How To Avoid Investing In The Wrong Stuff
BOSTON (CBS) - Most investors don't even realize they are in the wrong type of investment until it's too late. Asset allocation is simply what your money is invested in; stocks, bonds, cash, real estate. Your time horizon is when you will need the money for the goal.
So you want your time horizon to match your goals. And that's where the problem lies.
Your daughter just got engaged and the wedding is in 18 months. This is a short-term goal. But you don't have much cash saved so you decide to invest in the stock market to make a quick buck so you can give her a grand wedding.
Not wise. I have heard from many listeners over the years of losing much of their money and now either having to borrow or tell their daughter that the 150 guest list needs to be pared down to 40 or less.
The money should be safe and not in the stock market. CDs, money market, Treasuries. I know the interest rates are lousy but your money is safe and will be there when needed to make those down payments every vendor requires.
A college education. You have known about college costs since the kid was born. But you wake one day and realize the kid is 14 and just started high school. What do you? The biggest regret was not beginning to save when your linebacker on the football team was in diapers.
So again, people try to make up for their lack of savings and invest in mutual funds that are high risk thinking they equate with high returns. You have only four years to save. Forget about the emerging market mutual funds. Look for a balanced mutual fund. Or better still use the state's 529 plan managed by Fidelity Investments. They will decide what the money should be invested in with only 4 years to go before you need the money.
The next big regret I have heard from parents of college bound kids is that they borrowed from their retirement plans and one man told of having nothing for kiddo #2 and another told of losing her job and had to pay taxes and a 10% penalty on the money she borrowed for she couldn't pay it back.
Money Conference Alert!!
On October 11th I will be the key note speaker at The Money Conference which is a FREE one-day event presented by The Office of Massachusetts State Treasury. It will be held at UMASS Boston and the first 500 registrants will get a free copy of my newest book, Money, Your Personal Finance Guide.
There will be afternoon classes on everything from budgeting to buying a house. The Financial Planning Association of Boston will have volunteer financial planners there to help answer questions. You can set up a meeting with a Money Mentor when you register. If you have questions about the conference, contact Sheila O'Loughlin of the State Treasury at (617) 367-6900 ext 615.