Author: simonpayn13

With April approaching, many investors find themselves racing to meet tax deadlines. If you’re one of them, there are some important details to remember.

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.

So you’ve just inherited an individual retirement account (IRA). If you know how to manage it, you can stretch out the tax breaks for decades.

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.

If there’s one bright spot in the whole real estate market these days, it is the number of properties that are available at very low prices.

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.

If you’re planning to finance a property, be it for a purchase or refinance, you will need an appraisal.

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.

The 78 million Americans who make up the baby boom generation started turning 65 in 2011, and almost 30 million of them have a defined contribution retirement plan such as a 401(k) account, according to the Employee Benefit Research Institute. That means these near-retirees face an important question: How much money can they afford to withdraw from their retirement accounts?

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.

Full Social Security benefits are available as early as age 65, depending on your date of birth.

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.

Investors may face greater challenges today than at any other time in history, given the uncertain economy and volatile markets.

So where can they turn?

Traditional investing wisdom holds that the solution is diversification, a concept based on the idea that by holding investments from different asset classes, the investor may increase his or her chances of obtaining a compelling total return.

Asset managers, however, diversify in different ways.

Some diversification strategies are passive, buying and holding securities for the long term regardless of market fluctuations. A mutual fund, for example, may have a prescribed hypothetical allocation mix of 50% equity, 45% fixed income and 5% alternatives that would not change, even as the equity market rallies and the fixed income market comes to a standstill.

Other diversification strategies are active, adapting to evolving market conditions by shifting assets in response to market fluctuations. Portfolio managers using such active strategies may have the flexibility to adapt to evolving market conditions by shifting entire asset classes in response to market fluctuations.

Advocates of active diversification strategies – also referred to as tactical-allocation strategies – believe these strategies can potentially be beneficial in volatile markets. When market risk is low, for example, the portfolio manager can increase exposure to growth by allocating assets toward the market’s top-performing sectors and countries. When market risk is high, the portfolio manager can preserve capital by shifting to a blend of high-quality, fixed income products and perhaps even cash.

Of course, no investing strategy is appropriate for every investor.
Your financial advisor can provide you with more information about what might be suitable for you given your individual financial circumstances, goals and risk tolerance.

Price-to-earnings (P/E) ratio has long been a standard measure of a stock’s value – but there are more ways than one to measure it.

Are you using the most appropriate measure?

P/E ratio is a company’s current stock price divided by its annual earnings per share.

For example, a stock trading at $40 per share with earnings per share of $2 would have a P/E ratio of 20 ($40 divided by $2).

A stock priced at $20 per share with earnings per share of $1 would also have a P/E ratio of 20 ($20 divided by $1).

P/E ratio is effective in expressing how much investors are paying for the value a company creates.

The problem is, there are more ways than one way to calculate P/E ratio, and all have their flaws.

Trailing P/E ratio, for example, is based on known earnings over the past year.

So, if a company’s past year’s earnings were unsustainably high, today’s P/E ratio might be deceivingly low.

On the other hand, another P/E ratio measure uses earnings forecasts, which may change in response to economic conditions.

Another trick used when calculating P/E ratio is to use so-called operating earnings instead of earnings as defined by regulators – and there’s no legal definition for operating earnings.

That said, stocks still appear cheap, at least by trailing P/E ratios, as of late September 2011.

At that time, at least 81 large U.S. companies had single-digit P/E ratios, according to Thomson Reuters.

In general, investing in stocks with low P/E ratios, whatever the measure used, may be a good idea because P/E ratios show what investors are prepared to pay for every $1 of a company’s earnings – and this, in turn, reflects the stock market’s view of the outlook for the company.

Smart investors understand the importance of rebalancing their portfolios by bringing their mix of stocks, bonds, cash and other assets back in line on a regular basis – even when markets threaten that orderly mix on a daily basis.

And what better time to rebalance than year-end?

The idea behind rebalancing is simple. If you never do so, over the long term, your better-performing investments will make up an ever-growing piece of your portfolio – and because these investments are likely those with higher risk, such as stocks, you could end up with a more aggressive allocation than you initially wanted.

When the markets are volatile, you may think you need to rebalance more often than usual, but that’s probably not the case. Why? Large moves in the market don’t necessarily lead to large moves in a portfolio.

For example, in a portfolio with 60% allocated to stocks and 40% allocated to bonds, a 5% drop in the stock market would still leave almost 59% of the portfolio in stocks. To push the portfolio five percentage points off its target, stocks would have to decline by 19%.

Instead of chasing daily market movements, consider rebalancing on some kind of schedule.

But don’t do that more than once a month.

And only do it when allocations stray more than, say, five percentage points from their targets.

Your financial advisor can help you decide what’s appropriate given your risk tolerance.

There has been plenty of drama recently, with the debt-ceiling debate, the downgrade of U.S. debt and concerns about European debt. But weathering such storms doesn’t have to be gut-wrenching, as there are some alternative investment strategies for volatile markets. For example:

Move to Cash: While putting all your assets in cash for the long term probably isn’t a good idea – as the return won’t outpace that of inflation – having some kind of cash cushion will help you weather volatility. It will also leave you something to reinvest when markets reach what you and your financial advisor think might be a low.

Look Into Utilities: Utilities aren’t sexy, but they’re often stable, and they have tended to provide the potential for strong dividend yields.

Consider Dividend-Paying Stocks: Dividends can provide a bit of solace in the absence of capital appreciation.

Investigate Gold: Gold prices have risen recently, which isn’t surprising. Because gold is seen as a hard asset, it often tends to rise when stock prices fall.

Give Into Your Vices: Does all the recent market volatility have you craving a drink or a smoke? If so, you’re not alone. Vice-related stocks may perform well when other stocks don’t. These include alcohol, tobacco and gambling stocks.

Once you’ve positioned your portfolio to offer some peace of mind, you can start to think in a more clearheaded manner about values that have emerged as a result of the panic. Your financial advisor can offer some suggestions.