No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted by section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the publisher or permission through payment of the appropriate fee per copy to Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA by fax or on the Internet at www.copyright.com. Limitation of Liability/Disclaimer of Warranty: Although the publisher and author have used their best efforts to prepare this book, they make no representations or warranties as to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranty of merchantability or fitness for a specific purpose. Paul retired several years ago, but remains an enthusiastic supporter of the investment industry.
When Peter graduated a few years ago, I realized it was time to refocus on my dream: writing this book. Three good friends, Barbara Fullenkamp, Raymond Stevison, and Carole Nail, kindly read this book and made suggestions to make it reader-friendly.
CONTENTS
PART ONE: THE KEYS TO BUILDING WEALTH
PART TWO: THE KEYS TO MAKING INVESTMENT DECISIONS
PART THREE: THE KEYS TO KEEPING WEALTH
PART ONE
THE KEYS TO BUILDING WEALTH
Making Investment Decisions Based on Emotion Rather than Logic
The Industrial Average indicated trends in production of major industrial companies, such as American Cotton Oil, American Tobacco, General Electric, National Lead, Tennessee Coal, USA. The Railway Average can then be used to track the movement of finished goods on their way. to market. The stocks of companies with a capitalization below $1 billion are called small-cap stocks. The future of small-cap companies tends to be either much better or much worse than that of larger companies. The nifty-fifty blue chip stocks fell 20 percent in the first five weeks of the recession.
Adelphia Communications Corp., the fifth-largest cable operator, pleaded guilty to $2.5 billion in accounting fraud. This is the beauty of owning mutual funds: The day-to-day business decisions of managing the portfolios are in the hands of professionals. If interest rates rise, there will be a fall in the market value of the bonds.
It is not the current interest rate on foreign government bonds that makes them so attractive; it's the appreciation potential they provide during periods when the U.S.
Failing to Plan for the Devastating Effects of Inflation
The Rule of 72 is also a useful tool to help us understand the risk of inflation over time. If you and your spouse retire at age 65, one of you could easily live to see 30 years of inflation. 12 years to double your cost of living (6% inflation) Let's look at the story in Table 4.5. Price inflation rate in 30 years.
If you have more than one child headed to college in the next 10 years, base your planning on a personal inflation rate of 1 to 3 percent greater than average. Often you see or hear the news media quoting the inflation rate excluding volatile energy costs. Currently, the cost of these goods and services is far higher than average inflation.
It is important to predict your personal future inflation rate and make plans to offset expected future increases in expenses. Take a few minutes to project your personal inflation rate, not just for next year, but also for the next 30 years. According to Huff, men in this middle group need to plan for 32 years of inflation.
You may be able to modify your personal inflation rate by carefully monitoring your spending habits. Inflation risk increases over time and has hurt people far more than market risk. Use the Rule of 72 or the inflation per $1,000 table in Table 4.8 to help you determine your future income needs based on your personal inflation rate.
Not Taking Advantage of the Opportunities to Control Taxes
If you are in the top 50 percent, you should look for ways to legally reduce your tax burden. If you have been earning income (your salary), you would like it to be high enough that some of your income ends up in the highest marginal tax bracket (which is now 35 percent). Dividends paid by a small number of mutual funds because they invest in the previously mentioned non-qualifying assets.
If you buy a muni bond issued by a borrower in your country of residence, the interest will also be exempt from state income tax. Currently, long-term tax-free municipal bonds yield about 4 to 5 percent. The following two tax-free investment opportunities can provide funds for the education of your children or grandchildren.
These programs grow for your children tax-free and create tax-free income for education. You'll learn more about these last two tax-free programs as well as other ways to save for this future expense in Chapter 6. Remember, the stock dividends you earn along the way are also taxed in the same favorable way as long-term capital. profits.
But in the meantime, you're making a profit on money you'd give to the IRS. If you're not enrolled in an employer-sponsored retirement plan, you can fully participate in a tax-deductible traditional IRA, regardless of your income. If the Joneses withdraw all of their accumulated earnings, they can then withdraw their original $100,000 investment tax-free.
