Sunday, July 15, 2018

Summer $ Reading

Many newspapers and magazines offer book lists for light, summer reading.

As you know, if you want to learn something, read.
Read books. Read magazines. Read websites.

Perhaps reading about money and investing is not considered light reading but when you are determined to care for your money and make it work for you, it is essential reading.

Here are a few books to consider:

The Little Book of Common Sense Investing
by John Bogle, the father of index investing.
Mr. Bogle, also the founder of Vanguard, offers timeless and sensible advice.

A Random Walk Down Wall Street
by Burton Malkiel, helps you understand the workings of Wall Street.

The Investment Answer
by Daniel Goldie and Gordon Murray, give easy to understand investment knowledge.

The Little Book of Main Street Money
by Jonathan Clements (often seen on PBS) provides good, basic financial advice.

One book I suggest for widows or newly divorced is
On Your Own: A Widow's Passage to Emotional and Financial Well-Being
by Alexandra Armstrong and Mary Donahue, offers easy-to-follow advice with step-by-step guidance.

If tackling a book is too heavy for your summer schedule pick-up a financial magazine like MONEY, Kiplingers or FORBES. Read it all - read the ads, the comments, the table of contents, the articles, cover to cover. The more you read the more familiar you become with the terms and the language of finance. The better you understand the language, the less intimidated you feel.

Be $ Smart - Build your confidence. Grow your assets. Learn about investing. Your future is yours to create.

Sunday, July 8, 2018

The Magic Of Compound Interest

Here's a topic we've addressed before. It is a topic worth repeating. I took the simple explanation directly from the U.S. Department of Labor, Employee Benefits Security Administration.

Compounding investment earnings is what can make even small investments become large investments given enough time.

How It Works – The money you save (either in a savings account, a mutual funds or in individual stocks) earns interest. Then you earn interest on the money you originally save, plus on the interest you've accumulated. As your savings grow, you earn interest on a bigger and bigger pool of money.

Start Saving Early - For every 10 years you delay before starting to save for retirement, you will need to save three times as much each month to catch up.

Starting at 20 - If you put $1,000 a year into an IRA every year from age 20 through age 30 (for 11 years) and stop - and the account earns seven percent annually - your savings will equal $168,514 at age 65.

Starting at age 30 - If you don't start until age 30, but save the same $1,000 amount annually but for 35 years straight at the same seven percent rate, you will have saved three times as much money but your account will grow to only $147,913 at age 65.

Where you might obtain a steady 7% return puzzles me, especially in this low interest rate environment but the point is clear even on a lesser scale:
- Start early!
- Save regularly or automatically!

The difference is significant if you wait. Even small amounts saved early have many more years to grow.

Be $ Smart
- Start saving now! Any amount is better than none. Your future depends on it.

Sunday, June 24, 2018

Measuring Risk

Risk comes in many forms. The numerous types of insurance available help us mitigate some risk. Often folks take elaborate measures to avoid any kind of risk. But risk abounds. Life is a risk.

To avoid risk it may make sense to keep your money in cash, money markets, CD's or stable value funds. You watch as the stock market completes daily gyrations. After a huge downturn you express relief that your pile of cash is safe. But then you groan during an upturn, lamenting all the profits "you could have made"!

Running water, over time, wears away stone or carves a riverbed.

So too does inflation and taxes which wear away at your purchasing power when you keep your money "too safe". Little by little, year by year your pile of cash shows the same amount, or maybe a tiny gain. But below the surface, inflation has dramatically reduced the goods and services you are able to buy.

Over time, your cash will suffer the same fate as the stone - it will be worn away.

Bite the bullet. Put your money to work for you.
Yes, keep your emergency fund in cash or money markets.
Yes, keep the money you'll need for purchases in the near future (12-18 months) safe. Invest the rest. The stock market goes up and down. If you draw a trend line on a stock market chart you will see that the trend, over time, has been up.

Be $ Smart
- Work hard. Save. Make your money work hard too.

Sunday, May 13, 2018

Promoting Financial Literacy

It is sad to say that in our amazing country where we have so many opportunities and access to so much that we are sorely lacking in financial education. Personal finance is not taught in schools. Decades ago I learned budgeting and money while working on a Girl Scout badge. At 10 years old, not much stayed with me. Unfortunately, that was my only exposure.

On the whole, we are all working/living with a handicap. Some folks have a knack for handling money, some have a mentor but most fly by the seat of their pants. Too many people are embarrassed to admit what they don't know. This struggle breeds fear, stress, anxiety and illness.

Good money skills have far reaching effects. They allow me to:

- control my day to day spending,
- effectively allot my month to month finances and live within my means,
- create, track and meet my financial goals,
- be prepared for emergencies with a $ cushion,
- understand complicated transactions like loans, insurance and mortgages,
- have a feeling of success and self-sufficiency, and
- make sound choices to live life to the fullest.

Those are the personal benefits. On a wider basis, for the general public, good financial skills:

- increase every one's ability to meet basic needs,
- improve their purchasing power,
- allow folks to work, spend and play putting their earnings into circulation,
- increase overall productivity, profits and economic growth,
- reduce general stress and illness, and
- keep personal wealth and the economy growing.

After the "big financial meltdown" in 2008 we became acutely aware of our financial savvy deficiency. Many programs were proposed for schools. Was anything ever done? For ourselves and the future of our country it is important that we pursue and encourage financial literacy.

