NEW YORK (CNNfn) - As a 30-year-old U.S. Navy lieutenant, Joe Alden must negotiate and strategize with a group of similarly minded peers to accomplish their day-to-day and broader goals -- awfully good practice for the team financial planning he must do with his wife and newborn girl.|
While six-week-old Eleanor may not yet say much in key family finance meetings, her presence alone speaks volumes about the Aldens' need to continue their efforts towards building a solid financial future.
"We'd love to save aggressively enough so that we can retire early and spend time with our kids, but at the same time not feeling like we have to be hermits now," said Gwendolyn Alden, 28, via phone from her in-laws' house in Westerly, R.I.
Lt. Joe, Gwendolyn and Eleanor Alden, relaxing on their porch. (Courtesy: Joe Alden)|
The family lives in a house in Chesapeake, Va., bought in April 1999 for $171,000. The mortgage is $1,365 per month, but the Aldens don't plan to stay long enough to pay it off. Joe -- an F/A-18 Hornet pilot with the Atlantic Fleet currently aboard the U.S.S. Enterprise in the Mediterranean -- gets a new assignment in January, and then the family will be off somewhere else.
Joe earns $65,000 a year, while Gwendolyn recently left her $45,000 a year job as a physical therapist with HealthSouth Corp. (HRC: Research, Estimates). She plans to be a mostly full-time mother until Eleanor -- and hopefully two more babies in the future -- are in grade school, although she may do contract work in her field a couple of days a month until that time.
Gwendolyn, a native of Lawrence, Kan., classifies the couple's investing style as "consistent and committed and definitely in it for the long-term."
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The Aldens have seven stocks and seven mutual funds, spread between a joint investing account, two Roth IRAs and a 401(k). A number of the investments have lost value in the recent tech slump. However, financial planners who reviewed their portfolio said that the percentage of stocks within their overall holdings was small enough that the tech losses are not significant.
While they have a good split between mutual funds that are value versus growth, they could stand to diversify within their IRAs and 401(k)s, said Barbara Steinmetz, a certified financial planner in Burlingame, Calif.
A 401(k) or IRA is just a vehicle for containing funds. "While you may be limited with a 401(k) based on what options your employer gives you, you have no limits with an IRA."
Steinmetz suggests they first set aside an emergency fund that would cover them for approximately three to six months, and then begin diversifying.
Joe wants to invest $800 to $1,000 a month. Since many funds demand a minimum of $2,500, Steinmetz suggests that they open an account with one fund family, such as Charles Schwab (SCH: Research, Estimates), in which the company can be a custodian of the money while they are building up enough to invest in a variety of funds.
In the short term, their best bet is value, but they also should not be intimidated by growth funds, Steinmetz said. For the Aldens, she likes Selected American (SLASX: Research, Estimates) and Thornburg Value (TVAFX: Research, Estimates) in the large-cap area.
In the mid-cap area, Steinmetz likes Oakmark Select (OAKLX: Research, Estimates). Although she is fine with their choice of Liberty Acorn Foreign Forty (LAFAX: Research, Estimates), she would prefer to see their international investments go toward the Artisan International fund rated five stars by Morningstar (ARTIX: Research, Estimates), the Longleaf Partners International (LLINX: Research, Estimates) fund or another small-cap fund.
They may also want to look into a bond mutual fund, such as PIMCO Total Return (PTTAX: Research, Estimates) or Strong Advantage (STADX: down $0.01 to $9.95, Research, Estimates), according to Steinmetz. At some point in the future, they may want to look into an index fund, such as Vanguard 500 (VFINX: Research, Estimates).
As for planning for Eleanor's college expenses, the 529 plan they've started is a smart choice, Steinmetz said. They also need to look into an educational IRA or a scholar share, in which their money goes into a managed pot of funds tax free and can grow tax deferred.
"The main point is that we're after the biggest return possible here," Steinmetz said. "They've got to diversify more, but they're on a good track."
"They absolutely have to put their retirement goals ahead of the college fund," said Pat Jennerjohn, a certified financial planner in at Focused Finances in Oakland, Calif. "If the time for the kids to go to college comes, and they are a little short, there are a lot of other options available to them, from tuition assistance to scholarships. But if the time for their retirement comes and they are not ready, they're really going to be screwed."
They need a Qualified Tuition Savings Plan for Eleanor, Jennerjohn said. With the recent passage of the new tax bills, the growth won't be taxable.
But first, they need to focus on themselves. They need to invest half in growth and half in value funds, Jennerjohn said.
Like Steinmetz, Jennerjohn likes Selected American and, especially, Thornburg Value for the Aldens. "It's got some international, it's got growth, it's got small, medium, a little of everything."
She also suggests they look into Royce Opportunity (RYPNX: Research, Estimates), and growth funds such as Fremont U.S. Micro-Cap (FUSMX: Research, Estimates) and White Oak (WOGSX: Research, Estimates).
They also may want to move Gwendolyn's money from her 401(k) into a rollover IRA in order to have more investing choices and more control over distribution, said Jennerjohn. This way, they can take distributions if necessary, but can still roll the money into a new 401(k) at a future job if she goes back to work after the kids are in school.
And don't worry about the fluctuating market if some of these funds are occasionally down, Jennerjohn said. That's actually a good sign. If there isn't at least one aspect of your portfolio down all the time, you're probably not well-diversified. So invest well and stick with your choices for the long haul.
"Every year, Joe and I sit down and say, OK, we have to invest a certain amount each month and we're going to save carefully and make sure we can do it," Gwendolyn said, in a quiet moment after Eleanor had just agreed to a nap. "And you know what? We always do invest that amount each month, no matter what."
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