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Monday, 4 August 2014

An Abney Associates Ameriprise Financial Advisor: Ymmärtäminen vaara

Henkilökohtainen rahoittaa muutamia termejä ovat yhtä tärkeitä tai käyttäämahdollisimman usein, "riski." Kuitenkin muutamia ehtoja kuin epätäsmällisestimääritellään. Yleensä kun Sijoitusneuvonta tai tiedotusvälineiden puhua sijoitusriskin,niiden painopiste on historiallinen hintojen vaihtelua tai investointi käsiteltävänä.

Neuvonantajat etiketti aggressiivinen tai riskialtis investointi, joka on altis hinta kaarteetaiemmin. Oletettu epävarmuus ja ennakoimattomuus tämän investoinnin tulevastanähdään riski. Ominaista hintoja, jotka on suppeampi valikoima huippujen ja laaksojenhistoriallisesti siirtänyt varat pidetään enemmän konservatiivinen. Valitettavasti tämäselitys on harvoin tarjolla, niin ei usein ole selvää, että volatiliteetti mittapuu käytetäänmittaamaan riskit.

Ennen kuin tutustut riski enemmän muodollisesti, elliptinen on hyviä. Käytännön tasollavoimme sanoa, että riski on mahdollisuus sijoituksesi tarjoavat alhaisemmat tuototodotettua tai jopa menetys koko sijoituksen. Olet luultavasti myös ovat huolissaanmahdollisuudet eivät täytä oman investoinnin tavoitteet. Loppujen lopuksi oletinvestoivat nyt niin voit tehdä jotain myöhemmin (esimerkiksi maksaa college taieläkkeelle mukavasti). Jokainen investointi kantaa jonkin verran riskeistä, rehtori,menettämisen ja ei ole mitään takeita, että investointistrategia on onnistunut. Siksi onjärkevää ymmärtää erilaisia riskejä sekä määrin riski, että haluat ottaa ja oppia tapojahallita sitä.


Vaikka olet ehkä koskaan ajatellut tästä aiheesta, olet luultavasti jo perehtynytmonenlaisia riski elämänkokemusta. Esimerkiksi on järkevää että skandaaleja taioikeusjuttu, joka liittyy tietty yritys todennäköisesti aiheuttaa lasku hinta yhtiönvarastossa, ainakin väliaikaisesti. Jos yhden auton yrityksen osuu kotiin ajaa uusi malli,joka voi olla huono uutinen kilpailevien autonvalmistajat. Sen sijaan yleisen taloudellisentaantuman ja osakemarkkinoiden lasku saattaa vahingoittaa useimmat yritykset janiiden osakkeiden hinnat paitsi teollisuudessa.

On kuitenkin monia erilaisia riski on tietoinen. Volatiliteetti on hyvä paikka aloittaa, kuntarkastelemme riskitekijöitä tarkemmin.

MITÄ TEKEE VOLATILITEETTI VAARALLISTA?

Oletetaan että olisi sijoittanut $10000 kussakin kaksi rahastot 20 vuotta sitten ja ettämolemmat rahastot tuotettu keskimääräinen vuotuinen tuotto on 10 prosenttia.Kuvittele että yksi hypoteettinen varat tasaisesti Freddy, palannut juuri 10 prosenttiajoka vuosi. Vuosittaisen palauttaa toisen rahaston Jekyll & Hyde vuorotellen--5prosenttia vuodessa, 15 prosenttia Toiseksi 5 prosenttia jälleen kolmantena vuonna janiin edelleen. Mitä nämä kaksi investointia kannattaisi 20 vuoden lopussa?

On ilmeistä, jos keskimääräinen vuotuinen tuotto kaksi investoinnit ovat identtiset,lopullisten arvojen olevan, liian. Mutta tämä on tapaus, jossa intuitio on väärin. Jos olettontti 20 vuotta investointien tuoton tässä esimerkissä kaavion, näet tasainen Freddylopullinen arvo on yli 2000 dollaria enemmän muuttujan palauttaa Jekyll & Hyde. Vajesaa paljon pahempi, jos sinun laajentaa vuosittaista vaihtelua (esimerkiksi plus tai miinus 15 prosenttia, plus tai miinus 5 prosentin sijaan). Tässä esimerkissä kuvataanyksi investointeja hintavaihtelut vaikutuksia: lyhyellä aikavälillä saatavien tuottojen ovatvedä pitkän aikavälin kasvua. (Huomautus: Tämä on hypoteettinen esimerkki ja eivastaa mitään erityisiä investointeja suorituskyky. Tässä esimerkissä oletetaansijoitetaan kaikki tulot ja ei pidä veroja tai transaktiokustannuksia.)

