Investing
Ask Jean: Investing in Your Future
Posted by Jean
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.
COMMENTS | 6 comments so far
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Burn your own garbage, cut back your cell phone plan, eat at home, cut off the cable t.v. and sell your stuff. Thanks, Jean for all your tips. I went to renew my car license and registration. I argued the value of the vehicle as you suggested and pocketed over $200.00 that day and used it to pay down debt. I’m well on my way to being debt free.
I’m really proud and excited for you – and I want to send you a planner from the new Fall line as a reward and incentive to keep going! Best wishes, Jean
Hi Jean,
Is it a good time to invest in the S and P 500 now,or it better to wait until it goes down..thanks.
Hi Jean
I have always read if you want to live for retirement save 15% of your income.
If you want to live well save 20%. Is this still true? My real question is my
Company adds 5% to what I contribute every qtr. Should I get my
Contribution up to 20%if I want to continue to
Travel etc in retirement. I’m 46. Home paid for. Debt free. About 6 monhts
In emergency fund (working toward year). About 350,000 in combined
(wife and husband) 401k. About 25000 in savings
Jean
To ask the question from my previous note… If I want to
If my contribution overall to my 401k should be
20% and the company contributes a matching 5% every qtr do I have to get
My overall contribution up to 15% to get my goal
For an excellent retirement?
Hi Jean
My husband and I have been high producers but in the last few years he had several back surgeries and our savings went to pay expenses when he was out of work and my job(s) couldn’t cover everything. We also lost retirement savings in the stock market crash a few years ago. I now have about 20k in the bank and want to invest to have it grow. I am 66 years old. What should I invest in?
I am a Realtor and ASID interior designer and my husband is in technology sales.
Thanks for your help.
Ginny