2 years later..........;)
Farewell ihub board!!!...I'm saying goodbye to those that may care and those that don't as i leave the ihub community for good. i've enjoyed the debates,conversations, and relationships along the last couple years. If those who wish to stay in contact with me please pm me and ill shoot you my email.
thanks and hope you all get disgustingly wealthy or wealthier
thanks puppman, im not a huge penny stock player, but there are distinct strategies for both the penny stocks and the $5 stocks. i hope others will post there thoughts and opinions how they play this wonderful market game.
Interesting thoughts BK. I think you are on to something :)
my opinion now is that engergy is going to take a bit of a back seat for a few weeks to a few months. I think the tech stocks are ready to take off, and after today large caps are big in play, as they are to most, most of the time.
The small caps are hurting a bit and value stocks are having alot more days where i believe they are beginning to get the best of some of the growth stocks in my opinion.
its been awhile but its not bad to go back and look at some basics especially after a day like today. historically 90% of the time our portfolios performance is driven by its diversification. we can get rich being under-diversified
but we will never stay rich being under-diversified.
Seven Ways to Simplify Your Investment Life
Tuesday January 9, 6:00 am ET
By Christine Benz
Providing readers with straightforward, streamlined investment advice was the impetus behind the launch of The Short Answer column in 2004. It's also the focus of Morningstar's best-selling book, The Morningstar Guide to Mutual Funds: 5-Star Strategies for Success, the second edition of which came out in late 2005.
This week's column, about how to simplify your investment life, is an excerpt from the book.
Bill Miller, manager of Legg Mason Value Trust (NASDAQ:LMVTX - News), is widely regarded as one of the brightest minds on Wall Street. A true contrarian, Miller often makes bold moves, buying stocks that everyone else is seemingly fleeing in droves.
So what on earth do smaller investors like us have to learn from a power broker like Miller? Quite a lot, as it turns out.
No, we're not suggesting you sink a big portion of your portfolio into a single holding or buy stocks when they're in serious trouble--that kind of stuff is usually best left to the pros. Instead, you should emulate Miller on a more basic level. Like most of the best money managers, including Warren Buffett, Miller is heavily invested in a rather short list of holdings. And because he has researched his companies thoroughly and focused on well-managed firms that have what it takes to grow and grow, he holds many of his picks for years.
Most of us would do well to adopt a similarly streamlined approach to running our own portfolios. After all, wouldn't you prefer to have a portfolio devoted to a short list of those investments in which you have the highest degree of confidence, one that you can hold through thick and thin, no matter what the market serves up?
True enough, building such a portfolio is easier said than done. Life is messy, and as our financial lives get more complicated, most of us end up managing multiple accounts--our own 401(k) plans and those of our spouses, IRAs, 529s, and various taxable accounts, for example. But by following a few guidelines, you can set up a minimalist portfolio that you can really count on.
Stick with the Basics
Bill Miller and most other top portfolio managers will tell you that there's a lot of day-to-day "noise" in the market, most of which has little to no bearing on the actual value of their holdings. Individual investors would do well to keep this in mind when building their own portfolios.
True, it's hard to open the business section without seeing an article about the direction of the dollar, oil prices, or China's growth. But should you run out and buy an investment that's specifically designed to focus on one of those trends, such as a sector or regional fund? Probably not. Any such offerings tend to be expensive and exceptionally volatile, and individual investors have a record of buying them high and selling them low.
A better strategy, particularly if you're aiming to build a high-quality, low-maintenance portfolio, is to avoid these niche offerings altogether and instead focus on finding great core mutual funds--broadly diversified offerings with reasonable costs, seasoned management teams, and solid long-term risk/reward profiles. If you've done that, you can pretty much tune out the day-to-day noise and let your manager decide whether the next big thing is worth investing in or not.
Investigate One-Stop Funds
Of course, finding solid core funds is only part of the battle. Establishing and maintaining an asset mix suited to your particular investment objectives is another big task. That's why one-stop funds, particularly target-maturity funds, which "mature," or grow more conservative, as your goal draws near, make sense for so many investors. Because these are funds of funds that provide in a single package exposure to stock offerings (both foreign and U.S.), bond funds, and cash, they're ideally suited to investors looking to build streamlined portfolios.
And for busy people who don't have a lot of time to babysit their investments, target-maturity funds are ideal. Not only do they arrive at a stock/bond/cash mix that's appropriate for your time horizon, but they also gradually make that asset allocation more conservative as the target date draws near. You simply buy a fund that matches your target date--say, your child's anticipated college enrollment date or your planned retirement date--and tune out.
If you'd like to simplify your investment life but aren't ready to cede as much control as you're required to with a target-maturity fund, index funds could be your answer. With an indexing approach, you accept the market's return (or rather, the market's return less any fund expenses) rather than try to beat it.
With index funds, you don't have to worry about manager changes. Or strategy changes. You always know how the fund is investing, no matter who is in charge. Many investors find indexing boring, especially the mutual-fund hobbyists out there. But even fund junkies admit that index funds are the lowest-maintenance investments around. The real work with indexing comes at the beginning of the process, when you're choosing the funds that make up your portfolio.
Take the Best and Leave the Rest
Simplifying your investment life isn't terribly complicated to do if you're managing a single retirement portfolio for yourself. But life is messy, with most investors juggling multiple portfolios and multiple goals at once. In addition to your own 401(k) plan, for example, you might also be overseeing an IRA for yourself and your spouse, a child's college-savings plan, and your household's taxable assets.
