Take Charge Today



I’m Jack Letzer. Today we are going to talk about investing principles.Investing allows a household to generate asset growth;One of the two key ways aside from the value of your home to increase your personal network.Today we are going to talk about investing in capital markets.And how you should go about doing it.By investing in different financial instruments, your household will be able to generate the benefits of diversificationi.e not putting all your eggs in one basket.It also allows the household to derive the benefits of compounded tax deferred interest.For instance, a contribution of $500 to a 401K on a monthly basis for over thirty yearsWill generate approximately three quarters of a million dollars in total value, assuming an annual rate of return of approximately 8%, which is very consistent with yields.Third, investing is one of the key ways that you can prepare for retirement in your family.Owning a home may be a key source of equity, or net worth, but that alone won’t offset the loss of income from retirement.You will need investments to comprise a key source of retirement funds.So, I believe we need to invest using tax deferred instruments asap!These are your 401K’s, your 403b’s, your IRA’s.There are non-taxable instruments which allow you to generate a retirement nest egg; which will be taxed when you retire, but all of the profits you generate for many years during your working career will not be taxed until you retire.One thing of caution though, is beware using taxable investments if you have high consumer debt levels.If you’re paying card interest rates of 15, 18, 20%, and you’re putting away in a savings account that will generate 2 or 3%, that doesn’t make a whole lot of sense.Target the existing debt levels first, to get rid of it, and then focus on putting money into taxable investment instruments.Some of your key investing considerations should be also how to allocate your investment assets.Folks that are nearing retirement, that are older should probably put more money into safe havens such as bonds and cash, than someone who is younger.Someone who is younger may put more money into stocks, and mutual funds which have greater potential for investment return, but also come with a higher degree of risk.So, once you understand your risk tolerance, there is also a series of tax implications that will guide your investment decisions.Understand things like capital gains taxes, understand ordinary income taxes, and how different investment vehicles will be taxed.By recognizing the consequences of each tax type on your household will aid in mitigating their impact on household net worth.One thing I will definitely want to communicate for young households; investments offer a great way to save for college. From Section 529 Plans to Education IRAs to Roth IRAs, there are many ways to set aside small amounts of funds at an early age for your children’s college education. And many of these come with tax benefits as well. I mentioned there were two parts to investing;One is to understand the benefits that a household can derive from investing.The other part of investing is to break down the myths surrounding investing. A lot of individuals approach investing with a great deal of trepidation because there are so many terms that they’re not familiar with, or they just don’t understand. So I’ve taken the liberty of breaking down the investing universe into 3 key areas;1.-What are your investment options?These are the places that you can purchase, or put money into;You can buy common stocks, you can buy preferred stocks, you can buy bonds, you can buy mutual funds. These are the different types of investment opportunities in the investment universe.Secondly, once you decide what to buy, you’re going to have to do it with a particular vehicle.And the word “vehicle” really has a ramification of the tax consequence; Do you put money into purchasing mutual funds, within a 401K, which is taxed upon retirement, or do you purchase stocks and bonds within a brokerage account, whose profits are taxed today at the particular investment tax rate such as capital gains, or ordinary income rates.So these are investment vehicles; your 401K’s, yoru 403b’s, your IRA’s,.IRA’s come in two forms; Traditional IRA’s and Roth IRA’s.They’re basically both tax-deferred instruments except that they’re taxed differently when the profits are taken out.Another area: we have our investment options, and we have our investment vehicles, understand that there’s also a whole list of investment indexes;What is the Dow Jones Industrial Average, what is the Standard and Poor’s 500, what is the NASDAQ, what is the Russell 2000.There are many, many, many different investment indexes, all they are, are tracking mechanisms to understand how a series of companies are performing within the investment arena.The Dow Jones Industrial Average prizes 30 of the largest domestic firms.This index is a proxy for the total U.S. economy.It comprises many of the wonderful names we all know; Mc Donald’s, Boeing, General Motors, Pfizer. These large companies –-Microsoft-- are all part of the Dow.The Standard and Poor’s 500 is broader index.It comprises 500 of the largest companies.It’s also a proxy of the total economy, but it is a broader reading than just the 30 companies that are located within the Dow.You also have the Dow Transport, another index. This one focuses on airlines, trucking firms, and railing companies. Often times it is this index that provides, that serves as a leading indicator for the broader economy.As the transports perform well, you can expect the broader economy to start performing very well as well.Another index to speak of is the Russell 2000. It is an index comprising of 2000 small companies. It proves an insight into this segment of the economy.Small company stock performance often leads the way during the beginning of an economic recovery. Lastly the NASDAQ index, is an index of over the counter stocks.Most of our wonderful high-tech companies are located within the NASDAQ, so this is also a very important index.What are some of our key takeaways today;Immediately upon entering the workforce, take advantage of tax-deferred savings plans.They are the greatest way to fund your retirement nesting;Your 401K, your 403b, your IRA’s.From the first day you enter the work force, try contribute to these plans,Seek out your employers, see what they offer.Often times the employer offers what is called en employer match,Which is money they contribute, that’s not out of your pocket, but which could also contribute to your retirement nest egg. These vehicles represent the best way for young people to generate wealth. Lastly, understand there is no silver bullet for wealth creation.“Are you behind the Eight Ball” is not a “get rich quick” book.However, by setting goals, , instilling strict discipline in spending habits and learning how money functions by understanding principles such as compounding rates of interest, --which by the way is Warren Buffet’s secret to his success!—by understanding balance sheets and budgets, one can go a long way to living debt free and creating substantial sums of wealth for their household!Thank you very much for your time. ................
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