Vaikka historiallinen tuotto ei ole tae tulevasta, historiallisesti lyhyen aikavälinhintavaihtelujen negatiivinen vaikutus on vähennetty pitämällä investointien ansiosta.Mutta luottaa pitempi pitoaika tarkoittaa, että lisää suunnittelua kutsutaan. Sinun eipitäisi sijoittaa varoja, joita tarvitaan pian haihtuvien investoinniksi. Muussatapauksessa voit joutua myymään Investointi nostaa käteistä sijoituksen ollessatappiolla.

Friday, 18 July 2014

An Abney Associates Ameriprise Financial Advisor: 529 plans

Section 529 plans can be powerful college savings tools, but you need to understand how your plan works before you can take full advantage of it. Among other things, this means becoming familiar with the finer points of contributions and withdrawals. A little knowledge could save you money and maximize your chances of reaching the educational goals you've set for your children. But keep in mind that all investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful.


HOW MUCH CAN YOU CONTRIBUTE?

To qualify as a 529 plan under federal rules, a state program must not accept contributions in excess of the anticipated cost of a beneficiary's qualified education expenses. At one time, this meant five years of tuition, fees, and room and board at the costliest college under the plan, pursuant to the federal government's "safe harbor" guideline. Now, however, states are interpreting this guideline more broadly, revising their limits to reflect the cost of attending the most expensive schools in the country and including the cost of graduate school. As a result, most states have contribution limits of $300,000 and up (and most states will raise their limits each year to keep up with rising college costs).

A state's limit will apply to either kind of 529 plan: prepaid tuition plan or college savings plan. For a prepaid tuition plan, the state's limit is a limit on the total contributions. For example, if the state's limit is $300,000, you can't contribute more than $300,000. On the other hand, a college savings plan limits the value of the account for a beneficiary. When the value of the account (including contributions and investment earnings) reaches the state's limit, no more contributions will be accepted. For example, assume the state's limit is $300,000. If you contribute $250,000 and the account has $50,000 of earnings, you won't be able to contribute anymore--the total value of the account has reached the $300,000 limit.

These limits are per beneficiary, so if you and your mother each set up an account for your child in the same plan, your combined contributions can't exceed the plan limit. If you have accounts in more than one state, ask each plan's administrator if contributions to other plans count against the state's maximum. Some plans may also have a contribution limit, both initially and each year.

Note: Generally, contribution limits don't cross state lines. Contributions made to one state's 529 plan don't count toward the lifetime contribution limit in another state. But check the rules of your state's plan to find out if that plan takes contributions from other states' plans into consideration when determining if the lifetime contribution limit has been reached.


HOW LITTLE CAN YOU START OFF WITH?

Some plans have minimum contribution requirements. This could mean one or more of the following: (1) you have to make a minimum opening deposit when you open your account, (2) each of your contributions has to be at least a certain amount, or (3) you have to contribute at least a certain amount every year. But some plans may waive or lower their minimums (e.g., the opening deposit) if you set up your account for automatic payroll deductions or bank-account debits. Some will also waive fees if you set up such an arrangement. (A growing number of companies are letting their employees contribute to college savings plans via payroll deduction.) Like contribution limits, minimums vary by plan, so be sure to ask your plan administrator.


KNOW YOUR OTHER CONTRIBUTION RULES

Here are a few other basic rules that apply to most 529 plans:

Only cash contributions are accepted (e.g., checks, money orders, credit card payments). You can't contribute stocks, bonds, mutual funds, and the like. If you have money tied up in such assets and would like to invest that money in a 529 plan, you must liquidate the assets first.

Contributions may be made by virtually anyone (e.g., your parents, siblings, friends). Just because you're the account owner doesn't mean you're the only one who's allowed to contribute to the account.

Contributions generally may not be directed toward particular investments of your choice. However, most college savings plans offer several different investment portfolios, and many let you choose one or more portfolios to invest your contributions. You make this choice at the time you make your contribution. Some states have also added two opportunities to change your investment choice. Savings plans in these states let you change your investment choice when you change the beneficiary of the account. These plans let you change the investment portfolio once each calendar year, as well.


MAXIMIZING YOUR CONTRIBUTIONS

Although 529 plans are tax-advantaged vehicles, there's really no way to time your contributions to minimize federal taxes. (If your state offers a generous income tax deduction for contributing to its plan, however, consider contributing as much as possible in your high-income years.) But there may be simple strategies you can use to get the most out of your contributions. For example, investing up to your plan's annual limit every year may help maximize total contributions. Also, a contribution of $14,000 a year or less qualifies for the annual federal gift tax exclusion. And under special rules unique to 529 plans, you can gift a lump sum of up to $70,000 ($140,000 for joint gifts) and avoid federal gift tax, provided you make an election to spread the gift evenly over five years.. This is a valuable strategy if you wish to remove assets from your taxable estate.


