Annuity Types

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Two Main Annuity Types: Immediate and Deferred

The difference between deferred and immediate annuities is what you may expect.

With an immediate annuity, your income payments start right away (technically, anytime within 12 months of purchase). You choose whether you want income guaranteed for a specific number of years or for your lifetime. The insurance company calculates the amount of each income payment based on your purchase amount and your life expectancy.

A deferred annuity has two phases: the accumulation phase, where you let your money grow for a while, and the payout phase. During accumulation, your money grows tax-deferred until you take it out, either as a lump sum or as a series of payments. You decide when to take income from your annuity and therefore, when to pay the taxes. Gaining increased control over your taxes is one of the key benefits of annuities.

The payout phase begins when you decide to take income from your annuity. For most people, this is during retirement. As your needs dictate, you can take partial withdrawals, completely cash-out (surrender) your annuity, or convert your deferred annuity into a stream of income payments (annuitization). This last option is essentially the same as buying an immediate annuity.

Setting Financial Goals

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Most of us are so busy just getting through each day that it's hard to take the time to look ahead and make plans for the future. As a result, we focus on paying monthly bills, rather than planning for a dream vacation or a comfortable retirement. It's important to step back periodically and set goals for how we want to manage our money.

What You Should Know

A goal is a statement of what you want the future to look like. Goals identify achievements that will bring us pleasure. They give us something to look forward to, work toward, and save for.
Your goals might include buying a house or a car, setting up a college fund for a child or grandchild, or taking exotic vacations every year. And don't forget the goal that everyone shares: saving for retirement.
Once you've set your goals, you can devise strategies that will help you meet them. You can also easily measure your progress toward reaching your goals. This gives you more control over your finances.
Without goals, your financial planning loses meaning. It's hard to make financial decisions if you don't know what you're saving for.
With goals, you'll accomplish more, add to your financial security, and improve your quality of life.

Charting Your Goals

Pull out the Financial Notebook you started when you organized your paperwork. Print out the chart described below and add it to your notebook's Financial Plans section.
The columns on the financial goals chart are labeled as follows:
Date. For your own records, enter the date that you decided on this goal.
Goal. Try to start with at least four goals. Consider all areas of your life when setting your goals. These areas might include retirement security, housing, hobbies, volunteering, travel, education, employment, major purchases, cultural or social events, physical fitness, recreation, and gifts.

Dollar amount

List the amount of money you think you'll need to reach each goal. This estimate will help direct your financial planning.
Target date. If the goal is retirement savings, do you know when you will retire? If you want to give your grandchild $5,000 for a college fund, when will he or she need it?

Date attained

Every time you complete a goal, write down the date. Then celebrate!

Don't forget long-term goals

It's sometimes easier to plan for short-term goals ¬ like buying a car ¬ than for long-term goals like saving for retirement. But long-term goals are essential to your financial security. Long-term goals are best reached if you set intermediate, short-term goals that will help you go the distance. For example, you might set a short-term goal to contribute $150 each month to an Individual Retirement Account or to send a $100 check each month to pay off your credit-card debt. If you meet these short-term goals each month, you're bound to meet your long-term goals down the road.

Have Realistic Expections

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Nothing you do is going to change your financial situation overnight, but each time you make a sound financial decision, it will make a small difference. And every financial decision you make will impact your life over an extended period of time. It is important to keep an open mind about your personal finances and to stick to your financial goals. Similar to a successful weight loss program, you must change the way you view your financial decisions, just as you would change your eating decisions. You must find a plan that works for you and stick to it. The financial advice on this website will work for you but it will take a long time and you have to remain committed to finding financial freedom for yourself. One of the goals of financial planning is to plan for retirement, or better yet, early retirement. Try to keep realistic goals and expectations and you will have a much easier and less frustrating time managing your finances.

