Archive for April, 2007
by Robert D. Cavanaugh, CLU
Deferred annuities possess characteristics found nowhere else. They play an important part in seniors’ portfolios.
Seniors hold billions of dollars in deferred annuities. However, my experience is that the average person knows little about the unique advantages of deferred annuities, much less the options they have during the holding period.
When you mention the term, “annuity”, it typically conjures up thoughts of getting a small check in the mail every month from some insurance company. It is viewed as an income.
The vast majority, however, of annuities are of the “deferred annuity” variety. They are accounts designed to grow money over a period of time in a safe environment. Over 90% of deferred annuities are never “annuitized”, that is, converted to that monthly check in the mail.
So let’s take a look at some of the attributes of annuities and, in the process, clear up many misunderstandings about this vehicle.
Tax Deferred Earnings
Deferred annuities provide “triple compound interest.” There is interest on principal, interest on interest and interest on the taxes you would have paid on an investment in a non-tax deferred environment.
For example, 6% which is taxable is equivalent to an 8% non-taxed return assuming a combined federal and state tax bracket of 25%.
Safety
While deferred annuities are not FDIC insured, like a CD with a bank, they are backed by the generally billions of dollars of the insurance company’s assets. No big risks here.
A Competitive Interest Rate
Insurance companies normally set the interest rate for a deferred annuity contract annually. You will find that it is usually one to two points above CD rates. So not only do you get a higher rate but the interest is tax-deferred, unlike a CD where you pay taxes on the interest each year.
Some deferred annuities offer a rate that is guaranteed for a number of years, such as five. If you think interest rates will fall, you can lock in today’s rate.
Minimum Interest Guarantee
When you get to the end of your annuity time frame, if your annuity has not given you at least a minimum of (generally) 3% interest per year, then the insurance company will apply their minimum guaranteed rate. Nothing to get excited about, but at least you know that you can’t lose money and there is a minimum interest rate that is guaranteed no matter what.
No Sales Charges
When you move money into a deferred annuity, 100% of the money goes to work for you from day one. There are no sales charges subtracted from your initial deposit.
No Annual Administration Fees
Some places to park money, like mutual funds, may have fees attached to the administration of the fund. Not so with deferred annuities.
Withdrawal Privileges
This is a source of major misunderstanding. Many people do not realize that their money is not as tied up as they think; there are a number of ways to access funds without surrender charge penalties.
1. First, there is the 10% annual free withdrawal privilege. Each year you can take out up to 10% of your account value free of any penalties.
2. If you ever need to go into a nursing home, most insurance companies will allow you to take out whatever you need with no penalty.
3. If your doctor diagnoses you with a terminal illness, you typically can take out any amount penalty free.
4. You can convert all, or a portion, to a guaranteed income. This can be for your life, your life plus another (i.e. husband and wife) or for a set number of years.
5. There are a handful of new products on the market which will set you up with a pay out at a guaranteed interest rate for the rest of your life, but also allow you to retain control of the principal. In other words, the annuity is never “annuitized.”
The interest rate is typically a function of your age. For example, if you are 65, the interest rate is 5%; 70 would be 6%; 75 pays 7%.
Free of Probate
This feature will vary by state, but in those states in which this feature is applied, an annuity is not included as a probate asset. Hence it is free of any probate fees or any delays in passing the funds to your beneficiaries. The normal requirement, however, is that the annuity must have a named beneficiary.
Free From Creditors
Again, this will vary from state to state. If you live in a state where this applies, this is added peace of mind that the money in your deferred annuity is safe in the event of a financial reversal.
Surrender Charges
Folks who object to deferred annuities usually bring up the fact that there are surrender charges that make getting their hands on the money costly. To a certain degree this is true. In order for the insurance company to go on the hook for the guarantees in the contract, they need to put some strings on accessing the funds.
However, these surrender charges decrease over time. Eventually they disappear altogether. In addition, after you have held your contract for a certain number of years (five is typical), you can take all or some of the money out over a five (sometimes ten) year period with no surrender charges.
The bottom line is that the surrender charge issue can be circumvented in a number of instances. Remember, deferred annuities are longer term scenarios. You certainly wouldn’t want to put emergency fund money or money you are going to use to buy a new car in two years into a deferred annuity contract to begin with.
So there you have it. Ten features of a deferred annuity, which will add to your understanding of this product.
