Here’s How The Pandemic Has Upended The Financial Lives Of Average Americans: CNBC + Acorns Survey

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From jobs to savings to retirement plans, the coronavirus pandemic has upended many Americans’ financial lives. While millions are still unemployed, many have seen their emergency savings run dry and others are figuring out ways to cope with the financial burden of the economic recession. However, not all aspects of the financial impact of the pandemic are necessarily negative.

According to CNBC and an Acorns Survey, many are saving more and spending less. In fact, 46% of the respondents said they are “more of a saver now” compared to before the pandemic. Additionally, 60% consider themselves “savers,” up from 54% last year. The poll, conducted by SurveyMonkey Aug. 13-20, surveyed 5,401 U.S. adults and has a margin of error of +/-2%.

 

About half, or 49%, said their monthly spending has decreased, compared to 33% last year. Some of those savings can be attributed to the fact that people stayed home and didn’t do things like dining out, said personal finance expert Jean Chatzky, co-founder of HerMoney.

While many have been struggling to get by these last few months, many have learned how to manage their money better despite the economic recession. People have learned how to go to the grocery store less and have utilized meal planning and money saving-skills, such as coupon-clipping and deal searching. They also have begun to really take a look at their monthly or annual subscriptions, removing themselves from services they don’t really use or need. By prioritizing wants versus needs and taking a look at how much money is going out each month, people have picked up better spending habits that will help them navigate these bumpy waters ahead. 

With extra cash and savings in the bank, it’s important to talk with an advisor about options and investing that makes the most sense for you, whether it be saving for retirement, college tuition, or something else. If you have any questions for us, please reach out at info@shermanwealth.com and we would be happy to set up a time to discuss a financial plan for your future.

 

Here’s The Importance of Financial Literacy

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Sherman Wealth has long been advocates of promoting financial literacy and empowering our world to become more educated on how to manage all aspects of their financial lives. We want to highlight an interesting article we saw on www.evidenceinvestor.com, discussing several reasons why “high flying professionals fail at investing”. This piece highlights the lack of financial literacy in our country, regardless of occupation or socio-economic upbringing. According to the article, “the best investors often times aren’t those with the highest IQs or who’ve read the most books, it isn’t knowledge, but SELF-knowledge, that really sets them apart.” 

Often, high-earning professionals think they are saving enough but countless financial complexities exist within a professional services career track. Biases or mental errors are some of the biggest things standing in the way of financial success, mainly because they’re not easy to recognize in ourselves. Additionally, people are naturally resistant to change and most people are hesitant to pay small costs even for big gains. 

Failure to rebalance is also something that many people struggle with and contributes to financial literacy. People are reluctant to take action to rebalance a portfolio. It’s too much fun to let winners run. It’s also psychologically difficult to sell winners to buy losers. But failure to rebalance quickly causes the client to be dangerously exposed to a downward turn in the markets

People also tend to overestimate the significance of recent events and irrationally discount longer-term trends. Those of us over a certain age remember Black Monday on October 19th, 1987. The stock market lost a quarter of its value in a single day. That spooked a lot of people – and many got out of the market right after. Looking back at it now, Black Monday barely registers as a blip on the graph. This is an example of recency bias. Recent losses play havoc on our emotions and cause us to lose perspective. The long-term trend of the stock market makes any single day’s volatility look insignificant in comparison, so when we look back at a single day like Black Monday on a chart, we wonder how we could have panicked. Furthermore, given the current climate with COVID-19, it’s important to consider this idea, as people may have panicked back in March, selling assets in their portfolio, instead of holding onto them as the economy recovers. While it often seems natural to panic during an economic downturn, it’s important to remember that these dips recover naturally over time. 

These are just a few examples of how society and perception can lead us to make poor financial decisions. Given the current climate we are living in today, it is crucial to make sure you fully understand the decisions you make within your portfolio and that they are long-term, strategic moves. With a lack of financial literacy amongst all career fields and economic classes in our society, we realize the importance of being financially educated and would love to help you to make smarter decisions. If you have any questions or would like to set up a time to talk about your finances, please feel free to reach out at info@shermanwealth.com. Check out more of our blogs that discuss the importance of financial literacy.