If you're like many investors, you're running each of these various accounts as well-diversified portfolios unto themselves. That's not unreasonable. But to help counteract portfolio sprawl, you might consider managing all of your accounts that share the same time horizon as a single portfolio, a unified whole. In so doing, you'll be able cut down on the number of holdings you have to monitor, and you'll also be able to ensure that each of your picks is truly best of breed.
For example, say your spouse's retirement plan lacks worthwhile bond holdings but has a few terrific core equity-fund choices; yours has several solid bond picks. If that's the case, you may want to stash all of your spouse's assets in the stock funds while allocating a large percentage of your own 401(k) plan to bond funds.
The key to making this strategy work is to use tools such as Morningstar.com's Portfolio Manager and Instant X-Ray, which let you look at all of your accounts together, as a single portfolio. That way, you can see if your overall portfolio's asset allocation is in line with your target, and you can also determine whether you're adequately diversified across investment styles and sectors.
Jot Down Why You Own Each Investment
Simplification gurus preach that writing down our goals helps us organize our lives to meet those goals. The same can be said for investing: By writing down why you made an investment in the first place, you're more likely to make sure that the investment meets its original goal. If it isn't doing what you expected by sticking with a specific investment style and producing competitive long-term returns, you'll be ready to cut it loose. Noting why you bought the fund--to get large-cap growth exposure and consistently above-average returns from a manager who has been in charge for several years, for example--will help to instill discipline and eliminate some of the emotion that so often gets in the way of smart investing.
Say you bought Fidelity Contrafund (NASDAQ:FCNTX - News) to cover the costs of your daughter's education in 15 years. You chose the fund because it earned a Morningstar Rating of 5 stars, reflecting a good combination of returns and risk; its expenses were lower than the category average; and the fund didn't risk a lot on the technology stocks that so many other growth funds were feasting on. Those are all good reasons. So you shouldn't even consider selling the fund unless it falls short on these points.
To take the opposite case, maybe you bought DWS International (NASDAQ:SCINX - News) (formerly Scudder International) because you wanted some international exposure and you were attracted by its long-tenured management and consistent performance. But since 1999, the fund's performance has been erratic, and it has also undergone a few management changes. Because the fund is no longer meeting your main reasons for buying it, selling would be a reasonable choice. Other legitimate reasons to sell would be that a fund has hiked its expense ratio or assets have gotten so bloated that performance starts to suffer.
Consolidate Your Investments with a Single Firm or Supermarket
By investing with only one fund supermarket or fund family, you eliminate excess complexity, cutting back on paperwork and filing. And the consolidated statements you'll receive can make tax time much easier, too. Instead of pulling together taxable distributions and gains from different statements, you'll have them all in one place.
If you want to stick with just one fund family, consider one of the big ones, such as Fidelity, Vanguard, or T. Rowe Price. These no-load families are all relatively low-cost, with Vanguard being the cheapskate champion, and each offers a diverse lineup of mutual funds. If you would rather pick and choose among fund families, then a mutual fund supermarket might be your best option. Fund supermarkets bring together funds from a variety of fund groups.
Put Your Investments on Autopilot
You may pay your electric and water bills automatically; why not invest the same way? You won't have to send a check out every month, every quarter, or every year. There's an added benefit to investing relatively small amounts on a regular basis (also called dollar-cost averaging): You may actually invest more than you would if you plunked down a lump sum, and at more opportune times. When you're dollar-cost averaging, you're putting dollars to work no matter what's going on in the market. You have effectively put on blinders against short-term market swings: Whether the market is going up or going down, $100 (or whatever amount you choose to invest) is going into your fund every month no matter what. That's discipline. Would you be able to write a check for $100 if your fund had lost 15% the previous month? Maybe not. But that would mean $100 less working for you when your investments rebounded.
For example, an investor who put in $600 up front in January would have gotten 60 shares at $10 per share. Those shares were worth $12 in June, so her investment was worth $720. If she had dollar-cost averaged her investment, putting in $100 per month, she would have purchased some of her shares on the cheap and wound up with 62.1 shares in June. At $12 per share, she would have had $745.20--$25 more than if she had invested a lump sum at the beginning.
Be careful about using a dollar-cost averaging program if you use a broker or advisor to buy and sell shares, however. If you're paying a front-end load, you'll pay that amount on each and every investment. Perhaps more important, by making smaller purchases you might not be eligible for sales-charge discounts that are frequently available to those who are investing larger sums.
You can buy The Morningstar Guide to Mutual Funds: 5-Star Strategies for Success directly from Morningstar.com. Click here to order your copy today.
Christine Benz does not own shares in any of the securities mentioned above.
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Investing Basics: Know your IRAs
Monday January 8, 6:00 am ET
When you're saving for retirement, the nest egg builds a lot faster if you can put off paying taxes until you retire and are ready to withdraw your money. Uncle Sam gives taxpayers a few ways to do this.
Some accounts, such as a 401(k) or a company-sponsored Individual Retirement Account, give you a double benefit. You can contribute pretax dollars to your account, which probably means you can save more than if you could only contribute after-tax dollars. And, you can deduct your contributions from your gross income, so you're paying less in taxes. When you retire, and perhaps are in a lower tax bracket, the money is taxed as it's withdrawn.
Other accounts, such as a Roth IRA, only allow you to contribute after-tax dollars, but your earnings grow tax free. In other words, you don't have to pay taxes when you take the money out.
In this section we'll look at some of the most popular tax-advantaged retirement plans.
Individual Retirement Accounts
Individual Retirement Accounts give people a way to build tax-deferred savings for retirement. An IRA is an account, not an investment. You can put just about whatever investments you want into your IRA -- stocks, CDs, mutual funds, cash and bonds -- anything except options and other derivatives.
