Easy Way to Put Investment Services to Work for You

A lot of people like to sit back and let their Naperville investment services handle all of the work for them. This, however, is a bad idea since it takes you—the investor—out of the driver’s seat and puts someone else in control of your finances. Though that’s fine if you have a skilled Naperville investment advisor whom you can trust, it keeps you from learning and growing and from one day being able to make your own smart investment decisions. Why not trust yourself and take the reins by finding simple, easy ways to up your investment ante?

One suggestion is to simply increase the amount of money you are putting into your 401k. Take what you are currently contributing now and just add a few dollars to it or, if you really want to make a difference, try doubling it. This strategy is an even smarter move if your employer has agreed to match your contribution. If you don’t have the funds to increase your 401k contribution, talk to your Naperville investment services provider. They can often go through your finances and find ways in which you’re overspending. Once you’ve put an end to unnecessary spending, you’ll have more money to invest in your 401k and to use in other financially smart endeavors.

You might also want to consider making some small investments in very stable, trustworthy stocks. Well-known, long-lasting corporations, like McDonald’s or even Levi’s jeans, are usually a safe bet and can help you to accumulate money gradually over a long time period. If you’re unsure about the security of a particular stock investment, don’t hesitate to ask for advice from your investment advisor.

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How you Can Save Money

Did you know that the financial experts at Time advise the average person to save at least 15% of his or her income every year that he or she is employed? That’s a pretty large chunk of your earnings, and saving that much can seem impossible, especially if you’re struggling just to make ends meet. The good news, however, is that there are Naperville financial planning services, such as Platinum Financial Associates, that can help you to make the most out of the money you do save. Through Naperville investment services and other smart choices, you can put your savings to work for you. Of course, before you can do that, you have to cut back on your spending and find ways to get money from your wallet and into your savings account!

One surprising thing that many Naperville financial planning experts will advise is to cut back on your energy costs. The average American wastes a lot of unnecessary funds on heating, cooling, and general electricity costs. Taking smart, simple steps, like turning off lights when they’re not being used or unplugging appliances when you leave, can be extremely beneficial. Bigger moves, like adding insulation to your home or switching to energy efficient appliances, can also make a huge impact, though they do require an initial investment upfront.

Other money-saving tips that can help you to build up that nest egg include laying off of cable or subscription television in favor of online programming, going for a less-fancy cell phone and a lower cell phone bill, couponing for groceries and other necessities, and more.

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Cumulative Returns vs. Average Annual Returns

To help you understand a fund’s historic performance, fund companies often present both cumulative and average annual returns in their profiles. So how do you know which one has more significance to retirement investing?

Cumulative returns show the total returns, assuming that all earnings are reinvested in the fund and compounded over time. If you want to know how much an investment would have earned during a specific time period, cumulative returns can be useful.

However, if you want to compare the performance of a fund against its benchmark or other similar funds, average annual returns present a clearer picture of a fund’s track record by taking compound earnings out of the picture. Average annual returns make it easier for investors to compare two different funds’ performances side by side during the same time periods. 

Need to know more? Contact Naperville Investment Services provider, Susan S. Lewis, she helps you keep more of your hard earned money.

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Watching for Weakness in the Global Economy

In April, the International Monetary Fund (IMF) forecasted global economic growth of 3.5% for 2012, noting that the U.S. economy had gradually gained momentum, whereas China and other emerging economies appeared to be headed for gradual slowdowns. However, the IMF also warned that if the debt crisis in Europe deteriorated into a worldwide financial crisis, the fallout could produce a 2% drop-off in global growth over two years.¹

More recent economic data released in May suggests that growth slowed more than expected in a number of the world’s major economies, primarily because problems in Europe have recently re-emerged.

There are significant differences in the economic challenges facing government leaders in Europe, Asia, and the United States, yet expanded world trade and globalization in general have made the fates of many nations more interdependent.

