Be Sure to Stock Up in Your IRA
by Ken Morris
Retirement statistics show that today's Americans are enjoying
longer lives and cite inflation as retirees' greatest economic
worry. For that reason a fixed monthly income stream may no
longer be sufficient to fund a satisfactory lifestyle during
retirement years. To protect against inflation, the ability to
grow assets and retain the purchasing power of money is
essential. Based on historical performance, that's where stocks
may offer an advantage. By offering a combination of capital
growth and dividend income, stocks offer the ability to
potentially offset the eroding effects of inflation. However,
there can be no assurance that past performance will guarantee
future results.
Few investment vehicles are of a longer-term nature then an
Individual Retirement Account (IRA), and no other financial
asset has historically offered a higher return over the longer
term than common stocks. Ibbotson Associates, an oft-cited
research firm, reports that for the 40 year period from 1964
through 2003, stocks offered an annual total return of 10.61
percent compared to 7.76 percent for corporate bonds, 7.53
percent for long-term government bonds, and 6.03 percent for
Treasury bills.
If you reinvest dividends within your IRA, returns can be
considerably greater. Using Ibbotson's figures, $1 invested in a
broad index of U.S. common stocks on Jan. 1, 1964 through Dec.
31, 2003 with all dividends reinvested would have grown to over
$56.46. Remember, dividends and capital gains accumulate in your
IRA on a tax-deferred basis. If you sell stock in your IRA for a
gain, no tax is due on that gain until you retire and begin
distributions, provided the gain is reinvested back into your
IRA.
Diversification--widely accepted as the best way to minimize the
risk of investing and achieve reasonable returns--is easy to
achieve with the vast array of stocks available among hundreds
of industries. Moreover, stocks can be easily liquidated to take
profits or reduce losses, unlike many other investments that may
lock-in investors for a particular period of time.
A diversified high-quality portfolio of stocks can offer the IRA
investor both capital appreciation and dividend income. Of
course, investment decisions should be made only upon a full
consideration of the particular financial situation. Consult
with an investment professional about the possibilities of
equities within your portfolio.
Past performance does not guarantee future results. There is no
assurance this trend will continue. The market value of
securities fluctuates and you may incur a profit or loss. This
analysis done not include transaction costs and tax
considerations.
The S&P 500 is an unmanaged index of 500 widely held stocks.
Long Term Corporate Bonds are debt obligations of the issuing
corporation. US Government Bonds are issued and guaranteed as to
the timely payment of principal and interest by the federal
government. Treasury Bills are certificates reflecting short
term (under one year) obligations of the US Government.
About the author:
"Can somebody please help me watch, manage, invest or oversee my
401k" is the question Mr. Morris hears most often that causes
him the most concern. Fearing the American worker is being left
in the dark, Mr. Morris, a fee based Investment Advisor
Representative, based in Central Ohio, with Raymond James
Financial Services, Inc., helps 401k participants get the most out of their retirement.
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