TradeKing Promotional Code – $1,000 Commission Free Trades!

There is never a better time than right now to start planning your future. If you are thinking about opening a new investment account, now is a great time to do it. TradeKing is one of my favorite places to open an account for online stock trading – I’ve been a customer for several years now and recommend their service to anyone looking for an online brokerage account that offers a combination of price, service, tools, and educational products. Are you looking for more incentive to open an account? Then check out this TradeKing overview and these current TradeKing promotional codes, including TradeKing’s best promo offer ever – $1,000 in commission credits!

TradeKing Promo code and sign up bonusAbout TradeKing. TradeKing is one of the one of the leading online discount brokerage firms and is the broker I use for my online stock trades. TradeKing was rated #1 overall discount broker by Smart Money Magazine in 2006 and 2007, and was rated #4 overall online broker in 2011. SmartMoney also rated TradeKing best in customer service in 2008, 2010, and 2011. TradeKing has also received numerous awards from Barron’s (4 Star rating 5 years running, and #1 in usability in 2011), Kiplinger’s, and other periodicals.

TradeKing Features: TradeKing is one of the leaders in the discount brokerage community and features:

  • $4.95 stock trades
  • No fee IRAs
  • Variety of investments, including stocks, bonds, mutual funds, options, and exchange–traded funds (EFTs). They also offer U.S. Treasury and Agency Issues and CDs.
  • Free automatic dividend reinvestments (DRIPs)
  • Money Market Sweep to earn interest on your idle cash
  • Top rated investment research and learning center (free to everyone)
  • Free access to Maxit Tax Manager tax management software
  • Receive up to $150 to transfer your funds to TradeKing from another brokerage with the TradeKing Asset Transfer program to get up to a $150 asset transfer reimbursement.

We wrote a full TradeKing Review on our sister site which overs TradeKing’s features in more detail.

TradeKing Promotional Code – $1,000 in Commission Free Trades

I have been a TradeKing customer for over six years now, and this is the most generous offer I have ever seen from them – $1,000 in commission credits for new customers! The $1,000 commission credit is good for equity, ETF and option orders including the per contract commission. This makes this an excellent offer for active traders and options traders.

Get this deal while it lasts:

You will receive your $1,000 commission credit within one business day of opening your account. The credit will be good for 60 days, and as mentioned previously, will apply to equity, ETF and option trades. This is the largest commission free trade credit I have ever seen from TradeKing or any other discount brokerage.

As always, there is some fine print, which you can read here:

The fine print: New customers are eligible for this special offer after opening a TradeKing account with a minimum of $10,000. You must apply for the free trade commission offer by inputting promotion code FREE1000 when opening the account. New accounts receive $1,000 in commission credit for equity, ETF and option trades executed within 60 days of funding the new account. The commission credit takes one business day from the funding date to be applied. To qualify for this offer, new accounts must be opened by 12/31/2014 and funded with $10,000 or more within 30 days of account opening. Commission credit covers equity, ETF and option orders including the per contract commission. Exercise and assignment fees still apply. You will not receive cash compensation for any unused free trade commissions. Offer is not transferable or valid in conjunction with any other offer. Open to US residents only and excludes employees of TradeKing Group, Inc. or its affiliates, current TradeKing, LLC account holders and new account holders who have maintained an account with TradeKing, LLC during the last 30 days. TradeKing can modify or discontinue this offer at anytime without notice. The minimum funds of $10,000 must remain in the account (minus any trading losses) for a minimum of 6 months or TradeKing may charge the account for the cost of the cash awarded to the account. Offer is valid for only one account per customer. Other restrictions may apply. This is not an offer or solicitation in any jurisdiction where we are not authorized to do business.

Click Here to Open a New TradeKing Account and Receive $1,000 in Commission Free Trades.

TradeKing also offers other promotions, such as the $150 asset transfer reimbursement, which makes it easy to transfer your assets to TradeKing without losing your tax base or requiring you to first liquidate your stocks or other assets.

TradeKing $150 Asset Transfer Reimbursement

TradeKing is currently offering to reimburse new customers up to $150 in ACAT fees when they transfer their investment assets to TradeKing. Why is this a big deal? Brokerages often charge customers an Automated Customer Account Transfer fee when they transfer their assets to another brokerage. This fee is called an ACAT fee. It varies from broker to broker, and can cost you a fairly decent amount, depending on how much you are transferring, and your broker’s rules. TradeKing is offering to make it easier on you to transfer your investments without having the pay a large transfer fee to your current broker. It’s their way of saying thanks! Switch to TradeKing and get up to $150 in transfer fees reimbursed.

MyRA – My Retirement Account Basics

President Obama recently announced a new retirement account called the MyRA, which stands for My Retirement Account. The MyRA is described by the Obama Administration as a, “simple, safe, and affordable starter retirement savings account.” The MyRA is primarily aimed at individuals who don’t have an employer sponsored retirement account such as a 401k, 403b, Thrift Savings Plan, or similar retirement account. Let’s take a look at the pros and cons of the MyRA account and see if it’s worth investing in.

