Should I invest in a 401(K) or Roth IRA? I would contribute first to a 401(k) plan that is sponsored by your work. The reason being is so that you can take advantage of a employer match. For example, if your employer matches a contribution at 6%, they have basically given you free money. If your salary is $50,000.00, and you have 6% of your salary taken out of your pay check to contribute to the 401(K), and your employer matches 6%, for a given year, your employer has given you $3,000.00 of free money.
If you have money that you can save for retirement after you have invested in a 401(K) up to the employer match, it might be a good idea to put it in a Roth IRA. With a Roth IRA, your money will grow tax-free until you reach the retirement age of 59 1/2.
Friday, June 30, 2017
Wednesday, June 28, 2017
How Much Do You Have To Save To Be A Millionaire
How much do you have to save to be a millionaire is question many of us have thought about, but how much do you have to actually set aside? cnbc.com has the answer:
Building a seven-figure portfolio isn't as hard as you may think. In fact, some say that "millionaire is the new middle class."
To illustrate just how attainable the dream of becoming a millionaire is, personal finance site NerdWallet created a chart showing how much money you need to set aside each month in order to have $1 million saved by the time you're 67.
The chart assumes you're starting with zero dollars invested. It also assumes a 6 percent average annual investment return.
The amount you have to save depends heavily on how early you start. NerdWallet listed the savings amount needed for the starting ages of 23, 30, 35 and 40. As the chart shows, the sooner you start putting your money to work, the less you'll have to save each month, thanks to the power of compound interest.
Stock Market Today - Still on Fiyah!
The stock markets in the U.S. today are still on fire! All equity indexes are at or near all-time highs. The Dow Jones Industrial (DJIA) average gained 140 points today to close at 21,454. The S&P 500 average gained 21 points to close at 2,240, its best day in two months; the S&P 500 is trading at a forward price earnings (P/E) of 17.5 times earnings. Lastly, the NASDAQ keeps flirting with new highs too.
Friday, June 23, 2017
The Economy of India - The Final Frontier
Much has been said about the country of India's economy. During the last quarter, the Indian economy checked in with an impressive 6.1% growth rate. The pundits argue that the economy is slowing. However, the International Monetary Fund (IMF) projects an explosive Gross Domestic Product (GDP) growth rate of 7.2% in 2018, and 7.7% in 2019; this compares to a dismal 1.9% growth rate for the United States GDP during the Socialist's Obama administration.
Though inequality and the caste system prevail in the economy, the growth prospects are impressive; three to four times that of the United States economy! So is India now the land of opportunity? Will the incredible growth rates continue? Will India be a good place to invest? Time will tell.
Though inequality and the caste system prevail in the economy, the growth prospects are impressive; three to four times that of the United States economy! So is India now the land of opportunity? Will the incredible growth rates continue? Will India be a good place to invest? Time will tell.
Monday, June 19, 2017
Pay off Student Loan Debt or Credit Card Debt First. Which Should You Pay Off First?
Should one pay off a $5,000 federal college student loan with a 3.5% interest rate or $5,000 of credit card debt with 9.0% interest rate? Generally one would think that it is best to pay off a $5,000 credit card because of the higher rate. But did you know, that federal student loan debt is not dischargeable; that is, if you file for bankruptcy, the student loan debt is not forgiven by the courts, whereas credit card debt is! So the next time you are paying bills, weigh the options.
2017 Roth IRA Guidelines (source: RothIRA.com/roth-ira-limits
Roth IRA Limits
How much can you make to contribute to a Roth IRA?
Quick Summary- If you are single, you must have a modified adjusted gross income under $133,000 to contribute to a Roth IRA for the 2017 tax year, but contributions are reduced starting at $118,000. If you are married, your MAGI must be less than $196,000, with reductions beginning at $186,000.
The Internal Revenue Service has a set of rules that individuals must meet to be qualified to invest in a Roth IRA. One set of rules pertains to income limits. If your income exceeds a certain amount you will not be allowed to contribute to a Roth IRA.
