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Xæna Financial
Xæna Financial is a substantial company dedicated to providing various persons with the financial advice and information necessary within today's economy.
Many investors who are willing to put some time and energy in investing cannot do it due to the lack of the financial resources. There is good news for all of you, young or beginner investors, who lack the cash but own the intelligence and entrepreneur spirit. Five companies have foresaw this niche and started to offer the opportunity of participating in an index fund without the investment of a substantial initial sum of money. These companies are American Century, T. Rowe Price, Strong, TIAA-CREF and Transamerica. They include investment in such funds as S&P 500 index funds, a Dow 30 fund and a Russell 3000 fund.
The main thing you should do is to allocate a specific amount of money every month. This sum is usually set at $50 and represents a profitable way of getting started on the financial markets. What is more, TIAA-CREF has set the monthly amount at $25 and in 2003 the company had waived part of its management fee. The S&P 500 index funds include stocks of the top ten holdings where IBM, Microsoft and Exxon-Mobil represent a big portion of the investment portfolios. When you compare the performance records and the percentage of fund assets in certain stocks, you should take into consideration the date when the funds were established since most of them are relatively newly set. According to Charles Carlson, the co-manager of the Strong Dow Value 30 fund, the potential investors, when analyzing performance records, should consider the fees that are charged by the company. Another extremely important factor is the managers' performance since a lot depends on the expertise of the manager and the implementation of his financial skills. In order to exemplify the importance of the role of the manager, Carlson states the case of S&P 500 funds. Moreover, he claims that since most investors lack the big financial resources, the amount of the fee charged by the company plays a substantial role in decision making. As a result in these variations in the fee levels, different index funds offer different returns on the investment. Your decision on which index fund to invest in should also depend on your investment portfolio.
Indexing on a Shoestring: Successful?
According to Carlson, by as little as fifty bucks per month you can get in return a substantial return over the long run. Carlson explains that if an investor realizes this potential early enough, he can accumulate a reasonable amount for his retirement years. For example, if you start investing $50 monthly at the age of 21, at the age of 64 will end up with $319 000 if the return is 10% per year. On the other hand, if you start later, you will have to allocate a bigger amount to accumulate this sum. According to Carlson, the whole beauty of this type of index funding is hidden in its infectious character. Once you have felt the positive effect of investing these fifty bucks, you start to allocate more and more, in order to get a greater advantage of this financial opportunity. Index funds represent a beginner friendly way to embark on investment. Additionally, they are low cost with small tax implications. There are many real life examples in which index funds have outperformed actively managed funds, so it is up to you, young and small investors, to grab this opportunity and make a good use of your $50 dollars, which otherwise you will spend on something useless.
S&P 500 O-Strip Index: A division of the S&P 500 index, S&P 500 O-Strip Index stocks are listed on NASDAQ and represent around 75 NASDAQ traded stocks. S&P 500 O-Strip Index was launched on March, 2004. The fathers of the fund are Standard and Poor, who created the fund in the intention of presenting it as an alternative to NASDAQ 100. Additionally, they declared the fund as "an effective way to measure the performance of the subset of the S&P 500". They claimed that the fund provides a more proficient way of gaining S&P 500 components.
The NASDAQ part of the S&P 500 can be underweight or overweight through the application of o-strip in accordance with the chosen strategy. But this can only be accomplished when the NYSE-only strip version of the S&P 500 is released. State Street Global Advisors is the first company to include ETF based on this strategy in their portfolio of services. Their ETF implements the tickers OOO.
The hedge fund industry enjoys high popularity among investors, which is shown by its estimated value of $1 trillion. There are around 8350 hedge funds that operate within it. Additionally, the hedge fund industry enjoys an approximate growth of 20% every year. Different strategies can be applied in the hedge fund industry. Some of them include the so called leveraging and derivatives. However, not all of the hedge funds apply them, which leads to a more conservative approach toward investing. The use of derivatives and shorting of equities is commonly used in the industry for the purposes of reducing the potentially high levels of risk. Additionally, the applied hedge fund strategies success is independent of the movement of bond or equity markets. On the other hand, success is dependent on the amount of capital that can be used before the disappearance of returns. This leads to the imposition of limits on the amount of capital that can be incorporated.
The dependence on the services of professional managers or management teams is typical for hedge funds since most of them possess a high degree of specialization. A general characteristic of hedge fund managers is their high level of discipline needed for the field. The history is full of examples of hedge funds outperforming traditional equity and bond indexes. Hedge funds have gained popularity among many endowments and pension funds.
