Keeping It Simple for Your Retirement Portfolio with Target Funds

One of the biggest hurdles for people looking to invest in their retirement is time. They worry that they have to pore over every detail and have to constantly track every rise and fall of the stock market. That can be discouraging, but if you had n option that allowed you to have a diversified portfolio with minimal effort? What if you want an investment that will take care of asset allocation automatically? Target date funds can give you all of that.

What is A Target Date Fund?

A target date mutual fund is a mutual fund consisting of a mix of assets, such as stocks and bond, that shifts and becomes more conservative as the retirement date draws closer. Most target date funds you see on sites like Vanguard are listed by estimated date of retirement in 5 year increments. So you’ll see Vanguard have a Target Retirement 2055 fun available for those around the age of 21 to 25. Re-balancing is automatic with these target fund  and they are handled by the fund’s manager.flexible spending accounts save money

One concern is the one size fits all approach. Everyone in the fund has the same stocks, bonds, etc. The assumption is that all people planning to retire in 2030 (or whatever date) want the same allocations.  The way around this problem is to select the fund with the desired balance instead of by date.

Based on Vanguard’s guide, here are some target funds  dates to examine based on age:

  • Age 18-20 : 2060
  • Age 21-25: 2055
  • Age 28-32: 2050
  • Age 33-37: 2045
  • Age 38-42: 2040
  • Age 43-47: 2035
  • Age 48-52: 2030
  • Age 53-57: 2025
  • Age 58-62: 2020

As you get closer to retirement, the fund should adjust and become more conservative. Even though investing your money into a target date fund can make things easier, that doesn’t mean you just forget about it. Setting up semi-annual check ups on your calendar can help you make sure the fund is meeting expectations. If not, you just have to tweak and adjust your portfolio accordingly.

Automating Retirement Contributions

The easiest way to stay on target for your investment goals is to go ahead and automate your IRA contributions. It has certainly helped me avoid skipping deposits.  Even if  you are limited on what you can contribute now, you should plan ahead for when you can increase your deposits.

In time, you’ll be able to start maxing out your IRA each year. Currently annual contribution limits to IRAs are $5,500. The advantage of starting early is the benefit of compound interest. The two most important factors for obtaining the benefit of compound interest are the interest rate and the length of time your money earns interest. The latter is the most important; your investment will grow slowly at first, but over the long term you will see dramatic improvements.

Thoughts on Investing

How about you? How are your investments doing?

Sticker Price: Just Another Puzzle Piece in Truck Ownership Costs

NWhen it comes to buying a new truck, many people head straight for the bottom line. Negotiating the best keys-in-the-hand-drive-it-off-the-lot price is usually the focus. While getting a big discount off the sticker price is great, the purchase price is really just one piece of the puzzle.

Paying more for your new truck could save you almost 10 percent— thousands of dollars in the long run, according to Edmunds.com. But why?

One Piece of the Whole

Think of the purchase price as the outside frame of that puzzle. It’s a place to start, but without all the little individual pieces inside, you can’t see the whole picture. The true cost of ownership (TCO) of any vehicle includes the extras. Not the leather seats and fog lights or the tow package and the heavy-duty suspension— the extras in the form of insurance coverage, taxes, fuel consumption and maintenance. When you start adding the little pieces, the real price of ownership starts to take on a different whole.

AAA Public Relations Manager Ginnie Pritchett reports annual maintenance and repair costs, for instance, jumped almost five cents per mile driven in 2013 over 2012 prices. That jump brings the average cost per mile to operate a vehicle up to more than 60 cents per mile— a figure that is higher in most trucks.

Model by Model

Is doesn’t matter whether you are considering a 2012 Cadillac Escalade EXT or a 2013 Chevy Silverado, discovering that TCO is essential if you really want to get the best deal. Naturally, the Escalade has a higher price tag than an extended crew cab Silverado, but it might surprise you to learn that maintenance and repair over a five-year period is higher for the Silverado.

Thinking about adding aftermarket off-road tires? Add another 10 percent into the operating mix for lower fuel consumption, according to a 2010 Car and Driver 2010 road test. Comparing the sticker price of a 2013 Escalade ($63,000) to a 2013 Silverado 3500HD ($31,500) aren’t even close, but if you go to DriveTime used cars and compare the price on a Ford F-150, a Dodge Ram and a Chevy Silverado you’ll find a similar market.

When it comes down to it, digging deeper into the TCO may be the deciding factor in your truck purchase.

The Big Picture

The picture is starting to take shape as you add the puzzle pieces for fuel consumption, maintenance, insurance and taxes. So if you find a Ford F-150 for under $22,000, take the time to ask about taxes, check into the cost of insurance coverage and use an online calculator to estimate the annual fuel consumption and repair costs.

Average fuel consumption is just a starting point. Personal driving habits influence maintenance and vehicle mpg, quite substantially. Jack rabbit starts and stops, double clutching, off-roading or towing the horse trailer to the rodeo grounds every weekend, all drastically reduce your averages and increase repair expenses.

Whether you are looking for a loaded 2013 Cadillac Escalade EXT or a 2012 Ford F-150, start with the sticker price. But don’t stop until you have all of the pieces of the puzzle to give you a full picture of the true cost of ownership.

Steven Butler is a classic car collector and automobile enthusiast from L.A.

Good Credit, Check: How to Improve Your Credit Before a Big Purchase

You’re ready to make your first big purchase, the purchase that will define you as an adult and pave the way to long-term financial health. You could be buying a starter home, investing in stock, or getting your first investment property. Before you do, make sure your credit is in order.

