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    How to choose the right investment strategy

    Consider investment goals, risk tolerance, and economic outlook when planning your strategy

    I'm new to investing. What should I be looking for when selecting my investments?

    Determining what to invest in should be based primarily on the needs, temperament, and available resources of each individual or family. The best investment for one person is often far less suited for someone else. Advice given in the media or from others unfamiliar with your particular situation often adds to the confusion. The process of choosing the most appropriate investment for your own specific situation can be made easier by carefully considering and answering the following questions:

    What are your investment goals? One way to address this question is to ask yourself, “What do I want my money to do for me?” For example, the investor who is retired might have a need for additional income to meet current living expenses. Goals for working individuals or families may be longer term, such as saving for retirement, a child’s education, financing a major purchase, or creating and maintaining an emergency fund.

    How liquid does the investment need to be? The term “liquidity” refers to how quickly an investment can be turned into cash without losing any of the invested dollars, or principal. Investments designed to meet longer term goals such as retirement generally do not need to be as liquid as those earmarked as emergency funds.

    More "Money Matters": How to prosper, survive during sky-high markets

    What is your risk tolerance? Can you afford to risk losing a portion or all of your investment without it affecting how you live? In general, risk is related to return: the higher the risk, the higher the potential return; the lower the risk, the lower the potential return.

    What is the impact of income taxes? Income taxes can have a significant, negative impact on your investment results. To reduce the impact of taxes, many high-income individuals invest in municipal bonds because the interest from those bonds is generally exempt from federal income tax, and in some instances the interest is also exempt from state income tax. Additionally, qualified retirement plans, life insurance policies, and annuity contracts are used to accumulate funds for retirement primarily because of their tax-advantaged nature.

    What is the economic outlook? The state of the economy as a whole can cause investors to re-examine or change the mix of desired investments. For example, during periods of high inflation, tangible assets such as real estate and precious metals tend to produce nice results. During periods of stable or declining inflation, intangible assets such as stocks and bonds have generally done well. But keep in mind that, while this has been the case historically, there is no guarantee that history will repeat itself.

    Next: Do I have the skill and knowledge needed to manage the investment?


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