LUMP-SUM VS. PERIODIC CONTRIBUTIONS

A common question is whether to fund a 529 plan gradually over time, or with a lump sum. The lump sum would seem to be better because 529 plan earnings grow tax deferred--the sooner you put money in, the sooner you can start to generate earnings. Investing a lump sum may also save you fees over the long run. But the lump sum may have unwanted gift tax consequences, and your opportunities to change an investment portfolio are limited. Gradual investing may let you easily direct future contributions to other portfolios in the plan.


QUALIFIED WITHDRAWALS ARE TAX FREE

Withdrawals from a 529 plan that are used to pay qualified higher education expenses are completely free from federal income tax and may also be exempt from state income tax. Qualified higher education expenses generally include tuition, fees, books, supplies, and equipment required for enrollment or attendance at an "eligible" educational institution. In addition, the definition includes a limited amount of room-and-board expenses for students attending college on at least a half-time basis. The definition does not currently include the cost of transportation or personal expenses.

Note: A 529 plan must have a way to make sure that a withdrawal is really used for qualified education expenses. Many plans require that the college be paid directly for education expenses; others will prepay or reimburse the beneficiary for such expenses (receipts or other proof may be required).


BEWARE OF NONQUALIFIED WITHDRAWALS

By now, you can probably guess what a nonqualified withdrawal is. Basically, it's any withdrawal that's not used for qualified higher education expenses. For example, if you take money from your account to buy your son a new Porsche, that's a nonqualified withdrawal. Even if you take money out for medical bills or other necessary expenses, you're still making a nonqualified withdrawal.

One reason not to make this type of withdrawal is to avoid depleting your college fund. Another compelling reason is that these withdrawals don't enjoy tax-favored treatment. The earnings part of a nonqualified withdrawal will be subject to federal income tax, and the tax will typically be assessed at the account owner's rate, not at the beneficiary's rate. Plus, the earnings part of a nonqualified withdrawal will be subject to a 10 percent federal penalty, and possibly a state penalty too.


IS TIMING WITHDRAWALS IMPORTANT?

As account owner, you can decide when to withdraw funds from your 529 plan and how much to take out--and there are ways to time your withdrawals for maximum advantage. It's important to coordinate your withdrawals with the education tax credits. That's because the tuition that's used to generate a credit may reduce your available pool of qualified education expenses. A financial aid or tax professional can help you sort this out to ensure that you get the best overall results. It's also a good idea to wait as long as possible to withdraw from the plan. The longer the money stays in the plan, the more time it has to grow tax deferred.


Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about specific 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.

Wednesday, 16 July 2014

An Abney Associates Ameriprise Financial Advisor: Other investments

A well-diversified investment portfolio contains a mix of stocks, bonds, short-term cash investments, and savings accounts that is tailored to your investment goals and risk tolerance. If you want to diversify your investment portfolio further, you can look to other investment possibilities. Here are a few of these, with brief explanations of what they are, how they can be used, and what the risks and potential rewards may be.


  • PRECIOUS METALS

Some investors purchase silver or gold as a hedge against inflation or currency fluctuations.

In general, as inflation rises, the value of the dollar normally goes down. Historically, when a significant drop in the dollar occurred, gold and silver (and platinum to a lesser extent) went up in value. Precious metals such as gold had a tendency to retain their purchasing power no matter how badly the currency declined. Precious metals have intrinsic value, while currency can literally become worth less than the paper it is printed on, as was the case with the German mark after World War I. Keep in mind, though, that past performance is no guarantee of future results, and there can be no assurance that an investment will ever be profitable.

As with any other investment, risks are involved when investing in gold. These include certain risks uncommon to other types of investments, such as monetary policy changes and currency devaluations. Investors should discuss the risks of investing in gold with their financial professional.

Some options for investing in precious metals include actually purchasing the asset (i.e., gold bullion or coins), buying shares of mining companies, investing in a fund that concentrates its portfolio in the securities of issuers principally engaged in gold-related activities, buying futures or options contracts (see below) or investing in an exchange-traded fund that holds bullion.


  • OPTIONS

Options give the owner the right, but not the obligation, to buy or sell an underlying asset at a set price (strike price) before a certain date (expiration date). The underlying asset can be (to name some of the more popular ones) currency, a stock, an index, a bond, or a Treasury bill. A call option is the right to buy the underlying asset, and a put option is the right to sell the underlying asset. The price paid for the option is called the premium.

