Investing - 2/3 - Stumble Forward

Quiz: What Are Good Investments And What Are Not

December 6, 2010 By Christopher 1 Comment

Can you spot a good investment if it were right in front of you? A lot of people would claim to know they could pick out good investments from the bad so in this article I’m going to give you 3 scenarios to see if you can do just that.

Scenario 1: The Retirement Representative

A financial representative shows up at your door and claims that he has the best funds to help you invest for your retirement. He claims you’ll have better returns while working with him if you switch your assets from your current fund company to his. Should you do it or not?

First off, having a financial representative that shows up at your door giving you financial advice is not the way I would prefer to get this kind of advice. Instead I prefer to contact the representative on my own terms this way I’m prepared for what I’m about to do.

Secondly, if a financial rep shows up at your door and is smooth talking you to move your investments because he claims he can get better returns don’t do it. The reason is because it could cost you big. For example, I once had a client who had set up a retirement account and a year later when I went to do an annual review and the client had been visited by another representative who talked him into moving his money to another account.

The reason this is not a good idea is because they will make another sales charge off of the client. In fact this client incurred two sales charges in a year with one account and it end up costing him over %10 of his retirement money.

Scenario 2: The Friend

A friend comes up to you at work and explains to you that their i an apartment complex for sale and that you’d make a lot of money by investing in them. Should you do it or not?

The first thing I always do when I get the investment speech by a friend or coworker is consider this persons background on the subject. If the person owns 10 different apartment complexes this investment might sound like a pretty good opportunity, but if this is the type of person who hasn’t even invested their own money into something as safe as a certificate of deposit at the bank stay away.

Just because the person talks big and may even seem like they know what their talking about always consider the obvious, do they have the experience. In fact I once had a few friends who invested in an older house because they wanted to fix it up and sell it for a profit. The problem came when they realized none of them knew anything about how to do this and in the end just broke even, luckily.

Scenario 3: The Business Opportunity

A friend of yours calls you and tells you about a new business opportunity that he just got involved with. He says the business practically runs itself. However he says you will have to invest a few hundred dollars to get started. Should you do it or not?

First off when a friend calls me and ask me to take a look at a business opportunity I usually keep an open mind however when I get together with this person their is one question I want to know.

What do they sell? If their selling financial products or Tupperware it is usually a legit deal. However if they come to you telling you that you have to invest $500 into their program for hiring you and they’ll make $200 it’s more than likely a scam. To prove my point I once went to Purchase Plus event which is a pyramid scam. At this event they claimed if I would invest so much money with them I’d get so much in return. The problem with this scenario is that they can’t explain where they get the money from. In fact I even asked them this very question and all I got was a runaround answer.

In the end if you’ve been hit up with these types of scenarios and your not sure what to do, don’t do it. Doing something you know nothing about or haven’t at least researched could cost you big. In the end don’t take the word of just a friend or especially someone that just shows up at your door. Take the time to do your due diligence and you’ll end up making much wiser investments as a result.

2 Essential Keys To Building The Best Forex Trading Strategy

November 12, 2010 By Christopher 4 Comments

There are essentially 3 parts of trading: money management, trading psychology and strategy development. When you boil trading down to its essential elements, these are the three components that make up the trading experience. If a trader truly wants to develop the best forex system, then he needs to develop a holistic approach to the forex market that includes each of these essential elements. A trader must have a detailed money management plan that specifically outlines position sizing and risk management, and he must be very tedious and thorough in his trading psychology. In this brief article, we are going to discuss the third essential element: how to develop the best forex trading strategy.

Self-Awareness

Surprisingly enough, one of the most essential elements to developing a powerful trading strategy has nothing to do with having the best forex trading software or inside secrets of the trading pros. In fact, the first step to developing a winning strategy has very little to do with charts, indicators, or anything related to technical or fundamental analysis. Instead, the first step to developing an effective trading strategy is discovering who you are as a trader. Self-awareness is essential to long-term trading success. Trading coaches have proved repeatedly that if a trader tries to trade a strategy that is not in-line with his personal trading psychology, the trader will make very little money, if any, and the most likely scenario is that the trader will lose money.