Surprisingly, the hard-and-fast financial rules you may have followed to get yourself out of debt do not necessarily apply when you are trying to boost your credit score. When determining your credit score, FICO (the Fair Isaac Corporation) weighs different elements of your credit report in different ways. By understanding how FICO balances those elements, you can boost your score and increase your likelihood of being able to move ahead with your next big purchase. Credit Score improvement target card dart

Credit Utilization Rate

Nearly a third of your credit score is based on your credit utilization rate, according to Investopedia.com. This is the percentage of debt you have compared to the amount of credit you have available. If you are trying to get out of debt, your financial advisor may have told you to pay off your credit obligations with the highest interest rates first.

This is sound advice for someone who is trying to get out of debt, but it is not as applicable if you are trying to boost your credit score. When trying to boost your credit score, you should pay off the accounts that are closest to their limits first. As you pay down these accounts, your credit utilization percentage will lower itself, and your credit score will increase.

Loose Ends Can Unravel Your Score

Everyone forgets or ignores the occasional bill, especially when they have other financial obligations. But if you are trying to boost your credit score, avoid doing this. Your fine to the library may not seem important, but most local libraries will send unpaid fines plus a handling fee to collection agencies. Your $20 fine for losing a DVD or the book you forgot to return can easily become a $50 collection notice that brings down your credit score. Unpaid medical bills, back taxes and even improperly canceled gym memberships can have a similar effect on your credit report.

Monitor Your Accounts

It is critical to keep on eye on your loose ends, as they have the potential to unravel your credit score. Equally important is keeping an eye on what others may be doing to your score. A stranger or even an ill-intentioned relative could easily steal your info to open a line of credit, or they could forget to pay a bill that is in your name. A credit protection service can help you to avoid these sorts of mishaps, but before signing up for one, compare plans—there are many different ones with varying protection levels on the market.

Saving Now Could Hurt You Later

The types of credit you have also impact your credit score. Credit cards, for example, are not viewed as favorably as a mortgage, and store credit cards are viewed as even worse. It is almost impossible to buy anything anywhere without having the cashier ask if you would like to save 10 percent by opening a store card. Although it may be tempting to save a few dollars or even buy a few extra things on your new line of credit, decline these offers.

If you are accepted for their credit offers, it will increase the amount of debt on your credit report and thus negatively impact your debt-to-income ratio. These lenders are also considered as “lenders of last resort” by the credit reporting agencies, and having a financial relationship with them is rarely a positive thing.

Guillermo DiMaria is an Italian transplant who moved to the U.S. to study finance and sustainability.

Wealth Lion – King of the Money Jungle

wealth lion interview

wealth lion interviewOne of my goals for My Financial Reviews is to highlight personal finance blogs and sites that I think can help you with your finances. This week FMF from  Wealth Lion shared his thoughts on becoming king (or queen) of your financial castle.  Before creating Wealth Lion this year, FMF was running Free Money finance, one of the most read personal finance blogs. I’ve been a FMF reader for years, so when I saw that he was branching out with Wealth Lion, I added the new sites as one of my must reads. 

I’m so grateful he is a part of  the money blogger seriesPlease catch him on Twitter!

When and why did you start Wealth Lion?

Wealth Lion officially started on May 1, 2013 with a question I thought everyone would have: Why Another Financial Website?

There are a lot of reasons I started it, but the main reasons are that I wanted a site that was a bit different than Free Money Finance. One that included more of what I was doing, more in-depth articles, and which was targeted at a more serious money manager and investor audience.

You also run one of the biggest blogs in personal finance, Free Money Finance. How do you determine with your post is more suited for FMF or Wealth Lion? How do you balance running both blogs?

I have the content sort of split (what one gets versus what the other gets) as detailed in the link above. FMF will be shorter, focus on reader profiles (a reader favorite) and answering questions, and be for a newbie/mid-level audience. Wealth Lion will be more detailed, contain more insight into what I’m specifically doing, and be for a more advanced audience.

They both post three times a week, so I only need six posts a week total. If you know anything about my FMF posting history, that’s pretty light. That said, I may increase or decrease the number of posts as needed.

How do you handle your own finances? What system do you employ with: budgets, investing, and career?

My biggest financial tool is quicken. I have over 15 years of data in my current file. I use it to review costs, monitor my net worth, evaluate asset allocation, plan for future costs (I have debt accounts set for college for each kid), and so forth. I’d be lost without it.

What’s the biggest financial mistake you’ve ever made? What did you learn from it?

I put all my savings into a bank with no FDIC insurance. Then it failed. I wrote about it here. It was only a few thousand dollars, but at the time (I was in college) it was a fortune to me. Luckily I eventually got most of it back. What did I learn? Not to put money in a bank without FDIC insurance. 🙂

As for sins of omission, probably my biggest mistake was not saving more than I did when I was younger. I have a good net worth now, but it could be much, much better if I had saved earlier. But I didn’t know any better then.

What are your goals this year and beyond with Wealth Lion?

For the first year, I will focus on producing great content (or the best I can come up with – however you look at it) with little expectation of what could or should happen. After that, I’ll evaluate where I am and whether or not I make a go of it in the long run. I’d like it to be my blog for the next 20 years or so, but we’ll see if that’s meant to be.

Thanks again to FMF for taking time out of his busy schedule to do this interview!