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The bride and groom Secrets To Agreeing On A Happy Financial Life Together

by Alan Lavine and Gail Liberman

MFI presents excerpts from Dearborn Financial Publishing's new book, Love, Marriage, And Money, by Alan Lavine and Gail Liberman, two veteran mutual fund writers. Copyright 1998. Reprinted with permission. To order a copy of Love, Marriage, And Money, visit our online bookstore.

Part I: Intro., Achieving Goals, and Types of Investments

Insurance in place. Debts under control. Now you can start thinking about enjoying your hard-earned money. Your retirement may be years away. But if you start now, you'll be a lot happier later on. Ditto for some of the other needs you'll have--your children's college education, for example. A new car. Weddings. Vacations. Yes, you can have it all no matter how little you make. All it takes is a little planning. So get out the paper and sharpen your pencil. This chapter should help you get started on the right track.

Achieving Your Goals with Mutual Funds

Mutual funds are some of the most popular low-minimum investments that can help you reach your goals. A mutual fund is a pool of money run by an investment company with the goal of making its shareholders a profit. Mutual funds can invest in stocks, bonds, or "cash," which actually are debt instruments with maturities no greater than 90 days.

Bet You Didn't Know

Just when interest rates rise and you might think you're doing great on your investment, you actually can lose money if you've invested in bonds and you're not careful. That's because of a phenomenon known as "interest rate risk." When interest rates rise, bond prices fall.

You also can lose if the entire stock or bond market tanks. Whatever you invest in is apt to move in the same direction as the market.

Bad news about a company or industry can send you investment into a tailspin. Or, a company your invested in could go out of business and default on its debt, a risk that Wall Street big boys call "credit risk."

Of course, whenever you invest, the complete opposites of any of the above nightmares also may happen, and you could make a killing!

Why should you consider mutual funds--or any other security for that matter? As long as you invest in a well-managed mutual fund over the long-term, say ten years or more, you should make more than you would in the bank. Over the past seven decades, stocks have averaged 10 percent annually, bonds close to 6 percent annually, and money funds close to 4 percent. That's more than CDs, which have averaged around 3.5 percent.

Unfortunately, though, there is no Utopia when it comes to earning quick bucks. If you decide to try some of these investments, you need to be aware that over the short term, you can lose your shirt!

But you can minimize your losses by dividing up your money carefully. Historically, stocks have proven riskier than bonds, and bonds riskier than money funds. So, if you need your money soon, it pays to invest in lower-risk securities--or keep that money in the bank!

By developing a long-term investment plan taking these factors into consideration, you slowly can accumulate wealth.

To get you going, here are a couple of benchmarks to give you an idea of how much you must save. They assume your savings earns 8 percent and pays you 8 percent annually.

Say you're looking to earn $22,500 annually in 20 years. You'll need to accumulate $225,000 and save $4,917 a year to reach that goal in a tax-deferred investment.
Looking for an annual income of $37,500 in 20 years? You'll need to amass $374,000 and save $8,173 a year.
Want to earn $52,500 annually on your investments? You'll have to amass $523,000 over the next 20 years and save $11,429 a year.

Types of Investments

The longer you have to invest, the more you should invest in stocks or stock mutual funds. But when you approach and hit retirement, you'll want safer short-term investments. We'll slot out your "investment life" below.

If you're just starting out in the work world, go for the gusto. You'll be investing for 25 to 30 years. So it could pay to put 100 percent in stocks or stock funds. But split it up as much as you can among a small company stock fund, growth and income funds or growth fund and an international fund.
When you are in your peak earnings years and have about 15 years to retirement, you have to play it safer. A stock market plunge could put a serious dent in your nest egg, and it may take a longer time to recover. So keep about a 60 percent stock fund/40 percent bond fund mix. On the stock side, invest in a growth fund, growth and income fund, and/or international fund. On the bond side, split your investments among an intermediate-term bond fund and a money fund.
When you hit those retirement years, keep about 30 percent in a well-managed growth and income fund or growth fund and an international growth and income fund. Invest 55 percent in an income fund that pays high dividend yields, and a bond fund. The rest should be invested in a money fund in case you need the cash.

Next: "He says we need this much, she says that much."

Alan Lavine and Gail Liberman are husband-wife personal finance columnists, journalists and authors. They are the authors of "The Complete Idiot's Guide to Making Money with Mutual Funds," published by Alpha Books. Their columns appear in newspapers throughout New England and the Southeast, as well as online. Their commentary on mutual funds and personal finance is carried by 200 radio stations nationwide every Sunday over Business News Network's Charles DeRose Financial Advisor Show.

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