Investor Education | Six ways to plan for the long term
Pundits are divided over what a Trump presidency means to the equities markets. Unfortunately, no one has a crystal ball that can predict with 100% accuracy what will happen next. The best thing to do, regardless of your political leanings, is to develop a plan based on common sense investment objectives and your overall circumstances. Here are six ideas that can help provide a solid foundation for the future:
- Contribute to retirement plans. Do not underestimate the value of tax-deferred compounding. For instance, if your company has a 401(k) plan, you can set aside up to $18,000 ($24,000 if age 50 or older) in 2017 without paying any current tax on that amount. The money grows tax free until you withdraw it— usually, when you are in a lower tax bracket. Supplement this with IRA contributions.
- Save regularly. Frequently, people think of savings as a luxury item. But that kind of thinking can catch up with you down the road. A monthly contribution to your savings account may be just as important to your financial plan as paying your bills. If you make a habit of saving on a regular basis, you will find that even the smallest amount can add up to a substantial sum in a short time. Obviously, smart investments can help your savings grow even more.
- Be a record keeper. What does paperwork have to do with investing? Simply this: The records you keep regarding such things as charitable contributions, home improvements and the like can help reduce your tax liability. And money saved can be money invested—better in your pocket than in Uncle Sam's.
- Reduce your debt load. That same philosophy holds true when it comes to your debts. Wherever possible, reduce or eliminate your credit card and auto loan debts. For one thing, the less you owe, the more you can save. Also, the interest paid on personal debts generally cannot be deducted on your tax return.
- Maximize company "extras." These include such old standbys as group life insurance and health insurance plans. If your company offers the option, consider a flexible spending account (FSA). This account is funded with pretax dollars to pay for medical or child care expenses as they occur during the year. However, keep in mind that an FSA reduces your take-home pay accordingly. What's more, any money in the account that is not spent by the end of the year is forfeited. (A 2 ½ month grace period or carryover of up to $500 may be allowed.)
- Stay abreast of new developments. If the situation dictates it, you may have to modify your plans. That means staying abreast of current events and maintaining contact with your investment adviser. For example, you can keep a close eye on the rates offered on bank accounts, money market funds, Treasury securities and the like. This information is readily available. Do not hesitate to make modifications when they are warranted.
Set up a meeting to map out your long-range plan. Usually, it's best then to stick with it through thick and thin.
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