Monthly Archives: March 2012

Tips for Building a Mutual Fund

Before you begin investing in mutual funds blindly, you need to have a firm grasp of what they are and how they can work for your financial portfolio. A mutual fund is designed to pool money from thousands of different investors to create a “fund” of securities such as real estate, stocks, and bonds. Each investor that owns a piece of the fund gets a portion of the total profits. Mutual funds are a great tool to diversify your investments if you play it smart and stick to a few simple guidelines.

Select the Right Kind of Mutual Fund

Mutual funds come in quite a few flavors. You can buy stock funds if you want faster returns. Stock funds are essentially mutual funds made up of stocks. Some kinds of stock funds are made up of stocks in a particular sector of the economy, like technology or insurance. Other stock funds contain shares of stocks from every company in a certain stock index.

If you’re more interested in slow, safe growth, then you may decide to opt for government bond funds instead. There are also high-yield bond funds, but you must deal with a higher level of risk as well if you choose to invest in these kinds of mutual funds as opposed to government bonds.

Figure Out Your Level of Risk

Once you’ve settled on the kind of mutual fund you want to purchase, you must then decide what level of risk you are willing to accept to get the returns you desire. Before you even think about buying a fund, you should speak to a certified financial advisor about your plans. With your advisor, examine how much risk the investments carry within the fund you’re interested in. Ask your advisor whether the fund will have the stability to weather nasty market dips and spikes. The advisor is not a mind reader by any stretch, but an informed opinion from a paid professional can help you make a better choice than trying to decide on a fund yourself.

Watch Out for Overhead

Mutual funds have to make a profit, too. Each fund charges each investor a percentage of the total number of assets in the fund. This may equal to only a handful of percentage points in a year’s time, and to most people, that may not seem to add up to much. However, as with most things in the financial world, the devil is in the details. Ask your financial advisor about all of the fees related to the fund so you will understand how much the fund will truly yield before you invest in one.

Filing For Bankruptcy in Retirement – What You Should Know

Filing for bankruptcy is one of the worst financial hits you can take in your life. It will follow you everywhere you go. Recovering from the blow is hard, and it can take up to a decade for the ding to fall off of your credit report completely. If you are in the middle of your retirement, however, things are a little different. You’re already on a fixed income, and your working years have long since passed.

A recent study done by the University of Michigan Law School found that since the recession began, people ages 65 and older have become the most rapidly growing portion of the population filing for bankruptcy protection. If you suffer a financial meltdown during your golden years, how will it affect you and those you love?

Bankruptcy during Retirement: Could it Be a Good Thing?

Unbelievably, older Americans carry an average of 50% more credit card debt than the generations that came after them. Senior citizens are losing their income from work, and the fixed income they’re left with is not enough to pay their medical bills – even after Medicare pays. That’s the most common misconception that gets this group on trouble. Medicare pays, but there are still quite a few out-of-pocket expenses that seniors must cough up the money for, and longer life spans mean that they’ll be ponying up this money for a much greater period of time than they may have originally thought.

This problem is compounded by the fact that many senior citizens are too proud to ask for assistance from their children or grandchildren, so they hide the debt in an attempt to manage the problem on their own by paying the minimums on credit cards and consumer lines of credit. Eventually, the debt repayments catch up to them and they can no longer stay afloat. That’s when bankruptcy protection may just be exactly what the doctor ordered. For an older filer, bankruptcy will carry the one-two punch of stopping the collection calls and reducing monthly out of pocket expenses back to the realm of affordability. This is a great way for seniors to be able to enjoy their golden years again.

The fixed income that senior citizens live on is one amount for the rest of their lives. Many seniors get minimum wage jobs to help with bills when they should not be working. Bankruptcy is the best way to avoid this last resort and spend the money on everyday expenses instead of credit card interest.

What Does Investing in Kids Really Mean?

When we talk about investing we typically think about money. This is understandable but when it comes to kids, money is not the only way we can invest in them.

