by Jaynee Sasso
Workers face an increasing individual responsibility for planning their retirement. Understanding and participating in the world of investing is now an integral part of our financial lives. Gone are the days of depending on your employer to think and strategize about how to cover all your retirement cost. Take control of your financial future and actively participate in achieving your goals. Words like asset allocation, dollar cost averaging, bull and bear markets can be overwhelming to a novice. However, it is well worth your time and energy in getting to understand these terms. Look them up online or in a library and learn practical ways to make investment decisions. It is important that you develop a general understanding of how you can build wealth using various types of investment vehicles.
The most familiar investment vehicles that are readily available and marketed to the general public are:
• IRA (Individual Retirement Accounts)
• 401K plans
• 529 College Saving Plans
• Annuities
The goal of each one of these plans is to allow your savings to earn interest at a much more aggressive rate than a CD or money market account and to grow tax-deferred. Taxes and inflation are the primary enemies that investors must work against to ensure high yields on their portfolios.
Saving money under your mattress or burying it in a cookie jar in your backyard does not allow your money to grow at a rate fast enough to outpace inflation. Compound interest and time are an investor’s best friends because they cause money to multiply. A dollar today will not have the same purchasing power tomorrow. Therefore, your money must work harder for you so that your financial future is secure.
Some people may be bit leery of investing because of the volatility in the stock market. However, an investment strategy should be to invest for the long term instead of trying to make a quick buck by attempting to time the market. You should also invest according to your risk tolerance and therefore choose an investment strategy that supports it. The accumulation of wealth requires more than just a commitment to saving a certain dollar amount each month. It also requires that your money is working harder for you. Otherwise, you will find that you may out live your resources and must return to the labor force to make up the difference. The reality is that it’s quite difficult to physically earn all the money you will ever need to live. But with a solid investment strategy, the odds are in your favor.
