| How to Prepare for College and Retirement, Part 5 |
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Screen your mutual funds for low expenses. The more the mutual fund company takes to cover its expenses, the less money is left in the fund for you. This means that among similar funds (investing in similar assets), the fund that has the lowest expenses will likely give you the highest return in the long run. Do the homework. A little research on expenses could save you a lot of money. Draft and sign an Investment Policy Statement. An Investment Policy Statement is a personalized document that describes why you are investing and how you intend to go about it. It often includes asset allocations (what percentage of your investments belong in which categories), reasons for investing the way you do, objectives for your investments, and a statement that you'll follow the investment policy in times of market turbulence. Use it to help you see whether the next investment you may make heads you in the right direction for your overall plan. Put aside enough emergency cash. It can be tempting to take your emergency funds and put them in the stock market, but don't do it. You could lose your emergency savings. Remember, your equities, including mutual funds that own stocks, may be the engine of your financial vehicle, but your emergency fund is your air bag. Sometimes an emergency starts as a meltdown in the stock market. Just like with an air bag, by the time you see the crash coming, it's too late to set up your emergency fund. |
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