Educating them with knowledge about money

One of the best gifts you can give your kids is to teach them about money and how to handle it. Unfortunately many people do nothing more than put money away in some kind of investment, so they have something to give their children when they reach the age of, say, eighteen. This is to be commended, but if the children are not taught the value of money and how to make it grow, they will be much more likely to waste that money rather than putting it to good use.

So make sure you teach your children about money – what it can do, how to save it and how to make it work for them – from a very early age. They will learn much from such lessons, and it is a good way to make sure you provide them with knowledge they can use for the rest of their lives.

Investing in their skills

What do your children want to do with their lives? Once they reach a certain age they will start thinking about how to progress in a career of their choice. This is a good way to think about investing in your children, by helping to finance their learning in this way.

Of course this could mean anything from helping to pay their way through college to investing in a series of books or a one off college course to help them learn something completely new. You can invest in your kids in lots of ways; some people even invest their time in them to help them learn the ropes in the family business. As you can see, there are lots of ways to invest in what is one of your biggest assets.

How will your child benefit the most?

No two children will be the same when it comes to investments. Some will understand money very easily from an early age and will want to save as much as they can to provide them with a cushion when they are older. Others will live from day to day and need more guidance with their cash.

We can see that investments of this kind are among the most important ones we could ever make. In truth it is a combination of guidance, knowledge, support and savings that will ensure a child gets the best start in life. So it makes sense to think of the word ‘investment’ in the broadest possible terms. This is how we can ensure we do the best for our kids as well as enabling them to do the best for themselves.

So you see, if you are still thinking of investments purely in a financial sense, you are only just scratching the surface. You can do much more than this from today onwards.

Aspects of Retirement Planning – Estates

One of the most important aspects of retirement planning is estates, and it’s never too early to get your financial house in order. This will save your loved ones the added time and grief of scrambling around trying to piece together your finances, debts, and wishes after you have passed away. Essentially, estate planning means defining the way in which your assets will be divided up to your survivors upon your death. Once you have completed your estate planning, the choices you’ve made will become legally binding, so you can rest easy knowing that everything will be handled according to your direction after your death. There are three key areas that you must consider when you are planning your estate.

Your Healthcare Proxy

A healthcare proxy is a person that you select to become your “agent” for all healthcare decisions that you cannot make yourself. If you are incapacitated, in a coma, or otherwise unable to speak for yourself, your healthcare proxy has the authority to make the final call in your best interest. This includes decisions regarding whether to use life-sustaining treatments.

Your Power of Attorney

Your Power of Attorney is also known as Durable Power of Attorney (DPOA), and the title authorizes a person to which you grant power to handle all your financial affairs. This means that if you suffer a brain injury, contract a disease like Alzheimer’s, or become incapacitated in some other way, the DPOA that you select has the final say in all your money matters. This includes all real estate you have an interest in, your bank accounts, and all your other assets as well.

Your Will

Your will controls the distribution of your property upon your death. When you make out a will, you must name important people within it. This includes your Executor, the person you designate to control your estate and divide up your assets. An Executor also has the ability to hire an estate attorney to help with any legal work that may ensue if there are any disputes while settling your estate.

You must also name Devisees in your will. These people will assume ownership of the assets you allocate therein. Oftentimes, these people are not your closest relatives. Your state governs the division of assets in the absence of a will, so make sure to name your Devisees specifically to ensure that your assets will go where you wish after you pass away instead of where the state decides they should go.

The Economic Reasons for Buying a Stock

The economy in the United States today is tanking. It doesn’t take a financial analyst to tell you this fact. People are wary now more than ever about investing their money in the stock market, so they’re seeking other vehicles in which to invest in order to protect their net worth from market dips and crashes. But is investing in stocks still a viable option? Many analysts say yes. The economic reasons for buying a stock are plentiful, and they’ll continue to be great tools to diversify your portfolio and build up your long-term assets.

The Economy is Looking Up

Recently, the Federal Reserve announced that the economy is improving. Most people still believe the opposite, which makes this a great time to buy. The stock markets took notice of the Fed’s announcement, and, in response, stocks rallied dramatically, the price of gold fell yet again, and bonds were buried.

