Archives for September 2013

Retirement is something that most people know they need to focus on at some point in their lives, yet many get so overwhelmed by it that they don't take the time to do so. Learning the ins and outs of retirement can be a long, frustrating experience, but just knowing that you're saving towards the future can bring peace of mind. One of the most convoluted aspects of retirement is sorting out the differences between IRAs.

IRA stands for “Individual Retirement Account,” and can basically be viewed as a savings and investment account that comes along with a variety of tax breaks. There are 11 different types of IRAs to choose from, however, some of which may apply to your situation and some of which likely will not. Rather than allowing yourself to get fully overwhelmed, it's best to start with three of the most common types of IRAs and move on from there.

Basic IRA

A basic Individual Retirement Account is one of the most common of the 11 varieties. It is typically a traditional or Roth IRA that is established with a financial institution – usually a bank, but sometimes a broker or mutual fund. This type of IRA allows for contributions into a variety of different securities, including stocks, CDs, bonds and more. It differs from an Individual Retirement Annuity in that the latter is typically set up through a life insurance company and an annuity contract is written up. The third type of IRA in this category is often referred to as a Group IRA, which is a basic IRA that is set-up by a union or employer.

SIMPLE IRA

Given it's name, it would seem as if a SIMPLE IRA would be relatively straightforward, but it's actually one of the more confusing options for many people. Typically, this is an IRA that is set-up by your employer, who will match the amount of money that you contribute each year. What confuses many people are the limits that are often set regarding how much money one can actually place in the IRA annually. The number starts off at a baseline and increases each year that you stay with the company, which serves as a beneficial factor for both employers and employees. If you're able to contribute a fair amount of money each year, this is one of the best ways to build a retirement fund.

Spousal IRA

Spousal IRAs are another popular variety and can be utilized to your family's advantage. This type of IRA is funded by a married individual in his or her spouse's name, so long as the spouse brings in under $2,000 in annual income. Sticking with this number, the married individual can contribute up to $2,000 for both their Spousal IRA and Individual IRA, which means you can build security for your spouse without having to sacrifice your own retirement plan. Note that couples must file a joint tax return in the same year that a Spousal IRA is set up in order for it to be legally on the books.

The world of IRAs can certainly be confusing, but its an investment that can do a great deal for your future if you take the time to determine which one is right for you and your family.

If you want to build wealth over time, one of the best things you can do is invest. And if you want to increase the chances that your portfolio will pay off in the long run, you need to choose your investments carefully.

As you consider which investments to include in your long term portfolio, here are 5 things to look for:

1. Strong Fundamentals

First, look at the fundamentals underlying the investment. These are “big picture” items that indicate how an investment is doing in general. Items like the management philosophy, profit margin, P/E ratio, and political climate in a country can all be indications of fundamentals.

Investments with strong fundamentals are likely to weather market changes. While they see problems during times of turmoil, they don’t usually lose value at the same rate as weaker investments, and they are more likely to recover.

2. Staying Power

What kind of staying power does the investment have? What are the prospects that the asset will remain viable in the future? While day to day and month to month movements might be choppy, consider looking at the long term trends. While historical performance doesn’t guarantee a good future, an investment with a strong history of sticking around in the past is likely to have staying power for the future.

3. Steady Growth

It’s exciting to see dynamic growth over a three or five year period. However, even though it’s exciting to see that kind of growth, too often it’s the sign of a fad. If you have the stomach for it, and if you have the money for it, you can see solid gains in the short term. But you might have to unload at the right time (and pinpointing that right time is difficult) in order to make a profit.

If you want a long term investment, you need to look for steady growth. Regular, steady growth may not be exciting, and it may not be huge. But over time, it is a little more reliable, and you are likely to come out ahead in the long run, without too much stress and anxiety.

4. Adaptability

How is the investment poised to adapt to changes in the future? This is especially important if you are looking for long term value stocks. With technology changing the way we do things, and with other changes coming as well, it’s important to choose investments that are likely to adapt to the future. If an investment has a history of innovation, it makes sense to stick with it. Another possibility is to choose an investment that isn’t as affected by the passage of time.

5. Diversity

Each long term investment you choose for your portfolio should complement the others in your portfolio. This means that your long term choices should take into account your desired asset allocation, as well as the shifts you are likely to experience as you approach your goal.

One of the best ways to ensure that you get proper diversity in your long term portfolio is to invest in funds, rather than trying to invest in individual assets. You are more likely to find investments with staying power and long term value when you create a portfolio using funds.

What do you look for in a long term investment?