Are Mutual Funds Right for You?

Many Investors are unsure of investing in Mutual Funds. There are so many different Funds out there it can take a good deal of research.

A mutual fund is simply, a collection of bonds and/or stocks.  Through the fund, individual investors join together as a group to invest their money in stocks, bonds and securities.  By pooling their money investors gain greater buying power. Each investor owns shares, which are a portion of the fund’s total holdings.  The fund is professionally managed by a Fund Manager, whose investing track record is documented.

With a Mutual Fund you can make money in three different ways:

1) You can earn income from the interest on bonds and the dividends on stocks. The fund typically pays out almost all of the income it gains over the year in distributions to the fund owners.

2) The Fund Manager can sell securities that have increased in value to earn capitol gains. Most funds also distribute these gains to their investors.

3) The Fund Manager can choose not to sell holdings that have increased in value, the advantage being that the fund’s shares increase in value. Investors can then sell the higher valued shares for a profit.

Mutual Funds – Advantages

Fund Managers-Having professional management of your money is a key advantage.  Most investors do not have the knowledge or time to properly manage their own portfolio. Investing in a mutual fund is a great way for small investors to gain the services of a full time fund manager to monitor and tweak the fund’s investments.

Lower Risk- Owning mutual fund shares helps spread out the investors risk.  Funds are diversified by investing in a large number of assets, typically hundreds of stocks across many different sectors.  A loss in any particular investment is thus minimized by gains in others.

Group Power- Mutual funds buy and sell huge blocks of securities at a time. This lowers the transaction cost greatly over what an individual investor would have to pay on their own.

Liquidity- Your mutual fund shares can be converted into cash at any time upon your request.

Not Complicated- Just about every bank has its own selection of mutual funds offerings for a small minimum investment.  You can also set up automatic purchase plans to invest as little as $100 per month.

Mutual Funds – Disadvantages

Fund Managers- Investors hope that the professional manager is better at choosing stocks than they are. Managers are not infallible, nor do they have a crystal ball to guide them. So even if the fund loses money, the manager still gets paid.

Fees – Running a mutual fund is not inexpensive.  Expenses ranging from the manager’s salary to investors statements cost money and are passed on to the investors.  When comparing various mutual funds pay close attention to the wide range of fees from fund to fund. High fees can have negative long-term effects on your investment profits.

Dilution – Can occur when a successful fund becomes too large and ends up too diversified so that high returns from a few investments can’t properly offset the losses from the other investments. Successful funds often have investor money flooding in faster than the manager can find strong investments for the cash.

IRS – When the fund sells a security, a capital-gains tax is triggered.  This can be a concern for many investors.  You can minimize taxes by investing tax-sensitive funds or by holding non-tax sensitive mutual funds in tax-deferred accounts like an IRA or a 401(k).

As with most investment strategies, investors need to do their homework to determine if mutual funds are right for them.  There are so many mutual funds to choose from that selecting the right one for you can often be overwhelming.  Remember to pay close attention and compare the various fee structures the different funds charge. Also, using one of the many fund-screening tools available will help you pick a mutual fund that fits into your investment strategies.   

Will Congress Toss the Mortgage Interest Deduction off the “Fiscal Cliff”?

The mortgage interest deduction was established to bolster a flagging housing industry and to encourage homeownership and family wealth building. 

Some financial experts however, are starting to question whether the deduction is the best tool to encourage homeownership because it seems to be more valuable to buyers in the higher cost housing markets and thus those families in the upper income brackets generally take the deduction most often. 

IRS data shows that homeowners earning $150K or more claim about half of the mortgage interested deducted.  This income bracket pays 73% of all income taxes.  Homeowners making less than $50K, claim only 8% of the deductions.

IRS data underscores the uneven national usage of the mortgage interest deduction, which is popular in high-cost areas but rarely claimed in areas with low housing costs. The mortgage deduction is available only to those who itemize their deductions, and the numbers work only for taxpayers whose total deductions for mortgage interest, charitable giving and other expenses, are worth more than the standard deduction.  

In states with high housing costs the deduction is used by a much greater number of taxpayers than in areas with low housing values.  Maryland has one of the highest deduction rates with 37% of taxpayers using the benefit, to the low of 15% in West Virginia and North Dakota. 

Lawmakers seem to have forgotten that the mortgage interest deduction is a good policy for their constituents because it brings some taxpayer relief and community prosperity.  A California Association of Realtors survey found that 79% of buyers feel that the mortgage interest deduction was a “key factor” in their decision to buy.  The National Association of Home Builders poll this year also showed that 73% of taxpayers are opposed to any changes in the deduction.