All Eyes on Europe

In mid-May, Greek political parties were unable to form a coalition government, and a caretaker government was named until new elections take place in mid-June. The outcome is likely to determine whether Greece will abide by the deal reached to restructure its debt under conditions set by the European Union (EU), the International Monetary Fund, and the European Central Bank. Voter anger over austerity measures and resulting political instability have reignited uncertainty about whether Greece will stay in the eurozone.²

Eurozone unemployment has risen to record highs (10.9%), and strict austerity programs in a number of European nations have held back growth more than expected. Europe barely avoided a recession during the first quarter of 2012, but 11 individual nations in the EU are judged to be in a recession.³

China

Economic data measuring trade, investment, spending, and output for April was surprisingly weak, prompting government action to help promote lending and speed up economic growth. The People’s Bank of China lowered the share of deposits that banks must hold in reserve (the required reserve ratio) by 0.5%.⁴

Until recently, Chinese leaders seem to have been more concerned about fighting inflation. However, China’s economic growth slowed from 8.9% to 8.1% in the first quarter — the slowest pace in nearly three years — when an uptick was expected.^5–6 Reduced European demand for Chinese goods has been cited as a reason for the slowdown; the eurozone is the largest market for Chinese exports.⁷

When balancing growth and inflation, China’s authoritarian government may be able to act more decisively than democratic societies. Elected leaders often negotiate or justify policy moves and contend with public backlash. But Chinese leaders grapple with many of the same risks as other nations in the global marketplace.

India

The inflation rate in India (9% for most of 2011) is still the highest among the emerging-market nations known as BRICS (Brazil, Russia, India, China, and South Africa). Inflation has been cooling, but prices rose faster than predicted (7.23%) in April.⁸

Efforts to lower inflation, along with fewer exports to Europe, caused economic expansion to sag to a three-year low of 6.1% in the December quarter. In response, India’s central bank cut interest rates for the first time since 2009.⁹

Fiscal deficits and political gridlock have also put India’s investment-grade status at risk. Standard & Poor’s recently lowered the country’s credit outlook from “stable” to “negative.”¹⁰

Will U.S. Fortunes Follow?

So far, the trouble in Europe has affected Asia more than the United States. Exports account for less than 15% of the U.S. economy, compared with 30% for China.¹¹

Still, if conditions in Europe worsen, the situation could continue to affect trade and growth around the world. Therefore, U.S. consumer and investor confidence is likely to depend on how the situation in Europe ultimately unfolds.

Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic and political risk unique to a specific country. This may result in greater investment price volatility. All investments are subject to market fluctuation, risk, and loss of principal. When sold, investments may be worth more or less than their original cost. Investments seeking to achieve higher yields also involve a higher degree of risk.

1) The Fiscal Times, April 17, 2012
2) The Wall Street Journal, May 17, 2012
3, 5, 7) CNNMoney, May 15, 2012
4, 6, 11) The Wall Street Journal, May 14, 2012
8–9) The New York Times, May 14, 2012
10) Bloomberg.com, May 14, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville investment services advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

How Can I Keep More of My Mutual Fund Profits?

Tax (Photo credit: 401K)

Provisions in the tax law allow you to pay lower capital gains taxes on the sale of assets held more than one year. The maximum long-term capital gains tax rate is currently 15% (0% for individuals in the 10% and 15% tax brackets). Short-term gains — those resulting from the sale of assets held for one year or less — are still taxed at your highest marginal income tax rate.

This means that if you’ve been buying shares in a stock or mutual fund over the years and are considering selling part of your holdings, your tax liability could be significantly affected by the timing of your sale.

The main pitfall for most investors is the IRS “first-in, first-out” policy. Simply stated, this means the IRS assumes that the first shares you sell are the first shares you purchased. Thus, the first shares in become the first shares out. As a result, if the value of your shares has appreciated, more of the money you receive from the sale will be considered to be taxable as a capital gain.

Fortunately, there is an alternative. When you place a sell order, instruct your broker or mutual fund transfer agent to sell those shares that you purchased for the highest amount of money. This will reduce the percentage of the proceeds of the sale that can be considered capital gain and are therefore taxable.

