Today, there are plenty of retirement investment strategies that tout they are the best. However, choosing the one that will work the best for you will entail determining your specific goals, and then creating the blueprint that will successfully move you towards them. In many cases, investors can begin by taking a few simple steps in order to get started, and then move on to more advanced investment strategies.
In addition to setting future goals, retirement investment strategies should also be based on an investor’s:
- Risk tolerance
- Time horizon
- Future income needs
Breaking Down Your Ideal Strategy for Investing
While all investors are different, most will further separate their financial goals into long and short term investment strategies. In doing so, this can help you to determine what type of financial vehicles to use.
For example, many investors use stock investment strategies when investing for the longer term. This is because equities, on average, have typically outperformed inflation when held for many years.
Conversely, more conservative investment strategies such as such as purchasing and holding bonds, CDs (certificates of deposit), and other fixed income instruments are generally used for the shorter term. And, those who wish to keep their funds even more liquid and accessible will usually opt for a simple money market fund, or even a bank savings account.
Alternative investment strategies are also being used now by many of today’s retail investors for the purpose of diversifying their portfolios. Once thought to be aimed at only the ultra wealthy, these financial vehicles – which can include investments such as distressed debt and private equity – are often used for moving risk away from more “traditional” equity and fixed income assets.
In doing so, investors can take what would otherwise be a fairly aggressive investment strategy if used alone and use it to provide the potential for additional growth and overall portfolio diversification.
Where to Look For the Investment Help You Need
In seeking the best investment strategies for your particular situation, it is usually best to first determine your financial goals, as well as both your short and long-term investment time horizon. This can help in narrowing down how much you will need at various times, and what types of investments may be best for getting you there.
Knowing your risk tolerance as an investor can also be helpful. This way, you can more comfortably enter into and out of various transactions, feeling more confident about how the investment works – even in volatile market environments.
In any case, it is absolutely essential to have an investment strategy. This will provide you with direction. Without one would be like leaving home to embark on a long journey, yet with no particular destination in mind.
Saving and investing can be profitable – but it is having a clear and defined strategy that will allow you to determine exactly where you need to go, and what needs to be altered, along the way, in order to truly succeed.
Individual Retirement Accounts (IRA)
Even if an employed individual is setting money aside in an employer-sponsored retirement plan such as a 401(k) or 403(b), there may still be instances where they wish to save additional funds towards the future. With an Individual Retirement Account, investors can have that opportunity, with funds that are allowed to grow on a tax-deferred basis.
What is an IRA?
Individual Retirement Accounts, or IRAs, are a type of retirement account that employed individuals may set up and deposit money into. The funds that are inside of an IRA account are allowed to grow tax-deferred until the time of withdrawal – or possibly even tax-free – depending on the type of IRA.
There are two types of IRA investment options. These are Traditional IRAs and Roth IRAs. An investor may choose to have either a Traditional IRA, a Roth IRA, or both types of accounts.
Understanding the Different Types of IRAs
In many instances, those who own a Traditional IRA account are allowed to deduct some or all of their annual contribution. The amount of this deduction is dependent on the person’s annual income, as well as the way in which they file their annual tax return.
The funds that are inside of a Traditional IRA account are allowed to grow on a tax-deferred basis. This means that no tax is due on the growth of these funds until the time they are withdrawn. Over time, these funds have the opportunity to grow and compound exponentially.
A Traditional IRA account owner may withdraw funds from the IRA any time after he or she reaches age 59 1/2 without incurring an early withdrawal penalty from the IRS. If, however, withdrawals are made prior to this time, a 10 percent penalty will be accessed, in addition to the ordinary income tax that will be due on the funds that are withdrawn.
It is required that withdrawals from a Traditional IRA account begin no later than when the account holder reaches age 70 1/2. And, when the investor reaches this same age, no additional contributions may be made into the account.
