Investment, Stock News

Personal Finance – Most Common Investment Plans

Fifty years ago, the average worker didn’t need to worry about saving for his retirement. If he stayed with the same company for 20, 25 or 30 years, he was guaranteed a pension, in addition to a monthly social security check form the United States government, and medical benefits under Medicare. Still, those same workers generally saved about 10% of their paychecks for a rainy day, leaving many with a tidy retirement fund.

Today’s workers aren’t offered those same retirement benefits, yet, many fail to put even 5% of their annual salary into a 401K retirement plan, let alone save additional funds on top of that. Today’s worker, (no matter how much, or how little they make), must become a savvy investor in order to guarantee a comfortable future.

Whether you can put aside a month, or 0, learning a few investment basics is crucial in order to get the best future bang for your current buck. Here are a few of the most common investment opportunities available to both the high and low-end investor:

Stocks:

Stocks, or equities, are a way to invest a small portion of ownership in a specific company. The number of shares that you buy, in proportion to the number available, determines how much of the company you actually own. Known as the best opportunity for long-range growth, stocks can be a risky short-term investment.

There are three types of stocks available for purchase:

-Large-cap stocks, from well-established companies

-Small-Cap stocks, represent lesser-known companies with fast-growth potential

-Mid-Cap stocks, lie between the large-cap and small-cap risk range

Bonds:

Basically an IOU from a company or government, bonds are a relatively safe investment. Bonds are issued as a way for corporations and government agencies to raise money quickly. Bonds come with a guarantee that the purchaser will get back their original investment, with a set amount of interest at a specific date. These fixed-income investments come in several categories, or grades:

-AAA, AA or A offers relatively low risk

-BBB, are medium grade

-Bonds lower than BBB have higher risk of default

-Junk Bonds, offer the highest risk, and are often worth nothing by their maturation date

Cash Equivalents:

This is a type of short-term investment that is easily converted into cash, such as Treasury or T-Bills ( a government note offering low interest) and money market accounts, Although a safe investment, their return can be rather low.

Mutual Funds:

This popular investment is a simple way to expand your investment portfolio, by allowing investors to pool their money in a collection of stocks, bonds, and cash equivalents, in order to make the most profit at the least risk. The rationality with this type of investment is, if one fund does poorly, another will make up for the loss.

Investing money wisely takes a little research and experience, but today’s options make investing an option for just about everyone – no matter how much or how little they have to invest.

Find a Methodology and Minimize Investment Madness

There are many reasons to be investing these days, and too much opportunity to not have your money working for you. However, I believe the majority of people dread having to deal with investment matters, and tend to jump into purchases and then hold their breath hoping for the best. After a long day at work and taking care of the family, it’s hard to get excited about reading up on your 401(k) options, Morningstar ratings and fund performances.

If this sounds like you, there are basically 3 choices.

1. You can have your investments professionally managed,

2. you can continue as you have in the past & keep your fingers crossed,

3. or you can find a methodology that objectifies the investing process (that’s buying and selling investments) and helps you maximize your long-term results.

To determine if you need help managing your investments(and this doesn’t necessarily mean having to pay for advice) you might want to ask yourself these questions:

Do I really have the time and interest to follow the market closely on a daily basis?

Have I done well in the past managing my own investments?

Do I really want to add another layer of work and responsibility onto an already busy schedule?

If you’re like most people, you would answer yes to some and no to others, so how do you decide? If you think you could have or should have done better with your investments, then you need some help. Don’t feel bad. Having counseled hundreds of people over the past 15 years I can honestly say that everybody needs some help, whether they are aware of it or not.

Why? This could come as a surprise, but, in fact, your financial life is a lot shorter than your physical life?

Most people who end up investing don’t really start working and making money until they are about 25 years old. Considering the average retirement age of 65, this gives you only 40 years to save and invest wisely.

If you make a poor investment decision, such as trying to stay fully invested during a bear market, you could lose big both in terms of diminished dollars and wasted time.

