State of the Union speeches are generally pretty heavy on talk and light on practical action, and President Barack Obama’s 2014 was no exception. There was the usual backslapping and finger-pointing we’ve all grown to expect over the years from any sitting president. But there was one proposal made by Obama that got Wall Street’s attention: a new retirement savings vehicle for low- and middle-income Americans dubbed “myRA.”

From Obama’s State of the Union speech:

“Let’s do more to help Americans save for retirement. Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks. That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: myRA. It’s a new savings bond that encourages folks to build a nest egg.”

President Obama went on to say that savers would have “no risk” of losing what they put in, which will make the plan palatable for Americans who lack the stomach for equity investment.

The plans for myRA are still somewhat nebulous, but here are three key points you should take away:

#1: myRA is essentially a Roth IRA invested in long-term bonds

According to the White House’s fact sheet, the myRA accounts will be offered within a Roth IRA vehicle, though unlike current Roth IRAs, this product will be offered via employers, and employees will be given the ability to have a portion of their checks automatically deducted and deposited. Currently, Roth IRAs are offered by banks, brokerage houses and other financial institutions.

The assets on offer will be “like savings bonds,” backed by the U.S. government. There is no indication at this time whether equities or other riskier assets will be allowed, though given the explicit government guarantees, it’s unlikely.

#2: myRA appears to be largely riskless for employers

Offering a 401k plan is expensive, cumbersome and carries certain fiduciary risks for employers — this is why most small businesses don’t offer them. Only 68% of American workers have access to a retirement plan, and only 54% actually participate.

The Obama administration has been accused of being hostile to business and of being insensitive to regulatory burden. From what is available so far, it does not appear that myRA will be a burden for employers.

#3: myRA is not exactly “riskless.”

If the account is essentially a bond ladder within a Roth IRA, then it is safe to say that there is no principal risk. But remember, as with all bond investments, there is the risk of lost purchasing power due to inflation. It remains to be seen what kinds of yields are offered, but it is hard to imagine the federal government paying more to American savers than it does to its existing bondholders.

At time of writing, the 10-year Treasury yields 3.62%. The current rate of inflation is 1.2%, though the Fed would like to see it closer to 2%. Subtracting the Fed’s policy objective inflation rate from the current yield gets you a real, inflation-adjusted yield of 1.62%. And over the course of a lifetime, inflation might prove to be a lot higher than that.

It certainly has during the past 100 years; the average inflation rate has been about 3.2%.

Bottom Line

A cynic might say that the U.S. government is trying to fleece its citizens into financing its chronic budget deficits. Hey, what can I say, there is probably some truth to that sentiment … but I believe that President Obama is sincere in wanting to help Americans save for their golden years.

Any savings, even at a low rate of return, are better than no savings at all. And given the long-term funding needs of Social Security, every little bit helps.

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities. Check out his new premium service, Macro Trend Investor, which includes a free copy of his e-book, The New Megatrend Investor: The Ultimate Buy-and-Hold Strategy That Will Make You Rich.

The post 3 Key Points in President Obama’s New ‘myRA’ Plan appeared first on InvestorPlace.

The market wasn’t the only thing to tumble in January — just look at current interest rates. But the knock-on effects for popular savings and loan products broke in favor of borrowers, not the lenders who charge them … meaning the best interest rates just got a little better.

The yield on the benchmark 10-year Treasury note rose steadily in December to peak briefly above the 3% threshold early this month. But as current interest rates show, it’s been all downhill from there.

A sense of fear and risk returning to the market boosted demand for government debt, pushing interest rates on the 10-year Treasury back down to 2.74% — a two-month low — by January’s end. (Bond prices and yields move opposite one another.)

While the best interest rates on popular savings products didn’t budge, the drop was great news for anyone shopping for a mortgage. On balance, the cost of borrowing money fell to a greater degree than what banks pay for deposits. That helps borrowers more than banks, while savers escaped losing some hard-won gains — at least for a month.

Check out our roundup of the best interest rates, current mortgage interest rates and more:

Best Interest Rates on Savings Products

The national average interest rate on a money market account fell to 0.4% as of Jan. 29 from 0.45% a month ago, according to data from Bankrate.com (RATE).

Elsewhere, yields on savings products went nowhere after edging up a month ago. (Indeed, December marked the first rise in yields on savings and money market accounts in six months.)

Here are the best interest rates (shown in annual percentage yields) on some popular savings products (with a minimum deposit of less than $10,000, except for jumbo CDs) as of Jan. 29, according to Bankrate:

• National Average Rate on Interest Checking Account: 0.51%, up from 0.49% a month ago
• Best APY on No-Fee Savings Account: 1% (First Trade Union Bank), no change from a month ago
• Best APY on 1-Year CD: 1.1% (AloStar Bank of Commerce), no change from a month ago
• Best APY on 3-Year CD: 1.45% (Intervest National Bank [IBCA], $2,500 minimum), no change for four months
• Best APY on 5-Year CD: 2.16% (EverBank [EVER], $1,000 minimum), no change from a month ago
• Best APY on 5-Year Jumbo CD: 2.2% (Barclays [BCS], $100,000 minimum), up from 2.16% a month ago

Current Mortgage Interest Rates

At the same time that savers were spared rate pain, borrowers caught a break from rising mortgage rates, which declined significantly over the past month. Here are the current mortgage interest rates (overnight national average) on popular loan products as of Jan. 29, according to Bankrate:

• 30-Year Fixed Mortgage: 4.33%, down from 4.51% a month ago
• 15-Year Fixed Mortgage: 3.38%, down from 3.56% a month ago
• 5/1 Adjustable-Rate Mortgage: 3.47%, down from 3.69% a month ago
• 30-Year Fixed Mortgage, Refi: 4.33%, up from 4.13% a month ago
• $30,000 Home Equity Line of Credit: 4.81%, down from 4.84% a month ago
• $30,000 Home Equity Loan: 6.14%, up from 6.1% a month ago

The post Best Interest Rates in January: CDs, Money Markets and Mortgages appeared first on InvestorPlace.

That’s right, retirement planning has a number of different levels.

I bet your competitive streak wants to get there, and that means building an overall strategy for producing stable monthly income. Depending on your personal goals, that might mean income to supplement your paycheck, or income that’ll have you sipping Mai Tais on the beach in Tahiti next to your spouse of 30- or 40-plus years.

Let’s take some time to review my two levels towards retirement planning:

Retirement Level I

Retirement changed radically when the government bailed out reckless banks at the expense of seniors and savers. A lot of people, myself included, entered the 2008 crash thinking their portfolios were as safe as a bomb shelter.

Personally, I allocated my portfolio by the “100 minus your age” rule. Cash holdings aside, nearly 70% of my capital was in income investments (leaning heavily on CDs, given the excellent rates at the time), and the remaining 30% was very conservatively invested in the market. In other words, I followed the rules.

Unlike many who took a large hit when the market crashed, my losses were minimal. I don’t say this to brag, nor am I encouraging you to follow my old allocation. I simply want to share that, even with my allocation down pat, I too was struck hard by the crash… just not in the way one might imagine. Why? Because it wasn’t the number at the end of my brokerage statement that let me sleep well at night, it was the income those investments produced.

I was living on that income, enjoying the retirement dream. Then—almost overnight—my “paycheck” was cut by 66%.

Like so many others, I was caught by a risk in my portfolio that had been unheard of a few years prior. With decades of livable interest rates behind us, not one financial advisor ever suggested I was at risk. Almost no products existed to deal with it.

The new, zero-interest-rate world was, as the kids in Silicon Valley like to say, a game-changer.

When our team sat down to develop Money Forever, we knew that retirement investing demanded both a defensive and an offensive strategy, played at the same time.

The defensive goal is to avoid catastrophic losses. Too many Americans were caught with their pants on the floor at the end of the dot-com and real estate bubbles. Others from around the world have been robbed of their savings as governments overspent and spurred inflation.

Bonds have performed very well recently. But the largest gains are not from yield, but from the Federal Reserve driving interest rates lower and holding them there.

While long-term bond funds appreciated handsomely, a new risk crept into portfolios around the world: the so-called bond bubble. If rates rise (we’ve seen a light preview of this since May), the net asset value of the billions of dollars in many bond funds will drop dramatically.

When we put our retirement money in fixed-income investments, we are investing for safety and yield. We cannot risk another bubble bursting at our expense.

Moving Forward

Yes, we want yield. But there is another reason for fixed-income investing: safety. What if there is a huge market drop? We may be domestically and internationally diversified and have adequate stop losses in place, but a wave can act like a tsunami at times, and right now is one of those times. So we are moving on to Level II.