Roth IRA accounts allow investors who fall within certain income guidelines to also save for retirement in a tax advantaged manner. While many of the Roth IRA investment strategies are similar to those of the Traditional IRA, there are also some that differ.
For example, although the funds that are inside of a Roth IRA will also not be taxed before withdrawn, unlike with a Traditional IRA, funds from a Roth IRA may be taken out of the account tax-free at retirement.
Another difference between the two types of IRAs is that investors are not required to begin taking account distributions at age 70 1/2 from a Roth IRA, nor must they stop making account contributions at that time, provided that the account holder still earns some form of income compensation.
While both types of IRA accounts cap the amount of their annual contributions, having an IRA investment strategy can be an ideal way to build up additional retirement funds for the future in a tax-advantaged manner.
401k Retiremrnt Plan
One of the most popular retirement plans that is offered by companies today is the 401k. Any employer that has one or more employees is eligible to offer a 401k plan. These plans allow employees to defer a certain percentage of their salary on a pre-tax basis into an account where the funds may grow tax-deferred. This means that the funds within the account will not be taxed until the time of withdrawal, essentially allowing them the opportunity to compound exponentially over time.
How to Invest Your 401K
Similar to most other types of qualified retirement plans, there are annual contribution limits on 401k plan contributions. Thus, 401k plans are also referred to as “defined contribution” retirement plans.
In 2015, the maximum amount that may be contributed by an employee who is age 49 or younger is $18,000. Those who are age 50 and older may make an additional “catch-up” contribution of $6,000. Depending on an employee’s annual income, some or all of this contribution may be tax-deferred.
In addition to deferrals by employees, the employer will also oftentimes provide an additional amount of “matching” contribution into employees’ accounts. The amount of this is typically based on a percentage of the employee’s contribution.
If an employee takes a distribution of funds from his or her 401k plan prior to turning age 50 1/2, other than for a “qualifying event” or a hardship, the IRS will impose an early withdrawal penalty of 10 percent on the amount of money that is withdrawn. This penalty will be incurred in addition to the income tax that will also be due on the amount of funds withdrawn.
Some of the “hardship” exemptions in which the IRS may allow a 401k participant to withdraw funds from their plan penalty-free include the following:
- Certain types of medical expenses
- Costs that relate to the purchase of a principal residence
- Tuition and related educational expenses
- Payments that are necessary to prevent eviction from, of foreclosure on, a principal residence, as well as certain expenses for repair of damage to the employee’s principal residence
- Burial or funeral expenses
Strategies & Options
When devising a 401k strategy, employees are usually allowed to choose from a pre-selected group of investments for inclusion in their 401k accounts. Typically, these will include a diversified group of mutual funds, from conservative to aggressive growth, as well as other choices such as shares of the employer’s stock (if applicable).
While there can be numerous 401k investment strategies, all investors are different, so each should consider their own individual goals, risk tolerance, and investment time horizon when determining the proper financial vehicles and asset allocation that may work best for them.
Using a 401k investment calculator can also help in providing investors with more insight on how much money they will have in their plan at certain ages, in turn, allowing them to better determine when they may be able to retire. Employees can run calculations using different rates of return, as well as different numbers of years in order to compare various scenarios.
Stocks provide one of many opportunities to invest for the future. One of the key advantages of investing in stocks is that they offer the ability to beat inflation – which is something that fixed investments such as bonds and CDs simply cannot do.
Investing in equities can also be a great way for investors to increase their wealth. It is important, however, to have a good stock investment strategy when doing so. Otherwise, this type of investing could become risky.
Stock Market Investing 101
Throughout the years, stocks have been considered to be good investments in general. When an investor owns a share of stock, they essentially become a part owner of the underlying company. That ownership structure is what gives the shares of stock their value. The price of a share of stock will typically track the earnings of the underlying company.
For this reason, a stock’s price may rise, even if the market as a whole is falling – and vice versa. The price of a share of stock may also be based on the projection of the underlying company’s future earnings.