You Can Only Contribute “Earned Income”
To qualify for a Roth, you must have “earned income” in the year you want to make a contribution.Earned income is money paid for work you performed (or in the case of a small business, profit distributions from the business). This income includes wages, salaries, tips, bonuses, commissions and self-employment income. Other income that counts includes taxable alimony and military differential pay. Earned income does not include things like interest and dividends from investments, income from rental property, and pension payments.
If your earned income for the year is less than the contribution limit (in 2017, $5,500 for those under 50), you can only contribute up to your earned income. In other words, if your earned income is $3,000, you can only contribute up to $3,000.
Income Limits and Tax Filing Status
| 2017 Roth IRA Income and Contribution Limits | |||
| Filing Status | Income Limit1 | Contribution Limit | |
| Married filing jointly | Less than $186,000 | $5,5002 | |
| $186,000 to $195,999 | Begin to phase out | ||
| $196,000 or more | Ineligible for a direct Roth IRA (learn more about a “Backdoor Roth IRA”) | ||
| Married filing separately3 | $0 | $5,5002 | |
| $1 to $9,999 | Begin to phase out | ||
| Greater than $10,000 | Ineligible for a Roth IRA | ||
| Single | Less than $118,000 | $5,5002 | |
| $118,000 to $132,999 | Begin to phase out | ||
| $133,000 or More | Ineligible for a direct Roth IRA (learn more about a “Backdoor Roth IRA”) | ||
2Individuals age 50 and over can contribute up to $1,000 extra per year to “catch up” for a total of $6,500.
3Married (filing separately) can use the limits for single people if they have not lived with their spouse in the past year.
The IRS uses different rules for income limits based on your tax filing status for that year.
There are three category the IRS uses:
- Married filing jointly or qualified widow(er)
- Married filing separately
- Single or head of household
Roth IRA Modified Adjusted Gross Income (MAGI)
When the IRS speaks of various income levels it is referring to modified adjusted gross income. To figure your modified adjusted gross income, you will need your adjusted gross income (AGI) from your tax return. You can use Appendix B, Worksheet 2 from IRS Publication 590-A to modify your AGI for Roth IRA purposes.Roth IRA Income Limits for Single Filers
If you file as single, head of household or married filing separately (if you did not live with your spouse at any time during the year) your MAGI must be less than $118,000 to contribute up to the limit.If your MAGI falls between $118,000 and $133,000 you cannot contribute the full amount. Your contribution is reduced. Use the IRS worksheet to calculate your new reduced Roth IRA contribution limit.
If your MAGI exceeds $133,000 you cannot contribute to a Roth IRA.
Roth IRA Income Limits for Married Filers (Joint)
If you file as married filing jointly or as a qualifying widow(er) your MAGI must be less than $186,000 to contribute up to the limit.If your MAGI falls between $186,000 and $196,000 you cannot contribute up to the limit. Your contribution is reduced. Use the IRS worksheet to calculate your new reduced Roth IRA contribution limit.
If your MAGI exceeds $196,000, you cannot contribute to a Roth IRA.
Roth IRA Income Limits for Married Filers (Separate)
The IRS severely limits the ability to contribute to a Roth IRA for individuals who are married but file separately. If you do not have earned income you will not be allowed to contribute to a Roth IRA.If your MAGI is less than $10,000 you cannot contribute up to the limit. Your contribution is reduced. Use the IRS worksheet to calculate your reduced Roth IRA contribution limit.
History of Roth IRA Income Limits
The Internal Revenue Service gradually increases the income limit to account for inflation. For more details, see:.Warren Buffett Stock Article (source: Forbes)
Below is an article written by Warren Buffett, probably the most successful stock market investor ever:
Warren Buffett
11/09/2008 @ 6:00PM
You Pay A Very High Price In The Stock Market For A Cheery Consensus
Pension-fund managers continue to make investment decisions with their eyes firmly fixed on the rearview mirror. This generals-fighting-the-last-war approach has proven costly in the past and will likely prove equally costly this time around.
