Tag Archives: interest rate

Saving through Vanguard Index Funds

Proper allocation and investment of savings is an important part of an effective retirement plan. Today, there are a number of retirement plan sponsors who are interested in making the index funds the focal point of the investment portfolio. Reports referring to surveys indicate that 17% of 150 employers desired to substitute index funds for a part or whole of their actively managed investment options. This constitutes to around 8% increase. According to Mike Lucci of Vanguard Institutional Sales, the enhanced interest in Index Funds is a great opportunity for investors designing a retirement plan, as it can help them to secure their capital and save in turbulent market conditions. The plans are characterized by supplemental passive investment options and active funds are replaced with a unique line-up of highly diversified low cost index funds.

Participant communication, a simplified plan design coupled with multiple levels of investment choices are marked as endearing attributes for retirees. Savings can be attained through the low-cost indexing, broad diversification and the cash drag is kept low.

Just a few points of caution:

The investor is required to take note of the inflation risks, credits and the prevalent interest rates while investing in bonds. Diversification may not shield you in a declining market. As a plan sponsor, Vanguard believes that they can effectively determine what the best interest for their participants’ prudence is.

Retirement Savings or Student Loan – A long-standing Dilemma

An investor in his late twenties or thirties has long been troubled by the dilemma that whether he should opt for paying down his student loan debts or focus solely on retirement savings. This is undoubtedly not an easy decision and it is the ultimate objective of one’s life that should decide on what he/she should choose. The decision becomes easier when you take into account the following points:

The 401(k) employer-matching programs –Maximize the amount of your 401(k) in accordance to your employer’s willingness to match up. This contribution to your savings will offer you instant and complete return on your investment.

Check and compare the Interest Rates and ROI – As you swing between the payment of your student loan debt and investment, just compare the interest rate on your debt with your expected Return on Investment. If the interest rate on the loan is higher, there is no point in paying off your debt.

What are your emotions on ‘debt’ – There are people who cannot stand the thought of being in debt. If you are one of them, ease off your burden.

Consider paying yourself first – It’s obvious that whatever savings you make, belongs to you. You can pay the minimums of your student loan debt for a certain number of years and you will have your retirement savings intact; just because you’ve paid yourself first!