Level II: Bulletproofing Your Retirement

There are two important facets of a strong portfolio: income, and opportunities. Miller’s Money Forever helps guide you through the better points of finance, and helps replace that income lost in our zero-interest-rate world.

Pre-crash, if an investor bought a CD at the prevailing rate, and then interest rates rose during that period, he would not lament his loss in net asset value. He would be satisfied with the interest, and when his CD matured, he would buy another one at the current rate. So why do we look at bond funds, see our net asset value go down, and worry? Because most bond funds are always busy selling, baking in those losses along the way.

Some funds, however, hold them to maturity. In that regard, it is like a CD. Of course, it is not FDIC insured. That does not make it unsafe, however. In fact, in the fall of 2008, I would have been better off holding non-callable bonds at a nice, juicy 6% rate instead of FDIC-insured CDs. My income certainly wouldn’t have taken the hit it did. (I must forgive myself for that sin against my portfolio, but now I know better.)

This is where the value of one of the best analyst teams in the world comes into focus. We focus on our subscribers’ income-investing needs, and I challenge our analysts to find safe, decent-yielding, fixed-income products that will not trade in tandem with the steroid-induced stock market—or alternatively, ones that will come back to life quickly if they do get knocked down with the market. They recently showed me seven different types of investments that met my criteria and still withstood our Five-Point Balancing Test.

Somewhere in the discussion, I mentioned how tired my peers are of having holes blown in their retirement plans. While nuclear-bomb-shelter safe may be impossible, we still want a bulletproof plan.

This is what we’ve done at Money Forever: built a bulletproof, income-generating portfolio that will stand up to almost anything the market can throw at it.

It is time to advance to Level II and learn about the vast market of income investments safe enough for even the most risk-wary retirees. Some investors may want to shoot for the moon, but we spent the bulk of our adult lives building our nest eggs; it’s time to let them work for us and enjoy retirement stress-free.

Learn how to get in, now.

The post Advancing Towards a Bulletproof Retirement appeared first on InvestorPlace.

January tends to be an eventful month for investors engaged in retirement planning. In addition to the usual New Year’s resolutions to save more and live more frugally, January is a great month to rebalance your portfolio and to make your annual IRA or Roth IRA contribution.

I recently touched on IRA contributions and portfolio rebalancing in “A Portfolio To-Do List for January.” Now, I’m going to take this retirement planning conversation to the next level: I’m going to give you a pair of steps to help you organize your investments across your retirement accounts to lower your overall tax bill and avoid some potential tax landmines.

Retirement Planning Step #1: Simplify, Simplify

If you’re like me (and most investors), your investment dollars are spread across several retirement accounts. You probably have a current 401k that you are contributing to, and perhaps a rollover IRA or two from previous jobs. You might also have a Roth IRA, and you probably have at least one taxable brokerage account that you own personally or jointly with your spouse.

My first recommendation is that you consolidate accounts. This won’t make any difference to your taxes, per se, but it will make your tax planning easier in that you will have fewer accounts to manage. The easier you make your tax planning, the more effective you will be.

So, if you have multiple legacy 401k plans from old jobs, either consolidate them into your current 401k plan, or better, roll them into an IRA. A rollover IRA will generally have better flexibility and a wider selection of investment options than a 401k, and it is a more flexible tool for estate planning (your heirs can generally postpone taxation longer with an IRA).

Retirement Planning Step #2: Organize Your Baskets

Once you have your accounts consolidated, it’s time to decide which investments go where.

I regularly see investors segment their investments by perceived risk, putting safer, more conservative investments in their IRA and putting riskier assets in their taxable accounts with the thinking that IRA dollars are more precious and should therefore be treated more carefully. While I understand this thinking, it’s very bad retirement planning.

With no further ado, here are the steps to building a properly tax-managed portfolio:

As you’d expect when talking about retirement planning across millions of Americans, every investor’s allocation is going to look a little different. But in practice, most will look something along the lines of this:

In your IRA accounts (including Roth IRAs):

Outside of your IRA:

One gray area is real estate investment trusts. Like MLPs and investment real estate, REIT payouts often benefit from tax deferral as “return of capital.” Yet any portion of the dividend that is not covered as return of capital (or a long-term capital gains distribution) is considered ordinary income and is taxed at your marginal tax rather than at the qualified dividend tax rate.

How do you address this in your portfolio? If you have room in your IRA, then that is where I would recommend including REITs. But I would stuff the IRA full of the other asset classes I listed first.

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. Check out his new premium service, Macro Trend Investor, which includes a free copy of his e-book, The New Megatrend Investor: The Ultimate Buy-and-Hold Strategy That Will Make You Rich.

The post How to Get Your Retirement Planning in Order appeared first on InvestorPlace.

Laddering reminds most people of a strategy often used when owning multiple CDs. Back when interest rates made them worthwhile, if you were trying to arrange cash flow, you could stagger the maturity dates of your CDs so you always had one maturing in the near term. Longer-term CDs had better rates, but they tied up your money; laddering mitigated that problem.

For example, if you had $500,000 to invest and a five-year CD was paying 6%, you could count on $30,000 in income each year. But what if you needed money before the maturity date? You could build a ladder, buying five $100,000 CDs, with one maturing each year. Sure, the CDs you initially bought in the short term would have slightly lower rates, but as each one matured, you could replace it with a five-year CD.

Once your ladder was complete, you could expect $30,000 in interest income, plus another $100,000 in liquidity each year. While constant cash flow was the main reason for doing this, laddering is a tool that has many more uses—most notably, inflation protection.

Inflation Protection

Suppose an investor bought a five-year, $100,000 CD paying 6% on January 1, 1977. The table below shows the inflation rates during the five-year period that followed.

Assuming this investor-taxpayer was in the 25% tax bracket, even if he’d reinvested his interest, he would have had a 25.9% net loss of buying power due to high inflation, as illustrated in the chart below.

By using a CD ladder, he could have mitigated some of his inflation risk. At the end of each year from 1977-1981, an investor who laddered could have rolled over a CD at the prevailing interest rate. By the end of 1981, he could have had five CDs paying rates much higher than 6%.

One note of caution: at one time, most CDs were non-callable, meaning that both the lender (us) and the bank were committed for whatever period the CD specified. Then banks started issuing callable CDs, meaning they could pay off their debt at any point during the period.

The same feature applies to bonds. If you lend money to someone and agree to callable terms, they have protection if interest rates go down. If interest rates rise, there’s a good chance you’re losing out because of inflation. Given a choice, I would take a slightly lower interest rate for a non-callable bond or CD.

The above chart tracks the interest rates for the 10-year Treasury. As you can see, overall interest rates have dropped. CDs and other fixed-income products have followed that same track. However, the trend has started to reverse, and we must protect ourselves.

Currently rates on CDs and top-quality bonds are still below inflation; they aren’t a good investment. Some 10- to 30-year high-risk bonds are paying 5-7%, but we do not recommend any of those products. Instead, we suggest laddering very short-term bonds if you have a need for fixed-income investments—in other words, creating a bond ladder. As interest rates continue to rise, you can then roll it out over three to five years so your yields keep pace with inflation and market interest rates.

Note that many of our subscribers have foreign currency CDs with EverBank, some of which have a 90-day period. Inflation protection is one of the key goals with those CDs. So if you’re investing in them, break your capital into thirds and ladder your CDs so you have one maturing every month.

Annuities: Another Use for Laddering

Many retirees also use annuities for guaranteed fixed income. We believe annuities have their place under certain circumstances. In general, however, they offer little protection in a high-inflation environment. While some have inflation riders, they come at a cost: lower initial monthly payments or some sort of cap on the increase.

Nevertheless, our frequent collaborator Stan the Annuity Man told me of a client who laddered his total $500,000 annuity purchase over five years as a means of increasing inflation protection. As an added bonus, he was one year older each time he bought the next $100,000 step in his ladder, which gave a boost to his monthly payments.

Laddering can help protect against high inflation, volatile interest rates, and cash-flow problems. It may mean you miss a little income in the short term, but in the long run it adds another layer of protection.

Annuities – with the additional protection afforded by laddering – make sense for many retired people and those approaching retirement age because they can provide a guaranteed income – which can make it a lot easier to sleep at night.

To help you determine whether an annuity is right for you, I put together an easy-to-follow report called The Annuity Guide.

This new report is jam-packed with invaluable information that will uncomplicate the world of annuities and is a must-read for anyone considering one.

Act now to get your copy of this important special report.

The post Laddering Adds Another Layer of Retirement Protection appeared first on InvestorPlace.

Imagine being early in retirement – just a few years – and suddenly realizing you’re going to run out of money. The income stream you’re counting on will slow to a trickle. It’s a gut-wrenching fear that no retiree wants to face.