MyRA Retirement Account Rules

MyRA - My Retirement AccountTo start with, the MyRA account will be set up through pay roll deductions. It should be available in late 2014, with a full roll out sometime in 2015. Anyone with direct deposit will be able to open an account. Right now it looks like accounts will be opened online and self-administered by workers. This will not be run by employers.

Workers will be able to start with a minimum contribution of $25, and can continue making contributions for as little as $5 per pay check. It’s a very affordable way to begin contributing to a retirement account.

The MyRA will follow many of the same rules as Roth IRAs. For example, there are no tax deductions for contributions. All contributions are made with after tax dollars, and withdrawals in retirement will be tax free. The MyRA will also follow the same contribution limits as Roth IRAs ($5,500 in 2014), and the same income limits ($129k MAGI for single, $191k MAGI for couples in 2014). Based on what we have read so far, Roth IRAs and MyRA accounts share a combined contribution limit, meaning you can’t double dip and contribute the maximum amount to both accounts. Learn more in the US Treasury Fact Sheet.

MyRA – Pros and Cons

Benefits of the MyRA: The Treasury Department labels the MyRA account as “Simple, Safe, And Affordable”, with the following benefits.

  • Simple: These accounts will be funded by automatic payroll deductions. The MyRA accounts are portable, meaning they are not tied to your employer, unlike 401k plans and other employer sponsored retirement plans. There is only one investment option, which keeps things simple.
  • Safe: MyRA contributions are held in Government Securities (bonds) backed by the US Government (these will be the same as the G Fund in the Thrift Savings Plan). Account balances will never decrease in value.
  • Affordable: You can start with as little as $25 for your initial deposit, and can continue making contributions as low as $5 per pay period. Contributions can be withdrawn tax free at any time, and earnings can be withdrawn tax free after age 59 1/2. There are no fees.

Downsides of MyRA accounts: MyRA accounts are basically just buying savings bonds from the US government in a retirement plan. That isn’t a problem by itself, as most financial advisors recommend maintaining a certain percentage of your portfolio in cash or cash equivalents. But there are a few downsides you should be aware of.

  • Only one investment option: Government bonds.
  • Guaranteed returns doesn’t guarantee growth will exceed inflation: Earnings should earn slightly more than a standard savings account, but likely won’t keep up with inflation. The MyRA account encourages people to save, but it won’t increase their purchasing power in the long run.
  • Accounts are limited to $15,000. Investors must roll their MyRA account into a private Roth IRA once their balance reaches $15,000, or after they have had it open for 30 years.

Summary: This is Basically a Starter Roth IRA

The premise behind the MyRA accounts is good. President Obama wants to encourage people to save for retirement. But this is something people can do for themselves with a Roth IRA. And they would have more investment options than a simple government secured bond which most likely won’t even keep pace with inflation.

Overall, most people would be better off taking the time to set up a Roth IRA through a private investment firm where they can have access to a wider range of investment opportunities. Investors can easily set up an automatic contribution from their checking or savings account, or even from their pay check if their employer offers the option.

Roth IRA – Why I Love It, and Why You Need One

You’ve probably heard about a Roth IRA before; it’s one of those terms that gets bandied about on TV or the radio with great frequency. And with good reason – a Roth IRA is a retirement account which is one of the best ways to prepare for retirement. I’ll give you an introduction on Roth IRAs – what they are, why they are essential to good retirement planning, and a few other tips about Roth IRAs.

Why You Need a Roth IRA

Roth IRA – the best retirement plan available

Roth IRA – One of the Best Retirement Tools

Retirement planning is something everyone needs to do. Even if you serve in the military long enough to earn a military retirement and pension, it might not be enough for your golden years. It is essential for most veterans, even retirees, to take retirement planning into their own hands, and retirement accounts such as the Thrift Savings Plan, 401k plans, and IRAs are a great way to do that.

Types of IRAs, and Why a Roth IRA Rules

There are two types of IRAs available to most people – Traditional IRAs and Roth IRAs. They are fairly similar, but have one important distinction – when you pay taxes on your contributions and withdrawals. Here is a quick primer about the differences between them:

  • Traditional IRA: Contributions are tax free, withdrawals are taxed in retirement years. There are Required Minimum Distributions (RMD) once you reach a certain age.
  • Roth IRA: Contributions ome from income that has already been taxed, withdrawals in retirement are tax free. There is no RMD.

Let’s break this down in simple terms. With a Traditional IRA, you can take a tax break on your income now, but you will have to pay taxes in the future when you withdraw your retirement funds. You will also have to begin taking withdrawals from your account once you reach the RMD age, whether or not you need the income.

