Saturday, April 23, 2016

The Future is Now! Start Saving For Retirement

Retirement seems far away, but it is a reality that everyone needs to face. With life expectancy increasing, individuals will have more time to spend in their golden years. However, they cannot depend on the steady income of a pension or the assistance of social security to support them. 

Therefore, it’s up to each person to plan for retirement. Meeting with a certified financial planner is a good way to map out your investment strategy. However, there are some things you can do on your own. 

Establish Your Plan 
Before you start to calculate the savings you will need, figure out what your net worth is today. Your net worth is the total value of your assets minus your liabilities, which includes expenses such as your mortgage and other debts. If your net worth is negative, don’t worry. Now you can determine what you need to do to move toward a positive number. 

Next, calculate how much savings you will need to reach your retirement goal. Plan on generating a nest egg that can generate 70 to 80 percent of your pre-tax, pre-retirement income. Once you have come up with that amount, think about what you can do to save money on a regular basis. 

Create a budget which includes your recurring expenses. As part of your monthly bills, include your savings contributions. A budget will show you where you are spending your money, and it will help you prioritize which debts should be paid off first. 

Adopt a Savings Mindset 
When you look at the amount of money you will need to save, the number can seem overwhelming. A retirement fund such as a 401(k) or a Roth IRA can significantly increase in value over time. Therefore, make regular contributions to your funds so you can maximize your account’s growth potential. 

If a significant portion of your spending is going toward credit card debt, pay it off as soon as possible. The high interest rates usually exceed any earnings you will receive on your savings. 

Utilize Workplace Retirement Plans 
Many people don’t take advantage of retirement plans at their place of work. In many cases, employers match contributions, which translates to increased savings. If you don’t contribute, you are turning down the opportunity to obtain free money that will earn compound interest! 
Individuals who are self-employed and work for small businesses have options in this area too. Check with your tax specialist to see what types of retirement funds are available. 

If you want to protect your nest egg, a financial consultant will advise you to diversify your portfolio with a combination of stocks and bonds. Your savings configuration should reflect your age and the level of risk you are able to assume during each phase of your life. For example, Fisher Investments has a number of publications that review a variety of retirement investment strategies. 

Additionally, invest in unrelated industries to minimize risk. For instance, there is little chance that the performance of stocks in pharmaceuticals will affect the high technology sector. Also, consider investing in different economies, rather than funds that are focused on a single country or region. 

Watch Your Mortgage 
If you are a homeowner, your residence is a significant asset. If you have a mortgage and interest rates fall, consider refinancing. The cost savings over time will be significant. If your monthly payment has decreased, put the extra money into your retirement savings. 

If possible, pay off your mortgage before you are ready to retire. Eliminating your monthly mortgage payment will automatically increase your income. 
Keep Working 

You don’t have to stop working when you reach retirement age. Instead, reduce your hours or find a less-demanding job. When you work over a longer time span, you will be able to increase your savings portfolio, which allows compound interest to continue to work its magic. 

Although you will be making less money, you will probably have fewer expenses during this time of your life. For instance, your mortgage will be paid off and your children will be finished with college and hopefully on their own. 

Planning for retirement doesn’t have to be an overwhelming experience. If you follow these simple steps, you will have well-defined plan that will point you in the right direction. Once you start saving, you will be able to look forward to the bright future that lies ahead of you.

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Sunday, April 10, 2016

How to Start Investing with Only $1,000

So, you are prepared to enter the world of stock market investing and you have set aside only $1,000 for that purpose. However, before you plunge into the complex world of the stock market, there are certain things you should put into consideration. One of the many concerns for investors with limited funds isn't only what to invest in, but also the way to go about the actual investing. You’re going to discover that not long after you enter the stock investing market, you might find yourself facing a lot of considerations from minimum deposit restrictions to the importance of diversification among others.

