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Knowing what your risk tolerance and investment style are will help you choose investments more wisely. While there are many different types of investments that one can make, there are really only three specific investment styles – and those three styles tie in with your risk tolerance. The three investment styles are conservative, moderate, and aggressive.
Naturally, if you find that you have a low tolerance for risk, your investment style will most likely be conservative or moderate at best. If you have a high tolerance for risk, you will most likely be a moderate or aggressive investor. At the same time, your financial goals will also determine what style of investing you use.
If you are saving for retirement in your early twenties, you should use a conservative or moderate style of investing – but if you are trying to get together the funds to buy a home in the next year or two, you would want to use an aggressive style.
Conservative investors want to maintain their initial investment. In other words, if they invest $5000 they want to be sure that they will get their initial $5000 back. This type of investor usually invests in common stocks and bonds and short term money market accounts.
An interest earning savings account is very common for conservative investors.
A moderate investor usually invests much like a conservative investor, but will use a portion of their investment funds for higher risk investments. Many moderate investors invest 50% of their investment funds in safe or conservative investments, and invest the remainder in riskier investments.
An aggressive investor is willing to take risks that other investors won’t take. They invest higher amounts of money in riskier ventures in the hopes of achieving larger returns – either over time or in a short amount of time. Aggressive investors often have all or most of their investment funds tied up in the stock market.
Again, determining what style of investing you will use will be determined by your financial goals and your risk tolerance. No matter what type of investing you do, however, you should carefully research that investment. Never invest without having all of the facts!
Investing in bonds is very safe, and the returns are usually very good. There are four basic types of bonds available and they are sold through the Government, through corporations, state and local governments, and foreign governments.
The greatest thing about bonds is that you will get your initial investment back. This makes bonds the perfect investment vehicle for those who are new to investing, or for those who have a low risk tolerance.
The United States Government sells Treasury Bonds through the Treasury Department. You can purchase Treasury Bonds with maturity dates ranging from three months to thirty years.
Treasury bonds include Treasury Notes (T-Notes), Treasury Bills (T-Bills), and Treasury Bonds. All Treasury bonds are backed by the United States Government, and tax is only charged on the interest that the bonds earn.
Corporate bonds are sold through public securities markets. A corporate bond is essentially a company selling its debt. Corporate bonds usually have high interest rates, but they are a bit risky. If the company goes belly-up, the bond is worthless.
State and local Governments also sell bonds. Unlike bonds issued by the federal government, these bonds usually have higher interest rates. This is because State and Local Governments can indeed go bankrupt – unlike the federal government.
State and Local Government bonds are free from income taxes – even on the interest. State and local taxes may also be waived. Tax-free Municipal Bonds are common State and Local Government Bonds.
Purchasing foreign bonds is actually very difficult, and is often done as part of a mutual fund. It is often very risky to invest in foreign countries. The safest type of bond to buy is one that is issued by the US Government.
The interest may be a bit lower, but again, there is little or no risk involved. For best results, when a bond reaches maturity, reinvest it into another bond.
A carpenter uses a set of house plans to build a house. If he didn’t the bathroom might get overlooked altogether.
Rocket Scientists would never begin construction on a new booster rocket without a detailed set of design specifications. Yet most of us go blindly out into the world without an inkling of an idea about finances and without any plan at all.
Not very smart of us, is it?
A money plan is called a budget and it is crucial to get us to our desired financial goals.
Without a plan we will drift without direction and end up marooned on a distant financial reef.
If you have a spouse or a significant other, you should make this budget together. Sit down and figure out what your joint financial goals are…long term and short term.
Then plan your route to get to those goals. Every journey begins with one step and the first step to attaining your goals is to make a realistic budget that both of you can live with.
A budget should never be a financial starvation diet. That won’t work for the long haul. Make reasonable allocations for food, clothing, shelter, utilities and insurance and set aside a reasonable amount for entertainment and the occasional luxury item. Savings should always come first before any spending.
Even a small amount saved will help you reach your long term and short term financial goals. You can find many budget forms on the internet. Just use any search engine you choose and type in “free budget forms”.
You’ll get lots of hits. Print one out and work on it with your spouse or significant other. Both of you will need to be happy with the final result and feel like it’s something you can stick to.
Mention the word “budget”, and people’s eyes tend to glaze over. Budgeting isn’t the most exciting activity in the world, and on the surface it is extremely limiting. We don’t like it when other people try to tell us how to spend our money, and even setting parameters of our own may seem too much.
What many of us do not realize is that a budget is the ticket to financial freedom. It restricts what we spend each month, but in the long run it allows us to get more out of our money. Instead of frittering funds away on things we could comfortably do without, we can save up for emergencies as well as things we enjoy.
