Think Your Way to Wealth » Building Wealth

Occam’s Razor, Simplicity, and Personal Finance

RC — Fri, 19 Feb 2010 05:05:14 +0000

Occam’s Razor is a rule of thumb or principle, that can be stated as follows:

That all things being equal, the simplest explanation or strategy is usually the best or correct one.

Another related quote sometimes attributed to Albert Einstein : Make everything as simple as possible, but not simpler. And then there is the KISS Principle, or “Keep it Simple, Stupid”.

For some reason, I think many of us are to quick to dismiss simplicity when it comes to personal finances and money management. Maybe we think that managing money and becoming wealthy is more complicated than it really needs to be. It can’t really be that simple, can it?

For example, I think there are a lot of personal finance truisms, that many of us are to quick to dismiss as being cliched, such as “spend less than you earn”. When we read or hear it, it is very easy to say or think that our own personal financial situation is more complicated than just spending less than we earn, isn’t it? But if everyone spent less than they earned, there would be a lot fewer people with money problems.

Simplifying your personal finances can go a long way to helping you live with less stress and worry. It can also help in eliminating distractions that keep us from reaching our financial goals.

One high interest savings account (or even a regular one) is enough to start building wealth, isn’t it? Do we really need 3 or 4 accounts, moving money around to get that extra 0.1% in interest for a month or two? When we are focus on things that make our finances more complex, what are we not spending time on? We could be making more money or spending less instead of juggling multiple accounts, credit cards, etc. I am not really picking on having multiple savings accounts or credit cards in particular, but just using that as one example.If you don’t have a problem with, and many people don’t, then it is likely not a distraction to you.

However, the fastest way to get wealthy is to make the gap between what you spend and what you earn as large as possible, for as long as possible. If that difference was 1 million dollars a year, for example, a lot of the things that you might worry about now regarding your finances might soon disappear. There might be new things to worry about, of course, but over time they would likely get less and less worrisome-at least when it come to money.

Are your finances simple and easy to deal with, or are they too complex? Do you to focus on the wrong things when it comes to building a secure financial future?

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Protecting Your Greatest Asset- Your Ability to Earn Income

RC — Thu, 19 Mar 2009 11:56:57 +0000

Unless you haven’t been exposed to the stock market at all in the past few years, or were a very lucky prognosticator and put your money into low-risk investments at exactly the right time, you have probably experienced some loss of net worth, or assets over the last year or so. Not to mention the real estate market, which has taken quite a beating in that time period as well.

But if the money you had in the stock market was for retirement and you are not retiring for a while, your standard of living probably did not decrease just because of the massive drop in the stock market. By the same token, if you still have a job and are gainfully employed, unless you try to sell your house, you won’t really feel the effects of the drop in housing prices.

The fact is, you may be fortunate enough that the massive drops in the stock market and real estate markets have not affected your current standard of living at all.

What can affect your lifestyle, however, is a job loss or a reduction of your income. As long as you are able to work and earn income, you have the ability to have control over your standard of living. While you may not have the ability to “name” your salary, you can take steps to increase your income by improving your education, performing well at your job, or even developing alternative income streams.

There several different aspects to consider when protecting your ability to earn income:

Your health, both mental and physical- Do you try to keep yourself healthy, both mentally and physically?
Your attitude towards your job- Do you have a positive attitude at work, or do you complain all of the time?
Your performance- Are you trying to do your best, or just enough to “get by”? Are you marketing yourself at work to maximize your earnings?
Developing multiple income streams- Do you rely on a single source of income, or are you trying to develop multiple income sources?

If you are not taking care of yourself and trying to perform to the best of your abilities, now is a really good time to start. Protecting yourself and your job should be a priority, as that is your ability to earn income. Even if you don’t care for your current job or employer, it is a good idea to perform to the best of your abilities while you look for a better job.

Starting to look at ways to earn additional income from alternative sources is important as well. If you have multiple income streams, the loss of one may not hurt as bad, if you have several and collectively they add up to a significant percentage of your primary income stream.

