Deborah Laemmerhirt, Broker 203-994-4297
When the stock market fluctuates, no one can blame you for feeling a little apprehensive about investing. Sometimes you wonder if anything is safe, so how do you invest your savings? You invest by maintaining realistic expectations and keeping some basics in mind:
Diversify your portfolio. The most important lesson to learn from stock market ups and downs is that it is risky to invest 100 percent of your portfolio in one asset class. Make sure you diversify at least among stocks, bonds, and cash, and give serious thought to diversifying in other asset classes, such as real estate. That way, if one asset class declines, another category may be rising or not decreasing as much, so the effects of the decline will be less dramatic. To guide your investing decisions, develop an asset allocation strategy you are comfortable with and can maintain during both good and bad times.
Rebalance at least annually. You can’t just develop an asset allocation strategy and then leave your portfolio on autopilot. Since different assets have differing rates of return, your allocation will get out of balance over time. For instance, when the stock market goes through a decline, lower stock prices mean many portfolios contain a higher percentage of bonds than was intended. When your allocation is off by 5 to 10 percent, take steps to get it back in line. That can be a difficult concept to implement, because you are essentially selling investments with good performance to purchase investments with lower performance. Just remember you are following a basic investment concept? You are selling high and buying low.
Save more of your income. If the stock market dips, are you concerned future returns may not be as high as they have been in the past, making it more difficult to achieve your financial goals? The answer is simple but requires discipline? Save more of your income. Take a serious look at your lifestyle and spending choices, trying to find ways to reduce expenditures. Sure it’s more fun to live a richer lifestyle, but is it worth jeopardizing your retirement?
Invest gradually. Is the stock market going up or down? Should you invest now or wait to see what happens? The stock market’s future direction is never clear, making investment decisions difficult. Instead, put your investing program on autopilot. Set up a dollar cost averaging program, investing a certain dollar amount every week or month. This will spread your purchases out over time, so you won’t make one major purchase at a market high. Keep in mind, however, that dollar cost averaging does not assure a profit or protect against losses in declining markets. Before starting, consider your ability to continue purchases during periods of low price levels.
Avoid taxes. At rates ranging from 10 to 35 percent, income taxes can dramatically reduce your portfolio. Even capital gains taxes, with a maximum rate of 15 percent, can take a large chunk out of your portfolio. While you don’t want to make investment decisions solely for tax purposes, there are a variety of investment vehicles that can lessen the impact of taxes. If you’re saving for retirement, investigate options like 401(k) plans and individual retirement accounts. If you are in a high tax bracket, consider municipal bonds for your portfolio’s bond portion.
Keep time on your side. During a time of low returns, it can be painful to review your stock investments, but you should only be invested in stocks if you have a long time horizon. While no one can accurately predict what the stock market will do tomorrow, history has shown over long time periods, it tends to go up. Follow the other five points and keep time on your side.Read More
Deborah Laemmerhirt, Broker 203-994-4297
Section 529 plans are one of the most popular ways to save for college. Named for a section of the tax code that authorizes them, these plans allow you to invest in pre-paid tuition programs or contribute to tax-favored college savings accounts.
Currently, Section 529 plans are set up by individual states and often managed by professional investment firms.
You don’t get a tax deduction for contributions to these plans but the earnings are allowed to grow tax-free until the funds are withdrawn to pay for qualified education expenses.
Other advantages: You don’t have to invest in your own state’s program. You can shop around to find a plan to meet your needs. And unlike most education tax breaks, there are no income restrictions.
Section 529 plans were first introduced in 1997. But subsequent tax laws made them more attractive with these new provisions:
Qualified withdrawals from a state-sponsored plan are now free from federal tax. In the past, the student had to pay tax on the money when it was withdrawn.
Family members, such as grandparents, can make contributions on behalf of a child. In addition, they can give up to $65,000 to a plan and have the gift spread out over five years for gift tax purposes. Under this provision, the gifts then qualify for the $13,000 annual gift tax exclusion (unchanged from 2011).
