Risks of Bond Investing
Labels:
bonds
There are different types of bonds with different terms. They can help balance the risks of stock investing. Bonds do not have the growth potential of stocks, but usually offer a more consistent level of income and, over time, may be more stable in price than stocks. However, if you're considering adding bonds to your portfolio, there are some risks of bond investing you should be aware of.
Interest rate risk. A bond’s market value is closely tied to interest rates. Generally, when interest rates rise from the date of the bond's purchase, the bond's price will fall and will then be trading at a discount resulting in a lower return for the investor and ultimately a loss when you sell.
Credit risk. Credit quality is measured by the issuer’s ability to make payments on time. When an issuer misses a payment, the bond is considered in default. Credit ratings are given to bond issuers which help investors determine the risks involved.
Inflation Risk. If an investor purchases a fixed bond and then inflation rises, the bondholder will lose money on the investment simply because inflation reduces your purchasing power by eating away at the principle of your investment. It's wise for investors to maintain a certain percentage of stocks in their portfolio to help protect themselves against the effects of inflation.
Adding a bond fund or funds to your portfolio can help you diversify if you are invested only in stocks. Diversification can help reduce your overall risk which is something you’ll appreciate should the market decline. Of course, diversification cannot guarantee a profit or protect against a loss in a down market.
Planing for Retirement Over 55
Labels:
retirement
With the economy and stock market declines all over the news right now, it’s understandable if investors are nervous. And that goes double for those who are over 55 and nearing retirement. But the news is not all bad. As a retirement investor, time is likely still on your side because retirement investing doesn’t end when you retire. In addition, there are actions you can take today to help you get back on track to a more secure retirement.
Determine your expected expenses in retirement. Expenses usually go down once you're retired. Taxes for one and specifically social security and Medicare taxes no longer apply in retirement. There are also no retirement contributions which can be significant if you've been saving aggressively over the years. Everyday expenses such as clothing, food & gas should also go down considerably in retirement. If you're able to manage to pay off your mortgage prior to retirement then you are certainly that much better off in terms of making your retirement savings last.
Consider all sources of income, Social Security is a given for retirees but if you've done a good job of planning for retirement, you should also receive retirement income from your employers 401k plan or pension plan assuming the company your worked for offered this as a benefit to it's employees. If you've managed to contribute to either a traditional or Roth IRA then that would be yet another source of retirement income. All of these sources combined can amount to a substantial income in retirement and may even surpass your income while in the workplace if you've managed to save aggressively over a long period of time.
Figure out available assets. This would be the total amount you have accumulated over the years as an investor. You need to take into account balances in your 401k, pension (if offered) and IRA accounts. You may also consider the equity in your home or any other investment properties you may own. Hopefully you will have accumulated enough retirement assets to provide a substantial supplement to Social Security as that in itself simply does not provide enough to meet your basic needs in most cases.
If you're over 55 and are worried about supporting yourself in your retirement years, a few things you can consider doing to put yourself in a better position financially are:
- Hold annual withdrawals constant for the first five years.
- Cutting back your initial withdrawal amount from what had been planned.
- Consider working a few extra years.
Understanding Annuity Options
Labels:
annuities
Annuities can provide additional tax-deferred growth opportunities to help supplement your retirement savings. Annuities offer no income restrictions on contribution eligibility and there is no limit on how much you can contribute to them. You can contribute to an annuity with a lump-sum investment or you can make regular payments to your annuity over a period of time. However, it is important to understand your options for annuities before you decide if they are right for you.
Fixed annuities - This type of annuity earns a guaranteed rate of interest for a specific time period which is established by the terms of the contract with the insurance company. Once the guaranteed period is over, a new interest rate is set. However, since the idea behind a fixed annuity is to establish a long term guarantee of both earnings and principle, the recipient will most likely want to set a time period that is based on their life expectancy in retirement.
