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Does It Matter When I Start Saving for Retirement? Yes, it does…

Save Early It Matters

 

Many investors are curious as to when they should begin to invest for their retirement. You will often hear people saying that you should start as early as possible, but what does that mean and how will that help? I wanted to take the opportunity to explain when you should begin saving, if you can, and what the effects can be if you do not.

We would recommend that you start saving for your retirement as soon as you have an income. Income does not necessarily mean a full time job. You could be receiving income as early as you are able to get your working papers. Starting this early will help instill a number of great values in our kids: it will expose our children to the fact that they need to plan for their future, the benefits of investing, tax deferred or tax free growth, and a discipline to live below their incomes. These are all great life lessons that some learn too late.

In order to outline this, let’s look at a real life example. Let’s assume that you have two children; Jane and John. Jane will begin to save at the age of 25, and John will begin at the age of 35. Jane and John will each begin to contribute $5500 per year from their beginning age until the age of 70 and invest it in a way that will compound at an annual rate of 6%. So what would Jane and John have accumulated by the age of 70? Jane’s account would be over $1,200,000 and John’s account would be just shy of $650,000.

This large difference is predominately due to John’s late start. He was affected by the fact that he was not able to contribute as much money and therefore lost the benefit of the extra 10 years of compounding. Both these concepts significantly impacted his long term balance. Jane would have contributed $247,500 over the 45 years she invested, and John invested $192,500 (a $55,000 difference). The key here is that starting early really benefitted Jane and will benefit you too.

Keep in mind that our example does not account for fees, taxes or inflation. I would also like to point out that the likelihood of receiving a 6% return every year is somewhat unlikely and it is more likely that you would have a different rate of return each year.

As you, your children, or grandchildren begin to work (even on a part time basis), be sure to have the conversation about having them “pay” themselves first and begin to think about their future. Setting up a Roth IRA will really benefit them if they are younger and in a lower tax bracket.

In order to illustrate that I practice what I preach, I would like to share a personal example with you: my 14 year old son works for me during the summer months in order to have spending money for the summer and school year. We sat down and discussed what he would be earning and devised a plan that would provide him with the spending money he wanted and funded a Roth IRA as well. Think about how your financial position may be different if you began saving at the age of 14. Not only has this put him in a position to be ahead when planning for retirement, but it has taught him the value of saving and how to manage money. We discussed how to invest the money and he has the ability to monitor his account and see how it is performing. We need to get ourselves, our kids and grandkids retirement ready and this will surely help.

We are here to help you instill these concepts within your own family. Feel free to contact us, Mitlin Financial, at (844) 4-MITLIN x12 if you or someone in your family needs assistance getting started saving today.

 

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

The “Power” in a Power Of Attorney

PowerOfAttorney 

 

Planning for your financial future is just as important as making sure you are covered in the present too. The odds of becoming disabled or incapacitated at an early age are alarmingly high. According to the Council For Disability Awareness, roughly 1 in 4 of today’s 20 year olds will become disabled before they retire. Assuming you make it until retirement without being disabled, there is still a high likelihood that you will become incapacitated at some point in your life. In addition to dealing with your health, if found in one of these situations, how will you handle your bills, make investment decisions and handle other financial matters?

The power of attorney (also referred to as a POA) will allow a designated representative of your choosing to step into your shoes, as if they were you, and handle these matters on your behalf. You can also elect to limit the areas they can act, and those that they cannot. It is important that you choose this representative wisely as they have significant power and can essentially do anything you allow them to as if it were you. As an example, your power of attorney -if given the power- could withdraw money from your bank account, sell assets, or purchase items on your behalf. Now you can see why it is important that you select the right person.

Keep in mind that the POA documents may vary by state and we always recommend using a competent attorney to draft them for you so they will serve the purpose intended. This is a time that you would want to rely on your financial team to help you protect yourself from an unforeseen event.

