Are You Making Smart Money Moves?

A recent post under Personal Finance on the U.S. News & World Report website listed 50 Smart Money Moves. We have taken our top 30 from this list and created a "Financial Check-Up" for our blog readers. Check each smart money move you believe you follow on a regular basis, and see where your money-moves rank with our results below.

 

( ) Decide on financial goals.
( ) Create a spending plan.
( ) Resist retailers' enticements.
( ) Track your own spending.
( ) Don't accept posted prices (i.e. price-matching).
( ) Research products online before visiting stores.
( ) Earn money from more than one source.
( ) Negotiate your salary.
( ) Don't shy away from all debt and make sure to choose the best credit card or loan for you.
( ) Pay off high-interest-rate debt quickly.
( ) Check your credit report and build a solid credit history.
( ) Track and review account statements.
( ) Take advantage of rewards cards.
( ) Adopt a hands-off approach to investing (consider a professional).
( ) Remember the risk-versus-reward rule.
( ) Start early, invest often.
( ) Don't try to time the market, and don't follow the market every day.
( ) Check your Social Security statement online and calculate your own retirement number.
( ) Take baby steps.
( ) Save even when you're not earning.
( ) Live with family members.
( ) Look for non-financial ways to help family members.
( ) Prepare to help aging parents.
( ) Avoid sharing credit accounts.
( ) Live more simply, use fewer products, and find cheaper hobbies.
( ) Plan weekly meals.
( ) Insure yourself.
( ) Make sure you're ready for X (house, baby, retirement, etc.).
( ) Cancel/avoid catalog subscriptions.
( ) Find ways to lower your utility bills.
 
If you checked 0 to 10 Smart Money Moves, you are:
Moving at the Speed of Slow.  Though you may not be where you should be now, there’s still hope!  Which of the above are you doing regularly and which areas do you need to work on?  Consider the ways you can start to implement these things into your life, put them into practice, and monitor as you go.  You’ll be glad you did.  If you need help getting started, don’t be afraid to ask for it!
 
If you checked 11 to 20 Smart Money Moves, you are:
Moving in the Right Direction.  So you’re not quite there, but don’t give up.  Be sure to track your progress and make adjustments when necessary.  If you need advice to reach your goals, contact a professional.
 
If you checked 21 to 30 Smart Money Moves, you are:
Moving toward Financial Freedom...and freedom is fun!  Way to go!  You’ve worked very hard and it’s paying off.  Slip-ups and setbacks can (and likely WILL) happen, so be careful not to regress backward.  Keep up the good work and you can enjoy the fruits of financial freedom!

PIMCO: Stay The Course

PIMCO (PacificInvestment Management Company, LLC) produced a market-relevant article earlier this month entitled “Stay The Course”.  This article discusses four (4) reasons why long-term investors should remain focused on their goals and not fear rising rates.  Click here to view the full article (with visuals!) in PDF form.

1)  Rising Rates Build Income:  With interest being the primary driver of bond returns, reinvesting into a gradually rising rate environment can actually help build long-term growth.  When rates rise, new bonds may pay higher, which can increase what you (as a lender) receive in the long run.
 
2)  Lower Volatility Helps Preserve Capital:  During uneasy times in the market, investors are often reminded why fixed income investments can be solid anchors for their portfolios.  Bonds have historically been less volatile than stocks, while also providing capital preservation, income and growth, and low-to-negative correlations to equities.
 
3)  Cash ‘Safety’ Comes at a Price:  Investors concerned about market fluctuations and short-term bond volatility may be tempted to withdraw their investments until prices stabilize.  However, with cash and money market investments typically yielding rate of returns close to zero, and especially after accounting for inflation, these types of investments can actually provide a negative return.  Compounding over the long-term, maintaining investments in bonds will almost always generate a higher rate of return.
 
4)  Experts Have Access to a Diverse Toolset:  Although mainstream media tends to focus on U.S. Treasuries (which are the most sensitive to changing rates), the “market of bonds” is exceedingly diverse and global, including corporate and high yield bonds, mortgage-backed securities, floating rate issuers, emerging market bonds, and many others.  Since each sector or asset class responds differently to economic and market trends, a skilled bond fund manager should be capable of diversifying a portfolio which can defend against capital losses while also capturing a range of growth opportunities.
 
PIMCO is the world’s largest bond investor and one of the world’s largest active global fixed income investment managers.  As of the end of 2012, PIMCO had $2 trillion in assets under management.

5 Ways to “UP” Your 401(k) Plan

By Olivia Sandham

1. “BUMP UP” your deferral rate.
The average 401(k) deferral rate lingers near 4%, but this doesn’t mean your investment has to.  Increase your deferral to 10% of your paycheck, and your deferral combined with the company match will build an income base that can last in retirement.  Find out if your plan has an auto-escalation feature, which will allow you to automatically raise your deferrals incrementally over time.

2. “CHANGE UP” your fund allocation.
Over the long term, it takes time and skill to choose 401(k) funds successfully.  What seemed like the proper allocation when you were 25 will most likely change when you are 10-15 years older.  If periodically assessing your funds seems time-consuming, a target date fund or asset allocation fund may be more appropriate.

3. “SAVE UP” your account.
There may be a handful of valid reasons for pulling cash from your 401(k), such as a new home or business purchase, or for an emergency situation.  But you could be charged a 10% tax penalty on early distributions taken before you are 59½, and you may have to repay the loan within 60 days.  Instead, consider your 401(k) strictly as a retirement savings account: money goes in and stays in until retirement.  If you do have to take a loan, repay it as soon as possible so your money can get back to work for you in the market.

4. “FOLLOW UP” on your investments.
Make a plan for your 401(k) and keep an eye on it to ensure you are still on track to meet your savings goals.  A 401(k) is a long-term investment, which means there will be highs and lows in performance, so you should periodically check to make sure you’re on track.  Review and keep your quarterly statements, but don’t preoccupy yourself with looking at your account every day.  An appropriate time to reevaluate your 401(k) plan on an annual basis would be during re-enrollment so you can make any necessary adjustments.

5. “LINE UP” your future budget.
Once you’ve retired, you will rely on your 401(k) savings as a stream of income.  Before reaching too near to that point, get an idea of what your future expenses will be.  Understanding how your lifestyle will be during retirement will help you make sure your 401(k) plan will be able to cover these costs.