Basic Investing Strategies

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There are times when investing looks like such a sure thing that limiting your rewards with any sort of defensive strategy seems foolish. But venturing into the markets fully exposed is like giving up your health insurance policy to pay for a family hiking trip -- one slip, and you're done for.

The longer you have to invest, the more the clock will make up for the inevitable short-term losses. But these three classic defensive strategies are still crucial if you want to maximize your gains while limiting your risk.

Diversification

The single best way to protect yourself from a meltdown in one stock or industry is to spread your risk across several different investments. The more diversified your portfolio is, the less any one stock can hurt you by blowing up.

Suppose, for instance, that Dell Computer is the only stock you own. Sure, it's been one of the market's best performers over the past decade, but if the PC business suddenly slowed down, the stock would drop and you'd be in hot water -- especially if you needed the money anytime soon. Not so, however, if you owned a mix of Dell, Coca-Cola, Wal-Mart, shares of your hometown bank and IPALCO, an Indiana-based utility. In that case, you'd certainly feel the PC slowdown, but 80% of your portfolio would remain unaffected.

If you've got the time and energy, you can create your own diversified portfolio. But it will mean keeping track of at least 20 different stocks or bonds at once -- a daunting task, to say the least. A much easier solution is to buy a range of mutual funds and leave the diversification worries up to professional management. By purchasing a fund you can easily spread your money across hundreds of separate stocks. You'll pay a little in fees, but the savings in time and aggravation are probably worth it.

Dollar-Cost Averaging

Dollar-cost averaging is another form of diversification -- only instead of spreading your money over a bunch of different stocks or bonds, it diversifies your investments over time. The natural human tendency is to buy lots of stock when prices are rising and to stop buying them altogether when prices are on the downswing. Dollar-cost averaging forces you to do the opposite -- you end up buying the most stock when prices are low.

Here's how it works: Suppose you decide to put $300 a month into a mutual fund that invests in the stocks of large companies. Your broker or fund company can set up an account for you and the money is pulled straight from your paycheck on the same day each month. After a while, you hardly know it's gone.

If a share of the fund costs $50 in October, your $300 will buy six shares. If the price rises to $75 in November, you buy four shares. If the price drops to $25 in December you buy 12 shares. The idea is that your money buys more shares when the price is cheap and fewer when the price is high. That lowers your total cost and, assuming the fund's overall trendline is upward, you capture more of the upside.

That's not to say dollar-cost averaging protects you from a falling market. If the fund's value crashes, so does your overall investment. But the strategy does ensure that you invest new money when prices are low so that you can enjoy the run-up when the market recovers -- as it always does with time.

A lot of people also use dollar-cost averaging when they want to move a big chunk of money into the market -- an inheritance, say, or a year-end bonus. The idea here is to protect yourself from putting all your money in at once and having the market crash days or weeks later. It's true that if the market moves sharply higher, you've missed an opportunity. In volatile times, that risk is worth it.

Of course, if you're moving money from one stock account to another -- as many people do when they change jobs and roll over their 401(k) accounts -- dollar-cost averaging doesn't make much sense. If your money is already in stocks, you're not assuming any more risk if you simply transfer it into a new account.

Asset Allocation

Asset allocation is yet another way to diversify. It takes advantage of the fact that when it comes to risk and reward, financial categories like stocks, bonds and money-market accounts all behave quite differently.

Stocks, for instance, offer the highest returns among those three "asset classes," but they also carry the highest risk of losses. Bonds aren't so lucrative, but they offer a lot more stability than stocks. Money-market returns are puny, but you'll never lose your initial investment. An asset-allocation strategy looks at your particular goals and circumstances and determines what asset mix gives you the optimal blend of risk and reward.

