Do Not Retire Poor In This Society

The Standard & Poor’s 500 is an index of 500 of the most widely held stocks – leading companies from all sectors of the economy – chosen for their market size, liquidity, and industry group representation.

Probably the most broadly based market index is the Wilshire 5000 Total Market Index. Originally comprising 5,000 stocks, the Wilshire 5000 now includes the stocks of more than 6,700 publicly traded companies. This market capitalization-weighted index tracks the overall performance of stocks actively traded on the American stock exchanges; the companies are all headquartered in the United States.

Basically, indexes are imaginary portfolios of securities that represent a particular market or section of the market. Each index has its own method of calculating a change in its base value, often expressed as a percentage change. Thus, you might hear that an index has risen or fallen by a certain percentage. Although you can’t invest directly in an unmanaged index, you can invest in an index mutual fund that attempts to mirror a particular index by investing in the securities that comprise the index. The performance of an unmanaged index is not indicative of the performance of any specific investment.

Conventional wisdom says if you have several years until retirement, you should put the majority of your holdings in stocks. Stocks have historically outperformed other investments over the long term. That has made stocks attractive for staying ahead of inflation. Of course, past performance does not guarantee future results.

If you’re participating in an employer-sponsored retirement plan, you probably have the option of shifting the money in your plan from one fund to another. You can reallocate your retirement savings to reflect the changes you see in the marketplace. Here are a few guidelines to help you make this important decision.

Diversification is a basic principle of investing. Spreading your holdings among several different asset classes (e.g., stocks, bonds, etc.) lessens your potential loss in any one investment. Do the same for the assets in your retirement plan. Keep in mind, however, that diversification does not guarantee against investment loss; it is a method used to help reduce investment risk.

If you’re concerned, take a look at that company’s rating. The four main insurance company rating agencies are A.M. Best, Moody’s, Standard & Poor’s, and Fitch Ratings. You can access these services online, or you should be able to find copies of these guides at your local library.

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