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Caution, Retirees: Higher Yields Come With a Price
Tweet Share on Facebook May 31, 2011 CommentMany retirees sock away a portion of their savings in certificates of deposit (CDs), one of the safest investments around. Five years ago, they were paying 4 to 5 percent interest. Now, most pay only 1 or 1.5 percent.
Interest rates have been low for a long time and are expected to remain low for the time being. As a result, retirees who want to roll over money from a matured CD into a new one aren't earning as much income to meet their lifestyle needs. This has driven many people to hunt for higher yields through investments they wouldn't ordinarily consider because they carry much higher risk.
A lot of these higher-yielding investments could be potential time bombs, and retirees may not realize how much danger they're taking on. For example, a recent caller to my weekly radio show said he bought a closed-end municipal bond fund paying 6 percent interest because it seemed like an attractive alternative to low-yielding CDs.
[In Pictures: 6 Numbers Every Investor Should Follow.]
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How to Maintain Your Lifestyle in Retirement
Tweet Share on Facebook May 27, 2011 CommentLife expectancy in the U.S. has doubled in the last 200 years, and now the average 65-year-old will live to be 84. And that's just the average. If you're a married couple in your 60s there is a 50 percent chance that one of you will live to age 95! Potentially, that's 30 years in retirement if you stop working at 65. With our longer life spans, financial planning for retirement has never been more important if we want to maintain our lifestyle over the long term.
Financial planning should always be considered a verb not a noun. This simply means that planning is an evolving process because life is fluid and ever changing. There are a multitude of changes and modifications, such as shifts in financial markets and changes to tax rates or government programs, that take place over time that will affect the outcome of your retirement and financial plan. Analyzing how these changes impact your retirement income and cash flow over a 30-year retirement is no small task.
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How to Play the Coming Tech Bubble
Tweet Share on Facebook May 26, 2011 CommentThere must be a gland in the body that doctors have never found. But we know it's there. We call it the "greed gland." Greed glands were on fire last week when LinkedIn went public.
Maybe this was your mental ticker tape: "How could I have gotten in on that action? Why did I miss LinkedIn and now Yandex? How about all those Silicon Valley geeks getting rich again and I'm not? Are new social networking companies going to become another tech bubble, and will I profit from it? Am I going to just sit on my hands? Maybe I'll just buy LinkedIn now at $90. It's a good company. I use it. It will eventually go higher."
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Variable Annuities: The Good and the Bad
Tweet Share on Facebook May 25, 2011 Comment (4)Annuities are used by so many brokers but shunned by most of the investing public. Here is a good look at both sides.
First of all, what is an annuity? Traditionally, an annuity is purchased from an insurance company and offers a stream of income paid over someone's lifetime. In traditional annuities, buyers give up access to their principle for that guaranteed income.
[See 6 Numbers Every Investor Should Follow.]
A more modern annuity is a deferred annuity, which is an investment product used to defer tax, offer an income guarantee, provide a death benefit, or some combination of the three. Most people opt for deferred annuities because they don't lock up an investor's principle like traditional annuities.
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7 Financial Issues for Married Couples to Consider
Tweet Share on Facebook May 25, 2011 Comment (1)Financial issues can become a source of conflict in your marriage, especially in today's economy. Here are some suggestions to reduce financial stress in your marriage:
Discuss your views on a wide range of money issues. Make sure you understand each other's views about earning, spending, saving, investing, and borrowing. Does one of you like to save money, while the other prefers to spend it? Does one feel comfortable with high debt levels, while the other can't stand the thought of paying interest? Different money issues will be more important at one stage of your marriage than at another. You may find you have no money disagreements for many years, only to be faced with an issue you can't agree on.
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Investing Takes Patience
Tweet Share on Facebook May 24, 2011 Comment (1)One of my basic philosophies is that investing takes patience. There are a lot of things in life that we want right now, and we like to see instant results. But investing success doesn't happen overnight. It takes time and patience. A well-allocated, diversified investment strategy works over time because it helps investors stick to their investment plan during periods of volatility and declines in the market.
Another one of my philosophies is that you can add value to your investments by owning actively-managed funds. The name of the manager who's making the buy, sell, and hold decisions every day and their performance over different time periods matters much more than the name of the fund.
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The Real Fear for the Muni Market
Tweet Share on Facebook May 20, 2011 Comment (2)The potential for mounting debt and falling tax receipts to lead to huge defaults by state, regional, and local governments has precipitated many conference calls and webinars focusing on "setting the record straight" or "busting the myths" for municipal bonds. In each of these conversations I've heard a similar message: The default rate for municipal bonds is incredibly low, and while it may spike relative to recent history, there is still a shockingly low probability of real pain for muni investors from defaults.
There is actually a much larger and less-discussed issue facing the municipal bond market.
[In Pictures: 6 Numbers Every Investor Should Follow.]
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What Investors Can Learn From The Fall of Raj Rajaratnam
Tweet Share on Facebook May 19, 2011 CommentRaj Rajaratnam, founder of the Galleon Group Hedge Fund, was found guilty this past Wednesday in what has become the new high-water mark for insider trading convictions.
Using techniques once reserved for organized crime, drug trafficking, and terror plots, the Justice Department was able to convict Rajaratnam on 19 counts of security-related fraud. His conviction involved a complex web of more than 23 known parties ranging from corporate executives to hedge fund managers, and reveals just how deep insider culture runs among the Wall Street elite.
[In Pictures: 6 Numbers Every Investor Should Follow.]
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3 Unconventional Fixed-Income Investments
Tweet Share on Facebook May 18, 2011 Comment (3)We all know what happens when interest rates rise—bond prices fall. It's an inverse relationship. Even though investors know and understand this concept, they rarely take action to avoid a fall in their fixed-income investments. Many investors sit on their bonds or bond funds, no matter how long-term they are, without ever contemplating a change. This is truly one of those times when the worst thing you can do is nothing.
While you may be totally safe with your long-term bonds by holding them, consider the possibility that you may need some of your money prior to those bonds maturing. If you need income, you should consider moving a portion of that fixed-income allocation to a different position.
[In Pictures: 6 Numbers Every Investor Should Follow.]
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6 Reasons You Need a Financial Plan
Tweet Share on Facebook May 17, 2011 Comment (5)As a child my family went on a number of driving vacations. Before leaving, my parents generally contacted AAA and obtained a step-by-step series of maps of our planned route. Typically, each page depicted the route between two major cities: the route from Indianapolis to Louisville, followed by Louisville to Nashville, and so on.
Reaching your financial goals is like a trip. While there are many reasons you need a financial plan, here are six to get you started:
If you don't know the destination, how will you know when you've arrived? A financial goal is something that has a time frame and that can be quantified. An aspiration such as a "comfortable retirement" is hard to plan for. The financial planning process will help you define and quantify your goals.
[In Pictures: 6 Numbers Every Investor Should Follow.]