Oftentimes, in the short term, the stock market’s behavior may be based on current news and the media. However, over the longer term, it is usually a company’s earnings that will determine whether the share price of a company will rise or fall, or remain stagnant.
In addition to making money on stocks from a rising share price, investors may also be able to earn through the payment of dividends. In some cases, the board of directors of a company will provide its shareholders with a portion of the company’s retained earnings.
While dividends are typically paid out in the form of cash, they may also be taken in the form of stock or other property. Retirees oftentimes use cash dividends as a form of retirement income. It is important to note, however, that not all stocks will pay dividends to their shareholders.
Strategic Stock Market Investing
While purchasing shares of stock can help you to grow your wealth, it is important to first have a plan or strategy prior to making any type of investment. Today, there are many good stock market strategies available, however, the one that works best for you will depend on some key criteria such as your risk tolerance, your investment time horizon, and your overall financial goals.
As a rule, though, some of the primary stock market investment tips that many investors have stuck with over time include regarding stock market investing as more of a long term endeavor, as versus engaging in short term trading. This is because in many instances, it makes sense to buy and hold the shares of good solid companies.
Another of the good stock market investment strategies to stick with is to be sure and diversify your stock portfolio. This refers to constructing a portfolio that includes good, solid shares of companies from several different industries, or even companies from different countries. This can help to provide a good balance.
Bond investing can represent a wide variety of financial vehicles – each with differing degrees of maturities and return. A bond can be issued by both businesses and governments. They are used for funding the day to day operations of these entities, or for obtaining the funds that are needed for various projects.
When an individual invests in a bond, they are essentially lending their funds to the bond issuer for a certain period of time. With most bonds, in return for the funds that were loaned, the investor will receive regular interest payments from the bond issuer. At the end of the bond’s term – or maturity date – the investor will also receive back their original amount of capital.
Typically, a bond’s value will move in the opposite direction that interest rates are going. Therefore, if interest rates rise, then the price of a bond will fall, and vice versa. If an investor holds a bond until its maturity date, however, the market fluctuations will not matter, as the investor will still receive back their original amount of principal.
Just as with other types of investments, bonds may or may not have a place in a particular investor’s portfolio. Therefore, it is important to have a bond investment strategy in place prior to moving forward with the purchase of a bond in order to determine how and where a bond may fit best in your overall financial strategy.
When determining your bond investment strategies, it is important to understand that when investing in a bond, the total return that is obtained will not be the same as the actual yield on the bond. As an example, if you own a bond that has an interest rate of 5 percent, then you will not be guaranteed a 5 percent return.
In this instance, should interest rates rise out in the market and the price of your bond falls by 2 percent, then the overall return on the bond investment for that particular year would actually be 3 percent.
The Ins and Outs of Bond Investing
When investing in bonds, it is also important to understand which type will be best for you, based on your specific goals. There are numerous different types of bonds to choose from, including:
- Government Bonds – These fixed income securities are categorized according to the length of time before they mature. The three primary categories include:
- Bonds – Government bonds mature in more than 10 years
- Notes – Government notes mature between one and 10 years
- Bills – Government bills mature in less than one year
- Municipal Bonds – Municipal bonds, or “munis,” support local municipalities.
- Corporate Bonds – Corporate bonds are issued by large companies. These bonds usually have higher yields than government bonds due to their somewhat higher amount of risk. It is important to try and stick with investment grade bonds when investing in corporate bonds in order to reduce risk in this category.
- Zero Coupon Bonds – A zero coupon bond will make no regular interest payments to its investors, but rather is issued at a deep discount up front. For example, the investor may pay $600 now for a bond that will mature at $1,000 in ten years.
Investing in Bond Funds
Investors may alternatively invest in bond funds. Bond mutual funds are essentially mutual funds that invest in bonds. These funds may consist of either all one type of bond – for example, all municipal bonds. Or, they may alternatively consist of a wider variety of different bonds. All bond mutual funds are managed with the intent of achieving a stated investment objective.
