By the time your career is in a groove, you’ve probably developed your spending and saving habits. You may also have purchased a home and are paying down a mortgage. For many Americans, these are the highest earning years, and it’s smart to look for ways to get the most out of your investments.
It’s always a good idea to maintain a rainy-day account that can cover your household expenses for three to six months in case of a job change, major household repair or unexpected medical bills. It prevents you from having to tap your retirement or college savings for emergencies.
At this stage, you’ll want to start thinking strategically about your finances, and the best first step is to diversify your investments. That means spreading your savings across different types of investments, such as U.S. and international stocks, maybe some small U.S. stocks, some bonds and so on. Diversification does not ensure a profit or protect against loss, but it is a way to help manage investment risk.
Mid-career individuals often balance multiple investment priorities: their own retirement, children’s college savings and perhaps even helping aging parents. You will want to invest appropriately for each goal.
Don’t neglect your own savings needs. Maximize annual contributions to employer-sponsored plan accounts, such as 401(k)s, as well as your own IRAs. Both of these types of accounts offer you tax benefits as you save for your future.
As your income grows, increase the amounts you are setting aside for your child’s college education. Education Savings Accounts and UGMA/UTMA accounts are designed for minors and can make a huge difference in giving your children a head start.
At this point in your life, you might want to make a big-ticket purchase for yourself or for your family’s enjoyment, such as a new truck or boat. Or perhaps you want to plan for a wedding or a big trip for the family. Use investments to help you reach these goals without taking on a lot of debt.
When you open an account with Homestead Funds, make sure to select investment options that are appropriate for the task. For example, assets earmarked for use in the near future should be invested in funds suitable for a short time frame, while retirement assets should generally be invested in funds suitable for long-term investment.