This is the kind of question that depends completely on you. By that I mean it depends on your goals and your needs. Let me explain a little more about what your options are. If you might need access to that money in the next few years, then you might not want to put it in an IRA or a company 401(k) where there’s a penalty to take it out before you’re age 59 ½. In that case, you’ll pick a regular taxable brokerage account for the money.

Or, maybe you know you’re okay with having it locked away until retirement (because you actually have a budget and you actually follow it), so the money is going into some sort of retirement savings plan, but which? The three most basic choices are a company 401(k) plan, a traditional IRA, and a Roth IRA and the decisions revolve around company matching funds, vesting schedules, investment choices and tax considerations.

In the case of a company 401(k), employees typically can save 15% of their gross income, up to $16,500 (in 2009). That money will be deducted from the gross income used to calculate how much tax you owe, and accordingly, a lower amount of tax will be withheld from your paycheck. You will eventually have to pay taxes on the money, but you can defer them until much later. The following chart shows just how wonderful that is.

In this example, we assume that you got $10,000 at age 20 and put it in a tax-deferred account, then never invested anything else after that. We also assume that you earn 10% on average for the next 50 years, which is do-able, and that you’re in the 25% tax bracket.

The orange line shows what your account would be worth if you paid the taxes due on your earnings from the account every year. The green line shows what would happen instead if you deferred the tax bill to the end, and the sharp drop in the green line is what would happen if you took all that money out at once at age 70 and therefore had to pay all the tax at once, which I wouldn’t recommend.

In addition, companies often match a portion of your contribution as an incentive to work there. It’s common for a company to put 50 cents in your account for every $1.00 you put in, up to a pre-defined (by the company) limit. One company I used to work at matched at that rate up to 6%, meaning that when I put 6%, they’d put in 3%. If I put in 5%, they’d put in 2.5%. But 6% was the limit, so if I put in 6.5% or more, they were still maxed at 3%.

That’s a pretty good deal. If you work at a company which matches, put in at least that amount necessary to get the maximum match. If you don’t, you’re leaving free money on the table, subject to the vesting schedule. In some companies, you are 100% vested from day one. That means that, should you leave the company, you’re entitled to 100% of their matching contributions in addition to your own money. Often, however, companies will choose to have a 4- or 5-year vesting schedule. This means that, after one year of employment, you’re entitled to 1/4^th or 1/5^th of their matching contributions if you leave, and only after 4 or 5 years are you entitled to the full amount of the match. So, if you’re thinking that you won’t be there that long, the match is much less important.

Now, what about the other 9% (in my example)? What to do with that? Now it gets a little more complicated.

You could put that extra money in the 401(k) and get more of a tax benefit, but keep in mind that there are literally thousands of investment choices out there, and you only have access to a dozen or so through your plan at work, not all of which are likely to be good ones. A tax benefit is nice, but if the investment choices underperform, it may not be everything you hoped.

You might instead choose to have a traditional IRA with a brokerage firm, because up to certain income limits, you may still be able to deduct your contributions, and you’re getting a bigger world of investment choices with the help of a professional advisor.

If you’re getting a big tax refund already, you might not need further deductions and could instead choose to put the money in a Roth IRA, which doesn’t give you any tax-deduction NOW, but instead it allows all of the earnings to grow completely tax-free, provided you adhere to a few fairly easy rules.

In the case of either type of IRA, your savings limit for 2009 is $5,000 per person, or $10,000 for a married couple, and it doesn’t matter if both spouses are employed. If you’re 50 years of age or older, you’re entitled to a “catch-up” contribution of an extra $1,000.

If that’s not enough or you just want to save more, there’s another level of options not commonly known which we can implement which might be the right thing for you.

The keys are to do it – the earlier the better. If you have questions or would like me to help, contact me now and let’s get started.

Email: John@financialideasblog.com

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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

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This poses an interesting question because it highlights how many people really have no idea about the different type of investment “vehicles”, as they are often called.

*You know what “equity” is, right?

Especially if you own a home, it’s the difference between what you owe and what you own.  If you have a $300,000 house and you owe $200,000, then you have $100,000 in equity, or ownership.

Stocks are much the same thing, except that what you own is (typically) a VERY small piece of a major company.  In most cases, you’ve already paid for it in full, and therefore you own it outright with no debt.  (It is possible to borrow ownership, but that’s a level 200 course).