Smiths
Joneses
Tax destroyed 20 years
Tax controlled 20 years
Not Deciding What You Want to Accomplish with Your Money
The lighter bars represent the cost of the average state university today as well as 18 years from now. These projections cover all the major costs, such as tuition, books, supplies, and room and board. In recent decades, a college could extend full scholarships of $20,000 to five of the neediest.
The debt is considered unmanageable if debt payments require more than 8 percent of the borrower's monthly income. The money in these accounts is the property of the child at legal age (either 18 or 21, depending on the child's state of residence). Parents must have an income below $190,000 to take full advantage of the Coverdell ESA (their ability to contribute is completely phased out at $220,000).
Because of the current $3,000 limit, the account will not accumulate enough to cover college costs. Contributions and growth in the account will not be part of the estate. If the owner withdraws money from the 529 plan for any reason other than education, the earnings withdrawn will be fully taxed and subject to a 10 percent penalty.
The control of these assets remains in the hands of the owner for the owner's lifetime. There are some restrictions on who can be named as the new student/beneficiary on the 529 plan account: It must be a family member of the original beneficiary, such as a brother, sister or cousin. At the same time, only 27 percent of the parents were willing to ask for help.
PART TWO
THE KEYS TO MAKING INVESTMENT DECISIONS
So far we've discussed four of the eight deadly mistakes investors make with their money. They do not take advantage of the opportunities to control taxes on their savings and investments. But when we delve into retirement income planning, a major risk must be addressed—the risk of outliving your income.
Let's start by looking at just a few segments of the fascinating medical research being done on aging and longevity. There are little "caps" on the tips of the X's and Y's that prevent our chromosomes from fusing together. Now that scientists know the root cause of the aging process, solutions to many health problems may not be far behind.
Political leaders are grappling with the moral dilemma of the rights of the unborn child, while scientists are looking for other methods to create stem cells without the use of controversial embryos. When these cells are transplanted back into the same adult, hopefully there will be no rejection due to a perfect genetic match. Monday, November 18, 2002, Associated Press: "Doctors said Sunday that they have revived a seemingly dead heart muscle by seeding it with cells borrowed from the patient's own thigh muscles or bone." The paper describes how immature muscle cells, called myoblasts, taken from a patient's thigh can be grown in test tubes until millions of cells are available for injection into parts of the heart that have died.
Nabil Dib of the Arizona Heart Institute predicted that these new techniques will one day replace heart transplants. OLD MAYMAKECAROTID SURGERY.” The article noted that approximately 200,000 people in the United States have this difficult type of surgery each year. The old technique required these incisions so that the surgeon could carve out two inner layers of the carotid arteries in the neck.
If you're 50 or older, you'll be able to invest even more, as shown in the column on the right. If you're under 50, you can contribute up to $3,000 between Roth and traditional IRAs this year. If you want these benefits, you should look into the latest in life insurance products as part of your plan.
If you can afford an annual premium of $50,000, a variable universal life policy can be designed to accommodate that annual cash flow. Partial withdrawals at first. The tax code allows you to cash in or surrender a portion of your insurance policy for a portion of the cash. For example, if you were born in 1937, you will be eligible for full benefits at age 65.
If you found part-time work that paid you $21,280, you would lose $5,000 (almost 50 percent) of your Social Security benefits until normal retirement age. If you wait until normal retirement age to start your Social Security payments, you can work and earn any amount without a penalty. Remember that your Social Security check will be much larger if you wait until normal retirement age to start receiving benefits.
If you are in poor health, you should consider the third option, which is buying most insurance for your spouse. If you are in good health, you should buy your own personal life insurance. If you are healthy, you should consider this planning tip to create an estate for your children and grandchildren.
If you cannot qualify for insurance, you should consider a pension option that provides your spouse with adequate survivor benefits. This is called a period option. You can choose a fixed income payout or a variable income payout for a time frame that you specify.
