Tag Archives: investment

Save with Standard & Poor’s 500 Index

The equity performance in America is usually determined with the Standard & Poor’s 500 Index. Constituting of over 70% of the publicly traded companies in the U.S., the S&P Index is hugely popular given its close proximity with the some of the well-known mutual funds that are currently in operation. They are the Vanguard 500 Index Fund, and Spiders (AMEX: SPY), the first exchange traded fund (ETF). The investors can save effectively through it given the fact that the S&P comprises of 500 companies belonging to a diverse range of industries. It is often misapprehended that these 500 companies are rated due to their revenues or market capitalization. But it is basically, the best of the common stocks of the U.S. The factors the work in the selection are sector representation, liquidity and market size.

The investment of the investor stands secured when it is done following the notifications of the S&P 500 as he gets an opportunity to enjoy the benefits of earnings from diverse fund allocation. Nearly every relevant section of the American economy is covered and hence, all the market growth and movements that take place in these sectors earns you rich dividends. Savings is also substantial following the low expense ratios. But at times when the price movement of a limited number of stocks is taken into account, there can be an incomplete picture of the actual price movements.

A Small Cap Index Fund can be a Big Investment Option

Investors who have the skin to bear the heat of price fluctuations and market volatility can consider the Small Cap Index Funds as an amazing investment tool. These investors can attain savings as they go for indexing in stocks through an indexing approach. The investment can be diversified and it can experience substantial growth if you make it a part of the asset allocation program. This can also be a wonderful retirement investment option. The investor who desires to open an account in this type of fund simply requires an initial investment of $250. Here, $50 is regarded as an automatic investment.

Investment in Small Cap Index Fund is not a small term investment option. The investment offers you capital appreciation and the values may also experience substantial variations, depending on the market movements. The assets of this fund are collected as a separate series of the Master Fund, which is termed as the Russell 2000 Index Master Portfolio. 90% of the assets get invested in stocks in the form of Russell 2000 Index. The investor can earn good returns when the stocks of the small companies are purchased, as they can reap the maximum benefits of market volatility. The factors that need to be checked in this regard are like, the market risk and the management risks. It always pays off to diversify in a volatile market.

Saving through Vanguard Index Funds

Proper allocation and investment of savings is an important part of an effective retirement plan. Today, there are a number of retirement plan sponsors who are interested in making the index funds the focal point of the investment portfolio. Reports referring to surveys indicate that 17% of 150 employers desired to substitute index funds for a part or whole of their actively managed investment options. This constitutes to around 8% increase. According to Mike Lucci of Vanguard Institutional Sales, the enhanced interest in Index Funds is a great opportunity for investors designing a retirement plan, as it can help them to secure their capital and save in turbulent market conditions. The plans are characterized by supplemental passive investment options and active funds are replaced with a unique line-up of highly diversified low cost index funds.

Participant communication, a simplified plan design coupled with multiple levels of investment choices are marked as endearing attributes for retirees. Savings can be attained through the low-cost indexing, broad diversification and the cash drag is kept low.

Just a few points of caution:

The investor is required to take note of the inflation risks, credits and the prevalent interest rates while investing in bonds. Diversification may not shield you in a declining market. As a plan sponsor, Vanguard believes that they can effectively determine what the best interest for their participants’ prudence is.

Bond rating systems

Investors are found to bear this common apprehension that all bonds are identical. This idea however, is pretty far from the truth. Bond ratings came into existence and were developed gradually over a period of time with an objective to aid the investors realize the amount of risks involved with regard to the different kinds of bonds available in the market.

It is only those bonds that are issued by the federal government or agencies that bear the least amount of risks but, apart from them, every other variety of bonds does bear a certain amount of risks that the investor ought to be aware of before hand. This mechanism of bond rating allows the investor to comprehend this potential risk that exists by default. He can not only evaluate the various determining conditions of the bond, but  also effectively balance this default risk. This takes into account the interest payments that are paid to the investor on the bonds.

Investment in bonds is considered to be safe due to the fact that the investor receives his payment on interest expense prior to the payments to the stock-holders. There is a negligible chance of non-payment unless of course, the company decides to declare bankruptcy.

Although, this risk may mot be a magnanimous one, there might be companies that go default on their bonds. This entails that the said risk is not merely perceived, it is indeed real. In such a situation, the bond-holder or the investor does not receive his interest payment but, he might as well end up losing his entire investment on the bond.

Save through your Checking Accounts

The high interest checking accounts offered by a lot of banking institutions can be a feasible option. This is particularly for all those investors who do not have the need to harbor a huge amount of on-demand cash. The point to be noted is that the amount you decide to keep in your checking account is not very high considering the status of your overall portfolio. The Federal Reserve has currently slashed off the interests rates, and this has resulted in modest interest rates as offered by the banks. There are a few aspects to be considered with regard to high interest checking:

  • You should consider investing your minimum balances in other investment options. If you have around $2,500 in your checking account you may not earn handsome interest on the funds. And, if you end up dropping below the minimum balance, there are fees to be met up with.

  • Your interest earnings can fall due to these fees. Prior to investing, one is required to understand every detail regarding the fees within the high interest checking account. If you find the fees higher than your current banking institution, opening a high interest checking account will not be a good option.

