Setting aside money for your retirement plans is just the beginning of saving for a financially secure future. Choosing what investment products to utilize is a much larger part of the equation. Understanding the investment options offered by both your company’s 401K plan and an independent IRA account will allow you to maximize your money’s performance in any retirement account.
Your retirement money can go to a variety of places through either a 401K or IRA account, most notably stocks, bonds, mutual funds, money market mutual funds or even real estate. Each investment carries a different risk/reward attribute, so exploring your options is a good way to understand how aggressively you may be willing to invest.
Having a portion of your retirement in the stock market is almost always a piece of the puzzle. While constantly volatile, and increasingly so lately, the reward of investing in a good portfolio of stocks can help inflate any retirement account. Some companies may even encourage stock market investment by allowing the employee to purchase company stock at a discounted price, according to Fortune Magazine. Similarly those with an IRA can look outside the realm of tired CD’s and accept the risk of the stock market as an investment option.
In fact, investing a portion of your IRA in the stock market can be advantageous compared to investing in bonds, which are taxed more heavily. Bonds, however, lack the risk associated with stock market investing, making factors such as age and time until retirement more prevalent in the decision-making process.
But what of an alternative route for your IRA plans?
Commercial real estate is now an option for the more daring retirement planner. Indeed your IRA money can be put towards purchasing commercial property, anything from parking garages to strip malls. Consulting both an experienced advisor and financial institution worthy to facilitate such a transactions is a must however, according to Commercial Investment Real Estate Magazine.
If commercial real estate is too out there, and the stock market too risky, investing in a middle ground of money market and/or mutual funds can be a safe bet for any retirement account. Again, how quickly you plan to access your funds plays a large role in how aggressive you invest.
Keeping both a 401K and IRA can be handy for diversification purposes. Your company’s 401K may limit the amount of ways you can invest, thus in that vein, choosing one steady investment with your 401K and using an additional account such as an IRA to dabble in other investment products may be your best bet, according to an About.com investment professional.
As always, professional advice can be extremely helpful in planning for retirement, but understanding the investment vehicles for which your retirement may grow can help even the most novice investor plan for a better tomorrow.
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