Whether they are tulips, tomatoes or trees, they all start with a seed. If you want something to grow and bear fruit, you need to plant the seeds today. Then you need to continuously nourish, care and watch over your seedlings, you can’t just hope a plant will survive, it needs your attention. The same can be said for planning a secure financial future, you have to start somewhere.
Start by asking yourself, what is it you want to grow? Something easy that doesn’t require much care? Something you want to only have to nourish once or twice a year? Or do have the time and commitment to grow something that may require constant care?
If you want easy without much involvement, the best way would be to utilize your employer’s 401(k), 403(b) or 457 plan. What could be easier than a payroll deduction? It is automatic and requires some research as to the options available in your retirement plan. Do they allow for ROTH contributions, or only traditional tax-deferral? Do they allow after-tax contributions (which can be used in the future for ROTH conversions)? If your employer plan does allow for ROTH contributions, perhaps that will be your biggest decision. Should you pay taxes now for tax free income at retirement or defer taxes and have more money working for you now during the accumulation stage?
Once you have set up your payroll contribution, you then have to learn more about the investment options available with your plan. Age-weighted investment portfolios are gaining popularity, both inside and outside employer retirement plans. For example, a 30 year old today may select a “2050 portfolio” for retirement at age 65. These are designed to be well-diversified and gives the investor access to several different asset classes within one investment. Lastly, don’t forget to find out if your plan allows for “auto-increases”. This allows you to authorize automatic annual increases in the amount you are saving.
Outside of your employer sponsored retirement plan you may be eligible to contribute to a ROTH IRA. Contributions to a ROTH might need more care as there are many moving parts that determine if you are eligible to contribute. If you are within the income limits you can contribute up to a maximum of $5500 to a ROTH IRA (over age 50 can contribute $6500). Maybe you can’t afford the entire contribution and that’s okay because you can contribute whatever is affordable. Most investment companies will let you contribute as little as $50 a month if you have an automatic monthly contribution from your checking account. Six hundred dollars a year is a small commitment to your future. If a 25 year old made that commitment to saving $50 a month until age 65, and the ROTH earned a hypothetical return of 5%, that ROTH would be worth over $80,000! And, the bonus of course, is that ROTH accumulations are tax free.
The most complicated financial seeds to plant would be individual stocks. This takes time, patience and often higher investment amounts if you want to be well diversified. Buying and selling of individual stocks would require some research. Finance websites such as yahoo finance allow you to track an investment portfolio. If this is your first time buying individual stocks, maybe you want to “make up” a portfolio and track it for a month or so, get familiar with the price movements of your stock selections. If you are using non-retirement money for purchasing individual stocks, you should be aware of taxation of short and long term capital gains.
We all have to start somewhere and so don’t wait any longer to get your financial garden growing!
By Roberta L Nestor
Roberta L. Nestor is a financial advisor practicing at 491 New Haven Avenue in Milford, CT offering retirement, long term care, investment and tax planning services. She also offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network – a member FINRA/SIPC and a Registered Investment Adviser. Fixed insurance products offered through Nestor Financial Network are separate and unrelated to Commonwealth. Commonwealth Financial Network or Nestor Financial Network does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation. Roberta can be reached at Nestor Financial Network, 203-876-8066 or firstname.lastname@example.org.