Robert D. Cavanaugh, CLU is a 36-year financial and estate planning veteran and author of the free newsletter, “The Estate Preservation Advisor”. For cutting-edge, easy-to-understand financial planning resources and techniques to increase your income, reduce taxes and preserve your estate and to claim the free video, “How to Sell Your Life Insurance Policy for More than the Cash Value”, go to http://theestatepreservationadvisor.com/rd/subscribe.htm
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by Wain Roy
Forget ordinary money market investments now. Think big and get real, for, Certificates of Deposits (CDs) is one surefire way to help your funds grow and earn high interest rates. However, there is one condition to having CDs. Your money is locked for a specific term and does not stay liquid anymore. This term generally ranges between one month and five years. If you withdraw money before its maturity, you lose a good deal of interest as a penalty.
CDs offer some of the best interest rates, but the funny thing about these is that you will never be able to predict the peaks or troughs. Trying to predict the future path of interest rates is not just an impossibility, but also silly. No matter how much facts and figures you have at your disposal, you will never know for sure! So why get into foretelling? Instead, take recourse to the ladder strategy
What’s that? The obvious question.
Bankers today don’t just rely on good banks to get good returns on their investments. Most are now turning to the laddering strategy. This gives some of the highest interest rates and you’ll soon know why.
It’s simple. Suppose you have $50,000 to invest
One advantage of strategic laddering is that all risks of betting huge CD money on dicey predictions are eliminated. Another advantage is that you always have some CD money to meet emergency needs. Also, you are almost always assured of the highest CD rates while laddering. Simply because, if you have invested on CDs with banks or other institutions that pay higher rates than their competitors, a continuous ladder would obviously mean more and more money.
But ensure that the maturities are in accordance with your cash budget. It’s not a good idea to start laddering without assessing your financial situation. In that case you would only end up meeting a dire money crunch and being hesitant to withdraw your locked investment. So, think, assess, plan and then enjoy the benefits of laddering.
Wain Roy is an internet marketing professional expert in various industries like real estate, web design, finance, medical tourism and highest CD rates
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by Chad Surges
Online stock investing
In my opinion, anyone who has a desire to trade stocks must absolutely read and learn as much as they can before ever putting one red cent into the stock market
The truth is that most new investors will lose money and lose it quickly if they try investing in individual stocks. I truly think new investors need to stick with simple index funds or exchange traded funds as their first venture into the stock market. Nothing will turn a person away from investing quicker than losing a lot of money right off the bat quickly. This will probably happen to most new investors if they invest
Once you understand how stock prices move up and down then start small with a handful of shares. Nothing is more depressing then buying a large amount of shares in any one stock just to see that stock price go down 10 minutes after you place your buy order. This may sound simple enough, but I personally think the greed factor kicks in very quickly with new investors. New investors need to understand that stocks tend to fall in price much more quickly than they rise. So trust the golden rule of diversification because putting all your money into one or two stocks is going to catch up to you eventually.
While I personally have enjoyed my venture into online investing, I have also learned that it is not always a fair game for the small investor. The boys on Wall Street have a lot more control than anyone sitting in front of their computer at home. If you think you will beat them everyday you will be sadly disappointed. So keep it real when you first start investing and do not try to become rich overnight. Learning both the pros and cons of online investing will prepare you for the mentally challenging world of investing in stocks.
For more information please visit: www.lucky-dog-investing.com
Author: Chad Surges
Degree: Bachelor of Science (Business)
Career: Logistics Executive
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by Chad Surges
It is such a shame that stuff like this still goes on in the world, but unfortunately it is a fact of life if you plan on investing
Well do not become one of the many people who fall for the old pump-and-dump scam everyday. Many new investors eyes become wide open with greed when they see that they could potentially make a lot of money quickly if they buy a ton of shares of a cheap penny stock. Unfortunately, there are pump-and-dump scammers out there hoping just for that emotion of greed to overtake common sense.
A pump-and-dump scam simply means someone is trying to pump up the price of a stock, usually a cheap penny stock, and then as the price goes up the pump-and-dump scammer sells all of their shares. This leaves the investors who were scammed with virtually worthless shares by the time they realize what happened.
So as a new investor, never let your greed overtake your common sense. Most penny stocks are penny stocks for a reason because they are worthless. Never buy a stock you receive through and email, regular mail, or through a phone call. There is no substitute for doing your own research when it comes to investing in stocks.
The stock market should never be thought of as a get rich quick scheme. I think too many people do not understand just how quickly they can lose money if they let their emotional greed control their actions. Remember the stock market should be treated as an investment tool not a casino.
