 |
|
The Big Picture. . . Investing Your Retirement Account Money
Since your employer has a retirement plan, use it. The difference between stock, bonds, and cash equivalents, and how each fits into an investment plan is the amount of risk in each.
|
|
You have an ownership interest in your retirement accounts. You will probably have investment choices with your thrift savings account, and you certainly have choices with your IRA account. Rely on your financial advisor to the extent that you are comfortable; but as the account owner, you will pay the price or benefit from whatever happens. Learn at least the basics:
- How much money must you save to meet your financial goals?
- How much time do you have to save for retirement?
- How much risk are you willing to take?
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. The main categories of investment opportunities are:
- stocks
- bonds
- cash and cash equivalents
Stocks—High Return and High Risk
Stocks, also called equities, represent ownership rights in a corporation. You might receive dividends and share in the company's growth. There's no guarantee that the company will grow and do well, so you could lose value rather than gain value. Over the long run, stocks in general have always brought the highest return. If you've got time to recoup from down periods in the market, you should be able to tolerate the higher risk of stocks.
Bonds—Moderate Return with Lower Risk
Bonds are loans issued by a debtor (a company or the government) and bought by a creditor (an individual investor like you or an investor fund). You can expect higher returns than with cash, but lower than with stocks. Treasury bonds and mortgage-backed bonds are safer than corporate bonds.
Cash and Cash Equivalents—Lowest Return with Lowest Risk
If you keep your money in certificates of deposit (CDs) and money market funds, you'll preserve the dollars with which you started but earn a low income on those dollars.
Think about how you would like to allocate your assets. It's the most important decision you have to make about your retirement accounts. Investment selections and timing within the allocations are other factors. Consider your specific investment goals, financial resources, time frame, and risk tolerance. Some financial advisors suggest that you subtract your age from 120 to determine the percentage of your assets to invest in stocks. The remainder would be invested in bonds and cash or cash equivalents. For example:
- If you are 30 years old, invest 90 percent in stocks and 10 percent in cash and cash equivalents.
- If you are 50 years old, invest 70 percent in stocks and 30 percent in cash and cash equivalents.
You can get decision assistance from online calculators
with graphics. If you log onto http://money.cnn.com
and click on "Calculators," you will find an asset-allocator
calculator that you can use to try different asset mixes.
You will find a mix that is comfortable to your risk tolerance.
If you need additional help or want professional guidance,
ask a certified financial planner (CFP) and/or a First Command representative.
| |
Play video