It is essential that a trader first understand who he is as a trader in order to develop an effective trading strategy. That realization will most likely take months to discover. In the meantime, the best thing to do is to experiment with several types of trading styles such as scalping, intraday momentum trading, intraday momentum-fading strategies, swing trading, position trading, etc. Once a trader experiments with several types of strategies, he will slowly begin to discover what is right for him, and this is one of the greatest realizations a trader can make in his journey. This realization of this secret is infinitely more valuable than even the best forex trading platform.

Keep It Simple

The best trading strategies are often remarkably simple. Remember the basics. Never buy at resistance and sell at support. That is one of the most common mistakes that new traders make on a consistent basis. In fact, a very simple, but powerful trading system is composed of only a few steps.

Step 1 – Conduct technical analysis in order to determine the direction of the trend on the H1 Chart. You can use your choice of indicator or simple price action analysis.
Step 2 – Whenever price begins to retrace against the trend, simply look for key areas that will offer support in an uptrend and resistance in a downtrend. Common technical tools to identify these areas can be fibs, horizontal support/resistance, trend lines, MACD, RSI, Stochastics, etc.
Step 3 – As price comes into a level, fade the market momentum in direction of the overall trend.

A strategy this simple sounds too simple, but the reality is that if a trader were to apply himself to developing a strategy around the core ideas just shared in steps 1-3, he would be developing at trading system around ideas that are time-tested. Of course, historical results can never guarantee future results.

These two keys are essential to developing the best forex trading system. A trader must find out who he is in terms of trading psychology, and then he must develop a strategy that is simple and based on common sense. And always remember, there is no such thing as a consistently successful or guaranteed strategy, trading always involves risk.

Filed Under: Investing Tagged With: best forex system, best forex trading, best forex trading platform, best forex trading software, best forex trading system

How To Find The Best Roth IRA: Lessons I Learned In Investing

October 20, 2010 By Christopher 3 Comments

If you’ve been reading my site for any length of time you will know how much I like the Roth IRA as a way to save for your retirement. I’ve covered many topics on the subject from Roth IRA qualifications, Roth IRA Withdrawals, to just your general Roth IRA advice.

However in this article I’m going to show you how to find the best Roth IRA investment and what you should be looking for to maximize your potential. To do this I will be covering several lessons that I learned along the way as well.

Lesson 1: Where To Invest

When it comes to finding the best Roth IRA account you need to be aware of where you’re investing your money at. This could be the difference between big earning to losing out big.

For example, one place you should not invest your money is with stock brokers. The reason for this is because they don’t have a fiduciary responsibility to making sure the investment matches your goals and retirement needs.

In fact a recent movie star J.R. from the show Dallas found out that his stock broker was churning his account by constantly buying and selling stocks within in his account to generate more commissions. Luckily in the end J.R. got his money back for a settlement of $11 million dollars. However not everyone can be this lucky because most people may not even realize they are doing it to you.

Other things you will want to stay away from are annuities since they carry so many different fees and gold IRA’s since Gold has traditionally been very volatile and risky. So now you may be wondering where you should invest your money in for a Roth IRA, the truth is mutual funds have been the best answer however just because you have a mutual fund doesn’t mean your safe yet, read on.

Lesson 2: Share Class

The next thing you need to look into once you’ve picked a mutual fund to look at the share class. The three most commonly used share classes used are A shares, B shares, and C shares.

Now you might be wondering what a share class is? A share class determines how the fees are paid on a mutual fund. For example with an A share your fees are paid up front when you set up the account. With B shares your fee’s are deferred over a period of time and payed out slowly. Finally, their are C shares, these are shares that charge at a lower sales charge but will usually charge higher annual fees.

The share class I recommend you get is an A share since it will pay your fee up front but that it will also allow you to take a break point if possible read on to learn more.

Lesson 3:Break Points

Break points will allow you to pay less of an overall sales charge in return for investing a certain amount of capital. The typical break point starts out at around $50,000 and get lower every $50,000 you go. A typical break point chart might look like this below.

