Archive for May 2019

The Most Important Principles of IRA Investing for Retirement

IRA investing

A self-directed IRA (Individual Retirement Arrangement) gives you many more investment options than an employer-contributed 401k. You can buy individual stocks, mutual funds, bonds, and alternatives like gold and silver. With more options available, you should talk to a financial advisor about meeting your investment goals, but a few tips can help you get started on a plan.

Asset allocation and risk tolerance are the two most important factors to consider when you?re planning an IRA.

Asset Allocation

Asset allocation is simpler than it sounds. It simply means how your money will be divided between different asset classes: stocks, bonds, alternatives, and cash. Equities come with more risk, but promise bigger growth if it all goes according to plan. Equities (stocks) should be balanced with bonds and alternatives that are comparatively safe.

IRA investing

Mutual Funds

Mutual funds should make up the bulk of your IRA, as mutual funds provide a level of diversification that can result in better long-term growth. Unless you want to make your investment portfolio your full-time job as you research stocks, plan, and constantly update your portfolio, mutual funds are the best way to invest in equities.

Alternatives ? Gold & Silver

A balanced IRA portfolio should also feature some percentage of alternatives. Did you know that you can buy gold coins and gold bars as part of your IRA? Physical gold bullion is now available as an option for your IRA and it?s definitely one worth considering as you save for retirement, especially given the long-term possibilities of gold as a hedge and its long bull and bear market cycles.

Gold is a great addition to an IRA. It?s a tangible asset that will always hold value (gold has had value for millennia), there are no risks with 100% insurance on storage, it?s a simple investment, and the growth of gold prices is only taxed on disbursement.

There are many opinions about how much gold you should keep in your portfolio. One estimate is that the ideal percentage of gold you should have matches gold?s share of the global stock, bond, and gold markets: 4 percent.

Others recommend going as high as 20 percent due to gold?s role in a non-ideal and abnormal economic regimes, especially stagflation and deflation. In an economic situation like the Lost Decade of Japan, gold makes much more sense than stocks, and it would make sense to invest a higher percentage into gold.

One important thing to note is that you must buy gold from a gold shop that lets you make purchases with your self-directed IRA. Gold shops such as Silver Gold Bull allow you buy gold online as part of your IRA. It simplifies the process and gives you an important tax advantage on gold. Go online and see what Silver Gold Bull has to offer in terms of IRA-eligible gold.

Risk Tolerance

How much are you willing to risk? Bonds and alternatives are generally less-risky assets with smaller returns. Making them part of your portfolio is a smart idea if you have low risk tolerance. Generally speaking, as you get older, your risk tolerance decreases. The closer you get to retirement and the need to cash out your IRA or draw income from it, the more conservative your IRA should become.

With these simple principles in mind, you can begin to plan for your IRA.

How do I evaluate my Portfolio?s Performance Compared to Averages?

The success of the portfolio cannot be determined based on its returns. There have been ways to evaluate the performance of a collection in the past. None have the design that considers both risks and returns simultaneously. Ever since 1960s investors have either found the risk or the basis has been the returns. There are specific ways one can think to delve deeper and analyze their portfolio’s performance and get a clear and more appropriate insight.

Treynor Measure

The first person to consider risk as a basis was Treynor. He provided the investors with a much more practical approach. Regardless or personal risk preferences, providing a general measure of performance was the main aim of Treynor. According to him, there are two types of risks- The risk associated with the stock market and the risk associated with individual securities. He introduced the idea of a security market line. It is how it looks:

Treynor Measure= (PR-RFR)/beta, where,

 PR stands for portfolio return,

RFR stands for the risk-free rate

The ratio is also termed as a reward to volatility ratio.

The numerator denotes risk premium, whereas the denominator indicates the portfolio risk. A higher value always means a better position.

Sharpe Ratio

Sharpe ration is quite close to the Treynor Measure with only a slight deviation. It is how it looks

Sharpe Ratio= (PR-RFR)/SD where,

PR denotes portfolio return

RFR denotes risk-free-return

SD indicates standard deviation.

The sole difference between Treynor Measure and Sharpe Ratio is that beta is replaced with the standard deviation in this case. The basis, in this case, is the rate of return and diversification. It is considered to be more accurate when compared to Treynor Measure.

Jensen Measure

Jensen measure calculates the surplus return over the anticipated return. This kind of performance is termed as Alpha. It is how it looks like:

Jenson?s Alpha= PR-CAPM

Where PR denotes portfolio return

CAPM indicates risk-free rate+ beta (return of risk-free market rate of return.

