BE SURE TO STOCK UP IN YOUR IRA

Retirement statistics show that today's Americans are enjoying longer lives and cite inflation as retirees' greatest economic worry. For that reason a fixed monthly income stream may no longer be sufficient to fund a satisfactory lifestyle during retirement years. To protect against inflation, the ability to grow assets and retain the purchasing power of money is essential. Based on historical performance, that's where stocks can offer an advantage. By offering a combination of capital growth and dividend income, stocks offer the ability to largely offset the erosion effects of inflation. However, there can be no assurance the specific stocks will provide this service in the future.

Few investment vehicles are of a longer-term nature than an Individual Retirement Account (IRA), and no other financial asset has historically offered a higher return over the longer term than common stocks. Ibbotson Associates, an oft-cited research firm, reports that from 1926 through 2000, stocks offered an annual total return of 13.22 percent compared to 6.04 percent for corporate bonds, 5.86 percent for long-term government bonds, and 5.08 percent for Treasury bills. Whether this performance will continue is anyone's guess, as past performance is not a guarantee of future results.

If you reinvest dividends within your IRA, returns can be considerably greater. Also using Ibbotson’s figures, $1 invested in a broad index of U.S. common stocks on Jan. 1, 1950 through Dec. 31, 2000 with all dividends reinvested would have grown to over $600. Keep in mind you cannot invest directly in an index, and again past performance does not guarantee future results. Remember, dividends and capital gains accumulate in your IRA on a tax-deferred basis. If you sell stock in your IRA for a gain, no tax is due on that gain until you retire and begin distributions, provided the gain is reinvested back into your IRA.

Diversification, widely accepted as the best way to minimize the risk of investment and achieve reasonable returns, is easy to achieve with the vast array of stocks available among hundreds of industries. Moreover, stocks can be easily liquidated to take profits or reduce losses, unlike many other investments that may lock-in investors for a particular period of time.

A diversified high-quality portfolio of stocks can offer the IRA investor both capital appreciation and dividend income. Of course, investment decisions should be made only upon a full consideration of the particular financial situation. Consult with an investment professional about the possibilities of equities within your portfolio.