2009 Year in Review

Choosing an Investment Vehicle

by Angie VanderVinne

Let’s continue our exploration of investment vehicles, by considering how much to invest in which vehicle. If you have a matching contribution company sponsored plan, then you should be contributing the percentage that they will match up to. For example, your company will match 50 cents on the dollar for every dollar you invest up to a 4% contribution. That is an automatic 50% return on your investment. If you do not participate in this, you are throwing easy money away.

When you reach the point where you have no consumer debt (credit cards, auto loans, home equity lines, etc) AND an emergency fund of 3-6 months of expenses in savings, then you can start investing more of your money for retirement. My recommendation is not to up your 401K contributions, but to invest money in a self-directed Roth IRA. As we discussed last week, Roth plans are after-tax but they grow tax-free and withdrawals are not taxed. Continue to increase your contributions to a Roth until you reach the yearly contribution maximum of $5000/year or if you are over 50 $6,000/year per household income earner OR until you’ve hit 15% total investing between your 401K and Roth Contributions. After you’ve achieved the 15% threshold, you can focus on saving for college. YES, wait until your retirement is fully funded before saving for college. The reasoning is you can always withdrawal for college from your retirement savings or you could borrow for college if you had to. You cannot borrow for retirement!

by  Editor, theCity1.com
April 20, 2009