$0 to $49,999 6% Sales Charge
$50,000 to $99,999 5.5% Sales Charge
$100,000 to $149,999 5% Sales Charge

However if you are close to a break point you can sign what is known as a letter of intent. For example, let’s say your at $45,000 and your first break point is at $50,000 you could sign a letter of intent that would give you one year to invest the extra $5000 you need to hit the break point but you can start receive the lower sales charge now. However if you don’t meet the obligation of the letter of intent you will have to pay the full sales charge.

Lesson 4: The Fee’s

In the last couple of sections I’ve been covering share classes and break points and in this section I’m going to cover the typical fee’s you should see in a mutual fund.

The first fee you will see is a sales charge. Most companies will charge this fee and some won’t. For example companies like Vanguard and Fidelity won’t with other companies like Transamerica and American Funds will.

The typical sales charge will run around 4.5% to 6% starting out unless you qualify for a break point. However if you want to avoid these fees all together like I do, look into Vanguard.

The second fee will be an annual expense fee. This fee is charged to the account holder for maintaining and running the fund. Rates can also very widely as well for example I’ve seen some companies charge as high as 1.19% while other companies like Vanguard charge as low as 0.20%.

Finally, another fee that some mutual fund companies charge are known as 12b-1 fees. This is a fee that some brokerages may collect to pay for miscellaneous stuff like brochures and advertising. However I suggest you stay away from companies that do this as it could save you a ton of money.

In the end you will want to know what your fees are before you consider the best Roth IRA company. To find out these fees you can look one of three different places. The first is to ask your financial professional, second ask for a copy of the funds prospectus, or third look it up on the internet.

What Is the Best Roth IRA

To conclude this article you should know that their is no perfect Roth IRA, it’s not a one size fits all kind of product. However if you are looking for a place to get started the two best Roth IRA companies to get started with are Vanguard, and Fidelity since they meet all the requirements I’ve covered above. Good luck and happy investing.

Chris

Filed Under: Investing Tagged With: best roth ira, best roth ira account, best roth ira company, best roth ira investment, the best roth ira, what is the best roth ira

Spousal IRA: Misunderstandings You Should Know About

September 29, 2010 By Christopher 4 Comments

Recently I was talking to a close family member who was thinking about setting up an IRA account however he had a lot of questions as to how to do this. On top of that he also had a lot of questions about setting up what is known as a spousal IRA for his wife. In the end I was happy to give the advice but realized that their was a few major misunderstanding he had about spousal IRA’s.

First off their is no such thing as a spousal IRA account. Instead this is a special provision given inside of an IRA or Roth IRA account that gives a nonworking spouse the option to contribute to one.

The reason this rule was made was because the government has become aware that not all families have two working spouses and this provision allows a nonworking spouse to still contribute and have the same opportunity.

However in order to take advantage of this provision the couple must file jointly on their tax returns and they are still bound to the same contribution limits of $5,000 a year and $6000 if you are 50 and older. The income limits also apply as well. A couple filing jointly can contribute as long as they don’t earn more than $177,000 but a phase out process will start in at $167,000.

Another misconception about spousal individual retirement accounts is the belief that if you file jointly as a couple that both spouse will be able to combine their contributions into one IRA account. This just isn’t so, IRA’s are individual accounts only and that will never change.

However both spouses can still contribute $5000 a year, totaling $10,000 into separate IRA accounts and still take advantage of the tax benefits the IRA still has to offer.

Now this does have some people concerned over the fact of what will happen to the other spouses money once one passes away. The answer is that it will be given to your beneficiary however it may have to go through probate court and may be taxed depending on what the estate taxes are for that year. To learn more contact a local attorney.

Finally, as far as the spousal Roth IRA provisions is concerned it does not make a difference. The normal rules and provisions all still apply however instead of saving pretax dollars you are saving money that has already been taxed and both you and your spouse can both contribute the same amount.

To learn more about the spouse IRA option contact your local investment professinal and they will be able to set up a plan for you and your spouse that will meet your retirement needs.