Stocks now sell at levels that should produce long-term returns far superior to bonds. Yet pensions managers, usually encouraged by corporate sponsors they must necessarily please (“whose bread I eat, his song I sing”), are pouring funds in record proportions into bonds.
Meanwhile, orders for stocks are being placed with an eyedropper. Parkinson–of Parkinson’s law fame–might conclude that the enthusiasm of professionals for stocks varies proportionately with the recent pleasure derived from ownership. This always was the way John Q. Public was expected to behave. John Q. Expert seems similarly afflicted. Here’s the record.
In 1972, when the Dow earned $67.11, or 11% on beginning book value of 607, it closed the year selling at 1,020, and pension managers couldn’t buy stocks fast enough. Purchases of equities in 1972 were 105% of net funds available (i.e., bonds were sold), a record except for the 122% of the even more buoyant prior year. This two-year stampede increased the equity portion of total pension assets from 61% to 74%–an all-time record that coincided nicely with a record-high price for the Dow. The more investment managers paid for stocks, the better they felt about them.
And then the market went into a tailspin in 1973-74. Although the Dow earned $99.04 in 1974, or 14% on beginning book value of 690, it finished the year selling at 616. A bargain? Alas, such bargain prices produced panic rather than purchases; only 21% of net investable funds went into equities that year, a 25-year record low. The proportion of equities held by private noninsured pension plans fell to 54% of net assets, a full 20-point drop from the level deemed appropriate when the Dow was 400 points higher.
By 1976, the courage of pension managers rose in tandem with the price level, and 56% of available funds was committed to stocks. The Dow that year averaged close to 1,000, a level then about 25% above book value.
In 1978, stocks were valued far more reasonably, with the Dow selling below book value most of the time. Yet a new low of 9% of net funds was invested in equities during the year. The first quarter of 1979 continued at very close to the same level.
By these actions, pension managers, in record-setting manner, are voting for purchase of bonds–at interest rates of 9% to 10%–and against purchase of American equities at prices aggregating book value or less. But these same pension managers probably would concede that those American equities, in aggregate and over the longer term, would earn about 13% (the average in recent years) on book value. And, overwhelmingly, the managers of their corporate sponsors would agree.
Many corporate managers, in fact, exhibit a bit of schizophrenia regarding equities. They consider their own stocks to be screamingly attractive. But, concomitantly, they stamp approval on pension policies rejecting purchases of common stocks in general. And the boss, while wearing his acquisition hat, will eagerly bid 150% to 200% of book value for businesses typical of corporate America but, wearing his pension hat, will scorn investment in similar companies at book value. Can his own talents be so unique that he is justified both in paying 200 cents on the dollar for a business if he can get his hands on it, and in rejecting it as an unwise pension investment at 100 cents on the dollar if it must be left to be run by his companions at the Business Roundtable?
A simple Pavlovian response may be the major cause of this puzzling behavior. During the last decade, stocks have produced pain–both for corporate sponsors and for the investment managers the sponsors hire. Neither group wishes to return to the scene of the accident. But the pain has not been produced because business has performed badly, but rather because stocks have underperformed business. Such underperformance cannot prevail indefinitely, any more than could the earlier overperformance of stocks versus business that lured pension money into equities at high prices.
Can better results be obtained over, say, 20 years from a group of 9 1/2% bonds of leading American companies maturing in 1999 than from a group of Dow-type equities purchased, in aggregate, at around book value and likely to earn, in aggregate, around 13% on that book value? The probabilities seem exceptionally low. The choice of equities would prove inferior only if either a major sustained decline in return on equity occurs or a ludicrously low valuation of earnings prevails at the end of the 20-year period. Should price/earnings ratios expand over the 20-year period–and that 13% return on equity be averaged–purchases made now at book value will result in better than a 13% annual return. How can bonds at only 9 1/2% be a better buy?
