Savings Bonds are being offered to “investors” right now at rates ranging from 1.75% to 5% and at the same time the inflation rate has just risen to 2.2% from 2%. I understand that the people most attracted to savings bonds are those who are risk adverse. But call me crazy, I don’t see how someone who is a self-described financially risk adverse investor can justify guaranteeing themselves a negative return on their money – because that is exactly what they are doing at such low rates.

My experience managing investments tells me that there are some people who are literally petrified of losing money. And who really wants to anyways? But if you ask any financial advisor what the real
after-tax rate of return on your money is, they will tell you that you are in fact losing money if you invest at these low rates – particularly if the money is held outside a tax sheltered environment such as an RRSP or RRIF.

If you consider an investment at 2.45% for a year when you are in a 38% marginal tax bracket (depending on where you live this rate is for people who earn approximately $31,000 to $62,000 per year), and inflation is 2.2%, your return is really -0.67%. That means that on a $10,000 investment your one-year return is $9,933 – you lost $67. If your $10,000 investment were tax sheltered it would really be worth $10,024.46. You would have really made $24.46 – not the $245 you thought you made!

The purpose of investing is to get your money working for you, not the other way around. I can’t help but wonder if people who are so risk adverse that they always put their money in particularly “safe” investments simply aren’t aware they are really guaranteeing they lose money. The survey released with the launch of Canada Savings Bonds found that security of savings ranked as the number one priority for 68% of those surveyed – ahead of potential rate of return. But building in a negative return seems like we really need is to be more informed about where we’re putting our money – not “safer investments”.

My guess is that the average person still considers savings bonds to be investments, when really they should be treated like their name says – as savings. Savings and investments are different. Investments are for long term growth of capital and savings are for short-term needs. Sometimes we need a place to “park” some money for a specific purpose such as saving for a home, emergency funds, holiday money, etc. This is what savings are for. But, if we are so concerned about having enough capital for future needs, that we are afraid to “lose” any money, then savings is not the place for this type of money.

The logical way to proceed is to get educated on how to best make sure future needs are met and to work with someone who can offer some simple tips to reduce the effects of taxes and inflation. Here are a few you can ask about when you meet with your advisors:

Interest is fully taxable. Is there a more tax efficient way to invest in interest bearing securities – i.e., would it be better to hold them inside an RRSP or RRIF and have your equity mutual funds outside the registered plan?
Capital gains and dividends have preferred tax treatment and offer the potential for tax planning. Find out how this might affect your own personal situation.

Interest is “deemed” to have been earned in the year it was credited to your account, so if you invest in compounded investments, where interest isn’t actually received physically into your hands until maturity, remember you must still pay tax on the money you earned but haven’t received
yet – therefore you are out of pocket the tax owing with no cash received yet.
If you receive interest at the end of the year you will be paying tax on those earnings in April of the next year; however, if you receive interest at the beginning of the year, you don’t pay tax until the following April – therefore you hold on to the full amount of your earnings longer until you have to pay the taxman.

And finally, there are a lot of different types of investment risk – inflation and taxes are only two. The one most people really fear is stock market risk, because this is the one that is most frequently discussed. But if you consider this simplified example below you might understand why diversification – not just safety of principal, is really the ONLY way to reduce investment risk. Below shows how two investors, each with $100,000 invested for a 25-year period.

Mr. & Mrs. Conservative invested $100 000 into 8% Government Bonds which accumulated $685 000 over 25 years.

While Mr. & Mrs. Investor invested the same $100 000 into multiple streams.

Invested $20 000 into gambling in penny stocks causing a 100% loss and a $0 value over 25 years.
Hid $20 000 under their mattress with 0% interest creating a $20 000 return over 25 years.
Invested $20 000 in Treasury Bills at 5% interest. After 25 years yielded $67 000
Invested $20 000 in Corporate Bonds at 10% interest, yielding $216 000 after 25 years.
Invested $20 000 in Blue Chip Stocks at 15% interest, yielding $658 000 after 25 years.

Investors Total:$961,000

Difference: $276,000 more than the Conservatives

Maybe you don’t have $100,000, or maybe that’s all you have and you’re happy to still have your principal intact, but over time the erosion of purchasing power from taxes and inflation is a consideration that everyone needs to consider and every little bit counts. Find out how you can avoid unnecessary loss.

