Wednesday, April 28, 2010

Dollar cost averaging

I have recently learned the importance of Dollar cost averaging and how it can REALLY help you with the ups and downs of the market.

Dollar cost averaging is just taking your money and spreading it over a time period, instead of just investing one lump sum. Here is my own personal example. We put a certain amount per child into a mutual fund (separate from 529) for their use when they get older (ie, missions, wedding, college, down payment, whatever). I was just putting a lump sum of money into that mutual find each year, at a certain time of the year (usually when we got our bonus or tax money). The problem with doing that is, what if the day that I put the money into the mutual fund just happens to be the day that the Market hits its high and it doesn't go back for quite some time?

So recently, I realized this was not the smartest way of saving this money. So now I am taking what I would have put into that lump sum, and split it up over the months of the year and I am investing that amount of money each month into the fund (it is a fund with a no minimum addition investment). So this way, one month, I may invest on a high day, but the next I may invest on a low day. It helps even out the ups and downs of the market by doing a little bit each month, instead of the huge sum each year. Now when we get that sum, we'll just put it into savings :)

When you have your money taken from your paycheck for your 401K, you are doing the same thing every paycheck. If you are automatically investing in an IRA every paycheck you are also doing this. That is the nice thing about sharebuilder - since you are building stocks/funds and a regular basis, you are dollar-cost averaging already :)

However, if you have a large sum of money and just want to get started, do it! Get going... If at all possible it is best to invest over time, but if you have the money, get it working for you ASAP... but then start doing a bit at a time, it REALLY helps you ride out the ups and downs of the markets.

Monday, April 26, 2010


Wow - sorry It's been a week since last posting.. We got caught by sickness around here :P

529's are one of the best ways to save for your child's college savings. However, you should give PRIORITY to saving for your retirement. Once you are saving enough for retirement, 529's are an excellent way to start saving for your child's college.

I know we will never be able to save enough to pay for their college (maybe if we only had 1 kid)- we just don't make that much money. However, I figure a least a little bit a month with help with at least some expenses.

529's allow you to save for their college tax-free. So when you go to remove the money you have saved, you will not owe any taxes on the increase you have earned. If you were to put the money into an ordinary mutual fund/savings account, you will owe taxes on the money you have made.

Depending on the state you live in, you will also get a state tax deduction for saving, but usually only in the savings plan your state has set up. For example, here in Oregon, we have a 9% income tax. So if you were to invest say $1000 in the Oregon college savings, you will get a tax deduction for that $1000, equaling around $90. So you made an automatic 9% already on that money. Not too shabby.

Most savings plans don't have high minimums or you can start for as little as $25 a month. If your state does not have a Tax deduction for using their plan, shop around and find a state with a good option of mutual funds and LOW costs. You can use any state you choose - but if you get a tax deduction, use your own state's plan! I have heard Utah has an excellent plan for those who do not receive a tax deduction.

A fantastic, no-brainer way of saving a little money is using Upromise. You can shop online through them, or you can just sign up your credit cards and store savings cards (safeway, albertsons, etc.) with their program and as you do your normal shopping, if you buy items that participate with Upromise, they will give you money back - with no effort on your part!

I have earned over $60+ from just my regular shopping with credit and store savings cards. I deposited $50 in a 529 - Oregon doesn't participate, so I had to open one in another state. I opened one (well, 2 - one for each kid and split the money) in Iowa since they have low costs and No minimums, and I didn't have to keep adding money too it. So I put $50 of the Upromise FREE money into the 529's , and I is already up to $100! So I now have $100 FREE money for my kids college. Hey it may not seem like a lot, but I will take it and it took absolutely NO EFFORT on my part, other than opening the accounts and setting up Upromise. Maybe they'll be able to get a book or two when they get to college ;)

So look into the tax deductions available in your state and once you are saving enough for retirement, these are an excellent way to start saving for your kids future.