Are you still waiting on the sidelines to invest? Have you stopped putting money into your company’s 401(k) plan or pulled it out all together based on your best friend’s advice? Stop listening! With some stock funds up as much as 30%, non-taxable municipal bond funds paying dividends, and many other funds with no front load fees (no upfront commissions), there is no reason to be sitting on the sidelines. Yes, there are fears of rising inflation, but that’s all the more reason to invest. Think about, if the commonly accepted historical 3% rate of rate inflation (according to inflationdata.com) is eating away at your savings, how much more sense would it make to invest in mutual funds*. According to data gathered by Essex National Securities, an independent broker dealer, bonds have averaged 5% per year, and stocks have averaged 10% since 1926. So, it’s not so hard to see why proper investing can usually beat inflation.
For those who choose to wait or are just too tightfisted to jump back into the market, here are some reasons why hesitation will cost you. Failing to contribute to your company’s retirement plan has at least three very negative consequences. First, you lose the battle against inflation in that your current savings will be worth less in the future than it is now. Second, you’re missing out on a tax deduction because each dollar you contribute to your retirement is usually pre-taxed so that every dollar you contribute is subtracted from your income reported to the IRS. If your company has a ROTH 401K, you may make post tax contributions in which you still gain the advantage of tax-free withdrawals at retirement. The third reason to contribute is matching employer contributions. Often called “Free Money”, employer contributions are an excellent way to build your portfolio. While some employees negotiate employer contributions within their individual employment contracts, often times employers will match their employee’s contributing funds up to a certain percentage with other variables to consider (salary amount, years with company, etc.).
For the entrepreneurs, who must count on themselves for retirement, starting your own company retirement plan may be very beneficial. In some cases, you may be able to contribute as much as $49,000 per year in certain retirement plans for small business. Also, retirement contributions can be tax deductible for you and your employees. To figure which plan is best for your company, you should always consult a Financial Services Professional and an Accountant.
The best step to take right now is contacting a licensed Financial Services Professional for a review of your finances in order to develop the right portfolio for your individual needs even if your company does offer a retirement plan. Don’t let misinformation stop you from putting your portfolio in check.
By Walter Hines,
CEO, Bison Business & Technology Solutions
Walter Hines at walter@bisonbiz.com
