Awesome article: Make Money in 2012
This article talks about where the market is going in 2012. Where you should probably look to invest. And what to look out for. Take a gander!
Showing posts with label investments. Show all posts
Showing posts with label investments. Show all posts
Monday, November 21, 2011
Wednesday, November 16, 2011
Do You Know What Your 401K is Doing?
For those of you who invest, or would like to start, the end of the year is a good time to take a look at your portfolio and figure out whether you want to shift things around in the near future. If you have a 401k or other retirement savings vehicle, this is absolutely something you should be doing at least once a year (if not more). Take a look at the funds you have your money going towards and ask yourself the following questions:
1) How did they do this year? Are they making money or losing money?
2) Are the riskier funds providing a larger return that the less risky options?
3) Am I diversified enough, for my age, income level, and how much I would like to save by retirement?
Most financial analysts would recommend investing a bit more aggressively while you're young, single, and have no kids. This is definitely the approach I take. What dose investing aggressively mean? Essentially, it's putting a larger percentage of your money in more risky investments (i.e. stocks are more risky than bonds).
Most 401k's (I've never seen one that doesn't) invest in mutual funds...which appear to you as these names you have never heard...like, American Funds Mutual Fund. Half the time, I don't know what they are either...so the thing I pay the most attention to is whether the funds I pick are fixed income, large cap, mid-cap, or small cap:
(in order from lowest to highest risk and return)
1) Fixed Income: these funds invest in bonds, which we should know are much less risky than stocks. Because of their very small risk, the return is also very small. If you're young, your retirement portfolio should not include a ton of fixed income funds. As you get older, it should include more.
2) Large-cap: These funds include companies with a market capitalization of about $8 billion or more. These are your very large companies who have been around for a while and have strength in the market. They're growth is pretty steady and therefore their returns are as well. These mutual funds will present less risk than the other two.
3) Mid-cap: This is the most popular choice for a lot of people because it represents the "middle-of-the-road" funds. The market cap for these funds are between $1B and $8B. They include companies that may offer a bit more return that a large cap because they're slightly smaller, a tiny bit newer, and a little more risky. I read in an article, that you can compare a mid-cap fund to a mid-size vehicle. It offers some of the benefits of the compact car (small-cap fund) without being as massive as an SUV (large-cap fund). I like this analogy. hehe.
4) Small-cap: This is where the money is at! lol. This is the most risky of the four options. These are new, baby, start up companies, with market caps below $1B. What does being new mean? The growth of these puppies can sky rocket (which means nice big returns for us), but due to their limited history, the financials are not as strong and therefore they can easily fail. So this is where you have the biggest risk but also the biggest return (or biggest loss).
The percentage of your money that you invest in the different types is totally up to you. I tend to be okay with taking on more risk while I'm living footloose and fancy free, so I put almost nothing in fixed income, very little in large cap, maybe about 30% in mid cap and about half in small cap funds.
I will say that the more risky you go, the more often you should probably check your portfolio. Don't go moving things around every month...funds will have peaks and valleys, but you don't want to have 50% of your investment going to a small cap fund that's losing you a lot more money than you'd like for years on end. Alternatively, when you see a small cap getting you big returns, you might want to shift more money there while it's riding the big return wave.
The key here is that it's important to monitor what your retirement savings are doing (especially in this economy). You don't have to fully understand every little thing about the funds. It just takes a little common sense (and blog reading) to know what looks good and what looks bad.
Found this for the really cool kids: The Best Mutual Funds and Exchange Traded Funds
Happy Investing!
1) How did they do this year? Are they making money or losing money?
2) Are the riskier funds providing a larger return that the less risky options?
3) Am I diversified enough, for my age, income level, and how much I would like to save by retirement?
Most financial analysts would recommend investing a bit more aggressively while you're young, single, and have no kids. This is definitely the approach I take. What dose investing aggressively mean? Essentially, it's putting a larger percentage of your money in more risky investments (i.e. stocks are more risky than bonds).