Currently, the S&P 500 is still coasting into neutrality, the Nasdaq has posted slim gains, and the Dow is trading with only a thin loss. Although this news isn’t spectacular, volatility is down, which means that buyer confidence is slowly rising. Right now, the Volatility Index, which many refer to as the “Fear Gauge” has enjoyed a sharp downturn as well. This development is making the waters a little safer for those who are weighing the economic reasons for buying a stock.

What This Means for the Future

As most people know, investing is not an exact science. Depending on the year, the risk involved will vary wildly. After such a particularly vulnerable couple of years, the market has suffered a rough reputation. Does this mean that you should not invest in stocks? Of course not. Investing is always very risky when you do it on a year-by-year basis, but historically, longevity is the key to building long-term wealth and stability for the future. Therefore, the longer you keep your money invested, the lower the perceived risk.

A great statistic to remember when investing in stocks is that not one 30-year period has ever seen returns of less than 5% per year. In fact, the average long-term rate of return has been 9.4% per year. Therefore, when you do your long-term planning, expect to earn rates of return from about seven to 11%.

To be a smart investor, you need to recognize that the trend is always positive over the longer term. Don’t listen to naysayers who warn you not to invest in stocks – the economic reasons for buying a stock are there, you simply must commit to creating a long-term strategy for your portfolio.

3 States Where People Flock to Retire

After a long working life filled with scrimping, saving, and raising a family, many people look forward to their golden years eagerly as they approach. The average lifespan is increasing as medical technology improves, and the economy is causing the cost of living to skyrocket. These two factors combined make it imperative to protect that nest egg you’ve saved so diligently to create for yourself over the years. A great way to keep your hard-earned retirement dollars in your pocket is to move to a state where the cost of living is reasonable, the unemployment rate is low, and the healthcare is accessible. Let’s look at three of the states that meet these requirements and have retirees migrating to them in the thousands.

1.       Tucson, Arizona

Nestled in the mountains and sunny year-round, Tucson is one of the best places to retire in the country. The area is full of retirees, and there more than 1250 retirement facilities and care communities in the area. The median income in Tucson is $32,353, and the median price of a home in the area is $121,265. The property taxes in Tucson average around $800, so living in the area is a great way to stretch your retirement.

2.       Portland, Oregon

The community in Portland is great. The majority of people in this location are married, and the median age of the average Portland citizen is 36 years old. There’s plenty to do in Portland – from restaurants to museums, art galleries to the great outdoors, there’s something for all retirees in Portland. The average working family in the area makes about $50,000 and the average house price is $301,441. This sets the property taxes in Portland at around $3,000. This is a bit higher than in Arizona, but still much lower than the national average. The cost of living in the area is lower as well.

 3.       Tallahassee, Florida

According to U.S. News, in Tallahassee, Florida, the cost of living is low, the home prices are average, and the entertainment is endless for new retirees looking for a low-cost area in which to enjoy the best years of their lives. The population in Tallahassee is about 170,000, so you get a big-city feel without drowning in people. There are many great retirement communities in the area, and there are plenty of quality medical facilities scattered throughout the city as well. In addition, there are college sports events and music and arts festivals year-round in this lively retirement haven nestled in the Deep South.

What is the First Step to Successful Investing?

There are plenty of answers you could give to this. You might say it is finding a set amount of money to put away each month. You could say it has to do with finding the right portfolio that will work for you. There could be a million other possibilities that might work as a good first step.

But in truth, another step has to come before all of these, and it’s this:

The first step is to be debt free

Are you surprised? You shouldn’t be, because until you are free from debt you can’t invest as much money as you would like to elsewhere.

The main thing to remember is that all the while you have debt you are paying interest on it. This interest is very likely to be at a higher rate than the rate you would get on any investments. This means it is better to get rid of any debt you have prior to setting up any investments. The only exception to this would be to set up an emergency fund so you have available cash to dip into should you ever need to.

