Technorati Tags: Financial Ideas, Investing strategy, real estate investing, recovering economy, Retirement

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Okay, here it is – it’s the concern, maybe even fear, that you’ll lose what you have, or if that doesn’t happen, that what you invest will be TIED UP FOREVER, or at least until you get to age 59 1/2, which for many people is the same thing as FOREVER.

On the other hand, if you take the time to do the math, it won’t be much of a stretch for you to realize that not saving and investing won’t get you to where you want to be, so it only makes sense for you to do it.   You only need to go back to a previous blog on this page to read about the Rule of 72 and how that will answer this question.

So, if you’re with me still, let’s get back to those two concerns.  First of all, regarding the “lose what you have” problem, “lose” is a relative concept.  If you are a victim of the Rule of 72 (instead of benefiting from it), then you’ve lost by default, even if your account balance never goes down, year after year.  On the other hand, if you lose in the short term via a really bad year like 2008, then it is what it is – the SHORT TERM.

The SHORT TERM is not FOREVER.

Even when stocks (or mutual funds or bonds) have a bad year, they have never historically had a bad 20 years, so if you put your focus on realistic LONG TERM goals, by which I mean 10 years, 20 years, 30 years or more depending on your age.  Don’t worry about what happened in 2008 or what might happen in 2018, because neither you nor I nor anyone else controls that.  Just do it, as they say.  Once you start, it gets easier.

Imagine, for example, that I worked with you, analyzed your specific situation, and told you that you needed to save $400 a month for the next 40 years.  You might say, “holy cow, that’s a lot of money!”, or “holy cow, that’s a long time!”,  but I guarantee you that if you do it, and the monthly number doesn’t need to go up, in five or ten years you’ll be thinking that $400 a month is nothing and you’ll be ahead of the game.  It just works that way.

So, finally, second, what about the NOW IT’S TIED UP problem?  The truth is there’s only a few ways that your money can get tied up: 1) pre-pay your mortgage, 2) put it in your company 401(k), or 3) put it in a Traditional IRA.

All of those choices MIGHT in the right cases be good ones, but, if you want to guarantee that some of your money IS NOT tied up, then consider talking to me about the advantages you might realize by contributing to a Roth IRA, or if you’ve hit the maximum allowable contributions for the year, using a regular taxable brokerage account.

Chief among those advantages is that, in a Roth IRA, you can withdraw your contributions anytime without penalty, even at ages below 59 ½.  I don’t recommend that as a normal strategy, because doing it will cause your growth to be smaller, but you can do it if you need to, and you won’t pay a penalty.

You WILL pay a penalty if you try to withdraw the growth on your contributions to a Roth IRA in less than five years, but you WILL NOT pay a penalty to withdraw just your contributions, which, under 2010 law, are up to $5,000 per year for those under age 50 and up to $6,000 per year for those 50 and over.

It’s a pretty sweet deal if you know to take advantage of it, and here I am spending the time to tell you about it.  If you’re past that stage of saving and want even better tax strategies, then we definitely need to talk, because there’s more you can do.

Want to know more?  Let’s talk, and create a plan that’s right for you and your family.

Make an appointment to speak with me here: http://whattoinvestinnow.com

or email John@financialideasblog.com

Technorati Tags: 401K, Bonds, how to invest, IRA, learning Stocks, long term investing vs short term, retirement investments, rule, rule of 72, Stocks, stocks and bonds

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Lots of people are asking this question lately. I thought it would be a good time to clarify what I said a few weeks ago about not looking at your primary residence as an investment. Some people thought I meant they should just continue to rent their living space instead of buying it. That couldn’t be further from the truth, so let me explain in more detail.

When you buy a house, you are admittedly taking on a huge responsibility, but one which can pay off handsomely down the road. My parents bought a house in 1964 and took out a 30-year fixed mortgage. The monthly cost of that mortgage was pretty tough for them to swallow in 1964, but in 1984, when they were still paying $296.00 per month, it was a pretty sweet deal!

