Con­sid­er­ing Busi­ness School While Bal­anc­ing Sav­ing

The Washington Post Sunday - - Personal Finance -

Christo­pher Scov­ille, 25, says he thinks about sav­ing for re­tire­ment a lot more than his peers in part be­cause it’s in his blood.

“I come from a fam­ily of savers,” he said. “I’ve in­her­ited that. Any pur­chase gen­er­ates lots of anx­i­ety.”

Scov­ille grad­u­ated from Duke Univer­sity in May 2005 and moved to Philadel­phia to work for a new non­profit or­ga­ni­za­tion, which failed. Still in that city, he works in de­vel­op­ment and com­mu­ni­ca­tions for Equal­ity Fo­rum, a non­profit group that pro­duces doc­u­men­taries and hosts ed­u­ca­tional fo­rums on the his­tory of gay, les­bian, bi­sex­ual and trans­gen­der peo­ple.

He makes $35,000 a year and has good health and den­tal in­sur­ance. His em­ployer of­fers a 403(b) re­tire­ment plan — a sav­ings op­tion of­fered by ed­u­ca­tional in­sti­tu­tions and non­profit groups sim­i­lar to a 401(k) — and Scov­ille is think­ing about con­tribut­ing 4 to 6 per­cent of his in­come, which he hopes his em­ployer will match.

In his pre­vi­ous job, Scov­ille put 10 per­cent of his in­come into a money mar­ket fund pay­ing 4.5 per­cent, and that ac­count now has $3,500 to $4,000.

He also owns shares of Sir­ius Satel­lite Ra­dio and XM Satel­lite Ra­dio, bought with about $2,000 his mother gave him af­ter he opted for the fam­ily’s old 1995 Ford Es­cort rather than a new car his par­ents had of­fered to buy. He paid about $1.50 a share for the Sir­ius stock and about $5 a share for XM. Those in­vest­ments have ap­pre­ci­ated; Sir­ius shares now trade around $3, and XM shares are trad­ing above $10.

Scov­ille grad­u­ated from Duke free of stu­dent loan debt, thanks to mul­ti­ple schol­ar­ships and stipends. But while he was be­tween jobs, Scov­ille ran up about $2,500 in credit card debt. Those cards are in­ter­est-free un­til March 2008, and he is pay­ing as much as pos­si­ble each month to elim­i­nate the debt. As of last month, he had paid off $1,000.

Even­tu­ally, Scov­ille says, he wants to go to busi­ness school and study non­profit man­age­ment, with the goal of work­ing at a larger or­ga­ni­za­tion such as Amnesty In­ter­na­tional.

Scov­ille says his fo­cus on sav­ings was sharp­ened by his mother’s sud­den death last year. He also says he doubts that So­cial Se­cu­rity will be there by the time he needs it.

“My gen­er­a­tion is screwed,” he said.

Di­ver­sify Stock Hold­ings

And Open a Roth IRA

Re­search econ­o­mist An­thony Webb and fi­nan­cial plan­ner Sue Stevens agreed that Scov­ille needs to pay his credit card debt be­fore it be­gins ac­cru­ing in­ter­est and should be­gin to set aside money for grad­u­ate school.

“He might want to think about open­ing ei­ther a Roth IRA (with­drawals for qual­i­fied ex­penses of higher ed­u­ca­tion don’t at­tract the 10 per­cent with­drawal penalty) or a col­lege sav­ings plan,” Webb said.

A Roth IRA is more flexible, so if Scov­ille doesn’t go to busi­ness school or ends up win­ning a schol­ar­ship, the money can be left to grow un­til re­tire­ment, when it can be with­drawn tax-free.

Stevens said Scov­ille should start con­tribut­ing to his re­tire­ment plan, and he should add about $200 a month to his money mar­ket ac­count un­til it reaches about $6,250. That money should then serve as an emer­gency fund.

Webb said he was con­cerned about Scov­ille’s stock in­vest­ments. The key to suc­cess­ful in­vest­ing is to get the best pos­si­ble trade­off be­tween risk and re­turn, he said. “You ac­com­plish this by port­fo­lio di­ver­si­fi­ca­tions, and a port­fo­lio of two small-cap stocks, both in the same sec­tor, is not di­ver­si­fied.”

“If Christo­pher wants to play the mar­ket, I sug­gest he set aside a small amount of money for this pur­pose,” he said. But most of his re­tire­ment sav­ings should go to pro­fes­sional fund man­agers. Stevens sug­gested that Scov­ille build “core po­si­tions in broader mu­tual funds first and then ear­mark 10 per­cent or less of his over­all port­fo­lio to spec­u­la­tive in­vest­ing.”

Stevens noted that Scov­ille has al­ready dou­bled his money, but she added that both stocks have been los­ing ground over the past two years. She sug­gested that he con­sider sell­ing Sir­ius, which is trad­ing at more than Morn­ingstar’s an­a­lysts feel is its fair value.

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