Investing for major financial goals
G
By John Everett • Contributing Columnist
o out into your yard and dig a
big hole. Every month, throw
$50 into it, but don’t take any
money out until you’re ready
to buy a house, send your child to col-
lege, or retire. It sounds a little crazy,
doesn’t it? But that’s
what investing without
setting clear-cut goals is
like. If you’re lucky, you
may end up with enough
money to meet your
needs, but you have no
way to know for sure.
earns 6 percent per year, compounded
monthly, you would have more than
$500,000 in your 401(k) account when
you retire. (This is a hypothetical exam-
ple, of course, and does not represent
the results of any specific investment.)
But what would hap-
pen if you left things to
chance instead? Let’s say
you wait until you’re
35 to begin investing.
Assuming you contrib-
uted the same amount to
your 401(k) and the rate
of return on your invest-
How do you set goals?
ment dollars was the
same, you would end up
The first step in
with only about half the
investing is defining your
amount in the first exam-
dreams for the future. If
ple. Though it’s never
you are married or in a
too late to start working
long-term relationship,
John Everett
toward your goals, as
spend some time togeth-
you can see, early deci-
er discussing your joint
sions can have enormous consequences
and individual goals. It’s best to be as
later on.
specific as possible. For instance, you
may know you want to retire, but when? Some other points to keep in mind as
If you want to send your child to college, you’re planning your retirement saving
does that mean an Ivy League school or
and investing strategy:
the community college down the street?
• Plan for a long life. Average life
You’ll end up with a list of goals.
expectancies in this country have been
Some of these goals will be long term
increasing for years and many people
(you have more than 15 years to plan),
live even longer than those averages.
some will be short term (5 years or less
• Think about how much time
to plan), and some will be intermedi-
you have until retirement, then invest
ate (between 5 and 15 years to plan).
accordingly. For instance, if retirement is
You can then decide how much money
a long way off and you can handle some
you’ll need to accumulate and which
risk, you might choose to put a larg-
investments can best help you meet your er percentage of your money in stock
goals. Remember that there can be no
(equity) investments that, though more
guarantee that any investment strategy
volatile, offer a higher potential for long-
will be successful and that all investing
term return than do more conservative
involves risk, including the possible loss investments. Conversely, if you’re near-
of principal.
ing retirement, a greater portion of your
nest egg might be devoted to invest-
Looking forward to retirement
ments focused on income and preserva-
After a hard day at the office, do you
tion of your capital.
ask, “Is it time to retire yet?” Retirement
• Consider how inflation will affect
may seem a long way off, but it’s never
your retirement savings. When deter-
too early to start planning — especial-
mining how much you’ll need to save
ly if you want your retirement to be a
for retirement, don’t forget that the
secure one. The sooner you start, the
higher the cost of living, the lower your
more ability you have to let time do
real rate of return on your investment
some of the work of making your money dollars.
grow.
Let’s say that your goal is to retire at
Facing the truth about college savings
age 65 with $500,000 in your retirement
Whether you’re saving for a child’s
fund. At age 25 you decide to begin con- education or planning to return to school
tributing $250 per month to your com-
yourself, paying tuition costs definitely
pany’s 401(k) plan. If your investment
requires forethought — and the sooner
40•
the better. With college costs typically
rising faster than the rate of inflation,
getting an early start and understand-
ing how to use tax advantages and
investment strategy to make the most
of your savings can make an enormous
difference in reducing or eliminating
any post-graduation debt burden. The
more time you have before you need
the money, the more you’re able to take
advantage of compounding to build a
substantial college fund. With a longer
investment time frame and a tolerance
for some risk, you might also be willing
to put some of your money into invest-
ments that offer the potential for growth.
Consider these tips as well:
• Estimate how much it will cost
to send your child to college and plan
accordingly. Estimates of the average
future cost of tuition at two-year and
four-year public and private colleges
and universities are widely available.
• Research financial aid packages that
can help offset part of the cost of college.
Although there’s no guarantee your
child will receive financial aid, at least
you’ll know what kind of help is avail-
able should you need it.
• Look into state-sponsored tuition
plans that put your money into invest-
ments tailored to your financial needs
and time frame. For instance, most of
your dollars may be allocated to growth
investments initially; later, as your child
approaches college, more conservative
investments can help conserve principal.
• Think about how you might resolve
conflicts between goals. For instance, if
you need to save for your child’s edu-
cation and your own retirement at the
same time, how will you do it?
• John Everett is a financial advisor for
Raymond James Financial Services, a divi-
sion of Citizen’s National Bank.
Disclosure
The information contained in this report
does not purport to be a complete description
of the securities, markets, or developments
referred to in this material. Investments
mentioned may not be suitable for all inves-
tors. The material is general in nature. Past
performance may not be indicative of future
results. Raymond James Financial Services,
Inc. does not provide advice on tax, legal or
mortgage issues. These matters should be
discussed with the appropriate professional.
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