The retirement formula for most employees these days no longer revolves around the promise of Social Security and defined-benefit or corporate-sponsored pension plans. Nowadays you're pretty much on your own as most of corporate America has switched to "defined contribution" retirement plans.
"Defined benefit" means a company's plan guarantees eligible employees a specific payout, whereas "defined contribution" plans specify how much employees can contribute to a plan but don't guarantee a minimum payout. In other words, the burden of funding your retirement has shifted from your employer to you.
Anyone, under age 70 1/2, with earned income -- whether from working for someone else, self-employed, a nonworking spouse or divorced and collecting alimony -- can open and invest in a traditional IRA, probably the most popular IRA.
There are income and contribution limits for traditional IRAs.
If you're not covered by a retirement plan at work, you can deduct your IRA contributions from your gross income for tax purposes. That's a big break because it lowers your Adjusted Gross Income (AGI), which means you pay tax on a lower income. On top of that, your earnings grow tax-deferred until you withdraw them at retirement.
If you are covered by a retirement plan at work, you can still contribute to a traditional IRA, but the contributions are not deductible. The earnings, however, grow tax-deferred.
You may withdraw money -- it's called taking distributions -- beginning at age 59 1/2 as long as the account has been open for at least five years. If you opened the account at age 55, you'll need to wait until age 60 to take distributions. You must begin taking distributions by April 1 following the year in which you turn 70 1/2.
A disadvantage of IRAs is that distributions are taxed as ordinary income even if the underlying investments have been held long-term.
Since IRAs are meant for retirement, if you try to sneak out any funds prior to age 59 1/2, with few exceptions you'll get tagged with ordinary income taxes on the amount plus, in most cases, an IRS penalty of 10 percent.
Generally, money can be withdrawn from a traditional IRA penalty-free before age 59 1/2 to buy a first home, pay for higher education or extraordinary medical costs, or because of disability or death. (More on that in a later section.)
You may take a penalty-free loan from your IRA, but you'll need to replace the money within 60 days or pay taxes and the 10 percent IRS penalty.
There are several prominent differences between the traditional IRA and the Roth IRA. Contributions to a Roth are never tax deductible, but the earnings grow tax free. You may withdraw your contributions at any time without penalty. In addition, there is no requirement that you take minimum distributions at any age.
In general, Roth contribution limits mirror the limits set for traditional IRAs. As long as you have earned income equal to the amount of your contribution and meet the income restrictions, you can open a Roth even if you have a traditional IRA and an employer-sponsored 401(k).
The Roth IRA is a convenient way to give yourself access to tax-free money when you retire. If you're a smart investor and manage your account properly, you could reap an enormous windfall. Just about any brokerage firm, bank, credit union or mutual fund company will help you open a Roth IRA.
There are two ways to get a Roth started -- open a new account and fund it with new money or convert assets from a traditional IRA to a Roth. Converting a traditional IRA to a Roth means you have to first pay any taxes that are owed on the investments that will be converted. A key aspect when considering whether to convert a traditional IRA to a Roth is how you'll pay the tax on the earnings from the traditional IRA. The earnings will be taxed as ordinary income. If you need to use the IRA itself to pay the tax, it may not be a smart idea to convert. You don't have to convert your entire traditional IRA at once. You can do it piecemeal and just convert as much as you can comfortably afford to pay the tax on.
An IRA that is set up with a brokerage is said to be "self-directed." You have the responsibility of deciding how the money will be invested -- stocks, bonds, mutual funds, certificates of deposit, even real estate.
You can open a self-directed IRA with any brokerage. Just visit their Web site and follow the instructions. The account can be funded with new money or, if you leave a company, you can arrange to have the proceeds from your company-sponsored retirement plan rolled over into an IRA. If you opt to do that, be sure the check goes directly from your company to the brokerage. If the check is made out to you, you could be liable for taxes and an early withdrawal IRS penalty. The brokerage will give you specific directions regarding how the check should be made out and where it should be sent.
SEP-IRA(Simplified Employee Pension)
This is a company-sponsored IRA that can be opened by the smallest of businesses, the sole proprietor. Under the SEP-IRA plan, an employer can contribute to his or her own retirement, or to an employee's existing IRA. In the case of an employee, the account is owned and controlled by the employee; the employer simply makes contributions to the financial institution where the account is held.
The penalties for early withdrawal remain the same as with the traditional IRA.
The employer receives the tax deduction for the contributions.
If you are a small business owner, IRS publication 560, Retirement Plans for Small Business, explains the contribution limits for these plans.
SEP-IRAs give employers some flexibility. They don't have to contribute every year.
SIMPLE IRA(Savings Incentive Match Plan for Employees)
This is a company-sponsored plan that's designed for small businesses of 100 or fewer employees who make a minimum of $5,000 each. The plan can be set up at a designated financial institution or at an institution chosen by the employee.
A SIMPLE plan is a savings incentive match plan for employees in which the employer makes matching or non-elective contributions.
great post ezcomngo...
IRA Distributions Directly to Charity
Congress recently passed the Pension Protection Act of 2006 (the PPA), which included some of the most sweeping changes to retirement plans in 30 years. It was primarily designed to help companies strengthen their pension plans, but the PPA enacted several provisions that may benefit you. One allows you to make qualified charitable distributions totaling up to $100,000 per year directly from a traditional or Roth IRA to qualifying charities. This new provision is available for such distributions made from Jan. 1, 2006 through Dec. 31, 2007.
