Not everyone who invests in the stock market makes money. But if there was some protection against losing would you take advantage of it? Hedging may be your answer. But what is hedging? If you are new to the markets, you need to educate yourself on what hedging truly is and what protection it can provide for you. It is not for everyone and should be carefully scrutinized.

Look at hedging as protection against a stock when you really feel the market may be unstable. You purchase a stock at a certain price and are worried the market may fluctuate negatively. One option would be to purchase a futures contract and set a price for the stock that you own. The hedge will cost you money but it may be worth the price is your stock plunges downward.

An example for you might be your property insurance that protects your home against a fire, or someone breaking in and stealing all of your precious belongings. You don’t think your house will burn down, and you are hopeful no one breaks in, but if in fact it does happen, you have an insurance policy to protect you. A hedge is very similar to this scenario. It should be noted that in the stock market, hedging is a little more complicated.

We all would like to think that we live in a world that is risk free, however, the reality is much different. The stock market and the financial world are no different, but hedging needs to be well thought through as you pay for the convenience of offsetting your risk. If you purchase a hedge just because you are worried about the market, any profits you make will be decreased by the cost of the hedge. You are investing in the stock market to make money so there will always be risk as the market fluctuates daily. So use hedging wisely and purchase it only when you feel you need to have your risk offset.

Hedging is a tool that you can use to your advantage, so educating yourself on this vehicle is a really good thing.

Even if you only traded once per day, controlled your losses to 2%, lost 50% of the time, your wins would only have to be 2.06% to reach this feat.  That is not a very aggressive trading plan at all and you are only assuming that you trade once per day. 

If you can stay away from gambling and take the time to learn the stock market well you shouldn’t have too much difficulty beating the traditional stock market investing game.  Unfortunately, you’re not likely to find someone willing to do this for you because if they earn more money they are going to charge higher fees until your actual return is more in line with what traditional mutual funds provide.  They are just no free lunch you’ll have to learn to trade stocks on your own.

Cutting costs on your investments is just as important.  You not only save money when you spend less on investments, but you also get to invest those savings, if your smart, and earn even more money in the end.  If you let the money you save make you more money, you’ll be in a great place to built wealth.

One way to cut the cost is to spend less time and less money by investing in no load mutual funds.  You save time because you don’t have to research many individual investments.  You can enjoy the time you save, or you can invest it into another money making venture.  Invest that money you make, while you’re at it.

You also save money because you aren’t spending as much on fees.  The load that you normally pay is a fee to pay the fund manager.  When you don’t have to pay that, you can save it instead.  Some of these fees can cost a lot of money, too, and they don’t mean much either.  You are investing in funds chosen by other people that may not know much more than you, and you’re paying for it.  Instead, invest in an index no load fund which can give you a good average.

Do your research to find a great no load fund that will save you money and make you money.  Don’t waste money with investment advisors or “make millions” programs.  Save money and make money at the same time for the best results.

One of the best ways to determine if a fixed annuity is right for you is to begin to understand how the product works. It is like any other financial product, it is designed to benefit more than just you in the transaction. The goal of this sort of product should be a mutually beneficial situation where you are pleased with your return and the company offering the product is pleased with their return.

The basis of the contract is that you agree to pay the insurance company either a lump sum payment or a series of premium payments in exchanged for a future monthly or yearly benefit. The insurance company agrees to take your money, provide you with a predetermined interest or growth rate, and then distribute your money back to your in the future. These distributions are typically spread out over a number of years, and may even be set up to continue for the lifetime of the annuitant.

When it comes down to it, this is one of the major fixed annuity advantages. This insurance product is a quite safe way to ensure that you receive a monthly income payment for the remainder of your lifetime, providing you an opportunity to not outlive your income. Granted, you money will likely have diminishing value as time progresses, so this is not a meet all end all type of arrangement. When you couple this investment with other financial products, you can begin to place together an effective, safe, and beneficial financial plan for retirement.

Searching for potential investment is indeed difficult in all aspects and this is why investing in all its forms is not for everyone. There are so many potential investments where you can make money.  One of these is the growth stocks. For your better understanding of the subject at hand allow me to define growth stocks. These are stocks belonging to companies that have shown high growth in the past and, it is hoped, will continue to grow, leading to good investor returns. Building your trading system in growth stocks is very risky but not for some people because these are usually stocks that grow in value at a faster rate.  These are companies who are choosing to reinvest their growth into more growth.

Growth stocks are more commonly connected with new technologies and new industries. They are companies who are starting up and who do not really have a lot of capital but their company have a great potential. Growth stocks are usually connected with companies that have yet to prove themselves as financially stable. Their stocks could easily go up and could also easily crash.

In growth stocks, you must always be on the defensive side if ever you consider putting your investment portfolio in this corner. You must always remember the possibilities of whether this particular company will really take off, if it will last, and if its products are viable.