Here's an example. Say your goal is retirement. When you're young -- in your 20s or 30s -- and have time to make up for short-term market losses, an asset-allocation scheme would put you heavily into stocks, maybe 100% of your savings. You might even spice it up with a mix of large-company stocks, small-company stocks and international stocks to diversify your exposure within the category.
As you moved into your late 30s and early 40s, however, you'd probably want to add some bonds to give your portfolio some stability and income. Maybe you'd shift to a 75/25 blend -- still favoring growth, but not overdoing it. The closer you got to retirement age, the more you would ratchet up the bonds and taper off the stocks. And in your last few years, when you simply could not afford big market losses, your portfolio would be heavy on short-term bonds or money-market funds -- the least risky of all investments.

If you're serious about it, allocation models also help you buy low and sell high. Say, for instance, small-company stocks are on fire one year, but large-company stocks are merely standing still. If the stock portion of your allocation model called for a 50/50 mix between the two, this sudden surge in small-company values would upset the balance. To make things right again, you'd have to sell some expensive small-company stock and buy some cheaper large companies. If you "rebalanced" this way each year, you'd always be trading expensive assets for those with more growth potential.

Dividends and Total Return

Historically, dividends have provided a significant proportion of the stock market's total return. “From 1929 through 2004, dividends accounted for over one-third of the market’s total return” has been noted by some fund managers and investment officers.

During this time, there were extended periods when a greater percentage of stocks' total return came from dividends than from capital appreciation (using the S&P 500 Index as a proxy for the overall market). In the 1940s, for instance, 67% of the market’s 9.2% average annualized return was a result of dividends, while in the 1960s— when the market returned 7.8% annually — this number reached 73%.

Given today's expectations for limited capital appreciation, stocks that pay above-average dividends and mutual funds that invest in them are potentially attractive to a wider range of investors.

Why Have Dividends Come Back Into Favor?

Several factors provide an improved foundation for dividend-paying stocks:

Tax Advantage

The maximum federal tax rate on dividend payments is now just 15%, even for investors in higher tax brackets. A dividend payment now represents more cash in investors’ pockets than it did just two years ago. This has helped increase the demand for higher-yielding stocks.

Lower Interest Rates

Even after seven quarter-point increases by the Fed, money market yields remain in the neighborhood of 2.2%. Longer-term bonds are also offering relatively low yields: for most of 2004, the 10-year Treasury note paid between 4.0% and 4.8%. In this environment, the dividend yield on stocks has become more attractive. This is particularly true in light of stocks' greater potential for long-term capital appreciation.

Reliable Indicators

Dividends have also returned to their traditional role as a signal of a company’s current financial health and its prospects for the future. The ability to pay steady dividends and to increase the payout over time provides concrete evidence of a company's underlying financial condition. As a result, dividends — rather than financial reports or management statements — are now often viewed as a more reliable indicator of a company’s health.

Potential Outperformance

Higher-yielding stocks have the potential to outperform in down markets, since investors are attracted by the “cushion” dividends provide. Following the stock market downturn of 2000-2002, investors’ appetite for lower-volatility stocks has increased. It is important to keep in mind that a dividend, in itself, will not prevent capital erosion. However, on a historical basis dividend-paying stocks have generally outperformed during bear markets. Of course, past performance cannot guarantee future results.

Some Considerations

More Companies Have Increased or Begun Paying Dividends:
U.S. corporate behavior has responded to this increased demand for dividend-paying stocks. In 2004, the S&P 500 Index recorded 269 dividend increases, compared to 240 in 2003 — the largest increase in number since 1998. Perhaps the most notable sign of the times was the $33 billion special dividend payout by Microsoft, the technology giant that had hoarded cash throughout its 18-year history as a public company.

Given the record level of cash on corporate balance sheets, the trend of higher dividend payouts could continue. In addition, the yield on the S&P 500 Index is currently 1.8%, a half of what it was in 1991 and still well below its historical average of approximately 4.5% — another indicator that there could be substantial room for upside.