This is why stocks are often called equities, and vice versa.  Think of yourself as a part owner, you can attend the annual meetings and vote on issues as requested by the board of directors – using what are known as “proxy statements”.

You will probably have a very limited impact on the direction of the company unless you own 5% or more of the outstanding stock, what most people buy stocks for is to either a) participate in the growth of the stock price or b) get paid cash dividends as a reward for owning the stock.

In an ideal situation, both will happen, at which point you have to be clear on why you own the stock – is it for the growth, in which case you might want to sell it for a profit – or is it for the dividend (read: the cash flow) in which case you might not want to sell it.
A bond, on the other hand, has NOTHING to do with ownership.  A bond is like your mortgage loan or your car or other loan. It is an agreement between you and another party by which the lender gets paid a fixed amount of interest for a fixed period of time.  The cool part is that YOU are the lender.  YOU are the bank!  These are generally not as exciting as stocks, but that can be a good thing! Being the lender instead of the borrower can be a very positive and eye-opening experience!

So, what is a mutual fund then?  Fortunately this is easy.  A mutual fund is a basket of various stocks, or a basket of various bonds, or in some cases, both. Which of those 3 general approaches, and which specific investments are held by the mutual fund are defined by the fund’s prospectus, which states what their objective is, and what they can and cannot do, so that other people can hold them accountable for doing what they say they will.

Mutual funds are often a little more expensive than individual stocks and bonds, simply because you’re dividing your money among many different investments, a form of diversification, rather than having everything in one basket.
Further questions?

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The stock market dropped after last week’s unemployment report for one reason, and one reason only.  That reason is short-term investors.

We’re not talking about the proverbial day traders here, but ordinary people with ordinary fears and concerns who are not able to distance themselves emotionally far enough from their money to do serious investing.  We’re talking about most people.

We’re not just talking about unemployment reports.  We’re talking about any economic “news”, such as housing starts, manufacturing orders, foreclosures, mortgage rates, trade deficits, and a few dozen other factors which can be interpreted to mean different things by different people.  Primarily though, we’re comparing what actually happens with what “experts” forecast.  Even though we’ve seen a marked decrease in the number of new jobless claims, the unemployment numbers last week were a tiny bit higher than what was forecast.

This is not unlike the famous, or infamous, “guidance” which many companies offer as to how much money they will earn per share of their stock.  For example, a company might say they’ll earn $1.00 per share, and various analysts will agree or disagree with that, some higher and some lower.  Short-term investors effectively then make bets on who’s right, and of course, not everyone is. Bottom line, once per quarter these public companies have to formally report what actually happened, and the official results are either “beat”, “in-line” or “missed”.   Beat means they earned more than the consensus of what all the analysts said.  In-line means they met expectations but did not exceed them.  Missed means they made less than forecast.

The economic reports, like the unemployment report, produce a similar reaction to the earnings reports.

If they “beat”, the stock could go way up, unless the experts think that there’s some good news that caused that which everyone already knows, in which case the stock price stays the same, or might even go down a little because the high expectations weren’t met.

If they “miss”, the stock is almost sure to drop, and maybe to drop hard.  The irony of that is that the company might be doing very well, even making a good chunk of change, but not the amount that was “forecast”. For this reason, some companies have recently decided to not play the “guida

nce” game anymore, and I can’t blame them.

So, why don’t you need to worry about all this?

Because, if you’re listening, you’re realizing that the way to success is to be a long-term investor, someone who buys good-quality companies at fair prices, and doesn’t sell them until they’re at the top, or maybe not even then if they don’t need the money.

Bottom line?

Figure out what to pay attention to, and what to ignore.

That’s where I come in, to provide guidance along those lines, help you define your goals and keep you focused on doing the right thing for yourself and the ones you love.  Is that okay with you?

If you would like to discuss investment ideas and opportunities please email me at John@financialideasblog.com.

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What’s doing it right? Oh, that’s easy, we find the next Microsoft, like those lucky people did back in 1985 or so.  The key word there is “lucky”. There’s nothing wrong with getting lucky, but there’s a lot wrong with having that as a plan, and I can assure you the original Microsoft investors had no idea how good it would get.  I can also tell you that some current investors are still in love with that and can’t sell the Microsoft they have when that’s not very likely to happen again.

