INVESTMENT STRATEGIES FOR RETIREMENT
Everyone wants his or her golden years to go smoothly. Most people will retire when they are 65, so that leaves approximately 20 years of the retired life. A person needs to have enough money to live comfortably without holding a job. Bills still need to be paid and the house still has repairs to be done. Not only do people want to live comfortably, they also want to travel and spend time doing things not normally possible during their careers. Planning for retirement early in life is essential for financial comfort after the age of 65. Mr. and Mrs. Edwards are a married 25-year-old couple looking to start their retirement fund. They are coming to the investment agency, Finance ‘R Us, to obtain information on retirement. They know that they want to retire at age 65 and want to continue to live comfortably in the middle class. They do not have a great deal of knowledge about retirement funds, so they would like to pursue the easiest and most convenient option. Purpose, Scope, Limitations, and Significance The purpose of this report is to recommend a portfolio that will best represent each of these investments for the Edward’s retirement needs: 401(k), stocks, mutual funds, savings accounts, and bonds.
The analysis of these alternatives will include the interest rates and money to be gained as well as risks and other disadvantages. This information will give the Edwards confidence that they will have enough money to retire comfortably, but this information will be limited because there are only a few options covered and it was gathered in the past. A constant change in the stock market makes it hard to guarantee the future successfulness of their investments. For this report, we will use a variety of sources. They will include books, interviews, Internet sites, and on-line magazine articles. We will consult these sources to determine the most common types of investment strategies for a retirement fund. The sources will provide us with background information along with advantages and disadvantages of the different investment strategies. There are some basic items that you will need to know before you would want to invest in a 401 (k) plan. These items are: How long are you planning to invest for, what kind of a risk are you willing to take, what are the advantages of investing in a 401 (k) plan, and what are the drawbacks of a 401 (k) plan. There are many advantages in a 401(k) plan. First of all your contribution to your account is taking out before the government takes out taxes (401).
The Business plan on Investment and Retirement Planning
Introduction • Retirement is the point where a person is not in any kind of employment /business/occupation. • This usually happens upon reaching a determined age, when physical conditions do not allow the person to work any more. • Retirement could also be due to personal choice-either due to adequate pension or personal savings or due to a regular unearned income like interest, rents etc. • The ...
So that means that you are going to be taxed on a smaller amount of money. Since you don’t pay taxes on any return you make on a 401 (k) investment, you’ll accumulate savings faster. Tax-deferred growth gives you the full benefit of compounding growth. Every year the full amount of your investment will grow without interruption from the IRS. You also have access to professional management. Most of the money managers have MBA degrees or higher, and years of experience in the finical market. So you are getting professional help without even paying for it (Johnson).
Length of investment. The longer that you can hold off onto your investment, the better off you’ll be. The longer you leave the money in your account, you can reduce the risk and maximize the account. Since this is a retirement fund, there should be no problem in leaving the money in your account (401).
Risks. It is not that you are really taking a risk that you are going to lose your investment. It could be better described by saying the amount that your account is going to fluctuate over time. Risky investments fluctuate much more and rapidly then do safer investments. Depending on the return you are looking for you are, going to have to take some kind of a risk. “You are going to have to remember that your 401 (k) plan is a retirement fund. If you take your money out before you turn 59 1/2, you will face some stiff penalties. If you take a loan from your account, you have to pay taxes on the money you took out, plus you have to pay the current interest rate on your money,” (Johnson).
The Essay on Stock Investment
STOCK INVESTMENT Having an imaginary million dollars, with the purpose of investment, makes it quite impossible to come up with the right decision of how to maintain a high level of financial security, as the money is not real. Therefore, the considerations of security will not be here quite as important as they are in the field of real stock trade. Nevertheless, there are a certain guide lines, ...
