Top Tips: The biggest mistake in a falling stock market

Posted on July 30th, 2007 in Investing, Retirement by Smarty

Top Tips: The biggest mistake in a falling stock market
Friday July 27, 5:37 pm ET
By Gerri Willis, CNN

This past Thursday was the second worst day of the year for the Dow Jones Industrial Average. But remember, it was just a week ago today that the Dow closed above 14,000 for the first (and only) time.What it means for 401(k) investors

Fluctuations in the market shouldn’t get to the 401(k) investor. Keep in mind your time horizon - most of us are going to be invested in the market until we retire, often decades from now.

On average, stocks move higher - their long term average gain is 10.8 percent each year, according to Hugh Johnson of Johnson Illington Advisors.

Over those long time horizons, stocks will move up and down. It will be nearly impossible for you to call the highs and lows. If you sell now, you run the risk of missing gains and paying fees to re-invest in the market.

Here’s an example of how damaging moving your money around can be:

If you sold your stocks at the market bottom in September of 1998 when the Dow was at 7539.07, you would have missed out on portfolio gains of 21.8 percent by the end of that year.

If you sold your stocks at the bottom of the 1987 crash in October, when the Dow was at 1738.74, you would have missed out on 24.7 percent of your portfolio gain by the end of December 1988. That’s almost $25,000 missed opportunity on a portfolio with $100,000, says Johnson.

Economists we talked to said we’re in for at least one sharp sell-off a year. Put your money into the market a little at a time, consistently. That’s the way to earn gains - not gambling on where prices will go next. Sit tight and let the bulls and bears ride it out.

Selling when the market is falling is not the way to protect yourself or your assets.

Diversifying your assets is the best solution here. Go to Morningstar.com’s Instant X-Ray to see exactly what is in your portfolio.

Make sure you are adequately diversified in sectors, company sizes (by market capitalization) and regional distribution. When you’re diversified, if one sector or type of company takes a downturn, your whole portfolio won’t feel the hit.

Source: http://biz.yahoo.com/cnnm/070727/072707_toptips2.html

Retire Rich in 5 Simple Steps

Posted on July 7th, 2007 in Stocks, Retirement by Smarty

Retire Rich in 5 Simple Steps

5 Simple Steps

  1. Start now.
  2. Save more.
  3. Take full advantage of employer contributions.
  4. Allocate your assets to make bank in the stock market.
  5. Don’t rely on someone else to do it for you.

Retirement Advice:

  1. Keep costs low.
  2. Take a long-term view.
  3. Pick market-beating stocks you can hold for “at least five years.”

Sivy says …
Like any good financial columnist, Sivy has suggestions. In his 2005 column, he listed Amgen (Nasdaq: AMGN), Cisco Systems, FedEx (NYSE: FDX), Intel, Lowe’s, General Electric, Johnson & Johnson, Procter & Gamble (NYSE: PG), Raytheon (NYSE: RTN), 3M, Citigroup, DuPont, Pfizer, and Sara Lee. In 2006, he narrowed that list to GE, P&G, Applied Materials, Burlington Northern (NYSE: BNI), JPMorgan, Anadarko Petroleum (NYSE: APC), and FPL Group (NYSE: FPL).

My 401(k) Investment

Posted on May 29th, 2007 in Retirement by Smarty

I still have my funds in my ex-employer’s account, but I have been actively managing the funds on the web. It was a good thing that I started depositing money as soon as I was qualified. I contributed to this 401k account during my college years before I turn full-time status in the same company.

At that time, my colleagues around my age thought I was stupid for putting money away that I may never see again. I explained to them that this money will be my retirement fund. I may not see it now but if the funds grow at a rate of 10% annually and I contribute on a regularly basis, my 401k portfolio balance will increase significantly over the long run. I was thinking about the future. They were thinking about that moment in time. Of course, nobody listened to me. I find human nature to be very funny at times. When you have a good vision and try to give people good, honest advice, they take it for granted. People thought I was silly and naive. Now that they have known how well I did with my investments over the years, they wish they had done the same thing. It’s always the “should’ves, would’ves, and could’ves.”

