Aaron’s Mailbag: Retirement Basics

From time to time, I receive e-mails from clients that include great questions!  I like to share these questions and my answers:

Client:

Aaron –

[My wife] and I were talking to one of my uncles over Thanksgiving and he recommended that we invest in dividend stocks. Are we able to take the funds in our 401k’s and IRAs and direct the funds into certain stocks? I know we briefly touched on this when we were in your office, but any advice/direction you have we would greatly appreciate!

Aaron’s Take:

This is a great question.

You don’t usually invest in individual stocks using retirement accounts.  You instead pick mutual funds or index funds which are ‘containers’ that own shares of stock and have particular goals.  Mutual funds are actively managed, which means there is a higher cost, but the managers actively attempt to buy and sell at the right times.  Index funds are fixed to match certain public indexes, which are usually used for bench-marking purposes.  Very little buying or selling occurs in order to keep the benchmark sound.

Funds are usually named by ‘type.’  For example, a dividend paying mutual fund would usually be called an ‘income fund.’  The goal of the mutual fund would be to buy lots of dividend paying stocks.

Some examples are found here:
https://www.thestreet.com/topic/47863/dividend-mutual-funds.html

Other fund types include

  • Value (stable high dividend yield)
  • Growth (strong growth but generally no dividends)
  • Blend (a mix of Value and Growth)
  • Large/Mid/Small Cap funds (Market cap refers to how much stock has been issued and how large the company is).
  • International Funds (you can find specific European, African, Asian, and blends of them all)
  • Sector Funds (real estate, healthcare, technology, financials aka banks)
  • Socially responsible funds (avoid investing in vices, weapons or nuclear, or may be religiously oriented – for example so a muslim doesn’t invest in pork bellies)
  • Index funds (referred to above, replicates the market return of the benchmark index, and has generally very low fees).

Although we are not licensed to buy and sell stock, or to make recommendations, we seek to empower our clients with a strong fiscal education so they may speak with their licensed representatives with confidence!

2016-11-29T09:33:48+00:00 November 29th, 2016|Personal Tax|Comments Off on Aaron’s Mailbag: Retirement Basics