So then you ask, “should I put my money in a CD or a Money Market”?

Good question. In order to make the right decision, you have to define your goals and needs. Getting it wrong the first time is all it takes for it to cost you the big bucks so you want to make sure that you do your homework first.

For those who do not know, Certificate of Deposit or simply CD, are debt instruments issued by banks and other financial institutions to investors. In exchange for lending the institution money for a predetermined length of time, the investor is paid a set rate of interest.

While on the other hand, Money Market offers many of the same benefits as CD’s but with the added features of a checking account. As far as the interest rates go, they are fairly close. Last I checked, CD’s were running at 4.90% and Money Market at 4.80%.

Here are a short Pros and Cons of Money Market and CD’s.

Money Market:

Pros: Depositing money in a money market is as easy as depositing cash into a savings or checking account. Cash is immediately available for alternative investments so you’re a lot more flexible with Money Market.

Cons: Money Market’s interest rate is not fixed. The rate of interest is directly proportional to the investor’s level of deposited assets, not to maturity as is the case with certificates of deposit. Hence, money markets are disproportionately beneficial to wealthier investors.

Certificate of Deposit (CD):

Pros: The investor can calculate his expected earnings at the outset of the investment since the interest rate is fixed. Certificates of deposited are FDIC insured for up to $100,000 and offer an easy solution for the elderly who desire only to maintain their capital for the remainder of their life.

Cons: Not as flexible as Money Market and will be penalized for withdrawing before it reaches maturity. If the investor opts for a longer maturity and, thus, higher rate of interest, he will lose access to his funds and forgo alternative uses of his capital.

Final Analysis: So if you are absolutely certain that you will not be needing that $10,000 for the next year or so, then I say go for the CD, but if you are not sure, then Money Market is the way to go.

[photo credit]

First off, I would like to start off with a nice poem from Market Poetry, Now’s the Time to Trim.

Stock Tips and Tricks:

The Skilled Investor Blog says No Financial Software or Calculator can Predict the Future

WorldWide Sucess gives advice on how to Succeed with your Investments.

The Financial Whiz’s Investment Strategy.

The Time and Money Group breaks down the Anatomy of Stock Trade:Entry Techniques.

Stock News:

Financial Pragmatist on The Return of Volatility.

Sox First explains What Happens to the Company’s Stock Price when the CEO Buys a Mansion

Fat Pitch Financials brings up Warren Buffets Response to Shai Dardashtis question. 

Stock Stats:

Please Don’t Take Me Seriously gives a general review over the Eagle Plains Resources (EPL)

Trader’s Narrative takes a look at the Monster Worldwide(MNST)  

And that will conclude this edition of Festival of Stocks. I hope you enjoyed all the articles here. Don’t mess out on the next edition over at Stock Market Prognosticator. Have a great week!

A Roth IRA’s main advantage is its tax structure. The contributions made to this account is only from earned income that has already been taxed, therefore it is not tax deductible. The total contribution for all IRA’s are limited and changes from year to year. This year the limit is at $4,000.00 for people 49 and under and $5,000.00 for people 50 and over. And starting in 2008, the contribution will increase to $5,000.00 for people 49 and under and $6,000.00 for people 50 and over. Here is a simple chart to see the previous and the future limits.

Here are some Advantages and disadvantages:

Advantage:

• At any time, the IRA owner may withdraw up to the total of his contributions without getting a penalty fee.
• When a Roth IRA owner dies, and the spouse is the sole beneficiary of that Roth IRA and he or she also owns one, the surviving spouse may combine the two Roth IRAs into a single account without penalty.
• If you are a first time home-buyer or paying qualified educational expenses, you are able to take out not only your contributions but also your earnings without a penalty( up to $10,000.00 in earning).
• Lack of forced distributions based on age. All other tax-deferred retirement plans, including the Roth 401(k), require withdrawals to begin at age 70½, and impose an annual minimum distribution once withdrawals begin at any age beyond 59½. The Roth IRA is completely free of these mandates.

Disadvantages:

• Contributions are not tax-deductible. This can be a disadvantage in the long run if you are making a decent amount of income. I suggest Roth IRA for people who are just started out and Traditional IRA for those who are making well over 80k.
• With a Roth IRA, there are heavy penalties for early withdrawals of earnings. An unqualified withdrawal of earnings will result in federal income tax plus a ten-percent penalty on the amount.
• Just a rumor but there is the risk that Congress over the next few years may decide to tax earnings on Roth IRAs.

So in general, Roth IRA has these following characteristics:

1.) Unlike Traditional IRA, contributions are not tax-deductible.

2.) Withdrawals are usually tax-free.

3.) At any given time, the Roth IRA owner may withdraw up to the total amount of his contributions.

Person A is 20 years old and has nothing start off with since he’s fresh out of school. But he has a decent job and he able to invest 100 dollars a week. He does this til the age 60.

• Starts with $0.00
• Invest $100.00 a week ($4,800.00 a year)
• Interest rate going at 10%
• 40 years to invest

Person B is 40 years old and has waited this long to wait to start saving for his retirement. He has some money saved up and is able to put down 15,000.00 dollars to start off with. Also, since hes much older, he makes more than person A and is able to put 200 a week. He does this til the age 60.

