Take a step back and think about the best way to attain your retirement goals.
- In these topsy turvy times, it can be hard to know how to go about ensuring your long-term financial health.
- Even before the pandemic, many underestimated their need to be proactive about saving for retirement.
- It may be tempting to reduce or pause your retirement contributions. Unless absolutely necessary, the best thing to do is ignore the panic and stay the course.
NerdWallet<p>In <a href="https://bigthink.com/big-think-live/personal-finance-sallie-krawcheck" target="_self">these topsy turvy times</a>, it can be hard to know how to go about ensuring your long-term financial health. But with the economy being as it is, whatever advice you acted on in the past, and whatever mix of long-term investment types you felt served your retirement needs best, it's probably a good idea to revisit that logic.</p><p>What was once a conservative investment may have become high-risk, <a href="https://bigthink.com/cryptocurrency-markets-economic-uncertainty" target="_self">and vice versa</a>. New tax benefits, stimulus grants and bailouts are rapidly changing the landscape, too. This is the time to take a step back and think about the best way to attain your retirement goals.</p>
First, secure your emergency fund<p>While it's often true that it takes money to make money, investing without savings is not a good idea. Before taking the plunge, make sure that you are earning enough to live on and have cleared out any high-interest debts, for example credit card debt.</p><p>If you are covering your monthly expenses and have money left over, set some aside until you have enough for your household to live on for a few months – this is your <a href="https://www.businessinsider.com/personal-finance/how-much-money-to-save-in-emergency-fund-rules" target="_blank">emergency fund</a>. If you are unable to work or have to cover an unexpected expense, this fund will make sure that you don't have to dip into your long-term investments to cover the gap. </p><p>Have you received stimulus money that you don't need for immediate expenses? Consider putting that towards your emergency fund if you don't already have one. Your emergency fund should cover at least three months of expenses, with six months being the ideal benchmark. </p><p>Once you've reached your target amount, there are a few ways for you to lock up your fund that will be both secure, easy to access, and may even earn you some interest. Some options include a high-yield bank account, money market accounts and Roth IRAs.</p>
IRA or Roth IRA? It all depends on you.<p>Individual retirement plans, or IRAs, let you contribute money that may be eligible for a deduction on your tax return. Plus you can defer taxes until you retire, when you will likely be in a lower tax bracket. If you've been laid off or your employer isn't keeping up with contributions, you can rollover eligible assets to an IRA.</p><p>If you are expecting to earn less income this year than last year, then it may be a good idea to consider converting some or all of your IRA holdings to a <a href="https://www.moneyunder30.com/roth-ira" target="_blank">Roth IRA investment account</a>. This means that you will owe tax on the converted funds now, but you will be able to withdraw from them tax-free in the future. Why does it matter if you are earning less? If you place in a lower bracket or are on unemployment, you will pay less taxes on your Roth IRA conversion. Just make sure that you have the funds to cover the taxes without having to dip into your retirement funds. </p><p>Another reason to convert now is the dip in the market. While this may have negatively impacted your portfolio, it also means that it's a buyers market. Buying low now could mean big earnings as the economy inevitably recovers down the line. </p>
Keeping up with your 401(k)<p>During difficult and volatile times, it may be tempting to reduce or pause your retirement contributions. </p><p>Unless absolutely necessary, the best thing to do is ignore the panic and stay the course. Continuing to make contributions even if your portfolio has taken a hit is your best bet right now. It may even be a good time to increase your contributions with stock prices lower. When the market returns and stock prices stabilize, this will translate to investment gains.</p><p>Another reason to keep investing, or to begin investing, is that every second counts. For many Americans, the number to hit for secure retirement is <a href="https://www.cnbc.com/2019/07/05/how-much-money-do-you-need-to-retire.html" target="_blank">$1.7 million</a>, and that can take a lot of time to build up to. Considering the current uncertainty, the faster you get started, the sooner you will be able to reach whatever the right number is for you. With many funds having taken hits, if you are still employed and spending less under lockdown, putting some extra money into retirement savings is a great way to get ahead of your financial goals.</p>
