Pretax vs. Roth (after-tax)
Traditional (pretax) retirement savings accounts allow you to defer the taxes on your contributions and at the same time reduce your taxable income. The earnings grow tax-deferred but both the earnings and initial investment will be taxed when withdrawn.
Roth accounts allow for after-tax contributions. You pay taxes now in exchange for tax-free treatment of earnings on qualified withdrawals.
Diversification
Having different types of investments in your portfolio helps manage risk. Historically, it also yields higher returns as the positive performance of some investments offset the negative performance of others.
Asset allocation
This is how you divide your money among stocks, bonds, and short-term reserves. The aim is to control risk by allocating your portfolio according to your time horizon and tolerance for fluctuations in value.
Risk
Before you consider any investment, you need to understand risk and determine your personal risk tolerance. Lower-risk investments have averaged modest long-term historical returns. Higher-risk investments, such as large company, small company, and foreign stocks, have averaged higher returns historically, but with more fluctuation in value.
Fees
The impact of fees over time on your IRA or 403(b) account can significantly reduce your nest egg. Pay attention to all of the costs, including plan fees and mutual fund expense ratios. Not all providers or funds charge the same fees or advisor management costs.
Neither diversification nor asset allocation ensure a profit or guarantee against a loss.
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