Filed Under: Investing Tagged With: spousal individual retirement account, spousal ira, spousal ira account, spousal roth ira, spouse IRA

Roth IRA Withdrawal: Why You Should NEVER Pull Your Money Out

September 8, 2010 By Christopher 8 Comments

Are you considering a Roth IRA withdrawal from you account? You may have many different reasons for doing this. In fact within the Roth IRA it even gives you clear guidelines when you can take a Roth IRA withdraw.

The current Roth IRA withdrawal rules are currently as follows.

Buying or building your first home. You can take as much as $10,000 out without facing a penalty.
If you become disabled and can no longer hold a job.
In the event of your death money will be disburse to your primary and secondary beneficiaries.
If you owe back taxes to the federal or state government.
After age 59 and a half the 10% tax penalty will no longer apply and you will be able to take Roth IRA withdrawals as you please. However you must take a withdrawal before age 70 and a half or you could face as high as a 50% tax penalty.
If you need money for your child’s college education.

When You Should Not Withdrawal

Of all the Roth IRA rules for withdrawal their are times when you should not pull money out of your account. In fact in the rest of this article I am going to cover why pulling your money out period could be a bad idea.

To help you understand why you should not pull your money out of your Roth account I am going to give you a simple example to help you understand why.

Let’s say you have $10,000 in your Roth account and you are currently 2o years old. You plan on retiring at age 65 and in that time your account will average a return of 12% a year. At age 45 you would have earned $1,640,000 the compound interest of your money!

That’s a good chunk of money saved back for retirement but at age 20 most people are not thinking about retirement but rather college, parties, and buying things we somehow justify we need. The problem is we look at are retirement account and believe that $10,000 isn’t that much money and it won’t do much for the sake of our retirement.

Now consider the opposite. If you would have spent the $10,000 on a new car that would have been like paying over a million dollars for that car because you gave your entire retirement nest egg to buy something you really didn’t need.

In the end the Roth IRA withdrawal rules will allow you to bypass a lot of the tax issues but you also need to consider what could happen to your account and what this could do to your retirement if you did pull the money out.

Filed Under: Investing Tagged With: roth ira rules for withdrawal, roth ira withdraw, roth ira withdrawal, roth ira withdrawal rules, roth ira withdrawals

Roth IRA Qualifications: The Rules To Qualify Plus What To If You Don’t

September 1, 2010 By Christopher 14 Comments

A few years back I was planning out my retirement scanning through various ways to save for my retirement and one option I came across that interested me was the Roth IRA. The reason I was so impressed with it was because it allowed me to stick after tax dollars into the account without having to pay taxes on the earning I made when I retired. This it literally the only retirement account of its kind to do this.

In this article I’m going to show you what it takes to qualify for a Roth IRA and if you don’t I will also give you some suggestions as to other places you can turn to.

Do I Qualify For A Roth IRA

First off their in no age limit to apply for this type account. You can be 16 or you can be 60 it does not matter. However in order to open the account you are required to be earning some sort of income from a job or some sort of asset such as real estate.

Second, their are contribution limits as to how much you can put into a Roth account. For anyone under the age of 50 you can only contribute up to $5000 as of 2010. However if you are over the age of 50 you will be allowed to contribute an extra $1000 on top of the already $5000 contributed.

Third, contributions can be withdrawn up to 5 years after funding an account. However any earning that you make cannot be withdrawn until the age of 59 and a half. You will also only be able to withdraw the money before retirement for a specific reason also such as facing a hardship or buying your first home.

Fourth, spouses can also contribute income as well. However in order to do this the couple has to be filing jointly on their tax returns and they must also be earning an income as well.

Fifth, contributing to other retirement plans such as your companies 401k program or 403b program will not effect the amount of money you will be able to contribute to your Roth IRA account.

The sixth and final Roth IRA qualification is that you cannot exceed certain income limits. First off if you are filing a single tax return you will be able to earn up to as much as $120,000 adjusted gross income before they will not allow to contribute anymore. If you are filing jointly you can earn as much as $177,000 adjusted gross income.

