Retirement is a scary prospect for many Americans, especially those who are close to retirement age and are worried they have not saved up enough.
As Social Security dries up and company pensions become less and less common, it is more important than ever for today’s workforce to be proactive about making retirement planning a priority.
One of the most popular ways to save for retirement is to bet on the economy’s long-term growth by investing in the stock market.
Along with retirement accounts and other passive forms of income, long-term stock investments can be a great way to make sure you have enough money to enjoy retirement without worrying about sacrificing your standard of living. Read on to learn about different types of mutual funds and investment options that may be just what you need to help round out your retirement planning.
What Are Mutual Funds?
One of the most popular ways to invest in the stock market, mutual funds are accounts that are managed by companies or finance professionals who invest in various stocks, bonds, etc. using a pool of money they receive from investors like you.
When you buy into a mutual fund, you are not buying actual stocks. Instead, you are purchasing shares of that mutual fund. However, just as with stocks, you can make money if the mutual fund grows and lose money if the mutual stock’s value decreases.
As such, each investor stands to lose or gain depending on the overall fund and how the shares are performing. Mutual fund investments are considered to be a relatively safe option when looking to invest money for your retirement, and there are many on offer.
Many mutual funds are actively managed. This means that you have either one person or a team of people constantly making informed decisions in order to try to “beat” (or outperform) the overall stock market. Usually, these have higher fees and may only make sense for investors who are willing to take on more risk, since beating the market is relatively difficult.
Many of the best mutual funds to invest in come from any of three families — Fidelity funds, American Funds and Vanguard.
Learn About Index Funds
Index funds are a type of mutual funds but are considered safer than actively managed mutual funds.
That’s because index funds are usually tied to specific markets and try to follow those markets as closely as possible.
Index funds are not trying to “beat” the market. Instead, they are made up of stocks that analysts think will mirror a certain market’s overall performance, trusting in the fact that even if certain markets fall in the short term, they will tend to grow over time.
The benefits of this type of investment are that they come with lower risk and yet provide a broad market exposure. Additionally, index funds do not cost a lot to operate, making them an excellent choice for those looking to invest for their retirement, since they typically have very low fees compared to other investments.
As opposed to buying individual shares, new investors are often encouraged to buy into index funds that track markets like the S&P 500, since this will likely provide steady gains in the long run.
Vanguard S&P 500 index funds are some of the most popular investment options among new investors and seasoned professionals. The Vanguard 500 Index Admiral, also known as the VFIAX is considered to be one of the strongest investments today with an average yield of more than 10% every five years.
In addition, with a minimum investment of $3000, investors can access the VTSAX, which exposes them to the entire U.S. equity market, widely considered to be the largest investment fund of this type in the world.
Exchange Traded Funds (ETFs) vs. Other Types of Funds
An exchange-traded fund (often referred to as an ETF stock) is a collection of securities which will track an index. They are almost identical to index funds. However, their rules are slightly different.
Just as with certain other mutual funds, an ETF has access to several types of investments, including commodities, stocks or bonds. And just as with index funds, this type of security can be freely purchased and sold. The most common benefits of this type of investment are that they are relatively low risk, they frequently come with tax benefits, they offer a diverse portfolio and are flexible.
One of the biggest benefits of an ETF versus an index fund is that they can be traded at any point in the day, whereas index funds can only be traded at the end of the day. This means that if there is an emergency and you submit a sell order on your index fund stock, the order will not be executed until the market closes. In certain situations, this could leave your money tied up for a few hours or even a few days, which could make all the difference.
To find the best ETFs, one simply has to look at the wide range of choices on offer. This includes the immensely lucrative inverse S&P 500 ETF and the hugely favoured Vanguard ETF, which offers a low-cost investment that can be of great benefit in the long term and offer investors a relatively low risk on indexes across the globe.
Learn About Free Investment Services
For any would-be investors who want to take advantage of the wealth of free stock trading apps out there, there are some excellent options. This is great if you are new to investing and just want to test the waters without incurring too much risk.
For example, the WeBull free stock app gives you the opportunity to open a new account and get two stocks free. This is a great way to get your foot in the door if you are new to trading or simply want to benefit from a freebie. What’s more, when you deposit your first $100, you will receive another two free stocks.
The Freetrade app is simple and easy to use, making investing accessible to everyone, including those who are complete beginners. It is often considered to be one of the best stock market apps and offers commission-free orders, as well as access to a huge range of well-known stocks from companies like Amazon and Tesla.
Taking advantage of free stock trading apps such as TD Ameritrade and eToro is another easy way to get started with investing. Plus, even when you become more confident, there are options to upgrade your account and access more advanced features.