Learn To Invest Money In A Financial Crisis

Banking on the Internet continues to be easy and low-cost, with Internet savings accounts. There are several well known banks that offer internet savings as a way of making saving more convenient. Now with all the added features these banks offer, you can do as much or as little of your regular banking with these online saving accounts.

You’ll find right away that interest rates paid on these savings accounts tend to be somewhat higher, since these banks are saving money by transacting business online. They pass the savings on to their customers. Granted, the savings account interest rates paid by these banks aren’t much higher than offline, but there are other advantages. Many offer CD products that are easy to buy, have low minimums as low as $100, and also pay higher interest rates than you might find at your local offline bank. For anyone looking to park their money safely for a longer term, these CDs are perfect.

Some online savings banks also have checking accounts you can open along with savings. Again, fees may be lower, and you will get access to ATM machines through a debit card, along with a listing online of where you can find a fee-free ATM in your area. If you have your own business, you can also open business accounts online for both savings and checking needs.

One other plus that needs to be mentioned is that these accounts can be set aside, out of the way of your normal banking, so that you are less likely to spend the money once you’ve saved it. Some accounts let you easily transfer into investment accounts electronically, or have other features that make it really easy to keep socking away the extra cash. You can set up your accounts so that you can direct electronic transfers of funds to and from either account. Some people have a regular transfer set up once a month, or you can have a portion of your paycheck direct deposit to you new online internet savings account.

Internet savings are no less secure than your local neighborhood bank. All accounts are password protected, and have extra security features to protect their depositors. Accessing your account on a public or shared computer includes security settings to avoid having information stored on that computer. For ease of use however, you can have different security settings at home for convenience.

These accounts are so easy to set up, you can also have savings accounts for your kids, and transfer money freely back and forth between your account and theirs. Why not set up accounts for allowances to be “direct deposited” to children, so that they save a portion of their weekly allowance? Some Internet savings banks include features for kids to play games and learn about saving and investing. It’s a great start to their financial future.

Getting an Internet savings account is a smart thing to do as part of an overall saving and investing plan. Anything that makes it easier to save will help you build your financial wealth.

A 401(K) account is an employer-based retirement account and is governed by federal regulations and choices your employer makes for you regarding investments and 401(K) withdrawals. For example, there are limits on what you can invest in, limits on loans and withdrawals in both amount and purpose. There are also penalties if you withdraw money under certain circumstances.

401(K) rollovers are considered an IRA account, technically. They are both investment accounts set up for retirement. However an IRA account can be set up outside your employment, and could be invested in many more types of investment vehicles than a 401(K). Contributions to both a 401(K) and IRA are made before tax, and you pay taxes instead on the money you withdraw when you are retired. You can do a 401k withdrawal and also an IRA withdrawal both before and after retirement age, but if you withdraw before you reach the statutory age limit, there can be penalties and taxes due and owing. They also both have contribution limits, although in a 401(K) you can contribute more than to a traditional IRA account. Confused yet?

When you leave your employer, you have the option to leave the 401(K) behind with the employer’s fund manager, or you can instead do what’s known as roll over your 401(K) to a new brokerage. Your rollover account is often referred to by brokers as “rollover IRA”, because once you roll over into a new account, the new account is not technically a 401(K) account any longer. This instead is a traditional IRA to which you have moved your 401K() fund balances.

A 401k rollover to IRA can benefit you, because the rules get relaxed on the new account. You are not prevented from withdrawing money, as you might have been at your old job. You will still be responsible for paying the taxes and penalties, which can be substantial at nearly 40% of the withdrawal amount; for that reason a 401k withdrawal is never recommended except for emergencies, or if you qualify for an exception such as paying for college (you will still owe taxes). But when you rollover your account, you can now invest as you see fit, and are not limited to the investments your employer has chosen for you. You can also invest your 401k in cash vehicles such as U.S. Treasury notes or T-bills, or money market funds and CDs. The choice is now yours, not your employer’s.

One other reason to roll over is that you can convert into a Roth IRA account when you roll over your 401k. Money you invest in a Roth IRA is invested with after tax dollars, but when you retire, you pay no taxes on the money you take out. This can be a significant savings – you could pay less by paying taxes today instead of in the future when the value of your account has grown. When you covert from a tax-deferred account into a Roth however, you will owe taxes on the money you previously invested with a tax-deferral, so check with your fund manager for conversion details. Right now, there are regulations which allow you to pay the taxes owed over time, so it’s not such a big hit all at once.

