Learn To Invest Money In A Financial Crisis

Putting money aside for retirement is an important step for any wage earner. Pension plans are going the way of the dinosaur, and the only option other than Social Security is if you save your own money in a tax-advantaged retirement account, such as a 401(K) plan at your place of employment.

There are many options available for retirement accounts, both employer sponsored and through your own brokerage account. At your job, your employer has an option to offer a 401(K) retirement account, which lets you put pre-tax wages into a retirement investment account. Not all employers offer this, and if you can’t take advantage of a 401K, you can use a traditional IRA, or Individual Retirement Account.

Don’t get confused, as there is no such account as a 401k IRA – they are two separate types of accounts. However, depending on how much you earned, and your tax filing status, you may be able to invest in both a 401k and an IRA. Once you earn over a certain limit, you can no longer qualify for the IRA.

The amount you invest in an IRA is tax deductible off your federal income taxes. However, the maximum you can invest each year is much less than a 401K, so if you have a 401K option at work, that is probably the better of the two if you want to stash as much money as possible.

Both types of accounts have specific limits. For the tax year 2010, the maximum you can invest in a 401K is decided by your employer, as a percentage of your income, but not more than $16,500, or $22,500 if you are over 50 years of age. For a traditional IRA, the maximum investment is $5,000, or $6,000 if you are over 50 years old. This is also limited to the maximum amount you earned in 2010. (You can learn more about retirement account limits at the U.S. Internal Revenue Service website.)

You can see that there is a big difference in how much you can put away for your retirement. If you are able to put aside the maximum amount of your wages, you should discuss it with a tax advisor or your employer’s benefits manager, to see what your individual allowances are. Putting as much aside as you can may be a good idea. But remember, you will also need to know what the investments are that you’re investing in, not just how much money you can put aside.

Remember also that you can always invest as much money as you want in other accounts – they are just not tax-deferred or otherwise tax advantaged accounts. If you put money into a self-directed brokerage account, you will pay taxes on the capital gains earned in that account. But you also have options such as tax-free municipal bonds, where you can invest with lower tax impacts. The bottom line is, don’t think you are only limited to your 401K and IRA options for financial security in retirement. Work with a financial advisory to consider all of your options, once you’re reached your retirement account limits.

A few of the blogs we read across the Web contain some interesting investing ideas, some familiar and some which may be new to the reader.  Whether you’re looking for new investing ideas or just trying to find the best investment today, here are a few of our discoveries across the web for anyone who wants more information about investing.

1 -  From Buy Stocks Online Now:  Learning how to buy and sell stocks takes time and research. There is a lot of good, informative information out there, and just as much that is out dated and inaccurate. Take the time to seek out books and websites that offer up to date and detailed information.

2 – The Biz Hunter offers this item:  Forex investment can be risky, but also very lucrative.  Critical skills are needed to profit in this highly competitive investment landscape, but these skills can be acquired through education, training and practice trading utilizing virtual (demo) accounts from the right broker. There is money on the table for those who can follow a system, control their emotions and practice good money management methods.

3 – This sounds interesting from Reveal Real Estate: Belize often flies under the radar as a property investment destination.  It’s known more for its diving.  But investors interested in Caribbean property should take notice.  Belize real estate is available at prices far below the more established parts of the Caribbean.  The areas that are attracting the most investor interest are Ambergris Caye, Placencia and Corozal.

4 – From Dallas Investment Property Guide:  A volatile stock market has sent individuals looking for more secure investments.  As the saying goes, “Buy land, since they’re not making anymore of it,” real estate is a time tested investment, especially income properties over time.  Dallas investment property is no exception, as Texas remains a stable economy.

7 - So You Want to Be a Real Estate Investor:   Have you been thinking about buying investment property for a long time?  Have you read all the books and watched all the infomercials, but just didn’t know where to start?  Here are some quick steps to get you started toward your investment property dreams.