Doing it right involves getting the emotion out of the game, yet we have a tendency to put our heads in the sand on the topic of getting older.  I know, when you’re in high school, and up until you’re maybe in your late twenties or maybe until when you first get married, you don’t get older. I know this.  It was true for me.  But the clock doesn’t stop, which means we either get on the train now, or watch it leave the station without us.

So where are we going with this?  Be serious about doing the right things for yourself and the ones you love.  That doesn’t mean having a grave expression or being uptight instead of having “fun” gambling on the next hot stock tip, it means getting together with someone who can create a plan for you, be your coach in building that plan, help to hold you accountable when you need it, yet also encourage you to take some chances later when you can, because you’ve been committed to the idea of someday having choices.

Choices!  How cool is that?  Maybe that’s what it’s all about!  Getting rich is nice, but that’s a very relative and personal concept.  The first thing is to do what you have to do so that you can avoid being overly aggressive because you’re much older and still way far behind.  How much better it is to be in a position where you can walk away from that corporate job and open your own flower shop.   Whatever motivates you!
JUST START NOW.

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WASHINGTON (Reuters) – The Federal Reserve on Wednesday upgraded its assessment of the U.S. economy, saying growth had returned after a deep recession, while reiterating its promise to hold interest rates very low for a long time.

The Fed also said it would slow its purchases of mortgage debt to extend that program’s life until the end of March, in a move toward withdrawing the central bank’s extraordinary support for the economy and markets during the contraction.

The U.S. central bank, as widely expected, held its benchmark overnight lending rates at close to zero percent.

“Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn,” the Fed said in a statement after its two-day policy meeting.

“Conditions in financial markets have improved further and activity in the housing sector has increased,” it said.

U.S. government bond yields ended lower on the news that the central bank had reiterated a pledge to keep rates ultra-low for an extended period.

“I think it confirms that the economy still needs a little bit of help and that rates aren’t going to go up anytime soon,” said Alan Lancz at Alan B. Lancz & Associates in Toledo, Ohio.

But a stock market rally fizzled on concerns the Fed was setting the stage for pulling back from its efforts to stimulate the economy. The Dow Jones industrial average ended down 81.77 points or 0.83 percent at 9,748.10.

“There’s still a lot of problems with mortgages, the hou

sing market in general as well as the banking sector,” said Dan Faretta, a market strategist at Lind-Waldock, a brokerage firm, in Chicago.

The Fed said it would gradually slow the pace of its purchases of mortgage-related debt in order to promote a smooth transition in markets as the Fed has been the biggest buyer.

But it made clear it would purchase the full amount of $1.25 trillion in agency mortgage-backed securities. In its August statement the Fed had said it would buy “up to” that amount, but dropped those two words on Wednesday.

At least one member of the Fed’s policy-setting committee had proposed curtailing mortgage-backed securities purchases, saying they provide too much of a boost as recovery takes off.

The Fed doubled the size of its balance sheet to more than $2 trillion as it flooded financial markets with money during the crisis last year.
Some policy-makers worry the bloated balance sheet risks triggering inflation if the Fed waits too long before removing its stimulus measures and raising interest rates.
However, the U.S. central bank on Wednesday played down concerns about price pressures in an economy where the jobless rate is at a 26-year high and factory capacity is greatly underutilized.

Policy-makers said inflation would remain subdued for some time with substantial slack in the economy dampening cost pressures, and with long-term inflation expectations stable.

In August the Fed had noted rises in energy and commodity prices, but dropped that reference this week, suggesting that worries about inflation had diminished.

The Fed has maintained its support for the economy, even after cutting interest rates to near zero, through a campaign to buy $300 billion of longer-dated U.S. government bonds and $1.45 trillion of mortgage-related debt, in order to keep lending rates low.

The Fed opted in August to taper down the U.S. Treasury debt purchases by the end of October, and had been expected to opt for a similar gradual withdrawal for its mortgage debt buying which initially had been scheduled to close at year-end.

The U.S. central bank must walk a delicate path between acknowledging the recovery evident in the economy, and assuring investors that it remains attuned to the risks of a double dip recession as policy stimulus fades next year.

