How to Make Investing Uncomplicated

For some reason investment managers like to complicate things and make investing seem like rocket science. True financial planners (you know who you are) have a term for these individuals: financial salespeople.

This topic is part of learning the fundamentals of financial planning, and it’s one of the most important items of planning needs. I often tell clients that the crucial number in investing is how much you are saving, not your rate of return and/or your account balance. If you have a consistent investment strategy, you will be rewarded in the long run.

Saving 15% to 20% of Your Income

Follow this plan of attack to get to 15% to 20%:

• Take your full employer match first,

• Then max-out your Roth IRA,

• Then go back to your 401(k), although if they offer a Roth 401(k), use that.

As an example, say you save 4% of your salary and your employer match is 4% (also known as 100% match up to 4%). You then max out your Roth IRA, which is 8% of your gross income (say, $5,500 Roth contribution with a gross income of $68,750), which puts you at 12%. Now take an additional 8% and invest it into your 401(k) or Roth 401(k). Boom, you’re at 20%. Notice that I don’t count your 401(k) match towards your savings %—I'm not going to let you off that easy!

Why Do I Favor the Roth So Much?

Unless someone can make a valid argument that taxes will most likely decrease in the future—current U.S. Debt stands at $19 trillion—I much prefer paying taxes today when we know what the rates are. After that, you get tax-deferred growth and tax-free withdrawals since you already paid Uncle Sam.

I could probably leave it at that and you would have been looking pretty good; however, I wanted to leave you with a few ideas/thoughts for your investing:

• The stock market is NOT a get-rich-quick dream; don’t start investing with that mentality because you will only be let down. The stock market is a tool to help build your wealth, not create it overnight.

• Remember that wealth building is a marathon, not a sprint. The tortoise wins the race every time I read The Tortoise and the Hare.

• Investing is about the life you want to live later on; however, it is based on your decisions today.

• A recent study conducted by American Century Investments found that 80% of respondents wish they had someone to nudge them or give them a kick in the pants to save more money. Consider this your kick in the pants!

If you’re looking for allocation advice, it won’t happen in a blog post. Allocations are based around the individual’s psychology and tolerance for risk, and the specific goals for each account. A retirement account will be invested much differently than the five-year “Trip to Europe” vacation fund.

Don’t make investing more complicated than it has to be; let your advisor stress about what all those weird ratios mean. At the end of the day, you should learn a little bit more each time you sit down with your planner. That is the sign of a great planner vs. a salesperson.