Receiving a financial windfall is often a life-changing event. It's a relatively common one, too. You might never win the lottery, but the odds are that at some point you'll receive a significant amount of money, perhaps from an inheritance, bonus, insurance settlement, or the sale of a home or business. If so, would you be prepared for the financial decisions you might suddenly face?
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Generally, you can contribute up to $5,000 to an IRA in 2011 ($6,000 if you'll be age 50 or older by the end of the year), as long as you have taxable compensation at least equal to the amount of your IRA contribution. But what if you have little or no taxable compensation for the year? The spousal IRA rule may help. If you're married, file a joint federal income tax return, and earn less than your spouse, the amount you can contribute to an IRA is based on the combined compensation of you and your spouse.
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No doubt you've seen headlines reporting that a particular index is up or down. But do you know how an index works, and why understanding the nuts and bolts of a specific index can make a difference to your portfolio?
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When a crisis creates uncertainty, markets often become volatile, especially when the scope of the disaster isn't clear. A crisis is like Janus, the Roman god with faces that looked forward and back. For some investors, it may represent a threat; for others, it may spell opportunity. Not every crisis requires a reaction; sticking to a long-term plan is still the best strategy for most people.
Here are some examples of factors that investors sometimes overlook when considering which face of Janus to focus on during a crisis.
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There's been much debate in investing circles over the last year about whether inflation or deflation represents a more likely threat to the future of the U.S. economy. With a recovery that's still tentative compared to previous recessions, measures designed to stimulate the economy or cut spending to rein in the budget deficit provoke warnings about their potential to create one or the other.
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As the United States goes into its ninth year of military action in Afghanistan and Iraq, financial planning for military personnel and their families has taken on unprecedented importance. Multiple deployments during the longest wartime period of U.S. history has added considerable strain to military family budgets already shaken by the worst economic downturn in 70 years.
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For most people, the answer to this question is it depends. While some features are similar, fixed annuities and bank certificates of deposit (CDs) also have characteristics that differ. What works for you may depend on which features best fit your financial situation and investment objectives.
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A core consideration for income investors is an investment's yield, which indicates the value of the payments you'll receive. Yield can be a useful tool in considering whether you'd rather try to generate future income from bonds or stocks, and whether its price is appropriate.
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If you're considering investing in green technology hoping to make another kind of green--the folding kind--you'll need to deliberate carefully. Interest from governments, the public, and venture capital enhances the attractiveness of green companies. Also, daydreaming about finding the equivalent of Microsoft, getting in early, and retiring on the proceeds is a popular pastime. But while technologies that can help clean up and preserve the planet may have enormous potential, potential isn't necessarily the same thing as profit.
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In the summer of 2008, investors were watching the dollar shrink. Because interest rates here were still relatively low, investors favored riskier investments that offered higher returns. The euro's value climbed to a record of almost $1.60 at one point. But with autumn came the crisis that shook the global financial system. Panicked investors suddenly decided that dollar-denominated assets such as U.S. Treasury bonds didn't look so wimpy after all. Within three months, a euro was worth 30 cents less. Worries about the European debt crisis and whether the euro would even survive as a currency has kept the dollar at roughly the same level or better for much of 2010.
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Do you have a child going off to college next fall? The federal government's financial aid application (the FAFSA, which stands for Free Application for Federal Student Aid) is due as soon as possible after January 1, 2011. Here are some common myths about financial aid eligibility.
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For most people, the answer to this question is it depends. While some features are similar, fixed annuities and bank certificates of deposit (CDs) also have characteristics that differ. What works for you may depend on which features best fit your financial situation and investment objectives.
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If you're like most people, you probably evaluate your portfolio in terms of the return it earns. However, as we were all reminded in 2008, returns aren't the only factor you should consider when determining whether your portfolio is allocated appropriately. Also important is the level of risk you take in pursuing those returns.
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Late last year, members of the Federal Reserve Board's Open Markets Committee (FOMC) outlined some of the indicators they're watching to help determine when the economy might be stable enough to handle higher interest rates. Here's a primer on some of those indicators and why they're important.
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Mid-year is an ideal time to take a look at your finances, because the demands on your time may be fewer, and the planning opportunities greater, than if you wait until the end of the year. Here are a few tips to get you started.
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Two weeks ago, I explained the need to file our income tax return for 2007 before we can receive the government's economic stimulus rebates. Last week, I discussed how few Americans eligible to contribute to an individual retirement account do so.
