It is one of the most wonderful times of your life, expecting a new addition to your family. But along with the joy comes the responsibility of providing for all of his or her needs. As the saying goes, "Parents are people who carry pictures in their wallets -- where their money used to be." The cost of welcoming a new arrival can be about $32,000 for the first two years alone. Knowing in advance what expenses a new child adds can make your family's finances easier to manage.
A new baby makes creating a budget (or adjusting your existing one) a top priority, as conservative estimates have the cost of raising a child at $9,500 to $10,700 per year to age 17. Many families will spend more than $230,000 over 18 years. As you consider your growing family's fiscal needs, take a look at key areas to address before and after your new child comes home.
If you and your spouse plan to keep working after your child arrives (and you both have company-provided benefit plans), one of your first steps is to choose the benefits you need from each plan, at the lowest out-of-pocket cost possible. For instance, if you plan to switch health plans for better and/or less-costly maternity benefits, consider whether the plan you favor offers the pediatric coverage and providers you prefer for infant care. A managed-care plan, such as a health maintenance organization, can reduce out-of-pocket expenses over a traditional plan, which often requires you to pay at least 20% of care costs. The savings can be substantial for pediatric care, as managed care offers cost incentives for the preventive care children often need, such as well-baby check-ups, inoculations, and treatment of flu and ear infections. For medical expenses not covered by your health insurance, find out if your firm offers a medical reimbursement account. Your pretax contributions can pay for items such as orthodontic care, insurance deductibles, and eyeglasses. With this type of plan, you'll have to determine at the beginning of the year how much to contribute and you will lose any money you don't spend.
Your money-saving skills take center stage when you or your spouse (or both of you) take time off to care for your new child. Some companies provide little or no paid maternity leave -- but you still need to pay bills. And if and when you go back to work daycare can be costly...averaging over $9000 a year. Plan ahead by putting as much as possible per paycheck into a conservative account that is easily accessed (important if baby arrives early). Even if you can only save $100 monthly beginning in the second month of pregnancy, finding a savings vehicle with a 4% monthly rate of return would give you over $800 seven months later. That could pay for a year's worth of diapers or baby food/formula!
Your child's arrival should also prompt you to protect against potential loss of income by obtaining or increasing insurance coverage. Your greatest chance of losing family income is if you or your spouse is disabled -- making disability insurance a must. With this coverage, try to replace about 60% of your income. The most inexpensive way is to purchase coverage through your company's group policy, if possible. If this isn't an option, consider purchasing an individual disability insurance policy. Life insurance should be your next consideration. You should have coverage equal to 5 to 10 times your family's annual income. If life insurance isn't available through your or your spouse's benefit plan, an affordable alternative is term insurance. These policies are generally written for a specific time and pay benefits if the policyholder dies. (For example, a term policy with $100,000 coverage may cost about $200 in yearly premiums.)
Another important thing to consider is drawing up a will designating a guardian for your child should you and your spouse die together. If you or your spouse dies without a will (intestate), a judge decides who will be appointed your child's guardian. As a result, it could be someone you hadn't wanted as a guardian. Finally, your will should provide for guardianship that applies to both your current and future child or children. Your will can also be a vehicle for creating a trust to hold your child's inheritance. The trust allows you to specify what you want the money to be used for (such as college education costs) and at what age you want the principal distributed to your child. That way, you can delay distributing money to your child until he or she is old enough to handle it responsibly.
Best of luck to all of you new parents and parents-to-be. Hope this is helpful.
Tuesday, June 12, 2007
Monday, June 11, 2007
Make Your Child a Millionaire
Just wanted to pass along some valuable information in which I thought you may be interested. If your child is employed, they can contribute up to $4000 a year to a Roth IRA. The contributions are not tax deductible, but at their tax bracket it won't really matter. Just to put it in perspective, consider the following...
If they would put in $4000 a year between the ages of 16 and 21 and not another dime after that, and the Roth IRA earns 10% per year, the child would have well over $2 million dollars at age 65. $4000 may be alot to contribute at that early age, but even half of that and they would have over a million dollars. The Roth may earn less than 10% some years, but may earn even more in other years. The point is to try and have them save as much as possible to maximize their savings at retirement. And the best part about saving this money in a Roth, is that the money will be 100% tax free at retirement!
A great place to go for some financial calculators is
http://www.firstcommand.com/whereGo/calculatorlist.htm. Just search calculators on the home page.
Happy Investing.
If they would put in $4000 a year between the ages of 16 and 21 and not another dime after that, and the Roth IRA earns 10% per year, the child would have well over $2 million dollars at age 65. $4000 may be alot to contribute at that early age, but even half of that and they would have over a million dollars. The Roth may earn less than 10% some years, but may earn even more in other years. The point is to try and have them save as much as possible to maximize their savings at retirement. And the best part about saving this money in a Roth, is that the money will be 100% tax free at retirement!
A great place to go for some financial calculators is
http://www.firstcommand.com/whereGo/calculatorlist.htm. Just search calculators on the home page.
Happy Investing.
Monday, April 9, 2007
Home Buying and Mortgage Questions
I have had several inquiries regarding my article "Buying Your First Home" (3/30/07). There is so much information about home purchasing that it can be overwhelming. I just wanted to pass along a few websites that have some great information regarding home buying and mortgages, www.homeloans.va.gov, www.ginniemae.gov and www.fanniemae.com
If you have any specific questions, just let me know and I'll try to help.
If you have any specific questions, just let me know and I'll try to help.
Monday, April 2, 2007
Why Gold Should Surge
I have been a fan of gold and gold stocks for at least 6 years now. There have been many ups and downs and a lot of scary volatility. Trading for the short term is not an easy thing with gold, but looking at the larger long term picture I see nothing but upside. Of course there will be corrections in between, but if you can ride them out... this gold bull may just be in it's infancy. I ran across this article this weekend on the Dow Jones Newswire and thought it may be of some interest. Enjoy.
Seven Reasons Why Gold Should Surge 4-1-07 9:04 PM EDT
JUPITER, Fla. (M&M) -- I believe gold about to surge to $700 ... then $800 and potentially higher. Here are seven reasons why ...
1. China can't get enough gold
According to the China Gold Association, China's gold production hit 19.9 metric tonnes in January, up 25.7% from a year earlier. At this rate, China should produce 260 tonnes this year. And it's STILL not enough to meet Chinese demand - it falls about 100 tonnes short. And the gap may be even BIGGER! This is "The Year of the Golden Pig," in the Asian calendar, and many Chinese buy gold to celebrate. China's 2006 gold consumption grew by an amazing 17%, and the Shanghai Gold Exchange reports that gold trading volume 72.83% in January.
2. Two India gold ETFs are launching
The first gold ETF in India is Benchmark Mutual Fund's Gold BeES. It launched on February 15. The second gold ETF in India is rolling out now, launched by UTI Mutual Fund. The new ETF is called, naturally enough, UTI Gold Exchange Traded Fund. According to Rajesh Bhojani, President of Marketing for UTI Mutual Fund, about 30% of the gold market in India is investors. I wonder what the new gold ETF will do to that percentage?
3. Existing gold ETFs are pumping up demand
We already know what gold ETFs have done here in the U.S. When the StreetTRACKS Gold Shares gold ETF (GLD) started in November of 2004, it held about 100 tonnes of gold and gold traded at around $450 per ounce. Now, there are 476 tonnes and gold is trading around $650 per ounce. That's not a coincidence. The Gold Shares gold ETF and other gold ETFs around the world make it easier than ever for people to invest in gold. Why? Because there are several advantages of investing in GOLD ETFs:
* No hassles of safety
* No resale concerns
* Quality Assurance
* No making charges
* More tax efficient in absence of wealth tax and long-term capital gains tax
Despite the recent sell-off in markets of all types, the amount of gold held by the GLD barely budged (down 2.2% from its peak). I expect U.S. investors to start adding again, and that will drive prices even higher.
4. Investment demand is booming
Reuters reports that worldwide investment demand for gold should remain at historically high levels this year, with investors continuing to buy large volumes of gold in bullion, coin and jewelry. CPM's 2007 Gold Yearbook report predicted investors would likely add another 39.7 million ounces to their gold holdings in 2007, after investing 43.5 million ounces in 2006. I believe this estimate of demand is too conservative. See reasons 1 through 3 for why.
5. Central bank gold stockpiles have swooned to a 60-year low
The International Monetary Fund (IMF) reports that the amount of gold held by central banks and other government organizations declined for the eighth straight year in 2006. Bullion holdings were 867.6 million ounces last year, down 1.2% from 2005, the lowest since 1948, according to the World Gold Council.
