Planning Your Financial Endgame

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Investment Choices

 

Financial investments are essential tools for individuals and businesses seeking to grow their wealth over time. By understanding the various types of investments available, one can make informed decisions that align with their financial goals and risk tolerance.

Most investments are set up for long-term purposes, such as retirement or children’s college. They are evaluated for their expected performance over a 10-year period.

If you have not already started investing for your future, there is no time better than the present to get started.

Why have Financial Investments?

Meet or Exceed Inflation

Grow money that will continue having buying power in the future.

Retirement

Most people are concerned about outliving the money that has accumulated when they are no longer earning a steady income.

Fund Final Expenses

Despite our intentions, these costs can be a burden on our family.

Leave Assets Behind

Most people feel good if they can leave family members some assets.

 

Categories of Financial Investments

If possible, it is recommended to have a mixed balance of investment types, depending on several factors, including total investment capital and age.

401(k)

This is an employer sponsored retirement savings product that is funded with pre-taxed money. They are managed by an investment company. Employers may contribute a matching percentage to your voluntary contributions. The savings value is impacted by stock market performance.

Pension

an employer sponsored retirement savings product that guarantees income from an employer, managed by the employer (Railroad, Teacher, etc.). Based on tenure.

Annuity

Designed to help protect your money (Typically qualified but also be non-qualified funds)

Life Insurance

Designed to help protect your family and investments. Many employers provide a basic term life policy while you are employed with them. There is no long-term value in this policy. Other more comprehensive life insurance types are available, See my Insurance Coverage book for information on Life Insurance.

Stocks

Stocks, also known as equities, that represent ownership shares in a company. When you purchase stock, you become a shareholder and own a piece of that company. Stocks are traded on exchanges, and their prices can fluctuate based on market conditions and the company's performance. Investing in stocks can yield high returns, but it also comes with higher risks compared to other types of investments. Since stock prices fluctuate, the price of stocks can also go down resulting in a loss. Stocks are more of a speculative wealth building game that has high risks associated.

Bonds

Bonds are fixed-rate debt securities issued by governments, municipalities, or corporations. When you buy a bond, you are essentially lending money to the issuer in exchange for periodic interest payments and the return of the bond's face value at maturity. Bonds are generally considered safer investments than stocks, but they typically offer lower returns. They are like an IOU. Borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time.

Mutual Funds

Mutual funds pool money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities. Managed by professional fund managers, mutual funds offer investors the benefits of diversification and professional management. They come in various types, including equity funds, bond funds, and balanced funds, each with their own risk and return characteristics.

Money Market

A mutual fund that invests in low-risk, short-term debt securities, such as Treasury bills, municipal debt, or corporate bonds.

Exchange-Traded Funds (ETFs)

ETFs are similar to mutual funds but trade on stock exchanges like individual stocks. They offer the benefits of diversification and lower management fees. ETFs can track a specific index, sector, commodity, or other asset classes. They provide flexibility and liquidity, making them a popular choice for investors.

Real Estate (Direct Ownership)

Real estate investments involve purchasing property to generate income or achieve capital appreciation. This can include residential, commercial, or industrial properties. Real estate can provide steady rental income and potential tax benefits, but it requires significant capital and may involve maintenance and management responsibilities. Purchasing a home is for example.

Real Estate (Indirect Investment or Loan)

Buying shares in a fund or a publicly or privately held company. Can also be providing short-term loan to a company that invests in real estate.

Certificates of Deposit (CDs)

CDs are time deposits offered by banks with a fixed interest rate and maturity date. They are low-risk investments, making them suitable for conservative investors. However, they typically offer lower returns compared to other investment options and may have penalties for early withdrawal. They are like a short-term savings account.

Traditional Savings

Disciplined accumulation of money placed in a bank which typically grows at a small, fixed percentage (1-4%). This type of product does not provide protection against inflation, but it is a great place to keep funds that need to be liquid (readily available).

IRA (Traditional)

Tax differed Individual Retirement Account (Pre-taxed) that is funded with money that has not been taxed. The funds are taxed in the future when the funds are distributed.

Roth IRA

Individual Retirement Account (Post taxed) are funded with money that has already been taxed. Taxes are collected for the interest portion of the account when the money is distributed.

Commodities

Commodities are physical assets like gold, silver, oil, and agricultural products. Investing in commodities can be done through direct purchase or via futures contracts, ETFs, or commodity-focused mutual funds. Commodities can serve as a hedge against inflation and diversify an investment portfolio, but they can be volatile and influenced by various factors such as supply and demand.

Cryptocurrencies

Cryptocurrencies are digital or virtual currencies that use cryptography for security. Bitcoin, Ethereum, and other cryptocurrencies have gained popularity as alternative investments. They offer high potential returns but come with significant risks due to their volatility and regulatory uncertainties. A decentralized digital or virtual currency whereby trading is based on speculation.

Treasury Bills (T-bill)

A short-term U.S. government debt obligation backed by the U.S. Department of the Treasury. Terms range from four to 52 weeks.

Collectibles

Paintings, cars, memorabilia etc. Remember, the value of a collectible is only as much as someone is willing to pay for it at the time you sell it.

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