Investors have a dizzying array of choices. Investment options include U.S. and oversees stocks, real estate purchases, bonds issued by stable companies, riskier bonds that offer higher yields, forex trading, and the purchase of precious metals such as gold, titanium, and palladium bullion. Since before the 2008 stock market crash, gold value has risen sharply.
Smart investing requires research. Learn what types of investments make the most sense in the areas of expenses and financial risks involved. Are financial goals five years, ten years, or thirty years in the future? If retirement is far away, stocks have outperformed other investment types, including bonds, as a whole over time. While stocks fluctuate in the short term, and may even decline by 25% in a single year, historically they yield an investment return of about 10% annually.
According to U.S. equity strategists, Standard & Poor’s downgrade of the long-term sovereign credit rating of the U.S. from AAAA to AA+ won't keep the nation’s stocks down in the long term. Investors should consider buying large companies and dividend-paying stocks in the short run.
No personal investment strategy is complete without diversification. Put money in a combination of stable investments such as bonds and CD's, more variable types, such as mutual funds, along with money in individual stocks. Consider purchasing a life insurance policy for the future security of loved ones.
In addition, try to set aside a certain amount of money for a secondary retirement fund and keep some money in a personal savings account for emergencies. Fixed annuities are interest based vehicles similar to bank issued CDs, but geared specifically towards retirement savings.
Invest as much as you can spare in an IRA or 401(k), even if it's not the maximum allowed by law. You don't have to contribute $5,000 every year to start building assets tax-deferred. Even $100 a month will make a large impact over time. If your employer offers a match based on your retirement plan contributions and you are not participating, you're missing out on extra money. It's also easy to rollover a 401k or transfer funds from your current IRA to a No Fee IRA.
If you're tempted to take a cash distribution from your retirement plan, keep in mind you'll lose a substantial portion of it to taxes and penalties. Among these is a 10% early withdrawal penalty if you're under the age of 59½ and additional federal income taxes depending on your tax bracket.
It's vital for every investor to review asset allocation (the mix of stocks, bonds, and cash) in their portfolio once a year to make sure it's still appropriate for their current needs.