neglect to maintain a rainy day fund. So when faced with a financial emergency, they end up having to sell stocks, bonds and other assets just to meet their monthly obligations. “A house without a base is going to crumble,” says Davis.
If you’re among those diligent savers who have put aside an emergency cushion, Davis recommends that you first engage in “risk management,” or protecting what you have. This involves
making sure you have the proper insurance coverage, including home owner’s, life and disability insurance.
Disability insurance is often included in many Americans’ benefits package at work. But a sizeable number of private companies don’t offer such protection. It’s up to you to make sure you have adequate coverage in the event of your disability or death.
Maintains Davis, “A lot of my colleagues don’t agree with me on this, but I don’t believe in investing in insurance.” He says most people only need enough insurance to cover their income when they die, and he recommends buying a term policy, which is usually cheaper than purchasing whole life or variable life insurance.
Now you’re ready to maximize the use of the funds you do have-and it doesn’t matter whether it’s $50 or $50,000. “We have a tendency to believe that if we don’t have a lot of money to
start investing, we shouldn’t do anything,” says Davis. “Nothing could be further from the truth. You’re really a candidate for investing and financial planning anytime you have more money coming in than going out.”
For those looking ahead to retirement, start making contributions to your 401(k) or 403(b) plan or any other tax-deferred account if you aren’t already doing so. Says Davis: “It’s especially advantageous when your employer matches any part of your contribution. You can’t lose.” But exercise common sense: don’t max out your 401(k) each month if you know that’s going to make it impossible for you to pay your mortgage.
If you don’t have a 401(k) plan at work, fund an IRA. Davis recommends invest-ing your IRA in a solid stock mutual fund. But most important, he says, “The key is to be consistent. Put away on a regular and consistent basis X number of dollars into that mutual fund each month.” David Armstrong, an insurance industry executive in New York, stresses consistency. For 20 years, the 46-year-old contributed 6% of his annual salary to his company’s matching 401(k) plan. And with nearly two decades before he retires, Armstrong has already amassed a retirement portfolio worth about $300,000.
In making his contributions every pay period, Armstrong learned a valuable lesson: he didn’t even miss the money. “If you don’t get it in the first place,” he says, “you don’t feel it.”
ASSET ALLOCATION – 40S
Female o 46 o single mother o lives in Portland, Oregon
works as home health care attendant
makes about $25,000 a year
very little invested in market
Search for a growth mutual fund that allows monthly investment to be made directly from your checking account. Several fund families allow this type of systematic investment for as little