Have you taken steps to protect and preserve your ability to earn income? What are they?

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Do You Think Like A Rich Person?

RC — Tue, 17 Mar 2009 02:57:58 +0000

The following is a guest post from Trisha Wagner who writes at Destroy Debt.

If you are not wealthy you may have a distorted mental picture of wealthy people and how they live. Granted people who have achieved millionaire or beyond status are in a better position to enjoy the many perks in life that having money provides, however there are many wealthy people mingling among the rest of us commoners. What makes them different? How did they achieve financial success? Money is not the only thing that separates the wealthy from the middle class or poor. If you want to achieve real financial stability and build wealth you should ask yourself if you think like a rich person?

Do You Have The Discipline?

The media is largely responsible for bringing images into our lives each day portraying celebrities jetting off to sunny beaches or spending their day shopping and getting beauty treatments. Actors and musicians are not the only people in the world who are wealthy and for the average person building wealth will require significant discipline and sacrifice along the journey. If you waiting for your “big break” to find instant wealth you may find yourself waiting a long time.

Do You See The Big Picture?

In reality eighty percent of American millionaires are first generation millionaires, which means they did not receive an inheritance from which to grow their wealth. They live well below their means, do not drive the current model-year car and live in homes valued well below one million dollars. They are generally well educated and fastidious investors, investing on average twenty percent of their annual income. Most are self employed entrepreneurs or self employed professionals. In other words you do not have to be born rich to become rich. Living in a huge home, driving dozens of cars and wearing expensive clothes should not be the only indication of wealth. Many millionaires work over forty hours a week and look like the rest of us. What the choose to do with the money they make is the real difference between the classes.

Can You Look Long Term?

Amassing wealth for most people will not happen overnight. To get started you will have to think long-term about your financial life. This should include determining where you want to be (and how much you want to be worth) ten and twenty years from now. Don’t just think about it, or dream about it, instead write it down. In order to reach these goals you have to a clear idea of where you want to be and how you are going to get there. Successful people think of their long term goals and adjust their daily behavior to achieve them. This will involve overcoming the immediate gratification attitude which is common in our society. You will not get rich by spending every dollar you make or worse spending money (credit cards) that you have yet to make.

Trisha Wagner is a freelance writer for DestroyDebt.com, a debt community featuring debt forums. Trisha writes regularly on the topics of getting out of debt and personal finance.

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Tips on Practicing Smart Personal Finance

RC — Tue, 17 Feb 2009 12:04:17 +0000

Everyone has heard the piece of advice when it comes to working:

“Work smarter, not harder”

This can be applied to your day job behind a desk-by working more efficiently instead of just working longer hours. It can also apply to physical tasks as well, by performing laborious tasks in an efficient manner so you don’t waste energy- by using tools, machines, or other devices, or developing a more efficient routine, to help you accomplish tasks while expending as little energy as possible.

Well, the same can apply to your personal finances as well.

How can you practice smart personal finance?

Being more efficient with your money management and spending, using tools to track your money, maximizing your returns and limiting your spending are a few general ways.

Develop habits that save money or cost less money- bringing your lunch to work is an example of choosing the most cost effective alternative or solution to your needs or wants. You don’t have to scrimp on everything, though. Prioritize the things that are important to you to determine what you want to spend money on, and try to spend as little as possible on things that don’t matter to you that much.

Maximizing interest on your savings- Use accounts that don’t have fees, and keep the majority of your money earning interest for you- like keeping your emergency fund in a high interest savings account. Making your money work for you is a smart move.

Use tools to track your spending- It came be as simple as using a household budget spreadsheet, or even keeping it on paper. Or you can use online tools such as Mint or Wesabe to manage your money. Examining your expenditures regularly can help you eliminate waste or reduce spending on unnecessary things.

