Minors who have reached age 14 and have earned income are eligible to open a traditional or Roth IRA. Traditional IRAs allow contributions to grow tax deferred until retirement, and contributions may be tax-deductible. In contrast, contributions to Roth IRAs are always taxable, but withdrawals made after age 59½ can be tax free.

Early start makes a difference

When it comes to investing, an early start can make a big difference. As an example, let’s assume 16-year-old Angela earns $2,500 from her summer job at the mall. She or her parents can deposit $2,000 in a Roth IRA in Angela’s name. Suppose that money is left untouched for 50 years, until Angela retires at age 66, and the investment grows at a hypothetical rate of 10% each year. Angela could have more than $230,000 in her Roth IRA – money that could be distributed tax free.

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Teens being teens, you may find that he or she would prefer to spend the money rather than invest it.

So, while you may want to encourage your teenage child or grandchild to invest some of his or her hard-earned money in an IRA instead of spending it—if the teen doesn’t want to contribute, you can fund an IRA contribution for him or her.

Doing so will give your teen an invaluable kick-start on life.

When interest rates fall

First, let’s examine how interest rates affect individual bonds. Say interest rates are falling. If you buy a $10,000 bond when interest rates are at 8%, your bond yields 8%, or $800, annually.

Now let’s assume that after you purchase that bond, interest rates fall to 7%. A newly purchased $10,000 bond yields $700 annually. Because your existing bond pays $100 more a year, it is more valuable, and its price will tend to rise.

When interest rates rise

In contrast, when interest rates rise, bond prices fall. If you buy a $10,000 bond at 8%, your bond yields 8%, or $800, annually. Now let’s assume interest rates rise to 9%. A newly purchased $10,000 bond yields $900 annually. Because your existing bond pays $100 less a year, it is less valuable and its price will tend to fall.

Bond funds

The same holds true for bond funds ,which are simply portfolios of individual bonds and behave the same way.

When today’s historically low interest rates begin to rise and bond values fall,

you don’t want to be “locked in” to bonds that don’t mature for years, because they will be worth less than newly purchased bonds.

Consider short-term funds

So, how can you protect your bond fund against a possible rise in rates? You could switch to a portfolio of bonds with shorter maturities – a short-term bond fund. If you purchase faster-maturing bonds, you’ll be able to replace lower-price bonds as they mature. You can do this yourself by purchasing individual bonds, or you can purchase shares of a short-term bond fund. To decide what’s best for you, explore your options with your financial advisor.

Yes, U.S. Treasuries are appealing. A portfolio of U.S. Treasuries with an average maturity of 20 years rose 28% in 2011, even better than its 26% jump in 2008, when we were in the midst of a financial crisis. The government securities haven’t seen a better year since 1995, according to Morningstar.

That doesn’t mean U.S. Treasuries are a sure thing. No investment is.

The U.S. Treasury rally could wind down at any moment. In order to match the 2011 price rally, the 10-year U.S. Treasury yield would have to drop to about 1.05%, far below its record low of 1.72% in September 2011.

Additionally, there are other high-yielding alternatives. For example, you may be able to obtain higher yields with only slightly more volatility via non-Treasury government-backed bonds such as those issued by agencies or supported by agency mortgage-backed securities.

One example is mortgage-backed securities supported by the Government National Mortgage Association, which guarantees investments backed by federally insured loans.

These securities carry the full faith and credit of the U.S. government and may offer a higher yield than comparable U.S. Treasuries.

Another example is a bond from less-well-known government agencies such as the Federal Farm Credit, the Tennessee Valley Authority and the Federal Judiciary Office Building Trust. As of mid-January, these 10-year bonds yielded about 2.6%, 0.6 percentage points more than the equivalent U.S. Treasury, according to The Wall Street Journal.

Of course, no investment is necessarily suitable for all investors. Contact your financial advisor for help in determining if the securities mentioned here are appropriate for your portfolio.

Correlation refers to how securities or asset classes perform in relation to each other and/or the market. A 1.0 correlation indicates that two security types move in exactly the same direction. A -1.0 correlation indicates movement in exactly opposite directions. A zero correlation implies no relationship.