Do you know the account minimums?
Stock investing may appear straightforward enough for the seasoned investor - All you have to do is open up an account with a brokerage firm. But, is it that simple? What you might not understand is that all financial institutions have minimal deposit conditions. What this means is that unless you deposit a specific amount of money, they will not accept your account application. With an amount as little as $1,000, some firms wouldn’t even consider you as an investor, talk less of opening an account for you.

Discount brokerages have fees that are significantly lower than their counterparts, however do not expect them to assist you with any investment decision. Their charges are low because with them, you're in charge of all investment choices - you can’t ask for investment advice from them. With only $1,000 as a start-up investing amount, you're really on a tightrope as far as minimal deposit goes. Some discount brokerages like Banc De Binary will accept you while others will not. You’re going to need to look around until you find one that will accept your minimal deposit of $1,000.

Know the Costs of Investing
Commissions: Before you set up an investment account, you also have to think about the associated costs that you’re going to attract from buying investments. Usually, it’s going to cost you some money each single time you buy an investment (through commissions). And with a small amount of funds, these broker commissions can really poke a hole on your $1,000.

Furthermore, investing in stocks can really get expensive when you trade continuously, particularly with a minimal amount of money available to invest. Each time that you perform an investment action, whether selling or purchasing a stock, you are going to pay a commission aka trading fee. Trading fees can range anywhere from as low as $10 for each trade to as high as $30 for some discount brokerages.

Use Diversification to Minimise Risk
Some investors regard diversification as the only free lunch in investing. When it comes to diversification, the largest amount of difficulty in doing this may come from investments in stocks. Moreover, with a $1,000 deposit, it's almost impossible to have a well-diversified portfolio, so be mindful that you may need to invest in one or two firms (at the most) to begin with. And this is likely to increase your risk.

A Small Step Toward a Great Future

It’s very possible to invest in stocks with a small amount of money if you’re just starting out. But know that it’s more complex than merely picking the right investment and you must understand about the limitations which you face as a ‘newbie’ investor.
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Saturday, February 20, 2016

How automated trading affect future of trading and investing

According to recently released article from Bloomberg: ,,The Rich Are Already Using Robo-Advisers, and That Scares Banks", assets under management in automated programs gradually grow. They should also small investors seek automated solutions for their investments?

Mainstream idea of investing is in passive approach. On the stock markets you are usually trading or better investing in the long-term. It means that you buy shares of a particular company or a whole sector, and hold them. It often indicates the average return of 10% per annum. However, detailed examination shows the fact that achieved return at the investment on the local or regional level, doesn't have to reach positive numbers even in a matter of years. A typical example is Japan where stock market is experiencing bad times for 20 years. This can be good reason to leave old portfolio theory. Investors should in terms of uncorrelated returns and strong balanced portfolio think about adding active trading part. This part can use automated trading which protect investors against psychological aspects of active trading and also optimizes time dedicated to active trading.

Today's technology offers much better conditions to develop and trade automated trading strategies than a few years ago. Computational power together with the involvement of artificial intelligence, machine learning methods and data mining, allow develop and test individual trading logics in fraction of time. Thanks to this can developers of these automated trading strategies discover effective trading logics with predictive capabilities.
Still prevailing opinion that robots cannot replace human. This is the reason of skepticism about automated trading. Investors should realize that automated trading itself is only the end of the whole process. On the beginning is human who define the basics and control the whole process of developing and testing despite the fact that the process is automated. It is much more about looking for objective advantage in the market that can be traded by automated solution. From investor perspective is much easier evaluate results from automated trading than when active trading will make himself.

Automated trading gradually grows and solutions as well. Because the development of automated trading is both financially and knowledge consuming, investors should look for automated solutions, already created by developers for trading. In this point it is more about communication with developer about understanding principles of automated trading solution which he offers. Investors will know, how evaluate results from automated trading, what technological aspects does it contain and what support they receive if anything goes wrong.