Some ways we can help:

1. Take a class - at a local high school or library.
2. Read a financial book - increasing vocabulary recognition.
3. Ask your HR director to provide a class at work.
4. Teach your children or your grandchildren shopping skills and how to make change.
5. Approach the principal at school to request money ed be added to the syllabus.
6. Encourage students to take a financial basics course in college.

Be $ Smart - talk about money with your kids, grand kids and family. Bring money out into the open. Make financial literacy important, we all will benefit.

Monday, April 30, 2018

The Cost of Financial Abdication

In spite of decades of the women's movement some attitudes are difficult to change. Many more women are in the workforce than 30 or 40 years ago. Many women make substantial salaries - some even make more than their spouses. A recent survey showed that 56% of married women still leave major investing and financial decisions to their spouses. 61% of that group, qualified as millennials, fall into that category. (Those born between 1981 and 1991.)

Women who have experienced divorce or widowhood plead with their colleagues to pay attention to important financial decisions that will profoundly impact their future! These women suffered the consequences of lack of involvement in financial decision making and urge others to break the cycle of financial abdication.

Some of the surprises that surfaced:
- outdated or lost wills making the estate distribution more costly and time consuming.
- hidden debt and credit cards,
- shared beneficiaries,
- hidden spending,
- secret accounts,
- undisclosed IRA's or 401k plans,
- lack of adequate life insurance or huge loans against life insurance policies.

Remember, women usually live longer than men. Whether you choose to be single or become single as a result of death or divorce, you will need the confidence and experience of being financially savvy.

Be $ Smart - make financial decisions a partnership. You need to protect your future.

Sunday, April 15, 2018

Investment Tax Categories

Last week I addressed tax-efficiency in your portfolios. Here I shall review the differences among those classifications of taxable, tax-deferred and tax-exempt to make tax-efficiency more readily understood. The following are simple explanations. For expert tax guidance please speak with your accountant or tax attorney.

Taxable: an account that holds money on which you have already paid taxes - e.g. bank checking or savings accounts or brokerage accounts. These accounts may have stocks, bonds, CD's, etc. Every year you receive a 1099 of all reportable earnings: dividends and interest as well as reportable proceeds: stock or bond sales. You enter these numbers on your tax return and pay taxes accordingly.

Tax-exempt: refers to bonds (loans) issued by municipalities (states, cities, towns, counties). These bonds are exempt from federal taxes. As an incentive to its residents to buy these bonds, which finance local projects, you pay no state taxes on the interest. As a NY resident, if you purchase a NY State bond, it will be double tax exempt as you will pay no state or federal taxes on the interest. However, NY reserves the right to tax the interest earned on other states' bonds.

Tax-deferred: means you pay no taxes now but when you withdraw the money both state and federal taxes are due. IRA, SEP, 401k, 403b all grow tax-deferred. Your 401k or 403b plan from work will take money from your paycheck before deducting taxes, deposit the money into your plan where it will grow tax-deferred (you will not receive a 1099 each year). Taxes will be paid when you start withdrawing money from these accounts later in retirement. The money will be taxed, as your income is taxed, both by the state and the federal government. Hopefully, in retirement you will be in a lower tax bracket and, consequently, pay less in taxes.

: refers to a Roth IRA where money grows without paying taxes each year and is distributed without being taxed. Actually, the money contributed to most Roth IRA's is money on which you have already paid taxes; it is the earnings (growth) that are tax-free.

Be $ Smart - Learn about the impact of taxes on your investments. Position your assets effectively to pay less in taxes.

Monday, April 9, 2018

Make Your Portfolios More Tax Efficient

We are in the midst of tax season so this is a good time to review your portfolio to make sure it is arranged in the most tax-advantaged way.

Most investments (bonds, bond mutual funds and ETF's) that generate interest work best in a tax-deferred account.

Muni bonds are an exception as their interest is exempt from federal taxes and in many cases, exempt from state taxes as well. Hold municipal bonds in your taxable accounts.

Stocks, usually long term investments, should be held in your taxable account for several reasons:

1. long-term capital gains on stocks are taxed at a maximum 20%. Most folks will pay less, 15%. That is certainly a better rate than 25% - 30% regular income as it would be taxed from an IRA or 401K distribution.

2. losses in your taxable account can be used to balance any gains you realize. Losses cannot be taken in a tax-deferred account.

3. qualified dividends from stocks are taxed at 20%. These same dividends in a tax-deferred account are added into the overall distributions and are taxed as ordinary income - 20% -37%.

4. you may donate stock that has grown significantly to charity avoiding any capital gains tax.

5. you may pass appreciated stock on to your heirs at your death. This will give them a step-up in basis (which means the cost basis of the stock - what you paid for it - will now be the value of the stock on the day you died.) If they sell the stock immediately there will be little or no capital gains tax.

Roth IRA's are different!!
All contributions to Roth IRA's are after tax.
Distributions from a Roth are tax-free, so holding both stocks and bonds in a Roth is fine. The one problem is that you may not take a loss on any stock that may have fallen in value.

Be $ Smart - be aware of how dividends, interest and capital gains are taxed so you may position your portfolios in the most tax-efficient way. You keep more money in your pocket and less in Uncle Sam's.