How to Save and Invest in 2011
With the New Year right around the corner, there’s still a bit of uncertainty. What to do with your money next year is no doubt top-of-mind.
A couple of experts weigh in on smart money moves for next year.
Diversity more than ever – then add portfolio protection. Truth is, 2011 could be very volatile. Your asset allocation should include both traditional stocks and bonds and true alternatives such as commodities, Real Estate Investment Trusts (REITS) and managed futures, says Jerry Miccolis, chief investment officer at Brinton Eaton and co-author of Asset Allocation for Dummies. Then add new risk management techniques such as portfolio protection, he says.
Protect your portfolio against “contagion”. The biggest problem in 2008/2009 was contagion – all asset classes moving in the same direction. The markets are starting to show signs of modest contagion again. Are you prepared?
Don’t leave money on the table. If your employer offers retirement saving matching (such as through a 401k), take it. That’s free money that can greatly increase your post-retirement income.
Identify your risk tolerance. Higher returns generally come with higher risks; so you must evaluate your willingness to put your assets at greater risk against your desire for higher returns. Consider getting some financial advice about the right risk level for your age and situation, advises The Financial Services Roundtable in its recently released 11 things to know about investing in 2011.
Read and understand the “fine print.” It’s your money. Make sure you know what you’re doing with it and what the risks are. Protecting your hard-earned money is worth a few minutes of reading statements or disclosures, and asking enough questions to know what you’re getting into.
Know what you need. A survey by the Employee Benefits Research Institute found that only 46 percent of Americans had estimated how much they would need to retire, and 14 percent of those had guessed. It is wise to look at some estimates of longevity for your age and gender. Particularly for women, it may be longer than you think. Time horizon is a critical factor when determining your investing strategies.
Start with a goal in mind. Thinking about why you are investing will not only help motivate you, but likely give you a better sense of how much you need and when you need it.
Max out on 401k contributions. You’ve heard it a million times, but it’s worth saying again – take full advantage of your 401k plan by maxing out your annual contributions. Do check the plan rules though, as some employers will not fully match your contributions if they are not spread throughout the year. If that’s how it is at your company, know that making all your contributions early in the year could be a mistake. “Some highly paid employees do not realize that they may fail to be their full employer match if their contributions are too ‘front’loaded,’” says Robert DiQuollo, president of Brinton Eaton.
Save your tax windfall. “The government is hoping tax cuts stimulate spending. However, it’s also an opportunity for investors to put their money to work. Put every penny of it into your savings and then use a smart asset allocation strategy to make your money grow,” says DiQuollo.
Consider long-term care insurance. It’s estimated that 70 percent of the population will need long-term care at some point. “Evaluating your needs and purchasing the right policy while you’re relatively young – in your 50s, for instance – can save you money in the long run, and secure benefits that might not be available in the future as insurers grow more cautious and cut back on policy options,” says DiQuollo. Long-term care insurance can act as insurance for your portfolio, as well as insurance for you.
Just do it. Most folks won’t be able to secure their retirement through savings mechanisms alone – particularly should inflation rear its ugly head. Decide today to invest your savings, make your money work for you so that you’re set in 2011 and beyond.
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