Saving & Investing for 20-30 year-olds

As a general rule, the younger you are, the higher the risk you are able to assume when investing your money. The reasons for this include the fact that you are years away from having to depend on your savings for everyday life. You are looking for capital appreciation and don’t need a current income stream from your investments. Your time horizon is decades, not years, and you can afford to take more risk in order to realize higher returns. If all your investments don’t work out, you have plenty of time to recover. For those in this age group, most of your money should be invested in stocks, real estate, or mutual funds.

For stocks, select growth companies that have the potential to provide appreciation over a long period, rather than large, established companies whose growth prospects are more limited. Invest in emerging technologies and aggressive companies that are betting on the future, not on the past or present. For those who prefer that professionals invest their money for them, mutual funds provide an excellent means of spreading your money around in different companies, and allocating your risk across a broader spectrum of investment opportunities. With the recent drops in real estate prices and record low interest rates, we may be an approaching an opportunity to start investing in real estate again. The bottom in real estate is not in yet, so there is no reason to jump in prematurely.

Saving & Investing for 30-50 year-olds

When you reach the middle age years, it makes sense to start transitioning from the more risky investments to a balanced portfolio that may include growth stocks, stocks paying dividends, bonds, mutual funds, index funds, and real estate. A simple way to diversify is to buy mutual funds that invest in a wide variety of different industries and foreign companies. There are also funds that invest in precious metals, commodities, and real estate. In addition, as you progress toward the higher end of this age range, it may be wise to allocate a portion of your financial assets to CDs, money market accounts, t-bills, and other interest bearing investments.

The idea is to start protecting a portion of your principal by shifting it into investments that are considered safer, some of which are insured by the federal government. While some financial advisers may recommend specific percentages for allocation purposes, it should be an individual decision depending on your risk tolerance and financial objectives.

Saving & Investing for 50+ year-olds

As you begin to approach retirement age, your risk tolerance is much lower than it was when you were in your twenties. Investment losses now are difficult to make up because your working time horizon is so much shorter. This is your opportunity to take your hard-earned investments and apportion them in a lower-risk portfolio that is structured to protect your capital and pay you interest and dividends. This might include dividend-paying stocks and mutual funds, CDs, money market accounts, t-bills, and savings bonds. During tough economic times, it becomes even more apparent that preservation of capital for those in this age group must be a critical part of your investment strategy.

Building equity for your retirement

One of the best methods for saving for retirement is through an Individual Retirement Account which provides significant tax advantages. While there are several different types of IRAs available, the traditional IRA allows you to contribute “before tax” money, and all transactions and earnings have no immediate tax consequences. In addition, withdrawals from the account at retirement are taxed as ordinary income.

Also available are employer-sponsored defined contribution plans based on Section 401 of the Internal Revenue Code. 401(k) accounts allow employees to identify a specific portion of their salary to contribute to the plan, some percentage of which is often matched by the employer. The taxable salary is reduced by this amount, up to the maximum allowed by law. The contributions by the employee and employer are invested and all earnings are tax-deferred until the money is withdrawn at retirement. It is wise to contribute the maximum allowed since that will guarantee you the maximum matching amount from your employer. Even if there is no matching, the more money you can shield from current taxes, the more money you will have tucked away for your retirement.

Online investing companies:

Scottrade

TD Ameritrade

E*Trade Financial

Charles Schwab

Firstrade

T. Rowe Price

Vanguard

Fidelity Investments

Citi Smith Barney

Franklin Templeton Investments

Saving & Investing for 20-30 year-olds

Saving & Investing for 30-50 year-olds

Saving & Investing for 50+ year-olds

Building equity for your retirement

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