How a Gen-Xer seeks to maintain her portfolio while in grad school
roughly $4,500. It’s critical that Felder have an emergency fund in case she loses her job or some other financial crisis arises.
Increase supplemental income. Felder has done a great job at creating and sticking to a financial plan. But to continue to put money into the market on a regular basis, she needs to get more tutoring jobs and other part-time work to help offset the costs of graduate school.
Engage in Dollar-cost averaging. Right now the money she has invested in her mutual funds is just sitting there — although the return is compounding. She needs to put a set amount into her mutual funds on a regular basis, even if it is as little as $25 each month per fund. Once Felder completes school, she can increase the amount of her contributions.
Consider unit investment trusts. A UIT is similar to a mutual fund, but it invests in fixed-income securities such as corporate bonds and preferred company stock. The vehicle serves as a good way for the ISIS club to limit its risk and not overpay for equities. A UIT may invest in as many as 20 companies (based on performance) and the portfolio generally represents the top companies in select industries. So ISIS can take advantage of a UIT that specializes in technology and, as a result, the club would be putting its money to work in a range of companies — those that produce hardware, software or servers as well as the much-ballyhooed dotcoms.
Assess asset allocation mix. It is important for young people to make sure their asset alloca
tion is structured properly. Too often, they will put most of their money in money market funds. As far as Felder’s annuity is concerned, she has 80% invested in stocks and 20% in bonds. With her personal portfolio, she should stick with about 90% in stocks and bonds and 10% in cash.
Put savings in Treasury bills. She should continue to put the money in her cash reserve into money market funds so that it is liquid and she can take the money out whenever she needs it.
Once she is ready to purchase a home, Felder will need to start saving, say, $20,000 for a down payment. At that time, she should move the money into T-bills. She wants to get the best return in the short term for the least amount of risk. She also has the option of borrowing from her annuity without being penalized for withdrawal before the age of 591/2.
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