Plan ahead- You wouldn’t try to put up a wooden fence in your backyard without a hammer or nails, would you? Have you planned out this year’s vacation yet-or more specifically, how you are going to pay for it? Planning ahead is a great way to get a jump on future spending.

Work as a team- If you are married, or have a partner, or have kids- are you all working towards common goals when it comes to money and personal finance? Goals are a lot easier to accomplish when all of the people involved are on the same page and working together, not against one another. Discuss your financial goals with your wife, husband, or kids, and include them in the decision making process as well.

Get organized- If you misplace bills, can’t find important financial papers, or have other problems with disorganized finances, it can really hurt. Late fees can be added on to bills, coupons you wanted to use can expire, and you may end up wasting time as well looking for important documents or other financial paperwork.

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Gold as an Investment: A Gold Rush or Fool’s Gold?

RC — Thu, 05 Feb 2009 12:20:40 +0000

There’s a whole lotta talk about GOLD these days. “Save yourself from the eroding value of the dollar” and “combat inflation” are two common refrains. As much talk as there is of a total global economic meltdown, and gold being a protection against a massive loss of wealth, it’s almost enough to to make a regular person, who might normally not even think about investing in gold, wonder if gold is something they should consider. But before you run out and start buying gold ETF’s in your retirement portfolio or gold coins, you should think carefully about what is really going on.

A few things to consider:

Adjusted for inflation, the price of gold peaked around 1980, at about $2300 per ounce.

Even at $900+ multi-year highs over the last year or two, gold is still less than half of what it was worth in 1980, adjusted for inflation. As a long term investment, it is a money loser. I don’t know about you, but 1980 was a long time ago. Gold had a tremendous run between 1971 (when the US went off the gold standard) and 1980, but it hasn’t kept pace with inflation since then.

Gold will not be used as a means of trade should there be any type of financial or political collapse.

Do you really think that your neighborhood grocery store is capable of conducting transaction, should you have your hands on a few gold coins or a vial of gold dust? Do you think they would know how to value it or even tell if it was real?

If you are just trying to make a guess for the short term, good luck.

I mean, when is anyone really right? Can you or I predict the stock market or any other commodity price and where it is going to be in 6 months? Did anyone think, last summer, that a barrel of oil would plunge to the low to mid $30 range? I know I didn’t. Many talking heads were predicting $200 per barrel in the near future.

My point is, don’t take arguments for any investment, whether it be gold, the stock market, or other commodities at face value, especially due to fear or worry. If you think gold is going up, and invest in it, you are really betting that it will go up or stay the same (as a hedge against inflation). It’s entirely possible, but it may not be for the same reasons you might think now. I don’t think there is anything wrong with having a modest amount invested in gold or any other commodity, but I also don’t think investing in gold is going to save me from financial ruin, either.

photo credit: Velo Steve

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Should You Try to Get Rich Quick or Just Get Rich Slowly?

RC — Thu, 04 Dec 2008 12:15:00 +0000

Apologies to JD Roth aside, I think most people would like to get rich quick, if there was a tried and true way to do it. But, while it works for some people, there really is no set road map to do it. Some people do it by starting a business or in real estate, others by quickly rising up the corporate ladder, or even winning the lottery comes to mind.

But to me, trying to get rich too quick has a few drawbacks that make it unattractive, such as:

Risk- In order to make money fast, through investing, real estate, or other methods, you have to be willing to bet big and take on a lot of risk. It has worked for some people, but, using real estate as an example, many, many people can get burned. Investing in risky stocks can have the same high upside potential, but you could risk losing everything you have invested. Is it worth it? I don’t really think so.

Damage to Relationships-Both personal and professional relationships can be damaged, often unrepairable, by spending too much time focusing on money or spending too much time working or at the office. How many divorces have been caused by one partner working too much and not really giving to the relationship? How many business relationships have been severed do to one person’s focus on money and personal gain to the detriment of the other party?

