Archive for Retirement
Should You Invest in Warren Buffett?
Posted by: | CommentsThis article was originally published on the CBS Money Watch site and was written by Conrad de Aenlle.
Warren Buffett
Wouldn’t you be thrilled if your portfolio achieved the same returns as Warren Buffett’s? It may seem impossible, but it’s really a snap: Just own shares in his corporate alter ego, Berkshire Hathaway (BRK-B).
- The price of entry for investors is coming down: On Wednesday, shareholders are expected to approve a 50-1 split of the company’s B-shares, which will take the share price down from around $3,260 to $65.
If history is an accurate guide — and there’s no guarantee it is — it’s a smart way to invest. A $1,000 stake in Berkshire at the start of 1990 would have grown to roughly $12,000 by the end of last year, crushing the broader market. Had you invested the same amount in Vanguard’s Standard & Poor’s 500 index fund(VFINX) and reinvested dividends, your stake would be worth about $4,750.
A handful of hedge fund geniuses may have produced results similar to Berkshire’s while operating from mountain aeries and using complex, opaque investment strategies. Buffett did it primarily by holding blue-chip American stocks in a publicly listed company. It doesn’t work flawlessly; Berkshire has lagged the market over the past year, returning less than 10 percent while the S&P is up more than 30 percent. But if you’re worried about such short-term horizons, don’t invest with Warren Buffett.
Buy Shares … in Moderation
Fund managers and financial advisers say you could do a lot worse than to own Berkshire. They suggest doing it in moderation, though, because as time goes on, Berkshire’s returns are likely to, well, moderate.
“If you listen to Buffett himself, he’s pretty confident in the long-term future of the company, but he has told people not to expect returns to be as good as in the past,” said Richard Graziadei, lead equity manager for TIAA-CREF Trust Co. “No one should go in thinking it’s going to replicate its past record.”
That record has been accomplished through Buffett’s display of many traits widely recognized as the right stuff of investing. He buys into established businesses with consistent earnings, not fledgling enterprises, and he insists on paying what he deems a bargain price. That often means going against conventional thinking and buying companies relegated to Wall Street’s doghouse. After he has made a purchase — this is another sign that he is uninterested in public opinion — he has the patience to wait until it pays off or until he determines that it probably never will.
It sounds simple enough. What sets Buffett apart from his peers is not his investment strategy, his admirers say, but his ability to implement it.
“You don’t have to have the I.Q. of an M.I.T. Ph.D. in math, but you do have to have common sense” to invest wisely, said George Schwartz, chief investment officer of the Ave Maria Mutual Funds. “The problem is a lot of people don’t apply common sense, they don’t look at investment opportunities with the cold logic that he does.”
Berkshire’s chief executive “is a master of contrarian thinking,” said Schwartz, who has kept a portion of his personal money in Berkshire since 1981. “That’s how to make money. You’ve got to buy when no one else is buying. He practices that.”
In Buffett’s Portfolio
He practices another key element of solid portfolio construction: diversification. The list of Berkshire Hathaway’s holdings reads like a What’s What of corporate America, including American Express (AXP), Coca-Cola (KO), Procter & Gamble (PG), Kraft (KFT), Wells Fargo (WFC), General Electric (GE), Goldman Sachs (GS), Dow Chemical (DOW), and Conoco Phillips (COP).
Berkshire reported $57.4 billion of stock investments and $37.4 billion in government and corporate bonds at the end of September. The remaining $36 billion or so of the company’s worth was accounted for by entities in which it holds more than a 20 percent stake, making them more like operating divisions. These include Geico and other insurance subsidiaries and Burlington Northern Santa Fe, the railroad that Berkshire took complete ownership of in November.
Buffett has always held a potent mix of businesses. Anyone who made a modest outlay, say $10,000, to buy Berkshire in the early 1980s, when Schwartz did, would be a millionaire now, barely a quarter-century later. There’s your retirement all squared away.
