A stock is a share in the ownership of a company. For the company, a stock is a fundraising loan that they needn't repay, but will typically yield greater income for both the company and its shareholders in the end. As an owner, you are entitled to your share of the company's wealth.

You won't be able to control how the company is run per say, but the good news is that you will have a claim to assets and limited liability (meaning that you're not personally responsible if the company can't repay its debts). Stocks can be daunting since there's always the risk that the company won't be profitable and you'll lose your investment. When retirement planning, the AARP recommends investing for the long haul in companies that are likely to succeed (instead of trying to "time" the market) and invest small in many different stocks to minimize risk and maximize returns.

A mutual fund is a lower-risk investment. Investors pool their money and allow professionals to select stocks for them. While stocks may generate a larger return, mutual funds are better for retirement planning because of their low risk and maintenance. Mutual funds spread your investment dollars around and gives you the expertise of a money manager to ensure the success of at least some of your investments.

Mutual funds are constantly being bought and sold, so you can easily sell your shares for money. Many people choose the automatic investment option, which takes a certain amount of money out of each paycheck to invest. When the market's down, more shares are bought to increase your ownership and when the market's up, less shares are bought at the higher price.

So how will you make money off your mutual funds and stocks? First, avoid common pitfalls: Don't invest in startup companies with the hopes they'll make money eventually; be sure the company's gross income exceeds its debt; don't keep investing in a losing stock; read the written business plans and look out for lies. Secondly, many people add automatic investments to their retirement planning agenda. Monthly money will be taken out of your check, bank or money market account and invested in a pre-decided stock or bond. Thirdly, you can choose monthly, quarterly or annual earnings from your investments. However, most people opt to continue reinvesting until they really need the extra income, since your investment returns will be included in your taxed income.

Retirement planning requires several smart investments. Many top executives are planning their futures right now by investing in the economy and letting their nest eggs accrue. It doesn't take an economist to invest these days; with the help of your local banker, you too can purchase a mutual fund or stock. The more options you have, the sweeter your retirement will be!

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