Serious Young Saver Is Ahead of the Game


There was a time when Anthony Anico could be called a spendthrift. He was in his early 20s, had just landed a very good job and felt entitled to indulge himself a little. Three-hundred-dollar Calvin Klein sunglasses, $55 dinners at Santa Monica's Border Grill, a weekend trip to New York--why not?

Some new-job celebrating is one thing, but Anico soon realized he'd taken it a bit far. And live-for-the-moment was never really his style anyway. A secure financial future means more to him than whatever fleeting pleasure extravagance might buy.

And so, lesson learned, Anico, 25, who's been living with his parents in Oxnard for the last few years, has been preparing to be truly on his own.

"I'm tired of living at home and . . . want my independence," said Anico, who earns $51,000 a year as a clinical laboratory scientist at Columbia Los Robles Hospital in Thousand Oaks. "I know that if I start saving now, I will enjoy the finer things in life when I reach retirement age." Along the way, he'd also like to become a homeowner.

Since deciding to get his financial situation in hand nearly two years ago, Anico has paid off the $10,000 he owed on credit cards and student loans. He also has started saving, amassing more than $18,000, with a significant portion of that in mutual funds and retirement accounts. Now his only debt is the $9,000 he owes on his 1996 Mazda 626 sports sedan.

"Anthony is doing a fabulous job," said fee-only financial planner Howard Rothwell of Overland Park, Kan. "If you have the ability to save when you are young, it is the most powerful thing you can do for your future financial well-being."

How powerful? If Anico saves $5,000 a year for the next 40 years, and if that money earns an average annual return of 8%, he could retire at age 65 with about $1.3 million. (Even eroded by inflation and taxes, such a nest egg would be respectable.) If he waits until age 35 before he starts saving, he will have to more than double his annual savings to $11,500 a year to get the same results.

More aggressive saving while he is young takes greater advantage of the power of compounding and could mean much more flexibility when he is older. In fact, saving $10,000 a year for only the next 10 years--and then stopping--would, under the above assumptions, still give Anico almost $1.5 million at age 65.

"I'm not saying Anthony should save $20,000 a year and keep living with his parents," Rockwell added. "There is a fine balance throughout life between spending and saving. But if he keeps saving a reasonable amount of money, he will be home free. That is what I try and get all my clients to do."

Living with his parents and not having to pay rent, utilities, food and other expenses has certainly helped, Anico acknowledges. But family support, however wonderful and freely offered, is no guarantee of financial success, as Anico has observed.

He knows a few people "who look like they are never going to move out of their parents' house, either because they haven't landed a career yet or because they are in a big financial mess," Anico said.

Thinking ahead is something Anico has always done. Even when he was an undergraduate at UC Santa Barbara, he says, he was weighing his career options and their costs (Medical school? Didn't like the idea of graduating with a six-figure debt) and rewards (Laboratory science? Good career and good pay--$20-plus an hour).

And although Anico did veer off the track for a while, he never forgot that undisciplined spending would affect his future financial well-being. Yes, he'd buy the occasional $80 Dolce & Gabbana T-shirt, but he'd still make sure he was saving some money and not racking up an unmanageable credit-card debt.

There came a time when Anico became just plain tired of being beholden to creditors, of living with the idea that he could be owing money years into the future. He first went after the nearly $7,000 he owed in student loans. For 18 months, he shaved at least $300 and sometimes as much as $1,000 off the balance, until it was zero.

His career, besides providing him with work he enjoys, put him in contact with a financially savvy acquaintance who urged him to start investing in mutual funds.

Once he paid off his student loans, Anico did some research and decided to open his first account with Janus.

"I chose Janus not only because of word-of-mouth persuasion but because they sent an easy-to-follow packet for the novice investor," Anico said.

Since then, he has set aside about $1,000 a month, accumulating about $2,500 in tax-deferred accounts and $5,400 in a regular account with Janus.

Specifically, he has $2,800 in Janus Overseas (recently closed to new investors) and $2,600 in Janus Olympus. Both funds are relatively new, each returning about 23% annually over the last two years.