  • There may be other caveats along with your high interest checking accounts. One needs to check whether the interest you earn is indeed worth it.

Save on your trading losses

Investment can incur losses and you need to have a way out to beat those losses. This is important if you desire to secure your savings. The loss deductions originating from the net trading losses can be creatively invested.

Here are three basic options:

You can go for the S&P futures – Once you own an S&P 500 Index fund, the 2.5% yield is sure to benefit you. With Obama planning to raise the dividend tax by just 20%, the investor will be able to effectively secure his savings. It is usually noticed that the stock yields are higher compared to the short-term interest rates. If the Treasury’s yield 0.5%, the stocks yield 2.5%, the futures offer you 2% annualized discount to the spot price. For you, the capital gains will be tax-free.

Go for the Short Treasury Bonds – If you’ve suffered trading loss, the investment income will be tax-exempt. The interest rate that is currently 0% for you will rise as the bond matures. Here, you need to take investment advice from an investment broker. It is advisable to lock the bond with a term-purchase agreement.

Exit the bonds prior to the dividend – Once you redeem the bond before the stipulated date, a good section of your interest incomes can be converted to capital gain. If you are tax-deferred, the distribution of your taxable income need not bother you.

Investment management – The basic way to save

You might think about savings and investment in isolation. But, what you really need to focus on is the fact – what would you like your money to do for you? Once we are decided about the manner in which the money is slated to be used in future, an effective investment strategy can be formulated. This is also related to the prospective performance of your investments, as it would be a marker for your savings and your financial status.

Asset allocation plays a big role here. It will help you determine the portfolio returns and aid you to devise mechanisms through which you can improve them. It can aid you in mitigating the risks involved. If you are able to devise a effective plan to diversify your major asset classes, in the form of cash, commercial property, fixed interests and equities investment, to name a few, you would find yourself in a better position to manage your investment.

Each investment portfolio incurs a specific variant of risk. So, as you develop a precise idea of your investment requirements, building the rest of the strategy would become easier. Be it the purpose of investment, the time horizon for the investment, the amount of risks undertaken or the corresponding security you stand to attain. These are all vital factors that need to be considered to efficiently safe-guard your savings.

A Smart IQ and Vision combined with Effort

Bob’s father passed away when he was just a teenager. He began to assist his mother to run the existing family business smoothly. He had never been wealthy but, when he immigrated from the Soviet Russia, he managed to attend the prestigious private school in Chicago. He made a good network of friends who later on evolved as important business contacts.

During the World War II, he discovered that he had an IQ of over 150 through a test. This helped him to get into the department of counter intelligence. As his first step towards becoming a successful millionaire, Bob concentrated in establishing a strong wholesale network across the Midwest. This was when he returned to resume the responsibility of his family business. His firm emerged as the sole supplier of a popular brand of cookers.

In 1960s, Bob diversified his investment as he realized the unforeseen potential of the FM radio. He indulged in radio manufacturing and bought several radio stations. Two decades later, Bob had already reaped his benefits and decided to retire after selling most of his interests. He has also focused on the private-placement bonds, real estate and venture capital. He has always reiterated that to become a millionaire one needs to think, plan, invest and work in tandem. He observes, “The success lies in making more good decisions than bad decisions”.

Save by lowering your electricity bills

In order to prepare for a successful investment or building your capital, it is important to cut back and save effectively on your electricity. Electricity bill is one such area. Here are several options that would aid you to lower your electric bills:

  • Close the blinds and the curtains – If your windows lack the mini-blinds, you need to ensure that they are in place. They act as wonderful insulators.
  • Get energy-saving windows installed in your rooms – The old single-pane windows allow a lot of heat and air-conditioning to escape.
  • The filters in your air-conditioners and furnaces should be regularly changed – This helps your system to run at optimum efficiency, thus helping you save electricity and the air in your home is also kept healthy.
  • The window air-conditioners should be placed in the shadiest side of the building – This will result in lesser consumption of power and it will also work less hard.
  • The air-conditioner and furnace must be of the right size – Well, if it is too small, it has to work harder, if it is too large, its efficiency will go wasted. In either case, the consumption of electricity will go high.
  • The systems should be regularly checked – This way, they not only run smoothly but the problems are detected right on time, thereby saving you money and power.

Retirement Savings or Student Loan – A long-standing Dilemma

An investor in his late twenties or thirties has long been troubled by the dilemma that whether he should opt for paying down his student loan debts or focus solely on retirement savings. This is undoubtedly not an easy decision and it is the ultimate objective of one’s life that should decide on what he/she should choose. The decision becomes easier when you take into account the following points:

The 401(k) employer-matching programs –Maximize the amount of your 401(k) in accordance to your employer’s willingness to match up. This contribution to your savings will offer you instant and complete return on your investment.

Check and compare the Interest Rates and ROI – As you swing between the payment of your student loan debt and investment, just compare the interest rate on your debt with your expected Return on Investment. If the interest rate on the loan is higher, there is no point in paying off your debt.

What are your emotions on ‘debt’ – There are people who cannot stand the thought of being in debt. If you are one of them, ease off your burden.

Consider paying yourself first – It’s obvious that whatever savings you make, belongs to you. You can pay the minimums of your student loan debt for a certain number of years and you will have your retirement savings intact; just because you’ve paid yourself first!