Speaking of your nest egg, how much risk can you tolerate? Everyone has a level of risk that they are comfortable with, and the associated discomfort has to do with your personality traits. Maybe you have worked hard all your life to save your nest egg and are not comfortable with risk. This risk can be tied to outside sources such as the economy and political forces. Some people can invest and forget about it while other people watch the market daily and sweat every little fluctuation in it. Tools and organizations that we think provide a safety net do not provide a safety net at all. Your retirement money may not be as safe as you think.
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The first tool people believe ensures their money but does not is the FDIC. This federal organization ensures your money including savings accounts, money market accounts, besides CDs (certificates of deposit). But they ensure deposits only. They do not ensure securities or other similar investments, including mutual funds. They do not insure these instruments, but they offer them. While some money in your bank is insured, the rest of it is not. If you want less risk regarding your investments, it might pay to see what investments you have at the bank.
A second tool that people think ensures their money but may not is the National Credit Union Administration (NCUA). This is a federal entity that insures deposits of credit union members in insured credit unions. Like the FDIC, the NCUA insures deposits and is part of the federal government. One needs to research this organization to see exactly what protections are in place for depositors. The protections probably are not what you think they are, putting your money at risk.
A third tool/organization that people think ensures their money is the Securities Investor Protection Corporation (SIPC). Created by Congress, it is a nonprofit corporation that protects investors against losses from stocks, bonds, cash, and securities. An interesting note, however, is that they have a $500,000 protection limit. This limit includes a limit of $250,000 for cash. The SIPC also issues a warning that your investments in the market can and will fluctuate in value. SIPC’s purpose is not to protect against these risks. The SIPC will not “bail one out” when the value of their investments fall for any reason.
A fourth tool that people think might help their financial situation is paying off student loans. According to the Washington Post, pay off student loans before saving for retirement. Think of it as gaining the interest rate on your student loans instead of paying it over the life of the loan. One needs to compare the interest rate of the loan to the interest rate they can make on their money by investing and then decide. If one is making 12 percent on investments yet paying 6 percent on student loans, they are “netting” 6 percent. Then, time becomes a factor.
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