Investors today have a wide variety of financial vehicles to choose from. One of the safest and most reliable of those is the Certificate of Deposit. While this investment is oftentimes overlooked, it can have many advantages. Therefore, investors should consider adding a CD investment strategy to their overall financial plan.
Certificates of Deposit
A CD, or certificate of deposit, is a time deposit that is commonly offered to investors through banks, credit unions, and investment companies, as well as online. CDs are considered to be a good, safe type of savings vehicle because they are insured, and they are virtually risk free.
Certificates of deposit differ from savings accounts in that they have a specific, fixed term and typically also a fixed rate. Common time frames for certificates of deposit are 3-months, 6-months, 1-year, and 5-years.
It is generally intended that a CD be held by its investor until it reaches its maturity. At that time, the money may be withdrawn – along with the interest that has been accrued. Should the investor cash out of the CD early, he or she will typically incur a penalty.
A certificate of deposit pays interest on its deposited funds much like a bank savings account does. Similar to with a savings account, a CD earns compound interest. This means that the interest on the funds in a CD will also earn interest.
However, CDs generally will pay a higher rate of interest than a savings account because your money is essentially “locked up” for a certain period of time. This provides the bank or credit union the ability to use the funds for other purposes, such as making loans to other customers.
At the time of your CD’s maturity, you can choose to reinvest your funds, or you can withdraw your funds altogether. It is important to know what the policy is at your particular financial institution, as some companies will automatically reinvest the funds within a certain period of time if they are not specifically instructed otherwise.
Why You Might Want a CD in Your Portfolio
At today’s historically low interest rates, many investors may be asking why they should consider investing in certificates of deposit (CDs). Yet, even though these financial instruments may not provide a substantially high return, there are some CD investment strategies that can make these financial vehicles attractive for investors.
First, the safety of these investments can make Certificates of Deposits highly beneficial to certain types of investors – most specifically retirees and those who are risk averse. There are also numerous other advantages to investing in CDs, provided that these financial vehicles fit in with your particular investment needs and goals.
Some of the primary benefits to investing in CDs can include safety of your principal, as well as their predictability, as there is no need to worry about market fluctuations when investing in these types of financial instruments.
When considering the best CD investment for you, as with all other financial vehicles, it will be important to take into consideration several criteria including your age, your investment time horizon, and your overall financial goals.
Over the past several years, investing in the foreign exchange market, or Forex, has become a popular way for investors to diversify their funds, as well as to speculate on and exchange different types of foreign currencies.
Trading the Forex has become a way for investors to make a quick profit – provided that they are well versed in how the market works. Otherwise, it can become a risky endeavor. Therefore, having a good understanding of the Forex market is essential prior to constructing any type of Forex trading strategy.
Foreign Exchange Markets
The foreign exchange market, also known as the Forex, is made up of different banks, hedge funds, investment management companies, and retail brokers, as well as investors. It is essentially considered to be the largest financial market in the world. The term Forex actually stands for foreign exchange, and it is oftentimes simply abbreviated using the letters FX.
It is important to note that the Forex is not just one single market, but rather it is essentially a large global network of numerous computers that connects all of its participants from all over the globe. As this market has grown, it is estimated that the Forex has an average daily volume in the trillions of dollars today.
The Forex Currency System
Due to the fact that the currency market is so large – as well as highly liquid – it is believed that it is the most efficient of all the financial markets, thereby allowing investors an edge in potential profit taking. In addition, because currencies are traded 24/7, investors in the Forex can virtually trade around the clock.
Those who trade in the Forex must plan, as it is important to be patient when executing these types of trades. Likewise, it is also essential to execute trades according to plan and not to change course in mid-stream. Many Forex traders will typically use a set system when buying and selling on the foreign exchange market.
One popular way to trade in this market is through use of the Forex breakout strategy. Here, traders look for the point at which the market price moves out of a trading range, or “breaks away.” This range may be for any amount of time. However, once the price exceeds either the low or the high of that range, a breakout has occurred.
