Investing for Your Goals

The investments you choose will depend on a number of factors, including your goals, your tolerance for risk and your investment timeframe.


While some of your goals will have more flexible timeframes, such as when you buy a house or retire, others, such as sending your child to college, won't. The key is choosing investments that will offer you the potential for the return you're seeking and allow you to access your money when you need it.

For instance, you wouldn't want to tie up all of your money in a 30-year bond if you need to pay for your child's college tuition in 15 years. On the other hand, investing in a bond whose term is up soon before you need the money can help ensure you'll have the money when you need it.

While the number of investment options available may seem overwhelming, there are some investment vehicles designed to help you save for certain expenses, such as education and retirement, which you can investigate.

Paying for college

While the value of an education may be priceless, it is far from free. Whether you want to pay for graduate school for yourself or would like to start saving for your child's education, there are tax-advantaged plans in which you can invest that make paying for school more manageable.

Though the cost of room, board and books might be comparable wherever you or your child wants to go to school, tuition differs significantly depending on whether you choose a public or private education. According to the College Board, for the 2011-2012 school year, average tuition and fees at a four-year public college was $8,244 in-state and $20,770 out-of-state, while tuition at a four-year private institution averaged $28,500.

While this means that you can plan on attending a college that fits a particular budget, it also means that the sooner you begin saving, the more options you'll have available to choose from.

Popular tax-advantaged vehicles, including 529 college savings plans, Coverdell education savings accounts (ESAs), 529 prepaid tuition plans and US savings bonds, can help reduce the burden of saving for an education. The rules are different for each plan, so research your options carefully to determine what will work best for your situation.

In addition to tax-advantaged plans, you can invest in a taxable account, apply for scholarships or financial aid, qualify for tax credits and apply to work-study programs.

Paying for retirement

At some point, you have likely thought of, perhaps even dreamt about, how and where you would like to spend your retirement. For retirement, as for education, there are tax-advantaged approaches you can use to your benefit, including individual retirement accounts (IRAs) and plans that may be offered through your employer.

Individual retirement accounts (IRAs) are tax-deferred accounts to which you can contribute as long as you're earning income. You don't pay taxes on earnings in the account as they accumulate. There are limits on how much you can contribute in a year, but you decide where to open your IRA and how to invest the assets in the account.

If you choose a traditional IRA, you may be able to deduct your contributions when you file your tax return. You pay tax on your earnings and any contributions you deducted when you withdraw, and you must start taking money out after you turn 70 1/2.

If you choose a Roth IRA, there are no required withdrawals and any money you take out is tax free if you're at least 59 1/2 and your account has been open at least five years. But there are income limits on who qualifies to contribute.

Employer-sponsored retirement plans, such as the 401(k) or 403(b), are also tax-deferred plans. You may roll what you've contributed to the account and your earnings over to an IRA when you retire or leave your job. You typically have a number of investment options from which to choose, and, similar to a traditional IRA, there are rules about when you must begin making withdrawals.

Whatever the specific goals you're investing for, the more you can set aside, and the sooner you can do so, the better. That's especially true of investing for retirement, as you're likely to encounter competing demands, such as paying for a child's education, along the way. The bottom line is that nothing is more important to your long-term financial security than providing for yourself in retirement.

Retirement planning