Saving Early and Often
By Pablo Galarza

(MONEY Magazine) – Archie Chaney, 33, picked up an interest in investing when he was still in college at the University of Notre Dame. And that has helped him become a serious saver at an age when a lot of us are just getting started. With every paycheck, he puts $50 into mutual funds for each of his two kids, Korynne, 5, and Kaleb, 3. He wants them to start their adult lives with the money to pay for college or a wedding. "I'm doing everything I can to make sure that my kids are taken care of," says the Denver information technology consultant. Chaney also sets aside $50 for his and wife Tonya's retirement, in addition to the 6% of his salary that goes to his 401(k) fund and the 3% that goes to an employee stock-purchase plan.

Chris Cordaro, a planner with RegentAtlantic Capital in Chatham, N.J., likes Chaney's aggressive savings approach but wants to tweak where the money goes. For one thing, Chaney is leaving money on the table by not contributing even more to his 401(k) plan, which offers an employer match. He can afford the higher contribution by cutting back on payments into the employee stock plan. Cordaro suggests investing the kids' college money into the Colorado 529 plan, because the state offers locals a tax deduction on contributions.

Not counting the college funds, Cordaro says the Chaneys ought to have about 15% of assets in bonds—he favors short-term bonds and Vanguard Inflation-Protected Securities as an inflation hedge—and the rest in stocks. Cordaro thinks it's important for Chaney to have significant exposure to foreign stocks, because studies show that in the long run a globally diversified portfolio should be less volatile than a U.S.-only one while providing similar returns. Fortunately, there's a very good international pick in Chaney's 401(k) plan: Artisan International. For the money outside his 401(k), Cordaro points out that small and mid-size overseas stocks are even less likely to move in step with the U.S. market, so he recommends that a portion of any of Chaney's investments outside his 401(k) go to T. Rowe Price International Discovery. Among large-cap funds, Cordaro likes Vanguard Total Stock Market Index, which tracks the Wilshire 5000 index of nearly all U.S. stocks, for its low costs and its tax efficiency. —PABLO GALARZA

Improving on a Good Job The Chaneys are already saving beyond Archie's 401(k). After they pay into college funds, they can invest mostly in stocks, as they won't tap the money until retirement.