May 2015

Taylor Financial Group’s Monthly Planning Letter

Young Investors Month

Monthly Planning

Common Mistakes for Young Investors

Common Misconceptions of Young Investors

Tips for Young Investors

The TFG Budgeting Expense Organizer

Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through Private Advisor Group, a registered investment advisor.

Taylor Financial Group and Private Advisor Group are separate entities from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Information Disclosure: The information contained herein has been obtained from sources considered to be reliable, but accuracy or completeness of any statement is not guaranteed.

© Taylor Financial Group. All Rights Reserved.

May is Young Investors Month at Taylor Financial

Group Welcome Spring! We hope that you are all enjoying the warmer weather!

Are your children or grandchildren starting to save for their future? Do you want to help them along the way? We hope that this Monthly Planning Letter will help you, your children, and your grandchildren learn more about the personal finance considerations of young investors and families.

Should you have any questions, please do not hesitate to contact our office!

Debbie

In this Issue… Page

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Taylor Financial Group May 2015

Five Common Mistakes Young Investors Make

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Information Disclosure: The information contained herein has been obtained from sources considered to be reliable, but accuracy or completeness of any statement is not guaranteed.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and asset allocation do not protect against market risk. No strategy assures success or protects against loss.

Investment returns quoted are hypothetical and not representative of any specific investment or strategy. © Taylor Financial Group. All Rights Reserved.

Misconceptions of Young Investors • Investing is complicated. While investing can be complicated, the initial tools needed to begin investing are quite simple.

Understanding the basics to investing will help you to analyze investment opportunities. If you have any questions, or would like to learn more, please do not hesitate to contact our office.

• Investing is for the rich. Young investors often think that they need a lot of money in order to make meaningful investments. Through the use of common investment products, young investors can invest in a broad basket of stocks and bonds and obtain a diversified portfolio with an investment even as small as $50.

• Investing is risky. Investing is risky, and can even include the loss of principal. Today’s young investors may be entering the markets after having just seen the turmoil of the 2008 financial crisis from the sidelines. All investors should determine the appropriate level of risk for their portfolio and implement an investment strategy and asset allocation that is consistent with their risk tolerance and overall financial plan.

• Saving and investing means sacrificing. Every investor should review their monthly expenditures, create a budget, and devise a savings plan. We recommend that investors “pay themselves first,” by establishing an automatic monthly savings. Most young people spend what they earn which leads to frivolous spending. By paying yourself first and transferring a fixed amount to their investment account at the beginning of every month, it will help investors to create a budget and make saving a primary goal!

1. Procrastinating. Procrastinating is never good. When it comes to investing, procrastination can have a negative impact on your financial plan. For example, if a 30 year old investor begins to save $350 every month, they can amass nearly half a million dollars by age 65 (assuming a 6% rate of return). If that same investor waited to age 35 to begin saving, they would have only saved $351,580. In fact, they would need to save $496 (41% more) per month to amass the same $500,000 savings by age 65! This is a hypothetical example and is not representative of any specific investment. Your results will vary.

2. Not taking advantage of their employer’s retirement plan. As addressed above, young investors need to save as much as they can, as early as they can, for retirement. Often young investors do not take advantage of their employer sponsored retirement plan (such as a 401(k)). Often employers will match contributions to a retirement plan. A match on retirement plan contributions is an automatic 100% return on your investment! If your employer offers a match for retirement plan contributions you should contribute at least as much is necessary to take advantage of the employer’s matching contribution.

3. Speculating. Generally, a young investor will be able to take more risk to seek higher returns with their retirement savings than an older investor who is close to their retirement. However, the same sound investing principles such as maintaining an appropriate asset allocation and a diversified portfolio are important for all investors. Young investors often will look for big returns chasing a hot stock or a speculative start up company. When it comes to speculation, it is no different than gambling, as losses can scar a young investor and then hinder them from having faith in investing.

