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Liz Weston: Take these steps to reduce volatility in retirement fund investments

Dear Liz: I recently sold my home and I want to save money for my daughters. I want to put $ 130,000 into an account that will earn interest rates of 7% to 10% for about 30 years, providing them with a comfortable pension fund. I’m thinking of starting a mutual fund with low prices. What are the disadvantages of putting all funds in one mutual fund account?

What are the tax implications?

Answer: Stock index funds mimic a benchmark, such as the Standard & Poor’s 500. This means you usually get at least a little bit of diversification, which can help reduce the volatility of your investment.

You can reduce instability even more by including index funds in the bond market or by opting for a target date fund that allocates money to a combination of investments – stocks, bonds, cash. The funds of the target date are marked with a certain year in the future and gradually reduce the risk as that date approaches. Or you could consider a robo-advisor, which uses computer algorithms and ultra-cheap funds traded on the stock exchange to create and manage a portfolio.

These investments usually generate a tax return, so you’ll want to discuss the implications with a tax professional.

You also mentioned earning interest, but interest is what is paid on bonds and savings accounts. Return is what investors earn on stocks and other riskier investments. Currently, no investment pays an interest rate of 7% to 10%. Over time, stocks typically generate an average annual return of around 8%, but returns are not guaranteed and some years your stocks may lose money.

Dear Liz: I am a retired public sector employee and I receive most of my benefits in monthly payments, for which I receive a 1099R form at the time of tax. The rest of my fee also comes in monthly installments and for that I get an annual W-2. My question is: Can I deposit my W-2 amount in the Roth IRA?

Answer: You had to earn income to contribute to IRAs or Roth IRAs – which you obviously have, because you get a W-2 form from your employer. Your ability to contribute to Roth gradual abolition begins with an adjusted gross income of $ 125,000 if you are single or $ 198,000 if you are married together.

Assuming you’re 50 or older, you can give a maximum of $ 7,000 or 100% of what you earn, whichever is less.

Liz Weston, a certified financial planner, is a columnist for personal finance NerdWallet. Questions can be sent to her at 3940 Laurel Canyon, no. 238, Studio City, CA 91604, or via the “Contact” form at asklizweston.com.