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Do you have any tips to help me manage my investing?
You've identified some
financial goals and begun to look at potential investments. You're
on the path to investment success!
Putting some plans into
motion is an essential step, but it's important to make sure you're investing
with the right mindset. Harboring unrealistic expectations based on what
other investors seem to
be doing can throw off even the best laid financial plan. This article
examines some popular
misconceptions about investing, accompanied by suggestions for investing
with the proper perspective.
Using history as a guide:
During the 1990s, it was
hard to ignore the stories of overnight stock market millionaires. For
a while it seemed that the stock market was a guaranteed way to get rich.
Some investors even began
to expect their investments to double in value in a matter of months.
But as many of those investors
learned in 2000, stock market declines are inevitable and can
wipe out easily made gains.
The Standard & Poor's
(S&P) 500 index a useful representation for the U.S. stock market
has averaged a 12% annual return since the 1920s. But 12% is a deceptive
number because it's only
an average. And, in fact, the history of the stock market is littered
with dramatic boom and bust cycles.
Some years, the S&P
500 may gain as much as 37.5%, as it did in 1981. Other years, like
2000, it may lose 9%. It is only when you average the indexes returns
over many years that you
arrive at a 12% return. The more extreme years have occasionally fueled
investor perception that
the market will always go up or that it will stay down forever.
As a long-term investor
who is focusing on a specific goal, you need to get too worked up
about one year's performance. Instead, keep your eye on your chosen benchmark.
What is an
annuity?
An annuity is a long-term,
interest-paying contract offered through an insurance company or financial
institution. An annuity can be "deferred" as a means of accumulating
income while deferring
taxes, or it can be "immediate" meaning it pays you income now
at fixed or variable interest
rates as long as you are living, contact your insurance agent for details
on current rates.
The Opposite of Life
Insurance
Annuities are sometimes
described as the opposite of life insurance. Annuities protect
you from living too long,
while life insurance protects you from dying too soon. Meaning with an
annuity you are paid as long as you live, but with a Life insurance policy
you are only paid when
you die.* With an annuity, the financial risk of living too long
is transferred to the insurance
company.
* some life insurance
policies may allow you to collect money while living.
Banks, stockbrokers, savings and loan institutions and other financial
service providers can
sell annuities, but only insurance companies can issue annuities.
A Lifetime Income
With the average retirement
period lengthening, annuities are increasing in importance. Only
an annuity can pay you an income you can't outlive, even after all money
you put into the annuity
has been exhausted. Therefore, annuities can help you mange your cash
flow, and provide a safe
and competitive means to accumulate funds.
What is a CD?
A CD, or Certificate of
Deposit, is an investment usually made for a given period of time at a
fixed rate of interest.
CDs are offered by financial institutions such as banks, and are often
offered by Insurance Agencies.
Note: Insurance
agencies often offer better interest rates then normal financial institutions
such as banks, so compare
rates before Investing!
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