Last Week’s Question of the Week: In 2018, how much can a person add into their 401k or 403b retirement accounts? ANSWER: In 2018, the contribution limits to your 401k, 403b accounts has increased to $18,500.
HOST: Every week you talk to us about putting money away for retirement, what questions should we be asking about risk and the places we put those dollars? Should we be concerned about risk?
KLAAS FINANCIAL: Yes, people should be concerned about risk for their portfolios. When the market returns are very positive, which they have been for quite a while, sometimes reflections on how much risk to have, falls by the wayside. The fact is that many people are behind in their retirement savings and sometimes they want to take more risk than they should be. On the other hand, if everything is sitting in savings, you are not likely to be growing your retirement. So the question really is: How much risk can I tolerate?
- Please remember that higher-risk investments have the potential to grow your money faster BUT, there is a greater chance you could lose some or all of your money. Is this a risk that you are comfortable with or that your portfolio can absorb?
- Or would you be more comfortable making less and knowing your money will be there when you need it?
- Key question is how close are you to retirement? If you are within a 5-year window of retirement, you should be decreasing your risk in your portfolio.
- How much do you expect to make on your investments? Be realistic. Just because your brother who is 15 years younger than you is making 15% returns, can you afford that much risk?
- If meeting your expected return means taking on more risk than you are comfortable with, you may need to adjust your goals.
HOST: You have some reminders for us?
KLAAS FINANCIAL: Yes, in summary, know your risk tolerance, in terms of your personality, your expected rate of return, your time horizon till retirement, and the need for liquidity. Then: Set your goals. Create your plan. Choose your asset mix. Choose your investments. Track your progress consistently.
HOST: What are your thoughts about all the hype right now about cryptocurrencies like Bitcoin? Should people look at this as another place to diversify their portfolio towards? And can you describe what cryptocurrencies really are?
KLAAS FINANCIAL: Yes, so this show is about RISK Management and so this fits well with what we are discussing today. So, in a nutshell:
- Cryptocurrency is a general term used to describe an encrypted electronic cash exchange system. Bitcoin is one brand of cryptocurrency, and the most widely known. Others include Ethereum, Ripple, and Lite coin.
- The cash paper bills and coins in your wallet don’t really have an intrinsic value. Their value and the rules for exchanging them are regulated by a centralized system. This centralized system includes a network of accounts and systems that keep track of all transactions. In the United States, we have one standard set of denominations and values that everyone uses. A dollar is worth a dollar, wherever you shop.
- Bitcoin is a digital version of cash (currently trading around $14,000 per coin) that is traded through an electronic network and can be used to buy and sell merchandise online. You can convert your cash to Bitcoin on an exchange and the coins are stored in a digital wallet. None of this is backed by anything… not insured by the FDIC. The Bitcoins can be wiped out by a virus on your computer, or by hackers accessing your digital wallet.
HOST: So what is the problem with purchasing Bitcoin or similar currencies like it?
KLAAS FINANCIAL: So, one advantage of Bitcoin’s biggest advantages is the ease of transfer without restriction. Transactions are recorded in and processed through a decentralized network of databases, which allow for transactions to be private and anonymous, hence the system is often used for drug deals, illegal gambling and other illicit activities. Not the whole system, but some of it certainly is.
So, what’s the problem with it? It is still in its infancy and has not established a level of stability or predictability, which causes one to question how long will it be around. Also not backed or insured by anything.
We would strongly advise that listeners may wish to focus on long-term investments, and not get caught up in current “hot investment” or similar trends. The volatility that could occur with one’s investment in BitCoin could create a lot of havoc. Just last week, $100 billion was wiped off the global cryptocurrency market following talk of the South Korea trading ban.
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.