Wealth e book

S U C C E S S S T R A T E G I E S

5WEALTH BUILDINGSTRATEGIESWEALTH BUILDINGSTRATEGIES

HEADLINE– F I N A N C I A L S U C C E S S 2 0 0 7 P R E S E N T S –


WEALTH BUILDINGSTRATEGIES

MAXIMIZING YOUR PERSONALFINANCIAL PERFORMANCE


PUBLISHER’S NOTE: This publication is designed to provide competent and reliable information regarding the

subject matter covered. However, it is distributed with the understanding that the author and publisher are not

engaged in rendering legal, financial, or other professional advice. Laws and practices often vary from state to state;

and if legal, financial, or other expert assistance is required, the services of a professional should be sought. The

publisher specifically disclaims any liability that is incurred from the use or application of the contents of this book.

Wealth Building Strategies—Maximizing Your Personal Financial Performance

Published by Financial Success 2007

4710 Eisenhower Blvd., Suite B-5

Tampa, FL 33634

www.financialsuccess2007.com

This book or parts thereof may not be reproduced in any form, stored in a retrieval system, or transmitted

in any form by any means—electronic, mechanical, photocopy, recording, or otherwise—without prior

written permission of the publisher, except as provided by United States of America copyright law.

ISBN-10: 1-934225-04-5

ISBN-13: 978-1-934225-04-2

Copyright © 2007 by Financial Success 2007, Get Motivated Seminars, Inc.

All rights reserved

STOCK MARKETSTRATEGIES


TABLE OFCONTENTS



TABLE OF CONTENTS

Introduction 7

SECTION ONE: Financial Goals and General Principles of Wealth 9

Financial Goals 11

General Principles of Wealth 22

SECTION TWO: Personal Finance Basics 33

Savings Accounts 35

The Power of Compounding Interest 42

Insuring Your Family’s Future 46

SECTION THREE: Investing to Increase Personal Wealth 103

The Stock Market 106

Building an Investment Portfolio 124

Taxes 145

Protecting Your Wealth 157

Glossary of Personal Finance Terms 173

Worksheet for Financial Goal Setting 203

Budget Worksheet 204

Daily Expense Tracking Worksheet 205


INTRODUCTION

Every great athlete, musician, professor, or mentor must master the basictechniques of their chosen art or passion before branching out into moreadvanced techniques and methods. The exact same philosophy is true

when dealing with personal financial matters. It is important to learn how tobuild personal wealth through various methods including smart choicesinvolving saving, real estate investments, stock market investments, and otherinvestment vehicles for building personal wealth, but first, you must master thebasic techniques for managing money and building personal wealth. The pur-pose of this report is to help you to build a sound knowledge of the basics andventure into some of the sound vehicles you can use to build personal financialwealth so that you can lay a sound foundation for your family’s and yourwealthy future. Everyone, no matter how much your income or how small yourincome, must be conscious of their personal finances and work toward build-ing a bright financial future.

The concepts in this report will work for you regardless of your age or theamount of money you make, enabling you to build personal financial securityand personal wealth. There are no magic tricks, just sound financial concepts tohelp ensure your future ability to live the lifestyle you desire for yourself andyour family and to even leave a legacy for your children and their descendantsafter your passing.

By reading this report, you will learn how to establish financial goals and how toachieve them.The most common and most successful financial investment vehi-cles for building wealth are explained so that you can fully understand how to usethese methods to increase and protect your personal wealth.

We’ll show you how to break large goals down into manageable, achievable goals.We’ll show you how to track those goals and how to stay on track toward achiev-ing those goals. We’ll even show you how to adjust your goals as your situationchanges to help you reach your financial dreams.

After reading this report in full, it will be time for you to implement the conceptsthat will put you on the road to building true personal wealth. Follow that road,and your assets and wealth will continue to grow.



INTRODUCTION


SECTION ONE:FINANCIAL GOALS

AND GENERALPRINCIPLES OF

WEALTH

Introduction to Financial Goals and General Wealth Principles

In this section of this report, you’ll find information about financial goals andhow to establish these goals for you and your particular financial situation.

You’ll also learn about general principles of building personal wealth.

You’ll learn basics in this section and, to go with these helpful facts, you’ll find aset of worksheets to help you establish a family budget, personal financial goals,and help you establish your goals and build your personal wealth.


SECTION ONE: FINANCIAL GOALS AND GENERAL PRINCIPLES OF WEALTH


FINANCIALGOALS

Many people today live from pay-check to pay-check.When asked, theyrespond that they do not make enough money to save any money andthat they certainly do not earn enough money in order to permit them

to invest any money into stocks. Another common response is that they believethey are too old to start saving or investing now and because that isn’t enoughtime for those savings or investments to build up into enough money to proper-ly fund their retirement years. The truth of the matter is that anyone can man-age their personal finances in such a way that they can save money on a regular,disciplined basis, invest money into wise investment choices and, thereby turntheir money into even more money. This is the way people become millionaires,and this is the way that people can build true personal wealth and financialsecurity. It is also a fact that no one is too young or too old to begin saving and



FINANCIAL GOALS

managing their personal finances in ways that will provide for a brighter future.Anyone can and should set financial goals. Even if your goal is not to become amillionaire, you certainly should have financial goals that set your sights onbecoming financially secure and preparing for your financial future and thefuture of your family.

Everyone, no matter how large or small their income, makes enough money toinvest in their future wealth.Too many people feel this isn’t true because they tendto spend money whenever and wherever they see something they desire at thatparticular moment without any thought of their real, long-term goals. They sim-ply keep putting off until tomorrow what they need to be saving today. They tellthemselves they will put aside some money next week or next month, but soon-er than later it is next year or many years later. Instead, everyone should realizethat even small savings, when managed correctly, can ultimately grow into realwealth.Today is the day to begin creating a better financial future for yourself andyour family.

Financial goals are very much like road maps that show you the pathway fromwhere you are today to where you wish to be in the future.Like a road map, if youget off the best course, you must get back on the pathway defined and continueyour journey toward your goals. No one is perfect, and if you should happen toventure from your defined path, which you probably will from time to time, sim-ply turn around, get back on the pathway you defined, and continue workingtoward reaching your dreams. Learn from your mistakes, and promise yourselfnot to repeat your errors when you do drift from your personal financial goals.You will find yourself a much happier person as a result.

Financial goals can seem daunting if the goals are looked at as only a single verylarge goal. Perhaps you have a goal of having one million dollars in savings whenyou retire. That number seems awfully large and intimidating when you look atit alone. If you thought of it as only a single, big goal, it might make it difficult for



FINANCIAL GOALS

you to begin saving because you feel intimidated. Instead, you should be takingsmall, manageable steps to achieve large, specific goals. You must realize thateveryone who has retired before you with one million dollars in savings began byplacing that first dollar into savings,keeping it there over the long term,adding toit on a regular basis, and building their wealth over time.

Financial goals can be viewed in many different ways. You can set short-termgoals, which can be achieved in weeks or a few months.You can set longer rangegoals, which cover a year or more. You can set very long-term goals that coveryears such as preparing for retirement or even beyond retirement toward leavinga heritage or legacy for your children, grandchildren, and even great-grandchil-dren to enjoy. No matter how you look at your personally chosen financial goals,



FINANCIAL GOALS

if you set goals, track your progress toward achievements, and adjust your goalsperiodically to meet your changing situation, you will obtain the wealth youdesire. The advantage of setting goals is that you will have a plan to work towardrather than working in the dark, hoping things work out for you. Failing to planis said to be the same as planning to fail. This applies to personal finances asmuch as to any other type of projects that you might become involved in; perhapsit is even truer when applied to money.

In order to generate personal financial wealth, you have to become passionateabout setting and achieving financial goals. If you must, think of your personalfinancial goals as hard milestones so that you will strive to achieve them. If youmaintain a mindset that nothing whatsoever has the ability to stop you fromachieving your goals, you will find yourself progressing steadily toward financialwealth. Let nothing stop you from achieving your financial goals.

In order to set financial goals,you must think about what you want your life to bein the future.You must look at where you are today and where you want to be inthe future based on the money you have to work with. What do you want yourfinancial position to be in five years? Where do you want to be in ten years?Twenty years? How much money do you want to have when you retire? What sortof inheritance would you like to leave for your family when you leave this world?

You certainly are already aware that you have income and expenses. You shouldalready have a budget in place, but a surprising number of people do not use thisessential tool. If you do not have a budget, now is the time to create one by sittingdown with your family and determining how to use the money that comes intoyour hands.If, on the other hand,you already have a budget in place but you findthat every month you just barely making ends meet, it is time to throw that budg-et away and start over by creating a budget that will support your financial goalsas well as meet your current needs by adjusting how the money is spent.



FINANCIAL GOALS

Financial goals are different for different people because of differing circum-stances and differing desires. There is no set of goals that will work for everyone.You must examine your life and your desires, determine what you want yourfinancial future to become, and set goals accordingly. Although you can seekadvice from a professional financial counselor regarding how to meet your goalsonce you know what your financial desires include, this is something that no one

else can do for you and your family. You may also find the advice of a financialadvisor essential in figuring out how to reduce your debt burden if you have beenoverusing credit cards or other debts and are now paying high rates of interestthat could better be used elsewhere.



FINANCIAL GOALS

If you have children, your goal may be to have enough money to provide them aquality education while still having enough money to retire comfortably. Anotherperson might have a goal of retiring early and enjoying life without having towork every day. Still another person will have another answer to the questions ofwhere they want to be financially at certain periods in their lives. The one thingeach of these people has in common and every person who wants to have soundpersonal finances is the need to set aside money for the future and allow thatmoney to grow, untouched, until their goals have been reached.

