do-it-yourself investor or currently have a financial advisor, why not get a second opinion from a qualified professional? You don’t have to do business with them. I personally offer a free no obligation portfolio analysis. I can’t say everybody who does the analysis becomes a client, but I can say that everybody walks away more informed when we are done. If you are interested or just have questions feel free to contact me at (517) 347-4337 or brandon@fsgmichigan.com.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

This article is written by Brandon Carter.

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