Entries Tagged 'stocks' ↓

When you have a 401k plan at work, and you leave your job for any reason, you can choose between taking a 401k rollover into another brokerage account, or leaving your funds with your employer’s plan.  For a variety of reasons, it’s nearly always best to roll over your 401k.

With so many people saving more today, and also facing an increased possibility of being laid off and changing jobs, using the 401k rollover option is a way to maintain some control oer your retirement security.  Unfortunately, the roll over is not very well explained or understood by most investors.  It’s something we advocate very strongly – to get your money out of the hands of mutual fund managers who do not have your best interests at heart!  It might mean you need to take the time to learn to invest money beyond your current knowledge, but that is FAR better – and more profitable – than sitting idly and helplessly watching your retirement nest egg vanish without any comment from your plan administrator or your company’s mutual fund managers…

When you have a retirement plan set up by your employer, the investment options are always very limited. They don’t want to pay a lot of money in admin fees, nor take a lot of risk, by offering a wide selection of investment vehicles to their employees. The management headaches are too great.  And, their plan consultants are probably telling them all the same conventional crap about perpetual growth, stock market returns, etc etc. 

However, once you set up a self direct IRA using your 401k rollover, you can start investing in all types of vehicles for retirement that were previously unavailable.  Now, you can start taking control over your money,and not leaving it to the mercy of conservative – or worse, convention – mutual fund managers.

To roll over your 401k account, you first open a new, self-directed IRA account with your new broker of choice.  As you complete the paperwork, you’ll se that they ask if this is a rollover account.  If so, they will give you all the appropriate paperwork to have everything transferred from your employer’s plan.  As long as you aren’t taking any withdrawals from your retirement account, there are no penalties or taxes required. 

You have four main options when you leave your employer, as to what to do with your 401k rollover.  They are, in order of preference:

1) Cash in your account. BEWARE: if you cash out your account prior to your statutory allowance, you will pay taxes and penalties!
2) Stay with the retirement plan from your previous employer. This is where you could stay if you really just don’t care about what happens to your money. 
3) Transfer the balance of your prior retirement account into the retirement plan offered by your new employer. At least here you can keep an eye on it.
4) Open a Self Directed 401k Rollover IRA account with another broker or mutual fund of your choice, and transfer all retirement funds into that account.

We don’t recommend you ever do #1 unless you are in serous, dire financial difficulty.  You will lose roughly 40% of your account in fees and penalties.  As for options #2 and #3, these are both  conservative, hands off type decisions.  If you just don’t want to think about making your money work for you, or even think about it at all, then leave them in the hands of the mutual funds your employers have chosen for you.  But don’t complain when you lose money! 

Only by choosing #4 will you have a new chance to really build up your account balances for retirement.  With this account you will learn more about investing,  and have the option of buying and selling whatever investments you choose that fit your personal financial plan.  It’s not for everyone, but by learning a little about investing, you can gain a lot more secure retirement.

The biggest problem with employer retirement plans offered to employees is that they include a very limited number of investment choices. Of the ones offered, many overlap in the types of stocks and bonds they invest in. A study from Columbia University found that the median number of mutual funds made available to employees was just 13. And this included all funds, even money market funds, fixed income funds, and balanced funds, as well as stocks.

Since you have fewer investment choices within your 401k, your employer-sponsored plan hampers your ability to profit during different market trends and to reposition your retirement balance into accounts with stocks, bonds, mutual funds and ETFs that offer higher risk-reward profiles.

The best thing you can do is to set up a 401k Rollover account with a brokerage that will give you access to all the types of investments available in the market.  (We use TradeKing for all of our accounts, since they have great educational materials and really low fees.)  By opening up a 401k roll over IRA at another company, you can break out of the limits of your employer-sponsored plan and thereby increase exponentially the number of mutual funds, stocks, bonds, ETFs, money markets and more that you have available for investing. Choose a broker that has great resources for investors to learn, such as large investor discussion groups, materials about how to invest, training videos and so on. There’s always something to learn to grow your retirement account to its fullest potential.

It’s easy to see how you might improve our retirement account returns.  If you transfer $50,000 out of your 401k plan, and move it to the Rollover IRA, having a wider range of investment choices can mean that your annual return increases from 8% in the old 401k, to 12% in the Rollover IRA. After 20 years, your roll over IRA will be worth $482,315, more than twice the $233,048 that you would have had if you’d kept your funds in the employer-sponsored plan – and that assumes you haven’t added any deposits to your Rollover IRA.

So how do you set up a 401k rollover account?  There are two ways you can do it.  You can start by opening a Rollover IRA account with your new broker (also known as a self directed IRA, because now you call the shots!)  After that account is set up, you can contact your plan administrator from your former employer and ask to transfer your assets into the new account.

After that your two choices are to have the money sent directly from your previous 401k plan, into the rollover IRA account. This is known as a direct rollover. The second alternative is the indirect rollover, where you you take a distribution of the funds from the retirement plan, then deposit them yourself into your new roll over account.  Other than in the event some exception applies, you are given 60 days to get that distribution into the new account and avoid any taxes or penalties for a withdrawal.  Check with your old and new plan administrators to see which is right for you.