Financial advisors can offer Monte Carlo simulations, rule-of-thumb estimates and back-of-the-envelope guesses on how long assets will last in retirement. And will then prudently remind their clients that “no one can predict the future.” One of the most quoted axioms in investment planning is the advice to withdraw no more than 4% a year from retirement assets, adjusted annually for inflation.

Having been proposed some 20 years ago by financial planner William Bengen — who sold his firm and retired just this past year — this asset draw-down rule is now quite long in the tooth.

Is it still valid advice?

The portfolio assumption

To be completely accurate, Bengen’s formula suggests a 4.5% initial withdrawal which is subsequently adjusted annually for inflation. He built the draw-down model to generate a 30-year retirement income.

The portfolio Bengen originally constructed to achieve this goal was basically a “balanced” portfolio, very nearly split between stocks and bonds. The 1994 allocation he proposed was 35% U.S. large-cap stocks, 18% U.S. small-cap stocks and 47% intermediate-term government bonds. He recommended the portfolio be rebalanced annually.

4 no more?

The 4% rule has served a generation of investors, and by Bengen’s own admission, in a 2012 column for Financial Advisor magazine, has stumbled at least a couple of times along the way. He says an investor retiring on January 1, 1969 was the only scenario examined in the 57 30-year periods spanning from 1926 to 1982 to exhaust their retirement assets at the end of a three-decade period. The combination of high inflation and low market returns during the period was a formidable stress-test for the drawdown formula. But the investor made it, though just barely.

A retiree headed for the house in January 1, 2000, just as the tech bubble burst, would also likely see a challenge in maintaining their assets with the 4% rule, though the 30-year sustainability target is still less than halfway completed.

Many analysts have recommended additional equity positions be infused into the portfolio, perhaps tweaking the stock mix to 60% or even a bit more, thereby lowering bond exposure in these times of prevailing low-interest rates. That might also allow investors to buy into higher yielding bonds down the road, as interest rates rise.

Alternatives to the 4% rule

Financial advisors can find plenty of alternatives to offer to anxious investors, including deferred income annuities, immediate fixed annuities and managed payout funds. But a dollar is a dollar. Investment assets simply can’t be supercharged for magically higher returns without taking on additional risk, and retirees are not anxious to see their portfolios depleted even faster with investment losses.

Of course, those that dispute the viability of the 4% rule can usually offer only one solution to investors. Spend less. Imagine the response that generally elicits. Telling a retired couple that they will have to live on 3% — or less – of their retirement assets will likely be met with some resistance.

Steve Vernon, a consulting research scholar at the Stanford Center on Longevity, recently told NerdWallet, in an article published in Investor Place (“How to Retire with a Six Figure Income”), his formula for determining a viable retirement income.

“My very general rule of thumb is to have savings equal to 25 times your desired amount of annual retirement income when you retire,” Vernon said. “So if you need $100,000 per year in retirement income, you’ll need $2.5 million in savings.”

And that may be more of a reality check to retirees than a 4% draw-down formula.

Read More From InvestorPlace:

Rethinking the 4% “Golden Rule”

The post Is it Time to Forget the 4% Retirement Rule? appeared first on InvestorPlace.

If your faith in humanity — and specifically, investors — was already dwindling, I’d imagine Tuesday was a pretty bad day for you.

In a case of mistaken identity, penny stock Nestor Inc. (NEST) ramped up some 1,900% on absolutely no news of its own … but on the news that Google (GOOG) announced a $3.2 billion buyout for a wholly different, privately held company called Nest Labs.

And it’s not the first time something like this has happened — back in October, investors ginned up bankrupt Tweeter Home Entertainment, then with the ticker TWTRQ, thinking it was Twitter, which had announced plans to go public (but hadn’t even actually gone public yet) under the ticker “TWTR.”

This is the rookiest of rookie mistakes. But apparently since it has become “a thing,” a primer on how to avoid this kind of confusion is in order.

So here’s how to not mistakenly buy a penny stock that isn’t the company you thought you were buying. And it only takes about a minute.

1. Go to google.com/finance

2. Start typing in the name of the company you’re interested in. Google will auto-fill as you go along, so you’ll see things such as “Nestle SA” and “Nestor, Inc.”

3. If you keep typing the full name correctly and it doesn’t show up (“Nest Labs” won’t), there’s a good chance that company doesn’t exist or is privately held. If it does show up but doesn’t have a ticker, there’s a good chance the company is privately held.

Now, Google Finance is fallible, so this isn’t a perfect solution. You also could do a regular search for “COMPANY NAME investor relations.” Publicly traded companies have investor relations pages on their websites. If the company’s website doesn’t have an investor relations page (Nest Labs doesn’t), the company probably is not publicly traded.

But, let’s say for argument’s sake that you went all willy nilly and typed “NEST” anyway, figuring that would do the trick, and you looked past the company name, too.

I’ve got a backup plan!

So, you’re on the ticker page for your supposed dream company. Scroll down and look at the company description.

In this example, please look for mentions of “thermostat” or “smoke alarm,” which are the core of what Nest Labs does (from Google Finance):

“Nestor, Inc. is a provider of automated traffic enforcement systems and services to state and local governments throughout the United States and Canada. The Company offers both a video-based automated red light enforcement system and a multi-lane, bi-directional scanning light detection and ranging, (LiDAR), speed enforcement system. It also offers a Video Detection and Ranging (ViDAR) speed detection and imaging system to complement its other products. It also offers CrossingGuard, a red light enforcement product; Poliscanspeed, one of its speed enforcement products, which uses technology developed by Vitronic GmbH. ViDAR uses average speed over distance calculations to detect and record evidence of speeding vehicles.”

Does this sound like the amazing company whose products so interested Google (and yourself) that you felt compelled to buy it ASAP, hoping to ride along for some extra buyout boost down the line?

No?

Then it’s a completely different company, and this isn’t the stock you’re looking for. And by taking literally just a minute of time to do the most basic of research, you prevented yourself from making a critical investing mistake.

And if you can’t do any of the above, contact me on Twitter — I’ve got a hot new tech startup that’s just dying for new funds.

Kyle Woodley is the Deputy Managing Editor of InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities. Follow him on Twitter at @IPKyleWoodley.

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Saving for retirement is an abstract exercise until you put real numbers into a real plan. Let’s construct a strategy for a $100,000 retirement income starting at age 65 and running until age 90. You may live longer or retire sooner, but for the purposes of simply starting somewhere in the planning process we’ll begin with that.

A comprehensive retirement scenario should consider inflation, market variances, withdrawal rates and the like—details best left to financial planners using advanced calculations. Some advisors use what is called a “Monte Carlo” simulation. Others love a good spreadsheet. We’re working with what is little more than a cocktail napkin, but the numbers will give you an idea of the work that needs to be done.

If you’re 20

We’ll assume you’ve already taken care of the three major roadblocks that keep some millennials from starting the race to retirement: credit card and student loan debt and a three- to six-month emergency fund. You will want to put your retirement savings in a tax-advantaged investment account, such as an IRA, 401(k) or SIMPLE. How to invest your savings is a topic for another time. What we want is a number—the big number required to fuel our life after work for some 25 years.

Steve Vernon is a consulting research scholar for the financial security division of the Stanford Center on Longevity. His book “Money for Life” discusses the pros and cons of various ways to generate retirement income. NerdWallet asked him what sort of a nest egg it would take to generate an annual retirement income of $100,000.

“My very general rule of thumb is to have savings equal to 25 times your desired amount of annual retirement income when you retire,” he says. “So if you need $100,000 per year in retirement income, you’ll need $2.5 million in savings. If the $100,000 income is in addition to Social Security or includes Social Security, that makes a difference.”

We’ll exclude Social Security in our plan, so the $2.5 million will be our initial starting point.

Zeroing in on the big number

To nail down the savings required for our six-figure retirement income, let’s consider another font of advice. BlackRock (BLK), the asset management company, offers a “Corrections During Critical Pre-Retirement Phase” (CoRI) calculator meant to show the amount an investor must save in order to generate a desired income throughout retirement.

Using the same parameters given to Vernon, the CoRI calculator gives a similar, if slightly lower, result: $2 million. That would require savings of about $9,500 per year from age 20, based on a projected annual return of 6%. That’s a doable number if you have a 401(k) at work; in fact, it’s well below the $17,500 maximum deferral allowed in 2014.

But it is about $800 every month. That’s a big number to someone in their 20s.

