1. Revisit your attitude toward risk
You may have a clear idea of how risk-tolerant or risk-averse you are. But is your attitude toward risk appropriate for your present circumstances? Consider your investment goals, age and investment time frame, and make sure your balance of risk and return potential is suitable for your needs. Rethink your attitude toward risk, if necessary, to improve your chances of reaching your objectives.

For example, if your retirement is several decades away, you probably can "afford" greater risk in exchange for greater return potential. A long-term investment horizon should provide enough time to make up any short-term losses that may occur.

By contrast, if you are close to retirement, you probably should focus on preserving what you've accumulated. Hopefully, you took a sufficiently aggressive approach to investing for retirement in your earlier years and will have accumulated enough to retire comfortably.

2. Are your investments suitably diversified?
Diversification, or the spreading of your money among different investments or investment funds, can offer several advantages. For example, with a combination of different investments, such as fixed-income and equity investments, you can strive for a comfortable balance of risk and return potential.

You also can make smoother transitions in your customized mix of investments to suit your changing objectives. For instance, a young investor might seek high potential for return. But as years go by, and especially as retirement nears, he or she might want to focus more on preserving wealth. This investor could start with a high concentration in equity investments and gradually emphasize fixed-income investments as his or her circumstances change.

Lastly, diversfication can help allay investment jitters. The nvestment markets often respond differently to changes in economic conditions. If you spread your money among different asset classes, you may reduce the effects that a downturn in one market could have on your account's value.

3. Keep a long-term outlook
As you review your investment mix, you should concentrate on your long-term objectives. Avoid making investment decisions based on recent trends in investment performance. Instead, consider the long-term potential.

The past performance of any investment does not guarantee future results. However, historical, long-term average performance can serve as a better indicator of future potential than performance over any single, brief period can.

In general, the longer your investment time frame, the less you should concern yourself with short-term ups and downs, and vice versa. Caution: Retirement does not signal the end of the long investment horizon. You may spend about 30 years or more in retirement, based on present-day life expectancies. It may be prudent to maintain an equity position in your investment plan during retirement. Equity investments can offer better long-term return potential than other investments. They may help give your retirement nest egg greater lasting potential. Equities also typically fluctuate more in value, which increases risk to principal. But you can help reduce the risk through diversification.

4. Don't ignore inflation
Growth investments such as equities can also offer better long-term protection from inflation than most other investments. Why is this important even when inflation is as low as it's been during recent years? Inflation, no matter how modest, will cause your investment goal to increase each year. And there's no telling what future inflation rates will be. If you base future goals on the amount you would need for those goals today, you risk not having enough money when you eventually need it.

For example, suppose you plan to retire in 30 years, and that if you were retiring today, you would need $25,000 of annual income. Also assume that average annual inflation remains at today's modest 3 percent level. By the time you retire, you'll need $60,682 of annual income. And if you spend 30 years in retirement and inflation continues at the same low level, you'll need $147,291 of annual income in the 30th year.

5. Begin investing as early as possible
Time can be one of your best allies when investing for long-term goals, such as retirement. An early start can give your money more time for potential growth. And if you invest regularly, you can enhance that growth potential even more.

It's all a matter of compounding, which has a "snowball effect" on your money and makes it work harder for you. You invest principal, and as earnings accumulate, your principal can grow. The more time your money has in which to compound, the bigger your potential snowball.

And as the graph at the bottom of this page ("It's smart to start early") shows, an early start at investing may make investing less costly to you in terms of how much you need to contribute toward your financial goals.

6. Take advantage of tax-deferred compounding
Taxes can take a big bite out of your investment earnings. Your tax-deferred retirement plan may be a good place to reduce current income taxes on investment earnings. In a tax-deferred account, all investment earnings (e.g., interest, dividends and capital gains) are protected from taxes until you receive the money, presumably in retirement. Tax deferral can offer you greater long-term growth potential than if you had to pay taxes on the earnings each year, as the accompanying graph ("The power of tax-deferred compounding") illustrates. Note: If you make a withdrawal before age 59-1/2, you generally will be subject to a 10 percent tax penalty levied by the IRS in addition to regular income taxes.

The power of tax-deferred compounding This graph compares the growth of annual $1,000 after-tax contributions to two hypothetical accounts, one taxable and one tax-deferred, each with a 7 percent average annual return. A 28 percent tax rate is assumed. The investment value of the tax-deferred account after taxes assumes the entire balance is withdrawn and no penalties (e.g., early withdrawal penalty) apply. Assumes taxes are paid from account balances. Graph is for illustrative purposes only and does not represent any actual investment's performance or yield.

7. Make the most of automatic payroll deduction
Automatic investment through payroll deduction is a smart way to invest for your future. It helps you stay in the habit of investing, because:

1. you won't have to remember to set money aside each payday, and
2. you won't be able to spend what you don't put in your pocket in the first place.

Payroll deduction may also offer tax advantages. First, money contributed to your plan from pretax earnings (i.e., gross pay) is generally excluded from your "adjusted gross income" (AGI) for the current tax year. So you may have a lower taxable income — and a smaller tax bill.

Also, contributions of pretax earnings to most types of tax-advantaged retirement savings plans are not taxable until withdrawn, presumably in retirement.

8. Dollar-cost average to avoid market timing pitfalls
Another advantage of regular investing is that you can avoid the perils of trying to "time the markets" — something that even the pros have trouble doing accurately and consistently.

Dollar-cost averaging is the common name for a strategy in which you invest a fixed amount of money at regular intervals in the same investment. It requires regular investments, regardless of short-term market ups and downs, according to the schedule set up by you. Your fixed amount buys more units when prices are low, and fewer units when prices are high. The idea is to invest gradually over time — rather than agonize over when to invest and then worry if you picked the right time.

Note: Dollar-cost averaging neither guarantees a profit nor ensures against a loss. Bear in mind that to dollar-cost average, you must be economically able to continue purchases as scheduled through periods of high and low price levels.

The above article is for general information only and is not intended to provide specific advice or recommendations for any individual. Consult your attorney, accountant, or financial or tax advisor with regard to your individual situation.

Mutual of America Life Insurance Company is a Registered Broker-Dealer.