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Which is better: making extra payments on my mortgage or you own? What is the long-term track record of your holdings, putting that additional money into savings? and how have they compared to their indices? Is your allocation The best debt is no debt, so eliminating your mortgage is a great appropriate for your goals? Finally, remember that if you are in the thing. However, you shouldn’ t rush to do so at the expense of accumulation phase of your investing life, you shouldn’ t be rooting having a cash reserve and a robust savings plan for your future. A for the market to soar, for down and flat markets offer opportunities cash reserve that can cover your living expenses for 6-12 months is to buy investments at lower prices. From 1934 until the end of 2015, essential. Suppose you lose your job – an emergency cash reserve the S & P 500 ** returned an average of 10.8 % per year with dividends can help carry you through the lean months as you search for a reinvested. You can’ t predict how the markets will perform in the new one. Don’ t count on tapping the equity in your home in an short term, but sticking to a disciplined savings strategy is smart for event like this; it’ s tough to qualify for a home equity loan without the long term. showing employment and income. Beyond your emergency reserve,
My son is ready to go to college, and we haven’ t saved enough to you should be systematically saving for your retirement. A financial cover the cost. What’ s the best way to help him? advisor or even an online calculator can help you determine how
Your financial security should take priority over paying for your much you need to save based on your goals. Once you’ ve done these children’ s education; for while there are endless borrowing options for things, you can consider making extra payments toward the principal college, there are no loans for retirement. If you have earned income on your mortgage, which will help you pay off your house sooner. to spare – meaning you’ re living comfortably AND contributing It doesn’ t seem like my investments have made much money over regularly to your retirement accounts – you can use it to pay a portion the last couple of years. What should I do? of your son’ s tuition. Talk with your accountant and financial advisor Since the beginning of 2015 – nearly two years ago – the MSCI World about contributing the money you have to a 529 savings account ***. Index has returned under 4 %( as of October 18, 2016). The S & P Total Doing so can offer you a PA state income tax deduction, and you can U. S. Stock Market Index has returned 7.6 % during the same time put it in the money market of the 529 to avoid market fluctuations period and the MSCI Emerging Markets Index has lost 1.75 %*. So, and immediately withdraw it to pay tuition. To plan for the rest of markets haven’ t been lighting the world on fire over the last couple of your son’ s expenses, the first step is to complete the FAFSA( Free years. Still, if you’ re concerned about your returns, it’ s worth looking Application for Federal Student Aid) at fafsa. ed. gov to potentially into a few things. One, what are the expenses of the investments qualify for aid, including grants, scholarships and federal loans. These things almost never cover the full cost of college, so your son can consider applying for private loans, which should be in his name. Because most college-bound kids have no credit history, parents generally need to co-sign these loans. Finally, talk with your son about the cost of college and the financial implications of various schools. His heart may be set on an expensive choice, but it’ s worth factoring cost into the decision-making process. Sometimes when students are shown the difference that cost makes in their future loan payments, they begin to see some advantages of choosing a less expensive school.
This Industry Insight was written by Sara Botkin.
Sara Botkin is a Certified Financial Planner™ professional and president of Botkin Family Wealth Management in Peters Township. Visit www. botkinfamilywealth. com or call 724.941.1737 for more information. Have a question for our next“ Money Matters” column? Email Sara at sara @ botkinwealth. com.
Securities offered through LPL Financial, member FINRA / SIPC. Investment advice offered through Private Advisor Group. Botkin Family Wealth Management 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. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
* The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The S & P Total Market Index is designed to track the broad equity market, including large-, mid-, small- and micro-cap stocks. The MSCI EM( Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. All indices are unmanaged and cannot be invested into directly. Past performance is no guarantee of results.
** The Standard & Poor’ s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
*** Prior to investing in a 529 Plan, investors should consider whether the investor’ s or designated beneficiary’ s home state offers any state tax or other benefits that are only available for investments in such state’ s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Non-qualified withdrawals may result in federal income tax and a 10 % federal tax penalty on earnings. Please consult with y our tax advisor before investing.
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