Variable annuities — With this type, the account value of your annuity is subject to market risk and may fluctuate in value which means your contributions and earnings are not guaranteed resulting in a possible loss of principal. Of course, if an individual is willing to take risks with their money for the possibility of growth potential then a variable annuity is certainly a good option to consider.
Immediate annuities — This type of annuity allows for the immediate option of payments begin as soon as they are purchased. Although immediate annuities are geared towards a single lump-sum payment from an inheritance, settlement or sale of a home you can also arrange to receive your money in regularly scheduled payments. You may also fund your annuity with distributions from a 401K or an IRA.
Deferred annuities — With this type of annuity, payments start to pay out after a period of time in which your money is invested on a tax-deferred basis. In other words, a deferred annuity is targeted towards those who want to save for retirement using a tax-sheltered vehicle while looking for better than average savings rates. Of course, you will be taxed on withdrawals much like a 401K or a Traditional IRA.
- It's best to consider an annuity only after you have taken full advantage of other tax-deferred savings accounts, such as your employee-sponsored retirement plan (401K) and individual retirement accounts (IRAs),
- Withdrawals from annuities prior to age 59½ may be subject to a 10% federal tax penalty and any earnings are taxed as regular income.
Annuities are not right for everyone and depend on your individual situation. Shop around before buying an annuity. Meet with several insurance agents who are experienced with annuities and are properly licensed in your state. Look for insurers that are authorized to do business in your state and that are in good financial condition. You should also consider talking to a tax advisor before you make a decision to purchase an annuity.
Buying the Best Penny Stocks
Labels:
penny stocks
How can you make money buying penny stocks? More importantly, how do you which are the best penny stock to buy? These are questions that many investors have who have little to no experience in investing in penny stocks. There are basic criteria used in attempting to understand penny stocks and to know the best ones to buy.
Know the historical performance of the stock. This means that you have to research the stock carefully before making any type of investment. There are many online resources that provide information on which penny stocks to buy. A personal favorite is Motley Fool.com which provides accurate, easy to read information that will assist you in your decision on which stocks to purchase.
Determine your risk tolerance. How much are you willing or able to invest will determine which penny stocks are the best option for you. One common characteristic of penny stocks is they are high risk/high reward investments. If you're an aggressive minded investor who is willing to take a risk then penny stocks are definitely a good option for you. However, conservative investors should really think twice about their investment choices before investing.
Find the right investment broker. I would suggest using an online discount broker for investing in penny stocks. The reason is penny stock investments can only amount to a couple of hundred dollars and you don't want the broker commissions to exceed your investment returns. One suggestion would be E-TRADE.com. They are a reputable, inexpensive online broker that has an excellent reputation.
Penny stocks can be very unpredictable. It's easy to lose money on penny stocks. However, they can also produce hundreds of percentage points in a short period of time resulting in significant gains. Statistics have proven that with timely planning and research, the right penny stocks can provide a substantial return on your investment.
Maintain Focus on Your Retirement Investment Strategy
Labels:
investments,
retirement
While you can’t control how the stock market behaves, you can control how much you save and how well you maintain your investment strategy through different market conditions. Maintaining a diversified portfolio may give you a better chance of achieving your financial goals than if you move money around based on short-term market factors.
A recent study found that making drastic changes to your retirement strategy in response to big losses—such as switching to a more conservative portfolio could ultimately make it more difficult for you to achieve long-term financial security. That’s because a conservative portfolio does not offer the same growth potential that an aggressive portfolio does.
With the economy and stock market declines all over the news right now, it’s understandable if investors’ nerves are frayed. But, aggressive portfolios are built on the premise that investors need to plan for a 30-year retirement that will last well into their 90s. There are many important factors to consider when planning for retirement, including your expected expenses, sources of income, and available assets. Before investing in anything be sure to weigh your objectives, time horizon, and risk tolerance.
If you had a good investment strategy six months ago, chances are it’s still a good investment strategy. Do your best to stay calm and focused and to stick with it.
Subscribe to:
Posts (Atom)