New Fed Strategy Means Cheaper Loans For A Long time — Here’s How You Can Benefit

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As we’ve all been waiting to hear about the outcome and policy changes from the Jackson Hole symposium, there’ve been some updates that you should know. In a major policy pivot, the Federal Reserve said it will allow inflation to run “hotter than normal” to help the economy bounce back from the coronavirus crisis, meaning the Fed will be less likely to hike interest rates. This will allow borrowers to benefit from cheap money for a longer period of time. According to some commentary, this policy change is meant as a stimulus, to get people to spend more. 

Although the federal funds rate, which is what banks charge one another for short-term borrowing, is not the rate that consumers pay, the Fed’s moves still affect the borrowing and saving rates they see every day. For example, most credit cards come with a variable rate, which means there’s a direct connection to the Fed’s benchmark rate.

Since the central bank lowered its benchmark rate to near zero in March, credit card rates have hit a low of 16.03%, on average, according to Bankrate.com. Other short-term borrowing rates are even lower. The average interest rate on personal loans is currently about 12.07% and home equity lines of credit are as low as 4.79%, according to Bankrate, both notably less than the APR on a credit card.

On the flipside, the Fed’s willingness to tolerate higher inflation means that longer-term loans will offer less opportunities for borrowers. “Low inflation has helped suppress mortgage rates,” said Tendayi Kapfidze, chief economist at LendingTree, an online loan marketplace. “If you let inflation go up, mortgage rates will also go higher.”

With these cheaper loans for a longer period of time, it’s important to take a look at where you can lock in those lower rates, such as through credit card balance transfers or refinancing your mortgage. If you have any questions about this new policy, and want to see how this could be an advantage for your portfolio, please reach out to us at info@shermanwealth.com and we would be happy to discuss with you. 

How Much Longer Until The US Economy Is Back To Normal? This New Index Shows We Have A Long Way To Go

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As we approach the six month mark from when COVID-19 turned our world upside down, we are beginning to adjust our lives to this new “normal”. As we continue to adapt to this different way of life, some things are seeming back to the way they were before, but much remains new and strange. We are going about our days wearing masks and social distancing, watching our favorite sports teams play in “bubbles”, empty stadiums and arenas, and spending our work day in sweats and from the comfort of our homes. 

As we begin to normalize some of these news ways of living, it raises the question of how far we really are from our old way of life? How much progress are we making towards this new “normal” that will be our future? As of right now, we’re seeing what’s called a “K” shape recovery, which is that the stock market is recovered, but the economy and mainstreet remains suffering. People are wondering if there will be a double dip recession potentially in the fall and winter months if the virus comes back. 

We’ve been thinking about how to tackle these difficult and unknown questions and found an interesting article by CNN Business and Moody’s Analytics, which raises some of these questions as they relate to the economy.

According to their analytics team, the U.S. economy remains far from normal. Based on the back-to-normal Index that they constructed, which takes into account 37 indicators, including traditional government stats and metrics from a host of private firms to capture economic trends in real time, the U.S. economy was operating at only 78% of normal as of August 19th. They are using the economic data from prior to when the pandemic struck in early March as a baseline as “normal”. They are saying that the “economic activity nationwide is down by almost one-fourth from its pre-pandemic level-far from normal”. 

Even though that data is not so promising, it’s important to note that it is substantially better than the darkest days of the pandemic in mid-April, when we were unsure of how dangerous this virus could be. As business re-opened between mid-April and mid-June, according to their back-to-normal index, the economy opened too quickly, with many surges in coronavirus cases throughout the summer leading to states halting their reopening plans. The back-to-normal index also calculated that states who locked down harder early on are now enjoying lower infection rates and stronger economies and “states that were quicker to end shelter-in-place rules and to reopen in the spring have paid an economic price.”

