I saw an article about the “world’s easiest retirement plan,” whereby you save your age plus two zeros each year. Thus at 21, you’d save $2,100, at 22, you’d save $2,200. Surely, it can’t be that easy. What are your thoughts on that strategy?
Answer:
Americans, generally, have poor savings habits, so we do not want to come down on the article too harshly. Any method that encourages people to save for retirement is a good; however, this is not a retirement plan. We view this as a savings strategy. A considerable amount more should go into retirement planning, including accounting for how much you spend;how long you have to save; what age you want to retire, and how long you will live in retirement.
In our opinion, accounting for spending is one of the most critical elements. If you are 35 and you are earning $200,000 a year but only saving $3,500, it is unlikely that you would be able to sustain that level of spending in retirement. There is a very general rule that you should save 10% of your gross income for retirement, which is probably a bit closer to what the average investor may need. One of the positive aspects of saving more is that you consume less; thus, you may continue to consume less in retirement.
Overall, we feel much more should go into a retirement plan. Additionally, the article in question does not account for how the savings are invested. If you are 21 and are saving for retirement, we believe that your money should be in the stock market. With a long investment time horizon, you should be better able to weather the market’s fluctuations. Likewise, if you are 30 and you are saving for a down payment on a house in two years, we believe your savings should be in safer investments, such as Treaurys or CDs.
Question:
I have the option of buying shares of HollyFrontier at a slight discount. I’m not sure if this is part of my broker’s “inventory” or if this is an option he’s selling. Regardless, what is your outlook on HollyFrontier, and what price should I pay for it?
Answer:
Formerly Holly Corporation, HollyFrontier Corp. (NYSE: HFC) is a petroleum refiner that produces gasoline, diesel fuel, jet fuel, specialty lubricant products, and specialty and modified asphalt. The company is just shy of our financial safety criteria at B++ from Value Line. The company has a price to earnings ratio of 7; however, that is not as relevant because the earnings in refineries are very volatile. In this case, it may be better to consider price to cash flow. The company’s 7.74 price to cash flow ratio is above its five-year average of 7, which indicates the stock is trading at a premium. The company pays a dividend of 1.50% and is expected to grow the dividend in the next few years. Despite being able to get shares at a discount, we recommend avoiding HollyFrontier at this time, as it does not meet our investment criteria.
At Henssler Financial we believe you should Live Ready. If you have questions regarding your investments or financial plan, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