Here are ten tips for creating a budget, setting priorities and keeping tabs on spending.
1. Be realistic. All too often, we create the perfect budget on paper, only to completely blow it in practice. This is frequently because we are not realistic about our expenses. It may help to save all receipts for a month before you start on your budget. That way you can evaluate how much you’re really spending and avoid budgeting too little for any given item.
2. Remember the little things. Eating out every day instead of packing your lunch might not seem like a big deal, but it can really add up. The same is true for many of the habits we have. Cutting back where practical can save you more money than you might think.
3. Lower your bills when possible. A good place to start is with your cable bill. Do you really need all of those movie channels? What about your cell phone bill? Would a less expensive plan meet your needs? Knocking a few dollars a month off of your bills could leave you with hundreds of extra dollars each year.
4. Get the whole family involved. A budget affects the entire household, so everyone should have a say. You may have to make changes that everyone doesn’t agree with, but they will be more likely to accept them if you listen to all input. Family members may also have ideas that you wouldn’t have thought of on your own.
5. Give everyone an allowance, not just the kids. Setting reasonable limits for discretionary spending will help prevent your budget from being derailed.
6. Make sure the necessities always come first. Budgeting for entertainment and other wants is important, but if push comes to shove, food, water, clothing and shelter are the most important things. Budget for these and the things that enable you to work (such as transportation) first.
7. Include savings in your budget. Saving up some money for emergencies is crucial for every individual and family. Try coming up with an amount to save each month and include it in the budget before any non-necessities.
8. Keep track of all expenditures. Save receipts or write down every expense so you can compare your actual spending to your budget. If you spend less money than budgeted, consider allocating more to savings. If you spend more money than you planned, you need to either watch your spending more closely or make adjustments to your budget.
9. Avoid using credit cards irresponsibly. Buying on credit will result in less spending of money in the short run, but you will have to pay it back with interest unless the balance is paid in full each month.
10. If you get extra money, use it wisely. Consider putting it directly into savings or using it to pay down debt. Spending it on something you want might feel good, but that doesn’t help your overall financial picture.
The annuity is a very unique type of investment. Instead of a bank or stock broker, investors obtain annuities through an insurance company. And while annuities have certain things in common with life insurance, they are not the same thing. They offer low risk while providing an opportunity to receive guaranteed income for a given number of years, or even for the rest of your life.
Annuities come in many different flavors. There are immediate annuities, which begin immediately after the annuity is purchased, and deferred annuities, which may begin years or decades later. Fixed period annuities pay out for a specified period of time, while lifetime annuities pay out until the annuity holder (and in some cases the annuity holder’s spouse) dies. Single premium annuities are paid for in one lump sum, and flexible premium annuities are funded by a series of payments over time. And then there are fixed and variable annuities.
Fixed Annuities
Fixed annuities are known for being safe, stable investments. The issuing insurance company guarantees the principal of fixed annuities, as well as a minimum rate of return. Growth in value is fixed at a given interest rate or dollar amount, or determined by a formula disclosed when the investor purchases the annuity.
Growth of fixed annuities is not always limited to the minimum interest rate. When an insurance company experiences unexpectedly high growth on annuity investments, it may pass that growth on to holders of fixed annuities in the form of dividends. Terms and conditions related to such dividends should be outlined in your annuity contract.
Variable Annuities
Variable annuities have more in common with mutual funds than fixed annuities. Money put into a variable annuity is invested in a fund with a particular investment objective. Like retirement accounts, variable annuities usually offer investors a choice of funds with varying degrees of risk.
Unlike fixed annuities, the payments distributed through variable annuities fluctuate according to fund performance. When the fund performs poorly, your payment decreases. When it performs well, it increases. There is no guaranteed rate of interest, and it is possible to lose principal with this type of annuity.
Variable annuities often come with a death benefit. That means that you can designate a beneficiary to receive the greater of your account balance or a guaranteed minimum. This prevents the loss of money invested if you die before withdrawing all of the money in your account.
Fixed and variable annuities each have certain benefits. Which one is best for a given investor depends on his goals and tolerance for risk. If you are looking for a safe, guaranteed investment, a fixed annuity may be the best choice. If you want to maximize your potential for returns, a variable annuity might be better for you.
Some people pride themselves on having a good handle on their finances. They pay their bills in full and on time each and every month. They manage their credit cards expertly, and even though they could get all the credit they want with ease, they refrain from opening new accounts that they don’t need. But if they do not have an emergency fund, they could still find themselves struggling at any time.
No matter what your income level, having an emergency fund is of the utmost importance. You just never know what could happen. Here are some potential scenarios to consider.
* You could lose your job. There is virtually no such thing as job security any more. Layoffs happen daily, and often with little or no warning. If you don’t have a financial cushion, job loss could render you unable to afford basic necessities.