For more information please visit: www.lucky-dog-investing.com
Author: Chad Surges
Degree: Bachelor of Science (Business)
Career: Logistics Executive
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As an entrepreneur interested in start-up investment and at the same time being an individual concerned with the risk involved in that investment, you should better know the industry in and out. Venture capital is provided by Private banks, Investment banks etc. Venture capital is also fund provided by entrepreneurs/professionals who are interested to invest
· Working premises
· Machinery
· Funds
· Other assets and liabilities
Well-managed venture capital firms are generally private partnerships funded by private firms, wealthy entrepreneurs and the venture capitalists themselves. Lets get familiar to some of the terms that are used to define the funding of start-up businesses:
Venture Capital: This is a kind of equity investment generally suited for start-up companies or growing businesses.
Venture Capitalists: The term venture capital means financing an early stage business, which involves higher risk investments with a potential for above-average returns. The person making such investments is known as venture capitalists.
Angel Investor: A person providing venture capital to start-up businesses is often referred to as an angel investor. Angel investors are entrepreneurs who look for higher rate of return in comparison to traditional investments.
When it comes to obtaining money and funds, there are many banks, which are willing to pay a certain sum of money from the available packages. Then there are venture capitalists and angel investors who invest for the sake of large profits.
The author of the article is working with the venture capital funding company — www.sternfisher.com
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When it comes to investing
One of the first things you should consider is how much cash you have on hand to invest
Next, look at the market and see what is available and the average prices. Consider buyer interest and how the market is responding. When you know these things then you will be able to manage risk better. Consider what the future may hold as well because just because the real estate market has been on the upswing the last few years does not mean that it will stay that way forever.
If you want to have a good idea of whether property values will keep going up or whether they will decrease then you need to consider if there are many new homes being constructed, if most people have jobs, and if the economy is on the rise or not. When you have a good idea of all of this information you will be able to forecast the real estate market.
There are many ways to minimize risk after you have made a purchase but one of the best is perhaps to make a down payment of at least 10% and more if you can. When you are able to invest this amount of money in your home you will have immediate equity, which frequently results in a lower interest rate.
When you follow these tips then you are more likely to minimize your risk and have a better chance succeeding with real estate.
Caitlina Fuller is a freelance writer. When it comes to investing in anything there are always risks involved. However, risks can be managed if you know the tricks of the trade. Of course, a real estate investing program could help you out significantly and give you some good tips. But, a real estate investing seminar won’t be able to give you all the information you need to reduce risk.
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by Steve Gillman
Tax liens can be a relatively safe investment. A good return on your money is also possible. The catch? Everyone knows about this now, and the bids are pushing down rates of returns.
When we went to the local tax lien sale here in Fremont County Colorado, we were amazed that a little community like this could have so many investors wanting to buy tax liens. This is good for the county, but not for an investor.
Tax liens are handled a little differently in each state, but they are essentially the debt that a property owner owes for late taxes. Investors buy these, and to pay them off and so not lose their property, an owner must pay whatever fees and interest rate the law specifies. Here in Colorado, that is 15%. We liked the idea of a 15% return on our money.
Unfortunately, it wasn’t as simple as that. While it is true that the property owner will pay 15% interest and the county will forward that money to you as the lien holder, you don’t necessarily get to buy the lien at face value. It used to be that a few investors in any given county would more or less divvy up all these great little investments among themselves and that was that. However, now there are hundreds of people bidding on them, even in little county like this.
If, for example, the taxes due on a property are $1,000, the bidding starts there. But as we watched, most of these liens were bid up to about 10% over face value. The “premium” goes straight to the county, which is why they employ a professional auctioneer to get those bids up there. This means that if the owner pays his taxes in a year, the lien holder will get just $1,000 plus 15% or another $150: $1150 total. If he paid $1100, that extra $50 is an annual return of just 4.5%.
Wait, there is worse news! If the property owner pays his late taxes a month after the tax sale, the investor would get just $12.50 in interest. In other words, he would lose $87.50 because he paid a $100 premium, which the property owner doesn’t have to repay. It seems that most of the investors thought the late payers wouldn’t pay for a couple years (after three they lose the property), since a 10% premium was average.
Did we see any go for face value? Out of hundreds of liens auctioned, three or four went at face value. They were $30 or $40 tax liens on small properties.
I hear that there are “leftovers” in many counties. These are liens that didn’t sell at the auction, and can be purchased at face value over the counter (if you can find the right person). Maybe this was more common before there were crews of marketers roaming the country selling “get rich with tax liens” seminars and course. I have only checked in the several states I have lived in recently, but we have found no leftovers.
What if you do find a place where you can buy tax liens at face value, and they pay a decent rate of interest in that state. What kind of risks do you take? Not much.
