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Monthly, published by Ukrainain National Women's League o f America APRIL 1999 Editor: TAMARA STADNYCHENKO INVESTMENTS: GETTING STARTED by OKSANA HOLOVETSKY EVERTS Building a retirement nest egg has always been a key motivating factor behind investing. Today, we face more challenges to meet our financial goal for a comfortable retirement than ever before. This is the case because in recent years the responsibility of planning for retirement has shifted from the employer to the individual. According to the Social Security Administration, Social Security benefits provide 42% of income for retirees; pensions provide merely another 18%. The difference must be made up through savings and one way to increase savings is through investments. Learning a few investment basics and some of the risk vs. return involved is a good place to begin. Equities. Stocks offer the best potential for growth over the long term and have performed better than every other type of investment over long periods of time. Stocks are equity investments. When you invest in a stock, you are buying a share in the ownership of a corporation. Investments in stocks pay off in two ways. First, a company may pay out a share of its profits to a stockholder as a dividend. Second, when a company does well, the price of its shares may increase as demand increases. This type of return is known as capital appreciation, the primary objective of most equity investments. Stocks can also decrease in price. This may occur when a company's performance is below expectations, or when other factors influence the stock market in general. The rise and fall of stock prices can be dramatic, and with this volatility comes market risk, the risk that your shares may be worth less than you paid for them in any given time. Investors in stocks must consider their ability to look beyond the short-term fluctuations in the value of their investments and remain focused on their goal of long term growth. Fixed income. Less volatile than stocks are fixed income investments. These are debt instruments such as government bonds, corporate bonds and certificates of deposit that pay a fixed rate of return for a specified period of time. At maturity, the principal amount invested is returned. Since fixed-income investments provide a steady stream of income, they tend to be less volatile than stocks, but they are not completely without risk. Fixed income investors are subject to varying degrees of credit risk, the risk that the borrower will default and fail to repay the principal investment amount at maturity. Bondholders are also exposed to interest rate risk. The value of a bond rises and falls with the prevailing level of interest rates. When interest rates rise, bond prices fall, and when interest rates decline, bonds increase in value. The value of the bond sold before its maturity may be more or less than its original purchase price. Fixed-income investments generally do not offer the growth potential of stocks, but provide the regular income needed by retirees. They offer higher yields than short-term investments and add an element of stability to a portfolio. Cash. The most stable investments are cash- equivalent investments such as money market funds. Money markets exhibit virtually no volatility because of the nature of the investment they hold, generally short term securities with a maturity of one year or less. A typical investment might be a 60-day U.S. Treasury bill. The superior credit rating of the issuers and the very short maturity term virtually eliminates credit risk, making money market funds extremely safe investments. Yet even cash equivalent investments are not risk free, nor do they come without a cost. The lower rate of return you often earn on cash equivalents is the НАШЕ ЖИТТЯ”, КВІТЕНЬ 1999 13
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