So with that kind of wide public support for the deduction, why would Congress and President Obama be eyeing the deduction as a way to close the gap between what the government spends and what it takes in, to avert the “fiscal cliff”?   According to IRS data, the average mortgage interest deduction is $12,000 a year per taxpayer.  That costs the Federal Treasury a whopping $108 Billion a year in additional un-collected taxes. 

Changing or eliminating the Mortgage Interest Deduction most certainly would have a negative effect on the current real estate market, still fighting its way back from a recession.  The housing market and homeowners have come to rely on the mortgage interest deduction, making it one of the more popular rules in our tax code.  Even a homeowner that does not take the deduction can benefit in a real estate transaction when selling their property to a buyer that is planning to use the deduction.  Having the deduction also helps increase the amount the buyer may be able to pay. 

So if the mortgage interest deduction has helped the real estate industry bounce back, benefits both buyers and sellers, encourages homeownership, wealth building and strengthens our communities… ask yourself...what should Washington do?

Financial Planning Benefits - Charitable Donations

Following the advise of a qualified Financial Planner can help families get the most benefit from their charitable donations. Here are some strategies that enable you to maximize the value of your charitable donation, get the full deduction allowed and save you money on taxes.   

Know your Budget

American families are very generous when it comes to Charitable giving.  The average household donates $2,564 per year or roughly 5% of their income.

Upper Income families donate even more on an annual basis.  Surprising though, for what is likely one of the larger investments to be made each year, few families plan ahead about where or how they plan to donate. Set a budget for giving and stick to it.

Join a Giving Group

Giving with a group is a smart way to have a larger charitable impact.  Giving Circles allow people to join groups to pool donations to support particular causes and organizations. Your donation of $500 is compounded by 10 or 50 and the total donations together can have a much greater positive impact for the recipients of the gift.

Get Employer Matching Funds

Asking your Company to set up a matching Funds Program is a smart way to boost the impact of your donations.  Many Employers will make charitable gifts as long as the cause meets with the Company’s giving guidelines.

Don’t Write a Check-Give Shares Instead

Many people are surprise to learn the benefits of gifting shares from their stock portfolio over writing a check.  Our US Tax system rewards donors who give securities instead of cash.  These donors will not have to pay taxes on the capitol gains earned by their investment, and they get a full charitable deduction for the total value of the stocks that they Gift.

By giving shares, the nonprofit Charity can sell them without paying any taxes.  You can take a Deduction for the full value of the shares and save by not having to pay the capitol gains tax.  Smart financial planning.

Donor-Advised Funds – Not just for the Wealthy

Setting up your own family mini-foundation is not difficult or time consuming. There is no prior approval needed from the Internal Revenue Service. Families can name the foundation and establish their own guidelines for giving.  These foundations make good sense even for Families giving as little as $5000 a year.

The greatest advantage of the Donor-Advised funds is that they allow the donor to take the full tax deduction this year, yet dole out the money on their own schedule over the next months or even years.     

A Financial Assessment for Young Military Recruits

A Financial Assessment for Young Military Recruits

Young recruits in the US military will tend to go on a spending spree after basic training and soon after every pay period. These recruits do not see the need to save for living expenses since the government will provide them with the basic necessities, including meals, housing, health care, laundry, etc. Even after they get out of the military, the government can provide them with a monthly check through the Montgomery GI Bill, which is part of their educational benefits. Currently, the GI Bill pays $1,473 per month for full-time students. Hence, many soldiers do not see the need to save money while in the military.

Local businesses are aware of the spending spree and prey on young recruits who are inexperienced in credit matters. For instance, businesses often offer "the inferior quality of their existing product portfolio" to younger recruits, including lower-quality vehicles, expensive flat-screen televisions, and luxury furniture. I do not advise anyone to buy vehicles around military bases. Honestly, young, single soldiers do not need a vehicle since everything they need, on the military base, is within walking distance; including convenience stores, barber shops, gym, medical clinics, etc. When it comes to the flat-screen televisions and furniture, chances are, these recruits will sell them at bargain prices since they will be moved to another duty station within a year or two.

The first thing the recruit should do…is “not to buy a vehicle as many of them do,” but to open an account with USAA, which is a financial institution for military personnel and their families. USAA offers insurance services, banking, and investment opportunities. USAA has the best customer services in the nation among major financial institutions and insurance companies. USAA provides no-monthly-fee checking accounts. Moreover, USAA pays for ATM fees and the customer can re-order checks for free. All military personnel can become members of USAA. Once they become members, they are members for life.

