Going to the (Stock) Market: Investing Tips for Mothers
Mothers are busy people, which means saving and investing for the future can often take the back burner to more urgent priorities. Not only that, but the stock market can seem risky. During the Great Recession, the value of the average retirement account dropped greatly, by about 25%. Unfortunately, if you did not start investing early in life, you could have more ground to make up for later.² Below, we’ll discuss three key tips that can help mothers clarify and work toward their financial goals.
Make Your Goals As Specific As Possible
Creating goals can be tough—especially when retirement is decades in the future. But while you may not yet be able to calculate the precise amount of money you’ll need in 2050, setting specific and measurable goals can help guide your financial path. For example, if you’d prefer to retire early, you may want to pursue aggressive investments and save a significant amount of your pay.³
By writing down why you want to invest, what your financial goals are (for the short, medium, and long term), and what assets and resources you have available to work toward these goals, you’ll have a plan to help guide your path.
Consider Different Investment Accounts Available
Not all investing is created equal, even if you’re investing in the exact same assets in each account. Some investment accounts like a 401(k) or traditional individual retirement account (IRA) are pre-tax, where contributions reduce your taxable income now but are taxed upon withdrawal; others, like a Roth 401(k) or Roth IRA accept post-tax funds and offer tax-free growth in return.⁴ There are also Health Savings Accounts (HSAs), 529 college savings accounts, and Uniform Transfers to Minors (UTMA) accounts that generally allow you to purchase investments within them.
To determine which accounts you should prioritize over others, you may want to answer a few questions with a financial professional:
- When do you hope to retire?
- What’s your effective tax rate?
- How close are you to the next tax bracket?
- Do you expect to be in a higher tax bracket at retirement than you are now?
- Do you have a pension or another source of retirement income?
The answers to these questions, and more, may help you decide between accounts that are taxable, tax-deferred, and tax-advantaged. You don’t need to commit to one of these accounts for life; one year you may want to fund your Roth IRA, the next year you could focus on your traditional IRA or 401(k).
Know Your Risk Tolerance
Investing doesn’t just require the diligence to set aside funds regularly. It also requires knowing your tolerance level when it comes to downward-trending stocks. By ensuring that all your investments fit cleanly within your risk tolerance, you can help avoid the temptation to make sudden market moves that are driven by emotion rather than logic or analysis. Generally, the higher your risk tolerance and the longer your horizon, the more aggressively you can invest.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
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