One of the basic criteria for the perfect investment is the ability to shelter your profits from taxes. If you can compound your money without having to pay taxes on it every year, you’ll become wealthier much quicker.
Normally investments like stocks, mutual funds and CDs are subject to taxes. But stocks and mutual funds can be sheltered from taxes by investing in retirement plans. Plans like a 401(k) or an Individual Retirement Account (IRA) avoid the tax hit when you put money into the account where it can grow tax-free until retirement. At that point, you must pay taxes on the withdrawals. However an account like a Roth IRA is the opposite. You pay taxes on the deposits, but the withdrawals are tax-free. Not only that, you need not wait until retirement either. After 5 years you can withdraw your deposits (but not the gains accrued) without penalty or taxes.
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Posted in Investing on Mar 11th, 2007 2 Comments »
There really isn’t any perfect investment, but you still need to know the characteristics of an ideal investment. Here’s the 5 basic criteria to look for.
- High rate of return:
A compound rate of return that outperforms inflation, taxes, and other investment alternatives. If you buy a business or stock at a cheap enough price, it increases the possibility of getting a greater return.
- Safety
You want to be sure that your investment is safe and there is minimal chance of loss.
- Good Liquidity
You should be able redeem the investment for cash at any time, without fear of penalty.
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Posted in Finance, Investing on Mar 1st, 2007 5 Comments »
Most of us have received checks in the mail from our credit card companies. Often these carry very low fees and 0% interest rates, sometime for as long as a year.
Some people have figured out a way to use this to their advantage. They borrow the money at a low rate and invest it at a higher rate, thus engaging in ‘arbitrage’.
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