Many ways to invest your money

This was originally published on Monday, September 25, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

There are many types of investments and investing styles to choose. Which you choose depends on your goals. The best portfolio is a diverse one. Here are some investments that may interest you.

Bank products. Banks, credit unions and financial institutions usually provide the safest and most convenient investments. Savings accounts usually have a higher interest rates than a checking account. Money market accounts earn slightly more than a savings account and sometimes have a limit on withdrawals. Money Certificates and Certificates of Deposits earn more than your traditional savings account. These products are not risky and therefore do not earn a lot of interest.

Bonds. A bond is a loan you give to a government, a federal agency, corporation or other organization in exchange for interest payments over a term plus the original amount loaned. There are a wide variety of bonds. The most popular are Treasuries through the federal government. Some bonds fluctuate like the stock market. The risk of the bond depends on the type of bond.

Stocks. Stocks are a piece of ownership of a corporation. The money you make or lose depends on how well the company performs and the type of stock you own. Another factor is the how well the stock market performs.

Investment funds. Many investors pool their money with a specific strategy of how they will earn money. They can feature a wide variety of investment plans. Publicly offered funds must be registered with the Securities and Exchange Commission. These include mutual funds and exchanged-traded funds. Hedge funds are private and are usually exempt from registering with the SEC.

Annuities. An annuity is a contract between an insurance company and the investor. The insurance company makes periodical payments. The most common annuities are fixed and variable. They are usually tax-deferred but do have certain fees and expenses including high commissions.

Retirement. There are several ways to save for retirement and manage the income once you retire. The most popular are a 401(k) and the Individual Retirement Arrangements. Both offer tax benefits and compound your investment over time. Many larger companies offer retirement plans in which they match your contributions to a certain percentage.

Insurance. Life insurance products should be included in a financial plan. There are many forms and variations. They are usually used to meet a specific goal as you age and can be quite complex. Some of the most popular are term life, whole life, and universal life.

Real estate. Buying real estate as an investment has grown in popularity. Turn to any home improvement channel and you will find numerous shows on flipping property. Depending on the rental or selling market it can be quite lucrative. Renting real estate can be quite labor intensive and may require a security net between renters if you have a mortgage to pay on the property.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

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Before investing, know risk tolerance

This was originally published on Monday, September 18, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: I am looking to start investing my money other than just in my savings account at my bank. I am not sure where to start or where to invest. Do you have tips for a first-time investor?

Banks and credit unions are a safe risk, but returns aren’t as high as other types of investments. The general rule is the higher the risk, the higher the return. If a return higher than a bank, credit union or financial institution is what you seek, I recommend you first identify your tolerance for risk. That will determine how you invest your hard-earned savings.

Have a plan. Ask yourself a few questions. How much can I invest? Can I afford to lose money? What is my goal? How long do I want to take to reach my goal? What type of investment do I want?

Risk tolerance. The website thebalance.com describes risk tolerance as an investing term relating to the amount of market risk, especially the volatility (ups and downs), an investor can tolerate. Understanding your risk tolerance is an important component in investing. Have a realistic conception of your ability to take a risk. Are you able to handle the loss without panicking and selling at the wrong time?

Taxes. Most people start an investment with a small amount of money and grow it over a period of time. Consider investing in a tax-efficient plan like a pension plan. How much tax you pay upfront or at the end makes a huge difference. Know how your money is going to be taxed when you open up the account.

Diversify. Consider putting your money in different types of plans. Different markets rise and fall and having your money in different types of markets and plans will help balance the losses. Diversification reduces the risk of your portfolio from being completely wiped out by a single event and is the best defense against a financial crisis.

Do your research. The internet and media are full of tips on how to grow your investment faster. Talk to a certified investment counselor at a reputable institution. They will be able to guide you and help your investment grow. Remember the old adage: “If it sounds too good to be true, it probably is.”

Invest regularly. Investing a little here and there can be more beneficial than investing lump sums less frequently. It takes advantage of compound interest. Compound interest is based on the interest made based on the amount invested. The more invested, the more it earns.

Review. Look at your investments quarterly and at the end of the year. Don’t be so quick to move your money around or sell. Most trends need time. If you constantly review your portfolio, you become anxious and do something you may regret later. By evaluating it over time, you can get a sense of how well or poorly your investment behaves. As different funds change, it will affect the overall risk tolerance of your portfolio.

Stick to your plan. Unless your goals change, stick to your plan. If you have concerns, seek guidance from a professional. Know what you are comfortable with. Investing is best when it is easy and stress free.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Planning frees you from worry, what-ifs

This was originally published on Monday, April 22, 2013, in the Pacific Daily News.  Click here to subscribe to the PDN.

