Visit msnbc.com for breaking news, world news, and news about the economy

Visit msnbc.com for breaking news, world news, and news about the economy

Visit msnbc.com for breaking news, world news, and news about the economy

I have money to invest for my retirement but I have no clue where to place it to have it work for me. I recently learned that $3,000 can turn into $375,000 over 30 years, and I have exactly that amount to invest rather than having it sit in a savings account. What should I do with this money? – Mikio

Mikio,

These days, I think you’ll have trouble earning that much on an investment. You’d need to earn between 17% and 18% annually on your money, which is a little unrealistic. Investing is something done over time – you don’t want to just put $3,000 into an account and never look at it again. Instead, you should open an account with that $3,000, and then add a little more automatically each month so it can grow. So take a look at your current situation. Do you have at least 6-9 months in an emergency fund? Is your high-interest debt paid off? If you answered “yes” to these questions, you can to consider putting that $3,000 into a retirement account like a 401(k) where the money can grow tax-deferred until retirement  – if you have one at work — or a Roth IRA where the money can grow tax free forever.

Your underlying question though, is in what do you invest the money in order to make it grow over that 30-year time period.  I’d suggest a target-date retirement fund.  This is a mutual fund managed based on your retirement date (you choose a fund with the date in the title that is approximately when you are going to retire, 2030, for example or 2040).  Then the manager of that fund takes fewer and fewer risks as you get older so that if the market takes a dive right before you retire, you’re not in such a precarious position.  For most people this works much better than trying to pick a few stocks yourself.  The folks at the Employee Benefit Research Institute recently analyzed 24 million 401(k) retirement accounts.  They found that 21 percent of people 10 years away from retirement had 90 percent of their money in stocks.  That was way too risky and when the markets cratered they got creamed.  The people who’d gone the target-date fund route had 51 percent of their money in stocks, 10 years away from retirement.  The market collapse hurt them, but not nearly as much.

My father in law gave us 10,000 dollars as a gift. What should we put it in? Maybe a CD? I also want to start a college fund, but I don’t want to pay a penalty if my daughter doesn’t go to college, or wants to go to a trade school. – Mary, New Jersey

Mary,

That all depends what the money is for. Usually, when you have a large sum of money, you’ll want to choose to either save it or invest it – unless you have a large amount of debt to pay off at high interest rates – then, you might want to put it towards paying down some of those bills. It can help you alleviate some of the monthly pressure, too, that happens when you have high-interest debt.

A CD can be a good option if you think you’ll use the money in the short-term – say within the next three to five years. If you have plans to put a down payment on a home or a car, or are looking to make another big purchase, you don’t want to risk losing principal.   You probably won’t earn much – according to BankRate.com, interest rates on a 1-year CD are averaging around .69% nationally – so either keep your money very short-term (say 6 months to a year) so you can reinvest when interest rates jump or look into the adjustable CD from ally bank.

If it’s for your child’s college fund, I’d put it in a 529 college savings plan (go to savingforcollege.com to find the best one for you). The great thing about 529 Plans is that they can be used for traditional colleges and universities, as well as for trade schools. And if you have more than one child, and one chooses not to go to college, you can put that money toward your other child’s education. For more tips on choosing a 529 plan, check out the article I wrote a couple of weeks ago here on my blog.

Next, check your emergency fund. I suggest having three to six months of living expenses in a savings account to use in the case of a financial emergency. Setting up and maintaining that emergency cushion is important. You should take a look at what you spend, roughly, each month on your housing, transportation, debts, and general living expenses, and if you don’t have at least a few months’ worth in a savings account, allocate some of that $10,000 there.

If you’re saving for longer-term goals, like retirement, then it’s okay to invest it in something a little more risky — like a stock market index fund — knowing you’ll eventually get more growth but you may have to ride the ups and downs of the market before you do. “Putting money away toward retirement is always a good move,” says Diedra Fulton, a Dallas-area fee-only certified financial planner. “Contribute the maximum amount to a ROTH IRA for 2010, if eligible, based on income,” she adds, “which is $5000 annually if you’re under 50, and $6000 if you’re 50 this year and older.”

If you’re well funded in each of these areas, and still have some leftover cash, have a little fun! “Consider using a small portion for taking an unplanned trip, splurging on a personal reward, or addressing some other ‘luxury’ you had not anticipated incurring expenses for,” says Fulton. Unless you’re in a dire financial situation, it’s okay to spend a little.

