Retirement Investment

Retirement - Getting Started

2009-10-25T21:38:00.001-07:00

Saving for retirement isn't glamorous or immediately rewarding, but it's something we all must do, whether just starting a career or edging closer to retirement. You may get a little help from Social Security payments or a company pension plan, but it's up to you to sock away as much as you can now to pay for your retirement years later.

Get started now and focus on the long term. The earlier you get started, the
more time your investments will have to grow. You also have the benefit of
being able to ride out market fluctuations if you keep your eye on your
long-term goal. Establishing an automatic investment plan is a great way to "set
it and forget it."

Take advantage of every opportunity. It's likely that your first and primary
exposure to retirement investing may be through an employer-sponsored
retirement plan, such as a 401(k). Invest as much as you can and take
advantage of matching contributions from your employer. Be sure you also
open an IRA so you can put even more money away on a tax-deferred or
tax-free basis.

Use mutual funds. Mutual funds are a good option for retirement because they
are professionally managed and diversified. You can use several funds to
diversify even further and ensure you're not keeping all of your eggs in one
basket.

Investing little by little over time can make a big difference. Make the commitment to yourself so you can help make your retirement dreams a reality!

Why Invest in Mutual Funds?

2009-10-25T21:30:00.000-07:00

A mutual fund pools the money of many investors to invest in a variety of different securities. Investments may be in stocks, bonds, money market securities or some combination of these. The securities are professionally managed on behalf of the investors, and each investor holds a pro rata share of the portfolio – entitled to any profits when the securities are sold, but subject to any losses in value as well.

More than 88 million people, or almost half of all households in America , invest in mutual funds, representing trillions of dollars in investments. Mutual funds have become the investment choice to reach lifetime goals.

The reasons:

So where can you invest your money? The answer for more and more Americans is to invest in mutual funds.

Professional money management. Mutual funds provide the benefit of having someone else manage your investments and take care of the recordkeeping.

Diversification. A mutual fund, by its very nature, is diversified – its assets are invested in many different securities. Beyond that, there are many different types of mutual funds with different objectives and levels of growth potential, furthering your opportunity to diversify.

Affordability. Minimum investment requirements on many funds are low enough that even the smallest investor can get started in mutual funds.

Liquidity. Investors can readily redeem their shares, although some funds may charge redemption fees.

Types of Mutual Funds

This section describes the characteristics, such as investment objective and potential for volatility, of various categories of funds. The descriptions are organized by the securities purchased by each fund: stocks, bonds, money market securities, or a combination of these.

Because mutual funds have specific investment objectives such as growth of capital, safety of principal, current income or tax-exempt income, you can select one fund or any number of different funds to help you meet your specific goals. In general, mutual funds fall into these categories:

Stock or Equity Funds invest in shares of common stocks.
Bond or Fixed-Income Funds invest in government or corporate securities to generate income.
Asset Allocation Funds invest in a combination of stocks, bonds and money market securities.
Money Market Funds for high stability of principal, liquidity and income.

Stock or Equity Funds

Growth Funds
What they invest in:	Generally invest in stocks for growth rather than current income.
Suitable for:	Growth-oriented investors who are able to assume risk or who are dependent on maximizing current income from their investments.

Value Funds
What they invest in:	Generally invest in fundamentally strong businesses whose stocks appear to be selling at attractive prices.
Suitable for:	Investors who seek the possibility of long-term capital appreciation with varying levels of dividend income.
Blend Funds
What they invest in:	Both growth stocks and value stocks.
Suitable for:	Investors who want the potential to build wealth over time while seeking investments that perform well when either growth or value stocks are in favor.
International Funds
What they invest in:	Securities of international markets.
Suitable for:	While international funds offer opportunities for growth and diversification, these funds do carry some additional risks over domestic funds and should be carefully evaluated and selected according to the investor's objectives, timeframe and risk. They are not suitable for investors whose goal is to conserve their principal or maximize current income.

Specialty/Sector Funds
What they invest in:	Securities of a specific industry or sector of the economy such as health care, technology, leisure, utilities or precious metals.
Suitable for:	Investors seeking to invest in a particular industry. They are not suitable for investors whose goal is to conserve their principal or maximize current income.

