Reference no: EM133273035

1. A mutual fund is like a basket of stocks. The investors pool their money together so that they can buy a portfolio of stocks, bonds or other securities in order to take advantage of diversification at a reasonable cost. Investing enables you to hold a wide variety of securities at a much lower cost than you could on your own. Mutual funds help to eliminate the risk of individual stocks making it a more balanced investment. If one investment decreases in value, another investment in the portfolio may increase. By holding shares in various types of funds, you can take advantage of opportunities in in many asset classes across changing market environments. Compared to most funds, it would require a larger investment and incur greater costs to purchase directly all of the individual securities held by a single mutual fund. Mutual funds also offer investors access to full-time professional money managers who have the expertise, experience and resources to actively buy or sell and monitor investments. Each investor is investing in shares of the mutual funds so their profits are based on their number of share divided by the value of the mutual fund.

2. Describe government sponsored retirement plans. Can you rely on social security income during retirement? Why or why not?

Some government sponsored retirement plans are Keogh plans, Roth, traditional, and SEP IRAs. Billingsley et al. (2021) states, "Keogh and SEP Plans are for self-employed individuals" (p. 594). Keogh plan allows self-employed individuals to set up tax-deferred retirement plans for themselves and their employees. Billingsley et al. (2021) continues stating that, "The maximum contribution to this tax-deferred retirement plan in 2019 was $56,000 per year, or 25 percent of earned income, whichever is less" (p. 594). Individual Retirement Accounts (IRA), as Billingsley et al. (2021) writes, "is a retirement plan open to any working American to which a person may contribute a specified amount each year" (p. 595). IRAs has three types to choose from, which are Traditional (deductible) IRA, Nondeductible (after-tax) IRA, and Roth IRAs.

My opinion on "Can you rely on social security income during retirement?" is "no". I am not relying on social security income when I retire because I believe there won't be much of social security funds left to use. I believe many people are living life longer than what was expected and not enough social security funds would be around for me to use to survive the economy. In addition, the cost of living has been increasing, and social security income has not increased to keep up with the cost of living.