If you’re 40

In your peak earning years, it may take every bit of that 401(k) deferral limit to get you on track for a six-figure retirement. If from age 20 you’d saved $9,500 per year with a 6% return, you would already have some $350,000 in your retirement kitty. If not, it’s time to play catch-up, deploying every investment tool in your arsenal: annual rebalancing, tax-efficient mutual funds or exchange-traded funds and profit/loss tax harvesting. After age 50 you can use catch-up provisions to boost your contributions to your IRA or 401(k).

If you’re 60

It’s the race to the finish line, and you should be seeing a big balance on your investment statement. Somewhere in the neighborhood of $1.5 million. To reach our savings goal, a nest egg capable of generating 100 grand in retirement income each year, you may be selling off some assets to pad your account balance.

Reducing expenses during the five-year countdown to retirement can also help you cushion your after-work budget. Now is a good time to factor in your Social Security and Medicare benefits, too. You may even decide to continue working for a few more years, or generate a part-time income to make up for the gap.

The savings target of $2 million to $2.5 million required to generate a six-figure retirement income might seem impossible to achieve—but only until you have a plan in place and a firm commitment to succeed.

Written by Alex McAdams

The post How to Retire with a Six-Figure Income appeared first on InvestorPlace.

If you don’t have a 401(k) where you work, saving for retirement can seem practically impossible. Workers who have an employer-sponsored 401(k) can kick-in $17,500 (for 2014) every year into the plan.  Plus, if they have a really generous employer, a company match can bring total annual 401(k) contributions up to a whopping $52,000!  Even more with catch-up contributions for 50+ workers.

That’s a pretty strong retirement savings plan. But if your boss doesn’t offer a 401(k), there are some attractive alternatives. If you are self-employed, or work for a small company, here are four employee retirement plans worth considering.

Payroll deduction IRA

This is a simple solution that makes your IRA contributions easy and automatic. Rather than waiting until the end of the year — or tax time – to make your IRA contribution, your employer can set up an automatic payroll deduction. Just like a 401(k), that means you never see the money fall into your checking account, tempting you to spend it. It sweeps, clean and unseen, right into your IRA.

Your employer won’t have to file any paperwork with the IRS and you determine how much comes out of your check each payday. Of course, the annual maximum IRA contribution (all contribution limits listed in this article are for 2014) is $5,500 — unless you are 50 or over – then, you can pitch in a catch-up contribution of another $1,000.

SIMPLE IRA

Even better, is the SIMPLE IRA. Why is it better? Because you can save $12,000 a year, with catch-up contributions for workers 50+ adding another $2,500. And with this plan, your employer can make contributions, too – matching up to 3% of your deferrals or making 2% contributions of each eligible employee’s compensation, even if they don’t put in a dime. That really helps build a bigger nest egg.

Your boss will also like the fact that this retirement plan has minimal paperwork and there are no annual filing requirements for the employer. The financial provider will take care of that.

SIMPLE IRA 401(K)

This is a SIMPLE IRA plan with just a couple of twists: participants can take loans and hardship withdrawals from the plan, just like a 401(k) – but employers have to file an annual Form 5500.  Other than that, pretty much everything else remains the same: the employee deferral and employer match limits are unchanged.

SEP IRA

With a big-hearted employer, this plan can be a supercharged retirement wealth builder. But this is a “one-way” IRA. Only the employer contributes, and they don’t have to put in anything at all on your behalf from one year to the next.

Your employer may contribute up to 25% of your compensation or $52,000, whichever is less, to your SEP IRA. The company can max out the contribution one year, and then make no contribution the next.  There are no contribution mandates. The employer’s deposit to your SEP IRA is not a match to your contribution (because you, as an employee, can’t put money into the SEP) and it is totally discretionary. But every employee has to be treated the same — for example receiving a contribution based on the same percentage of pay — if the employer decides to make any contribution.

SEP IRAs are a favorite for the self-employed – it allows them to contribute to their own plan as an employer/employee and enjoy a higher savings rate than other retirement plans offer, though special contribution limits apply to the self-employed. Paperwork is minimal, and there are no annual reports typically filed by the employer.

The flexibility of these alternative retirement plans can fit into the compensation strategies of many small companies – or self-employed entrepreneurs.

Written by Bisi Ibrahim for NerdWallet

The post 4 Employee Retirement Plans Worth Considering appeared first on InvestorPlace.

Normally, I wouldn’t think twice about a 1-percent (actually 1.09%) drop in the Dow but given the front-page Money & Investing article in Monday’s Wall Street Journal about investors’ choice between selling ahead of a possible market decline, or hanging on in hopes of a rebound, I’m watching the ticks. Yes, that 179.11-point drop is the largest since September 20th’s 185.46-point drop, but so what?!

Market timing doesn’t work. So the notion that investors see the start to 2014 as “I don’t know what to do, I don’t know where to go” as one money manager says in the WSJ story, reflects poorly on how asset managers as a whole are doing in educating their clients. Let me repeat: Market timing doesn’t work. Market gains are random in their duration and in their occurrence.

“Sell in May and go away”? As the chart shows, the Dow was lower in June than at the end of May, about flat in August but after that … And that’s assuming the investor who sold didn’t panic back into the market after July’s big rise.

So, as you read the round-ups of today’s market action with the Dow falling 1.09%, or 179.11 points, remember that the only panic will be amongst those who are looking for reasons to take action—any action—rather than those with a clear investment plan and objective.

And by the way, the diversified, actively-managed portfolios in The Independent Adviser for Vanguard Investors were all showing gains, ranging from 0.3% to 0.7% through Friday’s close, compared to the 0.1% decline for Total Stock Market Index and 0.3% loss for 500 Index. Why? Active management works—but that’s another story for another day.

Senior Editor Dan Wiener and Editor/Research Director Jeffrey DeMaso publish The Independent Adviser for Vanguard Investors, a monthly newsletter that keeps abreast of recent developments at Vanguard, and the annual FFSA Independent Guide to the Vanguard Funds.

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As pensions have become all but extinct, the allure of annuities has grown ever stronger. These tax-deferred investments sold by insurance companies allow you to grow your nest egg and then, when you’re ready to retire, trigger an income that you can’t outlive. Who wouldn’t like that: your own personal pension?

While annuities can be an important part of your retirement savings strategy, there are many things to consider, including what kind, when, and how much?

Fixed annuities

This is the grandpa of annuities. A fixed annuity takes your contribution and the insurance company invests it. You have no say in how the money is managed. Once you trigger the income stream, called annuitization, a fixed dollar amount is paid to you. All annuities allow you to determine the payout option when you sign up. It can be for a single life (perhaps yours), or for joint lives (such as for as long as you live, and then for as long as your spouse lives). There are many variations in the payout options, your insurance agent can explain them all – hopefully with some visual aids.

Variable annuities

Even more popular are variable annuities, which allow you to choose from a number of investment options, including mutual funds, bond funds and money market accounts. Some VAs have a guaranteed minimum death benefit feature, which will set a “floor” for investment losses, or a minimum percentage growth rate.

Equity-indexed annuities

A newer spin on the variable annuity is the “equity-indexed annuity” which will track, to some degree, the performance of a stock index like the S&P 500, but also provide guaranteed minimum interest earnings.

It may sound like the ultimate investment deal, but these types of annuities are complicated, so much so that FINRA, the self-regulatory agency for the securities industry, issued an investor alert on them a few years back. Now, that doesn’t mean they’re bad – just hard to understand.

When to consider an annuity

Because annuities offer you an investment that can grow without the impact of taxes until withdrawals are made, they can be a good alternative to consider when other tax-deferred investments are maxed-out.

Say you’re putting the legally allowed limit into your 401(k) and you make a full contribution to your IRA every year, too. You also have a regular investment account with tax-efficient holdings, perhaps in municipal bonds or low-turnover exchange-traded funds. That’s the account you can tap when you really need to, prior to drawing on your tax-deferred investments. If you have all of that, but you’re still really flush and have more money to sock away, annuities might be a good choice.

The downside of annuities

And now the reality check.  As good as they sound, here are the drawbacks to annuities:

• They can be very expensive. Annuities are investments wrapped inside an insurance policy. There are fees for the insurance, charges built into the investments, and fees if you try to get out of the annuity (called surrender charges). Insurance agents and brokers can make a lot of money selling annuities, and that’s always a good reason to be wary.
• Annuities are hard to understand. You must read the paperwork before you sign. All of it. And it’s going to be very dry reading. Good advice: never buy anything you don’t completely understand. Hey, the Securities and Exchange Commission even says most financial advisors don’t understand what they’re selling when it comes to annuities.
• As an insurance product, the guarantees offered by annuities are only as strong as the financial capacity of the issuer. And insurance companies have also been known to withdraw benefits — even years after a contract has been issued.

