Retirement Planning FAQ
Questions and Answers:Finding the best retirement planning services are very difficult and we provide you with information and a portal to making that decision easy. We at InfoFAQ have asked the experts some frequently asked questions about finding retirement planning services online.
Frequently Asked Questions About Retirement Planning Online
How can investors make money in flat markets?Dollar Cost Averaging! Investors lower their average cost per share of stocks by investing the same amount on a regular basis. Markets go up and down during a given period, but dollar cost averaging allows investors to make money in flat markets.
How can investors get the probable advantage of buying at the bottom and selling at the top?Selling at the bottom and buying at the top are natural for most people. By rebalancing a portfolio on a regular basis, profitable asset classes are assured of being sold at the top, while out of favor asset classes will implement purchases at the bottom. Say your portfolio contains 5 asset classes. Historically, 3 will increase and 2 will be temporarily out of favor. By annual rebalancing, the investor sells positions in the 3 performing categories while being forced to purchase positions in the 2 that are at the bottom. Profits are assured in the 3 sold and well positioned in the remaining 2 for the growth over time that will follow. If all asset classes are chosen well in a diversified portfolio, the 2 that are currently out of favor will rebound, in time.
Why is time more important than timing in investing for retirement?Over the last 50 years, from 1953 − 2003, the market has increased an average of 13.0% compounded annually. Market timing attempts to remove the downside leaving only the upside remaining, thereby increasing the annual yield. If you do just that, remove all the downside, your return over the last 50 years increases to an average of 15.4% per year. However, if your wrong and take out all the upside years, your return plunges to 6.2%. The risk isn’t equal to the reward. This is especially true of the last 10 years. 50% of the stock markets rise in the last 10 years took place in only 4 of the 120 months. If you were out of the market during those 4 months, you would have missed 50% of the markets gain. Again, not worth the risk. Remaining invested over time rewards investors. Ibbotson Associates from the University of Chicago has asserted that asset classes committed for one year have a 75% chance for success. Asset classes committed for 5 years have a 90% chance for increased equity. However, asset classes committed for a full 10 years have a success probability of 98%! Time, not timing builds wealth in America.
How can you decrease risk in a portfolio?By diversification! This truism can be measured in terms of standard deviation, a measure of risk in terms of volatility. Investing in only one asset class has historically equated to a standard deviation of 15%. Two asset classes reduces the standard deviation to 12.25%. Three reduces portfolio volatility to 11%. Four asset classes in a portfolio reduces the standard deviation to 10.5% and five asset classes down to 10%. Rebalancing the portfolio, as discussed above, back to say 20% of each of the 5 asset classes, can decrease the risk even further.
Is inflation really under control?
Can retirees really take comfort in the published inflation figures which have ranged between 1% and 2% currently? Absolutely not! The costs of items utilized by retirees are currently increasing at a much higher rate. These include health costs, postage, college, housing, gasoline, automobiles and food. The average inflation rate over the last 50 years has exceeded 3.00%. Investors are well advised to plan for 4-5% inflation in their retirement projections. Better results will only add to their retirement benefits.
Answers courtesy of FEND
Consumer Safety and Information
Retirement Plans - www.dol.gov
Provides consumer pension plan information including information on the federal pension law, ERISA.
Senior Citizens - www.usa.gov
Pension plans, benefits calculator, retirement ages.
Money - www.pueblo.gsa.gov
Helps you understand your employer's retirement savings plan.
Retirement Planning - hr.od.nih.gov
Financial and Retirement Planning Resources.
Planning Ahead - www.bls.gov
Expenditures in Retirement Planning ahead.
Visit our Credit Card Fraud section for useful information.