There are also are two types of POA’s: durable and springing. Your goals and objectives will dictate which type would be best for you. A durable power of attorney is one that is in place the minute you execute the document, and therefore, the designated representative has the authority to act on your behalf immediately. The springing power of attorney is a bit more complicated. The idea behind the springing POA is that it will allow your designated representative to “spring” into your shoes when necessary. This will typically require some type of evaluation, by a medical doctor, certifying that the individual is incapacitated and the POA is warranted to “spring” into their shoes. This can, at times, create a hurdle in being able to plan and take care of the financial affairs of the incapacitated person. This added step can cause some vague areas that may be interpreted differently when looking to take care of the person’s affairs. We find that the durable power of attorney, practically speaking, is a better option and creates less headaches at the time the POA is needed.

There are many reasons for which you should have a power of attorney once you turn 18 years old. When you are 18 and are considered a legal adult, it is wise to designate a POA in case you become disabled, incapacitated or simply decide to travel internationally and need someone to act on your behalf in your absence. I know we have discussed incapacitation and disability, but think about when your child went to study abroad while in college. What if you needed to take care of some of their personal financial matters in their absence? This is where the POA would come in and allow you to transact whatever is needed on their behalf.

The POA is one of the most important and powerful documents that you should have. This planning tool has nothing to do with net worth or situation. Essentially, it is key for anyone over the age of 18 to have one in place and available if needed. You have the ability to update it over time so you are not locked into your choice of who you designate as your representative in perpetuity. As your life circumstances and relationships change, you can update this document as well. We would suggest that if you already have a power of attorney you should make sure that it still important to review it and make sure that you have it set up the way you want at this time.

Contact Mitlin Financial at (844) 4-MITLIN x12, if you are over the age of 18 and do not have a POA in place. We can introduce you to an attorney that can address your needs and protect you in the event that you need someone to act on your behalf.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Who Do You Need On Your Team?

Your Financial Team

 

Financial success is not something you can achieve on your own and takes the right team to help you get there. As a wealth management firm, we find ourselves as the hub to our client’s financial team to make sure they are addressing all of the areas of their financial life. It is crucial to have a team and the right people in place to help you succeed.

There are key people that you should have as part of your team to assist your family. Here is an overview of the top professionals you should consider:

Wealth Manager/Financial Advisor

Make sure that your wealth manager is a fiduciary, required to act in your best interest, and not a salesperson. The right wealth manager will help you design and develop a financial plan that will allow you to review all areas of your financial circumstances. This will allow them to be the hub in order to make sure you address the areas you need to and coordinate with the other professionals you will need to consult.

Tax Advisor/CPA

You will need a good tax advisor in order to review financial decisions you make and the impact they will have on your tax situation. When making investments and business decisions it is important to know what the potential tax ramifications may be and review the positive or negative effect they may incur.

Risk Manager/Insurance Advisor

We tend to spend much of our effort on building and maintaining our financial assets and sometimes overlook the risks that may exist to our assets. It is extremely important to understand potential risks to your assets and how to mitigate those risks. Many times it is as simple as obtaining insurance coverage that will protect your assets from these risks. You certainly want a risk manager as a part of your team to review and help protect you from these inherent risks. You may ultimately decide to self-insure, but simply being aware of the potential and making an educated decision is key to your financial health.

Banking/Lending Professional

Having a banking/lending professional as part of your team is needed as well. Most people who have financial success will need a mortgage or some other banking product or assistance. It is vital to build a relationship with a bank early on, and the right relationship could make navigating the banking and lending component of your financial life much easier.

Certainly there are countless other professionals that you may need as part of your financial team. Depending on your personal financial situation there could be others needed as well, but these are the foundation. It is important that your team communicates and has a working relationship to make sure decisions are reviewed and discussed with you from a holistic view.

As a wealth management firm we find ourselves at the center of many of these conversations. We will typically coordinate with the client’s other team members to get their concerns addressed, determine a solution, and then communicate it back to the client in a concise and accurate manner. Building your financial team is not something that should be done overnight; it is too important. In order to move the process along, you must find that key member of your team to rely on and have them introduce you to others that may be a good fit for your personal situation. This is a great way to build your team with people you trust, have expertise, and you like working with.

Having financial success is not something that you will typically be able to do alone. It will take a team of professionals that are leaders in their field that work well with others in helping deliver the best outcomes for you. One member of the team will rise to a leadership role and become your go-to person to quarterback your needs. Typically with our clients, that is us. Contact Mitlin Financial at (844) 4-MITLIN x12 and schedule an appointment to discuss your financial plan and building your financial team today!

