Chances are that you will need to (or want to) retire sometime
down the road. If you are like most people, you will need to put
away some money in order to buy the things you will need, such as
food, shelter and clothing. The cost of living doesn't really get
any cheaper when you retire unless you are inclined to make
significant changes in your lifestyle.
Where does the money come from? Some folks have some sort of
company/government pension, but that probably won't cover all your
needs.
You could save money in a savings account. But, how much will
you need to sock away in order to live for 20 or 30 years without
an income? Perhaps 30% of you after tax income? And that doesn't
take into account the effects of inflation on the purchasing power
of your savings.
The only way to insure adequate cash flow during retirement
years is to invest. Start young if you can, and be an "Investor"
not a gambler. Do not buy individual stocks unless you know what
you are doing. (No, gentle reader, you do NOT know what you are
doing).
Chose a good mutual fund that is invested the way YOU would if
you had the knowhow.
The way you invest changes as you grow older. A bit more
aggressive in the younger years, and a bit more conservative in the
years approaching retirement.
A word of advice about Investment Representatives. (These are
the people who provide investment advice.)
First and foremost, they are SALESPEOPLE, and they work on
commission. That means, the advice they offer is colored by how
much commission they make. (Stay away from advisors who work for
the bank. They offer primarily bank funds. They do this because
bank funds pay them the most commission.)
Secondly, I said earlier that you should not buy individual
stocks. However, do not use an advisor that is not licensed to sell
stocks and bonds. The reason? The qualifications required to sell
mutual funds are very minimal. These people really don't know what
they are doing.
Third, some advisors like to switch your investments from
equities to bonds and back again in response to fluctuating
markets. This makes you feel like you are well looked after.
Nothing could be further from the truth. The term for this kind of
activity is "Churning", and it's only purpose is to generate
commission for the advisor. The advisor makes money, and the
sucker, (I mean investor) loses money.
Four - Stay away from advisors who offer "Back End Load" funds.
Buy ONLY front load funds, and ask for a reduction in commission if
a significant amount of money is involved.
Front load funds have a lower MER (Management Expense Ratio)
which means your investments grow faster.
Don't panic when the market drops. This to not the time to sell,
but rather, it is the time to BUY. Why? Let me ask you something...
If the price of milk goes down 30%, do you wait until it goes up
before you buy milk? Of course not. You buy as much as you can
while it is on sale. So if your investments are "On Sale" (down
30%) why wouldn't you buy as much as you can?
I could say much more, but this is turning into a book.
Cheers