Stress-Working long hours, leading a sedentary lifestyle behind a corporate desk, not getting exercise, and bad eating habits, as well as the pressures of the corporate workplace, can all be a detriment to your health.

So, the way I see it, getting rich slowly is the way to go about it. Does that mean you don’t try to get ahead at work, increase your income, develop new income streams, or try to make more money? Of course not. But don’t let it have a negative effect on your health, relationships, and don’t take on too much risk trying to do it. I work more than 40 hours a week on a pretty regular basis, mostly to try to pay down my debt faster. But I have limits, and I try to stick to them.

What are your thoughts on chasing after the money? Should you try to do it quickly, or take it at a more leisurely pace? What other drawbacks to trying to get rich too quickly can you think of?

Image by Yomanimus

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Going from Debt to Wealth- A Closer Look at Dave Ramsey’s 7 Baby Steps Plan

RC — Wed, 19 Nov 2008 04:00:36 +0000

Dave Ramsey, the personal finance guru heard on the radio around the country and well known popular author, is pretty well known for two main concepts. The debt snowball, and Dave Ramsey’s 7 baby steps. I’ve talked about the debt snowball before, but have not discussed the baby steps plan to get out of debt and build wealth. Here is Dave Ramsey’s 7 Baby Steps Plan, with some of my own thoughts as well.

1.) Save $1000 for an emergency fund- If you don’t have any money saved for an emergency fund, start here by saving at least $1000. Dave says save $1000, but if you feel you need more, like $1500 or $2000, do what makes you feel comfortable. The important thing is to get some sort of financial cushion going so you don’t have to use credit cards to pay for unexpected expenses or minor emergencies.

2.) Pay off all debt using the debt snowball -According to Ramsey, you should pay the minimum on all of your debts (including credit cards, auto loans, etc.) and make extra payments on the one with the lowest balance every month until it is eliminated. You would then take those extra payments and add them to the debt with the next lowest balance, and so on, until you are debt free -except for your home mortgage. As I’ve mentioned regarding the debt snowball before, if you want to pay the debt with the highest interest rate first, go ahead and do what feels right to you, as long as you continue to reduce your total debt.

3.) Save 3 to 6 months of expenses in savings- This is the “real” emergency fund. While the first $1000 you save in step one is designed to keep emergency expenses from having to get put on a credit card or keep you from getting behind on your bills, saving 3 to 6 months expenses can help you get through major emergencies, such as losing your job, a medical emergency, a major repair to your home, or having to buy a new car because your old one died on you.

4.) Invest 15% of household income into Roth IRAs and pre-tax retirement- After you have a comfortable safety net for just about anything life can throw at you, it is time to start investing. It’s probably a good idea to at least the company match to your 401k if one is offered before you reach this step, but now is the time to ratchet it up on the 401k and Roth IRA contributions.

5.) College funding for children -This is another somewhat debatable one, at least on the order you do it in, after funding your retirement. But if you think about it, it does make sense. If you have not saved up enough to pay for your children’s college, there are other options, such as loans, grants, scholarships, or even you child working part time to help pay for college. But if you hit retirement age and you don’t have enough saved, you only have one choice-keep working.

6.) Pay off home early- Now is the time to eliminate your last debt, the home mortgage. If you can knock this one out, you will probably be in pretty good financial shape. While some people prefer not to pay off their mortgage, it does offer a very large sense of security, I would imagine.

7.) Build wealth and give! Invest in mutual funds and real estate- If you have your primary mortgage paid off, Dave advocates investing in mutual funds and real estate, i.e., diversify your portfolio and continue investing. While if you had invested in either of these a year or two ago, you might not feel so confident, if you have gone through the other 6 steps and have no other debt, and are in it for the long haul, you probably shouldn’t worry about it too much. Don’t forget to help others with your new found wealth!

