How to Start Saving for Retirement (or Any Financial Goal)

How to Start Saving for Retirement (or Any Financial Goal)

Slow and Steady Wins the Race Often when I meet with people who are learning good financial principles for the first time, they are anxious to get started and want to do everything perfectly right away. I am glad for their enthusiasm, but this approach may not be sustainable. I would not normally recommend that people immediately start saving 20% of their income if they are only accustomed to saving 5%. That would be like trying to run a full marathon if they had never run more than six miles at a time. Marathon trainers recommend starting with a much shorter distance than the full 26.2 miles, then adding no more than 10% to the training distance each week. Otherwise, trainees could injure themselves and lose months of progress. Likewise, too big of a sudden increase in savings could cause “financial injuries” such as increased credit card debt, marriage tension, or spending binges. We may even become so frustrated that we stop saving completely. Of course any level of savings requires some sacrifice, but starting with a realistic amount that does not hurt too much is more healthy and sustainable. Then we can gradually increase it over time. How to Get Started Saving Those who are not saving anything at all right now might even want to try starting with only 1-2% of income. Most people are surprised how little they feel the difference when they increase their savings by modest amounts. Then gradually building from there is easier. Just remember that whatever amount we decide to save now, in the future we are likely to wish we had saved...
Putting Investors’ Interests First – By Choice or by Legislation?

Putting Investors’ Interests First – By Choice or by Legislation?

The DOL Fiduciary Rule After almost a decade of wrangling over the details, the Department of Labor’s Fiduciary Rule officially went into effect on June 9, 2017. What does this mean? All financial advisors are now required by law to always act in the best interests of their clients when providing advice on retirement accounts or retirement planning. This includes greater fee transparency, ensuring fees are reasonable, and disclosing potential conflicts of interest. How Does This Impact You? The good news is that this new rule has no effect on any of our clients’ accounts and does not impact the way we do business at Capstone Capital. Since our inception as an independent registered investment advisor in 2002, we have voluntarily adhered to the fiduciary standard as defined by the Advisors Act, and have clearly disclosed fees and potential conflicts of interest to our investors. Although this new rule has garnered significant controversy in the financial industry and certain aspects of it still need to be clarified, we feel that overall it will be a good thing for investors. We are especially pleased that substantial media attention surrounding the DOL Fiduciary Rule has increased public awareness and understanding of the importance of the fiduciary standard and the benefit it provides to investors. You may be thinking, “What’s the big deal? Don’t all financial professionals already put their clients’ interests first?” Unfortunately, the reality is that until now, many financial professionals were only bound by a “suitability standard.” In other words, they could recommend investment products that would give them the highest payout or count towards sales quotas, as long as...
How Much Should We Save?

How Much Should We Save?

The best way to calculate the proper amount to save is as a flat percentage of current income. I believe we all must consistently save at least 20% of our gross income if we ever want to get ahead financially and retire comfortably someday. Everyone I have ever met who is financially independent, meaning that they have enough money to live a comfortable lifestyle without having to work, has consistently saved a significant portion of their income, many of them more than 20%. No other reliable way to accomplish this exists, except perhaps by means of an employer or government pension that guarantees payment of a significant portion of pre-retirement income for life. Still, most people I have met who are successfully living on pension income also regularly saved a large percentage of their income throughout their careers. Keep in mind that many pensions are facing severe financial difficulty, so even if we are entitled to a pension, we would be wise to save a substantial amount of our income in case it does not pay out as expected. Ancient Wisdom for Saving Consider a famous example in the Bible from thousands of years ago which illustrates the wisdom of saving at least 20% of our income. Joseph, the son of Israel who was sold by his brothers as a slave and then taken to Egypt, was the only man able to interpret Pharaoh’s troubling dreams. Joseph perceived that the dreams were actually warnings from God that there would be seven years of plenty followed by seven years of famine. Joseph counseled Pharaoh to save a fifth part (20%)...
Would Winning the Lottery Solve Your Financial Problems?