Q. What are the benefits to using a qualified charitable distribution?
A. Qualified charitable distributions don't count against your deduction limits for charitable contributions. This means that the qualified charitable distributions can be made in addition to other charitable contributions. Plus, a qualified charitable distribution is not included in the account holder's income. As a result, it doesn't increase the taxpayer's annual modified adjusted gross income (MAGI). Because the distribution is not included in MAGI, this may benefit you. If MAGI is above certain limits, a person's ability to take certain itemized deductions on their tax return may be limited. Increased MAGI may also affect whether a person's Social Security benefits are taxable.
Q. Does the donor also get to take an allowable deduction for a contribution?
A. No. Since the donor doesn't include the amount in his or her income, the individual doesn't receive a deduction for a qualified charitable distribution.
Q. How does this affect the donor's required minimum distributions (RMD)?
A. A qualified charitable distribution can be used to satisfy the annual RMD from a traditional IRA by treating it as if it had been paid directly to the owner of the account.
Q. Who is eligible?
A. In order to make a qualified charitable distribution, the IRA holder must be age 70 1.2 or older when the distribution is made and it must be made directly from the IRA to the charity.
Q. What accounts are eligible?
A. A "qualified charitable distribution" can be made from a traditional or a Roth IRA, but not from employer-sponsored retirement plans, including SIMPLE and SEP IRAs.
Q. What are qualified charities?
A. Generally, a qualified charity includes most public charities, including religious institutions, certain veterans' organizations, fraternal societies, and community foundations that provide scholarships. The charity also must be one to which deductible contributions may be made. The donor can't receive any benefit from a qualified charitable distribution, for example tickets to an event or fundraiser. You should always check with both your tax advisor and the charity as to whether it qualifies.
The new provisions may give you an opportunity to make a charitable contribution that you might otherwise not have been able to make. If you want to make large charitable contributions, you should consult your tax advisor and estate planner.
OT: Report: Marsh Find Buyer for Putnam
Friday December 29, 11:28 am ET
By Eileen Alt Powell, AP Business Writer
Report: Marsh Picks Canadian Company As Likely Buyer for Mutual Fund Div. Putnam Investments
NEW YORK (AP) -- Marsh & McLennan Companies Inc., the nation's largest insurance broker, has selected a buyer for its Putnam Investments mutual funds and investment management division, according to a report Friday.
New York-based Marsh & McLennan had reached an "agreement in principle" to sell the unit for $3.9 billion to Power Corp. of Canada, a Montreal-based company that controls one of Canada's leading mutual fund firms, IGM Financial Inc., the Wall Street Journal reported.
A spokesman for Marsh & McLennan declined comment on the report, as did Nancy Fisher, a spokeswoman for Putnam Investments, which operates out of Boston.
An official with Investors Group Inc., a division of IGM Financial, also refused to discuss the report, saying "We don't comment on rumors and speculation."
But people familiar with the negotiations said the Journal report was accurate.
Earlier this month, Marsh & McLennan's chief executive, Michael G. Cherkasky, told an investor's conference he expected a decision on the sale of Putnam by the end of 2006, but acknowledged the timetable could slip into 2007.
Marsh & McLennan has been under pressure to spin off at least one of its businesses since 2005, when it agreed to pay $850 million to settle allegations of bid rigging and price fixing in the sale of property and casualty insurance to businesses. Part of the settlement was an agreement by Marsh & McLennan to stop accepting special commissions, which has reduced its operating revenue and hurt profitability.
Donald Light, senior analyst with Celent, a Boston-based financial research and consulting firm, said the report on the Putnam deal suggested that Marsh & McLennan was doing well on the sale.
"The reported price, $3.9 billion is on the high side," Light said in a research note. "So the winner here might be Marsh & McLennan. It can use the extra capital to continue finding ways to restore the profit margins of its Marsh brokerage unit, and to rebuild the margins of its Mercer employee benefits group."
If Putnam is sold, Marsh & McLennan will be left with three major divisions: Marsh risk and insurance services, Kroll risk consulting and technology, and Mercer Human Resource Consulting.
The deal still must be approved by Putnam employees who own shares in the company, Putnam mutual-fund shareholders and the board that oversees the funds, the Journal said.
Other companies reportedly interested in Putnam were Amvescap PLC of the United Kingdom and UniCredito Italiano SpA of Italy.
Putnam had regulatory problems of its own. The company paid more than $190 million to settle federal and state investigations launched in 2003 into mutual fund trading abuses.
Investors upset with the market-timing scandal pulled their assets out of Putnam accounts, reducing the Boston-based mutual fund company's holdings from $251 billion at the end of 2002 to $182 billion at the end of September. After months of declines, the company announced its first positive investment inflows in October, boosting assets under management to $187 billion.
Putnam employs more than 3,000, mostly in the Boston area.
AP Business Writer Mark Jewell in Boston contributed to this report.
ez2 its a pleasure to have you join the board and please post anytime as im trying to slowly build this board up with good information as both your posts where. Lady is all class and i always appreciate her posts, efforts, and compliments.
Are You Really a Long-term Investor?
Many people have been investing for a long time and their goals, such as retirement, are years away. Therefore, they consider themselves to be long-term investors. But are they?
Real long-term investors aren't necessarily those people who have been investing for many years or who have their eyes on distant goals - although those two elements are important. True long-term investors share several common traits. Let's consider some of them:
They own the same investments for many years. Investing is not a risk-free endeavor - and your investments will have their "ups and downs." But long-term investors choose quality investments and stick with them through good times and bad. These investors have the ability to look past all the events - political turmoil, high energy prices, market volatility, corporate scandals, etc. - that send some people to the investment "sidelines."
