Astas Romas Finance

Investing, Retirement, Saving

Are Annuities Right For Your Portfolio

October 13th, 2010 Posted in Retirement Investments
Oct, 13 2010
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Choosing investments, like annuities, can be a daunting task, especially when thinking about retirement. Without a financial background most people are too afraid to try investing in annuities and therefore miss out on earning money, by letting it sit in a low interest savings account. By deciding a few simple things, you too can know how to compare annuities and decide which ones are right for you.

An annuity is a contract with an insurance company that says you will pay them a certain amount for a stated number of years, and then afterward, they will start paying you for a specified number of years or until death (depending on the contract). There are many different types out there. Some let you pay them in a lump sum, others might allow early withdrawals with penalties (like an IRA), and still there are those which will pay you based on the market or by a previous agreement.

Confused? Don’t be. There are first a few things you must decide that will narrow down the playing field quite a bit, and help you in knowing how to compare annuities. One is liquidity. Do you see yourself needing cash before the payout? If this is true, you should choose one with a low early withdrawal penalty. In some cases, the lower the penalty might mean a lower rate returned to you.

Another thing to think about is how much risk you want to take. With risk comes rewards, but a sure thing is a sure thing. If you are playing it safe, getting fixed income annuities might be for you. This means that you are guaranteed to get a return of a certain amount, regardless of what the market is doing. Now, if you can afford (and have the heart) to take a risk, you might want to try the variable kind. This type is tied to the market, so you stand to make a lot more money if the market goes up, however a lot less if the market goes down.

Then you must consider how you prefer to have your payments, whether it is a little over a long period of time (great for those of us that have trouble budgeting), or maybe in a lump sum (great if you want to roll it over into a short term investment later in life). The contracts will vary as some will give you money until you die, others might only pay out for 5 years, and of those, which one will continue payouts to a beneficiary.

There is no right answer for any of these questions as each person and their situation is unique. Once you know what you will be right for you, your options will be narrowed so you can much more easily compare and contrast. Or by taking what you want to a qualified financial advisor, they can talk you through the whole process.

Now that you know how to compare annuities, hopefully the prospect isn’t quite so fearful anymore. The earlier you start, the better, for now is the time where you might have some extra income and let it pay you later in life when you won’t have that same cash.

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Are CDs The Best Safe Investment?

April 24th, 2010 Posted in Banking
Apr, 24 2010
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Bank investments in recent years have become unquestionably uncertain for many investors looking for a nice interest rate which will yield them a nice return. Some have turned from bonds to bank cd rates, and now some are turning away from cd rates to higher risk investments like variable annuities or high yield mutual funds. Why? The main reason is that rates have gone down so much, you are better off investing money in a savings account. Many bank savings accounts can yield double what some short term CD’s can. With that in mind, others have decided to put their money in long term on a higher yield CD to make it worth it. The question is do you want your money tied up for a long period of time? That’s ok if you’re saving for retirement, but if you may need the money you probably don’t want to have your money locked up.

Many of the larger banks like Chase and Bank of America are probably the last place you want to look. Not only do they have a much larger cash flow than smaller banks, but they also tend to have some of the lowest rates. Chase bank CD rates have been at their lowest in recent months than ever before, and don’t seem to be as appealing to people as they used to be. So the first step in finding a decent rate would be to go to local based banks in your town or city. Many times these banks are looking for new members just as much as anyone else is, and they use the lure of CD’s, Savings account bonuses and Money Market account specials to get you to sign up for an account. If you have the patience to wait, you will find that some banks offer as high as 3% APY on some short term rates. Considering how horrible the economy is right now you might be wise to take them.

Most investors don’t want to have their money tied up in CD’s for long term, so the alternative is a method called CD laddering. This method means that you find the best rates for a short term, and continue to invest every so many months in new CD’s. The purpose of this is to offset any rise or lowering of bank certificates, which will provide you with an even rate across the board long term no matter how bad the stock market is.

Diversification however is probably the foremost important thing for any investor. If something is not going to make a decent return then you may want to invest in things that are a little more risky. A bank CD is low risk because it is insured by the FDIC on any account up to $250,000 dollars. This means that if anything were to happen with the bank you opened the CD with, you would be insured if the bank went under. This is a safe way to invest, but is obviously only one of many which can help you to diversify your portfolio.

If you are looking at getting into investing with banks, you should call the local banks in your area to see what types of investments will be right for you. Sometimes there are unpublicized specials for new customers which can give you an edge.