How to Set Goals

When setting goals for most situations, such as your career, you first set short-term goals that support long-term goals. With personal finance, you want tolook at your goals more or less in reverse order. First, you need to determinewhere you want to be financially during your later years of life such as whenyou reach retirement and are no longer earning money from your career orbusiness. Then, you should allow these long-term goals to drive your goal set-ting for the near term. However, you still have to be sure your financial goalsallow you to meet today’s needs as well, so you do have to look at that as well.It would not make good sense to set a financial goal to save x dollars if thatgoal means you cannot pay the mortgage payment on your home today. Afterall, your home is an investment and one of the biggest savings accounts mostpeople ever own.

You should obtain and utilize a dedicated notebook or perhaps a computersoftware application for setting and tracking goals. Write down your long-term goals that reflect where you and your family want to be in twenty or thir-ty or more years. Let's look at an example of a person who wishes to retire inthirty years with one million dollars in assets available during retirement.Thatgoal would reflect the long-term, ultimate goal. It can be achieved, and per-haps even more can be achieved, with dedication and the willingness to applyself discipline.



FINANCIAL GOALS

Next, look at your family’s debt load. Paying off debt as quickly as possible canallow you to save and invest money into growth vehicles to reach your goal.Paying high interest rates on credit cards will only keep you from achievingyour personal financial goals.Establish a goal for paying off all credit card debtand any other short-term debt as quickly as your income permits. Determinethat the money you have been using to pay these debts will, once the debts arepaid off, be placed into your savings and investments to accumulate wealth.Since you have been spending the money by sending it to credit card compa-nies, you’ll be able to pay yourself that same amount without even missing iteach month!

Set your own ultimate personal financial goal for yourself and your family, andwrite that goal down. Reflect on the goal, and keep it always in mind. Remindyourself daily of your goal, and remind your family members of the goal andthe benefits they will enjoy by working toward that financial goal. Know thatyou can achieve the goal if you focus on it daily. Never allow anyone to con-vince you that you cannot achieve your goals and dreams, because you trulycan if you only work methodically toward them.

Next, you must look at your spending patterns as well as the spending patternsof your family. Where does your spendable money go? For a period of oneweek, keep a spending journal and ask every member of the family to do thesame thing. Write down every single thing you spend money on during eachday. This list isn’t for including the expenses you have to pay for the householdsuch as electricity, mortgage, and water. It should be used for tracking yourpersonal, unplanned spending decisions. While your children may only havean allowance to account for, you want to note any extra money provided tothem from your pocket. You also want to ask your spouse to keep the sametype of spending journal in order to get a complete picture of how your fami-ly spends money to make this exercise most effective.



FINANCIAL GOALS

At the end of the week, sit down and study your expenditure journal. Youwill almost certainly see many things that are impulse purchases, moneyspent for things you didn’t really need and perhaps didn’t really want, ormoney spent for things you could have obtained in different ways at muchlower cost.

Sit down and look at your list carefully. If you purchase coffee on the way towork at a coffee boutique that charges four dollars for a cup of exotic coffee,and you do this every work day for ten years, you can save over twenty thou-sand dollars over that same ten years just by placing that four dollars per dayinto your savings! That’s a lot of money to accumulate from simply makingyour own coffee at home instead of buying boutique coffee.

Look at other expenses that are unnecessary or that can be provided for moreeconomically. Do you eat lunch in a restaurant every day? If you do this, couldyou cut back to eating lunch out to only two times each week and still be justas happy? Would once a week be sufficient to make you feel good and satisfied?The average lunch at a good restaurant, including something to drink and areasonable tip, costs at least ten dollars. If you choose to cut back from fivelunches out to one lunch out per week and you consistently place the moneyyou have saved as a result into investments or savings, over the course of tenyears you will have just gained over thirty thousand dollars in your savingsbased on calculating the savings to include compound interest over the peri-od of years.

Notice that only two really very minor changes in lifestyle over a period of tenyears can have effectively put fifty thousand dollars into your personal sav-ings! Look for money you spend that isn’t necessary, and place that money intosavings instead of spending it on things that do not provide for the financialsecurity of you and your family. You’ll be truly amazed when you realize theamount and the places where your expendable cash is spent needlessly.



FINANCIAL GOALS

When setting your personal financial goals, you want to plan your expendituresand budget so that you do not feel deprived, but simply focus on cutting out theexcess expenses that really do not mean much to you and your family.If you takea family of four out to a nice restaurant to eat dinner every weekend, would youand the rest of the family members be just as happy and fulfilled if your familyonly ate out at this type of nice restaurant once per month and saved the moneyfrom the other weekend outings? Perhaps you would be happy if you chose lessexpensive restaurants but continued to go out regularly as a family outing.Determine what is right for you and your family to feel happy and fulfilled whilestill saving money. Choose the level of comfort that will allow you to save with-out feeling that you’re not living a full and happy family lifestyle today.You’ll beamazed at how much you can save by cutting out only a few things that havebecome habit and really do not add any real value to your life and the lives ofyour family.

Using the information you have gathered from studying your financial situa-tion and focusing on your long range goal, write down goals for the near termsuch as paying off credit cards within two years, saving money from unneces-sary expenses equal to a specific amount each week, and others that apply toyour situation.

When looking at the financial goals you are setting, do not think small. Insteadthink big—really big! Do you wish to retire in comfort and leave a legacy to yourchildren for their future? There is no reason that you can’t aim high with yourfinancial goals.After all,it is far better to set your goals high and come near reach-ing those goals than to set your sights low and achieve the goals too easily. It ismore meaningful to provide a challenge for yourself and your family.

Now that you have set some financial goals, keep in mind that you can changethem or adjust them at any time to better suit your changing needs as well as the



FINANCIAL GOALS

changing economy. As your family grows or family members reach maturity,your goals will certainly need to be reviewed and adjusted to reflect the changingsituation of your family life. If your or your spouses career situation changes, youshould again readjust your family’s financial goals to reflect those changes.During periods of unemployment or short-term disability, you may have tochange your financial road map for a period of time in order to adjust for thechanges in family income. Whatever you do, dedicate yourself to changing thegoals upward whenever possible rather than changing your goals downward,unless you must make a short-term change to reflect income changes due toshort periods of lowered income. Do not allow yourself or your family to becomevictims of falling into the pattern of spending part of your savings or liquidatingpart of your investments with the intention of putting it back later. It can be quitedifficult to ever return your investments and savings to the level you had before.Keep savings and investments intact so they can grow and allow you to reachyour goal of personal financial success.

At the back of this report, you’ll find worksheets to help you set a budget, trackdaily expenses, and set goals. Use these as you build your own notebook of goalsand follow your goals to reach your dreams.


FINANCIAL GOALS


GENERALPRINCIPLESOF WEALTH

Many people before you have accomplished personal financial goals thatallowed them to enjoy true personal wealth.All of these successful peo-ple followed some general personal financial principles that helped

them accumulate money and build wealth instead of spending money frivolous-ly.The following are some general wealth principles to help you plan your road topersonal wealth.

General Principle #1: Pay Yourself First

The vast majority of people who have achieved their financial goals say they haveaccomplished the task by paying themselves first each payday. By havingreviewed spending practices and identifying ways to cut back on nonessentialexpenses,the amount to apply to building personal wealth is set aside before pay-ing any of the other expenses. That money, no matter how large or small theamount, goes directly into a vehicle for savings.

In fact, the easiest way to save money toward your goals is to have direct payrolldeductions so that you never see the money. Many employers offer savings plansthat allow you to define an amount of money to be removed from your paycheckand placed into a savings plan or a choice of savings plans. The plans may varygreatly from employer to employer, but the common thread is the money thatnever reaches your hands is seldom missed.

If you do not use this type of savings plan, you must practice self-discipline byplacing a defined amount of money into an account where it will be held andnot spent. It is far too easy to spend money that is simply placed into yourchecking account. A passbook savings account is a good place to hold themoney until you are ready to invest it into investment vehicles that pay a muchhigher return rate. Whatever you do, don’t put that money that you’ve definedas savings into your pocket! It is too easy to spend without thinking about it ifyou hold the funds in cash.



GENERAL PRINCIPLES OF WEALTH

General Principle #2: Pay Off Credit Card Debt

First of all, the very best way to get rid of debt—credit card or otherwise—is toavoid accumulating debt in the first place. However, there are certain debts thatmust be incurred and we’ll discuss them later.

It can be so easy to pull out a plastic credit card and purchase something you seethat you don’t really need and perhaps don’t even want. With credit card interestrates as high as 21 percent annual percentage rate (APR), your purchase can endup costing you a great deal more than the amount on the price tag of that item. Itcan take years to pay off credit card debt if you pay only the minimum monthlypayment each month. The interest continues to grow and costs you more andmore over time.

Strive to pay off all credit card debt,beginning with the credit card that charges thehighest rate of interest. Consider transferring the balance from high interest credit




cards to credit cards that charge a lower rate of interest, making it easier to pay offthe balance quickly. Get rid of any credit cards that charge annual fees.

Study the payoff plan you intend to use for getting rid of your credit card debt.At Feed the Pig (http://www.feedthepig.com), you’ll find a handy calculator tohelp you create a credit card payoff plan. Using an example, if you have $2,000in credit card debt on a card that charges 17.5 percent APR, if you stop charg-ing anything new and the card does not charge an annual fee, payments of only$99 per month will get your balance paid in full within 24 months. Of course,the more you can pay, the faster the debt will reduce. Calculate differentamounts, find the best payment plan for you,and place that debt reduction pay-ment into your monthly budget.

If you are the type of person who has five or six credit cards, choose a single lowinterest rate credit card and use it only in emergencies.As the other accounts arepaid off, cancel the credit card. There is no need to have more than two low inter-est rate credit cards at the very most,and you should never charge more than youcan pay in full each month.

