Connect with me on LinkedIn

Tag: "FL financial planning"

Investment Alternatives: Basics of investing in mutual funds

[ 0 ] March 19, 2014

Spectrum Financial, FL, Mutual fundsBetter understand and learn how to invest in mutual funds with these informative tips.

1. What exactly is a mutual fund?

A mutual fund pools money from hundreds and thousands of investors to construct a portfolio of stocks, bonds, real estate, or other securities, according to its charter.  Each investor in the fund gets a slice of the total pie.

2. Mutual funds make it easy to diversify.

Most funds require only moderate minimum investments, from a few hundred to a few thousand dollars, enabling investors to construct a diversified portfolio much more cheaply than they could on their own.

3. There are many kinds of stock funds.

The number of categories is dizzying.  Some examples: growth funds, which buy shares of burgeoning companies; sector funds, which buy shares of companies in a particular sector, such as technology or health care; and index funds, which buy shares of every stock in a particular index, such as the S&P 500.

4. Bond funds come in many different flavors too.

There are bond funds for every taste.  If you want safe investments, consider government bond funds; if you’re willing to gamble on high-risk investments, try high-yield bond funds; and if you want to keep down your tax bill, try municipal bond funds.

5. Returns aren’t everything – also consider the risk taken to achieve those returns.

Before buying a fund, look at how risky its investments are.  Can you tolerate big market swings for a shot at higher returns?  If not, stick with low-risk funds.  To assess risk level, check these three factors: the fund’s biggest quarterly loss, which will help you brace for the worst; its beta, which measures a fund’s volatility against the S&P 500; and the standard deviation, which shows how much a fund bounces around its average returns.

6. Low expenses are crucial.

In order to cover their expenses – and to make a profit – funds charge a percentage of total assets.  At no more than a few percentage points a year, expenses may not sound substantial, but they create a serious drag on performance over time.

7. Taxes take a big bite out of performance.

Even if you don’t sell your fund shares, you could still end up stuck with a big tax bite.  If a fund owns dividend-paying stocks, or if a fund manager sells some big winners, shareholders will owe their share of Uncle Sam’s bill. Investors are often surprised to learn they owe taxes – both for dividends and for capital gains – even for funds that have declined in value. Tax-efficient funds avoid rapid trading (and high short-term capital gains taxes) and match winning trades with losing trades.

8. Don’t chase winners.

Funds that rank very highly over one period rarely finish on top in later ones. When choosing a fund, look for consistent long-term results.

9. Index funds should be a core component of your portfolio.

Index funds track the performance of market benchmarks, such as the S&P 500.  Such “passive” funds offer a number of advantages over “active” funds: Index funds tend to charge lower expenses and be more tax efficient, and there’s no risk the fund manager will make sudden changes that throw off your portfolio’s allocation.  What’s more, most active mutual funds underperform the S&P index.

10. Don’t be too quick to dump a fund.

Any fund can – and probably will – have an off year.  Though you may be tempted to sell a losing fund, first check to see whether it has trailed comparable funds for more than two years.  If it hasn’t, sit tight. But if earnings have been consistently below par, it may be time to move on.

Content provided by


7 Alternatives to Investing in the Stock Market

[ 0 ] March 5, 2014

Spectrum Financial Solutions, NJ, InvestmentThe stock market is a great investment if you have a long time horizon.  But should you continue to invest in stocks once you retire?  When you start withdrawing from your retirement portfolio, you will be a lot more sensitive to stock market fluctuations.  Most financial advisers recommend reducing stock market investments as you get older, but you don’t want to just stick the money under the mattress either.  Inflation will erode cash savings over the years, and we need to continue to invest.  Here are seven investment alternatives to the stock market:

Annuities.  There are many types of annuities, but the basic idea is that we pay an insurance company a lump sum in exchange for a guaranteed monthly payment for life.  Annuity payouts are primarily tied to interest rates, so it’s probably a good idea to wait until rates improve.  You probably don’t want to put all of your savings into an annuity because you really don’t know how long you will live.  If your pension and Social Security payments aren’t enough to pay your minimal monthly expenses, then it’s a good idea to buy an annuity to fill that gap.

Bonds.  The classic alternative to the stock market is bonds.  You can lend money to the government or a corporation and receive some interest.  When the stock market goes south, investors turn to bonds as a good diversification from the stock market.

CDs.  CDs are not very attractive at the moment because the yields are very low. However, the return is guaranteed and the risk is also very low. Building a CD ladder is a good way to guarantee stable returns. Once interest rates improve, it will be a good idea to invest in a long-term CD.

Real estate.  Rental properties are a great way to generate some income, but they can be a lot of work. If you don’t want to deal with tenants, then a property management company can be a huge help.  If you really don’t want to be a landlord, consider a real estate investment trust (REIT) instead.  Investing in a REIT is much easier than owning rental properties, and the dividend payout is usually very good compared to other dividend stocks.

Gold.  Gold is another diversification from the stock market.  When economic turmoil hits, the price of gold goes up.  Gold represents stability, and a small portion of your portfolio might benefit from that.  Investing in gold is easier than ever.  You can invest in gold ETFs without having to worry about stashing gold jewelry in the freezer.

Peer-to-peer lending.  Peer-to-peer lending is a great way to generate extra income.  You lend money to individual borrowers and you’ll be paid an interest rate.  The good thing about peer-to-peer lending is that you can lend in $25 increments and diversify your lending portfolio.  Some percentage of borrowers will default, but your lending portfolio should be able to handle some losses because the interest rate is so high.  One big caveat is if we have a big recession and many people lose their jobs, then the default rate will skyrocket.

Long-term care insurance.  The cost of long-term care can put a big dent into any retirement portfolio.  A good nursing home can cost over $10,000 a month depending on where you live.  Long-term care insurance can offset that cost.  If your family has any history of Alzheimer’s, dementia, or Parkinson’s disease, long-term care insurance might be right for you.  However, the cost of long-term care insurance is quite high, so if your family doesn’t have any history of needing long-term care, it might be better to invest the money elsewhere.

Retirees shouldn’t pull out of the stock market completely because it is still a great investment over the long term.  Retirement can last over 30 years, and we need some growth in our retirement portfolio.  However, retirees need to take a close look at their portfolio and ask themselves if they can handle the volatility.  Most people think they can handle a big drop in the stock market, but when it happens, they often sell at the wrong time and lose out on the recovery.  Choosing some alternative investments outside the stock market may bolster your finances during such an event.

Content provided by: