I penned this article on Mother’s Day. For me, that day in May is one of remembrance. I remember quite a few things my mother said to me over the years, including what she said the day I began working at my first real job.
In her best southern drawl, “Girl, you betta keep that good job!” I listened to her (most of the time) and 28 years later, I am still with the same company. What she didn’t tell me was what to do when I got to that good job. Not that she didn’t want to. Unfortunately, she didn’t have the tools to.
My mother was a lady from Jim Crow Mississippi. She had a fourth grade education. She and her entire family picked cotton to survive. She eventually migrated to the West Side of Chicago and somehow managed to raise four kids on a minimum wage job combined with assistance from public aid and government housing programs.
A “good job” was never her experience. She simply could not help me navigate the ocean that is Corporate America. And she certainly didn’t know what a 401K was and why I should have invested the very first chance I could. As I reflect on her story, I realize her experience in this world is part of what drives me to share the knowledge I’ve gained over the years.
Each One Teach One
A friend recently reached out concerned about her 401K account. Specifically, she was a bit confused why her account wasn’t growing. She has regularly invested in the plan for years through payroll deductions and was not seeing any movement in the account. I asked her to share the investment options she chose for the account. After seeing the statement, I quickly noticed she was investing like a 75-year-old retired woman on a fixed income. She is 45.
I applaud my friend for actively investing in the plan, maximizing her company match, paying attention to her investments and mostly importantly, seeking help. She realized she didn’t know what she didn’t know and reached out for guidance. Here are few topics we discussed.
She is planning to retire in 20 years. With that time horizon, she has enough runway to continue building value in her 401K account through savings (consistent deposits into her account through payroll deductions) as well as stock market appreciation. The stock market can be very volatile. However, when you look at average annual returns over the last 50 years of the two major stock market barometers, the returns are positive. That means that time is your BFF. When you invest early and regularly in the stock market, while there will be some ups and downs over the years, the trend is overwhelmingly positive.
The combination of investments you choose is your asset allocation. There are several asset classes, but generally speaking we have access to stocks and bonds through mutual funds in our retirement plans. My friend’s account held approximately 85 percent bond funds, which provide stability and income for her
inner 75-year-old self. However, based on her retirement goals, her age and time horizon, her account should probably be about 85 percent in stock fund investments. With this change, she can take advantage of the stock market appreciation and should see the value of her account increase over the years. As she gets older and preservation of her investments become more important, the asset allocation should begin to shift to provide for stability and income.
She asked me “should I check my account everyday?” Checking your account like I check my Facebook feed is not necessary or healthy. If you can’t sleep at night because you are worried about the possibility of losing your fortune in the market, you have a very low risk tolerance for the volatility of investing. And that is OK. Know thyself and invest accordingly. A good practice is to check your account or statements quarterly just to keep track of performance. On an annual basis decide if rebalancing is necessary based on risk tolerance, life changes, asset allocation shifts or goal recalibration.
Corliss is a lifelong Chicago West Sider who has a thing for money and has learned from a few mistakes over the years. She is a fierce auntie, passionate about improving community and educating our babies. She happens to be a Certified Financial Planner TM, has worked a few decades in many areas of banking and views financial literacy as a personal ministry. Join her Facebook page Got My Mind on My Money and My Money on My Mind. Contact her at firstname.lastname@example.org with comments or questions.
The topics discussed and opinions given are not intended to address the specific needs of any reader. They are for informational purposes only and are not to be construed or relied upon as pro-bono, paid or any other advice. The information herein does not offer legal, tax or other advice, and readers are encouraged to discuss their individual financial needs with the appropriate professional advisors. The opinions and thoughts expressed herein are solely those of the Writer and not those of the Writer’s employer(s) or any other affiliations. Writer assumes no liability for any loss or damage resulting from errors or omissions or reliance on or use of the material herein.