The Russian Central Bank was the only one to make purchases last year, up 3.8% to 12.91 million ounces, according to the IMF. Speaking of China, it is still holding 19.29 million ounces in December -- unchanged since 2001. But here's some interesting news: China is setting up a managed fund to handle its more-than $1 trillion in currency reserves. This will be Asia's biggest government controlled fund. China has to do something -- 70% of its currency reserves are in the U.S. dollar and the greenback could get creamed as China's currency, the renminbi (or yuan) appreciates. China is already losing money on the deal, writing off $3.4 billion in exchange-rate losses in 2006.
In short, China needs to invest in something other than dollars. A smart move would be to buy more gold for its central bank reserves. Even a small move in this direction would send gold soaring.
What's more, central bank gold sales fell to 11.4 million ounces in 2006, down from 20.6 million ounces in 2005. If this trend continues, that will also boost the price.
6. Miners can't find new deposits fast enough
Analysis by Metals Economics Group shows exploration budgets increased to almost $7.13 billion in 2006 -- the fourth consecutive annual increase since the bottom of the exploration cycle in 2002 and the highest total since MEG began these reports in 1989. MEG analyzed budgets for 1,624 companies (using a $100, 000 cutoff), which MEG estimates covers about 95% of worldwide commercially oriented nonferrous expenditures. Adding in the other 5% of companies gives total expenditures for commercial nonferrous metals exploration of $7.5 billion. That blows past the previous high of $5.2 billion in 1997 to set a new pinnacle of global nonferrous exploration. So where is all this gold? Well, it takes time to bring new gold mines online ... and the big 'n' cheap-to-mine deposits have already been found. Meanwhile, production at existing but long-worked mines is grinding down. As a matter of fact ...
* South Africa's gold output fell nearly 8% in 2006 from 2005. It is now at its lowest level since 1922!
* U.S. gold output for last year declined slightly from 262 tonnes to 260 tonnes.
* Australian production fell 4.5% to 251 tonnes.
* Peruvian gold production fell to 203 tonnes from 207 tonnes.
* Russian gold output dropped to 152 tonnes from 156 tonnes
* Canada's gold production fell a whopping 11% to 104 tonnes.
Bottom line: Big gold producers are finding it tough to replace their reserves. That's why we saw huge mergers last year. Yamana merged with RNC Gold ... Glamis Gold bought Western Silver ... Goldcorp merged with Glamis ... Barrick bought Placer Dome. Heck, just look at mine supply. Despite the price of gold rising for years, supply from mines is actually going DOWN. Since mine supply doesn't cover demand, where does the rest come from? From scrap, central bank gold sales and stockpiles, all of which are being depleted. And that is a recipe for much higher prices.
7. Gold charts show opportunity
Take a look at a weekly chart of gold. You can see that gold is channeling higher. The rate of ascent is INCREASING. It is at the BOTTOM of the channel now. It appears that gold is presenting the best buying opportunity since January. The next big move will likely be over $700 per ounce. And if we have a breakout, all bets are off. Those are seven good reasons why I think gold will head higher. I could give you a lot more.
How to play the surge:
I prefer junior gold miners, but they can have wild ups and downs. There other ways to play this surge that are less cardiac-inducing. You can always buy the Street Tracks Gold (GLD) , which simply tracks the price of gold. For more leverage, consider a fund like U.S. Global Investors World Precious Minerals Fund (UNWPX) . Its holdings include Goldcorp (GG) , Northern Orion Resources( NTO) , Bolivar Gold and more. It has a total expense ratio of just 1.43%, which is lower than the industry average. And it returned 28% over the past year, beating the pants off its competition.
Dow Jones Newswires
04-01-072104ET
Copyright (c) 2007 Dow Jones & Company, Inc
Seven Reasons Why Gold Should Surge 4-1-07 9:04 PM EDT
JUPITER, Fla. (M&M) -- I believe gold about to surge to $700 ... then $800 and potentially higher. Here are seven reasons why ...
1. China can't get enough gold
According to the China Gold Association, China's gold production hit 19.9 metric tonnes in January, up 25.7% from a year earlier. At this rate, China should produce 260 tonnes this year. And it's STILL not enough to meet Chinese demand - it falls about 100 tonnes short. And the gap may be even BIGGER! This is "The Year of the Golden Pig," in the Asian calendar, and many Chinese buy gold to celebrate. China's 2006 gold consumption grew by an amazing 17%, and the Shanghai Gold Exchange reports that gold trading volume 72.83% in January.
2. Two India gold ETFs are launching
The first gold ETF in India is Benchmark Mutual Fund's Gold BeES. It launched on February 15. The second gold ETF in India is rolling out now, launched by UTI Mutual Fund. The new ETF is called, naturally enough, UTI Gold Exchange Traded Fund. According to Rajesh Bhojani, President of Marketing for UTI Mutual Fund, about 30% of the gold market in India is investors. I wonder what the new gold ETF will do to that percentage?
3. Existing gold ETFs are pumping up demand
We already know what gold ETFs have done here in the U.S. When the StreetTRACKS Gold Shares gold ETF (GLD) started in November of 2004, it held about 100 tonnes of gold and gold traded at around $450 per ounce. Now, there are 476 tonnes and gold is trading around $650 per ounce. That's not a coincidence. The Gold Shares gold ETF and other gold ETFs around the world make it easier than ever for people to invest in gold. Why? Because there are several advantages of investing in GOLD ETFs:
* No hassles of safety
* No resale concerns
* Quality Assurance
* No making charges
* More tax efficient in absence of wealth tax and long-term capital gains tax
Despite the recent sell-off in markets of all types, the amount of gold held by the GLD barely budged (down 2.2% from its peak). I expect U.S. investors to start adding again, and that will drive prices even higher.
4. Investment demand is booming
Reuters reports that worldwide investment demand for gold should remain at historically high levels this year, with investors continuing to buy large volumes of gold in bullion, coin and jewelry. CPM's 2007 Gold Yearbook report predicted investors would likely add another 39.7 million ounces to their gold holdings in 2007, after investing 43.5 million ounces in 2006. I believe this estimate of demand is too conservative. See reasons 1 through 3 for why.
5. Central bank gold stockpiles have swooned to a 60-year low
The International Monetary Fund (IMF) reports that the amount of gold held by central banks and other government organizations declined for the eighth straight year in 2006. Bullion holdings were 867.6 million ounces last year, down 1.2% from 2005, the lowest since 1948, according to the World Gold Council.
The Russian Central Bank was the only one to make purchases last year, up 3.8% to 12.91 million ounces, according to the IMF. Speaking of China, it is still holding 19.29 million ounces in December -- unchanged since 2001. But here's some interesting news: China is setting up a managed fund to handle its more-than $1 trillion in currency reserves. This will be Asia's biggest government controlled fund. China has to do something -- 70% of its currency reserves are in the U.S. dollar and the greenback could get creamed as China's currency, the renminbi (or yuan) appreciates. China is already losing money on the deal, writing off $3.4 billion in exchange-rate losses in 2006.
In short, China needs to invest in something other than dollars. A smart move would be to buy more gold for its central bank reserves. Even a small move in this direction would send gold soaring.
What's more, central bank gold sales fell to 11.4 million ounces in 2006, down from 20.6 million ounces in 2005. If this trend continues, that will also boost the price.
6. Miners can't find new deposits fast enough
Analysis by Metals Economics Group shows exploration budgets increased to almost $7.13 billion in 2006 -- the fourth consecutive annual increase since the bottom of the exploration cycle in 2002 and the highest total since MEG began these reports in 1989. MEG analyzed budgets for 1,624 companies (using a $100, 000 cutoff), which MEG estimates covers about 95% of worldwide commercially oriented nonferrous expenditures. Adding in the other 5% of companies gives total expenditures for commercial nonferrous metals exploration of $7.5 billion. That blows past the previous high of $5.2 billion in 1997 to set a new pinnacle of global nonferrous exploration. So where is all this gold? Well, it takes time to bring new gold mines online ... and the big 'n' cheap-to-mine deposits have already been found. Meanwhile, production at existing but long-worked mines is grinding down. As a matter of fact ...
* South Africa's gold output fell nearly 8% in 2006 from 2005. It is now at its lowest level since 1922!
* U.S. gold output for last year declined slightly from 262 tonnes to 260 tonnes.
* Australian production fell 4.5% to 251 tonnes.
* Peruvian gold production fell to 203 tonnes from 207 tonnes.
* Russian gold output dropped to 152 tonnes from 156 tonnes
* Canada's gold production fell a whopping 11% to 104 tonnes.
Bottom line: Big gold producers are finding it tough to replace their reserves. That's why we saw huge mergers last year. Yamana merged with RNC Gold ... Glamis Gold bought Western Silver ... Goldcorp merged with Glamis ... Barrick bought Placer Dome. Heck, just look at mine supply. Despite the price of gold rising for years, supply from mines is actually going DOWN. Since mine supply doesn't cover demand, where does the rest come from? From scrap, central bank gold sales and stockpiles, all of which are being depleted. And that is a recipe for much higher prices.
