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Education Articles

The SBA Offers Many Free Services for Businesses

January 31, 2010 | Education | Videos | No Comments
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If you are starting a business the U.S. Small Business Administration (SBA) can help you get a mentor, write a business plan, finance start-up, buy a business or franchise, lease equipment, protect your ideas, and a whole host of other services.

If you own a business the SBA can help you to make decisions, manage employees, market and sell, pay taxes, get insurance, forecast, finance growth, etc.  The SBA can even help you to eventually sell your business, transfer ownership, liquidate assets, and file bankruptcy.

Some of the most requested items from the SBA are getting a business loan, business grant, business license, tax identification number, business certified as woman or minority owned, etc.

Many existing large companies started out with help from the SBA which include Stapes, Sun Microsystems, Apple, Jenny Craig, outback Steakhouse, Cray Research, Calloway Golf, Intel, Costco, Ben and Jerry’s, Nike, America Online and FedEx. (See video of the SBA Introduction above).

The SBA started in 1953 by the federal government as an independent agency help, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation. The SBA helps Americans start, build and grow businesses via an extensive network of field offices and partnerships with public and private organizations, SBA delivers its services to people throughout the United States, Puerto Rico, the U. S. Virgin Islands and Guam.

For more information visit SBA.gov.

Term Life vs. Whole Life Insurance

January 29, 2010 | Education | 3 Comments

The main two types of life insurance are term life and whole life, however, there is also universal and variable which are variations of whole life insurance.

Term Life

The difference between term and whole life is that term insurance covers you only during the life of the policy while you pay the premiums.  If you have a 30 year term life insurance policy, pay your premiums for 25 years but stop paying and then die, the policy will not pay.

There are three types of term life insurance:

Level Term allows you to pay a fixed premium up to 20 years.  This is a good deal because your premium will not change if your health changes for the worst and it protects you against the effects of inflation.

Annual Renewable Term gives you the option of renewing your policy regularly, however, at increasing premium rates.

Decreasing Term steadily decreases your death benefit.  This may make sense for people who have a family when they are younger and are the breadwinner. As they grow older into retirement with adult children and a nest egg, they don’t need a large death benefit.

Whole Life

Whole life insurance is designed to cover people for their entire life.  Whole life charges a fixed premium each year and is typically higher than term life.  The advantage sold by many insurance companies is that part of the premium resides in an account that pays interest and accumulates a cash value.  The remainder of the premium covers term insurance. As the accumulation of cash grows in a whole policy the premiums can decrease and can eventually pays the premiums.

Unfortunately, whole life insurance tends to pay low interest rates to policyholders, while the insurance companies earn a much higher return because they invest the money in stocks and bonds.  As an investment whole life insurance isn’t desirable to most.

Universal Life

Universal life is a form of whole life insurance that combines term insurance with a savings feature which is invested in a tax-differed account.  In years when the insurer earns more on policyholders’ accumulation accounts than promised, they pass along the extra gain to policyholders.  This may sound good, however, in some situations, customers can end up paying more than they expected because of overly optimistic assumptions insurance companies make about customers returns.  

Variable Life

Variable life is also a form of whole life insurance that has a cash value that is invested in equity or debt securities.  Policyholders can change and select different investment instruments.  The insurance company guarantees a minimum death benefit amount, however, policyholders bears the risk of the securities investment.

Below is a chart comparing term, whole, universal and variable life insurance policies.

The 10 largest insurance companies are listed below:

American International Group
Berkshire Hathaway
UnitedHealth Group
WellPoint
MetLife
Allstate
Prudential Financial
St. Paul Travelers
Aetna
Hartford Financial Services

Relevant Post: Get quotes for life insurance policies

Video: How to Calculate Debt to Equity Ratio

November 11, 2009 | Education | No Comments

Below is a video of How to Calculate Debt to Equity Ratio, compliments of Investopedia.

Take Control of Your Investing with myWealth.com

October 20, 2009 | Education | No Comments
mywealth

Knowledge is power! If you are looking to increase your knowledge about investing, currency trading, stock trading or EFT trading, you may want to consider myWealth.com online courses and investor forum.  The courses are available 24/7 with instructors to answer questions each business day (8AM-6PM Monday to Friday).

The courses are taught via an online forum where you can read the lessons, view videos and ask questions of any lesson. Instructors are monitoring the forum throughout the day and respond quickly.

myWealth.com was founded in 2008 and was created to help investors from around the world take control of their portfolios by mastering the fundamentals of key markets.