Be aware of and cautious about “teaser” offers provided by some credit cards,most often department store charge cards. An example of this type of teaserincentive is a card from a specific store where you shop that offers you thirty dol-lars in free merchandise the first time you use your new charge card. The prob-lem with these teaser offers is that you obtain the free merchandise but alsocharge an additional sum that incurs interest, often high interest rates, and youbecome tempted to charge more and more. Read these types of offers carefullyand understand them before you consider using these teaser offers or even beforeaccepting the new, usually unsolicited, credit card.

Also, be aware of and cautious about “teaser” rates offered by some major creditcards. It is not unusual to receive an unsolicited offer from a charge card compa-




ny that offers an amazing low interest rate. The questions you need to answer inyour research include:

● How long do you get this great interest rate?

● How soon after the initial low interest rate ends can you cancel thecard if paid in full?

● Are there any hidden expenses such as yearly fees to keep the card?

Whether these offers are good for you and your particular financial situation issomething you must determine individually. No hard and fast rule is true foreveryone. The rule you must follow is that knowledge is power, so learn all aboutthe offer before making any decision whatsoever.

Avoid adding to your credit card debt unless it is an absolute emergency. Nevermake purchases for food,clothing,or incidentals with your credit card unless youknow you can pay off the entire balance as soon as the bill arrives and are onlyusing the credit card as a means of compiling budgeted expenses on a charge cardso you can write one check and avoid carrying cash or writing multiple checks.

Seek out a credit card that offers a zero interest rate as long as the card is paid infull each month.You may even find some credit cards that offer a zero interest rateon balances carried forward for a short period of time and no yearly fee for thecredit card. Avoid maintaining any credit cards that carry a high interest rate orthat charge a yearly fee to keep the credit card.

If you are offered a credit card with a purchase incentive such as free merchan-dise, find out if you can use the special offer and then cancel the credit card with-out penalty. If this is possible, you might find yourself in a position to get a reallygood deal on a purchase you already wanted or needed. Be certain, before mak-ing that purchase, that you can cancel the credit card and are not forced to keepthe card after using the special incentive benefit. If you find that you can obtain




free merchandise or deeply discounted purchases on items you already have bud-geted, this can be a great way to obtain your budgeted merchandise at less thanthe price you had budgeted. Just be sure to use prudence and read all the fineprint before making the purchase!

General Wealth Principle #3: Invest Money in GrowthOpportunities

Initially, you may want to save money in regular savings accounts. However, tomake your money grow, you need to invest in the opportunities that offer thelargest growth potential to maximize the increases offered by compounding.Don’t stick your money under a mattress; instead find the best investment oppor-tunities and put your money into these wealth-generating vehicles. We’ll lookmore closely at the investment growth opportunities in a later section of thisreport.

General Wealth Principle #4: Small Amounts Add Up to BigAmounts

Perhaps you think you don’t have enough income to save sufficient funds to tie upany of your money in lucrative investments.This is completely untrue.Even if youhave only a small amount of investment money with which to begin, you canmake a start and keep adding to that initial investment. You will be amazed athow your personal financial situation will change as you continue investing inyour future on a regular basis. Even a few dollars each week can be grown into alarge retirement fund if you are consistent in saving.

General Wealth Principle #5: Start Immediately

Don’t put off until tomorrow what you should be saving today. Even if you onlyhave a few dollars, that can be the start of a lucrative investment. Give up onesmall but unnecessary item each day or each week,and place that money aside assavings. It will grow and before you know it, you’ll have the funds needed to get




involved with wealth-generating investments such as stocks,bonds,or real estate.The key is that you must start now—today.Waiting for next week,next month,ornext year will only ensure that you will have less personal wealth later than if youstarted right now.

General Wealth Principle #6: Don’t Allow a Set Back to Get YouOff Track

On your path to building personal wealth, you are certain to encounter some setbacks along the way. Perhaps a storm damages the roof on your home and you

need to spend money on repairs.Perhaps a medical emergency causes a set back.Whatever the reason for a set back in your savings program,accept it as a tempo-rary issue and jump right back on track, sticking with your defined savings plan.Before dipping into your savings and assets, however, determine whether there isanother way to take care of the problem without touching your principal savings.




Look for creative solutions. Can you get the problem solved with a “90-days-same-as-cash” plan? Ask questions and learn of available options before choos-ing how to handle the situation.

General Wealth Principle #7: Use Creative Savings Techniques

Some people feel saving is very difficult. If you feel you will have problems savingany significant sum, try some creative savings techniques. One woman who hadtrouble saving vowed never to spend a one-dollar bill. Instead,she placed them ina drawer until the stack reach one hundred dollars and then added them to hersavings account. When the account reached one thousand dollars, which onlyrequired a few months to accomplish, she moved the funds into a more lucrativeinvestment plan. By continuing her practice of never spending a one-dollar bill,she built up savings of over fifteen thousand dollars within only two years.A lit-tle technique like this can go a long way to building your initial savings so that youfeel more comfortable about your ability to gain true personal financial wealth.

General Wealth Principle #8: The Power of Compounding

When money is placed in an investment vehicle where it earns interest, the inter-est is paid to the account and becomes part of the principal on which the nextinterest payment is made. This is the magic of compounding interest. Moneyplaced in interest-bearing accounts or investments will grow because of thiscompounding.

Here’s an example of how compounding helps you increase your personal wealth.If you have $1,000 in a savings that pays 5 percent interest, compounded daily,and you add $1,000 per year for 20 years, you will end up not with $21,000 butover $37,000. That’s $18,000 more than if the money had simply been placed in abox or noninterest-bearing account.Increase your yearly additions to the accountto only $2,000 and you’ll have over $71,000 in 20 years. Of course, many invest-ments may pay a higher return on investment (ROI) than 5 percent,which wouldallow the savings to grow even higher in the same period.




General Wealth Principle #9: Give Something Back—The Powerof Tithing

People who have accumulated wealth are also people who give something back.Whether you tithe to your church,give to charity,or whatever meets your person-al beliefs and spiritual support system values, wealth always seems to come tothose who give something back.A good policy for giving is 10 percent, that beingthe traditional tithe you may have been taught as a child. Give back not only ofyour money but also of your time to those less fortunate than yourself.Teach yourchildren to do the same.

General Wealth Principle #10: Adjust Your Goals Upwards

As you find yourself moving toward goals you have set, review those goals peri-odically. Sit down with your spouse and look at goals that can be adjustedupwards. Perhaps you have enjoyed getting a raise. Could you better place thatmoney in savings rather than expanding your lifestyle? Are there more ways youcan stop “keeping up with the Joneses”and remain happy as a family? Adjust yourgoals upward, but never adjust them downward. Expect more, and you’ll receivemore!

General Wealth Principle #11: Choose the Debts Your IncurWisely

There are certain debts that are not only necessary but actually wise to incur.There are very few people who can purchase their primary residence without tak-ing out a mortgage loan. This is a wise form of debt, provided you select a mort-gage you can afford to pay on a monthly basis and you live in an area where realestate values are not declining.Some areas are experiencing declines in real estatevalue whether due to the economy or the neighborhood itself. Choose wiselywhere you select your residence on which to take out a mortgage loan because ittakes years to pay off the mortgage.




The reason this is a smart debt is that you will be making payments of a set amountthat build equity in your home rather than spending money on rent.Also, you willbe making payments on your mortgage in the future when the value of the dollarsused for payments may not be equal to the value of the dollars you spend today.

Real estate investments, whether for your own residence or for investment prop-erty are, in general, wise debts. They are not always the only wise debts to incur.Really big ticket items sometimes must be paid through loans or debt. Majorhome improvements, for example, that increase the equity in your property sig-nificantly, can fall into the area of a wise debt. Just be sure you carefully considertaking on debt for any reason whatsoever.

Sometimes emergencies must be dealt with by incurring debt. If a part of yourhome is seriously damaged or deteriorates badly and the insurance you carry doesnot cover that specific type of situation, you simply can’t allow the investment youhold in your property to decrease by allowing the property to deteriorate.

If you must obtain reliable transportation in order to commute to and from yourjob and your car has become so old that maintenance and repairs are extremelycostly, taking out a car loan might be a wise debt for your situation. Lifesavingmedical emergencies may require that you incur some debt to pay for that por-tion of the cost that is not paid by your insurance or health care coverage. Lowinterest student loans for education can be wiser than removing money fromhigh interest investments when your children need college funds.

A rule of thumb to consider in these situations is: if incurring debt at low interestallows you to keep investments that are paying a much higher rate of return thanthat which will be a direct result of the debt you are incurring,then the debt shouldbe thoroughly investigated and considered as a possible sound solution. On theother hand, if the debt you are thinking of incurring carries a much higher inter-est rate than your investments are currently paying and the expense causing you




to consider incurring the debt is crucial or extremely important to you and yourfamily or your life and the lives of your family,then you may want to seriously con-sider finding a lower interest means of financing or even consider removing somefunds from your investments to avoid incurring the high interest rate expense.

These situations and the possible solutions to resolve them must be studied care-fully and completely and made on a case-by-case basis. These situations andsolutions should also be discussed and determined with the assistance of yourfinancial advisor or unbiased financial counselor.

The general rule of thumb is to acquire as little debt as possible and, when youdo acquire debt, choose the debts you incur wisely. Do not incur debt forimpulse purchases or nondurable goods unless you can pay for the charges infull within thirty days.

Some people like to charge their daily and monthly necessities simply because itis easier to write a single check to pay off the total credit card balance each monthor because it provides a good means of tracking expenses for business needs.This can build your credit rating and doesn't have to cause you to pay largeamounts of interest if you pay the balance in full each month. In fact, if you haveselected a credit card carefully, you should not have to pay any interest or fees atall as long as you pay off the balance in full each month and pay it on or beforethe date the payment is due.This can be a smart move since it allows you to avoidcarrying cash for purchases and makes keeping expense accounts and otherfinancial records much easier. The key here is to avoid overspending by stickingto your budget even when charging to a credit card.