With a Roth IRA you make contributions from income which has already been taxed, making you eligible to receive tax free withdrawals in your retirement years. This is a great deal, especially if you are in a lower tax bracket now than you anticipate being in retirement. It also takes the guess work out of retirement planning since you will know that the money you have in your account will not be subjected to taxes. Finally, you aren’t required to take distributions, so you can leave your money in your account and continue to let it grow (this can also be a great advantage when it comes to estate planning).

Roth IRA Eligibility and Contribution Limits

There are a few things to be aware of before starting a Roth IRA. First, you need to be eligible to contribute. To be eligible, you need to have earned income, and meet income requirements. There is also a special provision for military members: the HERO Act. The Heroes Earned Retirement Opportunities (HERO) Act allows military members with tax free income to be able to contribute to Roth IRAs and other retirement plans.

The next thing to consider is how much you will be able to contribute to your Roth IRA. If you meet income requirements, then you will be able to contribute up to $5,000 if you are under age 50, or $6,000 if you are age 50 or older (the additional $1,000 represents a catch-up contribution to help those closer to retirement better reach their investment goals). Here are the IRA contribution limits.

The tax avantages for IRAs are incredible, so the government limits them to people who fall within certain income brackets. If you don’t meet the income requirements to get the tax benefits from the Traditional IRA, or contribute directly to a Roth IRA, you can still contribute to a non-deductible Traditional IRA, then convert it to Roth IRA at a later date. It’s kind of like a back door which enables just about anyone to contribute to a Roth IRA.

Once You Go Roth, You Never Go back

The prospect of having a tax free nest egg in retirement is very attractive, and something I don’t recommend you pass up. There aren’t many opportunities for tax free income, especially when it comes to investments. And the longer you have before you reach retirement age, the more time you have for compound interest to increase your nest egg. If you are eligible, I highly recommend opening a Roth IRA and maxing out your contributions each year.

Take action! For more information on Roth IRAs, you can check out the Roth IRA Movement or the #RothIRAMovement on Twitter. If you are interested in opening a Roth  IRA, then check out this list of recommended places.

Can Your Investment Returns Make REDUX a Good Retirement Option?

We previously wrote an article about the pros and cons of taking the military REDUX retirement option. Service members who joined the military after August 1986 are eligible to choose from one of two retirement plan options: the High 36 retirement system (also called High-3) and the REDUX (CSB) retirement option, which gives eligible military members the opportunity to receive a$30,000 Carer Status Bonus when they achieve 15 years of service. This Career Status Bonus comes at a cost, however. Military members who elect to receive the bonus also receive a reduced pension in retirement and a reduced annual Cost of Living Adjustment (COLA).

Here is what a military pension looks like under the The High-3 Average Retirement System and with REDUX:

  • High-3: No bonus; REDUX: $30,000 Career Status Bonus.
  • High-3: 50% at 20 years, plus 2.5% per additional year; REDUX: 40% monthly retirement at 20 years, plus 3.5% per additional year.
  • High-3 & REDUX: *Maximum monthly retirement benefit 75% of base pay at 30 years.
  • High-3: COLA = CPI; REDUX: COLA = CPI -1%.

*The maximum retirement pay of 75% can be exceeded under limited circumstances; these are general guidelines. CPI = Consumer Price Index.

The COLA percentage makes all the difference. On the surface, it appears as though REDUX may come out ahead when a military member stays to 30 years, since they would receive 75% of their base pay and the $30,000 Career Retention Bonus. But it still fails to take into account the decreased COLA, which is 1% lower. Think of it as settling for a 1% lower pay raise each year while your peers automatically receive a larger raise. Since raises are cumulative, it doesn’t take long for the raises to exceed the difference in the Career Retention Bonus (especially when you take taxes into consideration). Note, there is a one time adjustment at age 62 to bring the cost of living in line with the non-REDUX option, but the rate remains at CPI-1%, and the gap again widens.

Is REDUX a Good Option if You Invest the Bonus?

This is a popular question, and one I will answer with another question: Can you beat the stock market?

I don’t mean, can you find a winning stock and turn a few hundred dollars? Anyone can get lucky. I am asking if you can consistently beat the stock market year in and year out for decades. Can you take that $30,000 bonus, deduct taxes from it (leaving you with just over $24,000 or so, depending on your tax bracket), and turn it into hundreds of thousands of dollars?

And that is assuming you remain in the military for 30 years and max out your pension at 75%. If you retire at 20 years and receive a 40% pension, then you will potentially need to turn the Career Retention Bonus into millions of dollars to make up the difference in lost earnings between the High 3 retirement plan and the REDUX option.

Taxes are bigger than you think

Keep in mind when making these calculations that taxes are an important consideration. Unless you receive the lump sum payment of $30,000 in a tax free zone, you will need to pay taxes on the $30,000 income you receive, which leaves you with much less than $30k to begin your investments. In virtually every case, you would need to far exceed market returns to beat the difference between the REDUX and High-3 retirement systems. Then you need to take into account the taxes which will be assessed on your investment earnings, since you won’t be able to shelter the entire $30,000 in retirement accounts.