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Mastering Frugality- The Art and Science of Saving Money

RC — Fri, 31 Oct 2008 10:22:40 +0000

I am by no means a master of frugal living. But more recently, I have been giving a lot of thought to simplifying my life, both for monetary and other reasons, such as reducing clutter and making life less stressful. Becoming more frugal. Practicing frugal habits is a great way to avoid consumerism, prevent buying too much stuff (although I am a pack rat by nature), reducing stress, as well as spending less money on things, much of which I personally do not really need. The way I look at frugality is that it can be both an art and a science.

The Art- There is no one way to be frugal, like a work of art, it can be subjective. Just like two people looking at a painting, what works for you may not work for someone else. Something you do in order to save money, or something you can live without having, might seem spartan or miserly to someone else.

There is no right or wrong.

The Science- Frugality can be quantified, however. How much money do you save by doing X, Y, or Z? You can figure out what it would cost you to do something, and even include a value for your time for something you do yourself that you normally would pay someone else to do for you.

What exactly is frugality then, or the definition of frugality?

According to wikipedia, Frugality is the practice of:

1. acquiring goods and services in a restrained manner, and

2. resourcefully using already owned economic goods and services, to

3. achieve a longer term goal.

What I really like about this definition is the third part, “to achieve a longer term goal”.

The goal can be to save money, become financially independent, but it does not have to be money related. It could be to reduce waste to benefit the environment, or just to reduce your own personal impact on the world we all live in together, or as I mentioned above, to simplify your life.

For me, my main goals are to get out of debt, become financially independent, and also to live simpler. Having gone through Hurricane Katrina in 2005 (was very lucky though-did not flood), and evacuating again this year for Hurricane Gustav, I have really come to understand that possessions mean very little, it is people and relationships that are important.

So what areas of frugality do I need to improve in?

Reducing Waste

Delaying Gratification

Developing Self-Sufficiency

Simple Living and Avoiding Consumerism

Over the next few weeks, I am going to write about how I am trying to improve in each of these ways.

Do you actively practice frugality? What are your motivations? What areas are you successful in, and in what areas would you like to improve?

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Asset Allocation and Your Age- Finding the Proper Allocation that Makes You Comfortable and Reduces Risk With Your Retirement Investments

RC — Thu, 30 Oct 2008 11:19:10 +0000

One of the unfortunate byproducts of the current stock market meltdown, is the fact that many people are going to have to delay their retirement by a few years, if not more. When times are good, and the stock market is increasing at 8% to 12% per year, it is very difficult for people to pull money out of the stock market and put it in safer investments.

Even though I am in my mid-thirties, I have experienced two periods of time in my working life where I have had co-workers or acquaintances tell me they were going to have to defer retirement for a few years due to heavy losses sustained in their retirement accounts, both after the tech crash and subsequent effects of 9/11, and the current stock market crash.

An equally unfortunate part of the equation is that many people getting close to retirement age these days are now pulling ALL of their retirement investments out of the stock market, and may never be able to make up the difference.

So how do you avoid this scenario?

The answer is asset allocation.

Asset allocation is how you have your investments proportioned in each investment category. For example, you could invest in stocks, bonds, real estate, and commodities (gold, oil, etc.), leave your money in cash, or even invest in foreign currency. Most of the categories can be broken down further, such as large cap stocks, small cap stocks, etc. Also, you can invest in some categories, such as commodities or even real estate by either buying certain companies that are part of that industry (i.e., stocks), or exchange traded funds that invest in a particular commodity (such as gold or oil), or even a real estate investment trust (REIT) for real estate. For the sake of simplicity, and because it is frequently the only investment outside of a home, let’s just look at retirement accounts an focus on stocks vs. bonds vs. cash-keeping in mind that some stocks could be a gold ETF or a REIT for real estate. The goal of asset allocation is to reduce volatility and limit the potential downside of loses to one class of asset. By the same token, however, the upside (or potential for gains) can be reduced if one asset class sees large gains.

There are two components of asset allocation that you need to examine:
1.) Your asset allocation vs. age, or when you want to retire.
2.) How often you rebalance your portfolio, or changing your asset allocation.

