Investment – Investing for Retirement
Investing for Retirement
Saving for retirement can be approached in several ways.
Media ads constantly bombard us with images of happy, attractive couples enjoying their retirement years on a sunny beach in Jamaica or on a cruise ship in the Mediterranean. But to reach that dream, it is necessary to invest today’s earnings so that they will grow into tomorrow’s retirement fund. Certainly, the earlier one starts a systematic investment program, the greater the probability that today’s fantasy will become tomorrow’s reality.
Investing is more than just putting money in Guaranteed Investment Certificates or the stock market. From the start until you actually retire, you must keep reassessing your financial and other life circumstances to determine whether the strategy chosen yesterday is still valid today. Several approaches to investing are available but each is dependent upon your personality, your age and your life situation.
Financial institutions have made self-directed investment websites user friendly for easy buying and selling online. This type of investing requires substantial knowledge of the listed companies, their values and constantly changing prices. This is the approach favoured by traders whose thinking is geared to making short-term profits. However, most people are too busy with a regular occupation to get all the knowledge they need to be active investors, and the risks are enormous.
Invest and Hold Investors
These investors usually build a portfolio of stocks with a history of capital growth and regular dividend payments such as financial institutions, utilities and established corporations. Certainly, there is never a guarantee that quality stocks will always increase in value; however, this approach minimizes risk, and also reduces transaction costs.
For long-term investing, diversification is an essential risk management strategy. The usual basic diversification is to hold about 60% of your portfolio in high-quality fixed-income investments and 40% in common stock. Within the common stock portion, diversification can be achieved through owning companies in various industries, countries, or through exchange-traded funds (i.e., similar to mutual funds but traded like stocks), which give the investor access to a wide variety of asset classes such as commodities and currencies.
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