Wealth Building For Newlyweds

overall financial security. Hinson suggests investing $1,250 of the surplus into a Real Estate Investment Trust and a high-yield bond portfolio while the couple looks for a new home. Their current income will protect any potential depreciation in the value of the fund. Hinson’s top picks are: Alphine Realty (AIGYX), which has a current yield of 3.45%; Cohen & Steers (CSRXX), 2.68%; Pimco High Yield Bond (PHYDX), 6.41%; and Pimco Fund (PHIYX), 6.20%. Annually, the Howards should be capable of saving $15,000 together and about $4,000 individually in their IRAs. Hinson suggests the newlyweds add the $2,000 cash winnings from this contest to their IRAs or their cash reserve.

Refinance Home to Lower Interest Rate. The Howards have a 6.8%, 30-year fixed rate on their mortgage. If they act now, they can likely refinance at around 5.75% or lower. Hinson recommends they apply for a five-year adjustable rate mortgage because they intend to move into another home in less than five years. He cautions, however, that the Howards will need to make sure that the refinancing savings break even with the refinancing costs within 36 months. Otherwise, they will not receive any economic benefit from achieving a lower interest rate.

Do Not Accelerate Repayment of Debt. For the Howards to achieve their short-term goals of buying a new home and starting a family, they need to focus on wealth creation, not debt reduction at the expense of their net worth. To a large degree, the couple’s solid credit scores, income, and asset base nullify the impact of their credit card and student loan debt, which are at reasonable interest rates. The down payment on another home will more than likely come from the proceeds after selling the current home. But the couple will need to be able to afford closing, moving, and other costs.

Enhance Asset Allocation. The Howards’ asset allocation is 75% equity and 25% fixed income in their retirement accounts. While this is a solid mix, Hinson recommends they increase the allocation to 80/20 or 90/10 since they won’t need to access this money for 25 years or more. Both Aaron and Tekeia need to monitor their 401(k) and 403(b) investments much more than they are doing now; they should make changes in their portfolio construction. Since Aaron is no longer concerned with funding a wedding, he can go back to contributing 10% of his salary to his retirement account.

Buy Disability Insurance Policies. At their age and with no children, the Howards don’t need additional life insurance coverage. There is, however, a greater risk of disability than death. They should check out disability coverage to safeguard against any accidents that may disrupt their flow of income or expand the policies they have.
Financial Snapshot: Tekeia & Aaron Howard

*According to Kelley Blue