![]() Why? Because our needs and goals change as we age. Add a review of your retirement plan to your annual to-do list. When you decide how to invest your retirement account, don’t use a “one and done” strategy. That’s why taking a balanced approach is so important: Returns on the three major categories of investments have not historically moved in unison, all going up or down at the same time.įirst, remember that the right balance now may not be the right balance later. Your finances may stay healthier, because the investments are balanced. Doing so may smooth the ups and downs of investing in a single category. ![]() While each of these investments carries some risk, the good news is that by investing a portion of your retirement account in several different categories, you can spread out that risk. By investing too much of your retirement savings in a cash equivalent, you may miss out on the potentially higher returns of the other investment categories. Although they may seem to be extremely safe, they too carry risk. This category includes money market funds, Treasury bills, and certificates of deposit. Some bonds (known as “junk” bonds or high-yield bonds) promise higher returns, but may actually carry a high level of risk.Ĭash equivalents. Bonds may experience lower investment returns than stocks or cash, too. When these change, bonds may be impacted. Bonds are often less volatile than stocks, but they also carry certain risks, because they are tied to credit ratings and interest rates. Investors who can accept a high degree of volatility, and who have a long time to recover if their stock investments drop, may be rewarded in the long run with higher investment returns.īonds. This up-and-down tendency is known as volatility. But, as we experienced during the recent recession, stocks may also suffer significant drops in value. The value of stocks may rise as the economy grows strong. Historically, stocks have the greatest potential for growth, but they can and do experience losses. As you make investment decisions, you should be aware of some basic information about each of these categories. ![]() You may be able to invest in some or all of them through your retirement plan. There may be stock funds, bond funds, cash equivalents like money market funds, or others-a nice variety that could keep their portfolio healthy and strong.Įach of the three major categories of investments (stocks, bonds, and cash equivalents) carries its own potential risks and rewards. Usually, people can choose from many different investment options in their retirement plans. So many investment choices … how can you decide? Investors should remember that, while diversification neither assures a profit nor guarantees against losses, it is a widely accepted investment strategy that may help meet financial goals. As we move through the fall season and head toward a new year, now is a great time to re-evaluate your investments, keeping the idea of balance firmly in mind. Unfortunately, this method of making investment decisions doesn’t usually mean success-especially when compared to implementing and sticking to a balanced, rational approach. Instead, we may rely on emotion, like our need for security, the recommendation of someone we trust, or the excitement of an investment’s recent experience. Rationality isn’t always uppermost in our minds when we make money decisions. We can all agree that balance is important so why do we often find it so difficult to apply balance to matters of finance?Īccording to behavioral scientists, it’s because we’re human. We want work-life balance, which can reduce our stress levels we try to eat balanced meals, thereby keeping our bodies sound and we try to balance our to-do list against our need for rest and relaxation.īetter balance can lead to better health-physically, emotionally, spiritually, and even financially. S&P 500 returns to halve in coming decade – Goldman Sachs.Balance is a word we hear tossed around a lot these days. Financial Capability: The 2018 National Financial Capability Study. Retirement Topics - Exceptions to Tax on Early Distributions. Retirement Topics - IRA Contribution Limits. Gift-giving guilt: Nearly half of Americans have felt pressured to overspend during the holidays. Christmas or Retirement? Put Your Holiday Spending in Perspective.
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