Taking your 401k rollover to an IRA makes sense on a number of levels. By moving your retirement funds today, you can gain control over your financial future and improve your returns.

When times are tough financially, it’s frustrating to realize that you should have been saving all along to have some kind of emergency fund, a savings buffer to get you through and pay the bills. Despite wishing you had more money set aside, it’s not too late to start saving money even when you are in the middle of a financial emergency.

The idea is to get yourself into the habit of saving money. This is the reason you don’t have an emergency savings account: you haven’t been putting aside regular savings to cover you in times of need. Getting started saving money is not hard, you just need to carve out some extra cash, even if it’s just a small amount, and do it each paycheck before you spend all of your income on expenses. That’s what the saying “pay yourself first” is all about.

You can get started with as little as $10 or $25, since you are simply making a commitment to put something aside. The act of putting money into a saving account, that you do not touch, and do so on a regular basis, is what you’re after here, not having hundreds or thousands of dollars in your emergency fund right away. Some financial commentators though do say you should strive to keep $1,000 in your emergency fund at all times, and only use it for legitimate emergencies. Once you have that thousand set aside, you can focus on using extra cash to pay down debt or build up savings for other important life events, like buying a house, paying for college, or saving for retirement.

If you think you can’t find even ten bucks to put aside, think again! Any time you make an impulse purchase, for example picking up that DVD on sale, or an extra beauty item, or a cute top you walk past in the store, these are all items that you don’t really need, and it’s cash you can move into savings. Find ways to avoid buying those extra items, and on your way home, stop by the savings bank and add that money you didn’t spend into a statement savings account. This is the only way you can begin to build wealth, and avoid getting over your head in debt again, which was the reason so many people have had such hard financial times over the past year or two.

Starting to build savings will help you and your family in the long run, and help you feel more secure and stable. Use some of the tips for saving money that you’ll find on this website to get started immediately, today, and make it a personal commitment to pay yourself first each and every paycheck.

Folks frequently ask, what’s the best investment to be in now? Or, what should I invest in now? It’s understandable that given the history of the past couple decades, there always seemed to be a few “sure thing” investments like “dot com” stocks in the 90′s, or real estate in the 2000′s. What’s different now is, you can make money, but you have to learn more about the markets, and be more on top of your investments.

Along with learning to invest, to find the best investments for today it’s a good idea to develop some skills in reading what’s happening in the social sphere, the economy, the environment and politics. Paying attention to the news, you’ll see that the market often reacts to news right away. But for longer term ideas, these blips don’t matter as much as the consequences of policies and decisions made today that will impact the next few decades.

One example is global warming. No matter whether you believe in climate change or not, the fact is that weather patterns are more extreme all over the world. This will affect agriculture, population patterns, energy development and more. You can find investment opportunities in any of these spheres that will benefit your portfolio going forward.

There are also investment vehicles that have come into their own, and are more viable now than ever. Investing in ETFs for example is a less expensive way to invest in a variety of indices, commodities, and other vehicles not usually available to the average investor. This is an easy way to diversify, with less risk than a mutual fund; however the savvy investor still will do their homework and strive to educate themselves on the ins and outs of these types of investments, in order to minimize risk.

If your major concern is to determine what is the best way to invest safely for the future, keep in mind that the mutual funds of the 1990′s and 2000′s never were “safe”, because investors didn’t really know what they were investing in. Your best option for retirement income investing will come with knowledge and research. Not knowing the risks, not knowing the stocks in the funds, and not knowing that nothing is certain for the long term, many people were burned.

It’s important to understand that today, while the markets have climbed slowly back to where they were, many of the systemic risks that cause the problems of two years ago still exist. Volume is down, which means many investors are not trading stocks. The housing market is still not improving, and possibly has not even stabilized. Commercial real estate, which can impact the stock market possibly even more than residential real estate, is considered another shoe yet to drop. Banks are still unwilling to lend to consumers, and with salaries still at 1980′s levels, consumers don’t feel willing to spend enough to drive production and profits. The Wall Street firms that were over leveraged and under capitalized are still in the same position, still investing in the same derivative vehicles that caused the crash. Even top financial advisors and financial managers didn’t see the last crash coming – and they likely won’t again in the future. Individual investors can do at least as well on their own.

