We are Invested in Advising Your Future Financial Decisions

Yes. It is always a good idea to contribute as much as possible to retirement plans, to take advantage of tax deferral and employer matches.

If you start your savings plan in your early 20s and save 10% of your income, you’ll have a sufficient nest egg by the time you retire. If you are in your 40s when you start to save for retirement, you might have to put away upwards of 20%. This is all dependent on the time of your life that you begin to save, the size of your current nest egg, and the amount of money that you will need to retire comfortably.

It is always a good idea to contribute as much as possible to retirement plans, to take advantage of tax deferral and employer matches.

For the first few years after retirement, most people need around 80% of their pre-retirement income until they learn how to live on less. This can vary greatly depending on their expenses.

• Is the mortgage already paid off?
  
  
• Do you have car payments?
  
  
• Are you sending your children through school?

It is also useful to have an emergency fund with at least six months of expenses in it. You can always adjust it.

Educating yourself is the best thing you can do to limit your risk exposure.

When the rate of return is significant, the risk usually is as well. Depending on the situation, you may put yourself at risk to lose all of your initial investment.

• Pay attention to news that pertains to the companies that you hold; information that is released about the companies in the news can seriously affect the values of the investments you hold.
  
  
• Investing in a company with little or no history is much riskier than those with a proven track record.
  
  
• There is a big difference in the liquidity of assets, in how fast they can be sold. Some investments have penalties for selling prior to the maturation date.
  
  
• The previous performance of a stock doesn't necessarily mean that the stock will follow that pattern.

There are several precautions you can take.

Here are some suggestions:

• Never make purchases from phone solicitations offering the next hot stock.
  
  
• Always trade through your brokerage firm.
  
  
• Do not send personal checks to an individual sales representative; always to the company.
  
  
• If any sales representatives attempt anything that seems out of place, contact the branch manager of the company.

When you receive your monthly statements, double-check them to make sure everything is correct and that there are no irregular charges.

You have to decide on your comfort level, risk limit, etc.

Here are some questions to ask yourself:

• Do I feel comfortable with this investment?
  
  
• Is this investment too risky for me?
  
  
• Is this investment registered with the SEC?
  
  
• How liquid is the investment? Could I sell this quickly?
  
  
• Do I have any moral conflict with what the business provides?
  
  
• What sorts of fees are associated with this investment? Does it have a load that could cancel out the earnings that I would receive?
  
  
• What would need to happen for me to profit from this investment?

You may also want to speak with a financial professional who can offer you their expert advice.

All funds carry some degree of risk. Before investing any of your money, read a fund’s prospectus and shareholder reports. This will tell you about the fund’s strategy and what the possible risks involved might be.

What should you specifically look for?

• What the fund invests in.
  
  
• How the fund performed previously.
  
  
• If the fund has a load.
  
  
• Fees are associated with the fund.
  
  
• Any specific risks related to the investment.
  
  
• The number of times during the year that the fund issues statements.

Speaking to a financial expert or your CPA can also prove useful.

• Keep emotion out of it. It is best to keep a moderately controlled approach to investing. Chasing the jackpot can be dangerous.
  
  
• Be mistrustful of tips. If you aren't the head of a large investment firm, by the time a tip reaches you it is probably too late.
  
  
• Stay involved. Don’t rely solely on others helping you.
  
  
• Reevaluate. Your financial situation may change over the course of time; be sure that all of your investments are still appropriate.

Yes. Treat IRAs like any other investment, consider how much risk you are willing to take on and act accordingly.

If you are risk-averse, fixed short-term investments will be a better fit for your risk profile.

Be careful about putting your investments in municipal bonds. You may sacrifice return on your investment that could convert tax-free income into taxable income.

It’s important to decide on a realistic financial goal for yourself and your family.

Talk with family members to ensure that everyone has the same goals in mind. Determine what is important to you, whether it is early retirement, financial comfort, education, travel, taking care of elders, or your children.

• What should be taken into account when you start investing?
  
  
• Risk vs. Return
  
  
• Asset Allocation
  
  
• Diversification
  
  
•  Monitoring Progress

Risk vs. Return. Determine what sort of Return on Investment (ROI) you are seeking.

Asset Allocation. This is the selection of assets (i.e., stocks, bonds, and mutual funds.) Asset allocation allows you to minimize risk.

Diversification.  Similar to asset allocation, diversification is when you spread your investments within the same category.

Monitoring Progress. Examine your trading records to ensure that all of the trades went through at the prices that you instructed and with the correct commissions. Create a paper trail of all the transactions that occur in your portfolio.

Keep tabs on how your assets are performing. If you notice they are under-performing, it may be time to make changes to your investments. Check that your investments are in line with your current investment strategy. If you don’t want to track this yourself, contact a financial services professional to help.

At some point we’ve all made an investment that we haven’t thoroughly thought through. And then panic sets in.

How can you avoid future investment snafus? Here are some things to avoid:

• Using a one-size-fits-all plan.
• Not taking taxes into consideration.
• Overly risky investing.
• Paying high fees.
• Starting too late.
• Investing emotionally.