Hedge funds have gained an increasing popularity thanks to the many benefits they offer to their investors. They have managed to make positive returns under the conditions of both falling and rising equity and bond markets. Hedge funds are a preferred investment tool for the purpose of decreasing the portfolio risk and volatility. They are also used as a means for enhancing returns.
Another benefit of hedge funds is their richness in terms of styles, which can be either related or not. As a result investors in hedge funds have the ability to select among them in order to better meet their investment goals. It has been proven by various researches that hedge funds generate higher levels of returns with lower levels of risk than traditional investment alternatives. The estimations of when to enter or exit a position is eliminated through the investment in hedge funds, which leads to their significant usefulness regarding long term investing. Another benefit of hedge funds is their diversification provision to investment portfolios, which is significantly better than the diversification provided by other investment tools. However, you should have in mind that one hedge fund may carry different characteristics that cannot be found in another hedge fund. They differ in the investment returns they generate for their investors as well as their volatility and risk levels. Thus, different investment strategies should be applied to the various hedge funds. If not linked to equity markets, some strategies tend to deliver a consistent stream of returns accompanied with lower levels of risk. On the other hand, some hedge funds may be as volatile or even more than some mutual funds. Having this in mind, you should apply the appropriate strategy to meet the characteristics of the target hedge fund.
Today the importance of the setting of an efficient 401 (k) is widely recognized. The following are several advices that will prevent you from falling in the common investment pitfalls of creating a beneficial 401 (k) plan.
Diversify between various mutual funds! The most common characteristic of mutual funds is diversification. Never be satisfied by the inclusion of only one mutual fund in your plan. Be sure to diversify your investment by putting money into different types of mutual funds in order to take advantage of risk alleviation, which they provide.
Maneuver between your 401 (k) and non-401 (k) portfolio! Always have in mind the types of investments you have in your 401 (k). Take advantage of the fact that trading within your 401 (k) is not a taxable event. So whenever you encounter an investment opportunity you wish to grab do not hesitate to execute it through your 401 (k). This technique is especially useful when you want to embark on aggressive investment, which includes multiple trading transactions. On the other hand, you should check whether your 401 (k) allows for frequent transactions. If this is not the case, use your non-401 (k) portfolio to make the desired investment.
Do not accumulate your company's shares! Purchasing stocks of the company they work for is viewed as an act of loyalty by many employees, but this action is not recommended since if the company goes bankrupt, you will lose both your money and your job. Hold a reasonably small number of your company stocks, advisably not more than 10%.
Be part of the globalization! Whatever country you live in, try to ignore your sense of patriotism and do not invest only within its confines. You may miss the opportunities that today's global economy presents. By expanding to the international markets, you build up another layer of diversification. Around 40% represents a reasonable percentage of capital to invest in international markets, always having in mind the specific structure of your plan.
Do not underestimate small company stocks! It is true that small company stocks do not significantly increase the value of your investment portfolio, but it has been proven that in the long run many small enterprises do better than their bigger counterparts. Big funds, such as S&P 500, do have their place in your plan, due to their positive indexes, but small company stocks deserve their fair place in your 401 (k)because of their favorable outcomes.
Check for any concealed fees! Always carefully verify whether your 401 (k) does not include any hidden fees. Check whether it is loaded mutual fund that charges fees for entering and exiting it. Whenever you are faced with the dilemma of choosing between a growth fund with 0.7% charge of internal expenses and other with 1.7% respectively, do not hesitate and embark on the first one. It is highly impossible for the second one to catch up with the first one and reduce its cost by 1% for a year. Even though the expense ratio can be significantly minimized, you should pay it, whereas there is no need to redeem any of the loads. As a rule, the types of fees should be clearly stated in the fund's prospectus. Even if this is not done, or you want to verify the information provided for yourself, you can easily do this online. You should pay special attention to:
Front-end sales load
Back-end sales load
Expense ratio
12b-1 fee
Keeping these advices in mind will reduce the possibility of losing money or less time in retirement.
If you are reaching your retirement years or you have already experiencing them, the American Association of Retired Persons (AARP) is the institution which will be glad to offer you advice on whatever financial concerns you have. In 2006, AARP established its first mutual fund in response to the needs of these specific groups of investors.
AARP Fund Retrospection
AARP are not novices in the mutual fund field. For more than 20 years they have collaborated with Scudder Investments and have established more than 30 mutual funds. In 2006, AARP launches its first three mutual funds independently. Later, one of the subsidiaries of AARP (AARP Financial) enriches the portfolio of mutual funds offered by AARP by three index funds.
