The Power Of Compound Interest

Posted on May 31, 2008
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A compounding investment is one where the interest you are credited with is poured back into the principal investment. So for example, if you invest a thousand dollars at 5% interest, at the end of the first year you will still have your one thousand dollar principal, plus fifty dollars interest earned, for a total investment of $1050.

By rolling each of your allocated interest income returns back into your original investment, in other words allowing it to accumulate or compound, you produce a very powerful effect over time.

The average working life is forty years. If a young person 20yrs of age decides to have just $100 per month of their income automatically invested each month until age 60, they would invest a total of $48,000 (($100 x 12mths) x 40yrs). However… if they had it invested at 10% return and allowed their interest income to accumulate within their investment fund, they would end up with a nest-egg over ten times the size of their total investment amount and would reap a payout of over $584,000 by the time they reach age 60!

The period of time that your investment has to accumulate, and the interest rate at which it is earning income, are critical factors in the multiplication process. Further, if you use leverage by investing in real estate, you can really magnify your returns over time.

Typically, one can purchase residential real estate for a 20% down payment. If you follow Hans Jakobi’s Real Estate Secrets teachings, you can even do it for no money down. But assuming 20% down, if you invest forty thousand dollars to purchase a $200K property, when that property appreciates 5% it will be worth $210K. That $10K is a 25% return on your forty thousand dollars invested. Once the property is worth $300K and it increases another 5%, it will be worth $315K. You will then have generated a 37.5% return that year on your initial forty thousand dollars invested.

It is definitely worthwhile getting educated about financial matters because if you apply sound knowledge to your investments, you can dramatically alter your lifestyle and retire years early.

One excellent source of financial education is Success University. Their curriculum includes dedicated sections for both finance and real estate from world experts such as Jay Abraham, Carol Tuttle, and Greg Reid amongst many others. You can check out the Success University curriculum by accessing their two dollar 14 Day Trial membership via the peeling web page graphic in the top right hand corner of the page I linked to in the above paragraph.

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Where To Put Your Investment Dollars

Posted on April 16, 2008
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One particular piece of mutual fund advice usually heard from personal money and financial managers is to avoid penny stocks. These tend to be small cap companies that were delisted from major exchanges for a host of undesirable reasons, and their shares, which trade from under $5 to fractions of a penny on the so-called bulletin board exchanges, tend to be illiquid.

This can offer a huge problem for an investor who can buy literally millions of shares for a few thousand dollars, who is suddenly unable to liquidate the position. Most or all of one’s money can be lost on such an exchange due to a low number of participants or illiquid conditions.

Bond investing is a staple of the diversified portfolio, and as with other investment vehicles sought by mutual fund money managers, there are a lot of choices. There are low yield bonds, often issued by government entities, that offer steady returns for little risk. There are higher risk, and thus higher yield “junk bonds” issued by struggling companies or financially uncertain institutions. All of these are available in the long and short term and are priced according to the mechanics of the debt market.

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Financial Planning Tips - The 401k Retirement Plan

Posted on February 8, 2008
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The article below is from a series of articles and videos about financial planning …

The 401k retirement plan has taken the corporate world by storm since 1979, primarily because of it’s affordability to employers. While pensions often sucked companies dry, 401k providers charge a small monthly administration fee (usually around $100) and this will give employers and employees many different investment options. After signing a contract, you specify a percentage of your income to be deducted and invested into a special account where it can gain interest over the years and profit with the economy. Sometimes employers agree to match your contributions and your final pay-out could be twice as much as you’ve invested by the time you receive it.

What makes the 401k retirement plan different from other pension benefits is its flexibility and the amount of control you have over it. Some options include: What percentage or flat monthly rate do you want to contribute? Also, where do you want to invest? Your employer will provide you with a list and you can choose between stocks, mutual funds, bonds, money market investments, company stock or any combination of the aforementioned. You may also select a financial adviser to make the choice for you. As with anything in life, there are risks. If your employer goes bankrupt, you may lose a huge portion of your retirement savings, especially if heavily invested in company stocks. You may decide to participate more actively in where your money gets invested because some annuities may be poor performers, while others are winners. Many financial planners will advise you to diversify where your money goes so you don’t “put all your eggs into one basket.”

Check with your company to see which 401k retirement plan you’re under. Either defined benefit or defined contribution. Under a defined benefit plan, your employer controls the final pay-outs, which don’t fluctuate as financial markets do, but instead are based upon your salary history and years employed. With a defined contribution plan, you’ll have more control over how much you contribute and where it’s invested, but less guarantee on how much you get back.

When you leave a company, generally your 401k retirement plan remains active for the rest of your life. If you feel uncomfortable entrusting your savings to the care of your ex-employer, or if your company charges a fee for looking after your account, you may rollover 401 k benefits into an Individual Retirement Account. Look into the rollover 401 k if you’re switching employers too. You’re allowed to draw on your 401k retirement plan after age 59 1/2 and you will then pay taxes on what you take out. Most plans have a minimum distribution requirement you must abide by, meaning that once you reach age 70 1/2, you’ll have to start to withdraw some of your money, unless of course, you’re still working. The only plan that is exempt from the minimum distribution rules is the Roth IRA. You may decide to take a crash course in investing and take a more active role to ensure maximum returns.

For more information on 401k retirement plan options, consult with your employer, local banker or advisers at Fidelity Financial. Remember, the earlier you plan for your retirement, the better you will ensure a secure future.

For more tips and videos on financial matters, visit: Financial Management

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Phased Retirement - Why It’s The Smart Retirees Choice

Posted on December 17, 2007
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One of the drawbacks with retirement is not having enough capital to sustain you in your golden years.

Phased retirement has emerged as a real answer to this ongoing problem especially for people with hard to replace skills in the work force. By hard to replace skills, we mean having developed an expertise in a particular area of your profession which an employer will find difficult to replace in a hurry.

Well, if your expertise is going to be missed, then the chances you’ll be asked to stay on are strong.

Why Would You Want To Work In Retirement?

One of the biggest issues for American retirees is the on going cost of maintaining a lifestyle they’ve become accustomed to. When the income stops, so do some of the perks. This is especially so for those who have been careless with their retirement planning.

Healthcare costs are just about the biggest issue for people in their retirement years, as health care is usually a necessity later in life.

Phased retirement is basically an arrangement between you and your employer which will see you able to work well past retirement age. However, it more than likely won’t be in a full time capacity but is seen as a win-win situation for both you and your employer.

At the moment, there doesn’t seem to be anything set in concrete about phased retirement which is the official guide so to speak.

Phased retirement practices are a little diverse at the present time and while some industries are unofficially practicing it, the real crunch will come when the baby boomer generation starts to exit the work force from around 2010 and beyond.

Self employed people can also look into PR arrangements. If you have a business and plan to sell it at retirement age why not consider staying on in a part time capacity if an arrangement can be struck with the new owner.

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