The logical conclusion from that is to buy as much house as possible, but don’t overbuy. Doing that is part of what got us into the huge mess we’re seeing right now, with record foreclosures. Don’t be afraid of that happening, but also don’t forget that “huge responsibility” part. Buy what you can afford – you can always trade up later when the time is right.

Now, what was I saying about that not being an investment? Just remember, even though it is likely to go up in value over time, that money is tied up unless and until you sell the house, but if you do that, you have to buy something else or rent, because you still need a place to live. The other important consideration is that if you live there for five, ten or more years, you will probably have to replace carpet, paint, perhaps some appliances, maybe even the roof! That’s not money being paid TO you, which is what an investment is supposed to do.

Contrast that with a rental house, where, for example, you might pay $1000 per month for the mortgage, taxes and insurance, and rent it out for $1200. That’s $200 per month INTO your pocket, which is what a good investment is all about.

So, bottom line, buy a house if you can, because the alternative is to pay rent, which is exactly the same thing as paying someone else’s mortgage for them. Just don’t buy more than you can afford and put the rest into real investments, both in the stock and bond markets as well as in real estate.

Contact me if you’d like a professional to help you with doing that!

John@financialideasblog.com

1.888.379.4352  Extension 1000

Technorati Tags: Buying a home, Debt consolidation, Home buyer, Invest in a home, Invest young, real estate investing, what to invest in now

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Ideally, nothing! It really should be a part of your entire plan, unless home ownership is not a priority to you.

Should it be a priority?

For many people it is, but like nearly anything on the planet it really comes down to solid understanding of the individual choices you could make, and why you’d make them. This is probably slightly different advice than you’ve heard other places, so I’ll tell you why I say what I say.

More important than anything else is, why are you buying a house?

If your answer is because it will be worth a lot more in future years, know the historical appreciation rate for your market, and the likelihood that people will want to move there in the near future.  The appreciation rate must be higher than inflation for your investment to grow and actually BE worth more in the future.

If your answer is that you and your spouse and three kids need some place to live, then you’re not thinking of it as an investment, which is probably a good thing.  I don’t ever factor in your primary residence in your portfolio, because I don’t expect you’re going to sell to invest. You need a place to live. Rental real estate is a completely different discussion.  I’m a landlord myself, so I’m not saying that real estate investing is a bad thing – far from it.

So, given that, what is the definition of a good investment, a.k.a. an ASSET?  Simply put, an asset puts money INTO your pocket, while a liability takes money OUT.
If you own a home for 10 – 30 years, it’s highly likely you’ll replace the roof, the water heater, the furnace, the carpet, the flooring, and many other things over that period.  That’s not making you money, so it’s not an asset.  In fact, the only way you can get money out is to refinance or sell, so in many cases it’s not a good idea to pay your mortgage down faster than the schedule calls for.  Understand, it’s a case-by-case thing, and you need to have that reviewed.

So, getting back to the first question, buying a house should be a part of your investment plan.
Yet another reason why starting to plan and save and invest early make things a lot easier!

You want a house, and there are many ways to get the down payment saved for if you’re patient.

You want to provide an education for your kids, and of course, someday you want to MAKE WORK OPTIONAL.
By the way, you can’t borrow for that last one, so that should be your number one priority.

The good news is, it’s do-able.
Let’s get started figuring it out today.

Contact me for advice assistance, Email me at: John@financialideasblog.com

1.888.379.4352  Extension 1000

Read more at: http://www.whattoinvestinnow.com

Technorati Tags: Buying a home, Debt consolidation, Home buyer, Invest in a home, Invest young, real estate investing, what to invest in now

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Real estate, along with many other investments such as stocks, bonds and mutual funds, can be found right now at prices lower than in recent years.  Some would say it’s the best opportunity we’ve seen so far in our lifetime.  Couple that with the $8,000 first-time homebuyer credit available if you close on a property and take title before December 1^st, 2009, and you have a potentially winning combination.

