From Apply Now,
Your Guide to Retirement Planning.
FREE Newsletter. Sign Up Now!

When putting together your retirement plan, you will need to make several investment choices. The age at which you start your retirement plan will dictate how critical these choices will be. If you are between the ages of 20 and 35, you have time to shop around and try different strategies. If between the ages of 35 and 50, you still have time to build a good retirement fund but will need to look closely at your portfolio to be sure you are investing wisely. If between the ages of 50 and up, you really need to look at all your options and choose your investment strategy very carefully.

Short term choices

If investing for the short term, you have several choices available to you. Checking accounts, savings accounts, money market funds, and certificates of deposit are all examples of short term investing. A jar of money buried in your back yard or a wad of money stuffed under your mattress aren't good choices.

A checking account makes withdrawals and deposits less of a hassle and is a good way to save small amounts for an emergency. With a checking account, you usually have access to ATMs and can arrange for automatic bill paying. Some checking accounts, known as money market accounts, will pay a small percentage of interest if a set balance is maintained. Money in a bank checking account is insured by the FDIC.

A savings account will pay a low amount of interest and your money usually is available when you want it. Some companies allow bills to be paid from savings accounts as well as checking accounts and some banking facilities will allow you to use your checking and savings accounts in tandem. Money in a bank savings account is insured by the FDIC.

Money market funds usually yield a higher return than a money market account or a savings account. These funds are usually managed by brokerage firms as a place to store funds until they are invested. Funds in these accounts are not insured by the FDIC.

Certificates of deposit are a way to invest your money for a specified period of time known as maturity. The longer that time, the higher your percentage of interest. There is a penalty for withdrawing your money before the maturity date. These funds are usually insured by the FDIC.

Long Term Choices

If you have funds that aren't needed immediately, you should consider investing them in long term investments. This is especially true for investments in your retirement plan. Long term investments include stocks, bonds, and mutual funds.

Investing in stocks gives you partial ownership in the company in which you invest. If the company is successful, you should make money when you sell the stock. Some companies pay stockholders dividends on a regular basis. You usually need a broker to purchase your shares of stock and it is important to thoroughly research the company before investing in it. It is best to hold onto stocks for a long period of time because of the fees associated with buying and selling and the tax implications.

Bonds can be high risk or low risk. The high risk bonds pay more interest. Bonds are actually loans to businesses, government, and so on that is held for certain periods of time called term or duration. The money earns interest for the duration of the bond and principal and interest are paid at the end of the term. Bonds are usually safe investments and some are backed by the federal government.

Mutual funds allow small investors more diversification than individual investing. These funds pool the money of several investors and invest in several different companies in such a way as to minimize the risk. By investing in several different companies, the theory is that if one company loses money, another should gain. As with stocks, you should thoroughly research the fund before investing.

What's Next?

Now that you have some idea of your investing choices, you need to do your homework and decide just where you are in your retirement planning stage. You need to make some choices as to where you are going to invest, how much you can afford to invest and put together a plan to invest regularly. It is a good idea to now check your pension or retirement plan with your employer and contact social security to see how much you can expect to earn after retirement.