When you hear about someone investing in CDs, do you imagine them going to the music store and stocking up? That’s probably not the case. In financial terms, “CD” stands for certificate of deposit, a popular instrument for earning interest on one’s money in the short term.

Certificates of deposit are issued by banks, credit unions and other financial institutions. Their purpose is to raise money for lending purposes. For this reason, CD holders must commit to leaving their money on deposit for a certain amount of time. It is usually possible to make an early withdrawal, but doing so will result in a penalty.

The maturity date of a CD is simply the length of time that the depositor agrees to leave his money in the bank. This usually ranges from three months to five years. The longer the maturity on a CD, the higher the interest rate you receive will usually be.

Banks may also offer different interest rates for CDs with different minimum deposits. The larger the deposit, the higher the interest may be. Some banks offer CDs with a minimum deposit of as little as $1,000, while others require a higher deposit. Jumbo CDs with minimum deposits of $100,000 are also available, but it’s important to remember that the FDIC does not normally insure investments above that amount.

For those who want to know exactly how much interest they will earn, a fixed-rate CD is a good choice. The interest rate is agreed upon when the CD is purchased, and even if interest rates drop while your money is on deposit, your interest will remain the same. This can, however, be a disadvantage if interest rates rise before your CD matures.

Not all CDs feature fixed interest rates. Some have variable rates that may change with current interest rates or adjust according to a predetermined schedule. Some banks also issue CDs that may be “bumped up.” This means that the CD holder may request that the interest rate be updated to current rates once during the CDs term.

Some CDs are callable, which means that the issuer can terminate them after a certain period of time. If this happens, your deposit is returned to you along with the interest that has been accrued up to that point. A bank might decide to call a CD if interest rates have dropped to avoid paying the higher interest rate. But the depositor must still pay a penalty if he withdraws money prior to the maturity date.

Certificates of deposit are not right for everyone. If you need easy access to your money, a money market account might better suit your needs. But if you are looking to earn interest on money that you do not plan to use in the near future, and you want the reassurance of FDIC coverage, a CD might be for you.

Brought To You By:
Woody Alpern
CPA/PFS
www.yourwealth.com
woody@yourwealth.com

In order to determine whether you should invest in stocks, annuities, or both, it is important to understand each component and how they compliment each other in an investment portfolio.

With today’s stock market at an all-time low, some experts would recommend that this is a good opportunity to invest in stocks. The “buy low, sell high” adage may yield positive results if you are willing to invest in the long term.

Conversely, some would also argue that annuities are a safer bet in today’s economy. An annuity is an investment that yields a guaranteed payout. There are two types of annuities: fixed and variable.

In a fixed annuity, a specific amount is invested and payouts are received monthly, quarterly, or annually. The fixed annuity offers a guaranteed payment wherein the principal amount is never lost, even though there may be a decrease in interest.

A variable annuity comprises stocks, bonds, mutual funds, and treasuries. Unlike the fixed annuity, there is a risk there may be some loss of principal due to the fact that the investment covers a wide range of securities.

An investment portfolio, such as a 401K, for example, allows for contributions to be made into the fixed or variable funds, or a combination of both. The fixed annuity may yield a rate of 8.25% whereas a variable annuity may yield five times the rate of a fixed – but again, it is subject to market volatility.

The bottom line is that an investment portfolio that comprises both stocks and annuities do compliment each other. There are many providers who offer what is called “fixed index annuities” that are tied to the stock market index such as Dow Jones and S&P.

There is no question that variable annuities offer long-term growth. However, it is important to research the many providers to ascertain who offers the best combination of these funds.

Whether you decide to invest in stocks or annuities or both, it is recommended that you keep contributing to the investment portfolio. Even though the economy is in a recession, the market will eventually correct itself and the investments you currently own will produce a higher rate of return.

Finally, here is a tip you may find useful. If you have a 401K, change the contribution to the fixed rate fund. When the market begins to rally, you can then opt to change to Variable A or a combination of both.

Brought To You By:
Woody Alpern
CPA/PFS
www.yourwealth.com
woody@yourwealth.com

The annuity is a very unique type of investment. Instead of a bank or stock broker, investors obtain annuities through an insurance company. And while annuities have certain things in common with life insurance, they are not the same thing. They offer low risk while providing an opportunity to receive guaranteed income for a given number of years, or even for the rest of your life.