So, what is a first-time homebuyer anyway?  It’s not as restrictive as it sounds.  IRS rules say that as long as neither you nor your spouse have owned your own home for at least three years prior to purchasing a new one, then you’re a “first-time home buyer”!  If you’re married, and your spouse has owned a home, neither of you can qualify, but if you have a significant other and you’re not married, then you could.

It’s also possible to get less than $8,000, as the credit is equal to 10% of the purchase price up to $8,000.  That’s not a problem where I live, but if you live in one of the many states where it’s possible to buy houses for less than $80,000, you should be aware of this restriction.

There are income limitations, which you can’t exceed and still qualify as well.  If you’re single, your eligibility for this credit starts to phase out if you make $75,000 or more and goes away completely if you make more than $95,000.  If you’re married the phase out begins at $150,000 and the credit is completely gone at $170,000.  IRS Form 5405 will help you figure out what you can claim.  By the way, those numbers aren’t your gross income; instead they represent Adjusted Gross Income and are found on the last line of the front page of your 1040 form.

Other benefits and restrictions can also apply, so you’ll want to check with your tax preparer.   The biggest thing to keep in mind, however, is that you need a place to live, and the prices are very likely to resume going up in the future, so that consideration along with this potential benefit can be to your advantage.  By the way, this is not a tax deduction; it is a dollar-for-dollar credit against what you might owe.  If you owe $1,000 not counting this credit, you could be eligible to get a $7,000 refund instead!

Last but not least, don’t confuse buying your own personal residence with an investment.  If you have more than just a personal residence and you use that for rental income, then you have an investment. My definition of an investment is anything that puts money into your pocket, and your personal residence will take money out of your pocket until you sell it.  That’s not “conventional wisdom”, but lots of conventional wisdom isn’t wisdom at all.

www.WhatToInvestNow.com

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Do you think you’re better off than your parents?
It’s a question that’s not so easy to answer: Plenty of 20- and 30-somethings say their parents were able to afford a first home, children, and financial security long before they even settle into a stable job. But according to a survey taken earlier this year by the Economic Mobility Project at the Pew Charitable Trusts, almost six in 10 respondents said their standard of living is much or somewhat better than their parents’ was at the age they are now.
Some people may wonder how this can be at a time when  20-somethings are burdened by higher amounts of student loan and credit card debt than ever before, as well as a recession that has left as many as one in five of those under 30 unemployed. Ianna Kachoris, project manager of the Economic Mobility Project, says the answer lies at least partly in Americans’ optimism. “Even during one of the biggest downturns, eight in 10 Americans still believe they can get ahead,” she says.

That optimism is also backed up by facts. The median American’s compensation, which includes wages plus benefits, went up 28 percent between 1975 and 2005, according to research by Terry Fitzgerald, senior economist at the Federal Reserve Bank of Minneapolis. The increase in benefits refers largely to healthcare. The recession, of course, has temporarily made it more difficult for young people (and older ones) to achieve financial success, but Fitzgerald says the longer term trend still suggests increasing compensation levels. “Once the economy recovers from this recession, more people will have more opportunities for the ‘pursuit of happiness’ than at any time in our history. And my bet is the opportunities will be even better for our great-grandchildren,” he says. http://www.whattoinvestinnow.com

Fitzgerald also points out that young people are able to buy much nicer things than their parents were, including central air conditioning, safer and superior cars, cellphones, cable television, computers, and high-definition televisions. “I suspect that if most families had to live in a middle class house from the 1970s—with only 1970s amenities—they, and most definitely their children, would feel considerably worse off,” he says.

[For more, read: "A Financial Roadmap for Generation Y ."]

Please Visit WhatToInvestInNow.com to schedule an appointment.

Technorati Tags: Compound interest calculator, Compound Interest Formula, Financial Ideas, How to Invest Stock, Rule of 72

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