High Yields May Signal an Underlying Problem

Often, a high dividend yield can serve as a warning sign that a stock’s price might be depressed for a fundamental reason. Also look for companies with strong earnings growth, solid balance sheets, and attractive valuations. Yield alone is not a sufficient reason to purchase shares in a company.”

It isn’t necessary to give up growth to invest in dividend-paying stocks. Many companies with attractive yields are not slower-growth companies — they’re innovative world leaders. Investors don’t have to feel they are giving up growth potential by pursuing a dividend-focused strategy.

What Does This Mean For Investors?

Given the last two years' rapid increase in corporate earnings growth, many analysts expect a slower rate in the future. With the prospect for higher interest rates and the market's strong two-year gain, stock valuations are also unlikely to increase significantly. These factors may weigh on stock prices. Once you start thinking in terms of single digit returns the 2% to 2.5% yield you might get from dividends becomes a much more relevant part of total return.

Taken together, these factors may indicate that now could be a good time for investors to take a closer look at funds that invest a substantial portion of their assets in dividend-paying stocks. In a lower-return environment, even growth-oriented investors may benefit from the boost to returns that dividends can provide. In addition, investors who wish to maintain equity exposure but who are also concerned about short-term volatility should consider dividend-oriented funds as a lower-risk way to participate in the long-term growth of the stock market.
Mutual funds are subject to market risk, including loss of principal. The appreciation potential of a mutual fund with a dividend orientation may be somewhat less than a fund concentrating on rapidly growing smaller firms. Also, a company may reduce or eliminate its dividend.

Wealth Management

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WEALTH MANAGEMENT PITFALLS


1. Leaving Assets Unprotected

It’s not going to do you much good to build up your wealth if you let it slip through your
fingers. Any number of catastrophes can occur along the way. Have you really protected
yourself and your family?

Do you have adequate life insurance? If you died tomorrow, would your spouse or loved ones have money to pay some of their biggest expenses like college or paying off the mortgage balance? Would they be able to stay in your house and still be able to pay the bills? Life insurance can help protect the assets you’ve built up by sheltering them from estate tax and providing income replacement for your family. This is especially important when you have young children, a nonworking spouse, or a big mortgage. You’ll want to consider these needs as you weigh the cost of life insurance.

Another potential wealth destroyer is the dizzying cost of medical care in your later years. Have you considered long-term care insurance? According to a study by the New England Journal of Medicine, 43% of people age 65 are expected to enter a nursing home at least once before they die. Many people are in denial about long-term care. If you don’t have a relative or family friend who has gone through this process, you may not have given it much thought at all. For those of you who have experienced it first-hand, you know the physical, mental, and financial strain it can bring to the whole family. Does everyone need it? No. The very rich can self-insure, and the very poor won’t be able to afford it. For everyone else, it’s worth taking a look at these policies.

Finally, consider how you are protecting your personal property. Is your home protected from fire, weather disasters, and theft? How about acts of terrorism? Take a look at your homeowner’s insurance to be sure. You should also have adequate coverage on your auto insurance. If you or someone in your family had an accident, would your insurance company pay for the damage? What about lawsuits that could arise from an accident? Check to see what the underlying liability coverage is for both homeowners and auto insurance. Protect yourself from property lawsuits by purchasing an "umbrella" policy. These policies build on the underlying liability levels in your homeowner's and auto policies and take your coverage up to the $1 million range. The more wealth you’ve accumulated, the more umbrella coverage you should carry.

2. Mismanaging Cash Flow

The most successful wealth managers know that they must be disciplined in their spending. It’s so easy to let expenses creep up as you make more and more money. If you’re not careful, those expenses can kill your chances of capitalizing on that wealth. The first rule of any good financial plan is to pay yourself first. Make sure you are putting away a healthy portion of your income and investing it. Don’t trip over the pitfall of living beyond your means.
Another aspect of managing cash flow is minimizing taxes. As your return gets more and more complex, you need to find professional help to take advantage of every deduction you’re entitled to. Your accountant can also help identify other opportunities like additional retirement funding vehicles, mortgage refinancing strategies and/or estate planning techniques. At the very least, you should be discussing ways to use capital loss carryforwards (many of you will have these) to your advantage.

