My 401k has lost over 5% in the past couple of weeks, and I don’t care
Why wouldn’t I care? Because I’m 30 years old and will be investing for over 30 years more. I remember my mother fretting back in 2001, telling me she was going to take everything out! I exclaimed “NO,” there is no way in hell you should do that. She was convinced that the best thing she could do was stop the bleeding now. I convinced her, that she would be in the market for another 15-20 years, let the market go up and down, in the long run you would be way better off. And she was way better off after following my advice. Her portfolio losses of nearly 20% rebounded and she was able to make back all that money she was convinced she never would. We should keep in mind these things when the stock market faces tough times. Those whom continually invest and stick to their plan will profit the most, not the ones that get scared and try and run to protect themselves. You should have been invested in bonds and such by now if you are nearing retirement, if not that is a mistake of your own, and you should ride out the wave if at all possible.
Who would join in a boycott of Anheuser Busch if InBev’s hostile takeover ends the way they want it to?
Would it matter at all to you if a Belgian Brewer took over the pride and joy of America’s (arguably) favorite and largest beer company? Would a boycott of the newly owned company do anything but hurt the one’s already due to be affected? Surely with InBev’s history of cost cutting and such, many local St. Louis employee’s and distributors will be given the axe. Even if their company stock grows a few percent and they are given some sort of compensation package for being laid off, the employees and surrounding businesses will suffer. Would a threatening of a boycott by the general public have any affect on the sale of the Brewer? I know my reasons for drinking most of Budweisers products are rooted in the fact that many of the employees are my neighbors. Would Americans and St. Louisans alike still drink their products if a Belgian Company were brewing them in our backyards, I think not. So, join me friends, announce the fact that you will boycott Anheuser Busch if they are sold to InBev, by signing this petition today.
Pre-tax vs. After-tax Contributions – A Comparison of Traditional IRA and Roth IRA
Understanding pre-tax and after-tax contributions for IRAs (Individual Retirement Accounts) can seem somewhat complicated if you don’t know the basics of the two types of IRAs: Traditional and Roth. The Traditional IRA is an individual savings plan that is tax-deferred – you don’t have to worry about paying taxes until you withdraw the money you’ve been contributing (penalty free after age 59 1/2). On the other hand, with a Roth IRA, your withdrawal will be tax free at retirement because you are paying taxes before you contribute to the plan. Pre-tax and after-tax contributions make a difference, because it can increase or decrease the amount you are investing with each contribution.
For some, having to pay taxes at withdrawal time works better because the possibility of them having a lower income at retirement age and being put in a lower tax bracket can essentially save them money. However, others would prefer not to have the burden of being taxed at all at the later date and thus choose the Roth IRA.
Here’s a quick example to see how either would work: Say you contribute the maximum allowable amount for one year of $5,000 to your traditional IRA. Because it is tax-deferred, you won’t be taxed on the amount you contribute initially. This means, down the road if you were to only contribute the $5,000 then attempted to withdraw it at the appropriate age (59 ½), that $5,000 would be taxed upon withdrawal as if it were income that you earned that year. If you suspect that your income will be lower in your retirement years, then you might feel that you can benefit from this plan. Meanwhile, if you contribute to a Roth IRA, you will be taxed one time for your contribution the year you contribute, and you won’t be taxed at all for the money you take out at the appropriate withdrawal time.
So the decision of which to choose comes with figuring out whether you would rather be taxed according to your current income, or the income you’re likely to have at retirement age. For some younger people, paying taxes now may be cheaper than paying later as their income is probably lower now, and their tax bracket is as well).
Because IRAs don’t allow for as large a contribution each year as a 401k, you may feel that being taxed now with the Roth IRA wouldn’t hurt, so just to get it out of the way. However, if you want to hold on to as much money as you can (and have as much money working for you as possible), then the Traditional IRA just might be the way to go.
Either way, if you’re looking to go with a traditional or Roth IRA, now is the time to make some important decisions so that you can decide which plan is ultimately best for you.
Best Companies to invest in or with
The best and most respected investment companies of today are Vanguard, Fidelity, and American Funds.