In order for this strategy to work, you must specify exactly which shares you are selling and when they were originally purchased. Ask your broker to send you a transaction confirmation that identifies by purchase date the shares you want to trade. This will enable you to reduce your taxable gain and maximize your deductible losses when you fill out your tax return.

In some cases, you may be better off selling the first shares you purchased, even if this results in a larger gain. If the first shares are subject to the 15 percent long-term capital gains rate, but the recently purchased shares are subject to the higher short-term rate, the correct choice may not be obvious. Always consult a tax professional.

By carefully reviewing your brokerage statements, you can determine which shares you paid the most for. You can then specify exactly which shares you’d like to sell. A word to the wise: Make this request in writing. If the IRS calls the transaction into question, the burden of proof is on you.

Finally, the IRS also allows you to calculate your tax basis by taking the average cost of all your shares. On an appreciating asset, this should result in a lower tax liability than the first-in, first-out rule would dictate. Be aware, though, that if you elect to average, you must continue to average for any subsequent sales.

Using either system, you may end up with a lower tax liability from the sale of your shares than the IRS would assume using the first-in, first-out rule.

The value of stocks and mutual funds fluctuates so that shares, when sold, may be worth more or less than their original cost.

Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville Investment services advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.

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Be Ready for a Change in Interest Rates

When it comes to interest rates, about the only thing you can count on is change. The Federal Reserve, which uses interest rates to influence economic activity, has adjusted the federal funds rate — a key benchmark for other interest rates — more than 240 times over the past 40 years.1

Fluctuating interest rates can be challenging for bond investors. When bonds mature during a period of low rates, bond investors may have to accept lower yields when they reinvest their money. On the other hand, if rates rise at a time when their principal is tied up at lower interest rates, they may not be able to take advantage of higher yields.

Fortunately, there is a strategy to help manage the risks associated with fluctuating interest rates.

Climbing the Ladder
One upside of bond investing is that the interest rate on an individual bond is generally fixed throughout the life of the bond, providing the bondholder with a fairly predictable income (unless the bond issuer defaults). When the bond matures, however, the amount of future income the bondholder can expect from reinvesting the principal is highly dependent on the current interest-rate environment.

One way to help manage reinvestment risk is by staggering the maturity dates within a bond portfolio so that at least one bond matures every year or two. This strategy, known as a bond ladder, may help limit exposure to falling interest rates while also increasing the likelihood that at least some principal may be available to reinvest when rates are rising.


A bond ladder is a form of diversification because it helps spread risk over a period of time. Of course, diversification does not guarantee against loss; it is a method used to help manage investment risk.

The principal value of bonds may fluctuate with market conditions. Bonds redeemed prior to maturity may be worth more or less than their original cost. Investments seeking to achieve higher yields also involve a higher degree of risk.

Building a bond ladder has no effect on the underlying risk of the bonds themselves. However, ensuring that only a limited portion of a bond portfolio matures at any given time may be an effective way to help manage reinvestment risk.

 1) Federal Reserve Bank of New York, 2010

 The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from a Naperville investment services advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.

Understanding the Three New U.S. Trade Agreements

On October 12, in a demonstration of bipartisan cooperation, Congress passed three separate trade agreements — with South Korea, Colombia, and Panama. They are the first trade agreements in four years. In terms of potential impact, the trade pact with South Korea is the most significant since the North American Free Trade Agreement (NAFTA) with Mexico and Canada in 1994.1

Proponents believe the agreements could boost exports by $13 billion annually and support tens of thousands of American jobs.2 The U.S. Chamber of Commerce claims that the pacts will prevent the loss of 380,000 jobs.3 However, labor organizations caution that the deals might lead companies to move more jobs and factories overseas.4 To address this concern, separate legislation extended financial and retraining benefits for workers who lose their jobs to foreign competition.5

It’s too early to know the outcome, of course, but the agreements represent a positive effort to stimulate economic activity at a time of congressional gridlock, slow GDP growth, and high unemployment. As an investor, you may find it helpful to consider how a more open trading relationship with these countries could impact the domestic economy.

