Investing for teachers should be one of the first things you do as soon as you start your career. That’s much easier to say than do, though. For many teachers, the hard work and time put into what they do make it difficult to know how they are going to create an investment portfolio for themselves or even get investment advice.
To help you plan for your financial future, we are going to break down the best investment accounts and methods to help teachers save money. The good news is that no matter what your financial objectives are and no matter how much you have to save, there are some resources available to help.
Set some financial goals. Determine what your budget is and then balance your personal finances.
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Why does it matter? For teachers, having an emergency fund to borrow from to meet your financial needs is a must.
Without it, you may find yourself struggling to meet your ongoing goals. More so, Social Security benefits for many teachers will not be enough to meet your retirement objectives.
The bottom line is if you are working for public educational institutions, your own business, or even a private school, you need to have a plan in place to create a better long-term outcome for you. To help you, we have a series of tools here, and you can use all of this site information to build a financial plan to match your specific needs.
The Best Investments for Teachers
Where do you begin? The goal is to get as much money into your savings and investment portfolio so that there is time for the money to grow. You also have to balance risk. Start investing in any of these methods, and use more than one to build wealth.
Retirement savings should be a priority. This includes pensions. For teachers working for state and local governments, there is likely to be a pension for you.
With a pension, you receive a fixed recurring payment for the rest of your life. The amount of your pension depends on many things, including how long you served as well as how much you made. Most of the time, the monthly payment for teachers on a pension is not enough to cover all of their goals.
As you plan for your retirement years, you will want to ensure you have a pension in place – as this is money that you should pay close attention to. Keep in mind that many of the state-run plans out there are underfunded.
That means they are not going to be enough to meet your goals. Couple your pension with other investments for teachers.
See Related: Best Investments for Low-Income Earners
2. 403(b) and 457(b) Plans
Another common teacher investment is the 403(b) and 457(b) plans and accounts. These investment accounts allow teachers to contribute money during the years they are working. Over time, the funds in the account grow with tax advantages and help to fund retirement.
These are IRS-recognized tax-advantaged plans. That means that, depending on which you select, they could be pre-tax or after-tax accounts – allowing you to reduce how much tax you pay on them.
There are caps or limits on how much you can invest in them, though. When getting teacher retirement advice, then, you may learn that this type of retirement savings is not enough either. A defined contribution plan like this can help, with pre tax contributions meaning you will pay less tax during your retirement, but you may need other tools as well.
When it comes to investment returns, defined contribution plans tend to be reliable, but they may not help you gain the wealth you want. For that reason, you should consider adding to this retirement plan. Note that if you are over the age of 50, you are able to make additional catch up contribution payments to your retirement account over and above the annual limit imposed (that limit changes each year).
3. Individual Retirement Accounts (IRA)
When it comes to teaching investing, you may tell your students that you should prioritize your own goals and needs. One way to do that is through an individual retirement account or IRA.
You establish them with a financial institution. You make contributions to them pre-tax or after tax based on the type you select.
You can then choose the types of investments that you make. For example, many IRAs will allow you to invest in mutual funds. The underlying investments you make into your IRA can align well with your financial goals and your risk tolerance – how much risk you are willing to take.
There are two main types of IRAs. The first is a Traditional IRA. The money put into this type of IRA will be pre-tax, meaning before you pay any taxes as your employer pays you.
The tax occurs later when you retire. Many teachers will have a lower income during retirement, which makes these IRAs a good option.
The Roth IRA is a second option. In this form, the contributions are post-tax, which means you pay taxes on your paycheck like you normally would. Then, your money grows in the account tax-free, and you do not make tax payments when you take withdrawals.
See Related: How to Build a Socially Responsible IRA Portfolio
4. Personal Capital
Personal Capital is an excellent tool for teachers who are ready to take control of their personal finance. It allows you to create a path for your financial goals.
You have access to a wide range of financial tools to use and wealth management services to support you. One of the nice features of this service is that it is all online – you are able to use the technology the company offers to help you connect with financial advisors who can direct, encourage, and educate you on all of the options.
At the same time, Personal Capital is not about robo advisors – you are working with real financial advisors here. That means you can create a sophisticated, highly personalized financial portfolio for your needs. That includes a diversified portfolio where you are investing in things that matter to you.
It also offers a lot of tools to help you to build your personal wealth. That includes resources to help you to save and spend smarter, including with a savings planner, tools for building an emergency fund, and resources to help you create a retirement account that fits your objectives.
When you are ready to get started, the company provides you with wealth management tools to help you in a way that fits your needs which could include socially responsible investing, personal strategies, and more.
5. Individual Stocks
Open an investment account and start investing in stocks. If you want to build wealth and you want to be in control of that process, then the use of an individual stock portfolio is can help you.
Stock is a portion of ownership in a company. Companies issue stocks as a way to raise money for their growth or other needs. Every stock you own means you own a portion of the company.
These investment options can be well worth it, but it is very important for you to understand how stocks work and how much risk you are willing to take on, especially when it comes to using stocks to make more money during your career.
You can work with a financial advisor to help you to choose investment options here. If you take on stocks with more risk, there is a greater chance of earning more, but at the same time, you could lose significantly. Higher risk levels tend to be a better option for teachers who do not plan to retire for years.
