INVESTMENT CHOICES

The November 9th issue of USA Today had an interesting article about investments. Our choice of investments can have a profound effect on whether or not there will be any money remaining in later retirement years.

First, you have to determine your level of risk. If you will only sleep well at night with your money in bank CDs, then you must be content with a 6% or 7% rate of return in today's market. With bank CDs, your deposits are guaranteed by the FDIC.

The next level of risk is mutual funds. Your deposit is not guaranteed, and you could potentially watch your assets go down. Within each mutual fund family is everything from very low risk to high risk. If someone is very conservative or elderly, I recommend a fund that buys U.S. government securities. They usually return about 5%, although at times in the past the return has been higher.

After that would be a fund that blends bonds and stocks, called a balanced fund. They usually have about 30% bonds, 60% stocks, and 10% cash. When stocks go down, bonds tend to go up, and the reverse is true as well. This provides at least some protection in a volatile market such as we have today. In fact, if you have limited investment funds, I consider the balanced fund to be the ideal investment. Historically, a balanced fund will return 8 to 10%

If you like to take risks and are young, then you can take your chances and invest in a mutual fund that invests in anything from overseas emerging markets to gold. The risks are high, and the potential for gain (and loss) is greater. It's not unusual to have a 50% gain or loss in one year.

The place to begin saving for retirement is in a Roth IRA. You can start one for as little as $50 monthly, and choose the mutual fund you want to use. There is a cap, however, on how much you can put into a Roth IRA. For tax year 2008, the maximum is $5,000 if you are under age 50, and $6,000 if you are over 50. Each spouse must have their own IRA. The money that accumulates will never be subject to income tax. It's the best thing since sliced bread!

I don't recommend buying individual stocks unless you are committed to following the advice of Warren Buffett--buy and hold forever. Otherwise, the risk of loss is too great.

I especially don't recommend getting into options, or paying money to go to a seminar to learn how to day trade. They are appealing to your greed, and they are the ones making money on you.

Once you have reached retirement, you can calculate how much you can safely withdraw by following the 4% rule. That is, never take out more than 4% of your total assets in any given year. That will safeguard your investments over your lifetime, and you will most likely be able to pass on money to your children.

Don't delay planning your future.