Last year, the correlation between the stocks in the S&P 500 index and the index itself went from as low as 0.4 in February to as high as 0.86 in October, according to Birinyi Associates.

That level of correlation can make the diversification you’ve worked so hard to create in your portfolio ineffective. Never fear, though. One option for addressing highly correlated markets like today’s is factor investing.

Factor investing replaces traditional asset allocation with a focus on specific attributes that researchers say drive returns. These factors can include familiar attributes, such as small-cap or dividend yield. They can also include more complex attributes, such as economic sensitivity and volatility.

To utilize factor investing, you would look at your current factor exposure. To simplify things, you may want to consider just a few factors – such as the three most researchers agree on, which are beta, size and style. Next, decide whether that’s appropriate. Finally, tilt your portfolio toward the factors you think will outperform.

Factor investing isn’t new. It originated in academia 20 years ago, and now is finding favor among institutional investors.

Tax Deadline: While the Internal Revenue Service began accepting electronically filed tax returns on January 17, there’s plenty more to remember, as many people will be waiting for the April 17 deadline to file individual tax returns (using Form 1040, 1040A or 1040EZ).

Extensions: Individuals can request an automatic extension using Form 4868. An extension provides an extra six months to file a return, but payment of the tax is still due by April 17.

Retirement-plan Contributions: April 17 is the last day to make a retroactive contribution to a traditional individual retirement account (IRA), Roth IRA, Health savings account, SEP-IRA or 401(k) for the 2011 tax year.

2008 Reminders: April 17 of this year is also the final deadline to file an original tax return (using Form 1040) or amended tax return (using Form 1040X) for tax year 2008 and still claim a tax refund.

Estates and Trusts: April 17 is also the deadline to file estate income tax or trust income tax returns (using Form 1041) or to request a five-month filing extension (using Form 7004). It’s also the deadline for estates and trusts to file an amended tax return and still claim a tax refund for the year 2008.

The tax and legal information in this article is a summary of our understanding and interpretation of some of the current laws and regulations and is not exhaustive. Investors should consult their legal or tax advisor for advice and information concerning their particular circumstances.

Following are some tips to help you:

Don’t Do Anything Until You Know What Rules Apply: Money must be transferred from one IRA custodian to another via what is called a ”trustee to trustee” transfer – and unless you’ve inherited from a spouse, you must re-title it, including the original owner’s name and indicating it is inherited.

Understand the Beneficiary Form: The IRA custodian will hold a beneficiary form that controls both who inherits the IRA and its ability to be stretched out. If there’s no beneficiary form on file, heirs are at the mercy of the IRA custodian’s default policy.

Know the Rules: If nonspouses are named as heirs, they must begin taking distributions from the account by December 31 of the year after inheriting it, although they can draw these out over their own expected lifespans, enjoying decades of income-tax-deferred growth in a traditional IRA or tax-free growth in a Roth IRA.

Plan for the Future: You may pass the IRA on someday, too, so plan for that. To give your heirs flexibility, you may want to name both primary and alternate beneficiaries. Your primary beneficiary (say, your spouse) will then have the option of turning down the account, enabling it to pass to the alternate (say, your children).

A great deal is at stake. Managing an inherited IRA correctly could help enlarge an inheritance.

Making a mistake could disqualify the account from its tax-deferred status and trigger a big tax bill.

A financial advisor can help you navigate the process of inheriting an IRA.

The tax and legal information in this article is merely a summary of our understanding and interpretation of some of the current laws and regulations and is not exhaustive. Investors should consult their legal or tax advisor for advice and information concerning their particular circumstances.

Many of these properties are priced such that they are suitable as investment properties, to be either bought and resold relatively quickly or bought and kept as rental properties to generate income over an extended period of time.

Following are the basics of what you need to know from a financing perspective if you’re thinking about purchasing an investment property.

Plan on putting down a minimum of 20%, and probably closer to 25%, when you purchase an investment property, as opposed to putting down between 3.5% and 10% on a property in which you intend to live.