Think of it this way: Unless the tax assessor is insane, the property can’t be worth much less than half of what he says. Since taxes even in the worst areas are not likely to be more than 5% of this value each year, and owners lose their properties (perhaps to you) after two or three years depending on the state, you should never have to invest
In other words, unless the owner never pays, and after you take the deed to the property, you find out it is filled with toxic waste, you are fine. To avoid this potentially bad scenario, simply buy only liens on residential property, and spread your money among numerous liens. If you make 15% interest on ten liens for two years, and you have to throw one away, you still have a better over-all return than in the bank.
In fact this strategy
There are some other things to watch for, however. Here in Colorado, for example, if the property owner doesn’t pay the lien by the deadline, you have to publish a notice three times before getting title to the property. If it is a small lien you could spend all the interest you gained posting ads in the classified section of the local newspaper, just to have the property owner pay up (he doesn’t have to reimburse you for the ads). For this reason and others, I would only invest in liens of $400 or more.
In some states, rather than bid a “premium” buyers bid down the interest rate. The rate mandated by law may be 16%, for example, but the bidder who will take the lowest rate gets to buy the lien. I presume that the county keeps the additional interest.
Bottom line? Investing
What about actually getting property this way? Far less than 1% of liens auctioned off are left unpaid until the deadline passes. You can do research to find the property owners least likely to pay their liens, but who wouldn’t sell their property before losing it over a few thousand in back taxes? Yes, occasionally someone gets an $80,000 house for $2,000 in back taxes by buying a tax lien, but don’t count on it as a part of your plan.
Copyright Steve Gillman. For a Free Real Estate Investing Course, and to see a photo of the home we bought for $17,500, visit: http://www.HousesUnderFiftyThousand.com
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by Ckint Jhonson
On a rather frequent basis, the general opinion tends to represent the idea of investing
Investing in an offshore company means obtaining profits from the advantages offered to an entrepreneur who decides to place his or her investment somewhere outside his or her country of residence. One of the reasons why foreign entrepreneurs choose an offshore company to invest
Of course, people may then question the need for secrecy. The general opinion approaches the matter in this manner: “if they have nothing to hide, then why the need for rights endorsed by secrecy legislation?” However, such an opinion misses the perspective of much-publicized entrepreneurs who need to maintain the secret of their identity for securing considerable advantages over other potential entrepreneurs. With an offshore company, this is possible. Moreover, consider the fact that is the general public had access to the identity of a well-known investor interested in this or that field of investment, prices would immediately jump up, which would generate no advantage to what concerns the investor’s perspective.
Another reason for choosing to invest in an offshore corporation is in the safekeeping that it can guarantee for your assets. An offshore company is often a reliable ground for the reorganization of proprietary rights over certain assets. Many entrepreneurs — who show concern for potential proceedings, litigations, or financiers closing beforehand on debts remained unresolved — choose to assign segments of their assets — mainly those related to personal ownership of real estate — to an exterior company for owning them outside their country of origin. However, the assignment of ownership only takes place on the paper. In this manner, entrepreneurs have the opportunity of preventing the majority of troubles they could otherwise meet within domestic perimeters.
Moreover, foreign entrepreneurs will choose an offshore corporation because of the advantages on taxation issues that it enables. The cases of countries providing foreign entrepreneurs with tax advantages in order to stimulate foreign investments are rather frequent. Such countries find desirable the situation where offshore entrepreneurs choose to form an entity within foreign premises — this situation is a trustful stimulant for the country’s general economic activity. To stimulate them, such countries will offer advantages to offshore investors. Because the offshore corporation does not involve in domestic affairs, it will be subject to diminished or zero taxation. On the other hand, if we take the case of the United States of America, in recent years its government has considered that it loses a too great amount of revenue with offshore investors. As a result, it has become a prohibited practice to avoid taxation on capital gains through offshore investment, although the operating costs of offshore entities are obviously smaller.
In the end, foreign investors consider the offshore alternative because the advantages it creates are visible and no entrepreneur who knows the worth of his or her investment and who knows his interests will deny an opportunity to benefit from such advantages. With a close study of foreign and domestic jurisdiction, investment in an offshore company will surely fit the interests of many investors and it will generate advantages at the level of the foreign country, too.
An offshore company is a good opportunity of benefiting from several tax advantages otherwise inaccessible in the domestic environment. In addition, in a number of jurisdictions, an offshore corporation will offer the secrecy of investor identity and the necessary safekeeping of personal assets.
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In May 2004, the European Union welcomed ten new member states into its fold. Now, almost three years later, four of these states (Cyprus, Estonia, Latvia & Malta) are getting ready to adopt the Euro as their currency from January 1st 2008*. But what effect will this have, not only on the local economies, but also the increasing number of expatriates owning properties or living in these countries?
