by Traders Reserve | December 20, 2013 11:15 am
The biggest fear—by far—of those approaching retirement or in retirement is outliving their money. It’s a legitimate concern, considering the average American can expect to keep kicking for 78.6 years and that cushy $1 million nest egg doesn’t cut it anymore.
We all need to work longer, save more and hope that Social Security can still pitch in when we finally punch the clock for the final time. If along the way we realize we’re coming up short of our goals, the game of catch-up can lures investors into putting their hard-earned money where it doesn’t belong.
That could mean investing in risky stocks or too-good-to-be-true investment schemes. Either way, knowing what not to do is as important as knowing what to do.
Here are five sure-fire ways to squander your nest egg in the coming year:
Yes, it’s the exciting new virtual currency (along with Dogecoin) and duly legitimate. Get in now. Huge profits await the tech-savvy. Blah, blah, blah.
Fidelity, one of the biggest holders of retirement assets with some $4.2 trillion in IRAs, just announced that it is no longer allowing Bitcoin investments in IRAs. In other words, it used to. Yikes. Apparently for some time, investors could direct money into SecondMarket’s Bitcoin Investment Trust, an open-ended trust launched in September. It attracted $62.6 million of real, tangible currency into a fund based on cryptographic-backed, virtual currency.
Sounds like a disaster waiting to happen. It’s one thing to invest in Bitcoin with “play” money that you can afford to lose. It’s a whole different story when your goals are preservation and growth.
Your Baby Boomer friends from pot-legal Colorado are telling you that investing in medical marijuana companies is a can’t-lose proposition! And everyone’s doing it! Get in before it’s too late!
Granted, the industry is budding, pun intended, but the over-the-counter stocks are so thinly traded and without track records, it’s best not to inhale just yet. Just say “no” to: Medical Marijuana Inc. (MJNA), GreenGro Technologies (GRNH), Growlife (PHOT), Cannabis Science (CBIS), MediSwipe (MWIPD) and CannaVest Corp. (CANV).
For this lesson, let’s go back to December 2002 when Enron filed for bankruptcy protection. Some $1.2 billion in 401k assets allocated to company stock by loyal employees disappeared into thin air, an event as equally slimy as any one of its oil spills. Many of the company’s most loyal kept all or huge portions of their savings in Enron stock.
Meanwhile, Enron executives had lied about the true financial state of the company, disallowed employees to sell stock and walked away with hundreds of millions of dollars. Moral of the story: Do not allocate more than 10% of your 401k assets in company stock. If matching funds come in that form, sell the shares and spread the proceeds among other holdings. Show loyalty by showing up on time, giving 100%, and attending the annual holiday party—just don’t put a lampshade on your head.
I’ll never forget when my 75-year-old father called to see what I thought about putting his retirement money—already in an IRA—into an annuity per his bank’s insistence. The mere thought that someone my father had trusted to make investments in his best interest had turned him in that direction made my skin crawl.
Keep in mind, annuities are investment vehicles packaged in insurance wrappers. You don’t buy annuities; someone sells them to you, and—as such—they often deliver handsome commissions to the broker. Among the most expensive products you can own, fees can be as high as 15%.
For example, if you put $100,000 into an annuity, $15,000 of that can come right off the top and into the salesperson’s pocket. Plus, if you need to tap into your money before an annuity matures, expect to pay another 3% to 5% to access it…which is why an annuity would have been an absolutely nightmarish move for my father. Make sure it isn’t one for you.
Some of you prefer to use mutual funds in your portfolio, a perfectly good way to diversify and avoid the “all-Enron” approach to investing. However, paying unnecessary fees can eat away at your capital.
Load funds are one of the most deceptive ripoffs out there. A back-end load or (B share) means a fee is charged when you sell the fund; a front-end load (A-share) means the fee is charged up front. A fee is a fee is a fee. You can avoid them. You can buy a no-load, low-fee variety that tracks the same indices or asset class as the more expensive counterpart. Some of the best come from Vanguard, T. Rowe Price, Fidelity and Pimco. If your broker tells you otherwise, find another broker, or put your money in a discount brokerage such as E-Trade (ETFC) , TD Ameritrade (AMTD) or Schwab (SCHW).
Source URL: http://investorplace.com/2013/12/retirement-planning-schw-eftc-amtd-vanguard-fidelity/
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