7. Gold charts show opportunity
Take a look at a weekly chart of gold. You can see that gold is channeling higher. The rate of ascent is INCREASING. It is at the BOTTOM of the channel now. It appears that gold is presenting the best buying opportunity since January. The next big move will likely be over $700 per ounce. And if we have a breakout, all bets are off. Those are seven good reasons why I think gold will head higher. I could give you a lot more.
How to play the surge:
I prefer junior gold miners, but they can have wild ups and downs. There other ways to play this surge that are less cardiac-inducing. You can always buy the Street Tracks Gold (GLD) , which simply tracks the price of gold. For more leverage, consider a fund like U.S. Global Investors World Precious Minerals Fund (UNWPX) . Its holdings include Goldcorp (GG) , Northern Orion Resources( NTO) , Bolivar Gold and more. It has a total expense ratio of just 1.43%, which is lower than the industry average. And it returned 28% over the past year, beating the pants off its competition.
Dow Jones Newswires
04-01-072104ET
Copyright (c) 2007 Dow Jones & Company, Inc
Friday, March 30, 2007
Buying Your First Home
Before you start with your home buying process, there are a few things you should do. Probably most important is to go over your current budget to see what your financial situation is and how much home you can afford. Consider what kind of home and neighborhood would fit your lifestyle and do some research in the neighborhood you are considering, like home prices and schools and convenience to your work/school. And ask family and friends for referrals for people who can help you in the home buying process like home inspectors, loan officers and of course real estate brokers.
Buying a home can be a good financial investment. Making mortgage payments forces you to save, and after 15 to 30 years you will own a substantial asset that can be converted into cash to help fund retirement or a child's education. There are also tax benefits. Like many other investments, however, real estate prices can fluctuate considerably. If you aren't ready to settle down in one spot for a few years, you probably should defer buying a home until you are. If you are ready to take the plunge, you'll need to determine how much you can spend and where you want to live.
So you really need to ask yourself how much mortgage can you afford. Many mortgages today are being resold in the secondary markets. The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Mortgages that conform to Fannie Mae's standards may carry lower interest rates or smaller down payments. To qualify, the mortgage borrower needs to meet two ratio requirements that are industry standards.
1)The housing expense ratio compares basic monthly housing costs to the buyer's gross (before taxes and other deductions) monthly income. Basic costs include monthly mortgage, insurance, and property taxes. Income includes any steady cash flow, including salary, self-employment income, pensions, child support, or alimony payments. For a conventional loan, your monthly housing cost should not exceed 28% of your monthly gross income.
2)The total obligations to income ratio is the percentage of all income required to service your total monthly payments. Monthly payments on student loans, installment loans, and credit card balances older than 10 months are added to basic housing costs and then divided by gross income. Your total monthly debt payments, including basic housing costs, should not exceed 36%.
Many home buyers choose to arrange financing before shopping for a home and most lenders will "prequalify" you for a certain amount. Prequalification helps you focus on homes you can afford. It also makes you a more attractive buyer and can help you negotiate a lower purchase price. Nothing is more disheartening for buyers or sellers than a deal that falls through due to a lack of financing. In addition to qualifying for a mortgage, you will probably need a down payment. The 28% to 36% debt ratios assume a 10% down payment. In practice, down payment requirements vary from more than 20% to as low as 0% for some Veterans Administration (VA) loans. Down payments greater than 20% generally buy a better rate.
Many home buyers are surprised to find that a down payment is not the only cash requirement and that the cost of buying a home is much more than just the price of the house. A home inspection can cost $200 or more. Closing costs may include loan origination fees, up-front "points" (prepaid interest), application fees, appraisal fee, survey, title search and title insurance, first month's homeowners insurance, recording fees and attorney's fees. In many locales, transfer taxes are assessed. Finally, adjustments for heating oil or property taxes already paid by the sellers will be included in your final costs. All this will probably add up to be between 3% and 8% of your purchase price.
In addition to mortgage payments, there are other on going costs associated with home ownership. Utilities, heat, property taxes, repairs, insurance, services such as trash or snow removal, landscaping, assessments, and replacement of appliances are the major costs incurred. Make sure you understand how much you are willing and able to spend on such items.
Condominiums may not have the same costs as a house, but they do have association fees. Older homes are often less expensive to buy, but repairs may be greater than those in a newer home. When looking for a home, be sure to check the actual expenses of the previous owners, or expenses for a comparable home in the neighborhood.
Before you start looking at homes, look at neighborhoods. Schools and other services play a large part in making a neighborhood attractive. Even if you don't have children, your future buyer may. Crime rates, taxes, transportation, and town services are other things to look at. Finally, learn the local zoning laws. A new pizza shop next door might alter your property's future value. On the other hand, you may want to run a business out of your home.
Look for a neighborhood where prices are increasing. As the prices of the better homes increase, values of the lesser homes may rise as well. If you find a less expensive home in a good neighborhood, make sure you factor in the cost of repairs or upgrades that such a house may need.
If you are a first-time home buyer, you will probably want to work with a broker. Brokers know the market and can be a valuable source of information concerning the home buying process. Ask lots of questions, but remember that most brokers are working for the seller, and in the end, their primary obligation is to the seller and not to you. An alternative is a so-called buyer's broker. This individual does work for you, and therefore is paid by you. Seller's brokers are paid by the seller. Make sure that the broker has access to the Multiple Listing Service (MLS). This service lists all the properties for sale by most major brokers across the country. Brokerage commissions average 5% to 7% and are split between the listing broker and the broker that eventually sells the home.
Once you've determined a price range and location, you're ready to look at individual homes. Remember that much of a home's value is derived from the values of those surrounding it. Since the average residency in a house is seven years, consider the qualities that will be attractive to future buyers as well as those attractive to you. Although it can be difficult, try to remember that you will probably want to sell this home someday. The more research you do today, the better your decision will look in the years to come.
Buying a home can be a good financial investment. Making mortgage payments forces you to save, and after 15 to 30 years you will own a substantial asset that can be converted into cash to help fund retirement or a child's education. There are also tax benefits. Like many other investments, however, real estate prices can fluctuate considerably. If you aren't ready to settle down in one spot for a few years, you probably should defer buying a home until you are. If you are ready to take the plunge, you'll need to determine how much you can spend and where you want to live.
So you really need to ask yourself how much mortgage can you afford. Many mortgages today are being resold in the secondary markets. The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Mortgages that conform to Fannie Mae's standards may carry lower interest rates or smaller down payments. To qualify, the mortgage borrower needs to meet two ratio requirements that are industry standards.
1)The housing expense ratio compares basic monthly housing costs to the buyer's gross (before taxes and other deductions) monthly income. Basic costs include monthly mortgage, insurance, and property taxes. Income includes any steady cash flow, including salary, self-employment income, pensions, child support, or alimony payments. For a conventional loan, your monthly housing cost should not exceed 28% of your monthly gross income.
2)The total obligations to income ratio is the percentage of all income required to service your total monthly payments. Monthly payments on student loans, installment loans, and credit card balances older than 10 months are added to basic housing costs and then divided by gross income. Your total monthly debt payments, including basic housing costs, should not exceed 36%.
Many home buyers choose to arrange financing before shopping for a home and most lenders will "prequalify" you for a certain amount. Prequalification helps you focus on homes you can afford. It also makes you a more attractive buyer and can help you negotiate a lower purchase price. Nothing is more disheartening for buyers or sellers than a deal that falls through due to a lack of financing. In addition to qualifying for a mortgage, you will probably need a down payment. The 28% to 36% debt ratios assume a 10% down payment. In practice, down payment requirements vary from more than 20% to as low as 0% for some Veterans Administration (VA) loans. Down payments greater than 20% generally buy a better rate.
Many home buyers are surprised to find that a down payment is not the only cash requirement and that the cost of buying a home is much more than just the price of the house. A home inspection can cost $200 or more. Closing costs may include loan origination fees, up-front "points" (prepaid interest), application fees, appraisal fee, survey, title search and title insurance, first month's homeowners insurance, recording fees and attorney's fees. In many locales, transfer taxes are assessed. Finally, adjustments for heating oil or property taxes already paid by the sellers will be included in your final costs. All this will probably add up to be between 3% and 8% of your purchase price.
In addition to mortgage payments, there are other on going costs associated with home ownership. Utilities, heat, property taxes, repairs, insurance, services such as trash or snow removal, landscaping, assessments, and replacement of appliances are the major costs incurred. Make sure you understand how much you are willing and able to spend on such items.
Condominiums may not have the same costs as a house, but they do have association fees. Older homes are often less expensive to buy, but repairs may be greater than those in a newer home. When looking for a home, be sure to check the actual expenses of the previous owners, or expenses for a comparable home in the neighborhood.
Before you start looking at homes, look at neighborhoods. Schools and other services play a large part in making a neighborhood attractive. Even if you don't have children, your future buyer may. Crime rates, taxes, transportation, and town services are other things to look at. Finally, learn the local zoning laws. A new pizza shop next door might alter your property's future value. On the other hand, you may want to run a business out of your home.