Opening Markets

From the American point of view, the primary benefits could be to (1) eliminate or reduce tariffs on U.S. exports; (2) level the playing field for U.S. investors and businesses; (3) open service markets in areas like telecommunications; and (4) protect the environment, labor rights, and intellectual property rights.6 Although the fundamental concepts are the same for each of the three countries, the specific economic and political situations vary substantially.

South Korea

South Korea has the world’s thirteenth largest economy and is the seventh-largest U.S. trading partner.7 In 2010, the United States imported $48.9 billion in goods from South Korea and exported $38.8 billion. Automobiles accounted for about 75% of this $10 billion trade deficit.8 The agreement should help U.S. automakers narrow the gap by selling more vehicles in South Korea. It should also increase agricultural exports, which have been held back by high tariffs.9

U.S. textile manufacturers, who struggle to compete with lower-priced South Korean imports, have expressed some concern about a reduction in tariffs. To address this, the agreement allows the textile industry to petition the government to reinstate tariffs if cheaper Korean goods flood the market.10

Another concern is that Chinese products may enter the United States duty-free by passing through South Korea.11 Japanese officials fear that the agreement may make it more difficult for some Japanese goods to compete in the United States.12

Colombia

Although Colombia has a smaller economy than South Korea, it is the second-largest market for U.S. products in South America (after Brazil). The United States imported $15.7 billion from Colombia in 2010, mostly oil and other mineral fuels. In return, Colombia bought $12.1 billion in U.S. goods.13

The Colombian accord faced some stiff resistance due to a history of violence against labor organizers. However, Colombian President Juan Manuel Santos is a strong U.S. ally who signed a Labor Action Plan in April that committed the Colombian government to protect labor rights.14

Panama

Panama has a small economy with a trading relationship that heavily favors the United States. In 2010, Panama bought $6 billion in U.S. products while exporting only $381 million. The agreement should increase U.S. trade with Panama and make it easier for American companies to compete for contracts on the $5.25 billion expansion of the Panama Canal.15

Opposition to the agreement was that Panama has been (and still remains) a tax haven for wealthy Americans. However, last year the United States and Panama signed a tax information exchange agreement to provide more transparency.16

A Free-Trade Future?

With the passage of these accords, the United States now has free-trade agreements with 20 countries. The U.S.-led Trans-Pacific Partnership, currently being negotiated among nine nations, envisions a free-trade zone that would include more than 40% of world trade.17

Free trade seems to be the future of the global economy, and the United States is taking a strong leadership role, telling the world that we are open for business. The litmus test will be whether free trade aids the U.S. economic recovery and produces American jobs.

Investing internationally carries additional risks, such as differences in financial reporting, currency exchange risk, as well as economic and political risk unique to the specific country. This may result in greater share price volatility. Shares, when sold, may be worth more or less than their original cost.

1–2, 5, 7–8, 11, 13–16) Associated Press, October 12, 2011
3–4, 12) Bloomberg.com, October 12, 2011
6, 9) whitehouse.gov, 2011
10) The New York Times, October 11, 2011
17) Office of the U.S. Trade Representative, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville investment services advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.

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Favorable Dividend and Capital Gains Tax Rates Extended — for Now

Congress gave investors a break when it passed the 2010 Tax Relief Act. The act extended the 15% maximum tax rates on qualifying dividends and long-term capital gains for two more years. But like many congressional actions, it’s another temporary measure that is scheduled to expire on December 31, 2012. In 2013, unless lawmakers act, the favorable tax rates will return to their pre-2003 levels, and that’s the same year when higher-income taxpayers may be subject to a Medicare unearned income tax on net investment income to help pay for health-care reform.

Some investors may be tempted to sell stock and other investments to take advantage of the lower tax rates. Of course, taxes should not be the only consideration when deciding whether to sell an investment, but they can be an important part of the equation. Investors should also consider how an investment fits their time horizon, risk tolerance, and goals for growth and/or income.