But as it says in the fine print of any investment, past performance is no guarantee of future results. Investment advisers caution that Berkshire’s returns are likely to dissipate, mainly because the company and Buffett have become victims of their own success. Berkshire’s market value of more than $150 billion and annual sales exceeding $100 billion suggest that it has run afoul of the law of large numbers. At that size, it takes ever bigger acquisitions to have a significant impact on earnings, so earnings growth is bound to slow.
“It’s not as easy for them to move the needle as when [Berkshire Hathaway] was a $15 billion or $20 billion company,” said Brian Washkowiak, director of research for Talon Asset Management, a Chicago financial planning firm. “We consider ourselves Warren Buffett disciples,” he added, “but I would advise against putting all your eggs into Berkshire Hathaway.”
Tom Forester, manager of the Forester Value Fund, noted that Buffett’s following with the public has sent Berkshire’s stock to a sizeable valuation premium over the broad market. It traded recently at 31 times its profits for the latest four quarters, compared with just over 20 for the S&P 500.
“I’m more a fan of [Buffett’s] investment acumen than I am of Berkshire,” Forester said. “I’m a value guy, too, so I don’t like paying premiums for things.” By other measures, however, Berkshire shares look cheaper: Barron’s estimates that shares are trading at 1.2 times book value.
The Age Factor
The other caveat issued to prospective Berkshire shareholders is actuarial, not financial. Buffett is 79, and his inevitable departure one day gives the laudatory remarks about him a more ominous ring. When Schwartz calls Berkshire “a unique company run by a unique individual,” it raises questions about how it will fare when someone who is not one of a kind takes over.
Whatever misgivings they may have about Berkshire, these investors consider it an excellent holding, as long as there are plenty of other assets to go with it. “What I would tell most clients is that they need other pieces of broad exposure,” Graziadei, of TIAA-CREF, advised. With Berkshire’s heavy concentration in large American companies, he would focus on complementary asset classes, such as bonds of different types; international stocks, including emerging markets for risk-tolerant investors; and possibly real estate. Washkowiak made similar suggestions, and he would also allocate capital to small and medium-sized companies.
When assessing Berkshire’s place in a portfolio and the right price to pay for the stock, investors would do well to give it the same scrutiny as Buffett does with his prospective investments, Graziadei said.
“You must be committed to truly understanding this company inside and out,” he said, “and developing the expertise to make a judgment call and buy when you think it’s undervalued.”
About the Author
Conrad de Aenlle has been an investment and personal finance writer for nearly 20 years, covering international markets, portfolio management, and financial planning, among other topics. His features and columns have appeared in newspapers and magazines worldwide, including The New York Times, International Herald Tribune, Washington Post, Los Angeles Times, Sunday Business, The Scotsman, Institutional Investor, Funds Europe, and International Fund Investment. After working in London and Paris for 14 years, de Aenlle is based in Long Beach, Calif.
IRA 401k Or Traditional IRA
Posted by: | CommentsWhile there are a variety of IRA 401k plans they all allow a person who is employed to save for their retirement and defer income taxes on the money invested and earnings until it is withdrawal time. Employees are able to direct a portion of their salary into an IRA account. The most common option in such plans is a participant-directed plan, which allows the employee to select from a choice of investment options. These are usually comprised of a mix of mutual funds that may give priority to stocks, bonds and money market investments. Some companies even offer the option of the purchase of company stocks. In many cases employees can often decide to re-allocate the money being invested as well as change their original investment choices. A less common IRA 401k plan is the trustee-directed plan. In these plans the persons employer appoints trustees who make the decision on how the assets are to be invested.
More investors are increasingly rolling their investments into an IRA from 401k plans to increase their investment returns. There are numerous reasons why people are choosing to invest or roll over funds from IRA to 401k plans. One of the most common reasons for doing this is to gain complete control over your investment funds.
