Investing For The Long Haul—Staying the Course With Your Investments in 2016

January 2016 View more

NMAG0116_Finance_iStock_000073614577_Large_800pxThe new year is upon us and with it brings a host of factors that have the potential to make investors nervous, including volatile foreign markets, fluctuating oil prices and a markedly slow economic correction. When looking for the best 2016 investment strategy, a quick Google search will yield plenty of opinions on the best way to play the stock market. But stocks aren’t the only game in town.

Regardless of what’s happening in the market and the world, smart money is still on having an investment plan based on long-term goals and adjusted for risk tolerance, says Jennifer Wilken, Edward Jones Financial Advisor. “The most important thing for investors to do this year, and any year, is invest, and keep investing as much as they can for as long as they can,” said Wilken.

Wilken sees investing at different stages in life as similar to the changing of seasons, with each stage having a specific focus based on what’s happening in life:

Season I: Planning for Possibilities

In this stage, the biggest priorities are paying back loans and starting new jobs. The focus is on adjusting to a new income stream and budgeting that income to pay down debt. At the same time, take advantage of employer 401k programs by contributing at least as much as the company’s match percentage. “This is also the ideal time to start contributing to a Roth IRA,” says Wilken. “The earlier you begin, the more tax-free money you will have in retirement.”

Recommended Focus: Establish 401k and Roth IRA contributions.

Season II: Gearing Up for Goals

For many people in this stage, life is settling down a bit with first or second marriages, children and owning or buying a home. Wilken emphasizes the need to protect those people and things you love with life insurance and college savings plans. “People at this stage should also be maximizing their 401k contributions or have that as their goal,” said Wilken.

Recommended Focus: College savings and life insurance plans and max out 401k contributions.

Season III: Ramping Up for Retirement

By now, the kids are often well into college or on their way to graduation. If they’ve planned well, people at this stage may be close to paying off their mortgages and starting to think about what retirement will look like. Wilken recommends doing a 401k “catch-up contribution,” which allows anyone who is over 60 to contribute an additional $6,000 to their 401k plan each year.

Recommended Focus: Retirement planning and 401k “catch-up contribution.”

Season IV: Reaping the Rewards

These are the post-retirement years. Given that social security isn’t what it used to be, this is when people need to be strategic about tapping into their retirement accounts and create a smart income strategy. “Think about what you need to live on to make ends meet and how you will do that with your nest egg,” recommends Wilken.

Recommended Focus: Create an income strategy to make retirement accounts last longer.

Season V: Legacy Planning

People in this stage have likely been retired for 10 years for more and have begun to think about how they will transfer their wealth. Wilken stresses the need for an estate plan and a living trust, where it’s relevant. Wilken still cautions investors to always think long-term, regardless of your age. “I have 80-year-old clients who plan to live another 15 to 20 years,” she says. “They need to keep investing and diversify in the same way my younger clients do.”

Recommended Focus: Create estate plan and living trust.