Introduction to Investing for Your Retirement

Most people will not want to retire on welfare. They will want the kind of retirement lifestyle that a little planning and investing can provide. The impending Social Security insufficiency and the major pension losses after the Enron stock collapse started many of us re-thinking our retirement plans. An investment is a place to put money with the expectation that it will generate more money or that at least the value of the money will be preserved or will increase. Actually if you have money in a savings account, then you are investing. What you want to see from that money is those little increments of additional money that is added at regular intervals. That is the reward, or return on your investment. The money you have in your checking account does not count as an investment because it does not get those regular periodic interest payments. When you start looking at investing to provide money for your retirement you will want to invest in something more than a savings account because you will want a higher return than those little increments you see in your savings account statements. Financial Planning now is absolutely essential to your financial health in the retirement years.

Increasing your financial health is both an art and a science and a lifelong project similar to increasing your physical health. You know the phrase, “you are what you eat”âÂ?¦.well your retirement is what you put into it as well. It is important to understand that while there are no absolute guarantees on any investment there are some investments that increase the probability of earning a fatter yield. You improve your health with exercise. Likewise you can improve your financial health by researching investment choices. They very first thing you should know is that relying on a hot market tip from a friend, neighbor or relative is nearly always a guarantee to unfavorable outcomes. Not that any of these people would intentionally lead you astray, but unless they are an analyst with years of experience and proven expertise they don’t know anymore than you do. To begin your research there are some basic steps to follow and the first one is to take advantage of the Internet and learn what the expertise of market analysts can tell you. There are thousands, or more likely there are millions of sites totally dedicated to stocks and the discussion of investment objectives and strategies.

There are a number of sites that help you assess your risk tolerance. This means assessing if you can afford to take a risk with the money you are investing, or are you willing to take a risk with it. You must measure how much money you will need in a future time so get familiar with the idea that the value of money changes over time. You can research the change in the value of money by using the search term “time value of money”. Then you need to know how many years it will be before you plan to retire. Calculate the amount of money it will take to maintain your current lifestyle for a period of time at least equaling the time from your projected retirement age until the age of life expectancy for your gender and genetic background. This means if you are female and do not indulge in risky behaviors like smoking, heavy drinking, promiscuous behavior, or bungee jumping with a frayed bungee, and if your grandmother lived to the age of 104 then you can reasonably expect to live beyond the “normal” life expectancy. It is pretty common anymore for people to live for twenty years or more after they retire. Prepare for an extended time of retirement so you do not have to worry about outliving your retirement money.

Once you have the basic understanding of what your goals are, increase the amount by around 5 to 10 %; what you are doing is constructing a financial safe house, and as anyone who has ever built a house knows, the construction costs always run over budget. When you have determined your investment goals, your available time, and your risk tolerance, it is time to visit as many of those financial sites on the web as you can tolerate. At this point do not commit to anything yet, you are still in the learning stages. Read, study, look up words and concepts on the Investopedia site, and learn how to use screening tools at sites such as Quicken and Morningstar. In a recent talk with a close friend who is a financial advisor I ask him how he got started in the business and he told me it was because he needed to safeguard the family’s nest egg following the ending of a job. “I thought I could do better than most mutual funds and I began publishing an open news letter to Internet subscribers” he told me. “I issued a pre-market report, a market close report and a daily summary. I did this for eight months” The Internet is the tool in the common people’s world that allows them to see and understand the workings of the investing environment. You and I can now play on a more or less level field using the same tools as the professionals. The trick here of course is to learn how to use the tools and not to go off on an emotional tangent without doing all your research. My friend took advantage of all the educational opportunities for personal investing that he could find. Internet sites for self guided investment education are increasing every day and include:
� Nasdaq Education Initiatives that provides links to other online resources as well, start at www.nasdaq.com .
� The Wall Street Journal does a great job offering learning materials at www.wsj.com
� Plan to spend time with the Investopedia site at www.investopedia.com learning the basic language of finance and investing
âÂ?¢ If you want to try a little “gaming” before the actual investment the Investing Online Resource Center at www.investingonline.org has a nifty investing simulator that allows you to get the feel of the water in the wading pool before diving off the deep end.
� If you like to talk it over, look at different portfolios and refresh your mind on the basics then take a look at The Motley Fool at www.fool.com where along with the educational material you will find discussion boards where you can ask questions and give your opinions as well.
Start looking for your own favorite sites but do not neglect the sites that seem hard to read at first. The more you study them the more you will learn.

Warning: If you take off running down the market aisles with a fist full of investment dollars you probably will not get to your intended goal. That takes planning. Do the work to get the reward. Before you “do it yourself” be sure you practice on paper at home before you go online to affect a real trade. The hard basic rules are:
� Know the stock inside out before you buy
� Know who you are buying from
� Know the level of risk
âÂ?¢ Know the hidden costs (oh didn’t I mention those? I am talking about taxes, trading fees, bear markets, inflation, opportunity costs)

I will emphasize again the importance of making plans and mapping the road to your goals. If you do not know where you are going you may wind up someplace else. While you are figuring out what that means I will suggest that you find an investment broker who can help you assess where you are now, where you want to be in your projected time line, and how to get there. Be sure that broker understands your goals and explains the fees they charge in understandable terms with you. If you would rather do it yourself just do not rush the process. A good thing takes time to become mature and that applies to your investing knowledge. Remember that while all this information is out there and is freely available you likely do not have the same time and expertise in researching all the angles that an investment advisor has. You may find it makes more sense for you to pay for advice, especially in the beginning than to go it alone.

The one thing that you must do immediately is start investing a little each month that you will not touch until retirement. Start with a savings account, take advantage of any retirement plans your employer offers that you have some control over. Take advantage of any matching funds plans the employer offers. Look at these options:
� Start an IRA account-If you are working and are under age 70 you can put money in a traditional IRA.
â�¢ Roth IRA-These are retirement accounts that are funded by your after tax dollars and the growth of the fund is tax deferred, after you reach age 59 �½ the funds distributed to you as retirement monies will be tax free.
� If you work for public schools, charitable institutions or other eligible non profit organizations start a 403(b) account it will give you tax deferred growth and disbursements that are federal income tax free.
� Some small companies have Simplified Employee Pension IRA accounts in which the employer makes tax deductible contributions to your pension fund.
� If your employer has fewer than 100 employees look into the possibility of a Simple IRA which are designed to help employees of these very small firms.

It is important to know as much as you can even when you use the services of experts because after all this is still your money, your life, and your retirement. You need to know what is happening with it and guide the course to your own path and your own goals. This introduction is only the barest hint of the things you need to learn to secure your retirement.