Money Market

Today's money market works much like a store in that it offers many different types of money instead of durable goods. The products offered in the money market trade quickly, change daily, and work to meet the demands of the specialized consumer concerns. The primary types of money offered on the market are CD's - certificates of deposit, commercial paper, or short-term unsecured debt, municipal securities, or securities issued by local government, and finally, your treasury securities, or Federal T-bills, notes and bonds. Financial brokers and dealers search high and low to meet the needs of consumers and lenders. Money lent on the market is from many different sources and gets repositioned to a broad spectrum of users. However, most transactions don't even involve cash. Instead, the financial wizards make paper deals. Funds are transferred on the books, not in actuality. Please check with your local bank or personal financial advisor for specifics regarding banking matters.

Mutual Funds

Mutual funds work on the premise that you can get a better return on an investment if you pool small deposits together, thereby creating a large fund to invest in bigger markets. This allows smaller investors to compete with the big boys. Most mutual funds that the smaller investor deals in are actually part of a larger organization that owns and manages a variety of mutual fund offerings. Each fund usually invests in specific and limited market activity. You should exercise caution when dabbling in mutual funds. Place your money only where you feel comfortable with the degree of risk. Make extensive inquiries before you invest. When determining the amount of risk involved, keep in mind this simple rule of thumb: The higher the interest, the higher the risk. Please check with your local bank or personal financial advisor for specifics regarding banking matters.

IRA

On of the great strengths of an IRA is that it can fit the needs of people with different investment priorities. The IRA is just an account. It can hod any type of investment. Your choices include CD's, savings accounts, treasury issues, bonds, different types of mutual bonds, annuities and individual stocks. If you are in your early to mid working years, you can probably afford a greater degree of risk than an older worker. For example: you might consider a well-regarded growth mutual stock fund, but if you are close to retirement, safety takes on more importance because you won't have time to recover from losses before you start making withdrawals. You should probably be considering government backed securities or mutual funds that purchase them. And, you may wish to have some of your funds in CD's. Another flexible feature about IRAs is that you can change the investment mix as you draw nearer to retirement.

Growing Your IRA

Whatever your age or income, to make the most of your IRAs, start now and keep at it. Investing now gets your investment working for your right away. Investing regularly contributes to regular growth. Another tip on making the most of your IRA is to make your investment close to the start of each year rather than waiting until later in the year, or until just before the tax return deadline in April. That way, your tax deferred contribution will be increasing in value for as much as an extra 15 and ½ months. As time goes on, keep an eye on alternative IRA investments. It's wise to monitor your IRAs constantly instead of just putting away money and forgetting about it. Keep abreast of the changes occurring in financial markets and adjust your IRA investments accordingly.

IRAs - Men vs. Women

Women and men are treated the same when it comes to IRAs. You can contribute earned income up to $2000 per year to your IRA and obtain tax and assessment benefits. If you happen to be receiving alimony, it's considered earned income for IRA purposes. An IRA program is especially appropriate for many single women. If you stay single, an IRA gives you the same opportunity all other workers have of sheltering some income from taxation each year, and give you the money to build your own source of retirement income. If you marry and quit your job, you'll have at least one source of retirement income of your own rather than having to depend on decisions your husband might make, or on other forces beyond your control. When there's a non-working spouse, the couple can set up two IRAs. The total annual contribution is $2250, which can be divided among the accounts in any ratio desired.

Mutual Funds

When it comes to investing, mutual funds can simplify your life. What you get from a mutual fund at a relatively low cost is professional management of your money by people who devote their full time attention to investment decisions. The mechanics of mutual funds make them easy to use. With small investments, they relieve you of the exacting, time-consuming chore of researching and assessing the outlook for companies whose securities you might buy. And, you get a portfolio that usually consists of 50 or 60 securities. This diversification offers some protection against risk. Once your money is invested, you receive dividends quarterly and capital gains annually, if the funds has earned either. Almost all funds offer to reinvest your earnings automatically purchasing additional shares, and all funds sends a periodic statement of holdings. You can also use mutual funds for individual retirement accounts and KEOUGH plans.