While our country is recovering slowly but surely from this deadly pandemic that has swept our world, we still have ways to go to reach our pre-pandemic “normal”. While the economy still needs time to recover, it’s the best time to think about your finances and how to manage your money to make sure you come out of these unprecedented times strong. Find out how much risk you are taking on, what investments you have and where you want to be given the circumstances and with the all time highs in the markets. If you have any questions about your portfolio or ways you can manage your money during these rocky times, please reach out to us and we’d be happy to help. 

Millennials Slammed by Second Financial Crisis Fall Even Further Behind

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If one economic recession wasn’t enough for millennials to grapple with, why not throw another their way? 

The economic hit of the coronavirus pandemic is emerging as particularly bad for millennials, those born between 1981 and 1996.  This generational group that entered the workforce during the previous financial crisis is already behind on their career path and is currently struggling during the pandemic.  Most millennials face bigger obstacles of accruing the wealth of older generations.

The 12.5% unemployment rate among millennials is higher than that of Generation X (born between 1965 and 1980), and baby boomers (1946 to 1964), according to May figures from the Pew Research Center. One main reason for this high unemployment rate amongst millennials is that some of the hardest hit industries, including leisure and hospitality, typically have a younger workforce.

Millennials have found it fundamentally more difficult to start a career and achieve the financial independence that allowed previous generations to get married, buy a home and have children. Research shows that even the most educated millennials are employed at lower rates than older college graduates and millennials’ tendency to work at lower-paying firms has caused them to lag behind in earnings.

As a result, the millennial generation has less wealth than their predecessors had at the same age, and about one-quarter of millennial households have more debt than assets, according to the St. Louis Fed. 

Between February and May, millennials got hit the hardest in terms of unemployment, according to the chart below by St. Louis Fed. Millennials are now at risk of falling further behind because they entered the pandemic in a weaker position than older Americans. 

However, it is important to keep in mind that millennials do have some advantages on their side as they fight this second recession. A larger percentage have college degrees than previous generations, which could pay dividends over time. They will also help fill gaps in the workforce as the large baby boomer cohort retires. The young workers behind them, members of Generation Z, who this year are 23 and younger, have even higher rates of unemployment and less experience to buffer them from the economic fallout of the pandemic.

For millennials who have been rocked by this second economic recession, it is important to take a step back and start re-evaluating their careers and financial lives. It is also crucial to start early, set up a plan, and stick to it to see it through in the long run. Building up your wealth is crucial, especially while you are stuck at home during the pandemic and economic recession. Putting aside even just a little bit of money each week or month will grow over time due to compound interest.  Think about investing some of the money you might have spent on going to the movies or out to eat or having some of your paycheck put directly into a different account that is solely for saving.  However, make sure you still treat yourself to a morning latte or favorite takeout from time to time – you CAN save for your future without sacrificing all the little extra things that make you happy.  

 Now is the time for millennials to consider seeking financial help and guidance to navigate these bumpy waters and prepare a plan to help them succeed financially in the long term. If you have any questions or concerns, please reach out and we would be happy to help create a financial plan to suit your individual needs. 

How Much Does it Take to Be Wealthy?

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The coronavirus pandemic has certainly shaken almost every aspect of the lives of Americans.  The stay at home orders, high unemployment rate and volatile market have many people thinking differently about the value of their money than they did before COVID-19 erupted in the country.

A survey conducted by Charles Schwab in January of 2020 regarding financial stability asked participants what it took to be financially comfortable, and survey participants cited an average of $934,000 in net worth. This number shifted down by 30% in June, to $655,000.

What is considered to be wealthy changed exponentially as well.  Respondents stated that $2 million in net worth today is considered wealthy, down by 23% from $2.6 million in January. In 2019, respondents said it took $2.3 million to be wealthy, down slightly from $2.4 million in the two prior years.