Think for a moment of book value of the Dow as equivalent to par, or the principal value of a bond. And think of the 13% or so expectable average rate of earnings on that book value as a sort of fluctuating coupon on the bond–a portion of which is retained to add to principal amount just like the interest return on U.S. Savings Bonds. Currently our “Dow Bond” can be purchased at a significant discount (at about 840 vs. 940 “principal amount,” or book value of the Dow. Figures are based on the old Dow, prior to the recent substitutions. The returns would be moderately higher and the book values somewhat lower if the new Dow had been used.). That Dow Bond purchased at a discount with an average coupon of 13%–even though the coupon will fluctuate with business conditions–seems to me to be a long-term investment far superior to a conventional 9 1/2% 20-year bond purchased at par.
Of course, there is no guarantee that future corporate earnings will average 13%. It may be that some pension managers shun stocks because they expect reported returns on equity to fall sharply in the next decade. However, I don’t believe such a view is widespread.
Instead, investment managers usually set forth two major objections to the thought that stocks should now be favored over bonds. Some say earnings currently are overstated, with real earnings after replacement-value depreciation far less than those reported. Thus, they say, real 13% earnings aren’t available. But that argument ignores the evidence in such investment areas as life insurance, banking, fire-casualty insurance, finance companies, service businesses, etc.
In those industries, replacement-value accounting would produce results virtually identical with those produced by conventional accounting. And yet, one can put together a very attractive package of large companies in those fields with an expectable return of 13% or better on book value and with a price which, in aggregate, approximates book value. Furthermore, I see no evidence that corporate managers turn their backs on 13% returns in their acquisition decisions because of replacement-value accounting considerations.
A second argument is made that there are just too many question marks about the near future; wouldn’t it be better to wait until things clear up a bit? You know the prose: “Maintain buying reserves until current uncertainties are resolved,” etc. Before reaching for that crutch, face up to two unpleasant facts: The future is never clear; you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values.
If anyone can afford to have such a long-term perspective in making investment decisions, it should be pension-fund managers. While corporate managers frequently incur large obligations in order to acquire businesses at premium prices, most pension plans have very minor flow-of-funds problems. If they wish to invest for the long term–as they do in buying those 20- and 30-year bonds they now embrace–they certainly are in a position to do so. They can, and should, buy stocks with the attitude and expectations of an investor entering into a long-term partnership.
Corporate managers who duck responsibility for pension management by making easy, conventional or faddish decisions are making an expensive mistake. Pension assets probably total about one-third of overall industrial net worth and, of course, bulk far larger in the case of many specific industrial corporations. Thus, poor management of those assets frequently equates to poor management of the largest single segment of the business. Soundly achieved higher returns will produce significantly greater earnings for the corporate sponsors and will also enhance the security and prospective payments available to pensioners.
Managers currently opting for lower equity ratios either have a highly negative opinion of future American business results or expect to be nimble enough to dance back into stocks at even lower levels. There may well be some period in the near future when financial markets are demoralized and much better buys are available in equities; that possibility exists at all times. But you can be sure that at such a time the future will seem neither predictable nor pleasant. Those now awaiting a “better time” for equity investing are highly likely to maintain that posture until well into the next bull market.
Editor’s Note: This editor’s note accompanied the original publication of this article:
Warren Buffett is a down-to-earth man of 48 who prefers to operate out of his native Omaha rather than in the canyons of Wall Street, but the pros regard him as possibly the most successful living money manager, a direct descendant of the legendary Ben Graham under whom he studied. Buffett made a fortune for himself and his clients in the Fifties and Sixties but threw in the towel in 1969 because he could no longer find bargains. Then in late 1974, when the Dow Jones industrials were below 600 and the air was thick with doom, he told Forbes: “I feel like an oversexed man in a harem. This is the time to start investing.” Within months, the greatest rally in history began, with the DJI running almost 450 points in a bit over a year. What does Buffett think now? In this article, he puts it bluntly: Now is the time to buy.
