Rules for Investment

Beware

If any savings or investments plan sounds too good to be true, it probably is. There is no shortage of people out there willing to promise you anything to get their hands on your money. Use your good judgment in determining reasonable expectations.

Determine Risk

On the other hand, if you lower the risk, the return or interest rate is usually lower. There are other risks besides the possibility that an investment will go down in value. You must consider the impact of inflation. If you put $100 in an insured savings account that earns three percent interest, but inflation is running at 3 percent, your money would actually lose buying power faster than it grows with interest.

Diversify

Put your money into a variety of investments. This will generally reduce your overall risk. In this way, a loss in one type of investment may be offset by gains in another type.

Let’s look at a few of the places where you might put your money for retirement:

Savings accounts, money market mutual funds, certificates of deposit, and U.S. Treasury bills. These are sometimes referred to as cash or cash equivalents because you can get to them quickly and there’s little risk of losing the money you put in.

Domestic bonds. You loan money to a U.S. company or a government body in return for its promise to pay back what you loaned, with interest.

Domestic stocks. You own part of a U.S. company.

Mutual funds. Instead of investing directly in stocks, bonds, or real estate, for example, you can use mutual funds. These pool your money with money of other shareholders and invest it for you. This makes it easier to invest and to diversify your money.

Learn

Never invest in anything you don’t completely understand. Read financial papers and magazines. Many are available at your public library, if you don’t want to subscribe to them yourself. Tune in to any of the many Wall Street investment-related programs on radio or TV.

Don’t be afraid to get expert help. Choosing a financial planner, investment broker and/or insurance agent is like choosing any other professional-you have to do your homework. Be sure that before you purchase anything, you know exactly what you’re buying.

Check their credentials: What is their educational background? Are they certified? What is their experience? Do they have your best interest in mind?

Ask for references-ask your friends: What is their reputation?

Ask for a meeting: Will they offer a free consultation?

Ask questions: Will you incur any fees and costs? How are they paid?

 

Posted by Ardent Editor on Feb 21 2007 in Investment

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