If you are just beginning your career, one of your long-term goals will undoubtedly be to save enough money to enable you and your partner to have a financially secure retirement. If you are not in control of your investments you are putting your future in someone else’s hands. The hands of people that are not aware of your particular wishes, needs or priorities. You need to have a day-to-day picture of how your investments are doing and be in a position to changes things when and how you see fit.
Another area where you will want control is the type of assets you money will be invested in. Rolling a 401k to an IRA plan will give you the flexibility to choose the assets that are best for your particular situation. You preferences will likely change as the years go on and stocks, bonds and mutual funds may not be the only areas you wish to invest in. If you roll over you 401k to an IRA plan you will have a much larger variety of choices such as partnerships, franchises, real estate and more.
Make yourself the sole decision-maker of your retirement investments. If an employer decides to change investment firms, the changes the new firm makes may not be conducive to your long-range plans. A wise investment choice would be to roll over your 401k to an IRA self directed plan. The goals and dreams you have for your retirement years will be greatly affected by the funds available to you once you stop working. You many dream of traveling or helping your children financially or perhaps investing in your grandchildren’s education. All of these things and more can be possible if you make certain that you remain in control of your savings throughout your working life. Take the time now to see how you can do a roll over from your 401k to an IRA plan and rise above today’s uncertain economic climate.
When researching your options for a retirement plan, a sound investment may very well be an IRA traditional savings plan. If you are looking for immediate and significant tax savings then you need to get as much information on how to start an IRA traditional retirement plan. Because of the deferral on all the taxes on your earnings you will enjoy the power of strong compound earnings.
If as most people you will be in a lower tax bracket during your retirement years than an IRA 401k traditional savings program will carry increased and considerable incentives for you. Today’s uncertain economic climate makes it important to consider you options now while in your working years. You want to be certain that with a lower retirement income you will be able to afford to do all the things you dreamed of. You may have planned to travel or to contribute to your grandchildren’s college education. By researching the benefits of an IRA 401k traditional retirement plan now you could make all your future dreams come true sooner than you may have imagined.
IRA Traditional Plan – IRA 401k
With an IRA traditional plan you will see your earnings accumulate tax-deferred and if you qualify, your contributions may be tax-deductible. If you are currently earning compensation and will not be 70 1/2 years of age by the end of the year you can still contribute to an IRA traditional retirement plan. These earnings are not subject to tax until they are withdrawn. This option of deferring the taxes on your earnings and withdrawing them in a year when you find yourself in a lower tax bracket can mean more after-tax money when you do retire.
There are certainly many things to consider but one of the most important things you must keep in mind is that the earlier you enroll in an IRA traditional retirement savings plan the better off you will be financially when you reach retirement age. This is the time of your life when you want to be free to do the things you have planned for. Whether it is traveling or pursuing new hobbies or helping your loved ones, take the time now to research the benefits of an IRA traditional plan.
Even if you currently contribute to an IRA 401k plan through your employer, you can still enroll in an IRA traditional retirement plan. You may even qualify to be exempt from the standard 10% tax on any withdrawals taken before your reach 59 1/2 years of age. For example if your amount is directly transferred or rolled over to another IRA traditional plan, if after your death your beneficiaries receive the payment or the amount of money is used for qualifying post-secondary expenses. You may even withdraw up to $10,000.00 as a first time home purchaser.
Research your options now so will have the information you need to enroll in an IRA traditional retirement plan that will keep you and your loved ones financially secure in your later years. You will have worked hard for all of your working years and it is important to make the right choices now. Prepare for a stress free retirement by choosing the best IRA traditional retirement package that suits your particular circumstances.
IRA Traditional Catch Up Plans
We all know that starting an IRA traditional retirement plan early in life will lead to a more financially secure future during your retirement years. For many of us however, this is not possible. They are many reasons why some find it too difficult to put money aside in their younger years. Perhaps while one parent was at home raising the children there was no extra income or it may have been impossible to save due to costly medical bills. Whatever the reason it’s never too late to start. Thanks to an IRA traditional catch-up plan you can still plan to have a secure financial future.