SECTION TWO:PERSONAL FINANCE

BASICS

Introduction to Personal Finance Basics

Now that you have established some personal financial goals, you need to look atthe basics of personal finance. Understanding savings, compounding interest,insurance, and other financial basics is crucial to ensuring you protect yourselfand your family.

The following chapters in this section of this report will focus on personal finan-cial basics that you need to understand in order to make sounds decisions for youand your family.

In this section of the report you will find information about:

Savings Accounts – Types of savings accounts available as well as the details andpotential benefits of each different type will be addressed in this section. Thesetypes of savings accounts should be discussed with your financial advisor beforedeciding which types are best for you and your particular financial situation, butyou still want to have a basic understand of what each type of savings methodoffers you as well as restrictions to watch for in the fine print.

Compounding Interest – This will help you understand how interest com-pounds in order to help your money earn even more money. This concept reallymakes a huge difference in your savings and investment balances so you willwant to understand how interest compounds to help your money grow.

Insurance – Here you will learn about the many types of insurance that can helpmake certain your family is cared for in various situations that you cannot con-trol. Included will be the various types of life insurance, home, auto, medical, aswell as benefits and details of each of these types of insurance.


PERSONAL FINANCE BASICS


SAVINGSACCOUNTS

Once upon a time, the only type of savings account commonly offered wasa passbook account.You were given a little book, and you brought it to thebank with your deposits. Each record was stamped into this little pass-

book, both deposits and withdrawals, always including a total balance in theaccount.

Today, there are many different types of savings account that are offered that canhelp you save. In order to choose the ones that are right for you and your person-al financial goals and situation, you need to be aware of all the choices.

Instant Access Savings

Instant access savings accounts, also commonly called regular savings accounts,are accounts that allow you to have ready access to the funds in the account. Thistype of savings account pays the lowest amount of interest but does allow you to



SAVING ACCOUNTS

get to your money should you need to at any time. These accounts can even bepart of your ATM card, allowing withdrawals 24 hours each day, 365 days peryear. The minimum required to open this type of savings account is usually verylow, some banks offer this type of savings with an initial deposit of only $50 or$100.The interest rate paid on this type of savings account fluctuates as the econ-omy changes and can go up or down in the rate of interest paid to the accountholder. Some of these accounts have daily interest compounding while otherscompound monthly or even yearly.

Use this type of savings account only for an emergency fund or as a holding placeto save up enough money to move into a better type of savings or investment.Youshould avoid placing the bulk of your savings into this type of account for twomajor reasons:

● The interest rate is lower than other types of savings account orinvestments

● Ready access allows you to spend the money without giving carefulforethought to your expenditure

However, this type of account is great to have on hand for holding the equivalentof one-month’s salary as an emergency fund. Once you build your balance tohigher levels, move the excess money into a better form of savings that pays ahigher interest rate.

These accounts, when opened with a banking institution, are insured by theFederal Insurance Deposit Corporation (FDIC) up to an amount of $100,000.This means that should the bank go bankrupt for any reason, such as those thatresulted from the 1920s’ stock market crash, the United States governmentinsures your money will be paid to you.



SAVING ACCOUNTS

Many banking institutions offer an automatic transfer from your checkingaccount each month to help you save money without thinking about it. However,you must be certain the funds are in your checking account at the time of thetransfer, so be sure this option is for you before establishing an automatic trans-fer. Overdraft fees usually do apply if the funds are not available for transfer onthe pre-set date.

Money Market Savings Accounts

Money market savings accounts are a way to get a higher interest rate than regu-lar, instant access savings, but still maintain easy access to your funds. With thistype of savings, the banking institution invests the money placed in their trust insecure investments, allowing them to pay a higher return to you. Usually, moneymarket accounts require a minimum initial deposit to open that is much higherthan an instant access savings account,often one thousand dollars. Interest earn-ings may be higher for larger balances. Often, banks offer the money marketaccount holder the right to write a limited amount of checks on this type ofaccount each month without penalty, but this varies greatly from institution toinstitution. You must be sure to fully understand the policies of any bank withwhich you are considering opening this type of account.

Money market savings can be a good next step up from regular savings once youhave built a balance greater than the minimum required for the minimum toopen a money market account.These accounts are also insured by the FDIC whenthe funds are held by a bank.

Investment firms also offer money market accounts which are not insured by theFDIC and therefore may have some risk.Those will be discussed later in this report.

Short-Term Certificates of Deposit

Certificates of deposit (CDs) are a type of savings where you deposit a sum ofmoney with a bank for a specified period of time at a set interest rate.Short-term



SAVING ACCOUNTS

CDs are usually considered to be any specified deposit length of one year or less.If money is removed from this type of account before the date of maturity, thepayoff date of the CD, a substantial penalty must be paid.

CDs that mature in as little as one month can be found, but most short-term cer-tificates of deposit are based on a three-month, six-month, or one-year maturity.On or after the date of maturity, the money can be removed from the CD withoutpenalty.You can also arrange for automatic rollover, which means that if you donot notify the bank you want the money removed from the CD without a specif-ic number of days before or after maturity, the money will automatically beinvested in another CD of the same type.

Certificate of deposit accounts usually require a larger initial deposit amount thanother saving vehicles, but you may find that your local banking institution offersshort-term CDs for as little as one thousand dollars. Some other banking institu-tions require a minimum of five thousand dollars or more for an initial deposit.

The short-term CD is a good way to earn a higher,defined interest rate on savingsthat you might need to have access to in the future without penalty. Just be cer-tain that you can leave the money in the CD until it matures or the penalty forearly withdrawal will result in earning even less return on your investment thanif you had held the money in your money market account. A good strategy forusing this type of CD is to purchase multiple CDs that mature on different dates,perhaps one month apart, so that you can gain access to funds reasonably quick-ly should the need arise.

Long-Term Certificates of Deposit

Long-term certificates of deposit are those that require your money to remain inthe interest-bearing account for a predefined period that is longer than one year.These CDs earn a defined rate of interest over the life of the CD, compounded asdefined by the account terms. The rate of interest is higher than for short-term



SAVING ACCOUNTS

CDs and with larger CDs the interest rate can be quite good. The interest rate onthis type of investment vehicle will not adjust should the average rate of interestbeing paid on other accounts increase—but it also will not decrease should theaverage rate of interest go down either.

These CDs offer secure savings when purchased through a banking institutionbecause they are FDIC insured. You know exactly how much the CD will growover the life of the CD and what amount will be paid to you at maturity. Usually,this type of CD requires a minimum deposit of one thousand dollars or more.

If purchased during a period of high interest, this can be a good vehicle for sav-ing for retirement, college for the children, or for a family legacy. You must becertain that the money will not be required during the entire life of the CD,whichcan be as long as twenty years, or you will have to pay a high penalty, negatingthe higher interest rate.Again, this type of CD can be great if you purchase sev-eral that mature on different dates, allowing your money to be available at stag-gered dates.

No-Risk Certificates of Deposit

A newer type of certificate of deposit that is being offered by some banking insti-tutions is the no-risk CD. These CDs require a large initial deposit in most cases,but after a short period of time, money can be withdrawn without penalty. Theinterest rate on these CDs can fluctuate with the economy,meaning that the inter-est can go up or down. The basic idea behind the no-risk CD is that the CD isactually a short-term CD that automatically rolls over without your having to doanything. These CDs, like all bank-issued CDs are FDIC insured.

Laddering Certificates of Deposit

One way to effective use certificates of deposit to your benefit is what is known as“laddering.” CD laddering applies the strategy of purchasing CDs of variousamounts with varying maturity dates. This strategy allows you access to money



SAVING ACCOUNTS

within a short period of time without penalty since one of your CDs purchasedwill mature soon.

Most people who elect to use CD laddering invest in several smaller, short-termCDs that mature at monthly or quarterly periods, and investment in severallonger term CDs that mature at varying periods such as every three to sixmonths.

If you choose to invest a part of your personal savings in CDs,this strategy makesit both practical and a way to take advantage of increasing interest rates. Wheneach CD matures,you have the choice to renew it at the then-current interest rate.However, if interest rates go down,the current rate at maturity is the rate that willbe offered to you for renewal.


SAVING ACCOUNTS


THE POWER OFCOMPOUNDING

INTEREST

Money placed in an account with compounding interest will growbecause you get to earn interest on the money previously paid to youinterest. This concept of compounding impacts so many investment

issues that it is important to understand as a basic of personal finance. It maysound quite complicated, but it truly isn’t that difficult to understand when it isbroken down and explained.

Simple Interest: The Opposite of Compound Interest

First, let’s look at the opposite of compound interest. Simple interest is verystraightforward and easy to understand. If you have $100 principal and someinstitution were to offer you an interest-bearing account that pays simple interestof 5 percent one time per year, you would, at the end of that year, have $105. Theformula to calculate this type of interest is very simple: simply multiple the prin-cipal amount, in this case $100, by the simple interest rate, 5 percent in the caseof our example. Then multiple by the number of times each year the interest ispaid, in our example this would be one because the example interest is paid onceper year to make the example simple to understand.

Now, clearly there is money being earned on the money held as a savings in thissimple interest example, but once you learn about compounding, you’ll quicklysee why this is not the best type of interest and you’ll want to earn compoundinterest on all your investments.

Compound Interest

When you place a deposit into an interest-bearing account of any kind that offerscompound interest, the money you placed in the financial institution’s trust willearn at a specified rate of interest that will be paid at specific periods of time.Once the interest is paid, it is treated as if it were part of the initial deposit and itbegins to earn interest. Therefore, your money is earning money on the moneythat has been earned in interest already!



