[1]
In working through our important documents, I am taking a bit more time on the retirement category to explain some very confusing aspects of investing.
Though I am not a financial adviser, I have been through this process. I know how confusing it is, and how much easier it is when you know your options.
Though I cannot choose for you, I can point you in the right direction and offer encouraging words along the way. 🙂
As we continue organizing our important documents, we are working on the second category of retirement plan documents in File Box 3 [2]. After the overview [3], we looked at the different types of retirement accounts [4]. Today, we will consider how to allocate your money in those accounts.
Allocating your Money
Employer-sponsored Plans
When we signed up for our employer-sponsored plan, we had to choose how to diversify or invest our contributions. Honestly, this was the hardest part for me. I researched and found a breakdown I felt comfortable doing. Then I consulted my uncle to confirm my choices before forging ahead. This table from Personal Finance for Dummies by Eric Tyson [5] provided the guidance I needed:
|
25-Year-Old, Aggressive Risk |
45-Year-Old, Moderate Risk |
60-Year-Old, Moderate Risk |
|
|
Bond Fund |
0% |
35% |
50% |
|
Balanced Fund (50% stock/50% bond) |
10% |
0% |
0% |
|
Blue Chip/Larger Company Stock Fund(s) |
30-40% |
20-25% |
25%
|
|
Aggressive/Smaller Company Stock Fund(s) |
25% |
20% |
10% |
|
International Stock Fund(s) |
25-35% |
20-25% |
15% |
At the time we setup our accounts, we chose the 25-year-old allotment recommendations. In the next few years, we will adjust to the 45-year-old recommendations.
We looked among the available funds offered through our employer-sponsored plan and found a reliable balanced fund, larger company stock fund, smaller company stock fund, and international stock fund. By going a quick search on Swag Bucks [6], we found options we liked. The chart guided us to our choices.
Individual Retirement Accounts
Unlike the employer-sponsored plan, the individual retirement accounts can be setup at any financial institution. Though having so many options, making this choice was actually less complicated for me.
I knew from all the reading I had done that we wanted to invest in mutual funds. A mutual fund [7] is run by a fund manager. Many investors pool their money together to purchase the securities and each owns a part of the whole. So, with a small investment, you can own shares of a fund that your one investment would never have been able to purchase alone.
Knowing we wanted mutual funds, we just looked for no-load options. This means that there is no commission charged. We chose Vanguard [8] which is the largest no-load fund company and consistently has the lowest operating expenses in the business. By going with Vanguard, we keep more of our investment rather than paying high fees and expenses.
The recommendations from Eric Tyson [5] we used to decide were the conservative portfolio and aggressive portfolio:
Conservative Portfolio – 50% stocks and 50% bonds
For example: Vanguard Total Bond Market Index – 25%, Vanguard Star – 55%, and Vanguard International Growth or Vanguard Total International Stock Index – 20%
Aggressive Portfolio – 80% stocks and 20% bonds
For example: Vanguard Star – 50%, Vanguard Total Stock Market Index – 10 to 20%, and Vanguard International Growth – 30 to 40% OR Vanguard LifeStrategy Growth – 100%
Making these decisions is a prediction. We do not know what the market will do, but we chose based on the recommendation we had. Thus far, these investments have done well. We have seen the market drop and rise, but overall our investment continues to grow.
By researching and using guidelines, you can make informed decisions in allocating your money. With your plan in place and your money diversified among the funds, your retirement savings can grow to meet your future needs.
Weekly Project: Review your asset allocation within your retirement accounts.
In using time wisely to file your important documents, continue making progress. Next week, we will look at selecting your beneficiary designations. In the meantime, happy organizing!
Question: How often do you change your investments?