Bond or Fixed-Income Funds

Taxable Bond Funds
	U.S. government and government agency bonds, mortgage-backed and asset-backed bonds or bonds issued by corporations.
Suitable for:	Investors who want to maximize current income and who can assume a degree of capital risk in order to do so. When interest rates rise, the market price of bonds decline and so will the value of the funds' investments.
Tax-Free Bond Funds
What they invest in:	Bonds issued by state and local governments and other entities to raise monies for public works and improvements.
Suitable for:	Investors seeking income dividends that are free from federal taxes and, in some cases, state and local taxes. When interest rates rise, the market price of bonds declines and so will the value of the funds' investments.

Asset Allocation Funds


What they invest in:	A variable mix of stocks, bonds and money market securities. Some use a "fund-of-funds" structure and invest in other mutual funds rather than individual securities.
Suitable for:	Investors seeking the advantage of investing in a single portfolio with broad diversification.

Money Market Funds


What they invest in:	Taxable money market funds invest in high-quality, short-term U.S. government securities and corporate money market securities. Tax-free money market funds invest in high-quality, short-term securities that are exempt from federal taxes and, in some cases, state and local taxes.
Suitable for:	Money market funds are suitable for conservative investors who want high stability of principal and moderate current income with immediate liquidity.

How Much Income Can I Expect to Receive From Safe Retirement Investment?

2009-07-25T18:39:00.000-07:00

How Much Income Can I Expect to Receive From Safe Investment?
A Historical Perspective on Safe Investment Returns
By Dana Anspach, About.com

Safe Investments Produce Some Investment Income: But It Varies From Year to Year

In addition to capital preservation, when you make safe investments, you also receive interest income.
How much income can you receive?
In 1981 a safe investment (such as a certificate of deposit) yielded 17.2%. For every $100,000 you had invested, you would have received $17,200 in interest income.
In 2003 that same investment yielded 1.2%, or $1,200 of interest income, per year, on every $100,000 invested.
If you retired in 1981, and only invested in safe, interest bearing accounts, you would have found it difficult to maintain your standard of living.

Below is a table that shows you the approximate amount of interest income you would have received each year since 1973 for every $100,000 invested.

Safe Investment Rates

Historical 1 Month CD Returns
Year	Return	Annual Income Per $100k
1973	8.4%	$8,400
1974	11.0%	$11,000
1975	6.6%	$6,600
1976	5.3%	$5,300
1977	5.6%	$5,600
1978	8.1%	$8,100
1979	11.5%	$11,500
1980	13.6%	$13,600
1981	17.2%	$17,200
1982	13.0%	$13,000
1983	9.4%	$9,400
1984	10.9%	$10,900
1985	8.4%	$8,400
1986	6.9%	$6,900
1987	7.2%	$7,200
1988	7.9%	$7,900
1989	9.7%	$9,700
1990	8.7%	$8,700
1991	6.3%	$6,300
1992	3.9%	$3,900
1993	3.2%	$3,200
1994	4.4%	$4,400
1995	6.2%	$6,200
1996	5.6%	$5,600
1997	5.8%	$5,800
1998	5.7%	$5,700
1999	5.4%	$5,400
2000	6.6%	$6,600
2001	4.2%	$4,200
2002	1.8%	$1,800
2003	1.2%	$1,200
2004	1.4%	$1,400
2005	3.2%	$3,260
2006	5.1%	$5,150
2007	5.4%	$5,450
2008	3.1%	$3,140

How Much of My Money Should Stay In Safe Retirement Investment?

2009-07-18T18:37:00.000-07:00

How Much of My Money Should Stay In Safe Retirement Investment?
And When Should I Switch To Safe Investment?
By Dana Anspach, About.com

How Much of My Money Should Stay in Safe Investment?

You need to keep enough money in liquid, safe investments to cover, at a minimum, 3-6 months worth of living expenses. This means if you need $2,000 per month to live comfortably, you need to have $6,000 - $12,000 in safe, liquid investments like bank savings accounts or money market funds.

The less secure your employment, the more safe money you want to keep on hand.
The closer you are to retirement, the more safe money you want to keep on hand.

