• Skip to main content
  • Skip to primary sidebar

Ask Liz Weston

Get smart with your money

  • About
  • Liz’s Books
  • Speaking
  • Disclosure
  • Contact

Q&A: Where to find the most bang for your savings buck. Spoiler: On Wall Street

March 29, 2021 By Liz Weston

Dear Liz: I recently sold my home and want to put away funds for my daughters. I want to place $130,000 each in an account that will earn 7% to 10% interest for 30 years or so, providing them with a comfortable retirement fund. I’m thinking of having them start with a low-cost index mutual fund. What are the drawbacks to placing all of the funds in one mutual fund account?

What are the tax implications?

Answer: Stock market index funds mimic a benchmark, such as the Standard & Poor’s 500. That means you’re typically getting at least some diversification, which can help reduce the volatility of your investment.

You could reduce volatility even more by including bond market index funds, or opting for a target date fund that spreads the money across a mix of investments — stocks, bonds, cash. Target date funds are labeled with a specific year in the future and gradually reduce risk as that date approaches. Or you could consider a robo-advisor, which uses computer algorithms and ultra-low-cost exchange-traded funds to create and manage a portfolio.

These investments typically will generate taxable returns, so you’ll want to discuss the implications with a tax pro.

Also, you mentioned earning interest, but interest is what is paid on bonds and savings accounts. Returns are what investors earn on stocks and other higher-risk investments. No investment currently pays 7% to 10% interest. Over time, stocks typically generate average annual returns of 8% or so, but returns aren’t guaranteed and some years your stocks may lose money.

Related Posts

  • Why you need 3 savings accounts

    Some of us hoard cash while paying 18% interest on a credit card balance. Others…

  • Q&A: Managing retirement savings

    Dear Liz: I’m considering converting an old 401(k) to a Roth IRA. Will the gains…

  • Q&A: Redirecting a 529 college savings plan

    Dear Liz: Years ago when my children were young, we established 529 college savings plans…

  • Q&A: Cashing mature savings bonds

    Dear Liz: I have savings bonds that have achieved full face value. What should I…

Filed Under: Investing, Q&A Tagged With: Investing, q&a, Wall Street

Primary Sidebar

Search

Copyright © 2025 · Ask Liz Weston 2.0 On Genesis Framework · WordPress · Log in