Look for a neighborhood where prices are increasing. As the prices of the better homes increase, values of the lesser homes may rise as well. If you find a less expensive home in a good neighborhood, make sure you factor in the cost of repairs or upgrades that such a house may need.
If you are a first-time home buyer, you will probably want to work with a broker. Brokers know the market and can be a valuable source of information concerning the home buying process. Ask lots of questions, but remember that most brokers are working for the seller, and in the end, their primary obligation is to the seller and not to you. An alternative is a so-called buyer's broker. This individual does work for you, and therefore is paid by you. Seller's brokers are paid by the seller. Make sure that the broker has access to the Multiple Listing Service (MLS). This service lists all the properties for sale by most major brokers across the country. Brokerage commissions average 5% to 7% and are split between the listing broker and the broker that eventually sells the home.
Once you've determined a price range and location, you're ready to look at individual homes. Remember that much of a home's value is derived from the values of those surrounding it. Since the average residency in a house is seven years, consider the qualities that will be attractive to future buyers as well as those attractive to you. Although it can be difficult, try to remember that you will probably want to sell this home someday. The more research you do today, the better your decision will look in the years to come.
Monday, March 5, 2007
Get Out of Debt
Today, carrying some kind of debt is unavoidable, and even desirable, for most households. But between mortgages, car payments, school loans and credit cards, many people find themselves in over their heads — unable to dig out from under growing debt. The average U.S. household now has credit card debt of more than $9,300. Credit card companies have made running up that balance deceptively convenient.
One of the first things to do is to start assessing your debt. How much debt is too much? The figure varies from person to person, but in general, if more than 20% of your take-home pay goes to finance non housing debt or if your rent or mortgage payments exceed 30% of your monthly take-home pay, you may be overextended. Other signs that you may be overextended include not knowing how much you owe, constantly paying the minimum balance due on credit cards (or worse, being unable to make the minimum payments), and borrowing from one lender to pay another. If you feel that you're overextended, don't panic. There are a number of steps you can follow to eliminate that debt and get yourself back on track. Working your way out of debt will require you to adjust your spending habits.
You need to begin with a making a budget, and if you already have one, it needs to be revised. The first step in eliminating debt is to figure out where your money goes. This will allow you to see where your debt is coming from and, perhaps, help you to free up some cash to put toward debt. Track your expenses for one month by writing down what you spend. At the end of the month, total up your expenses and break them down into two categories: Essential, including fixed expenses such as mortgage/rent, food, and utilities, and nonessential, including entertainment and meals out. Analyze your expenses to see where your spending can be reduced. Perhaps you can cut back on food expenses by bringing lunch to work instead of eating out each day. You might be able to reduce transportation costs by taking public transportation instead of parking your car at a pricey downtown garage. Even utility costs can be reduced by turning lights off, making fewer long-distance calls, or turning the thermostat down a few degrees in winter. The goal is to reduce current spending so that you won't need to add to your debt and to free up as much cash as possible to cut down existing debt.
Here are some tips on how to start reducing your debt. Pay off high-rate debt first. The higher your interest rate, the more you wind up paying. Begin with your highest-rate credit cards and eliminate the balance as aggressively as possible. For example, assume you have two separate $2,000 balances, one charging 20% interest, the other 8%, on which you can pay a total of 6% per month. Instead of paying 3% on each balance, if you instead paid 4% per month on the higher-rate card and 2% on the lower-rate card (which is typically the minimum monthly payment), you would save about $961 in interest and 18 months of payments.
Another thing to do is to transfer high-rate debt to lower-rate cards. Consolidating credit card debts to a single, lower-rate card saves more than postage and paperwork. It also saves in interest costs over the life of the loan. Comparison shop for the best rates, and beware of "teaser" rates that start low, say, at 6%, then jump to much higher rates after the introductory period ends. You can find a list of low-rate cards online from CardTrak at www.cardtrak.com. If you can only find a card with a low introductory rate, maximize the value of that low-interest period. By paying off your balance aggressively, you will reduce the balance more quickly than you will when the rate goes up. You can also contact your current credit card companies and ask about consolidation and lower rates. Competition in the industry is fierce, and many companies are willing to lower their rates to keep their customers. Even a percentage point or two can make a difference with a sizable balance.
Another good practice is to borrow only for the long term. The best use of debt is to finance things that will gain in value, such as a home, an education, or big-ticket necessities, like a washing machine or a computer, that will still be around when the debt is paid off. Avoid using your credit card for concert tickets, vacation expenses, or meals out. By the time the balance is gone, you'll have paid far more than the cost of these items and have nothing but memories to show for it.
By analyzing your spending, controlling expenses, and establishing a plan, you can reduce — and perhaps eliminate — your debt, leaving you with more money to save today and a better outlook for your financial future.
One of the first things to do is to start assessing your debt. How much debt is too much? The figure varies from person to person, but in general, if more than 20% of your take-home pay goes to finance non housing debt or if your rent or mortgage payments exceed 30% of your monthly take-home pay, you may be overextended. Other signs that you may be overextended include not knowing how much you owe, constantly paying the minimum balance due on credit cards (or worse, being unable to make the minimum payments), and borrowing from one lender to pay another. If you feel that you're overextended, don't panic. There are a number of steps you can follow to eliminate that debt and get yourself back on track. Working your way out of debt will require you to adjust your spending habits.
You need to begin with a making a budget, and if you already have one, it needs to be revised. The first step in eliminating debt is to figure out where your money goes. This will allow you to see where your debt is coming from and, perhaps, help you to free up some cash to put toward debt. Track your expenses for one month by writing down what you spend. At the end of the month, total up your expenses and break them down into two categories: Essential, including fixed expenses such as mortgage/rent, food, and utilities, and nonessential, including entertainment and meals out. Analyze your expenses to see where your spending can be reduced. Perhaps you can cut back on food expenses by bringing lunch to work instead of eating out each day. You might be able to reduce transportation costs by taking public transportation instead of parking your car at a pricey downtown garage. Even utility costs can be reduced by turning lights off, making fewer long-distance calls, or turning the thermostat down a few degrees in winter. The goal is to reduce current spending so that you won't need to add to your debt and to free up as much cash as possible to cut down existing debt.
Here are some tips on how to start reducing your debt. Pay off high-rate debt first. The higher your interest rate, the more you wind up paying. Begin with your highest-rate credit cards and eliminate the balance as aggressively as possible. For example, assume you have two separate $2,000 balances, one charging 20% interest, the other 8%, on which you can pay a total of 6% per month. Instead of paying 3% on each balance, if you instead paid 4% per month on the higher-rate card and 2% on the lower-rate card (which is typically the minimum monthly payment), you would save about $961 in interest and 18 months of payments.
Another thing to do is to transfer high-rate debt to lower-rate cards. Consolidating credit card debts to a single, lower-rate card saves more than postage and paperwork. It also saves in interest costs over the life of the loan. Comparison shop for the best rates, and beware of "teaser" rates that start low, say, at 6%, then jump to much higher rates after the introductory period ends. You can find a list of low-rate cards online from CardTrak at www.cardtrak.com. If you can only find a card with a low introductory rate, maximize the value of that low-interest period. By paying off your balance aggressively, you will reduce the balance more quickly than you will when the rate goes up. You can also contact your current credit card companies and ask about consolidation and lower rates. Competition in the industry is fierce, and many companies are willing to lower their rates to keep their customers. Even a percentage point or two can make a difference with a sizable balance.
Another good practice is to borrow only for the long term. The best use of debt is to finance things that will gain in value, such as a home, an education, or big-ticket necessities, like a washing machine or a computer, that will still be around when the debt is paid off. Avoid using your credit card for concert tickets, vacation expenses, or meals out. By the time the balance is gone, you'll have paid far more than the cost of these items and have nothing but memories to show for it.
By analyzing your spending, controlling expenses, and establishing a plan, you can reduce — and perhaps eliminate — your debt, leaving you with more money to save today and a better outlook for your financial future.
Monday, February 26, 2007
Investor's Business Daily
Check out the free week of investing tools from IBD at www.investors.com. There are some great features there that can really help you out with your investing and stock search. So much information, so little time. Don't waste time, check it out today!
Happy Trading!
Happy Trading!
Tuesday, February 20, 2007
How to Find the Right Financial Planner
You may just be the best financial planner that you can find for yourself. After all, who else has more interest in your financial well-being than you. However, you may feel overwhelmed by all the options there are for you to save and invest, or you may not have the time to take care of all that is out there that can make you financially healthy. If this is the case, you may want to hire a financial planner. But now there is another scary concept. How do you find the right planner? How do you know he has your best interest at hand?