An annuity is an insurance contract. The insurance company invests in stocks and bonds on your behalf with the tax deferred money.

When you reach age 65, you will begin to receive payments. These payments will fluctuate with the prices of the underlying securities. An annuity guarantees you will receive payments until your death.

Annuity contracts often carry various charges. These charges vary from company to company and are worth reading before purchasing the annuity. Annuities are not securities and so are not regulated by the SEC.

You will not be able to withdraw any of the money in an annuity during its tax-deferred growth period without incurring significant fees. You will be charged a 10% penalty under the tax code and the insurance will usually charge "surrender charges" on top of that if you do withdraw funds early.

There are two main types of annuities—immediate and deferred.

As their names indicate, immediate annuities allow you to collect soon after your purchase, while you must wait for payment (often years) from deferred annuities, which are not taxable for that duration.

Here is a list of the various types of annuities and what they offer:

• Single-Premium Annuities—the investment is made in one lump sum.
  
  
• Flexible-Premium Annuities—can be funded with a series of payments.
  
  
• Immediate Annuities—payments begin back to the purchaser instantly.
  
  
• Deferred Annuities—payments are redistributed to you (the purchaser) many years later and are not taxable until paid.
  
  
• Fixed Annuities—the insurance company invests your money in fixed investments (e.g., bonds) and the principal is guaranteed for a minimum period.
  
  
• Variable Annuities—you can invest in stocks, bonds, or cash equivalents. The principal is not guaranteed with these annuities.

You have a few choices when choosing to collect your annuity.

Some people opt for a lump sum. However, this negates one of the major benefits of the annuity: payments until death.

The amount of the monthly payments that you receive depends on:

• Your life expectancy.
  
  
• The amount of money in your annuity contract.
  
  
• The size of the minimum required payments (if any).
  
  
• Whether the payments continue after death or not.

There are various settlement options for annuities.

• Fixed Amount—gives you the option to choose a monthly amount that you will receive until your annuity runs out. There is a possibility that your money may run out before you die, and also the chance that you may die before your money runs out. In the latter case, your beneficiary will receive your payments.
  
  
• Fixed Period—the insurance company pays you for a fixed amount of time. If you are waiting for a retirement payment from another investment, it may be a good idea to get this fixed money until you start to receive payment from that investment. Again, if you are to die before the money is fully paid, the remainder will go to your beneficiary.
  
  
• Lifetime or Straight Life—this plan will continue to pay you money until you die. However, if you die early there will be no payments to the beneficiary.
  
  
• Life with Period Certain—you receive payments until death, and for a period afterward your beneficiary will receive payments too. The longer the period is, the lower the monthly payment will be.
  
  
• Installment—if you die before you have exhausted your funds, the rest will be distributed to the beneficiary.
  
  
• Joint And Survivor—the payments are made to the joint annuitants (e.g., you and your spouse). In the event of one's passing, the other will continue to receive a lesser amount.

The tax rates differ for tax-qualified and non-qualified plans.

An annuity that is tax-qualified is one that funds a qualified retirement plan. When this qualified annuity is used it follows the same tax laws as these retirement vehicles: tax deferral during the gestation period and the promise that earnings will not be taxed until withdrawn.

A non-qualified annuity is bought with after-tax dollars, but the benefit of tax-deferred savings still applies.

The Rule of 72 helps calculate how long it will take your investments to double at different interest rates.

Take the rate of annual return on your investment and divide 72 by that number. The result is the number of years it will take for you to double your investment.

Annuity payments to beneficiaries are subject to the same taxes that would have been collected from you.

Please refer to IRS Publication 939 for more information on how to calculate the taxable percentage of non-qualified annuity payments.

You may also want to look into death benefits riders that increase the size of your beneficiaries payments.

Your risk. How much risk are you willing to take? Make sure that the broker understands your risk tolerance.

• The company. Make sure that the company that you are buying the annuity from has a good track record.
  
  
• Commissions. Check the broker commissions. Although the insurer provides you with the annuity, it is the broker that stands to earn anywhere from 3% to 8% commission.
  
  
• Payment amount. Check the amount of payments that you will receive from different companies. This may vary greatly from company to company, but do not judge solely based on these numbers.

• Commissions. If the commission is paid in a front-end load, it can reduce the amount of your initial investment. A no-load or low-load annuity contract is preferable.
  
  
• Penalties. The surrender charges usually only apply for the first 7 years, starting at 7% the first year, declining 1% per year until after the 7th year, when these surrender charges no longer apply.

There are numerous fees associated with annuities.

• Mortality and Expense (M & E) Risk—is charged by the insurer to compensate for risks when providing the annuity.
  
  
• Annual Account Charges—can include administrative and record-keeping fees.
  
  
• Investment Management Fees—are passed onto the investment firm that is managing the annuity.
  
  
• Surrender Charges—are charged by the insurance company if you take money out before the annuity has matured.
  
  
• Sales Charges—given to the commissioned sales person who sold you the annuity.
  
