How to Invest for Retirement & the Legal Duties of Some Advisors
People who are planning for retirement have a nearly endless range of investment options to consider. However, they should bear certain central goals in mind. They should make sure to invest in ways that protect their savings while keeping them growing at a rate faster than inflation. Also, they should find ways to invest that do not expose them to excessive fees and taxes. Certain types of investments, such as 401(k) and 403(b) plans, as well as IRAs, can help you reduce your income tax.
You should try to pay off as much debt as possible and avoid accumulating substantial amounts of new debt. (If you are a homeowner, your mortgage may be an exception.) Rather than trying to get a quick boost by speculating aggressively, you may want to avoid the risk of long-term losses by taking a more cautious approach. Some investors will have greater tolerance for risk than others, however, so you should decide the level of risk that is acceptable for you.
Taking Ownership of Your Investment Decisions
Before you make an investment in a certain product, you should make sure that you personally understand how it works. You should not just take the advice of a financial professional who says that a complex product is a smart idea. Even more crucially, you should not just take the advice of a friend or family member who says that a certain type of investment has worked well for them.
Some people may find that they learn enough about investments to obviate the need for a financial adviser. There are certain risks to working with these professionals. For example, a salesperson who is paid by commissions on transactions has an incentive to advise their clients to buy and sell. This can deplete a client’s resources, however, since it results in additional taxes and fees. While a financial planner who does not work on commission will not have these incentives, they may have conflicts of interest. It also may be hard for an ordinary consumer to tell whether this type of professional knows what they are doing. If you do want to hire a financial adviser, you should make sure to carefully look into their track record and make sure that they are properly credentialed and qualified. You may even want to talk to some of their long-standing clients.
People who do not have a huge amount of wealth and have the time to manage their own portfolio should be able to invest effectively on their own. They should consider investing in a combination of stocks and bonds, bearing in mind the basic goals above. Index funds can be good options because they reduce taxes and tend to have a low risk. Investing on your own will save the money that you would have paid to the financial adviser, allowing you to invest that money as well. You also will avoid making investments in complex or high-risk products that a financial adviser may have recommended because they generate more commissions and fees.