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One of the spouses or partners in a relationship balances the checkbook and pays the bills. The other is in charge of investments. They communicate about the household finances and take the time to discuss three essential questions:
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Two weeks ago, I explained the need to file our income tax return for 2007 before we can receive the government's economic stimulus rebates. Last week, I discussed how few Americans eligible to contribute to an individual retirement account do so.
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Americans have some $4.6 trillion stashed away in individual retirement accounts. Imagine how much more we could have - and how much better prepared we'd be for retirement - if we actually understood IRAs.
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Diversify your diversification.
Sounds mind-boggling, but that is the goal of "funds of funds." These are mutual funds that invest in shares of other mutual funds.
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For many Americans, the effects of the Federal Reserve's aggressive rate cut will be swift and striking. The average borrower could save hundreds of dollars within a few months - and the average saver could lose just as much.
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Celebrating our 30th wedding anniversary six years ago, I listed 30 of the many ways my wife, Georgina, has contributed to our family's happiness and well-being.
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Barring a change in the rules, my wife, Georgina, and I are set with our plan for when to claim - or wait on - Social Security benefits.
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Should this reader be mad at his bank or at himself? Or both?
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I'm still getting e-mails - more than 300 so far - about a September column on immediate income annuities that increase payments each year to compensate for inflation.
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Federal officials proposed rules earlier this month to ensure better disclosure of the fees levied to administer 401(k) retirement accounts, but critics have blasted the measures as inadequate.
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I feel good that, by saving regularly and staying clear of credit card debt, my wife, Georgina, and I could quit full-tine work in our 50s and enjoy a fun-filled semi-retirement.
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Dick Davis' goal was to write "with clarity, brevity and insight with an emphasis on complete candor." In a book out this month - at age 79, his first - the savvy stock market watcher from South Florida has succeeded.
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My first car, a 9-year-old peeling-blue Ford I bought before my junior year in college, lasted me the two years I needed it to hold a part-time job until graduation.
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It wasn't until after Eleanor Barkelew got married a second time that she grappled with estate planning. She and her husband each had a child from a previous marriage, and the couple didn't want to create hassles for the family after they died.
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Since my wife, Georgina, and I moved to a new beachside home in 2001, our "house payments" have gone up from $838 to $1,226 a month.
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A column on having a Roth IRA serve as an emergency fund has prompted questions about the idea and IRAs in general.
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If we spend $500 for groceries each month and can't possibly lower the total, then it's foolish (and pointless) to budget $450. Budgets must be based on reality, which is why I recommend keeping track of all expenses for at least three months before drawing up a budget.
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A coalition of investor groups wants to mobilize shareholders to upend proposals that could damage their rights.
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When financial planner Andrew Tignanelli's clients first came to him saying that they were planning to buy financial products from AARP, he said he was thrilled. He assumed that the products the group sold to its members, whether TVs or financial products such as insurance or mutual funds, would be the best and least expensive.
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Consider this column a dessert with additional thoughts on free-lunch "investment seminars."
I use the term in quotes for presentations that include a free meal to entice potential investors, usually seniors, to sit through thinly disguised sales pitches. Among products often promoted are indexed annuities that promise stock-market-like gains without risk of loss.
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Ever since we were married 35 years ago, my wife, Georgina, and I have faithfully tracked our savings. But now that we're in our 60s and semi-retired, what matters most to us is not how much we have saved but how much reliable income we can receive for life.
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If your employer offers a 401(k) plan, sign in. Then stay in, and keep putting money away for your retirement in well-diversified investments.
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Say somebody at your church or place of work tells you about these "can't lose" investment opportunities:
One is a new fuel-cell technology to allow cars to run on tap water. Another is an options-trading system guaranteed to at least double your money. The third is a company with a new laser that kills lung-cancer cells in smokers.
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As long as you keep sending great savings ideas, I'll keep printing them.
As part of its "America Saves" campaign, the Consumer Federation of America invited readers of this column to submit tips for building an emergency fund (e-mail Nancy Register at nregister@consumerfed.org and send me a copy). More than two months later, I'm still receiving a steady stream of letters and e-mails on the subject, and savings in general.
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Adam Sterling wants individual investors to know that they are a powerful force - and they can use that power to help stop genocide halfway across the world in the Sudanese region of Darfur.
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This story began in August, when I responded to a "one weekend only" sale of a laptop computer with "free wireless router, Internet security suite and all-in-one printer, scanner and copier" after a $300 mail-in rebate.
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Lou Dobbs, news commentator on CNN, is always asking why it takes middle-class American families two incomes "just to get by."
"It's time for answers," he demands.
