Private College Student Loan

10 rules for building wealth

Summary: 1 Start earlyMore than any one stock or mutual fund pick the age you start investing will determine how much wealth you build To illustrate Employee A starts putting away $100 a month when she s 22 Her money grows at 8 percent a year and after ten years she stops contributing and lets her stake grow Employee B waits until he s 32 to set aside $100 a month also growing at 8 percent a year and he keeps it up until he hits 64 When they both retire at 64 she will have $234 600 and he ll have only $177 400 Need we say more 2 Use your 401 k If you re not already enrolled in your company s plan stop reading now and sign up Since you re putting in pretax dollars a 401 k is an unrivaled savings vehicle and passing up an employer match is literally giving up free money Confused about how to manage all the choices in your 401 k plan New pension legislation is encouraging companies to offer third party investment advisory services so call HR to find out if yours offers any on the house guidance 3 Keep it simpleIf you have a full time job and it s not picking stocks acknowledge that Choosing three or four index funds say an S 500 fund an EAFE fund and a small cap stock fund will give you broad exposure ETFs low cost mutual funds that trade like stocks are also an easy way to invest in more exotic asset classes like commodities If you re close to retirement consider life cycle funds from Vanguard or T Rowe Price which will automatically rebalance your account according to your goals 4 Don t try to beat the marketEven the best fund managers have trouble beating the S 500 so give up the chase The most straightforward way to avoid this trap is to diversify your assets and then rebalance your portfolio at least once a year Check your asset breakdown with Morningstar s free Instant X Ray tool www morningstar com Essentially rebalancing means selling some winners that are taking up too big a share of your portfolio and redeploying that cash to bulk up in areas that have lagged Buy low sell high get it 5 Don t chase trendsYou want to grow your money for the long haul so you can t switch your strategy every time you read the headlines If you see an asset class that s catching fire like real estate investment trusts REITs in the late 90s or commodities this year ask yourself some basic questions Can I describe how it works in plain English If not start your research at Investopedia com Why is it so popular right now If the answer is Paris Hilton bought some best to stay away 6 Make saving automaticNo one wants to think about saving so don t Already more companies are making 401 k enrollment automatic 34 percent of big companies vs virtually none ten years ago If you re already maxing out your 401 k see whether your company can transfer money directly from your paycheck into your Roth IRA or a taxable account Or ask if your bank can transfer a set amount even $100 a month from your checking account into a high interest bearing online savings account check out HSBC s and ING s offerings 7 Go heavy on stocksThe more time you have the more risk you should take If you re just starting out 80 percent to 100 percent of your assets ought to be in stocks If you have say 30 or 40 years what happens over the next three months or even three years doesn t matter If you need the money in two years and it drops 40 percent in one year that s a problem says Stuart Ritter a certified financial planner with T Rowe Price The simplest trick Subtract your age from 120 That s the percentage you should have in stocks the rest should be in bonds 8 Hold down feesBe wary of any mutual fund charging a management fee higher than 1 percent a few stellar managers may be worth it most are not A manager with a high buying and selling rate called turnover should also set off warning bells If you aren t interested in watching your fund manager like a hawk stick with an index fund like one from Vanguard where expenses are typically around 0 2 percent And if you re trading stocks don t be fooled by low commissions They add up 9 Ditch credit card debtAll debt is not created equal so rank yours by interest rate and pay off the bad stuff first That usually means credit cards which can carry interest rates as high as 30 percent Compare your card s APR with others at Bankrate com On the other end of the scale are student loans Those rates are generally between 3 and 6 percent so consider making the minimum payment and investing in your 401 k instead Hey even Supreme Court Justice Clarence Thomas was still paying off his school loans when he joined the bench 10 Defer taxesEager to lock in your gains on a hot investment Before you click on sell consider the tax implications In a taxable account you ll pay 15 percent in capital gains taxes every time you sell a winner you ve owned for more than a year the longer you can defer paying taxes the more time you re giving your money to grow Come tax time however it can be a good move to sell losers in your portfolio to take advantage of the annual $3 000 capital loss deduction limit and offset any capital gains on your winning picks By Jia Lynn Yang Fortune