 

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Volatility: Is it all bad?

Stock Volatility Chart
 
In light of the recent volatility, we thought this would be a good time to discuss whether or not volatility is all bad; we don’t think so.  When turning on the radio and television or logging into Twitter, Facebook, LinkedIn or Instagram, one would think that volatility is a terrible thing that requires you to panic and make changes to your portfolio immediately.
 
There appears to be a pre-notion that market volatility is nothing but a detriment to markets and investors.  This is further promulgated by all of the various mediums mentioned.  Although there are inherent negative aspects, this line of thinking can be dangerous. Acting solely on short-term volatility can do more harm than good. Volatility can drive the novice investor to question his or her own investment strategies, strictly due to short-term fear. It is crucial for investors to understand that volatility is inevitable and attempting to navigate around it is risky. Markets tend to move up and down in the short-term and volatility should not be the deciding factor as to whether or not investors should immediately exit. With a strong understanding of volatility and its causes, investors potentially can take advantage of investment opportunities which may result from volatile markets. 
 
Although volatility sounds terrifying, it is important for investors to develop a strong working knowledge of it so that they can make educated investment decisions. Market volatility is the statistical measure of a market or security’s tendency to rise or fall sharply within a short period of time. Measured by standard deviation, volatility can be caused by the imbalances seen within trade orders in one direction or another. Volatile markets are characterized by wide price fluctuations and/or heavy trading. It is important to note that there can be many catalysts behind the causes of market volatility. With that in mind, investors can leverage their time more effectively by learning strategies to deal with volatility instead of trying to prevent it.
 
One effective method commonly used in times of market volatility is to stay the course. This means that as an investor, you ignore the short-term chaos and leave your investments status-quo until the volatility passes. You stay the course despite the current overreaction of the market. Even though this may seem lazy and counterproductive, it may insulate you from losses associated with attempting to time the market.  It is virtually impossible to time the top to determine when to get out, and just as difficult to discern the bottom and when to get back in and invest again.  Typically, you would be better off to stay the course than attempt to time things and not be able to do it well.  This bad timing can further exacerbate your losses during these volatile times.
 
Market volatility can also create opportunities that an astute investor can use to their advantage. Volatility can provide entry points for those investors whose time horizon and investment strategy is long-term. Downward market volatility presents investors, who are bullish and believe markets will perform well in the long-run, with the opportunity to purchase additional shares at lower prices. Increasing your position at a discount can be a very powerful strategy. In effect, you are lowering your average cost per share of that particular security.  
 
This volatility provides an excellent environment for those with long-term time horizons, especially millennials and later generations, with an opportunity to increase their returns over time by making additional investments.  This may sound and feel counterproductive at the time, but could add significantly to the investor’s performance.  
 
It is usually difficult to go against what conventional wisdom may tell you, but investments tend to be one of the things people stay away from when they are on sale.  I would argue this is a great time to invest funds that you may have on the sidelines and liquidate and redeploy underperforming assets in order to get this money to work while the opportunity presents itself.  This thinking must be also in line with your risk tolerance, time horizons and overall objectives.  
 
Volatility should not been seen as an evil to your portfolio.  Assuming you have a plan that outlines your goals, objectives, and time horizon, you will want to maintain the course of the plan during both robust and difficult times.  It is ideal to make sure you revisit this at least annually with your advisor and make changes accordingly.  The first thing you should consider when volatility strikes is whether any of these areas have changed recently and you should update your advisor accordingly.  The goal is to have a plan before the storm hits and understand the plan to get you through the storm.  As we have seen time and time again, the storm always ends and brighter days with less volatility are ahead.
 
No matter how you elect to handle your investments during times of market volatility, it is very important to review your portfolio with a qualified financial advisor. Having a distinct philosophy for all markets will help you navigate without emotion. Please contact us if you do not have a plan to weather volatile times and would like to develop one.  This will not be the last period of volatility we see and you will want to make sure you are ready for the next time.  Contact Mitlin Financial at (631) 952-4466 x12 and allow us to help you navigate in a fashion that is conducive to your goals, investment needs, and risk tolerance.
 
