Your First Priority!
I love my children and want the best education for them. But as tempting as it may be, saving for their education comes second. Your first priority is retirement savings.
If you forego funding your retirement to save for your children’s education, you may retire with well educated kids – but you will have no money. If you have no money – your children will be supporting you, probably the last thing you want for their future.
You may be able to put away as much as $59,000 for your retirement. In 2013, you may be able to contribute $17,500 with a catch-up contribution of $5,500 in elective deferrals to your 401(k) or 403(b). You may also be able save to an IRA or Roth IRA, the contribution limit is $5,500 with a catch-up of $1,000. Add them all together and you’re socking away $59,000.
First comes saving, then comes smart investing. Always best to diversify your retirement savings to both protect the money and have it grow. You want to maximize return for a given level of risk and the way to accomplish this is by spreading out your investments across classes of financial instruments. Examples of asset classes are stocks, bonds and cash. Usually the more conservative you are, the higher your percentage in bonds. The more risk tolerant are comfortable keeping a higher percentage in equities. Once you have your ideal asset allocation, its time to take the next stp and pick the right investments.
Mutual Funds make the most sense for most investors. Some of the factors to look for in a quality fund are diversification, low-cost, risk-adjusted return, results versus peers, and manager tenure.
Lower expense translates to better performance for no additional risk - we love that. When possible, avoid funds that charge a commission also known as a load. Some funds take a commission upfront others when you sell. No-load or no-commission funds have proven to be excellent performers, stick with these when you can.
Risk-adjusted return is understanding the risks a manager takes to generate returns. Standard deviation is the measurement to go by, the higher the riskier.
Look at the fund’s performance versus it’s peers. The objective is to invest in funds with results that are superior to other funds in their category.
Manger tenure that we look for is a manager that’s been with the fund at least 3 years. If a manager leaves you’re in effect starting a new fund.
There are loans available to help pay for college but there are no loans to help pay for retirement. Save early and save often and if you can afford it, contribute the maximum to your retirement accounts, it is your first priority.