Sunday, March 31, 2013

Retirement: Thoughts on Mutual Funds

Mutual Funds. You have heard of them right? But maybe you don't know what they are, or what to do with them or how to pick one? Breathe a sigh or relief because I'm going to explain a little bit about them. I will not be giving specific suggestions, as I am not professionally qualified to tell you where to invest your money.

According to, a mutual fund is a pool of funds collected by many investors for the purpose of investing in securities. Securities can be stocks, bonds or other assets. To make it even more simple, it is similar to my family, your family, and your neighbors family all putting some cash together to go out and buy a little stock in McDonald's, some of Taco Bell, and maybe a little of Walmart. Together we are shareholders of this fund we have created. When the prices of these stocks we purchased increase are investment increases, the opposite is true when the prices go down. The nice thing about owning a mutual fund of stocks is that you are not putting all your money into one company. The mutual fund may be invested in hundreds or thousands of different companies. Some do well, some do average, a few do poorly. Lucky for you, you didn't put all your money into that one stock that did poorly. Spreading your investments over many companies reduces your risk of losing your investment.

Maybe that is what concerns you about investing in mutual funds. It seems risky. It seems like you could lose your money. While that is true, it is not the norm. First you should not be investing in anything risky if you are going to need that money soon. Soon in my opinion is five years or more. If you have money to put away for retirement that is 10, 20, even 30 or 40 years away then a mutual fund is not very risky. You have time on your side. You have time to recoup any losses you might incur. And technically, you can only really lose that money if you sell the investment. If you hold on to it for the time period I mentioned, you are likely to see the value of your investment fluctuate, but it isn't a real loss or gain until you cash the investment out.

When you purchase a mutual fund, you are purchasing shares. You shares will never decrease unless you sell them. You will see your shares increase when you buy more shares, and if your fund company passes earnings from those stocks back to you in the form of dividends and capital gains. Dividends are kind of like interest, but different.

The value of each share you own in the mutual fund will change every day the market is open. On the days the share value is up, value of your total shares are also up. And that is exciting! On the days that shares are lower than before, the value of your account will also be down. Of course, not a big deal if you didn't sell anything that day. You still have those same shares. Now if you bought shares of your mutual fund on a day when the share price fell, it simply means those shares were on sale. We like a sale right? A sale on shares allows you to buy more shares with the same dollar amount.

Don't be afraid of the fluctuating value of your mutual fund investment. Yes, there is some risk, but generally those who don't take on some risk do not reap the the rewards. I hope you feel a little better about what a mutual fund is and maybe a little more open to investing in them.

Thursday, March 28, 2013

Retirement: 2012 Deadline

You still have time to put money into your IRA or Roth IRA for 2012. Yes, you read that right. You can still make a contribution to your retirement account for last year. The deadline is April 15, 2013. This is the same deadline the IRS gives you to file your taxes.

It isn't too late to open an account either. Many mutual fund companies allow you to open an account online and have your contribution withdrawn from your bank account. You could even put the initial investment into a cash reserves or money market account, until you decide where you really want to invest the money.

Time to get your retirement investment started. You can do this!!

Sunday, March 17, 2013

Retirement: What is Compound Interest?

The joy of saving and investing for long periods of time is most exciting because of the concept of compound interest. And I'm not the first to think so. Even Benjamin Franklin was keen on compound interest!

Definition. According to, compound interest is interest which is calculation not only on the initial principal but also the accumulated interest of prior periods. For example, you initially invest $100, and earn 10% per year in interest. The interest in the first year is $10. In the second year, you actually have $110 invested, which again earns 10%. The interest for the second year is $11. This is a very simple example. Most investments do not currently pay 10% interest, nor do they only pay you once per year.

Calculator. I found a really good compound interest calculator that allows you to put in your specific particulars, including initial investment, additional investments, length of investment and interest rate. The calculator shows you the results as a final dollar figure, a graph, and a list of each years investments, interest and final value accumulated. When you use the calculator, I would highly suggest using the monthly compounding option as it is the most common. Of course, try all the different options to see the major difference in the frequency of compounding.

The opposite is true. This same interest calculation is done for money you borrow as well. You are probably most familiar with it in terms of the interest you may pay on your credit cards. This is why you hear about the high numbers of years it can take to pay off credit card balances. Those really high interest rates just keep adding to the balance and often your next payment doesn't even cover all of the interest you were just charged. It is a never ending cycle and very hard to get ahead.

Earn. My preference is to earn interest on our money, than to pay a dime of interest. We do pay interest on our mortgage, so I do know how it feels to pay for the luxury of borrowing. My advice is to pay as little interest as possible, so the money that you might be paying in interest can actually be saved. Saved to earn interest over time.

Currently, we only earn 0.90% interest on the money in our money market account. Do you have any money set aside now that you are earning interest on? What rate are you earning?

Thursday, March 14, 2013

Retirement: Where to Start

Since I convinced you yesterday that the time to start saving for retirement is NOW, I'm glad you are back.  First, any dollar you save today and don't start spending until you retire from employment is retirement savings in my book. Once you have decided you are ready, you want to know where to begin right?