The recruit should also open a personal savings account with American Express, which pays 0.90% APY. http://personalsavings.americanexpress.com/open-account.html. The recruit should start a monthly allotment of $300 dollars to be sent to the American Express personal savings account. The allotment can be started at www.MyPay.Gov (which is the government pay roll website). At the end of a 3-yearsmilitary commitment, as an example, the recruit would have saved close to $11,000.  It is important to understand the meaning of savings and the need for it. For example, the $11,000 savings can be used towards a down payment for a house. I wish for them to open a savings account with American Express, not only because of the competitive interest rate (one of the highest in the nation), but because money is not readily accessible, making it less likely for the soldier to spend that money. 

The first thing soldiers should do when they get out of the military is to file for unemployment (while enrolling for college and looking for a part-time job). It is almost guaranteed unemployment benefits will be granted. The veteran should not get student loans to pay for college. There are many programs for veterans to pay for college, including scholarships, financial aid, and student work-study programs. The veteran can apply for military scholarships, such as including Pat Tillman Military Scholarship (http://www.pattillmanfoundation.org/tillman-military-scholars/apply/). If the veteran served in Afghanistan or Iraq, he or she didn’t pay federal income tax for that year (which is an added benefit for serving overseas); making the veteran eligible for free student financial aid once they get out of the military. Also, the veteran should get on the student work-study program for part-time employment, which is paid by the GI Bill (1888-442- 4551). 

Lastly, soldiers should be seen by military medical personnel for any type of injury, regardless of severity, including exposure to loud noises, knee, elbow, and ankle injuries. Veterans can get a monthly compensation for injuries incurred on active duty. For instance, a soldier can get $125 monthly compensation for the constant ringing in his or hers’ ear.

Some of the mistakes common mistakes made while serving in the military and after your service is complete, include:

-       Buying a vehicle after basic training; the car broke down two months later.

-       Getting student loans (up to $28,000) when there was no need for it.

-       Not applying for unemployment benefits after the military.

-       Not applying for military scholarships.

-       Not having an allotment to save money while in the military.

-       Applying for too many credit cards while in the military.

-       Not saving, no even a penny, in college.

I hope you do not make these same mistakes. If you do, don’t be afraid to talk to a financial expert to get some necessary help. 

The Election Year and its Impact on Your Personal Finances

The Election Year and its Impact on Your Personal Finances

The relevance of the election year of the president and the economy of the country is quite an evident issue. As a matter of fact it has made a direct impact on the issue of your personal finance. It has been noticed that popular candidates competing for the designation of the president cast a positive impact on economy and personal finance. The reverse might happen if the electoral process revolves round some unpopular figures. It might trigger volatility in the market. This is the main reason why it is catching the attention level of various segments of the society. Whether it's Barrack Obama & Joe Biden or Mitt Romney & Paul Ryan, the 2012 Presidential Race will make an impact. 

Presidential election has always made a direct impact on crucial issues such as mutual funds, housing finance, IRA's, as well as a crucial component of your personal finance which is known as 401(K). The presidential election casts an impact on the GDP growth.  Since the electoral process there has been noticed a little growth in the job sectors of the country. It ultimately makes an impact on the aspect of personal finance. Let’s take the crucial facets into consideration. Here is an introspective look into some of these most crucial issues which are associated with your personal finance.   

Mutual funds in US after presidential election

Mutual funds are definitely a vital part of the entire finance planning of an individual. Every individual has some specific schemes as well as long term goals which are associated with these mutual funds.  At the same time there are some other crucial aspects which are closely linked with this issue. 

As a matter of fact stock markets as well as mutual funds do get a strong impact during the electoral process as well as after the election of the president. The rates of interests, the mode of services as well as policies related to taxation issues do get affected in a way. You might experience some changes in the rules and regulations pertaining to safety bonds and ETF as well. The election process for president ship might have a strong impact on the performance of stock market. Therefore a presidential election is a crucial issue for the stock investors.

IRA’S

IRA’S happen to be a crucial component of the personal finance related to every individual. This particular term refers to ‘Individual Retirement Arrangement’. IRA or Individual Retirement Arrangement’ does play a very important role in the aspect of personal finance of every individual as government provides a great deal of tax reimbursement as well as other benefits based on IRA. As a matter of fact, IRA is a great way of retirement savings for the citizens of the United States. A presidential election is supposed to cast an impact on the IRA because of the changes which are going to be made in the taxation policies, services as well as rules and regulation.

401 (K)

There seems to be a positive impact on 401(K) after the electoral process is over. 401(k) is considered to be a very important aspect or feature in the personal finance of American citizens. This particular term is associated with retirement savings. As a matter of fact, you need to be extremely cautious in maintaining these accounts. As part of this particular savings facility employees do get the advantage of putting in a considerable percentage of their income into individual accounts. The recent percentage of rates on these accounts is to some extent conducive to the growth of individual economic status.