Money Matters For Generation X

Investing can be structured to suit any lifestyle and age. The key is making those first steps count.

money in a savings account, Burrell is getting the lowest interest rate. Her money will grow sluggishly at best, and perhaps not at all on an inflation-adjusted basis.

To get a better idea, look at the raw figures. Start with $10,000. After compounding 3% interest on the initial investment over 10 years, you’ve amassed $13,439; over 15 years, that total moves up to $15,580. But when you take that return to the stock market–for our example, we’ll use the 12% annual return posted by the S&P 500 as our benchmark–you’ll notice a sizable difference at the end. In 10 years, your treasured $10,000 savings has grown to $31,058, and in 15 years, you’ve amassed $54,736.

Generation Xers admit that the first step is the scariest. They know that the stock market–where the S&P 500 has averaged annual gains of 12% for the last 20 years–is the place to be. They may also know that mutual funds are the best way to take the investment plunge. Yet, they linger. “If African Americans are going to start matching their academic gains of the last few decades with progress on the financial front, it’s going to require that more of us get down to the business of capital formation in our 20s and 30s,” says New York City CPA and financial planner Brian S. Carr.

By now, it’s clear that for the long run, stocks–equities, as they’re called in investing circles–are the best vehicle around. To best play the market, we advise you to look at mutual funds, which spread your money across a well-diversified portfolio of 30-50 stocks. That is one way to safeguard the savings you’ve worked hard to get. With that in mind, your investments should be spread across three to five mutual funds.

There’s an initial hurdle to mutual funds that must be conquered before you can enter the market: most funds require that you ante up $ 1,000- $2,500 or more to start. Of the 8,090 funds listed in the Principia Plus database compiled by Morningstar, the Chicago firm that tracks mutual fund performance, roughly 5,500 have an initial minimum outlay of $1,000 or more; but 1,648 other funds charge less than that. That may be more than most Xers have available, especially if you’re strapped with student loan payments and a car note to boot. Stay calm, though. Even if you’re still a ways from that initial deposit, there are several paths that can get you there.

No matter what your age, there’s no escaping one very basic first step: scanning your present financial condition. The first worksheet of this series is designed as a way to survey the landscape before you proceed toward your goals. In the future, you can retrace the simple sketch of assets and its measure of your cash flow to determine just how far you’ve gone and how much further remains. The remaining worksheets in the series are designed to help you come to grips with other investment issues, such as asset

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