Investment Tips
Where Should You Invest?
Don't Give Up On Savings
Spread The Risk
Investment Tips
- Start now. Time is the key to reaching your financial goals. Just $25 a month invested in a tax-deferred plan like an IRA or 401(k) will add up to $15,000 in 20 years. Your contribution: $6,000!
- Set goals and write them down. Then focus on your goals, not market ups and downs.
- Think long term. You'll lessen the risk of investing — and increase the potential for large upswings. You'll also enjoy the advantage of compounding. It's the length of time money is invested that helps you reach your goals.
- Diversify. It minimizes risk — and maximizes returns. For short-term goals, use low-risk investments like our money market accounts and certificates. Also government bonds. For long-term goals, consider higher-risk, higher return investments like stock mutual funds.
- Invest every month or every paycheck. We make it easy with payroll deduction and automatic transfers. Both are available at the credit union.
- Review your progress annually. You'll be able to get the latest tax-saving opportunities — and keep your investments consistent with your goals.
These time-honored tips will help you reach your investment goals.
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Where Should You Invest?
The answer is — in lots of places. By putting your money in different baskets, you maximize returns and reduce risk. Typical risks are interest rate declines, stock market downturns and inflation.
To balance return with risk, think of a pyramid. At the bottom are the safest investments. They include certificates of deposit (or share certificates), treasury bills, checking and savings accounts, and money market accounts. In return for safety, you sacrifice high yields.
Next on the pyramid are blue-chip and utility stocks, treasury and zero-coupon bonds, and short-term bond funds. They offer higher returns than those at the bottom of the pyramid — with a little more risk. Still, the risk is low — especially if you're a long-term investor who can ignore market ups and downs.
More risky are stock and bond mutual funds, corporate bonds, mortgage-backed securities and rental real estate. For the risk, your yield potential is higher.
Offering the highest yields are high-risk options like junk bonds, raw land, collectibles, foreign investments and futures contracts.
Deciding how much to put where depends on your age, risk tolerance and needs. A long-term investor — with at least 10 years to retirement — might choose the following allocation: 20 percent in safe cash investments like money market accounts; 40 percent in fixed-income investments like certificates and bonds; and 40 percent in equities (stocks, mutual funds, etc). Those about to retire might be more conservative — putting a higher percentage of money in safer investments like certificates and bonds than in stocks.
What doesn't change — no matter your age — is the need for cash. For unexpected expenses, always have at least three months' worth of take-home pay readily available. The credit union is an ideal place to put it. Rates are competitive with those of other financial institutions. And, your money is insured by an agency of the federal government.
For the asset allocation that's right for you, talk to a good financial advisor. Then start putting money away for all your needs.
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Don't Give Up On Savings
The stock market can be tempting. But don't ignore regular savings — unless you already have sufficient daily funds. Including for emergencies.
For your safety net, use the credit union. Ideal is a mixture of short-term certificates of deposits (or share certificates), money market accounts and regular savings. All are insured up to $100,000. In the stock market, your funds aren't insured. Equally important is accessibility. Credit union funds are readily available — without having to worry about withdrawing when the market is down. As for rates, credit union savings are competitive with — or higher than — other financial institution rates.
So how much should you save? Recommended is at least three months' take-home pay. If your annual, after-tax income is $35,000, put away about $8,500. You never know when you might need it. Always expect the unexpected.
As an additional safety net, consider term-life insurance. It will provide money for dependents if the family breadwinner dies.
When it's time to invest, choose blue-chip stocks, treasury and zero-coupon bonds, and short-term bond funds. They're safer than stock and bond mutual funds.
For further safety, use dollar-cost averaging. With it, you invest a fixed amount of money at regular intervals. There are several advantages. 1) By investing regularly, you make the most of market ups and downs. You automatically buy more shares when prices are low and fewer shares when prices are high. 2) Your average purchase price is usually less than the value of shares you end up owning. The only time this doesn't happen is if the share price remains constant. 3) By systematically investing, you save more. You also needn't depend on your ability to make the right calls about future trends.
To get ahead, you need to save. To save smart, start at People's Community Credit Union.
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Spread The Risk
Forget about stock market volatility. Your best investment strategy now — as always — is diversification.
In addition to stocks, bonds and mutual funds, invest in steady-earning share certificates at the credit union. You'll diversify returns as well as risks. If stocks are down, you'll still enjoy competitive rates. Plus the safety of federal insurance.
Your choices are many. Whatever the term, you lock in a solid rate. Your money keeps growing while being insured.
Another safety tip: Sign up for multiple share certificates — all with different terms. By staggering maturity dates, you further protect against rate uncertainty. Let's say rates go up. With a combination of short-, medium- and long-term certificates, you'll always have funds available to invest at higher yields. If rates drop, some of your savings still will enjoy yesterday's higher rates.
By diversifying, you make both dollars — and sense.
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