The Three A's to Successful Saving

When the markets are up and performing well, everyone is excited to save and invest. After all, what’s more fun than putting money in an investment account and seeing it grow rapidly? The reality is that in a market that is going down, investors are less willing to save.

Notwithstanding the market environment, good savings habits, even more so that high investment returns remains one of the most essential aspects of building wealth and having a secure financial future. Whether you’re saving for an emergency fund, a future goal like college savings, or something fun like a vacation, short and long-term goals are imperative.

Today we’re sharing a quick framework to save for retirement using the three A’s. Let’s look at our first A.

Amount. We suggest starting to save as early as possible. Consider saving at least 15% of your pre-tax income each year in a retirement account. It is worth noting that in some cases, depending on your projected needs, you may need to save even more. Developing a financial plan can help you figure out your personal savings needs and targets.

An employer match can make saving that amount easier. For example, if Lisa’s employer match is 6% of her pay, this means her employer will match her contribution dollar for dollar, up to 6% of her salary. To get to the recommended total of 15%, she would only have to save 9% of her own money.

Even if you can’t contribute 15% of your income right now, try to contribute enough to take advantage of the entire employer match, which is effectively free money. Then, be sure to regularly assess your financial situation, and look for opportunities to increase your savings as soon as you are able.

Now that we’ve determined that you should save 15% of your pre-tax dollars each year, let’s move on to the second A. Account. This is where you are going to save those dollars. If available, try to make the most of an employer retirement account like a 401k or 403b. Private vehicles such as a Traditional or Roth IRA will help you leverage your dollars. Also consider taking advantage of a Health Savings Account or HSA which can offer one of the most effective means of saving for qualified medical expenses both now and during retirement. A financial planner can help you determine which type of account makes the most sense for you, in the context of your bigger financial picture.

The third and final A is Asset Mix. Stocks have historically outperformed bonds and cash over the long term, so when investing for a goal like retirement that could be many years away, it can make sense to have more invested in stocks and stock mutual funds. Higher volatility can come from stocks, so you need to be comfortable with the risks. To determine the appropriate mix of investments, you should look at your time horizon, financial situation, and tolerance for risk. As a rule, investors with a longer timeline should have a significantly broader diversified exposure to stocks.

When it comes to investment strategy, it is not on a one size fits all approach. Your decisions need to be made in the context of a well thought out financial plan that may look different for you than it does for others. As always, the best way to ensure you are on track for retirement and your other goals is through ongoing work with an advisor. We’d love to help you develop an actionable financial plan specific to your needs and objectives. Feel free to call our office at 518-406-5624 or visit simmonscapitalgroup.com to book a free consultation.

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