Long-Term Financial Planning
INTRUDOCTION
Long-Term Financial Planning
INTRUDOCTION
Determining an investments horizon
Determining an investments horizon
Any investment longer than 10 years considered as a long term investment. Long-term investors are generally willing to take on more risk for higher rewards.
Setting up Your Goals
Setting up Your Goals
Long-term investments are more suitable for investors looking to save for a long-term goal, such as retirement or a college funds for their kids.
Executing Your Goals
Executing Your Goals
Find a financial product which will help you to reach your Long-Term financial goals, such as retirement, examples of long-term investment vehicles include stocks and index funds, Here are some common types of retirement plans 401(K), 403(B), IRA, Roth IRA... Etc.
Introduction of some of the most common types of Long-Term Investment Vehicles and retirement plans
Long-term investors are generally willing to take on more risk for higher rewards. Long term refers to the extended period of time that an asset is held. Depending on the type of security, a long-term asset can be held for as little as one year or for as long as 30 years or more. Generally speaking, long-term investing for individuals is often thought to be in the range of at least 10 and up to 30 years of holding time, although there is no absolute rule. Long-term investments are more suitable for investors looking to save for a long-term goal, such as retirement or a college funds for their kids. You won't earn much of a return if you put money into a long-term investment that you plan to sell in three years, or if you want to use the funds for a more short-term goal, like a vacation. For many individuals, saving and investing for retirement represents their main long term project. While it is true that there are other expenses that require a multi-year effort, such as buying a car or buying and paying off a house, retirement is main reason most people have a portfolio. In this case, we are encouraging to start early and invest often.
Using both a long-term outlook and the power of compounding, individual investors can use the years they have between themselves and retirement to take prudent risks. When your time horizon is measured in decades, market downturns and other risks can be taken for the long-term rewards of a higher overall return. A long-term investment usually offers a higher probability of maximizing your return over a 10, 15, 20, 25 or 30-year period, rather than bringing you a high return in just a few years. Examples of long-term investment vehicles include stocks and index funds. Long-term investments are vehicles that you can expect to pay off after holding them for a period of more than 10 years. When investing long-term, you can be more aggressive because you have a longer time horizon, so you could opt to invest in more aggressively in stocks mutual funds or other securities to get the highest rate of return.
There are so many different financial products for long-term investments, such as Retirement Planning or College Planning. Here are some of popular once, 401(K) plan mostly offered by large and mid-size corporations, the plan allows both the employee and employer to get a tax deduction when they contribute money into the employee's 401(k) retirement account, 403(B) plan typically offered to private-nonprofit employees and government workers, including public school employees. Like the 401(K) 403(B) plans are a type of Defined-Contribution plan that allows participants to shelter money on a tax-deferred basis for retirement. 457(B) also known as Deferred-compensation plan offered to state and local government employees , including police officers, firefighters and other civil servants, Pension Plans also known as Defined-Benefit plans offered by some companies and government agenesis, traditional IRA (Individual Retirement Account), SEP IRA (Simplified Employee Pension IRA), Roth IRA , could be a traditional brokerage account, 529 Plan (college fund), it is a tax-advantaged investment vehicle in the United States designed to encourage saving for the future higher education expenses of a designated beneficiary and many other financial products. For more information go to Examples. These are all names of financial products but the portfolios (funding mechanisms) behind them might be various stocks, bonds , mutual funds, ETFs or real estate properties , it’s depend of the particular product and the individual’s risk tolerance. All of these financial products have their own rules and regulations , but there are some rules that apply to almost all of these retirement plans with some exemptions, for more information about these rules and regulations and differences between these plans - go to Examples.
It is also very important to understand the concept of CAD (Contribution, Accumulation & Distribution) when you planning for Retirement and when you are about to choose this or that particular retirement plan. This concept shows why it makes sense to pay taxes on the front-end rather than the back. That doesn’t mean that other plans are less valuable but when you plan for retirement you should have divers portfolio which may include Tax now, Tax later and/or Tax efficient financial products. For more info about CAD go to Examples.
Qualified plans are designed to meet ERISA (Employee Retirement Income Security Act) guidelines and, as such, qualify for added tax benefits on top of those received by regular retirement plans, such as IRAs. Employers deduct an allowable portion of pretax dollars from the employee's wages for investment in the qualified plan. The contributions and earnings then grow tax-deferred until withdrawal. A qualified plan may have a defined contribution or a defined benefit structure. In a defined contribution plan, employees select investments, and the retirement amount will depend on the decisions they made. With a defined benefit structure there is a guaranteed payout amount and risk of investing transfers to the employer. To qualify as an ERISA plan, plan sponsors must meet several guidelines regarding participation, vesting, benefit accrual, funding, and plan information.
Many employers will offer primary employees non-qualified plans as part of a benefit or executive package. There are also individual non-qualified plans offered by a plan administrator, such as Roth IRA. Non-qualified plans are those that are not eligible for tax-deferral benefits under ERISA. Consequently, deducted contributions for non-qualified plans are taxed when the income is recognized. In other words, the employee will pay taxes on the funds before they are contributed to the plan, but the earnings then grow tax-deferred and qualified distributions (distributions made after age of 591/2) are free of federal (and possibly state) income tax. Simply saying your annual contributions in non-qualified accounts are made with after-tax dollars and are not tax-deductible However, you are not required to pay federal (and possibly state) income tax on distributions of earnings if you do distributions after age of 591/2. Section 409A in the IRS code differentiates between qualified and non-qualified plans and provides guidelines for both. But unlike qualified plans, which are governed by the Employee Retirement Income Security Act (ERISA), nonqualified plans are not governed by ERISA. This gives non-qualified plans wider latitude to determine contribution limits and other eligibility and contributory guidelines. Life insurance also and example of long term financial product, its purpose is to protect yourself , your family and your assets and potentially create supplemental retirement income.