I've got some, but not the ones he is looking for.
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Today, rather than Jan. 1, is a better time to make resolutions that stick.
By now, as I wrote among my predictions for 2007, I expect that millions of Americans will have already broken their New Year's resolutions, including the ever-popular but vague "saving more money" and "getting my finances in order."
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In half the time it takes Jack Bauer to save the world (the indefatigable federal agent from the "24" television series does it in 24 hours), I was saved from losing sight of what personal finance is all about.
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Forgive me if I dismiss as mere entertainment -- and not too entertaining at that -- the endless parade of "investment outlook" forecasts competing for our attention every New Year.
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Successful savers understand that saving is a marathon and not a sprint. But it is often hard to get motivated when you watch your savings grow at a slow rate. One way to increase your enthusiasm is to put away some extra cash in the beginning so you can see the account balance really climb.
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Brian Mulholland and Charlie Mettam play poker for a living, so keeping an eye on their money is second nature.
But the two gamblers say even they can't figure out what happens to their 401(k) contributions after the money is deducted from their paychecks.
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These questions will help you interview potential Financial Planners and choose the one that is right for you.
1. What experience do you have? Find out how long the financial planner has been in business. Ask what affiliations they have with other companies. Have them briefly describe their work experience and how it relates to their current practice.
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It's the time of year when mutual funds release their quarterly performance figures - and many investors curse their funds for not measuring up to similar offerings.
But before they criticize their managers, investors should know about "survivor bias."
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If you want to hire a policy wonk, Richard Clarke has a great resume: 30 years of government experience and in-depth knowledge of counter-terrorism. But he has scant experience in the private sector and has never run a company. Still, he raised $51 million from investors in March for a firm called Good Harbor Acquisition Partners (GHBBU, $11) that doesn't even know what kind of business it's going to be.
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Discount brokers offer you cheap trades, but when you park your cash with them, they try to claw it back. Many automatically sweep your money into investments that do them more good than you. The range of rates offered to investors with idle cash is large these days, running from as little as 0.25 percent to more than 4.5 percent, so it really pays to shop around.
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Investors usually consider rising interest rates to be bad news for banks, but they're painting with too broad a brush. In August 2005, we at Smart Money magazine sought to capitalize on the misperception that all banks suffer from rising rates by picking three big ones that make much of their money from fees for things like credit cards and mutual funds.
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In Los Angeles, it sometimes seems that everyone wants to make a mint by writing, producing or acting in a screenplay. Alan Haft has another idea: Invest like a movie producer. It's a far more certain route to riches.
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Q: Recently I've opened a traditional IRA account. Most of my investments are in the form of mutual funds. I am aware that mutual funds have annual operating fees. However, I am wondering whether the various hidden fees that you recently wrote about also affect IRA accounts.
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Two e-mails from readers hit on the same theme. Here's the first:
Q: My husband just retired and consulted with his broker as to what to do with the money in his 401(k) plan, which is invested in no-load Vanguard mutual funds. His broker suggested rolling over the money into an IRA with the American Funds. The American Funds charge a 5.75 percent load. The broker told my husband he wasn't generating enough money in commissions for him.
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Exchange-traded funds are the hot spot in the mutual fund market. Popular among investors for their low fees and flexibility, their assets grew 31 percent last year and an additional 6 percent in January.
But they are not well suited for everyone. And some experts say their popularity is being fueled by just the sort of people who maybe should avoid them.
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Many financial advisers who favor low-cost, broadly diversified and tax-efficient portfolios for wealthy clients are switching from no-load index mutual funds to exchange-traded funds, or at least including ETFs in the portfolios. Now, an online brokerage that caters to do-it-yourselfers is pitching exchange-traded funds to individual investors, along with advice on how to use them.
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Mutual fund distributions continue to baffle readers. Read on:
Q: I?d like for you to clear something up. When I get a dividend from my mutual fund, the share price of the fund drops almost proportionately with the amount of the dividend. When I receive a 5 percent dividend, the value of a $10 share drops to $9.50. What have I gained? I also have to pay tax on the 5 percent dividend, so I?ve actually lost ground. Is this smoke and mirrors, or am I missing something?
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He?s only an animated figure in a morning children?s television show, but Wayne turned out to be a pretty good role model for our 5-year-old grandson, Aidan.
Wayne, a character in the Disney Channel?s ?Higglytown Heroes,? wins the top prize of 10 shiny new coins at the town?s science fair. He wants to buy a super deluxe toaster, but the toaster costs 15 coins. Figuring his uncle Leno will give him money for his birthday, Wayne looks for a ?good and safe? place for his 10 coins until he can save the rest.
