While saving a portion of your monthly paycheck is an excellent idea, it is often difficult for people to figure out the best way to invest these savings. There are many options out there, and the more you know about them, the more comfortable you will be about making an investment choice.
When it comes to saving money in a pension plan or a retirement fund, there are many good choices. Your employer might provide a 401(k) type of plan, where a portion of your monthly income is taken out pre-tax and then placed in an interest-earning account. Many employers match some of the money, which adds to your investment. No taxes are levied on the money until you begin withdrawing the funds many years in the future.
Individual Retirement Accounts, also known as IRAs, are another idea to consider. There is more than one type of IRA, such as the SEP IRA or the Roth IRA. The Roth type of IRA is unique because money is taken from your pay after you have paid taxes on it, so when the years pass and you start withdrawing this retirement money, you won’t pay taxes in the future which might be a big benefit during your retirement years. If you ever find yourself facing bankruptcy, many retirement accounts are exempt from these proceedings, which is another good reason to set up a retirement account.
In addition to saving for retirement with the aforementioned plans, there are many other options for long-term investment strategies. A mutual fund is an investment that can be either long-term or short-term but offers investors a lower risk option than buying and selling individual stocks and bonds, which requires quite a bit of research and maintenance.
Another name for a mutual fund is a collective investment, and this basically means that a number of investors come together to put their money into a variety of different securities, typically with a common theme. These mutual funds contain many different securities and the money is distributed among each of the securities so it is diversified which lowers your risk. Open-ended funds are by far the most common, and these have several advantages, including that the fund manager has to buy back your shares whenever you wish to sell although you do have to wait until the end of the trading day.
There are mutual funds that invest in different types of industries and funds that invest in different regions of the globe. One example of a mutual fund would be an energy fund that invests in green energy sources. This could include companies that build solar power systems, as well as companies that are harnessing wind energy or hydroelectricity. A regional fund example would be a China fund, in which all of the holdings would be based in mainland China and probably also Hong Kong. This China fund could include businesses that focus on technology, energy, telecommunications, real estate, banking or other industry sectors. Talk to your financial advisor and discuss your goals as well as investment areas of interest to you.