When you retire, you want to be able to enjoy it. Selecting the right investment plan means the difference between living the lifestyle you want and struggling to pay your expenses. Navigating the maze of different options like asset allocation and diversification, stocks, bonds, mutual funds and money market accounts can be daunting. Follow some basic guidelines to move down the right path.
Before you choose an investment plan, research your options. Choose a financial magazine that has been around for a long time and subscribe to it. If you have some trouble navigating the financial terminology, and almost everyone does, look it up. You will have a clear understanding of them by the time you are done.
Another thing to do is take a class online or at a local college about investments. Many local colleges and business schools offer evening classes or seminars on retirement planning. There are also many online investment courses that are free. Take advantage of these great resources.
Lay out your Financial Goals
Determine what kind of lifestyle you want to live after you retire. Are you going to stay close to home or travel? Do you want to purchase a new home closer to your favorite place? Do you just want to feel free to spoil your grandchildren? All of these things and more are factors in your long term goals.
Understand your Style
You need to choose an investment plan that matches your comfort level. While markets are in a constant state of flux, there are always high risk and low risk options. If you do not have a tolerance for high risk investments, then choose a safer option.
Calculate your Years to Retirement
Figure out approximately how many years there will be between now and the time you plan to retire. This will guide your asset allocation and diversification options. If you have a shorter period of time choosing low risk investments is the smart thing to do. If you have a long time until retirement you can afford to go with higher risk investments.
Choose your Investments
Your goals, style and years to retirement will determine what investments you make. While there are many different kinds of investments, there are a few that are the most popular.
- Bonds are basically IOU’s for money you lend to the government. You will receive the money back, plus interest, within a specific amount of time.
- Money Market Investments mature quickly and are low risk but they usually have lower returns.
- Stock Funds invest your money in several different stocks which creates less severe price fluctuations. It is a safe option because your financial security does not depend on the success or failure of one particular stock.
Invest in your future retirement by looking at your long term goals and make sure you keep increasing those investments with contributions at regular intervals.