Everyone must address the question of what resources they possess.
Every achievable plan can be executed successfully if the resources available are applied properly. With financial plans people sometimes fail to notice the resources they have at their disposal. That ends with unsatisfactory amounts developed, or too much capital employed or too long to get there. Sometimes they cheat the present and arrive in the future with more than they need.
It pays to take inventory. People usually notice the obvious resources:
- Money or investments you hold already.
- Money that will come to you because your work. Salary, bonuses, pension plan, stock savings plan.
- Money you will receive by way of gift or inheritance.
Sometimes they fail to notice some others:
Time. You could spend a little time earning more money from a small business, a rental property, or maybe find something you can do to save expenses. $50.00 a week for 30 years invested at 5% is about $175,000.
Skill. Invest a little better. There are many factors that affect how much you can earn. Some you can control. Rolling one year term deposits makes little sense if you will not need the money. Longer term usually pays more so by investing your ability to ignore the money for longer pays better. Investing at 4% instead of 3% increases the end value by 18% in 30 years. Talk to an advisor about a bond ladder.
Access and special knowledge. If you are a geologist, you might be able to assess mining opportunities better. Maybe you travel and can understand emerging markets. Or you may know people.
Learn how investments work. The stock market is quite variable in the short term and quite stable in the long term. Bonds are the opposite. If you are investing for the long term, you cannot wisely avoid stocks. As an added bonus most stock investments are taxed better than bonds. Dividends and capital gains versus interest. Over long periods, the after tax advantage is more than 3% per year. Two thirds more after 30 years.
Pay attention to investment containers. A retirement income container behaves differently than other methods. You must take the money out sometime and all of it will be taxable. That defeats the tax advantages of dividends and capital gains. Think about putting fixed income investments in these plans and equity investments in others.
Pay attention to taxes. Anything that limits yield hurts you. Learn more.
Pay attention to investment fees. They reduce yield but as opposed to taxes, there may be some advantages. People are emotional and generally inadequately informed. Advisors can help keep you on track and identify opportunities. Sometimes they can help you avoid losses and losses are very harmful if they are more than fluctuations.
Understand yourself and especially how you relate to risk. The more you understand about yourself the better.
Learn discipline. Disciplined people make it happen easier.
Financial success is a combination of many things. Money is not the only factor.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.