Most 401k's (I've never seen one that doesn't) invest in mutual funds...which appear to you as these names you have never heard...like, American Funds Mutual Fund. Half the time, I don't know what they are either...so the thing I pay the most attention to is whether the funds I pick are fixed income, large cap, mid-cap, or small cap:
(in order from lowest to highest risk and return)
1) Fixed Income: these funds invest in bonds, which we should know are much less risky than stocks. Because of their very small risk, the return is also very small. If you're young, your retirement portfolio should not include a ton of fixed income funds. As you get older, it should include more.
2) Large-cap: These funds include companies with a market capitalization of about $8 billion or more. These are your very large companies who have been around for a while and have strength in the market. They're growth is pretty steady and therefore their returns are as well. These mutual funds will present less risk than the other two.
3) Mid-cap: This is the most popular choice for a lot of people because it represents the "middle-of-the-road" funds. The market cap for these funds are between $1B and $8B. They include companies that may offer a bit more return that a large cap because they're slightly smaller, a tiny bit newer, and a little more risky. I read in an article, that you can compare a mid-cap fund to a mid-size vehicle. It offers some of the benefits of the compact car (small-cap fund) without being as massive as an SUV (large-cap fund). I like this analogy. hehe.
4) Small-cap: This is where the money is at! lol. This is the most risky of the four options. These are new, baby, start up companies, with market caps below $1B. What does being new mean? The growth of these puppies can sky rocket (which means nice big returns for us), but due to their limited history, the financials are not as strong and therefore they can easily fail. So this is where you have the biggest risk but also the biggest return (or biggest loss).
The percentage of your money that you invest in the different types is totally up to you. I tend to be okay with taking on more risk while I'm living footloose and fancy free, so I put almost nothing in fixed income, very little in large cap, maybe about 30% in mid cap and about half in small cap funds.
I will say that the more risky you go, the more often you should probably check your portfolio. Don't go moving things around every month...funds will have peaks and valleys, but you don't want to have 50% of your investment going to a small cap fund that's losing you a lot more money than you'd like for years on end. Alternatively, when you see a small cap getting you big returns, you might want to shift more money there while it's riding the big return wave.
The key here is that it's important to monitor what your retirement savings are doing (especially in this economy). You don't have to fully understand every little thing about the funds. It just takes a little common sense (and blog reading) to know what looks good and what looks bad.
Found this for the really cool kids: The Best Mutual Funds and Exchange Traded Funds
Happy Investing!
Monday, August 1, 2011
Debt Ceiling Vote: This is getting ugly
As most of you have probably heard, there's this huge debt ceiling deal going on right now in Washington. Specifically, back in January we realized that the debt ceiling needed to be raised because by May 2011 the U.S. would pass the legal borrowing limit of $14.294 trillion (we passed it on May 16). A short term solution was to move some money around to pay our bills. But now...we need a long term solution...legislation to increase the debt ceiling. If this doesn't happen it would would be quite horrible for the U.S. economy and also possibly reduce the U.S.'s S&P credit rating. A reduction in the credit rating would mean that the U.S. would incur higher borrowing rates (because they'd seem like a less reliable borrower; it's pretty much the same thing as if your credit score dropped). The bad part for us is that if the U.S. incurs higher borrowing rates, that will mean higher borrowing rates for me and you. Here's where we will most likely be impacted:
1) Credit Card rates will increase - although most credit card rates are tied to the prime rate which probably won't increase, credit card companies may raise the margin rate tied to the prime rate. So instead of your interest being the prime rate + 10% you may be seeing new rates of the prime rate + 11 or 12%. The good thing I guess is that your credit card providers are required by law to let you know about any interest increases 45 days before the change.
2) Slightly higher mortgage rates - for anyone looking for a home right now, you may want to pay close attention to this. Although the rates may not raise more than 0.2%, no one wants a higher mortgage rate. For current homeowners, your rate wouldn't be impacted until it's reset.
3) Student loans may undergo even higher increases than currently planned - student loan rates are already scheduled to increase from 3.4 % to 6.8% for federal loans. This would become even higher if the debt ceiling legislation is not passed. And for private loans that could mean interest rates out of the WAZOO! We know how they will take you for everything you own.