Don’t gamble with retirement

You can argue for investing all day long, but if you are a good enough investor to beat consistently beat the market for decades, you are among the top 0.001% of investors in the world and should be on Wall Street or working for Warren Buffett. The simple fact is that is not likely the majority of people will be able to do that. But why would you want to risk it anyway? The purpose of a pension is to earn a secure income, not gamble.

Without changing anything, a military retirement is worth millions. By the time you factor in health care and other benefits, it is worth several million dollars.

A military retirement pension is a stable income stream and anything you can do now to increase your retirement payments will have a lasting and cumulative effect on your retirement security. On the flip side, anything you do now that potentially decreases your retirement income reduces your long term security.

You can think of your retirement plan as very secure bonds in your investment portfolio – the reason you invest in bonds is for a more stable income stream. If you want (or feel you need) more risk, then use your other investments to satisfy that need. Since your pension is considered ultra secure, you may be able to take more investment risk in the rest of your portfolio including in your retirement accounts like your Thrift Savings Plan, IRA, 401ks, or taxable investments. (that isn’t to say you should take more risk, just that you can make a case for it more easily than you can with taking a reduced pension so you can play the stock market).

When is REDUX a good idea? There may be limited circumstances when it makes sense to take REDUX, but in most cases, the math never works. If you are considering taking the REDUX retirement option, I highly recommend meeting with a financial planner who understands the ins and outs of this retirement plan. Sit down with the planner and run the numbers several times. Here is a High-3 and CSB/REDUX Comparison calculator provided by the DoD. Run your situation through different scenarios and see how it looks.

Why does the government offer REDUX?

The reason REDUX is offered is simple: it saves the government millions of dollars every year in reduced pension payments, and since military pensions often last decades, the potential government savings each year can top hundreds of millions of dollars. If this wasn’t a good option for the government, they wouldn’t offer it in the first place.

But don’t take their word for it, or my word for it – run the numbers yourself. One resource to use is the REDUX calculator, which can help you better understand how much you can earn with each retirement system. Then you can use this information to determine how much your investments would need to earn to make it worth taking the REDUX option

Dollar Cost Averaging: Investing in Turbulent Markets

If you’ve been following the financial markets at all recently, you know that things have been turbulent. For many people, all this turbulence is scary. After all, how do you know when to put your money in the market — and when to pull it back out?

The good news is that you don’t actually have to know when to put money in and pull it out if you consider using an investing strategy called dollar cost averaging. It’s a strategy that works for long term wealth building using the stock market.

What is Dollar Cost Averaging?

Quite simply, dollar cost averaging requires you to invest a regular amount of money, at regular intervals. Many people choose to invest a set amount of money each month. A good example of this is automatic investing through your Thrift Savings Plan, 401k, or other allotments.

Most investments, whether individual stocks or funds, will allow you to buy partial shares. So, if you have $300 each month that you want to invest in an index fund with a price of $126 a share, you would be able to purchase 2.38 shares.

Every month, you invest that $300 (usually the help with automation), and you purchase as many shares as your money will buy on the day the order goes through. So, if the share price goes up to $150 a share, you will buy two shares. However, if the price falls to $100 a share, your investment will purchase three shares. The benefit is that you aren’t buying as many shares when the price is high, and you are buying more shares when the price is lower (remember, the goal is to buy low, sell high).

The idea behind dollar cost averaging is that, eventually, it all evens out in terms of overall cost. Sometimes you will pay less for your shares, and sometimes more, depending on the market. The important thing with dollar cost averaging is investing consistently.

Why Should You Consider Dollar Cost Averaging?

The reason that dollar cost averaging is so effective is due to the fact that you can get started fairly easily, and with a small amount of money, and consistently invest over time. You don’t need a huge amount of capital to get started. You can start a TSP account of 401k plan with as low as 1% of your salary, and some plans even allow you to begin investing with less than that. For example, many online brokers will let you get started with an initial deposit of between $25 and $100, and a monthly investment of between $25 and $50. You can set it up so that your investment comes out of your bank account automatically, each month, on a certain day. Most brokerages will also allow you to make a recurring investment, so your investing is totally automated.

Throughout all this time, you are investing consistently. Even when the market is down (more shares for your money!), you continue to invest. Historically, the market rises over time. With a buy and hold strategy that involves an index fund or a very carefully chosen stock (consider a dividend aristocrat; many online brokerages will automatically reinvest your dividends without charging a transaction fee), you can build your wealth gradually, benefiting from the fact that you are consistently buying shares. For most of us “regular” folks, that’s the best we can hope for — and it’s a fairly tried and true way to build wealth while limiting risks.

