Stressed Out By Investing?
Stressed Out By Investing?
The Definitive Guide to Getting Started
Here¡¯s how to develop an investment plan that works for you
People tend to live in the short term: paying each month¡¯s
rent, buying groceries each week and filling up the tank as it
nears ¡°E.¡± But financial investments exist to help make your
long-term goals just as attainable.
Unfortunately, the stereotype of investors as financial
experts with sophisticated knowledge of the markets
can make regular consumers feel unprepared to open
their own investment accounts. But as David Weliver of
explains, the image of investing as a
way for rich people to get even richer simply isn¡¯t accurate.
Saving enough money for retirement
What financial issue
worries Americans most?1
¡°Many people invest so they might be able to stop
working, or work part time, or transition to a more
inspiring career,¡± he says. ¡°It¡¯s the best chance for
anyone to meaningfully grow the money they¡¯ve worked
hard to earn.¡±
There are myriad options for investing your money in a way
that works for you. It¡¯s as simple as choosing a goal and
creating a plan to match.
Here¡¯s how to get started:
What would Americans
do with an extra $1,000?2
40%
31%
29%
56%
Monthly mortgage/rent bills
Invest it in the stock market
46%
Credit card debt
Educational expenses
Healthcare or insurance bills
Pay off debt
27%
Put it in a savings account or CD
41%
Put it toward a retirement fund
21%
31%
Before you do anything
Concrete goals are the key to success. Statistically, the
guy who said his New Year¡¯s resolution was to have at
least one serving of fruit with breakfast each morning
was 10 times more likely to follow through than the guy
who simply pledged to ¡°eat healthier.¡±
The same goes for finances. It¡¯s far easier to know
how much progress you¡¯ve made toward a $50,000
down payment on a house than it is to know if you¡¯re
¡°saving money.¡±
RULES OF THUMB FOR INVESTING
Risk sounds scary, but some risk is necessary to
reap rewards
Take more risks for long-term goals, and be
more conservative in the short term
¡°Your goal can change over time, but you definitely
need direction,¡± says Randall Reinwasser of Solitude
Canyon Investment Advisors and author of the book
¡°Underground Savings.¡±
Stocks work best over the long term, so try
not to make snap decisions based on daily or
weekly gains and losses
¡°Just thinking ¡®I¡¯m going to invest and make money¡¯
generally leads to frustration.¡±
Consider opening a separate savings account
to hold funds earmarked for investments
You¡¯re likely getting into investing because you have a
specific goal or two on the radar already, but keep
evaluating these objectives as you work toward them.
Prioritizing is crucial. It¡¯s pretty difficult to save a large
sum from each paycheck for a house, an education and
retirement, so determine what¡¯s most important to you
today. One school of thought says the soonest event
should rank highest; another says having a nest egg for
retirement is the biggest financial need of your life and
should thus take priority.
At the end of the day, you¡¯re the only one who can
decide what works for you. But no matter what, spend
time collecting your financial information and making
these decisions before you invest your money.
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What¡¯s stopping people from
investing in the stock market?3
53%
21%
say they don¡¯t have the money
say they don¡¯t know about stocks
First investments
Before diving into the markets, consider investing in
yourself by paying down debt first. ¡°Consumer debt
usually carries double-digit interest rates,¡± says Jacob
Lumby of . ¡°Paying off that debt is
equivalent to earning that interest rate in any investment
vehicle with absolutely no risk, and no investment is going
to beat that.¡±
house or a car. Identify a target date for when you want to
have the money saved (for example, maybe you want to be
a homeowner within five years), and construct your budget
from there.
The average credit card has an interest rate of 15 percent.
Even with a particularly remarkable investment, you¡¯re
only likely to earn an annual return of about 7 percent. So
paying off your debt first is essentially twice as valuable.
Money market funds and low-risk bonds are great first
investment options, since they are both comparatively
safe and easily accessible. This safety is great when you¡¯re
working toward a short-term goal, but it also means you¡¯ll
get a lower return over time, so many investors choose to
use these channels for short-term goals but reallocate funds
for ongoing investments.