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How To Invest For Retirement On A Budget

March 31st, 2010 Posted in Retirement Investments
Mar, 31 2010
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Budget is always a key consideration

Obviously, not every person has the financial resources for investing in every financial instrument. In some cases, it is not a matter of money so much as it is a matter have having sufficient knowledge and understanding of the investment industry as a whole. We read about all sorts of investments like annuities, high yield bonds, real estate interest trusts (REIT’s) and the like but we rarely understand them. The advantage to investing is that a down payment is not always required like it is with purchasing a car or home. Additionally, the cost of living and unexpected expenses can deter a person from investing as well.

Savings accounts – the basic investment strategy

No matter how much money you feel that you can afford putting towards investing, most people can muster up enough money every month to sink into a standard passbook savings account or buying a CD. Despite the fact that the average rate of return is typically lower than other investment vehicles, this is virtually a risk-free method of investing towards retirement on a tight budget.

401(k) plans

There are a number of benefits involved with investing for retirement in 401(k) plans (or Roth IRA if your company doesn’t have a 401K). If you have a steady job, it is even easier due to the fact that many employers can set up your investing in one based on payroll deductions. Suffice it to say, this makes things a bit more convenient even if you have a strict budget to follow every month. Another key benefit to 401(k) investing is that the money is tax-deferred until you decide to withdraw it.

You can also search online for a good Roth IRA provider if you are not comfortable with the 401K that your employer is offering. However, you should know that your employer has probably done a lot of research prior to settling on a plan to offer their employees. If you do decide to look for a 401(k) plan online, just make sure you thoroughly investigate the company that is promoting it.

Other investment vehicles

Where 401(k) plans are concerned, over 25 million Americans today work for an employer that does not offer one. However, that doesn’t necessarily mean that you cannot find another investment instrument that will fit within the constraints of your budget. The following are two viable alternatives to consider:

ETF’s or Exchange Traded Funds – this is a viable solution for those individuals who are a bit intimidated by trying to select which stocks to purchase as well as anyone who does not have the funds available to hire a financial planner or investment adviser. ETF’s are similar to index mutual funds in that they are traded like stocks are. With ETF’s you can buy an entire sector, commodities like gold or mirror an index like the S&P 500. Not only do they provide you with one investment comprised of numerous stocks, ETF’s are also an excellent portfolio diversification instrument to hedge against a bear market.

Investing with an online brokerage – although you do have to be careful when pursuing this way of investing, many individuals today have gone this route in order to save on broker commissions. Unfortunately, not all of these online brokerages are reputable. Just be very careful when going this route and make sure that you investigate the online broker as thoroughly as you possibly can.

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Find Mutual Funds That Fit Your Portfolio

February 27th, 2010 Posted in Portfolio Management
Feb, 27 2010
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The Benefits Of Investing In Mutual Funds

Not only are mutual funds a viable option for your investment portfolio, they are also (along with annuities, CD’s and gold) one of the safer investment vehicles to invest your money in. Despite the simplicity of that statement, the task of finding the best ones for your portfolio can be a daunting challenge especially if you have an account that doesn’t give you the assistance of a financial adviser who might be able to point you in the right direction. However, diversifying your portfolio by investing in several mutual funds is oftentimes recommended by financial planners as this reduces your overall investment risk where your portfolio is concerned.

There are no real headaches involved with mutual fund management because each fund has a fund manager who searches for the most prosperous sectors to invest in. Additionally, this affords the investor with some leverage due to the minimized risk that is involved. Obviously, you want to search out the top performing mutual funds if at all possible. Of course, this is easier said than done since there are hundreds of them out there in the investment arena to choose from.

Steps to choosing the best mutual funds

So what do you need to look for when trying to decide on the best mutual funds to invest in? Keep in mind that there are 4 significant types of mutual funds including:

• balanced mutual funds – these feature moderate risk
• debt mutual funds – appeals to the investor who wants to play it safe
• equity diversified mutual funds – typically appeal to the risk taker
• equity linked mutual funds – decrease tax liability

Here are 3 suggestions for selecting the best mutual funds for your investment portfolio:

Advisory Board/Board of Advisors – this entity is comprised of numerous asset managers who are responsible for the performance of a mutual fund. Investigate this in order to see what the track record is like. If there is a positive track record, then your investment will most likely be safe.

Past performance – obviously, you always want to look at a mutual fund’s overall past performance to determine if it has been a consistent gainer, especially in a bad market. It is recommended that you see where it has been for the past 3 to 5 years before making a decision. Just be aware of the fact that regardless of past positive performances that this is no guarantee of how it will perform in the future. However, this does give you a clear picture of how stable the fund house is.

Rankings – Lipper Leader Fund Ratings and Morningstar are two companies that are excellent mutual fund rating firms. They hand out points and “stars” to those mutual funds that have displayed a positive performance in past years. Additionally, the consistency of return on investment and the tax efficiency is taken into consideration as they rate the different mutual funds.

