Make the most of investment losses and gains at tax time

   Tax strategy is a large part of any successful investor. When you start to create a portfolio, the last thing you want to think about is losing principle, but it happens to everyone, even Warren Buffett. When you have losses, they can be managed to reduce taxes. Everyone can reduce taxable income by up to $3,000 per year. Any losses over $3,000 can be carried into future tax years. You can also offset gains that would be taxable.  If you've made $5,000 on one investment then selling another that has a $5,000 loss leaves you with no tax liability as they offset each other. By donating stocks that have appreciated in value to charity, you pay no tax on the gain, and the donation is tax deductible as well. My favorite thing to do with a loss in a taxable account is to use the proceeds from the sale to fund my traditional IRA account (IRA contributions must be earned income so deposit the proceeds from the loss in a checking account and use income to fund your IRA). I get to reduce my taxes by the loss on the sale, and I reduce them again with the IRA contribution. I get two deductions out of the loss, hence reducing the blow to my ego, a little anyway. Finwiz.

Timeless knowledge

  

   The best personal finance advice works in any economic situation. Spend less than you earn. Invest in many different things. Avoid debt, unless you can get a return that exceeds the interest you’ll pay on that debt. Save for purchases you know you'll have. It is those timeless principles, when well understood, that will guide you no matter what the economy is doing. Specific advice is usually these same principles for a moment in time, and when those moments pass, that specific advice becomes far less useful. It is far better to understand the true ideas behind them. See you next time Finwiz.

Becoming a millionaire is not so hard, it just takes 2 simple steps

1. Spend less than you make.

  Savers do not spend above – or even up to- what they earn.

In fact, they spend much less. Surprisingly, the folks that are wealthy (not just earning a good income) do not get into status objects and luxury items.

2. Save for a long period of time.

  You need to save. Save a good amount for a long time and do it consistently. Wealth accumulators save. It’s simple, but not easy. It’s easier to spend money on clothes, cars, homes, and other things. I’m not saying you should never spend money on fun items. If you want to accumulate wealth, you need to get a savings plan in place now!! Start saving 10% of your income and try to get up to 20% as quickly as possible.  Even if you don’t reach your goal, you will have saved, and you’ll be happy you did!

Pay Yourself First

   If you don’t pay yourself first, you won’t pay yourself at all. Period. Again, this isn’t a concept I created, but it works. A good number is to try and set aside at least $50.00 each month for your investments. If you can’t afford that, then you’ll have to do some digging to come up with the money. Is your cable $50.00 per month? Maybe you could downgrade to save $20 a month and then you’re almost halfway to $50. When you’re on a budget, you have to make trade-offs – you have to decide if you’re willing to make cuts to start an investment portfolio or retirement fund. It’s up to you to decide if investing is feasible or not – with some juggling, hopefully you’ll find that it’s possible. If not, the focus has to be on increasing your income. See you Thursday Finwiz.

Estate planning is a large part of your personal financial plan.

    

   What would happen to your savings if something happened to you? You alone decide where, how much of, and most importantly who will get your savings. Having a will is a must for property that does not have a beneficiary designation. Review your choice of beneficiaries every 4-7 years because things change in life. Many of us change who is designated in our wills but forget to change beneficiary designations on life insurance, 401ks, and IRA's that pass from one person to another by beneficiary not by wills. When you have big changes in life, such as divorce or a death in the family, it's a good time to review these choices.

   Dying intestate (without a will) can leave your minor children vulnerable. I was shocked to find out that if something were to happen to parents the state would decide the best situation for the couple’s children. The state has no way of knowing what you have in mind for them. If you have children under 18, it’s absolutely imperative that you write a will and name a guardian, just in case. See you next week Finwiz.

Owning stocks may not be as risky as you think

                                                           Readers who are a bit skeptical about stocks should also realize that the risks that go with equity investments may not be quite what they think. It is true that putting all of your money into a single stock is very risky.  Owning a portfolio of four or five biotech or software stocks is also risky. However, a diversified portfolio, particularly one that includes mutual funds, offers a much different picture.

   Multi-year losses in the stock markets are rare, and that is a powerful advantage for investors. If a reader looks at the long-term average returns and standardized deviations of some major equity funds, an interesting stat appears -- over five years there is only about a 16% risk that an investor will see more than a low-single digit loss and over ten years, there is less than a 16% probability of losing any money at all. In both cases, the odds are significantly better than 50/50 that the investor will make money.

   Said differently, as long as an investor holds a diversified portfolio and invests for the long-term, the odds of losing money are actually quite low and the odds of achieving positive real returns are good.

Kids and Money: Interest

   Interest has a big impact on your finances. Interest is a foreign concept to most children however. It can also be somewhat difficult to teach. If you want your child to grow up to make better decisions (earning interest rather than paying it) this is a concept that needs to be addressed. If you have debt, you can talk about how you regret it, and show them your credit card statement. Since the Credit CARD Act was passed, creditors have to put how much you will pay back at the end. Show your child how much more you are paying back, thanks to credit card interest. It can be a powerful lesson, and teach your child to learn from your mistakes. Even if you aren’t interested in revealing that much about your finances to your children, you can find other ways to get the point across. See you next week. Finwiz

Entry level jobs teach us a lot about personal finance and ourselves

                                                           I've never been a fan of the term McJob or its definition (a menial, low-paying, unskilled, dead end job). That first job we had as a teenager may not have seemed important, but it taught us a lot about personal finances and ourselves. We learned to be responsible to a boss other than a parent. We had to balance a work schedule with school.  Basic skills, like counting change and "the customer is always right," come to mind. We had to manage our paycheck too. We could pay back loans to friends, save, or spend it. In the end the opportunity in any employment is what we see in it or make of it, not what someone else defines it.