• Starts with $15,000.00
• Invests $200.00 a week ($9,600.00 a year)
• Interest rate going at 10%
• 20 years to invest

Lets put these numbers in the compound interest calculator I found in MoneyChimp.com and see how we do. 

So here are the charts.

Person A: 

Person B:

As you can see, although person B invested 15,000.00 more than person A, he still has no where near as much as person A when it comes time for retirement. The difference comes to a total of $1,631,152.20! This is all because person A decided to start 20 years before person B. Now that’s the power of compound interest baby!

I don’t think there is a “right” age to start saving for retirement but I do know that there’s no such things as starting too early. Most people think to themselves, “Retirement is long ways from now and I can afford to wait another year…”. Well if you keep thinking in that mentality, you’ll find yourself in person B’s shoes and miss out on millions of dollars.

As for myself, I don’t have a retirement savings account yet but if everything goes according to plan, I will by the end of this month. We’ll see.

Looking at the past ten years, the stock market has an average return of 8%. Lets take S&P 500 Index for example. Say you invest only 10 dollars a week and we’re assuming that S&P 500 returns at an average of 8%, over the next ten years you’re looking at 8,000 dollars, if you’re fortunate and it goes for an average of 12% then you can expect about 10,000 dollars!

Also, if you meet the requirements and you’re not making that much money, the government can refund as much as 50% of what you put in! So say you were able to put in 1,000 dollars for your IRA or 401k account that year, you would get at least 500 of that back. Then, if you’re really a dedicated investor, you can put that 500 into next years investment

When investing with little money, you should look into mutual funds. Mutual funds can hold anywhere from a dozen to hundreds of stocks, so when a stock doesn’t do all so well the impact will not hurt your portfolio as much.

Here is a list of fund companies I found on MSN Money who accept small investors:

1.) Steward Funds.

Minimum initial investment: $25

Minimum monthly investment: $25

2.) Amana Funds.

Minimum initial investment: $250

Minimum monthly investment: $25

3.) Hodges Fund.

Minimum initial investment: $250

Minimum monthly investment: $50

4.) TIAA-CREF.

Minimum initial investment: $100

Minimum monthly investment: $100

Things to know:
1.) What is a Mutual fund
2.) Different kinds of stock funds
3.) Importance of low expenses
4.) Don’t go after the “winners”
5.) Don’t be too quick to dump a fund
6.) Be aware of taxes

1.) A mutual fund is simply a collection of stocks and/or bonds. A mutual fund pools money from hundreds and thousands of investors to construct a portfolio of stocks, bonds, real estate or other securities, according to its charter. Each investor in the fund gets a slice of the total pie.

2.) The different kinds of stock funds includes growth funds, which buy shares of burgeoning companies; sector funds, which buy shares of companies in a particular sector such as technology or health care; and index funds, which buy shares of every stock in a particular index, such as the S&P 500.

3.) The importance of low expenses are crucial when looking for a fund. Companies add on these expenses to cover their expenses and to make profit of course so watch out for these. They don’t charge more a few percentage points a year, expenses may not sound substantial, but they create a serious drag on performance over time.

4.) Don’t go after the winners because stats show that funds that rank very highly over one period of time rarely finishes on top in the later ones. When choosing a fund, do some research and look for consistent long term results.

5.) Don’t be quick to dump a fund because every fund will have its off year. If you find your fund to be losing a little here and there don’t be so quick to dump it. Although you may be tempted to sell a losing fund, check to see its previous behaviors and see if whether it has trailed comparable funds for more than two years. If it hasn’t then be patient. However if earnings have been consistently below par, it may be time to move on.

6.) Be aware of taxes even if you don’t sell your fund shares, you could still end up stuck with a big tax bite. If a fund owns dividend-paying stocks, or if a fund manager sells some big winners, shareholders will owe their share of Uncle Sam’s bill. Tax-efficient funds avoid rapid trading (and high short-term capital gains taxes) and match winning trades with losing trades. Also don’t double pay your taxes!
Now here are some advantages and disadvantages of mutual funds:

Advantages:

• Low start -You can get started for as little as $100, but 2000 – 3000 is the common minimum.
• Diversification- Buying a mutual fund provides instant holdings of several different companies.
• Liquidity- Like individual stocks, a mutual fund investment can be converted into cash upon your request, in other words, it gives you convenient access to your money.

Disadvantages:

• The Wisdom of Professional Management- That’s right, this is not an advantage. The average mutual fund manager is no better at picking stocks than the average nonprofessional, but will charge you fees as though he/she is.
• No Control- Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat of somebody else’s car.
• Dilution- Mutual funds generally have such small holdings of so many different stocks that insanely great performance by a fund’s top holdings still doesn’t make much of a difference in a mutual fund’s total performance.
• Buried Costs- Many mutual funds specialize in burying their costs and in hiring salesmen who do not make those costs clear to their clients.

The key thing is to research research and research. You want to have a very good understanding of how all the fees work and review their prospectus. Their Prospectus should provide things such as fees, objectives, risks, etc. All in all, study and know what your putting your money into. There are many websites with very useful information and here are some that are updated pretty frequently. Have fun!

• Morningstar.com
• Quicken.com
• Smartmoney.com
• Fundstyle.com