This means exiting in time from aggressive steps aimed at boosting growth to avoid igniting inflation as the economy picks up steam, while not smothering the recovery in the process.

Recent data has pointed to turnarounds in manufacturing, housing markets and consumer sentiment, and many analysts expect strong growth in the third quarter after four quarters of contraction. However, with unemployment at a 26-year high of 9.7 percent, most analysts nevertheless expect consumer spending to remain weak and damp the recovery.

Reporting by: Alister Bull, Mark Felsenthal, David Lawder and Ellis Mnyandu and Ryan Vlastelica in New York; Editing by Simon Denyer
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Youngsters wanting to make blizzards of money got valuable advice from financier Warren Buffett who was visiting his local Dairy Queen for the launch of the new Girl Scouts Thin Mint Blizzard.

Surrounded by a group of Girl Scouts in his hometown of Omaha, Buffett offered this tip for college students: “The biggest suggestion I have is to avoid credit cards. Interest rates are very high on credit cards. Sometimes they are 18 percent. Sometimes they are 20 percent. If I borrowed money at 18 or 20 percent, I’d be broke. . . . So if I had one piece of advice for young people generally it would be to just avoid credit cards,” he said.

And what advice does Buffett have for a new investor? “I would do a lot of reading before I invested,” he replied. “In other words I would prepare for it. I wouldn’t jump in the water until I know how to swim. . . .I read every book the Omaha Public Library had about investing by the time I was 11.”

On qualities Buffett looks for in employees? “The biggest thing I look for is if they have a passion for whatever they are going to do,” he said.

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Take on the Street: What Wall Street and Corporate America Don’t Want You to Know. What you can do to fight back

by Arthur Levitt

The Securities and Exchange Commission’s longest-serving chairman, supervised stock markets during the late 1990s dot-com boom. As working Americans poured billions into stocks and mutual funds, corporate America devised increasingly opaque strategies for hoarding most of the proceeds. Levitt reveals their tactics in plain language, then spells out how to intelligently invest in mutual funds and the stock market. His advice is aimed squarely at small, individual investors, as he explains how to look for clues of malfeasance in annual reports, understand press releases and draw more from reliable sources.

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns

by John C. Bogle

Filled with in-depth insights and practical advice, The Little Book of Common Sense Investing will show you how to incorporate this proven investment strategy into your portfolio. It will also change the very way you think about investing. Successful investing is not easy. (It requires discipline and patience.) But it is simple. For it’s all about common sense.

Speculative Contagion: An Antidote for Speculative Epidemics

by Frank Martin

Speculative Contagion is an insider’s riveting real-time and real-money account of the inflating Bubble, accented with the genuine suspense to be found only in real-life drama. The epidemic of tech-driven lunacy gradually affected more and more feverish investors all too prone to be infected by the insidious absurdity of the times. In the midst of it all, Frank Martin found sanctuary in the treasure trove of history.

Benjamin Graham on Value Investing: Lessons from the Dean of Wall Street

by Janet Lowe

In this book, Janet Lowe presents a brief but interesting biography of value investor Benjamin Graham. The book also provides a nice overview of the history and theories behind  modern value investing.

The Theory of Investment Value
by John Burr Williams

Though the book was first printed in 1938, it is still the most authoritative work on how to value financial assets. As Peter Bernstein has commented: “Williams combined original theoretical concepts with enlightening and entertaining commentary based on his own experiences in the rough-and-tumble world of investment.” Williams’ discovery was to project an estimate that offers intrinsic value and it is called the ‘Dividend Discount Model’ which is still used today by professional investors on the institutional side of markets.

Where Are the Customers’ Yachts? or A Good Hard Look at Wall Street
by Fred Schwed, Jr

Humorous and entertaining, this book exposes the folly and hypocrisy of Wall Street. The title refers to a story about a visitor to New York who admired the yachts of the bankers and brokers. Naively, he asked where all the customers’ yachts were? Of course, none of the customers could afford yachts, even though they dutifully followed the advice of their bankers and brokers. Full of wise contrarian advice and offering a true look at the world of investing, in which brokers get rich while their customers go broke, this book continues to open the eyes of investors to the reality of Wall Street.

