Below is my “top seven” list of things you can do to set yourself on a more prosperous track this year. But please, pretty please, don’t just
stuff these items into a drawer.
Instead, be realistic. Pick a couple of actions
from the list (I suggest no more than three). Then
go to work immediately, this week if possible.
You’ll notice that each item on my list requires
only one step. No follow-up necessary. If you act
now, you can sit back and watch the benefits
accrue throughout the rest of the year.
Ready to rock? Here we go…
Banks
and brokers adore customers who leave money
idling in accounts that pay next to no interest.
Don’t stand for it. Even with the recent rate cuts
by the Federal Reserve, an Internet-based bank
like EmigrantDirect is still paying 4.65% on money
market accounts, with no minimum balance
(800/836-1997 or www.emigrantdirect.com).
Discount broker e*Trade (800/387-2331 or
www.etrade.com) is even offering a luscious 5.05%
on FDIC-insured deposits through its e*Trade
Bank unit.
Like Emigrant, e*Trade has no minimum to
open an account. Because of the brokerage’s wellpublicized
financial difficulties, though, I advise
you to remain strictly within the FDIC insurance
limits ($100,000 per depositor).
tax-deductible savings plan.
For most people, the
most basic tax-favored savings tool is an
employer’s 401(k) plan. If your employer offers
any kind of matching grant to supplement your
own contributions, treat it as free money. Grab as
much as you can!
Furthermore, I generally advise folks to take
their 401(k) contributions to the limit allowed by
the plan before branching out into other kinds of
investments. Quite aside from the tax shelter, the
discipline of having a fixed sum taken out of every
paycheck can work wonders. You’ll build wealth
much faster than if you invest only when you’ve got
“spare cash” on hand.
For 2008, the legal limit on employee contributions
to a 401(k) is $15,500. (Over age 50, you can
kick in an extra $5,000.) A similar limit applies to
plans sponsored by nonprofits and government
agencies. Depending on their income, selfemployed
people can contribute up to $46,000 to
an individual or “solo” 401(k), with an extra
$5,000 allowed if you’re over 50. Virtually all
brokerages and mutual fund families welcome individual
401(k) plans.
account that no longer meets your needs.
I’m a
strong believer in long-term investing and low
turnover. Don’t shuffle investments for the sake of
shuffling. In my experience, though, people tend to
hang on to some investments too long. If, for
example, you bought a so-called “emerging
growth” fund in the late 1990s and it’s still under
water, 2008 is the year to move on. Upgrade to a more
stable large-cap growth fund.
Fixed annuities paying renewal rates of 3% or
less are also excellent candidates for the heave-ho.
Often, you can swap these for a more competitive
annuity in a tax-free 1035 exchange. For up-to-theminute
annuity quotes, get in touch with broker
Charles Cox, Jr. at UBS in Boston (800/225-2385,
ext. 8307).
2007 was an off year for
the high-dividend strategy, largely because of troubles
in the financial sector. However, many
companies whose stocks made little headway last
year are still churning out superb operating results.
At today’s higher yields, these champions are a
better buy than ever. For details on My 3 Top Picks for 2008, click here to read my Special Report. It details three high-quality income investments with yields that have remained quite high, despite the recent rate-cuts.
I can’t stress enough the importance
of checking out your broker’s financial health,
especially if you’ve got an account worth more
than $500,000 (the limit on insurance provided by
the quasi-governmental Securities Investor
Protection Corp.).
Of the biggest discount brokers, Fidelity boasts
the strongest balance sheet by my calculations.
Schwab and TD Ameritrade are in robust health as
well. I continue to have reservations about e*Trade
and advise you to stay below the SIPC limit if you
do business with the firm.
Among the second-tier brokers, my favorites in
terms of financial strength are Ameriprise and
Scottrade.
For tax
purposes, if you’ve held a stock for more than a
year, you can deduct the fair market value of the
gift, rather than your cost basis—a nice incentive to
give away stock that has gone up dramatically since
you bought it. The fair-market-value rule comes in
especially handy for donating units of a master
limited partnership, because your cost basis in an
MLP declines over time (increasing your tax liability
should you decide to sell, rather than give the
units away).
Not sure where you want the money to go? Set
up an account with Fidelity Charitable Gift Fund (800/262-6039 or www.charitablegift.org). You can
deposit cash or securities; if securities, Fido will
sell them and invest the proceeds in your choice of
13 mutual fund pools. Then, at your leisure, you
can make grants to your favorite charities in
amounts of $100 or more. Minimum to open an
account: $5,000.
I recently
spent an evening counseling a couple with young
children. These folks had an ample income, but
couldn’t seem to make ends meet. As we peeled
back the onion, it soon became apparent they were
laying out far too much for life insurance. Instead
of costly whole life, I recommended a 10-year level
term policy with AIG Life (800/586-3072 or
www.aigtermlife.com). For $250,000 of coverage, a
40-year-old male pays only $14.44 a month.
Females are even less!
You may be overpaying for auto or homeowner’s
insurance, too. GEICO (800/861-8380 or
www.geico.com) is well known as the low-cost
provider for auto insurance in many jurisdictions.
GEICO is also trying to horn in on the homeowner’s
market, so you may find it worthwhile to
request a quote on both types of coverage.
Even if you prefer to stay with your local agent,
ask about the cost of combining your auto and
homeowner’s in one policy. Often, you can save as
much as 15% by purchasing an omnibus policy
from a single company. That’s what I did—and
even GEICO couldn’t match the rates I got from a
smaller regional insurer.
Have I given you enough to chew on? I hope so.
But don’t chew so long that you wear your teeth
down! If you can put just a
couple of these ideas into practice, I’m confident
2008 will be one of your best investing years ever!
If you’ve ever wondered how to buy the right stocks and then organize them into a powerful income-producing portfolio, Profitable Investing can make your investing dreams come true. Richard Band has written this newsletter for nearly 20 years, and, as you’ll see, no other financial advisory on Wall Street shows you how to build your wealth and secure your future like Profitable Investing does. Through the pages of Profitable Investing, you’ll learn how to build a well-balanced team of investments that will not only increase your wealth and income year after year…But also protect your nest egg from being sacked by inflation, recession, market downswings and interest rates. Find out for yourself how my Profitable Investing service can give you the income you need to live your dreams. Click here now to join risk-free.
No comments:
Post a Comment