Russ Wiles, Arizona Republic
Published 10:20 a.m. ET July 26, 2020 | Updated 10:20 a.m. ET July 26, 2020
It’s a great time to check up on your retirement plan. This is how you do it.
How often has this scenario or something similar happened to you? You hear about a promising stock or mutual fund but wonder if there’s something better, or a better time to buy. So you wait around and end up doing nothing, missing an opportunity that, if not perfect, certainly would have been profitable.
With all sorts of money decisions, it’s easy to get thwarted by inaction. Often this results from waiting in vain for a perfect opportunity to arise rather than accepting one that’s good enough. Here are some examples:
Invest without benefit hindsight
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It’s worth holding off on your investing plan until you have everything figured out about the stock market, individual companies and the economy, right? Anyone agreeing with that statement could face real paralysis.
Sure, it would have been nice to put $1,000 each into Home Depot, Amgen, UnitedHealth, Apple and Danaher — the top-performing large companies over the past 35 years. Such a combined stake would be worth about $3 million today, noted Karen Wallace, a certified financial planner at Morningstar, in a recent blog.
But that was apparent only in hindsight. “Picking stocks isn’t so easy when you don’t know the future,” she noted. “What if you invest in five companies and three of them go bankrupt?”
(Photo: Getty Images)
One factor that likely derails a lot of investors is waiting to find the perfect stock, mutual fund or other vehicle — and waiting for the perfect time to buy or sell. But identifying perfect investments is nearly impossible to do, and perfect entry and exit points are difficult to spot.
One way to deal with uncertainty is to diversify by selecting many stocks (easy to do with mutual funds or exchange-traded funds) and including bonds and other types of investments in the mix.
Another way to handle uncertainty is to dribble money into the market using a “dollar-cost averaging” approach and to hold your investments for years, if not decades.
In the short run, the stock market can bounce around wildly — diversified large-company returns (including dividends) since the 1920s have ranged from +54% to -43% in a given year, according to Morningstar. But over that long span, the average annual return has been a fairly consistent 10%.
“You can expect stock prices to fall occasionally over short periods,” Wallace wrote. “But if you’re investing over long-term periods of a decade or more, chances are excellent that stocks as an asset class will earn a positive return.”
In terms of buy or sell decisions, it can be helpful to ponder what factors might prompt you to enter or exit the market before circumstances might sway your thinking.
“It’s so much easier to carry out a decision if you have made it earlier,” like a football coach drawing out plays before the game starts, said David Daughtrey, an investment adviser at Copperwynd Financial in Scottsdale. Otherwise, you run the risk of letting emotions sway your thinking.
Refinance the best you can
Another area that can trip up people is not taking advantage of attractive interest rates in hopes that rates improve even further. This can apply in a number of areas, from credit cards to deposit accounts, but the issue is most relevant with mortgage loans, for both potential new homebuyers and those seeking to refinance. Rates are already highly attractive, but is it worth holding out for even better deals?
There’s a good chance today’s bare-bones rates could persist for many more months, if not longer, owing to underlying weakness in the economy, said Greg McBride, chief financial analyst at Bankrate.com. Many lenders have been overwhelmed by applications lately. If home-purchase and refinancing volumes ease up, we could see slightly better deals ahead as lenders compete more vigorously, he said.
But it’s also true that mortgage rates for people with good credit scores already have ebbed to historically low levels a tad below 3%. On a refinance, for example, “If you can shave one-half to three-quarters of a percentage point (from your current rate),” it’s often worth doing, he said.
While rates could dip a bit further, it’s also true that you can start cutting your monthly mortgage payments by pursuing a new loan now. Plus, your ability to qualify might change for the worse, especially if your job situation deteriorates. And interest-rate movements, even for professionals, are hard to predict.
“You’ll never sell your stocks at the absolute peak nor buy them all at the absolute bottom, and you probably won’t grab the absolute lowest mortgage rate in history, either,” McBride said.
But you can start saving money by grabbing a decent deal now.
Heed key credit principles
Many Americans are struggling not just to raise their credit scores but to understand how scoring systems work. It’s really not all that complicated, but it is easy to miss the forest for the trees.
Stephen Brobeck, a senior fellow at the Consumer Federation of America, recently cited just a few key behaviors that, if adopted, can boost your credit score to a superior level.
Your credit score can land you that dream job or prevent you from getting a mortage. Republic reporter Rebekah Sanders outlines how you can protect yourself from mistakes on your credit report.
First, he said, consumers should strive to make loan payments on time, every month. Second, those who use credit cards should use just a modest slice of their available credit (preferably below 25%). Third, people should check their credit reports (at annualcreditreport.com) at least a couple of times a year for inaccuracies that could hurt scores, then alert the credit bureaus to have errors removed.
If you want higher scores, you can pursue various other moves such as keeping long-held credit accounts open if you continue to use them (the length of credit history accounts for about 15% of scoring in the FICO system, for example). But it mainly boils down to paying your bills on time while keeping debt levels modest, which together weigh in at 65% of the scoring total.
Build an estate plan as you go
Planning for your eventual demise or possible incapacity isn’t easy, especially when you don’t know the answers to questions such as how long you will live or how much help your children, spouse or other beneficiaries might need. These and other uncertainties can paralyze you from doing any estate planning, but it’s often best to get started, tackle what you can and make adjustments later.
“Having an imperfect plan is usually better than having no plan at all,” stated Elder Law Answers in a recent blog.
Most documents or forms typically can be changed or amended later. Key steps to take initially include drafting a will along with financial and health-care powers of attorney — documents that allow you to name a spouse, relative or other trusted person to make decisions on your behalf if you’re alive but not able to act on your own.
While you’re at it, designate beneficiaries to receive any assets held in retirement accounts, life insurance policies, bank accounts and so on. Consider life insurance to help children or a spouse cope with a possible loss of your job income, and make sure your deeds are titled properly. In Arizona and some other states, beneficiary deeds are one option homeowners can use to pass their properties at death, probate-free.
Down the road, you could always add more elaborate documents, such as a living trust. In other words, view estate planning as a process you can start now and build on or tweak later, when those elusive answers might come more clearly into focus.