Five Simple Steps To Improve Your Retirement Savings

Today is a big day, my first blog post for Lighthouse Capital, LLC (I think the lawyers make us include the LLC). When the Managing Director of Lighthouse, Brian Foley, approached me regarding blog posts I thought to myself, “but I’m a financial advisor, not a writer?” Well, I have never turned down a chance to embarrass myself publicly, so here it goes. 

To get my feet wet, I thought it would be best to outline the most common issues I encounter when reviewing a prospective client’s investments. These are issues I focus on the most in my practice and I challenge myself daily to best educate my clients on these topics. 

1. Misconception of risk. I find many people not knowing how much risk they are exposed to within their investments, which can be a major factor in not accomplishing financial goals. Too much risk can lead to significant loss of value in a short amount of time. And too little risk may result in not achieving the rate of return you need to accomplish your long term goals. When determining the appropriate amount of risk for one of my client’s I go through a fact intensive exercise to determine their goals, needs, time horizon, and overall risk tolerance. In other words, each individual and family has their own set of circumstances and the amount of risk one takes with their investments should not be generalized.
2. Understanding fees. How much are you paying? Is it a management fee? Transaction fees? Underlying fees or administrative fees? All of the above? I believe it’s important to have a clear understanding of all costs up front. This is why we do a cost analysis right on our account application and send out quarterly fee notices to all our clients. Transparency is key when it comes to cost. Additionally, I strive to provide my client’s with the best value, as the lowest cost investment does not necessarily equate to the best investment.
3. Over-concentration in one particular stock, fund, or asset class. Diversification is one of the key pillars to sound long-term investing, and is lacking in many prospective portfolio’s I encounter. At times, diversification can result in investment performance being out of sync with one particular index and/or asset class (i.e. S&P 500, large cap growth category, etc.). But don’t be alarmed if your diversified portfolio underperforms the top performing asset class, as this is exactly what a well diversified portfolio is designed to do. Diversification is designed to mitigate unforeseen risk, and in-turn increase the likelihood of achieving your long term goals. 

I look forward to regularly sharing my views relating to personal finance. I would appreciate any feedback that you may have, and if you have a topic that you would like me to cover, please email me at [email protected] or find me on Facebook at Paul Hundley, Lighthouse Capital.

Make it a healthy, happy, and profitable day! 

1. Organize a budget. Determine how much your family can contribute monthly to college savings. And make it a priority. As you line-item your monthly budget you will likely find expenses which you could eliminate or reduce, which are additional dollars that you can direct towards your college savings.
2. Open a 529 college savings account. Saving through a 529 College Savings account is the best way to save for your child’s college, generally. These accounts provide tax benefits and investments like your 401k, which may provide substantial growth in your account. Also, relatives and friends can contribute to your child’s 529 account.
3. Start Saving ASAP. The sooner you start saving for college, the better off you will be in the long-run. Whether your child was just born, or going to college in a few years, don’t put it off any longer. *For example, if you start saving $100 per month, you could potentially have $43,000 in your college savings account by the time they turn the age of 18.
4. Familiarize yourself with the financial aid process, and scholarship opportunities. Don’t wait until the last second to get familiar with FASFA, or potential scholarship opportunities. You may be leaving free money on the table.
5. Explore student loans. Student loans are almost always a part of a college students experience, and making sure you utilize student loans most efficiently may save you substantial money.

*Based on 18 years of saving $100 per month and receiving a 7% annual return on your investment.

1. Create a Budget. Being organized and sticking to a monthly budget is essential to maximizing your retirement savings. As you line-item your monthly budget you will likely find expenses which you could eliminate or reduce, which are additional dollars that you can direct towards your retirement plan.
2. Maximize Your Employer Match. If your company provides an employer match, be sure that you are taking full advantage of it and not leaving free money on the table. For example, if you are currently contributing 5% of your salary to your 401k, but your company offers a match up to 6% of your salary, then you should consider increasing your contribution to 6%, as you would then be maximizing your employer match.
3. Avoid Withdrawals. Some retirement plans allow you to take a loan, or withdraw your money from the plan, and this can be tempting. However, taking a loan or withdrawal is generally a bad idea as it may stunt the long-term growth of your account.
4. Rebalance. Rebalancing your investments on an annual basis allows you to take advantage of market dislocations and is a best practice of many successful investors. Think buy low, sell high. And re-balancing is one way to accomplish this.
5. Know Your Expenses. Many retirement savers think their retirement plan is free, but that is certainly not the case. Although low expenses do not guarantee a higher return, it is recommended that you familiarize yourself with the expenses of your retirement plan and be sure they are reasonable, as excessive fees can significantly impact your savings.