What To Do If You Don’t Qualify

So there you have it, the qualifications for Roth IRA accounts. However you might be wonder what you should do if you can’t meet those guidelines. So here are a few ideas.

Look into work related retirement accounts. If you can’t qualify for a Roth IRA you may be able get on your companies 401k or 403b plan. However these accounts will have different tax rules. They will also allow you to contribute as much as $16,500 a year under the age of 50 and if you are over 50 you can put in as much as $22,000.

The next option is a non qualified annuity. The benefit with this type of retirement investment is that they can still give you the tax deferred earning like your 401k plan but their no contribution limits. However one downside to annuities is that they can be very pricey and expensive when compared to similar investments.

Solo 401k or Simple IRA Plans. Finally, if those two options don’t work the final option you may be able to consider is if you own a business. If you are a sole proprietor with no employees you may be able to consider the solo 401k which is similar to the regular 401k however it is meant for the one person business owner. Another option is the simple IRA. This is an employee based retirement plan that allows you to contribute as much as $11,500 under the age of 50 and as much as $14,000 over the age of 50.

What Works For You

Obviously, the Roth IRA qualifications have more strings attached but they also have some big benefits that I explained earlier. If you would like to learn more about how the Roth or any of the other accounts my be able to help you out saving for retirement, contact you financial professional and they should be able to help you out.

Filed Under: Investing Tagged With: do i qualify for a roth ira, qualifications for roth ira, qualify for a roth ira, roth ira qualification, roth ira qualifications

Roth IRA Advice: Why You Should Choose Roth IRA’s As Your Retirement Account

August 23, 2010 By Christopher 5 Comments

If you’re a beginner to the investing world you may have heard the terms IRA or Roth IRA or 401k tossed around. However what you may not know is which of these types of accounts would be the best for you to save for your retirement.

In this article I’m going to cover why the Roth IRA has a distinct advantage over almost all the other retirement accounts out there and give you the best Roth IRA advice to help you have successful retirement?

What Is A Roth IRA

First off, before I can give the benefits you need to know what a Roth IRA is first. To keep it simple think of an IRA or Roth IRA as the shell of your investment account.

Most people believe an IRA is a type of investment like a mutual fund, it is not. Instead it is a shell that houses your investments which could be anything from stocks, mutual funds, bonds, to exchange traded funds.

This shell, the IRA, gives special tax privileges for saving money for your retirement. For example a Roth IRA gives a special after tax privilege that means when you retire you will not have to pay taxes on any of the money in your retirement account because you paid them before hand.

On the other hand an IRA is the exact opposite. With an IRA you will have to pay taxes on every dollar you spend when you enter the distribution phase of your retirement.

However the Roth IRA still some of the same taxes laws as the IRA like the 10% tax penalty when you pull funds from your account before age 59 and a half. On top of that they both have the save contribution limits as well. As of 2010 you will only be able to put $5000 in your account per year but if you are 50 and older you put $6000 in per year.

Finally, with the IRA and the Roth IRA you can only get the tax benefits offered through these two programs if make less than $120,000 if you fill single or $176,000 if file your taxes jointly.

So if so many things are similar between IRA’s and Roth IRA’s why would you want to choose the Roth account over the traditional IRA?

Why The Roth Is Better

Of all the similarities between the Roth IRA and the IRA you might be wonder why would the Roth be better. Of all the best advice on Roth IRA accounts the advantage of paying your taxes later is the best advantage.

The reason for this is because in your retirement years your tax burden will actually increase. Here are a few reason why this will happen.

First off, when you retire your home will be paid off and you will no longer be getting a tax break from the interest you have been paying on your home.

Second, when your kids grow up and move away you will no longer be able to claim the $1000 tax deduction.

Third and finally, when you are retired you will no longer be contributing to your companies 401k plan or personal IRA. With these types of accounts your money is all tax deductible.

These three tax burdens you will pay more taxes as a result of when you retire leaving your golden years a little less golden. In order to avoid paying the higher taxes in your retirement years you should look into also contributing into a Roth IRA as well to avoid paying these higher taxes.

