Behind The Curve?
BEHIND THE CURVEMarket index funds like Vanguard's famous S&P500 fund and the SPY "Spyder" on the AMEX caught on in the late 90's, right when the long bull market turned into a crazy bubble with a blowoff top in 2000.There are very good reasons to use index funds ? low expenses, the failure of most active managers to beat the indexes consistently and the statistical trend that says stocks return an average of 11% per annum over long periods of time. A cheap route to a "sure" return in a world of unreliable fund managers and individual investors who couldn't time the market right if they had an Olympic chronometer and three judges - looks good, huh?Just invest, forget about it and spend your time thinking about a comfy retirement. The S&P500 returned an annualized 17% per year from mid-1982 to mid-2000. Easy money with only a couple of dips on the way.Except ? what happens to your portfolio if the market indexes go nowhere for years on end?The statistics say that over the decades, the 11% return will keep you safe. But what if you catch a couple of bad decades? Most of us didn't get serious about putting money in the market until our 30's ? and we planned to retire 20-25 years later.
What does your retirement pot of gold look like when the "usual return" falls behind and you run out of decades to catch up?From mid-1997 to mid-2002 the SPX was flat. From 1998 to 2003, SPX investors lost money. Ditto 1999-2004.Break down the expected 11% return into 5-year periods. An index investor expects to bring in 70% or more every five years, depending on how often the gains are reinvested. The problem with compounding is how quickly you can fall behind.
SPX investors who put in money from 1998-2001 didn't make money. Surely they can make that up later, right?Don't be so sure. A tax-free portfolio that starts with $100 and returns 11% annually should have $111 after one year, $123 after two, $136 after three years and $152 after four. Five years later it's $168.Think about the leap ? if you end up flat the first three years, your portfolio has to rack up a 52% gain to get back on track by year four. Has the SPX returned 50% in one year in our lifetimes? Not that I can find.
Forget about a 68% banner year.The compounding you need to achieve the magic 11% is fragile indeed. If your portfolio is flat for five years and returns to the 11% norm the next five years, the 183% you should have earned for the preceding decade only turns out to be 68%. Your fifteen-year return is 183% instead of the 378% you expected.To catch up, you need a quick five-year annualized return more like 23%. Today's SPX would have to reach 3200 to meet that goal ? and the all-time high is only 1552. Plus you have to exercise perfect discipline and never try to time the market swings yourself.
Fat chance. Dollar-cost-averaging in your IRA or 401K (buying more index fund shares every month) might smooth out the bumps, but the fundamental problem remains.Since I took over my own portfolio full-time in 1998, I did two important things right (and dozens and dozens of things wrong, fewer each year I hope): I took advantage of the fat years in 1999 and 2003 to rack up 150% and 99% returns. And my net returns for all the other years were flat. Up or down a few percent, but no big annual losses. Ever.
When the markets went into freefall, I stayed mostly with value stocks and survived.Let me shout to get your attention ? FOR LONG-TERM RETURNS THAT REALLY MAKE YOU WEALTHY, YOU HAVE TO BEAT THE MARKETS YEAR IN AND YEAR OUT. Not just match what the rest of the herd gets.You have to do what the experts say can't be done. Of course, if you listen carefully you find that they are really saying that most managers and individual investors DON'T beat the market, not that it can't be done.Hundreds of millions of people invest in stocks worldwide. If only a relative handful ever do better than the markets, that's still several million. No reason you can't be one of them.All it takes is curiosity.
And time. And effort.You have to be curious enough to go looking for the best stocks, the best funds or the best manager you can find to manage your retirement portfolio. You have to read more than the headlines in the financial press, and have some idea where the broad market trends are going.Most of all, you have to accept that in your lifetime, the market may not just hand you a fat return for nothing. You will have to earn it. The good news is that there is always a way to do better.If you don't fall behind the curve..
DISCOVER THE RETIREMENT BREAKTHROUGH ?THE ROTH IRA!
If you don't know what a Roth IRA is then stop everything, print this article and read it carefully as this will certainly be the most valuable information you read this year. This next retirement account is to your net worth what light bulb was to electricity. Let me tell you about this wonderful financial invention called a Roth IRA!The main difference between the Roth and traditional IRA is that with the Roth you pay taxes first and then make the contribution. This is absolutely fantastic if you make a lot of money in the stock market because you NEVER have to pay even a dime on the capital gains! There are a ton of other advantages to the Roth IRA. Unlike the traditional IRA you can be of any age and still contribute.
You can also make a contribution to a Roth IRA at any time for a particular calendar year up until the due date of your tax return for that year. This means that if you want to make a Roth IRA contribution for 2005, you could make it anytime between January 1,...