Vanguard has been in a neck-and-neck race with American Funds for years, and in 2007 Vanguard edged out as the as the nation’s top-selling fund company. What makes it stand out above the rest is that it provides superior investment options, and is owned by its shareholders (meaning it is a not-for-profit company), so its expenses are very low. For example, the Vanguard Wellington plan, which is considered a near-perfect choice for retirement investment by financial advisors, places 65 percent of assets in big company stocks, 32 percent in high-quality, intermediate-term bonds (bonds that last 3.5 – 6 years and rotate among better-valued sectors in the bond market) and the remaining amount in cash – and the expense ratio is very, very small (only 0.27 percent). The Vanguard Primecap Core plan is also a top choice with a nice expense ratio of 0.55 percent. And the Vanguard REIT Index Fund allows 401k contributors to invest in real-estate investment trusts instead of stocks and only charges 0.2 percent in expenses – a plan that is highly recommended by advisors. Other things consumers seem to love with Vanguard are their low-cost EFTs (electronic funds transfers). However, one of the problems you’ll find with Vanguard is that many of their top performers are withheld from 401(k) plans.
While Vanguard is the top-selling fund company, Fidelity Investments has the largest network when it comes to distributing corporate 401k retirement plans. Many say that in comparison with Vanguard, Fidelity is the epitome of big business, but unfortunately is not as personable. So with this company, finding the right manager for your fund account can make or break your experience. A few of Fidelity’s top funds that make it, rank high among other companies are Magellan, Contrafund, and Emerging Markets. Magellan is loved because it is channeled to both foreign stocks and domestic juggernauts like Google. Contrafund, which is only available through employer retirement plans, is a favorite because it falls into the top five percent of large-growth mutual funds and has been there for well over a decade. And Fidelity Emerging Markets is ranked as one of the best due to its reasonable fees and because it has beaten 97 percent of its competition over the past three years. Between these three retirement funds, advisors feel that investors are definitely in good hands with Fidelity.
American Funds is another top choice in investment companies for retirement, and is the world’s largest fund company. If you’ve never heard of it, it is because it doesn’t advertise to individuals – only working with brokers and financial advisors. This company offers significantly fewer mutual funds than the competitors, keeping its stash in the dozens. But surprisingly, this has helped the company grow into a humongous company for retirement investing. In fact, American Funds has seven of the ten largest mutual funds, including Growth Fund of America, which is by far the largest fund in the world to date.
There are several other large companies like Edward Jones and Wells Fargo that are well-known in the investment world, but these three companies above know the business well, and thus are very likely to deliver the results you need. The fact of the matter is though, it truly depends on your needs as to whom is the top investment company for you. It depends on a multitude of factors including how much money your starting off investing with, what kind of service you need, and many other factors.
Catch-up Contributions
In recent years, Congress came up with catch-up contributions through The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) because they felt that Baby Boomers wouldn’t have enough in their savings to properly retire. To make up for what they thought may have been missing, they began allowing Boomers to add more to their investment pots once they reach the age of 50 – or more specifically, in the year that they reach their 50th birthday. So now, in addition to the traditional 401k plan that allows you to save up to $15,500 of your eligible pay each year like everyone else, you can also take advantage of catch-up contributions, which allow you to save up to $5,000 more each year.
Catch-up contributions work well whether you belong to one plan or two – or even if you belong to a company that doesn’t allow it. For example, if you belong to two 401k plans at the same time, you can make contributions for the maximum amount to both simultaneously. So instead of a max of $5,000 that is allowed with one plan, you could contribute for a total of $10,000 per year if under two plans. Also, if you belong to more than one employer (and thus more than one plan), even if neither company allows for catch-up contributions, you can still contribute up to $20,500 ($15,500 for standard elective deferrals plus $5,000 extra in catch-up contributions) total between the two plans – as long as you don’t exceed $15,500 in either plan. In other words, you can contribute $15,500 with one plan and $5,000 in the other. Or $10,250 in both plans. Or $7,500 in one and … you get the picture, right?
The eligibility for catch-up contributions is as follows:
You must be 50-years-old or turning 50 within the calendar year.
You must be getting paid from your employer (since the contributions are actually deductions from your paycheck).
You must contribute the amount that will help you reach your elective deferral limit by the end of each relevant year.
And you cannot be in the 6-month period of non-contribution because you’ve received a financial hardship withdrawal.