When the markets take a nose dive, it makes the financial “advisors” look like they don’t know what they’re doing, because they have been telling people to “stay invested no matter what” – and yet, average investors find themselves treading water, as the increases erode with just a few days massive declines. The problem is that this advice is intended to help everyone except the individual investor. The financial advisors are selling product. They make money when you first invest, and after that, they don’t care much. Except for when they can tell you to invest in something else, and they make money again. Their fortunes are not tied up in whether you make money in the stock market or not. True, you may decide to move your account as a result of bad advice, but the advisors at the next firm you go to have the same motives, the same results, and the same product as the advisor you are seeking to leave.

The only way to really protect your finances is to invest yourself using a self-directed account. Whether you have a self directed individual account, a self directed rollover 401k account, a self directed custodial account, only you have your own best investing interests at heart. Many people who put money into mutual funds and other products – who are not truly “investors” as will be explained below – don’t want to hear that they have to learn how to invest. But the sobering fact is, even if you choose not to invest your own money in a self directed account, and prefer to give your money to someone else to invest it, you need to understand the markets and know how to invest so that you can make sure your broker is doing the right thing. You won’t know that if you don’t understand investing.

I’ve heard people say “I don’t want to know all the details of how to invest in stocks, so I hire a professional.” Well if you have less than a$250,000 to invest, real professsoinals, who operate on a fee only basis, are not going to want to work with you. There is no profit in it for them to have dozens of investors who only have $5,000, $10,000 or even $50,000 to invest. The reason is, they get fees that are high enough that it eats into your returns, and they can’t show you a decent return on your investment after you deduct the costs of using their services. And small investors are more likely not to want to pay fees in the hundreds of dollars to get advice anyway. So if you are rich, you can afford to hire a professional. The rich are not in the position of being concerned about saving what’s left of a very small nest egg.

So where then do you invest if you want to have a self directed account? The idea is, you invest then in vehicles you understand, and that you learn how to trade. In the beginning, this may mean just a money market fund, or a government bond fund, something conservative which is easy to grasp and where you can park your money relatively safely while you learn more. From there you can graduate to investing in index funds, but using ETFs instead of mutual funds, as they are cheaper to trade, have no minimum balance requirements (like the $3,000 minimums you’ll find as some fund companies) and they don’t have the same fees and taxes.

At some point, you may even learn to buy stocks, and there is nothing wrong with doing that, if you learn how to do the research, follow the market, and are ready willing and able to make trades that aren’t just based on emotions, but a solid financial plan. There are plenty of good sources of information about how to invest in stocks, from broker resources, to books, to entire publishing companies that put out nothing but investor information.

The point is you are going to take it slow, at your own pace, to learn about what works for you, and understand how your money is working for you. You are not then at the whim of some advisor and their desire to make money for themselves. You don’t have to be anxious about not knowing what is going to happen to your hard earned money, and what exactly it is invested in. You can relax, and plan your future around a financially stable plan, and know that you have the skill to take care of yourself financially.

With all the talk about derivatives on Wall Street and Washington, the average investor might think that derivatives are confusing and complex and not available to them. The fact is that derivatives have been around for awhile and actually come in a variety of types. For example options, where you pay money up front for the option to buy or sell a stock, have been around for decades. Learning to invest with options adds a layer of protection for any investor with a significant portfolio, helps to diversify your risk, or even opens up a world of speculative investment for investors who don’t mind taking chances. Learning to use options is critical to the success of any portfolio today. We don’t think that that’s exaggeration. Hedge funds, pension funds, large institutional investors of all types are using options as a way to guarantee that whichever way the stock market goes they will have some protection. Given the way the stock market has been volatile in the past, it’s important to learn how to use these tools as just that-another tool in your toolbox.

Understanding options  is not that difficult. There are a huge variety of online tools available to help teach investors how to take advantage of this valuable investment vehicle. For example the options institute has an entire website devoted to nothing but educating investors on how to use options. The Options Industry Council(OIC) provides many top online educational tools including free webinars, recorded seminars, and virtual training platforms to help any investor try their hand at buying and *selling options* while taking zero risk with real money. In addition, you can find multiple books and magazines available for additional education. There are all kinds of books on the market on the subject getting started with options. Reading these, in conjunction with the virtual training tools available online, can help you get your feet wet and feel more confident in your ability to train options.

