When you are young and single, you may (or may not) think you have the money necessary to save and invest on a consistent basis. But no matter how small your income you need to get into the habit of saving. However, once you have a child on the way, you will absolutely need to include an emergency fund into your investing habits and goals. Here are some ways to invest effectively when you have a growing family.
Grow Wealth Beyond Inflation
Over the long term, costs tend to increase by 3 percent on average each year, although recently the average inflation rate has been lower. While this doesn’t guarantee that prices will increase by exactly that much annually, you should be aware of how inflation works to increase prices and decrease the purchasing power of a dollar as time passes. Your goal should be that by investing, you grow your money faster than the rate of inflation, which means that you are actually increasing your net worth over the life of your investment.
Diversify Your Investments to Get the Best Returns
Ideally, you should diversify your investments to ensure that you minimize losses and maximize gains over the long-term. Index funds and mutual funds are great tools to get diversification in a single purchase. However, you need to be aware that if you invest in a mutual fund that specializes in a single sector like technology you have only minimal diversification. By investing in an index fund you will get more diversification but you will still only get “average” performance of the entire stock market. Further diversification comes from adding Bonds which have a low correlation with stocks and gold which has a very low correlation with either stocks or bonds. By including all three your portfolio will grow in almost any climate.
Talk With a Personal Financial Planner
A personal financial planner is a good resource to use when it comes to developing an investment strategy as an adult with a family. He or she will be able to tell you about specific stocks to invest in or ways to budget your money wisely to ensure that your nest egg remains intact. Professionals, know that investing your money correctly is critical to ensuring your financial future. The person who you talk to should be a fiduciary as opposed to just a financial adviser as a financial adviser is under no obligation to look out for your best interests. The professionals at UBS – The Burish Group, say, “The future starts now… One eye on today and one eye on tomorrow… Saving for what matters most is a foundation of sound financial planning… You can’t predict the future, but you can prepare. Like everything important, protecting your assets and your family takes care and planning.”
The first step is Planning. And exploring the possibilities your financial resources offer you, your family and your legacy. You need to take a strategic approach to managing your money as part of your overall financial plan.
Your financial plan depends a lot on what stage of life you are in. If you have a young family you may be saving for a down-payment on a house or making house payments already. But you need to consider your emergency fund, life insurance to provide for the family if something happens to you, college for the kids, and retirement. As you get older your retirement savings become more critical and hopefully your house payments will be less of a burden, life insurance will be less critical but can still be an important means of wealth transfer. You might also consider annuities as a method to provide a guaranteed income during retirement.
Estate planning can help ensure your assets will be there for those you love, and your legacy will reflect the person you are. The best way to provide for yourself and your family is to secure your financial future. This may be done effectively by ensuring that your money is invested properly and it is wise to seek expert advice while you are planning for something with such a potentially critical impact.
Bio: Rachelle Wilber is a freelance writer living in the San Diego, California area. She graduated from San Diego State University with her Bachelor’s Degree in Journalism and Media Studies. When she isn’t on her porch writing in the sun, you can find her shopping, at the beach, or at the gym. Follow her on Twitter and Facebook: @RachelleWilber; https://www.facebook.com/profile.php?id=100009221637700