Podcast Episode 24 More Advanced Financial Planning Concepts

Podcast Episode 23 Pay off & Avoid Student Loans

I had the pleasure of speaking to Dave Nash CFP, CFA owner of Magister Wealth. David and I spoke about more advanced financial planning topics including but not limited to target date funds and the state of the economy.

Target date funds are a good simple DIY financial planning tool. They aren’t a comprehensive end all be all type of investment. The rate of return for target date funds can be less than more sophisticated investment plans. The reason for this is because these simple plans don’t reflect what’s going on in the market. If you rebalance or tactically allocate your portfolio you can adjust for higher or lower rates of return in the market. A great example of this that David addressed is that the current interest rate for Bonds is incredibly low. This could lead to your investment portfolio having significantly lower returns by as much as 2%. This may not seem very meaningful but you have to consider that this could lead to a reduction in your end retirement portfolio by hundreds of thousands of dollars!

The rate of return on your investments can be just as impactful as the rate of return on debt that you owe. To do a simple calculation to find out how long it takes to double your investment divide 72 by the rate of return. The really impactful thing for most people is how this impacts people paying debts. If you don’t pay your 7% interest debt the balance will double in 10 years. If you don’t pay your 21% interest credit card debt it will double in 3.4 years. This really shows the impact of not paying off your debts.

When you are investing for your financial future you should consider what your current tax rate. A good way to conduct your financial investment plan is to try to smooth out your tax rates for your life. So on average you should have the same rate of tax return throughout your life. The way you can do this is by increasing your investments in your 401k, 403b, and ira/roth ira. If you have a low tax year or a low income year you can lower your overall taxes by doing a roth conversion. I’ll include a link to an article by Vanguard where you can read about the roth IRA conversion here.

Target date funds do represent a better alternative than not investing or saving for retirement. There is little financial planners can do for individuals if they don’t invest. It is like not exercising and eating donuts every day for 15 years. The problem with our financial mistakes that they aren’t as easily seen as poor health disciplines. If you gain 50 – 100lb of fat in two years people will be able to see it easily. If you rack up 20k in credit card debt no one will know, because they cannot see it.

The current state of the economy within the United States is effected  by the large amount of government spending in 2021. Many people are beginning to feel the effects of printing large amounts of money in a limited time. Also there is a growing debt load that is enormous which the US has to pay back. The only way to effectively pay this back is through taxes the governments main revenue source. To be able to pay this debt off the United States will have to go through a large technology that disrupts major industries.

If you want to learn more about planning for your financial future and David Nash, CFP & CFA approach on investing go to Magister Wealth.

Please note the disclaimer below:

THIS IS GENERAL FINANCIAL ADVICE THAT MAY NOT APPLY TO YOU. PLEASE CONSULT WITH YOUR TAX, LEGAL, INSURANCE OR FINANCIAL PLANNING REPRESENTATIVE BEFORE MAKING ANY CHANGES.