I saw this in the Wall Street Journal. Apparently, there is a new bill being pushed in the Senate to make it harder for people to walk away from their debts. The new bill would limit the use of Chapter 7 bankruptcy, which basically wipes out credit card bills or unsecured loans. The article states that currently, 70% of all individual bankruptcies are of the Chapter 7 variety.
Under the new bill, people with the means to pay off their debts would be required to file Chapter 13 bankruptcy, which allows the court to set up a partial repayment program. The new bill would not affect those who have incomes below their state's median income.
Overall, I think this is a good thing.
Wednesday, 2 March 2005
Questions to Ask Your Broker Before You Buy a Load Fund
1. How much are you getting paid for this? How much am I being charged for this? This is a fair question. If the broker is on the up and up, he or she will tell you with no hesitation. If they hem and haw and act offended by your questions, find another broker. It's that simple.
2. How does this compare with industry averages? Once again, this a fair question. Make sure they tell you the average for the asset class you are purchasing. In one of my previous posts I talked about an article that was in the Wall Street Journal regarding mutual fund fees. It might help if you read it.
3. Is my purchase of this fund helping you win a trip or prize? Yes, mutual fund companies sponsor trips and prizes for brokers who put the most money with a particular company. I think this is a HUGE conflict of interest when this information is not shared with the customer. If this question causes your broker's face to turn red, find another broker!
4. Does your firm have a special relationship with this mutual fund family? Some brokerage firms enter into special arrangements with mutual fund companies, allowing the brokerage firm to earn extra money from the arrangement. Once again, this information is usually not passed on to the customer. Therefore, you have to ask.
It is much better to ask these questions before you invest your money than after the fact. It pays to know the right questions to ask.
2. How does this compare with industry averages? Once again, this a fair question. Make sure they tell you the average for the asset class you are purchasing. In one of my previous posts I talked about an article that was in the Wall Street Journal regarding mutual fund fees. It might help if you read it.
3. Is my purchase of this fund helping you win a trip or prize? Yes, mutual fund companies sponsor trips and prizes for brokers who put the most money with a particular company. I think this is a HUGE conflict of interest when this information is not shared with the customer. If this question causes your broker's face to turn red, find another broker!
4. Does your firm have a special relationship with this mutual fund family? Some brokerage firms enter into special arrangements with mutual fund companies, allowing the brokerage firm to earn extra money from the arrangement. Once again, this information is usually not passed on to the customer. Therefore, you have to ask.
It is much better to ask these questions before you invest your money than after the fact. It pays to know the right questions to ask.
Tuesday, 1 March 2005
How Does an A-Share Mutual Fund Work?
We'll call this Financial Basics.
An A-Share mutual fund (also known as a front-load mutual fund) is a term used to describe a mutual fund in which a percentage is taken from the money to be invested BEFORE the money is invested. Huh? Well, it works like this:
You have $10,000 to invest. You go to a brokerage firm like Merrill Lynch or someplace that is "full service." You give them the $10,000 to put in an A-Share mutual fund. The average front-load runs around 5.75%. So, $575 will be taken from your $10,000 investment and the remainder of $9,425 will go to work for you in the mutual fund. Now, each year the mutual fund will charge you management expenses which can range from .60% to 1.5% (some are higher, some are lower). Of this expense, .25% goes to the broker in the form of a trail.
Does this make load-funds bad? Not necessarily. There are some pretty reputable companies out there that charge loads. American Funds is one such company. Although they charge a front-load of 5.75% on their A share class, they manage to keep annual expenses low.
Next time I'll talk about different share classes and what they mean.
An A-Share mutual fund (also known as a front-load mutual fund) is a term used to describe a mutual fund in which a percentage is taken from the money to be invested BEFORE the money is invested. Huh? Well, it works like this:
You have $10,000 to invest. You go to a brokerage firm like Merrill Lynch or someplace that is "full service." You give them the $10,000 to put in an A-Share mutual fund. The average front-load runs around 5.75%. So, $575 will be taken from your $10,000 investment and the remainder of $9,425 will go to work for you in the mutual fund. Now, each year the mutual fund will charge you management expenses which can range from .60% to 1.5% (some are higher, some are lower). Of this expense, .25% goes to the broker in the form of a trail.