THE POWER OF COMPOUNDING INTEREST

What can you expect of a compound interest account? There are accounts avail-able that provide interest compounding on a yearly, quarterly, monthly, weekly, ordaily basis.The very best of these choices is an account that provides compound-ing on a daily basis, maximizing your earnings.

The rates offered for compound interest rates vary based on the economy and thecurrent interest rates paid to account holders at your banking institution orinvestment firm.To get the best possible earnings,locate the highest interest ratesfor the type of deposit you wish to make. This amount can vary drastically, espe-cially between instant access savings accounts and long-term CDs. If you chooseto commit to the financial institution to keep your deposit intact, without with-drawals, for a long period, you can expect to earn a much higher rate of com-pounding interest than you will earn on funds deposited into an account that letsyou remove money at any time without notice.

To learn the current compound interest rates offered by the banking institutionyou are considering, check their web sites or telephone them and inquire. Rates




can change quite quickly, so be certain that you know the exact compound inter-est rates you will receive when you actually make deposits with your banking insti-tution and also find out how often the rates are subject to change if you are notchoosing a fixed-rate vehicle such as a long-term, fixed-rate certificate of deposit.

A Closer Look at Compounding and How It Works

Let’s break it down into very simple terms.If you have $1,000 and are paid 10 per-cent interest on that $1,000 compounding daily, then after a year you will haveearned $105.16. That’s $5.16 more than the $1,100 you would earn if the interestcompounded yearly.While this example is for a small amount to make it easy tounderstand,you can easily see how if the interest is being compounded on a sumof, let’s say, $100,000 each day, compound interest will really make your moneywork for you.While the rate of interest shown is simply to make the example sim-ple to follow, no matter what the current interest rate is on a compound interestsavings vehicle, your money will grow and grow.

Annual Percentage Yield (APY)

Annual percentage yield (APY) is a term used for the effective yield as a result ofcompound interest. The formula for calculating APY is a bit tricky. But there aremany handy online calculators for checking APY such as the one at Bank ofInternet (http://www.bankofinternet.com/interest-calculator.aspx). You simplyneed to understand that if you place funds into an account that pays 6 percentinterest but that interest is compounded daily, your APY will be 6.183 percent. Inother words, you will earn more than you expected due to compounding interestmaking your annual percentage yield higher. This is part of the magic of com-pounding interest rates.




INSURING YOUR

FAMILY’SFUTURE

Insurance is a topic that no one really likes to think about. However, it can bea necessity for ensuring your financial future. There are many types of insur-ance that will be presented here. Insurance, as a rule of thumb, is not some-

thing that is used for covering moderate expenses or losses. If your loss is only asmall amount, perhaps a few hundred dollars, insurance for that loss can costmore than the loss itself. However, large losses, natural disasters, loss of life orproductivity, and events that can truly impact the financial future of you or yourfamily are things you need to consider insuring against.No one wants to be forcedto spend all of their hard-earned savings in order to recover from a major loss.Neither do they want to find themselves without the means of recovering from amajor loss.

No one likes to think of a time that you or your spouse will no longer be living.However, it is a fact of life that people do pass on. Unfortunately, this passing canoccur before it is expected through accident or illness. This makes insurance abasic of personal financial security and wealth. Your personal financial goal isnot only for you to live comfortably but also for your entire family to live comfort-ably and securely. That means thinking of what could happen to surviving fami-ly members if one or all of the major breadwinners were to pass away.

Every day people pass on due to medical conditions that can’t be predicted. Caraccidents and accidents in the home kill millions each year. Death due to crimesoccur whether we like to think of that or not.

While it is hoped that none of these things ever shortens your life or the life ofyour spouse, you simply must think about that possible future. We cannot fore-tell the future therefore, preparations are important.

What would happen to your family if you or your spouse suddenly passed? Wouldthe loss of one of the major breadwinners cause your family to lose the family res-idence? Would they be forced to change their lives from a comfortable lifestyle to



INSURING YOUR FAMILY’S FUTURE

a struggle to get enough food and clothing to survive? Would the children have nomeans of attending college and beginning their adult lives with proper educa-tion? Would the cost of basic health care cause your surviving family members tosacrifice basic needs such as food or clothing?

But insurance isn’t only for death. There are medical and health care insurancepolicies to protect you from expenses in these areas. There are home insurancepolicies to cover your home, and there is auto insurance to cover your liability andlosses should you be involved in an auto accident.

Think about what you would do if your child experienced a catastrophic illnessand only expensive medical care, possibly costing hundreds of thousands of dol-lars could potentially save him or her. Also, think about what would happen ifthis type of illness happened to you or your spouse. Would you be able to affordto care for you, your spouse, or your children properly?

Social Security Disability Insurance (SSDI) and SupplementalSecurity Income (SSI)

What would happen if you or your spouse experienced a physical or mental dis-ability that prevented either of you from working any longer? While there is SocialSecurity Disability Insurance (SSDI) for those who have worked long enough andpaid into the system, would the payments provide for the needs of your family?The number of periods you need to have worked varies based on age,and it is notsimple to calculate this for yourself. It is much easier to obtain the facts from theSocial Security Administration.

For those people who have not worked enough to quality for social security dis-ability insurance payments, there is another program called supplemental secu-rity income (SSI). The exact facts and determination as to whether you would fitinto the SSDI or SSI programs can be learned by contacting your local SocialSecurity Administration office or contacting (http://www.ssa.gov).




There is a significant waiting period (six months in most situations) before anypayments are made to you,and that waiting period is only begun after your claimis approved by the Social Security Administration. The process of getting a claimapproved can require a very significant period of time in itself. It is not uncom-mon for the claim processing to require a year, or even several years, and for theapplicant to experience being denied and having to appeal more than once.Youmay require the assistance of an attorney in order to get your social security dis-ability claim approved.

In most cases, SSDI payments will not provide for a really secure financial futurefor your family. Take this into account when considering insurance policies. Youcan easily learn an estimate of the amount of SSDI or SSI payments that wouldbe available to you in the event that you become disabled as well as those avail-able when you retire by simply contacting your local social security office or vis-iting their web site (http://www.ssa.gov) and filling out a simple form requestinga printout of the information contained in your file.

A word of caution: with the current government financial situation regardingsocial security, you must decide if you wish to count on payments in your retire-ment years or should you become disabled. Here again, the decision is up to youand your family.

A Note Regarding Required and Optional Insurance Coverages

Before we get into the facts about the various types of insurance available, itshould be noted that some insurance such as automobile and home owner’sinsurance may be required by the lender who provides financing for yourhome or car. Also, some states require certain insurance to legally own andoperate a vehicle. This report is not intended to provide advice about whattypes of policies to purchase. You must consult your own state’s agencies oryour lender to learn what is required rather than optional. However, we dowant to make you aware of the various types of insurance that can protect you




and allow you to choose what is right for you and your own personal financialsituation.

First, let’s look at types of insurance that can protect your family in the event ofuntimely death or that can provide a financial investment if untimely death doesnot occur to a covered family member. These types of coverage all fall under theumbrella of life insurance even though some of them actually build cash value.

Types of Life Insurance

Life insurance is, quite simply, a type of insurance that pays benefits in the eventof untimely death. Some types also pay benefits in the event of loss of limbs, eye-sight, and other similar losses involving body parts.

Life insurance can be purchased for adults and even children. In some cases, itrequires proof of insurability, which means that a physical examination provingthat no major existing health conditions likely to result in loss of life are present.Other types of policies do not require this proof. Some types of policies willinsure those who use tobacco, but they are more costly than for the nonsmokerdue to the proven increased health risks to tobacco users.

Term Life Insurance

Term life insurance is the least costly type of insurance and covers the insured fora specific period of time. It builds no cash value, so if the insured does not passaway during the term of the insurance,there is no recovery of the premiums paid.It provides a flat benefit amount to the named beneficiary should the insured die.Term life insurance may, in some cases, also pay a benefit in the event of loss oflimbs,eyesight,or other physical loss,but you must read and understand the pol-icy to learn if this applies to the policy you are considering. The commonly avail-able term periods are ten, twenty, and thirty years, but other terms may be avail-able. The premiums remain the same for the entire life of the policy. Should aninsured wish to purchase term life insurance after the term policy has expired,




the cost will certainly be greater due to the increased age and increased likelihoodof death during the term. There are some term life insurance policies that allowthem to be converted to whole life or universal life insurance policies. These willbe explained later in this section of this report.

Term life insurance is the simplest form of life insurance to understand.Basically,if you purchase a term life insurance policy for twenty years with death benefitsof one hundred thousand dollars, you will pay a monthly premium each monthfor the life of the policy. Should the person insured die during the term, a flat,one-time payment will be paid to the named beneficiary equal to the amount ofcoverage, in this case one hundred thousand dollars. The beneficiary is then atliberty to use the funds as they wish, ideally to invest into investments that willhelp them replace the lost earnings of the insured. The funds can also be used topay final expenses such as funeral costs.

Term life insurance can be practical for several reasons:

1. Term life insurance can be very practical for expenses that will go awayin the future. For example, if your home mortgage payments last foranother twenty years, covering the life of the major breadwinner forthat term and at least the amount of the mortgage and other debts tohelp ensure that the family will be able to pay off these obligations inthe event of the death of the breadwinner. During the years that chil-dren must be financially supported by their parents,this type of insur-ance can help provide the surviving parent with the means to raise thechildren to the age they can support themselves, and the amount ofinsurance should reflect the anticipated needs that only you can decideif you choose this as your major type of life insurance coverage.

2. Higher coverage amounts can be obtained with term life insurancethan with whole or universal life insurance for lower premiums due tothe fact that no cash value is built with this type of policy.




