According to the College Board, the average annual cost of a private, four-year university was over $26,000 during the 2009-2010 school year (about $7,000/year for a public university), with tuition costs rising 5% faster than the inflation rate. Today’s college savings plans provide more incentives and flexibility than ever before, but they don’t relieve parents and grandparents of the important responsibility of choosing the right investment mix. [...]
When an investment declines in value after purchase, it’s generally considered a bad thing. For investors who know their tax rules, however, capital losses have a silver lining. Each year, the IRS lets you use investment losses to offset an unlimited amount of capital gains and up to $3,000 of ordinary income. By strategically harvesting capital losses instead of simply absorbing them, opportunistic investors can soften the blow of declining investments and boost their long-term returns. [...]
The Worker, Retiree, and Employee Recovery Act of 2008 suspended Required Minimum Distributions (RMDs) for 2009, giving many IRA investors a much-needed extra year of tax-deferred growth. After a one-year RMD layoff, however, investors must be careful not to miss a required distribution in 2010 and owe a sizable penalty. Those who inherited an IRA in 2009 are particularly susceptible. [...]
Over the past five years, target-date retirement funds have surged in popularity, growing fivefold in assets and becoming an option in three out of four workplace retirement plans. These “set it and forget it” mutual funds offer quick and easy access to a diversified portfolio that automatically adjusts as you get closer to retirement, but they aren’t without their limitations. It takes a little bit of homework to avoid the potential pitfalls of this simplified savings solution. [...]
Roth IRA conversion is one of the hottest investing topics of 2010. Since the IRS lifted the ban on Roth conversions for $100k+ earners at the start of the year, scores of articles have been written about whether to convert. For many investors, the answer lies in understanding the simple but all-important pro-rata rule that the IRS uses in determining your conversion tax. [...]
I recently wrote about the significance of commission-free ETF offerings at Schwab and Fidelity. For investors who make small, regular contributions to their accounts, ETF commissions had previously been a deal-breaker, making index funds the default choice for building a long-term investment plan. In the wake of these announcements, it seemed as though Vanguard, the historical leader in low-cost investment products, had fallen behind the competition. Well, don’t call it a comeback, but today’s unveiling of commission-free ETF trades and other significant cost reductions clearly re-establishes Vanguard as the low-cost investing leader. [...]
Index investing, an approach that attempts to mirror the performance of market indices at minimal cost, has been maligned and misunderstood for decades. The criticism began even before Vanguard founder Jack Bogle created the first index mutual fund in 1975, as the concept was prematurely labeled as “Bogle’s folly.” Upon creation of the fund, which would later become the Vanguard 500 Index Fund, Fidelity Chairman Edward C. Johnson III was asked if his company would follow Vanguard’s lead. He replied, “I can’t believe that the great mass of investors are going to be satisfied with just receiving average returns.” [...]
Intelligent investors focus on controlling costs. Choosing low-expense funds and a low-commission broker is a great start, but for many investors, the largest investment cost of all is taxes. If you have a taxable investment account, Uncle Sam is eventually going to claim a share of your returns, but there are steps that you can take to minimize the damage. By understanding how taxes affect your investments and intelligently dividing funds between taxable and tax-sheltered accounts, you can maximize your after-tax returns and increase your chances of reaching your investment goals. [...]
Treasury Inflation-Protected Securities (TIPS) are inflation-indexed bonds that are issued by the U.S. Treasury. If you’ve never taken a good, hard look at these one-of-a-kind bond investments, now is the time. Regardless of your financial circumstances or risk profile, there are plenty of reasons to consider adding TIPS to your long-term asset allocation plan. [...]
