Investment Advice Corner


Create an Investment Plan



Investment planning is essential to build and preserve wealth. An investment plan needs to reflect your financial goals, your personal circumstances, and anticipate future income. Some factors to consider are your age, years before retirement, current and anticipated income, your investment goals, and most importantly your tolerance for risk.

Create your emergency account. An emergency account should be large enough that you don't need to borrow money or rely on credit cards to cover normal expenses. A good rule of thumb is to set aside enough money to cover at least three to six months of your living expenses. Set goals, including retirement - 401k calculator.

Identify investment goals. These should include short-term goals such as building an emergency account and creating a budget, as well as long-term goals such as paying off school loans, or saving to purchase a home. Identify a specific dollar amount for each goal and think about how long it may take to achieve it. Having a clear specific view of what you want to accomplish will enable you to build a plan to reach those investment goals.

Select appropriate investments. Match your goals to the specific investment objectives of mutual funds. When you invest in a mutual fund, your money is pooled with other investors' money and managed by professional fund mangers. Each fund has specific investment objectives, which can range from long-term growth to current income. Understanding these objectives can help you select funds that match your goals.

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Investment Basics - How to Invest

Key aspects of investing are:

  • Risk,
  • Asset allocation
  • Diversification
Risk. Risk is the likelihood of loss or less-than-expected returns. Each type of investment assets has a different risk. For example, stocks are more risky than bonds, which in turn are more risky than treasury securities. Generally, the greater the risk, the greater the potential for rewards. It is important to understand this risk-versus-reward relationship and to identify the level of risk that you are willing to accept with investments. This will help you determine which investments are appropriate for your investment goals, investing time frame and comfort with risk.

Ads

Asset Allocation. Asset allocation is the process of dividing investments among different kinds of asset classes, such as stocks, bonds and cash. Generally, if you have a long investing timeframe, you can allocate larger amounts of your portfolio to more aggressive investments, such as stock mutual funds, and allocating smaller portions to less risky investments, such as treasury securities and money market funds. Asset allocation can best be summed-up with the old adage: Don’t put all your eggs in one basket.

Diversification. Diversification is a portfolio strategy designed to reduce exposure to risk by investing in a variety of investments, such as stocks bonds, real estate, and money market funds, thereby spreading the risk among different asset classes. Diversification has the tendency to reduce both the upside and downside potential and allows for more consistent performance under a wide range of economic conditions.

Some investment funds, such as asset allocation funds, offer exposure to different asset classes in a single investment. Remember, however, that diversification alone does not ensure against loss.

Annuity calculator can help you determine how a Fixed Annuity might fit into your investment strategy.

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