Americans’ attitudes about money play a role in their overall happiness, but when asked about the most important factor to their overall happiness today, survey respondents regarded those drivers in the same order as before the coronavirus outbreak:

  • Relationships – 39%
  • Health – 27%
  • Money – 17%
  • Lifestyle – 14%
  • Career – 3%

After months of stay-at-home orders and a change of lifestyle, the coronavirus pandemic has vastly impacted the way we think about the value of money. 57% percent of respondents said the coronavirus has financially affected them or a close family member.

At the same time, many respondents mentioned that they are more likely to start saving in general than they did before the pandemics onset. The need for an emergency fund is now more important to many than ever before.  Others said they are much more likely to consider hiring a financial advisor to set up a strong financial plan. 

If the coronavirus pandemic has impacted your finances or you are uncertain about your financial plan, please reach out and we would be happy to help you find a plan that works for you. If you have any questions, contact us at info@shermanwealth.com and we will answer any questions you might have. 

Fees & Your Investments: What You Need To Know

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Whether your investment portfolio consists of a 401k or multiple brokerage and retirement accounts, it is important to understand the fees associated with your investments which can dramatically lower returns over the years. Here are some fees you should look out for. 

Account Fees:

For 401k accounts, there are typically fees charged by the plan provider to administer the plan. Brokerage accounts may also have various account service fees, so check the fine print for more details. Sometimes these are waived if you opt-in to electronic delivery and or meet certain account minimums.

Fund Fees:

When it comes to fund fees, ETFs tend to be lower cost than mutual fund fees. Most ETFs are passively managed index funds, while most mutual funds are actively managed funds although the reverse also exists. Actively managed funds will have higher fees, but fees will also vary depending on the underlying assets.

Expense Ratio

The expense ratio is the annual fee that ETFs and mutual funds charge their shareholders. It is expressed as the percentage of assets deducted for fund expenses such as management fees, administrative fees, operating costs, and all other asset-based costs incurred by the fund. Mutual funds also include 12b-1 fees in the expense ratio, which ETFs do not have. What is not included in the expense ratio of a fund is the cost to trade the fund itself.

Mutual Fund Specific Fees:

12B-1 Fees

These mutual fund fees are charged annually and are considered to be an operational expense associated with a fund’s “marketing and distribution.” This could be anything from paying brokers to sell the funds or providing sales incentives. These fees are included in a fund’s expense ratio meaning the higher the 12B-1 fee, the higher the expense ratio. Investors can locate more information about these particular fees in a fund’s prospectus.

Front-End Load Fees

Front-end load fees are paid out to a broker in the form of commission when he or she sells a mutual fund. When an investor purchases a front-end load mutual fund, a percentage of their investment, usually 2% to 5%, goes to the broker. 

Back-End Load Fees

Also known as a deferred sales charge or DSC, back-end load mutual funds charge a penalty fee if you sell your shares within five to ten years. Fees are highest within the first year of purchase, and decrease each year until the end of the agreed-upon holding period. 

Trading Costs:

Transaction Fees

Despite a trend of more brokerages offering free transactions, transaction fees still exist when buying and selling investments. The price range of transaction fees varies, and it should be an expense to keep track of if you make lots of transactions over time. 

Bid-Ask Spread

The bid-ask spread is a truly hidden cost to trading and is referred to as an implicit cost. This is the difference between the price to buy a security and to sell a security, which are not the same. Highly liquid securities will have very tight spreads, making this cost minimal, but it is important to pay attention to the liquidity of the fund. 

Advisor Fees:

Looking for someone to manage your finances? 

While some advisors are commission based and make money through the commissions associated with each investment transaction, here at Sherman Wealth, we are a fee-only (RIA) financial planning advisor, and can help you manage your finances and encourage you to think differently about your money.

As a fee-only registered investment advisor (RIA), we charge a flat rate for our services. RIAs have a fiduciary responsibility to act in their clients’ best interests. Unlike investment brokers who can end up costing the client a lot of money depending on the frequency and volume of trades, we provide advice and make transactions without taking commission-based compensation. RIA’s  tend to use low-fee investments, including low-cost no-load mutual funds, individual stocks and bonds and investments that do not have 12B-1 fees.