A good place to start is to ask your friends/relatives for referrals. Don't rely solely on their opinions though, as many people have different investing strategies and look for different things from their financial planners. Set up a meeting with a prospective planner to get an idea of their strategies and if they match what you are looking for. The number one thing to remember is that first impressions are very important. Would you feel comfortable discussing all your financial matters with this person. Do you think they would keep your best interests in mind? If so, then you are off to a good start.
There are a few important things for you to know/ find out about your prospective financial planner.
-You should only use fee-based planners, not those that make a commission on your every move.
-Ask about their background, how long they've been in this business and what kind of formal training they have received. Experience is important, but it is not everything.
-Ask if they recommend term life or cash-value policies. Term should be their only answer. If they begin to praise the virtues of cash-value you may want to move on. Anything other than term life is unnecessary and more expensive.
-Ask if they use index mutual funds and ETF's. You definitely want these as options in your portfolio. Not to be used exclusively, but they are good to have in the mix.
-A good question to ask is if they recommend using a home equity loan or line of credit to pay off credit card debt. The answer you are looking for is NO! With a home equity loan, your home becomes collateral for the loan...so you risk losing your home if you fall behind on your payments. On the other hand, credit card debt is unsecured-there is no collateral that the credit card company can take if you fall behind on those payments. (Don't get the impression that it's OK not to pay your credit card debt... do your best to pay something every month to keep your credit looking good.) The thing is that you can never tell when you might fall on hard times, just don't risk losing your home which is probably your most valuable asset.
I'm sure there are many more questions that you want to ask, make sure you do! Go prepared with a written list and jot down notes. Chances are that you will find someone that has most of the qualities that you want, but not all. It will all depend on what is most important to you. I would meet with a minimum of 5 financial planners. This may seem time consuming, but well worth it since it is your money that he or she will be working with. You can always speak by phone at first and narrow down your choices and then meet in person. Just make sure you take the time to have your most important questions answered.
Good Luck!
A good place to start is to ask your friends/relatives for referrals. Don't rely solely on their opinions though, as many people have different investing strategies and look for different things from their financial planners. Set up a meeting with a prospective planner to get an idea of their strategies and if they match what you are looking for. The number one thing to remember is that first impressions are very important. Would you feel comfortable discussing all your financial matters with this person. Do you think they would keep your best interests in mind? If so, then you are off to a good start.
There are a few important things for you to know/ find out about your prospective financial planner.
-You should only use fee-based planners, not those that make a commission on your every move.
-Ask about their background, how long they've been in this business and what kind of formal training they have received. Experience is important, but it is not everything.
-Ask if they recommend term life or cash-value policies. Term should be their only answer. If they begin to praise the virtues of cash-value you may want to move on. Anything other than term life is unnecessary and more expensive.
-Ask if they use index mutual funds and ETF's. You definitely want these as options in your portfolio. Not to be used exclusively, but they are good to have in the mix.
-A good question to ask is if they recommend using a home equity loan or line of credit to pay off credit card debt. The answer you are looking for is NO! With a home equity loan, your home becomes collateral for the loan...so you risk losing your home if you fall behind on your payments. On the other hand, credit card debt is unsecured-there is no collateral that the credit card company can take if you fall behind on those payments. (Don't get the impression that it's OK not to pay your credit card debt... do your best to pay something every month to keep your credit looking good.) The thing is that you can never tell when you might fall on hard times, just don't risk losing your home which is probably your most valuable asset.
I'm sure there are many more questions that you want to ask, make sure you do! Go prepared with a written list and jot down notes. Chances are that you will find someone that has most of the qualities that you want, but not all. It will all depend on what is most important to you. I would meet with a minimum of 5 financial planners. This may seem time consuming, but well worth it since it is your money that he or she will be working with. You can always speak by phone at first and narrow down your choices and then meet in person. Just make sure you take the time to have your most important questions answered.
Good Luck!
Friday, February 16, 2007
The Week Ahead
Looking to the economic and earnings news for the week ahead, it's not a real heavy economic week, but there are a few significant reports. Of course the market is closed on Monday so enjoy your day off...off from trading anyway! On Tuesday possible market movers are the CPI and the FOMC minutes and on Thursday as usual Initial Claims (which unless are a huge surprise, haven't moved the market much lately).
On the earnings front some of the bigger names reporting are Hewlett Packard(HPQ), Home Depot (HD) and Wal-mart (WMT) on Tuesday and JCPenney on Thursday. There are a number of gold/silver companies announcing including Hecla Mining(HL), Agnico-Eagle (AEM), Kinross (KGC) and PanAmerican Silver (PAAS) just to name a few.
A few of my favorite places to check out earnings(as well as other financial news/info) are Yahoo finance and Bloomberg.
Have a great loooong weekend.
Happy Trading.
On the earnings front some of the bigger names reporting are Hewlett Packard(HPQ), Home Depot (HD) and Wal-mart (WMT) on Tuesday and JCPenney on Thursday. There are a number of gold/silver companies announcing including Hecla Mining(HL), Agnico-Eagle (AEM), Kinross (KGC) and PanAmerican Silver (PAAS) just to name a few.
A few of my favorite places to check out earnings(as well as other financial news/info) are Yahoo finance and Bloomberg.
Have a great loooong weekend.
Happy Trading.
Tuesday, February 13, 2007
Test Your Trading Strategy
Take a few minutes today and go to www.cnbc.com and sign up for the "$1,000,000 Portfolio Challenge". It's a great opportunity to test your trading strategy, get your feet wet in trading and make some serious cash.
Starting on March 5th, CNBC will give you $1,000,000 CNBC bucks to trade. You can make up to 50 trades a day. Each week one person will win $10,000 based on their portfolio value. Even if you don't know anything about trading this is the perfect opportunity to get over that fear of trading and try it out. After 10 weeks, 20 people will play in the finals for $1,000,000. The 20 finalists will be the top 10 along with the 10 weekly winners. The finals are two weeks long...from May 14 to May 25 and the top portfolio after the two weeks will win $1,000,000. What do you have to lose?
You can read all the rules and sign up at www.cnbc.com.
Good Luck and Happy Trading!
Starting on March 5th, CNBC will give you $1,000,000 CNBC bucks to trade. You can make up to 50 trades a day. Each week one person will win $10,000 based on their portfolio value. Even if you don't know anything about trading this is the perfect opportunity to get over that fear of trading and try it out. After 10 weeks, 20 people will play in the finals for $1,000,000. The 20 finalists will be the top 10 along with the 10 weekly winners. The finals are two weeks long...from May 14 to May 25 and the top portfolio after the two weeks will win $1,000,000. What do you have to lose?
You can read all the rules and sign up at www.cnbc.com.
Good Luck and Happy Trading!
Friday, February 9, 2007
Don't Overlook These Tax Deductions
I came across an article on Kiplinger.com that I think is definitely worth the read before you do your taxes. It lists the tax deductions that are most commonly overlooked. There are a few that are not even on the tax forms, because Congress did not pass them until after the IRS had the 2006 forms printed. A few of the deductions include state sales tax deduction, college tuition, student loan interest, child-care credit and state tax you paid last tax season. They list 13 in all. Definitely worth the time to save yourself some of your hard earned money. Here's the link http://www.kiplinger.com/features/archives/2007/01/deductions.html.
Good luck!
Good luck!
Tuesday, February 6, 2007
Investing for Beginners
Many people wonder how to get started in investing. As NIKE would say "Just Do It". There's no time like the present to start learning and the best way to learn is from experience.
The first thing to do is open an account with a brokerage firm. Most times you can open an account for as little as $500 to $1000. You can choose from a full-service broker or a discount firm. If you are new to investing, you may want to consider full-service so you'll have a broker that can answer questions and aid in your education. You can always change to a discount broker later. But don't pick the cheapest one, choose one with a good reputation that offers good service (and preferably one with a good charting service).
Next, plan on spending several hours each week keeping track of your investments and the market. You should learn to read charts and invest in a good book on technical analysis. It is good to buy a stock for fundamental reasons, but if the technicals look poor, it will cause you to think twice about that particular stock. Many people like to trade on paper only, to see how they think they would do if it was for real. First, this obviously does nothing for your wealth and secondly, it does not allow for the emotions that come with trading your own money. You will have decisions to make at times like selling at a loss, or taking a profit even if you think the stock will go higher. With your hard earned money on the line, you are less likely to take unnecessary risks. On paper, none of this matters and you will not be learning the discipline that is so important to trading and investing.
Don't try to own too many stocks. It becomes difficult to keep track of them, and too many stocks will dilute your overall results. If you are trading with $5000 or less, you should not own more than two stocks. With $10,000, 2 or 3 stocks and with $25,000, 3 or 4 stocks. I could go on, but you get the idea. Picking stocks can seem very overwhelming with all the companies that are out there. You can ask others what they are investing in, but don't follow them blindly...make sure you do your own research on the company(fundamental and technical). Read financial papers and websites, listen to a little financial radio or TV. Find out what sectors are hot and look for the best stocks within certain industries. I always like to back up a good fundamental story with a stock chart and some technical analysis. One thing I don't like to do is to follow the herd. Eventually you will find a trading technique that you are comfortable with. Don't expect to learn everything you need to know overnight. There is so much to learn. Just take your time.