Private colleges and universities can now set up their own qualified tuition plans. Originally distributions from these plans were taxable but are now treated as tax-free.
In addition to these new tax law provisions, the IRS has relaxed some of its rules pertaining to Section 529 plans. In the past, one of the disadvantages to contributing was a restriction on changing investments. Let’s say you chose to put your child’s college savings in a volatile stock sector a few years ago. Now, you want to switch to a more conservative investment.
Under the old rules: Participants were able to choose from a selection of investments offered by a program when they signed up but they were not allowed to make any subsequent changes. So in the example above, you’d be stuck with the volatile investment.
Under the new rules: Participants can now change from one investment to another once every 12 months or whenever the beneficiary changes (IRS Notice 2001-55).
With all the changes, Section 529 plans are better than ever. To see if they are right for your family, check with your tax or financial adviser.Read More
Deborah Laemmerhirt, Broker 203-994-4297
Consumer Groups and Congress are advocating for consumers to receive a free credit score once per year. Also we review a popular credit checking site that we feel is worthy and gets “two thumbs up”.
On March 6, Senator Bernie Sanders from Vermont and Representative Steve Cohen (TN) introduced legislation in the House and Senate, called the Fair Access to Credit Scores Act. If passed the Act would that require credit reporting bureaus provide consumers with a free credit score. There are several companies out there that will provide you a credit score for a fee or with some sort of annual membership. There is much confusion in the credit reporting industry due to the different types of credit scores that are available for credit grantors to use. So if given a credit score, a consumer could not be 100% assured that it is the same one that a credit card company would have or a mortgage company would use.
Recently, the Consumer Finance Protection Board released a study HERE that indicated major discrepancies are possible when consumers are given one score and a credit grantor has another they use to determine credit worthiness. In up to 24% of the cases, the agency found, a consumer might see a score that was one tier off from what a lender would see. That means a consumer could see a score in the “excellent” range of 740-plus, while a lender saw only a “good” score in the 680-740 range, or vice versa. In as many as 3% of cases, the scores varied wildly. Be aware of this confusion when seeking credit.
Let’s hope Congress clears up this mess.
How to keep an eye on your credit:
This site is getting rave reviews for being easy to use and free. There are some ads that come with the service but generally they are not intrusive. Once you register, Credit Karma goes to work monitoring your balances, payments and any warnings are given to you by email.
Credit Karma believes that every consumer has a right to access their scores. You’ll get four credit scores along with free credit tools to help you better understand what a good credit score is. Even better, you’ll receive your free credit score without a credit card.
The totally free Credit Report Card is an easy-to-understand summary of your credit report details. Use the Credit Report Card to gain a better understanding of your credit history and how it impacts your credit health.
Credit monitoring can help prevent identity theft and inaccurate information from appearing on your credit report. You’ll receive an email when something important changes in your credit report.
Along with your free score, you’ll see important details of your credit report for free. In addition to your free Credit Report Card, you can view the details on your individual credit cards, mortgages, auto loans and personal loans. You can use this section to spot any fraudulent or mistaken accounts on your credit report, maintain a record of your reported balance history, keep tabs on your credit card utilization rate, and receive recommendations for new loans and credit cards.Read More
Deborah Laemmerhirt, Broker 203-994-4297
Whether you’re looking to do to some major remodeling or if your home just needs some basic repairs, deciding on a contractor for your home improvement project can be difficult. It’s certainly not a decision you should make in haste.
How does your insurance factor into home improvements? Most homeowner’s insurance policies include four basic types of coverage:
Repairs to the home because of damage caused by specified disaster
Replacement of items lost due to theft or damaged by specified disasters;
Liability coverage; and
The cost of temporary housing in the event that a specified disaster causes significant damage to the house
While all these protections are equally important in the long run, when it comes to home improvements, your liability coverage comes to the forefront. This form of protection insures you against any injury claims made by uninsured workers, as well as property damaged during the project. Liability protection also pays for the cost of your legal defense in any related court cases and covers awards to injured workers, as defined by the terms of your policy.
