The Retirement Corporation of America

Summary

YOU START SAVING for retirement the first day you bring home a paycheck. But that's only half the battle. Unless you strike oil in the backyard, the only way you'll have a good life in retirement is to take your savings and invest them, so they grow substantially over the years.

Aim to earn the most you can from your retirement investments, but have realistic expectations about how big of a return you can hope for over the years. Figures going back 75 years show the average annual return for stocks is 10 percent, for bonds 6 percent and for cash 3 percent. If you are basing your retirement plans on earning much more than that, you could be very badly disappointed.

You must take risks when you invest your retirement nest egg. But you can reduce those risks by the three strategies you've learned in Successful Investing & Money Management: Allocate your assets among stocks, bonds and cash; diversify among investments within each asset class; and keep time on your side by being a long-term investor.

Stocks pose the greatest risk among investments. But only stocks offer the growth potential to outrun inflation and give you the nest egg you will need to live comfortably in retirement.

Bonds balance stocks by offering stability and a guaranteed income stream. You don't invest in just one or the other: you invest your retirement savings in both stocks AND bonds.

Cash is money invested for a year or less. You make use of cash investments in your retirement nest egg in order to reduce your exposure to volatility. You are careful not to overdo your exposure to cash because it offers, by far, the lowest return of any asset class.

You can master the stock and bond market and become a direct investor. But you also can buy a mix of mutual funds and gain all the asset allocation, diversification, and growth potential that you'll need.

You don't build one retirement investment strategy and hope it will work for you the rest of your life. You have already been introduced to the idea of life stages and the need to plan. You retire in stages. There is a different asset allocation appropriate for each life stage. This lesson introduced you to the appropriate allocation for each.

You can't invest your money and then hope that the tax collector looks past your investment performance. The essence of sound investment planning is to minimize the amount of your return that is eaten up by taxes. That's especially true when investing for retirement—every dollar is likely to be important when your regular paycheck stops coming in.

Don't let your retirement investments go to sleep. Review their performance once a week. Update your investment portfolio once a year. Re-balance your investments at least once every three years so you never get too far away from the allocation which is appropriate for whatever life stage you are in.


You can't win them all! That's true in sports and it's true in investing. Most years, gains in the economy and the investment markets will keep your net worth growing. Unfortunately, some years the economy will slump or the stock market will slump—or both will. Hope for the best as you move toward financial success—but expect occasional setbacks along the way.

The way to keep cool during turbulent times is to prepare for them. Don't make financial plans on the assumption that stocks will only gain and that the economy will only grow. Make plans that take both economic recessions and bear stock markets into account.

The first step in preparing for turbulent times is to have realistic expectations. The more you expect the improbable, the greater the risks you'll have to take to achieve it. Expect what is reasonable and you'll take reasonable risks along the way.

Prepare for turbulent times by not keeping all your investment eggs in one basket. Stocks will do well most years, but they can suffer big losses when times turn tough. Bonds and cash will help protect you against turbulent times—but they won't produce the long-term gains stocks will. Allocate your assets so that you always own some stocks, some bonds and some cash.

Cash is your first line of defense against turbulent times. It offers a low-risk, low-volatility haven against hard times. Keep your rainy-day fund safe by holding it in cash. Increase your cash allocation when the world turns turbulent.

Keep cash in a bank CD if you need the money on a specific date. Otherwise, consider a money market mutual fund for its flexibility—and for the immediate access to your money it offers.

The ultimate safe haven when the world turns turbulent is in securities issued by Uncle Sam. Learn about the opportunities available to you in U.S. government securities before the investment markets turn treacherous.

You can keep cash safe in a money market fund. But why? You can earn a higher return on your cash—with only slightly more risk—by holding your cash in short-term bond funds. You can even keep your bond allocation in these short-term funds.

A part of wise asset allocation involves keeping money in bonds. But which types of bonds? This lesson offers a thorough grounding in how to invest part of your nest egg in bonds.

Make use of cash as a safe haven and bonds as an alternate to owning stocks. Just don't overdo it. Even when times turn turbulent, you still want most of your money in stocks. The younger you are, the more true that is.


Now you've finished this lesson and taken another step toward mastering your financial future. You know what winning mutual fund strategies are, and you can put them to work on your behalf.

You've learned a thing or two about all the different kinds of funds that are available to you.

You've learned how to take a mix of funds and develop them into a winning mutual fund strategy.

You've learned that while you can lose money on your investments, you can cut the risk of loss when something goes wrong, and the stock market or the bond market (or both) take a turn for the worse.

You've learned that when it comes to investing, the old adage is still true—nothing ventured, nothing gained. Play it super-safe with your money—keeping it in an insured bank account—and your income and loss are limited. Take some risks with your money, and you can increase your income potential.

To help you along, this lesson included a series of strategies—each one a suggested allocation of mutual funds for a different stage in your life. Finally, there's a long list of rules and guidelines to help you pick the best funds for you—rules about what to look for, and what to avoid, when you invest in mutual funds.

Nothing comes overnight. You've learned the lesson. Now you have to put it into practice. You may make some mistakes at first, but pretty soon your skills and your confidence will grow and your money will start to grow—faster and faster until you really can see your financial dreams coming true.


You've started along the path to becoming a great mutual fund investor. You've done most things right—but not everything. Even when you get it all right today, things will be different tomorrow and you will have to rethink your mutual fund strategy and make some changes.

First, take time out for a close-up look at your mutual fund investments. Have you fallen into any of the 10 dire traps that cost you fund performance? If so, set about climbing out of those traps right now, before that lost performance begins to cost you.

Then, get into the habit of reviewing your fund performance on a quarter-by-quarter basis.

You do an in-depth review of your fund holdings once a year. You look for funds that are doing well and you want to keep, and funds that aren't doing so well that might eventually be sold. Don't respond to one year's bad performance but if a fund underperforms its peers for two years or more, consider a sale.

Rebalance your entire portfolio regularly to keep yourself in tune with your current asset allocation. Rebalance your entire portfolio periodically when something fundamental occurs in your life. When you do rebalance, don't forget to keep the tax laws in mind.

The best strategy for adding to your portfolio is to buy more of whatever funds already work best for you. Subject any new funds on your list to some pretty intense scrutiny to make certain they are the funds you want to own. There's a pretty good case for making those funds index funds but also some reasons why index funds may not be quite what you had in mind. When it comes to choosing between two funds you like, the one with the lower expenses should win the day.

None of this involves that much legwork. Most of what you need to know about mutual funds is readily available today. Take the time required to do the job right, so you achieve the investment results that will turn you into the financial success you deserve to be.


Bonds should be the rock-solid foundation of your winning portfolio. You buy them to provide steady income that will let you take greater chances with another portion of your nest egg in riskier, but potentially more rewarding investments, like growth stocks.

U.S. Treasury bills, notes and bonds are the absolute safest of all fixed-income investments. Federal government agency securities like Ginnie Maes are virtually as safe as Treasuries, but offer a bit higher rates. Corporate bonds come in all risks. So do municipal bonds, although their risks can be partially offset by their tax advantages. To decide whether you should be in taxable or tax-exempt bonds, ask whomever you are buying bonds from (probably a broker) to discuss tax-equivalent yields.

Rather than buying individual bonds, you can buy shares of funds or unit trusts that invest in these securities. A fund is often the best way to go if you're interested in Ginnie Maes, which have $25,000 minimum investments.

A fund is also the way to go if you want to own high-yield (junk) bonds. They minimize the risk of a possible default by owning at least 100 of these bonds.