EBRI<p>In one <a href="https://www.willistowerswatson.com/en-US/News/2020/05/amid-COVID-19-more-employers-are-easing-access-to-401k-assets-than-cutting-matching-contributions" target="_blank">recent survey</a>, researchers found that 12 percent of employers have suspended matching 401k contributions, and another 23 percent are considering suspending contributions. If your employer is suspending or cutting 401k contributions, or if you have been fired, then consider rolling your savings over to an IRA or Roth IRA. Taking money out of your 401k may come with hefty penalties, so keeping this money invested is your best bet. </p>
Laying foundations with real estate investment<p>With the tumult of the markets, many investors are looking at the resilient real estate market for long term financial growth. This has been the case for nearly a decade, with <a href="https://news.gallup.com/poll/309233/stock-investments-lose-luster-covid-sell-off.aspx" target="_blank">35 percent of Americans</a> ranking real estate as the best investment bet over stocks, savings accounts, or gold. </p>
Gallup<p>This isn't a bad idea – housing prices are still rising and will likely continue to do so into the future. But there are a few things to keep in mind. Even if this downturn won't affect housing the way it did during the 2008 crisis, unless you are confident that you will be able to make your mortgage payments and have saved money for a down payment, this type of long-term investment is a major commitment.</p><p>Of course, with interest rates lower than they've been in years, mortgages are more affordable, so if you are secure then this is a good time to buy. If you currently own your home, these reduced interest rates mean it is a good time to refinance for more favorable terms. </p><p>If you are looking at investing in rental or commercial real estate, COVID-19 has created some unfavorable circumstances you should be aware of. While unemployment and recession mean more people are renting than buying, with some even selling their homes and moving to a rental. The economic situation also means more tenants will be unable to pay rent consistently. Plus, distancing restrictions make showing properties a challenge. </p><p>For larger commercial properties, the market has <a href="https://www.cnbc.com/2020/05/12/investing-advice-real-estate-investment-buying-a-home-in-a-downturn.html" target="_blank">fallen dramatically</a>. With a 28 percent dip across all industries and a 48 percent drop in travel and tourism properties, buying into commercial real estate is tempting but poses risks if the industry doesn't recover. </p>
Taking stock of the market<p>One interesting investment trend that has emerged during the pandemic is online stock investing. Investment apps are <a href="https://marker.medium.com/how-robinhood-convinced-millennials-to-trade-their-way-through-a-pandemic-1a1db97c7e08" target="_blank">surging in popularity</a>, with Robinhood growing it's retail investor user base and experiencing a threefold increase in trades in the first half of 2020. The average age of users hovers at around 30, making stock trading the millennial investment of choice these days – but there is plenty to be wary of.</p><p>Many of the young people flocking to online investing are first-time investors with time on their hands and little money to spare. If you're looking to recoup lockdown losses or make a quick buck, know that stock market investing is risky and may not be the best idea for a long-term retirement strategy.</p><p>If you are able to maintain an emergency fund, make regular contributions to secure, long-term investments, and still have some money left over to play with, then the market is a great place to explore, with caution. But if you don't have a safety net, focus on saving first. </p>
Conclusion<p>Calling these times uncertain and tumultuous is an understatement. But despite short term chaos, it is important to stay committed to your long term financial goals. For most Americans, retirement means saving every month for decades on end – the pandemic hasn't changed this. </p> <p>However, it may be time to reassess your investments. For example, if your income has been cut or you are unemployed, then converting your IRAs or 401k to Roth IRAs may be your best bet. Of course, always make sure you are making your monthly expenses and have an emergency fund on hand before investing.</p>
Knowing the pitfalls is the first step to making smarter money decisions.
- Taking control of your money and making better financial decisions is something that everyone can and should do.
- There is a bit of a learning curve when it comes to investing. A big part of making money is learning how to avoid common mistakes.
- Buying cheap stocks instead of smart ones, being too reactive to news headlines, and thinking short term are a few of the things that new investors often get wrong.
