Retirement Planning with Stocks & Mutual Funds
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Finance > Investing
Oct 12, 2007
nbisea
Retirement Planning with Stocks & Mutual Funds
Retirement planning doesn't have to be a daunting task. In addition to a pension, social security and a 401k, the happiest retirees secure investments long before they retire and reap the benefits for that Bahamas cruise later on. Stocks and mutual funds aren't just terms for Wall Street brokers anymore. They're assets to anyone with a desire for more money. Why not benefit as the economy benefits and share in the wealth? That's what "capitalism" is all about. A stock is a share in the ownership of a company. For the company, a stock is a fundraising loan that they needn't repay, but will typically yield greater income for both the company and its shareholders in the end. As an owner, you are entitled to your share of the company's wealth. You won't be able to control how the company is run per say, but the good news is that you will have a claim to assets and limited liability (meaning that you're not personally responsible if the company can't repay its debts). Stocks can be daunting since there's always the risk that the company won't be profitable and you'll lose your investment. When retirement planning, the AARP recommends investing for the long haul in companies that are likely to succeed (instead of trying to "time" the market) and invest small in many different stocks to minimize risk and maximize returns. A mutual fund is a lower-risk investment. Investors pool their money and allow professionals to select stocks for them. While stocks may generate a larger return, mutual funds are better for retirement planning because of their low risk and maintenance. Mutual funds spread your investment dollars around and gives you the expertise of a money manager to ensure the success of at least some of your investments. Mutual funds are constantly being bought and sold, so you can easily sell your shares for money. Many people choose the automatic investment option, which takes a certain amount of money out of each paycheck to invest. When the market's down, more shares are bought to increase your ownership and when the market's up, less shares are bought at the higher price. So how will you make money off your stocks and mutual funds? One way is through appreciation, meaning that the fund will be worth more than what you paid for it as the market changes and you'll be able to resell, making a small profit. Another way is through dividends, which works like interest that is distributed among shareholders annually or sometimes quarterly. A third way is through capital gain distributions, which is the portion of the shared company profit that you can receive annually or monthly. Retirement planning investments shouldn't be touched until retirement however, since this money will be included in your taxable income. You may be wondering, "Where can I get started on investing in my retirement plan?" For information, check the US Securities and Exchange Commission website to find what questions to ask before you get started with your retirement planning investments. The local library will also have many resources for eager investors. To jump right in, make an appointment with your local bank.
Browse to Mike Selvon portal to find out more about your retirement planning options. We greatly appreciate your feedback at our retirement planning blog.
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