Yilmazer, T. (2008). Saving for children’s college education: an empirical analysis of the trade-off between the quality and quantity of children. Journal of Family and Economic Issues, 29(2), 307-324.
Brief Description: This paper examines the effect of children’s college expenses on household savings. Using the actual amount of parents’ financial support, the model estimates the expected expenditures on children’s college education and investigates the effect of expected expenditures on parents’ savings. The results show that households save in advance …
The fact sheet lists information on personal investment accounts; traditional Individual Retirement Accounts; Roth IRAs; 401(K) and 403(B) retirement plans; custodial accounts, such as a Uniform Gift to Minors; Coverdell Education Savings Accounts; 529 plans; and U.S. Savings Bonds.
Released March 26, 2009
COLUMBUS, Ohio — Parents who are trying to save for their children’s education but aren’t sure where to start may find guidance in a four-page fact sheet, “College Savings Options,” from Ohio State University Extension.
The fact …
Investor A invests $2,000 a year for 10 years, beginning at age 25. Investor B waits 10 years, then invests $2,000 a year for 31 years. Compare the total contributions and the total value at retirement of the two investments. This example assumes a 9 percent fixed rate of return, compounded monthly. All interest is left in the account to allow interest to be earned on interest.
|| Investor A
|| Investor B
|| Year End Value
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Here is how time can work for you:
- The longer you invest, the more money you will accumulate.
- The more money you invest, the more it will accumulate because of the magic of compound interest.
Compounding works like this . . .
The interest earned on your investments is reinvested or left on deposit. At the next calculation, interest is earned on the original principal plus the reinvested interest. Earning interest on accumulated interest over time generates more and more …
Your Investment Goals
Goals are specific things (e.g., buy a car, put a new roof on the house) that people want to do with their money. As people move through various life stages, their needs and financial goals change. Your selection of investments should relate closely to your financial goals. Each goal will define the amount and liquidity of the money needed as well as the number of years available for the investment to grow.…
The return on any investment is influenced by your federal, state, and local tax situation. Investment earnings may be:
- Taxable – Taxes paid yearly on interest, dividends and annual capital gain distributions from investments.
- Tax-deferred – Taxes on earnings are deferred until withdrawal. Tax-deferred earnings include contributions and returns associated with IRAs, 401(k)s, and other retirement saving plans (see Unit 7 of Investing for Your Future Learning Lesson).
- Tax-exempt – Earnings are wholly or partly free from taxes. Roth IRAs
Your Time Horizon
Time is a very important resource to investors.
Young investors with a long time horizon may choose investments that exhibit wide price swings, knowing that time is available for fluctuations to average out. Families investing for a specific mid-life goal (e.g., funding a child’s education or purchasing a home) may choose a more moderate course which has opportunity for growth, but provides more safety for the principal. Individuals nearing retirement and those with the need to depend …
You can do several things to offset the impact of some types of risk. Diversifying your investment portfolio by selecting a variety of securities is one frequently used strategy. Done properly, diversification can reduce about 70 percent of the total risk of investing. Think about it. If you put all your money in one place, your return will depend solely on the performance of that one investment. Alternatively, if you invest in several assets, your return will depend on an …
Emergency Cash Reserve
Setting aside money to meet unexpected expenses provides a financial safety net and allows you to take advantage of financial opportunities as they arise. Most experts recommend an emergency fund equal to 3 to 6 months living expenses; however, you do not need to set aside this total amount in a low-yielding passbook, certificate of deposit, or money market account. The amount of your emergency fund depends upon your age, health, job outlook, and personal financial situation …
Total return is the profit (or loss) on an investment. It is a combination of current income (cash received from interest, dividends, etc.) and capital gains or losses (the change in value of the investment between the time you bought and sold it). The published rate of return for a selected investment is usually expressed as a percentage of the current price on an annual basis. However, the real rate of return is the rate of return earned after inflation, …