In the end consider these Roth IRA tips along side other retirement accounts and know that this could mean the difference between you having an OK retirement to having a great retirement.

Filed Under: Investing Tagged With: advice on roth ira, best advice on roth ira, best roth ira advice, roth ira advice, roth ira tips

The Dangers Of Forex Day Trading

August 19, 2010 By Christopher 3 Comments

If your looking for places to invest your money you may have heard of forex day trading as one alternative to earning a great income from your money. However, you may not know what kind of dangers lurk ahead with this kind of investing strategy.

Forex stands for foreign currency exchange. This is the process of selling one currency and buying another at the same time. You may have seen all kinds of online websites proclaiming this is the best way to earn an online income. However their are some serious risk involved with investing your money like this.

First off, the currency market is very volatile. Currency prices will change on a constant basis. This also means that buying foreign currencies can also be very speculative. This means you are making a guess as to which currency is going to go up in value and which is not.

For example, if you were to sell the American dollar for a lot of Euros under the idea that the Euro was going to go up in value you may be right or you may be wrong. The trick is to know when the value of a currencies going to go up and when it is going to go down. However, this is practically impossible to know when it is going to do this and that is why it is labeled as a speculative investment.

On top of that you also have to consider that this market is very technical and requires a bit of knowledge on forex day trading before you even get started. You will need to know how to run a currency quote and understand the difference between base currency and quote currency.

This may also require you to be ready at a moments notice when a deal may strike. Day trading the forex market can change in a moments notice and if you’re not watching the numbers you may lose the deal.

On top of that some brokers will charge fees to day trade forex currency. Their are two ways forex brokers will charge fees. Some brokers will charge per trade and other will charge a percentage based on the earning of the spread.

For example if you would have traded the US dollar at $1000 for the Euro and when you traded back to the US dollar you gained a $100 to earn a total of $1100, you would then have to pay a commission on the $100 you earned. This could take a huge bite out of your earning or even worse may only break even or lose money in the process.

Finally, you also need to consider the taxes. The typical taxes you will pay are similar to that of commodities, which is usually charged long or short term capital gains depending on the length of your holdings. However you will have to consult your accountant to know what this may really cost you.

If after reading this article you are still having thoughts about day trading forex currencies I recommend this. First learn what you can by read books and websites. Going into things unprepared will cost you money. Second, look into trying a forex simulator first. This is program that runs mock simulations of how the forex process works. To learn more go to the forex.com.

Chris

Filed Under: Investing Tagged With: day trade forex, day trading forex, day trading forex currency, day trading the forex, forex day trading

What Are Tax Free Municipal Bonds And How Can They Benefit You

August 11, 2010 By Christopher 3 Comments

Today it seems as if the government has a tax for just about everything. In fact it can seem as though it’s next to impossible to invest money without being taxed in some way or another. In this article I going to show you a way to avoid those taxes, they are called tax free municipal bonds.

What Are Tax Free Municipal Bonds

Municipal tax free bonds are IOU’s issued by the states and local areas like cities and counties. They issue these bonds to help raise money for things like road improvements, schools, and hospitals.

The reason they are tax free is because it was deemed in the sixth amendment by the federal government that it would burden the states to raise money for the projects they would need money for. Therefore federal taxes would be exempt and if you lived in the state you bought the municipal bonds tax free you would also be exempt in that state as well from paying taxes.

Their are two types of municipal bonds, the first is general obligation bonds. These bonds are paid back on taxes that are paid by the tax payers. These bonds are for road, school, and hospital projects that need to be done in states.

For example, if a hospital wanted to add a new wing on to it existing hospital they could issue a bond to fund the project and once it’s done it would pay back the bond holders though taxes collected by the state.

Then their are revenue municipal bonds which are issue by local governments like your local utility company. However unlike general obligation municipal bonds revenue municipal bonds are not paid back by the tax payers but the revenue earned by the company itself.

For example if local power company need to make improvements in your town they would issue a revenue municipal bond to cover the cost and the bond holder would by paid back by the revenue earned by the power company.