Suze Orman once said “a big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.” That is undoubtedly the mindset you want when it comes to planning for your retirement. Unfortunately for many people, retirement planning causes anxiety, especially when faced with numerous financial uncertainties.

Whether retirement is just around the corner or thirty years away, there are several steps to planning for a successful retirement.

Have a goal — I discussed this a few weeks ago. But I feel it is worth repeating. It is essential to know how much you need to live comfortably during your golden years. Having a set goal will ultimately line up how much you need to put away yearly till that day of retirement. It is uncertain how long you will live after you retire but consider having enough put away for twenty to twenty-five years after retirement.

The sooner, the better — Start a plan as soon as you can. It is never too late. Even if you have ten years or less till retirement, you can start saving. You may have to work a little harder to catch up, but having something put aside is better than not having anything at all.

Keep track of your progress — Once you have your target goal and your money is working for you, watch your progress. Review your investment portfolio yearly. If your investments perform better than expected, you may want to consider a less aggressive strategy and lower the risk level needed to make your goal. And vice versa, if your investments are not performing to meet your goals, you may need to invest in a higher level of risk. As time goes along and your lifestyle changes (marriage, family, homeownership, etc.), you may need to readjust your goals or contributions.

Stay invested — Many retirement plans are based on the stock market. It is very difficult to watch the market rise and fall. Don’t give into the temptation of moving your investments around. Ride it out for a while. Stocks generally are considered a long-term investment. The ups and downs usually average out and provide a steady return on investment when you invest long term.

Work with a professional — Planning for the future is very important and can be quite confusing. You may want to hire someone who can help you grow your nest egg. Look for someone who has your best interest in mind. They should have access to a wide variety of investment options from different companies. They should not represent any specific investment company. Their fee should be based on how your portfolio performs. If they ask for their fee up front, there is no incentive to make your money grow.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and with financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Do retirement goals match your current situation?

Because your life and your plans will change, a checkup at least annually will keep your retirement plans on track.

Retirement Plan

Review your most recent list of retirement needs and plans. Do you still envision the same retirement lifestyle as your original plan? Talk your plans over with your spouse and your family, and revise your estimates as needed. You can talk to a professional financial planner or use retirement calculators online to help you with your projections.

Retirement Savings

Your income may change from year to year, with raises, promotions, and changes in your job situation. Your projections for your retirement needs may also change, which could alter the amount you should contribute every month or year. Keep your contributions up-to-date by reviewing them at least once a year.

Measure your progress. Pull out your statements from your 401(k), traditional or Roth IRA, or any other retirement accounts to which you make contributions for the year. Total your contributions so far for 2012, starting from January 1, 2012. Hold on to those totals—you will refer to them for both 2012 and 2013 planning.

Know your limits. Make sure that your contributions for the year fall below the set limits of your plan or account. The general 401(k) limit provided by the IRS for employee contributions is $17,000 for 2012. The IRS also permits an additional $5,500 contribution for employees age 50 and over. However, limits for your specific 401(k) plan may differ, so check with your employer.

The general 2012 limits for traditional and Roth IRA accounts combined are $5,000 for those under 50 years of age and $6,000 for contributors age 50 and older. There are additional income requirements for the Roth IRA, and other requirements that you must fulfill to take the tax deduction on traditional IRA contributions. You can find more information by visiting the IRS website or talking to a tax professional about your specific situation.

Contribute more to your 2012 retirement savings. If you have not met the limits above, you can bulk up your retirement account by contributing more savings before the deadlines close for your plan or account.

Contributions to the 401(k) and the traditional IRA can also give you tax benefits for the year if you meet requirements; taxes on these contributions are deferred until they are withdrawn in retirement. Because those savings are not counted as taxable income in 2012, you pay less in taxes for the year.

For your 401(k), you should make any additional contributions by December 31, 2012. If you have a Roth or traditional IRA, you can make 2012 contributions until the year’s tax deadline, which is April 15, 2013.

Plan your contributions for 2013. A financial planner or retirement calculator can help you decide whether to increase or decrease your monthly retirement contribution for 2013, in line with your revised retirement plan. You should also take a look back at your 2012 contributions. Did they fit comfortably in your budget? Did your income change in the past year?

Once you revise the amount, notify your employer or schedule automatic transfers to your IRA from your checking account starting in 2013.

Investments

A financial adviser can help you review your retirement investments and make changes to rebalance your portfolio. If you review investments on your own, consider the amount of time you have left before retirement and your tolerance for risk as you choose between growth, income, and balanced investments.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years experience in retail banking and with financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com

Invest to build retirement savings

In the past few columns, we reviewed different retirement accounts and reasons to save for retirement. We also discussed changing your budget to include retirement savings.