*Please note that Slovenia has already joined the Eurozone on January 1st 2007, whereas preparations in the remaining new member states are in various states of advancement.
Taking Cyprus as an example, we take a short look at how the adoption of the Euro as the Republic’s national currency is likely to affect the country as a whole.
Aside from taking the main leap of becoming a fully fledged member of the European Union on May 1st 2004, Cyprus took its first step on the road to the Euro by joining the ERM II (Exchange Rate Mechanism 2) in May 2005. Since this time, the nation’s economy has been geared towards meeting the economic criteria for joining the Eurozone, a goal initially set for January 1st 2007, but later adjusted and finalised for January 1st 2008.
Although the Cyprus Pound currently fluctuates against the Euro, exchange rates are due to be ‘locked’ in August of 2007 in final preparation for the adoption of the new currency. Barring an ‘overlap period’ of one month, the Euro will then become the only legal tender in Cyprus, with banks being obliged to exchange coins at par until 2009 and notes until the year 2017. The balances of any bank accounts held in the Republic will be automatically converted on January 1st 2007. No cheques written in Cyprus Pounds may be used after this date.
What about prices of goods and services?
One thing which residents of Cyprus, and indeed any other country joining the Eurozone, need to be aware of is specific price inflation, also known as ‘rounding up’, a phenomenon seen in other countries joining the currency. Another, rather more specific to the Republic of Cyprus, is the anticipated devaluation of its currency in the run-up to the Euro’s adoption. Although devaluation was dismissed out of hand in a statement by the Central Bank’s Governor on February 13th 2007, there are continuing concerns about the Cyprus Pound’s stability during coming months. Should this become an issue, overseas foreign property owners in the Republic will see something of a drop in local real estate values compared to their ‘home currencies’ prior to the sharp rises predicted during 2008.
It should be noted that it will still be possible to hold Cypriot bank accounts in Pounds Sterling after the Euro’s adoption in January 2008, although these will of course continue to fluctuate against the local currency as before.
How will interest rates be affected?
The fact that Cypriot interest rates are substantially lower than their UK equivalents has long acted as an attraction for British homebuyers in the Republic. This trend is likely to continue unabated, since Euro interest rates are even lower than current Cypriot rates.
What about other effects?
The move into the Euro’s fold will of course offer a greater amount of stability to local economies, since the risk of exchange rate fluctuations will effectively be eliminated compared to the rest of the European Economic Community and greatly reduced when compared to the rest of the world. Furthermore, it will of course be far easier to gauge relative prices in comparison to other member states in the Eurozone. It is generally anticipated that the Euro’s adoption will result in greater European investment, not only in Cyprus, but other member states also.
But, as they say: ‘The show’s not over until the fat lady sings’. Although the countdown to the Euro’s adoption is ticking away to itself, there are of course still a number of final hurdles to be overcome which may well result in a subtle variation between current projections and the finished article in each country. We shall have to wait until January 1st 2008 to see.
One thing seems certain however; 2007 should prove an outstanding year for foreign investments, not only in Cyprus, but Estonia, Latvia & Malta too.
As a veteran real estate consultant in the Republic of Cyprus, David McGinty-Hodges has been instrumental in advising countless foreign buyer about Cyprus properties and investment hotspots in the Republic for many years. Further, unbiased information about Cypriot real estate and living in Cyprus can be found at the Aphrodite Property Sales web site.
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As I become more and more involved with the world of investing
In my opinion, too much news has played upon the fears of many investors. This has turned an already risky game into an extremely volatile game. This is because to many investors simply react out of emotion instead of finding the facts out for themselves. I also think some of the professional investors on Wall Street play on the emotions of the small investors.
So I do pose the question as to whether the markets may become too volatile in the future as people are connected 24 hours a day through so many new technologies. Will this constant access to information make it better or worse for the average investor? In the old days before the internet and 24 hour news channels; I would think less irrational selling of stocks based on news and information would have occurred. Today anyone who invests in stocks online is slammed with news good and bad. Some may say that all this information is a good thing, and investors need to do their own research before putting money in or taking money out of the stock market. I do agree that every investor is responsible for their own actions. However, I think there is increasing number of new investors who will fall victim to their emotions based on too much information.
I realize financial news stories and the technologies that distribute them can not be stopped. However, I do feel that media outlets need to put greater care into what they publish. Comments that may make a stock price go up or down quickly that are not based on realities, or may be over-exaggerated could be playing on the emotions of many investors.
For more information please visit: www.lucky-dog-investing.com
Author: Chad Surges
Degree: Bachelor of Science (Business)
Career: Logistics Executive
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