Retirement savings plans offer employees and individual savers a chance to take advantage of tax-deferred growth. With the benefits of compounded interest, investors who start saving early have the best opportunity to live comfortably in retirement. Online calculators and other financial planning tools give prime examples of the overwhelming effects of compounded interest.
Mutual Funds
Most retirement plans focus on mutual fund options because they offer an easy way to produce a diversified portfolio. Loaded funds have higher fees associated with trading or initial purchases, which can increase overall cost basis. No-load funds are typically negotiated by retirement plan managers. Index funds are popular, but may not offer the best long-term return rates. More aggressive funds, such as small-cap, international, and specialized sector funds are more appropriate for younger investors.
Real Estate
Investors who start early often consider income-producing investments such as real estate as part of their retirement planning. Single-family homes, multi-family homes, townhouses, condos, and apartment buildings are all considered spectacular income-producing investments. These residual income properties have varying degrees of hands on activity required. For example, commercial properties such as warehouses and office complexes can easily be managed from afar with an experienced property manager. Residential real estate investments, such as flipping houses or purchasing rental properties, require more time and effort to manage. Real property will almost always increase in value, so this investment option remains popular.
Individual Company Stocks
Other investments that should be part of a retirement plan may or may not be found within the confines of the corporate workplace. Discounted company stock offered through an ESOP can grow tax deferred and be sold at a great profit, provided the company prospers financially. Trading in foreign currency also has potential benefits for investors, but this investment style requires close attention. As with any after-market trading platforms, currency trades require savvy investors who can commit the time to actively manage their accounts. World events, political climate changes, and many other events will factor into currency values.
Retirement plans sponsored by employers ensure that only qualified investments are offered to employees. They provide a range of investment options from various asset classes. Investors can choose from very conservative money market accounts to moderately aggressive among these qualified plans. However, to fully take advantage of compounded interest, investors should consider other investment opportunities to adequately supplement their retirement savings.
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