Six Tips to Help You Jump Start Your Retirement Savings and Security
1) Start Early
The earlier you start investing, the more time you have to build up your money.
2) Match Investments to Meet Goals
What is your goal? Retirement? Buying a car? Saving for your children's college education? Identify your goal. Then learn about and choose an investment strategy that will most likely help you achieve it.
To protect your money and reach short-term goals, such as saving for a down payment on a house to buy next year, look to cash investments. If you want to provide a steady stream of income to supplement your wages or for retirement, consider bonds. If you want growth for the long term, such as saving for retirement or your child's education, your should focus on stocks. Historically, stocks have had the highest rate of return over the long term. From 1925 to 2002, returns were as follows:
Cash > 3.8 percent
Bonds > 5.4 percent
Stocks > 10.2 percent
3) Understand Investment Products
Many investment products are available. Here are basic descriptions of some of the main ones.
Stock or equity. When you own shares of a company's stock, you own a piece of the company, sharing in its successes or failures along the way. For example, you could own shares in Microsoft Corp. or Sears Holdings Corp.
Bond or fixed-income investment. When you buy a bond, you become a lender. The bond issuer is the borrower. The bond issuer might be a company, a city, a state or a federal government agency. They may borrow for short periods to manage cash flow or cover operating costs. They may also borrow money for longer-term goals, such as to build new facilities or pay for new technologies. Cities or states may need to build bridges or provide other community services.
Mutual fund. A mutual fund is a pool of money that is professionally managed for the benefit of all shareholders. As an investor in a mutual fund, you own a portion of the fund, sharing in any increases or decreases in the value of the fund. A mutual fund may focus on stocks, bonds, cash, or a combination of these asset classes.
Exchange-traded funds (ETFs). ETFs are stocks that act like mutual funds. Most ETFs duplicate a stock or bond market index, such as large and small U.S. company stocks, industry and country sectors, and bond indexes. They are bought and sold like stocks on major exchanges.
Annuity. An insurance product that pays on a regular basis over a set amount of time.