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Financial planning - it's never too late to start

Investment consulting is a rewarding occupation, one that has a significant impact on people's lives. It should involve a disciplined and systematic approach to investing, an approach that requires considerable thought and planning. It is very difficult to make an investment recommendation or decision unless you know where you are going, how fast you want to get there and if you want a smooth ride or a short cut on a bumpy dirt road (a 4-wheel drive is required). 

Investment decisions can be made one at a time or with an overall long-term approach. The long-term approach requires asking questions similar to: when do you plan on retiring, how much money will you need to live on each year, what are your social security benefits going to be, do you see any significant events upcoming that would require extra money, are you planning on assisting your children or grandchildren to attend college. You would be surprised at how many people “never really thought about it.”  I recommend creating a written plan to ensure the accurate identification of current financial goals, current holdings and additional contributions. This also estimates the expected return on assets along with identifying risk tolerance. I call it a Living Plan, something that should be reviewed each year to determine what has changed and to determine if your assets are still meeting your growth expectation. Written documentation provides a degree of accountability, which I believe is important.  

Most people don’t even think about retirement planning until they are getting close to 50 years old. It is easy to get caught up with everyday life, raising children, buying a home or starting a business. At age 50 you would have approximately 180 monthly paychecks to save enough money to last for what can be nearly a third of your life, which can be a daunting task. I strongly recommend starting early by funding a ROTH IRA (Individual Retirement Account) and utilizing your 401(k) plan at work or any other retirement vehicles available. It is important to start early and be a consistent investor. 

It is a simple fact that people are living longer; you should be prepared for a 20 to 30 year retirement. In 1981, if you had saved $150,000, you could have bought a 20-year treasury bond that paid 13.7%. This would have provided a comfortable retirement income of $20,550 plus social security. Speed the clock up 20 years - could you have the same comfortable retirement on $20,550? Probably not, when you consider that a postage stamp cost 15 cents in 1980! Now your treasury bond has matured and you need to reinvest – what are today’s rates? Under 5% - can you now live on $7,500? This is an excellent example of the effects of inflation and other market influences upon your retirement income.

There is a balance to investing; it is called asset allocation and diversification. Consider incorporating a growth aspect to your portfolio as well as a steady income stream. 

Investing isn't rocket science, but it does take patience and a commitment to investing based on solid fundamentals. 

If everyday life has kept you too busy to begin financial planning, remember it is never too late to start. The best time to plant a tree was 20 years ago; the second best time is now.

Nancy Hadley is an investment representative with D.A. Davidson in Sandpoint.

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Nancy Hadley

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investments, money

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