Benefits Of Municipal Bonds

So now that we have a basic understanding of how tax free municipal bond funds work let cover some of the benefits as to why having these types of investments could benefit you.

Federal and State Tax Benefits. First off, as I mentioned earlier you get the exempt benefit of not paying any federal taxes and no state taxes if you buy the bond within the state you live in. However, if you are someone who pays taxes in a very high tax bracket you will find the most benefit from this.
It’s A Safe Investment. Municipal bonds are also known as very safe investment since it’s backed by the state. This does not mean you couldn’t loss money with this kind of investment but the chances are less likely.
Easy to Liquidate. Finally, with municipal bonds they are very easy to liquidate since they can be bought and sold at any point and time.

Where To Get Started

Are tax free municipal bonds right for you? To know for sure their is a simple formula that you can run to find out if a municipal bond is better or a taxable bond like a corporate bond will pay out better.

This formula will tell you what kind of return you will need to earn on a taxable bond in order to out do the tax free benefit the municipal bond offers. The formula is the tax exempt yield divided by 1 minus your tax bracket. (tax exempt yield / 1 – tax bracket)

For example if you had a 15% tax bracket and earned a 6% yield on your investment it would look something like this .06 / (1-.15=.85). The answer is 7.06% which means if you could find corporate bond that would earn more than that you would be better off with that than a municipal bond.

Finally, I should also mention that their two ways to purchase a municipal bond. The first is buy it straight out from a broker dealer who may require you to invest as much as $25,000 and then the other option is buy them through a mutual fund which will only cost you around $1000 to start in most cases.

If you would like to learn more contact your financial professional and ask them more about how municipal tax free bonds can benefit you.

Filed Under: Investing Tagged With: municipal bonds tax free, municipal tax free bonds, tax free municipal bond, tax free municipal bond funds, tax free municipal bonds

Good Investments: A Beginners Guide To Picking The Right Retirement Investments

August 4, 2010 By Christopher 15 Comments

Today I’m going to show you how to pick a good investment. In this article I’m going to show you how easy it is to set up your own retirement investments by taking a simple quiz that will outline the amount of risk you can handle. On top of that I’m going to show you where to get the best investment with the lowest fees often times refereed to as a No Fee IRA. To learn more you can check out a No Fee IRA here.

This quiz was developed by a company called Morning Star which helps people determine risk tolerance and what suitable good investment options are for you. This quiz is given to almost anybody that has set up a retirement account and is the same quiz given to clients of Charles Schwab.

Below in the 6 question quiz it will ask you some very specific and key questions that will help you determine the amount of risk you are willing to take. Before I start this quiz I want to make one thing clear, be as honest as possible otherwise you will defeat the purpose of this quiz. Are you ready? Let get started.

The Quiz

I plan to begin withdrawing money from my investments in:

Less than 3 year 1
3 to 5 years 3
6 to 10 years 7
11 years or more 10

Once I begin withdrawing funds from my investments, I plan to spend all of the funds in:

Less than 2 years 0
2–5 years 1
6–10 years 4
11 years or more 8

Once you have the first two questions answered total the point up for each. For example in question 1 I chose answer number 4 which gives me 10 points and answer number 4 for the second question which gives me 8 points for a total of 18 points. On to the next question. I would describe my knowledge of investments as:

None 0
Limited 2
Good 4
Extensive 6

When I invest my money, I am:

Most concerned about my investment losing value 0
Equally concerned about my investment losing or gaining value 4
Most concerned about my investment gaining value 8

Consider this scenario: Imagine that in the past three months, the overall stock market lost 25% of its value. An individual stock investment you own also lost 25% of its value. What would you do?

Sell all of my shares 0
Sell some of my shares 2
Do nothing 5
Buy more shares 8

Review the chart below. We’ve outlined the most likely best- and worst-case annual returns of five hypothetical investment plans. Which range of possible outcomes is most hypothetical investment plans. Which range of possible outcomes is most acceptable to you?
The figures are hypothetical and do not represent the performance of any particular investment.