Annuities come in many different flavors. There are immediate annuities, which begin immediately after the annuity is purchased, and deferred annuities, which may begin years or decades later. Fixed period annuities pay out for a specified period of time, while lifetime annuities pay out until the annuity holder (and in some cases the annuity holder’s spouse) dies. Single premium annuities are paid for in one lump sum, and flexible premium annuities are funded by a series of payments over time. And then there are fixed and variable annuities.

Fixed Annuities

Fixed annuities are known for being safe, stable investments. The issuing insurance company guarantees the principal of fixed annuities, as well as a minimum rate of return. Growth in value is fixed at a given interest rate or dollar amount, or determined by a formula disclosed when the investor purchases the annuity.

Growth of fixed annuities is not always limited to the minimum interest rate. When an insurance company experiences unexpectedly high growth on annuity investments, it may pass that growth on to holders of fixed annuities in the form of dividends. Terms and conditions related to such dividends should be outlined in your annuity contract.

Variable Annuities

Variable annuities have more in common with mutual funds than fixed annuities. Money put into a variable annuity is invested in a fund with a particular investment objective. Like retirement accounts, variable annuities usually offer investors a choice of funds with varying degrees of risk.

Unlike fixed annuities, the payments distributed through variable annuities fluctuate according to fund performance. When the fund performs poorly, your payment decreases. When it performs well, it increases. There is no guaranteed rate of interest, and it is possible to lose principal with this type of annuity.

Variable annuities often come with a death benefit. That means that you can designate a beneficiary to receive the greater of your account balance or a guaranteed minimum. This prevents the loss of money invested if you die before withdrawing all of the money in your account.

Fixed and variable annuities each have certain benefits. Which one is best for a given investor depends on his goals and tolerance for risk. If you’re looking for a safe, guaranteed investment, a fixed annuity may be the best choice. If you want to maximize your potential for returns, a variable annuity might be better for you.

Brought To You By:
Woody Alpern
CPA/PFS
www.yourwealth.com
woody@yourwealth.com

Ask any investment professional which type of investment is best, and he will tell you that it depends on a number of factors. The amount you have to invest, the length of time you wish to invest your money, and your tolerance for risk all have a bearing on which investments are best for you. And the state of the economy plays a role in determining the best investments, too.

Among those who are new to investing or have never invested, corporate bonds have gotten a rather bad rap. It’s true that they can be very risky, but they can also garner good returns in some cases. And if you buy when interest rates are high and sell when they are low, you can make money without having to wait until the bond matures.

How Corporate Bonds Work
Corporate bonds are securities issued by companies that need to raise money. Instead of taking out a business loan, they sell bonds to investors. This is good for the company because they have a longer term in which to repay the loan, and good for investors because they receive interest until the principal is paid in full.

Bonds are rated by Moody’s and Standard and Poor’s. The higher their rating, the lower the risk to the investor. But bonds with high ratings also have lower interest rates because of their low risk. Bonds with lower ratings are riskier, but they also carry higher interest rates.

Like the interest rates of most other investments, the interest rates of bonds fluctuate with market interest rates. But once a bond is issued, its interest rate remains constant for the entire term. So if you buy a bond with a 5% interest rate and the rate of bonds issued by the same company subsequently jumps to 8%, you still only get a 5% return. Conversely, if you buy a bond with a 10% interest rate and the rate of bonds issued by that company later falls to 6%, you still get your 10% if you keep the bond until it reaches maturity.

As you can see, the best time to buy bonds is when interest rates are high. Not only will you get a higher return than you would with a lower interest rate, you can also sell the bond and make a profit when interest rates are lower. Investors who are interested in bonds but turned off by low interest rates can buy from a bondholder with a higher interest bond to get the returns they want.

When the economy is shaky, interest rates fall. So buying bonds directly from corporations is usually not a good idea. If you’re dead set on getting into the bond market, buying from an investor with a higher interest bond will provide better returns. But your best bet is to wait until the economy improves and interest rates rise.