One of the most important things when it comes to trading is to know when to cut your losses. It becomes a very emotional decision. After being down on a stock, you may keep thinking it can't go much lower, it will turn around here. The most difficult thing to do is realize that a trade has gone against you and to get out. You should not take more than a 7 or 8% loss on a stock. This will ensure that you will be back to trade another day. If you sell and the stock does go back up, learn to deal with it. No one is right(or wrong) all the time. Taking the emotions out of your investing will be a very difficult thing for you to do, but the more you learn over time, you will be able to do just that. Just remember, there's always another trade!
Happy Trading!
The first thing to do is open an account with a brokerage firm. Most times you can open an account for as little as $500 to $1000. You can choose from a full-service broker or a discount firm. If you are new to investing, you may want to consider full-service so you'll have a broker that can answer questions and aid in your education. You can always change to a discount broker later. But don't pick the cheapest one, choose one with a good reputation that offers good service (and preferably one with a good charting service).
Next, plan on spending several hours each week keeping track of your investments and the market. You should learn to read charts and invest in a good book on technical analysis. It is good to buy a stock for fundamental reasons, but if the technicals look poor, it will cause you to think twice about that particular stock. Many people like to trade on paper only, to see how they think they would do if it was for real. First, this obviously does nothing for your wealth and secondly, it does not allow for the emotions that come with trading your own money. You will have decisions to make at times like selling at a loss, or taking a profit even if you think the stock will go higher. With your hard earned money on the line, you are less likely to take unnecessary risks. On paper, none of this matters and you will not be learning the discipline that is so important to trading and investing.
Don't try to own too many stocks. It becomes difficult to keep track of them, and too many stocks will dilute your overall results. If you are trading with $5000 or less, you should not own more than two stocks. With $10,000, 2 or 3 stocks and with $25,000, 3 or 4 stocks. I could go on, but you get the idea. Picking stocks can seem very overwhelming with all the companies that are out there. You can ask others what they are investing in, but don't follow them blindly...make sure you do your own research on the company(fundamental and technical). Read financial papers and websites, listen to a little financial radio or TV. Find out what sectors are hot and look for the best stocks within certain industries. I always like to back up a good fundamental story with a stock chart and some technical analysis. One thing I don't like to do is to follow the herd. Eventually you will find a trading technique that you are comfortable with. Don't expect to learn everything you need to know overnight. There is so much to learn. Just take your time.
One of the most important things when it comes to trading is to know when to cut your losses. It becomes a very emotional decision. After being down on a stock, you may keep thinking it can't go much lower, it will turn around here. The most difficult thing to do is realize that a trade has gone against you and to get out. You should not take more than a 7 or 8% loss on a stock. This will ensure that you will be back to trade another day. If you sell and the stock does go back up, learn to deal with it. No one is right(or wrong) all the time. Taking the emotions out of your investing will be a very difficult thing for you to do, but the more you learn over time, you will be able to do just that. Just remember, there's always another trade!
Happy Trading!
Tuesday, January 30, 2007
Traditional IRA vs. Roth IRA
There is alot to consider when deciding whether to fund a Traditional IRA or a Roth IRA. One of the simplest things to ask yourself is whether your tax bracket in retirement will be higher or lower than it is right now. That may be a difficult question to answer, especially if you are a long way from retirement. The reason that this is pertinent is that with a Roth IRA you will not be taxed on your withdrawals (as long as the Roth has been opened for over 5 years and you are older than 59 1/2-there are other qualified reasons that we will discuss later). With a traditional IRA you are taxed on your withdrawals. So if you anticipate your tax rate to be lower than it is currently, it would be beneficial to go with a traditional. However, if you believe that you will be in a higher tax bracket upon retirement, then the Roth would be the way to go since you will not be paying taxes on your withdrawals (as long as you meet specific requirements).
The following will give you an idea of the differences/similarities between the Traditional and Roth.
Traditional IRA
-Individual contribution limit per year $4000 (2006-2007), $5000 (2008-2010).
-Available to all individuals with earned income
-Fully deductible contribution if:
1. you and your spouse are not participants in an employee sponsored retirement plan for any part of the year.
2. you are not a participant, your spouse is, and your combined AGI (Adjusted Gross Income) is under $150k(married, filing jointly)
3. you are a participant and have a combined AGI that does not exceed $50-60k(single) or $80-90k (joint).
-Even if you and your spouse have an employee sponsored plan, you can still contribute, but it's not deductible.
-Earnings are tax deferred until withdrawn
-In general, withdrawals before age 59 1/2 are subject to ordinary income tax, plus a 10% penalty
-If early withdrawals are paying for new home expenses or qualified higher education costs, no penalty, you just need to pay ordinary income tax.
-Can convert your traditional IRA to a Roth IRA if your AGI is under $100k, you will however have to pay the taxes on the amount you convert.
-Mandatory distributions begin at age 70 1/2
-At your death, heirs pay income tax on distributions at their tax bracket.
Roth IRA
-Individual contribution limits per year $4000(2006-2007), $5000(2008-2110)
-Available to all individuals with earned income with the following income limitations:
for single filers, up to $95k (for full contribution) , $95-110k (partial contribution)
for joint filers up to $150k(for full contribution) , $150-160k(partial contribution)
-Contributions are not tax deductible
-Earnings grow tax free
-Contributions can be withdrawn at any time without tax or penalty (your first withdrawals will come from regular contributions)
-Withdrawals are taken in this order, regular contributions, any conversion contributions (tax consequences apply), and then earnings.
-Earnings are tax free after 5 years and after age 59 1/2 or other qualified requirements such as death, disability or first time home expenses.( the 5 year limit is based on January 1st of the 5th year after you open the account, therefore it could actually be less than 5 years) ex. open Roth in October '06, earnings will be tax free after January 1, 2011 as long as you are age 59 1/2.
-No mandatory distributions required at any age.
-Upon your death, if account is at least 5 years old, heirs will inherit income tax free
-Even if you participate in a plan at work, you can open a Roth subject to the income limits mentioned above.
There may also be the question as to whether it would benefit you to convert your traditional IRA to a Roth. Remember that you will have to pay the taxes on the amount that is converted to the Roth. A conversion to a Roth is probably appropriate if:
1 you have 10+ years to save until retirement
2. you have enough outside of the IRA to pay the taxes
3. your AGI is less than 100k
4. you expect to be in the same or higher tax bracket when you retire
On the flip side, it would probably be most beneficial to leave it in the traditional IRA if:
1. you have fewer than 10 years to save until retirement
2. you need to tap the retirement account to pay the taxes on a conversion
3. your AGI is more than 100k
4. you expect to be in a lower tax bracket when you retire
One more note, don't confuse the Roth IRA with the new Roth 401k. They are not the same thing. The Roth 401k is another interesting savings vehicle, but I will have to examine that at another time.
The following will give you an idea of the differences/similarities between the Traditional and Roth.
Traditional IRA
-Individual contribution limit per year $4000 (2006-2007), $5000 (2008-2010).
-Available to all individuals with earned income
-Fully deductible contribution if:
1. you and your spouse are not participants in an employee sponsored retirement plan for any part of the year.
2. you are not a participant, your spouse is, and your combined AGI (Adjusted Gross Income) is under $150k(married, filing jointly)
3. you are a participant and have a combined AGI that does not exceed $50-60k(single) or $80-90k (joint).
-Even if you and your spouse have an employee sponsored plan, you can still contribute, but it's not deductible.
-Earnings are tax deferred until withdrawn
-In general, withdrawals before age 59 1/2 are subject to ordinary income tax, plus a 10% penalty
-If early withdrawals are paying for new home expenses or qualified higher education costs, no penalty, you just need to pay ordinary income tax.
-Can convert your traditional IRA to a Roth IRA if your AGI is under $100k, you will however have to pay the taxes on the amount you convert.
-Mandatory distributions begin at age 70 1/2
-At your death, heirs pay income tax on distributions at their tax bracket.
Roth IRA
-Individual contribution limits per year $4000(2006-2007), $5000(2008-2110)
-Available to all individuals with earned income with the following income limitations:
for single filers, up to $95k (for full contribution) , $95-110k (partial contribution)
for joint filers up to $150k(for full contribution) , $150-160k(partial contribution)
-Contributions are not tax deductible
-Earnings grow tax free
-Contributions can be withdrawn at any time without tax or penalty (your first withdrawals will come from regular contributions)
-Withdrawals are taken in this order, regular contributions, any conversion contributions (tax consequences apply), and then earnings.
-Earnings are tax free after 5 years and after age 59 1/2 or other qualified requirements such as death, disability or first time home expenses.( the 5 year limit is based on January 1st of the 5th year after you open the account, therefore it could actually be less than 5 years) ex. open Roth in October '06, earnings will be tax free after January 1, 2011 as long as you are age 59 1/2.