* You could incur large medical bills. Accidents and unexpected illnesses happen to the best of us. If you have to have emergency surgery or spend some time in the hospital, you may end up owing a hefty sum and lose income from being out of work. Without an emergency fund, that double whammy could be financially devastating.
* The car could break down. Car repairs are rarely cheap. If you do not have any money put back, you could end up without transportation for a while.
* A major appliance could tear up. Having appliances repaired is often costly, and replacing them can cost a small fortune. But ovens and refrigerators are not things we can easily do without.
* Home repairs may become necessary. Some may be covered by homeowners insurance, but many are not.
* A family member could become ill. If it’s your child, you may need to take time off work to care for him. If it’s your spouse, he or she could lose income. Having an emergency fund can make such situations less stressful.
Some argue that they do not need an emergency fund because they have credit cards. It’s true that credit cards can be useful when something unexpected comes up, but you will have to pay interest on any amount you charge unless you pay the balance in full right away. If you’re on a tight budget, the last thing you need to do is rack up more debt.
So how much should you keep in your emergency fund? Most experts recommend a goal of three to six months’ pay. That sounds like a lot, but job loss or disability could keep you out of work that long or longer. It will take some time to build up such reserves, but it can be done with consistent saving each month.
When the unexpected happens, having an emergency fund can prevent it from sending your investing into chaos. By including a set amount of savings in your monthly budget, you can have a financial cushion to fall back on if needed.
It’s never too early to start thinking about your children’s college education. The sooner you start saving, the greater the chance your child will have enough money to get through college with no worries. But when considering college savings, many parents are unsure just what they should do with the money.
You could stuff it in a sock drawer, but it would have no chance of drawing interest there. A savings account might be slightly better, but any interest earned would be taxed. A 529 plan is a much better option.
529 plans are similar to 401K plans, but they’re for higher education instead of college. Parents, grandparents or anyone else can put money into one for a specified beneficiary. Any interest earned is tax-deferred, and if the money is left in the account until the child goes to college and used for college expenses, there is no tax liability.
There are two basic types of 529 plans. The College Savings Plan is the most similar to a 401K. Investors are allowed to choose from a variety of investment options for the plan, and their money earns interest according to the investments’ performance. The Prepaid Tuition Plan is different in that it allows contributors to purchase tuition credits at current prices to use in the future.
Most 529 plans are run by states. Every state offers at least one plan. Each plan is different, but most require either the plan owner or beneficiary to be a resident of the state issuing the plan. Some allow residents of any state to invest, but out-of-state residents may not be eligible for all available tax benefits. In most cases, the funds from state-run plans may be used at any college or university, even if it is not located in the same state.
There are also 529 plans offered by colleges and universities. All plans offered by educational institutions are prepaid tuition plans. Unlike state-run prepaid tuition plans, however, those run by schools are not guaranteed by the government.
The funds withdrawn from a 529 plan must be used toward eligible expenses. With prepaid tuition plans, these generally include only tuition and mandatory fees. Some plans, however, offer an option to purchase room and board credits or use extra tuition credits for these expenses. Money withdrawn from college savings plans may be used for tuition, fees, books, computers and room and board.
A 529 plan can help you save money for education without incurring a huge tax bill. These plans are easy to set up, and all of the investing is taken care of for you. All you need to do is make contributions and make sure that the beneficiary uses the funds properly when the time comes.
When the crisis comes it is the common man who suffers the most. The middle class are mostly affected by the situations like these. In other words, the middle class must pay the blunt of the mistakes, made financially, by the well-to-do and greedy class. The rich have enough money to survive through this healthily and gain back their lost virtues in some period.
In these times of recession the main question is how we are going to satisfy the needs of the middle class people and giving their rights back to them in order to operate family’s mediocre budget which allows them to have nice food once in a while or trip to parks.
As long as the rich were gathering fortunes from this tax and that oversight, the middle class were able to weed their way through the economy by seeking some relief through the tax breaks that were available to them in those times. Once the rich saw a way to pinch off the tax breaks, in order to further separate the wealthy from the middle class, did the recession cyclone of the 21st century begin to pick up wind and destroy the entire American economy through their own greed.
During President Reagan’ reign the Reform Act of 1986 was a 829-page bill was enacted to put an end to allowing the middle class to write-off their interest paid on credit cards and car loans, what the law termed as ‘consumer loans.’ from their income taxes.
The basic and main motive of this code tax change was to step down in increments, the ability to use the tax write-offs that helped the middle class to keep up with their overwhelming taxes. In other words it was designed to curb spending and maintain economic stability. But sadly it did nothing close to stop the greed of the wealthy from continuing to gouge the middle class, including credit card companies and their interest rate greed.