The Investing 101 Course ($99) Syllabus:

  • Lesson 1: Establishing Goals
  • Lesson 2: Matching Risk to Your Personality
  • Lesson 3: Adopting a Strategy
  • Lesson 4: Evolving Markets and the Global Economy
  • Lesson 5: “Do I Need a Broker?”
  • Lesson 6: Fundamental & Technical Analysis
  • Lesson 7: Learning the Lingo
  • Lesson 8: Avoiding Common Mistakes
  • Lesson 9: Investing Like Warren Buffet


The Currency Trading Forex Course ($99) Syllabus:

  • Lesson 1: Introduction to Forex
  • Lesson 2: What moves the market?
  • Lesson 3: Correlations between markets
  • Lesson 4: When to Get In & Out of Trades
  • Lesson 5: Forex Trading Like a Pro
  • Lesson 6: Analyzing Market Indicators
  • Lesson 7: Spotting Trading Opportunities
  • Lesson 8: Smart Money Management

 

The Stock Trading Course ($149) Syllabus:

  • Lesson 1:   Ways to Trade Stocks
  • Lesson 2:   Types of Orders
  • Lesson 3:   Types of Brokers
  • Lesson 4:   Time Frames for Investing
  • Lesson 5:   Selling Short
  • Lesson 6:   When to Buy a Stock
  • Lesson 7:   Sectors
  • Lesson 8:   Advanced Strategies
  • Lesson 9:   Technical Analysis
  • Lesson 10: Fundamental Analysis
  • Lesson 11: Risk Management
  • Lesson 12: Future Trends

 

The ETF Trading Course ($149) Syllabus:

  • Lesson 1:   Introduction to ETFs
  • Lesson 2:   Diversification
  • Lesson 3:   Portfolio Allocation
  • Lesson 4:   Long–Term vs. Short–Term
  • Lesson 5:   Fundamental Analysis
  • Lesson 6:   Technical Analysis
  • Lesson 7:   Avoiding Pitfalls
  • Lesson 8:   Risk Management
  • Lesson 9:   Best & Worst Performers
  • Lesson 10: Think Like a Hedge Fund Manager
  • Lesson 11: Hedging
  • Lesson 12: Advanced Strategies

 

For more information visit myWealth.com.

What is a Reverse Mortgage?

April 10, 2009 | Education | Mortgage Loans | Videos | No Comments
reverse-mortgage

A reverse mortgage is a type of home loan that lets you convert a portion of the equity in your home into cash. The equity that has built up over the years in your home can be paid to you. Unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. You are still required to pay your real estate taxes, insurance and other conventional payments like utilities.

The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home. The older you are, the more valuable your home is, the lower the interest, the more you can borrow. You can use an online calculator on the AARP website to get an idea of what you may be able to borrow.

You can be paid from a reverse mortgage in 4 ways: 1 – get cash all at once; 2 – a monthly cash advance 3 – a creditline which lets you decide when and how much of your available cash is paid to you; 4 – a combination of these payment methods.

To qualify for a reverse mortgage in the United States, you must be at least 62 years of age.  There are or credit or minimum income requirements, however, there are other requirements that homeowners must make sure they qualify for before they invest significant time or money into the process. You must also reside in the home. Some types of dwellings do not qualify such as mobile homes, however, condominiums and manufactured homes that meet FHA requirements may be eligible.

With most reverse mortgages the money can be used for anything, however, the borrower must pay off any existing mortgage(s) with the proceeds from the reverse mortgage and, if needed, additional personal funds.

Before proceeding with a reverse mortgage, applicants have to seek third party financial counseling from a source approved by the Department of Housing and Urban Development (HUD). The counseling ensures the borrower completely understands what a reverse mortgage is and how it’s obtained.
 
You can contact the Housing Counseling Clearinghouse on (800) 569-4287 for the name and telephone number of a HUD-approved counseling agency and a list of FHA-approved lenders within your area.

For more information visit hud.gov.

Video:  Reverse Mortgage

What is a Mutual Fund?

April 1, 2009 | Education | No Comments
mutual-funds

A mutual fund is an investment instrument where hundreds or thousands of people pool their money to create a portfolio of securities, which includes stocks, bonds, real estate, and other securities.  Each investor in a mutual fund owns a percentage of the fund.

Mutual funds enable investors to easily and cheaply own a diversified portfolio of securities.  This allows investors to own a diversified portfolio for much less than it would cost them to buy the individual securities.  

Most mutual funds require a small investment of a few hundred dollars to a few thousands dollars. Additionally, because mutual funds are diversified with hundreds or thousands of securities they tend to not fluctuate wildly when compared to owning a small amount of individual stocks, thus making them less risky.

Mutual funds are typically run by Mutual Fund Managers who determine what security to purchase and when to buy and sell these securities.  The investor pays the Mutual Fund Managers via fund fees to make these day-to-day decisions.

