Personal Investing Goals


Chances are, living the life you want after you retire will depend on your investment income.

principal magnet You invest by using your principal, or the money you have, to try to earn more money, which you can use to meet your financial goals. Some goals are fairly short term. You may be investing to buy a home next year or send your child to college in five years, when he or she graduates from high school. But when you’re investing for long-term financial security, there’s no fixed moment when you need the money. Instead, it’s a continuous process.

Long-term financial security means you have to think about doing three things:

The emphasis you put on each of those elements will vary, based on your time frame and your tolerance for investment risk. But all of them have a role to play at every stage of your life.

FIRST THINGS FIRST

If you’re putting money into an employer-sponsored savings plan or an individual retirement account (IRA), you’re investing in a way that provides the extra advantage of tax deferral on earnings and sometimes on your contributions. Those contributions may be most, or even all, of what you feel you can invest right now. Yet, being able to afford the kind of financial security you want will depend — in most cases — on the personal investments you make in addition to the money you put into your employer’s plan. Those investments may be in an IRA or in taxable accounts. But if you don’t start investing now and wait until retirement is within sight, it can be tough to invest enough to produce the income you’ll need.


THE GROWTH STAGE

growth plantGrowth is the first order of business, and investments may grow in many ways:


THE INCOME STAGE

income inbox Income from your investments can produce a regular source of new investment money to help you build your portfolio. But income-producing investments become especially important after you retire. The interest payments on a bond are fixed and typically paid semi-annually, so you can count on them to supplement your Social Security and pension income.  You can also time certain investments, like certificates of deposit (CDs) or certain bonds, which mature on a specific schedule, to replenish your cash reserve or meet anticipated expenses. Stock dividends and mutual fund distributions can also increase your income.

The risk, and it can be a substantial one, is that in an economic downturn the value of your equity investments could drop and dividends could be cut. If the difference is significant, as it may be, you could be facing substantially reduced income despite your planning. Similarly, if the interest rate new bonds or CDs are paying is lower than the rate on the ones you hold, your future income may be less than you counted on.


THE PRESERVATION STAGE

principal canteen If you’ll be living on the income your investments provide, you’ve got a vested interest in making sure you preserve your capital as you approach retirement. One approach is to concentrate on growth — maybe slower, safer growth than you were looking for when you first began to build your investment portfolio, but some growth nonetheless. Money that isn’t providing a return greater than the rate of inflation shrinks in value. That’s one of the biggest threats to your long-term financial security.

But you also want to be sure that a portion of your assets are in insured accounts or in securities issued by the US government. The interest these investments pay in periods when rates are low can be painfully small, but your principal is not at risk as it can be with stocks, other equity investments, and on certain bonds.


WHAT YOU CAN’T KNOW 

You can’t actually know how much income you’ll need to live comfortably in retirement or what your future healthcare costs will be. What you can know for certain is that if you invest wisely, you increase the potential for having what you need. And if you don’t invest at all, you run the very serious risk of coming up short.