If you have never invested before there are also added levels of risk. It is important that you have some knowledge of what you are going to do before you invest. Many retirement funds include many different options to invest money. Playing the stock market is could be one option. A stock is a share of a company that the company decides to sell to raise money without creating debt. This means that any person with shares of a company owns part of the company. If that company has a good year and makes a profit, it can give out dividends to its stockholders. A dividend is the money made in the past year divided among all the stock then given to the holder of the stock. “The right investment is a balance of three things: liquidity, safety, and return,” (internet).
Or, how accessible money is, what the risks are, and what can be received from the investment. The stock market is a wild place, but if played correctly, it can be a profitable arena. High reward. The market can keep rewarding and rewarding with pay out after pay out. Most are over a long-term basis though. Not many people can hit it big in a short time. A key to success is to diversify stock bought, don’t buy all of one company. But don’t put all of the money into one spectrum either. For example, don’t buy all electronic companies, if the whole electronics spectrum crashes, then all is lost. Lots of options. The stock market is a big place with many companies. Having many decisions to make before investing, the main decision to be made is what company to invest in. Before investing hard earned money, research the company and know what the company has done in the past. For the best opportunity to make money, diversify stock options. Wall Street can be a scary place when you are not prepared. But even prepared for the worst, doesn’t mean there won’t be loss. The stock market is an unpredictable place and every investment made is a gamble with hard-earned money. Chance to lose. With every investment made, there is a chance to lose it all. The stock market is unpredictable which makes it hard to invest wisely. No one can ensure total safety in any stock that is why the money invested has to be a surplus. Even stock that pays dividends can go down, which means the stockholder could lose money even if paid a dividend.
The Homework on Mutual Funds Fund Money Investment
... money. Mutual funds have automatic investment programs. Money is electronically taken out of your checking account and invested in the fund. ... about stock mutual funds, balanced mutual funds, and Bond funds. Bibliography Keown, A. J. (2001). PERSONAL FINANCE: Turning money into ... (IRAs) and other tax shelters. Each mutual fund has its own strategy and investment objective for making money. It's ...
Must pay fee. To trade on Wall Street, a stockbroker is needed to buy or sell stock. Stockbrokers charge fees based many different ways, depending on how much is traded, the price of the stock traded, or just a basic price for any trade. The fees should be minimal, but it all depends on what happened in the market.
An Individual Retirement Account (IRA) is a fairly new type of account that has been created for the sole purpose of providing benefits for people concerned about their retirement (Tiffany 27).
Within the last year, the Roth IRA has been launched, and it provides an alternative to the traditional IRA. An IRA acts as a supplement to any investment a person may make (Bennie).
In order to obtain an IRA, a person must fill out an IRA application when making the investment (Onken).
Both the traditional and Roth IRA provide many advantages over simply investing one’s money without also filling out an IRA application. Tax benefits. The main reason to invest in IRAs is the tax benefits that they provide. Both the traditional and Roth IRAs provide tax-free growth on their accounts (Tiffany 27), so any investment that is also in an IRA will not be taxed if it makes any money throughout the year. The traditional IRA is also untaxed when it is first invested, so when filling out an income tax return, one can claim that income as being deposited into an IRA, and it will not be taxed (Tiffany 28).
The Roth IRA is untaxed when a person withdrawals the money from an investment (Birnbaum 122).
So, instead of having to claim that unearned income on a tax return, a person can claim that it was in a Roth IRA, and save money. Investment opportunities. A person is not limited to a set number of investment opportunities as may be the case in other retirement-based accounts (Tiffany 28).
The Business plan on Investments Mutual Fund
... common investments. First, individual retirement accounts (IRA's) are tax deferred accounts where an investor can purchase cash accounts, stocks, bonds or mutual funds as their invest of ... growth in dividend income over time. And cash investments-such as money market funds, bank accounts, and Treasury bills-offer peace of mind because ...
Nearly every type of investment gives the option of putting the money in an IRA. Since IRAs are specifically for retirement, there are some disadvantages that make it specific to retirement. Withdrawal limits. A major disadvantage of IRAs is that once the money is in the account, one cannot retrieve it until they reach the age of 59.5 (Tiffany 27).
