To retire, start early, have a plan and try a cash diet

To retire, start early, have a plan and try a cash diet

When Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation, opened her first individual retirement account, she called her father for investment advice. Tell her to “choose two stock funds and be done with it.”

At the time, she said she was stressed because she was hoping to get solid investment advice from her father and American investment icon Charles Schwab. But in fact, great advice and insight is what he gave her, as stocks, over time, outperform the market, she said.

“I’ve had a lot of low markets,” Schwab Pomerantz said. “The best solution is a portfolio of stocks, bonds and cash that is weatherproof.”

Speaking at MarketWatch’s Best New Ideas in Money Festival in New York, Schwab-Pomerantz urged investors to start saving for retirement early and cautioned against investing any money you think you’ll need in the next five to seven years.

“It’s not how much money you have, it’s about the time you have to grow your money,” she said. “Retirement will be the most precious thing you will do in your entire life.”

Her comments come as Americans grapple with inflation, a turbulent stock market and rising interest rates. The Federal Reserve on Wednesday raised interest rates by 0.75 percentage points in an effort to curb further inflation.

We see: The Fed approves a third major rate hike and signals more before the end of the year

Schwab Pomerantz and her children asked to get jobs as their teens, create a budget and open Roth IRAs when they were 16 years old.

Financial literacy advocate Schwab-Pomerantz said fathers often do harm to their daughters by only talking to them about family budgets and savings, while sons tend to seek advice on investment and debt management.

“We have to teach our daughters about investing. We need to do justice to our daughters,” she said. “It’s very subconscious. We fight our daughters.”

For young workers, she urged them to have a budget, live within their means and pay themselves first by allocating at least 10% of their income to retirement. Schwab Pomerantz said not participating in a company’s 401(k) matching program is “stepping away from free money.”

For everyone else, I suggested trying a “cash diet” for a month to monitor where their money is going.

“We spend without thinking, whether it’s shoes or coffee,” she said. “By keeping track of your spending, you can see the nonessential items and the areas you might want to cut back.”

For middle-aged people balancing saving for retirement with saving for their kids’ college education, as well as mortgages and caring for older parents, Schwab-Pomerantz might have urged a financial plan.

“Don’t underestimate the power of the plan. Imagine not having GPS.” Schwab Pomerantz said, “You have to know where you are going and where the pitfalls might be.”

“Retirement should be priority number 1,” she said, adding that children have other options to help fund college rather than relying on their parents to fund it. Next comes paying off high-interest, non-deductible debts like credit cards, and hoarding three to six months of emergency savings to cover family expenses in times of crisis.

If you’re about to retire, you have up to two years of expenses in cash so you don’t risk selling any investments in a declining stock market environment, she said.

Many, many Americans are short on savings. “You’re not alone,” Schwab Pomerantz said.

Get insights into investing and managing your money. Investors include Josh Brown and Vivek Ramaswamy. In addition to topics such as investing in environmental, social and corporate governance, electric vehicles, aerospace, and financial technology. The Best New Ideas In Money Festival continues Thursday. Register to attend in person or virtually.

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