An investor purchases an option to control a specific number of shares for a limited period of time. An investor might purchase a call option because he or she believes that the price of the stock will go up during that period. Similarly, an investor might purchase a put option because he or she believes that the price will go down during that period. If the investor has guessed wrong, the option expires worthless and he or she could lose the total premium paid for the option.

An investor may sell an option for income on an underlying security that he or she owns. The income is the premium that an option buyer pays to purchase the option. If the underlying security moves in favor of the option buyer, the buyer may exercise the option, and the option seller may be required to sell the underlying security. If the underlying security moves in favor of the seller, the buyer normally will not exercise the option, and the seller keeps both the premium and the underlying asset.

These are just two strategies in which an investor uses options. Although there are many benefits in using them, options are risky and not suitable for all investors. For example, selling an option is done in a margin account, subjecting the seller to interest costs and margin calls. Before attempting to buy or sell options, it is important to discuss the role they can play in your portfolio with a financial professional.


  • FUTURES

A futures contract is a promise to buy or sell a commodity for a certain price on a future date. Commodities include oil, natural gas, lumber, and base metals, as well as many agricultural products such as farm grains, beef, pork. coffee, and cocoa. In addition to commodities, investors can trade futures on foreign currencies, interest rate products such as Treasury bills, precious metals, and market indexes such as the S&P 500.

Investors purchase futures contracts either as a hedge against price fluctuations or for speculation purposes. Hedging is the primary purpose of futures contracts. The purchaser of the futures contract establishes a price now for a purchase or sale that will take place in the future. Speculators buy and sell futures contracts based on whether they expect prices to move up or down; they hope to profit from the price changes that hedgers try to avoid, and rarely take delivery of the underlying commodity itself.

Futures contracts are extremely high-risk investments. They should be considered only by experienced investors and professionals.


  • REAL ESTATE INVESTMENT TRUSTS

A real estate investment trust (REIT) is a corporation (or business trust) that invests in real estate or provides financing for real estate. REITs own and, in most instances, manage income-producing real estate such as offices, shopping centers, apartments, and warehouses. REITs derive their income from rents and capital gains realized on the sale of real estate. Some REITs invest in mortgages secured by real estate and get their income from the collection of interest. A REIT may specialize in one type of real estate--for example, office buildings--or have holdings in a variety of types.

REITs offer a convenient way for an investor to participate in commercial real estate. First, an investor's capital commitment is lower, since the investor buys shares of a REIT rather than the actual property. Second, owning a REIT generally offers greater liquidity than owning the property itself. Most REITs trade on the major stock exchanges and can be purchased or sold through stockbrokers. Finally, you get professional property management, which means you don't have to chase after the rents or respond to late-night phone calls about maintenance problems.


REITs offer long-term growth potential and income. Also, investing in REITs helps diversify a portfolio, though diversification alone can't guarantee a profit or protect against potential loss. However, risks are associated with real estate investing. The value of real estate is affected by interest rate changes, economic conditions (both national and local), property tax rates, and other factors. It is important to discuss with a financial professional the role REITs can play in your portfolio.

Sunday, 13 July 2014

An Abney Associates Ameriprise Financial Advisor: Asset Allocation

Asset allocation is a common strategy that you can use to construct an investment portfolio. Asset allocation isn't about picking individual securities. Instead, you focus on broad categories of investments, mixing them together in the right proportion to match your financial goals, the amount of time you have to invest, and your tolerance for risk.


THE BASICS OF ASSET ALLOCATION

The idea behind asset allocation is that because not all investments are alike, you can balance risk and return in your portfolio by spreading your investment dollars among different types of assets, such as stocks, bonds, and cash alternatives. It doesn't guarantee a profit or ensure against a loss, of course, but it can help you manage the level and type of risk you face.

Different types of assets carry different levels of risk and potential for return, and typically don't respond to market forces in the same way at the same time. For instance, when the return of one asset type is declining, the return of another may be growing (though there are no guarantees). If you diversify by owning a variety of assets, a downturn in a single holding won't necessarily spell disaster for your entire portfolio.

Using asset allocation, you identify the asset classes that are appropriate for you and decide the percentage of your investment dollars that should be allocated to each class (e.g., 70 percent to stocks, 20 percent to bonds, 10 percent to cash alternatives).


THE THREE MAJOR CLASSES OF ASSETS

Here's a look at the three major classes of assets you'll generally be considering when you use asset allocation.

Stocks: Although past performance is no guarantee of future results, stocks have historically provided a higher average annual rate of return than other investments, including bonds and cash alternatives. However, stocks are generally more volatile than bonds or cash alternatives. Investing in stocks may be appropriate if your investment goals are long-term.

