Retirement Investing With Bonds
Unless you have a fabulous pension from a major corporation, you will probably have some trouble making ends meet upon retirement unless you start planning for that day earlier in your life. The earlier you begin saving, the better your lifestyle will be once that day comes. That is why retirement investing is so important.
Many years ago, people just hoarded their money in mattresses and drawers, hoping their house never burned down or got invaded by robbers. At the time it was a fairly sound plan, but it doesn’t make much sense these days. Inflation is currently around 3%, meaning $1,000 would only have about $940 in purchasing power in two years, and only $860 in purchasing power in five years.
There are two acceptable methods of saving for retirement these days, outside of the standard retirement and pension funds. You can either save money by putting it into an interest earning savings account, or you can invest money by purchasing stocks, bonds, and other investments.
Saving money is smart, and everyone should put a portion of their income into a savings account. Since inflation is currently around 3% on average, you want to try to find an account that pays at least 3% interest so your money grows in pace with inflation. That way, you will hopefully have the same amount or purchasing power at retirement as you did when you put money into the account each year.
Investing will help your money grow. Instead of just saving the money, you attempt to make that money grow larger each year. In order to truly grow your money, you need a rate of return that is higher than the current inflation rate.
Remember, if you have an 8% interest rate on an investment and the inflation that year is 5%, your real rate of return is only about 3%. So in order to truly earn money each year, you need to try to get an interest rate that is higher than the current rate of inflation.
Investment-grade bonds are a good investment for saving, because they generally earn between 3% and 6% interest, which is usually higher than the inflation rate. Junk bonds are riskier, but are good for making your money grow rather than just saving it. So if you are planning to have a comfortable retirement, start retirement investing today!