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Old 01-25-2014, 04:12 PM   #1
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Retirement Investing Basics

The Basics:
What is an investment?

In finance, an investment is a monetary asset purchased with the expectation that the asset will provide income in the future or appreciate and be sold at a higher price.

This is different from "speculating" or "gambling" in that it is not chasing the "big, fast return" and involves a thorough analysis. The goal of retirement investing is to build sufficient wealth to allow you to withdraw sufficient money to retire on without depleting that wealth, or at a minimum not completely deplete it while you are alive. What dollar amount that would equate to varies depending upon the individual situation but a number of online calculators are available to help you estimate what will be needed.

Fund Availability:
Every investment fund is different. They will have different goals and thus different investment portfolios. As the number of funds you have to choose from increases you will find that your investment options increase accordingly. Employee sponsored plans generally have limited fund availability but can be supplemented with a personal investment through a brokerage which can provide access to thousands of investment funds.

Risk is correlated with return (or performance) when talking about investments. Lower risk investments are "safer" and can provide a "guaranteed" rate of return. However, the lower risk investments provide lower rates of return while the higher risk investments can provide higher rates of return. All investments have the possibility to lose money, but they can also help to build wealth.

Risk Tolerance:
Your personal risk tolerance will be impacted based on a number of factors including your age, investment objectives, personal financial conditions, as well as your personality.

Investment risk:
Each type of investment carries a different level of risk. The following two charts show a generic overview of some types of investments and their relative risk versus potential returns.

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Last edited by Wraisil; 01-25-2014 at 04:19 PM.
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