There is really just one investment objective: to make money!  There are choices regarding account types and investment vehicles, and those decisions affect your after tax gains and risk-reward trade-offs; however, the primary objective of any investment is to maximize capital appreciation, dividend income or both.  Your financial goals should guide your decisions regarding the type of investments you make and which type of account to hold those investments in.

Understand your needs

Before you decide to invest in stocks, bonds, real-estate or an annuity, to name a few possibilities, you need to think about your investment goals.  Ask yourself these questions:

• How much money do you need to achieve your goal?
• How much will you start with, and will the initial amount be a lump sum or accumulated over time?
• When do you need it – how many years from now?
• Over what time frame will it be spent?
• What are the consequences if you fall short of your objective?
• What will it be used for – i.e. retirement, college, medical costs?

Types of investment accounts

Various account types can provide tax advantages worth thousands of dollars.  For instance, a 529 college account allows you to avoid taxes on the investment gains if the funds are used for a college education.  Other college plans are available, and the web site Savingforcollege.com  is a great resource to explore your options.

Retirement plans such as the IRA or 409(k) allow you to defer taxes on money saved for retirement.  This strategy assumes that you will have lower retirement income resulting in a lower tax bracket compared to your working years.  The Roth IRA or 409(k) alternatives allow you to invest after tax dollars with the promise that any future gains withdrawn in retirement will be tax free.  There are various limits on all the retirement accounts, so you need to do your homework or consult with a retirement adviser to understand your options.  More information can be found here: Types of Retirement Plans .

Health savings plans offer another tax benefit, but carry their own set of rules and restrictions.  Information can be found for on the US government web site at: Publication 969 (2012), Health Savings Accounts and Other Tax-Favored Health Plans .

Securities with tax benefits

Many securities offer tax benefits, such as US Savings Bonds used for college education, municipal bonds, and Master Limited Partnerships, to name a few.  These and other investment options will be explored in future posts, so check back periodically for updates.

Paying Debt is your best investment

If you have high interest rate debt such as a credit card, your best return is simply paying off that debt.  Credit card interest rates are 13% and more as of the time of this writing.  I would be very pleased to get a 13% guaranteed rate of return on an investment, and that is exactly what you are getting when paying off a debt.  If you have a home mortgage, consider paying extra each month to reduce the long term interest paid  it adds up to 10s of thousands of dollars over the life of the loan.

Investment Calculator

Use the calculator below to see if you have reasonable expectations regarding your financial goal.  First, take a look at the current US government bond  interest rates on the Treasury.gov web page, here: Daily Treasury Yield Curve Rates. and note the interest rate for the number of years you have in mind.  US government bonds are considered the safest investment.  Other investment choices will produce a higher return; however, at a greater risk.  Use the investment calculator below to get an idea of what return you will need to reach your investment objective. The last parameter, % reinvested profits, indicates how much of your balance is to be reinvested each year. If you plan to withdraw money say for living expenses in retirement then subtract the percent to be withdrawn. For instance, if you plan to withdraw 4% per year, then enter 96% (100%-4% = 96%).