If you have any questions or think we could be of service to you, please sign up for a free 30-minute consultation here. We would be happy to help you and answer any questions you may have. 

 

Recent Market Volatility

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This past week marked another volatile one in the market.  After a significant rally, stocks suffered a large drop Thursday, with the S&P 500 down 5.9%, its worst day since March 16. The market had previously rallied 45% from its late March lows, and was flat for the year to date and trending lower overall. The Dow rose 400 points on Friday, but Wall Street recorded its biggest weekly loss since bottoming on March 23.


After a downturn in March, momentum turned positive in April and continued into May, as stocks registered healthy gains, and investors looked to future economic hopes rather than current woes.  As we look to June, many investors believe a sustained and complete economic recovery may rest on developing a vaccine for COVID-19.

  

In recent days, there have been growing concerns as coronavirus counts in a number of states are on the rise, including Texas and Arizona, which had been spared the worst of the first wave. The US has now seen over two million confirmed coronavirus cases and over 110,000 deaths.

 

There have also been concerns when it comes to policy response to the COVID-19 crisis. While the initial policy response was overwhelmingly supportive, the Fed released an outlook on Wednesday suggesting an extended recession while at the same time not increasing their monetary support. Many feel as though they should have stepped in further. Furthermore, Congress, which offered significant support for both Wall Street and Main Street in the early days of this crisis, is now torn about the next round of stimulus.

 

When you take a look around the country and the world, it is clear that we are in an awful recession as well as a humanitarian crisis. Policymakers will have to do more to get us through the challenges that lie ahead. There are valid reasons to be optimistic about possible treatments in the near future and about potential vaccines later on, but this pandemic will continue to grind on our economy and on our society.

 

As the market continues to assess the long-term value of these businesses, it will periodically become too optimistic, and periodically become too pessimistic. Due to the uncertainty surrounding our current circumstances, we should expect elevated volatility for a prolonged period, which is hard for many people (and the markets they form) to digest. This volatility will create opportunities—sometimes to buy undervalued assets and sometimes to sell overvalued ones. Days like Thursday are why we consistently recommend diversification—while stocks fell, bonds rose slightly. 

 

The key to successful, long-term investing is a well-diversified, customized portfolio that focuses on tax-efficiency, cost-effectiveness and risk management.  We create and manage investment models tailored to your goals, timeline and evolving life circumstances. This is a challenging time in the real world and in the financial markets. We are continuing to monitor the markets, re-assessing portfolios and assisting our clients in any way necessary during these uncertain times. Click here to find out if your investments match your risk tolerance. And, as always, please reach out with any questions you may have – we are here to help!

 

Ways To Build Wealth And Boost Your Savings While You’re Stuck At Home

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We’re all spending more time at home these days and it’s likely that money and finances are a stress for many during this pandemic. As the markets continue to be extra volatile,  many people are feeling a lack of control when it comes to their money.  Even though there isn’t much we can do about the state of the overall economy, there are some small-scale things you can do right now, from the comfort of your own home, to help you feel more in control of your finances. If it is all you can do right now to keep up with your bills, that should continue to be your main priority.  However, if you’re in the fortunate position of having an income or some extra cash, the following tasks take 30 minutes or less and might just have you feeling a little better about the state of your finances.

REVIEW YOUR BUDGET

 

 

Every solid financial plan starts with a good budget, and now is a great time to go over yours. You should review your spending habits and try to determine which areas of your spending are relatively fixed — such as monthly rent and insurance coverage — and those that are discretionary, like your lattes, subscriptions and eating out. 

Since you’ll likely be spending a lot of time at home this month, most of your convenience purchases will probably trail off. Comparing last month’s expenditures to this month, you will see where you are spending your money and you will be better positioned to make changes to your spending habits in order to prioritize saving money and spending on what you deem essential for your household.