Bonds: Historically less volatile than stocks, bonds do not provide as much opportunity for growth as stocks do. They are sensitive to interest rate changes; when interest rates rise, bond values tend to fall, and when interest rates fall, bond values tend to rise. Because bonds offer fixed interest payments at regular intervals, they may be appropriate if you want regular income from your investments.

Cash alternatives: Cash alternatives (or short-term instruments) offer a lower potential for growth than other types of assets but are the least volatile. They are subject to inflation risk, the chance that returns won't outpace rising prices. They provide easier access to funds than longer-term investments, and may be appropriate for investment goals that are short-term.

Not only can you diversify across asset classes by purchasing stocks, bonds, and cash alternatives, you can also diversify within a single asset class. For example, when investing in stocks, you can choose to invest in large companies that tend to be less risky than small companies. Or, you could choose to divide your investment dollars according to investment style, investing for growth or for value. Though the investment possibilities are limitless, your objective is always the same: to diversify by choosing complementary investments that balance risk and reward within your portfolio.


DECIDE HOW TO DIVIDE YOUR ASSETS

Your objective in using asset allocation is to construct a portfolio that can provide you with the return on your investment you want without exposing you to more risk than you feel comfortable with. How long you have to invest is important, too, because the longer you have to invest, the more time you have to ride out market ups and downs.

When you're trying to construct a portfolio, you can use worksheets or interactive tools that help identify your investment objectives, your risk tolerance level, and your investment time horizon. These tools may also suggest model or sample allocations that strike a balance between risk and return, based on the information you provide.

For instance, if your investment goal is to save for your retirement over the next 20 years and you can tolerate a relatively high degree of market volatility, a model allocation might suggest that you put a large percentage of your investment dollars in stocks, and allocate a smaller percentage to bonds and cash alternatives. Of course, models are intended to serve only as general guides; determining the right allocation for your individual circumstances may require more sophisticated analysis.


BUILD YOUR PORTFOLIO

The next step is to choose specific investments for your portfolio that match your asset allocation strategy. Investors who are investing through a workplace retirement savings plan typically invest through mutual funds; a diversified portfolio of individual securities is easier to assemble in a separate account.

Mutual funds offer instant diversification within an asset class, and in many cases, the benefits of professional money management. Investments in each fund are chosen according to a specific objective, making it easier to identify a fund or a group of funds that meet your needs. For instance, some of the common terms you'll see used to describe fund objectives are capital preservation, income (or current income), income and growth (or balanced), growth, and aggressive growth. As with any investment in a mutual fund, you should consider your time frame, risk tolerance, and investing objectives.

Note: Before investing in a mutual fund, carefully consider its investment objectives, risks, fees, and expenses, which can be found in the prospectus available from the fund. Read the prospectus carefully before investing.


PAY ATTENTION TO YOUR PORTFOLIO

Once you've chosen your initial allocation, revisit your portfolio at least once a year (or more often if markets are experiencing greater short-term fluctuations). One reason to do this is to rebalance your portfolio. Because of market fluctuations, your portfolio may no longer reflect the initial allocation balance you chose. For instance, if the stock market has been performing well, eventually you'll end up with a higher percentage of your investment dollars in stocks than you initially intended. To rebalance, you may want to shift funds from one asset class to another.


In some cases you may want to rethink your entire allocation strategy. If you're no longer comfortable with the same level of risk, your financial goals have changed, or you're getting close to the time when you'll need the money, you may need to change your asset mix.

Friday, 4 July 2014

An Abney Associates Ameriprise Financial Advisor on Qualified and Nonqualified Annuities

You may have heard that IRAs and employer-sponsored plans (e.g., 401(k)s) are the best ways to invest for retirement. That's true for many people, but what if you've maxed out your contributions to those accounts and want to save more? An annuity may be a good investment to look into.

GET THE LAY OF THE LAND
An annuity is a tax-deferred investment contract. The details on how it works vary, but here's the general idea. You invest your money (either a lump sum or a series of contributions) with a life insurance company that sells annuities (the annuity issuer). The period when you are funding the annuity is known as the accumulation phase. In exchange for your investment, the annuity issuer promises to make payments to you or a named beneficiary at some point in the future. The period when you are receiving payments from the annuity is known as the distribution phase. Chances are, you'll start receiving payments after you retire.

