July 2006
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One of the most important benefits of investing in a 401k plan at work is the potential for your employer to match a certain percentage of your contribution. Many 401k allow employers to contribute to the particpant’s account, but not all. The amount is usually represented as a specific percentage of the your contribution to the plan. For example, if your employer has a 50% match then for each dollar you contribute your employer would contribute $0.50 to your account.
If you take that example and draw the amount in your account over 20 years with and without a match you will see the huge diiference between the two. If you put in $100 at the end of each month into your 401k and your employer matched 50% the growth over 20 years (1980-2000) would almost be $240,000. Whereas it would be almost $160,000 if there was not employer match.
So take advantage of your employer’s match and put in as much as you can because it is free money and the growth of that money will help you towards your retirement.
Written by mike on July 31st, 2006 with no comments.
Read more articles on Investing and Retirement.
Do not depend on Social Security as your only retirement income.
- You cannot count on that money even being there
- Retirement age will be increased
- People who depend on it today as their only retirement income are living in near poverty
- If you are not in an some sort of qualified retirement plan it will be difficult to meet your retirement income needs
- If you have no post-retirement wages the potential for shortfall in your retirement planning may be even greater
To ensure a comfortable lifestyle during retirement, it is necessary to establish and maintain a savings plan that will bridge the gap between the income needed to retire comfortably and the income Social Security provides. Your 401k plan is essential to helping your financial future.
Written by mike on July 30th, 2006 with no comments.
Read more articles on Retirement.
Diversification might be boring, but it is prudent and profitable in the long term. Diversifying your portfolio holdings is the best way to make money in investing for the long run. By doing what is sometimes ignored because its lack of flash you will be positioned to handle good and bad economic and financial events.
If you want to sleep at night and feel like you are not betting the house you need to diversify. Your retirement money should be diversified; your other investments should be diversified. If you like to gamble for a big pay off keep a mad money fund where you can speculate, but do not speculate with money you will need.
Written by mike on July 29th, 2006 with no comments.
Read more articles on Stocks.
What you pay for growth in stocks does matter; valuation still remains important. During the late 1990s investors chased high flying tech stocks right off the P/E charts abandoning more reasonably valued stocks in other sectors.You must judge the likely sustainability of earnings and revenue acceleration, potential price appreciation is greatest when a company’s stock price does not fully reflect its future earnings power. Therefore, it is best to search for reasonably valued stocks with improving fundamentals.
When you see extremely high P/E ratios it is considered a growth company. You must examine the company closely before investing in P/Es that are out of whack with the overall market.
Written by mike on July 28th, 2006 with 3 comments.
Read more articles on Investing and Stocks.
Company-sponsored 401k plans can be very beneficial to your retirement. The following are some advantages to participating in your company’s 401k plan.
1. Participant Control:
- You get to decide how much you will invest each pay period up to the IRS’s annual limit
- You get to choose how to invest your money
- The assets in your 401k plan belong to you, so you take your vested accumulated plan assets with you if you leave the company
2. Pre-tax Investing:
- The funds you contribute to your 401k plan is deducted from your paycheck before income taxes are considered. This will allow you to reduce the amount of taxes you pay
3. Tax Deferral:
- You owe no taxes on the 401k investments until you withdrawal it from the plan.
4. Tailored Investment Plan:
- You can customize your plan to meet your needs according to your age, time horizon, wealth objectives, and risk tolerance
Written by mike on July 27th, 2006 with 1 comment.
Read more articles on Investing and Retirement.
As you can imagine stocks and bonds have had varying return from 1926-2000. Historically, the stock market was very volatile until after the Great Depression and more legislation was passed to protect investors. Since World War II, the stock market has displayed much less volatility because of the economic turn around and regulations.
Bonds have behaved the opposite as the stock market; it has had less volatility in much earlier periods and from 1980-2000 it has experienced a significant raise in volatility. Stocks are still much more volatile than bonds and always will be, however, with that risk has come much better historical performance. So if you mix these two asset classes it proves to be an excellent way to diversify your portfolio.
Written by mike on July 26th, 2006 with 4 comments.
Read more articles on Investing.
We have gone over what you need to prepare in case something goes wrong, but let’s also discuss what you need to ask your parents to make sure they have prepared you.
- Do you keep a budget? Make sure they know where the money will come from and where it will go.
- Do you have a will? If they do, great, but make sure it is up-to-date. If not make sure they prepare one as soon as they can.
- Do you have enough money in your retirement accounts? Find out where their retirement money will be coming from and if it will last them 20-30 years of retirement.
- Where are all your important documents? If they hide them and you do not know where they hid them prepare to search for a long time.
- Are you financially prepared for certain scenarios? Assisted-living, in-home nurse, etc can be costly. Think about long-term care insurance.
- Who will make medical and financial decisions if you cannot?
Written by mike on July 25th, 2006 with 1 comment.
Read more articles on Household and Retirement and Uncategorized.
Some people just hate debt. They never had credit card debt and they pay a huge down payment on their car so they do not have to worry about debt. However, sometimes it is good to do this with mortgages and sometimes it is not.
If your mortgage rate is at 6% for 30 years that means when you pay it off earlier you are getting 6% return. If you examine historical stock charts that 6% is not a good long-term bet versus investing in the stock market.
- So if you have other debt at higher rates it pays to pay those off first and then put more into your mortgage.
- If you are a conservative investor and do not like to take on a lot of risk then it might be best to get a 15 year mortgage and you will be saving money with a lower interest rate and making that guaranteed return.
- If you are closer to retirement and your home has greatly appreciated it is ok to take on more debt there because when you retire and sell it you will have more money going towards your retirement.
Written by mike on July 24th, 2006 with 4 comments.
Read more articles on Household and Real Estate.
You should always have a plan in case the worst does happen. People do not want to think about it, but that is a selfish point of view. You want to take care of those that love you after you are gone so you need to gather the following:
- Estate planning documents: wills and powers of attorneys
- Deeds and other property documents
- Assests and debts
- Account numbers and passwords for investments, banks, etc.
- Copy of Social Security and Medicare (or Medicaid) cards
- Loan paperwork and statements
- Insurance policies and information
- Benificiary Designations for assests
- Contact information for important people (doctors, advisors, etc)
Get this information ready and prepared and go over with your loved ones so they know what to do if something goes wrong.
Written by mike on July 23rd, 2006 with 2 comments.
Read more articles on Household.
Weighing risk and return there is always a trade-off. When you are putting together an investment plan and asset allocation for your portfolio the relationship between risk and return is essential.
When you consider the historical risk and return of small caps, large caps, intermediate government bonds, long-term government bonds and Treasury bills you will again notice that over this 75 year period the more risk you take on the more reward you can expect to receive. Smaller companies carry more risk and typically give higher returns while Treasury bills had little risk, but do not provide much return.
Considering these factors you need to base your portfolio asset allocation according to your ability to handle risk and your performance needs.
Written by mike on July 22nd, 2006 with 2 comments.
Read more articles on Investing.
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One of the most important benefits of investing in a 401k plan at work is the potential for your employer to match a certain percentage of your contribution. Many 401k allow employers to contribute to the particpant’s account, but not all. The amount is usually represented as a specific percentage of the your contribution to the plan. For example, if your employer has a 50% match then for each dollar you contribute your employer would contribute $0.50 to your account.
