Welcome to Fix My Finances, Yahoo Finance’s personal finance series. In each episode, we take a look at one viewer’s financial state of affairs and offer advice, insight and information on a variety of issues, including how to save more, spend less and pay off lingering debt.
This episode we spoke with Phillip, a 34-year-old freelance TV and film producer who lives with his girlfriend of six years in Queens, New York. He is looking to make some changes to his Roth IRA in order to be more approach his retirement savings more aggressively.
Diversity is the key to long-term growth
Phillip has been contributing into his Roth IRA regularly but wants it to grow faster. Initially he thought that being more aggressive with his stock picks and micromanaging his investments would be the way to go. Stephanie Genkin, a certified financial planner based in New York City, doesn’t think so. “Excessive trading is akin to gambling and also costs a lot of money. The pros aren’t able to time the market so it’s highly doubtful you will be able to either,” she warns.
The best way to invest long-term retirement savings is to be broadly diversified and not concentrated in hot, individual stocks. According to Genkin, Phillip should consider using Exchange Traded Funds index funds, groups of funds that trade like stocks. Every year, Phillip just needs to keep adding new money into the funds to make them grow.
Freelancer? Consider a self-employed 401K
Since Phillip is a self-employed, he doesn’t have the benefit of an employer-matched 401k. But that doesn’t mean he needs to miss out on the tax benefits of a 401k either. Self-employed 401ks can be used in order to save money on freelance income, which you can deduct from your taxes. As Phillip increases his income, he can take advantage of tax breaks to ramp up his retirement savings.
Watch the video to learn more about how Phillip can fix his finances.
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