$25,000 per year, tax deferred,” says Smith. Montier also continues to maintain a taxable investment account made up of stocks and mutual funds, which was worth about $5,000 in July.
Montier says he started investing because “that’s the only way to grow wealth.” Smith takes that thought a step further. He says financial planning should precede investing, but many people do the opposite. “Investing is a business,” he cautions, “if you don’t have any navigation, you don’t know where you’re going.”
But do you have to know everything before you invest? Many financial experts say no. Financial planners are out there to help you, and good ones will teach you along the way. Whether you’d like to meet short-term goals like saving for a down payment on a house, or long-term goals like a retirement nestegg, investing for the long term can make it all possible.
THE SLEEP FACTOR
Knowing your “risk tolerance” will help you choose investments that allow you to sleep at night. “The longer you have [until retirement], the greater your risk tolerance, generally,” says Eugene A. Profit, portfolio manager of the Profit Value Fund (PVALX) in Silver Spring, Maryland.
Why? Because in the long run, a mutual fund, for example, is likely to outperform a certificate of deposit (CD), which means you get a higher return on your money. When investing in low-risk, low-yield securities such as CDs, you want to make sure the investment beats inflation. Inflation is the increase in the cost of goods and services. For example, “If you buy a CD that yields 3% and hold it for 20 years, even the cost of a stamp may have increased from 20 cents to 34 cents [which is a 70% increase], but your CD returned the same 3%. So it’s a loss of purchasing power,” explains Profit.
Dr. Leslie Simmons and Oswald Warner Jr., D.D.S., like to co
nsider themselves aggressive investors–at least Leslie does. And since she handles the family’s finances, many of their investments are higher risk. “It’s been a little bit nerve-racking to see your retirement money shrinking, but everyone says what you lose in the short run, you will eventually get back,” says 37-year-old Simmons, an OB-GYN at Howard University Hospital in Washington, D.C. She and Warner, 39, a dentist who owns Warner Family Dental Centers in Washington, D.C., and Takoma Park, Maryland, began investing in 1996, several years after their marriage. Time and consistent investing have served them well; their portfolio is valued at $170,000.
The couple consistently contributes the maximum to their retirement plans. Currently, they put $1,600 a month into saving and investing. They’re also researching education saving plans for their three children, Brandon, 10, Sloane, 7, and Austin, 3. Sixty-five percent of their portfolio is made up of her retirement plan at work and his SEP-IRA; 35% is stocks and mutual funds. Their holdings include the Profit Value Fund and Legg Mason Value Trust (LMVTX), as well as shares of Microsoft (Nasdaq: MSFT), Citigroup (NYSE: C), and Sun Microsystems (Nasdaq: SUNW).