Asset Allocation

So far everything I've posted is pretty basic knowledge, but I think it was necessary to start slow and work up to the more interesting stuff. I will begin explain about asset allocation and how to meet your goals. I’ll also give some of my personal recommendations on how to allocate your savings. Everything I recommend is something that I would do myself, and I will give full disclosure on any funds that I personally invest in and one's I do not.

Asset allocation can be one of the most important factors affecting the health of your retirement account. By carefully allocating and diversifying your investments, you can better withstand the ups and downs that come in the stock market. Matching your goals with understanding the basic principles of asset allocation and investing will help you to make an educated decision in selecting the strategy that is right for you.

I am personally an aggressive investor. What I mean by that is I pick mutual funds that are comprised almost entirely of stocks. I prefer this approach because there is a higher rate of return than the conservative portfolio, and I can withstand taking loses because of how much time I have left to save.

There are a couple different types of traditional allocation types that I’d like to touch on:

1. Large Cap – a mix of large companies (typically US).

a. Examples: Chevron, IBM, Coca-Cola

2. Mid Cap – a mix of medium companies (typically US)

a. Examples: Dollar Tree, Dick’s Sporting Goods, Chipotle Mex Grille

3. Small Cap – Do I really need to explain this one?

a. Examples: you probably haven’t heard of these ones.

4. Emerging Markets – a mix of companies mostly from Brazil, Russia, India, and China (BRIC), but other countries are also included.

5. Energy funds – Typically a mix of oil, natural gas, coal, nuclear, etc.

6. Tech funds – yep, you guessed it.

a. Examples: Dell, Nintendo, Google, Microsoft

7. Real Estate investment trust (REITs) – basically you are investing in real estate stocks (shocker)

8. Metals & Mining funds – A mix of funds invested in the value of precious metals and the profitability of mining them.

How you allocate is up to you, but I like to do something like this:

· 20-40% - large cap

· 15-30% - mid cap

· 15-30% - small cap

· Whatever you have left% - Emerging/Energy/Metals & Mining/REITs/Tech

Once you figure out how to allocate, you can get into individual fund selection. That will have to come in a future post. There is a lot of information out there about fund selection. I will list some websites for some expert advice and what to look for in a fund.

How to become a millionaire pt. 3

Ok, I thought I'd do a quick post to justify my title "how to become a millionaire"

Warning. This post will be includes actual numbers..... and maybe some math.

If you put $5000 a year in a Roth IRA and assume 11% return on your investment every year (the Lipper average) you will get the following:

Year 1 - $5,000

Year 2 - $10,550

Year 5 - $31,139

Year 10 - $83,610

Year 15 - $172,026

Year 20 - $321,014

Year 25 - $572,066

Year 30 - $995,004

Ok, I should change the post to "how to become a 900,000 aire" but you get the point. So you're 30 years old and plan to work till your 60. That's 30 years to save! And this is only your ROTH, add that to your 401K and your a millionaire. If your under 30 that's awesome! More time to grow

Year 35 - $1,707,948

Year 40 - $2,909,130

Good thing you didn't have to retire in 2007 and experience the recession. Now is a great time to get on board.

How to become a millionaire pt. 2

The purpose of this blog is to offer free advice to younger people to become wealthy enough to support themselves after they stop working. The previous post covered some of the basics of investing for your retirement, and now I'd like to offer advice on where to invest and how.

Investing in your retirement can be overwhelming. You won't be able to use the money you invest for a very long time, but it will pay off big and give you financial freedom later in life when you stop working! Woohoo!

There are many places to invest, and all places have different offers. Here are some examples:

Vanguard - offers low fees. you can only use their funds

Fidelity - typically has higher fees with a a large variety of funds.

American Century

John Hancock

The list goes on. Take your pick.

I personally use Fidelity and American Century. All of these are pretty good.

The hardest part is really just getting started.

Step 1. Open a Roth IRA account - should not take long at all, and can be done entirely online.

Step 2. Set up an auto-invest on a monthly or bi-weekly basis. Later on why this is important.

Step 3. Select the fund you want to invest in.

Give one of these websites a call and they will be happy to help with these steps.

There are two reasons why auto-investing is great.

1. You don't even have to think about investing, you just do it. Before you know if you'll have $5000 in your retirement! You're on your way!

2. Auto-investing enables you to do dollar-cost-averaging. This is an investing method that means you invest the same amount of money no matter what the market does. buy high, buy low it doesn't matter. It takes the guess work out when to buy, and it is a low risk way to invest. Congrats you are an expert without even trying!

So, what are you waiting for!?

Next post will be on fund selection!