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Home Investing for retirement
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Written by Administrator   
Friday, 27 March 2009 01:51

Investing for retirement

 

If you are thinking about investing for retirement, then your profile is probably one of the easier ones since retirement investing tends to be more methodical than other types of investing. Generally, you open an account and make regular consistent contributions to your account while you are working, and this will build over time until you are ready to retire.

Retirement accounts

In the United States, there are two main categories of retirement accounts you may have heard of:

- IRA, or Individual Retirement Account

There are two main types of IRA accounts that you as an individual can open, which is a Traditional IRA and a Roth IRA. The main differences in these accounts are tax implications and distrubutions when you retire. There are also employer IRA's such as SEP IRA's and SIMPLE IRA's. These are along the lines of a 401(k), but have different contribution rules and are less expensive for an employer to manage than a 401(k).

- 401(k), or Employee Retirement Account

This account category is the one offered by many employers to their employees (also called a 401(b) account for government employees). Although these are typically much more limited than IRA's because they don't offer the wide array of investment choices as an IRA does, the advantage of an employer account is many employers will match their employee contributions up to a certain amount. For example if you put 3% of your annual income into your 401(k) account, some employers also contribute 3% on top of that. You can't beat a deal like that!

Getting the balance right

The key to successful retirement investing is having a good balance of asset classes within your reitrement portfolio. So what does that mean? It means having a good mix of funds and sectors that you are invested in. In other words, it's not a good idea to just throw all your money in one sector (i.e. large cap technology stocks) and forget about it. During times when this group underperforms the general market, you won't have money invested in any other sectors that might outperform the general market and offset your underperforming sectors. Having a good balance also means balancing risk. For example when you are younger you can afford to take more risks, so it makes more sense to have more money allocated to higher yielding investments like stocks and mutual funds. As you age and get closer to retirement however, it is wise to have a larger percentage of your portfolio invested in lower risk investments such as bonds, and even keeping a portion of your investments in cash accounts such as a money market.

Next steps

If your employer doesn't offer a 401(k) plan or other retirement account, you can open an IRA on your own and start investing for retirement that way. Most banks and brokers offer IRA accounts so your best bet is to stop by your bank and talk to a representative about the requirements to set one up.

Later i'll be adding a section on Retirement Planning that will go into more depth on this subject so check back soon!



Return to Getting Started from Investing For Retirement

Last Updated on Saturday, 28 March 2009 01:58