The investment terminology might be new to you, but the facts won’t be. There are different kinds of investments you can buy with your retirement dollars. You will want to choose a certain mix of investments for your account that reflects the amount of risk that you are willing to take. Remember that as the rate of return you want to achieve goes up, so does the risk. You will want a balance that gets you to your goal with a risk factor that you can live (and sleep) with.
To begin your research there are some basic steps to follow and the first one is to take advantage of the Internet and learn what the expertise of market analysts can tell you. There are thousands, or more likely there are millions of sites totally dedicated to stocks and the discussion of investment objectives and strategies.
Whatever path you plan to take, you need to develop a strategy now to provide for the future. Among the things that are likely to be of primary concern are:
- Enough income to live comfortably
- Adequate healthcare
- Financial security for your dependents and heirs
To have the money you’ll need in retirement, you need to put the assets you’ve already accumulated to work. That means investing a substantial part of your principal for long-term growth rather than keeping all of your money in a regular savings account or in cash equivalents that don’t earn enough to outpace the rate of inflation.
In general, investing for growth means putting money into stocks and mutual funds or managed accounts that invest in stocks. But it also means allocating part of your portfolio to fixed-income investments, such as bonds, which may provide a stronger return than stocks in some periods.
A good place to put your leftover money is in non-tax-sheltered mutual funds. Figure out where to invest it so it produces a decent return. Look in the mutual-fund column of the newspaper for funds with no custodial fees and no commissions, known as loads. While mutual funds outside an IRA or 401(k) may not be tax sheltered, they can be tax efficient. In the case of mutual funds, this means the fund managers buy and sell the fund’s assets with an eye to tax consequences.
No matter where you invest your money, your best bet is to do it on a regular basis. For people who don’t find it easy to save, the best thing to do is to get into an automatic investment program. A fixed amount, perhaps $50 to $100, is deducted from your paycheck monthly and invested in mutual funds. The result is dollar-cost averaging, which means you buy more shares when prices are low and fewer when prices are high.
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