Brought To You By:
Woody Alpern
CPA/PFS
www.yourwealth.com
woody@yourwealth.com

When discussing investments, stocks and bonds are often lumped together. Perhaps it’s because both are securities that are issued by corporations. Or perhaps it’s because they both carry a significant amount of risk.

Corporate bonds are debt securities that are sold to investors. They are created for the purpose of raising capital for a company, usually to help it expand and grow. The money raised through bonds is repaid to the bondholders, along with interest. It’s similar to when a consumer takes out a loan at the bank, and must repay the loan in installments that include principal and interest.

Like consumer loans, corporate bonds may be secured or unsecured. For secured bonds, specific assets of the company are used as collateral. If the company defaults on its payments, the collateral may have to be sold to pay investors. Unsecured bonds are backed by the company’s general assets.

Corporate bonds have terms that may be as long as 100 years. Usually, the term is 12 to 30 years. The term is the amount of time the corporation has to repay the full amount of principal plus interest. Payments are generally made every 6 months.

Investors may keep their bonds until they are paid in full, or they may sell them. Some purchase bonds with the intent to sell them and make a profit. In order for this strategy to work, the investor must buy when interest rates are high and sell when they are low.

The risk in corporate bonds lies in the possibility that the company may not be able to repay its debts. If the company files for bankruptcy, its bonds will be worthless. Because of this inherent risk, corporate bonds pay higher interest rates than government bonds.

There is no sure-fire way of knowing whether or not a particular bond will be repaid. But you can get an idea of the amount of risk from the company’s credit history. Moody’s and Standard and Poor’s are two firms that assign credit ratings to bond issuers. Those with good credit ratings can sell bonds with low interest rates, while those with poor credit histories must pay higher interest due to increased risk on the part of the investor.

Corporate bonds are sold through brokers. They may be purchased individually or in bond funds. These funds combine a number of bonds into one package to reduce risk while maintaining a reasonable rate of return. Those who invest in bond funds may keep their shares indefinitely, because the bonds in the fund have different maturity dates. Once a certain bond has matured, it is replaced with another one.

Investing in corporate bonds is risky. But it can also bring an impressive rate of return. Few investors put all of their money into bonds, but most include them in their portfolios along with lower risk investments.

Brought To You By:
Woody Alpern
CPA/PFS
www.yourwealth.com
woody@yourwealth.com

How does guaranteed income for life sound? Unless you have all the money you could possibly ever need, it probably sounds great. But surprisingly few people know that you can get income for the rest of your life by purchasing an annuity.

Annuities aren’t something we hear about every day, but they are widely available. And they offer benefits that make them quite attractive to certain types of investors. They may be used to reduce tax liability, save money while earning interest or receive regular payments upon retirement.

Annuities are contracts between investors and insurance companies. The investor may make one large payment or a series of contributions to the annuity. The insurer then makes periodic payments to the investor. These payments may begin right away, or they might begin at a set date in the future.

Payments from the annuity can be disbursed over a period set forth in the contract, or for the insurer’s and/or the insurer’s spouse’s lifetime. Either way, the annuity earns interest for the investor. But those who purchase lifetime annuities may collect more or less than the full amount, depending on their life span.

Benefits of Annuities

For those who are looking for a way to defer taxes on investment earnings, annuities are a good choice. Interest earned is not taxable until money is withdrawn. Retirement accounts also offer this benefit, but there are limits to how much one can contribute to them each year. With annuities, there are no such limits. And in the case of annuities, there are no penalties for withdrawing money before you reach a certain age.

Money invested in annuities is also inaccessible to creditors. This is because that money technically belongs to the insurance company from which you purchased the annuity. Creditors may, however, be able to take a portion of any payments you’re receiving from the annuity.

One thing that concerns many investors about annuities is the fact that they could lose their investments if they die soon after starting a lifetime annuity. This can, however, be prevented. Most insurance companies offer the option to buy a guarantee period with their annuities. If you do, the insurance company will make payments to your designated beneficiary for the duration of the guarantee period if you die. Like life insurance benefits, annuity payments are not governed by wills and do not go through probate.

Annuities are often used to supplement 401K and IRA retirement distributions, but they may also serve a number of other purposes. But no matter how they are used, they offer a number of attractive benefits. If you’re interested in an annuity, your insurance company can help you determine whether it is the right investment for your needs.

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