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When is a $179,000 ?income base? worth only $121,000? When does a 7 percent ?roll-up? end up as a mere 2.6 percent return?
Answer: When dealing with the intricacies and fine print of variable annuities that offer a guaranteed minimum income benefit, or ?GMIB? for short.
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You chase after the latest ?hot? fund touted in the newspapers and magazines. Or you buy whatever the market ?guru? on television is blabbing about, no matter how risky the investment is or whether it even fits with the rest of your portfolio.
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Aaron Bach and Matt Davis wear two hats: They?re full-time college students and financial education advocates.
The two 22-year-old seniors from William Jewell College in Liberty, Mo., may not have all the answers when it comes to managing credit cards or building savings, but that hasn?t deterred them from reaching out in their own way to help boost teenagers? alarmingly low financial IQs.
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Growth investing may have been all the rage in the 1990s and during this year?s rally, but research going back more than 50 years shows that value outperforms growth over long periods.
I interviewed a number of value investing masters?top-notch managers who have outperformed the market and their peers over long stretches of time.
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At least a half-million Americans join with friends, family members, neighbors and coworkers to do most?if not all?of their investing through investment clubs. There are about 100,000 clubs today?nearly a quarter of them affiliated with the not-for-profit National Association of Investors Corporation (NAIC).
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Tax-favored college savings accounts are being marketed aggressively by financial institutions
Big trap: Those who sell these accounts rarely warn that they may cause you to lose college financial aid. You might even lose more aid than your savings account is worth. What you must know?
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Understanding, and maybe re-evaluating your investment portfolio is another important step in taking charge of your finances following the death of a spouse. It is likely that your objectives, income needs and risk tolerance have now changed and your portfolio will need to reflect your new needs.
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An investment club works like a mutual fund, only with the following differences:
? You know all the other investors.
? You do your own research and stock selection.
? It costs less since you're not paying a money manager.
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Today?s Easy, Low Cost Way to Invest
Introduced just over a decade ago, exchange-traded funds (ETFs) have attracted more than $200 billion in assets. It?s easy to see why?rock-bottom fees, high tax efficiency and ease of trading make them an attractive alternative to mutual funds. What?s more, ETFs were not affected by the mutual fund industry?s trading scandals. With the recent introduction of bond ETFs, it now is possible to create an entire portfolio using these vehicles.
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Risky penny stocks are being heavily promoted on-line as the economy pumps up. Many are ?blank check? companies?development-stage companies with nonexistent or indefinite business plans, such as a merger with an unidentified company.
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The old adage that you get what you pay for doesn't apply to investing. Indeed, some of the lowest-priced investments produce the most sparkling returns -- largely because every nickel you save on fees goes straight into your pocket.
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Because of a population boom during the past 15 years, an eight-state expanse from New Mexico to Montana has become "an incubator for many young, fast-growing, emerging companies," says Barbara Walchli.
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Unlike beverage giants Anheuser-Busch and Coca-Cola, you may have never heard of Constellation Brands, although you've probably tried the company's drinks. Constellation brands purposefully flies beneath consumers' radar so that the brands it owns or distributes -- including Paul Masson, Effen Vodka and Corona Extra -- remain in the spotlight.
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You don?t have to spend a fortune to build a collection of antiquities?generally defined as objects that are more than 1,000 years old. For about $250, you can own an Egyptian devotional scarab with hieroglyphic inscriptions. For about $400, you can buy a Roman silver brooch from the second to third century AD.
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Separately managed accounts (SMAs) turn your cash over to money managers who have discretion to buy and sell based on your preferred asset allocation. Asset categories may include large and small cap US equities, international equities, and investment-grade bonds.
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Know your benchmarks. Compare performance of your large-company stocks or funds to the S&P 500, the benchmark most used by investment advisers and mutual funds. Its stocks comprise 70% of the value of the entire stock market.
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Long-term investing basics: Focus on maximum total return after taxes.
Here are some other tips:
? Realize that you can do better than most investors only if you do something different than what the majority does.
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Holders of junk bonds, take note. This may be the year you learn why high-yield bonds are called "junk."
Even fund managers who rode junk bonds' fat total returns over the past three years are uneasy. Earl McEvoy, manager of the $9 billion Vanguard High-Yield Corporate fund, believes that junk bond returns won't match those of even money-market funds. He's moving money into higher-quality junk bonds, which should suffer less in a general decline.
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