You can invest in stocks with less risk. As an investor like this, you are putting money into a company that is well established or may be in an area where there is ample room for growth and little risk. Where you invest is really up to you, but stocks can be an excellent way to increase your portfolio, especially if you want to have a bit more control over how you do it.
You can purchase stocks through brokerage accounts. You can also set up one of the many tools available to help you to manage this process. Learn as much as you can before you start saving in stocks.
See Related: ESG Investing Trends For This Year
6. M1 Finance
Retirement savings using M1 Finance could be an excellent way for many teachers to build their savings over time. It allows you to invest, borrow money, and spend using an online platform.
You can also build your own investment strategy to use and then balance it over time to fit your needs. There are a few things to like about M1 Finance – which makes it one of the best tools for many of today’s starting investors.
For example, it allows you to choose the type of investment that you want to make, including options like Traditional IRAs, Roth IRAs, SEP IRAs, and others. They work with you to create a wealth building strategy that aligns with your goals.
A really great benefit of this tool is that it does not have any portfolio management or trading fees. That means you can put more of your investment to work for you.
Also beneficial, it allows you to do it all from an app on your phone. It takes only a few minutes to set up an investment strategy. Then, you automate it by allowing for routine contributions.
For teachers, M1 Finance offers tons of benefits, including the ability to create a customized and automated investing plan that does not have commissions tacked onto it. This makes it an affordable way to invest no matter how much you are putting into it.
7. Simple Savings
Many of today’s teachers should start with a savings plan. If you do not have a savings account, that could mean you are set up to use credit far more so than you should (remember, credit cards cost you money through expensive interest payments).
Part of your goal, then, should be to establish a budget and then open a savings account. Compound interest is one of the best reasons for this. It allows you to earn interest on the contributions you make to the savings account, and as those funds grow, you continue to earn interest on top of not just your continued contributions but also the interest that has been added to the account.
This helps you plan for the future. Savings and investing go hand-in-hand.
That is, you should not be putting all of your money into savings alone since traditional savings methods do not earn a lot of interest. At the same time, you can reduce risk by using savings and not putting all of your money into high risk investments.
Start with a simple emergency fund account. Work to get $1000 put into this to help you with risks over time. Then, consider larger investment goals to help your money grow.
This could include high yield savings accounts, certificates of deposit, and other investment account options that are more focused on savings. Bonds, while not a true savings mechanism, can be one of the best decisions.
Choose investments like this to reduce your risk and still build wealth. Remember, your Social Security benefits are likely not enough to meet your ongoing needs.
See Related: How to Save Money When You Are Broke
8. Managed Funds
A managed fund is any type of investment that is run by a professional advisor. If you have a substantial amount of money you wish to invest and you have maxed out your retirement plans, work with a financial planner to help you find the right balance of managed funds.
These funds can be any type of investment strategy that works for your needs and goals. Some investment options that fund managers can help you to establish include index funds (those that adjust based on key indexes), a mutual fund, which allows you to invest in numerous companies rather than just buying stock in one company, and stocks and bonds. Depending on your future goals, the amount you wish to put into a fund like this, and the amount of risk, your financial planner can help you create a balanced fund that allows you to see the value grow over time.
Keep in mind you will need to find the right mix of mutual funds and work to minimize added costs, such as the capital gains that some of these investment options could create for you. Yet, with the help of fund managers, you can create the ideal mix of risk and earnings to meet your needs.
Choose investments that help your money grow at a rate that you need but also help to keep your costs in line. A fund manager will learn what your investment goals are and then typically works with many investors and additional resources to craft a plan that addresses your needs.
Get the Most Out of the Tools Available
Using investment advice is a good way to get started. No matter what you put money into – mutual funds, index funds, 403(b) accounts, your pension plan, or other retirement plans, you need to know how to get the most out of these plans. Here are some very important tools to help you to make wise investment decisions and key takeaways to remember:
- Always get managing contributions when available. For many employers, including some public schools, there is the ability to take advantage of matching contributions, which means the employer contributes to your retirement account at a certain percentage. Maximize that if your employer offers it.
- Remain diversified. Investing in just one type of investment strategy, such as just saving money or putting money into a 457(B) account, isn’t enough. Finding a way to invest in saving and investing to create the balance you need to work through economic struggles (periods where stocks may falter or the economy may not be as strong).
- The best investors get help. Even if you want to build your wealth on your own by making investment strategies, use the free tools available to help you (and some of the higher quality paid products are worth it, too). These can help you with investment decisions if they are a robo-style tool or, if you are working with a wealth management professional, they can provide investment advice based on your unique needs.
As you work to build your retirement plans and find ways to ensure you are not relying just on the Social Security System, remember to stay knowledgeable. Learn about your pension plan. Find out if it is fully funded.
Learn about what your employer offers and what other employees are doing to get the most out of their investments. When you get paid each week, be sure to have investment automatically set up. You can talk to your bank about establishing this to automate the process.
Teachers investing in themselves is nothing to put off. An investment into your future every time you are paid is well worth it for most. What type of investors are you?