By: Tracy Piercy

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Kansieo.com

Good investments are always out there, but investment opportunities are not always easy to find. What’s important is that you find a good investment that fits your particular needs. This can be tricky business because it’s all a matter of trade offs, and most people don’t know investment basics.

A good investment for your friends might not be a good investment for you. For example, you don’t want to place bets on a penny stock in an account earmarked for future college expenses. Penny stocks are not investment opportunities; they are speculation.

Believe it or not, many people follow the lead of a friend when making investment decisions. They want to invest money where Ralph did because, according to Ralph, he made a lot of money in investment opportunities he found. As a financial planner I ran across this time and time again from new clients that were referred to me by existing clients of mine.

Here are the investment basics. You can’t have it all in any one investment. If you want growth (higher returns), you trade off safety. If you want high income or safety, you trade away high growth prospects. If you want the tax breaks offered by a retirement plan, you give up high liquidity (quick and easy access to your money without penalties).

So, when looking for good investments, make sure the investment fits your needs. If your kid starts college in two years, a bear market in stocks could change his or her plans if you had the college fund invested in stocks. If you are saving for a down payment on a house, the same holds true.

Rank your financial needs before you invest in anything. Always consider these five investment basics: liquidity, safety, growth, income, and tax advantages. No investment ranks high in all five categories.

A good investment for you depends on the investment basics that best describe your financial needs and financial position in life. For example, an IRA or 401k plan is great if you want to invest and earmark money for retirement. But you don’t want all of your money tied up in stock funds in a retirement plan. What happens if you need cash fast for an emergency?

Don’t call Ralph’s financial planner and tell him you want what Ralph has. Instead, view every investment in terms of the investment basics. His investment opportunities might not be good investments for you.

By: James Leitz

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With such volatility in today’s business markets today, how can you make sure that your investments are safe and earning the type of returns you need to achieve your financial goals?

From the start, you should know where your investments are placed and what your investing on in detail. Second, you should realize that if you ever want to achieve the life you deserve, you need to take action. Knowing your investment goals from the beginning will help you keep your focus in tact and allow you to manage your available funds to its full potential.

So many years before I took a the leap of investing my money, having a nice decent job somehow made unhappy because the work always took me away from my loving wife. I started researching successful business America. I started looking for ways to have more time to enjoy with my family without having to compromise financial security. I found that in Tax Delinquent Investment.

It was in Tax Delinquent investment that I learned how to maximize my earning potential without a lot of risk or stress. It seemed like a better kind of security, more secured than a decent paying job. Through my experience in the world of Tax Delinquent Investing by means of land investing, the most important fact I can share is that investing in tax delinquent real estate is one of the safest ways to invest your money and earn an extremely high rate of return.

I want to invite you to the tax delinquent arena and show how you too can earn huge investment returns from little known investing strategies…

Always remember that county government manages the entire tax delinquent process so it is very safe and fair. The last thing the county wants is an unsatisfied tax delinquent investor. Without the investors, counties would not be able to collect the money they need to keep the county government operating. Each county in the United States has a process they use to remedy situations where property owners stop paying their property taxes. So typically a lien is placed on the property, in the form of a tax lien certificate, this certificate is valued at the amount of the back taxes plus the interest. A property owner still gets a chance to redeem this, if they eventually find means to pay it back but if they fail to pay it back during the given allotted time, called redemption period, they lose their entire property to the investor for the property taxes owed. Even if the delinquent property owners pay their tax bill, you, the investor, make an extremely high rate of return on your money. But investing in tax liens is just a small portion of tax delinquent investing there are more powerfully profitable little known investment niches’ in this field.

The best part is that tax delinquent investing does not depend on the economy, so there is zero investment volatility when you invest.

Riding the Tax Delinquent Investment train is more like a stroll in the part than a roller coaster ride. It does not go up, down and sideways with sharp turns like the stock market. Tax Delinquent Investing is like putting your car on cruise control in an open and wide road, sure to bring you to your final destination, financial security, safe, happy and alive.

By: Jack Bosch

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Kansieo.com

When it comes to investing money in the stock market, most people assume that they must have a professional handle it for them. This works for many people, while others are able to do a perfect job on their own.