This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.
 

5 Habits You Should Start in the New Year

5 Habits Checklist

 

The New Year is underway, the holidays are behind us, and your financial situation is stabilizing now that you have paid all the bills.  Now it is time to begin to think about how you are going to help your financial future.  The New Year is always a good time to start new habits- realize I did not say “make resolutions”.  As a firm, we find that people who make resolutions typically end up retreating on them within 1 to 8 weeks of making them.  Habits, however, once started and continued will become a part of your daily life, and they tend to stick around for the long term.  Depending on the person, habits may take 21 to 60 days to become a part of your daily life.

There are five habits you should start today that will help you in reaching and attaining both your short term and long term goals.

1) Create a Budget

Take stock of how much income you have coming into your household each month and what expenses your income is paying each month.  You can do this by simply putting pen to paper or utilizing an online tool that will track this for you.  Each month, review the expenses and see if there are items that can be reduced or eliminated.  For instance, you may have forgotten about automatic monthly payments set up for services you no longer use.  This will put you in a position to review each expense and make sure it is a necessary one for your household.  In addition, you will have an excellent view of whether or not you are cash flow positive (having more income than expenses each month) or cash flow negative (having more expenses than income each month).

2) Start and Maintain an Emergency Fund

Years ago, our parents and grandparents frequently spoke about saving money for a rainy day.  The modern day term is an emergency fund.  Depending on your employment status, whether you are an employee or own your own business, and your level of comfort will dictate what size emergency fund you should maintain.  Each person is different, and we have recommended anywhere between a 6 month to 18 month emergency fund for clients.  This is money that should be kept in a separate account from the account by which you pay your monthly bills.  This account should be liquid, meaning you can use the money on a moment’s notice if needed.  A savings or money market account will work well for these monies.  You will want to determine what size your emergency fund should be and begin to accumulate funds until you reach that amount.  Once you reach the desired amount you should only use these monies for an emergency.  Things that may warrant you tapping into these funds may be the loss of a job or income, unexpected home or car repair, or simply any unexpected expense.  After the emergency is paid for, you will want to replenish this account at your earliest convenience.

3) Pay Yourself First

Ideally you want to pay yourself first each time you get paid, and then learn to live on the monies that are left.  There are a few ways to pay yourself first depending on your type of employment.  As an employee, you will want to take part in your company’s 401(k) or retirement plan.  A small business owner or independent contractor may want to consider setting up a retirement plan if they do not have one.  The last option would be for those that do not have, or cannot set up, a retirement plan and they would have to use either an IRA or brokerage account.  A good target would be to try and pay yourself 10% of your pre-tax earnings if you are deferring to a retirement account, which is preferred.  You may need to adjust this a bit if you are contributing after tax.

4) Review Beneficiary Designations Annually

We all face critical financial and life events that will impact us during the course of a given year.  You certainly would not want your assets to end up going to beneficiaries which you did not intend them to go.  Beneficiary designations should be reviewed at least annually, or if you experience a major life event or change.  Examples of times that you would want to review these designations would be: the birth of a child or grandchild, marriage, divorce, death, disability, or job change.  Whether you are digital or analog, place a reminder on your calendar to review this each year.

5) Rebalance Your Portfolio Annually

Rebalancing is something you will want to make sure you review at least annually; whether you manage your portfolio yourself or use an advisor.  Typically rebalancing has a tendency to get forgotten when markets are going up because people tend to get complacent and think there may be no risk in waiting.  Rebalancing will help you maintain your portfolio allocation and risk with its intended targets.  You may recall back in the late 1990’s, when technology investments were booming, the technology bust.  There were many investors that saw their portfolios assets allocation change from 10% allocation to technology stocks to 70% in a relatively short period of time.  In many cases this large allocation to technology was a huge overweight, meaning more money was allocated to that sector than you initially intended.  This was great while those securities were doing well, but what these investors did not realize was the risk they were imposing on their assets.  When the technology sector busted they had 70% of their portfolio at risk instead of the original 10%.  Had they rebalanced along the way, a good deal for this risk could have been avoided.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

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