To drive home this important point, let me give you an actual example involving my own portfolio. For ease of illustration I have adjusted the beginning portfolio balance to ,000.

During the period from 1/25/91 to 10/13/00 my ,000 investment grew to ,840, which is a 14.67% compounded annual return.

On 10/13/00, based on a methodology I was following, I liquidated all of my domestic mutual fund positions and moved 100% to the safety of my money market account. Thanks to this move, my portfolio retained 100% of its value on that date.

As we now know with hindsight, most people held on to their investment positions and have so far lost on average 50% to 60% of the value of their portfolios. For this example let us use 50%.

If I had held onto my position, my portfolio would be down to ,920. Last time I hit that level on the way up was in 1995.

In other words, not only would I have lost 50% of my portfolio I would have lost even more by having used up 20% (8 years) of my total financial life.

How can you avoid mistakes like that in the future? Spend a little of your valuable research time looking for investment methodologies that allow you to side-step bear markets and let you move back in during bull markets. In other words, invest your time looking at methodologies instead of investments themselves. This will lay the foundation for more effective use of your money and time.

If you find a methodology that you like, and it matches your investment philosophy, stick with it for the long term. It should have the aspect of telling you when to get out of, as well as when to get into, an investment.

I suggest you follow these broad guidelines:

* Don’t be afraid to take a small loss to avoid bigger disasters.

* Stay away from commissioned sales people (because they have incentives other than your best interests), and if you use an advisor, be sure he or she is fee based.

* Above all, don’t get overwhelmed by news, rumors and predictions that are irrelevant to your strategy.

If you take this advice, I guarantee that pretty soon sleepless nights will be a thing of the past and you’ll be on your way to more confidently and successfully (that means profitably) managing your investments.

How To Secure Your Income With Smart Investment

For certain U.S. residents who had been expecting to retire from a federal job, and had anticipated the seemingly inevitable need to live on a fixed income, news was good in late 1986. That’s when the government announced plans for the launch of the Federal Employee Retirement System (FERS). The provisions within the FERS were to become effective on January 1, 1987. Those provisions would cover all federal employees hired after December 31, 1983.

Certainly, not every retiree in the U.S. has worked for the federal government. For that reason, retired U.S. citizens, citizens who are on a fixed income, have to prepare for that eventuality by making smart investments. They need to secure a future income that will allow them to live comfortably, free from undue financial concerns.

A U.S. worker who makes a fixed investment can generally hope for a more secure income after he or she retires. Of course, that fixed investment should be a safe investment. Fortunately, the financial institutions in the United States have created a number of ways by which employees can pay into a safe and secure investment.

Self-employed workers can pay into a SEP-IRA. When a small business owner contributes to a SEP-IRA, that contribution is 100% tax deductible. If someone who has invested in SEP-IRA withdrawals money from that account after he or she becomes 59 and one-half years old, then his or her withdrawal is taxed like regular income. If the withdrawal is made before the account owner reaches that “magic” age, then the account holder must pay a 10% IRS penalty, in addition to the regular tax.

Self-employed workers have welcomed the opportunity to pay into a SEP-IRA. They have felt comfortable with the high level of the maximum allowed payment. A small business owner who wants to invest in a SEP-IRA can contribute as much as ,000.00.

When someone makes such a large contribution to a SEP-IRA, then he or she hopes that that investment becomes a high yield investment. Yet not every American worker can pay for a high yield investment. Young single workers seldom have money to spend on a high yielding, long term investment. They tend to invest in low risk, short term securities.

The mutual fund market offers low risk, short term securities. The worker who puts money into a mutual fund market fund has found a safe place to invest his or her limited number of dollars. By the same token, he or she has secured easy access to that same money in the future.

Because the U.S. system encourages competition, there is competition for the dollars of the young investor. The United States has more than one money market fund. An online search for such funds brings up names such as “Scudder” and “American Funds”.

Some naturalized U.S. citizens have a different sort of secured investment. They own land or real estate overseas. They need to weigh the benefits of cashing in on that investment, and bringing the cash into the United States.