Wednesday, December 26, 2012
Wordy Wednesday: Get Out of Debt and Retire A Millionaire So You Can Leave Your Mark on the World Excerpt #PromoBookTours
Author: Devin D. Thorpe
Description: Millionaire So You Can Leave Your Mark on the World 925 Ideas to Help You Save Money, Get Out of Debt and Retire A Millionaire So You Can Leave Your Mark on the World from the author of the highly acclaimed book, Your Mark on the World, is a collection of articles about family financial planning that originally appeared at FamilyHow.com.
925 Ideas… is an easy and readable guide to help your family find financial peace. Author Devin D. Thorpe explains:
1) how you and your spouse can find agreement on money matters,
2) how to teach your kids about money,
3) how to pay for your children’s college education,
4) how to live like a millionaire
5) how to come up with $25,000 in a crisis
6) how to make ends meet on one income
7) how to get out of debt and stay out of debt
8) why home ownership should be your family’s top financial priority
9) how to ask your boss for a raise
10) how to use your finances to do more good in the world.
Excerpt from 925 Ideas to Help You Save Money, Get Out of Debt and Retire A Millionaire So You Can Leave Your Mark on the World by Devin D. Thorpe￼
How to invest your first $5,000 for retirement
So you’ve just accumulated $5,000 in your IRA and now you need to invest it. It is impractical, if not impossible to invest it directly into stocks and or bonds so you’ll want to invest in a mutual fund or ETF.
You could split your investment and invest in two or three funds, but if we presume that you will continue to make contributions to your retirement account and that those future investments can go into other funds, our goal for today is to help you choose your first mutual fund.
Let’s assess your situation.
Are you over or under 50 years old? If you are older, you have somewhat less time to invest, making the risk of a reversal greater for you so you’d want to invest more conservatively. If you are younger—or much younger—you can and should tolerate a bit more risk.
How do you feel about risk? Does the idea that you could check the value of your mutual fund at some point in the future and discover that its value has declined send you into a panic? Does the idea that it might be worth 20 percent more in a year excite you? Would knowing that your retirement savings is at risk prevent you from sleeping at night?
If you conclude that you can tolerate investment risk well, then you should be considering mutual funds that invest in stocks. Their values rise and fall more than funds that invest in bonds, but over the long haul you should expect to earn more in stocks than bonds. If you don’t tolerate risk well you may want to make your first investment in a bond fund.
If you feel panicked about risk, please consider that without taking some risk, it is almost impossible to save enough for retirement. Risk free returns don’t earn enough interest to keep up with the value eroding impact of inflation. Money in the bank is better than no money in the bank, but it will be worth less tomorrow than it is today. To retire comfortably you need to get comfortable with moderate risk.
Morningstar is a private company that rates and categorizes mutual funds. There are dozens of categories. Your first mutual fund investment in your IRA could come from one of the following three categories:
Large Blend: A large blend fund invests in the stocks of large companies with a balance of growth and value investments (growth stocks are those projected to grow faster than the market and usually do not pay dividends and value stocks are those that are perceived to be trading below some other measure of value).
Moderate Allocation: A moderate allocation fund invests in both stocks and bonds, with more money invested in stocks than bonds. A portion of the money may also be allocated to cash. These funds expect to achieve some appreciation as well as to generate returns through dividends.
Long-Term Government Bond: These funds invest in treasury bonds that mature more than ten years in the future. Such bonds have no credit risk, that is no risk of not being paid on schedule, but as interest rates change, the value of the bonds will fluctuate.
Each of these fund categories would make a good first fund for your retirement savings. They offer high expected returns—compared to what you can earn in a bank account. They are listed in order from most risky to least risky. You can decide which of these three best represents your risk tolerance based on your own situation.
Once you’ve decided upon a category, you’ll want to choose an individual fund based primarily on the expenses. Your broker should provide you with a list of mutual funds you can purchase with no transaction fees. You’ll also want to choose a fund that doesn’t charge a “load” or upfront fee. You’ll also want to avoid marketing and distribution fees called 12b-1 fees. Finally, you’ll want to look for funds with low expense ratios. All of these fees must be disclosed so you can figure out which fund is best for you.
Your broker should provide a screener to help you choose a mutual fund that meets your criteria. You may also want to try the Yahoo mutual fund screener.
With that, you’re all set to make your first mutual fund investment in your IRA.
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