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Planning for Retirement and Investment Basics

There are many things such as your retirement date, activities and lifestyle that need to be considered when saving or planning for retirement. To assist you in putting together a portfolio to meet your retirement planning goals, you should consider the following:

  • Importance of getting started
  • Determine how much to set aside
  • Learn about risk tolerance and asset allocation
  • Tracking your retirement plan
  • Investment rules of thumb
  • Investment Glossary

Importance of Getting Started

The most important aspects of retirement planning are time and compound interest. The sooner you can begin saving, the more money you will be able to accumulate simply because of compound interest. Compound interest is earning interest on the interest and principal you’ve already invested, making your very first dollar in your retirement account the most valuable.

To see the importance of time and compound interest click on the Cost of Waiting Calculator.

Determine How Much To Set Aside

Once you’re ready to start saving for retirement, the next step is to establish how much to begin setting aside. It’s important to realize that you are not locked in to your contribution rate. It is possible to adjust your contribution rate to match your budget and your retirement objectives.

To help determine what you should set aside click on the Retirement Savings Planner Calculator.

Track Your Retirement Plan

It’s important to evaluate and track your plan on an ongoing basis. As you get closer to retirement your risk tolerance or investment strategy may change. By investing with Sentry you will be able to track your retirement plan online and over the phone allowing you to adjust to your retirement plan needs.

Investment Rules of Thumb

Following are several “rules of thumb” for investors:

  • Common stocks of small, unseasoned companies are more risky than common stock of mid-sized companies.
  • Common stocks of mid-sized companies are more risky than common stock of large, well-established companies.
  • Investments that try to beat the returns of a given benchmark like the Standard and Poors 500 Index are more risky than investments that try to match the returns of the same benchmark.
  • Common stocks of companies located outside the United States are more risky than common stocks of companies located in the United States.
  • Investments with high portfolio turnover are usually more risky than investments with low portfolio turnover.
  • Investments that are not well diversified – those investments that own 20-30 stocks, for example – are more risky than investments that are well diversified.

Investment Glossary

Actively Managed

Funds that buy and sell holdings on a frequent or regular basis are said to be “actively managed” funds.

Asset Allocation

Dividing investment money among various asset classes, like stocks, bonds, and cash.

Bonds

A security that a business or government (lender or issuer) sells to investors. When an investor buys a bond, he or she is lending money to the issuer. The seller of the bond (lender) agrees to repay the principal amount of the loan at maturity. Interest-bearing bonds pay interest periodically. (See Default and Interest Rate Risk).

Default Risk

Failure of the issuer of a bond (the business or government lending money) to make a scheduled interest payment on time and/or the failure to repay the money borrowed in full at maturity.

Diversification

Investing money among a number of issuers (companies and/or governments that sell securities like stocks and bonds) in different industries, with different maturity dates, and in different geographic locations.

Guaranteed Fund

An investment option offered only by life insurance companies that guarantees: 1) the principal invested will not decline in value as along as the contract remains in force; 2) a rate of interest will be paid on the principal invested for a stated period of time (usually one year); and 3) at retirement, monthly payments for the life of the participant or the joint lives of the participant and his or her spouse.

Index

An unmanaged group of securities (stocks or bonds) whose performance is used as a standard or benchmark of investment performance. For example, Standard & Poor’s 500 Index.

Interest Rate Risk

The risk that the value of a security will change because interest rates change. For example, the price of a bond declines when interest rates rise.

Lehman Brothers Aggregate Bond Index

An unmanaged market value-weighted index for intermediate-term government bonds, investment grade corporate debt securities and mortgage-backed securities.

MSCI EAFE Index

An acronym for Morgan Stanley Capital International (MSCI) Europe, Australia, Far East (EAFE). An unmanaged index of securities listed on the stock exchanges of developed countries in Europe, Australia, and the Far East.

Maturity or Maturity Date

The date when the bond issuer (lender) agrees to repay the principal amount to the bond buyer (also known as the investor or the bondholder).

Passively Managed

Funds that buy and sell holdings on an infrequent or irregular basis are said to be “passively managed” funds.

Principal

The amount of money an individual moves into an investment.

Separate Account

Nonguaranteed investment option offered only by life insurance companies to participants in qualified retirement plans. Professionally managed investments that can own mutual funds, stocks, bonds and other securities. Investors and retirement plan participants buy units of a separate account and own proportional shares of the total assets owned by the separate account.

S&P 500 (Standard and Poor’s 500 Stock Price Index)

A well-known stock market index made up of 500 stocks selected by Standard and Poor’s based on industry representation, liquidity and stability.

Stock or Common Stock

A financial instrument (security) that indicates partial ownership of a corporation. Stockholders have indirect control over the management of the corporation by electing board members. Stockholders have a proportional right to share in the corporation’s assets and earnings.

 

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