Catch-up contributions are available for the 401k, 403b (Tax Shelter Annuity) and 457 (Deferred Compensation) plans, in addition to IRAs. Because you can participate with multiple plans, it is good to know that the rules differ among them. So, for instance, if you have rolled over your retirement funds to say an IRA since you’ve reached the age of 50, you will need to make sure to check for new contribution guidelines that are different than what you’re used to.
It is good to note that while this plan is offered by over 90 percent of businesses, they are not required to match your contributions. So be sure to check with your employer to see how this works at your company. But whatever you decide, you’ll probably find that taking this route will be more beneficial in helping you save than by trying to set up a savings plan on your own.
401k’s and vesting, what does it mean to be vested?
So it’s time to make some decisions regarding your 401k, and to be honest, you haven’t truly given it a second thought. When you were hired with your job, you simply filled out all of the forms shoved in your face, signed on some dotted lines, and shook the hand of your hiring manager/HR representative. However, now that you’ve been investing part of your income into a 401k plan, you want to know more – including, what it means to be vested. Being vested simply means that you’ve earned the full amount of your company’s match. Yep, they give you a match, but you’ve got to stay there long enough to earn it. Companies vary in their requirements, some require 5 years of service, and you earn a percentage every year you are there. In the case of a company whom requires you to be there 5 years before you are fully vested, you may earn like 20% a year of their match. By this I mean, after one year, you are guaranteed 20% of their match, after two years, you would have earned 40% and so on.
Now, if you don’t understand the basics of a 401k plan, you’re probably scratching your head right now, so let’s look at this more closely. The 401k plan was created as a sort of security blanket for those looking to fund their retirement. Wrapped up in that blanket is money that you’ve saved over the years, in addition the company you’ve worked for has contributed for you. With some companies, the longer you stay with them, the more they will match on your behalf.
For some, the bad news comes when they leave their jobs early and realize that they are not fully vested in their plan and therefore don’t have access to all of the money they thought they had. How can this happen? Keep in mind that you must work for a company for a certain amount of years to really claim all that generous match.
One thing to keep in mind with vesting is that contributing during the entire predetermined number of years before being fully vested is not required to have access to the money you’ve contributed. However, some companies may put certain restrictions on your ability to withdrawal if you are not leaving the company.
Something else to consider, say once again your company requires 5 years before you are fully vested, and you only started contributing in year two of employment, when year 5 rolls around, you’re still considered fully vested. Also, if a new vesting schedule has been implemented that changes the number of years you must work before becoming fully vested, don’t worry because the new rules don’t apply to you.
I want to invest but all I got is $100, $1,000, $10,000
All you have is $100 bucks or $1,000 bucks, maybe $10,000 grand. No problem, Sharebuilder.com can accomodate your measley investment of anything.
Or, try Tradeking (over in the right sidebar I have a clickable link), they have some spectacular deals going on right now (and they were rated the #1 discount broker by SmartMoney in 2007.)
This gives you no excuse to get started, instead of throwing that $20 spot on a bottle of rum that will leave you with a headache the next day, stick that loot into an account and get started! Be sure to read through my lessons though, so you don’t go in blindly and throw away all your money.
Keep in mind though, if you have generally more than $1,000 to invest, some of the other discounted brokers may have sweeter deals with regards to how many free trades and such you can make. It only makes sense to be diligent and look at multiple brokers to see who has the hot deal of the day.
What are the different stock exchanges or markets?
First, what is a stock exchange or stock market you ask (also known as share markets)? Basically, it is a company or organization that facilitates the buying and selling of stocks and other securites which is controlled by the US SEC.
What are the different stock exchanges? According to the US securties and exchange commision:
A “national securities exchange” is a securities exchange that has registered with the SEC under Section 6 of the Securities Exchange Act of 1934.
There are currently ten securities exchanges registered with the SEC under Section 6(a) of the Exchange Act as
national securities exchanges:
- American Stock Exchange
- Boston Stock Exchange
- Chicago Board Options Exchange
- Chicago Stock Exchange
- International Securities Exchange
- The Nasdaq Stock Market LLC
- National Stock Exchange (formerly the Cincinnati Stock Exchange)
- New York Stock Exchange
- NYSE Arca, Inc. (formerly the Pacific Exchange)
- Philadelphia Stock Exchange
Certain exchanges are also registered with the SEC through a notice filing under Section 6(g) of the Exchange Act for the purpose of trading security futures.