The higher the output, the better is the portfolio performance, in this case. The risk for securities and the rate of return differs from time to time. This kind of ratio works best on certain types of investments, such as mutual funds.

The measurement and evaluation of a portfolio performance tell you how your decision related to your investment was. Was it fruitful, or was it not up to the mark? The estimation is essential to be able to proceed further if your decision paid off or improve in case it didn’t. However, it is crucial to note that measuring the portfolio results is only a part of the larger picture. It cannot ascertain the entire investment scenario. The only drawback of these methods is that due to incomplete or half knowledge, one could end up taking clouded financial decisions, which is detrimental to the investor in the long run. Thus, it is essential for the investor to realize that this may be a key factor but not the only factor to rely on.

4 Tips to Get Ahead of Credit Card Debt

credit card

?Compound interest is the most powerful force in the universe?. Whether or not the world?s most famous scientist, Albert Einstein actually said this remains up for debate. However, the fact of the matter is; compound interest is indeed one of the strongest forces in the world. So strong in fact that it has the capability to make or break a person.

credit card

Credit card debt, in particular, has driven many people to bankruptcy or even worse. But fret not, as there is hope. With the right management skills and a little discipline, you?ll be able to quickly dispense of your credit card debt.

Here, we take a look at 4 of the easiest ways for managing credit card debt.

1. Start paying off your debt!

While many may argue that this is easier said than done, Laozi; a famous Academic once said that ?a journey of a thousand miles begins with a single step?. Get started on your way to a debt-free lifestyle by making above minimum payments on your existing credit card debt.

By paying above the minimum amount, you?ll be able to pay off existing interest charged while reducing the size of your debt at the same time. On the long-term, you?ll find that you?ll pay less in interest owed and this gets you into the habit of making payments on time.

Dragging out your credit card debt only means being in the red for a longer period of time, while giving banks the opportunity to make more off you.

2. Dial it all back

In today?s age of social media and instant gratification, one is constantly bombarded by images of acquaintances living the ?perfect lifestyle?. From exotic beach holidays in Bali to fast cars and fancy restaurants, it may be tempting to try and keep up with your ?jet setting? friends. After all, you only live once right?

Wrong. Saddling yourself with crippling credit card debt is a quick way to ruin your life and credit rating. All of this just to impress your Instagram followers?! We think not.

Instead, skip the dinners out and learn how to cook yourself a delicious meal. Looking to go on vacation? Sure, pay for it with cash. By forking out cold, hard cash on your purchases, you?ll be much less likely to splurge on extravagant expenses that you don?t need.

On the long-term, you?ll find yourself getting used to paying everything with cash while minimizing your debt exposure. With a little discipline, you?ll be able to enjoy financial freedom without becoming a slave to debt.

3. Consider taking on a balance transfer

One effective way to prevent your debt from ballooning any further is with a balance transfer. In a nutshell, balance transfers allow you to transfer existing credit card debt to a new card that charges little to no interest.

This allows you to pay off your debt without having to worry about exorbitant monthly interest charges while allowing you to pay off your debt without any pressure.

A word of caution though; 0% interest does not mean that you should spend to your heart’s content. Preferably, the balance transferred to the new card should remain as such with monthly repayments being made.

4. Take on a side-gig

Okay, so you?ve found yourself underwater with a sizeable credit card debt. So why spend time fretting over it when you could get a side-gig to help pay off your expenses. From writing articles to designing brochures and even getting a part-time job, searching for alternative sources of income is an excellent way to scrape together the funds to pay off your debt.

Lacking the required skills? No sweat, there are dozens of websites which pays you for completing surveys allowing you to make money with a PC and internet connection.

For the ambitious, you could even earn some extra money punting on horse racing. Follow the latest events in the horse racing schedule and try to cash in some money. Just remember to not gamble more than what you own, because it can increase your debt. Betting on sports should be done wisely and in small amounts, so even if you have less profit, you will also have less chances of losing money.

How to Build your Mutual Fund?