During your working years, it is critical that you carry disability insurance. Many of you can purchase this coverage through your employer. Take advantage of the opportunity to protect your income should something prevent you from working. It’s far more probable that you’ll have a disability claim than a life insurance claim, and yet many people ignore this important coverage.

3. Mismanaging Debt.

You need to think about debt management in your personal life too. How much debt is too much? Look at your shorter-term debts first--things like credit card debt, car loans, bank loans, student loans, etc. If your short-term loans add up to more than your liquid assets, you probably have too much short-term debt. (Liquid assets would include cash accounts, brokerage accounts, and cash surrender value of life insurance policies.) If you find yourself in this situation, you should (at the very least) examine the interest rates you are paying on each loan and try to consolidate your debt at a lower interest rate. Home equity lines of credit work well in many situations because not only are interest rates low, but the interest is tax deductible.
Mortgages can be a good way of managing debt. You get a tax break, and interest rates are usually lower. But even with your mortgage you should exercise some caution. Taking on more debt makes it harder to adjust should you find your circumstances change (for instance, you lose your job). Try to keep mortgage debt below 75% of the value of the property.

4. Neglecting Your Finances

One of the biggest pitfalls in wealth management is just lack of attention. People are very busy. Sometimes personal finance takes a backseat to other more pressing matters. But if you take that approach, you may wind up feeling that the years have flown by and you haven’t made much progress. Successful wealth creation takes a commitment of time. If you can’t make that commitment, hire someone you can trust.

5. Choosing the Wrong Investment Strategy

Even if you’re able to generate a considerable amount of income, you have to know how to protect and preserve that capital.
One pitfall a lot of people have experienced is misjudging your risk tolerance. When market conditions are favorable, it was easy to think you can handle the risk. After seeing part of their portfolio value erased, many investors are rethinking how much risk (or loss) is acceptable to them.

Another common mistake is not rebalancing periodically. Many people refuse to sell if they’ve lost money on an investment. If your mix of stocks, bonds, and cash (your asset allocation) makes you uncomfortable, you need to think about taking some losses and moving to an asset allocation that is in line with your ability to handle risk.

If you do realize losses, you can try to make the best of it by being tax-savvy. No one likes to lose money, but those losses can be a benefit at tax time. You can use $3,000 a year to offset ordinary income. You can net out an unlimited amount of capital gains and losses against each other. Any losses you can’t use right away can be carried forward indefinitely. This is just one of many techniques you can use to create a tax-efficient portfolio.

6. Mismanaging Windfalls

Sometimes life hands you a little something extra. Maybe it’s stock options or an inheritance or some other once-in-a-lifetime event. Now that you’ve got that money, what do you intend to do with it?
Many benefit from professional advice in these types of situations. There are almost always tricky tax implications. For stock options, you have to understand what type of tax you may trigger upon exercise or sale of your shares: ordinary income tax, capital gains tax, alternative minimum tax, or all of the above. Careful planning can help you keep more of your windfall.
Most individuals have no idea how to integrate these windfalls of wealth into their own portfolios.

7. Failing to Maximize Retirement Plan Benefits

The majority of participants in company retirement plans don’t put away anything close to the maximum contribution. For 2004, you can contribute $13,000 ($16,000 if you are over age 50 and your plan allows it) to 401(k) plans, 403(b) plans, and 457 plans. If you have a Profit Sharing or SEP plan, you may be able to sock away as much as $41,000 a year. If you are at the executive level of your business, in addition to the "qualified" types of plans discussed above, you may be able to take advantage of "nonqualified" plans. These plans allow you to put away money and defer paying tax on the income until a future date when you take withdrawals. They have fewer restrictions on how much and who can contribute than qualified plans do. The downside is that you cannot roll over these plans (in general) to an IRA. When you take distributions, they are immediately taxable. In addition, if your company goes bankrupt, your nonqualified assets are not protected. You'll stand in line with other creditors. Good planning can help you make the most of these opportunities.
Another potential retirement pitfall is making a mistake when rolling over your company retirement plan to a traditional IRA. It's important to understand the tax issues, cash flow considerations, and potential penalties.."