Does this make load-funds bad? Not necessarily. There are some pretty reputable companies out there that charge loads. American Funds is one such company. Although they charge a front-load of 5.75% on their A share class, they manage to keep annual expenses low.
Next time I'll talk about different share classes and what they mean.
Trusts & IRAs - Part 2
Again, another EXCITING title!
When thinking about trusts, it is important to remember that they are not for everyone. As Ed Slott says, "Their main purpose is post-death control." And, even if you set up a trust, it must be set up properly in order to insure that your beneficiaries can stretch their IRAs.
In his book, Ed Slott lists five reasons why a person might want to set up a trust:
1. Your IRA beneficiary is a minor child
2. Your IRA beneficiary is disabled or incompetent
3. Your IRA beneficiary will need help managing the stretch IRA
4. You want to make sure your estate taxes are paid
5. Second marriages
It is very important to know that if you want your beneficiaries to be able to stretch your IRA, the trust must be set up properly. Therefore, it is important that the trust qualifies as a "look-through" trust, allowing the individual beneficiaries to qualify as designated beneficiaries for IRA distribution purposes. What is a look-through trust? For IRA purposes, a look-through trust meets the following criteria:
1. The trust must be a valid trust under state law
2. The trust must be irrevocable at death
3. The beneficiaries of the trust must be identifiable
4. The required trust documentation has been provided to the plan administrator no later than Ocotber 31 of the year after the IRA owner's death.
In a future post, I'll explain the different types of trusts for IRA purposes. Meanwhile, I suggest you read Ed Slott's Parlay Your IRA Into a Family Fortune
.
And now for the lovely DISCLAIMER Be sure and consult your CPA or Tax Attorney BEFORE you set up a trust. I am not a tax attorney.
When thinking about trusts, it is important to remember that they are not for everyone. As Ed Slott says, "Their main purpose is post-death control." And, even if you set up a trust, it must be set up properly in order to insure that your beneficiaries can stretch their IRAs.
In his book, Ed Slott lists five reasons why a person might want to set up a trust:
1. Your IRA beneficiary is a minor child
2. Your IRA beneficiary is disabled or incompetent
3. Your IRA beneficiary will need help managing the stretch IRA
4. You want to make sure your estate taxes are paid
5. Second marriages
It is very important to know that if you want your beneficiaries to be able to stretch your IRA, the trust must be set up properly. Therefore, it is important that the trust qualifies as a "look-through" trust, allowing the individual beneficiaries to qualify as designated beneficiaries for IRA distribution purposes. What is a look-through trust? For IRA purposes, a look-through trust meets the following criteria:
1. The trust must be a valid trust under state law
2. The trust must be irrevocable at death
3. The beneficiaries of the trust must be identifiable
4. The required trust documentation has been provided to the plan administrator no later than Ocotber 31 of the year after the IRA owner's death.
In a future post, I'll explain the different types of trusts for IRA purposes. Meanwhile, I suggest you read Ed Slott's Parlay Your IRA Into a Family Fortune
.And now for the lovely DISCLAIMER Be sure and consult your CPA or Tax Attorney BEFORE you set up a trust. I am not a tax attorney.
Added Another Link - 403(b) Wise
I have known about this website for a while but forgot about it. Anyway, for all you out there who currently have a 403(b) plan, this site is for you.
Also, in addition to that site, the author also has a blog. Check it out at The Meridian.
Also, in addition to that site, the author also has a blog. Check it out at The Meridian.
Thanks for the Mention, Neville!
My friend, Neville, at Neville's Blog wrote another article for the Daily Texan about the importance of saving money while in college. He asked me for some information and published a few quotes by me. I appreciate the mention! For those interested, you can read the article here.
IRS Publication 590
I thought I'd post a link to the IRS Publication 590. There is some very useful information regarding IRAs. Bookmark it and save it for future reference.
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