40 Financial Things to Know by Age 40: Part Two

Knowing these key financial things can help you manage your finances today and lay a solid financial groundwork for your next 40 years.


College Planning


Savings may cost less than borrowing.


Think of an amount that your child may need to attend college. If you save or invest for it, the potential returns on your savings or investments may add up over time so that you may not need to contribute as much money yourself to reach your goal. If you borrow the full amount, you will need to repay it in full plus interest

Please note: All investing involves risk, including the possible loss of principal.


The importance of shifting a college fun to more conservative investments as college nears.


The closer your children are to college age, the less time there is for their college funds to potentially recover from downturns in the stock market. To avoid having to sell stocks when the market is down in order to pay tuition, it is generally a good idea to shift to a less volatile mix of investments, such as bonds and cash.


Where to apply for financial aid or estimating how much aid your child may receive.


The first step in applying for financial aid is to complete the Free Application for Federal Student Aid (FAFSA) on the FAFSA.ed.gov website. You can also get an early financial aid estimate on the same website if your child is not ready to apply for aid yet.


Where to find more information about preparing for college.


The website StudentAid.ed.gov offers a wealth of information for families with college-bound students, including an overview of financial aid, considerations when choosing a college or a career, checklists of what needs to be done in the years leading up to college, and much more.


Where to find and compare colleges.


The website CollegeCost.ed.gov is a great place to start a college search. A link on the site takes you to the College Navigator, where you can search for and compare colleges on criteria such as costs, majors offered, school size, campus safety, and graduation rates. Another link takes you to the College Scorecard, where you can compare colleges based on their cost, graduation rate, and the salary after attending.




The appropriate asset allocation for you at age 40.


How you divide your portfolio among stocks, bonds, and cash investments can have a big impact on your returns – and the asset allocation percentages you chose years ago may no longer be right for you as your investment time frame shortens or your financial goals change. Your financial advisor can help you determine an appropriate asset allocation for this stage in your life, as well as adjust your portfolio if necessary.


The importance of diversification.


If you put all of your eggs in one basket and the basket falls, you may be left with little or nothing. The same holds true for investing. For example, rather than investing in just a few hot stocks, it is generally a better idea to invest in a variety of companies, sectors, market capitalizations, and geographies so that the effect of a downturn in one company, industry, market cap, or region has less of an impact on your overall portfolio. It is important to remember that although diversification and asset allocation can help cushion losses, they do not ensure a profit or guarantee against loss in declining markets.


How to qualify for a lower tax rate on your investment gains.


When you sell an investment in a taxable account for more than you paid for it, your gain (profit) is taxable. You can slash the tax rate you pay on it by holding the investment for longer than one year before selling it. And if you hold the investment for longer than one year and your taxable income for 2016 is not over $37,650 if single or $75,300 if married filing jointly, you can generally avoid all tax on the gain. There is no tax advantage to be gained by holding an investment for longer than a year in a tax-favored account, such as an IRA or a 401(k), because selling or trading securities in these accounts is not a taxable event.


You do not have to do it all yourself.


Because your financial future may depend on how well you invest today, it is a good idea to ask the Copper Leaf financial advisors for help creating and implementing an investment plan.


Copper Leaf Financial is a full-service financial services firm with advisors who offer financial planning and investment solutions for individuals, businesses, trusts and foundations. With offices in Williston and Rutland, the firm has served clients for over 15 years with expert staff, which include experienced CPAs and Certified Financial Planner™ professionals. For more information call 802.878.2731.