Author: Daniel Stepnicka,
Director, Co-Founder of
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Thursday, February 18, 2016

How to Hold Real Estate in your Roth IRA

Real estate as an investment option
After the 2008 global financial crisis, investors are increasingly looking for assets, away from stocks and bonds, that can help diversify their portfolios, act as an inflation hedge, and provide a long-term return for retirement. One such asset is real estate, and it may be best to hold it in a self-directed IRA account, which is run by a third-party administrator and allows the investor to choose what types of investments and asset classes to put in the account. A self-directed Roth IRA offers you the added advantage of compounding your income, gains, or savings tax-free and enables you to invest in real estate such as residential homes, condominiums, commercial properties, co-ops, or even land, all within your Roth IRA.

Things to consider and prepare

Investing in the real estate in a self-directed IRA does require a different mindset because there are a number of rules you must follow, or the tax benefits can be voided. First, you need to find a bank or brokerage that has a qualified trustee or custodian for self-directed IRA and knows how to handle your real estate purchases, administers the account, and files the relevant documents with the IRS. You must also have enough money in your IRA account to buy the real estate investment from your IRA account. Some custodians may allow you to borrow to purchase the property as long as the loan is non-recourse, i.e. the house alone is used as the collateral. You cannot buy a property which you reside in or is a part of your business or buy a property you or your family members own a specified percentage – the IRS bans self-dealing. With a self-directed IRA, you also are the only one responsible for your investment decision and complying with all the regulations and rules for your investments.

Operational procedures
After your IRA custodian has purchased the property for you, the title will be in the name of your IRA custodian. The IRA account pays all the management fees, taxes, insurances, and property-related expenses and so the account needs to have sufficient cash. You could lose the tax benefits or incur penalties if you fund these expenses from your own account.

To have more control over your investments, you can create an LLC that is owned by the IRA to invest for your IRA. With this checkbook control, the IRA owner can write cheques to make purchases, pay property bills and marketing expenses, and have greater control over the assets.

Some advantages and disadvantages
Real estate can provide the owner with long-term investment value with the potential for appreciation. If the property is rented, it can provide the owner with rental income. Not only is real estate a hard asset compared to stocks and bonds but also an investment the investor understands well. The other big advantage is that if you purchase the property from your self-directed Roth IRA without a mortgage, all the rental income will be compounded tax-free. However, if you finance the property purchase with a mortgage, then the rental income becomes unrelated business taxable income, which will be taxed when earned. Another disadvantage is that you cannot claim depreciation when holding the property in the IRA. You will not be able to enjoy any advantage from your property investments until you retire.

REIT can be an easier option
If holding a physical property in your IRA is too much work for you, you can also consider investing in a Real Estate Investment Trust (REIT), which is similar to a mutual fund but invests in the real estate market. REITs are required to pay out 90% of their profits through dividends. However, investors also need to understand any tax implications when holding REITS in the Roth IRA.

Real estate investment is a good investment diversifier and provides long-term value especially when held in a tax-free Roth IRA. As to which type of the IRA accounts or real estate investments suit the investors’ goals the best, the investors will be wise to consult their financial advisers, accountants, and tax professionals first.

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Thursday, February 4, 2016

3 Things You are Not Doing Today that can impact your finances tomorrow

Murali, a 32 year old HR consultant, is worried about how his finances will shape up. His mind is often plagued with questions such as “will I have enough money to live my retirement years peacefully? how would I pay the fee for my child’s engineering degree? What would happen to my family if I am not there? Will they be able to sustain their living expenses in my absence?” Murli is not sure if his finances are on the right track and whether he is control of his future.

Murli’s questions can arise on anyone’s mind. While these concerns are very reasonable, what really matters is that how you address these concerns. You are already doing ‘X’ number of things to manage your finances, but perhaps you may not be doing some things (which you should do!) that can impact your finances tomorrow. Let’s take a look at these things.

1.   Not investing with a goal in mind
When you talk about the future, it usually referred in two timelines: immediate and distant. In the financial language, you can call these timelines as short - term (such as buying a car or renovating your home) and long – term (such as child’s marriage or your retirement). If you don’t classify your investment goals, according to the time horizon, you wouldn’t know how, where and how much to invest.