There are also two exchanges that the SEC has exempted from registration as national securities exchanges on the basis of a limited volume of transactions:
- Arizona Stock Exchange
- virt-x plc (formerly known as Tradepoint)
Now, why are there so many stock markets or exchanges ? In essence, they track or trade different things in different ways, like in person or by electronic automaton. For example, the largest in the World is the NYSE. The DJIA or dow jones industrial average is an indicator and representative of the largest public companies financial health, also called your blue-chip companies.
How to get started in the Stock Market buying stocks
Interested in buying stocks but not sure what to do or how to buy them? After reading through my lessons you should have a good idea on what your objective, investment horizon (how long you plan on investing), and risk tolerance are, so you have a plan to get started. I’m assuming you’ve decided to either invest on your own as you’re not offered a 401k plan or you’ve maxed your IRA’s and such, so you want to try the share/stock market. Also, I’m assuming you’ve done your research and have conducted some kind of analysis on the companies you will be investing in. If you have done all of the above, then you’re probably more than ready.
So, how do you get started with this stock market? How can I buy shares in Apple, Microsoft, Google, or whatever your choice in stocks are- you’re asking? Well, here is what you need to do as shown below:
Find a good broker or brokerage firm. These are the guys with the necessary licenses to place orders for you on the stock exchange. Don’t have any idea what I’m talking about? (Be sure to check out our thorough broker reviews where you can get info on most every broker out there.)
A couple of things to keep in mind when selecting a broker:
Some are more costly than others with regards to buying and selling and offer the exact same service. Some are more costly because they offer more client services than others. Be sure to ask what you get with them and relate it to the cost, to know which is more cost effective for you and your investments. Watch out for hidden charges on things like transfers and handling, ask for a full fee disclosure.
Consider your tax bracket when setting up your (401k) investments
Knowing your tipping point when it comes to your tax brackets may save (earn) you a bunch of money and tell you if you should be investing more of a percentage of your income. What I mean is this, if you are on the border of being in a higher tax bracket, investing more money into your 401k or IRA or whatever plan you use, could actually put you in that lower tax bracket, saving you a bunch of money in taxes while increasing your investments – that make you money.
Let’s make an example; We’ll put a pal of mine in the spotlight whom we’ll call John. John is a single guy who makes $90,000 a year, and he invests 6% of his pay pre-tax into his 401k plan. His net taxable income would be (assuming he has no other deductions for simplicity that would lower his taxable income) $90,000 – $5,400 (90,000 X .06 = 5,400), or $84,600. In the tax tables below, you would see John falls into the 28% tax bracket, as his income is between $78,850 but not over $164,550. John would pay $16,056.25 plus 28% of the excess over $78,850, in this case that would be $94,000-$84,600 = $9,400 X .28 or $2,632. So, he would pay $16,056.25 + $2,632 = $18,688.25 in taxes for a net take home pay of $94,000-$18,688.25= $75,311.75.
What if John would have put aside 12.5%? $90,000 – $11,250 (90,000 X .125 = 11,250), or $78,750. In the tax tables below, you would see John now falls into the 25% tax bracket, as his income is over $32,550 but not over $78,850. John would pay $4,481.25 plus 25% of the excess over 32,550, in this case that would be $78,750-$32,550 = $46,200 X .25 or $11,550. So, he would pay $4,481.25 + $11,550 = $16,031.25 in taxes for a net take home pay of $78,750-$16,031.25 = $62,781.75.
By investing a little more than double what he was previously, John dropped himself a tax bracket and avoided $2,657 in taxes ($18,688.25 – $16,031.25 = $2,657). Not to mention, his investments went from $5,400 to $11,250. If his company matched that money, instead of having $10,800, he would have $22,500 invested and working for him. If he was 30, and left that alone til he was 60, he would have made over $393,000 (assuming company match of 100%, investment total of 22,500), compared to a little over $188,000 if all he had invested was $10,800 (this number is based off of 5,400 and a 100% company match, investment total 10,800).