Stocks now sell at levels that should produce long-term returns far superior to bonds. Yet pensions managers, usually encouraged by corporate sponsors they must necessarily please (“whose bread I eat, his song I sing”), are pouring funds in record proportions into bonds.
Meanwhile, orders for stocks are being placed with an eyedropper. Parkinson–of Parkinson’s law fame–might conclude that the enthusiasm of professionals for stocks varies proportionately with the recent pleasure derived from ownership. This always was the way John Q. Public was expected to behave. John Q. Expert seems similarly afflicted. Here’s the record.
In 1972, when the Dow earned $67.11, or 11% on beginning book value of 607, it closed the year selling at 1,020, and pension managers couldn’t buy stocks fast enough. Purchases of equities in 1972 were 105% of net funds available (i.e., bonds were sold), a record except for the 122% of the even more buoyant prior year. This two-year stampede increased the equity portion of total pension assets from 61% to 74%–an all-time record that coincided nicely with a record-high price for the Dow. The more investment managers paid for stocks, the better they felt about them.
And then the market went into a tailspin in 1973-74. Although the Dow earned $99.04 in 1974, or 14% on beginning book value of 690, it finished the year selling at 616. A bargain? Alas, such bargain prices produced panic rather than purchases; only 21% of net investable funds went into equities that year, a 25-year record low. The proportion of equities held by private noninsured pension plans fell to 54% of net assets, a full 20-point drop from the level deemed appropriate when the Dow was 400 points higher.
By 1976, the courage of pension managers rose in tandem with the price level, and 56% of available funds was committed to stocks. The Dow that year averaged close to 1,000, a level then about 25% above book value.
In 1978, stocks were valued far more reasonably, with the Dow selling below book value most of the time. Yet a new low of 9% of net funds was invested in equities during the year. The first quarter of 1979 continued at very close to the same level.
By these actions, pension managers, in record-setting manner, are voting for purchase of bonds–at interest rates of 9% to 10%–and against purchase of American equities at prices aggregating book value or less. But these same pension managers probably would concede that those American equities, in aggregate and over the longer term, would earn about 13% (the average in recent years) on book value. And, overwhelmingly, the managers of their corporate sponsors would agree.
Many corporate managers, in fact, exhibit a bit of schizophrenia regarding equities. They consider their own stocks to be screamingly attractive. But, concomitantly, they stamp approval on pension policies rejecting purchases of common stocks in general. And the boss, while wearing his acquisition hat, will eagerly bid 150% to 200% of book value for businesses typical of corporate America but, wearing his pension hat, will scorn investment in similar companies at book value. Can his own talents be so unique that he is justified both in paying 200 cents on the dollar for a business if he can get his hands on it, and in rejecting it as an unwise pension investment at 100 cents on the dollar if it must be left to be run by his companions at the Business Roundtable?
A simple Pavlovian response may be the major cause of this puzzling behavior. During the last decade, stocks have produced pain–both for corporate sponsors and for the investment managers the sponsors hire. Neither group wishes to return to the scene of the accident. But the pain has not been produced because business has performed badly, but rather because stocks have underperformed business. Such underperformance cannot prevail indefinitely, any more than could the earlier overperformance of stocks versus business that lured pension money into equities at high prices.
Can better results be obtained over, say, 20 years from a group of 9 1/2% bonds of leading American companies maturing in 1999 than from a group of Dow-type equities purchased, in aggregate, at around book value and likely to earn, in aggregate, around 13% on that book value? The probabilities seem exceptionally low. The choice of equities would prove inferior only if either a major sustained decline in return on equity occurs or a ludicrously low valuation of earnings prevails at the end of the 20-year period. Should price/earnings ratios expand over the 20-year period–and that 13% return on equity be averaged–purchases made now at book value will result in better than a 13% annual return. How can bonds at only 9 1/2% be a better buy?