Annuities are long-term investments with a lot of moving parts. If you are considering one, consult with a trusted advisor and ask plenty of questions.

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Mutual fund investors, take note: All successful teams have a strong “core” that acts as a foundation for success.

As the NFL season winds into the final stages of the playoffs, all the winning stories revolve around some basic team strengths that result in a competitive advantage on the playing field. The same goes for investor portfolios — they need strong, well-tested core holdings like large-cap mutual funds that give investors a competitive advantage, too.

For many investors, starting with a quality large-cap fund with a management advantage is a smart way to assemble a winning portfolio.

Here are three no-load large-cap mutual funds that might make your team better over time:

Mutual Fund #1: PrimeCap Odyssey Growth (POGRX)

PrimeCap Odyssey Growth (POGRX) is fine way to own growth stocks in large companies that represent long-term values. This team-managed fund utilizes a patient, low-turnover approach, with 10% annual turnover reflecting discipline that has worked well over time.

The $3.8 billion fund currently has 42% of its holdings positioned in the healthcare sector, with 27% of the portfolio in technology names. As an added bonus, the large-cap mutual fund also holds mid-cap names — to the tune of 28% of the fund. Recent top holdings include: Seattle Genetics (SGEN), Roche (RHHBY), Amgen (AMGN), Immunogen (IMGN) and Biogen (BIIB).

POGRX was up 39.3% last year, and has gained an annualized 21.41% over the past five years, placing it in the top 18% of its Morningstar peer group.

Fund expenses are just 0.65% annually, or $65 for every $10,000 invested. Minimum investment is a low $2,000.

Mutual Fund #2: T. Rowe Price Blue Chip Growth (TRBCX)

Manager Larry Puglia has been at the helm of T. Rowe Price Blue Chip Growth (TRBCX) since the fund commenced operation back in 1993. His guidance over time has rewarded investors and attracted assets of $21.9 billion to this large-cap growth mutual fund offering.

Consumer discretionary names are the top sector weighing at 28%, followed by information technology holdings at 23% of the portfolio. The fund is most heavily weighted in Amazon (AMZN), Biogen, Danaher (DHR), Gilead Sciences (GILD) and Google (GOOG).

A low-turnover approach on this fund has worked well over time, with the fund up an annualized 23.2% over the past five years, landing this fund in the top 7% of its Morningstar category. This performance has resulted in the recent nomination of Mr. Puglia for Morningstar’s Domestic Stock Fund Manager of the Year award.

As is typical with funds from T. Rowe Price, expenses are reasonable at 0.76%. 

Mutual Fund #3: Vanguard Dividend Growth (VDIGX)

When it comes to a blend of value and growth investing, Vanguard Dividend Growth (VDIGX) remains a compelling option as a core position. Manager Don Kilbride mixed stocks with “growth” characteristics alongside “value” names in an effective way.

The goal is a mutual fund with an emphasis on companies poised to raise dividend payments over time. The end result is a concentrated large company fund with 52 holdings that represent fundamentally sound businesses that tend to hold up relatively well when the market faces challenges. In 2008, this mutual fund lost 26% compared to a 37% decline for the S&P 500. In 2013, VDIGX gained a solid 31.5% to show it can prosper in an up market as well.

Assets have grown to $19.1 billion as this fund has captured investors’ attention over time. Over the past decade the fund has gained an annualized 8.8%, placing it in the top 6% of its Morningstar peer group.

In terms of sector weighting, healthcare accounts for 19% of the fund, with 15% of the portfolio dedicated to industrials. Recent top holdings include UPS (UPS), Microsoft (MSFT), McDonald’s (MCD), Walmart (WMT) and Merck (MRK).

In typical Vanguard fashion, this fund sports a low 0.29% expense ratio.

Bill Wysor is the editor of The Relevant Investor. As of this writing, he was long VHCOX and VDIGX.

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My wife Jo and I spent a weekend last fall at our daughter Holly’s house, enjoying time with our two young grandchildren, three-year-old Brock and eight-year-old Braidyn. With two young boys, the house can get pretty loud. Not only do they run and shout like all little boys, the noisy games they play on my Apple (AAPL) iPad also cause quite a racket. My wife grins when she sees me reach up and turn my hearing aids off… Ah! Relief from the noise.

When I was Braidyn’s age, my great-grandmother was still alive. She would sit on her front porch swing with her walker set to the side, and we would snap peas and shuck lima beans together. I remember her telling me her childhood memories about life after the Civil War. As I watched my young grandsons, I thought to myself: I wonder if my great-grandmother, who was born in 1860, or my grandmother, who was born 1890, ever looked at me and wondered what the world would be like when I got to their age.

As I watched Brock play games on my iPad, I was not only amazed, but I also struggled to imagine what his world would be like 70 years from now, when he will be the age I am today. Will he and his brother still be working? Will they be able to retire? How long can they expect to live?

When I mentioned to my daughter Holly how amazing it is to watch a three-year-old navigate an iPad, she reminded me of how I teased her when she was in grade school, saying that all the kids getting off the bus looked like midget paratroopers with their backpacks full of schoolbooks. She told me that middle-school students now receive iPads from the schools. All their books are downloaded, and they take all their tests on the iPads. She also lamented the fact that they are not learning how to write or communicate to her satisfaction.

Preparing for an Unknown World

And then, like any loving grandparent, my thoughts took a turn: How can I help prepare my grandchildren for a world I am unable to imagine? Once the answer hit me, it seemed alarmingly obvious.

While I cannot imagine every detail about the state of the world in 70 years, I am willing to offer one prediction. According to the Employee Benefit Research Institute (EBRI), only 3% of employees in the private sector have a pension program. Basically, the other 97% of folks in the private sector have to save for retirement through elective, tax-deferred savings accounts like IRAs and 401(k)s.

So, while government employees still have generous pensions, I predict that by the time Braidyn and Brock reach my age, a tax revolt will mean that those guaranteed-income pensions no longer exist. From that perspective, the world my great-grandmother lived in and the one my grandchildren will live in may someday have something in common.

One Big Generation Gap

If folks of my great-grandmother’s generation wanted to even think about retiring, they had to learn to live within their means and save their money. Even people with significant amounts of inherited wealth had to pace their spending if they didn’t want to die as paupers. There was simply no such thing as Social Security, nor anything like it, when they were growing up.

My grandmother lived through the Great Depression, and she never trusted banks – for good reason. As a youngster, I knew that what money she had was hidden in a coffee can in the pantry and under the underwear in her dresser drawer. It was many years before she could bring herself to put money in a bank account. We were not a wealthy family, but my grandmother had managed to save $20,000. That might not sound like much now, but at the time that was about the price of a house.

So, with these two women in mind, I reread the 2013 EBRI Confidence Survey, which offers up some real eye-openers:

• The percentage of workers confident about having enough money for a comfortable retirement is essentially unchanged from the record lows observed in 2011.
• One reason that retirement confidence has remained low may be that some workers are realizing just how much they may need to save each year in order to live comfortably during retirement. One-third think they need to save 20% or less of their total household income, one-fifth put that target at 20%-29%, and nearly one quarter report that they need to save 30% or more.

While the government offers some tax incentives to save through IRAs and 401(k)s, no one is forcing people to live within their means and save their money. In other words, saving for retirement is an option that more people should be taking. Social Security is not going to get the job done. The EBRI had some comments on that subject, too:

• One of the primary vehicles that workers use to save for retirement is an employer-sponsored retirement savings plan, such as a 401(k). Eighty-two percent of eligible workers (38% of all workers) say they participate in such a plan with their current employer, and another 8% of eligible workers report they have money in such a plan, although they are not currently contributing.
• Cost of living and day-to-day expenses head the list of reasons why workers do not contribute (or contribute more) to their employer’s plan, with 41% of eligible workers citing these factors.

The report went on to say that only 10% of those working are contributing the legal maximum to their plan. Excuse me! The government is giving us a tax-deferred opportunity to save money here. If you are in the 25% tax bracket, you would save $2,500 on taxes for every $10,000 you save, and only 10% of those eligible are taking full advantage of this?

When I read statistics like that, it really drives home what I hope my legacy for my grandchildren will be… lessons not likely to learned in school or off an iPad:

• The virtues of saving, allowing interest to compound, and accumulating wealth.
• The value of staying out of debt and living within your means.
• The timeworn truth that they cannot trust the government to keep its promises.
• The knowledge that the safest investment they can make is in themselves.

Our grandchildren need to learn how to accumulate capital and make it grow. Then, someday, that money will give them many more cool life choices, like not having to work, particularly in a job they may not like. These are lessons on values and discipline that are unlikely to be taught satisfactorily outside of the home. As grandparents and parents, we must continue to remind ourselves that teaching these lessons is our job.