The Intelligent Investor: A Book of Practical Counsel
by Benjamin Graham

Since it was first published in 1949, Graham’s investment guide has sold over a million copies and has been praised by such luminaries as Warren E. Buffet as “the best book on investing ever written.” The hallmark of Graham’s philosophy is not profit maximization but loss minimization. In this respect, The Intelligent Investor is a book for true investors, not speculators or day traders. He provides, “in a form suitable for the laymen, guidance in adoption and execution of an investment policy.” Where the speculator follows market trends, the investor uses discipline, research, and his analytical ability to make unpopular but sound investments  in bargains relative to current asset value.

Paths to wealth through common stocks
by Philip Fisher

Paths to Wealth through Common Stocks contains one original concept after another, each designed to greatly improve the results of those who self-manage their investments — while helping those who rely on professional investment advice select the right advisor for their needs. In this book Fisher analyzes how worthwhile profits have been and will continue to be made through common stock ownership, and revealing why his method can increase profits while reducing risk. Many of the ideas found here may depart from conventional investment wisdom, but the impressive results produced by these concepts — which are still relevant in today’s market environment — will quickly remind you why Philip Fisher is considered one of the greatest investment minds of our time.

Bull: A History of the Boom and Bust
by Maggie Mahar

Citing studies by esteemed economists John Kenneth Galbraith and Charles Kindleberger, Mahar reminds readers that self-blinding euphoria is a regular feature of every bull market. In vivid detail, she documents the trends and outsized personalities that fueled this particular bull market, including the surge of leveraged buyouts of 1984-1987, the mania for junk bonds, falling short-term interest rates, the rush of individual investors into 401(k)retirement plans, the power (and appetites) of mutual funds and the media frenzy that lent an unlikely allure to quarterly corporate earnings reports. The book serves as a reminder that investors should employ skepticism towards information coming out of corporate management.

Security Analysis: Principles and Technique
by Ben Graham and Dave Dodd

Benjamin Graham’s revolutionary theories have influenced and inspired investors for nearly 70 years. First published in 1934, his Security Analysis is still considered to be the value investing bible for investors of every ilk. Yet, it is the second edition of that book, published in 1940 and long since out of print, that many experts–including Graham protégé Warren Buffet–consider to be the definitive edition.

Common Stocks and Uncommon Profits
by Philip A. Fisher

Regarded as one of the pioneers of modern investment theory, Philip A. Fisher’s investment principles are studied and used by contemporary finance professionals including Warren Buffett. Fisher was the first to consider a stock’s worth in terms of potential growth instead of just price trends and absolute value. His principles espouse identifying long-term growth stock and their emerging value as opposed to choosing short-term trades for initial profit. First published in 1958, this investment classic is considered a must-read as the foundation for many of today’s popular investment beliefs.

10 Investing Books Recommended By Warren Buffett

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I have been one of those people who have felt the heavy weight of financial burden. I continue to feel the pinch, but I am starting to see signs of hope. Hope that is not only coming from the government and Wall Street, but hope that is coming with increasing confidence that I will get through this hard time.

I have found great confidence through making small changes. I would like to share a few things I have done that have made a big difference in both my quality of life and my budget’s bottom line.

If you are falling behind on your bills:

1) Make a list of all your financial obligations and prioritize those in order of greatest impact to your credit. For example, defaulting on your mortgage is one of the worst things you can do to your credit score. So, mortgage payment should be on the top of your list (along with property taxes and other mortgage related payments).

2) Before you become late on your payments, call your bill collector and explain your situation. THEY WANT TO HELP YOU! The water company does not want you to be without water, the electric company does not want you to be without heat.

3) Take advantage of loan deferment and forbearance opportunities. Lenders do have programs in place to get you through these times. Do not risk being late on your payments because then your interest rates may increase and you are worse-off than before.

4) Call your insurance companies and ask for lower premiums. Many times you are paying for more insurance than you need.

5) Call your service providers and cut back on unnecessary services. I cut my internet bill in half by getting a “slower” connection, but I have not even noticed the difference.

6) Stick to your budget.

Let’s have a conversation if you have some questions or if you would like to learn more.

Visit: http://www.whattoinvestinnow.com

Technorati Tags: Compound Interest Formula, Debt consolidation, Rule of 72, What to Invest In

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