Using the right tool for a job can make all the difference in the success of the task, and investing is no different. Individuals have many types of investment goals, and the number of possible accounts and investments can seem limitless. To achieve the best results for your investment goals, carefully consider your options.
Identify your goal
First, determine what you’re trying to accomplish. What is your primary investment goal…buying a home, retirement, or maybe saving for college? Each of these offers unique challenges that need to be considered so you can reach you goal.
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Saving for the purchase of a home or a car is typically a short-term goal, which in most cases means you need an account you can access without a long-term commitment. These accounts are typically taxable accounts established for general investing and do not offer the tax benefits of other account types. However, they usually provide access, without fees and penalties for withdrawals, if you reach your goal within a few years.
The front porch plan
Investing for your retirement is often a long-term goal, and there are many more options to consider when planning. Many employers offer retirement plans that provide access to savings and low-cost investment products. These employer-sponsored plans may include a matching contribution from the company, and this is an outstanding benefit to leverage to maximize your retirement plan.
If you do not have access to an employer retirement plan, then consider an IRA account which provides tax-deferred growth until you reach your goal. Both employer plans and IRA accounts offer Traditional and Roth options, and making the right decision between these plan types can make a significant difference in the amount of money you accumulate for retirement.
The cap and gown fund
Investing for the education of a child or grandchild also offers many possible solutions. These range from taxable accounts that may be suitable if it is a short-term goal to tax-advantaged accounts like a 529 plan which often provide state tax deductions up front, tax-deferred growth over the life of the plan, and tax-free withdrawals when the money is used to pay for eligible educational expenses.
Do the research
Once you have identified the best account type for your goal you should carefully consider the products to help you grow your investment. Evaluate the risk tolerance and amount of time until you will need to access the account, and then build a portfolio that balances the growth potential with the risk of loss for the investments.
There are tens of thousands of possible investment products available and the selection process may seem difficult, but leverage the resources available to build a portfolio that matches your risk comfort, has a proven track record of solid performance, and offers low cost and no hidden fees.