ALAN MOORE

Investing for your future retirement plan wisely

If you’ve ever visited an apple farm, you know that you usually can get your apples in one of two ways. You can buy a bag or bushel from the farm’s store and quickly be on your way. Or, you can walk out in the orchard yourself and pick your own apples. This second method may involve climbing a ladder and reaching for the best-looking apples, but the reward is often worth the extra effort. In some ways, investing for retirement is similar to buying apples. Choosing Investments Typically, as a retirement plan participant, you can choose from among three basic kinds of investment: cash equivalents, bonds, and stocks. The cash equivalents are generally considered “stable value” investments that seek to protect your principal while providing an income return. For example, the annual total return on Treasury Bills (as measured by the Salomon Brothers 3-month Treasure Bill Index) has averaged about 5.7 percent* for the last 10 years. Like the bagged apples that have already been picked, they’re relatively safe and easy. However, they may not be exactly what you need for your retirement. With cash equivalents, a little worm called inflation may eat up a large part of the annual investment return. Since inflation (as measured by the Consumer Price Index) has averaged about 3.7 percent* for the last 10 years, that reduces the 5.7 percent growth rate on cash equivalents to only 2.0 percent. If you’re willing to reach for a better return, you may want to consider bonds. Bonds involve more risk than cash equivalents, but they also offer the potential for a better return. The annual returns on government and corporate bonds are not as consistent as those of cash equivalents, but during the last 10 years, long-term bonds have averaged 8.4 percent* (as measured by the Lehman Brothers Government/Corporate Bond Index). Finally, at the top of the investment tree, you have stocks. Stocks are the riskiest of the three choices mentioned. Over the last 10 years, though large company stocks (as measured by the S&P 500) have returned 15.3 percent* annually on average, which is significantly better than cash equivalents or bonds. So, even if you don’t feel comfortable putting all of your retirement money is stocks, at least consider making them part of your investment mix. *According to Russell Data Services ALAN S. MOORE is a Financial Advisor of Legg Mason Wood Walker, Inc., a diversified securities brokerage and financial services firm that is a member of the New York Stock Exchange, Inc. and SIPC.