In tax-deferred IRAs and Roth IRAs, he has $1,550 in Janus Growth & Income, $500 in Janus Twenty and $500 in Janus Worldwide. All three have produced average annual returns of about 23% over the last five years.

All the funds are excellent choices, Rothwell said, adding that he was impressed that someone as young as Anico already had IRAs.

"The Olympus is only a couple years old but gives you good growth-stock exposure with small-portfolio size," Rothwell said. "Janus Worldwide is my current favorite fund. . . . It has a good manager with good global diversification." The manager is the well-regarded Helen Young Hayes, who also manages Janus Overseas.

Anico also has about $6,700 in a savings account, $1,000 in a certificate of deposit and $2,700 in his employer's 401(k) retirement plan. He contributes the maximum, about $300 per month, into the 401(k) (the employer match is very small).

Rothwell offered a bit of fine-tuning for the 401(k).

The majority of the account's money, 70%, is in funds that invest in domestic companies--35% in large-cap funds and 35% in small-cap funds. Fifteen percent is in international stock funds, and the remaining 15% is spread among bond funds, certificates of deposit and other lower-risk income investments.

Because Anico won't be needing this money for a long time, Rothwell recommended a more aggressive mix, eliminating the income investments. He suggested that the current pot and future investments be allocated this way: 35% in large-cap stock funds, 50% in small-cap stock funds and 15% in international stock funds.

"You have a lot of large-company exposure in the Janus investments," Rothwell said, explaining why he'd raise the 401(k)'s small-company exposure to 50%.

As for purchasing a house, Anico told Rothwell that he isn't ready for the commitment and doesn't plan to become a homeowner for at least 10 years. Because it will be so long before Anico will need to tap his savings for a down payment, Rothwell recommended that Anico keep putting the savings for that into mutual funds, where he is most likely to earn the best returns.

Making a smaller point, Rothwell suggested that Anico put the $6,700 in his savings account into a higher-yielding money market account. If Anico's bank doesn't offer one, Rothwell said, Anico could try Vanguard's Prime Money Market Fund.

Anico, who will be moving to a Thousand Oaks apartment later this month with two friends, said he's prepared to take Rothwell's advice.

"I want to take advantage of the fact that I am young and that I have a good-paying job," Anico said of his determination to keep doing what it takes to ensure future financial security. "After all, the best things come to those who wait."

Lynda Natali is a regular contributor to The Times. To participate in a published Money Make-Over, send your name, age, phone number, income, assets and financial goals to Money Make-Over, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. Questions or comments can be left at (213) 237-7288. We cannot respond to all inquiries.


The Situation

* Investor: Anthony Anico, 25

* Gross annual income: $51,000

* Financial goals: Buy a home in 10 years or so; save for retirement.

* The plan: This young investor has made an excellent start; he just needs to realign his portfolio slightly.


This Week's Make-Over

* Investor: Anthony Anico, 25

* Occupation: Laboratory scientist

* Gross annual income: $51,000

* Financial goals: Buy a home in 10 years or so; save for retirement.


Current Portfolio

* Mutual funds: About $2,800 in Janus Overseas; about $2,600 in Janus Olympus

* Retirement accounts: About $1,550 in Janus Growth & Income in a traditional individual retirement account; $500 in Janus Twenty and $500 in Janus Worldwide, both in a Roth IRA; about $2,700 in 401(k) workplace retirement plan, with the majority invested in domestic stock funds

* Cash: About $6,700 in a savings account; $1,000 in a certificate of deposit

* Debt: About $9,000 owed on car



* Continue putting about $1,000 a month into the various Janus funds.

* Continue contributing the maximum allowed into 401(k), but take a more aggressive stance, dropping the income investments in favor of an all-stock-fund mix of 35% large-cap, 50% small-cap and 15% international.

* $6,700 now in savings account should go into a higher-yielding money market account or fund.

Meet the Planner

Howard Rothwell is a fee-only financial planner with Stepp & Rothwell in Overland Park, Kan. He has an MBA from the Wharton School, where he helped to develop the concentration in personal finance consulting. He has twice been included on Worth magazine's annual list of the nation's best financial advisors.

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