GET SPECIFIC ABOUT YOUR FUTURE

 

 

Write down all the things that you want to do in your future – you can do this by yourself or with a significant other. Break it down into five-year segments. What do you want to do, where do you want to go, and what do you want to accomplish during each five-year segment? If you have career goals that include starting a business, making more money, or changing your job, you might need to learn some new skills to start down that path. 

Being confined to our home offices gives us a great opportunity to focus on learning something new and developing plans for the next steps in life, whether it is signing up for an online class or doing some research on what it might take to take your career in another direction.

SET UP A 529 COLLEGE-SAVINGS PLAN FOR YOUR KID(S)

 

 

If you’ve been considering a college savings plan for your child, setting one up online is quick and easy. You should start by reviewing the 529 plan options where you live, since they often provide tax benefits while you save for your child’s college education. Just remember to keep your own future financial goals in mind, as well. Saving for your children’s education is very important, but should come second to saving for your own retirement.

REVIEW YOUR BENEFICIARY INFORMTION

 

 

You should make a list of your financial accounts that include beneficiary designations —  like your IRA, 401(k), or life insurance — and make any necessary beneficiary information adjustments. Since these designations determine who will receive your account upon your passing, if they are left blank or not updated, your wishes could be ignored and assets could go to an ex-spouse, or state law could become applicable and decide how to split your accounts.

 

SET UP A NEW SAVINGS ACCOUNT

 

Now is the perfect time to set up a separate online high-yield savings account for your specific goals, whether it be for a vacation, saving for the holidays or possibly a new car. To make things even easier, you can also set up a direct deposit so that you put a little bit away from each paycheck towards that objective. However, remember that these “extras” should take a backseat to your emergency fund.  Having three to six months of expenses set aside in a money market or high-yield savings account can provide peace of mind and can be a lifesaver in times of temporary job loss or medical costs.

DO SOME BOOKKEEPING

 

 

Now might be a good time to do some overall bookkeeping.  This can include reviewing your insurance policies to see if you still have sufficient coverage for your needs, or working on your estate plan (are your medical directives all updated?).  If your kids are old enough, this could even be a good opportunity to teach them how to balance a checkbook by showing them how you do yours.

 

EVALUATE YOUR INVESTMENT PORTFOLIOS

If you have money in the market that’s earmarked for retirement, you might be a little worried about how current events will impact your goals. Now is a good time to have a call with your financial planner to determine if your portfolio is still meeting your long-term goals, or if it needs to be adjusted based on current events. 

 

Even though we may not have expected to be spending this much time in our homes over the past few months, it’s important to take advantage of the time while we can.  These unprecedented times have given us the opportunity to slow down and focus on our families, as well as other important aspects of our lives like our finances.  Taking just a half hour each day or week to go over these tasks can help us to feel more in control and less stressed about our money as we deal with the uncertainty of the times.  As always, if you have any questions about any of the suggestions above or any other concerns about your finances, please contact us.  We are here to help and we are all in this together!

Patient Investors Come Out on Top

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Many feel they don’t have the money they need to invest, so they forego savings altogether. Sound familiar?

If this is you, the time has come for you to stop shooting yourself in the foot, and start saving today. Consistency while saving is key, and can make all the difference over time. Each dollar that you contribute to your portfolio adds up. In the long run, your investments early on can make a real impact, and when the time comes to withdraw your hard earned savings, the interest you’ve earned on your investments will help to provide a comfortable retirement or any long term goal you might be saving towards.

Start Saving Now

Consider the difference of waiting to begin saving. At age 27 you will need to put away $214 a month to reach a goal of $1 million. When you start at age 37, you will need to put away $541 a month to reach your goal. If you wait until age 47, that number rises to $1,491 a month and if you wait until age 57, you’ll need to put away a hefty $5,168 a month. Waiting until the last minute (age 62) would mean having to stash $13,258 a month to reach $1 million by the age 67 – ouch!

