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Stocks and Retirement Plans (Part 1)

7 September 2007 - Features - Editor

Stocks should be part of all retirement plans. They can also mitigate the financial distress of a family affected by premature death or disability of a bread-winner (Hallman, and Rosenbloom, 2003). No other form of investment can match the twin benefits of value appreciation and liquidity, which stocks offer. Tracking the strategies and fortunes of individual sectors of the economy and of individual companies, can be a pastime, which is absorbing and profitable at the same time. Individuals may choose stocks directly, or heed the advice of experts (Hallman, and Rosenbloom, 2003). It is also possible to participate in a stock market through mutual funds.

Most States allow stocks to be transferred directly and easily to specified beneficiaries on death, thus securing members of a family in financial terms (Jordan, and Clifford, 2006). Stocks, in this sense, offer as much security as statutory forms of savings, even though the prospects of returns and value appreciation are much higher.

Salaried people can no longer count on generous severance packages when it is time to retire (Loeb, 2007). The 401(k) system is something for the young to consider as close as possible to the starts of their careers, but it has limitations, especially if employers are not forthcoming with their full contributions. There is no option in the current circumstances to being an active investor in stocks.

Temptations to Avoid in Picking Stocks

The best starting point to building a portfolio of stocks is to determine a financial strategy to meet retirement goals (Nissenbaum, Raasch, and Ratner, 2004). Populist opinions about the stock market may not be appropriate for an individual approach to buying stocks. One’s age, dimensions of disposable income, family responsibilities, and type of retirement desired, all impact the kinds of stocks, which should make up individual portfolios. Professional investors and people with long years of experience in trading may invest money in sophisticated derivatives, as well as make purchases on margin money, but such risky behavior is not suitable for individuals who wish to garnish retirement capital with some superior returns.

Professional management, transparent governance, unblemished records in compliance with regulations, entrenched brands, large shares in stable territories, and conservative financial policies, are the qualities around which stocks should be picked for inclusion in portfolios aimed at securing lives in retirement. Stocks of new entrants to an Exchange may be preferred only if an investor has direct appreciation for the technologies involved and the business model. Track records of stocks in irrelevant environments of the past, exaggerated projections by irresponsible executives, and transient advantages based on barriers, such as patents, to competitive entries, are some of the pitfalls for investors to avoid when choosing individual stocks.

Stocks and Retirement Plans (Part 2)

 


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