How do options work? The simple answer is that an option is simply giving you a right to buy or sell a stock but not the obligation to do so at a specific price that you select. Options are available for individual stocks and ETF’s on the market. There are also options available for commodities and futures trading. When you research options online, you select an individual stock for example for which you would like to see the option chain. An option chain lists all of the outstanding options for the next several expiration periods. When you purchase an option, you are purchasing the right to buy stock at a particular price point before an expiration date. So if you select a stock that you expect to go up in the next several months, you would buy a call option.

When you are buying or selling options based on stock you have in your portfolio that is called a “covered” option. When you don’t hold the stock itself in your portfolio, these are called “naked” options. Selling options based on stock you have in your portfolio lets you take care of market downturns where you may lose money on your stock price but earn money on your option purchase. Unlike covered options, buying or selling naked options is an outright gamble on whether the price of the underlying stock will go up or down.

Some of the best brokerages where you can trade options are the discount brokerages. Brokerage companies like Trade King, Options Express, or Interactive Brokers are brokerage houses that allow you to trade options for very low cost. With options, you normally pay a commission plus a price per contract. If you are buying and selling options frequently, these costs can add up so it makes sense to use a brokerage with low fees. In addition, many brokerages offer extensive training tools as well, because as an investor gets more educated about how to invest in options, they are more likely to purchase these investments for their portfolio. Look for features like how to materials including publications and webinars, forums where investors both beginner and expert alike that exchange information, and other trading blogs that can show you hands on information about actual trades being made in the field. Some brokerages even allow investors to publish their trades, so that you can follow along with some of the top traders who are training with the same firm.

*Getting started with options* is fairly simple. It might take some time to learn the ins and outs and go through some of the training materials, but afterward you will have a knowledge base that will help you profit and build your portfolio exponentially. Most brokerage accounts allow options trading for certain investors, and certain minimum balances may apply. Check with your broker, or investigate some of the other top brokerages for trading options. Here at Saving Cash Tips, we recommend Trade King, which is the brokerage we use ourselves. They offer an extensive variety of educational tools, forums and discussion groups, and research tools that are hard to find at other brokers. In addition the fees are rock bottom. Whether you decide to use options as a hedge mechanism or as a speculative vehicle to boost your returns, if you expect top returns you will definitely need to learn how to invest with options.

We all hear about how important it is to invest, and this includes individuals and families who don’t have a lot of extra cash on hand, but understand the importance of why you should “pay yourself first” by putting money aside. It’s important to know that even if you only have $25 to invest, or as little as $5, you can begin to secure your financial future by saving, investing, and laying the foundation for future wealth.

When investment banks throw around numbers in the millions, billions and trillions, it can make a small investor feel like there’s no point to putting aside just a little extra money each paycheck. It seems futile when the money you want to invest can barely buy one share of stock, with the commissions being extra! With a small amount like $5 or $10 to invest, it’s hard to see how that will add up to any real money in the near future. Yet even if you can’t buy stocks, that’s really not the right way to look at the matter. Instead, it’s the simple act of making sure that at least some money from each paycheck gets put aside for yourself, instead of given to a retailer trying to separate you from your earnings. When you begin the habit of putting something into your savings or investment account each month, no matter how little it is you will begin to see the balance grow.

It’s true that the interest rates today are truly pitiful, under 1%, which does not give anyone an incentive to set money aside in a savings account. But instead consider that the purpose of saving is to begin to make the habit of saving important in your life.

When the interest rates on savings accounts are virtually non-existent, so low they aren’t worth even mentioning, it can send the small investor looking for other ideas, other ways to make even that small amount of money work for them. And believe it or not, there are plenty of other options for investing with small amounts of money. But for now, keep that savings account open, or start one like and online savings account, where you can stash money any time you have it. Later as your balance builds, you will move it into other investment vehicles that will earn you more. At least until interest rates go higher, use a savings account as a place to make it easy to save up extra cash.