Mutual Funds - Mix and Match

You can buy mutual funds made up of stocks, bonds, government securities and many other investments. You can buy mutual funds to suit your investing style whether or not you are willing to take a lot of risk, very little or something in between. There are many types, and you should examine the part of the prospectus devoted to "objective of the fund" to learn more about any fund you are considering. Growth funds buy and sell stocks to increase the value of the fund's portfolio. Long-term growth funds aim for steady increases in share values. Aggressive growth funds strive for maximum profits and take higher risks. Income funds primarily invest in bonds, although they sometimes own stocks as well. They're primarily seeking good dividends. Income and growth funds combine the two objectives. International funds invest in foreign securities, and global combine foreign and domestic investments. There are sector funds which specialize in stocks of one industrial sector, precious metal funds, and index funds which mirror the market as a whole.

Choosing Specific Funds

Once you've decided on the categories of funds you want in your portfolio, it's time to choose specific funds. Always consider fees and charges. If you buy through a broker, you pay a load. That means a sales commission, usually up front but sometimes at the time of sale. Although investment experts often recommend no-load funds, buying load funds can make sense if you prefer to have a broker making investment recommendations. Some funds sold through brokers don't have a load fee, but have what's called a 12B1(twelve B one) fee. It's an annual marketing fee so if you hold the fund long enough, it can actually cost more than a one-time load. All funds have management and expense fees. Up to a percent and a half per year is customary. Sometimes there are exit fees that decrease over time. Next, you should look at performance. Not just from the recent past but look at five and ten year performance. The best funds hold their own against the competition, even when there's a setback in the market. That's when good professional management really counts. There are magazines that publish these performance ratings.

Financial Planners

Financial planners are a new type of financial institution that's emerged in recent years, and with their swift rise in the profession, have come an equally swift rise in abuse. Laws governing financial planners vary from state to state. Virtually anyone can call himself a financial planner with our without credentials, education or scruples. Luckily, more and more universities are offering programs in financial planning. The Institute of Certified Financial Planners based in Denver offers a course leading to a certified financial planner designation. Still, it's up to you, the consumer, to research the education and licensure of any financial planner you may choose. Look at education, licensure, and ask to speak to other clients. A good financial planner will welcome you to look at his or her background. A bad one may not. Choose a financial planner with care.

Treasury Bills

The treasury bills is one of the most popular forms of government investments. They can be effective tools for the larger investor who wants a short term opportunity. T-bills are usually issued in multiples of $5000 with a minimum of $10,000. They are short-term investment issues in terms of three months, six months and a year. T-bills are sold in a weekly auction by the federal government and then can be sold on a secondary market. Here's an example of a T-bill transaction: An investor buys a year-long T-bill for $10,000 at a five percent discount. The purchase price would be $9,500. The value at maturity will be $10,000. Many investors, however, turn to the secondary market to get a better price prior to maturity. If you're willing to outlay a large amount at purchase time, T-bills provide excellent liquidity. Talk to an expert to see if T-bills are a wise investment for you.

Bond Ratings

Turn to the financial pages of any newspaper and you will probably notice the listings of various bonds. They can, at times seem like hieroglyphics to the beginning investor. Yet they are actually simple and easy to use rating services which help you find out a bond's reliability. Tow of the most commonly used are Moody's, and Standard and Poors. These services will examine the bond's past financial performance, financial condition, nature of the issuer's business and backing for the issue, among other considerations. Their service will then issue a rating. Triple A is the best. In fact, any issue that is rated Triple A, Double A or Single A, is considered of high grade. A series of B ratings single an issue of average quality, while C series is used to rate bonds of poor quality. Other services follow along the same lines. Be sure to check with your financial advisor to an issue's rating before making any bond purchase. Securities are not FDIC insured, have no financial institution guarantee and may loose value.

Bonds

Bonds are issued by corporations, municipalities, agencies and the U.S. government to raise money. When you purchase a bond, you are actually making a loan to the issuer. That issuer then promises to pay you a specified interest rate and to return the face value of the bond at maturity. Usually, the more risk associated with the issuer, the higher the interest rate it must pay on its bonds to sell them. In addition, the longer the maturity of a bond, generally the higher the interest rate it will pay. U.S. Treasury and other government obligations are considered to be the safest investment available. Treasury bills mature in one year or less. Treasury notes mature in two to ten years and Treasury bonds mature in ten years or longer. Treasury zero coupon bonds mature in one to thirty years. Treasury issues represent excellent values in today's fixed-income market. All are liquid investments, meaning they can be sold before maturity. Federal agency notes and bonds are issued for various periods of time and are somewhat less liquid than U.S. Treasury obligations. They yield is usually slightly higher than U.S. Treasury issues. Corporate bonds are issued by corporations to raise capital. They generally pay the highest rates available on fixed-income securities. Of course, you bond is only as secure as the company that issues it. The lower the credit rating of the corporation, the higher the interest the corporation will have to pay its bondholders. If you sell any bond prior to maturity, it could be worth more or less than you paid for it.