M1 Finance<p>A useful (and free) personal finance tool for investors at all levels is <a href="https://m1finance.8bxp97.net/76BPy" target="_blank">M1 Finance</a>. It's a commission-free investing and money management app that was recently rated #1 for Sophisticated Investors and #1 for Socially Responsible Investing by Investopedia, beating out competitors like Personal Capital, Vanguard, and Betterment. Available for Android and iOS devices, M1 Finance lets users create a portfolio of stocks or exchange-traded funds (ETFs) for free. Investors can also borrow from a flexible portfolio line of credit with a low base rate, and M1 is currently beta testing FDIC-insured checking accounts with debit cards that investors can use instead of their existing checking account. To find out more about how it works and to sign up today, <a href="https://m1finance.8bxp97.net/76BPy" target="_blank">click here</a>.</p><p>As you set out on your investing journey, here are a few common mistakes to avoid:</p>
Don’t focus on the short term.<p>Treating the stock market like placing a bet is a strategy that probably won't work out for you. Successful investor Warren Buffett warns new investors against day trading. "If you aren't willing to own a stock for 10 years, don't even think about owning it for ten minutes," <a href="https://www.berkshirehathaway.com/letters/1996.html" target="_blank">Buffett wrote</a> in a letter to shareholders back in 1996. Buying and selling stocks quickly may get you a few dollars, but making a smart investment in a good company and sticking with it over a long period of time could make you exponentially more. </p>
Don’t buy what you don’t understand.<p>Never buy a piece of a company when you don't understand how it makes money. Do your research and learn about the industry and the mechanisms that move it, otherwise the money you invest could disappear and you would have no idea why.</p>
But don’t only buy what you know.<p>According to <a href="https://www.investopedia.com/articles/stocks/07/beat_the_mistakes.asp" target="_blank">Investopedia</a>, novice investors (and those with experience) should probably stick to the principle of diversification. In poker terms, you don't want to "let it ride" on one big stock in the hopes that your money will double or triple. Create a portfolio and spread the money around. As a general rule according to the experts, never allocate more than 5-10% to any one investment.</p>
Don’t use your retirement money.<p>Risking your livelihood on investments is dangerous and ill-advised. If losing the money you are thinking of investing would ruin your life or the lives of those around you, then you absolutely should not do it.</p>
Find good investments, not cheap ones.<p>In the same vein as the first tip, it's important for new investors to learn that just because they can afford to buy a stock, that doesn't mean they should. The idea of investing early in the next Google and riding the wave to wealth is enticing, but that's not a realistic strategy. Tried and true is often better than shiny and new.</p>
And lastly, don’t overreact based on the news.<p>Hearing about a tanking stock on the news can be scary if that company is a part of your portfolio, but experts warn against letting your emotions get the best of you. Consider the history of the stock and whether or not the reason for the dip is something that could soon pass. If you panic and sell because of a headline, you could regret it next month when that dip turns into a spike.</p>
Lumina Foundation wants to help 16.4 million people get a quality credential by 2025, and they're looking for entrepreneurs with the vision to help realize that goal.
- Lumina Foundation's goal is to help people across the U.S. get a quality post-secondary education.
- To do that, it's providing grants, helping to shape policy, and it's investing in innovative entrepreneurs through the Lumina Impact Ventures program.
- Lumina is looking to partner with entrepreneurs who are dedicated to helping students gain a fulfilling post-secondary education and for whom Lumina Foundation can be a strong value-add partner.
- In 2019, Lumina Foundation and Big Think teamed up to create the Lumina Prize, a search to find the most innovative and scalable ideas in post-secondary education. You can see the winners of the Lumina Prize here – congratulations to PeerForward and Greater Commons!
Cutting edge social innovators should consider hybrid models
Over the past fifteen years, I've had the opportunity to provide strategy for well over a hundred social change start-ups seeking to make the world a better place. The most common question they ask, "Should we be a for-profit or a nonprofit."
My answer, "Why not consider both?" Let's review the advantages and disadvantages.
The nonprofit option<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8xOTAxOTAxNC9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYyNzM1OTk3NX0.3bV5UFjLvdaePpyVLiqFvK5bseKYnzDXyTxTJhkc-G0/img.jpg?width=980" id="7cb85" class="rm-shortcode" data-rm-shortcode-id="d05953854c97915ae8e70081acff961e" data-rm-shortcode-name="rebelmouse-image" />Human hands holding polygonal heartHuman hands holding polygonal heart. Love, peace and donation concept. Charity event. Vector illustration for non-profit organisation<p>The nonprofit option is the most popular choice with over $410 billion given to 1.5 million nonprofits last year alone. Nonprofit leaders report back to me four primary advantages to this legal structure:<br></p> <ol><li>"My donors get a tax deduction."</li><li>"Foundations prefer giving to nonprofit entities."</li> <li>"Nonprofits have a good brand in our culture."</li> <li>"We don't have to pay taxes!"</li></ol> <p>They also cite three major disadvantages:</p> <ol><li>"I feel like I'm in constant fundraising mode—I'm chasing donors not solving problems."</li> <li>"Instead of seeing our impact, donors scrutinize my salary and overhead costs."</li> <li>"No matter how much sweat equity I put into my work, I have no financial gain to show for it." </li></ol>