4) Slightly higher car loan rates - of course as soon as car financiers feel the pinch of the increased loan rates they will pass it on to consumers. This increase is thought to only be about 1% though which does not make a huge dent in a car payment. It is still something to keep in mind if you're in the market for a new car.
5) Money market and savings account returns see NOTHING - unfortunately the current returns on your savings and money market accounts will stay the same. Yes, we'll have to pay more interest but they won't have to pay us anything extra. Just the way the cookie crumbles.
6) Investment portfolios - this is going to be something you'll want to watch closely as it will have all sorts of impacts if this legislation doesn't pass. For one, people will start to sell their stocks and bonds, decreasing stock prices. Corporate earnings will fall as interest rates on corporate debt increases and in turn make investment in companies look less attractive - another hit to the stock market. Lastly we'll also be hit by a loss of confidence in investments and any impact to our current economic environment, especially anything portraying it as more uncertain will negatively impact stocks and bonds.
Now why can't Congress get this done:
As always, Congress can't agree on anything! The House refuses to pass a debt ceiling bill that won't cut enough spending. Obama has vowed to veto any bill that only extends the debt ceiling in the short term. The Republicans are threatening to filibuster. There's all of kinds of disfunctionality going on here. And the worst part is...if this doesn't get solved by tomorrow, August 2nd...the U.S. is officially BROKE. And you can prepare for your grandparents, great aunts and uncles to not receive their social security checks until the U.S. gets some money to pay its bills.
Lord have mercy.
Take a look at the actual budget amendment bill here
1) Credit Card rates will increase - although most credit card rates are tied to the prime rate which probably won't increase, credit card companies may raise the margin rate tied to the prime rate. So instead of your interest being the prime rate + 10% you may be seeing new rates of the prime rate + 11 or 12%. The good thing I guess is that your credit card providers are required by law to let you know about any interest increases 45 days before the change.
2) Slightly higher mortgage rates - for anyone looking for a home right now, you may want to pay close attention to this. Although the rates may not raise more than 0.2%, no one wants a higher mortgage rate. For current homeowners, your rate wouldn't be impacted until it's reset.
3) Student loans may undergo even higher increases than currently planned - student loan rates are already scheduled to increase from 3.4 % to 6.8% for federal loans. This would become even higher if the debt ceiling legislation is not passed. And for private loans that could mean interest rates out of the WAZOO! We know how they will take you for everything you own.
4) Slightly higher car loan rates - of course as soon as car financiers feel the pinch of the increased loan rates they will pass it on to consumers. This increase is thought to only be about 1% though which does not make a huge dent in a car payment. It is still something to keep in mind if you're in the market for a new car.
5) Money market and savings account returns see NOTHING - unfortunately the current returns on your savings and money market accounts will stay the same. Yes, we'll have to pay more interest but they won't have to pay us anything extra. Just the way the cookie crumbles.
6) Investment portfolios - this is going to be something you'll want to watch closely as it will have all sorts of impacts if this legislation doesn't pass. For one, people will start to sell their stocks and bonds, decreasing stock prices. Corporate earnings will fall as interest rates on corporate debt increases and in turn make investment in companies look less attractive - another hit to the stock market. Lastly we'll also be hit by a loss of confidence in investments and any impact to our current economic environment, especially anything portraying it as more uncertain will negatively impact stocks and bonds.
Now why can't Congress get this done:
As always, Congress can't agree on anything! The House refuses to pass a debt ceiling bill that won't cut enough spending. Obama has vowed to veto any bill that only extends the debt ceiling in the short term. The Republicans are threatening to filibuster. There's all of kinds of disfunctionality going on here. And the worst part is...if this doesn't get solved by tomorrow, August 2nd...the U.S. is officially BROKE. And you can prepare for your grandparents, great aunts and uncles to not receive their social security checks until the U.S. gets some money to pay its bills.
Lord have mercy.
Take a look at the actual budget amendment bill here
Monday, January 10, 2011
There's money to be saved (and not spent) EVERYWHERE!
This will be a quick post.
Today, I arrived in Memphis for work but we conveniently had to work from the hotel lobby because of course with less than ANY snow, the entire city shut down. While in the lobby, I saw a quick snippet of the Clark Howard segment on HLN.