Simple. You can stash your beginning retirement savings in some very simple places to start with. An envelope. A jar. A savings account. Yes, you can really start this basic. Sometimes it is the best place to start, as some types of accounts have minimum first time deposits. The most important thing about starting this simple is to make sure you know that it is for retirement and you don't mix it in with your spending money. Mark your envelope 'Retirement' in big red letters if need. I'm not kidding here. You have to hang on to this money for quite awhile. You need to remember what it is for.

Easy. Many, many employers have a retirement savings plan available for their employees. It usually requires filling out a form. This is likely with your human resources department, but could be the owner or manager of the business, too. The form is you directing your employer to hold part of your earnings from your paycheck to be deposited in some form of retirement investment. These savings plans are called many different names, often taken from the part of the tax code that authorizes them. You might hear it referred to as a 401(k), a 403(b), TSP (Thrift Savings Plan), or even a 457 plan. Yikes. Those all sound a little scary, right? Don't be afraid of the names.

Yes, your paycheck will be smaller or lower than if you didn't have some taken out for retirement. Darn. That part is disappointing, but it has to be done. It is for your future retirement! There is some good news though. Once you fill out that form, it is automatic. Every paycheck you earn from now on with this employer has you saving a little bit for retirement. You don't have to do much of anything else. You can do more, but it is not necessary. In fact, you could turn a blind eye to the whole thing after that, and then at age 65 open up your retirement statement and be amazed at how much money you saved. See? Easy!

Brave. You actually can save in an envelope AND join your employers saving plan at the same time. In fact, at some point you might want to step out and consider opening your own account outside of your employer. This is where you hear about retirement investments like IRA's (Individual Retirement Accounts) or Roth IRA's. This can be easy and tricky at the same time. The more you know and learn about these types of accounts, the better you will feel. But that envelope you are saving your retirement money in can only hold so much cash, so you have to be strong and take care of that money like you would a small child. You want it to be safe and you want it to grow.

The tricky part is deciding where to open this type of account. You can open one at your neighborhood bank or credit union. Online there is a wealth of information that can connect you to thousands of mutual fund companies and brokerage firms. Financial advisors and insurance agents can help you for a price, too. I personally prefer to be in charge of our retirement as we are the only ones that will care the most about the goal and the prices we pay. We look for companies that charge low fees and allow us to do most of our investing online and automatically.

The easy part about opening an account outside of your employer, is that it is once again a form or forms you fill out with your name, address, social security number, type of account, and so forth. The company you have chosen then opens an account, similar to a bank account, and gives you your account number. You can then send in checks or have your money auto invested each month from your checking account. It is up to you. Only you. To make sure you put money into this account. You cannot rely on your employer to do any of the work with this one. I know though you can make it happen. You are that brave and strong.

Three Choices. Three ideas on where to start saving for your retirement. They are available to you right now! Go out there and start saving for's your money you deserve to keep it.

Tuesday, March 12, 2013

Start NOW!!

March is Retirement Savings Month!

Yes, I officially have decided to celebrate saving for retirement. I'm going to shout it's benefits loud and wide. I'm thrilled my husband and I have begun saving so well for retirement. And I'm really not bragging. I'm just that happy.  I wish, pray, and hope that everyone could feel the power and freedom that come with a retirement account that keeps growing.

I would really like to get my hands on every high school senior with a job and sign them up for their first Roth IRA account. I would like to pull the worker at Subway aside and make sure they know they have the option to save for retirement regardless of their income. I dream of pulling up alongside that man mowing the school lawn and explaining that his small business can have a retirement plan.

Sure here in the United States we have Social Security. What a blessing to many. I'm of the belief that we do not need to rely on our government in our old age. It helps that I was told in high school Social Security would likely not exist for me. I still believe that is a possibility. It helps, too, that our retirement account has been flourishing in recent days. I do know that we will be much better off because we have saved for retirement and will not need to rely on Social Security.

Many calculators, financial advisers, and counselors will tell you that starting early is so very important in saving for retirement. They are right. The earlier you start the more you will have given all other factors to be equal. But that doesn't mean you ever miss the boat in starting to save for the glory days of retirement. Any dollar you save today for retirement is one less you have to rely on the government for. Last I heard, they are having a little trouble keeping all their dollars in line. What makes you think they are setting aside even one dollar for you?

If you are already saving for retirement, I'm thrilled and so happy for you. Really, really, happy for you. I'd shake your hand, pat you on the back, or maybe even give you a hug! I'm that excited for you. You made a great choice and you won't regret it.

If you haven't saved one dollar for retirement, then I have a few questions for you. What is holding you back? Do you know the steps you need to take? What are your excuses? Why can't you start now?

I want you to start now! By the end of March, I hope I can convince you to get started saving for your retirement. I hope to explain account types, a little about stocks and mutual funds and a few other things that I think might just help get you started on your path to a blissful and well funded retirement. Are you in?