Many young people today are struggling to just get by and feel that they have lots of time before they begin to put money into an IRA traditional retirement plan. As we get older we realize that time usually goes by a lot faster than when we were just starting our working careers. Although even most young couples have retirement on their minds from time to time the daily financial stresses of raising a family often push those thoughts to the back for when they feel there will be extra income.
Your family may now be at a stage where the children are finished college and you realize that although there is now some extra money, there does not seem to be enough time to save enough for a stress free retirement. While your social security benefits will provide you with some funds for your later years it will not be enough for you to do the things you always dreamed of. Even though you may have been able to put a little away in an IRA traditional plan over the years, your calculations will probably show that you will still require more savings to continue to live the life you have been accustomed to. It may still be possible to achieve the goals you set for yourself all those years ago with an IRA traditional catch-up plan.
If you are age 50 or older and your plan allows for catch-up contributions you can still plan to do all the things you dreamed of when you are ready to retire. Provisions allow you to contribute an extra $5,000.00 to your IRA traditional plan, which would mean that you might be able to contribute up to $20,500.00 for the 2008 tax year. This type of extra savings could result in a significant reduction in the stress of worrying how you will be able to get by without such a catch-up plan.
If you find yourself nearing retirement and are worried about how you will manage financially, take some time right now to research the options available within your IRA traditional plan and the catch-up options you are entitled to. Take control of your future now by using the extra income you have now and making it work for a stress free and financially secure future.
You have worked hard all your life raising your family and giving them the best you could. Now is the time to make certain you will have enough savings when you retire to enjoy your children and grandchildren and enjoy the life you always dreamed of for your later years. Whether it included traveling or simply taking it easy and enjoying your family, it’s never too late to make a significant difference towards future financial independence.
We all know that saving now for your retirement is a smart investment but choosing the right plan may not always be an easy decision. Take some time now to find out about the one plan that most people seem to favor. Look into contributing to an IRA traditional retirement investment plan ( IRA 401k ). Getting the right information is as simple as doing some research on the net when you and your spouse have a few free minutes at the end of the day.
Your first question may very well be whether or not you are eligible to contribute to an IRA traditional plan. If you have an earned income and are under 70 1/2 years of age you should qualify to make after-tax contributions that are nondeductible. It is your after-tax dollars that fund a nondeductible IRA traditional plan and you cannot deduct the money you put in on your tax return. To find out if you qualify for a partial or full deduction will depend largely on your income and whether or not you have access to an employment based retirement savings plan.
IRA 401k
If you qualify for a deductible IRA traditional plan you can lower your tax bill as it allows you to deduct the money you have contributed on your income tax return. In essence you will receive a refund on the taxes that you paid earlier in the taxation year. Although there will be many decisions you will need to make when planning for your retirement, the important thing is to get started as soon as you can. The earlier you begin saving, the better off you will be financially when you do reach retirement age. With today’s population living a longer and healthier life it is even more important to plan for an active and stress free retirement.
Make a list of all the things you would love to do in the future and put together a plan that will ensure you have sufficient finances to achieve those goals. Whether you plan to take that second honeymoon, simply travel to places you have never been to or even help out with your grandchildren’s college education it can all be possible with the right IRA traditional retirement savings plan. Doing your research now will give you the information you need to make the right decisions for your financial future. You will have worked hard and perhaps made many sacrifices during your working years all in the hopes that you will be able to realize the dreams you want to accomplish when you retire.
If you are under 70 1/2 years of age and do not have a retirement plan through your place of employment you can contribute (up to an annual limit) money into an IRA traditional savings plan and may be able to deduct the entire amount from your taxes during your working years. Make a point of starting an IRA traditional retirement savings plan now even if the amount you can contribute is limited as you may also be able to invest in a catch-up plan as your income increases. Go ahead and make a list of all the things you dream of doing in your later years and make certain your dreams will come true by investing in an IRA traditional savings plan now.
Author: Matthew Bowes
Article Source: EzineArticles.com
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