Obviously, there are other steps that you can take for selecting the best mutual funds for your investment portfolio, but we recommend that you consider the 3 above before investigating further. Remember that investing is always a risky business, so you want to do everything in your power to protect your investments.

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Bear Market Investing

December 17th, 2009 Posted in Investing
Dec, 17 2009
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If you are watching the prices of shares dropping by the day and are wondering about the best way to start investing in a bear market, there are several ideas that may help you both survive and thrive in this uncertain economic environment. Due to the nature of the stock market, however, there is no surefire method of investment that will guarantee a profit.

Fortunately, with the right frame of mind, you can make the correct decisions when it comes to deciding how to safely invest your money. First, know how much risk you can actually handle when investing. This is termed your risk tolerance and is useful when determining what types of investments to make. During a bear market, you will need a high risk tolerance to confidently invest in stocks. If your tolerance is low, you may be better off investing in gold or simply keeping the cash in a CD.

Second, you must have clear investment goals. A long-term aim of procuring enough cash for your retirement or a short-term one of increasing your capital by next year will have a big effect on what investments you choose to make. In the current market, stocks may not be a great idea for short-term investment since the risk is high. On the other hand, the stock market looks like a very attractive place for long-term investment due to its past performance and the high chance that stock prices will eventually rise if given enough time. In this case investing in an annuity might be smarter.

A third tip on how to invest in a bear market is diversification, which is an excellent method of reducing the risk and increasing your returns. By relying on numerous sources of investment, the overall variance will average out and the chances that you actually make some money will increase. In today’s market, this is especially important to smart investors. It’s the investment version of the lay mans term, “don’t put all your eggs into one basket.”

Fourth, doing some research about investing in an unstable market will enable you to get rid of your fears and actually make some smart choices. Believe it or not, now is a good time to purchase shares. You know that the stock price is low right now but you also know that it will turn around sometime in the future.

This is the key to gaining the confidence to choose stocks as a way to increase your capital. This is also a great reason why stocks are not currently a great short-term investment. It may take a long time for the market to get back to how it was a few years ago meaning that it is better to purchase the stocks now and then simply sit and wait until the current market trends reverse before you sell them. Smart investors know that the best deals can be had in a down market.

Of course, the fundamentals of how to invest in a bear market are much more complicated than can be described here so some further research will be required before you take the plunge.

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Adding Gold To Your Portfolio

November 14th, 2009 Posted in Gold Investing
Nov, 14 2009
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For centuries, individuals have been obsessed with gold, the most popular precious metal where investing is concerned. For decades now, anytime there is economic instability, smart investors have always turned to gold as a safe investment as well as a hedge against a bad stock market and a falling currency value that is declining and inflation. You can invest in gold in a number of ways including bullion or bars, gold coinage, and indirect venues such as investing in a gold mining company. You can even buy gold for your IRA (or at least the gold ETF) Should the regular investor purchase gold? Here are some pros and cons to consider.

The Pros Of Investing In Gold

• Being a physical metal, gold has intrinsic value as well as industrial applications unlike most currencies
• Over the next few years, inflation is expected to accelerate
• The earnings on gold investments are not correlated with bonds and stocks as well as the real estate market which makes it an ideal diversifier during turbulent economic times
• The US Dollar is likely to continue depreciating throughout the year
• There is a rising demand in the industrial sector for gold
• Unlike the Euro or the US Dollar, the value of gold can never be zero

The Cons Of Investing In Gold

Ironically you could have bought a nice men’s suit in 1808 with an ounce of gold and today that same ounce of gold will still buy a nice men’s suit – over lengthy periods of time, gold maintains purchasing power. It doesn’t increase it. Unless you are a genius with purchase and sell timing strategies, it is unlikely that you will attain any wealth when you invest in gold.

Gold does not create any real economic value, nor does it pay dividends or interest like an annuity would – conversely, stocks represent an investment in a breathing, living entity. Stocks have the ability to either create or destroy what is considered real economic value. Additionally, gold usually will not beat the best stocks or mutual funds over the long haul. This is based on the fact that good stocks originate from good companies and create wealth when none existed before.

It is extremely difficult to predict what direction the price of gold is going to go – timing is always everything when it comes to investing in gold since no long-term value is created. The unfortunate aspect of investing in gold is that it is extremely difficult to predict when the value is going to bottom out or peak. If the experts have difficulty doing this, what chance does a novice have at succeeding with gold investing?

Gold isn’t consumed but it can be altered in form – gold is a transmutable precious metal. Interestingly enough, all of the precious metal that has ever been mined throughout history still exists today. Additionally, the global supply continues to increase as more and more of the metal is currently being mined today. If inflation increases slower than the growth of the supply of gold, it is likely that it will decrease in value, although this scenario is not likely to occur.