In growth stocks timing is everything. This is the main ingredient that will put it all together. For this reason alone it makes growth stocks difficult to predict as to when these stocks will take off.  One trick is to watch their financial history.  They should have significant research and development expenses.  This means they are trying to make good products.  That is the next thing to look at.  What kind of product are they selling.  What is their market share and what is the potential to take over more market share.  In short, are they truly an up and coming player or are they just blowing smoke.

The Two Types Of IRAs

There are two different IRAs (which stands for Individual Retirement Account): the Traditional IRA and the Roth IRA. Both accounts allow you to save money for retirement and both allow the money deposited in them to grow tax deferred, which means that you don’t have to pay taxes on the money in them from year to year the way you might if you just invested in the stock market.

Despite the tax deferral though, you do have to pay taxes on the money you invest in an IRA at some point and that is the main difference between the two IRA accounts. The deposits you put into a traditional IRA are done pre-tax, which essentially means that you get a tax deduction for the amount you put into a traditional IRA. If you put in $3,000 into a traditional IRA in 2009, then you’ll get a $3,000 deduction on your taxes when you file them in 2010. However, when you start to withdraw the money from your IRA, the earnings will be taxed at that point.

The Roth IRA handles taxes in just the opposite manner. The money that you put into the Roth is done post-tax, so the taxes have already been taken out. You don’t get a tax deduction for your contributions. But the bright side is that your withdrawals are tax free. When you hit retirement age and start pulling money out, you don’t have to pay any more taxes on that money.

Roth IRA Eligibility Requirements

The rules for eligibility are pretty simple and you don’t need any sort of Roth IRA eligibility calculator to figure out if you qualify or not. Not everyone qualifies for a Roth, but a lot of people do. Your eligibility for a Roth IRA hinges primarily on how much income you have. Single people who make less than $105,000 are eligible to contribute the full amount in 2009, and if they make more than $105,000 but less than $120,000 then they can contribute a partial amount. Married couples who make less than $166,000 can contribute the full amount and making between $166,000 and $176,000 will qualify them for a partial contribution.

Another qualification for eligibility is that you must have an income in order to contribute, and you cannot contribute more than your total income. So, for instance, a housewife with no taxable income would not be able to contribute to a Roth, even if her husband was eligible for one of his own. If that housewife had a part time job that paid her $2,000 a year, she would be able to contribute $2,000 to a Roth.

The Roth IRA eligibility for 2009 has not changed significantly from the rules in 2008. The contribution limit for both years was/is $5,000. After 2009 the limit will increase a certain amount to keep pace with inflation.

Why Should You Think About A Roth?

Generally, the best place to begin putting money away for retirement is going to be a 401k. You are able to contribute several thousand more than into an IRA, and your employer may match your contributions with some of his own. (If you leave your job and want to take your 401k with you, read our 401k rollover guide for information.) If you do not have an 401k available or are already putting the maximum allowed into one, then an IRA is the next best place to start saving additional retirement funds.

Unless you make a significantly high income and are looking for additional tax deductions now, I generally recommend going for a Roth IRA instead of a traditional IRA. The main reason I do this is that if you can go ahead and pay taxes on the money now, you are likely to save yourself some expenses over the long haul. The chances of taxes being lower in the future than they are now are slim, and you will also very likely be in a higher income tax bracket in any case, as most people’s income rises as they advance in their careers.

Whether you decide to go with a Roth or some other retirement vehicle, the important thing is to start saving now. The wonders of compounding interest will make you some serious money down the road, but you have to start putting money into your savings as soon as you can.

Two things to make sure to keep in mind when you are finding a good savings account is that your money needs to be both liquid and safe. You don’t want to put your emergency funds into anything that is high risk – because the money might not be there when you need it – and you don’t want the money locked away in some fund that you can’t get to easily, because that would obviously defeat the purpose of having it be there for emergencies.

Another thing to keep in mind is the interest rates on the savings accounts that you are considering. While you want your money to be safe and liquid, you also obviously want the best interest rate available for your money. In this article we’ll take a look at the different types of savings accounts available, see which one makes the most sense for you and look at what sort of interest rate you can expect to get on your money right now.

Types of Savings Accounts

There are two basic types of savings accounts: traditional savings accounts and money market funds. Let’s see what the differences between them are.

Regular savings accounts are held at banks, credit unions, savings and loans associations, and other similar institutions. The money in the account is guaranteed by the bank and the FDIC, so you can rest assured that the money you deposit into it is safe. These types of accounts generally don’t have the best savings account interest rates, but you can find a hidden gem every now and then.