I have a friend who, every year, gave his children a gift of common stock in a well-known US company. Each year he would sit down with them and explain how much they had earned in dividends, and how the stock had appreciated. His children are now in their 40s, and still own some of that stock today. This friend sure had the right idea.

I urge you to pass this article on to your children and grandchildren; they will thank you for it… eventually. For further learning on investing that could help the next generation, I urge you to read our special reports or, even better, to get a risk-free subscription to Money Forever.

In addition to our regular weekly and premium monthly issues, we’ve been hard at work producing a series of special reports on need-to-know retirement topics: financial advisors, reverse mortgages, income-producing stocks and low-fee ETFs, to name a few. You can download each of these timely special reports individually; or, if you really want to kick-start your financial education, you can begin your Money Forever premium subscription now and receive access to all of our special reports, our current issue, and the Money Forever archives.

The post 4 Retirement Lessons That Cannot Be Learned from an iPad appeared first on InvestorPlace.

The stock market is racing toward the close of its best year in a decade, with the S&P 500 up about 27% in the past 12 months.

Of course, many Americans haven’t shared in this big run for the stock market.

For some, it’s a matter of means. Median wages in the U.S. have fallen to the lowest level since 1998, and it’s hard enough for a typical family to get by, let alone worry about investing.

For others, it’s a matter of inexperience. Jumping into the market even in favorable market environments like this one still involves risk, and it’s hard to know where to start.

My advice? Start small — and start simple.

Consider that if you invest $1,000 this year, then another $1,000 each year afterwards, in 25 years you can grow that savings to a $50,000 nest egg with a modest 5% return. At a 10% return, your gains jump to $108,000.

And if you can manage to scrape together $5,000 a year and invest? You’ll wind up with $250,000 in 25 years at 5% and $540,000 at a 10% return!

That’s the power of compound interest!

So even if you think the amount you save isn’t all that large, if you save consistently and over the long term, that cash can add up in a hurry.

If you’re wondering how to get into this market and grow you’re money, here are five easy ways to invest as little as $1,000 now and start down the path to retirement success:

#1: Increase Your 401k Contribution

You’ll barely miss the cash if you get paid every two weeks; your investment adds up to a mere $38.50 per pay period. It’s a sneaky but effective way to get ahead!

There are secondary benefits to this approach, too:

• Your pretax income is reduced by this contribution, which will help on your tax returns.
• If you’re already in your employer’s 401k, there’s no complication of an extra investing account.
• Investing across the year rather than all at once lets you “average in” your investment over time to reduce risk and ensure you’re not buying at a bad time.
• If you’re not already getting the full “match” amount from employer’s 401k plan — where they pay in more when you pay in more — you’re actually giving yourself a raise of sorts!

The one drawback is that 401k funds are locked up until you’re age 59 1/2. While there are exceptions that allow you to get “hardship” withdrawals, most actions to access your 401k funds will result in high fees and taxes. So make sure this is money you can part with before you ramp up your contribution.

Also, your money only grows based on the investment options in your 401k. If you decide to park that $1,000 in a money market fund with 0.01% interest … well, it will never grow. Similarly, if you make an aggressive bet on small companies or international investments, your 401k could actually lose value if things don’t pan out.

So talk to your HR representative about the options in your plan and figure out which strategy is best for your goals.

#2: Buy an Index Fund

So what if you don’t have the luxury of a 401k plan? Thankfully, you still have some fairly easy options to get started with your $1,000 investment.

Opening up an IRA or brokerage account is as simple as searching the web for “online stock brokers” and picking the best service for you — commonly the broker that offers the smallest fees, since you won’t be doing any kind of complex trading. You also can visit your local investment adviser if you prefer the brick-and-mortar approach, though that might cost a bit in fees.

Once your account is open, your best bet is to take that $1,000 and put it in what’s called an “index fund” — that is, an investment that faithfully follows a stock market index like the S&P 500 Index or the Nasdaq.

Not only are these well-diversified investments, since these funds are comprised of dozens or even hundreds of big-name stocks, but they are super cheap because you’re not paying for “active” management that involves high-priced analysts and expensive research.

Popular (and cheap) index funds come in all kinds of flavors, from the SPDR S&P 500 ETF (SPY) that tracks the S&P 500 to the iShares Russell 2000 ETF (IWM) that follows the Russell 2000 index of smaller companies, and even international indices if you want exotic investments.

Oh, and like a 401k contribution, there also are tax benefits to contributions depending on your income.

#3: Buy a Bedrock Stock

It’s always best to start with a strong foundation for investing with diversified index funds. But if you know enough about the stock market to be dangerous, or if you already have a diversified 401k and are looking to supplement your retirement funds with something else, consider buying stocks directly in that brokerage account we just talked about.

There’s more risk in buying individual stocks, but there’s also the shot at greater rewards — and $1,000 is enough to tap into 99% of the investment options on Wall Street.

Now, the vast majority of brokerage accounts are going to charge you for every transaction … so buying a lot of stocks or trading often can eat into profits. Consider that if you pay $7.50 each transaction, buying and selling 10 stocks in a year will cost you $150 — or 15% of your entire $1,000 investment!

You’d need to pick significant winners each time just to break even … so a better plan is to pick a quality “set it and forget it” stock that you can rely on for long-term growth and a decent payout via dividends. These are most commonly large companies with stable operations, such as Coca-Cola (KO) or Johnson & Johnson (JNJ).

No matter which stock you pick, it should have a long-term flavor and a decent dividend that allows you to share in the profits of your favorite stock. For instance, Coca-Cola currently pays back 2.8% of what you invest each year in dividends alone! That means even if your stock itself goes nowhere, you’re still getting some kind of return on your investment over time.

#4: Pay Down Your Debt

This is a great choice for those with student loans, a mortgage or any long-term borrowing under your belt.

Paying down even a small amount of your loan early can drastically reduce what you’ll be paying down the road. And in the case of credit card debts and other short-term loans with higher rates, the payoff is even bigger and more immediate.

That’s to say nothing of the benefits you may reap through an increased credit score — and the added bonus of one less bill to pay each month.

If you had a hard time scraping together $1,000 because of your debt load, it might not be very satisfying to simply use that right away to pay more bills … but remember that the lower your bills next month, the more money goes back into your pocket.

And if you’re smart, that extra cash will pay down even more debt — or if your debt is manageable, then that cash will give you the platform to start investing.

#5: Invest in Yourself

Sometimes the best investment you can make is in yourself, whether it be spending to start a new business or paying for job retraining.

This is a touchy-feely notion, and one that might be very risky to Americans who are simply concerned with getting by and keeping their job after the Great Recession. But the bottom line is that one of the most powerful economic tools you have at your disposal is your ability to work — particularly during your peak earnings years.

If you have a knack for writing, just a few hundred bucks can get you a domain name and several months of server space for a website while you try to turn that talent into a business. If you have a knack for home improvement, take out a few ads and buy some tools, then see what happens. If you want to do wedding photography, buy $1,000 worth of gear.

The downside, of course, is that these avenues are most profitable if you don’t consider your time to be very valuable, so folks with busy schedules may find them downright impossible. And, of course, there’s the risk that you may fail.

But aside from the satisfaction of being your own boss — even on a part-time or occasional basis — you might find this is the most profitable long-term investment you’ve ever made. That new camera could result in tens of thousands of dollars from photo gigs over the next few years if things go well!

If you build a successful business from scratch, nobody is there standing between you and the profits. And as the economy begins to improve broadly, now may be the perfect time to take a chance and invest in yourself.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not own a position in any of the stocks named here. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.

The post 5 Simple Ways to Invest $1,000 Now appeared first on InvestorPlace.

The hardest part of trying to invest is simply figuring out a good place to start. Some companies you might be familiar with — Subway restaurant, for instance, or the candy maker Mars — might not even be publicly traded and don’t have stock for you to buy. Other brands you are familiar with are so entangled in subsidiaries it can get confusing.

The good news is that a quick search in Google or Wikipedia will let you know the stock name and ticker symbol behind a given company or brand if you have some ideas of your own.

Do you have a favorite gadget, like your Apple Inc. (AAPL) iPad or Amazon (AMZN) Kindle, that you think everyone is going to own? Do you have a favorite restaurant or clothing store that always is crowded? Did you read about an innovative new medical product that you think has potential? Then find out if it’s an “investable” idea by tracking down the company behind those products or services.

Click to Enlarge

No Idea? No Problem!