4. Focusing on the short term. Young investors need to remember that they have a long time horizon. It is easy to get caught up in short term investment returns, however, young investors should remember that their retirement savings is invested for a 30, or even 50 year time horizon. Young investors should work with a financial advisor to create a financial plan and focus on their long term investing goals without getting sidetracked by short-term market movements and fad investments.

5. Taking the dividend and running. Compound interest is interest added to the principal of an investment so that the added interest also earns interest from then on. In the short-term, a young investor may see a dividend payment on a stock or interest payment on a bond as a way to fund a vacation or buy themselves a nice present. However, over the long-term, allowing income to compound can have a strong effect for investors. For example, let’s assume that a young investor purchases $10,000 of XYZ stock which pays an annual dividend of 3%. Should the stock achieve a price return of 7% per year, after ten years the young investor who spent their annual dividend could have $18,384 while the patient investor who reinvested their dividends may have $23,987! As Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”

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Taylor Financial Group May 2015

Tips for Young Investors

• Obtain a credit card. Young people have a clean financial slate. This is good because they haven’t had time to make any mistakes, but bad because lenders don’t have enough credit history to determine whether or not they will make mistakes (which can lead to higher interest rates for credit cards, home, and auto loans). Here are a few ways to start building valuable credit history:

o Talk with your parents about becoming an authorized user for their credit card. o Talk with your parents about becoming a co-applicant for a lease or auto loan. o Apply for a low credit-limit credit card with a local bank or retail store.

• But not so fast! Put down that credit card. We believe that every young investor should obtain and (in moderation) use a credit card so that they can establish strong credit history. However, you should never spend more on credit than you can pay down in a short period of time. In 2014, the average household owed $15,611 in credit card debt (source: Nerd Wallet). With an average credit card interest rate of 15.82% (source: BankRate), these balances will just continue to grow if not paid down immediately. Paying down credit card debt is an immediate double-digit return on investment!

• Consider a Roth IRA. A Roth IRA can offer huge future tax benefits. Contributions to a Roth IRA grow potentially tax-free for investors to withdraw in retirement. If a twenty-five year old contributes $5,500 per year to a Roth IRA and achieves a 7% long-term growth rate, at 65 they may have a pool of $1.1 million that could be withdrawn in retirement income tax free!

• Create an emergency fund. Life is full of unexpected twists and turns. A young investor should determine how much money they would need to pay for three to six months of living expenses and keep these funds set aside in a savings or money market account in the event there is an unforeseen event or need for these funds.

• Create a budget and stick to it. Young investors should create a budget and stick to it. The Expense Organizer (included on the next page) is a useful tool to help track monthly expenditures. We recommend that this organizer be completed for a period of three months and then reviewed to identify areas where you may be overspending. By creating a budget you can determine how much money you can comfortably save every month.

• Start saving early. The power of compounding is profound. For example, a twenty-five year old investor who saves $250 per month and obtains a 7% long-term rate of return could have amassed over $650,000 for their retirement by age 65. However, if that same investor waited until age 35, they would need to have saved $537 per month (more than twice the amount per month) to amass the same savings.

• Diversify. Not all investments and asset classes go up, or down, together. Investors should focus on building diversified portfolios and remaining invested in a range of companies and asset classes, within their risk tolerance, over the long-term. Investing in a select group of companies and individual stocks may have the potential of yielding strong returns, however, it also can subject investors to greater risks.

Taylor Financial Group, LLC

851 Franklin Lake Road Suite 34

(201) 891 – 1130

office@taylorfinancialgroup.com

www.taylorfinancialgroup.com The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Information Disclosure: The information contained herein has been obtained from sources considered to be reliable, but accuracy or completeness of any statement is not guaranteed.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax. Future tax laws can change at any time and may

impact the benefits of Roth IRAs. Their tax treatment may change. Investment returns are hypothetical and not indicative of any specific investment or strategy.

© Taylor Financial Group. All Rights Reserved.

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Taylor Financial Group May 2015

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