This and other Forex trading strategies have helped traders to make money quickly in the Forex market. Usually, when just starting out, it is best to begin with small amounts of capital until comfortable with making trades. Then, moving up to larger sums may be accomplished for larger and more advanced types of trades in the Forex market.
There are numerous Forex trading systems available in the market place today. And, while there are many systems that claim to be the best Forex strategy, the one that is best for you will be the one that you are most comfortable using, as well as one that works the best in working your particular Forex trading strategies.
While many investors do a good job of diversifying their holdings with various stocks, bonds, and mutual funds, it is important to also branch out into other areas. One way to do so is to purchase commodities. These products consist of products that are a part of everyday life such as energy, food, and metals.
Back to the Futures
One of the most common ways to invest in the commodities market is via a futures contract. This consists of an agreement to either purchase or to sell – at a time in the future – a set quantity of a certain type of commodity at a given price. Some examples of commodities that can be invested in include such products as corn, gold, crude oil, cattle, and natural gas.
In the past, investing in commodities required a great deal of money, as well as expertise. Yet today, there are ways for individual investors who have an interest in this market to participate and to take part in the profits without committing large sums of money and time.
When investing in futures contracts, an individual will be required to have a brokerage account, as well as to sign a form that acknowledges that the investor understands the various risks that are associated with this type of investing.
A deposit will also be required. The amount of the deposit will be dependent upon the type of commodity being invested in, as well as the broker through which the investment is being transacted.
Should the value of the futures contract decrease, the investor will typically be required to add additional funds to the account in order to keep his or her position open. Due to the leverage that is associated with futures investments, even a small movement in the price of the underlying investment can mean a large movement in price – ultimately resulting in either significantly large losses or gains.
Futures Trading Strategies
There are several types of futures trading strategies that work well for investors – provided that they understand the concepts and do not initially risk large sums of capital when going into the futures trades.
One way to make money in this market is using various futures day trading strategies. This is essentially the process of both buying and selling a futures contract (or several contracts) in the same day.
When day trading, the trades can last for several hours, or they may only last for just a few minutes. But, the trader holds no open positions overnight. This can be an advantage, as oftentimes, futures can open at very different prices than where they closed on the previous day.
Another way to make money in this market is by using futures spread trading strategies. When doing so, a trader will sell one or more futures contracts and then buy one or more offsetting contracts.
The spread will track the difference between the price of the contract in which the trader has purchased and the contract that they sold. Here, the risk changes from that of price fluctuation to that of the difference in the two sides of the trader’s spread.
In any case, it is important to have a good understanding of the strategy that is being used, as this type of trading can be risky. Knowing the strategy and the trade, however, can also become quite profitable for traders who are well versed.
Investors today are seeking ways to grow and diversify their holdings, while at the same time protecting what they already have. By adding precious metals investing to the mix, they may be able to accomplish just exactly that.
Investing in Precious Metals
The precious metals market is fairly extensive, and it offers a wide array of products for investors to choose from. Likewise, investors can start small, or alternatively, they can invest large sums on the metal (or metals) of their choosing.
Today, some of the most popular precious metals to invest in for most investors include:
How to Buy Precious Metals
While many people are familiar with purchasing the actual tangible metals that they can hold and store, there are in reality many ways to buy and invest in precious metals for profit. These can include the following:
- Tangible Metals – When investing in physical, tangible metals, investors have a variety of options to choose from. These typically include investing in bullion, bars, and / or coins. In many cases, investors can either hold the actual metals themselves, or alternatively, they may opt to have their metals stored at the dealer where they were purchased or at a third party metals storage facility.
- Stocks of Mining Companies – Investors can also invest in metals by buying shares of stock in mining companies. There are numerous companies that mine gold, silver, platinum, and palladium – as well as related companies that provide equipment and supplies. Any or all of these can provide a good way to invest in the precious metals industry.