When you want to accumulate wealth (financial freedom) for the future, you need to start investing early and keep a long term perspective. More the number of years to invest, higher the corpus you would have.

2.   Not Diversifying the Investment Portfolio
In an online survey conducted by ET Wealth recently, 53% respondents admitted that have neither fixed their asset allocation nor follow it. Also, 15.7% respondents said that portfolio doesn’t need rebalancing. Now, if you are not doing asset allocation or rebalancing your portfolio every year, it's a financial slip up at your end. It could affect your financial security in the future.

Let’s say, you are a regular investor. You invest a substantial part of your savings at fixed intervals. But, if you don’t diversify your portfolio, then the chances are you are not going to benefit from the risk-return trade-off in the long run. Have you heard of the saying, “Don’t put all eggs in one basket?” The same logic applies to your investment too.  At the same time, you should also monitor your investments closely and make changes in the allocation as and when you deem necessary.

An investment instrument such as wealth plans from ICICI Prudential are a fine example of sensible asset allocation. These plans give you an opportunity to choose your own percentage of equity and debt funds to earn healthy market-lined returns. You also get the flexibility to switch from one fund to another based on your financial goals and market fluctuations. Additionally, you also get a life cover, which will take care of your insurance needs. Hence, it is advisable to have at least one wealth plan in your portfolio.

3.   Not Automating Your Investments

Surprised? Well, not setting up monthly standing instructions towards your investment could be a serious financial mistake on your part! Let’s take an example here. If you have taken a life insurance policy and decide to pay through a non – ECS mode of payment, you have to depend on manual or automated reminders to pay the premium. If you forget or delay the payment, not only your policy will lapse, but you will also have to pay a late or penalty fee. This may put a brake on your investment till the time you renew the policy again.

To avoid such a situation, it is advisable to go for automated standing instructions. This way, your investments will work like SIPs with multiple benefits. You start it and forget it, without worrying about payment reminders, policy lapse or non – payment charges. The deductions will happen automatically, thereby instilling financial discipline in you.

Your today is like a financial opportunity that you can encash tomorrow. Take advantage of these opportunities as much as you can in your present!
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Sunday, January 24, 2016

China’s Forex Fast-Track

The news agency Reuters recently reported that China is to boost risk controls and speed up the development of its foreign exchange market during 2016. The State Administration of Foreign Exchange (SAFE), posted information on its website detailing the proposals which also include the opening of China’s capital account and improvements to the management of its foreign exchange reserves.

The statement was posted after an internal meeting in Beijing that was attended by Pan Gongsheng, who is the newly appointed deputy governor of China's central bank and the party secretary for SAFE. The news came just as the yuan reached its lowest level compared to the dollar in five years, news that sent markets around the world into a panic for fear of competitive currency devaluations. China has also ordered some of its biggest banks to limit the purchase of the US dollar.  

The integration of China into the world economy has been led by its move to a private sector economy and the growth it has achieved from this has been a global phenomenon. Further policy change is in the making and will see more liberalisation of China’s Forex markets. Will this lead to continued growth for the Chinese economy?

China’s economy is growing at a slower rate now than it has seen in the past 25 years and the International Monetary Fund is predicting that over the next two years growth will slow further, falling from 6.9% in 2015 to 6.0% in 2017. China is pushing a move from an economy driven by exports and investment to one driven by consumption and services. However, some experts are arguing that this transition is being made too quickly and that a sustained focus on productivity is what is needed in order to sustain growth and that doing so would ensure a more stable move to the consumption and services economy they desire, over time.

When China sneezes, the rest of the world catches a cold, is a cliché that has been used time and again, but maybe now is a pertinent time to time to ask yourself, how will China’s changes to their foreign exchange regulations affect global trading and whether it is good for China, or not, is there an opportunity for you to fast-track some financial gain?

While pondering this, bear in mind the words of economist Tony Nash, who told the BBC; "China's growth in 2015 was equivalent to the size of the entire economy of Switzerland or Saudi Arabia.”

“That's not an easy feat and shows the magnitude of the accomplishment,"  Nash added.
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