Caps on accounts. A $4,000 limit exists on every IRA that is established for a couple. However, a new account can be established every year. In order to have a traditional IRA, one also must make under $61,000 per year, and under $161,000 per year for the Roth IRA. Mutual funds are yet another investment strategy for starting a retirement fund. The definition of a mutual fund is “a corporation which manages a diversified portfolio of investments for its shareholders” (“mutual” 389).
Shareholders are the people who are gaining the most profits to put toward their child’s college education or a retirement fund. Corporations such as Putnam A, Fidelity Investments, and John Hancock pool shareholder’s money together and invest it into stocks and bonds (“Investment” 1).
There are four main categories of funds to invest in: 1. Bond Funds-There are two choices here; taxable and tax-free. Taxable bond funds invest in corporate and government bonds. Tax-free bond funds are invested in municipal bonds. Federal taxes do not apply to the money in tax-free bond funds. 2. Money Market Funds-The share price for these funds will not always remain the same and the United States government does not back them. Shareholder’s money is invested in short-term debt securities while hoping to keep the share price at one dollar. 3. International Funds-As the name suggests, these funds are invested overseas in foreign stocks and bonds. This investment strategy is commonly used. 4. Stock Funds-An investment company picks new companies that they feel will experience economic growth and invests shareholder’s money into their stocks. There are many advantages to investing in mutual funds. There is such a variety of types of funds to invest in. The hardest part is to pick which fund would best suit a person’s needs. Another advantage to mutual funds is that one can but funds directly from the fund company without having to pay a stockbroker. There area usually only minimal fees charged with a mutual fund, so the net gains are generally more than investing through a stockbroker. Your money also has greater buying power since your money is invested in a wide variety of securities (“Investment” 1).
The Essay on Investment Account
What is the meaning of Al-Awfar? Al-Awfar means “prosperous investment”. 3. What is the difference between Al-Awfar Savings Account and Investment Account-i and the normal Bank Islam Savings Account-i and General Investment Account-i (GIA)? Al-Awfar Savings and Investment Account-i is a rewarding account that offers a host of additional features, which include expected Mudharabah returns on ...
A large diversity of types of funds is an advantage, but it is also a disadvantage. There are over 9,000 funds (“Frequently” 1), so you have to be an expert in picking the good ones. Most everyday people are not experts, so they must seek help from financial advisors. Their services are not free. Also, depending on if money is invested in tax-free or taxable funds, your tax liability may increase (“Frequently” 1).
As with ant other type of investment, there are risks involved. There are no guarantees that a certain fund will be successful or unsuccessful. Savings Accounts and Certificates of Deposit Savings Accounts and Certificates of Deposit are ideal for a person who wants to wait until more income is accumulated before making a long-term investment, these accounts are ideal because existing income will more money than if it were just in a checking account. They are specialized to be relatively liquid investments that have few limitations. They are also easily obtained at any bank in the area, or over the phone from a bank across the nation. Advantages of Savings Accounts and Certificates of Deposit Many advantages exist when a person invests in savings accounts and Certificates of Deposit (CD).
Ease in set up. These investment are very easy to set up. All one needs to do is go down to the local bank and ask a teller to set up an account, and in fifteen minutes, they will have their money in an account gaining interest. Over 100 banks are in the area, however, Norwest and Commercial Federal are two of the most widespread banks in the area (Goldwasser).
The one thing to keep in mind in choosing banks is location and the bank with which one feels most comfortable. Short-term investments. These investments are very short term, which means that money won’t be tied up for a while, and money will be easily accessible. A savings account has no limit of time that money may be left in it. Money can also be retrieved from this account for the duration of the time that money is in the savings account (Bennie).
The Essay on Ways of Saving Money
In the present economic situation, the prices of different goods and services are always increasing everyday. Money has become quite hard to earn. Therefore, many people are looking for ways to save their money. In my opinion, as a housework, I think saving money at home is one of the best ways to save our money. According to our monthly income is high or low that we can have the good ways to save ...