DISCOVER THE RETIREMENT BREAKTHROUGH ?THE ROTH IRA!
Ira > DISCOVER THE RETIREMENT BREAKTHROUGH ?THE ROTH IRA!
Entrust Administration, Inc. Launches New Web Site Bringing Truly Self Directed Plans? Closer to Home
In addition to its wealth of educational material, www.iraplus.com offers the ability to select and open an account with one of Entrust's nationwide local offices. Opening an account could not be simpler. All the necessary forms are available online together with detailed, yet easy-to-follow instructions. And both customers and non-customers may access the local and national event calendars, newsletters and questions and answer board."As we continue to grow the website allows us to continually share our resources, experience and expertise with an ever expanding audience of smart investors who want to take control of their investments," commented Hubert Bromma, President and CEO of Entrust.
Lisa Moren, Marketing Director for Entrust added,
"The expansion of our CE courses for real estate professionals, CPA and CFPs has allowed us to educate the industry in the use of Entrusts World of Choices?.
"Visitors also...
Entrust Administration, Inc. Launches New Web Site Bringing Truly Self Directed Plans? Closer to Home
Ira > Entrust Administration, Inc. Launches New Web Site Bringing Truly Self Directed Plans? Closer to Home
Consumer Directed Health Plans
Most of you have heard about "consumer directed health plans". The Bush administration has been a strong supporter of this concept as a way to get a handle on soaring healthcare costs. The recent inaugeration of Mr. Bush signals that consumer directed health plans will increasingly make up a larger percentage of group medical plans over the next several years. In the past, consumer directed plan designs have taken on many forms: Medical Savings Accounts (MSAs), Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs).Many experts consider HRAs and HSAs to be the first generation of viable consumer directed health care products.
HRAs are typically paired with a high-deductible health plan and are employer-funded Section 105 defined contribution plans. HSAs are the latest version of consumer directed health care plans. The core components of HSAs include a high deductible insurance product and a cash spending account. HSAs combine...
Consumer Directed Health Plans
Ira > Consumer Directed Health Plans
Tax Benefits of Health Savings Accounts Lure Consumers, Businesses
10 Ways Health Savings Accounts Offer Tax SavingsHealth Savings Accounts are helping individuals save thousands of dollars on their income taxes.
These tax-favored accounts, which have only been available since January of 2004, can be opened by anyone with a qualifying high-deductible health insurance plan.
Once you open an account, you can place tax-deductible contributions into it, which can then be used later to pay medical expenses.
Any money not used grows tax-deferred, like an IRA. HSAs offer many tax advantages over traditional health insurance arrangements.
A more detailed explanation of this list...
Tax Benefits of Health Savings Accounts Lure Consumers, Businesses
Ira > Tax Benefits of Health Savings Accounts Lure Consumers, Businesses
Find Out Now If The New Roth 401(k) or 403(b) Is An Option For You
Woburn, MA (ContentDesk) October 26, 2005 -- Employers who offer 401(k) or 403(b) plans can start to offer their employees a Roth version of their plans on January 1, 2006. So, now's the time to ask your employer's benefits department whether they have started the process of amending their plan documents.
Don't be surprised if your employer balks, however, since Roth 401(k) s are scheduled to sunset on December 31, 2010 - meaning you'll have only five years to contribute to this type of account, unless a future tax bill extends their shelf life. A Traditional Salary Deferral Plan Versus A Roth
While contributions made to your current 401(k) or 403(b) plan reduce your taxable earnings, you will be taxed on money withdrawn from these retirement savings accounts eventually. With a Roth account, you forgo a tax savings today, but the money invested within the account grows tax-free - provided you're at least 59 1/2 and the account has been open for at least five years...
Ira > Find Out Now If The New Roth 401(k) or 403(b) Is An Option For You
401k Plan Loans - An Overview
Allowing loans within a 401k plan is allowed by law, but an employer is not required to do so. Many small business just can't afford the high cost of adding this feature to their plan. Even so, loans are a feature of most 401k plans. If offered, an employer must adhere to some very strict and detailed guidelines on making and administering them. The statutes governing plan loans place no specific restrictions on what the need or use will be for loans, except that the loans must be reasonably available to all participants.
But an employer can restrict the reasons for loans. Many only allow them for the following reasons: (1) to pay education expenses for yourself, spouse, or child; (2) to prevent eviction from your home; (3) to pay un-reimbursed medical expenses; or (4) to buy a first-time residence. The loan must be paid back over five years, although this can be extended for a home purchase. Usually the participant is allowed to borrow up to 50% of their vested account balance...
401k Plan Loans - An Overview
Ira > 401k Plan Loans - An Overview