3.The benefits of a term life insurance policy are usually income tax free(consult your accountant or financial advisor for the most currentinformation).

4. Depending on your term life insurance policy, conversion to whole oruniversal life can be an option.

5. Benefits are paid to the person or persons named as beneficiaries inthe term life insurance policy. Therefore, one term life policy couldname a child as a beneficiary to provide for college while another pol-icy benefits go to the spouse to cover the cost of the mortgage and lossof the income of the deceased spouse.

6. Beneficiaries can be changed easily should your situation require achange in who receives the death benefits upon your death,should theevent occur during the period your life is insured by the term life pol-icy. These types of changes can be driven by marriage, divorce, wid-owhood, children growing up, additional children being born, andmany other reasons. It is usually as simple as submitting the properform to the insurance company to alter the death benefit payouts tomeet your changing needs.

Disadvantages to consider about term life insurance:

1.There is no cash value built by this type of policy. This type of insur-ance coverage only pays the beneficiary a flat sum based on theinsurance amount no matter how long you have paid premiums onthe policy.

2. Employers often provide a level of term insurance for their employ-ees—so you may be duplicating what you already have. However,should you change employers, that situation might change.

3. It can be difficult to determine the amount of term life insurance tocarry to meet your family’s needs due to inflation and the general




economy as well as whether or not your spouse will work or be unableto continue working should you pass away.

Whole Life Insurance

Whole life insurance, unlike term life insurance, covers an insured person fortheir whole life from the point of purchase to the point of their death or, inmost cases, until age one hundred, whichever comes first, as long as the pre-mium payments are submitted on a timely basis. It is a form of permanentinsurance. There are, in actuality, several sub-types of whole life insurancethat will be discussed, but first we need to understand fully the basic conceptsof whole life insurance before going into the details of sub-varieties of wholelife insurance.

One of the great differences between whole life insurance and term life insur-ance is that a whole life insurance policy actually builds cash value over time.This means that if you choose, after years of paying premiums, to access thecash value of your policy, you can surrender all the benefits or a part of thebenefits based on your cash withdrawal and get a portion of the premiums youhave paid back. You can even take out loans against the cash value of yourwhole life insurance policy.

You should realize that in no case will the cash value of a whole life insurancepolicy equal the benefit amount, nor will the cash value necessarily be equal toall the premium payments which have been paid. In some cases, the cash valuewill be equal to the premiums paid plus interest earned. As the investmentsearned change, in many cases the interest rate earned on those policies thatoffer interest earnings may fluctuate while some may have a minimum guar-antee stated in the initial policy.

The cash value is based on the fact that the insurance company held and invest-ed the money they received as premiums and are offering a portion of this back




to the policy owner in exchange for the benefits that would be paid at the time ofdeath of the insured.

This concept is explained best by Life Insurance Quote (http://www.lifeinsurancequote.com/universal_ compared_to_whole_life_web_article.htm). At thisweb site, they explain that there are four parts of whole and universal life policies(universal life will be covered later in this report). The following is quoted fromthe above named web source:

● Mortality cost - the part of the deposit that covers the pure cost of thelife insurance death benefit. We recommend that this cost of insur-ance be level or the same over the insured’s lifetime.

● Administration charge - This is the charge for administering thepolicy and premium tax.

● Savings or investment - This is what is left from your deposit afterthe above two charges—the cost of insurance and the administrationcharge—are deducted. You will have been provided with an illustra-tion of how your savings will grow. It is frequently referred to as thecash value, fund value, or cash surrender value of your policy.

● Return on the savings - This is the interest rate that is credited to thecash value in your account each year.

● In addition, some policies guarantee that the above costs will notchange and a minimum return on investments.

As you can see from the above excerpt, the insurance provider must use aportion of the premium paid to cover the cost of the payouts required when acovered insured within their many whole life or universal life insurance poli-




cies dies and benefits must be paid. A charge for the accounting, administra-tion, and other overhead costs of providing insurance coverage as well astaxes must be covered by the cost of premiums paid by insured policyhold-ers. The remainder of the premiums is used to cover the cash value of poli-cies, and the return on investment (ROI) allows the insurance company toadd interest to policyholder’s money when they ask for a cash value with-drawal. Of course, all the costs named above will not be revealed to policy-holders, but the general idea is that you can build up cash value and possi-bly even some interest on this type of life insurance while covering yourfamily against the impact of the loss of the insured in the event of untimelydeath.

The charge noted as mortality cost is a factor that increases as the personinsured by the whole life policy ages. This is simply because of the fact thatthe older a person gets, the more likely they are to pass away. Also, the cashvalue of the policy, in many cases, can fluctuate greatly based on the stockmarket and other investments in which the funds from premiums have beeninvested.

The great benefit with whole life insurance is the fact that should the insuredpass away, a benefit equal to the policy benefit amount is paid to the named sur-viving beneficiaries, just as with term life insurance. Also, when purchased at ayoung age, the cost of the insurance is relatively low and does not increase as theperson ages.

You can expect to be required to prove that you are in good health by submittingto a physical by a doctor chosen by the insurance company or by releasing med-ical information from your own doctor. However, once you are approved forinsurance, you will not be canceled due to changing health conditions.Whole life insurance can be practical because:




1. The policy builds cash value that can be withdrawn in exchange forsome or all of the death benefits, and loans can be taken out againstthe cash value of the policy to meet expenses without extracting fundsfrom more lucrative investments.

2. When purchased early in life, the cost is affordable even though italways costs more than term life insurance.

3. The policy covers the insured as long as premiums are paid on time for lifeor until age one hundred (in most cases), whichever comes first or untilthe full cash value is withdrawn from the policy,thereby canceling it.

4. The whole life insurance benefits can be used in any way needed suchas paying off a mortgage, providing college education, or other needsof the surviving family members. The death benefits are paid to oneor more named beneficiary or even to trust funds.

5. The payments made for this type of insurance can act as a goodinvestment for people who do not have any interest in learning aboutinvestments.

6. The amount of death benefits will not change as the insured person agesand payments do not go up as the person ages or their health changesas long as the premiums are paid on time and the insurance is kept ineffect.

7. Under current laws, the benefits paid upon death of the insured areusually not subject to income tax on the part of the beneficiary.However, this should be verified with your financial advisor becauselegislation changes and your specific situation may vary sufficiently toimpact this point.

8. You are guaranteed a cash value on your whole life insurance policyregardless of stock market changes or changes in the commonlyoffered interest rates on savings accounts. Should the stock market godown greatly, your cash value is guaranteed at a certain limit.




9. It is simple and easy to change the benefit beneficiaries should youwish to change who receives the payment of benefits upon your deathor if you wish to alter the percentages of benefits paid to various ben-eficiaries. This can be very helpful should another child be born, or tochange the benefits when a child reaches adulthood and no longerrequires benefits to ensure they have funds to obtain their college edu-cation., or for any of a multitude of other reasons including marriage,divorce, or your spouse passing away.

10.Should you be in a financial position that you know you will leaveyour spouse in a position that,upon your death,there will be unavoid-able estate taxes which are this insurance can serve as a means ofensuring your spouse can pay these expenses or pay capital gains taxif the spouse chooses to sell the large family home and move withoutmaking a qualified purchase of a new home within the required peri-od of time. These points, however, require that you seek advice fromyour financial counsel or tax accountant.

Disadvantages to consider about whole life insurance:

1. While the premiums paid into the insurance company for whole lifeinsurance are invested, you do not have any input as to what type ofinvestments or where the funds are invested. The decisions are madeby the insurance company alone.

2. It can be difficult or impossible to purchase additional whole lifeinsurance later in life or if your health deteriorates.

3. Certain causes of death may not be covered by the whole life insurancepolicy in certain situations, and you must be certain that you fullyunderstand the terms of the policy you are purchasing.

4. While there is a cash value built on whole life insurance policies, thereturn on the investments may be much lower than if the same amount




of money were invested into other investment vehicles or funds. If thestock market soars or interest rates on other investment vehicles soar,your whole life insurance policy may continue to build cash value at alimited maximum rate stated when purchasing the policy.

5. If you decide, some time a few years or many years after purchasingyour whole life insurance policy, that you want a different level oramount of coverage, the new insurance policy purchase is treated as ifyou do not already carry any insurance with that insurance provideror any other insurance provider. Physical proof of insurability will berequired and premiums will be more costly because of the purchaseas a later age. There are no provisions to convert the insurance toanother type of insurance. However, some insurance providers mayoffer some options so you must research your specific insurance com-pany to learn exactly what your options might be should you wish toincrease or change your coverage.

6. This type of insurance may be offered through your employer or yourspouses’employer.However,you may or may not be able to convert theemployer-provided policy to continue coverage should you voluntari-ly change employers or when you retire.

Whole life insurance is great as a means of insuring that your spouse is able toraise your children and provide for their education should your death occurduring the child rearing years. It can also provide a legacy for your childrenand grandchildren should you live a lengthy life and your spouse proceed youin death.

Universal Life Insurance

Universal life insurance is one of the newer types of insurance and, like whole lifeinsurance, is a permanent form of insurance in that it covers the named insuredas long as the policy is carried in force and the premiums are paid on a timelybasis. It also builds cash value. However, unlike whole life insurance, the benefit




amount can be adjusted, allowing you much more control over the amount ofpremium you must pay each month.

In addition, universal life insurance allows you to determine the portion of eachpayment that will be used for death benefits and how much of each payment willbe used for your plan’s investments. Universal life frequently returns significant-ly higher investment yields, increasing the cash value sometimes so much thatthe increases will even pay the premiums.

This type of life insurance has a predetermined, set minimum rate of return oninvestment that is stated in the insurance policy. Each year, you will be providedwith an annual report showing the current cash value of your insurance policyand other pertinent information about the insurance policy, much like a state-ment from any other type of investment.