-No mandatory distributions required at any age.
-Upon your death, if account is at least 5 years old, heirs will inherit income tax free
-Even if you participate in a plan at work, you can open a Roth subject to the income limits mentioned above.
There may also be the question as to whether it would benefit you to convert your traditional IRA to a Roth. Remember that you will have to pay the taxes on the amount that is converted to the Roth. A conversion to a Roth is probably appropriate if:
1 you have 10+ years to save until retirement
2. you have enough outside of the IRA to pay the taxes
3. your AGI is less than 100k
4. you expect to be in the same or higher tax bracket when you retire
On the flip side, it would probably be most beneficial to leave it in the traditional IRA if:
1. you have fewer than 10 years to save until retirement
2. you need to tap the retirement account to pay the taxes on a conversion
3. your AGI is more than 100k
4. you expect to be in a lower tax bracket when you retire
One more note, don't confuse the Roth IRA with the new Roth 401k. They are not the same thing. The Roth 401k is another interesting savings vehicle, but I will have to examine that at another time.
Friday, January 26, 2007
Market Movers for Next Week
Is this the beginning of a significant pullback or just a small retracement for the next move up? There seem to be a lot of mixed signals in the market right now. But putting technicals aside, one thing I've noticed in the past week or so is that the market is no longer ignoring bad news. Aside from a few big down days, the market has continued to march forward from it's July low, stair stepping it's way to new highs along the way. And there has been good news and bad news during that time, but it chose to ignore the bad and really embrace the good. Maybe it's that no one is sure what exactly is good news/bad news now. Do we want a strong economy... I would think so, but then interest rates may go higher. Or do we prefer a weak economy so that the fed may start to consider cutting rates. There is even a hint of selling into good news...as some of the earnings this week have been pretty decent, stocks took off after hours and pre-market, only to have the market sell off during the day. To me it looks like a negative divergence. With a significant amount of news (economic and earnings) on the horizon for next week, I am betting on the downside.
Some of the earnings of note for next week are Google, 3M, Merck, Altria, and Eli Lily. And among some of the energy stocks announcing are Exxon and Valero Energy. The economic calendar is heavy next week with the most important probably being the 2 day fed meeting. They will announce their decision on rates on Wednesday and as usual it's not the rate decision (most are guessing they will stand pat for now) but the "language in the statement" ( Can't you just feel the drama). All eyes will also surely be on the Jobs Data that comes out on Friday. Among other reports of note are Consumer Confidence (Tues.), GDP and Chicago PMI (Wed.), Personal Income/Spending and Initial Claims(Thurs.) and Factory Orders (Friday).
Being in the middle of earnings season and with all this economic news out next week, I would have to say I am "cautiously pessimistic".
Happy Trading!
Some of the earnings of note for next week are Google, 3M, Merck, Altria, and Eli Lily. And among some of the energy stocks announcing are Exxon and Valero Energy. The economic calendar is heavy next week with the most important probably being the 2 day fed meeting. They will announce their decision on rates on Wednesday and as usual it's not the rate decision (most are guessing they will stand pat for now) but the "language in the statement" ( Can't you just feel the drama). All eyes will also surely be on the Jobs Data that comes out on Friday. Among other reports of note are Consumer Confidence (Tues.), GDP and Chicago PMI (Wed.), Personal Income/Spending and Initial Claims(Thurs.) and Factory Orders (Friday).
Being in the middle of earnings season and with all this economic news out next week, I would have to say I am "cautiously pessimistic".
Happy Trading!
Tuesday, January 23, 2007
How to get a Double Tax Deduction
Next time you contribute to your IRA, consider selling a losing stock that has declined in value and use the money from that sale to fund your IRA. You can also write off a capital loss on the sale of that losing stock.
If you really want to hold onto that stock, just buy it back in the IRA. The "wash rule" ( IRS rule that says if you sell and buy back the same stock within 30 days before or after the sale, you cannot take a capital loss) will not apply to this transaction.
If you really want to hold onto that stock, just buy it back in the IRA. The "wash rule" ( IRS rule that says if you sell and buy back the same stock within 30 days before or after the sale, you cannot take a capital loss) will not apply to this transaction.
Tuesday, January 16, 2007
10 Rules for Building Wealth
Saving money may seem like one of the most difficult things to do, especially if you have a specific goal (children's education, wedding, retirement) and a specific time frame. It can be overwhelming thinking about how and where to invest to maximize your gains. If you haven't even considered saving, if you've been putting it off for a while, or even if you have been saving for years, it's never to late to take a look at some well thought out advice. I recently read an article in Fortune magazine "Ten Rules for Building Wealth" and thought that there was some very good advice that I would pass along. So the ten rules in summary are as follows:
1) START EARLY- Probably the most important thing is to start saving as early as possible.
2) USE YOUR 401K- You should definitely be signed up for your company's 401k plan. These are pre-taxed dollars that are being put away and most companies match your contribution. Don't pass up an opportunity to save not only your money, but your company's match also!
3) KEEP IT SIMPLE- Stock picking is not an easy task. Make it easy by picking several index funds, ETF's or funds that are based on your changing goals.
4) DON'T TRY TO BEAT THE MARKET- Diversify your assets and rebalance at least once a year by selling some winners and picking up some assets in areas that have been lagging.
5) DON'T CHASE TRENDS- Don't blindly invest in the hottest sector because everyone else is doing it, be sure to understand why this certain asset class is taking off. If there seem to be legitimate reasons for it then good for you, but be careful with those that are "hot" for no apparent reason.
6) MAKE SAVING AUTOMATIC- Once the money is in your hands, it makes it more difficult for you to put it into a savings vehicle. If you are already maxing out your 401k, but need to save more see if your company can transfer money directly from your paycheck to a Roth or other savings account or perhaps your bank can transfer a specified amount every month from your checking to a savings account. It's worth it to find out.
7) GO HEAVY ON STOCKS- The more time you have before you need the money the more heavily you should be invested in stocks. Stocks are the most risky investments, but they offer the most return, so if you don't need the money in the next few years, consider being more aggressive.
8) HOLD DOWN FEES- Try to avoid any mutual fund that charges a management fee of more that 1%. If trading stocks, watch for commissions, they can really add up. If you are not trading aggressively you should be OK, but if you plan to trade often see if your broker offers a quarterly transaction fee.
9) DITCH CREDIT CARD DEBT- Try to pay off your high interest debt first (usually credit cards) and work your way down.
10) DEFER TAXES- Know the tax implications before you sell your stock. In taxable accounts you will have to pay capital gains on your profits. At tax time you may want to consider selling some losers to take advantage of the $3000 capital loss deduction that you are allowed per year.
Well, there you have it, so what are you waiting for? The longer you wait to start saving the less you will have saved- simple enough. An interesting chart shows the difference in savings for someone who started saving a $1000 a year at an 8% growth rate. At age 65, the person who starts saving at age 25 would have @ $280,000, start at age 35 you would have $122k and wait until age 45, your savings at age 65 would only be $49k.
You can read the Fortune magazine article at http://money.cnn.com/popups/2006/fortune/buildwealth/index.html
Good luck and happy savings!
1) START EARLY- Probably the most important thing is to start saving as early as possible.
2) USE YOUR 401K- You should definitely be signed up for your company's 401k plan. These are pre-taxed dollars that are being put away and most companies match your contribution. Don't pass up an opportunity to save not only your money, but your company's match also!
3) KEEP IT SIMPLE- Stock picking is not an easy task. Make it easy by picking several index funds, ETF's or funds that are based on your changing goals.
4) DON'T TRY TO BEAT THE MARKET- Diversify your assets and rebalance at least once a year by selling some winners and picking up some assets in areas that have been lagging.
5) DON'T CHASE TRENDS- Don't blindly invest in the hottest sector because everyone else is doing it, be sure to understand why this certain asset class is taking off. If there seem to be legitimate reasons for it then good for you, but be careful with those that are "hot" for no apparent reason.
6) MAKE SAVING AUTOMATIC- Once the money is in your hands, it makes it more difficult for you to put it into a savings vehicle. If you are already maxing out your 401k, but need to save more see if your company can transfer money directly from your paycheck to a Roth or other savings account or perhaps your bank can transfer a specified amount every month from your checking to a savings account. It's worth it to find out.
7) GO HEAVY ON STOCKS- The more time you have before you need the money the more heavily you should be invested in stocks. Stocks are the most risky investments, but they offer the most return, so if you don't need the money in the next few years, consider being more aggressive.
8) HOLD DOWN FEES- Try to avoid any mutual fund that charges a management fee of more that 1%. If trading stocks, watch for commissions, they can really add up. If you are not trading aggressively you should be OK, but if you plan to trade often see if your broker offers a quarterly transaction fee.