Capital Gains: The Long and Short of It
Typically, you pay capital gains tax when you sell an investment, not while you own it. Tax rates depend not only on the holding period of the asset but also on your income tax bracket. Long-term capital gains are profits from investments held longer than 12 months. Currently, investors in the 10% and 15% income tax brackets pay 0% in capital gains tax, whereas higher-bracket investors pay 15%. In 2013, these tax rates are scheduled to rise to 20% (10% for taxpayers in the 15% income tax bracket; 23.8% for the highest two tax brackets). Short-term capital gains are profits from investments held for 12 months or less. They are taxed as ordinary income, which is not scheduled to change.

Dividends: The Qualified Kind
Dividend-paying stocks have historically been a way for investors to hedge against inflation. Taxes on qualified dividends are currently 15%, but they could reach 39.6% — that’s a 164% increase — if they revert to ordinary income tax rates in 2013, as they are scheduled to do. Because retirees often rely on dividends to supplement their retirement income, higher dividend taxes could hit them particularly hard.

Selling an investment before tax rates move higher may be a strategy to consider if the investment no longer meets your needs and tax situation. Fortunately, there’s plenty of time to reevaluate your mix of investments before higher tax rates return. Before you take any specific action, be sure to consult with your tax professional.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from a Naperville Investment Services advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.

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Understanding the Appeal of Mutual Funds for High-Income Households

Although 44% of U.S. households own mutual funds, the rate of ownership is much higher among households with incomes above $100,000

What is it about mutual funds that attracts affluent investors?

Professional Management

When you purchase shares in a mutual fund, to some extent you are also buying the expertise of the fund manager and the fund management company, which are tasked with buying and selling investments to give shareholders the highest possible return consistent with the fund’s objectives. Fund managers carefully research the assets held by their funds, often by poring over financial statements and meeting with a prospective company’s management to discern whether it would be an appropriate addition. Although you may have a certain dollar amount riding on the fund’s performance, it’s likely the fund managers have an even bigger stake: their reputations.

Flexibility

Regardless of your financial goals — retirement, college, a wedding, a rainy day — it’s likely that there is a mutual fund that may be appropriate for your situation and risk tolerance. Mutual funds enable you to customize your portfolio and make adjustments when your market outlook or investment goals change. If you decide you need to redeem some of your shares, your assets could be available as early as the following day. Some funds allow you to write checks against your account.

Diversification

Of all the strategies recommended for managing risk, diversification is near the top. Mutual funds can invest in a wide range of asset classes, industries, and securities. In fact, some mutual funds invest in hundreds of securities, providing a level of diversification that could be cost-prohibitive even for high-income and high-net-worth investors. Diversification does not guarantee against loss; it is a method used to help manage investment risk.

The return and principal value of mutual funds fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.

Mutual funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your Naperville Investment Services professional. Be sure to read the prospectus carefully before deciding whether to invest.

1) Investment Company Institute, 2010

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

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Types of Naperville Investment Services

Anyone who has a little experience in investing would understand the importance and convenience of getting an investment firm to help you out. There are different types of Naperville investment services that a wise investor could easily get from a reputable investment firm. These Naperville investment services could be mixed and matched to fit your needs. However, regardless of how big or small the investment firm is, any kind of investment service should fall among the three types discussed below.

•    Advisory. A lot of investment services you could get from an investment firm involve investment advice. This involves defining an investment strategy based on what you want and its implementation. With this typ

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e of investment service, the firm would simply help you out in deciding the investment path that you should take based on your objectives and constraints.

•    Portfolio Management. This type of service involves building and maintaining an investment portfolio. The portfolio could either be solely based on the client’s wishes or a portfolio that comes from the advice of the firm itself.

•    Administration. This is the most common type of investment service that many people get because it is something that you cannot do on your own like buying stocks, forex trading, Naperville IRA rollover, and many more. It involves trading, clearing, and reporting. In buying and selling different investment products, you would need a broker and the broker would be the one to do the trading for you.

Most Naperville investment services would fall under one of the three types below. Almost all investment firms would let you combine several of their investment services to fit your needs. For example, you could just settle for portfolio management and administration services if you do not need any investment advice from your firm or you could get all three types of services if you are still learning the ropes in investing.

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