Diversify. Most people have heard the saying, “don’t put all your eggs in one basket.” This advice is especially true for investing. Because the market constantly fluctuates, there is no way to tell which type of investment will do well at any given time. Therefore, it is best to spread out your dollars. Individual Retirement Accounts (IRA): These accounts can be opened at nearly every financial institution. An individual can deposit up to $4000 per year. The two types of
IRA’s are Roth and Traditional. The primary difference between the two is when taxes are paid on the account. The Traditional IRA allows you to pay taxes upon retirement, while the Roth IRA allows you to pay taxes when you deposit the money. There is a penalty for withdrawing money before retirement age (approximately 59 ½ years).
401K/403B: These are contribution plans that are offered on behalf of companies to their employees. You have the option to choose the percentage of your before-tax income that will be deposited into your account, and many employers match a portion or all of your contribution. It is one of the best options to take advantage of to reach your retirement goal. If you change jobs make sure you roll the money over into an IRA or your new employer plan, because there is a hefty fine for withdrawing before retirement age.
Mutual Funds: These are professionally managed by an investment expert. The money of many investors is pooled together and the fund managerdecides how to invest in a variety of stock and bond options. This investment tool has the advantage of reducing risk through diversification. Because you own many different types of stocks and bonds, if one account has a loss, other accounts may have gains that help balance out the fund.
Stocks: Stocks represent ownership in a company. A company usually issues shares of stock to raise money. When you purchase stock you become a shareholder (part owner) of the company. Stocks can gain or lose money and can be risky investments, but they have the potential to earn high returns. It is best to do a lot of research on the stocks you choose to invest in or seek advice from an investment professional. Real Estate: Purchasing land or property for the purpose of earning a profit is considered a real estate investment. This type of investment is good against inflation, but can be difficult to convert into cash because property and land are not easy to sell.
Corporate Bonds: These bonds are issued by corporations in order to sell debt. They typically earn more interest than government bonds but carry more risk because a company can go bankrupt or default on the bond. Corporate bonds can be an expensive option for an individual investor, becausethey usually sell for $1000 or higher.
Acknowledgement: This fact sheet was originally developed by youth and staff at ReachOut.com, a website that helps teens get through tough times.