No matter your age, income, or earning potential, there are strategic ways to invest your money. They may not be the ways you’ve always thought you should be investing like buying low and selling high. You might think your income is too high to invest in a Roth IRA or that you can’t give money to your children before your death. The truth is that there are important strategies for any investor that can help you protect your assets and reach your financial goals.
The George Costanza factor
I may be dating myself, but I am a huge fan of the Seinfeld show that aired in the late 1990s. One day, George Costanza, who had a long history of making poor decisions in all aspects of his life, wonders if every instinct he has ever had is wrong. Jerry Seinfeld, his best friend, suggests that if every instinct is wrong, maybe George should do the opposite of what he thinks is right. When George does the opposite, he finds that his life is better. Just like George, every instinct you have about investing may be wrong.
One of the most common is to buy low and sell high, but you may not want to do that every time you make an investment. In fact, billionaire Warren Buffet has made his fortune doing the opposite, and you can, too, as part of your investment strategy.
Time is money
If you’re going to be the opposite of the norm in your investment practices or at least deviate from the buy-low-sell-high strategy, then consider how time factors into how your money performs in the market. Timing your investments isn’t nearly as important as investment longevity and consistency, also known as dollar cost averaging.
What is dollar cost averaging? It is a strategy that involves investing small amounts of money over a long period of time which can lead to bigger gains than if you were to buy low and sell high. For example, you may choose to have $100 invested every month for ten years. Over that time, the market will go up and down, but the average of your investments will lead to gains because the strategy mitigates risk and takes the emotion out of investing while building the portfolio.
Alright, you have a couple of strategies of how to invest. But what happens if you want to invest in a specific product such as a Roth IRA and do not qualify to directly contribute? If you exceed the income requirements for contributing directly to a Roth (it changes, so check with your financial professional), you may still be able to take advantage of the tax savings of a Roth IRA. Referred to as a Rich Man’s or Backdoor IRA, you can actually convert a traditional IRA to a Roth.
This is a relatively new change. Previously, to convert an account your income could not exceed $100,000; that requirement has been lifted. There is also no 10% early withdrawal penalty if you move funds from a traditional to Roth IRA within a 60-day window.
Establish your own IRA
I often hear from business owners that they think there are no options for them to save for retirement, but that’s simply not true. If you own a business or have 1099 income, you may be eligible to have your own 401k and save up to $53,000! This is especially helpful to you if you’ve started retirement savings late or want to reduce business taxes.
Establishing your own IRA means you can have a traditional or Roth deferral plus a matching contribution from your business which is acting as your employer. If you have under $250,000 in the plan, the fees are reasonable. Check with your financial professional to see if this makes sense for you.
IRA contributions for children or spouses
Some couples find themselves in a situation where one of them is working and one is not, or you have a child that is working. Have you ever considered establishing an IRA for them? Whether your spouse is home raising kids or your child has a part-time job, you may be able to contribute to an IRA for them. That means you can take advantage of tax savings while providing for your family prior to your death.
It is important to note that when it comes to the child, you may contribute to the child’s IRA up to the maximum of their income or contribution maximum, whichever is less.
As a financial professional, it is my goal to make sure my clients understand the investment strategies that are available to them so they can protect their assets and provide for their families at all stages of life.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
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