- Precious Metals Mutual Funds – By investing in a precious metal mutual fund, an investor can actually be involved with numerous metals companies. Such funds can be segmented out by product type, such as mutual funds that invest in only gold or silver, or they may offer a more broad array of underlying investments.
- Precious Metals ETFs – An investor may also choose to invest in a precious metals ETF, or exchange traded fund. An exchange traded fund is a type of security that tracks a particular index, or group of assets, yet trades similar to a stock on a certain exchange. This, too, can provide a good opportunity to invest in a portfolio of several precious metals related investments all at one time.
Will Gold & Silver Protect Your Retirement Savings?
In many ways, precious metals can be seen as a hedge against inflation – and because of that, the price of these metals, primarily gold, will typically rise along with it. This can help to protect retirement savings in terms of keeping up with future purchasing power.
These metals can also provide investors with the opportunity for portfolio growth. For many centuries, gold and silver have rewarded their investors with a steady increase in value – and it is anticipated that they will likely continue to do so going forward.
Where to Buy Precious Metals
Today, there are a number of ways to purchase precious metals. One way is to visit the local metals dealers that are located in many large cities, as well as in smaller towns. In doing so, investors are able to see first-hand the actual piece that they are purchasing.
Over the past several years, many online sources have also become available for investors to purchase gold, silver, and other types of metals. Purchasing precious metals in this manner can make purchases easy and convenient, provided that investors are aware of the potential additional cost of shipping and storage for their items.
While most investors feel that they have a lot of leeway when investing in stocks, bonds, CDs, and mutual funds within their IRA (Individual Retirement Account) accounts, there are a great deal of other investment choices that they are not able to include if they are not the owner of a truly self-directed IRA.
A self-directed IRA is considered to be a subset of the traditional and Roth IRA. In its most basic structure, it is technically no different than other types of IRAs. However, a self-directed IRA account is considered to be unique because of the element of control that it allows – as well as the large variety of additional investment options that it offers to its investors.
In a self-directed IRA, it is the account owner who actually chooses the investments, rather than being bound to only what his or her financial institution offers them from a limited pool of products.
By having a wider array of investment choices, self-directed IRA accounts can essentially increase the investor’s opportunity to diversify their portfolio into almost an unlimited number investment vehicles – including real estate.
Just some of their choices may include:
- Residential and commercial real estate
- Mortgages and deeds
- Private notes and loans
The Benefits of Investing in Real Estate
There are numerous benefits to investing in real estate within your IRA account. One of the biggest advantages is the amount of leverage it can provide. For example, unlike investing in stocks, where $10,000 will buy an investor only $10,000 worth of stock, with real estate, $10,000 may get you $100,000 worth of property – or more.
Real estate also provides investors with the ability to profit in a number of different ways. First, property can appreciate over time. In addition, if property is purchased as a rental, regular incoming cash flow can be received.
Alternatively, investors could purchase a piece of property at a deep discount, and then “flip” the property either to another investor or to an end buyer for a profit. This is a way to make money relatively quickly, provided that the property is initially purchased at a deep enough discount. Any of these real estate strategies can work well for an investor, or all may be used together, depending on your overall financial goals.
How to Avoid Disaster
Prior to investing in any type real estate, it is best to develop a good, solid real estate investment strategy. This is because going in without a plan can result in both short and long-term investment losses. One way to help determine profit or loss before going into a deal is to use a real estate investment calculator, running various reports and potential scenarios.
While buying and selling real estate can offer the opportunity for nice returns, doing so within an IRA account can provide investors with an added tax advantage. In addition, a self-directed IRA account can also offer investors many more investment choices, while still allowing them to invest in traditional vehicles such as stocks and mutual funds as well.
Therefore, in addition to tax-free profits and the potential for faster growth, self-directed IRA accounts can provide investors with the opportunity for tax deductions, asset protection, and even potential estate planning benefits.