UNDERSTAND YOUR PAYOUT OPTIONS
Understanding your annuity payout options is very important. Keep in mind that payments are based on the claims-paying ability of the issuer. You want to be sure that the payments you receive will meet your income needs during retirement. Here are some of the most common payout options:
  • You surrender the annuity and receive a lump-sum payment of all of the money you have accumulated.
  • You receive payments from the annuity over a specific number of years, typically between 5 and 20. If you die before this "period certain" is up, your beneficiary will receive the remaining payments.
  • You receive payments from the annuity for your entire lifetime. You can't outlive the payments (no matter how long you live), but there will typically be no survivor payments after you die.
  • You combine a lifetime annuity with a period certain annuity. This means that you receive payments for the longer of your lifetime or the time period chosen. Again, if you die before the period certain is up, your beneficiary will receive the remaining payments.
  • You elect a joint and survivor annuity so that payments last for the combined life of you and another person, usually your spouse. When one of you dies, the survivor receives payments for the rest of his or her life.
  • When you surrender the annuity for a lump sum, your tax bill on the investment earnings will be due all in one year. The other options on this list provide you with a guaranteed stream of income (subject to the claims-paying ability of the issuer). They're known as annuitization options because you've elected to spread payments over a period of years. Part of each payment is a return of your principal investment. The other part is taxable investment earnings. You typically receive payments at regular intervals throughout the year (usually monthly, but sometimes quarterly or yearly). The amount of each payment depends on the amount of your principal investment, the particular type of annuity, the length of the payout period, your age if payments for lifetime payments, and other factors.
CONSIDER THE PROS AND CONS
An annuity can often be a great addition to your retirement portfolio. Here are some reasons to consider investing in an annuity:
  • Your investment earnings are tax deferred as long as they remain in the annuity. You don't pay income tax on those earnings until they are paid out to you.
  • An annuity may be free from the claims of your creditors in some states.
  • If you die with an annuity, the annuity's death benefit will pass to your beneficiary without having to go through probate.
  • Your annuity can be a reliable source of retirement income, and you have some freedom to decide how you'll receive that income.
  • You don't have to meet income tests or other criteria to invest in an annuity.
  • You're not subject to an annual contribution limit, unlike IRAs and employer-sponsored plans. You can contribute as much or as little as you like in any given year.
  • You're not required to start taking distributions from an annuity at age 70½ (the required minimum distribution age for IRAs and employer-sponsored plans). You can typically postpone payments until you need the income.
But annuities aren't for everyone. Here are some potential drawbacks:
  • Contributions to nonqualified annuities are made with after-tax dollars and are not tax deductible.
  • Once you've elected to annuitize payments, you usually can't change them, but there are some exceptions.
  • You can take your money from an annuity before you start receiving payments, but your annuity issuer may impose a surrender charge if you withdraw your money within a certain number of years (e.g., seven) after your original investment.
  • You may have to pay other costs when you invest in an annuity (e.g., annual fees, investment management fees, insurance expenses).
  • You may be subject to a 10 percent federal penalty tax (in addition to any regular income tax) if you withdraw your money from an annuity before age 59½, unless you meet one of the exceptions to this rule.
  • Investment gains are taxed at ordinary income tax rates, not at the lower capital gains rate.
CHOOSE THE RIGHT TYPE OF ANNUITY
If you think that an annuity is right for you, your next step is to decide which type of annuity. Overwhelmed by all of the annuity products on the market today? Don't be. In fact, most annuities fit into a small handful of categories. Your choices basically revolve around two key questions.

First, how soon would you like annuity payments to begin? That probably depends on how close you are to retiring. If you're near retirement or already retired, an immediate annuity may be your best bet. This type of annuity starts making payments to you shortly after you buy the annuity, typically within a year or less. But what if you're younger, and retirement is still a long-term goal? Then you're probably better off with a deferred annuity. As the name suggests, this type of annuity lets you postpone payments until a later time, even if that's many years down the road.

Second, how would you like your money invested? With a fixed annuity, the annuity issuer determines an interest rate to credit to your investment account. An immediate fixed annuity guarantees a particular rate, and your payment amount never varies. A deferred fixed annuity guarantees your rate for a certain number of years; your rate then fluctuates from year to year as market interest rates change. A variable annuity, whether immediate or deferred, gives you more control and the chance to earn a better rate of return (although with a greater potential for gain comes a greater potential for loss). You select your own investments from the subaccounts that the annuity issuer offers. Your payment amount will vary based on how your investments perform.

Note: Variable annuities are sold by prospectus. You should consider the investment objectives, risk, charges and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity, can be obtained from the insurance company issuing the variable annuity or from your financial professional. You should read the prospectus carefully before you invest.

SHOP AROUND
It pays to shop around for the right annuity. In fact, doing a little homework could save you hundreds of dollars a year or more. Why? Rates of return and costs can vary widely between different annuities. You'll also want to shop around for a reputable, financially sound annuity issuer. There are firms that make a business of rating insurance companies based on their financial strength, investment performance, and other factors. Consider checking out these ratings.