8. Drawing Down Assets in Retirement

One of the biggest fears retirees have right now is running out of money too soon. You need to spend time thinking carefully about what you’ll have coming in during your retirement years as well as how much you expect to spend. You should probably seek professional help to quantify the probability of whether your assets will provide the type of retirement you’ve envisioned".
Even with careful retirement planning, there’s always going to be change. You’ll need to revise your plan as time goes by. A healthy dose of common sense also goes a long way. In times when the economy is sluggish and the stock market is gloomy, you can at least control your own expenses. This can mean voluntarily tightening your belt by spending less as well as choosing investments with low costs.
Once you reach age 70 1/2, you'll have to start taking withdrawals from traditional IRAs and most company plans.

9. Failing to Plan Your Estate

The estate planning arena is loaded with wealth management pitfalls. Many of you may not have any plan in place at all. That’s your biggest pitfall. The best way to care for your family if something happens to you is to put an estate plan in place. Other potential pitfalls include setting up a plan but forgetting to fund your trusts, and forgetting to change your beneficiary designations on life insurance, company benefits, IRAs, etc. Another important part of your planning should include considerations for disability as well as death. Powers of attorney for health care and property can help if you are disabled. So can living trusts.

10. Leaving Heirs Unprepared

One of the biggest concerns for families with significant wealth is how to teach their heirs how to responsibly manage the money they'll eventually inherit. You can set up children’s trusts within your estate documents that stagger the ages for access to the money over time. For example, instead of giving the children all of their inheritance at age 25 when they may not be emotionally ready for it, you can give them part of it at age 25, another portion when they are 35, etc. If they "blow" the first installment, there is still a chance they can make the most of the remainder of the estate.

Having family meetings during your lifetime can also go a long way toward educating your loved ones on how to manage wealth. It can also head off potential family squabbles over what your intentions are with respect to your assets.

Invest With a New Frame of Mind

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I mean two things by this: First, when I use the word “invest” in this instance, I don’t mean just putting money into a savings account or the stock market. You should treat every decision you make in your life as an investment decision. For example, when you’re deciding whether or not to go out to dinner tonight, whether or not to add the GPS satellite system to your new car order, whether or not to go on that clothes shopping spree, or something as simple as paying $20 each month for HBO: look at each decision as an investment.
It’s fine to spend your money, but you’d be surprised how much you can accumulate if you start investing with a new frame of mind.
Second, and most important, invest with a new frame of mind. Look at the money you invest with a new frame of mind. Instead of feeling like you’re putting away $100 this month when you could be buying a new DVD player, think of it this way: That $100 you just invested will pay you dividends for the rest of your life. That’s right, at a 10% return rate, you will receive $10 per year FOREVER from that investment. Moreover, if you leave the investment return in the same account, that $10 per year will grow each year. That means that if you invested $100 a month for 10 months, that your investment would return that same $100 every year.
Use this state of mind constantly and think of each investment you make. Instead of spending an extra $5,000 to upgrade your new car purchase to the sport package, you could invest that money and earn over $500 per year. In ten years when you sell your car, that $5,000 will be worth closer to $13,000 (with compounded interest at 10%) and you will be earning about $1,300 per year (or over $100 per month).

