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Get Big Bucks!
You're smart, you're chasing the big bucks, and you want them working for you. It's not hard to do when you know the options. The majority of you probably use one or all of these: real estate (including your home), savings accounts and / or investing (also called trading) accounts.
The question is: are you getting the most from your money?
DO YOU KNOW WHAT YOUR OPTIONS ARE? Use the independents and employee links or scan this overview of vehicles and taxes.
It touches on IRAs, 401s, taxes, risk, and mutual
funds (with a link on how to evaluate them). Even though
this doesn't cover every eventuality or permutation, it's a good introduction.
| On This Page | Basic Options |
| Vehicles | Independents |
| Taxes | |
| General Notes |
Vehicles
Since there are different types of accounts, the financial world uses the
generic term vehicle. When you open an account (vehicle), you put your
money into the vehicle; then you use that money to buy different investments.
The vehicle then carries (or holds) these investments.
Savings account. Put your money in a savings account and the institution (bank, credit union, etc.) decides who to lend that money to (or where to invest it) and pays you interest for its use.
Risk and reward: Low yield, but it's safe and insured.
Investing account. Put your money in an investing account and you tell
the institution (brokerage, some banks, insurance company) where you want the money to go. We'll
use the term 'rep' to mean salesperson, broker, banker, insurance agent.
Want to lend money? Tell the rep you want bonds.
Want to be part owner of a company? Tell the rep you want stocks.
Want it held in cash? Tell the rep you want a CD or money market.
Want to do some of each? You can buy a mutual fund (more on this later),
annuity, etc. or tell
the rep. He or she will do it. You may get a suggestion (it could be a
recommendation, an opinion, or the flavor of the week), but you have the final
say.
Risk and reward: Investing accounts should give a higher yield, but that also means higher
risk. Depending on what you buy, your money may not be insured. Buy a federal
bond from the government, you get it cheap and it's insured by the very
existence of our government. Everything else has a greater measure of risk.
That's why it's important to shop wisely and keep a balanced portfolio. Click
to see how 
RetireMite™ automatically balances your portfolio and gives you direct links to U.S.
Government federal bond sites.
Use the Independents and Employees links at the top of the page for more on your options.
Taxes
Each year you work, you earn money, and you pay income tax. But you may
also have to pay taxes on other money earned. For example, the yield from an
investment vehicle may be taxable or it may be tax-deferred. When we talk about taxes, we're talking about
federal
taxes.
If you have a taxable vehicle (a taxable investing account), you pay income tax on the money it earns for you (call it the yield), even if you don't touch a penny until retirement. So you're paying income tax on your salary plus you're paying income tax on the yield from the account. Make sense so far? Ok, you retire and quite paying into the retirement account. But the account continues to give you a yield. You only pay income tax on the yield for the year, but it's taxed at your new, (hopefully) lower rate.
What about a tax-deferred vehicle? Well, as long as you stay within the guidelines, you may be able to defer income taxes two ways. First, the yield from the account is free from income tax for now. Second, the money from your salary that you put into the account may also be from income tax for now (again, certain rules apply). Ok, you retire and quite paying into the retirement account. But the account continues to give you a yield. But in this case you pay income tax on what you draw out at your new, (hopefully) lower rate. Currently, there are guidelines which affect age and amount withdrawn.
General Notes
Risk. Did you know there's a risk in not taking a risk!? "
:-( *#^@@%!!" you say. Well, it's true. Take no risk and you risk not
keeping up with inflation. That means a loss of buying power over the years and
a reduced level of living - maybe not even enough to survive without a job! What
to do? Find out how much risk you're comfortable with and invest accordingly.
It'll depend on your age, lifestyle, greed, amount of money saved and your basic
personality. Click to see how
RetireMite™ gives you
direct links to profile testing sites.
More on accounts. (No, Bob, not moron accounts.) You can have taxable and tax- deferred accounts. In fact, you can have more than one of each. This happens when you roll-over a 401 to an IRA and want to keep your current contributory account separate (the one you're saving putting money into every year), which makes things a lot easier for bookkeeping when you retire.
IRAs and 401s are tax-deferred vehicles. They're investment accounts through which you buy various investments. Just because these accounts are tax-deferred, there is no reason or rule that says you must buy tax-deferred investments. In fact, you probably wouldn't want to. Why would you want a tax-deferred investment in an account that's already tax-deferred? Taxable accounts are probably the best place for these.
Mutual funds. Mutual funds spread your money over various investments; it's a blend of investments. A mutual fund can blend anything - for example, one fund may blend market sectors like technology, energy and real estate. The idea is that when one sector ( portion) of the market is down, very often another is up. So the idea is to blend the right sectors (that is, stocks from various sectors) so that you still get a good average return on your money. Another may blend all foreign stocks; or high yield and low yield to give the best average return for the risk taken. To see an example look in the What Does This Fund Own? section, click here.
Besides blending, another advantage of mutual funds is that they're
professionally managed. A pro does the picking so you don't have to. And mutual
funds are rated so you know their performance and risk level. So all you have to
do is select the one you like the most. Just plug the fund into
RetireMite™
and it automatically shows you if you're keeping a balanced portfolio according
to your risk profile. (This is called optimizing your portfolio.)
RetireMite