Asset allocation vs. age

There is an old rule of thumb, that the amount of investments you keep in stocks (vs. bonds or cash) should be 100 minus your age. For example, if you were 40 years old, the amount of money you keep in stocks would be 100-40 = 60%. While this may have seemed conservative a year or two ago, there are many, many people who would have loved to have this type of allocation over the last year. I would surmise that this could be adjusted somewhat based on your own personal risk tolerance, as well. But even if you were 20 years old, it would still mean that you would have 20% of your retirement funds in bonds or cash, such as a money market fund. Benjamin Graham (Warren Buffett’s mentor) recommended at least 25% in each category, and suggested that a 50/50 split might be appropriate.

Rebalancing Your Portfolio- Re-allocation of Assets

At some interval, whether it is every 6 months or every year, you should rebalance your portfolio back to the asset allocation you determined was right for you. You should also take into account your age, or how soon you want to retire. The closer you get to retirement, the “less risky” your overall portfolio should be.

Why?
Because this is how you lock in stock market gains, and limit losses. Going back to Warren Buffet’s mentor, he recommends a simpler way-

A good case can be made for a consistent 50-50 (stocks vs. bonds) division here, with adjustments for changes in the market level. This means the investor would switch some of his stocks into bonds on significant rises of the market level, and vice-versa when the market declines.

I do not see this as market timing-it is not based on what the stock market or your investments are going to do, but what they have already done-there is a key difference there.

By properly allocating your retirement assets to your age or retirement, as well as your risk tolerance, and rebalancing on a regular basis, you can limit the volatility in your retirement accounts and approach retirement age without worrying about a massive drop in the stock market putting your retirement plans on hold.

Are your retirement accounts allocated across different investment types? Do you rebalance on a regular basis?

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Ways to Deal With Financially Stressful Times

RC — Tue, 14 Oct 2008 14:30:34 +0000

Nobody likes to hear or deal with the kind of financial news and stock market woes (although Monday’s gains made people feel a little better, I’m sure) that are going on right now, but besides the presidential election, it is about all that is on the news and is the most popular topic of conversation these days. But ups and downs in the stock market, even wild swings similar to what we are seeing lately, do happen, and they often make us feel a little stressed out or uneasy about our financial future. Taking steps to identify and alleviate worries about our finances can go a long way to making this roller coaster ride a little more bearable.

Examine your goals- If you have a very long time horizon, which could be as short as 10 years, or longer, you really should not panic. You will not need the money for a long time, which should give the stock market a long time to RECOVER. Looking at a long-term goal over a short period of time is not the way to do it. Not to mention, if much of the damage has already been done, there is really nothing you can do about that.

Learn from this experience- Remember how this makes you feel. If you are having trouble sleeping because of a large drop in your 401k, but still have 30 years to retirement, you investment allocation may not match your risk tolerance. Going forward, you may want to put new investments in a lower risk category to match your asset allocation to your risk threshold.

Boost your cash savings- One thing the economic downturn brings to light is the fact that cash really is king. If you feel uncomfortable with the size of your emergency fund or what your cash reserves are, find ways to increase your available cash to make you feel a little more secure.

Make smart money moves- Now may be a good time to buy a CD, open a high interest savings account like ING Direct or HSBC, or pay down debt, if it makes you feel more comfortable than investing.

Remember the fundamentals of investing- I haven’t heard to many people saying “Buy Low and Sell High” lately. Although some people are certainly taking advantage of the reduction in price of the overall stock market, you might think more people would actually be excited at the buying opportunity that seems to here right now. If you have extra cash, you might want to consider it. (Although I am not recommending it for anyone in particular, as every one’s situation is different)

Focus on the present- Don’t worry too much about what is happening to money you are not planning on using for 30 years. Make sure you are taking care of things today, first. Focus on the present and make sure you have everything covered.

Plan for the future- Keep you savings and investments in perspective. By the same token, however, if you don’t feel you are saving enough for the type of retirement you want, take steps to correct the situation.