Why Invest

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UNDERSTANDING OUR GOALS AND THEIR RELATIONSHIP TO FINANCIAL DECISIONS


Before I delve into the complexities surrounding investing, I believe it is necessary to understand that our financial future is greatly determined by the actions that we take today. A major factor for consideration is that savings is a discipline, and to accomplish this discipline we must have clearly identified and attainable goals. Of course, we all have different backgrounds, goals, financial resources, health circumstances, etc. As these differences are recognized, we become aware of the individuality of our needs.

Some of us may be in a position where all financial issues have been successfully resolved. To those fortunate enough to be in this situation I extend my sincere congratulations. Unfortunately, most of us have many complex financial issues. Some may be struggling with debt, educational goals, planning for retirement, reducing their tax burden, improving the quality of life for themselves or their loved ones, or simply maximizing the return on their savings.

We all have many desires as to specifically what we wish to accomplish in life. Most of us realize that financial resources are a key ingredient to effectively accomplish our goals.


REASONS INDIVIDUALS NEED TO INVEST

Once goals are clearly understood, we can now focus on why we must invest. Many
of us are fortunate enough to enjoy our current occupation. However, we also have
seen many examples of life changes where we simply may not be able to continue
that occupation and the accompanying lifestyle.

Regular disciplined investing is the best method of accomplishing lifestyle flexibility.
We may wish to change our career, or avail ourselves to other options as our stag in
life changes. Financial security to achieve these changes can greatly reduce the stress
level many experience when making a lifestyle change. Others may find themselves
in a position of simply not making the change because of financial insecurity.

Many times in my lifetime I have seen, known, and heard of individuals that continued
in a career that was not rewarding, challenging, or that only satisfied financial needs.

By choosing to manage and invest on a regular and consistent basis, everyone can improve their
lifestyle and avail themselves to other options

Understanding Financial Advisers

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At some time in your life, you may need someone to help you manage your financial affairs. When that time comes, you'll be surprised to find out just how many financial advisers are out there, waiting to help you. The key to choosing the best adviser is knowing what services they provide, and what services you need.

What You Should Know

Sound easy? It isn't always. Choosing a financial adviser can be complicated, simply because advisers vary widely. Even though many advisers call themselves by the same name - like financial planner or stockbroker - they don't all provide the same services. And, they don't always get paid in the same way. This makes comparing prices a challenge. That's why it's critical to ask each professional very specific questions, so that you know what you're getting and what you'll pay.

Financial Planner or Investment Adviser?

Financial advisers fall into two categories:

Financial planners generally take a broad view of your financial affairs. They assess every aspect of your financial life, including your savings, investments, insurance, taxes, retirement, and estate planning. They work with you to identify your financial goals and develop a plan to meet those goals. Of course, not all financial planners provide all of these services. Some planners might focus on your investments, but not on your total financial picture. Others might recommend that you invest in only a limited range of products.

Investment advisers get paid for giving you advice about stocks, bonds, or mutual funds. These advisers may also manage your portfolio by buying and selling securities. Of course, not every investment adviser provides both of these services. Some will simply make trades for you, but won't give you any advice.

Here's a simple way to think about it. Most financial planners are investment advisers. Not all investment advisers are financial planners.

Investing for Beginners

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How To Start Investing

For those of you wondering how to get started investing, I’m writing this short practical guide to help get you started.

The first thing you need to do is realize that there is no “perfect” way or time for you to start. And there is no “perfect” product for you to start investing in. The best investment choices are the ones that you are comfortable with and the ones that you choose yourself. With that said, you can always choose different investments when you’re better informed. Once you get started, keep practicing and you will get better in decision making.

Indeed, as your investments grow, so will your knowledge of how to invest. Start simple and as you learn and accumulate more money, you can expand and diversify the types of investments you make. There are thousands and thousands of choices that you can make, so in order to get started you’ll want to come up with a plan. Here’s my advice on how to create your plan:

Determine Your Goals and Needs.

Depending on what your goals are, you will utilize different investment tools. Here are the first questions to answer. If you are saving for one or more of these goals, then prioritize them and allocate your investment money among the various investments.

