Investment Strategies for Retirement - How to Buy Mutual Funds including Equity, Index, Money Market and Bond Funds - Load Versus No-Load Funds

March 14th 2006

New York Stock Exchange

Planning for retirement can be challenging, especially when you are trying to figure out the best strategy to make sure all your future needs are met. The first step is determining what your retirement is going to cost.

You will need to total your annual expenses in retirement. This total may range anywhere from 70% to 90% of your current income. If you plan it right, your home will be paid off or you may want to move into a smaller house. Some of the complicated estimates include determining future health care costs or insurance premiums. It can be difficult to predict the future inflation and other factors.

Since most people don’t have time to keep track and research stocks to figure out which is best (or maybe they find better things to do with their time), many investors turn to mutual funds. Mutual fund companies invest their money in stocks, bonds and other securities. Each investor owns shares, which represents a portion of the funds holdings.

There are three ways to make money from a mutual fund. First there is the money earned as dividends on stocks and bonds. The funds pay out nearly all income they receive over the year to fund owners in the form of a distribution. Second, if the fund sells securities that increase in price, there is a capital gain. Most funds pass these gains along to the investor. The third way is by selling your mutual fund shares for a profit.

Funds are managed by professionals and are usually well diversified. By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out. The larger mutual fund companies will typically own stocks in hundreds of companies.

It does not take much money to invest in mutual funds. Many banks will have their line of mutual funds. Some companies have automatic purchase plans for mutual funds.

Cost is the biggest problem with mutual funds, and is one of the reasons some funds end up with sub-par performance. Costs can be hidden through layers of financial complexity and jargon, but they can be broken down into two types: yearly and transaction. Continued on Second Page