Once your credit is in the clear, start with a quantifiable
short-term goal, such as saving for a down payment on a
¡°If your goal is to buy a house, what matters is that your
money is there for you when you need it,¡± Weliver says.
at you
¡° K n ow w h n ow
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w
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13-year ts¡¯ Magellan Fund
Investmen
$68,300
Median income of a first-time homebuyer8
To pay for a down payment on a home:
81 percent of first-time buyers used their
own savings, which they supplemented with
other sources:9
26%
Used a gift from a friend
or relative
10%
Sold stocks or bonds, or
used part of their 401(k)
6%
Used a loan from a relative
or friend
Next steps
Good financial planners start saving for their children¡¯s
college education early. Ideally, you¡¯ll have between 10
and 18 years to build these funds.
This time frame allows you to explore both sides of
the investment coin. The longer you have to meet your
financial goal, the more aggressive you can afford to be.
But again, the closer you get to the goal, the better it is
to know your money will be available when you need it.
Consider taking on higher-risk investments like U.S. and
international stocks for a few years, then redistributing
your money into a more conservative allocation, such as a
stock and bond mix, as the target date approaches.
529 plans are also terrific options for college savings.
Each state offers an individualized plan that rewards you
for planning for your child¡¯s education. Most states have
¡°savings plans,¡± which invest your contributions in mutual
funds (in the same vein as an IRA), and ¡°prepaid plans,¡±
which let you prepay the cost of college so you can pay at
today¡¯s rates.
¡°These are good options because your contributions
compound tax-free,¡± says Laurie Itkin, founder of
. ¡°And withdrawals for educationrelated expenses are tax-free too.¡±
Each state¡¯s 529 plan is a little different, and you can
select whichever one you want, so feel free to take a look
at plans across the country. But as Reinwasser explains,
states know this, so they often offer residents benefits
for choosing their plan. ¡°If your state gives an income tax
deduction for 529 contributions, I wouldn¡¯t hesitate to
use that one,¡± he says. ¡°Otherwise, you¡¯re free to use any
state¡¯s plan¡ªand there¡¯s a significant difference in the
quality of the plans available.¡±
Average cost of college:10
$32,762
$18,943
Amount per year to attend a public
university outside of your home state
Amount per year to attend a public
university in your home state
$15,346
Amount the average family has saved for college
The best-planning families
began saving for college
before their child turned 611
¡°Do you
homewor
all your rk
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¨CMu
riel
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woman came the first
New Yorkto head one of
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The long haul
¡°The longer your investing horizon, the more hands-off
you can be,¡± Weliver says. ¡°It¡¯s just a matter of investing
as much as you can each year and making small tweaks
once a year to ensure your money is still allocated
appropriately.¡±
Retirement is the biggest milestone you will save for
throughout your life. So it¡¯s important to plan ahead¡ª
and that means long before you reach retirement age.
If you have a 401(k) or an IRA from your employer, use
that to its fullest extent. An alarming 19 percent of eligible
baby boomers don¡¯t take advantage of these employerprovided vehicles. As people live longer, they¡¯re spending
a larger portion of their lives in retirement, so it¡¯s in your
best interest to maximize your savings.
The other major long-term investment vehicle is none
other than the stock market. Stocks may be the most
outwardly intimidating, but they offer the largest potential
rewards. That¡¯s why it¡¯s best to view them in the big
picture, focusing on the overall success of your portfolio,
rather than panicking over a two-week drop in the market.
Many people got nervous and withdrew their money from
the stock market during the crash of the Great Recession,
but by and large, those who waited it out earned their
money back¡ªand then some.
¡°You don¡¯t want to risk losing most of your money without
sufficient time for the portfolio to recover,¡± Lumby says.
¡°So invest to reach your long-term goals. Even when there
are turbulent times, the stock market has always recovered
and moved even higher.¡±
78%
percent of employers that match
employee contributions to retirement
funds to at least some degree14
23%
percent of boomers with 401(k)s
or IRAs who have taken a loan out
against their retirement account or
made an early withdrawl14
63
Age the average American retires15
36%
38%
Percent of Americans who don¡¯t save
anything for retirement15
Percent of Americans who rely
completely on Social Security for their
retirement-age income15
Median 401(k) balances by age:16
Under 25
25-34
35-44
45-54
55-64
65 and
older
$1,580
$10,272
$27,747
$52,236
$76,381
$72,957
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