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.
There are several types of retirement or pension plans to consider. Many employers offer a 401(k) plan, which is a pension plan account where a portion of your salary is deducted and placed into a special account where it earns interest. The money is taken out before taxes are levied on the paycheck, and you pay the taxes years later when you withdraw money. Often your employer will match a portion of this money, which further helps you plan for retirement.
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.
While it is wise to set up a retirement account, it also is prudent to invest additional money in other types of financial opportunities. These days, with interest rates so low, putting money into a Certificate of Deposit or a savings account returns very little, but on the flip side, you might be wary about investing in a specific stock, which can be risky. Putting your money into mutual funds, however, can be a great way to earn a bit more interest than savings accounts but without the risk of a single stock.
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.
An example of a mutual fund might be a fund that invests in a specific global region such as China or Asia or perhaps a specific type of investment, such as one that invests in energy. A China fund will include holdings from mainland China and Hong Kong in areas such as energy, technology, telecommunications and other profitable areas. An Asia fund will be similar except that in addition to China and Hong Kong, other Asian nations will be included. An energy fund might be based on traditional sorts of energy such as natural gas or petroleum or perhaps it will be an alternative energy fund, which focuses on solar energy companies, wind energy and hydroelectricity. You can invest in any type of mutual fund you like, depending on what is of interest to you.
There are several types of retirement or pension plans to consider. Many employers offer a 401(k) plan, which is a pension plan account where a portion of your salary is deducted and placed into a special account where it earns interest. The money is taken out before taxes are levied on the paycheck, and you pay the taxes years later when you withdraw money. Often your employer will match a portion of this money, which further helps you plan for retirement.
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.
While it is wise to set up a retirement account, it also is prudent to invest additional money in other types of financial opportunities. These days, with interest rates so low, putting money into a Certificate of Deposit or a savings account returns very little, but on the flip side, you might be wary about investing in a specific stock, which can be risky. Putting your money into mutual funds, however, can be a great way to earn a bit more interest than savings accounts but without the risk of a single stock.
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.
An example of a mutual fund might be a fund that invests in a specific global region such as China or Asia or perhaps a specific type of investment, such as one that invests in energy. A China fund will include holdings from mainland China and Hong Kong in areas such as energy, technology, telecommunications and other profitable areas. An Asia fund will be similar except that in addition to China and Hong Kong, other Asian nations will be included. An energy fund might be based on traditional sorts of energy such as natural gas or petroleum or perhaps it will be an alternative energy fund, which focuses on solar energy companies, wind energy and hydroelectricity. You can invest in any type of mutual fund you like, depending on what is of interest to you.
About the Author:
Cleveland Jernigan enjoys blogging about investments. For further information about Asian investments, or to discover more about Asia Pacific bond funds, go to these fund sites today.
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