Friday, 26 April 2013


Money magazine's 15 Ways to Build Wealth package offers blueprints for the different stages of your life on how to achieve real financial security.

Just starting out? Now's the time to
create a solid plan for investing and
saving .


Savings goal at age 30: 0.6 x your

income Biggest cash drain: Student loans and other debt

Biggest challenge: Overcoming fear of investing

Biggest opportunity: Lots of time for
your money to compound

1. Be courageous. Nearly 40% of Gen Y-ers say they'll never feel okay investing in stocks, MFS Investment Management reports. Take note: Since 1926, a portfolio mostly in stocks has never lost money in any 20-year period while
averaging gains of more than 10.8% a year, vs. 4% for bonds.

Get an age-appropriate mix with the target-date fund in your 401(k) or MONEY 70 picks Vanguard Target Retirement 2050 ( ) or T. Rowe Price Retirement 2050 ( ).

2. Go for a Roth 401(k). The Roth
advantage: You save with after-tax
dollars, so, unlike a regular 401(k), you won't pay income taxes on withdrawals. That's a good deal if you'll be in a higher tax bracket at retirement, as is the case for many young investors.

Four in 10 large plans now offer a Roth option, Aon Hewitt says. To hedge your bet on future tax rates, split your contributions between a Roth and a pretax 401(k).

3. Don't cash out. More than half of
workers in their twenties who leave a job do not roll their 401(k) into an IRA or their new employer's plan, says Aon Hewitt. Bad move: On a $10,000 balance, you could be left with just $7,000 after taxes and penalties. If, instead, you keep that money growing at, say, 6% a year, you'll have an extra $100,000 or so by the time you retire.

Favor cash-rich stocks :

Companies in the Standard & Poor's 500 index now sit on a record $1.2 trillion in cash. Smart investors, take note: This means some blue-chip companies have huge war chests to fund or buy growth for years. Three analyst favorites:

4. Google ( , Fortune 500 )
Cash stake: $48 billion.

This Internet giant is already a leader in three growth areas of tech -- mobile, online advertising, and the cloud -- and is catching up in social media. And it has ample resources to keep innovating, notes Edward Jones analyst John Olson. The next big things: computerized
eyeglasses and a self-driving car.

6. Abbott Laboratories ( ,
Fortune 500 ) Cash stake: $15 billion.

After spinning off its slow-growing drug business, Abbott is looking to use its cash to expand abroad. Good start: Already 40% of sales -- ranging from arterial
stents to diagnostic devices to infant formula -- come from emerging markets such as China and Brazil.

Add microcap stocks for growth :

7. Think tiny. Microcap stocks, with
market values of about $200 million or less, have historically gained about two percentage points more a year than larger stocks.

Since not all of these businesses will withstand the test of time, invest via a diversified fund. Perritt MicroCap Opportunities ( ) ($1,000 minimum initial investment) and
Managers Micro-Cap ( ) ($2,000 minimum investment) have
beaten more than 80% of their peers over the past 15 year

Build your career :

8. Take a leap. Got a business idea
you're eager to try? It's easier to handle the risk when you don't have a mortgage or kids to support.

To get started, tap into advice from
entrepreneurs your age via the Young Entrepreneur Council, which recently launched #StartupLab (, a free virtual
mentorship program with live video chats, expert content, and e-mail lessons.


9. How much you'd have at 65 if you save
$5,000 a year from ages:
25 to 35: $602,100
35 to 65: $540,700
25 to 65: $1.1 Million
Note: Assumes 7% average annual

Build your credit score :

10. Have two to four cards, but use
one. You want more than one credit card, says Ulzheimer, because scorers look at how much credit is available to you -- in relation to how much you're not using. Make one your primary card and ice the others. Then ask for a modest increase in your credit limit every 12 months -- but don't use it!

Watch: Three ways to boost your
credit score

11. Pay down in the right order. Knock off credit card debt, then start paying extra on installment loans. "Having $700 in credit card debt can cause you bigger problems than having $70,000 in student loan debt," says Ulzheimer.


The higher your score, the lower the interest rate you'll nab on a mortgage or car loan. Best to nail it when you're younger and your credit score is easy to change, says expert John Ulzheimer.

$250,000, 30-year mortgage
FICO credit score of 660; total interest
paid: $171,260
FICO credit score of 760; total interest
paid: $140,403
Savings in interest paid with higher score:

$20,000 new car loan (36-month term)
FICO credit score of 660; total interest
paid: $2,181
FICO credit score of 760; total interest
paid: $1,056
Savings in interest paid with higher score:

Start building your assets and income :

12. Ride the shale boom. Oil and gas
production from shale deposits is "the most important energy innovation of the 21st century," says Mark Luschini at Janney Montgomery Scott.

That's no secret, so look beyond
traditional energy giants. Halliburto
( , Fortune 500 )is the largest
provider of hydraulic fracturing services; railroads such as CS ( , Fortune 500 )transport the oil after extraction. Both trade at P/Es under 11.

13. Favor new consumers. The old way to invest in the developing world: via a Western multinational active in China and India. Alas, these stocks also expose you
to slow-growing Europe, plus many sport lofty P/Es.

Go for a smaller mortgage :

14. Buy beneath your means. "Dream home" size has been rising lately, says For wealth building, smaller is better. Less space, resulting in a lower mortgage, improves the odds your lender will green-light the deal, and you'll be left with more cash to invest.

Standard rule: Mortgage payments
(including taxes and insurance) should be no more than 28% of your gross income. A better gauge: 22%, the average for borrowers lately, says data provider Ellie Mae.

15. Cut it shorter. Your mortgage, that is. Some 28% of new conventional mortgages last year were 15- and 20-year loans instead of the traditional 30-year fixed rate. If you're thinking about refinancing or trading up, opting for a shorter term can be a smart move.

Sure, you'll cough up a little more each month, but you'll save a bundle in interest and be house-debt-free a lot faster, freeing up cash to invest toward other goals.

Interest rate: 3.8%
Monthly payment: $1,403
Total interest paid: $205,080

Interest rate: 3.7%
Monthly payment: $1,772
Total interest paid: $125,382

Interest rate: 3.1%
Monthly payment: $2,079
Total interest paid: $74,214
Source: HSH Associates

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