There is still risk involved in investing, of course, and you still need to be careful. However, you can reduce some of your risk, and build a consistent nest egg, if you follow a dollar cost averaging strategy.

5 Options for an Old 401(k) Retirement Plan

When you say goodbye to an old employer don’t forget about the retirement account that you’ve been funding. I’ll tell you who owns the money in your workplace retirement plan—like a 401(k), 403(b), or 457—and give you 5 options for dealing with the account after you leave the job. The Thrift Savings Plan is very similar to these employer sponsored retirement plans, but there are a few other considerations to keep in mind when you leave the military or civil service. We have covered options for your TSP when you leave the service in a previous article. This article covers 401k plans and other employer sponsored plans.

Who Owns Your Old 401(k)?

Once you’re no longer employed, you can’t make new contributions to your old retirement account. However, you still own it and can control the vested portion of your account.

You’re always 100% vested in contributions made from your paycheck plus their earnings, according to the Employee Retirement Income Security Act (ERISA). That means, no matter what, your employer can’t take those funds away from you.

However, any portion of your retirement account that is not vested will be reclaimed by your employer if you leave. Contributions that your employer makes, like matching or profit-sharing funds, are typically subject to a vesting schedule. To know if you’re fully vested, read your plan’s policy for the details.

How Does Vesting Work?

The 2 main types of vesting that are used in workplace retirement plans are graduated vesting and cliff vesting:

  • Graduated vesting is when you take ownership of an employee benefit on a gradual schedule, such as 20% per year after completing one full year of work. An employee with this schedule would be 20% vested after 2 years, 40% after 3 years, 60% after 4 years, 80% after 5 years, and 100% after completing 6 years of service.
  • Cliff vesting is when you take ownership of an employee benefit all at once, such as 100% after 3 years of service.

Leaving work before you’re fully vested means you may lose a portion or all of any employer-provided funds that are not vested on the date of your termination.

So, once you’re gone, what should you do with your vested retirement account balance? Here are 5 options:

Option #1: Cash Out

Your first option for an old retirement account is to cash it out. This is the worst option because you’ll have to pay state and federal tax on the withdrawal, plus a 10% early withdrawal penalty if you’re younger than age 59½.

For example, if you have approximately $10,000 in your 401(k) and pay an average tax rate of 25%, you’ll pay a total of 35% (25% plus the 10% penalty) in tax, leaving you with just $6,500 ($10,000 minus $3,500). That could wipe out every penny of earnings in the account or leave you worse off than if you had never invested the money in the first place.

Many people cash out their workplace retirement account because they don’t realize that there are other options. I’d rather you choose any of the other 4 options that I’m going to cover than to default to a money-losing cash out.

Option #2: Do Nothing

Your second option for an old retirement account is to do nothing and leave it with your previous employer. Generally, this isn’t a good option because you don’t know what will happen to the company, the benefits administrator, or the retirement plan down the road.

However, if you like the investment options in your old account, you can keep it. Just make sure you have a contact name and phone number for the brokerage of record on the account or the plan custodian, so you never lose touch with the people who administer the retirement plan.

If you left a Fortune 500 company, contacting a knowledgeable person in the benefits department won’t be a problem. But if you worked for a small business with one person in charge of human resources, for instance, it could be a real hassle to get accurate or timely information about your old retirement plan years later.

It’s easier to keep a retirement account with your old employer when you have online access to it. If you can check your balance, reallocate your investments, and change your contact information on your own, then you may be satisfied leaving the account with your former employer.

Option #3: Rollover to a New Workplace Retirement Plan

The third option for an old retirement account is to roll it over into a retirement plan at your new job. However, I only recommend this option if your new plan is fantastic and offers a wide range of low-fee investment options.

You should sign up for your new workplace plan because you can contribute up to $16,500 (or up to $22,000 if you’re 50 or older) for 2011. Plus, you can build your nest egg faster from matching funds that might be offered by your employer.

As you get familiar with the new plan, you can decide whether you want to rollover your old retirement account funds into it or not. If it’s not a great plan or you simply want more control over how the money is invested, go with one of the last 2 options I’m going to cover.

Option #4: Rollover to a Traditional IRA

The fourth option for an old retirement account is to roll it over into a traditional Individual Retirement Arrangement (IRA). This will give you the most investment options and freedom from the restrictions of a workplace retirement plan.

You can open up a traditional IRA at any number of brick and mortar brokerages, banking institutions, or online brokerages—like etrade.com, vanguard.com, or schwab.com. After the new IRA is open, request a rollover distribution from your former plan, and pick your new investments. You can rollover the entire amount, but going forward your new contributions are limited to a maximum of $5,000 (or $6,000 if you’re 50 or older) for 2011.

Contributions to a traditional IRA are made on a pre-tax basis, which means you typically don’t pay tax on them or on your earnings until you make withdrawals. However, depending on your income, some IRA contributions may not be tax-deductible if you also participate in a workplace retirement plan. Read Should You Contribute to Both a 401(k) and an IRA? for more details.