Now that you have set up your 401k rollover account, you can continually leverage that account each time you switch jobs, by moving any accumulated 401k investments into the rollover account.  You just have to instruct your employer’s retirement plan administrator to transfer your assets to the new IRA account.

There is also an option for your to continue to deposit funds to your new IRA, however check to see whether you are subject to limits regarding annual contribution amounts.

The bottom line is, why leave your retirement funds to sit in an account where they are not going to work as hard for you as possible?  Opening up your own self-directed IRA by transferring to a 401k rollover is your best option for growing your future retirement nest egg.   Your new 401k rollover, now opened up as a self-directed IRA, will give you much more control over growing your retirement savings.

One of the reasons people have lost so much money in the stock market recently, whether in their 401(K) accounts or otherwise, is that many of us never took the time to really learn to invest money. We were often “sold” the idea that mutual funds were safe, easy and didn’t require much in the way attention, because “over time” the stock market always goes up and stocks offer the best returns compared to bonds or other vehicles.

Well, that was pretty much not true. (Statistically, it’s only true if you are VERY selective in how you read historical data, and do not discount for inflation.) No matter what, all investors need to learn to invest stock, learn to invest money, and understand the stock market and how the cycles of the market work. In addition, it’s been pretty clear that the market was affected by unique financial instruments as well as a real estate bubble which continues to this day and may continue for the next few years.

So as you try to learn how to invest safely, whether it’s invest in stock, invest in bonds, or even invest in real estate, you have to realize you will never stop learning, because the market is dynamic and changing.

You will also find that there is no way to calculate returns, that is, promise returns of a certain percent, because “that’s what the market has returned historically”. the problem with that statement is that there is no historical measure that will match the exact years in which you are invested in the market. For example, if you started investing in the early 1990′s, after several crashed and discounting for inflation, you are pretty much back to where you started. Plus, historical returns do not mean that you will continue to get those in the future, as there are events that can occur – terrorism, bubbles and so on – that you can’t predict, and can affect your returns and investments dramatically.

There really isn’t any easy way to invest, because whatever else you do, you will have to put in the time to learn to invest according to your goals and risk tolerance, and it’s the time that few people have. You can’t simply rely on the market returns any more to just go up and up, so that you have a lot of cash when it’s time to retire. That does not mean there are not ways to invest money that will bring profits. It simply means that in order to make money in the market, you need to learn more, and also manage your accounts more actively than simply reassessing your holding once a year and that’s it.

To learn to invest money, the best way is to start with whatever services your broker offers. Many online brokers have a variety of educational materials, so that’s a good place to start. sites like Yahoo! Finance also offer many education materials and discussion groups for you to take advantage of. All of the major investing magazines, like Smart Money, Kiplinger’s and so on, have websites as well. That’s not to say that you should take their word for what to invest in, far from it. instead, use that information as a starting point. From there, you should also investigate good books about investing, from your local library, to learn to invest money in the right strategy for you.

Before the economic crisis, plenty of people invested in index mutual funds as a way to diversify and ride the market without knowing too much about investing.  Whether you continue to invest in index mutual funds depends on what you think the future will hold.   Do you believe that the world economy will grow? Do you believe that US economy will grow?  Today we aren’t so sure. When you look at a major stock index, you are seeing an indicator of what investors think will happen to economic growth. Used to be, a whole year ago, you could make good money buying index funds. Today? Not so much.  Still: if you are in for the long term, are index funds for you?

It’s important to learn how do  mutual funds work, if you’re not clear on the specifics. Long term (and we don’t know exactly what that means), stocks are likely to go up. Eventually. But at what rate? How long will it take? Is this downturn “different” than the last time? It all makes things very difficult for the investor that use to spend ten minutes a month sending money to their index fund in their 401(K). Yet with all the many indexes around the world, there may be some opportunities there.

For index mutual funds, the fund share price will change according to the index performance. For example, thousands of mutual funds use the S&P 500 as the base of their portfolio. But the S&P is heavily weighted with financials, so there has been a real loss for investors who chose that index fund. you’ll also find there are many differences between  funds for operating expenses and “load” fees.  Fees and commissions can compound a loss in share price.

When you’re looking at index funds, you may also consider looking at Exchange Traded Funds, or ETFs. These are really just baskets of stocks, and don’t require the same active management as do mutual funds, even index mutual funds. You can choose ETFs that include the best of certain stocks or industries, but leave out the financial companies or other industries you want to avoid. You will also find lower fees for ETFs vs. most index funds. For the long term investor who wants to put certain amounts in each month, you want to stick with low fees. but today, even with index mutual funds, you don’t want to think that you can simply choose the best mutual fund, send your money, and in ten years you’ll be rich. For example, as of today, all gains for the past ten years were wiped out with the rcent market downturn. So again, what is the “long term” time horizon you are comfortable with?

The best strategy for investing in index mutual funds is one where you review regularly, move your funds according to market conditions, and don’t expect it to be like the old days a whole 10 months ago – you will have to be more actively aware of what your money is doing to avoid losses.