They don't deviate from their strategy. Long-term investors establish a strategy based on their individual needs, goals, preferences, risk tolerance and time horizon. Then, once this strategy is in place, they follow it steadily through the years. For example, if they determine that their goals for a comfortable retirement require them to build an investment portfolio consisting of 70 percent stocks and 30 percent bonds and "cash" instruments, then they will try to maintain that proportion. This is not to say, however, that they are inflexible. If their needs change somewhat over time, they make adjustments - but they don't abandon their overall strategy.
They invest in companies - not stocks. Successful long-term investors pay little attention to day-to-day (or even month-to-month) shifts in stock price. Instead, they focus on the companies themselves, and they ask the right questions: Is the management solid? Does the company have a sound business plan? Are its products competitive? Does it belong to a healthy industry?
They don't listen to "hot tips." Long-term investors do whatever they can to avoid expensive mistakes - such as chasing after "hot" stock tips. Of course, these tips can come from anyone - from the so-called "expert" on television to the well-meaning brother-in-law. Unfortunately, many of these hot tips turn out to be not so hot. And even if a stock was hot at one time, it might already have cooled off by the time an investor acts on the tip. But more importantly, long-term investors know that not all stocks are appropriate for their individual needs. Consequently, they train themselves to take a pass on today's hot stock tips.
They get the help they need. The investment world can be complex. It's not easy for most investors to analyze investment possibilities, stay current on changing tax laws, calculate their retirement income needs, balance their portfolio or do any of the many other tasks that go into successful investing. That's why long-term investors frequently turn to financial professionals for guidance and recommendations.
So, there you have it - a few of the techniques employed by many successful long-term investors. Why not put them to work for you, too?
Perception vs. Reality — Focus on What Matters
by Alan Skrainka , CFA
Chief Market Strategist
This is the time of year when all of the prognosticators attempt to predict what changes in the financial markets next year will bring. Investors look for guidance from economists, strategists and portfolio managers — hoping they know which asset classes, sectors or stock picks will be the next “big investment” in the coming year.
But before we ponder that question, let’s review the advice we received 12 months ago. Review the chart below and see if any of it sounds familiar.
Learn from the Past
So are you going to ask what the experts think will happen next year? Here’s an alternative approach.
Stop asking questions that have no answers.
No one can tell you where the Dow, oil prices or interest rates will be in 12 months. More importantly, we believe market performance over the next 12 months doesn’t matter if you plan to live at least 10 more years.
Ask questions that are important to achieving your long-term goals.
Some of these questions include:
Is my asset allocation suitable, given my long-term goals and tolerance for risk?
Do I own a balanced mix of investments?
Should I upgrade the quality of my investments?
Can I reduce my investment-related expenses, especially my tax bill?
Do I own enough investments that offer the potential to generate both reliable income and the potential for rising income in retirement?
Oil prices are headed to $100/barrel Oil prices slid back below $60.
A red-hot economy will benefit stocks most sensitive to economic growth versus so-called "defensive stocks." The red-hot economy cooled off.
Inflation worries will make gold, oil and other commodity prices race ahead. Inflation fears subsided.
Interest rates are headed higher. In a January 2006 survey, 97% of economists forecast higher rates
Interest rates fell back.
With worries about oil and the impact of Federal Reserve interest rate hikes, very few experts are enthusiastic about stocks or bonds, preferring "alternative" investments to "hedge" your risk, or real estate, or commodity-based investments. Dow Jones Industrial Average marched to new all-time highs.*
*Past performance is not an indication of future results.
Good Things Come in Threes
We’d like to offer three ideas that we hope will improve your odds of success in the coming year:
Investment Policy Is More Important than Security Selection - Investment policy refers to your asset allocation — the types of investments you own. Investment decisions that emphasize market timing and security selection are less important than your overall policy. Research shows that investment policy, for well-diversified investors, may account for 90% or more of an investor’s total return over long periods of time.1
Investor Behavior Drives Investment Performance - The best asset allocation policy in the world won’t matter much if you don’t stick to your long-term plan. Remember that stock market declines are normal, frequent and not a reason to sell quality investments. Usually, they present an opportunity for investors with long-term goals to purchase additional investments at attractive prices.
Investment Principles Trump Investment Predictions - Your investment decisions should be based on principles, not predictions. The three most important principles are:
Invest for the long term
Own quality investments
Properly diversify your investments2
Focusing on these principles should help you achieve your long-term financial goals.
It's About Principles, Not Predictions
Shifting political winds, geopolitical unrest, Federal Reserve and tax policy as well as the changing fortunes of specific industries can all have a short-term impact on the financial markets. However, efforts to anticipate these events and adjust our investments accordingly typically lead to higher transaction costs and lower returns over the long run.
What often passes for “investment advice” can be confusing, complex and ever-changing in the dynamic world in which we live. However, your Edward Jones investment representative can help you cut through the clutter and focus on what really matters. Contact your investment representative to schedule your appointment today.
1. “Determinants of Portfolio Performance,” Brinson, Hood, Beebower, Financial Analysts Journal July/August 1986
2. Diversification does not guarantee a profit, nor does it protect against loss.
lady1242 led me over here ~~~~~ and, glad I stopped by.
VERY nice board !! Got it bookmarked !!