Money market funds are savings-type accounts that you can open with financial and investment firms. In these accounts, the money that you deposit is actually invested in very low risk mutual funds. This generally leads to a better interest rate than is usually offered in traditional savings accounts. Since the money that you deposit is being invested, it is not guaranteed, but the money market fund manager’s primary goal is to keep the funds secure. I don’t think I’ve ever heard of anyone actually losing money in a money market fund.

Current Interest Rates

There are a couple of things that will determine the saving accounts interest rates you will personally qualify for. The primary factor in this is the amount of money that you plan to deposit with the bank or investment firm. There are many banks and investment firms out there that will let you open up an account with just $1, but you’re not going to get an incredibly good rate with these types of accounts.

High interest rate savings accounts usually require a deposit of at least $1,000 to get started, and even then you’re probably going get the lowest rate the bank or firm is currently offering. Depositing more will get you a higher interest rate, and banks and firms generally have rate increases at account balances of $2,500, $10,000, $50,000 and $100,000. Talk to the representative at your particular institution to find out what they offer.

Banks and Firms Offering Good Savings Account Interest Rates

Just about any local bank or investment firm branch is going to have some options available for you, but they may not have the best offer available. Going online can definitely increase your options and help you find better interest rates. There are several institutions that consistently offer great savings account interest rates: ING, Discover Bank, Zions Bank, AIG Bank and Choice Financial. Rates are currently fluctuating from around 1.3% to 2.1%, depending on the market and how much you are going to deposit.

Conclusion

Most people are going to be better served by putting their money into a money market fund than into a traditional savings account. Not only is your money more likely to get a better rate, but access to it is easier as well. However, there may be some great deals at local banks in your area that are better than what you’re able to find online, so make sure to shop around before deciding. You never know what a little research can help you find.

401k Rollover Rules

Parting is such sweet sorrow. The words of the Bard were never more true than when you leave a job. Even if you left on good terms and for a better opportunity, leaving a job and starting a new one is always going to be a fair sized hassle. Learning new places, meeting new people, and filling out a small mountain of paperwork. Among the things that should be on your To-Do list is taking care of the money left in your 401k at your old job.

There are a few things that you can choose to do with your old 401k. Essentially your options are: leave the money where it is, cash out and have your old company send you a check, or roll the funds into a retirement account at a new institution. Leaving the money where it is can be a good temporary solution – since you’re going to have your hands full for the time being with a new job – but it may not be the best long term answer. Cashing out and receiving the funds yourself is a bad financial decision, due to the taxes and penalties you’ll pay for making an early withdrawal. Rolling your 401k into a retirement account at a new institution – whether it’s a brokerage account or your new 401k – is generally the best option. Doing this allows you more investment choices for your money and helps you keep all of your retirement funds together at just one or two institutions, instead of spread out among several previous employers. Let’s take a deeper look at the options available to you and see which one makes the most sense for your situation.

Keeping The 401k Where It Is

Your first option when it comes to deciding what to do with your 401k is to simply leave the funds as they are in your old employer’s 401k plan. You will still be able to choose how your money is invested and you’ll continue to get a statement just as you have in the past.

Pros: This option is easy and requires no action on your part.

Cons: Long term, this is probably not the best solution. You only have access to the investment options your old employer has made available and you can’t contribute any more money to the account. In addition, over the course of several jobs or careers, this can lead to quite a few old 401k accounts spread out among various old employers.

One thing to note about this option is that it won’t be available to everyone. If your balance is under $5,000 when you leave a job, your employer can force you to withdraw your funds from their 401k plan and place them elsewhere. If this happens to you, your best option is to do one of the 401k rollovers that I describe below.

Rolling Into A New 401K

Your next option is to take the money in your old 401k and roll it directly into the 401k offered at your new employer. This assumes, of course, that your new employer offers a 401k, but chances are good that they do.

Pros: For people who don’t want to mess around with their retirement accounts too much and want to keep things as simple as possible, this is probably the best option. Rolling the money right into your new 401k is fairly easy, as you don’t have to deal with any outside companies or make too many investment decisions. Just fill out the necessary paperwork, roll the money in, and invest it the same as you have chosen to invest your ongoing contributions to your new 401k.

Cons: Rolling your old 401k into your new one limits the investment options that you have available. You can only choose to invest the money in the particular options your employer has made available. These options will nearly always be mutual funds with a big name investment firm. If you want to invest your money in stocks, bonds, ETFs, or even mutual funds that aren’t part of the new 401k plan, you are out of luck. Some will see this lack of options as “keeping things simple” while others will see it as an unnecessary limitation of investment options.

401k Rollover To An IRA With A Mutual Fund Company

If you choose not to roll your money into your new 401k, then moving the funds into an IRA is another option. An IRA is a retirement account much like a 401k, but it is not tied to an employer. You can open up an IRA with just about any bank, brokerage house, or mutual fund company. If you like the simplicity and security of mutual funds and want to invest in them, you can open your IRA directly with a mutual fund company.