Table 1.–Federal Individual Income Tax Rates for 2008
If taxable income is: Then income tax equals:
Single Individuals
Not over $8,025………………………………………………………… 10% of the taxable income
Over $8,025 but not over $32,550……………………………….. $802.50 plus 15% of the excess over $8,025
Over $32,550 but not over $78,850……………………………… $4,481.25 plus 25% of the excess over $32,550
Over $78,850 but not over $164,550……………………………. $16,056.25 plus 28% of the excess over $78,850
Over $164,550 but not over $357,700 …………………………. $40,052.25 plus 33% of the excess over $164,550
Over $357,700 …………………………………………………………..
$103,791.75 plus 35% of the excess over
$357,700
Heads of Households
Not over $11,450………………………………………………………. 10% of the taxable income
Over $11,450 but not over $43,650……………………………… $1,145 plus 15% of the excess over $11,450
Over $43,650 but not over $112,650……………………………. $5,975 plus 25% of the excess over $43,650
Over $112,650 but not over $182,400………………………….. $23,225 plus 28% of the excess over $112,650
Over $182,400 but not over $357,700………………………….. $42,755 plus 33% of the excess over $182,400
Over $357,700 ………………………………………………………….. $100,604 plus 35% of the excess over $357,700
Married Individuals Filing Joint Returns and Surviving Spouses
Not over $16,050………………………………………………………. 10% of the taxable income
Over $16,050 but not over $65,100……………………………… $1,605 plus 15% of the excess over $16,050
Over $65,100 but not over $131,450……………………………. $8,962.50 plus 25% of the excess over $65,100
Over $131,450 but not over $200,300………………………….. $25,550 plus 28% of the excess over $131,450
Over $200,300 but not over $357,700………………………….. $44,828 plus 33% of the excess over $200,300
Over $357,700 ………………………………………………………….. $96,770 plus 35% of the excess over $357,700
6
Married Individuals Filing Separate Returns
Not over $8,025………………………………………………………… 10% of the taxable income
Over $8,025 but not over $32,550……………………………….. $802.50 plus 15% of the excess over $8,025
Over $32,550 but not over $65,725……………………………… $4,481.25 plus 25% of the excess over $32,550
Over $65,725 but not over $100,150……………………………. $12,775 plus 28% of the excess over $65,725
Over $100,150 but not over $178,850………………………….. $22,414 plus 33% of the excess over $100,150
Over $178,850 ………………………………………………………….. $48,385 plus 35% of the excess over $178,850
Notes:
An individual’s marginal tax rate may be reduced by the allowance of a deduction equal
to a percentage of income from certain domestic manufacturing activities.7
Alternative minimum tax liability
An alternative minimum tax is imposed on an individual, estate, or trust in an amount by
which the tentative minimum tax exceeds the regular income tax for the taxable year. The
tentative minimum tax is the sum of (1) 26 percent of so much of the taxable excess as does not
exceed $175,000 ($87,500 in the case of a married individual filing a separate return) and (2) 28
percent of the remaining taxable excess. The taxable excess is so much of the alternative
minimum taxable income (“AMTI”) as exceeds the exemption amount. The maximum tax rates
on net capital gain and dividends used in computing the regular tax are also used in computing
the tentative minimum tax. AMTI is the taxpayer’s taxable income increased by the taxpayer’s
“tax preference items” and adjusted by redetermining the tax treatment of certain items in a
manner that negates the deferral of income resulting from the regular tax treatment of those
items.
The exemption amounts are: (1) $45,000 ($66,250 in taxable years beginning in 2007) in
the case of married individuals filing a joint return and surviving spouses; (2) $33,750 ($44,350
in taxable years beginning in 2007) in the case of other unmarried individuals; (3) $22,500
($33,125 in taxable years beginning in 2007) in the case of married individuals filing separate
returns; and (4) $22,500 in the case of an estate or trust. The exemption amounts are phased out
by an amount equal to 25 percent of the amount by which the individual’s AMTI exceeds
(1) $150,000 in the case of married individuals filing a joint return and surviving spouses,
(2) $112,500 in the case of other unmarried individuals, and (3) $75,000 in the case of married
individuals filing separate returns or an estate or a trust. These amounts are not indexed for
inflation.
