How to Diversify Your Money for Secure Retirement Investments

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This is a guest article by Tal Baron who writes for Currenssee a Forex trading Social Network.Tal was able to explain how to channel your money into some diversify secure means of retirement investments,this is indeed a must read article.

With the recent debt ceiling issues and the ongoing threat of a double-dip recession, the future of investing has suddenly become very uncertain especially in the United States. Establishing financial security is of the utmost importance and will involve diversification of funds. To establish diversity, it makes sense for investors to use several different vehicles like bonds, notes, CDs, protected securities and stocks.

Tax Free Muni Bonds and Treasury Bonds
Muni bonds, short for municipal bonds, are offered by the city and other local government agencies. The main purpose for issuing municipal bonds is to finance public projects that the issuing municipality plans to conduct. For instance, cities may have plans to build schools, hospitals and public housing, or to fix streets, highways and bridges. It will then issue tax free muni bonds for short terms (called “notes” that mature in one year) and for long terms (called “bonds” that mature at stated times after one year) for a minimum amount of $5,000 to cover expected expenses. Since the purpose of these type of bonds is to fund projects that will eventually be for the public good, these tax free muni bonds can be exempt from federal, state and local taxes. Thus, interest income received by the holders has a tax exempt status; however, not all municipal bonds are tax exempt.

Treasuries are issued by the federal government to finance government projects and the three types of securities they’re issued in are bonds, bills and/or notes. Municipal and treasury bonds are actually loans to the government and the government is committed to repaying these loans. Generally speaking, government bonds are considered a low risk investment. Interest earned on treasuries are exempt from state and local taxes but not from federal taxes.

Risks Involved with Bond Purchases
The main risk involved with municipal bonds is the issuer’s ability to repay the holder in full and on time. The most secure type of municipal bond is the “general obligation bond” with repayment based on the issuer’s intent to honor their word to repay as agreed upon, as well as their confirmed financial ability to repay the bond (or repayment according to their “full faith and credit”). Since this bond is considered to be the most secure, it carries the lowest interest rate.

“Revenue” and “assessment bonds” promise repayment based on expected future income such as from the public’s payment of utility bills or property taxes. Contrary to general obligation bonds, these types of bonds are not as secure because there’s the possibility that the issuer won’t have the expected funds should the public renege on some or all of their payments. Up until the recent economical problems, municipal bonds had low default rates. The current state of the economy along with the effects of inflation should be considered before investing in municipal bonds. High inflation rates will also affect treasuries because it can reduce the principal value and interest income to be received by the holder.

What is Laddering CDs?
Laddering CDs involves buying a certain number of CDs and choosing to assign them various ages of maturation, (i.e. from one to five years). When CDs with shorter maturation period matures, they are reinvested again for the longer maturation period. The reason for doing this is to optimize the return on the invested money. Laddering CDs using a certain amount of money is likely to net considerable more in interest income over a period of time than straight investing and reinvesting of that same amount of money over that same period of time.

A diverse investment portfolio is definitely a smart strategy. The various vehicles mentioned in this article along with the traditional tools like IRAs and 401ks can be combined with fixed income products that focus on improving tax efficiency while reducing exposure to risks. If potential investors don’t feel confident enough to embark on this journey on their own, they should obtain a financial advisor to assist them with setting up an effective portfolio that will provide sufficient financial support when the time comes.
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About the Author
Tal Baron writes for Currensee, a FOREX trading social network offering investors ways to diversify investments with foreign currencies.

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