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What To Do If Your Mutual Fund Changes Managers

October 22nd, 2009 Posted in Investing, Portfolio Management
Oct, 22 2009
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What Is A Mutual Fund Manager?

The individual (or individuals) who are responsible for implementing a mutual fund’s investing strategies and the management of portfolio and trading activities is known as a mutual fund manager or more simply, the fund manager. Additionally, mutual funds can be managed in a number of ways such as:

• by one person
• two persons or co-managers
• a team of three or more persons

Typically, fund managers are compensated by a fee which is oftentimes a percentage of that mutual fund’s managed average assets. In order to qualify for the position of fund manager, there are certain requirements including:

• high levels of both educational and professional credentials
• appropriate experience in investment management

Anytime you are considering investing in any mutual funds, you should always look for a long term, positive performance history and a fund manager whose track record mirrors the fund’s performance.
How to handle a change in fund managers

What most fledgling investors don’t realize is that the decision on investing in a particular mutual fund is to purchase the fund or the manager. That is the biggest challenge encountered when a mutual fund changes managers. Although this is not always the case, a change in fund management typically signifies a “red flag” and investors will need to put on their detective hats.

In most cases questions will need to be answered, answers will need to be deciphered, and a decision will need to be made regarding selling the fund or sticking with it. Naturally, it is simpler to stick with the fund manager since they have been responsible for some or possibly all of the fund’s performance. However, many fund companies will dictate a fund’s investment strategy and style, oftentimes demanding that the fund manager follows those mandates. This results in many transitions becoming relatively seamless.

In recent years, increasing numbers of fund companies have shut down the guru-making machinery which was their driving force in the 1990’s. Instead they are hiring management teams that may not be negatively or positively impacted by losing a single member. However, the departure of a fund manager is usually an indication or a warning and not so much an indication for you to sell off your fund.

What you want to remember is that a fund manager usually weighs the pros and cons when a top level executive departs a fund that is in their portfolio. So you need to be very critical and methodical as well as avoiding those knee-jerk reactions that you may regret later. Some things that you want to consider are:

• why the change in management was made
• if the transition was one that raised a lot of eyebrows or did it go smoothly?
• did the change equate to promoting a talented analyst or manager within that company?
• will that new manager make a positive difference in the performance of the fund?

In most instances, considering the above will help you in the decision making process.

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Is A Roth IRA Right For You?

September 14th, 2009 Posted in Retirement Investments
Sep, 14 2009
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A Roth IRA, or individual retirement account, allows tax payers in a certain income bracket and work status to secure a retirement plan. The rise in the participation of 401k plans shed light on options for entrepreneurs and employees without the same option. Questions soon began to circulate while people sought the answer to what is a Roth IRA and why should I open one?

The plan is subject to withdrawal penalties for five years before becoming eligible for tax-free distribution in some cases. This plan is also restricted to those under 70 and a half years of age. A tax shelter such as an IRA offers a tax deferred way to secure a comfortable income for future living expenses after retirement.

A business savvy individual is going to plan in advance for this time in life. Many employers offer pension plans to employees who opt to participate. Some plan participation include employer contributions of up to a percentage of what the employee contributes. For the individual there are five different types of IRA’s:

• The Traditional IRA
• The SEP IRA
• The Simple IRA
• The Educational IRA
• The Roth IRA
• The Gold IRA

The restrictions attached to IRA’s generally relate to the limitations placed on the amount that can be contributed per year without becoming taxed. The tax and employment status of the individual determines the limitations placed on the chosen plan.

For instance, the Traditional IRA allows for up to $4000 in contributions in a given year for a single person. This type can be tax deductible or non-deductible determined by tax payer status. The account owner can contribute a certain amount to an Educational IRA. The owner is also restricted in the allotment of money to educational resources. The SEP IRA is a good choice for small business owners as it allows the owner to contribute a larger tax-free percentage, although many business owners are starting to choose the Simple IRA in growing numbers. This plan is most similar to a 401k plan.

The benefit of participating in a sponsored 401k plan is the acquisition of an employer contribution, otherwise considered as free money! The benefit to having the IRA version in addition to the saving feature is the option to diversify which is always a very prudent idea.

The ability to establish a portfolio with an IRA without tax penalties is a huge benefit if done properly (same goes for annuities as well). This feature allows the owner to make up for the lack of employer contributions with dividends earned from investments. The advice of a qualified professional will educate the owner of the advantages of not only opening and IRA, but including mutual funds to the portfolio for the best outcome in securing a solid financial future. Don’t make the mistake of trying to save money by skipping this step. While you may save on consultation fees, the wrong decision could cost you a great deal of money in the long term.

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