If an insurance company offers individual health insurance policies, that company must offer a HIPAA policy to anyone who has not gone more than 63 days without coverage, regardless of the individual's health status. The best way to get information would be to contact an insurance broker in your area. However, you could contact Northern Health Insurance Services, Inc. at (800)227-6474 (California) or (800)352-3330 (outside California) for informnation on HIPAA policies.
avg. cost of a nursing home in 2015 will be 150,000, now that will drain assets pretty quick. no insurance products is going to be any cheaper then it is today without taking health into consideration, which is a whole other topic in reguards to life, health, and extended care programs
Its nice to see that alot of companies are starting to add long term care to there benefits but if you don't have it, my opinion it might be one of your single best investments for the longterm you can make. It will never be any cheaper then in is today, but something everyone should look into. people do all types of activities and anything can happen so its not just a "old person's product".
any thoughts board?
End of year tax questions will be coming up. Hopefully some folks will be kind enough to post some links that will help traders with this messy time. I'll see what I can dig up thru next month.
another article on stocks vs funds
CD vs. Fixed Deferred Annuity
If you're debating whether the best place for your money is a certificate of deposit (CD) or deferred fixed annuity, the answer depends upon your individual financial situation and investment objectives.
Both CDs and deferred fixed annuities are savings vehicles used to accumulate wealth. However, these two products are quite different; each has its own unique strengths and uses. For the sake of comparison, let's look at two similar versions of these products — an individually owned, Non–Qualified bank CD and an individually owned, Non–Qualified single premium deferred fixed annuity earning an annually renewable fixed rate of return.
Review the list of objectives and identify those which are most important to you. This will help determine which of these two products is best suited for your needs at this time.
Safety of Principal
Both CDs and deferred fixed annuities are considered low–risk investments. CDs are generally issued by banks and, in most cases, are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $100,000 per depositor. Should the bank fail, the FDIC guarantees CDs up to this amount.
Deferred fixed annuities are issued by insurance companies and are not insured by the U.S. government. They are backed by the financial strength of the issuing insurance company, regardless of the amount. Therefore, before purchasing an annuity, you should make sure the issuing insurance company is financially sound. You can determine financial strength by requesting the findings of independent rating companies such as Moody's, A.M. Best, Standard & Poor's and Fitch. These companies evaluate the financial strength of insurance companies and publish ratings that give their assessments of each company.
When deciding between a CD and a deferred fixed annuity, your investment horizon should be a key factor. Your investment horizon is the amount of time you need to save for a specific goal. For short–term goals, such as a down payment on a home or a new car, a CD may prove to be a better choice. CD maturity periods can be as short as one month or as long as several years.
A deferred fixed annuity is generally the product of choice for the long haul. Deferred fixed annuities are designed to help accumulate money for retirement or to protect funds already saved once you've reached retirement. In later years, a deferred fixed annuity is usually more flexible for accessing your money. They can even be used to provide a legacy for your heirs.
CDs offer a guaranteed rate of return for a specified period of time. Interest rates will vary depending on current market conditions and the length of time to maturity. Generally, the shorter the period of time to maturity, the lower the rate. There is no guaranteed minimum for renewal rates.
With a deferred fixed annuity, a guaranteed interest rate is locked in for an initial period. After that, interest rates may be adjusted periodically, generally each year.
Deferred fixed annuities also offer a guaranteed minimum interest rate, regardless of market conditions.
If taxes are a concern, a deferred fixed annuity may be a better option for several reasons.
Earnings on CDs are taxable in the year the interest is earned, even if you don't take the money out. With deferred fixed annuities, earnings accumulate tax–deferred and are not treated as taxable income until they are withdrawn, which gives you a measure of control over when you pay taxes.
As you can see from the chart below, it makes good investment sense, when saving for the long term, to have the power of tax deferral on your side.
Deferred fixed annuities may also help reduce or eliminate the taxes on your Social Security benefits. By leaving your money in a deferred fixed annuity, you can reduce your taxable income, keeping it below the level where you would begin to owe taxes on your Social Security benefits. With CDs, your interest earnings count in the calculation of how your Social Security benefits will be taxed — even if you don't withdraw the earnings. As much as 85% of your Social Security benefits could end up subject to taxation.
At death, the annuity's account value will be paid directly to your named beneficiary(ies), avoiding the costs and delays associated with probate. This is not the case with a CD, which may be subject to probate. (Please note, however, that both fixed annuities and CDs are subject to estate tax, and the earnings inside a fixed annuity are subject to income tax when paid out. The earnings in a CD have already been taxed when earned.)
If you need access to the funds in a CD prior to the maturity date, you may pay an interest penalty ranging from 30 days' to six months' interest. Of course, you can limit your exposure to surrender penalties by investing in several CDs with staggered maturity dates.
A deferred fixed annuity also provides you with access to your money should the need arise. With a deferred fixed annuity, withdrawals during the first several years are generally subject to surrender charges. Most companies will give you the flexibility, however, to withdraw a portion of your deferred annuity's account value, usually 10% each year, without a company–imposed surrender charge. Once the surrender charge period has expired, you can generally access your money at any time without surrender penalties. Withdrawals may be taxable and, if they are made prior to age 59½, may be subject to a 10% penalty tax.
Distribution Options at Maturity
When a CD reaches its maturity, you can take the CD's lump sum value in cash, renew the CD for the same or different maturity period or examine other investment alternatives (such as a deferred fixed annuity).
In a deferred fixed annuity, you may elect to withdraw your money in a lump sum or you may want to select a lifetime income option, which provides you with a flow of income that you cannot outlive. You could also elect to let your funds continue to accumulate until a need arises.
These are just a few of the factors to consider when making your selection between a CD and a deferred fixed annuity. For more information about annuities, contact your Representative today.
plan's and contribution limits for 2006, if you have any questions just ask..
What are contribution limits?
Types of Plans and Contribution Limits
Roth and Traditional IRA's - $4,000 for 2005 until April 15, 2006 plus $500 catch-up if you are age 50 or over and $4,000 for 2006 plus $1,000 catch-up if you are age 50 or over.
