What you can do to help stay ahead of inflation:

Start your financial plan early. IT'S TIME, NOT TIMING, that counts when it comes to your investment return. Reinvest all dividends and capital gains in additional shares to accumulate wealth faster. Look for investments that have the opportunity to beat inflation. Based on broad stock market indexes such as the S&P 500 and the Dow Jones Industial Average, over long periods of time

COMMON STOCKS have outpaced inflation, as measured by the Consumer Price Index.
Consider investing in GROWTH MUTUAL FUNDS. These funds invest in stocks of companies that are industry leaders with above average historical growth rates. Therefore, they have the potential to increase in value over time and to offset the effects of inflation.

DIVERSIFY. As the saying goes, don’t place all your eggs in one basket. A diversified portfolio of funds with different investment styles may achieve growth with less risk.

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What are the types of risk?

Capital risk: The risk that your capital won’t return intact.
Credit risk: The concern that the investment’s issuer will not be able to meet its payment. Professional management and in-depth research are invaluable when attempting to manage credit risk.
Inflation risk: If your investments cannot keep pace with inflation, your money will lose some of its purchasing power. Stock investments are generally considered among the best ways of addressing inflation risk over the long term.
Interest-rate risk: Since bond prices fall as interest rates rise, this type of risk is a concern for fixed income investors. Interest rate increases can also have a negative effect on stock investments.
Liquidity risk: Not all investments can be readily converted into cash at their perceived market values. Liquidity risk can affect the prices of securities held in the fund’s portfolio and, as a result, the fund’s share prices.
Market risk: This measures how sensitive securities are to changes in general market conditions. Remember, though, that securities that lose value quickly in market declines may also show the strongest gains in more favorable environments.
Prepayment risk: This type of risk involves the premature payoff of a loan, with a resulting loss of interest income and exposure to reinvestment risk.
Reinvestment risk: The risk you won’t be able to reinvest your capital at favorable rates.
The upside of risk:

No pain, no gain. There is no such thing as a risk-free investment.  In order to build assets, you must undertake risk of one kind or another.

The greater the risk, the greater the potential reward. Greater potential reward is the price the market demands in return for undertaking greater risk.  However, taking big risks does not necessarily ensure big rewards.  You must know the risks and weigh them against the possible rewards.  

The bottom line:
reasonable risk = reasonable reward

Choose appropriate risks (finding your sleep threshold).  Know and understand the risks involved in various savings and investment vehicles.  Make sure you are comfortable with the risk level of the investments you choose.

Manage risk; don’t try to escape it.  Investing in funds concentrated in one investment style may limit performance or increase risk.  A diversification strategy allocates money to funds in different investment styles.  This reduces your chance of being left behind in a rally or dependent on the performance of one style.  Invest over time to offset market fluctuations.  Monitor your investments to ensure that the risk/reward parameters you have set have not changed.

Maintain a long-term horizon.  Many investors recognize that holding their investment for long-term smoothes out the effects of volatility.  

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Reinvest dividends. Instead of taking your mutual fund’s distributions in cash, let them remain in your account to purchase additional shares.
Invest regularly. Develop the habit of adding to your investment account on a regular basis. You may be able to have this done automatically by setting up a systematic investment plan.
Make time your ally. The longer your money can work for you, the better compounding can work for you.
When planning for a long term goal, often it is good to determine how long it will take to double your money, or the rate your investment must earn in order to double within a stated number of years. The Rule of 72 allows to make this calculation quickly.

To find the number of years, simply divide 72 by the rate. Or, to find the rate at which your investment must earn in order to double in a specified number of years, divide 72 by the number of years.

It is important to keep in mind that most investments, do not grow at a steady rate and that the Rule of 72 should only be used as a guide in setting long term investment goals.
Actual performance cannot be ensured, and past performance of a fund is not guarantee of future results..

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It’s smart. Buying more shares when prices are low and fewer shares when prices are high is a certain way to reduce your average cost per share.
It’s automatic. Preauthorized checks can be drafted monthly from your personal checking account.
It’s painless. When you pay yourself every month before you pay the bills, you’ve wisely placed your money in a investment before you realize it was ever there to spend. It’s a smart way to invest long term for your retirement, through and IRA or a 401(k) Plan.
It’s disciplined. Dollar-cost averaging take the emotion out of investing. You can stop asking yourself, "When’s the right time to buy?"
It’s sound. Dollar-cost averaging helps you avoid the pitfalls of market timing.
Are you saving enough and in the right way to provide a sunny financial future for yourself?  Let us help.

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