11. Invest in an individual retirement account (IRA)
IRA stands for individual retirement account and is a defined contribution plan that has in effect replaced pension plans offered by companies. They were begun in the mid-1970s. IRAs are available at financial institutions, and unlike a 401(k) plan, they are not affiliated with your employer. With a traditional IRA, you can contribute money from pre-tax earnings to an account that grows over time. Each year, you can deduct some or all of the amount you contributed from your income at tax time, which will ease your tax burden.
When you start taking distributions from your IRA in retirement, they will be taxed as income. With a Roth IRA, you fund this IRA with after-tax dollars, so you will not pay income taxes in retirement. An IRA distribution is money you withdraw after you have reached 59 1/2. Like a 401(k), any distribution taken before that age will incur a penalty.
Before 2020, the IRS barred those over 70 1/2 from making contributions to a traditional IRA, but that restriction has been lifted.
12. Invest in an index funds
An index fund is a kind of mutual fund or exchange-traded fund with a portfolio assembled to match market indexes like the Standard & Poor’s 500 Index. An index mutual fund is considered to provide broad market exposure, low operating expenses, and low portfolio turnover. Index funds are viewed as essential core portfolio holdings for individual retirement accounts and 401(k) accounts.
13. Invest in mutual funds
A mutual fund is a financial instrument that pools assets from shareholders to invest in securities such as stocks, bonds, money market vehicles, and other assets. Mutual funds are overseen by money managers, who allocate the fund’s assets and attempt to produce capital gains or income for investors.
Mutual funds give small investors access to portfolios of equities, bonds, and other securities. Mutual funds charge annual fees, expense ratios, or commissions.
These funds invest in many securities, and their performance is tracked as the change in the total market capitalization of the fund. Employer-sponsored retirement plans usually invest in mutual funds.
14. Invest in an exchange-traded funds (ETF)
Exchange-traded funds track market indexes, but unlike a mutual fund, they can be traded like stocks. Exchange-traded funds track indices like the Standard & Poor’s 500 or the Dow Jones Industrial Average. They also can follow smaller indices associated with a particular market segment.
ETFs often have lower costs than mutual funds. Another attractive feature is you can invest in certain types of companies, specific sectors like technology or health care, or bonds and real estate.
15. Invest in Individual stocks
We’d all like to be the next Warren Buffett and invest our way into unimaginable riches. The reality is that picking the next Microsoft at a bargain price requires luck and spending lots of time researching companies as well as understanding financial and technical analysis. Individual stock investors also need to understand that there is risk in going at it alone.
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