reporter 1 Start earlyMore than any one stock or mutual fund pick the age you start investing will determine how much wealth you build To illustrate Employee A starts putting away $100 a month when she s 22 Her money grows at 8 percent a year and after ten years she stops contributing and lets her stake grow Employee B waits until he s 32 to set aside $100 a month also growing at 8 percent a year and he keeps it up until he hits 64 When they both retire at 64 she will have $234 600 and he ll have only $177 400 Need we say more 2 Use your 401 k If you re not already enrolled in your company s plan stop reading now and sign up Since you re putting in pretax dollars a 401 k is an unrivaled savings vehicle and passing up an employer match is literally giving up free money Confused about how to manage all the choices in your 401 k plan New pension legislation is encouraging companies to offer third party investment advisory services so call HR to find out if yours offers any on the house guidance 3 Keep it simpleIf you have a full time job and it s not picking stocks acknowledge that Choosing three or four index funds say an S 500 fund an EAFE fund and a small cap stock fund will give you broad exposure ETFs low cost mutual funds that trade like stocks are also an easy way to invest in more exotic asset classes like commodities If you re close to retirement consider life cycle funds from Vanguard or T Rowe Price which will automatically rebalance your account according to your goals 4 Don t try to beat the marketEven the best fund managers have trouble beating the S 500 so give up the chase The most straightforward way to avoid this trap is to diversify your assets and then rebalance your portfolio at least once a year Check your asset breakdown with Morningstar s free Instant X Ray tool www morningstar com Essentially rebalancing means selling some winners that are taking up too big a share of your portfolio and redeploying that cash to bulk up in areas that have lagged Buy low sell high get it 5 Don t chase trendsYou want to grow your money for the long haul so you can t switch your strategy every time you read the headlines If you see an asset class that s catching fire like real estate investment trusts REITs in the late 90s or commodities this year ask yourself some basic questions Can I describe how it works in plain English If not start your research at Investopedia com Why is it so popular right now If the answer is Paris Hilton bought some best to stay away 6 Make saving automaticNo one wants to think about saving so don t Already more companies are making 401 k enrollment automatic 34 percent of big companies vs virtually none ten years ago If you re already maxing out your 401 k see whether your company can transfer money directly from your paycheck into your Roth IRA or a taxable account Or ask if your bank can transfer a set amount even $100 a month from your checking account into a high interest bearing online savings account check out HSBC s and ING s offerings 7 Go heavy on stocksThe more time you have the more risk you should take If you re just starting out 80 percent to 100 percent of your assets ought to be in stocks If you have say 30 or 40 years what happens over the next three months or even three years doesn t matter If you need the money in two years and it drops 40 percent in one year that s a problem says Stuart Ritter a certified financial planner with T Rowe Price The simplest trick Subtract your age from 120 That s the percentage you should have in stocks the rest should be in bonds 8 Hold down feesBe wary of any mutual fund charging a management fee higher than 1 percent a few stellar managers may be worth it most are not A manager with a high buying and selling rate called turnover should also set off warning bells If you aren t interested in watching your fund manager like a hawk stick with an index fund like one from Vanguard where expenses are typically around 0 2 percent And if you re trading stocks don t be fooled by low commissions They add up 9 Ditch credit card debtAll debt is not created equal so rank yours by interest rate and pay off the bad stuff first That usually means credit cards which can carry interest rates as high as 30 percent Compare your card s APR with others at Bankrate com On the other end of the scale are student loans Those rates are generally between 3 and 6 percent so consider making the minimum payment and investing in your 401 k instead Hey even Supreme Court Justice Clarence Thomas was still paying off his school loans when he joined the bench 10 Defer taxesEager to lock in your gains on a hot investment Before you click on sell consider the tax implications In a taxable account you ll pay 15 percent in capital gains taxes every time you sell a winner you ve owned for more than a year the longer you can defer paying taxes the more time you re giving your money to grow Come tax time however it can be a good move to sell losers in your portfolio to take advantage of the annual $3 000 capital loss deduction limit and offset any capital gains on your winning picks By Jia Lynn Yang Fortune reporter

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