Of course, your home insurance shouldn’t come into play if you’ve selected a highly qualified contractor to get the job done. Before you make the hire, set up an interview so you can ask some questions, including these:
- How long has your business been around? Businesses that have withstood the test of time generally do good work and have enough customer reviews to back it up. Look for reviews on the internet and use a consumer protection agency, like the Better Business Bureau, to check up on their complaint history. Remember to take internet posts with a grain of salt, and that BBB records don’t always tell the whole story.
- Do you hold a state license? Most states license plumbers and electrical contractors, but just 36 states have a license or certification for contractors and home remodelers. You can find out what types of contractor’s licenses are available in your state by contacting your local building department. If your state requires home contractors to be licensed, do not hire anyone without seeing proof of their licensure.
- Are you bonded and insured? Only hire a contractor who carries insurance that covers against damages to your property, personal liability, and worker’s compensation coverage. If you hire an underinsured contractor, your insurance will be making up the difference if something should happen
- Does my project require a permit? A good contractor will get all the required permits before starting a project.
- Will sub-contractors be used during the project? Sub-contractors are not necessarily a bad thing, just make sure to meet them first so you can check out their credentials. Subcontractors are also a good source of honest information about the prime contractor. A little known fact for many homeowners is that a “mechanic’s lien” can be placed against your home if the contractor does not pay their sub-contractors or material suppliers, so ask if the contractor makes prompt payments.
While negotiating the terms of your home project, ask the contractor and all sub-contractors to sign a lien waiver or release statement that keeps subcontractors from coming after your money if bills go unpaid.
The Federal Trade Commission has issued a warning to homeowners to help spot disreputable contractors and scammers looking for your business. Here are a few telltale signs of a shady contractor. He or she:
- Goes door-to-door soliciting business.
- Wants the names and phone numbers of friends and neighbors who may need service.
- Offers a discount for using “leftover materials.”
- Only takes cash payments.
- Is unable to get the proper building permits.
- Has an unlisted phone number.
- Considers your project a “demonstration job.”
- Uses high-pressure and intimidating sales tactics.
- Offers guarantees without any paperwork to back them up.
- Wants the payment up-front and in full.
- Offers financing through a “personal friend” or acquaintance of the contractor.
Remodeling can make you feel like your home is brand new and can add thousands to its resale value, but without doing your homework before hiring a contractor, you could be left regretting your decision for years to come.Read More
Deborah Laemmerhirt, Broker 203-994-4297
Many homeowners dream of the day when they’ll mail in their final mortgage payment and own their homes “free and clear.” In anticipation of that day, some homeowners speed up their mortgage payments by paying more toward the principal whenever they have some extra cash.
These homeowners get an enormous sense of satisfaction as they watch their mortgage balances diminish each month. By accelerating payments, not only will they pay off their mortgages sooner, but they’ll also cut down on the total interest they’ll pay over the life of the mortgages.
Although these prepaying homeowners think they’re doing themselves a great service, some financial advisers say they’re making a mistake. Their argument: When you prepay your mortgage, you’re basically investing in your house. As an investment, it’s extremely non-liquid and the transaction costs to sell it are phenomenally high.
Plus, when you put all of your extra money into your house, you have nothing left over to fund other investments. This goes against the basics of smart financial planning. For years, financial experts have stressed the importance of a diversified portfolio. However, when you put all your money into mortgage prepayment, all you’re getting for it is the appreciation of your house. That can be the opposite of a diversified portfolio. Of course, it all depends on where you are investing and what is happening with the stock market if that is where you are putting the majority of your money.