9) DITCH CREDIT CARD DEBT- Try to pay off your high interest debt first (usually credit cards) and work your way down.
10) DEFER TAXES- Know the tax implications before you sell your stock. In taxable accounts you will have to pay capital gains on your profits. At tax time you may want to consider selling some losers to take advantage of the $3000 capital loss deduction that you are allowed per year.
Well, there you have it, so what are you waiting for? The longer you wait to start saving the less you will have saved- simple enough. An interesting chart shows the difference in savings for someone who started saving a $1000 a year at an 8% growth rate. At age 65, the person who starts saving at age 25 would have @ $280,000, start at age 35 you would have $122k and wait until age 45, your savings at age 65 would only be $49k.
You can read the Fortune magazine article at http://money.cnn.com/popups/2006/fortune/buildwealth/index.html
Good luck and happy savings!
Friday, January 12, 2007
News to Move the Market
Hey Dow, S&P and Nasdaq.....what's the deal? Are you aware that I am waiting for you to pull back? Well, I am STILL waiting for that significant pullback, but every day I am feeling less confident that it will happen. I may have to take drastic measures to make the market move....I may just have to buy!
Just wanted to take a look at next week and see what could be market moving news. There is a load of economic news next week, including PPI, CPI, Fed's Beige Book and some Housing Data. All of these reports will have an impact on the market, but will it be enough to make a sustained move in either direction? We will have to wait and see.
Earnings of note for next week are Intel (16th), Apple (17th) and Motorola (19th). These have been definite market movers in the past. The market may just continue to shrug off any bad news, which is very bullish. I am still in the camp that 2007 will be a good year for stocks, and there is the old saying that as goes January so goes the year. So I may just have to wait until February for my pullback. If it doesn't materialize well then I guess I will have to take those drastic measures, bite the bullet and buy.
Happy Trading!
Just wanted to take a look at next week and see what could be market moving news. There is a load of economic news next week, including PPI, CPI, Fed's Beige Book and some Housing Data. All of these reports will have an impact on the market, but will it be enough to make a sustained move in either direction? We will have to wait and see.
Earnings of note for next week are Intel (16th), Apple (17th) and Motorola (19th). These have been definite market movers in the past. The market may just continue to shrug off any bad news, which is very bullish. I am still in the camp that 2007 will be a good year for stocks, and there is the old saying that as goes January so goes the year. So I may just have to wait until February for my pullback. If it doesn't materialize well then I guess I will have to take those drastic measures, bite the bullet and buy.
Happy Trading!
Monday, January 8, 2007
Wall Street Rumors
I read an interesting article Friday (1/5/07) on thestreet.com by Doug Kass entitled "10 Rumors That Could Rock Stocks". Now, I usually feel that rumors fall somewhere in the "assume" category...you know not to assume because it makes an ass out of u and me. I kind of feel the same way about rumors and hate to trade on them, however sometimes there is some truth behind the rumors. I like to check out a stock's chart to see if there may be some unusual activity that would give the rumor some validity. Anyway, thought I would pass along the article in case you have some interest in any of the stocks.
Some of the stocks of note are Apple, Motorola, Nokia, Sprint, Dell and Microsoft. Take a look and decide for yourself whether or not to assume they are true. Here's the link http://www.thestreet.com/_tscs/markets/activetraderupdate/10330882.html.
Happy Trading!
Some of the stocks of note are Apple, Motorola, Nokia, Sprint, Dell and Microsoft. Take a look and decide for yourself whether or not to assume they are true. Here's the link http://www.thestreet.com/_tscs/markets/activetraderupdate/10330882.html.
Happy Trading!
Wednesday, January 3, 2007
Someone tell the market....
Today I visited Yahoo finance home page and the top articles were suspiciously negative. e.g.(Gap woes deepen, Stores report disappointing December sales, Economist warns on Ethanol Corn Demand, Factory Orders rise less than expected). All this negative news and the market continues to move forward. I have been hoping for a pullback for some time now to buy in lower ( who hasn't).... but I think someone forgot to tell the market.
Several market "gurus" that I read/listen to somewhat regularly are calling for a pullback. Some believe we will have a large correction, others a smaller correction, but most are calling for some type of a correction. These predictions along with all the negative news concern me as it always seems that the masses are wrong. So will the market keep heading north, or will it turn down as the consensus seems to be right now. I do believe that we are in for a correction before we can move higher in 2007. Someone just needs to tell the market!
Jobs numbers tomorrow will undoubtedly move the market, but which way remains to be seen. And keep in mind that reversals seem to be the norm these days. We'll have to wait and see which way the yo-yo will end, up or down. Happy Trading!
Several market "gurus" that I read/listen to somewhat regularly are calling for a pullback. Some believe we will have a large correction, others a smaller correction, but most are calling for some type of a correction. These predictions along with all the negative news concern me as it always seems that the masses are wrong. So will the market keep heading north, or will it turn down as the consensus seems to be right now. I do believe that we are in for a correction before we can move higher in 2007. Someone just needs to tell the market!
Jobs numbers tomorrow will undoubtedly move the market, but which way remains to be seen. And keep in mind that reversals seem to be the norm these days. We'll have to wait and see which way the yo-yo will end, up or down. Happy Trading!
Tuesday, January 2, 2007
Harry Dent- A Change in Forecast
Harry S. Dent, economist and writer has had much success at predicting major market moves. In the early 90's he virtually stood alone in predicting that the Dow would hit 10,000 and we all know how that played out. In 2000, he predicted that the Dow would reach 40,000, a forecast that was repeated in his latest book "The Next Great Bubble Boom" (2004). His forecast was that by the end of 2006 the Dow would reach 15,000 and the NASDAQ would hit 3500, by the end of 2008 the Dow would hit 20k and by 2010 the Dow should be flirting with 40,000 with the NASDAQ peaking at 13,000 by late 2009. Last year he was looking for a rapid advance between Oct. '05 and Summer of '06 and stated that if he didn't see a major advance between Nov. '05 and April '06 that he would reexamine his forecast.
Even though the market did advance during this period of time the moves were not rapid enough to keep the previous forecast. The main reason that he gave why the markets did not make the rapid advance expected was due to geopolitical trends and tensions. So the forecast has been lowered. Even though the numbers have been lowered he is still looking for a major advance between now and 2010. The Dow and NASDAQ are still expected to move significantly higher. According to Harry, we are in the midst of a 3 year bubble that will bring the Dow to 15,000 by late 2007 or early 2008 and by late 2009 the Dow should reach 20,000. He is also predicting the NASDAQ will reach 4300-5000 by late 2009.
Once these highs are achieved around 2010, he is looking for a crash into 2012 to early 2013 and then an extended slowdown in the United States into 2022 with stocks and real estate entering a long term decline. (This, Harry wrote, will be similar to the long term bear market in Japan from 1990-2003). He also touches on commodities, believing that the oil and commodity market has peaked for now, will correct well into 2007 with a slowing economy and will become attractive again in late 2007, early 2008 with oil likely seeing $100 a barrel by late 2009.
For now he suggests focusing on large cap growth sectors of technology, financial services, healthcare, Asia and emerging markets. During the crash you should invest in high quality bonds and fixed income. Opportunities after the initial crash will be in Asian economies and the healthcare sector of US economy.
Even though the numbers have been dramatically lowered, if he is accurate there is still a huge move ahead for the markets into 2010. I, for one, will be watching (and investing) very carefully. You can read more about Harry S. Dent and his forecasts at www.hsdent.com.
Even though the market did advance during this period of time the moves were not rapid enough to keep the previous forecast. The main reason that he gave why the markets did not make the rapid advance expected was due to geopolitical trends and tensions. So the forecast has been lowered. Even though the numbers have been lowered he is still looking for a major advance between now and 2010. The Dow and NASDAQ are still expected to move significantly higher. According to Harry, we are in the midst of a 3 year bubble that will bring the Dow to 15,000 by late 2007 or early 2008 and by late 2009 the Dow should reach 20,000. He is also predicting the NASDAQ will reach 4300-5000 by late 2009.
Once these highs are achieved around 2010, he is looking for a crash into 2012 to early 2013 and then an extended slowdown in the United States into 2022 with stocks and real estate entering a long term decline. (This, Harry wrote, will be similar to the long term bear market in Japan from 1990-2003). He also touches on commodities, believing that the oil and commodity market has peaked for now, will correct well into 2007 with a slowing economy and will become attractive again in late 2007, early 2008 with oil likely seeing $100 a barrel by late 2009.
For now he suggests focusing on large cap growth sectors of technology, financial services, healthcare, Asia and emerging markets. During the crash you should invest in high quality bonds and fixed income. Opportunities after the initial crash will be in Asian economies and the healthcare sector of US economy.
Even though the numbers have been dramatically lowered, if he is accurate there is still a huge move ahead for the markets into 2010. I, for one, will be watching (and investing) very carefully. You can read more about Harry S. Dent and his forecasts at www.hsdent.com.
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