Universal life insurance is a much more flexible type of insurance than whole life.As the insured ages and their financial needs change, perhaps due to childrenreaching maturity or mortgages being paid in full, the insurance policy can beadjusted to pay a lower death benefit, lowering the monthly premium significant-ly without the problem of proving insurability.

This type of insurance allows the insured to select one or more beneficiaries toreceive the death benefits, and the beneficiaries can be changed at any time easi-ly by completing and submitting a form.

Universal life insurance can be practical because:

1. You can adjust the benefits paid to the beneficiaries as insurance cov-erage needs change.

2. If necessary, you can borrow money against the cash value, and theloan funds are usually nontaxable.




3. Because you can change the amount of coverage, you can also controlthe amount of the monthly premiums to a greater extent than withother types of insurance.

4. The death benefits paid to the beneficiaries upon the passing of thenamed insured may not be subject to income tax in many situations.Of course, you must seek the advice of your accountant or tax advisorto determine if this applies to your situation.

5. Your premiums invested in this type of insurance will return at leasta minimum stated rate per the insurance policy and, if the funds earnmore,the return can be significantly greater than the stated minimumreturn.

Disadvantages to consider about universal life insurance:

1. The return on the money invested in this type of insurance could beonly the minimum defined in the policy if the insurance carrier doesnot invest wisely.You do not control how or where the money will beinvested, only the amount that will be invested.

2. Your monthly premiums can change over time based on the returnson invested premiums making it uncertain exactly how much youmay have to pay to keep the same amount of insurance coverage infuture years.

3. Some universal life insurance policies guarantee a specific rate ofreturn only for a defined period, and you must know and understandhow long the return rates are guaranteed and how they will changeonce the guarantee period has expired.

4. Not all universal life insurance investment return rates are calculat-ed the same way, and you must understand how your policy’s returnsare calculated and how this may impact the value of your policy.




Variable Life Insurance

Variable life insurance, like whole life insurance, is a permanent type of insur-ance protection.However, the amount of benefits paid should the named insuredpass away varies with variable life insurance based on the return on the invest-ments the insurance company has made with your premium payments.While itis a bit more risky than term life insurance, whole life insurance, or universal lifeinsurance, it does offer a reasonably low-risk means of accumulating money thatmay be income tax free, depending on your situation, should you choose toremove cash from the cash value of the policy or when death benefits are paid toa named beneficiary.

Unlike the previously discussed types of life insurance, variable life insuranceallows you to determine into which investment funds your premium paymentswill be invested. These choices usually include fixed income investments, stocks,bonds, money market funds, or similar secure investments. You can change yourchoices of where your premium funds are invested at time periods and frequen-cy determined by the specific terms of your insurance policy. Some allow you tochange investment funds only twice each year while other policies may allow youto change investment funds as many as six times per year.

Because you have control over the investments made with this type of lifeinsurance, many people feel much more empowered when purchasing this lifeinsurance. However, because there is no guaranteed return on your investment,the choices you make on the investments could result in the return going up ordown, causing the cash value of the insurance to vary up or down. Due to thefact that you, the insured, determine where the money paid to the insurancecompany is invested, this form of life insurance is legally considered a securityand laws controlling securities apply to the insurance. For example, by law aprospectus must be provided by the insurance company offering the insuranceto any potential buyer.




The death benefit paid on variable life insurance is, however, an amount whichcannot fall below the benefit you purchased. It can, however, increase based onthe return on investment.

Since you choose where the funds paid as premiums on your variable life insur-ance policy are to be invested, this form of insurance is legally considered to be asecurity and is governed by the laws which apply to securities. This means thatthe company offering this type of life insurance must provide a prospectus whichinclude facts about the company offering the security and about the securityitself, in this case the life insurance policy.

The cash value of variable life insurance, under current regulations, is notimpacted by income tax until the cash value of the policy is cashed in. Theincome tax impacts when death benefits are paid by this type of insurance poli-cy should be determined by your financial advisor or tax advisor.

Variable life insurance can be practical because:

1. It is an easy way to build reasonably low-risk, income tax–free invest-ment savings and can be great for people who are leery of “playing thestock market.”

2. You can borrow against the cash value of the insurance policy in theevent of an emergency requiring access to funds, without cancelingthe insurance.

3. Because the money from premiums is invested, the cash value of thepolicy and the death benefits from the policy can be greater thanexpected due to high returns on investments.

4. The policyholder has control over what types of investments themoney from their premiums is invested into and therefore can enjoya sense of control over their money.




Disadvantages to consider about variable life insurance:

1. Because variable life insurance is a security or investment, there is noguarantee how much, if any, the death benefit will be above theamount guaranteed when the policy is purchased.

2. There are no guarantees as to what the cash value of the variable lifeinsurance policy may be because the value changes based on theinvestments and can go either up or down.

3. Since it is the responsibility of the policyholder to choose the invest-ment types into which funds are placed, a policyholder who doesn’tremain current on economic trends may make poor choices, impact-ing the ultimate cash value of their policy.

Variable Universal Life Insurance

For some, this type of insurance can be the best of both worlds. It is permanentlife insurance, having all the attributes of universal life but because the insur-ance provider invests the funds, based on your directions, into various types ofinvestments,the cash value and the death benefit is likely to increase significant-ly if the investments provide a good rate of return. Of course, the investmentscould perform poorly resulting in a decrease in cash value and death benefitsonly of the minimum provided by the insurance policy.The value of the variableuniversal life insurance is taxable only when funds are removed from the policy.The death benefits may or may not be subject to income tax and only your per-sonal financial counselor or tax consultant can advise you about your specificsituation in this area.

Variable universal life insurance can be practical if:

1. You want to have the benefits of universal life insurance such as theability to adjust the benefits as coverage needs change and the controlover the amount of premiums combined with the benefits of variablelife insurance such as the control over investments.




Disadvantages to consider about variable universal life insurance:

1. Because the cash value of the policy is in investment vehicles chosenby the insured, the cash value and in some cases the death benefitscan go down as well as increase.

2. If too much money is borrowed against a variable universal life insur-ance policy’s cash value, and the investments supporting the value ofthe policy go down, it is possible for the insurance policy to collapse,resulting in no death benefit protection for your beneficiaries.

Return of Premium Life Insurance

This type of life insurance is also called return of premium term life insurance. Itis the most recently introduced form of life insurance and that not only providesdeath benefit protection for your family but also has a feature for the return ofpremiums. Because many people object to paying for life insurance, thinkingtheir family will most likely not need the funds paid by the death benefit duringthe period they are really needed, this type of insurance removes that objectionsince the premiums will be returned.

Return of premium life insurance is basically purchased with the intention ofkeeping the policy in effect for fifteen, twenty, or thirty years. If the premiums arepaid on a timely basis and the death benefits are not used during the term of theinsurance, the insurance company returns the actual amount of premiums paidinto the policy.

In some cases,there are policies that provide for partial return of premiums if thepolicy is canceled prior to the term expiration. However, this type of policy doesnot build any cash value. The only amount that will be returned if death benefitsdo not have to be paid because of the untimely passing of the named insured isequal to the actual amount of premiums submitted.




Because you are getting back only money you paid into the insurance, thefunds returned as the return of premium are normally not subject to incometax. However, always consult with your personal tax advisor regarding thesematters.

Return of premium life insurance can be practical only:

1. If the head of household, considered here the major breadwinner inthe family, absolutely refuses to carry any other type of life insurance.

2. If you are not seeking to use life insurance as a vehicle to create wealthbut only to cover some major expenses that might be left in the eventof the death of one of the persons in the household who earns moneyto pay the bills, mortgage, and other expenses.

Disadvantages of return of premium life insurance to consider:

1. The same value of insurance could be purchased with a type of lifeinsurance that builds cash value and potentially returns more thanjust the premiums paid.

2. Because this is a form of term insurance, if the named insured wereto pass away just one day past the term of the policy, there would beno death benefits, unlike permanent life insurance types which paydeath benefits as long as the insurance is in effect, usually up to ageone hundred.

3. The increase in investments generated by the insurance companyusing premiums to invest in order to create profit provides no benefitto you, the policyholder.

4. There are many types of life insurance to select from which thesehave much greater benefits than the return of premium lifeinsurance.




How Much Life Insurance Should You Carry?

The question of how much life insurance you should carry is quite importantand the answer may vary at different times in your life. You must look at thebig picture that includes your family’s financial needs per year, survivingspouse’s earnings and ability to continue earning, and many other factors todetermine exactly what is the right amount of life insurance for you to carryas well as how much to carry on other members of the family.

Because there are investment vehicles that can provide higher rates of return onyour money, it isn't necessarily wise to carry excessive amounts of life insurancejust because the policy builds cash value. It also isn’t wise to carry too little lifeinsurance either.

ReliaQuote (http://www.reliaquote.com/termlife/cgi-bin/needs_analysis.asp?sour-ceid=00000000000000000001&App=) provides a handy needs analysis tool thatcan help you estimate a proper amount of life insurance. There are many otheronline tools for estimating your life insurance needs and the amounts of lifeinsurance you should carry on yourself and the members of your family.

You will probably also want to discuss decisions about the amounts and types oflife insurance you should carry on yourself and your family members with yourfinancial advisor, accountant, or other objective professional. You may want todiscuss types of insurance with your insurance agent, but your insurance agentcannot provide a truly unbiased estimate of your insurance needs because theyhave a vested interest in selling larger amounts of life insurance. It is wise to getadvice from truly objective advisors before making decisions on life insurancepurchases.It can also be wise to review your life insurance amounts and comparethat to current needs periodically, especially at major milestones such as whenchildren are born,when children leave home,when the home mortgage is paid infull, when term life insurance policies mature, and at least once every five yearsor so even if no major life changes have occurred. The logic behind this is that




your life insurance requirements at age thirty may be much different than whatyou need at age forty-five or age sixty.

