By Julia Anderson
Women interested in money management, long-term investing and building a retirement portfolio should see 2020’s pandemic stock market ups and downs as a great lesson. As one analyst put it recently in the Wall Street Journal, “it felt like something different, but it wasn’t.”
He meant that when Covid-19 infections swept the world, shutting down the global economy, killing the travel industry, closing restaurants, and most everything else, it felt like something new, something awful. Panic set in, investors felt the fear and stocks sold off in March 2020 by 34 percent. That’s a bear market.
But 2020 taught us that what feels new is mostly not.
Here are the lessons we RELEARNED!
Lesson No. 1 Seasoned Investors Stay the Course
Those who sold off stock investments in the 2020 panic were then faced with a tough decision – when to buy back in? Many didn’t. Several friends told me that they were bailing out of stocks. They were scared by what might happen next. As one said, “I want to be able to sleep at night.” Fear was in the air as we hunkered down, buttoned up and began hoarding toilet paper and hand sanitizer.
But what happened? This bear market sell-off was short-lived. Like other market selloffs. It ended sooner than later as the federal government cranked up the money printing press and began rescuing the economy.
While “all bear markets are inherently different, the common thread is that they always end,” said Peter Lazaroff in a WSJ report. “Investors must be willing to lose money on occasion – sometimes a lot of money – to earn the average long-term return that attracts most people to stocks in the first place…. if you can be a buyer in times of fear, your chances of earning above average returns improve,” he said.
Starting in late March 2020, the S&P 500 began a recovery that continued into 2021. By the end of the year, stocks were up 16.26 percent over 2019. That’s well above the annual average return of around 7 percent.
Hanging in there was among several lessons learned again by investors in 2020. In fact, buying when others are selling is almost guaranteed to reward the long-term investor.
Lesson No. 2 An Emergency Fund is a Great Idea
A survey of investment managers by the Wall Street Journal ranked putting cash into an emergency fund as a top priority money tip. An emergency fund means that the blow of an unexpected layoff can be modified.
Emergency money will save you from expensive credit card debt until unemployment checks kick in and you can figure out what to do next. At least six months of cash. Everyone tells us this.
Lesson No. 3 You Need a Will
At sixtyandsingle.com we have preached this forever. Since covid-19 began taking lives, it is even more clear that people need a will no matter what age they might be. A will spells out how you want your assets distributed. It makes sure your beneficiary designations are up to date on a 401(k)-retirement savings plan. A will can tell your heirs how you want your belongings distributed. This is a long-term but urgent item on your to-do list. Make a will!
Lesson No. 4 Stay Loose with a Retirement Plan
According to Maddy Dychtwald, co-founder of Age Wave in San Francisco, an estimated 81 million Americans will see their retirement timing affected by the pandemic. In other words, they won’t retire when they originally planned. People are putting off retirement for an average of about three years, an Age Wave survey said.
Working longer into your 60s is not a bad thing…more time to recover, save and invest, more time to put off taking Social Security and more time to enjoy the job. Many women I know are working because they love the action and see no reason to stop.
Lesson No. 5 Markets go up, and down. That's Okay
Surveys show that women can be more easily scared out of stock markets and are generally more conservative investors. They hate seeing the value of their investments decline when markets sell off. They tend to put more of their savings in low-earning money market funds at a time when they should be in equities. “A diversified portfolio that you can stick with regardless of the market environment should be the cornerstone of everyone’s investment strategy,” Jeff Mills, chief investment officer of Bryn Mawr Trust, told the WSJ.
The year 2020 taught us AGAIN that nothing stays bad forever, that what might feel new and scary is really a variation on what we’ve seen before. Disciplined investors hang in there for the long haul by riding out the drops and benefitting from recoveries..
15 Personal-Finance Lessons We can All Learn from in the Year of Covid-19. Click here
Wills and Trusts: Needed Now More than Ever Click here.
Life and Money Lessons from the Pandemic Click here
BY JULIA ANDERSON
Grandparents, especially these days, are looking for ways to help their kids and grandkids get ahead financially.
A simple way to give them a long-term financial boost is with a Roth Individual Retirement Account -- grandchildren especially. You can do this before they turn 18.
As we know, time is money. Money going into a Roth IRA for a kid, grows federally TAX-FREE until their retirement. For my 16-year-old grandson that will be 2069. A Roth IRA (for a child under age 18) can be opened and managed by an adult…parents, grandparents, even a friend of the family with a maximum $6,000-a-year contribution.
There’s one BIG CATCH: The money going into a Roth IRA for a kid under age 18 MUST BE EARNED INCOME. In other words, the kid must have a part-time job or be self-employed doing something like babysitting, dog-walking, yardwork, snow-shoveling or window washing. Income from these activities is “earned income” and can be verifiable.
As the grandparent, you can match this amount of earned income with a Roth IRA contribution. For example, if she/he generates earned income from a summer job totaling $800, you can put $800 in her/his Roth IRA custodial account. IRA contributions can not exceed a minor’s earnings. So, the earnings come first, then the IRA contribution. There is no minimum investment.
Why bother with what will likely be small contributions? Maximum contribution: $6,000 a year. But like I said, time is money. For example:
A $1,000 one-time contribution with reinvested earnings that grow an estimated 7 percent a year for 20 years will result in $3,870 in savings.
A $1,000 contribution every year for 20 years with reinvested earnings of 7 percent a year will grow to nearly $50,000.
A $2,000-a year-contribution over 20 years with 7 percent earnings results in about $95,000 in the Roth account.
Now, let’s double the timeline to 40 years.
$2,000 a year contribution over 40 years at 7 percent will generate a future balance of nearly $450,000.
The lesson here is that the more money you invest and the earlier you invest it adds up to a whopping increase in the end result after 40 years of saving and investing. The more money that goes in early, the better.
And when the grandchild starts withdrawing money at retirement, it will be TAX-FREE. They will have you to thank.
FYI: The current federal Roth IRA contribution limit per year is $6,000. Also, there are fewer penalties for withdrawing the money early, if needed for a down-payment on a house.
Where to invest the money?
At this young age and on into their early 40s, the money should be invested in aggressive dividend-producing stock funds because there will be time to make up for any market downturns as they age into their 50s and 60s. More time means more reinvested growth of the investment inside the account.
Investing is better than saving since reinvested dividends in stock accounts outperform any savings account by 10 times over in today's low-interest rate environment.
Best Reasons for a Roth IRA for your Grandkid
A tax-free or tax-deferred investment demonstrates the miracle of compound interest over time. A Roth IRA can be set up online with no commissions or account fees.There’s no age restriction but the child must have earned income.
A Roth IRA is more flexible than any other retirement account because contributions can be withdrawn at any time with no penalty and can be used for more than retirement. But the ultimate goal should be retirement.
At age 18, in some states 21, the child becomes the owner of the Roth IRA account. You can still help them make contributions.
Nerdwallet, "Why your kid needs a Roth IRA," click here.
Fidelity, "Roth IRAs for Kids," click here.
U.S. News, “How to Set up a Roth IRA for Your Child.” Click here.
Motley Fool, “Can You Open a Roth IRA for Your kids?” Click here.
Dave Ramsey. "How Teens Can Become Millionaires." click here.
I meet women all the time who face job and money transitions and who want to do them right. It’s about building confidence and taking charge of the future. This is your money. No one cares more than you do!
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