There are many options for you to consider in investing your retirement savings dollars. In determining where your funds might be best placed, consider how long you have until you retire and the level of risk you are willing to take. If you are working with a retirement advisor, make sure the advisor is aware of when you hope to retire and what your long-term goals are. Below are some common types of investment opportunities.
Bonds
Bonds are loans that investors make to companies or governments. Bonds are sold to investors as a means of raising the funds needed for a particular project or initiative. The bondholder receives regular interest payments from the issuer of the bond, usually twice a year thoughout the life of the loan. Municipal bond interest is free from federal income tax and is free from state tax in Vermont. Corporate bonds can pay a higher interest rate than municipal bonds, but they represent a greater risk to the investor than those backed by the government.
Money Market Funds
Money market funds are short-term, low-risk mutual fund investments that come due in 90 days or less. The management fee is less than 1% of an investor’s assets; interest over and above that amount is credited to shareholders monthly.
Mutual Funds
Mutual funds are operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, commodities, and/or money market securities. The investment company pools your money with the money of other investors and invests the funds on your behalf. Mutual funds may invest aggressively (more risk) or conservatively (less risk). You should determine the risk level you are comfortable with before deciding which fund is appropriate for you.
Stocks
Stocks represent the ownership of a share of the company selling the stock. A company sells stock to raise money to run the business. If the company does well, the shares of stock will increase in value. If a company performs badly, stockholders can see the value of their shares go down. Stock value often goes up and down. As an investment option, the stock market has historically provided investors with the highest rate of return over many other types of investment choices.
Treasury Bonds
The U.S. Treasury issues debt obligations on behalf of the U.S. government. These issues can be short-term in the form of treasury bills that mature in one year or less, Treasury notes that mature in one to 10 years, or Treasury bonds that mature in 10 years or longer. All Treasury securities are exempt from state and local taxes, but not federal taxes. They are backed by the full faith and credit of the U.S. government, and are often referred to as “risk-free” securities.
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