The first rule of thumb is that you should strive to save ten percent of your income as savings. Start a rainy day fund, an emergency fund, or whatever you want to call it, but saving like this would be used mainly to make sure you are able to pay for an emergency when it comes along, like a car repair, hospital bill or job loss. Ten percent might sound like a lot, and even be beyond what you can afford. But think of it as a goal, and save whatever you can. Putting $10 aside twice a month when you get paid is just fine.

So where do you invest $5 or $10, or other small amounts? The first place to start, is that savings account and an emergency fund. Work toward having a balance of $500 or $1000 in that account before you do anything else. Along with your savings form your paycheck, you can also have a garage sale or pick up a second part time job to fund that balance. Try selling items on eBay or Craigslist to get fast cash.

Once you have some emergency cash set aside, the best thing you can do is pay down high interest rate credit card balances. It just does not make sense to pay 18% to 29% interest on a credit card balance every month, as you try to find out where to earn 2-3% on a savings account! Your money is not working for you that way. By paying off your high-interest card, that’s like earning 18% on your “investment” right there! There is absolutely nowhere else you can go to invest $25 and earn an interest rate of 18-29%! That is just a fact. So any small amount you save up, add it to your high interest rate loans. Simply make the payment for five or ten dollars more than the minimum. Ideally, you will want to make the largest payment you can afford, to pay off balances more quickly.

If you don’t have much in the way of expensive credit card debt, then you have some interesting investing options. First, you can always invest in good old United States savings bonds. You can buy EE bonds, which most people are familiar with, which you buy for half the face value, it pays a fixed rate of interest, and the bond matures in twenty years, reaching the full face value. You can also buy these at face value online, with TreasuryDirect.gov. This is convenient because you can open an account and have money transferred from your savings account right to your Treasury investing account. There is also the newer I-bond, which pays a variable interest rate based on the rate of inflation. It’s a little different in that you pay the face value, a minimum of $25, and the interest will to accrue until you cash it in, there is no maturity date after which no additional interest accrues. There is a penalty however for cashing in either of these types of bonds during the first five years you own them.

Beyond savings bonds, what other options do you have? You can buy certificates of deposit (CDs) which give you a slightly higher rate of interest above that of a savings account – but not by much. today, many online savings accounts also offer purchase of CDs, for example ING Direct. You can buy a CD with as little as $100. This means you can’t really get at the money to spend it, which might be a good idea for some folks! While the interest rates aren’t great right now, at least you will have a way to earn and save until you decide on other vehicles for investment.

For another idea, you actually can buy stocks through some accounts with small amounts. Today there are accounts that let you invest in stocks with very little money. Sharebuilder is a service run by ING Bank that allows you to purchase stocks, with a $4 commission. The beauty of this however is that you can buy what’s known as “fractional” shares. That means you can buy a portion of a share, where most brokers would required you to buy at least one share. For example, if shares of Apple stock are $250, but you only have $25 to invest, you can purchase just $25 worth from Sharebuilder. Your purchases are scheduled throughout the month according to their buying schedule, so you can’t buy immediately, but you have the opportunity to participate in buying stocks, ETFs and mutual funds through this account. While we wouldn’t recommend that you pay $4 commission for a $25 investment – a 20% fee – at least you have the option to do so. You can also deposit your money into your Sharebuilder account, and wait until you build up a certain balance before buying. you can invest each paycheck as well. Along with regular investment accounts, they also offer IRA retirement accounts, custodial accounts for minors, and even 401(K) account for business owners. It’s a great way to invest your money.

With all of the above ideas, you now have no excuse not to get started saving money, even if you only have $5 to invest. There are many places where you can invest with small amounts. Now you know where to invest $5, where to invest $25, or even where to invest $500 or more. Get started and pay yourself first today.