Make a list of your debts

This is the best place to begin. List them all on a sheet of paper and add the person or company you are in debt to and how much you owe them. Don’t worry about adding your mortgage if you have one, since this is a long term debt you would be unlikely to pay off in a short amount of time. But you should add any credit card balances and anything else you owe money on, such as a car loan for example.

Now work out how much you can afford to pay off these balances each month. You may need to make adjustments to your outgoings to do this; for example you can reduce the cost of certain bills by switching companies. Find every legal method you can for reducing your outgoings and making sure you have more surplus cash left to put towards reducing your debts.

How long should it take to erase your debts?

This all depends on how many debts you have and how big they are. But providing you focus on reducing them as quickly and efficiently as possible, you will soon see them starting to reduce in size. Be realistic though – you want to eradicate them as quickly as possible, but don’t do it at the expense of other areas of your life. For example don’t live on beans on toast every day to do it faster.

When should you start planning for your investments?

Once you get closer to paying off all your debts in full, you should start thinking about what you want to invest in. Think about your deadlines too, i.e. whether you have a short, medium or long term investment goal you want to set. The more you know about your aims and goals the easier it will be to reach them.

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How To Activate Your Score Gains Thinking

You’ll never score a goal if you aren’t charging for the end zone. If you are consumed with Apocalyptic visions every time the quarterback steps back a few feet in negative territory before throwing the touchdown pass, you won’t be running to your mark to catch it.

When you are on a rollercoaster with as many ups as downs, if you set stop losses, you are losing every time the market pulls back, which is often. This is a losing formula. If you set capture gains, you are winning every time the market rises, which is just as often as the pullbacks! This is a winning formula.

Below are five easy steps to winning in your investments.

  1. Pick a Winning Team
  2. Employ a Winning Game Plan
  3. Be a Patient Buyer
  4. Capture Your Gains Early and Often
  5. Limit Orders: The Key to Profitability in Volatile Markets.

Pick a Winning Team. A big component of a winning team is making sure that you have the right athletes on the field. You don’t want your kicker playing linebacker, or your quarterback on defense. The winning strategy for your nest egg is different than it is for individual stocks. Individual stocks are not “money while you sleep.” They require babysitting. Conversely, some of the large cap funds you want to purchase for stability in your nest egg would be a bad investment if you are looking to maximize short-term gains. Knowing your Jabba the Huts (that stabilize your portfolio) from your Hares (that can score gains) allows you to know which funds to buy for marathon performance and which companies are more likely to win in the short run.

Employ a Winning Game Plan. A great nest egg strategy includes the following:

  1. Keeping a percentage equal to your age safe.
  2. Knowing what is safe.
  3. Diversifying your “at risk” assets by size and style.
  4. Adding in hot industries.
  5. Avoiding the bailouts.
  6. Rebalancing 1-3 times a year — preferably using limit orders.

Be a Patient Buyer. Picking a great company or fund is the second step in the 3-Ingredient Recipe for Cooking Up Profits. (The first is getting more financial literacy, money knowledge and wisdom.) It is just as important to follow the third step — “never pay retail.” Be sure to buy your stocks and funds at a good price. At minimum, check out the 52-week high and low. Other considerations include seasonal and annual trends, price to earnings ratio and earnings growth.

Capture Your Gains Early and Often. As you’ve seen in the chart above, the markets are very volatile. Today’s profit is tomorrow’s loss. A shot fired in Greece or Syria makes the markets tremble in North America. Even great companies, with long-term potential, have very large swings in their 52-week highs and lows simply because the market itself has been on a rollercoaster ride. So, rebalance your nest egg at least once a year and adopt a strategy of taking your profits early and often.

Limit Orders: The Key to Profitability in Volatile Markets. One of the best ways to ensure that you are buying low and selling high is to employ limit orders. When you are evaluating a fund or company you wish to own, be clear about the price you wish to buy it at and the profits you are hoping to see. Use limit orders, and you are released from the burden of watching the markets incessantly to hit the prices you desire!

