Money Management Guide

Most of the employed individuals open an Individual Retirement Account or IRA in order to save their money and grow their wealth for their retirement. Those who are earning a taxable income during the same year may open an IRA and make contributions into it. Like any investment account, there are rules and regulations that govern the IRA, and investors must be familiar with such rules. There is more than one type of IRA plan available, but the very popular is the Roth IRA, which is also believed to be the more advantageous when it comes to taxes. The contributions made to a Roth IRA are taxed right at the moment these are made, thus the distributions, as long as qualified, are not taxed anymore. This allows the investors to grow their investments tax-free.

People who have decided to open an Roth IRA must also choose which type of investment they would like to include to their Roth, as the Roth IRA is able to hold plenty of investment types available. Individual stocks, mutual funds, precious metals, insurance, certificates of deposit, regular savings accounts, and even real estate may be included to a Roth IRA. It is obvious that the investors must choose the one that provides the best Roth IRA rates possible. As investors, they must also consider those investments which are already familiar to them. They must be able to do some research and have basic knowledge of such investments, especially the risks that involve.

In choosing the financial institutions of Roth IRA providers into which we put our money, it would be best if we are able to compare the prevailing rates of a variety of providers available, and choose those that give the highest IRA rates and lowest fees, in order to lower the costs and have better investment returns in the future. Furthermore, we must have an idea on the past financial performances of the financial institutions or providers that we choose, and make sure that we choose to invest with the one that is more likely to gain big profits in the next five years or more.

There are two camps right now.  One thinks that the economy is softening, but it’s temporary.  We are going to continue to ride upward, both the economy and the stock market.  The other side thinks that this is the beginning of a double dip recession and that we are currently that the early stages of a correction in the markets.  The S&P 500 has been about 5% off it’s high last month.  A correction would mean that is will exceed a 10% decline.  Depending on what you believe will cause you to have different definitions of good stocks to get in on right now.

Most investors are not that worried about a major correction.  Even the ones that think we might decline by more than 10%, they think it will be a temporary dip.  Why do I think most investors think this way?  Well, for two reasons.

First, the VIX, which is the standard measure of volatility in the S&P 500, in spite of the decline, has stayed relatively low.  The VIX basically is an index that tracks options contracts out on the S&P 500 composite index.  Again, this low number tells me that investors and traders don’t think the economic numbers are a big deal, at least not as much as the media tries to make it out to be.

Secondly, the Federal Reserve will not let the US go back down into a recession.  That means they will continue their printing money policy that is causing the stock markets to rally while devaluing the US dollar.  This is good for US exports, which may be what we need right now.  So we are essentially doing the same thing that we kept riding China for all these years.  I wonder if they are rubbing it in our face.

The thing is, investors think the Fed will bail us out, no matter what happens.  As long as that belief is there, stocks will continue to rally, albeit with minor corrections like the one we’re seeing now.

The world of investments and money management can be hectic. Sometimes a safe harbor from the storm is necessary in order to lick our wounds and continue fighting. High interest safe investments are one such reprive. They exist primarily to give finances a protected place to rest between use, and also to be ready for the next cycle.

A money market mutual fund is generally seen as a strong way to safeguard money yet keep it readily available. These investments are generally made in securities, and so are low risk and often linked to treasuries in local, state, and the federal government. That makes these funds a fantastic place to park your money, with the added bonus that it can be withdrawn at a moment’s notice. This is great for parking money from a payout or liquified investment until you need it for a time sensitive trade or non investment use. The interest earned is significant enough for longer term storage, but also liquid enough for easy access. You can even write checks from the account, although the minimum amount to withdraw is five hundred dollars. Another great feature of these accounts, especially for wealthy investors, is the ability to secure tax breaks on the income tax through the funds. A fund entirely made up of funds from state a local governments does not incur federal income tax. Additionally, a fund which buys only securities from governments within a particular state may also be exempt from state and even local taxes from that state.

Playing it safe is a valid investment strategy when the goal is to preserve wealth or to hold it over safely between investments or business opportunities. Although growth is restricted, high interest safe investments keep you and your money in the game when there are no suitable investments available. High wealth individuals are also able to safeguard their current earnings while remaining in a lower tax bracket, thus preserving their financial station.

The pros and cons of variable annuities need to be weighed so you can determine what choices give you the best chance of the largest return on your investment. One of the first things most investors do is ask for advice from a professional. This is natural, just be careful what you do with this advice.

The myth that the best advice is always free is not prudent in this situation. The best advice you can receive is from a professional that is not going to make any money on your decision. This is when it is advisable to pay for advice from an independent investor.

You may also ask the investment professional, who you are planning to make a deposit with, for advice. You can judge how their advice matches up against what you have learned from other sources. Just remember that they are going to make money from your investment. This is their primary goal, not to make you money.

The best thing about variable annuities is that there are multiple choices for you to pick from for your money to be invested in. Each one has its own risks and rewards. As the market environment changes, you can adjust the amount you have invested in each of the choices that are available to you. In most cases, you will be charged a small fee for this. With some larger accounts, there is no fee.

The tax status is another big bonus of the variable annuity that is available to you. Just like the fixed rate annuity, all of your investment will be tax-free until you start the payment phase of the annuity, or withdraw it if it qualities for IRA status. If you invested with after-tax dollars, then you have already paid the taxes on this income and are no longer required to withdraw the funds at the age of 70 ½ years old and can still have your annuity grow.

An investment in a variable annuity can include the clause “Income for Life”. This is a guarantee that you and/or your spouse will receive regular payments until both of you pass away. Once the payments start, they will continue even if the total sum surpasses what you had invested.

The bad point of this type of clause is if you were to pass away after the payments had started and not received all the funds you paid into the annuity, the balance is kept by the insurance company. In other words, there will be no inheritance to your beneficiaries. Another bad factor is that once you sign this clause into your annuity, the amount of your payments can and will not increase, no matter what your financial condition is. On a side note, if you decide to go with a fixed annuity, be sure to lock in your fixed annuity rates early, rates tend to rise.

Once you open a variable annuity with a deferred tax clause and make your payment, the money is locked away from you. You can make an early withdrawal, but there is a 10% penalty from the US government. The money that is withdrawn is also taxed as capital gains income, which is higher than normal income.  The soonest you can have access to your investment without a penalty is when you reach the age of 59 ½ years old.

The safety of your investment is guaranteed by the stability of the insurance company you invest with. Just like all financial institutions, they are judged and given a credit rating. It is on the same principles that each consumer credit rating is judged to derive at a credit score. The agencies are different than the ones for personal credit reports. The rating system for financial institutions is called the Comdex rating. This scale is from 0 to 100. The closer to 100, the chances that your insurance company is on firm financial footing is increased.

There are also fees and commissions when dealing with the purchase of variable annuities. It is your right to know what these fees are upfront. All you need to do is ask for them, if they are not provided automatically.

These are the basic pros and cons of variable annuities. Understanding them will help you decide which investment mechanism is right for you.