Impact investing for for-profit social ventures<p>The rise of impact investing into for-profit social ventures makes this is a powerful alternative to the nonprofit model. The Global Impact Investing Network reported that "225 investors, including pension funds, invested $35.5 billion across 11,136 impact investment deals in 2017. That is up 58% from $22.1 billion across 7,951 deals in 2016." That $35 billion is getting pretty close to the $66.90 billion donated by charitable foundations in 2017.</p><p>Nonprofit leaders are also looking toward for profit earned income as part of their future as well. A recent <a href="file:///C:/Users/tafelric/Dropbox/Bradach,%20William%20FosterJeffrey%20L.%20" target="_blank">Bridgespan Group</a> survey of US nonprofits' executives reported they "believe earned income would play an important role in bolstering their organizations' revenue in the future." According to <a href="https://www.echoinggreen.org/ideas/look-2017-profit-hybrid-applications" target="_blank">Echoing Green</a>, a nonprofit with a 25-year record of supporting early-stage social entrepreneurs, the proportion of their applicant pool proposing for-profit and hybrid organizations has grown to nearly 50 percent, compared to 15 percent in 2006.</p><p>For-profit social ventures name three primary advantages to choosing this model.</p><ol><li>"I no longer feel like I'm begging donors year in and year out."</li><li>"There's untapped capital out there without sufficient social ventures to invest in."</li><li>"We put in our own sweat equity and as owners, I might get a great long term financial return for my work."</li></ol><p>Social ventures also described to me three disadvantages.</p><ol><li>"I don't know how to find impact investors."</li><li>"We aren't able to get funding from foundations or other traditional donors."</li><li>"It's hard to measure and report out both impact measurement and return on investment to investors."</li></ol><p>Hybrid models that include both for-profit and nonprofit entities can maximize the advantages of each model, while minimizing the disadvantages. These hybrids come in many shapes and sizes.</p>
A Case Study: Town Stages<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8xOTAxODk0Ny9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYwNzQ3MTAyMH0._U1N0slaWK5WfyK2m7kRgOJ_crOKe4PULlvtjv0jjis/img.jpg?width=980" id="3059c" class="rm-shortcode" data-rm-shortcode-id="9b80e6d869d2698a7130df0e86d6ffca" data-rm-shortcode-name="rebelmouse-image" />
A Town Stages production space
townstages.com<p>A good examples of a hybrid model was reported in Forbes magazine by Carey Purcell. In the article titled, "How a 'Robin Hood' Business Model Supports an Artistic Clubhouse in Tribeca," she tells the story of Town Stages LLC a "female-driven cultural institution and event venue owned by a nonprofit Sokoloff Arts." The founder Robin Sokoloff wanted to provide spaces to work and live for artists like herself to survive ever-rising NYC rent. Town Stages, with space rentals for weddings, bar mitzvahs, and business events, subsidizes Sokoloff Art fellows.<br></p><p>Artists can rent the space at the rate they can afford, and the revenue is used to subsidize other emerging artists. Not only does she provide spaces for artists, but her organization is also focused on the advancement of young women, minorities, and LGBTQ voices. Town Stages has become a home for underrepresented voices in the community and was able to expand its impact thanks to the success of her first artistic hub. Since 2012, they allowed 70,000 people to create almost 900 different works of art.</p><p>Social Venture hybrids have some profound advantages, especially when it comes to fundraising and equity. In particular, they allow the social venture to say "yes" to both impact investors and traditional foundations. They allow social entrepreneur teams to be owners and get a financial reward for the unpaid time they invest in the cause.</p>
"Guard Rails" required<p>Hybrids also have the disadvantage of requiring more well thought out accounting "guard rails" to make sure the organization operates legally — nonprofit money must always serves the public interest, not someone's private interest. Arron M. Fox CPA at the Senior Tax Manager, at Raffa, Marcum's Nonprofit and Social Sector Group describes one way to create a hybrid model called a for-profit subsidiary in his piece <a href="https://www.raffa.com/newsandresources/publications/pages/considerations-when-creating-a-for-profit-subsidiary.aspx" target="_blank">"Considerations When Creating a For-Profit Subsidiary."</a></p><p><strong>Rich Tafel is the Director of</strong> Raffa Social Capital Advisors - Marcum's Nonprofit and Social Sector Group <br> Marcum LLP. <a href="mailto:Rich.Tafel@MarcumLLP.com" target="_blank">Rich.Tafel@MarcumLLP.com</a></p>
How do you make yourself valuable in an ever-changing economy? You become well-rounded.
Bill Drayton, the founder and CEO of social entrepreneurship firm Ashoka, thinks that doing business today relies on being as prismatic and as open as possible. That's how you become, as he puts it, a "change maker." The world doesn't need more specialists, he posits, because well-rounded people open to new ideas and learning new skills can fit just about anywhere.