Option #5: Rollover to a Roth IRA

The fifth option for an old retirement account is to roll it over into a Roth IRA. Unlike a traditional IRA, contributions to a Roth are not tax-deductible and must be made with after-tax income.

So doing a rollover from a traditional 401(k) into a Roth IRA means that you have to pay tax on any contributions that weren’t already taxed. However, once you pay it, you’re never taxed on contributions or earnings in the account ever again. All your qualified withdrawals from a Roth IRA are completely tax free.

It’s just as easy to open up a Roth IRA as it is for a traditional IRA. The process for doing a rollover is the same—except for the tax part. You can contribute up to $5,000 (or up to $6,000 if you’re 50 or older) for 2011. To be eligible to contribute to a Roth IRA, there are annual income restrictions.

To learn more about Roth IRAs and which kind of IRA is best for your situation, grab a copy (or an e-book download) of my award-winning book Money Girl’s Smart Moves to Grow Rich.

Finding a Financial Advisor

This is part four in a series of articles for beginner investors. The first three parts covered why you should invest, types of investments, and the importance of diversification. This article covers finding and hiring a financial advisor.

When it comes to money management, it can feel as if there are two camps: the top hat and monocle-wearing uber-rich types who pay other people to worry about their money, and the rest of us who have to slog through money decisions on our own. Thankfully, nothing could be further from the truth. Every investor, no matter how modest the budget, can benefit from the help of a financial professional. And if you would rather clean your driveway with a toothbrush than make big money and investment decisions, help is available for you!

Types of Financial Advisors

Depending on your needs, there are several different professionals out there who can help you to reach your goals.

Financial Planners

For general money advice—including anything from investments and retirement to life insurance to savings to taxes to estate planning—a Certified Financial Planner (CFP) is your best bet. These financial jack-of-all-trades are a great resource for the average investor, as they can help you to get a good overall look at your entire financial picture.

Financial Planners will generally offer you a free first meeting, during which time you can ask questions about how they can help you reach your goals. From there, advice from the planner can either be charged hourly (a good idea if you have just a couple of specific questions), by the project (great for those who need help in only one area), or on retainer (for those who are looking for a long term relationship).

Although anyone can call himself a financial planner, a Certified Financial Planner is a title regulated by the CFP Board and those professionals must abide by standards of practice and a code of ethics.

Stockbroker

This is the sort of money manager that most individuals think of when you mention getting investment help. Stockbrokers (also known as investment managers or wealth advisors) work to maintain the best possible returns for your investments.

In most cases, using a stockbroker is for relatively high rollers—those who have a portfolio of anywhere from $50,000 to $100,000 or higher. That’s partially because you will be paying around $100 to $200 per stock trade, which is too rich for many casual investors’ blood.

If you are willing to do your own research, you can use the services of a discount broker—that is, someone who will do the trading for you at a lower fee than that of a full service broker. Discount brokers generally charge less than $10 for an individual online trade.

Specialist

Sometimes, you need help in a very specific area. Want to figure out how to leave all your money to the whales? Want to know which 529 plan will be best for your kids? Want to figure out how to minimize your small business’s tax bill? In each of these cases, a generalist might be able to help you, but for the absolute best advice, find someone who specializes in the area where you need help.

However, it could be financially dangerous to simply hire anyone who has put out a shingle for services. This is where getting a reference from your CFP could be invaluable.

Research Before Hiring

It is always a good idea to do a background check or otherwise research an individual or company before hiring them to help you manage your money. The best place to start is by doing an online background check on the financial advisor, which you should be able to do for free with just a few minutes time. If you are satisfied with what you find online, then it’s a good idea to interview the financial planner to understand how they get paid, their investment philosophy, how they can help you, and whether or not you are comfortable with the individual or company. If something just doesn’t feel right, then don’t be afraid to look elsewhere.

When to Call in for Help

It can be tough to know if you’re ready for a financial advisor. Many people wait until they have a major life change to call in the big dogs. There’s nothing like getting married, having a baby or changing a career to make you realize it’s time to get your finances in order. And there’s absolutely nothing wrong with that kind of timing.

However, if you ever feel like you don’t know what more you need to do in order to maximize your financial goals, then schedule a meeting with a pro then and there. It will help you to find a direction or give you the peace of mind to know that you really are on the right track.

To be honest, I think I will always be a little phobic about investing. As a very risk-averse individual, I’m always worried about making the wrong decision. But I know that my financial health depends on my ability to take that plunge. So I’ll test the waters and learn to overcome those fears.

Why You Should Diversify Your Investments

This is part three in a series of articles for beginner investors. The first two parts covered why you should invest, and types of investments. This article covers the importance of diversification in your investments.

