No Time Like The Present

Gen Xers should start investing for smooth sailing in the future

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Stotts, a consultant in the Falls Church, Virginia, office of consulting firm Birch & Davis Associates Inc., bought her house in April of 1998 for $115,000, borrowing $3,000 from her 401(k) plan to help with the down payment. It has been a wise investment. Almost $900 of her monthly payments of $1,000 is tax deductible. That’s almost $11,000 a year.

In Stotts’ case, it’s a little harder to find extra money to save. With added responsibility come added expenses, notes Harris. But someone in her situation should follow the general rules of thumb for saving and investing. Stotts currently socks away about 7% of her $47,000 salary in her company’s 401(k) plan and has about $9,000 invested. Stotts credits seminars at her first job after college with Rheem Manufacturing Co., a Milledgeville, Georgia, air conditioner and heating unit manufacturer, with planting the idea to participate in the plan. The gist was you’re nuts if you’re not putting away money for your future, she recalls.

As an additional investment vehicle, she may also want to consider an education IRA (individual retirement account) to help pay for her son’s education. Education IRAs allow you to put away up to $500 a year for a child under the age of 18. Gains in education IRAs accumulate tax-free and can be withdrawn tax-free.

GET ON THE BALL
If you have dreams of retiring early like Forbes or of buying your own home, like Stotts, get started investing. Here are some quick tips to get you on your way:

  • Bone up on investing basics. Reading books such as The Complete Idiot’s Guide to Personal Finance in Your 20s and 30s (Alpha Books, $18.95) and Personal Finance for Dummies (IDG Books, $19.99) can help you, well, get a financial life.
  • Plug in. Many Websites offer investing tips, including Yahoo! Finance (http:// finance.yahoo.com) and Microsoft Network’s Money Central(http://moneycentral.msn.com). Morningstar Inc. (www.morningstar.net) operates a comprehensive site that r
    anks and offers advice about mutual funds. Most mutual fund firms also have Websites. Two of the largest mutual fund firms
  • are Vanguard Group (www. vanguard.com or 800-871-3897) and Fidelity Investments (www.fidelity.com or 800-544-6666).
  • Determine your risk tolerance. Ask yourself how much money you would be comfortable putting at risk if stock prices go down. “Young people shouldn’t panic because they have a longer time to recover if they make a mistake or if the market goes down,” says Harris.
  • Join your company’s 401(k) plan. “That’s just a no-brainer,” says Thompson. “You never see the money. It comes directly out of your paycheck.” The money comes out on a pretax basis so you’re reducing your tax bite.
  • Invest automatically. Many mutual fund firms will waive their minimum investment requirements (usually $1,000 to $3,000) if you set up automatic monthly payments-as little as $50-from your checking account. That way, says financial planner Harris, you make a one-time decision to invest (and how much to invest) and the rest happens automatically. Stein Roe Young Investor fund (see “Investing as Child’s Play,” Moneywise, October 1998) targets young people
  • and offers a newsletter that
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