Choosing Appropriate Investment Vehicles
Investments perceived as low risk, such as Treasury bills, certificates of deposit (CDs) and savings accounts may actually be quite risky from an inflation standpoint.
1
For example, over the last 20 years, investing with T-bills would have increased your purchasing power only slightly, with an average annual return of only 4.25%.
2 While
these types of investments can be components of a well-diversified portfolio, they may not have the growth potential necessary for a long-term investment strategy.
Over the past 20 years, the S&P 500, an index of U.S. stocks, outperformed inflation by a wide margin. Assuming it was possible to invest directly in this index, $10,000 invested
on 12/31/1988 would be worth $50,430 at the end of 2008. In fact, the S&P 500 grew at an average rate of 8.43% over this time.
Not only would the investment have outpaced inflation, it would have substantially increased in value.
3
Since equities have historically been one of the best investments to increase wealth and outpace inflation,
3 including this asset class in your retirement portfolio
may make sense.
Many investors seek to allocate their assets among a variety of investments, in an attempt to minimize the overall impact of a downturn in any one category on their portfolios.
This is known as
diversification.
4 Mutual funds are often used
to fund retirement accounts because they offer diversification
4 and professional investment management in a convenient
and affordable manner.
1CDs and savings accounts are insured by banks and/or the federal government or its agencies and/or offer a fixed rate of return with a lesser amount of volatility and risk. Stocks and mutual funds are not guaranteed by the U.S. government, any of its agencies or by any bank and involve greater risk.
2Bloomberg Professional. An average reflecting the annualized monthly yield on all actively traded T-Bills maturing in
90 days quoted on a discount basis in the secondary market.
3Past performance is not indicative of future results. Direct investment cannot be made in any of the indexes cited and index performance is not indicative of any
specific investment. The S&P 500 Index example is a hypothetical illustration only and assumes reinvestment of all earnings, but does not consider taxes or transaction costs.
4Diversification does not assure a profit or protect against market loss.
Past performance is not indicative of future results.
Before investing in a mutual fund, consider its investment objectives, risks, charges and expenses carefully. The prospectus, which contains this and other information about the mutual fund, can be obtained by contacting Legend Equities Corporation. Please read the prospectus carefully before you invest or send money.