The initial AARP funds are presented in the following table:
Fund Name
US Stocks
US Bonds
International Stocks
AARP Conservative
20%
75%
5%
AARP Aggressive
60%
25%
15%
AARP Moderate
40%
50%
10%
Each of the portions imitates the behavior of a certain index:
International Stocks - MSCI EAFE Index
US Bonds - Lehman Brothers Aggregate Bond Index
US Stocks - MCSI U.S. Investable Market 2500 Index
Therefore, it can be concluded that surprisingly AARP offers mutual funds of the index type. This is quite an unusual tactic having in mind the target group of the funds (future and current retirees). Target date funds and lifecycle funds represent more logical choices, but these types have been ignored by the company.
AARP Fund Governance
The management functions of the AARP funds have been allocated to SSgA Funds Management. In the beginning, Alistare Lowe, Leilani Sanders Hall and Michael O. Martel constituted the team responsible for the management. The funds are being distributed through the networks of ALPS Distributors.
Required Minimums and Fees
The investors in an AARP mutual fund will not be hampered by any insurmountable hindrances to entry, but on the contrary. As little as $100 initial investment amount is enough to get you started in the AARP mutual fund. In addition to the $100, your subsequent investment can be the ridiculously low $25. Furthermore, AARP keeps a low expense ratio compared to the common mutual fund. The 0.50% expense ratio is more like that of the index funds. Unfortunately, AARP mutual funds are liable to 12b-1 fees, which amount to 0.20%.
Conclusion
Unfortunately, there is scarcity of information regarding AARP funds, such as exact ticker symbols. The introduction of this type of mutual funds is certainly a move on the part of AARP aiming at leveraging their brand name. Nevertheless, at this point it cannot be determined how well the offered mutual funds function.
The Roth 401k plan was introduced in 2006 and was initially involved with many misunderstandings common for every new introduction. This article provides general insights, which will help you determine whether this type of retirement plan is suitable for your financial needs.
Roth 401k Explained
The introduction of the Roth 401k was pushed by Senator William Roth Jr, where the name of the plan itself comes from. The Roth 401k from tax perspective is similar to the Roth IRA. Thus when opening a Roth 401k account your earnings will be treated regarding taxes the way resources are treated under a Roth IRA.
Generally, under a regular 401k a percentage of your salary is regularly allocated to your 401k account. After you have retired you are capable of retrieving the accumulated sum. The retrieved distributions are subject to the same taxes as a regular income. The difference between a regular and a Roth 401k is that the employer pays the required taxes up front in order to avoid tax deductions from their current salary. The main difference is in the time period during which you choose to be subject to taxes - on your entrance of the 401k plan or on your exit.
Roth 401k Plan and Normal 401k Plan Comparison
Keep in mind that your employer may not have included the Roth 401k plan in your portfolio of options since it is a novelty that many employers are still confused of. Your choice between the two should generally depend on your current and expected financial situation. You should choose a Roth 401k plan whenever:
The tax bracket you are in is a lower one You should choose Roth 401k plan whenever the tax rate you are currently subject to is lower than the one you expect to incur when you retire. In this way you will benefit from the lower tax rate by greatly reducing your financial burden.
A trend of continual tax rate increase is observed
You are making your first steps as an investor Remember that the more time you spend with a particular retirement plan, the greater sums will be accumulated due to compounding.
You have high salary and thus are blocked from Roth IRA. Roth IRAs have several tax limitations that are not observed in Roth 401k.
You seek tax diversification Since you are charged up front taxes in Roth 401k plans, you will gain the opportunity of withdrawing money from the account in accordance with your specific financial needs during retirement years.
You have included mutual funds that make you win high returns
Facts to beware of
If you have decided to invest in a Roth 401k five years before your retirement date, you may be subject to taxes. This is due to the unqualified distributions that will occur. Roth 401k doesn't provide the opportunity of matching, since by law such contributions are required to go to the traditional 401k plan.
Roth 401k Unclear Future
The legitimacy of Roth 401k and Roth IRAs expire in 2010, when the congress should vote for their renewal. If their existence is not confirmed, you will be deprived of your Roth 401k or Roth IRA and the accumulated sums will be transferred to another type of plan. You will not lose your money! They will be reallocated to the conventional retirement plans. When experiencing such transference, the money in your account will not be charged any taxes. The good news is that the contribution limits to Roth 401k plans are the same as the ones of the conventional 401k plan.