Once your savings are in a retirement account, it’s time to figure out what to invest in. Here are a few tips to help you along the way.

Learn as much as you can. With investing comes a series of choices. Do you buy, sell or hold? Do you choose an index fund or an actively managed fund? Do you invest on your own or find a financial adviser? Do you invest for growth or income, or choose a balanced fund?

Before you settle on an investing choice, it is fundamentally important that you fully understand your options, and that you are clear on the reasoning behind the choice you are making.

Investing in securities comes with risks. People invest in the financial markets despite those risks because of the potential rewards, and because those rewards can provide a way to beat inflation and grow a much-needed retirement fund. To understand those risks, anticipate them, and do what you can to protect against risk, learning more about the markets is the place to start.

For a basic introductory guide, the U.S.  Securities and Exchange Commission hosts  www.Investor.gov for new investors. Next, look for different books and articles on investing, take advantage of any workshops offered in the community, and talk to financial professionals about the services and advice they offer.

Learning more about the different securities and investing approaches will help a great deal. That information can protect your money against unnecessary risks, and help you ask financial advisers and professionals informed questions. It also can prepare you for the market’s ups and downs, and give you more peace of mind about your retirement fund.

Diversify your investments. We’ve talked about using a long time period for investing to protect against market risk. Another way to guard against risk is to diversify — in other words, to put your money into many different securities at once. If one of your investments falls in price, that loss can be offset by the rising prices of other investments in your retirement fund. Mutual funds provide diversification because they are composed of a mix of stocks, a mix of bonds, or both.

Understand your tolerance for risk.

Different securities come with different levels of risk. Stocks, or shares of ownership of a company, are the most volatile. Stocks can rise high, but they also can fall far. Bonds tend to be safer: they represent debt that a company must pay back with interest, rather than ownership. U.S. Treasury bills and notes are even safer, but with that safety comes the likelihood of a smaller return.

In general, the longer a time horizon you have, the more risk your retirement portfolio can absorb, and vice versa. As you get closer to retirement, it’s more important to hold safer securities, because there won’t be much time for the portfolio to recover from any potential loss.

Watch for fees. Fees will lower your return, so it’s important to understand the fees involved in investing, and to compare fees for similar products and services.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 19 years experience in retail banking and with financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover,  please email him at  moneymattersguam@yahoo.com

Small but steady saving can pay for your child’s education

Saving for your child’s college education or post-secondary training doesn’t have to be overwhelming. With some careful thought early in your child’s life, you can put enough away to give your child has a good head start in adulthood.

Start with small amounts. If you think that you might have trouble adding college savings to your budget, start small. Pick an amount: $10, $15 or $20 per child every pay period. Arrange for a regular, automatic deposit out of your account and monitor the difference it makes in your finances.

Once college savings becomes an established part of your budget, you can steadily increase the amount by small increments, adjusting your budget until you reach a level you can sustain for the long term.

The most important thing is to give college savings a steady, consistent presence in your current budget. You’re taking a large, distant goal and translating it into a set of smaller goals. As the years go by and your family’s income improves, you can increase college savings by an even greater degree.

Start saving now. If you start saving as soon as your child is born, you have 18 years ahead of you to earn compound interest.

If your family saves $75 each pay period for your child’s college education, that adds up to $1,950 a year — just under the 2012 contribution limit for the Coverdell Education Savings Account, which allows you to grow and withdraw earnings tax-free, as long as those earnings are used for the beneficiary’s qualified education expenses.

After 18 years, your family will have contributed $35,100 in principal to your child’s college savings.

If you invest the money as you put it away, you can increase the funds your child will be able to use for his or her post-secondary education.

We’ll assume for this exercise that you’re a conservative investor, and predict an average annual return of 5 percent on your investment. (Discuss the investment strategy that’s right for you with a financial adviser.) With an average annual compounded return of 5 percent, you’ll end up with about $56,200 in that account.

That’s $21,100 in earnings, before taxes and fees, on top of the $35,100 that you contributed.

If you save and invest the same principal amount, $35,100, at the same annual rate of return compounded annually over four years instead of 18 years, your earnings fall to about $3,700, instead of $21,100.

How much you save will depend on your means, your circumstances and your family’s goals for your children. Financial aid can supplement those savings with scholarships, grants, work-study and loans. But there’s no denying the long-term economic gains of a college education or post-secondary training. Education and training influence the decades of work that follow, broadening your child’s earnings potential and ability to pursue a fulfilling career.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 19 years experience in retail banking and with financial institutions in Guam and Hawaii. You can email him at moneymattersguam@yahoo.com.