Personal Investing Goals
That means you always have to think about doing three things:
- Making your investment grow
- Producing income
- Preserving your principal
FIRST THINGS FIRST
THE GROWTH STAGE
Growth is the first order of business, and investments may grow in many ways:
- You can beef up your principal on a regular basis by contributing a percentage of your income to your investment pool. Putting $6,000 into an IRA is an example, as is adding an additional $1,000 per year if you're 50 or older.
- You can reinvest your investment earnings rather than spend them, either by using a tax-deferred plan or by putting all your taxable interest and dividend payments into an investment account.
- You can invest your money in places where it has the most potential to grow in value over the long term, typically in equity products like stock and stock separate accounts. But you have to be prepared for the fact that you could lose rather than make money, especially in the short term.
- You can diversify, or put your money into a variety of investments, to take advantage of ups and downs in the stock and bond markets and the interest rate, and protect yourself against major losses in one area of the investment markets.
THE INCOME STAGE
Income from your investments can also produce a regular source of new investment money. Or, you can plan to spend a certain amount and reinvest the rest.
THE PRESERVATION STAGE
You can't actually know how much you'll need when you retire, or what the state of the economy will be then. You can get a sense if you can project your salary increases, the rate of inflation, and how much you'll be paying in local taxes 10, 20, or 30 years in the future. There's a certain element of unpredictability in any projection, even a computer-generated one. The only thing you can tell for certain is that if you don't invest, you won't have what you need.