But you have to realize that a financial advisor is there to help you manage your investments. He can take your investment money and put it in a wise place. But the overall picture won’t be served if you don’t tell the advisor about your overall financial situation.

You will find that most financial advisors will ask you about your debt, your job stability, your insurance, your wills or trusts. They do this for a reason. They understand that your investments can’t be optimized if you are at risk in some area. The management of finances doesn’t just focus on the stocks you hold, but the entire picture.

For example, if you have $20,000 to invest, but owe $15,000 in credit card debt, a good advisor will tell you to pay off your debt first. They would advise you have good life insurance, disability insurance and personal liability insurance.

Your financial goals will also play a role in the investment of your money in the stock market. Are you looking to make money in the long run or rather quickly? What is your risk level? Are you willing to gamble or do you like to play it safe?

Look for an advisor to ask you about your retirement plans and your sources of income. She may ask about your goals and dreams, how much you spend each year, questions about your family and your must haves.

This gives a financial advisor the accurate picture of your finances. Remember, one can’t just look at one category alone. Why invest your money and earn 10% over the long run when you are paying 18% in interest to a bank for credit card bills? You won’t be making money, you will be losing it.

There are many different types of financial advisors out there. Some are more qualified than others. Some create a financial plan for you and that’s it. Some help you implement the changes in your finances. Look for a certified financial planner professional that has a good reputation in your area. Take the time to interview and really consider if the person is someone you can open up to and trust.

Remember, when it comes to your investments, you are still the boss. Regardless of what an advisor think or knows, you still control your money. Don’t just give all of your financial well being over to someone else. Do the research and know what is going on with your money. Ask that you are contacted before changes are made in your account. Ask that things be explained so that you understand them. Ask to know each and every commission.

When it comes to investments, some people really benefit from the advice of experts. Many of us simply do not have the time to manage all the details on our own. Look at your finances, your goals and your family in deciding whether or not to use a financial advisor to help manage your investments.

By: Martin Lukac

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Financial Capital, also known as economic capital, is money used by businesses in order to buy what they need to produce goods and services. It differs from real capital as it refers to funds provided by investors used to purchase the necessary items used to run a business. Real capital refers to those items used to run the business. Financial capital always comes at a price, usually interest which is determined by the time value of money. Capital contributed by the owner of the business is known as own capital and that which is borrowed from another institution is known as borrowed capital.

Financial capital is a liquid medium or mechanism that generates wealth or other capital. These liquidity requirements vary and there are various markets created to trade them on. There are four functions combined to create capital assets, these are: medium of exchange, standard of deferred payment, unit of account, and store of value. When the four functions are satisfied it is known as money and does not need to be traded on financial markets as there is no risk involved.

Sometimes financial capital investments are backed by the government from a closely regulated reserve. These investments are traded on the money market and reveals differences in probability of debt collection and store of value of that currency. Financial capital may be traded on bond markets or reinsurance markets with different degrees of trust in the social capital of the bond-owners and other entities that trade financial investments.

When these instruments have deferred payments there is usually a higher rate of interest than the standard rate paid by banks, those that contain fixed payment schedules and a uniform rate of interest are known as fixed income investments. A variable rate loan, such as a home mortgage, reflects the standard rates of deferred payment set by the prime rate and increased by some percentage.

The trades that take place in Financial markets consist of underlying assets that do not consist completely of financial capital investment, but move up and down in value in accordance with the trading of financial derivatives. Many things can affect the price of the financial capital investments that are sold in commodity markets such as boycotts, embargoes, and weather that effects production. Stock markets, on the other hand, are more affected by trust in corporate leaders such as capital from consumers, social capital, and internal organizational efficiency such as instructional capital and infrastructural capital.

The relationship between Financial capital and all other forms of capital is assumed in central bank policy and are characterized by a political economy. Therefore, the supply of money and regulations on financial capital are representative of a country and determine the allocation of labor. Legislature determining the increase or decrease of the money supply based on inflation or other means reflects the value of financial capital compared to the other types. All forms of capital are connected as the affects that inflation has on financial capital reflects all other forms of capital as well.

By: Usha Pradhan

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