Would Winning the Lottery Solve Your Financial Problems?

Some people dream of obtaining financial security all in one day by winning the lottery or through investing in penny stocks. The chances of success by either means are extremely low. The odds of winning the lottery are about 1 in 13,000,000 for single-state lotteries, and 1 in 175,000,000 for multiple-state lotteries. Yet many Americans still believe that their best chance of becoming financially secure is by winning the lottery. Hoping for overnight success is not an acceptable strategy. I want to be 100% certain that my family will always be financially secure, and I want my clients to enjoy the same level of certainty. This is attainable by implementing timeless principles of financial security. Even if we did win the lottery or make it big overnight investing in penny stocks, it is not likely to bring lasting financial security or happiness. Many people who win the lottery end up completely broke within a few years, divorced, friendless, and sometimes even commit suicide, because they cannot handle the publicity or permissiveness that such a large sum of money received so quickly has granted them. How the Lottery Ruined a Winner’s Life In 2002, Jack Whittaker won the Powerball multi-state lottery jackpot of $315,000,000. Pretty lucky guy, huh? Then why does he say that he regrets winning the lottery? Although he was very generous with his windfall for a while, he was continually bombarded with additional requests for money everywhere he went, and was sued by hundreds of people who were trying to get a piece of the pie. He lost many friends and started drinking heavily to console himself,...
Interdependent Financial Decisions

Interdependent Financial Decisions

Each category of our finances is interdependent, not independent of one another. This means that every decision we make in one category really does impact the other categories, whether or not we realize it. Examples of Financial Interdependence How? If I were at fault in a serious automobile accident and did not have adequate insurance, I may be required to liquidate a significant amount of my investments to satisfy a judgment. The court may also decide to garnish my wages for several years, which might require me to wait much longer to retire or prohibit me from ever retiring. It may also reduce my current standard of living or increase my debt. So what does car insurance, which on the surface appears to be only a protection decision, have to do with my assets, liabilities, and cash flow? Everything! Let’s say I’m the employee of a large corporation and I’m asking my HR director whether or not I should sign up for the company’s 401(k) retirement plan. The HR director probably would not even be allowed to ask about my mortgage payment, liquid savings, credit card debt, or taxes. However, would these questions be relevant to my decision whether to invest in a 401(k) and how much to contribute? Absolutely. What if I only have $1,000 in liquid savings and my monthly mortgage payment is 30% of my gross monthly income? I may be better off putting the money in a liquid savings account to cover unexpected emergencies or unemployment, because I may not be able access my 401(k) for these purposes without significant penalties. What if I have...
The Election’s Impact on the Market

The Election’s Impact on the Market

For better or for worse, the suspense is finally over and our next president has been elected. Whether you are shouting for joy or crying your eyes out, what does this all mean for the stock market? Many people are shocked that Donald Trump won. Based on concerns we’ve heard about how this election would affect the market, many people are probably just as shocked that the Dow Jones Industrial Average jumped up 1.4 percent (256 points) the day after the election, and the S&P 500 rose 1.1%. A lot of people were expecting a big drop in the market because that’s exactly what happened after the past two elections. Could it be that after the past two elections the market was reacting negatively to news that our next president would be a Democrat, and that now the market is reacting positively to the election of a Republican? Don’t count on it. The market fell the day after George W. Bush was elected in 2000, and it rose the day after the re-election of Bill Clinton in 1996. Historically, there has been no predictable impact on the market based on whether a Republican or Democrat takes office in the White House. Furthermore, the day after the election gives no indication as to how the market will perform over the next 12 months. In fact, although the S&P 500 dropped 5 percent the day after Barack Obama won the presidency in 2008, over the course of the following 12 months the S&P 500 gained 26%. In 2012, the swing was even more dramatic, losing 3% the day after the election,...