Are you feeling stressed out or uneasy due to the volatility in the stock market and problems with the financial sector? How are you dealing with all of the “bad news” we have been getting lately?

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FDIC Deposit Insurance- Rules, Limits, and Account Coverage Information

RC — Sat, 11 Oct 2008 12:48:39 +0000

Even though the recent 700+ billion dollar bailout raised the FDIC limits from $100,000 to $250,000 (although this is also temporary, through December 2009) per eligible account, the rash of bank failures and the potential for even more in the near future still has many people wondering if they are covered should something happen to their bank. So how do you find out if your covered, and if your accounts are protected?

Here is some of the basic information from the FDIC website:

FDIC Insurance Basics
The FDIC (Federal Deposit Insurance Corporation) insures deposits in most banks and savings associations located in the United States. The FDIC protects depositors against the loss of their deposits if an FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government.

Is my bank insured?

For simplicity, the term “insured bank” is used to mean any bank or savings association that has FDIC insurance. To check whether a bank or savings association is insured by the FDIC, call toll-free at:

1-877-275-3342

use “Bank Find” at:

www.fdic.gov/deposit

or look for the official FDIC sign where deposits are received.

What does FDIC deposit insurance cover?
FDIC insurance covers all types of deposits received at an insured bank, including deposits in checking, NOW, and savings accounts, money market deposit accounts, and time deposits such as certificates of deposit (CDs).

FDIC deposit insurance covers the balance of each depositor’s account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank’s closing.

The FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if these investments were bought from an insured bank.

The FDIC does not insure U.S. Treasury bills, bonds, or notes. These are backed by the full faith and credit of the United States government.

Also, if you are married, both you and your wife can have separate accounts which are fully insured for $250,000 each, as well as a joint account which is insured up to $500,000. So your total could be up to $1,000,000 combined.

Revocable trusts are eligible for FDIC insurance coverage, and can sometimes be much higher than $250,000, as they can have joint owners and joint beneficiaries. This can get a little more complicated, so it is better to check your own personal situation if you fall under this category. Some irrevocable trusts are eligible as well.

As for me, I don’t have to worry about the coverage limits, and since I use several large banks that I know are covered by the FDIC, I know I am OK. But if you are not sure, it is good to check, at least for some peace of mind.

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Is it a Smart Move to INCREASE Your 401k Contributions Now?

RC — Wed, 08 Oct 2008 11:28:29 +0000

If you work somewhere in corporate America (or most places really) one of the most popular topics of conversation besides the huge slides and wild swings in the stock market has been variations of the following questions:

Should I stop contributing to my 401k?

Should I lower my 401k contributions?

Should I move my money out of stocks and into bonds or a money market fund?

One of the most popular articles on my site right now is Should I Stop Contributing to my 401k to Pay off Debt?, and most people are reaching it by searching for “Should I stop contributing to my 401k”

There is an obvious reason for these question and ones like them. People are afraid. No one likes to lose money, even if it is only on paper. If you are only a few years from retirement (around 10 years or less), you do have some valid questions, but hopefully you portfolio is diversified based on the time frame of when you will need to draw from your retirement fund. If not, now might not be a great time to move things. But you could start putting all of your new contributions into safer investments, to balance things out.

What if you are 20, 30 or 40 years from retirement?

Now might be a great time to INCREASE your 401k contribution

It’s true.

One person I know told me they were going to do this, and I think they are brilliant. This is the question people with a long retirement horizon should be asking, not if they should stop or decrease contributions. With so many years before retirement, a little foresight could pay off big. And it sure beats the heck out of all the pessimism going around.

If you know anyone who lived during or right after the depression (but I am not implying this is the same), what do you think their answer would be if you asked them if they wished they had invested right after the stock market crash or even a few years later?

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
– Warren Buffett

What are your thoughts on this? Should those with long time horizons be looking at this as an opportunity of a lifetime?

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