There are hundreds of mutual funds categories to choose from.  Some categories are as follows:

  • Growth funds – invest in stocks of growing companies.
  • Aggressive growth funds – invest in stocks of fast growing companies.
  • Sector funds – invest in stocks of companies in a specific sector like technology or healthcare.
  • Index funds – invest in stocks of every stock in a particular index, such as the S&P 500.
  • Bond funds – invest in shares of government bonds, high-yield bonds (A.K.A. junk bonds), or municipal bonds.
  • Value funds – invest in stocks that are cheap based on earnings to the price of the stock.
  • Large-cap value funds – invest in stocks of large companies whose share prices are selling at discounted prices.
  • Small cap value – invest in stocks of small companies (usually with market capitalization of less than $1 billion) that are ignored or unknown by investors.
  • Growth-and-income, equity-income, and balanced funds – invest in a combination of dividend-paying stocks and income-producing securities, such as bonds or convertible securities, which are bonds or special types of stocks that pay interest but can also be converted into the company’s regular shares.

 

Things to consider when buying mutual funds are:

  • Risk – Riskier funds may swing more in value depending on market conditions.
  • Expenses – Mutual funds charge a percentage of total assets, which will cost you money.
  • Taxes – Mutual funds that own dividend-paying stocks will issue dividends to the owners who have to pay taxes on these dividends.  Even if the fund declines in value, the owner is still liable to pay taxes on the dividends.
  • Performance – Past performance is no indication of future performance, however, looking at a funds past long-term performance gives a good indication of which funds may do well in the long-term future.  
  • Consider owning Index funds – Index funds mimic market benchmarks, such as the S&P 500 and are considered “passive” funds over “active” (or managed) funds because they have lower expenses and are more tax efficient.  Most active funds underperform the S&P 500 index.

 

Mutual funds can be purchased and researched online at a variety of online brokerage houses, such as E-Trade, Fidelity, Schwab, Scottrade, and Ameritrade.

What is an Annuity?

March 30, 2009 | Education | No Comments
annuity

An annuity is an insurance product that pays out income in a series of payments and is usually a part of a retirement strategy.  Investors who want to a steady income stream at retirement can purchase an annuity to accomplish this. Investors can use an annuity to complement other retirement income sources, such as Social Security and pension plans.

How does an annuity work?  
Money is invested in an annuity and at a future date or a series of future dates; the annuity makes payments to the investor. The income received from an annuity can be paid monthly, quarterly, annually or even as a lump sum.  Payments are determined by a variety of factors including the length of the payment period.

Types of Annuities
There are two basic types of annuities:

  • Deferred annuity – money is invested for a period of time until its ready for withdrawals, normally at retirement.
  • Immediate annuity – payments are received soon after the initial investment is made.  People approaching retirement age usually do this.

 

A deferred annuity accumulates money while an immediate annuity pays out. Deferred annuities can be converted into immediate annuities when the investor wants to start receiving payments.

Annuities can also be fixed or variable.  This depends on whether the payout is a fixed sum, tied to the performance of the overall market or group of investments, or a combination of the two. Payments can be received for the rest of the investor’s life or for a specified number of years. Payments can depend on whether the investor opts for a guaranteed payout  (fixed annuity) or a payout stream determined by the performance of the annuity’s underlying investments (variable annuity).  Variable annuities are normally invested in mutual funds.

Tax Benefits
Money invested in an annuity grows tax-deferred.  When withdrawals are made, the earnings are taxed at the owner’s income tax rate; however, the amount you contributed to the annuity is not taxed. This is the biggest benefit to annuities.
 
Advantages
Unlike other tax-deferred retirement accounts such as a 401k and an IRA, there is no annual contribution limit for an annuity. This allows investors to deposit more money for retirement, and is useful for people close to retirement who need to catch up.

Disadvantages
The main disadvantage of annuities is that they normally have very high fees.   Often there are hidden fees that can cut into profits.  Anyone considering an annuity should thoroughly research it first before deciding whether it’s an appropriate investment.

Annuity fees include:

  • Commissions – Most annuities are sold by insurance brokers or sales people who can get paid up to 10% in commissions.
  • Surrender Charges – Annuities have surrender chargers, where the owner has to pay to take money out of an annuity for the first several years.  The surrender charge normally costs about 7% of an annuity value if money is taken out after 1 year and will decline 1 percentage point a year unit it reaches zero.  Some annuities can have surrender charges of up 20% for the first year.
  • Annual expenses – Variable annuities have high annual expenses, which can cost 1.25% or more.  Additional annual expenses includes:
  • Annual investment management fees can range from 0.5% to over 2%.
  • Insurance rider fees can range from 0.6% or more.

 

Not all annuities have high annual fees by not charging a sales commission or a surrender charge. These are called direct-sold annuities because they are sold directly by traditional insurance companies and not through an insurance broker so there is no need to pay a commission. Companies that that sell low-cost annuities include Schwab, T. Rowe Price, Ameritas Life, Fidelity, Vanguard and TIAA-CREF.