Investing in Your Future By James D Nelson Investing your

Investing in Your Future By James D. Nelson Investing your financial resources can provide higher returns than a pure savings account would, and can help you achieve financial security. Without investment, inflation can overtake general savings interest rates and cause your purchasing power to fall over time. Investing even a small amount out of every paycheck now will yield substantial returns by the time you are looking to retire or purchase a home. Efficient placement of your investments to achieve maximum returns is key. Studies show that as much as 90 percent of the returns to your principal are dictated by your choices in asset 10 www.ameriforce.net 2 0 0 6 allocation. A variety of vehicles for investing are available at all levels of financial and time commitments. Bear in mind that longer time commitments in investments generally come with higher rates of return. There are two general categories of investing to consider: ownership and loanership. Ownership involves the purchasing of stocks, or shares in the ownership of a company. The value of your stock will change with the success of the company. The idea is to sell continued on page 12 investment from the CD before its maturity date. CDs are also available at brokerage firms, which generally offer very competitive rates. Another form of loanership investment is the U.S. savings bond. Income from these bonds is exempted from state and local taxes, and federal income taxes are deferred up to 30 years or until the bonds are cashed. Series EE bonds are purchased at half of their face value, and I bonds are sold at full face value, both of which can be purchased and redeemed at most financial institutions. The bonds can be redeemed before their maturity date; however the full interest will not have been accrued. Retirement plans, such as 401(k)s, also diversification, and the burden of personally managing the portfolio is lifted. Another portfolio type is the unit investment trust (UIT), which holds professionally selected securities, including allow for tax-deferred investment. You can make contributions to your retirement plan directly out of your paycheck, up to a maximum of 20 percent. In some instances, this will be matched by your employer, providing instant return on top of the deferred taxation. There may be a minimum term of service to be eligible to participate in a exempted bonds, but is not managed. tax- continued from page 10 Units typically sell for $1,000 and must be held for specified periods of time in order to yield dividends or increase your capital. Investors may cash out at the maturity date of their UIT or roll it over into a new UIT. Conversely, military 401(k). The amount contributed is not taxed, which means that you can accrue interest on money that would have been paid directly in taxes. Taxes are paid upon withdrawal from the account. You cannot begin withdrawing from your retirement account until the age of 59-1/2 without incurring a 10 percent penalty, though. Exceptions to this age requirement include college expenses, some medical expenses, money used in the purchase of a first home, or if the owner becomes disabled or dies. It is important to begin investing early, if you have not done so already. Discuss your options with your bank or financial advisor to help choose the securities that are best for you. the stock for more than you purchased it after the company has appreciated in value. Depending on the type of stock, you may be eligible to vote for the members of the board of directors for the company, or to receive dividends, or portions of the company’s profit. Historically, stocks have outperformed all other forms of investment. They require careful observation of the stock market to manage, however, and entail the risk of depreciation. loanership investment is when money is lent to an institution for fixed periods of time in order to generate interest. Certificates of deposit (CDs), for example, are loans given to a bank that provide fixed interest rates for the life of the CD. Interest rates are higher than they are in general savings accounts; however, penalties are assessed for removing your Investing in a mutual fund can drastically reduce both drawbacks. A mutual fund is a portfolio of stocks, bonds, and other investments, which are professionally managed by an investment company. A mutual fund generally has hundreds or thousands of investors, which allows them to collectively own hundreds of securities. In this way, risk is reduced through 12 www.ameriforce.net 2 0 0 6