There have not been major changes in the way the markets work to prevent the kinds of excesses we recently saw, nor as a result the potential for economic downturns. Individuals will have to decide for themselves what are the best investments to be in, what is a safe investment for the future, and how much risk and reward they are willing to withstand.

Investing in mutual funds has been promoted to the average investor for a few decades now, as a way to get into the market without having to know how to buy individual stocks. Yet when the market tanked, both in 2000 during the crash of the dot-com debacle, and in 2008 due to the big investment banks playing games, the average folks with mutual funds didn’t do so well. In the best case, you may be back to where you started, if you started investing in mutual funds ten years ago. In fact, if you run a screen of “top” funds based on Morningstar ratings, you’d be hard pressed to find any fund that did better than 8% returns average for the past ten years.

So where is this mythical “good growth stock mutual fund” that you hear people like Dave Ramsey talk about? Good luck finding one. First, there is no such thing as a “good” “growth stock” fund. What does the word “good” mean here? High returns? Safe? Investing only in “good” companies, whatever that means? If good companies were easy to find, Warren Buffett would not be famous. The fact is, when you are choosing mutual funds, you are going to be subject to lots of information that is under the radar and impacts your returns, your earnings, and your safety. While you don’t need to pick individual stocks, if you don’t know how mutual funds work, you will be risking your money in an investment you know nothing about.

For example, when talking about a “growth” stock, this often means a mid-cap or small-cap stock. What does that mean? It means these are smaller companies compared to the biggest most stable corporations, which are large-cap. “Cap” refers to the capitalization, or assets, that the company has outstanding in stocks held by its investors. Companies like McDonald’s or Microsoft are large cap. But mid- or small- cap companies may have higher risk, that does lead to higher returns, but also possibly more losses. Only you can decide what level of risk is right for you. Are you prepared to learn enough about what a mutual fund invests in to be secure in giving the fund your money?

And fees. This is the big piece you never hear of. (For example, is Dave Ramsey talking about 12% after fees? If so – that would be a miracle.) There are fees to buy in to a fund in some cases, but not all, known as a “load”. This means you pay a percent of your money up front just to buy shares in the fund. Then there are annual management fees, known as 12b-1 fees, which are a percent of your total investment in the fund. Then there are fees when you decide to sell and get out of the fund. And then there are taxes. A mutual fund buys and sells stocks, and each time they do, there is, or could be, a tax ramification as many of these sales might be at high capital gains rates. You receive the bill for those taxes. On top of all these fees, you may be paying your broker a commission to buy into the fund. What does your broker charge to “help” you buy these funds? Is there a per fund, per purchase, or annual fee, or all of the above? Some discount brokers offer “no load” funds, meaning you don’t pay a load, and since you manage your own account, you are avoiding the broker commission. But you could be paying management fees and taxes anyway.

How do you learn enough to buy into mutual funds? It is not easy, and it never has been, despite how it has been sold to the average investor. You still need to learn about investing, about the market, about what companies are good investments, and you need to read and understand the prospectus, or detailed brochure, about any fund you think you want to buy into. For this reason, it’s a joke to think that the average investor can just go down to the local brokerage office, plop their money on the table, and say “Give me some o’that good growth stock mutual fund” and walk away twenty years from now having earned 12-14% average returns. It just does not happen. Even one of the top mutual funds in the country, with the lowest fees, Vanguard has NO index funds that earned better than 8.60% over the past ten years. You can earn high returns only if you have a lot of money to invest, are investing in something in addition to stock mutual funds, and can afford a very good high-paid broker who will charge you an arm and a leg. Heck, it’s even been shown now that hedge fund managers do better than the rich hedge fund client they supposedly serve. There’s little likelihood you’ll do better if you are investing only five or six figures.

OK, so given all of the above, what are your options? Our take: Don’t invest in mutual funds unless you learn more about them. And the best idea right now is – don’t even buy mutual funds! WHAT? you might say. If you have been invested in mutual funds, you might think instead not of being in cash, but of investing in Exchange Traded Funds instead – called ETFs. These are a great – and lower cost – alternative to mutual funds. We’ll post again about this shortly, in the mean time, get those prospectuses and start reading!