As most of you know, the social security payroll tax has been lowered from 6.2% for employees to 4.2% for employees in 2011. What does this mean? Basically, more money in your pocket. Analysts estimate that the average taxpayer can expect about an extra $2,000 to take home during 2011. Howard's suggestion on his segment was that instead of spending this extra money...save it...and guess where he suggested you save it?! Yeppers, a Roth IRA. Tooold ya so! He mentioned that some Roth's allow you to contribute as low as $50 a month.
I realllly love this idea. So after I finish building my emergency savings fund with that extra cash, I'm going to take him up on that suggestion. You should too! Even if you don't want to put it in a Roth...just try to set that money aside in a savings account instead of spending it. You'd be amazed at how you wouldn't even realize you're missing it.
Oh and btw: I'm SUPER excited to see how much my check has increased on the 15th. Super excited to SAVEEEEEE!
Today, I arrived in Memphis for work but we conveniently had to work from the hotel lobby because of course with less than ANY snow, the entire city shut down. While in the lobby, I saw a quick snippet of the Clark Howard segment on HLN.
As most of you know, the social security payroll tax has been lowered from 6.2% for employees to 4.2% for employees in 2011. What does this mean? Basically, more money in your pocket. Analysts estimate that the average taxpayer can expect about an extra $2,000 to take home during 2011. Howard's suggestion on his segment was that instead of spending this extra money...save it...and guess where he suggested you save it?! Yeppers, a Roth IRA. Tooold ya so! He mentioned that some Roth's allow you to contribute as low as $50 a month.
I realllly love this idea. So after I finish building my emergency savings fund with that extra cash, I'm going to take him up on that suggestion. You should too! Even if you don't want to put it in a Roth...just try to set that money aside in a savings account instead of spending it. You'd be amazed at how you wouldn't even realize you're missing it.
Oh and btw: I'm SUPER excited to see how much my check has increased on the 15th. Super excited to SAVEEEEEE!
Sunday, January 9, 2011
Do it while you're young honey.... (Part Deux)
Where did we leave off? Oh...the sucky things about Roth....
Now because the Roth is so accommodating, there are some rules. But the fact that most of these rules are easy to follow for us young folk is one of the reasons you should "do it while you're young honey...."
Oh...point of clarification: Contribution vs Earnings. In the earlier bullets I talked about contributions being able to be withdrawn whenever you darn well feel like it without having to pay taxes on the withdrawal. Earnings are able to be withdrawn for certain things...sometimes tax free and sometimes taxable. Contributions are whatever YOU contribute to the Roth. The hard earned money from your pocket. So for me that $25k I'm going to put in before 30. Earnings are whatever you MAKE off of the money you contribute. The money you get by just watching it grow but that you really didn't earrrrrn. That money will be taxed if you take it out before retirement (and I think there's a 10% penalty on top of that). But whatever earnings you leave until retirement...are YOURS YOURS YOURS tax free AND penalty free. So...do it while you're young honey!
Now because the Roth is so accommodating, there are some rules. But the fact that most of these rules are easy to follow for us young folk is one of the reasons you should "do it while you're young honey...."
- You can only contribute money that counts as earned income. This means if you're in school, you can't use your refund to put into your Roth. However, you can use the money you EARN at your part time job.
- You can only contribute up to $5,000 a year to the Roth. This rule is for 2010 and the government adjusts it for inflation and other things every year, but generally the point is, the gov'ment is not about to let you pour tons and tons of money into this because it has so many great perks.
- Tied to the bullet above, you cannot contribute to a Roth if your income goes above $120,000 (single), or $176,000 (married filing a joint tax return). Now the government starts phasing out how much you can contribute once your income hits $105,000 (single), or $166,000 (married filing a joint return). This means that a single person making $110,000 can contribute something, but their max is below $5,000. But once they make $120,000, they can't contribute ANYTHING. This is another reason to "do it while you're young honey..." For most of us, our incomes won't get to $105k until we're a few years into our careers. I for one have a goal to be making at least 6figs by the time I reach 30. That gives me 5 years to contribute $5,000 a year ($25,000 to just let sit and grow tax free, until retirement...sounds good to me). Speaking of 5 years, I read if I do just that....$5k for 5 years and just let it sit...it would grow to nearly $500k by the time I hit 65. Sounds REAL good to me.
