Maintaining your financial well-being isn’t always easy, and that’s why we’re here to help. Two certified financial planners from the National Association of Personal Finance Advisors (NAPFA) take your questions about retirement, investments, taxes, insurance, saving for college and more. Submit your question early by clicking "make a comment now," and join the discussion live on Thurs., Feb. 16 from 1 p.m. - 3 p.m. ET.
Welcome to today's Jump-Start Your Financial Plan live chat! We have two NAPFA advisors with us today, David John Marotta of Marotta Wealth Management in Charlottesville, VA and Danielle Seurkamp, of Foster & Motley, Inc. in Cincinnati, OH. Thanks for joining us Danielle and David!
Happy to be here and I look forward to chatting with you all!
Now, for those of you who are joining us for the first time, let me explain a little about how the live Q&A works: your questions will be submitted and held for moderation. Depending on the volume and complexity of reader comments, your question may not necessarily be approved right away. However, we will do our best to answer your question as quickly and thoroughly as possible!
@David C.: You're doing a great thing for your sons in setting them up with Roth IRA's. I like the target date funds as they are well-diversified and essentially rebalance themselves. To maximize the benefit of tax-free growth in their accounts, it makes sense to utilize a more equity-oriented type of investment so I think I would recommend that you switch in the 2060 fund.
Your teen-age sons won't need bonds in their portfolio for a long time. The 2055 has about 10% in cash and fixed income. You can move it to 2060 or you could put everything in a global stock market fund.
The College America 529 through a fee-only advisor allows you to mix whatever asset allocation you want using the available American funds. We've used that to increase foreign stocks and tilt small and value. College America 529 has the most money in the country even thought it is a Virginia plan. We are in Virginia and clients in Virginia also get a Virginia state tax deduction.
@PhCastil: Since you are 24, again, you don't need any bonds, and you don't need the added expense of a target-date fund. You will rebalance your portfolio and redo you asset allocation some time in the next ten years.
@PhCastil: I like that you have included emerging markets, but what about foreign developed countries? I would split 50-50 between US and foreign. The US funds look great, you may want to tilt a little value, so instead of a mid is there a mid-value or small-value.
@phcastil: It's possible that you are doubling up on your exposure to large and mid cap domestic markets by also having the target date fund. I would sell that and allocate more to the large cap fund and if you have one available, put something into an established international fund to round out your international exposure. I agree that you don't much in bonds right now, but you may want to add some down the line.
@PhCastil: We might recommend 30% US Large or US large Value, 15% Small Value or Mid-Value, 30% Foreign Developed, 15% Emerging Markets, and 10% REIT or other hard asset stocks.
@charestka1: Assuming you can't cut back any expenses and use that toward savings, I think the best advice would be just to try not to go into debt. Hopefully at some point you will have some excess cash that you can use to first build up an emergency fund of 3-6 months of expenses in something liquid like a savings account. Then I would try to utilize an employer plan if you have one available to you and if not, fund either an IRA or a Roth IRA.
@CHarestka1: Another tip would be to look at your monthly expenses and cut back on these. Drop all the cable features, cell phone voice mail etc. Monthly features save money monthly without thinking about it.
@McGinnin: At age 25 I suggest that you put much of the cash that is just laying around in a diversified portfolio of investments. Include some fixed income, but the portion that is invested in stocks will, on average, double every 7-10 years. That means 10 years from now you will have twice the pile of cash. Yes, it will bounce around, but it usually trends upward.
@mcginnin: It sounds like you are doing a lot of things right, but $160k in a savings account is quite a bit. I'd keep aside enough for a 20% down payment on a house if you plan to buy one and then enough to fund 3-6 months of expenses. I would take the rest and add it to your investment account. If you don't want to expose all of it to the volatility in the stock market, you might want to consider a short or mid-term bond fund for some of it which will pay you more than what you get in interest in a savings account. Bonds tend to be less volatile, but there is still the possibility to lose principal. Try to pick something with a high quality rating so there isn't a lot of credit risk.
@Jane: Retirement planning is complex and requires more in-depth planning than what we can do here. That said, a rough rule of thumb is that a sustainable withdrawal rate from your investment assets is about 4%. I would advise that you try to find a planner in your area to help you look at your situation in more detail.
@ERKdad: www.ssa.gov is Social Security's official site. They have a quick calculator that can show you what they estimate your benefit to be at different ages. You can also enter you real earnings history to get an even more accurate estimate.
Hi @Charestka1, you can find David and Danielle's answers to your question down below. Your question was the fourth one posted. Your name will appear at the beginning of their responses. Thank you!
@Meenakshi: The markets are inherently volatile, but they are also profitable. You may have a "moderate" risk appetite, but that doesn't mean at age 30 that is the way you should be investing. You have 35 years before age 65. That is a long time horizon, and you have the time horizon to let the markets bounce around a little. The learning opportunity is how can you begin investing and get comfortable with being invested in
@meenakshi: In your late 30's you still need a significant amount of growth oriented investments - stocks- but you should also have some portion of your portfolio in bonds. If you have less tolerance for risk, you might set up a portolio of 75% stocks and 25% bonds. Within each of these groups, diversify between different types of assets. For stocks buy some large and small US as well as established and emerging international companies. Diversification lowers your overall risk and can increase your return.
@Meenakshi: I find it helpful to keep track of how much I put into the account verse what it is currently worth. It is better to measure investing from what you put in than the high water mark it happened to make a few months ago. Then I can clearly see that I have made money over my lifetime of investing.
@Zach: I would begin building up an account of taxable investments. When you eventually retire, there is a real benefit to having both tax-deferred assets like your 401k as well as a taxable investment account. It will allow you to manage your income tax bill during your retirement years. Perhaps set up a recurring monthly contribution and dollar cost average into a few diversified mutual funds or ETF's.