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

In Oak Point, Texas, management associate Pierre Ellis, 36, and his wife, Marie, 34, an accountant who has worked from home since the birth of their first child last year, have set a goal of retiring by age 55. “We’re not saying that we actually will retire,” says Pierre, “but we want to be able to do so financially.”

So far, the Ellises seem to be making the right moves. With a combined income in excess of $100,000, they save about 15% per year, chiefly by maximizing their retirement-plan contributions. Pierre not only fully funds his 401(k), he has started a Roth IRA as well. The money in their plans is largely in stocks, especially mutual funds. “I like the idea of a buffer,” says Marie. “If one or two companies should have problems, the other companies in the funds may do well, generating a good overall return.” Less than 20% of their total holdings are in bonds and cash reserves, so the Ellises have enjoyed the strong stock market of the 1990s, building up a portfolio in excess of $200,000. Pierre and Marie hold a mix of almost a dozen stock funds within and outside of their retirement plans.

By holding a well-diversified equity portfolio, the Ellises are following a strategy suggested by many professionals. “Domestically,” says Haywood, “you should hold a mix of moderate-growth funds, which focus on established blue chips, and aggressive-growth funds, which emphasize promising young companies.” Matthews says that foreign stocks should be included too.

D’Aguilar says she advises her 30-something clients to divide their equity portfolio into four roughly equal segments.

“One-fourth should be in large-company ‘value’ stocks or funds. (Value stocks are those that look underpriced relative to the rest of the market.) Another fourth of the equity portfolio should be in large-company growth stocks, which have outstanding prospects for increasing earnings. Buying stocks with familiar names can help you teach your young children about the market. Add another fourth in small-company stocks and the final one-fourth in foreign stocks to round out a portfolio that’s likely to produce solid results.”

However you structure your equity portfolio, you should plan to buy and hold for the long term. “Frequent traders are gambling, not investing,” says Haywood. “Any profits likely will be short term, taxed at your highest rate. In fact, you should do a great deal of your stock market investing inside your retirement plan. You may want to keep your cash reserves on the outside, so you can get at them easily in case you need money for an emergency or to invest in your own career.”

The step-by-step approach outlined by the Mosbys appears to be paying off. The couple avoids debt by living well within their means. “We’ve never made a car payment,” says April. “We’ve always bought used cars, paying cash. We don’t purchase anything on credit unless we can pay off the full amount in less than 30 days; otherwise we pay cash, which keeps us debt-free.”

The couple continues to invest

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