In any case, over the span of seven years, my 401k portfolio has grown at an average rate of 25% annually. The company match made it even a sweeter deal. My last account balance was at $46,000, and less than half of that amount came from my contributions. For starting with a few hundred dollars in the year 2000 and reaching $45K in seven years, I thought it was worth contributing early and regularly.

How to Save $1 Million for Retirement

Posted on May 23rd, 2007 in News & Opinion, Retirement by Smarty

Here’s a great article for those are new to the workforce and think saving for retirement funds are useless.
How to Save $1 Million for Retirement

IRA Contribution Limits

Posted on April 16th, 2007 in Retirement by Smarty

For the year of 2007, the contribution limit is $4,000 for individuals under 50. Individuals who are 50 and older may contribute a maximum of $5,000. As posted earlier, I have already contributed my maximum limit to the Roth IRA. Personally, I feel the limit is low, so I have been contributing the maximum every year. Also, I like to fund the Roth IRA early in the year because I actively trade in the account. There are huge advantages trading in an IRA account, but there are also tremendous risks. Consult a professional before you start trading frequently.

My father qualifies for the higher limit and I helped him fund $5K in his Roth IRA account. I made it simple and dumped his IRA funds in the Vanguard Target Retirement funds.

Here are there IRA contribution limits:

Funded My 2007 Roth IRA

Posted on January 29th, 2007 in Retirement by Smarty

I contributed the maximum of $4000 to my Roth IRA at Scottrade. This deposit allows me to meet the minimum requirement for the Scottrade Elite platform. I downloaded the software, but have not used it yet. One of the features I looked forward to was the Level II quotes but I just learned that Scottrade charges $10 a month for it. I can get free Level II quotes from my non-retirement brokerage accounts so I wouldn’t be paying for it at Scottrade. I like to deposit money early in the year because I do a lot of trading and the extra funding gives me more buying power.

ROTH IRA

Posted on March 23rd, 2005 in Retirement by Smarty

ROTH IRA is a retirement plan where you put in your after-tax dollars and when you retire, you can withdraw from the account tax-free. If you earn less than 95K and single (150K for married) you can contribute a maximum of $3,000 for 2004 and $4000 for 2005. If you’re 50 or older, you can put in an extra $500. Also, when you reach the age of 70 and a half, you are not required to take minimum distributions.

The beauty of the whole ROTH IRA idea is to have your earnings avoid tax when you take them out. There are also some other nice additions to the plan. You can take your contributions out without penalty at any time. Another thing you can do is to take out up to $10,000 without penalty/tax to pay a down payment for a primary home, provided that your plan is opened for 5 years. There is a lot more details you can read here.

I want to talk more about taking advantage of the plan and how that will benefit you. If you qualify, it is very important to set it as a priority to contribute as much as you can, and because the limit is so low, it is best to put in the maximum. In the worst case scenario, if you have absolutely exhausted other options, you can withdraw the original contributions without penalty.

While ROTH IRA does allow the flexibility to withdraw deposits, I strongly suggest you not to do that. Putting funds into the account is like planting money seeds. If you take them out, you give up the opportunity for the seeds to grow and sprout. The end result is you having less money working in your favor.

The sooner you plant the seeds, the sooner it’ll grow. And the more you plant the more you’ll have growing for you. Therefore, it is very important to start early. A $3,000 contribution this year vs. five years from now makes a big difference over time. Assuming 8% average return per year, your $3,000 deposit this year can make you $30,187.97 in 30 years, but starting five years late with the same amount will only net you $20,545.43. That’s a difference of almost $10,000 for holding back five years. Now, if you had been contributing for five years straight, the difference is much more significant.

The bottom line is, if you have no idea what a ROTH IRA is, take the two minutes to read up on it and sign up as soon as you can. You have up until April 15 to make a contribution for 2004. If you’re low income and use the no-money excuse, then you should know that the government is already working in your favor. Any contribution you make will get you a 50% credit (or less depending on your AGI) from the Savings Credit. Having someone else put in half of your contributions, there are no more excuses. This is a benefit for you that will pay you big in the long run.