of my attention,” says Wilson. “Now that school is out of the way, I’m going to be dangerous.”
Walt Clark, president of Clark Capital Financial in Columbia, Maryland, examined Wilson’s financial situation. “There is much to applaud, though there is still work to be done,” says Clark. The following are his recommendations:
Use contest winnings to reduce debt. Wilson’s credit card has a 13% interest rate. He needs to pay off the balance and invest the rest of the contest winnings in stock holdings. He doesn’t need to close the account, however; keeping it active will help build his credit. When it comes time to buy his house, he’ll likely qualify for a low interest rate on his mortgage. In terms of his school loans, he doesn’t have to begin making payments for another year.
Pursue that dream home. The early bird may indeed get the best house at the best price. Since the real estate market has slowed considerably and it’s now more of a buyer’s market, Clark recommends that Wilson start his house search in the second quarter of 2007. “There should be some bargains then.” Wilson should aim to save 20% for a down payment, says Clark. Doing so will eliminate paying an additional fee and private mortgage insurance. Clark suggests that Wilson look at homes in the $200,000 range, not the higher priced homes Wilson suggested. Given his salary, minimal living expenses, and low debt, Wilson ought to be able to save $30,000 to $40,000 within a year. “Purchasing a less expensive home will put less strain on his financial resources,” says Clark. “Most new home buyers stay in their homes for the first five to six years and then [trade] up.” Wilson’s income is likely to increase as he builds equity in his starter home, Clark adds, meaning he could then afford a larger down payment on his next home purchase, which would lower mortgage payments.
Maximize 401(k) contributions. Wilson should focus on taking advantage of his company’s 401(k) retirement plan once he becomes eligible. Clark recommends that he contribute the maximum allowed, or 15% of his salary. Wilson should select a combination of large — and mid — cap growth stock mutual funds to invest within the plan.
Diversify stock holdings. Wilson has shown some savvy with his investments. Clark recommends, however, that he diversify his stock holdings into several industries such as technology, transportation, pharmaceuticals, and consumer durables in addition to some international exposure. Clark suggests such companies as Baidu.com (Nasdaq: BIDU), a search engine in China comparable to Google; Research In Motion (Nasdaq: RIMM), the Canadian developer of the popular Blackberry line; American Airlines (NYSE: AMR); Continental Airlines (NYSE: CAL); Johnson & Johnson (NYSE: JNJ); Best Buy (NYSE: BBY); Home Depot (NYSE: HD); and eBay (Nasdaq: EBAY). Wilson also needs to consider adding some aggressive growth mutual funds to the mix. Two that Clark suggests are the Van Kampen Technology Fund (VTFAX) and AllianceBernstein Small Cap Growth Fund (QUASX).
Save systematically. At age 22, Wilson has the advantage