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Investment Options

Brief descriptions of investment options for the beginner investors

These days, you can’t retire without using the returns from your investments. You can’t count on your social security checks to cover your expenses when you retire. It’s barely enough for people who are receiving it now to have food, shelter and utilities. That doesn’t account for any health care you may need or in the even that you need to take advantage of such funds much earlier in life. It is important to have your own financial plan. There are many kinds of investments you can make that will make your life much easier down the road. Plan early and out your money to work in the options that you understand and feel comfortable with.

Watch your investments grow
Diversity is an important factor when deciding upon the range of long-term investments for your retirement

The Importance of Diversity

In the paragraphs below are brief descriptions for beginning investors to familiarize themselves with different kinds of investment options. Although you should limit yourself to the investment options that you understand, it's also important to diversify your investments. This spreads your risk and minimizes eventual losses, or "lean" years.

Keep also in mind the Pareto Principle, which applies to many things in life, including investing. It's basically the 80-20 rule, where approximately 80% of the results come from the 20% of the sources. Or, to put it simply, roughly 80% of your investments will provide about 20% of the returns, while the other 20% of your investments will likely provide 80% of the returns.

The more you diversify your investments, the more likely is that you "hit" upon a few high performs that will provide the bulk of your returns. All the while, the majority of others will trickle in, or even make losses. But it's those few high earners that will provide for your financial security in the retirement years.

401K Plans

The easiest and most popular kind of investment is a 401K plan. This is due to the fact that most jobs offer this savings program where the money can be automatically deducted from your payroll check and you never realize it is missing.

Life Insurance

Life Insurance policies are another kind of investment that is fairly popular. It is a way to ensure income for your family when you die. It allows you a sense of security and provides a valuable tax deduction.

Stocks

Stocks are a unique kind of investment because they allow you to take partial ownership in a company. Because of this, the returns are potentially bigger and they have a history of being a wise way to invest your money.

Bonds

A bond is basically a promise note from the government or a private company. You agree to give them a set amount of money as a loan and they keep it for a set number of years with a predetermined amount of interest. This is typically a safe bet and one that is a good investment for a first time investor because there is little risk of losing your money.

Mutual Funds

Mutual funds are a kind of investment that are based on the gains and losses of a shareholder. Basically one person manages the money of several or many investors and invests in a list of various stocks to lessen the effect of any losses that may occur.

Money Market Funds

A good short-term investment is a Money Market Fund. With this kind of investment you can earn interest as an independent shareholder.

Annuities

If you are interested in tax-deferred income, then annuities may be the right kind of investment for you. This is an agreement between you and the insurer. It works to produce income for you and protect your earning potential.

Brokered Certificates of Deposit (CDs)

CDs are a kind of investment where you deposit money for a set amount of time. The good thing about CDs is that you can take the money out at any time without paying a penalty fee. We all know life isn’t predictable, so this is a nice feature to have in your option.

Real Estate

Real Estate is a tangible kind of investment. It includes your land and anything permanently attached to your piece of property. This may include your home, rental properties, your company or empty pieces of land. Real estate is typically a smart and can make you a lot of money over time.

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