This is a perfect question because it shows that you are thinking in exactly the right way!  The answer is that your emergency savings comes before the supplemental retirement plan.  Figure out how much that emergency nut has to be (six months worth of living expenses — i.e. money you’d need to sustain you if you lost your job not the amount of money you choose to spend every month), then how much in free cash you can muster toward meeting that goal.  Have the free cash automatically transferred out of your checking account and into the ING Direct account. (That’s another smart move on your part, by the way, because ING Direct offers savings rates that are consistently above average.  If you want to see which other banks make the cut, go to bankrate.com for a list of the top-paying savings and money market accounts in the country.)  Once that emergency cache is filled, talk to your benefits department about automatically having the money moved into your supplemental retirement plan instead.  Good luck in your new career!

“Instead of learning the lessons of Lehman and the crisis from which we are still recovering, they are choosing to ignore them,” he said. And later, “Hear my words: We will not go back to the days of reckless behavior and unchecked excess at the heart of the crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses.”

My question is: Will consumers and investors be guilty of the same? Individuals, unlike Wall Street, are looking saner than over the past few years.

We’ve learned, over the last year, to spend less and save more. According to a recent study by HSBC, over the past six months, 55 percent of survey participants have cut back on leisure activities, 46 percent have cut back on travel and 40 percent have cut back on electronics spending. We’ve learned that a night in with Netflix can be just as good as a night at the movie theatre. And thanks to public figures (namely Michelle Obama) we’ve learned that Talbot’s and J.Crew can be just as chic as couture. Going hand in hand with frugality is saving. Over the course of the past year, we’ve learned that saving for a rainy day is more important than ever. Today, the U.S. savings rate has climbed from 1.2 percent at the beginning of 2008 to an average of 5 percent during the second quarter of this year.

We’ve learned — once again — that you can’t time the markets. Individuals who pulled out after the fall were unfortunately many of the same that missed the recent 50 percent run. (Missing just the best 20 days over the past 20 years would cut the return of an investor who had plowed $10,000 into an S&P 500 index fund from $93,000 to $39,000.) That’s why I still believe that the best strategy is to buy it at all levels, stay in it for the long-term, and rebalance twice a year. By doing so you’ll be sure you aren’t overweighted in any particular asset allocation simply by the moves of the market.

And we’ve learned that panicking about our finances doesn’t help. Yes, when the markets get shaky, I like most Americans, worry. But I know that the secret is controlling the things I can control — the amount of life insurance I carry, the fact that I drive a sensible car, the ability to cut one dinner out during the week or one vacation over the course over the year — rather than fretting about those things that I cannot manage.

After the Depression these lessons stayed with individuals for a good 40 years. Here’s hoping they have that much sticking power this time around.

I have money that I want to invest in gold. I want to keep the value of the money and am very afraid of the economic climate. Are gold coins, or gold stocks a good idea?

Many financial planners suggest that a portion of any well-diversified portfolio be compromised of gold or other commodities such as oil. “I wouldn’t allocate more than 5%, maybe 7% or 8% max,” suggests Cathy Pareto, President and Founder of Cathy Pareto and Associates.

When you purchase gold, you have several options. You can purchase it as an exchange traded fund, as mining stocks, as futures, or as bullion.

If you’ve never invested in gold before, Paul Mladjenovic, author of “Precious Metals Investing for Dummies,” suggests starting with bullion (high-quality gold or silver in bar or coin form) such as the American Eagle coins, which are issued by the United States Mint. He warns to steer clear of medallions or commemorative coins. “These are more expensive and have a dealer markup,” says Mladjenovic

Today, more and more investors are looking to gold instead of stocks to provide some financial stability. But before you start plotting where to stash the shiny stuff, you’ll need to consider both the positives and the negatives of investing in gold.

One of the upsides is that as long as you own gold, you own a tangible asset that is desired by others. “If I have a gold coin in my hand, it’s been recognized as having great value for thousands of years, and thousands more to come,” says Mladjenovic. While the value of gold will never be zero, it’s value will fluctuate due to changes in the market. On the downside, if you invest in gold, you won’t be paid any dividends or interest. Additionally, the IRS doesn’t consider gold an investment, which makes it subject to the 15% maximum federal capital gains tax.

Unfortunately, when it comes to investing in this commodity; there really is no one “golden rule” to follow. They key is remembering that gold, like any other investment has its risks. “As with anything, any investment, you ought to be diversified. Everything else has risk, and we can’t forget that, gold has it too,” cautions Pareto.