Pros: Rolling your 401k into an IRA with a mutual fund company, such as Vanguard, Fidelity, American Funds, or others, gives you more investment options than you are likely to see from your new employer. These companies nearly always have easily understandable investment models and can even choose your investments for you based on the amount of time you want the money to be invested. On top of all that, these companies handle plenty of 401k rollovers, so your chances of getting things done quickly and cleanly are good.

Cons: You can only invest your money in the funds available from your particular fund company. Again, some will see this lack of choice as a good thing while others will object to it. If you think you’ll fall into the latter category, then this option isn’t for you. Additionally, fees and expenses can be higher in individual accounts then you would see in a group plan, such as your employer’s 401k.

401k Rollover To An IRA With A Broker

Offering you the greatest flexibility in investment options, rolling your funds into an IRA with a broker can be a great idea if you know how to take advantage of that flexibility.

Pros: Rolling your funds into an IRA with a broker opens up the whole wide world of stocks, bonds, ETFs, mutual funds, index funds, options, puts, warrants, and SPDRs up to you. If you want that kind of flexibility, then this is definitely the option for you. Brokers that fit in this category include eTrade, Scottrade, Zecco, TD Ameritrade and others.

Cons: Having a personal broker can cost more than a mutual fund account would if you don’t plan on trading often. If you are the “invest and forget about it” type, then this is not the option for you. Also, if you choose to go with a low- or no-fee broker to keep expenses down, you are essentially on your own when it comes to planning your investments. I don’t recommend this unless you have some good experience with investing. You don’t want to lose your entire retirement nest egg because you took some bad stock advice from your cousin.

401k IRA Rollover To A Roth

Another option that bears mentioning, rolling your money into a Roth IRA would be essentially the same as rolling it into a regular IRA, but it has an important tax distinction. The money that you put into 401k accounts and regular IRAs is not taxed until you pull the money out. In other words, the money comes straight from your paycheck without taxes being taken out, and then the money is taxed when you withdraw it. In a Roth IRA, the money is taxed before it goes into the account, and then you get to withdraw the money tax free.

The main factor in deciding between a normal, or traditional, IRA and a Roth is whether you think you’ll pay less in taxes now or later when you start to pull the money out. That is most likely a question best answered by a financial planner and your tax accountant, but it bears thinking about. If you decide to roll your money into a Roth, you’ll choose a company as above for a normal IRA, and then convert the IRA into a Roth by paying a lump sum of taxes. You’ll then have a Roth and will be able to take the money out at retirement tax free.

Withdraw The Money

The last option for deciding what to do with your 401k account is to simply withdraw the money and have your old employer send you a check. We mentioned it briefly up above, but it bears discussing more fully. Your old employer is required by law to withhold a certain percentage from the amount they send you: your regular tax rate (if you’re not sure what yours is, you can estimate it at 15 to 25%) and a penalty of 10% for withdrawing the money early. That means if your balance was $1,000 then you will net, at best, a payment of only $750. The government gets to keep the rest. Unfair, I agree, but that’s how the cookie crumbles.

To reiterate what I said above, this is not a good financial decision. You’ve been saving that money for retirement, so don’t give into temptation now and pull it out. Roll it into one of the above options and you’ll be much happier you did later.

Rollover Process

Now that you’ve decided what you want to do with the funds in your old 401k, let’s talk about the process you’ll have to go through to get things done. It’s not really very complicated, but you’ll probably spend some time filling out paperwork.

1) Contact your old employer. You need to do two things while you’re on the phone with them. First off, you need to make sure that they have you in their books as a terminated employee, and that your 401k is eligible to be transferred or rolled over to a new company. You’d be surprised how many 401k rollovers get hung up because the financial department at the old company didn’t know the employee had left or been let go. The second thing you need to do on the phone is get them to send you a current statement for your account and all of the paperwork they need to send a transfer to a new company.

2) Contact your new employer/broker/mutual fund company. The next thing you need to do is contact whoever you’re rolling your funds over to, and get them to send you a copy of the paperwork that they need to complete the transfer.

3) Fill out the paperwork. Once you’ve gotten everything faxed or sent to you in the mail, sit down and fill it all out. Hopefully it won’t be too much. When you’re filling it all out, you want to select the “Direct Rollover” option. Do not select any options that send you the money. If you are doing a rollover, the two institutions involved will handle the transfer of funds internally, and you’ll never see the money. If the company sends you the check – even if you intend to immediately deposit the funds into an IRA – they have to withhold the taxes and penalties.

4) Send off the paperwork, and relax with a cold beverage. Congrats, you’re done! Check your statement for the next couple of months to make sure that everything got transferred correctly, and then you can start choosing how you want everything to be invested.

This article was selected to appear in the Carnival of Personal Finance. Check out the rest of the entries at SimplyForties.