Savings and Debt Reduction

 

Savings is a key component of any solid financial plan. Whether it is for retirement, long range goals, or short term emergency funds, savings is an essential function for each of us to perform in order to prevent an escalation of debt and maintain our financial health. When you decide to begin a savings program, you must first choose an investment vehicle which best meets your retirement goals. One very popular vehicle in today's financial world is the mutual fund.

Mutual funds are a collection of stocks and/or bonds and are headed up by a manager who actively maintains the portfolio and determines when to buy and sell. When you buy shares of a mutual fund, you become a shareholder and are entitled to voting privileges that are proportionate to the amount of shares owned. Mutual funds can be used for 401ks, and IRAs, as well as shorter term investments.

The benefit of a mutual fund is that it is managed by a professional. The average investor does not have the time or expertise to actively manage a large portfolio of funds. By investing in a mutual fund this management service is provided. Historically stocks are good investments and most mutual funds are composed of stocks. History has shown that over any extended length of time stocks bring investors a relatively high rate of return.

Choosing a plan is not hard and there are a variety of services available that rate mutual funds based on past performance and a variety of other variables. These are very useful tools to assist you in your decision making process. In addition, your choice will be greatly determined by your level of risk tolerance. If you are very adverse to risk than a conservative bond fund may be a good option. If you prefer to take more risks then you will want to invest more heavily in stock funds.

Many investment experts recommend a product called an index fund which is a portfolio of stocks that attempt to simulate the performance of an index by including similar companies in similar proportions. A stock index like the S&P 500 Index is a group of diverse and widely held stocks that when viewed together form a barometer for how the market is performing. Index funds offer a couple of strong advantages because traditionally they have higher returns than 80% of actively managed funds and they have lower fees.

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