For those retiring in the next few years, you will want to have 4-7 years worth of living expenses in safe investments, like money market funds, certificates of deposits, agency bonds, treasury securities, and fixed annuities.
This is the money you will use for living expenses, with other portions of your investments allocated toward growth. When your growth investments have a good year, you take profits and use the proceeds to replenish the safe investments that you have been spending.
For additional information on how much of your money should stay in safe investments read:

When is the Right Time to Switch To Safe Investments?

The right time to switch to safe investments is on a scheduled plan so that by the time you reach retirement, you have enough money in safe investments to meet your income requirements for many, many years.
Each time your risky investments, like real estate and equities, had a year with above average returns, you would take profits and increase the amount of money you had allocated to safe investments.
Unfortunately, most investors do not do this. Instead they buy risky investments after they have gone up in value and then sell them in a panic after they have gone down in value.
You will have the most success by building a solid, long term plan and sticking with it. This has been proven to deliver better results than trying to time the market.
Keep in mind, although equities and real estate are not traditionally considered safe investments, the safest time to buy these types of assets is when to prices are at all time lows.
For additional information on when to switch to safe investments read:

How Safe Are My Safe Retirement Investment?

2009-07-08T18:15:00.000-07:00

How Safe Are My Safe Retirement Investment?
Can I Still Lose Money In Safe Investment?
By Dana Anspach, About.com

All investments have risk, even “safe” ones. You are exposed to three types of risk with safe investment:

The Potential to Lose Principal
Loss of Purchasing Power Due to Inflation
Illiquidity – Paying a Penalty to Get to Your Money

1. Potential to Lose Principal with a Safe Investment

What happens to my deposits if my bank goes under?

Your deposits in the bank are covered by FDIC insurance. There is a limit to how much is covered. Typically the first $100,000 per account, per institution is insured.
As of October 2008, there is temporary increase in the FDIC coverage limits to $250,000.
If you have funds in excess of the coverage limits, there are two ways to get additional coverage:

Work with your banker to create multiple account titles, such as one account titled in the wife’s name, one in the husband’s name, one that is jointly titled, etc.
Spread your funds across multiple institutions. Some banks will even do this for you by participating in a program that will allow them to place your money in certificates of deposit with other banks.

How safe is the money in my money market fund?

Money market funds own short term investments; some of these investments, called commercial paper, are very short term loans between companies. They are considered safe because the chance that a company will go out of business in the 30-120 days before the loan comes due is very small.
In September of 2008, the safety of these funds came into question, as the financial health of many companies came under scrutiny. To ease concerns, the treasury issued a temporary guarantee to people who had deposits in money market funds as of September 19, 2008. The institution which issues your money market funds has to pay to participate in this guarantee program.
Check with your institution to make sure they are participating. This guarantee does not cover new deposits made; only deposits that were in the money market fund as of September 19, 2008.

What if the insurance company that issued my annuity policy goes under?

Insurance companies are required by law to keep substantial amounts of capital that remain available to pay claims. The higher the rating of the insurance company, the safer their financial position, and thus the better their ability to pay claims.
If the company that issued a fixed annuity policy goes under, the National Organization of Life & Health Insurance Guaranty Associations (NOLHGA) ensures that insurance policies are transferred to a healthy insurer. While this process is occurring, your annuity could be frozen, and the income and principal may be unavailable to you until the transfer of assets to the new company is completed.
Assets in a variable annuity are considered assets of the policy holder, not assets of the insurance company, and thus assets in a variable annuity are not available to the insurance company’s creditors in the case of a bankruptcy.

2. Safe Investment Preserve Principal: But You Can Still Lose Purchasing Power Due to Inflation

When you choose to make a safe investment it means your main investment objective is preserving principal, even if that means the investments provide you with less income or growth. If there is little interest income, you can actually lose purchasing power over time.
For example, if your safe investment was earning 2% a year, and inflation was 4% a year, even though your princpal is safe, you are actually losing purchasing power.