Certificates of Deposit have a higher return than savings accounts because the money in these accounts is not accessible to the investors for the duration of the time that money is in the account. However, the money usually is in the account for only 3 to 12 months. Disadvantages of Savings Accounts and Certificates of Deposit The main reason that savings accounts and certificates of deposit are not the best places to invest is that they do not have a great return rate. On savings accounts, the return at Commercial Federal and Norwest banks is 2 percent (Onken), and this does not compare well with the return of mutual funds and stocks. In terms of CD’s, the top yielding six-month CD is 6 percent from Safra National Bank (Goldwasser 42), but Bob Bennie says “It is best to invest in a company that you feel comfortable with.” The going rate at a local bank is around 5 percent.
From the variety of investments that have been investigated, a portfolio has been chosen that will make the safest and most economical investments for the Edwardes. These conclusions and recommendations will sum up our findings and show why our reommendations are the most beneficial. IRAs provide tax benefits on all types of investments, however they do have a cap of $4,000 per year. The traditional IRA provides tax free input of income in an IRA and tax free growth, while the newer Roth IRA provides tax free withdrawal of the investment as well as tax free growth. Savings accounts and Certificates of Deposit are safe, short-term investments that have a small return. They are ideal for a person that wants to earn more money placing a long-term investment. 1. The 401k plan has proven to be the best investment for retirement, however the Edwardes do not want to tie up all of their savings in this account, so they should invest in other venues. 2. Savings accounts and CDs are the best short term investments for the Edwardes, and the easy deposits and withdrawls from these accounts make this a very economical short-term investment. 3. IRAs are a very beneficial investment because the tax benefits that they provide, and the ease of combining them with other investments. The return from mutual funds, and the safety of these investments make them the best non-401k investment for the Edwardes. 4. The volatility of stocks has made them an uneconomical investment for the Edwardes at this time. After they have more financial security in their retirement savings, the return of the stock market will make it a very beneficial investment. 1. The Edwardes should take 50 percent of the $300 that they have set aside for retirement savings per month and invest it in a 401k plan.
2. The remaining 50 percent of each month’s $300 should be put into a savings account for one month and then into a six month CD after that. 3. At the end of the year, the Edwardes should take 50 percent of the retirement savings they have invested in savings accounts/CDs, and place it in mutual funds via an IRA. This will eliminate the broker fees that accompnay mutual fund investment. 4. Investment in stocks should be put on hold until the Edwardes accumulate more money. The Edwardes should wait until they no longer have their children as dependents, and then invest 10 percent of their yearly retirement income in the stock market. If they comfortable with the stock market, they can increase the percentage up to a 15 percent maximum. Figure 1 shows the future savings disbursement of th Edwardes. Future Savings Disbursement of the Edwardes
Bibliography:
WORKS CONSULTED Clash, James M.. “Best Buys.” Forbes 25 Aug. 1997. On-line. Available
http://www.forbes.com/forbes/97/025/6004122A.htm 8 Nov. 1999. Eisenberg, Daniel. “Mutual Fund Meltdown.” Time 14 June 1999. On-line. Available 8 Nov. 1999. Fredman, Albert J., and Russ Wiles. Building Your Mutual Fund Portfolio. New York: Dearborn Financial Publishing, 1996. Sivy, Michael. “Investing in Funds the Right Way.” Time 21 June 1999. On-line. Available 8 Nov. 1999. Tweddell, Jerry, and Jack Pierce. Winning With Index Mutual Funds. New York: AMACOM, 1997. Johnson, Linda. Office manager, Cattipellar Corporation. Telephone Interview. Coon Rapids, MN, 9 November 1999. “How 401 (k) Plan Works.” Basics of 401 k Plans. On-line. World Wide Web. Available http:// www.401kforom.com/visitor/bas_how.html 11 November 1999.