Lenders are risk averse to lending money on properties where the monthly income may come, in part or in full, from a third party, such as a tenant. They offset this risk by raising the stakes for a potential borrower by causing the borrower to have enough financial interest in a property so as to make the person want to hang on to it come what may.

As far as asset reserves are concerned, plan on having six months of the entire payment, including taxes and property insurance, in some liquid form like certificates of deposit or checking or savings accounts. Lenders know that rental properties may sit vacant and flipped properties take time to sell.

Call your mortgage professional today to get more details on what you need to do to start financing an investment property.

The appraisal is done to help your lender determine the value of the property compared to other similar properties in that area.

Knowing the value of a property will let the lender know if they are lending an appropriate amount of money for the property.

Similar homes are referred to as comparables. They’ll usually have been sold within the last 60 to 90 days.

As no two properties are completely identical, an appraiser, in his or her review, can make adjustments for differences such as square footage, number of bedrooms, number of bathrooms, lot size, etc.

An appraisal is ordered by the lender. The actual appraisal is done by an appraisal management company, or AMC.

AMCs were brought into existence several years ago with the purpose of separating lenders, particularly loan originators, from appraisers.

Much of the real estate meltdown was attributed to appraisers who were overly influenced by lenders, and the new process removes that influence.

As part of the appraisal process, the appraiser pulls comparable property information, usually before visiting the property. After arriving at the property, the appraiser will do both external and internal reviews.

While this review is much less thorough than, for example, what a home inspector would do, the job of the appraiser is to note and report obvious issues such as structural and safety concerns. These noteworthy items are important for the lender, both from a safety perspective and so the lender can address them with you before lending money.

Once the appraiser prepares a report, he or she will forward it to the lender. By law, the borrower must also receive a copy of the appraisal.

Prior to 2008, financial advisers often encouraged investors to withdraw as much as 7% of their retirement assets each year. The idea was that the return on the retirees’ portfolios could potentially be greater than 7%, so the sizes of the portfolios would stay about the same.

Now it’s a new world, with market volatility the norm. If a new retiree withdrew 7% from a $2 million nest egg each year starting in 2000, he or she would have been left with only $394,634 by the end of last year, according to The Wall Street Journal.

The market’s volatility over the past few years has made it impossible for many new retirees to determine how much they can safely withdraw from their retirement accounts each year without running the risk of depleting their nest eggs before they die.

For example, if you adopted a 5% withdrawal rate in 2007 and your portfolio was decimated in 2008, you’d need to withdraw a much greater percentage in 2009 to obtain the same income.

It’s impossible to devise a one-size-fits-all withdrawal strategy,
but one thing is fairly certain in today’s market environment: Investors can’t just set their asset allocation and forget about it. It’s important to examine your portfolios and adjust your withdrawals regularly, such as annually.

If you choose, you may receive benefits at age 62, but your benefits will be reduced. Or you can delay benefits until age 70, in which case your benefits will increase.

Which option you choose depends on your life expectancy and your needs.

Life Expectancy:

Social Security calculates monthly payments so that if you start taking payments early, the smaller payments received over a longer time could total the same amount as if you had started receiving benefits at normal retirement age.

On the other hand, if you start taking payments late, the bigger payments received over a shorter time could total the same amount as if you had started receiving benefits at normal retirement age.

However, all these calculations are based on your normal life expectancy. If you live beyond that life expectancy, then delaying benefits will result in higher monthly payments and a potentially higher lifetime total. So, if you are in good health and have a family history of longevity, delaying benefits may provide more money in the long run. But if you don’t expect to reach or exceed your life expectancy, then it may make sense to start as soon as allowed.

Needs:

If you plan to save your Social Security benefits, taking them early – even though they will be reduced – may be a good idea.

That’s because the return you receive on the invested money might make your total benefit greater than the increased benefits you will receive if you take Social Security on time or delay benefits until age 70.

There are many other factors to consider when deciding when to take Social Security benefits.

For more information, it is probably wise to seek advice from a professional.