3. Liquidity – Paying a Penalty to Get to Your Safe Money

Many safe investments contain surrender charges if you want to access your funds before the maturity date. In the case of certificates of deposit (CDs), the penalty may be small, such as a fee of 3 months worth of interest if you cash the CD in early.
In the case of fixed annuities, the penalty can be large, such as a surrender charge as high as 10% of your investment amount if you cash in the annuity too early.
With treasury bonds, if you hold them to maturity, you will get all of your principal back; but if you need to sell them prior to their maturity date, you may get more or less than what you paid for them, depending on the bond market at the time of sale.
One of the advantages to bank savings accounts and money market funds is that the money remains available to you at any time.
With safe investments, a good rule of thumb to follow is that the higher the interest rate, the less liquid the investment will be.
If you want to earn a higher rate of return than the savings account or money market fund offers, most institutions will require that you leave your funds invested for a minimum amount of time.

Making Safe Retirement Investment

2009-07-04T18:22:00.000-07:00

Making Safe Investment
Safe Investment Preserve Capital, But Provide Less Income and Little Growth
By Dana Anspach, About.com

What is Safe Investment?

The purpose of safe investment is first and foremost to preserve your principal. A secondary purpose is to provide some interest income.
For example, when you deposit $10,000 in your savings account you know if you go down to the bank tomorrow they are not going to say:

“We’re sorry, but today your $10,000 is only worth $9,000.” Nor will they say, “We’re sorry, but we did not make any money last year. We can’t give you any interest until we have a more profitable year.”

Money in the bank is considered a safe investment because the primary purpose is not to make you more money, but to protect what you have.

5 Investments That Are Considered Safe

The following investments are traditionally considered safe investments, as their primary goal is capital preservation
.

4 Things You Need to Know About Retirement Investment

2009-06-27T18:10:00.000-07:00

4 Things You Need to Know About Retirement Investment

Use These Tips to Avoid Common Mistakes with Your Retirement Investment

By Dana Anspach, About.com

Many of you have spent 40+ hours per week, for ten, twenty, thirty or even forty years of your life developing your craft, your career, your area of expertise. This investment of time has provided you with an income, a lifestyle, and for some, allowed you to build a nest egg.

Soon there will come a time where this nest egg becomes your primary source of income. Considering this, wouldn’t it make sense to spend a few hours each week to learn how this will work?

After all, even if you seek professional help, you can’t turn your future livelihood blindly over to someone else to handle. You must learn enough to understand the difference between quality advice and a quality sales pitch.

So here are the 4 things you need to do:

1. Spend Time Educating Yourself About Retirement Investing

Here’s how to start your retirement investment education:

Read - Browse the book reviews and pick one or two to start with.
Take Classes – Start with one of these 5 online investment classes.
If you’re really serious about your education, consider taking parts - or all - of the CRP® curriculum. The American College has online programs and they can direct you to live classes if you want to immerse yourself in a specific topic like investing or taxes

How Not to Make Decisions about Retirement Investment:

Don’t attend free lunch and dinner seminars about retirement investing – those people are not providing education, they’re just trying to sell you something.

2. When Making Retirement Investment Seek Professional Assistance – Even the Best Athletes Have Coaches

When I say seek professional assistance, I mean exactly that - find a professional, not a sales person. You need a trusted advisor who understands that this is your life savings.
Later in life is not the time go it alone. A good financial advisor will keep you out of trouble.
Here’s how to start your search for the right qualified financial advisor:

3. Lay out a Retirement Investment Plan – And Stick With It

Two quotes to hang your hat by:

· People don’t plan to fail, they fail to plan.

· If you don’t know where you’re going, than any road will get you there.

If you don’t have a plan or don’t know where to start than read:

Once you have your overall retirement plan, then you lay out your investment plan. When it comes to the investment portion of your plan, remember, there are numerous ways to get from point A to point B. The key to success is KISS – keep it simple, stupid!
Think of your investment like employees; each has an assigned task. Your growth investment have 10-15 years to accomplish their task. If a few bad years in the market come along, and you interrupt them, they will never accomplish their goal.
You must understand the time frame associated with each piece of your retirement investment plan, and let it do its job. Read:

4. Avoid Retirement Investing Mistakes

Most investor’s success happens not because they make all the right decisions, but because they avoid the wrong ones. These articles can be a great starting place to keep you out of harm's way.

I’m nearing retirement age these things are very helpful in finding the right retirement investment for my retirement savings.