My high school Biology class taught me that the health of a particular eco-system could be measured by the bio-diversity found there—meaning, if there were a lot of different species living in one place, you could bet that was an ecologically healthy environment.

Your financial health is similarly reflected by the diversity of your investments. It’s easy to see that putting all of your eggs in one basket is a recipe for disaster—just look at any recent financial scandal from Enron to Bernie Madoff and you’ll find someone who has lost everything because it was all placed in the same poorly managed (to say the least) basket. However, other than knowing better than to give your life savings to a Ponzi scheme or place it all in your mattress, how do you know how to diversify?

Why You Should Diversify your Investments

Here are some basics to keep in mind when trying to maintain your financial health:

Portfolio: It’s Not Just Another Word for Briefcase

You’ll often hear people refer to their investment portfolio. Basically, this is the breakdown of the different ways you invest your money in order to reach your goals. Your portfolio will change throughout your investing career as your goals change. When you first start investing, your portfolio will reflect the fact that you are able to take a long view and will include investments that may be more volatile. You have the time to wait out the market and allow your stocks to recover. If you are closer to retirement, you want to make sure your money stays put and possibly shows some modest growth. In that case, your portfolio will likely focus more on less risky (and lower returning) bonds.

In short, your risk tolerance and time frame help determine the diversity of your portfolio.

Risk Assessment

Determining your risk tolerance is an important part of drawing up your investment portfolio. For those investors who are willing to watch their money go up and down with the instability of the market, a more aggressive portfolio (but still one that incorporates diversity!) will give the possibility of higher returns, while still maintaining some stability. Those who don’t have the stomach for rapid declines can go the more conservative route but still incorporate a few riskier investments that could pay out higher returns. No matter what your risk tolerance is, however, it is imperative that you diversify your portfolio so that no one investment dominates. That allows both aggressive and risk-averse investors to enjoy stability and the potential for growth.

Beware of Sure Things

When it comes to investments, people will sometimes get dollar signs in their eyes and forget the most basic tenet of investing: diversify! If you ever come across a “can’t-fail” investment strategy, back away slowly. There is no such thing a sure thing. Accepting some risk means that you know everything is above-board. The only real way to mitigate the inherent risk of investing is to diversify. Any other scheme is just that—a scheme.

Next week, we’ll discuss how to find a financial advisor to put this all together.

How to Change Your Thrift Savings Plan Address

My wife and I moved a few months ago and I finally realized I forgot to change our address for our Thrift Savings Plan accounts. It’s important to use the most up to date address you have so the TSP can contact you with updates or any issues that arise. This is especially important if you are already receiving your Thrift Savings Plan benefits (you need access to IRS Form 1099-R when you file your taxes). Thankfully, updating your address is as simple as updating your account online or filling out a form and mailing it in (the form is available online or by calling the the ThriftLine).

Changing Your Thrift Savings Plan Account Address

Thrift Savings Plan Logo

Have you moved recently?

The TSP doesn’t send out much mail – but the mail it does send is usually very important for your retirement planning needs, or filing your taxes. In most cases, the mail you receive will be limited to quarterly or annual statements if you opt to receive them in physical form (you can also receive them electronically), and your IRS Form 1099-R if you are making qualified withdrawals from your funds. Other than those situations, TSP mailings are usually limited to important plan updates.

As you can see – it’s a great idea to give the TSP the most up to date information you can. Not only will it help you have the most recent information about your account and what’s going on with the TSP, but it will also keep your private information out of the hands of others. Identity theft is a real danger, so it’s best not to give people a reason or means to target you!

Changing your address: There are two categories of TSP members: actively employed, or separated from government service. Actively employed covers anyone who is still eligible to contribute to his or her Thrift Savings Plan, and separated from Federal service covers everyone (military and civilian) who is no longer eligible to contribute to their TSP.

Are you still employed by the Federal government? Then you will need to contact your agency or service to update your address. You won’t be able to change your information via the TSP website or via the Thrift Line if you are actively employed because your service is responsible for maintaining your information and relaying it to the TSP.

Separated from Federal service? Then you are responsible for notifying the TSP about any changes to your account or personal information. To do this, you can complete Form TSP-9, Change in Address for a Separated Participant. You can get a copy of the form from the link provided, or by calling the ThriftLine. It is a one page form and should only take about 5 minutes to complete. The other way to change your address is via the Thrift Savings Plan website. Log into your account, visit the My Account: Profile Settings section and change your address.

Mail or fax your Form TSP-9: Once you complete your form send it to the following address or fax number:

Thrift Savings Plan
P.O. Box 385021
Birmingham, AL 35238

Fax: 1-866-817-5023

What if you have two accounts? Great question! My wife separated from active duty and then worked a civil service job, so she has two TSP accounts; one military, and one from Federal service. The instructions are basically the same. If you are still active in the uniformed services or Federal service, you can still only change your address through your agency or service. Then just check the appropriate box on your Form TSP-9 for the agency or service in which you are no longer active. If you are no longer active in either the uniformed services or Federal service, then you can use one form to change your address on both accounts – just check both boxes when you send in your form, or update it online.