Risk Tolerance Versus Time Horizon

Now that you’ve answered the last three questions let’s see how we did. Start by adding the points up of the last for questions. For me on question 3 I pick answer 4, on question 4 I picked answer 2, and question 5 I picked I picked answer4 and question 6 I pick plan C. This totaled up to 24 points for me altogether. Now lets see what my risk tolerance versus time horizon is. If you look at the chart below you will see that time horizon is on the left side and that risk tolerance is horizontal across the top. I had 18 points for my time horizon and 24 points for my risk tolerance. By looking at the chart above I fit into the moderate to moderately aggressive category, what did you get?

What Are Good Investments For You

Now that we know what your risk tolerance is we need to pick the investment that best suits you. What’s nice about this is that any mutual fund company that offer the Morning Star Asset Allocation models will already have all of the funds broken down into 4 or 5 different groups to help make the selection process a lot easier. Looking at the picture below I was instructed that the moderate allocation fund would be best for me.

This fund allocation is made of around 30 or more holdings and has around 35% invested in large cap equities, 10% in small cap equities, 15% in international equities, 35% in fixed income holdings, and 5% in cash investments. Now look and see what you got?

A Final Thought…

As you can see this is a much easier way to pick funds for your retirement. Now you have a targeted set of funds that fit your specific risk tolerance and time horizon. On top of that your retirement investment isn’t jammed into one or two funds but instead it was spread over 30 different funds that will cut the risk down.

On top of that you should also make sure you check out the fees as well. Investment fees are different with every company this is why I suggest you invest your money in a No Fee IRA. To learn more check out this No Fee IRA with Lending Club.

In the end good investments are what you make them out to be, feel free to share you answers or if you have a question feel free to ask below.

Filed Under: Investing Tagged With: good financial investments, good investment, good investment options, good investments, what are good investments

Retirement Investments: Where You Should Not Invest For Your Golden Years

August 2, 2010 By Christopher 4 Comments

In a recent article I talked about how to improve your mutual fund performance by showing the basics on mutual fund investing . In this article though I’m going to walk you through what you should not specifically invest all of your retirement money in and why this could be bad for you.

Fixed Funds

First up, fixed investments should never be the primary place of your retirement funds. This would include certificate of deposits, money market accounts, bonds, or even online savings accounts.

The reason you should never invest 100% of your retirement investment into something like this is because most of these will never earn high enough returns to ever support your retirement. In fact the average certificate of deposit is only earning on average of 1.50% around this country according to Bank Rate.com.

With returns like that you won’t ever be able to retire. For example if you look at the chart below in the year 1925 what you buy for a dollar in that time would cost you $12 today. That’s over an average of 8% growth over the years.

Specialized And Speculative Funds

The next thing you should never invest for retirement 100% is specialized and speculative funds. These are funds that invest in things like real estate, commodities, or speculative funds such as high risk small cap funds.

These types of funds are all very volatile could cause you to loose a lot of money if done improperly. In fact while working in financial services we would occasionally come across people who would be doing this with their 401ks. What would happen is when they would sign up for their companies retirement program they would be ask to pick a few funds and end up picking the funds with the best returns.

The reality is just because on fund did well one year doesn’t mean it will the next. In fact past performance doesn’t ever guarantee future results. If you can live by those words you will never make this retirement investing mistake.

International Funds

Finally, the last place you should never consider investing for retirement is international funds. You might be wondering why you should not invest money in these types of funds? The reason is because these types of funds are usually investing in emerging markets like China, and India.

These markets can be highly volatile and with out knowing much about them could be a huge risk by investing 100% of your assets in. Instead, for more safe investments stick with domestic funds within the United States.

In Closing…

To close this article I should mention that having your retirement investments all rapped up into anyone of these types of funds could be damaging to your retirement portfolio. Instead I recommend that you invest small portions into each of these.

The reason I suggest this is because giving up a small amount to seek higher returns is always fine but moving all of your money into any one of these can have some bad results. To get a better picture of how this could work for you contact your local retirement specialist today.