As an investor, what are your goals?
You can probably think of quite a few — but over the course of your lifetime, your objectives typically will fall into five key categories. And once you're familiar with these areas, you can start thinking of what they'll mean to you in terms of your financial and investment strategies.
So, let's take a look at each of these areas and see what they might mean for you:
Preparing for retirement: With advances in health care and a greater awareness of healthy living practices, many of us can expect to live two or three decades in an active retirement. To pay for all those years, you'll need to save and invest early and often. So, while you're working, take full advantage of your 401(k) or other employer-sponsored retirement plan, as well as contribute to a traditional or Roth IRA. After understanding your desired retirement lifestyle, your financial advisor can help you determine how, and how much, to save to provide for your income in retirement.
Planning for the unexpected: You can't see into the future, so you'll need to prepare for anything that comes your way. By building an emergency fund containing six to 12 months' worth of living expenses, you can possibly avoid dipping into your long-term investments to pay for things such as a new furnace or a major car repair. And planning for the unexpected also means having sufficient life insurance to provide for your family in case anything happens to you.
Educating your children: College is already expensive — and college expenses have been rising faster than the overall rate of inflation. If you want to help your children, or grandchildren, pay for school, you may want to invest in a college savings vehicle, such as the 529 plan. You can contribute large amounts to a 529 plan, and earnings have the opportunity to grow tax-free, provided withdrawals are used for higher education. (Withdrawals not used for education are subject to income taxes and a 10 percent penalty.)