• Are You investing for the short or medium-term? If so, you’ll want to open a traditional brokerage account, or maybe even use your local bank. If you are investing for the short-term (less than a year), then you are probably better off if you purchase a CD at your local bank or park your money in a money market savings account. If you are investing for the medium-term or long-term, you’ll want to open a brokerage account. Opening a brokerage account is as easy as filling out and mailing in a form or in some cases you may apply online.

Spoting Economic Trends

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The Fed doesn’t have the power many people think when it comes to moving the economy.
After all, the biggest forces in the economy are consumers—people who make day-to-day decisions about whether to save more, buy a car, remodel the house, or go on vacation. That's why economists closely watch the amount consumers spend, how much they have to pay for goods and services, their employment status, and their confidence levels.

In fact, many of the most important economic indicators described below are designed to provide standardized measures of consumer activities and are widely reported in the media.

Gross Domestic Product (GDP)

GDP measures the output of the economy. Estimates of GDP are made for each quarter, and the rate of growth or contraction is expressed as an annual figure.
A growing economy generally means more jobs, higher incomes, and more opportunities for businesses to earn profits. While GDP growth is often regarded as good news for financial markets, it’s possible to have too much of a good thing. If the economy is growing too rapidly, investors may worry that shortages of goods and workers will develop and cause inflation to worsen.
The main components of GDP are consumer spending; investment by businesses in new equipment, facilities, and inventories; spending by federal, state, and local governments; and net exports (exports minus imports). Statistics about these economic components provide clues to the direction of the economy.

Consumer Price Index (CPI)

For consumers and investors, one of the most important economic factors to watch is inflation, whose best-known indicator is the Consumer Price Index.
The CPI tracks the prices of some 80,000 goods and services—food, housing, transportation, health care, and clothing, among others—purchased by consumers. Changes in the CPI are used to adjust some aspects of Social Security and the federal income tax as well as certain labor and rental contracts.
The bond market, in particular, is sensitive to upward trends in the CPI, since inflation undermines the value of the fixed-interest payments paid by most bonds.
Personal income and spending
Because consumer spending makes up the lion’s share of economic activity in the United States, monthly reports on personal income and expenditures are among the most important economic statistics. The biggest component of personal income is the hourly wages and salaries workers earn. Other important sources of income include Social Security payments, pensions, and interest and dividends from investments.

Consumer confidence

Consumer spending is influenced not only by personal income, but also by how willing people are to spend the money they have. That’s why surveys of consumers’ attitudes are important economic signals. If consumers are optimistic, they tend to spend more freely; if they’re pessimistic, they tighten their belts. High consumer confidence is considered an indication of likely continued economic growth.

Productivity

When companies are able to produce more goods and services with the same resources, productivity is up. Over the long run, nothing is more important for a healthy economy than rising productivity—getting more goods and services per hour of work. Higher productivity means businesses can increase profits or wages for workers without increasing prices.
Productivity can be increased by investing in new machinery, computers, and computer software; scientific and technical innovation; and improving processes. Higher productivity is almost always regarded as good news for financial markets.
Employment and unemployment
Each month, the U.S. Department of Labor surveys individuals and businesses to gather employment and unemployment data. The unemployment rate is the percentage of people in the total workforce actively seeking jobs, including new entrants into the workforce and people who have lost jobs and are looking for new ones.
A rise in unemployment generally signals a slowing economy; falling unemployment is generally good news. Investors sometimes grow concerned that very low unemployment rates will cause employers to bid up wages and benefits to attract workers, resulting in higher costs and more rapid inflation.
To help give a better picture of what's happening in the labor market, the department also tracks statistics on workers' hours and wages.

Jobless claims

This weekly report on claims for unemployment insurance benefits, or jobless claims, tracks people who have lost jobs and applied to their states to receive unemployment compensation. This report can be an early indicator of changes in employment trends and in the economy.