A comprehensive financial plan will help you better manage the challenges upon retirement and in the future in general. The year 2022 offers a new beginning, with a wide range of opportunities to structure your retirement plan for optimal outcomes and a more secure future.
Your financial and retirement plan is a multiple-step process that benefits from meticulous and early planning (through a compounding effect). The first step involves identifying the total assets you own across all accounts and measuring them against ongoing expenses for a full cash flow breakdown.
Financial Plan Tip #1 – Identify Your Investment Time Horizon
The time horizon of your investment plan refers to the period starting from the present right up to your retirement. A longer time horizon provides your portfolio with additional leeway for risks since you will generally have more opportunities to save, overcome short-term volatility, and compound your interest across a longer period of time.
For example, you might consider investing in assets that usually outperform other securities over a long period (i.e., at least ten years). On the contrary, older individuals should consider income generation and an investment plan that focuses on more stable investments.
Financial Plan Tip #2 – Know What You’re Investing For
The starting point for investing is setting your financial goals. Are you investing for retirement, a future home, your child’s tuition fees, or something else? Knowing this allows you to set the amount you are working towards through your investments and helps you determine the amount you should be depositing regularly. It gives you the bigger picture to focus, on to overcome volatility in the short term and avoid emotional decision-making in your investments.
For example, if you are saving for retirement, you can use a “retirement calculator”. Essentially, a retirement calculator helps you assess your current savings, and assets can last you through the living expenses during retirement. Using a retirement calculator allows you to plan ahead for your future and work towards financial stability.
While there are many types of retirement calculators with varying formulas, they contain general metrics that include:Your current age as you begin your retirement plan
– The expected retirement age
-Current income (i.e., cash flow from employment, timed investments, etc.)
-Your estimated future income
-Predicted retirement living expenses
-Current savings and assets
A similar approach can be used to help you determine investing amounts and plans for other financial goals, as well.
Financial Plan Tip #3 – Re-evaluate Investments
It is important to realize that each investment vehicle carries varying risks and profitability across the investment time horizon.
Diversify your portfolios to reduce the risks of losses incurred from poorly performing investment vehicles. For instance, you should consider spreading your investments across multiple stocks, bonds, and other assets rather than focusing on a single source.
Additionally, it is important to revisit portfolios several times a year to align them with your financial goals (i.e., shifting risk tolerance and appetites).
An easy and cost-effective approach to achieving this diversification is investing in ETFs or using a robo advisor. ETFs allows you to diversify your investments across multiple class assets to allow for minimal investment risk. Furthermore, robo advisories can provide you with investment plans that are already diversified across assets and geographical regions. Many can also provide services to rebalance your investments for you, reducing risk and keeping you on track to your long term goals.
Financial Plan Tip #4 – Invest Beyond Stocks and Bonds
Diversification is advantageous when drafting your financial and retirement plans. While stocks and bonds remain some of the most popular investment vehicles, there is an extensive list of alternatives to boost your investment plans. Market experts recommend allocating roughly 5-10% of your total assets in other avenues aside from stocks and bonds, depending on your risk tolerance. For example, pandemic-related challenges to the global supply chain led to a sharp rise in commodity (e.g., steel) prices, and similar investment opportunities may present themselves in the future. Leveraging modern market trends on top of conventional stock/bond investments can help you build a sustainable investment plan for your retirement.
Financial Plan Tip #5 – Make Regular Contributions
Perhaps the most important process of all is to ensure that you maintain regular contributions to your retirement plans.
Understandably, some external forces, such as the pandemic, may cause temporary disruptions to cash flow due to unexpected salary cuts and unemployment. However, aside from these outlying scenarios that require capital preservation, you can ensure that you advance your plans according to schedule by maintaining a regular deposit schedule and staying consistent.
If you are interested in following these tips, you can begin investing and building wealth with SmartWealth by NBK Capital. It can support in providing you with a diversified ETF-based investment plan of stocks, bonds, real estate, and other assets that can help you work towards your financial goals. It offers a fuss-free way to optimize your financial and retirement plans for 2022 and achieve your investment goals at any time and from anywhere.