Despite these facts, many homeowners still want the emotional high that comes with fully owning their own home. If you’re one of them, you should consider the following factors before paying off a mortgage:
Your Mortgage Rate If you have a 30-year mortgage with a low fixed rate, financial advisers usually say it’s best to stretch out your payments for as long as possible. With this kind of mortgage, you shouldn’t even consider prepaying unless all your debts are paid off and you have enough money to put in other investments as well. On the other hand, if you have a higher interest rate of 8 percent or more, you should generally either pay off your mortgage as quickly as possible or refinance.
Credit Card Debt If you are carrying any credit card debt, the thought of prepaying your mortgage should not even cross your mind. Because credit card debt typically carries a high interest rate, you should generally focus on paying it off before anything else.
Investments Financial advisers often say that when you spend your money prepaying your mortgage, you’re basically leaving free money on the table. How so? Because if you spend all your extra funds on mortgage prepayment, that means you’re not investing in your 401(k) at work or other tax-deferred retirement plans. If you are fortunate enough to have an employer that “matches” the amount of money you put in a 401(k), it’s considered a “no-brainer” investment. Some financial advisors go so far to say that consumers should put the minimum in their 401(k) to get their employer’s match before even paying off their credit card debt. After all, it’s a 100 percent return on your money.
So once you’ve gotten rid of your credit card debt, you’re investing money in a diversified portfolio and you’ve built up a healthy savings account, then is it a good time to prepay your mortgage? More considerations:
• If you have a fixed low-rate mortgage, your fixed monthly payment will become an even better deal as the years pass and inflation increases.
• You’ll probably benefit from deducting mortgage interest on your income taxes.
• If you use the money to invest elsewhere, you’ll have other valuable investments earning money for you. In the long run, paying off your mortgage isn’t going to add to your wealth-and it can actually subtract from your potential wealth because you could be putting that money into more valuable investments. Prepaying your mortgage is obviously a personal and emotional decision. If you are considering paying off your mortgage, discuss your options with a professional financial adviser.Read More
Deborah Laemmerhirt, Broker 203-994-4297
As more and more consumers get connected and with smart phones glued to our ears, the net is powering news ways for consumers to engage in a “shareable” world. We are used to the concept of car rentals but this new collaborative trend is fueling all sorts of possibilities to rent, share and go green. Social media is also adding to the rapid expansion of the trend.
< Just In! Wal-Mart thinking about having customers drop off purchases for their neighbors– with incentives added >
About 5 years ago, in large cities, a concept called Zip Car came about. (http://www.zipcar.com) This service allows city dwellers to rent a car, in their neighborhood, just for an hour or two. This idea makes sense and is very cost effective but recently the trend is getting more pervasive.
In the same space as eBay, a site called Swap Your Stuff (http://market.swap.com) allows easy interaction to buy, sell or rent personal items without going through eBay.
But one area that can use some modernization is children’s clothing. Estimates are that about 1/3 of children’s clothes never get used. Now there is a market where others might take a shot at buying gently used clothing. A site called Threadup http://www.threadup.com powers this trend. For the giddy teen who must always have the latest, trendy clothes, there is http://www.swapstyle.com. This site lets you take a picture of clothing you no longer want and upload it to the web, sharing it with others who want to cut a “Swap Deal”.
Crowd sharing has not left out the vacation industry. Now it’s possible to rent wonderful properties by the night. This site, http://www.airbnb.com has some great ideas for domestic and international get-aways.
Hail a Bike, Not A Taxi” One of the fastest areas where this crowd sharing is seen is bicycle sharing. It started in Washington, D.C. and now is rolling out in New York ( http://a841-tfpweb.nyc.gov/bikeshare and in Houston http://www.bcycle.com and to much smaller cities. Instead of taking a cab 15 blocks, swipe your debit card and jump on a bike. There is an obvious savings in terms of dollars but also the trend creates a positive impact on the environment.
How To Get The Trend Going Locally:
Deborah Laemmerhirt 203-994-4297
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