Wednesday, 2 July 2014

An Abney Associates Ameriprise Financial Advisor on How Student Loans Impact your Credit

If you've finished college within the last few years, chances are you're paying off your student loans. What happens with your student loans now that they've entered repayment status will have a significant impact--positive or negative--on your credit history and credit score.

IT'S PAYBACK TIME
When you left school, you enjoyed a grace period of six to nine months before you had to begin repaying your student loans. But they were there all along, sleeping like an 800-pound gorilla in the corner of the room. Once the grace period was over, the gorilla woke up. How is he now affecting your ability to get other credit?

One way to find out is to pull a copy of your credit report. There are three major credit reporting agencies, or credit bureaus--Experian, Equifax, and Trans Union--and you should get a copy of your credit report from each one. Keep in mind, though, that while institutions making student loans are required to report the date of disbursement, balance due, and current status of your loans to a credit bureau, they're not currently required to report the information to all three, although many do.

If you're repaying your student loans on time, then the gorilla is behaving nicely, and is actually helping you establish a good credit history. But if you're seriously delinquent or in default on your loans, the gorilla will turn into King Kong, terrorizing the neighborhood and seriously undermining your efforts to get other credit.

WHAT'S YOUR CREDIT SCORE?
Your credit report contains information about any credit you have, including credit cards, car loans, and student loans. The credit bureau (or any prospective creditor) may use this information to generate a credit score, which statistically compares information about you to the credit performance of a base sample of consumers with similar profiles. The higher your credit score, the more likely you are to be a good credit risk, and the better your chances of obtaining credit at a favorable interest rate.

Many different factors are used to determine your credit score. Some of these factors carry more weight than others. Significant weight is given to factors describing:
  • Your payment history, including whether you've paid your obligations on time, and how long any delinquencies have lasted
  • Your outstanding debt, including the amounts you owe on your accounts, the different types of accounts you have (e.g., credit cards, installment loans), and how close your balances are to the account limits
  • Your credit history, including how long you've had credit, how long specific accounts have been open, and how long it has been since you've used each account
  • New credit, including how many inquires or applications for credit you've made, and how recently you've made them

STUDENT LOANS AND YOUR CREDIT SCORE
Always make your student loan payments on time. Otherwise, your credit score will be negatively affected. To improve your credit score, it's also important to make sure that any positive repayment history is correctly reported by all three credit bureaus, especially if your credit history is sparse. If you find that your student loans aren't being reported correctly to all three major credit bureaus, ask your lender to do so.

But even when it's there for all to see, a large student loan debt may impact a factor prospective creditors scrutinize closely: your debt-to-income ratio. A large student loan debt may especially hurt your chances of getting new credit if you're in a low-paying job, and a prospective creditor feels your budget is stretched too thin to make room for the payments any new credit will require.

Moreover, if your principal balances haven't changed much (and they don't in the early years of loans with long repayment terms) or if they're getting larger (because you've taken a forbearance on your student loans and the accruing interest is adding to your outstanding balance), it may look to a prospective lender like you're not making much progress on paying down the debt you already have.

GETTING THE MONKEY OFF YOUR BACK
Like many people, you may have put off buying a house or a car because you're overburdened with student loan debt. So what can you do to improve your situation? Here are some suggestions to consider:
  • Pay off your student loan debt as fast as possible. Doing so will reduce your debt-to-income ratio, even if your income doesn't increase.
  • If you're struggling to repay your student loans and are considering asking for forbearance, ask your lender instead to allow you to make interest-only payments. Your principal balance may not go down, but it won't go up, either.
  • Ask your lender about a graduated repayment option. In this arrangement, the term of your student loan remains the same, but your payments are smaller in the beginning years and larger in the later years. Lowering your payments in the early years may improve your debt-to-income ratio, and larger payments later may not adversely affect you if your income increases as well.
  • If you're really strapped, explore extended or income-sensitive repayment options. Extended repayment options extend the term you have to repay your loans. Over the longer term, you'll pay a greater amount of interest, but your monthly payments will be smaller, thus improving your debt-to-income ratio. Income-sensitive plans tie your monthly payment to your level of income; the lower your income, the lower your payment. This also may improve your debt-to-income ratio.
  • If you have several student loans, consider consolidating them through a student loan consolidation program. This won't reduce your total debt, but a larger loan may offer a longer repayment term or a better interest rate. While you'll pay more total interest over the course of a longer term, you'll also lower your monthly payment, which in turn will lower your debt-to-income ratio.
  • If you're in default on your student loans, don't ignore them--they aren't going to go away. Student loans generally cannot be discharged even in bankruptcy. Ask your lender about loan rehabilitation programs; successful completion of such programs can remove default status notations on your credit reports.


