The more you can save for retirement, the better your chances of retiring comfortably. Some ways to get started include:
- Start saving as early as possible
- Invest on a regular basis
- If you participate in an employer-sponsored retirement plan, take advantage of automatic contributions
- If your plan allows, make appropriate investment choices for your retirement time frame
Setting goals for retirement is an important part of retirement investing. For example, do you want to retire early? Would you like to travel during retirement? Do you plan on working post-retirement? Having goals can help you and your financial professional develop an appropriate investment plan for your retirement. Before investing for your retirement, you should set retirement goals and also consider your time horizon, risk tolerance, and liquidity needs.
When you buy a company’s stock, you’re purchasing a share of ownership in that business. You become one of the company’s stockholders. Your percentage of ownership in a company also represents your share of the risks taken and profits generated by the company. If the company does well, your share of its earnings will be proportionate to how much of the company’s stock you own. Of course, your share of any loss also will reflect your percentage of ownership.
A bond is basically an IOU. Bonds, sometimes called fixed-income securities, are essentially loans to a corporation or governmental body. The borrower (the bond issuer) typically promises to pay the lender, or bondholder, regular interest payments until a certain date. At that point, the bond is said to have matured. When it reaches that maturity date, the full amount of the loan (the principal or face value) must be repaid.
In daily life, cash is all around you, as currency, bank balances, negotiable money orders, and checks. However, in investing, “cash” is also used to refer to so-called cash alternatives: investments that are considered relatively low-risk and can generally be converted to cash quickly. Money market mutual funds and guaranteed investment contracts (GICs), government savings bonds, U.S. Treasury bills, and commercial paper are some examples of cash alternatives.
You can invest in all three major asset classes through mutual funds, which pool your money with that of other investors. Each fund’s manager selects specific securities to buy based on a stated investment strategy.
The combination of investments you choose for your retirement portfolio can be as important as your specific investments. The mix of various asset classes, such as stocks, bonds, and cash alternatives, account for most of the ups and downs of a portfolio’s returns.