Beginners guide to investing for retirement: The Basics

Retirement is a big goal for many of us. This is the reason why we put in all of the hard, long hours and save money. There is no easy or shortcut way around getting to that road easy (believe me if there were I'd be there!), so please be careful with your money. You owe it to yourself to invest smart and efficiently, and you don't have to be an expert either. I will lay everything out slowly and simply without using the technical jargon you may hear your advisor use. It does no good for you or for me.

Before we get on the road to saving for your future, lets go over my definitions of a few key terms you may or may not be familiar with.

Investing: Many people think this means buying a certain product (such as an annuity, mutual fund, etc.) or putting their money in the stock market. This is wrong. Investing means dedicating yourself to a particular strategy for a long term goal.

Investing Strategy: This is where your single components such as stocks, bonds, mutual funds, etc. come into play. Your strategy is dependent on your situation, and I will get into this in setting up your investment strategy for your situation.

Stock: This is partial ownership of a company. Whenever you buy a share of a company you own a piece of it. There are different types of stocks, which I will talk about in how investing in stocks is important for retirement.

Mutual Fund: This is a basket of different investments managed by a person or a team. There are thousands of different types of mutual funds and some types may invest in the stock market and some may not. It is important to know the differences and you can skip to how investing in mutual funds is important for retirement if you wish.

Bond: This is a debt obligation for a company. Think of it the basic way you get a loan but backwards. You need money for a certain purpose, so someone loans you the money and charges you interest. After a certain period of time you are required to pay the full amount plus the interest back. This is the same way a bond works except a company needs your money and in turn they will pay you interest and the money you gave them back after a set amount of time.

Annuity: These are retirement investments with some sort of guarantee. This guarantee usually means that you are guaranteed to earn 'X' amount of interest on your initial investment no matter what the market does. There are many other features they have, and can be very complex, but this is the most important piece to know. I get into annuities on the section how annuity investing is important for retirement.

Money Market: This is an investment similar to a cash position. These are generally safe investments where your principal will stay intact and you will earn a fluctuating amount of interest each day. Most money markets will let you access your money whenever you want to. Think of it like a checking account that earns interest. These are generally NOT FDIC insured.

CD (certificate of deposit): This is basically a bond issued by a bank that is FDIC insured in case the bank goes out of business. Therefore, they are very low risk investments and will guarantee the amount of interest you agree to for the term you purchase it for. (Ex. 3% for six months, 5% for 5 years, etc).

These are the first few terms that will be important in understanding the later posts. If you are not familiar with all of them please do so before going on to the more detailed content.

Next: A proven and good way to start saving money