Invest for Retirement

What is the best way to invest for retirement? In the up and down markets of today many investors are simply concerned with not losing money rather than putting away something for their so called golden years. The way to invest for retirement has commonly been to start early and keep adding to savings over the years. Earnings on investments compound and after a few years, earnings on investments can equal yearly contributions to a bank account, stock portfolio, or stack of bonds and treasury bills. Many invest for retirement with dividend stocks which will provide a quarterly dividend check along with, hopefully, stock price appreciation. Many choose to diversify an investment portfolio with bonds, treasury bills, and certificates of deposit in their local bank. A mixture of well-chosen growth stocks along with large cap stocks paying dividends is a common choice. CD’s at the bank can provide ready cash and T bills provide a secure source of income and a guaranteed return of capital at maturity.

If your goal is to invest for retirement a list of good stocks would be nice to have. But, when it comes to stocks what is a good investment or stock today and will it remain a good investment tomorrow? If we look back three decades, just at the dawn of the personal computer era, IBM was the stock to have. The company and the stock price had grown for years and many investors never sold IBM despite its run up in price. They sold a few shares if they needed cash but, otherwise, expected the most powerful computer company in the world to keep growing forever. In 1976 the late Steve Jobs, Steve Wozniak, and Ronald Wayne founded Apple – APPL – and by the time IBM woke up to the challenge they nearly missed the boat on personal computing. More importantly for IBM stock the ability to network many personal computers and the invention of the GUI (graphic user interface) hugely reduced the need for IBM mainframe computers. Because IBM hurried into designing the PC (personal computer) they needed help. They paid the founders of Microsoft – MSFT – for their disc operating system and, as Bill Gates said, the flaws in the design of the PC made many millionaires out of those who created fixes.

If you had asked yourself what is the best investment for my money back in the 1980’s when Microsoft went public you would not have known that the stock would grow in huge multiples making millionaires and billionaires out of early investors. Today, after becoming one of the largest corporations in the world, Microsoft is not a growth stock but it certainly comes to mind when thinking of investing in companies with cash . Microsoft is a cash cow with good dividends and a dominant position in the computing world, much like IBM was three or more decades ago. The point of these two examples is that trusting in an individual stock can be tricky if your goal is to invest for retirement. A better approach is to find a stock with strong fundamentals and a low PE ratio and buy when prices are down. Follow the stock at least monthly and take profits if the price seems to have gone to high. Keeping enough cash for a least a few months of expenses in the bank will protect you against having to sell stock during a market downturn. A little cash also gives you the ability to buy stocks at bargain prices when the opportunity arises or to invest in US treasuries just before interest rates drop sending the values of existing bills sky high. To invest for retirement requires a long timeline, diversification, and attention on one’s investment portfolio along the way.

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