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Ask an ally: 3 timely topics for investors this spring

FRANK NEWMAN & DIMITRI PAN   ·   March 27, 2024   ·   4 min read

As we move into the warmer months, we checked in with Ally Invest Portfolio Manager Frank Newman and Senior Financial Advisor Dimitri Pan for their insights on a few topics on investors' minds.

Whether the market is rocky or stable, what are some tried-and-true investing strategies?

Newman: One time-honored investing strategy is lump-sum investing, which is not your usual recurring investment strategy like a 401(k) where you contribute on a regular basis. Lump-sum investing is often for moments when you come across a larger sum of money that isn’t recurring, like a windfall, tax return or work bonus. 

The big fear with lump-sum investing is that the market might decline after this large investment. That feeling of loss aversion is something to consider when you’re making your investment decisions. 

Pan: Another popular approach is dollar-cost averaging . I talk to my clients and set up a schedule to set aside a specific amount of money every month to invest. This takes some of the emotion out of the investment process and eliminates the urge to try and time the market. Dollar-cost averaging is a more psychological approach to slowly and consistently get your money invested. 

Historically, lump-sum investing performs better than dollar-cost averaging. But at the end of the day, my goal is to start getting money invested in the way that feels most comfortable to you.

How can consumers manage debt and still have room to invest?

Newman: General guidance is if the interest rate on your debt is greater than the return you expect on your investments, you would want to pay down as much debt as possible first and then invest what's left over. 

Historically, the US stock market has returned about seven or eight percent after inflation, so we can use that as a rough comparison for long-term investments. If the interest rate on your debt is substantially lower than that, you can consider paying the minimum on your debt and investing some of your savings. These things don’t have to be mutually exclusive — just find room in your budget to pay yourself first with a sustainable debt plan

Pan: There is an emotional side to debt, so it’s important to understand your feelings around money as you make these decisions. A financial advisor can help you model both the short- and long-term impact of your current financial plans to help inform how you move forward. Once they identify a plan that feels good to you, that’s the one most likely to be effective. 

And remember — not all debt is bad debt . A mortgage can help you build equity through your home's value, and student loans are an investment in your education, which has the potential to further your career.

Newman: One more note on debt. If you’re able to maintain a good credit score by making your payments on time, you’re helping to keep your future debt more affordable with lower interest rates. A strong credit score could make you more competitive for low interest rates on mortgages or car loans, which has the potential to save you thousands on interest payments. 

A strong credit score could make you more competitive for low interest rates on mortgages or car loans, which has the potential to save you thousands on interest payments.

How can parents or grandparents plan ahead to help a student avoid college loans?

Pan: Many people choose to go with a 529 plan , which is a tax-advantaged savings method designed for educational expenses. The biggest benefit is that your college savings are growing tax-free, which helps to offset the rising costs of tuition. And in recent years, the 529 has expanded beyond college into K-12 education costs. Just be sure to consult with a tax professional to understand the full impact on your particular situation.

Some parents worry that if their child receives a scholarship or doesn’t pursue further education, their money will be inaccessible in a 529 account. These accounts have become increasingly flexible — if you have a 529 account in your name, you can pull out leftover money after graduating to pay your student loans. Early this year, new changes went into effect that also allow for unused 529 savings to be rolled into a Roth IRA .

Newman: 529 accounts provide great flexibility and options for how to use the money you’ve invested to support your child’s future educational goals. You can even change the beneficiary on the plan to another child, if that’s what your family’s situation calls for.

Tip: You don’t need to choose the 529 plan offered by your state — each one offers different fees and investment choices. A financial advisor  through Ally Invest Personal Advice can help you navigate the available plans. 

Spring forward

Q2 is a great time to take stock of your current financial plans and goals. As you declutter your home and look forward to the year ahead, take some time to get your investments in order.

Written by

Headshot of Frank Newman

Frank Newman, CFA
Portfolio Manager, Ally Invest

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