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What to Invest in?

There are many investments or accounts a person can invest in. Here is some general information on some of them.

A mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by professional money managers, who invest the fund's capital and intent to produce capital gains and income for the fund's investors. Pooling your money with other investors in a mutual fund can offer an investor some advantages: A mutual fund usually comes with professional management. An advisor handles the fund's investment management responsibilities which takes the responsibilities and the burden off of you. A single mutual fund most likely holds more securities than you could ever buy on your own so your investment and your risk are diversified. Fund shares can be bought and sold any business day, so you have easy access to your money.

Individual stocks may be an alternative if you want to invest in a particular company or you have stock in an employer plan that you want to maintain. This choice would be good if you are an investor who takes the time to make thought out investment decisions. You like the flexibility of making trades throughout the day. You view individual stocks as a way to complement mutual funds in your investment strategy.

Bonds are a way for governments, government agencies, and corporations to raise money for projects and other needs. You loan money to the bond issuer, which agrees to repay you at a fixed interest rate by a specified date or maturity. The interest income you receive from a bond, or from a bond fund, can be a good, steady source of retirement income. Bond investments can include Treasury bonds, bills, notes, government agency bonds, corporate bonds, municipal bonds or GNMA securities.

CDs are deposit obligations issued by commercial banks to raise funds for their business activities. Investors lock in the market interest rate at the time of purchase, and the rate is usually fixed for the term of the CD.

An Individual retirement arrangement, or IRA, is a personal savings plan which allows you to set aside money for retirement, while offering you tax advantages. You can set up different kinds of IRAs with a variety of organizations, such as a bank or other financial institution, a mutual fund, or a life insurance company. The original IRA is referred to as a "traditional IRA." A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. You may be able to deduct some or all of your contributions to a traditional IRA. You may also be eligible for a tax credit equal to a percentage of your contribution. Amounts in your traditional IRA, including earnings, generally are not taxed until distributed to you. IRAs cannot be owned jointly. However, any amounts remaining in your IRA upon your death will be paid to your beneficiary or beneficiaries.

There are benefits in investing in an IRA. You can defer taxes on your earnings so that you can potentially accumulate more for retirement. Currently, you can invest annually up to $5,000 or $6,000 if you're age 50 or older.

A Simplified Employee Pension Individual Retirement Arrangement (SEP IRA) is a variation of the IRA. SEP IRAs are adopted by business owners to provide retirement benefits for the business owners and their employees. Usually, there are no significant administration costs for self-employed person that have no employees. If the self-employed person does have employees, all employees must receive the same benefits under a SEP plan. SEP accounts are treated as IRAs where funds can be invested the same way as any other IRA. A SIMPLE IRA is a type of tax deferred employer provided retirement plan that allows employees to set aside money and invest it to grow for later use. It is a type of IRA that is set up to be an employer provided plan. It is an employer sponsored plan that is funded by a pretax salary reduction. Contribution limits for SIMPLE plans are lower than for most other types of employer provided retirement plans. $1,200 for 2012, as compared to $17,500 for convention defined contribution plans such as 401(k) and 403(b) plans. [Read More]
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