A New World Ahead

With new life changes underway, Stacy Hall is focusing on her own financial goals

debt within 30 days, and she participates in her 401(k) at work. Hall also has enough cash for emergencies through liquid vehicles such as a CD and a money market account.

Hall’s goals include: purchasing a new home for about $180,000 with an interest-only loan, moving to North Carolina when she retires at age 55, opening a bed and breakfast or a coffee shop, and saving $100 a month for her grandchild’s education.

Set Priorities. Hall should determine her most important goals over the next one, five, and 10 years, says Williams. “Thoroughly researching one goal at a time will help her make a decision on the most feasible, desirable, and practical solutions to problems,” says Williams.

Learn Investing. “Stacy should take a basic investing course at a community college or technical school, along with reading basic investment books.” Then she’ll be ready to find a financial planner. She can get recommendations from family, friends, coworkers, or a professional group like the Certified Financial Planner Board of Standards (www.cfp.net;888-237-6275).

Learn About Real Estate. Williams says Hall should start with a real estate investing course since she expressed an interest in investment properties. “She could begin buying investment properties to supplement her income when she chooses to retire at 55,” says Williams.

Get the Right Mortgage. Although Hall wants to trade up to a new home by using an interest-only loan, Williams says that’s not the best way to go. Hall should consider a 15-year fixed-rate mortgage for her larger home and use an interest-only mortgage for the investment property she wants to buy. An interest-only mortgage allows you to make monthly payments that consist only of the interest you’re charged on the principal amount you’ve borrowed for a specified period of time (usually three to 10 years). This works for Hall because she expressed interest in moving in 10 years, when the interest-only period of her new loan would end.

Reallocate Portfolio. While there are ways for Hall to tap her 401(k) at age 55, Williams doesn’t recommend doing so. Leaving the money alone until age 59 1/2 avoids tax headaches, and the longer the money rides, the better. “Stacy has some lessons to learn in developing a sound investment strategy,”says Williams. Diversification is needed over different asset classes within her 401(k). “She needs to limit exposure to losses in any one sector of the market,” says Williams.

In analyzing Hall’s risk profile questionnaire, Williams determined Hall is a moderately conservative investor, so a portfolio with 6% fixed-income or cash, 49% bonds, 34% domestic stocks, and 11% international stocks, would be suitable for her. Williams also advises that Hall put the excess $15,000 to $20,000 that she has for emergencies in an investment vehicle.

Fund Grandchild’s College Education. Hall is hoping her grandchild will pursue college. Williams recommends that Hall use her $2,000 contest winnings to pay off the small debt she has on her credit card from holiday spending, then use the rest to open a 529 college plan for her grandchild.

Financial Snapshot: Stacy Hall

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