To an extent, diversification of your portfolio can help, if you add bond funds, emerging markets and other different types of indexes to your mix. In this crazy market, be sure you are knowledgable about what stocks you ar invested in, even if you’re investing in an index fund. That’s the best way to avoid big losses in your index mutual fund, and enjoy long term gains.

Mutual funds have been very popular, but do investors really know how do mutual funds work?  Even in hard economic times, mutual funds are still one of the most popular investments on the market today, mainly as a result of retirement funds. For example, there are more than 10,000 different mutual funds available on the market to choose from.

There are many reasons for their popularity, but it could be due to historically good returns, or that they are easy to buy and sell. With the billions flowing into 401(K) accounts, mutual funds also gain the lion’s share of such investment. They also offer a way to diversify and dilute risk.

Here’s how mutual funds work:  A mutual fund takes money from investors looking to invest in stocks, bonds, or a variety of other securities. It is basically a conglomeration of multiple individual investments. As this grouping of investments gains or loses value, investors will gain or lose also. When a mutual fund pays dividends, the investor receives his or her share. Mutual funds are professionally managed, and because of the variety of investments, can help investors be diversified. Investors have been led to believe for some time that mutual funds can do a large part of the investing work for an investor.

As for the business side, a mutual fund is a company that pools money from many investors and then invests the total on behalf of the group, in compliance with a specific set of investment goals. Mutual funds raise their money by selling shares of the fund to the public, in the same way that a company sells ownership shares of stock. It is this pool of funds that the fund company will use to make various investments, using vehicles such as stocks, bonds, and money market instruments.

When a shareholder purchases a share in a fund, they receive an equity position in the fund and, by extension, a share of each of the fund’s underlying securities. Usually, shareholders may sell any or all of their shares at any time, but as with other investments, the price of a share will change daily, based on the performance of the underlying securities in the fund.

When choosing a mutual fund, you should keep in mind your personal financial plan and goals. To start, don’t just rely on features such as past mutual fund performance - these do not reflect future performance in any way as many have learned the hard way today. Instead, start by determining your financial priorities, what financial resources you have, how you consider investment diversification, your feeling about how much risk to assume, and what your time horizon is for your investment goals.

If you only look at total returns you are seeing only half the story. Mutual fund returns show past performance, but even if the returns are high, are they competitive with the market for comparable investments? And will it necessarily reflect how a fund will do in a poor market if the returns have been gained only during up years? You should do your research into the underlying investments, fees, and performance before assuming a good total return means the fund is a quality investment. be sure to compare it to other similar funds over the same period. Using research, you can find what are the top mutual funds for your investment style and goals.

As it is often said, past performance can’t predict future results. After the recent downturn in the market, it’s clear that ever-rising values have hit the wall. It’s not certain either when or if the market will return to consistent growth. So, it is becoming all the more important to understand how mutual funds work, what the underlying investments are, and how they can fit into your long term investment plan given the current market conditions.

With the market crash from 2008-2009, one could ask, are hedge funds finished? The quick answer to the question is “hardly”. There is no general definition of what is a hedge fund. In the beginning, hedge funds would help “hedge” investments by selling short the stock market, and so providing protection against volatility in the stock market. But now, the term is used more broadly to describe any kind of private investment partnership.

Globally, there are thousands of different hedge funds operating. Their main goal is of course to make lots of money, and to do so by investing in a variety of different investments and investments strategies. Often the strategies used are more aggressive than than the investment strategies of standard mutual funds.

Generally, a hedge fund operates as a private investment fund. The fund’s general partner selects different investments and also manages the trading activity and everyday operations of the fund. The investors or limited partners will invest much of the money and share in the gains of the fund. The general manager often charges a small management fee and earns a large incentive-based bonus if the investments earn a high rate of return.

While this might sound like a mutual fund, there are some important differences between mutual funds and hedge funds:

1. Mutual funds are managed by mutual fund or investment companies and are quite heavily regulated by federal law. Hedge funds, since they are private funds, have (so far) fewer restrictions and regulations.

2. Mutual fund companies invest only their client’s money, but hedge funds can invest their client’s money as well as their own money in the underlying investments.

3. Hedge funds charge their clients a performance bonus, usually equal to 20% percent of the gains above a certain floor amount. This is in line with equity market returns. Some hedge funds have successfully generated annual rates returns of 50% or more, even during volatile or difficult market environments. A mutual fund return is usually not as high.

4. Mutual funds have disclosure requirements, as well as other prohibitions against investing in derivative products, such as using leverage, short selling, taking too large a position in one investment, or investing in commodities. Hedge funds however may invest client funds however they wish.

5. Hedge funds are restricted from soliciting investments, and this is why you hear very little about these funds. During the five years prior to September 2008, some of these funds have doubled, tripled, or even quadrupled in value or higher. However, it’s important to remmeber that hedge funds do incur large risks and in this difficult economy, many funds will likely disappear after losing big.

Hedge funds are just another way to protect wealth, but in a tough economic environment, it’s likely that some restrictions will be imposed in the future.