SEP IRA's - 25% of your wages (or up to 20% of your Schedule C income) up to a maximum of $42,000 for 2005 and $44,000 for 2006. Contributions can be made for 2005 if tax return has been extended up until your tax filing deadline.
SIMPLE IRA's - $10,000 salary deferral plus $2,000 catch-up if you are 50 or over for 2005 ($2,500 catch-up for 2006) plus up to 3% of your salary matched by your employer (2.192% if you are self-employed). Salary deferral contributions for the self-employed (in addition to the employer contribution) can be made if tax return has been extended up until your tax filing deadline for 2005. The $10,000 is subject to adjustment after 2005 for cost-of-living increases, but no adjustment was made for 2006.
Profit Sharing/401(k)'s - $14,000 in salary deferral for 2005 ($15,000 in 2006) plus catch-up deferral of $4,000 if you are 50 or over ($5,000 for 2006) plus 25% of your wages (or 20% of your Schedule C income) up to a maximum of $42,000 for 2005 and $44,000 for 2006. Salary deferral contributions for the self-employed (in addition to the employer profit sharing contributions) can be made if the tax return has been extended up until your tax filing deadline for 2005.
Coverdell ESA's - $2,000 per year until the child is age 18
Health Savings Accounts - $2,650 for individual coverage for 2005 ($2,700 for 2006) and $5,250 for family coverage for 2005 ($5,450 for 2006) plus $600 catch-up for 2005 and $700 catch-up for 2006 if you are over age 55
Buying Life Insurance: Term Versus Permanent
If you're wondering whether or not you should buy life insurance, ask yourself this one question: "Would my death leave anyone in a financial bind?" If you answer "yes", it may be time to get serious about shopping for life insurance. Life insurance can offer peace of mind, ensuring that your debts or loved ones will be taken care of in the event of your death. But before you buy it, you need to ask yourself if you'll qualify, and whether you should purchase term or permanent life insurance.
Who Needs and Qualifies for Life Insurance?
The rule of thumb is once you become a parent, any adult in your house earning income should have life-insurance coverage that will last until your youngest child completes college. If you have large financial obligations such as high credit-card debt or a mortgage, you could use life insurance to ensure that debt is covered. Because life-insurance death benefits are exempt from federal taxation, many financial planners often use clients' life-insurance benefits to help pay for the estate taxes generated upon the death of a loved one.
To determine if you qualify, most life-insurance policies require you to undergo a medical exam primarily to check for high cholesterol and blood-sugar levels. Prior to issuing a policy the insurance company will also check things such as your medical history, hobbies, credit rating, alcohol-related issues and driving record, just to name a few. Factors such as age, smoking and prior health issues can also drive up the premiums on a policy.
The two primary methods used to determine the amount of insurance an individual requires are the 'human-life approach' and the 'needs approach'. The first projects an individual's income through his or her remaining working life expectancy, and then the present value of the life is determined by means of a discount rate. With the needs approach, all reoccurring and unusual expenditures are examined to determine the amount of life insurance needed.
Term Life Insurance
Term life insurance is pure insurance protection that pays a predetermined sum if the insured dies during a specified period of time. On the death of the insured, term insurance pays the face value of the policy to the named beneficiary. All premiums paid are used to cover the cost of insurance protection.
The term may be one, five, 10, 20 years or longer. But, unless renewed, the insurance coverage ends when the term of the policy expires. Since this is temporary insurance coverage it is the least expensive to acquire. A healthy 35 year old (non-smoker) can typically obtain a 20-year level-premium policy with a $250,000 face value, for between $20-$30 per month. Here are the main characteristics of term life insurance:
Temporary insurance protection
No cash value
Sometimes convertible to permanent life insurance
Permanent Life Insurance
Permanent life insurance provides lifetime insurance protection (does not expire), but the premiums must be paid on time. Most permanent policies offer a savings or investment component combined with the insurance coverage. This component, in turn, causes premiums to be higher than those of term insurance. The investment may offer a fixed interest rate or may be in the form of money market securities, bonds or mutual funds. This savings portion of the policy allows the policy owner to build a cash value within the policy which can be borrowed or distributed at some time in the future.
Here are the main characteristics of permanent life insurance:
Permanent insurance protection.
More expensive to own.
Builds cash value.
Loans are permitted against the policy.
Favorable tax treatment of policy earnings.
There are three basic types of permanent insurance: whole life, variable life and universal life. The two most common are whole life and universal life. Whole life insurance provides lifetime protection, for which you pay a predetermined premium. Cash values usually have a minimum guaranteed rate of interest and the death benefit is a fixed amount. Whole life insurance is the most expensive life-insurance product available.
Universal life insurance separates the investment and the death benefit portions. The investment choices available usually include some type of equity investments, which may make your cash value accumulate quicker. As the you can usually change your premiums and death benefits to suit your current budget.
Consider buying a "break point" level of insurance coverage - better premium rates are given at coverage levels of $100,000, $250,000, $500,000 and $1,000,000.
Make sure you obtain an illustration for the policy that you have chosen. If the insurer will not provide you with one, look for another insurance company.
Always shop for a level-premium policy. Nobody likes a surprise increase in their premium payments! So, before you buy term or permanent insurance make sure your illustration shows that your premium payment is guaranteed not to increase over the duration of your coverage.
Don't be sold on permanent insurance for the investment or cash-value feature. For the first two to 10 years, your premiums are paying the agent's commission anyways. Most policies don't start to build respectable cash value until their 12th year, so ask yourself if the feature is really worth it.