Think for a moment of book value of the Dow as equivalent to par, or the principal value of a bond. And think of the 13% or so expectable average rate of earnings on that book value as a sort of fluctuating coupon on the bond–a portion of which is retained to add to principal amount just like the interest return on U.S. Savings Bonds. Currently our “Dow Bond” can be purchased at a significant discount (at about 840 vs. 940 “principal amount,” or book value of the Dow. Figures are based on the old Dow, prior to the recent substitutions. The returns would be moderately higher and the book values somewhat lower if the new Dow had been used.). That Dow Bond purchased at a discount with an average coupon of 13%–even though the coupon will fluctuate with business conditions–seems to me to be a long-term investment far superior to a conventional 9 1/2% 20-year bond purchased at par.
Of course, there is no guarantee that future corporate earnings will average 13%. It may be that some pension managers shun stocks because they expect reported returns on equity to fall sharply in the next decade. However, I don’t believe such a view is widespread.
Instead, investment managers usually set forth two major objections to the thought that stocks should now be favored over bonds. Some say earnings currently are overstated, with real earnings after replacement-value depreciation far less than those reported. Thus, they say, real 13% earnings aren’t available. But that argument ignores the evidence in such investment areas as life insurance, banking, fire-casualty insurance, finance companies, service businesses, etc.
In those industries, replacement-value accounting would produce results virtually identical with those produced by conventional accounting. And yet, one can put together a very attractive package of large companies in those fields with an expectable return of 13% or better on book value and with a price which, in aggregate, approximates book value. Furthermore, I see no evidence that corporate managers turn their backs on 13% returns in their acquisition decisions because of replacement-value accounting considerations.
A second argument is made that there are just too many question marks about the near future; wouldn’t it be better to wait until things clear up a bit? You know the prose: “Maintain buying reserves until current uncertainties are resolved,” etc. Before reaching for that crutch, face up to two unpleasant facts: The future is never clear; you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values.
If anyone can afford to have such a long-term perspective in making investment decisions, it should be pension-fund managers. While corporate managers frequently incur large obligations in order to acquire businesses at premium prices, most pension plans have very minor flow-of-funds problems. If they wish to invest for the long term–as they do in buying those 20- and 30-year bonds they now embrace–they certainly are in a position to do so. They can, and should, buy stocks with the attitude and expectations of an investor entering into a long-term partnership.
Corporate managers who duck responsibility for pension management by making easy, conventional or faddish decisions are making an expensive mistake. Pension assets probably total about one-third of overall industrial net worth and, of course, bulk far larger in the case of many specific industrial corporations. Thus, poor management of those assets frequently equates to poor management of the largest single segment of the business. Soundly achieved higher returns will produce significantly greater earnings for the corporate sponsors and will also enhance the security and prospective payments available to pensioners.
Managers currently opting for lower equity ratios either have a highly negative opinion of future American business results or expect to be nimble enough to dance back into stocks at even lower levels. There may well be some period in the near future when financial markets are demoralized and much better buys are available in equities; that possibility exists at all times. But you can be sure that at such a time the future will seem neither predictable nor pleasant. Those now awaiting a “better time” for equity investing are highly likely to maintain that posture until well into the next bull market.
Editor’s Note: This editor’s note accompanied the original publication of this article:
Warren Buffett is a down-to-earth man of 48 who prefers to operate out of his native Omaha rather than in the canyons of Wall Street, but the pros regard him as possibly the most successful living money manager, a direct descendant of the legendary Ben Graham under whom he studied. Buffett made a fortune for himself and his clients in the Fifties and Sixties but threw in the towel in 1969 because he could no longer find bargains. Then in late 1974, when the Dow Jones industrials were below 600 and the air was thick with doom, he told Forbes: “I feel like an oversexed man in a harem. This is the time to start investing.” Within months, the greatest rally in history began, with the DJI running almost 450 points in a bit over a year. What does Buffett think now? In this article, he puts it bluntly: Now is the time to buy.
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