Unfortunately the lawmakers were trying to use the middle class to regulate the money, when it reality it should have been the other way around. This surely would have brought the desired change then. Apart from the hedge fund greedy and the fuel gouging prices, the mighty American consumers have managed their wallets better than the wealthy have managed their greed.
We should not be waiting for the greedy wealthy people to fix what they didn’t know how to stop in the first place and it will only further damage our economy which needs to get back on track soon. Or else its repercussions will be many and on all fields. The current administration is surely working round the clock to kick start the revival but it is halted in many places by some hiccups.
Helping others is a great way to help yourself. Start saving, investing in right areas, Spend wisely. See the pros and cons of everything and then decide
The economic global activity is strongly hit by the ongoing worldwide financial crisis. However the world has seen such a juncture in the past to and has always emerged triumphant. Although it took lot of time to happen.. The repercussions of this situation are plenty. The important question arises that how to handle our finances in these crucial times. In which sector our investment should go or should go at all.
In the following paragraphs we highlight some ideas for it.
The first instruction here you will get is about buyer’s power. A consumer or a buyer has this ability to bargain and determine and finalize the product or service’s price.
In situations like financial crisis, the idea of fixed price vanishes and idea of bargain comes into play. In this era where cash is almost like everything any smart enough businessman would be more than happy if you give a great incentive to pay for cash in exchange of a severe discount. And by cash w strictly mean notes and not credit cards. The buyer’s powers are often considered for seasonal time like Christmas. But it is a sheer misconception. All you have to do is ask for a discount or bargain shopping everyday life from cheap goods to more expensive product. The best example you will get is that most of the auto makers are giving thousand dollars discount without us even asking for it. So why not ask for some discount in your mall, surely they will be willing to save you some money shopping or buy more goods with the same amount of money. With this trend you will end saving loads of money and ensure some safety for future.
People have lost all their faith in investing now. It seems kind of stupid to do investments in shares now.. But the truth is the best investment opportunities often appear in extreme times where fear, anxiety like the last few months. Thorough market study and experience is required for it. Buying cheap stocks isn’t the best of the strategies. Often penny stocks end up getting cheaper. As you know cash is king, this very saying applies here too for stock investing. The companies which will be able to survive the financial restriction will be with solid balance sheet and low or moderate debt with sustainable cash flow. It is not irrational to have an investment plan with quality versus quantity orientation and with a time horizon of a couple of years. Do your specific research and result in the stock market and about the company whose shares you intend to buy. Make sure your hard earned money is going in the right way. Do not judge any company from it’s endorsement capabilities. As those are marketing skills to push the price of their shares up and increase the demand.
The present financial crisis will continue to be there are unknown period of time. So we have to innovative and wise.
One of the more interesting modes of investment is investing in the stock market. Especially big stock markets like the New York Stock Exchange are usually termed as the dynamo of the economy. With a healthy stock market, economy will grow and more importantly the stock market will allow the job market to grow, so that more jobs can be created in the long run. However, one of the important things that you need to think about is the fact that the stocks that you have invested in may go down in value.
Hence, it is important for you to be cool headed and patient whenever you are investing in the stock market. It is not that uncommon for an investor to get depressed or to feel down whenever his or her stocks may go down. This is not always a cause for concern. Although it can be disconcerting for your stock’s values to go down, it does not necessary mean that there is a cause for concern.
First of all, it is important for you to understand the dynamics of the stock market before fearing any sudden downward movements. Downward movements of stocks are also a standard part of normal stock market movements. In order for economic equilibrium to be achieved, it is important for some stocks to go up, while some stocks may go down. This is a normal part of stock market operations, as this is where the dynamism of the economy is achieved.
Of course, sometimes there may be general downtrend of the stock market in various periods. In these instances, stock market usually loses its value and almost all stocks will go down and as a result, there will be a general loss of stock market values. In times of extreme economical distress, these negative periods in the stock market will continue for weeks and even for several months. However, if an extreme economical problem is not present, then these periods may last for several days or just for few weeks. Hence, if the whole stock market value seems to be going down, then you should not worry about your individual stock picks going down, as the situation will be a situation limited to the whole market.
But, in some instances, while the stock markets value may go up, you may end up losing your stock’s value in price. This can be especially difficult if this downward trend continues and is prolonged for a longer period of time. It is very important for you to be very cool and calm during this phase and it is also important for you to be patient in these situations. In great majority of the cases, your stock value will go up after a certain period of time. However, even in purely downward movements, great opportunity exists as you can always sell your stocks and re buy them from a lower price. Hence, by using this method you can increase the number of stocks that you may have and when the upward trend starts, you will be able to make great money in the process.
