401k is so Important

You have probably heard 401k accounts mentioned before and have noticed that they're a popular method for saving for retirement. But with so many options out there today for you to save for retirement, why are these accounts so popular? The reasons below help summarize how these accounts are built with your success in mind, and why they're such an important part of your retirement savings plan.

-- #1 They're extremely easy, both to set up and to maintain. You set up your account through your employer and choose from a set of plans how you'd like to invest. The plans are made up of stocks, bonds, money market accounts and other investments. They're usually grouped together by the level of risk they represent-there will be plans with higher levels of risk and higher returns, or plans with lower levels of risk and lower returns. You choose the plan that you think will work best for you and adjust when you see fit. You decide how much of your income you'd like to invest and that amount will be taken out of your paycheck before taxes are taken out and invested without anything else required from you.

-- #2 The 401k contribution match from your employer. This match is the primary reason these accounts are so important. Some employers don't offer this option so you'll want to check with your plan provider. Basically how they work is that your employer will offer to match your contributions up to a certain percentage of your income. So, if you contribute three percent of your income to your account your employer will also contribute that amount of money. This is a great benefit you won't be seeing anywhere else.

-- #3 Your contributions are traditionally taken from your pretax income. This means, among other things, that some of the money you would have been spending in your taxes is now being invested and earning you returns each year until you reach retirement. You will pay taxes on this money when you withdraw it in retirement, but until that time this money is working for you.

-- #4 Because if you don't plan for your retirement, who will? I think this one speaks for itself.

Hopefully now you can see why your 401k is so important. Remember that no matter what you decide to do, the most important thing is simply not to ignore it and do something to save for retirement.

Can I Withdraw Funds

You cannot withdraw funds from your 401k at any time, this is done for a number of reasons, mostly to protect your retirement savings. There are only two real times you'll be able to take money from your account-when you've reached retirement age, or for a brief period immediately after you've left a job. There are penalties, however, for taking funds from the account before you reach retirement age that will really take a large cut out of your savings. This is something that needs to be considered very carefully.

You can withdraw your funds normally after you reach retirement age, which is 59 years and 6 months old. You will have to pay taxes on these withdrawals, but that is because with a traditional 401k account your contributions were made from your pretax income-meaning that you put off paying the taxes on your earnings until making these withdrawals in retirement.

If you decide to take a payout before that time, when you've just left a job, you will have to pay both federal and state taxes, and a ten percent early withdrawal fee. This is a heavy price to pay, depending on what your percentages are it can add up to thirty to forty percent of your withdrawal total. Not only are you losing that money, but you're also losing the money this would have earned for you until you reached the point of retirement. Any financial expert you talk to will recommend you find some other way to secure funds than to take money from your 401k early because of these fees.

After careful consideration if you decide this is still what you need to do you'll want to get started immediately after you leave your employment. The company you worked for will hold twenty percent of what you withdraw for the penalty and taxes, and at the time you do your taxes at the end of the year you'll be responsible for paying whats left of what you owe on that withdrawal in your taxes, so make sure you save some of it for that.

Taking an early 401k withdrawal is a serious decision to make that will need to be carefully thought out and then planned for with your budget.

Trade Safely without Stops

Trade Safely without Stops?

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By: Jay Leavitt Phd Email Article

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I participate in a large investment club. Many of the members have been struggling to preserve their hard earned retirement funds. Almost all have moaned and groaned as soon as the subject changes to stops. Every member is concerned with previous threats to their investment accounts: Desert Storm, Bosnia, 9/11, Too Big to Fail.

Great Stocks?

Many of the members have invested in great stocks only to watch their value decline: Enron, Citibank, General Motors, General Electric, Cisco, AIG, Lehman Brothers, Filenes Basement, SGI, Bennigans Restaurants, Six Flags. The list is nearly endless.

What caused The Collapse?

The reasons why a stock falls in price are similarly endless: The CEO just sold 150,000 shares; A reasonable forecast was met yet, the stock price crashed; The SEC has subpoenaed the CFO; Consumer confidence is down; Paid a nice dividend, but the price fell even further; Record earnings and the stock still fell.

Everyone appears to hate protective stops and with good reason: I was the only trade at that price; I had a 10% stop-loss, but I was closed out with a 20% loss; If I had a 10% Trailing Stop, I would been closed out too soon, if the stop was at 20% I would sacrifice too much profit.

No Need for Stops

Both SSO and SDS are leveraged 2:1. If there were a justification for stops, this test would be the proof. The test ran from September 2007 through January 2010, starting during the time period when SSO and SDS first became available. There were almost 79% winning trades with an Average Annual Rate of Return [ARR] over 34%. Next, I ran comparable tests on the Nasdaq 100, Mid Cap 400, and Russell 2000, still using the SPXTimer. The largest losing trade for any of them was 21.64%. Each had over 70% winning trades and even higher ARRs. No optimizing was done to the SPXTimer.

On May 6, 2010 the DJ Industrials plummeted 1000 points in under 1 hour. Any Stops you had in place that day would have been executed. The price you would have received would have been far beneath your Stop price. Later the same day, the market rebounded. You would have fared better without Stops.

No wonder why the members growl!

There is a huge difference between trading stocks and broad based indexes. Clearly, it is possible to make much more money with stocks; but, you can also lose more. How many of you have lost money after listening to Cramer or following the tips in a newsletter? How many of you have lost money after buying a stock you believed could not drop any further?

When it comes to investing, singles are easier than home runs -- and they can end up being more profitable. I am referring to broad based indexes. The S&P 500 is an index, obviously of 500 stocks; the Russell 2000 follows 2000. If the CEO of one of their stocks was indited, it would hardly make a ripple in the price of the index. I am not suggesting the price of an index will not fall if there is bad news. But, trading these indexes is the first step toward minimizing risk.