When many of us imagine about the stock market, we believe of the stereotypical stock and, the stereotypical concept of purchasing a stock. That is, to look at a company and try to evaluate, based on the economy and other factors, how their value per share will perform in the future. The premise is to buy low and sell high. The dilemma with stocks for retired investors is that stocks can also go down. A person's retirement years may not be the time they want or afford to take a loss with respect to their financial resources because it is the most vulnerable of times for many to take a deduction of money like this. A good investment solution for senior citizens and the retired would be mutual funds.
What Precisely is A Mutual Fund?
A mutual fund is a portfolio of stocks as well as other financial instruments that are managed by a financial pro. The common and most simple concept of the attractiveness of a mutual fund is that when one stock goes down, it will be offset by a stock rising in price. This is designed to protect one from major loss.
Mutual funds pay dividends based on the growth or income to the fund. This attribute is used by the retired investor to create an income. If a mutual fund is routinely paying ten percent and a person puts $100,000 in the mutual fund, then they would receive $10,000 per year of income.
Why not just situate the money in the bank? Even big deposits may not warrant as high an interest rate at any given time. Also, to obtain decent rates one usually has to lock the money up for a long time and they fail when the inflation rate goes up. The mutual fund acts as a hedge against inflation.
What makes the mutual fund charming is that the mutual fund provides the opportunity to do more than just earn fixed interest. There are different kinds of mutual funds. Some mutual funds are for income, some are for growth and some are a combination. In all cases one mutual fund has a professional money manager taking care of the mutual funds as opposed to having to buy and sell on their own with the accompanying stress and management time.
Another reason to invest in mutual funds is that its conservative nature offers a hedge against loss and allows the investor to climb into other vehicles that may be more risky. That way a retired investor can try to make some money in mutual funds without jeopardizing their future.
Lastly, by being part of a mutual fund portfolio, the senior citizen has a chance to view how the different stocks that make up the mutual funds are performing and can select to invest in mutual funds that starts out performing the others to grow profits.
For the senior citizen and retired investor, mutual funds can offer a hedge against inflation and it can direct the retired investor to the best stock picks and, most importantly, it can protect the retired investor from losing their savings.
Article Source: ArticleRich.com