  
• Fees for Special Features—many annuities give you the option to select features such as minimum income guarantees, death benefit, extra withdrawal privileges and beneficiary protection, for which you pay an extra fee.
  
  
• Tax Penalty for Early Withdrawal—deferred annuities are designed to be long-term retirement savings vehicles. There is a penalty for early withdrawal.

These fees should be stated plainly in the prospectus.

A bond is simply a certificate that the borrower promises to repay within a certain period.

For the privilege of using the money, the company, municipality or government entity agrees to pay a certain amount of interest per year, usually an exact percentage of the amount loaned.

As a bondholder, you do not own any part of the entity you loaned the money to nor do you receive the benefits of dividends or the privilege to vote on company matters. The success of the investment isn't related to that company's record in the market, either. You are entitled to receive the agreed-upon amount, as well as the principal of the bond.

Corporate bonds are issued in denominations of $1000 (face value). Bond prices can differ from their face values because the prices of the bonds are correlated to the current market rates. When these rates change, the value of the bond also changes. If you sell the bond before it matures, it may be worth less than you paid for it. A “callable bond” is one that the issuer may choose to buy back at full face value before the maturity date.

There are three major features of bonds:

• Issuing Organization
  
  
• Maturity
  
  
• Quality

Short-term bonds mature in two years or less. Long-term bonds mature in 10 or more. Intermediate bonds mature between two and 10 years.

Bond quality is the rating of the creditworthiness of an issuing organization.

The higher the rating is, the lower the risk of the investment. The rating system uses letters A through D. The only bond considered to be risk-free is the U.S. Treasury Bond.

Bond quality is the rating of the creditworthiness of an issuing organization.

There are organizations that specialize in judging bond quality. The higher the rating, the lower the risk of the investment. The rating system uses letters A through D.

An example of the rating system is shown below:

Bond prices and interest rates are opposites. As one rises, the other one drops.

The interest rate determines whether a bond is sold at a discount (par) or a premium price. If a bond's interest rate equals the current market interest rate, the bond will be sold at par. This means that the issue price of the bond (e.g., $1000) is the same as the face value (the amount you receive at maturity.

If a bond interest rate is not the same as the current market rate of interest, the price will increase, but the face value will remain the same. Why would you do this? It could be you want to lock in a higher interest rate. If the bond rate is lower than the market rate, the bond will be discounted.

Bond prices are heavily influenced by maturity.

The longer bonds are left to mature, the greater the change in price for a change in interest rates. Due to this, bond fund managers attempt to change their fund's average maturity to anticipate changes in interest rates.

In a bond call provision, the bond issuer can redeem the bonds after a specified amount of time.

This will not guarantee a continuation of a high yield after the call date as it limits the appreciation of the bonds, and it makes the investment riskier. Bond call provisions can be complex.

It depends on the amount of flexibility you want.

A bond mutual fund contains multiple bonds. For that reason, it is impossible to lock in the payment rate or the principal, which you would be able to do if you were directly buying a bond.

A bond mutual fund is an investment company that manages a portfolio of individual bonds. You as an investor purchase ownership in the company. Each share you purchase represents ownership in all of the company's holdings. Managers use these investments to buy and sell bonds that align with the objective of the fund.

Liquidity plays a major role in bond buying. If you purchase a bond individually and wish to sell it, you must find a buyer for your bond. If you invest in a bond fund, the fund has to purchase your shares back any time you choose.

Bonds can be issued by municipalities, the U.S. government and the Federal Reserve.

• Municipal bonds are offered by local governments, states and cities. The interest from these bonds is not subject to federal income tax. This may change if you are on Social Security. If the bondholder lives in the jurisdiction of the governing authority, the interest is exempt from state and local tax. Because of all the tax advantages they offer, the interest rates paid on municipal bonds is usually lower.
  
  
• The U.S. government also issues bonds, which are considered to the safest bond investment.
  
  
• Treasury bills can be bought through a broker or directly from the Federal Reserve.

Distributions from mutual funds should be reported as income, whether you reinvest them or not.

Taxable distributions come in two forms: ordinary dividends and capital gains. The distributions of ordinary dividends represent the net earnings of the fund and are periodically paid to shareholders. Mutual fund distributions are considered to be dividends, and must be accounted for accordingly.

Funds will give you the opportunity to reinvest in the fund automatically.

This does not prevent you from paying tax on your assets. However, your reinvestment will prevent you from paying more "buy" fees to get into the fund, so it is advantageous.

Sometimes mutual funds distribute monies to shareholders that haven't been attributed to the funds’ earnings. This is a non-taxable distribution.

Stocks are usually traded in quantities of 100 shares, called round lots. Any quantity of stock under 100 shares will be considered an odd lot.

Most stocks are common stocks.

Common stocks are based on company performance while preferred stocks will usually have a stated dividend.

Preferred stocks offer advantages regarding dividends. Holders of these stocks do not have the same voting rights that the holders of common shares do.

It is fairly easy to invest in foreign corporations, as these corporations need to register their securities with the Securities and Exchange Commission (SEC). The companies are subject to the same rules as U.S. firms.