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Be Wise With Money

Wiser Steps to Investing

A long-term strategy can help you reach your goals

We've all asked the question: The stock market is up; should I change my investments?

The stock market isn't a road that your car needs to follow, zig for zig, zag for zag. How, where and when you invest your money needs a destination and a strategy, not turn-by-turn directions.

A better approach than mimicking every move the market makes is to stick to a long-term strategy that will help you reach your goals. Here are five steps that can help get your investments going in the right direction.

1. Use your employer's 401(k) plan.

It's often going to be your most attractive investment opportunity because:

  • Most employers will match a percent of your contribution, giving you more money to invest. For example, if you contribute $1,000 to your plan and your employer matches that at 50 cents on the dollar, your contribution is actually $1,500.
  • You won't pay taxes on the money you put into it now.
  • The money comes out on autopilot, making it less likely you'll spend the money somewhere else.

2. Understand how long your investments need to last.

Many people underestimate how long their retirement savings will need to last, which can lead to a host of mistakes. You might be too conservative, making it hard for your investment portfolio to keep up with inflation. Or you might spend too quickly and run out of money. The average 65-year-old in good health today can expect to live about 20 more years.

3. Don't underestimate inflation.

At a rate of just 2%, inflation cuts the buying power of a dollar by a third in about 20 years. At 3%, it does the job in 14 years. Make sure your portfolio includes some assets, like stocks, that historically have outperformed inflation over long periods of time.

4. Do more than diversify.

Diversification is the simplest and most effective approach to managing investment risk – the proverbial "don't put all your eggs in one basket." However, there are other threats to your financial security, like the risk of outliving your savings.

How can you avoid running out of savings? One way is with an annuity contract issued by an insurance company. Certain annuity contracts work like old-fashioned pension plans, paying a fixed income for life. Some include escalation clauses that increase your payout over time to keep pace with inflation.

5. Don't be afraid to ask for help.

Investments = choice = complexity. You may need to live on your retirement income for 20 or 30 years. It's vitally important. By working with a financial professional, you'll get options and guidance right for you.

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