About Natalie Pace:
Natalie Pace is the author of You Vs. Wall Street. and Put Your Money Where Your Heart Is, and the founder and CEO of the Women’s Investment Network, LLC. She is a blogger on HuffingtonPost.com, and a repeat guest on national television and radio shows such as Good Morning America, Fox News, CNBC, ABC-TV, Forbes.com, NPR and more. As a philanthropist, she has helped to raise more than two million for Los Angeles public schools and financial literacy. Follow her on Facebook.com/NWPace. For more information please visit NataliePace.com.

 

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Investing Basics: Set Realistic Timely Goals

While some people are old hands at investing, others are completely new to the idea. If you happen to fall into the second group you should consider setting some goals to help you start up your new investments. Goal setting is one of the best tools you can use to ensure you can save what you need for a wide variety of events and occasions.

What is an investment goal?

Put simply, it is a goal that gives you a set financial target to hit within a set period of time. For example you might aim to save $5,000 in 12 months, or $20,000 in 15 years. There are all kinds of financial goals you can set in this regard, but you must also know why you are saving the money.

For instance you might be saving money to get married, or perhaps to get your child through college. Another good reason to set a short term financial goal would be to save enough cash to buy a car. Provided you have those three things – a set amount, a goal and a time by which to achieve that goal – you can start to focus on how you can amass the cash you want.

Breaking it down

The next step in investment basics is to work out how much you will have to save each month in order to hit your target. So if you have 5 years to save in, this equates to 60 months. Fifteen years would work out to 180 months.

Of course you also have to think about the return you will get on your investment. Some people will automatically go for a guaranteed – and therefore safer – investment than others. If you are going to choose investments with more risk involved, it is wise to make sure you spread that risk over more than one type of investment. Think of it as spreading your eggs around so you won’t break all of them if something should happen.

How many investment goals should you set at once?

In reality the only limit to setting investment goals is your financial situation. Obviously you can’t set goals to save $50,000 a year if you only make $40,000.

But you should focus on three specific types of goals:

  • Short term – say, within the next 12 months
  • Medium term – within 5 years or so
  • Long term – long into the future, for retirement perhaps

Most people can think of goals to set up for each of these time frames. If the idea of setting three goals is too much to focus on initially, try setting a short term goal first. This could be for something as simple as going on vacation. Get a rough idea of the amount of money you would need and when you would like to go, and set your goal for monthly savings accordingly.

The more practice you get at setting goals, the easier it will be to reach each financial goal successfully and in plenty of time.

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Why Do Companies Have IPOs?

With all the talk of IPOs (Initial Public Offerings) in the news lately, you may be wondering why?  What makes a company actually want to go public?  It does require a lot more regulation and paperwork, and usually makes some costs rise.

However, there are many reasons why a company would want to go public, but the biggest is the need for capital.  Unlike when you buy a stock that trades on the stock market, when you buy a stock in an IPO, the money actually goes to the company.  Public offerings are the only time this happens.  There are other reasons though, and here they are.

Reasons Companies Go Public

 The main reasons companies go public include:

  • Raising the equity base
  • Enabling cheaper access to capital (this is usually compared to using debt)
  • Exposure, prestige, or public image
  • Getting liquid equity to current shareholders, employees, management (when you have a private company, it is very difficult to sell any shares you may own in the company)
  • Facilitating Acquisitions (Many companies use stock in acquiring other companies)
  • Creating other potential financing options
  • Increased liquidity
  • SEC requires it due to shareholder limit exceeded

While all of these touch on the subject, many companies go public because the original backers of the company need to get their return.  For Facebook, for example, the original venture firms that backed it need an IPO to sell their shares, and earn their return.

The Costs of Going Public

However, going public does have costs.  There is significant legal, accounting, and marketing costs associated with both going public, and ongoing filings.  There are the ongoing disclosures required by law, as well as the addition attention needed by management to spend on shareholder concerns.

Finally, there is going to be a public dissemination of information through all of these required filings that could be useful to competitors in the market.

So, while going public can be a good thing, there are costs that must be considered.

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