Monday, 30 June 2014

An Abney Associates Ameriprise Financial Advisor on Understanding Long-Term Care Insurance

IT'S A FACT: People today are living longer. Although that's good news, the odds of requiring some sort of long-term care increase as you get older. And as the costs of home care, nursing homes, and assisted living escalate, you probably wonder how you're ever going to be able to afford long-term care. One solution that is gaining in popularity is long-term care insurance (LTCI).

Most people associate long-term care with the elderly. But it applies to the ongoing care of individuals of all ages who can no longer independently perform basic activities of daily living (ADLs)--such as bathing, dressing, or eating--due to an illness, injury, or cognitive disorder. This care can be provided in a number of settings, including private homes, assisted-living facilities, adult day-care centers, hospices, and nursing homes.

WHY YOU NEED LONG-TERM CARE INSURANCE (LTCI)
Even though you may never need long-term care, you'll want to be prepared in case you ever do, because long-term care is often very expensive. Although Medicaid does cover some of the costs of long-term care, it has strict financial eligibility requirements--you would have to exhaust a large portion of your life savings to become eligible for it. And since HMOs, Medicare, and Medigap don't pay for most long-term care expenses, you're going to need to find alternative ways to pay for long-term care. One option you have is to purchase an LTCI policy.
However, LTCI is not for everyone. Whether or not you should buy it depends on a number of factors, such as your age and financial circumstances. Consider purchasing an LTCI policy if some or all of the following apply:

·         You are between the ages of 40 and 84
·         You have significant assets that you would like to protect
·         You can afford to pay the premiums now and in the future
·         You are in good health and are insurable

HOW DOES LTCI WORK?
Typically, an LTCI policy works like this: You pay a premium, and when benefits are triggered, the policy pays a selected dollar amount per day (for a set period of time) for the type of long-term care outlined in the policy.

Most policies provide that certain physical and/or mental impairments trigger benefits. The most common method for determining when benefits are payable is based on your inability to perform certain activities of daily living (ADLs), such as eating, bathing, dressing, continence, toileting (moving on and off the toilet), and transferring (moving in and out of bed). Typically, benefits are payable when you're unable to perform a certain number of ADLs (e.g., two or three).

Some policies, however, will begin paying benefits only if your doctor certifies that the care is medically necessary. Others will also offer benefits for cognitive or mental incapacity, demonstrated by your inability to pass certain tests.

Before you buy LTCI, it's important to shop around and compare several policies. Read the Outline of Coverage portion of each policy carefully, and make sure you understand all of the benefits, exclusions, and provisions. Once you find a policy you like, be sure to check insurance company ratings from services such as A. M. Best, Moody's, and Standard & Poor's to make sure that the company is financially stable.

When comparing policies, you'll want to pay close attention to these common features and provisions:

·         Elimination period: The period of time before the insurance policy will begin paying benefits (typical options range from 20 to 100 days). Also known as the waiting period.
·         Duration of benefits: The limitations placed on the benefits you can receive (e.g., a dollar amount such as $150,000 or a time limit such as two years).
·         Daily benefit: The amount of coverage you select as your daily benefit (typical options range from $50 to $350).
·         Optional inflation rider: Protection against inflation.
·         Range of care: Coverage for different levels of care (skilled, intermediate, and/or custodial) in care settings specified in policy (e.g., nursing home, assisted living facility, at home).
·         Pre-existing conditions: The waiting period (e.g., six months) imposed before coverage will go into effect regarding treatment for pre-existing conditions.
·         Other exclusions: Whether or not certain conditions are covered (e.g., Alzheimer's or Parkinson's disease).
·         Premium increases: Whether or not your premiums will increase during the policy period.
·         Guaranteed renewability: The opportunity for you to renew the policy and maintain your coverage despite any changes in your health.
·         Grace period for late payment: The period during which the policy will remain in effect if you are late paying the premium.
·         Return of premium: Return of premium or nonforfeiture benefits if you cancel your policy after paying premiums for a number of years.
·         Prior hospitalization: Whether or not a hospital stay is required before you can qualify for LTCI benefits.
·         When comparing LTCI policies, you may wish to seek assistance. Consult a financial professional, attorney, or accountant for more information.

There's no doubt about it: LTCI is often expensive. Still, the cost of LTCI depends on many factors, including the type of policy that you purchase (e.g., size of benefit, length of benefit period, care options, optional riders). Premium cost is also based in large part on your age at the time you purchase the policy. The younger you are when you purchase a policy, the lower your premiums will be.