First Person: My 3 'Rs' of Retirement Investing

Yahoo Contributor Network

Investing can be a tough aspect of our personal finances. There is a tight-rope act we have to walk in an effort to balance various aspects of our investment decisions. This act -- if done properly -- can better safeguard our money and minimize some of the stress that can often accompany investing.

Here are the three "Rs" that our family follows when making decisions regarding how to put our retirement money to work for us.

Reward

Sometimes it's more than just the chances of a particular percentage return upon which I base the potential rewards that come with various investments. Sure, the possibility of getting a great return on my money is certainly a large part of considering a certain investment, but there can be other aspects of an investment that might make it a worthwhile consideration as well.

Take for example an investment like silver that might not have the best returns over the last year, but historically have huge returns. The potential for longer-term reward could be there even if it's not in the near term. Otherwise, look at series-I government savings bonds. Interest on such investments can be tax deferrable and possibly exempt from federal taxes should it be used for educational purposes, and while the interest rates might not be great, there is at least a built-in hedge against inflation and some peace of mind in the investment as well.

Another example of outside returns might be a vacation home or investment property. Such an investment could provide returns in not only appreciation but as a fun place to vacation cheaply as well.

Returns

While I tend to look at my potential returns on investment, they certainly don't make for the only reason I might select a particular investment vehicle. Take for example my series-I government savings bonds compared to the stock market. Over the past three years, my average return on these savings bonds has been right around 3.5 percent, while my IRA has been earning about 6.8 percent. It seems like a no-brainer to go for the higher return on the IRA, but not so fast.

Going back a few more years and we see that my IRA has actually broken even for its 5-year average while my savings bonds have stayed in that consistent 3 to 4 percent range. Not only this, but when I go to cash out my IRA, I'll likely be paying anywhere from 10 to 20 percent or more on the proceeds, while for the savings bonds, the interest earned might be exempt for federal taxes should I decide to use it for the kids' college educations rather than retirement. Therefore, it's not always just about return percentages when it comes to my investment selections.

Risk

As an astute colleague of mine observed the other day, "It's better to put $10,000 in the bank and make no interest on it than lose 40 percent on it in the stock market…but nobody ever talks about that."

I completely agree with the statement, and this is why risk plays such an integral role in my investment strategies and decisions. I look to spread risk over different investment forms and asset classes. By using a range of stock types, bonds, physical assets, and cash, I can utilize just about all levels of risk while at the same time diversifying myself enough and leaving myself enough liquid savings that should any one move in the economy occur, I have the ability to minimize risk while still being able to move into investment opportunities should they present themselves.

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Disclaimer:

The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.

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