Diversity Woman Magazine

SUM 2016

Leadership and Executive Development for women of all races, cultures and backgrounds

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44 D I V E R S I T Y W O M A N S u m m e r 2 0 1 6 d i v e r s i t y w o m a n . c o m Pareto says. "By piling into the corporate stock of the company you work for, you're [getting] double-risk exposure." 4 Rebalance at least once a year. Take time to tweak the weight- ings of your assets to your de- sired levels. Tat's important because portfolios regularly shift with market ups and downs. You may fnd your initial al- location of 60 percent in bonds and 40 percent in equities has completely fip- fopped. Or maybe you planned to put 2 percent of your funds in emerging mar- kets, but now those make up 8 percent of your portfolio. Tese kinds of changes alter your exposure to risk, which you should try your best to control. Pareto suggests creating a system, maybe planning to rebalance every sum- mer or at certain trigger points, like when an asset class exceeds its target. "If you don't systematize, you might be tempted to have that emotional aspect in the de- cision making, as opposed to something concrete and rules-based," she says. 5 If you change jobs, roll over the money in your employer- sponsored plan. Many people who keep their funds in the plan of a former employer don't actively manage it. "What happens when you let it linger, out of sight, out of mind, is you forget about it, you don't rebalance it, and it becomes like an orphan plan," Car- bonaro says. One option is reinvesting your savings in a new employer-sponsored plan, but Carbonaro recommends rolling your sav- ings over into an IRA, since you won't be limited to only a small number of invest- ment choices ofered by an employer. While IRAs have limits on how much you can put in them annually, the cap doesn't apply for rollovers, so it's fne to move a large chunk of funds from a previ- ous 401(k) or 403(b). Te money remains tax-free if you roll it into a traditional IRA; you'll owe taxes if you roll it into a Roth IRA. Don't, however, be tempted by the ad- ditional option of cashing out the plan before age 59½. "Tat's like the kiss of death," Carbonaro says. "First, you'll pay a 10 percent penalty, so on a $50,000 plan, a $5,000 penalty. Ten, that $50,000 is added to your income that year for taxes, so you'll have to pay po- tentially another 28 percent to 30 per- cent. So you just lost between 38 and 40 percent of your nest egg." 6 Keep tax-exempt investments out of retirement plans. Retirement portfolios are al- ready tax deferred, so your money grows tax-free until you withdraw it, which is likely when you will be earning less in- come and have a lower tax rate. Putting tax-exempt securities like municipal bonds into an IRA is unwise, Carbonaro says. Tat's because you won't get a tax beneft and yet you'll likely get a lower yield than you would with other fxed- income securities like corporate, govern- ment, or high-yield bonds. 7 Research mutual funds care- fully. With so many funds to choose from, it can be difcult to pick good op- tions. Guerrero suggests looking for ones with portfolio managers who have been managing funds for 25 or more years and have been through diferent market cycles. She also considers the track record of a fund over 10 or more years. Likewise, she takes fees into account. "Tere are some mutual funds that have management expense ratios that are pretty steep, and that's not really some- thing that a lot of people catch because not many people read the prospectus," she says. 8 Build and keep a long-term in- vestment focus. Setting a strategy early can help you get through the inevitable anxieties of choppy market conditions later. "We remind people that one day in the mar- ket, one or two years in the market, does not dictate their whole fnancial plan," Pareto says. "Investing for retirement is not supposed to be a sprint. It's a mara- thon—it's years in the making." Selling in the middle of a storm is one of the worst things you can do, she says. "Te best and most boring course of ac- tion is the buy-and-hold way," advises Pareto. "It creates more successful out- comes if you're able to separate your emotions and not obsess over your port- folio on a day-to-day basis, which is very dangerous." 9 Dedicate yourself to saving. If you're fortunate enough to be able to contribute the maxi- mum to all of your tax-advantaged retire- ment plans each year and still have dis- cretionary income left over, direct funds to a brokerage account earmarked for retirement and be systematic about con- tributing to it, says Pareto. "Everybody stresses about the invest- ment component and maximizing re- turns, but I think the biggest hurdle is saving enough," Pareto says. "Tat's really what makes or breaks a retirement plan." DW Mindy Charski (@mindycharski) is a Dallas- based freelancer who specializes in business journalism. Investing for retirement is not supposed to be a sprint. It's a marathon. DW Life >

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