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That means you have just saved $5000 for your personal pension and now you want to invest it. Even if this money can be directly invested in stocks or bonds, it has little practical effect. You can invest in public funds or exchange traded funds.
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You can invest your money in two or three funds separately; But if you will continue to save money in your retirement account and plan to invest it in other funds in the future, the goal now is to choose the first public fund.
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Let’s analyze your situation.
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Are you over fifty or under fifty? If you are over 50, you don’t have much time to invest, so you can’t take risks too much. Your investment can be more conservative. If you are young, even very young, you can and should take more risks.
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What do you think of risks? Will it hurt you to think that you may find that the public fund has lost some time in the future? Would you be excited to think that this investment will make you earn 20% more a year? Thinking of the risks of retirement savings, will you be unable to sleep at night?
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If your conclusion is that you can well bear the investment risk, consider the ratio of public funds used for stock investment to funds invested in bonds. Their prices will rise and fall significantly, but in the long run, investing in stocks is expected to yield more than bonds. If you can’t take too much risk, you can invest in bond funds first.
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If you are afraid of taking risks, please tell yourself that it is almost impossible to save enough money for retirement without taking some risks. The meager interest obtained from zero risk investment can hardly offset the impact of inflation and depreciation. It is better to put money in the bank than not, but it will depreciate in the future. If you want to retire comfortably, you should take certain risks calmly.
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Morningstar is a private enterprise that ranks and classifies public funds. Public funds are divided into many categories. First, choose one of the following three categories to invest in mutual funds and earn personal pensions:
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Large enterprise hybrid fund: large enterprise hybrid fund invests in the stocks of large enterprises that give consideration to both growth and value (growth stocks are expected to grow faster than the market, usually without paying dividends; value stocks are stable, but their performance in other trading indicators is weak).
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Moderate distribution: appropriate distribution, and put the fund into stocks and bonds at the same time, and put more money in stocks. You can also set aside some money for cash. Some of these funds are expected to appreciate and generate dividend income.
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Long term government bonds: These funds can be used for treasury bond investment, and it will take more than ten years to mature. They have no credit risk and do not take risks even if they do not pay on time. However, as the interest rate changes, the bond value will fluctuate.
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When investing in your retirement fund, you can first consider the above three types of funds. Their expected returns are higher than when they put money in the bank. Their risks are ranked from low to high. You can choose the most suitable one according to your own situation and the risks you can bear.
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Once the investment category is selected, the cost should be the main basis for selecting the fund. A broker will provide you with a range of mutual funds that you can buy without paying a transaction fee. You should also consider which funds do not charge “selling expenses” or “initial expenses”, how to avoid 12b-1 1 expenses such as marketing expenses and distribution expenses, and finally which funds have low expense rates. Only after all expenses are publicized, can you know the most suitable fund for yourself.
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The broker will provide you with a filter to select public funds that meet your criteria. You can also try Yahoo’s mutual fund filter.
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In this way, you are ready to use your personal pension as the first public fund investment.