How would you tell someone in Generation X to invest $1,000?
I want to be clear that their first priorities should be emergency savings, saving for short-term goals, and saving for retirement. If I were just thinking about $1,000, however, I would consider the Vanguard 2040 target date fund. (VFORX). You get diversification, and right now it’s heavily weighted in equities, which will help them reach their financial targets for retirement. If you don’t want as much equity risk, you can try the Vanguard 2035 fund (VTTHX), which has less money in stocks.
THE BOOMERS
Frank Paré, CFP, founder and president, PF Wealth Management Group L.L.C.: Paré also serves on the board of directors for the Financial Planning Association, the largest membership organization for CFP professionals in the country.
Baby boomers can feel that it is too late for them to save and invest in meaningful ways because of other financial challenges they have had to endure, such as childcare costs and challenging labor conditions. Is it ever too late or too little?
It’s never too late. I like to tell the story of the Mom who lived in an apartment for 30 years, raised three children, held multiple credit cards, and hadn’t finished high school. This was my first client, and my mother. She didn’t start financial planning until she was in her mid-40s, but by the time she died, she owned a duplex, started an investment account, and was in the process of looking for land in order to build her vacation home. It’s never too late, but it’s important to recognize what you’ve done in the past. My mother had to track spending and vow not to use credit cards. She also got her GED, enrolled in college, and earned an engineering degree. It’s never too late; it’s really about the mindset. As long as you’re taking in air, you have the opportunity to make things better.
How would you tell a baby boomer to invest $1,000?
One thing that is often taken for granted is investing in oneself. What I mean by that is reading. There are a number of books out there on financial planning, so that you can really look at cash flow, understand how liability works, and from there, figure out how you can free up some dollars. Right now, I’m reading The One-Page Financial Plan, by Carl Richards (Penguin Publishing Group; $14). If I had $1,000 to invest, I would consider the Schwab total stock market index fund (SWTSX). This gives you total market exposure, with the idea being not so much to beat the market, but to get market-type returns, particularly if you have a longer time horizon than a year or two. It is also important that boomers make regular contributions to their investment account to mitigate the risk of losses. Boomers should also talk to professionals so that they can take tax considerations into account.