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price you pay for the relatively high degree of safety. In addition, cash equivalent investments are subject to the risk that their lower rate of return will not keep up with inflation. Mutual Funds. A mutual fund is an investment company that pools the money of many individuals and invests on their behalf. These assets are invested by professional money managers in accordance with predetermined investment objectives. In little over a decade, investors have poured over $2 trillion into the more than 4,000 mutual funds registered with the Security and Exchange Commission (SEC). Mutual funds offer several important advantages that account for their success in recent years. One of the foremost benefits provided by mutual funds is the convenient method they provide for investing in securities markets. By investing through mutual funds, investors can enjoy such benefits as portfolio diversification, liquidity, affordability and freedom from many record keeping chores. Two additional advantages of investing in a mutual fund are access to professional money managers and the ability to diversify your investments over a broad range of securities — one of the best strategies for reducing risk. Mutual funds typically invest in anywhere from 30 to 200 securities, creating a much broader range of portfolio diversification than most investors can achieve on their own. Furthermore, few investors have the resources or the expertise to analyze the companies, study the securities markets and evaluate economic trends. Mutual funds provide individual investors with access to the same level of professional money management that only institutions and the wealthiest individuals have enjoyed in the past. Planning for retirement. One of the most powerful advantages that a retirement plan offers is tax- deferred growth. It represents a powerful means of reducing taxes while accumulating assets for a secure future. Even after retirement, when you may have stopped making contributions to your qualified retirement plan or Individual Retirement Account, these plans continue to offer important tax benefits. You pay no income tax on the interest, dividends and capital gains earned by your retirement account until you begin withdrawals. All of your earnings remain invested and can generate additional earnings. As a result, you can accumulate more money for your retirement than you could with a comparable taxable account. Your future financial security may depend on how effectively you manage your retirement assets. Consolidation of your assets can provide you with greater control over your investments and minimize the difficulties associated with monitoring the performance of accounts maintained in several different places. Once you have consolidated your retirement assets, the next step is to develop an investment strategy. Choosing from among the many investments available may seem daunting, but maximizing the rate of return earned by your investments can make a big difference in the amount of funds available for your retirement. Of course, any investment strategy must go beyond simply choosing the investment with the highest potential rate of return. The market value of an investment that offers a higher potential return tends to fluctuate more than an investment with lower return potential. This volatility can be more damaging for some investors than for others. One of the best ways to reduce the risk inherent in any investment is to spread your savings among a variety of asset types with different behavior patterns, a principle known as diversification. Over time, all categories of investment are in and out of market favor. Stocks, bonds and cash equivalent investments often react differently to changes and events in the economy and the financial markets and may not move in unison. Some will perform better than others in any given time. By apportioning your funds among several asset types, you can take advantage of the growth taking place in different sectors of the market. You will also avoid having all of your savings in one type of asset that may not perform well. You also need to consider the number of years until your retirement and the degree to which you will rely on your retirement plan for income. Risk is related to time: to earn a higher potential return, you either take risks or you take time. Historic data confirm that longer you hold a particular investment, the more likely you are to capture both the up and down phases of its market cycle performance and experience a positive return. Oksana Holovetsky Everts is a Financial Consultant. 14 “НАШЕ ЖИТТЯ”, КВІТЕНЬ 1999 Видання C оюзу Українок A мерики - перевидано в електронному форматі в 2012 році . A рхів C У A - Ню Йорк , Н . Й . C Ш A.
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