When you factor in things like compound interest, the negative impact of delaying your retirement savings becomes increasingly obvious. Compound interest is often compared to a snowball. If a 2-inch snowball starts rolling, it picks up more snow, enough to cover its tiny surface.

As it keeps rolling, the snowball grows, so it picks up more snow with each revolution. If you invest $1,000 in a fund that pays 8% annual interest compounded yearly, in 10 years you’ll have $2,158.93, in 20 years that will be $4,660.96, in 30 years it will be $10,062.66, and in 40 years it will be $21,724.52. It takes patience, but with time you can turn $1,000 into $21,724.52. That sounds like a lot of money, but if we’re being realistic, $1,000 is often spent on:

• A weekend skiing with friends
• A few months of dining out with friends or your spouse
• A new piece of furniture, or tech that you may/may not need

By hitting “pause” on these non-essential goals, you can easily start saving today and take advantage of compound interest.

No matter where you are right now, the crucial point is to begin putting money aside immediately to achieve your long-term financial goals.

What are your future goals?

Travel? Education for your kids? Paying off your mortgage?

Even when you contribute a minimal amount annually, if you’re consistent with that contribution over many years, the growth your investment will make can maximize your wealth in the long ron.

The idea that you don’t have enough money right now to make your investment worthwhile is hurting you and your future. Resist the urge to overthink how much you are investing, and just act by giving what you can to your future savings today. Remember: every dollar counts, and the satisfaction of watching your investment grow over time will give you peace of mind and a freedom to plan for the future.

Don’t Jump Ship When Things Go South

Many investors view themselves as being rationally-minded individuals who don’t take sudden action when the markets become turbulent. Too often, though, people do try to time the markets, and wind up making a wrong decision as a result.

Derek Horstmeyer of the Wall Street Journal writes “Most investors think of themselves as rational and immune from the behavioral elements that periodically roil markets. Human factors, however, do continue to affect our personal portfolio decisions—usually to the detriment of our long-run returns.”

Thinking too much about the “perfect timing” when growing our portfolios is a strategy that will more often than not cause people to lose money in the long run. A far better investment plan is to focus on the big picture, and less on a perfect portfolio – where every decision is made at the exact right time.

Timing the market is less important than time in the market, and getting caught up in getting that “perfect timing” is almost certain to cost you money. Aiming toward a good, solid return on your investment is a smarter strategy than worrying about every detail affecting your portfolio. All too often, people panic as soon as things start to go south (pulling out when the market has already hit bottom and putting in more when at the top). As a result, they often don’t experience this stated return in full. By resisting this urge to make a rash decision, investors showing behavioral restraint may actually wind up saving 1-2 percentage points a year.

Starting early is a critical component to a successful portfolio. It is never too late (or too early) to start, so the sooner the better. Beginning in 2011, studies were conducted where participants were shown a computer generated rendering of what they might look like at their age of retirement. They were then asked to make financial decisions about whether to spend their money today or save that money for the future.

In each study, those individuals who were shown pictures of their future selves allocated more than twice as much money towards their retirement accounts than those who did not see the age-progressed images. Seeing the images gave the participants a connection with their future selves that they did not possess before. As a result, their saving behavior changed dramatically because, “saving is like a choice between spending money today or giving it to a stranger years from now.”

Picture Your Retirement

Instead of viewing your future self as a stranger, think of how you actually might look. Then think of the financial decisions you are making today and how they will affect you in the future.

Are your spending and saving habits today matching up with how well that future self is able to live tomorrow? Every delay you make toward saving for retirement, or investing wisely means a further burden you will place on yourself later on. In fact, starting your retirement saving early is actually more important than earning higher returns at a later date.

The importance of starting now can’t be stressed enough. Luckily, fee-only, fiduciary advisors exist to help everyday people in making wise choices and to lessen the anxiety associated with what can seem like an overwhelming task.

The good news is you don’t even have to be a millionaire to get this customized service. Working with a professional will enable you to maximize your return on investment and tailor a savings plan just for you. Don’t delay getting started. The benefits of starting early and often far outweigh how much you actually save.