If you’re not confident enough in your own observations just yet, don’t worry. There’s a very engaged universe of investors just like you who offer free commentary on the Internet. Some of these guys will be trying to sell something, like a money management service, and many will make bad calls. But their musings are a great place to start — as long as you take what you read with a grain of salt, and promise to go through the next nine items on this checklist!

Here’s how I see it: Rather than see online stock commentary as a magical treasure map, you should view the financial media as a far less glamorous metal detector. It’s not as precise as “X marks the spot,” but when you hear a lot of beeping, it’s worth digging around. Sometimes you’re just stuck with a tin can — but you never know what you might find.

The rest of this book will teach you how to dig and sift the sand. But these five sites are a great place to start because they offer plenty of opinions and commentary beyond your typical grind of data-driven news items:

InvestorPlace.com: You are here — and this is my site. I designed it to be light on financial news and heavy on opinion. InvestorPlace.com specializes in “actionable” stories, meant to give investors trading ideas and not just information to chew over. The site aims to talk about what the headlines mean, not just regurgitate Reuters or Associated Press headlines you can find just about everywhere these days. (Check out my latest stock picks here)

Fool.com: The Motley Fool is one of the oldest media outlets for stock picks. Investing commentary sometimes requires you to register your email address to keep reading, but the ideas still are free and valuable.

MarketWatch.com/trading-deck: MarketWatch has long been part of the financial news business. But in 2011, it launched a dedicated section just for trading ideas. The “Trading Deck” also gives you actionable ideas beyond the typical news feed.

SeekingAlpha.com: Seeking Alpha has perhaps the largest group of investors and contributors out there, offering tons of trading ideas. It’s social, it’s easy to search and it has decent ideas. The bad news is that contributors get paid per click, so sometimes good headlines can lead you to disappointing articles … but that’s true for 99% of websites, financial or otherwise.

TheStreet: There’s a lot of news here, but also some good commentary from well-known advisors like stock personality Jim Cramer. Also part of TheStreet family of websites is Stockpickr.com, which focuses more on trading ideas and stock picks.

There are a host of other sites out there, too, so this is not a complete list. But skim these sites for starters — daily if you can, since the market moves fast. It’s also worthwhile to keep an investing mind-set as you follow your favorite “hard news” outlet. For instance, did you see that report saying oil prices are going up? Well, maybe it’s worth taking a look at oil stocks!

Always keep in mind my metal detector analogy in this first step. The goal is not to find a clear path to buried treasure, but just to follow the beeps and see where they lead us. We have plenty of digging ahead of us — but it’s crucial that we’re not just picking a spot at random to start our research.

Like what you see? Sign up for our Young Investors e-letter and get practical investing advice delivered to your inbox every week!

Or, download the complete series of Jeff’s educational articles for just 99 cents via his e-book “The Frugal Investor’s Guide to Finding Great Stocks: 11 Free Resources to Help Beginners Identify Fantastic Investments.”

You can also buy a printed copy of “The Frugal Investor’s Guide” for $15 via online publisher Lulu.

The post How to Invest – FREE Ways to Find Investment Ideas appeared first on InvestorPlace.

You ever notice the runners crossing the finish line after a marathon? Hands on their hips, red-faced and gasping for air. Or, hunched over with their hands on their knees, kind of wobbling a bit.

That’s how a lot of 50+ workers are feeling these days when it comes to the race to retirement. Except, you haven’t crossed the finish line – you can see it, but aren’t quite sure you’ll make it, right? It’s OK. Take a few deep breaths and pace yourself. If you’re a bit behind in your retirement savings and feel like you’re getting lapped, we’re going to show you some shortcuts to get you back on track.

Transition to your retirement budget now

Consider transitioning your living expenses to retirement mode now. You know you’ll have to live on less when you quit working so it’s a good idea to start now while you can still choose your budget battles.

Think you might want to live on the lake in retirement? Consider downsizing the big family house that you’ve been rattling around in and find that lakeside cabin fixer-upper. If the commute is still manageable for your current job, you could sell your big house, buy the retirement hideaway and invest the remaining equity from the sale.

Reducing debt is a good idea, too. That 18% APR credit card interest you’re paying is dragging down your financial resources. Dedicate yourself to paying off the credit cards, and then put them in a drawer and let them gather dust for a while. Don’t close the accounts, because that could ding your credit score. Once those balances are erased, you can plow that extra cash into your retirement savings.

Still driving two vehicles? Maybe you can get by with just one. Sell the extra vehicle and all the money you’ll save on payments, insurance, gas and maintenance can go to your nest egg. Premium cable television, the landline you never use, membership dues you pay for services long forgotten: every bit adds up.

If you want to get serious about saving for retirement and living a worry-free life-after-work, reduce your living expenses by half. Yes, half.

Kick-in the catch-up contributions

If you’re 50 or over you can make up for a bit of lost time with catch-up contributions to your tax-deferred retirement accounts.

That means you can put in your regular maximum deferral contribution of $17,500 (in 2013 and 2014) to your 401(k), and then kick-in an additional $5,500. Traditional and Roth IRA catch-up contributions are limited to $1000 through 2014 while other retirement plans like SIMPLEs, SEPs and 403(b) plans have their own catch-up restrictions. The IRS has all of the details available online — or talk it over with a trusted advisor.

Start a new investment account

If you’ve really committed to a super-charged retirement savings plan, you’ll find that you can quickly reach the limit of what can be set aside in your tax-deferred accounts, such as your 401(k) or IRA. Now you need to dedicate funds to a taxable investment account. If you haven’t already started an emergency savings account, this new brokerage account can serve double duty for a while.

That means you’ll first stash cash, or cash-equivalent investments, into the account amounting to six months income. Once that life-raft is inflated you can invest the rest in a suitable mixture of equity and fixed-income investments.

Now, set-up an automatic draft from your current wages to feed this shiny new account. Have each month’s deposit dedicated to buy-in equally into your mix of investments.

Generate a side income

Finally, you may want to investigate starting a small business or income-producing endeavor on the side. Moonlighting can be fun, and it might be something you’ll grow now to continue during retirement, as an income supplement to your retirement assets.

Follow your passions. Love arts and crafts? Start an Etsy account and sell your wares online. Or combine your hobby with a bit of travel and sell your goods at local arts fairs and trade shows. Online sales can be extremely lucrative, especially if dedicated to niche products. Rather than compete with Wal-Mart (WMT) and Best Buy (BBY), consider selling products of local and regional interest, or items related to a favorite past time that you are totally enamored with.

Virtually any hobby can be monetized: photography, writing, sewing – even fishing!  Plow any profits you generate into your investment and retirement accounts.

Moonlighting can also mean finding a second job. Again, finding something that you may want to continue doing during retirement is best.

Committing to your retirement lifestyle – prior to retirement – can help you define what you want the rest, and the best, of your life to be.

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The post 4 Ways to Catch Up on Retirement Savings in Your 50s appeared first on InvestorPlace.

I’m not at all convinced that market volatility will somehow remain at the historic low levels that currently paint the investing landscape. No way — not with all the high-frequency trading being heavily influenced by a sharp rise in the use of futures, options and widespread application of margin by funds.

Now is a good time to start thinking about some simple portfolio management strategies. If you’re invested in the market, you’ll want to protect your investments following a major run-up, when market risk is inherently higher.

The explosion of exchange-traded funds, or ETFs, has made it possible to custom-tailor almost any investment theme by investing in managed baskets of stocks targeted at specific sectors or indices. You can buy everything from commodities, currencies, real estate, bonds and almost every kind of index in the form of publicly traded ETFs.

I like using ETFs that are linked to the stock market as a counter lever to holdings in my model portfolio. After weeks of intense buying, the market enjoyed a huge 9.5% pop off the October low and now runs the risk of some form of post-New Year correction going into the next budget battle and debt-ceiling deadline set for Jan. 31.

Congress looks like it’s moving toward a deal, but any bumps along the way could very likely trigger a reason to sell as we sit and wait for an all-clear sign from Capitol Hill. I hope I’m wrong, but there is a well-worn, proven pattern to how Congress operates in the war of wills and pending deadlines. It’s for this reason that I want to introduce portfolio management hedging techniques that I expect to act upon soon when the time is right.

The fortunes of the high-income stocks I recommend are closely tied to the broader performance of the stock market, so my focus for protecting capital will be on using ultra-short ETFs on the S&P 500 and the Nasdaq. Here is a sample list of ETFs that could be used to hedge a fully invested portfolio of long positions:

• ProShares UltraShort Dow30 (DXD)
• ProShares UltraShort S&P 500 (SDS)
• ProShares UltraShort QQQ (QID)
• ProShares UltraShort Russell 2000 (TWM)

The list above is just a smattering of what’s in the universe of ETFs but among the most liquid and widely used protective ETFs are the PowerShares UltraShort S&P 500 (SDS) and the PowerShares UltraShort QQQ (QID). An ultra-short index ETF represents a two-for-one form of downside leverage against a falling market.