Determine your desired duration of coverage so that you purchase the correct type of policy and keep your premium payments affordable. If you only need insurance for 10 years, then buy term. Also check out multiple-quality insurance companies for their rates.
Make sure that your insurance carrier has the financial stability to pay your claim in the event of your death. You can research the financial soundness of your insurer at http://www.ambest.com.
Don't be taken with riders. A very few number of policies ever pay under these riders, so avoid things like the accidental death and waiver of premium riders since they will only jack up your premiums.
For 24 hours before your medical exam, keep sugar & caffeine out of your system. It's best to schedule your exam early in the morning, and don't consume anything but water for at least eight hours beforehand.
If your premiums are much too high due to medical reasons or you are denied coverage, check if a group plan is available through your company. These group plans require no medical exam or physical.
When seeking insurance, don't rush into buying expensive permanent life insurance before considering if term life insurance sufficiently meets your needs. Unfortunately, in many cases the fees charged for policies with investment features far outweigh the benefits. When you purchase life insurance, you're betting that you'll live, but also securing peace of mind in case you're wrong. Don't leave your family unprotected in the sudden event of your death - after all, they are your most important assets.
By Steven Merkel, CFP®, ChFC
A New Approach To Long-Term Care Insurance
In 2006, the first wave of baby boomers will be turning 60 and many will decide to retire. According to a MetLife demographic study done in 2003, baby boomers make up 27.5% of the U.S. population, which translates to over 77 million people. With so many people approaching their golden years, the costs of long-term care are expected to skyrocket. But how many of these retirees would be prepared to pay a $250,000 long-term care bill? For many, covering these costs would require a substantial financial outlay. So, it's a good idea to consider some alternatives that exist to manage this risk.
The Growing Cost of Long-Term Care
Under the traditional long-term care (LTC) insurance policies, you pay an annual premium for an insurance policy that will pay for your nursing care should something happen to you down the road. But these premiums can range from $2,500 to $5,000 per year (and the costs are rising), and many people find it tough to shell out for a LTC insurance policy that they may never use. On the other hand, care costs are rising too - they can be more than $70,000 per year - so you need to take a hard look at your finances to see if they could sustain such a devastating blow. After all, you insure your car and your home, so why not your well-being? (To learn more, see Long-Term Care: More Than Just A Nursing Home and The Evolution Of LTC-Insurance Plans.)
Introducing a Solution
Now there's a solution that allows you to buy long-term care coverage and have the comfort of knowing that your premium dollars will not be wasted if the coverage is not used. This new product combines the best features of life insurance and long-term care into one design; it is typically sold as a universal life contract that requires a single premium and that funds an accelerated death benefit rider to pay out long-term care benefits if needed.
A single premium payment into this universal life product combines three features in one product (see link for visual aid)
Once the premium is inside the universal life insurance policy, the account value earns an interest rate (typically at least 4%) on a tax-deferred basis, building up a cash reserve that can be used tax free to cover nursing or home-care costs. Any money that is not spent on nursing care benefits will be distributed to your heirs as an income tax-free death benefit under Internal Revenue Code Section 101(a)(1).
Let's look at a sample illustration of Lincoln National Life's MoneyGuard universal life plan. The investor is a 65-year-old retired male, non-smoker, with $70,000 in assets that could be used to pay for long-term care. The man decides to add the MoneyGuard product to his retirement portfolio and invests the $70,000 as the single premium for the plan. This will provide him with $118,073 in income tax-free death benefits payable to his beneficiary upon his death. He will also receive a $236,146 income tax-free benefit for long-term care (figures for universal life product are based on state of Florida current rates as of December 2005). If the investor decides that MoneyGuard just isn't for him, and he doesn't make any withdrawals, loans or changes to the benefits, the insurance company will guarantee the return of his initial premium. In many cases, a residual death benefit is paid to the beneficiaries even if all long-term care benefits are used by the insured.
Funding the Plan
This type of LTC/life plan typically requires a one-time lump sum deposit amount rather than the traditional monthly or systematic premium payments. Therefore, you're entering into an asset transfer process that will require you to uncover "lazy assets" to invest in the policy. Common assets considered for investment include bank certificates of deposit (CDs), savings accounts and other fixed-income investments. You might also find a variety of previously issued permanent life insurance policies with cash values that you can combine and use as the initial transfer into the LTC/life contract. (For more information, see Buying Life Insurance: Term Versus Permanent.)
As with all life insurance, medical underwriting is required for those applying for a policy. As the insured, you can simplify this process in one of two ways: you can structure the policy as a modified endowment contract (MEC) to reduce the amount of pure risk in the contract; you can also do a joint life underwriting, where typically only one of the spouses has to be reasonably healthy for the policy to pass through underwriting.
By including an LTC/life plan in your retirement portfolio, you gain the opportunity to leverage a lump sum of your retirement savings for multiple benefits, including both generational wealth transfer and long-term care protection on a tax-favored basis. If you decide not to obtain an LTC policy and choose to "self-insure" instead, you'll need to set aside a significant amount of money to cover all the risk. (For further reading, check out Long-Term Care Insurance: Who Needs It? and Taking The Surprise Out Of Long-Term Care.)
This new type of LTC/life policy helps you to avoid the frustration of paying premiums for a long-term care policy that might never be used. It can also work as an effective estate planning tool that allows you to remove the premium from your taxable estate or to have the policy owned by your adult children, thus also allowing the death benefit to be removed from your estate.
To learn more, see Shifting Life Insurance Ownership and Getting Started On Your Estate Plan.
By Steven Merkel, CFP®, ChFC