Laying a sound fiscal foundation must be the goal in your 30s

makes more sense. “Some of my clients have bought policies with a cash-value investment account,” he says. “If the parent dies, the death benefit can provide college funds. If the parent lives, however, money can be borrowed or withdrawn from the cash value, possibly tax-free,” explains Matthews. With certain types of cash-value insurance policies, called universal variable-life policies, the premiums can be invested in the stock market, where they probably will enjoy excellent long-term returns-although there’s always a risk investing in the market. Since the parents or a trust would own the policy, there’s no chance the youngsters will spend the money in Hawaii rather than at Harvard.

While you’re saving for your kids’ education, you also should be putting money away for your own retirement. There are a few basic principles that can help you to build your retirement nest egg.

Start early. If you begin to invest at age 30 rather than age 39, your first contributions will have an extra nine years to compound and accumulate.

Pay yourself first. “Investing from each paycheck is a form of dollar-cost averaging,” says D’Aguilar. “You’ll buy fewer shares when stocks are up, more shares when stocks are down. Long term, you’ll probably have lower costs and higher profits.”

Use tax-deferred retire-ment plans fully. Contribute as much as you can to 401(k)s, 403(b)s and the like. The money you contribute will be deducted from your taxable income. After those plans are fully funded, put $2,000 per year into a nondeductible Roth IRA, which after age 59 1/2 can provide completely tax-free income.

Buy stocks or mutual funds that invest in stocks. Over time, stocks and stock funds are likely to outperform bonds, bank accounts and money market funds, perhaps by enormous amounts. I
bbotson Associates of Chicago reports that large-company stocks have produced a total return (dividends plus price appreciation) of 19.9% per year for the past 10 years through 1998, while long-term corporate bonds have returned 10.85% per year. To put that into perspective, if you had invested $10,000 over the past 10 years, it would have grown to more than $51,000 at the rate for large-company stocks, or just under $26,000 for long-term corporate bonds.

“Although the stock market may have sharp corrections at any time, it has outperformed other investments over every long time period,” says Matthews. “That’s likely to be the case in the future, too. Therefore, people in their 30s should do most of their investing in stocks. Over the 20 or 30 years they have until retirement, stocks probably will pay off.”

Experts advise investors in their 30s to put money in high-quality growth stocks. They include such high-flying tech stocks as America Online (NYSE: AOL) and Intel Corp. (Nasdaq: INTC) and pharmaceutical companies like Pfizer (NYSE: PFE) and Bristol Myers Squibb (NYSE: BMY). In fact, the Hudsons have built a portfolio chock full of such blue chip growth equities as telecoms AT&T (NYSE: T) and GTE (NYSE: GTE) as well as media giant CBS Corp. (NYSE: CBS).

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