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College vs. Retirement
For most people, investing in mutual funds is pretty straight forward.
You have specific goals that need to be met.
You and your partner are approaching mutual fund investing with your eyes open and you’re both on the same page.
Granted, she may want that pretty cottage down by the lake and you want that new speedboat, but both your goals involve water, and that’s close enough for you.
But what if you’re in a completely different boat?
What if you know you need to invest, but you have two equally important goals pulling you two different ways?
This is the case with thousands of parents who see the need to save for retirement but also want to save for the kids’ college education.
How can you do both at the same time?
Here are a few tips.
One of the biggest factors in the college vs. retirement battle is
the fact that people are putting off having kids until later in life
these days.
Fifty years ago, this wasn’t the case, and saving for both college and
retirement usually happened during two distinctly different phases in one’s life.
These days, now that we realize that saving for retirement is something that should be started when you’re 18, not 48, the
two overlap more than ever.
The gut instinct of most parents is to put the kids’ future ahead of their own and cut back on retirement savings in favour of college.
While this is a popular choice, it really only should be a last resort.
A technique that is becoming more and more popular with parents who face saving for both at once is offering your prospective college student the chance to get matching funds from you.
This is simply the idea that for every dollar they pay for, you’ll match it.
If your not sure how junior will pay for half, remember, there are many ways for teenagers to save for college themselves.
Almost everyone qualifies for student loans, there are scholarships for good grades as well as an after school and summertime job.
Most college students work while they are attending classes, as well.
While walking the tightrope of saving for two goals at once can be stressful, a logical and determined approach to the situation is really the only way to go.
Choosing retirement over your kids’ education isn’t a “wrong” choice, and neither is choosing college over retirement.
Everyone’s situation is different and you need to make the right choice for your situation.
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Criticism of mutual funds.
While mutual fund investing has exploded over the past 50 years to become one of the most popular forms of investing anywhere,
there are still possible pitfalls that you can fall into if you’re not careful.
Investing is still a risky business, even if everyone is doing it.
Here are some tips to help you through any problems you might have.
One common criticism of mutual fund investing is that they don’t have a high enough return on their investment and that index funds, which aren’t as popular have historically returned a higher investment than the much more popular actively managed mutual funds.
A second common problem that some have with mutual fund
investing is the use of load funds.
You have probably seen the phrase “no-load mutual fund” in the newspaper or on television.
The reason the no-load type of fund is preferred is because load funds come loaded with fees.
These fees can run anywhere between half a percent, all the way up to 8.5 percent of however much you chose to invest.
It’s thought that these fees are a clear conflict of interest as they clearly benefit the people making the sale and hurt the person making the investment.
Load mutual funds are also thought to make your broker recommend funds that will maximize his fee, and not your investment portfolio.
Some investors also point to a perceived conflict of interest in regards to the size of the mutual fund.
Most companies that manage the mutual fund charge a fee of between half a percent up to two and a half percent of the total amount of the funds assets.
It’s thought that this fee could cause a fund to spend more on advertising than is actually needed so that they can get more people to invest in the fund and maximize their fee as much as possible.
The mutual fund market isn’t immune to scandals, either.
In 2003, a scandal involving the practice of unethical and dishonest trading practices.
Many funds were found to have participated in late trading and market trimming, both of which are illegal practices.
You obviously don’t want to invest in a mutual fund that is engaged in illegal activities.
Mutual fund investing is gaining in popularity on an almost weekly basis, and a few bad eggs in the business won’t ruin it for everyone.
However, it is always good advice to enter into any kind of investing with your eyes wide open, and if you feel your mutual fund is behaving improperly, there are authorities you can report them to.
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Determining Reward vs. Risk
The concept of risk versus reward is the basis for
not only mutual fund investing, but investing altogether.
The same system of risk versus reward can be translated to
almost every part of life.
When you analyze a situation, you can determine the possible
risks of doing something and then the possible rewards of
doing something and decide what the best course of action is for you.
Determining your risk versus reward strategy for mutual fund
investing is key.
The first thing investors of all stripes need to learn is that
while mutual funds are a fun, exciting and easy way to invest,
there is always a chance, no matter how slim, that you could
lose every single penny you invest.
That is one kind of risk. The other kind is the risk of not meeting your
investing goals that you have set for yourself. This is a tightrope that
every investor must walk, determining your risk while trying to earn the
reward.
The risk associated with investing can be caused by many different
factors.
Things like general economic conditions, the rising or falling of interest
rates and inflation are just a few factors that can cause a stock or a
mutual fund to rise or fall.
One of the best parts about mutual funds is that the risk involved in
each fund is clearly stated BEFORE you invest.
If you’re just looking to make a few dollars for holiday shopping, you
can do that and keep your risk very low.
If you are 25 and have a whole lifetime to invest for your retirement,
there are mutual funds that can help you take big chances with even
bigger rewards.
If you lose your money, it’s not as big of a deal since you have your
whole life to make it back.
Maybe the best advice you can take when analyzing risk versus
reward is the fact that every stock, every bond and, yes, every
mutual fund will fluctuate.
This is an inarguable truism in the world of investing.
There may be a few times when you sit down with your morning paper
and you need two antacids with your morning coffee because
your fund lost a few points.
But with smart investing and good advice, you’ll have far more
mornings where you leave for work with a smile on your face because
your fund is doing well.
Analyzing risk versus reward is a huge part of investing and if you are
having trouble figuring out how much risk to take, ask for help.
You don’t want to enter into investing with a blurry picture of your
risk vs. reward.
The more you know about your personal situation, the better off
you’ll be.
PS. The kids can Teach kids how to make Money to invest –
Check out the below link.
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