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

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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

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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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