Mutual Funds

If you'd like to have someone watching over your investment on a full-time basis, you'll find mutual funds appealing. In addition to professional management, mutual funds offer diversification, flexibility and liquidity. Diversification allows you to pool funds with many other investors to buy a larger number of stocks or bonds than you might be able to purchase on your own. Mutual are flexible because you can make your mutual fund purchase in a single payment, or you could purchase a small number of shares each month to use dollar-cost-averaging. Additionally, your funds are liquid. Your mutual fund shares can be sold at their current net asset value at any time at the prevailing market price. There are mutual funds available to meet almost any investment objective. It seems simple to choose a mutual fund; just select the one you want and buy it. But, there are more than 4,000 mutual funds available today! Do you know which mutual fund meets your needs for income or growth, or which mutual fund is best for risk management? Mutual funds may be a good investment, but it pays to have the right answers to the right questions before you choose one.

Common Stocks

When you invest in shares of common stock, you become an owner of the company which issues the shares. Common stocks offer tow types of returns. The dividends paid on your shares, and the potential increase in the price of the shares. Stock prices can fluctuate for many reasons, including the expectation of a change in a company's earnings, revenues and assets. Profitable companies in mature industries ordinarily pay relatively high dividends. Other companies pay modest dividends or not at all, preferring instead, to reinvest their profits for internal growth. You shouldn't expect to find a company with considerable growth potential that also pays a high dividend. You can choose among thousands of stocks. Blue chip stocks are common stocks of industry-leading companies that have a strong history of above-average profitability. Usually, the goal of investing in blue chip stocks is to achieve steady growth over the long term as opposed to quick profits. Aggressive growth stocks usually offer the investor faster and greater growth potential than blue chips. Sometimes issued by lesser-known, newer companies, these stocks also have greater risk. Why should someone invest in stocks? Because stocks have outperformed all other long-term financial assets and are the only financial asset that has significantly out paced inflation. It is important to be aware of the risks as well as the returns expected when investing in stocks.

Zero Coupons

The word "zero" often implies that something is of not worth. But this is not the case with zero coupon bonds and CD's, which can often be a valuable investment opportunity. Zero coupons can be the ideal investment for achieving specific financial goals. They are investment instruments that you purchase at a discount, with interest rates and final yield locked in, and guaranteed. In other words, you don't have to worry bout surprises or changes in interest rates. One advantage of this type of investment is that you always know in advance, exactly what return you will receive at maturity. In addition, you can choose the maturity that suits your needs, from one to five years, to twenty years. Further, these bonds have certain tax advantages. Talk to an investment counselor to find out the pros and cons of zero coupons. It's one where "zero" can certainly mean more than nothing for you.

Inflation and Investing

Inflation affects everyone in our economy from the weekly grocery shopper, to the stock market investor. The effect that inflation will have on your financial plans is something you should consider before investing. Inflation to put it simply, is an increase in the price of goods and services. For those who own dollars, inflation is a menace that decreases the value of one's savings. For those who owe money, however, inflation can be kind since the amount you pay back often decreases in value, leaving you money. Inflation can also play a large role in interest rates. It's important to consider what is called the "real rates of return" on your savings. If the interest rate has been low, then a low prime rate is not as important. Consider this when choosing where to place your savings. Make sure your know the many faces of inflation before you invest.

Retirement Distributions

In general, you may gain access to your retirement plan money in the following ways: periodic pension payments, non-periodic payment that are not lump sum distributions, and lump sum distributions. As an alternative to taking receipt of your lump sum or other periodic distributions, you may want to roll the funds over into an IRA. With a direct rollover transfer, your employer sends the amount of your account balance directly to the financial institution of your choice. If you elect an indirect rollover, your employer pays your retirement plan money directly to you, net of 20 percent held for federal income taxes. If your pension plan gives you some options for choosing how to receive your distributions, you should evaluate your choices fully before making your decision. As you prepare to begin receiving your retirement plan money, and particularly if you plan to take a lump sum distribution, one of your main concerns must be how you use these funds efficiently. How much money do you need to support your lifestyle? How long do you want your plan balance to last? Do you want to dip into your principle, or do you plan to invest and live off the interest?