QUESTION: Hi Steven: im a 38 yr old single professional and am curious to get some pointers on investing. Right now all of my $ is tied up in various mutual funds, 401K, Roth and Rollover IRA and I have 1 yrs salary in liquid savings collecting 0.85% interest. I feel i can be a bit more diversified so i would certainly appreciate any tips. if you need more info just let me know
Thanks so much!
Thank you for your question!
It sounds like you are in a good place with your current investing plan, utilizing retirement accounts is very wise. The tax advantages are significant.
The question is how diversified your mutual funds and other holdings really are within your retirement accounts. The best thing would be to have some funds that cover many different categories, such as general index mutual funds, utilities, technology, real estate, bonds, small cap, large cap, and international. There are funds that cover each of these, but it depends on what the offered funds are in your 401k. For. your IRA accounts, you can invest in any fund, so that is easier to diversify.
REITs (Real Estate Investment Trusts) are a great way to diversify into real estate without having to go to the huge trouble and expense of buying actual real estate. They trade like stocks, so you can buy as much or as little as you feel appropriate.
Having some of your investments in Bond funds would also be highly advisable. At 38 years of age you are young, so less should be allocated to bonds and more to stocks. But you should still have some in bonds. As you age, slowly allocate more to bonds and less to stocks, as bonds are more stable. You can simply purchase one or more Bond mutual fund for this, I highly recommend this instead of purchasing individual bonds. Interest payments are currently low, so bond prices are high (there is always an inverse relationship to bond interest payments and prices). In the future, it is likely that bond prices will drop and their interest payments will rise. By buying a fund instead of individual bonds, you won't end up on the short end of the stick, as the bond fund will be constantly updating their portfolio of bonds.
ETF's (Exchange Traded Funds) are also worthy of your attention. They work like mutual funds, but usually have much lower fees. ETF's could be used for your bond investments, as well as a replacement for index mutual funds that track a major index.
Congratulations on being well ahead in the game. To have a year of expenses, and be invested in several retirement accounts at 38, you are in a great position. Stay out of debt (except for real estate, owning a home is a good investment), and you will be in a very good place in the second half of life down the road.
I hope this helps gets you thinking, if I can be of any additional service please do not hesitate to reply.
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QUESTION: Paul- I can't thank you enough for all this great info. I really appreciate it! Are there specific ETF's and REIT's and bonds you can recommend?
Thankfully I have no debt, just $7K left on an auto loan but theres no rush to pay that off since i just refinanced.
Thank you for the follow up question!
There are all sorts of Bond and REIT ETF's, just do a google search and you will find them. It depends what kind of fund you are looking for. For example, there are general aggregate bond fund, high rated bond funds, lower rated but higher interest paying bond funds, international bond funds, all sorts. Probably dividing up into a few different bond funds would be best, such as an aggregate bond fund, and perhaps some international exposure.
A popular aggregate and very general bond fund is ticker AGG, for example.
REITs are the same, different kinds of REITs. Mortgage REITs for example typically pay the highest interest, but are the most risky (due to default possibilities of the mortgages during bad times). I found this listing that claims to have all REITs listed:
Probably best to look into a few REITs, like I suggest for bonds. Cover a few categories. I like Health Care REITs, and there are some diversified REITs as well.
I hope this helps, please do not hesitate to reply if I can offer anything additional.