Before we think of building our mutual funds, it is essential to know what mutual funds are. Having a clear understanding is necessary for a successful investment in mutual funds. A lot of individual stocks together make up mutual funds. The portfolio manager buys and sells your shares on your behalf when you invest in mutual funds. The expenses of the investors are passed on to you in the form of a ratio. It is called the expense ratio. If a mutual fund is bought and sold in a short period, then the load is the highest. For building a mutual fund of your own, the following step you need to follow:

  • Ascertaining risk– Understanding and determining the investor’s risk profile is very important. The portfolio must be able to shoulder more risk that the investor expects from it. There is no point in getting a considerable return and lose sanity and sleep over these matters. One should be able to play safe, and with practice comes perfection when it comes to investing in mutual funds.
  • Note your goals-The goals of the investor need to be kept in mind when creating the portfolio. The risk-taking the ability of the collection must be more than desired by the investor. Choice of the fund is bound to vary from one case to another.
  • Returns- It is essential to note the consistency of the return. One should not fall prey to short-term gains. Long-term gains should be the focus. Also, risk parameters need you need to consider.
  • The number of funds- Some people hold as many as 40 funds, which are unnecessary.  It is not essential to have an enormous amount of funds for success in the stock market. Go for a number that is sensible like 5 to 6 schemes which should be sufficient for you to achieve diversification.
  • Tax- While the portfolio is being designed, one needs to focus on the taxation and loads on the investment. Funds need to be chosen wisely as heavy taxes can have a drastic effect on the returns of the investor.

Building your mutual fund will help you save a lot of money. You can do it at your convenience only with basic but sound knowledge in this domain. It is important to note that every mutual fund available in the market is not at the same level. Avoid loads as that deters you from gaining good returns. Look at the benchmark to judge the performance of the fund that you are willing to choose. It gives a clear picture of the profits or the outcome that you can expect from your investment.

The bottom line is that one needs to be patient and determined as this is a process that takes time.  A successful mutual fund is characterized by a low cost, huge returns, and overall satisfaction, and it also instills a sense of confidence in the investor.

Financial Tips for Stay at Home Parents

Stay on Top of Your Finances

If you?re a new parent, or soon to be one, you?re probably wondering about when to return to the workforce. For a lot of parents, going back to work is out of the question. You?d much rather spend time bonding with your little one than sitting at a desk all day ? even if it’s just for the first couple of years. For some parents, the cost of childcare is also out of the picture, and the more financially viable option is to stay at home until the child is old enough for school.

Stay on Top of Your Finances

Without earning a regular wage, however, stay at home parents can quickly feel a strain on their bank account. To help you out, take a look at this article containing tips on the things you should do to protect your current and future financial status.

Have a plan

If you?re yet to have your new baby, but you know for sure that you won?t be returning to work after their arrival, create a plan. If you have a partner who works, devise a strategy that will prepare you for the financial changes yet to come. For instance, if your husband is going to return to work while you stay at home, or vice versa, try living on just one of your incomes for a month or so before the baby is born.

Doing this will help you get accustomed to living on less money, and be able to see if it?s do-able. If you find that you both struggle to live on this amount, it gives you the chance to create a plan on how much money you?ll need to budget and identify ways to boost your income.

Your financial plan may span even further than this, and you could be thinking way into the future. You could end up never returning to work and find you want to be a stay at home parent full-time, which means that you need to get serious about creating a retirement fund. One of the best ways to strengthen your financial future is investing, particularly with buy to let property. Owning a buy to let property will allow you to boost your monthly income along with the ability to generate an attractive amount of money later in life through capital appreciation. If you?re considering making a property investment, take a look at the ultimate property investment guide from RW Invest, containing tips on every element of a beginners investment journey.

Create budgets

When you have less money going into your account each month, budgeting becomes a necessity. Get serious about creating strict and detailed budgets, breaking your expenses up into different categories. If you?re not familiar with the 50/30/20 method of budgeting, you should definitely look into this. This method splits your outgoings into different categories ? needs, wants, and savings.

Fifty per cent of your income should go on needs, which will mean housing costs, insurance, utilities, food, car costs, and baby essentials like nappies. Thirty per cent can then go on wants, like the occasional treat and non-essential item, and then twenty per cent will go towards your savings. Work out whether it?s going to be realistic for you to use this method. If not, you can always adjust it according to your available income, and seek out any ways to cut costs, such as shopping at a more affordable supermarket or sacrificing any subscriptions you have like Spotify or Netflix.

Consider working from home

If you?re really struggling to make ends meet, then picking up a remote job is a good idea. With this, you?ll be able to stay at home with your child while still making money, and you might be surprised at the amount you could make. Many stay at home parents choose to take on freelance positions to help pay the bills, and some find success through starting their own blog. Parenting bloggers can make an attractive salary through monetizing their blog with things like sponsored posts, banner ads, and affiliate linking.

If this isn?t your cup of tea, there are lots of other ways you can earn money from home such as with online tutoring, freelance accounting, and marking exams or academic papers. Depending on your skillset, you?re bound to find a suitable option for you.