- Lastly...since Roth has so many tax advantages, there is no tax deduction for contributions made like there is for the 401k. However, coming out of college my income was too high for that 401k deduction anyway...so to hell with it.
Oh...point of clarification: Contribution vs Earnings. In the earlier bullets I talked about contributions being able to be withdrawn whenever you darn well feel like it without having to pay taxes on the withdrawal. Earnings are able to be withdrawn for certain things...sometimes tax free and sometimes taxable. Contributions are whatever YOU contribute to the Roth. The hard earned money from your pocket. So for me that $25k I'm going to put in before 30. Earnings are whatever you MAKE off of the money you contribute. The money you get by just watching it grow but that you really didn't earrrrrn. That money will be taxed if you take it out before retirement (and I think there's a 10% penalty on top of that). But whatever earnings you leave until retirement...are YOURS YOURS YOURS tax free AND penalty free. So...do it while you're young honey!
Saturday, January 8, 2011
Do it while you're young honey...
I've been exploring a lot of retirement investment options in addition to my 401k. As most of you know, generation y, you, me, the Millennials...won't be able to count heavily on Social Security benefits. Sucks for us! Some financial analysts predict that we're in for a rude awakening when retirement arrives. Because a lot of us don't take this as seriously as we should, they predict that our generation won't live very comfortable lives as old timers.
I am not claiming that mess, and I don't think you should either. So you can have a kitty litter of kids to take care of you orrrrr you can make some wise choices now to prove those analysts WRONG. I've read over and over again that one of the smartest things for young adults to invest in is a Roth IRA (of course this is after you've set up your emergency savings and are contributing as much as your company matches, to your 401k).
Another 2011 Resolution: by my 25th birthday...I'm going to be finished building my emergency savings and I'm embarking on the Roth. Let us explore....
One of the best things about the Roth IRA is the tax advantage! (oh how I love tax advantages) Because you can only contribute after-tax dollars into the Roth, you are able to withdraw the money tax free. Remember that with your 401k and a traditional IRA, the money goes in before it's taxed and therefore is taxed when you withdraw it out after retirement. Yeah...Unc Sam be bout his money.
There are a few more big advantages of a Roth IRA:
Stay tuned!
I am not claiming that mess, and I don't think you should either. So you can have a kitty litter of kids to take care of you orrrrr you can make some wise choices now to prove those analysts WRONG. I've read over and over again that one of the smartest things for young adults to invest in is a Roth IRA (of course this is after you've set up your emergency savings and are contributing as much as your company matches, to your 401k).
Another 2011 Resolution: by my 25th birthday...I'm going to be finished building my emergency savings and I'm embarking on the Roth. Let us explore....
One of the best things about the Roth IRA is the tax advantage! (oh how I love tax advantages) Because you can only contribute after-tax dollars into the Roth, you are able to withdraw the money tax free. Remember that with your 401k and a traditional IRA, the money goes in before it's taxed and therefore is taxed when you withdraw it out after retirement. Yeah...Unc Sam be bout his money.
There are a few more big advantages of a Roth IRA:
- Roths are much more flexible than your 401k because you can invest in pretty much anything you want...stocks, mutual funds, real estate...you name it, your Roth can put money into it for you.
- You can withdraw any contributions you have made to your Roth whenever you darn well please without incurring any taxes OR penalties. (This is not true for either the 401k or traditional IRA)
- You can use up to $10,000 of your Roth IRA to buy your first home (tax and penalty free). This not only includes your contributions but you can take out earnings also (TAX AND PENALTY FREE!), to go towards your first home. And this rule is for each person...so if you're a couple, each of you can take out $10,000 for the first home.
- You can use money from the Roth towards the education expenses of your children. Although any earnings used are taxed...there is no penalty.
- My absolute fav advantage is that your Roth can be as low or high risk as you'd like. Because you can invest in anything you want...this allows you the flexibility to be risk averse or risk seeking. I love that this gives me the ability to have a little fun and switch it up when I feeeeel like it!
Stay tuned!
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