Budget is always a key consideration
Obviously, not every person has the financial resources for investing in every financial instrument. In some cases, it is not a matter of money so much as it is a matter have having sufficient knowledge and understanding of the investment industry as a whole. We read about all sorts of investments like annuities, high yield bonds, real estate interest trusts (REIT’s) and the like but we rarely understand them. The advantage to investing is that a down payment is not always required like it is with purchasing a car or home. Additionally, the cost of living and unexpected expenses can deter a person from investing as well.
Savings accounts – the basic investment strategy
No matter how much money you feel that you can afford putting towards investing, most people can muster up enough money every month to sink into a standard passbook savings account or buying a CD. Despite the fact that the average rate of return is typically lower than other investment vehicles, this is virtually a risk-free method of investing towards retirement on a tight budget.
401(k) plans
There are a number of benefits involved with investing for retirement in 401(k) plans (or Roth IRA if your company doesn’t have a 401K). If you have a steady job, it is even easier due to the fact that many employers can set up your investing in one based on payroll deductions. Suffice it to say, this makes things a bit more convenient even if you have a strict budget to follow every month. Another key benefit to 401(k) investing is that the money is tax-deferred until you decide to withdraw it.
You can also search online for a good Roth IRA provider if you are not comfortable with the 401K that your employer is offering. However, you should know that your employer has probably done a lot of research prior to settling on a plan to offer their employees. If you do decide to look for a 401(k) plan online, just make sure you thoroughly investigate the company that is promoting it.
Other investment vehicles
Where 401(k) plans are concerned, over 25 million Americans today work for an employer that does not offer one. However, that doesn’t necessarily mean that you cannot find another investment instrument that will fit within the constraints of your budget. The following are two viable alternatives to consider:
ETF’s or Exchange Traded Funds – this is a viable solution for those individuals who are a bit intimidated by trying to select which stocks to purchase as well as anyone who does not have the funds available to hire a financial planner or investment adviser. ETF’s are similar to index mutual funds in that they are traded like stocks are. With ETF’s you can buy an entire sector, commodities like gold or mirror an index like the S&P 500. Not only do they provide you with one investment comprised of numerous stocks, ETF’s are also an excellent portfolio diversification instrument to hedge against a bear market.
Investing with an online brokerage – although you do have to be careful when pursuing this way of investing, many individuals today have gone this route in order to save on broker commissions. Unfortunately, not all of these online brokerages are reputable. Just be very careful when going this route and make sure that you investigate the online broker as thoroughly as you possibly can.