Investment Options
Carefully chosen investments can help make up some
of the deficit between your current resources and
your projected needs. You may want to seek guidance
from a financial planning professional. Whatever
investment course you decide to take, keep in mind
that your return after taxes should at least equal
the rate of inflation. Otherwise, your buying power
will gradually diminish over time.
Fixed-Income and Low-Risk Investments
Short-term income investments, including money market
funds, certificates of deposit (CDs) and Treasury bills
(T-bills) are at the most conservative end of the risk
spectrum because there is little risk to principal.
The interest rate on money market funds fluctuates
daily, while short-term CDs and T-bills usually offer
a specified rate for a specified period of time. For
example, T-bills held to maturity guarantee you will
not lose principal, however, you can lose purchasing
power at even low rates of inflation.
Bonds
Bonds pay a stated rate of interest for a longer time
and the issuer guarantees you will receive the face
value of the bond when it matures.
Bonds are riskier than short-term interest-bearing
securities because bond values will fluctuate prior
to maturity as interest rates change. Thus, if
interest rates rise after you purchase a bond, the
market value of the bond will typically drop even
though its interest rate stays the same. Selling
the bond at that point would incur a loss. To
minimize this risk, buy bonds with shorter maturities
or have a number of different bonds with maturities
at varying time intervals.
Stocks
Common stocks, although generally riskier than bonds
and fixed-income investments, add a growth component
to your portfolio.
Conservative investors may decide on stocks that
have a history of steady dividends and price
appreciation. Those who are willing to take more
risk may prefer stocks that pay little or no dividends
but have a higher potential for long-term growth. If
your risk tolerance allows, consider diversifying with
small company and foreign stocks.
Mutual Funds
Stocks, bonds and other investments can be purchased
individually or as part of a mutual fund, which pools
the assets of many investors and sells shares of its
portfolio to the public.
The minimum investment in mutual funds is often
$3,000, although it will vary. “No-load” mutual funds
carry no sales charges and “low-load” funds have an
initial sales fee of 2 percent to 3 percent.
Mutual funds enable even the small investor to take
advantage of a diverse portfolio, which reduces overall
risk. Funds also offer the advantages of professional
management and allow you to switch between funds
offered by the same company if your investment goals
change. They can be a good investment choice, especially
if you do not have the knowledge, time or interest to
follow individual stocks and bonds. Look for a fund
with an objective that coincides with your goals and
level of risk tolerance. Ask your financial planning
professional for a risk tolerance review to determine
the most appropriate asset allocation for your goal.
Factors To Consider
While there is no formula for the best way to invest
for retirement, here are some factors to consider.
Public libraries and local bookstores have many good references
to help you plan your retirement, including detailed reports on
individual companies and mutual funds to assist in your investment
strategies and retirement planning.
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Basic Money Management
Basic Money Management
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