For example, if the S&P 500 drops 1%, the value of the ultra-short S&P 500 ETF share increases by 2%. The same holds true for the QID, which is tied to the Nasdaq. For every 1% the ProShares QQQ Trust (QQQ) falls, shares of the QID will increase in value by 2%. For a portfolio hedge, this is about as simple as it can get.

From a historical standpoint, the kind of move off the bottom that the market has enjoyed and looks to continue through the first week of January is usually followed by a 50% retracement of that sensational rally. Before this rally phase is complete, the S&P 500 could gain 15%-20% from its October low. Giving back half that move in a sudden pullback would not be out of the question and would actually be constructive, but at the same time would feel very painful coming in at these levels or higher.

If we are going to be entering a period of Fed tapering in which wide swings in major market indexes, interest rates, commodity prices, day rates and currency relationships become daily events, then I want to add some useful portfolio management tools that can have an immediate impact on mitigating future risk when the signs of a short-term market top start to materialize. The wind is still to the back of the bulls, but it’s best to hedge into strength.

Plus, when the market is being driven by extreme levels of greed and performance pressure, it helps a great deal to use that manic bullishness to pay as little as possible for portfolio insurance.

It is my contention that the market may price in a good dose of future good news right after the initial flood of fresh funds flow into the market the first week of January, when rising expectations of fourth-quarter earnings will be building into the reporting period. I think it best to begin planning portfolio management tactics to mitigate the potential value gyrations in our holdings if there is no meaningful progress on the debt ceiling during the next three weeks.

It’s easy to be bullish and hard to be cautious, but downside risk remains until there is a clear deal on government spending and risk surrounding any notion of default is eliminated from what will surely be another round of hotly contested budget debate. Portfolio management in the form of inverse ETFs can go a long way in protecting your investments.

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Bryan Perry is the editor of Cash Machine, a newsletter focused on high-yield income investing with the goal of maintaining a blended total yield of 10% across two portfolios. Bryan is also the editor of Extreme Income,which uses the power of historically cheap money to create a leveraged “baby hedge fund” strategy that paves the way to massive profits and 4x greater income.

The post The Key to Portfolio Management: Hedging Your Investments appeared first on InvestorPlace.

Doctors cannot cure a patient in severe pain by pumping him full of painkillers; they need to accurately diagnose the root cause of the pain before treatment. Without an accurate diagnosis, it is nearly impossible to fix a problem, medical or otherwise.

And the stakes are high: a misdiagnosis can trigger treatment that may compound a problem instead of making it better. That’s exactly what happened with the bank bailout five years back: the “cure” set in motion new challenges for seniors and savers.

Forget all the technical mumbo-jumbo. Here are the need-to-know facts: for generations seniors and savers could invest the bulk of their retirement nest egg in safe, interest-bearing CDs, government bonds, and utility bonds. That, coupled with Social Security, allowed for a comfortable retirement. Those 6-7% yields are gone, as we all know.

Was the 2008 financial crisis properly diagnosed and treated? 

That depends on whom you ask. Most Americans, however, don’t think so. According to Pew Research, “Five out of eight Americans surveyed (63%) earlier this month believe the US financial system is no more secure in 2013 than it was before the economic crisis of 2008.”

In September, Sheraz Mian broke down the 2Q earnings reports of the S&P 500 companies in Zacks Earning Trends:

“Yes, the total earnings tally reached a new quarterly record in Q2 and the rest of the aggregate metrics like growth rates and beat ratios look respectable enough. But all of that was solely due to one sector only: Finance. … Finance results have been very strong, with total earnings for the companies that have reported results up an impressive +30% on +8.5% higher revenues. Excluding Finance, total earnings for the remainder of S&P 500 companies that have reported would be down -2.9% from the year-earlier period.”

Too-big-to-fail banks are certainly succeeding. The report continued:

“Earnings growth was particularly strong at the large national and regional banks, with total earnings at the Major Banks industry, which includes 15 banks like J.P. Morgan and Bank of America.”

Pew Research also reported that 33% of people it surveyed thought things were more secure in 2013 than they were in 2008. Those people must work in the financial sector.

The problem continues to grow. And it’s a problem that affects us all. While the Federal Reserve holds down interest rates and floods the banking system with money, the retirement dreams of several generations are being destroyed.

As interest rates tumbled, investors ran to bonds, utilities, dividend-paying stocks, and master limited partnerships (MLPs), which offer better yields. As one subscriber mentioned to our team, “at least they have a better chance of keeping up with inflation.”

Sure enough, the stock market came back to new, all-time highs. So now both the banks and Wall Street are happy. But where does that leave us?

In the middle of 2013, Mr. Bernanke uttered the word “taper,” sending the stock market into a tizzy and gold prices soaring. This was a preview of things to come. Many of the investments I mentioned above took a dive, as they have become interest-rate sensitive. Take utility stocks, for example. In September, I highlighted how these stocks took an immediate 11.2% tumble. Since then, although the Fed has tried to calm the markets, there is still real cause for concern.

I’m worried, but I refuse to throw down my cards. Doug Casey recently reminded us of one of his basic principles: “My preferred investment style is to look for opportunities where no one else is looking.” If we invest along with the crowd, we can expect to get caught in the rushing tide, regardless of its direction.

While the Federal Reserve has been trying to keep things under control, don’t be lulled to sleep. Interest rates may have turned the corner, and it is time to review your portfolio with that in mind.

Here are five questions to ask about your current investments.

• Is this investment likely to get caught in the outgoing tide if the Fed gets serious about tapering?
• How has this company performed in other down markets?
• Can the company’s fundamental business thrive in both good and bad economic times?
• Is the dividend safe?
• Should the market turn down rapidly, what should you expect from this company?

At Money Forever, we put trailing stop losses on our portfolio picks for a darn good reason: We cannot afford large losses with our retirement money.

Invest where no one else is looking. All too often these are called “out of favor” investments. That implies there is something wrong with them, and people avoid them accordingly. Seventy-three years on the planet, however, tells me something different. There are many attractive people at every high school prom, but very few are crowned king or queen. The same principle applies to investments.

The real challenge is finding those attractive opportunities that have been overlooked by the majority of investors. Where should we look? Can we do the research ourselves? If we want to take on that challenge, do we even have the time and skill set?

Or could we turn to our stockbrokers? It’s not likely. Years ago, my broker and I wrote to her company’s research department in New York, asking for advice in a particular market sector. The “research department” sent a summary similar to what I now get from my online broker. Our request was probably handled in less than two minutes. Their analysis: buy their recommendation because 8 of 10 companies rate it as a “strong buy.”

No kidding! That was where everyone else was looking. It was the last investment I wanted to make.

The good news is: we have other options. Folks like Doug Casey saw a great void in the retail market, and investment newsletters began to flourish.

Fast forward to 2013… I asked our team of analysts for tips on looking where no one else was. We started our search with a basic premise: maximizing income and appreciation while avoiding catastrophic losses.

With modern tools, an analyst can put in a few variables and get a list of candidates without breaking a sweat. That works well until everyone picks the same investments. Real research takes a lot more time and effort.

With that said, here are four tips for finding hidden gems.

It has been five years since interest rates tumbled. We don’t need any more proof to know the political class is either unwilling or unable to fix the problem. We can’t sit around and wait for the good old days to come back, nor can we afford to just follow the crowd. We have to deal with our problem to have enough for retirement and make it last.

Sometimes laughing at yourself can be humbling; it can also be a great learning experience. I recently had an exchange with one of our regular readers; he wanted to know if our premium subscription was worth the money. With my marketing background, I have always believed that you should put the value before the cost.

We discussed how our team is educating readers on subjects they are unlikely to read about elsewhere. And the Money Forever portfolio is doing quite well, to boot. Some subscribers have mentioned that their gains have paid for our services for many years to come. I told this particular reader that the current promotional price is $8.25/month, and if we can’t bring more value than that to our subscribers, we wouldn’t be in business. His response was humbling: “Gee, I didn’t know that was the price. Had I known that, I would have signed on weeks ago.”

So much for my marketing expertise!

On a trip to Vermont, we cut a short video outlining what we’re all about and how we fit in to the big picture—your big picture. I urge readers to take a few moments to watch. The best part is this: You can sign up for the subscription, download my book, and all our special reports and back issues. If, after you read through them, you decide this is not for you, you can cancel within 90 days and receive 100% of your money back. And you can keep the material as our thank-you for looking us over.

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