Don’t forget about your ability to transfer your TSP. If you have since left Federal or military service, you may wish to consolidate your financial accounts to make it easier to plan for retirement or otherwise manage your money. If this is something you wish to consider, the be sure to review your options for rolling over a TSP account. Some options include rolling it into a 401k or other employer sponsored retirement plan, opening an IRA, or rolling it into a current IRA.

Investment Basics – Types of Investments

Investing for the first time can be intimidating, which is why we are writing this series for beginning investors. The first article in the series covered why we should invest. In it we discussed the importance of investing and how it’s not as difficult as many people believe. In this article, we discuss ways to invest and different types of investments.

Are you familiar with different types of investments? If you think that bonds are British secret agents and stocks are what thieves were shackled into in Colonial America, you’re not alone. Just like any subject, investing has its own vocabulary and it can feel a little intimidating to ask basic questions of an expert. So here is a breakdown of different ways to invest your money, and what they all will mean for your bottom line:

Investment Basics – Types of Investments

Certificates of Deposit

A Certificate of Deposit (CD) is a short-term, debt-based investment offered by a bank. In short, you give your money to the bank who lends it out to someone in the form of a loan. You receive your money back plus interest anywhere from three months to six years later. CDs are very low risk investments, but they also offer a relatively low return on investment. Because these deposits are based on a set time limit, there may also a penalty if you need to withdraw your money prior to the maturity date. Read more about using CDs as short term investments in our article about how to build a CD ladder.

Treasury Bills

A treasury bill (T-bill) is a short-term investment offered by the government. The term is usually less than one year and typically three months. T-bills generally don’t pay interest, but you can buy them at a discount, meaning you yield the difference between the purchase price and the redemption value. This means you actually buy the bond at less than face value and redeem it for face value upon the maturity date. T-bills are backed by the government and offer the closest thing to a risk-free investment available to any investor. However, their very low yield is a major drawback. US Savings bonds can be similar low risk, low return investments.

Bonds

A bond is similar to a CD in that it is debt-based. Essentially, a bond is an IOU issued by a company. When you purchase a bond, you loan a specified amount of money for a specified number of years in return for interest on the investment. Bonds generally offer much higher interest rates than CDs or T-bills and offer relatively low risk. However, they are long-term investments, which means that your money is tied up for anywhere from 10 to 30 years. If you need to sell your bond before it reaches maturity, the sale may result in a loss. Also, though bonds are relatively low risk, it is always possible that the bond issuer may declare bankruptcy or otherwise default, meaning it is possible to lose money.

Stocks

A stock is different from the debt-based investments. When you purchase stock, you have in effect become a partial owner of a company—and you get a piece of any profits (known as dividends) that the company allots to share holders. Dividend investing is a popular and proven way to invest in stocks, but if your stocks do not pay dividends (not all do), then you only make money if your stock increases in value. Unlike a bond, your return on investment is not guaranteed with a stock. Stock values fluctuate from day to day, which means that your risk is greater—as are your potential returns.

Mutual Funds

Mutual funds were created in order to allow investors to pool their money in order to buy a variety of investments—and let a professional money manager determine the best use of the investors’ money. Mutual funds are an easy way to diversify your investments (more on that next week). However, many mutual funds charge management fees of around 2% (the professional money manager needs to take a cut) and their performance depends on how good your fund manager is.

Index Funds

Index funds are similar to mutual funds—they allow investors to pool their money to purchase stocks in a large number of companies, giving them the opportunity to invest in a variety of companies without buying hundreds of individual stocks. The main difference between index funds and mutual funds is active management vs. passive management. Mutual funds are managed actively, meaning the portfolio manager actively chooses which stocks to purchase based on the mutual fund goal, and index funds are passively managed, meaning the stocks in the index fund are based on a preset list of stocks. Most index funds track a market index such as the S&P 500, NASDAQ, Wilshire 5000, indexes which track foreign markets, and similar stock market indexes. The goal of an index fund is to simply match the market as closely as possible, while not charging investors as much money in fees as some actively managed funds charge. Learn more about why index funds are attractive investments.

Gold, Silver, Precious Metals, and Commodities

Many people feel the stock market is too risky and prefer to invest in a physical asset such as gold, silver, precious metals, or even commodities. These investments can be a good way to diversify your investments. However, like most investments, it may not be a good idea to maintain a portfolio which 100% invested in precious metals. Learn more about investing in precious metals.

Which type of investment is best?

Each of these investments has its own set of pros and cons, and they can all be appropriate for investors based on their individual investment needs. In most cases it is a good idea to use a variety of different investment types in one portfolio. Next week, we’ll take a look at why diversity is important in your investments.