Homeowners Insurance

Another form of insurance coverage that will help ensure your personal finan-cial security and that of your family is specifically for those people who own orare purchasing their own homes. Homeowners insurance covers losses of vari-ous types, depending on the specific type of policy involving insurance againstlosses to the home. In this section, we will look at the various types of home-owners insurance coverage available to the home owner to ensure their homeagainst loss.

Standard Homeowners Insurance

Standard homeowners insurance is designed to cover the home owner for themost common types of loss which, depending on the specific insurance policy,include but may not be limited to:

1. Liability, up to the limit amounts purchased, incurred becausesomeone is injured on or inside your property due to negligence onyour or your family’s part. This part of your homeowners policymay, with some policies, cover you and your family members if theyare hurt on someone else’s property due to you or the family mem-ber’s negligence.

2. Theft of property from your personal property

3. Losses due to fire, windstorm, hail, smoke damage, vandalism, orother specified losses causing damage to your property or loss of pos-sessions on your premises

4. These policies usually cover the contents of your home against loss,liability, and other hazards up to certain specified limits.




It is very important to insure your home against loss. It is also a requirement ofvirtually every mortgage lender that you carry homeowners insurance againstloss to the property into which that lender has invested funds that you are repay-ing through your mortgage payments. The reason for this is to protect the mort-gage holder’s interest in the property so that their investment will not be a totalloss should something happen to the property.

Even if your home is paid for and you’ve “burned the mortgage” already, home-owners insurance is still an important protection for you and your family andtheir financial future. If someone who is not a family member who resides in thehome becomes injured or dies as a result of something which happened on yourproperty, especially if the root causes was negligence on the part of you or a fam-ily member, you could potentially be sued and lose your assets, including yourhome.

Even if your home is paid for and you have assets that would allow you to pur-chase another home, should fire, wind or hail storm, smoke damage, or anothercovered loss occur, the homeowners insurance would pay you funds to preventyou being forced to reduce you assets significantly in order to keep providing aroof over your and your family’s heads.

The premiums for homeowners insurance are really quite low compared to theamount of money that may be paid by that insurance coverage in the event of asignificant or total loss of the home. This insurance is one of the most importanttypes of insurance coverage you can possibly carry, because it ensures your fam-ily will have a place to live should a horrible event occur, causing your home to bedestroyed or severely damaged.

While exact numbers of insurance claims each year due to fire, windstorm, hail-storm, smoke damage, vandalism, theft, and covered liabilities are difficult todetermine and are not readily available to the general public, you can be certain




that during the period that a family lives in their home, it is not unlikely that some type of covered loss will occur, although the loss may be minor rather thancausing a total loss of the home. You can also be certain that each year manyhomes are destroyed completely due to covered losses.According to the U.S.Army(www.usaac.army.mil/accw/div/safety/Off-Duty_Acc_Fire_%20Prevent/Fire/Home%20Fire%20Prevention.ppt) there are, on average, about 59,100reported home fires each year in America caused by heating equipment alone,91,700 associated with cooking, and 38,400 per year based on electrical fires. So,you can easily see that fire loss alone is a huge risk. Fire is just one of the manyloss risks covered by the homeowners insurance coverage.

Many, if not most, basic homeowners insurance policies cover temporaryhousing during a period when the home cannot be lived in safely. Dependingon the type of homeowners insurance policy you purchase, the losses may be




replaced based on fair market value, cost of replacement value, or theappraised value as in the case of special riders for collections, antiques, andother unusual contents.

When purchasing homeowners insurance, it is wise to compare policies thatoffer cost of replacement value rather than policies that offer only fair marketvalue. Fair market value is the value if that exact item were offered on the mar-ket today. This means that a shirt that you have worn is probably valued usingfair market value at about one dollar to five dollars, not the thirty dollars to onehundred dollars or more you paid for it. It also means that the leather sofa inyour living room would be valued at the three hundred dollars or so that youcould market it as a used item rather than the two thousand dollars or more youpaid when you originally purchased the sofa.

Why should you consider replacement cost homeowners insurance? The reasonsare two-fold. First, contents when valued at fair market value are not worth near-ly the cost required to replace the items at the time of the loss. Also, many itemsincrease in cost due to inflation so, even if you were being paid the original pur-chase price, you might not be able to replace the items lost. For example, look atan average pair of shoes. A matter of only a few years ago, a good pair of shoesmight have cost $29.99 to purchase, but that same pair of shoes, if purchasedtoday, might cost $69.95 or more due to economic changes such as inflation. Abedroom suite you bought 10 years ago might have cost only $1,000 but to pur-chase a bedroom suite of like quality today could potentially cost you $3,000. Youwant to purchase insurance that will allow you to replace the items that have beenlost in the event of a catastrophe with “like items,” meaning that you want to beable to purchase items of the same quality as you have enjoyed before the loss.

It should be noted that some homeowners replacement cost insurance policiescarry certain limitations as to the cost that will be repaid the event the home islost. Some policies may state that no more than, for example, 125 percent of the




original purchase price of the home will be repaid on the replacement costinsurance policy, however, the cost of rebuilding the same home may haveincreased 150 percent or 200 percent. These types of limitations have been putinto place and sanctioned by some state government insurance commissionersin order to control the ever-rising costs of homeowners insurance and permitthe insurance underwriters to insure homes while still making a profit.Be care-ful and read the entire home owners insurance policy provisions before pur-chasing any policy. Ask questions about anything you do not understand.

Another area that has changed in recent years in regard to homeowners insur-ance protection is known as the “hurricane deductible.” While windstorms and hailstorms are covered by most standard home owners insurance policies, hurricanes and devastating tropical weather systems may not be covered in the same way. According to the Real Estate Journal (http://www.realestatejournal.com/),“One trend is a ‘hurricane deductible’ thatrequires owners to pay a much bigger share of any hurricane-related damagethan they would, say, after a fire. Some policies even set deductibles as a per-centage of a property’s insured value, which means homeowners will be on thehook for much more than a fixed-dollar deductible if disaster hits. What ismore, homeowners are facing a greater number of exclusions from hurricane-related damage, such as mold and fungus damage.” Please see the section onhurricane insurance for more information on this type of homeowners insur-ance coverage.

In a standard homeowners insurance policy, jewelry and other especially valuable items may have coverage limits of one or two thousand dollars.According to the Federal Citizens Information Center (FCIC) (http://www.pueblo.gsa.gov/cic_text/housing/covered/covered.htm), “Youmay wish to add a rider to your policy to cover specific pieces of jewelry andother expensive possessions such as paintings, electronic equipment, stampcollections or silverware, for example. The rider will provide both higher limits




(http://www.pueblo.gsa.gov/cic_text/housing/covered/covered.htm)

http://www.realestatejournal.com/

and protect you from additional risks, not covered in your normal policy.”Scheduled personal property loss insurance is a sub-form of homeownersinsurance that is incorporated into some homeowners insurance policies whena home owner or family member owns certain items that are of significantvalue such as jewelry, paintings, collections, antiques, furs, or other items thatcan be costly to replace. Even expensive camera or video equipment may fallinto this category. Your insurance agent can help you determine if you ownitems that must be placed under this type of coverage and how to get the insur-ance rider or floater to cover those items against loss.

Many mortgage lenders incorporate the cost of homeowners insurance cover-age into the mortgage payments. If this is the case with your home loan, be surewhat type of coverage is included.

Homeowners insurance is not a place to try to save a few dollars. The cost of apolicy that will repay any losses at replacement cost will cause you to pay onlyslightly more than a less effective coverage. When providing for your family’shousing needs,saving a few dollars per year is not necessarily a wise move,eventhough it is quite easy to tell yourself, “A loss will not happen to me that hap-pens only to other people.” A loss, either catastrophic or minor but costly, canhappen to you and your family.

It is important to know what is contained in your home and outside your homein order to process any home insurance claims that might be required in theevent of a loss. At the back of this report, you will find a home inventory work-sheet to help you record exactly what your home contents are and keep track ofany changes to these items.

Flood Insurance

In your standard homeowners insurance policy coverage provisions, losses dueto water damage caused by rising water are probably not covered. This includes




rising water from a source outside your home such as a river or flash flood orwater damage resulting from water rising caused by a source inside your homesuch as a broken pipe.

Wind damage and hailstorm damage is normally covered by standard home-owners insurance policies, however, a storm capable of producing these typesof hazards can result in abnormal rainfall amounts sufficient to cause yourhome to flood. However, your standard homeowners insurance policy cover-age probably does not cover the losses caused by such an event. Rising watercan happen to anyone, so seriously consider carrying this type of homeown-ers protection.

Referring to flood hazards and flood insurance for home owners, Insure.com(http://info.insure.com/flood-insurance/buying-flood-insurance.htm) quotedin a recent article on their web site,“It could pay you to buy flood insurance,andhere’s evidence. ‘Flooding is far and away the most common natural disastertype in the country,and flood is not covered by your typical homeowners insur-ance policy,’ explains Mark Stevens, public affairs officer for the National FloodInsurance Program (NFIP).”

Insure.com goes on to add in their article on flood insurance for homeown-ers, “Flood insurance could be perceived as a solid hedge against the prospectof you suffering a huge financial setback stemming from flood-caused dam-age to your property. NFIP coverage can protect your house, business andpossessions.”

It can often be very difficult to determine what the root cause of a property lossmay have been in the case of losses due to unexpected storms or severe weath-er systems exactly. For example, if the roof is damaged on one portion of thehome and that damage is clearly due to wind rising during a storm but flood-ing occurred in an area far away from that roof damage, the question may arise




as to whether the water damage to your home property and its contents result-ed from a covered risk such as windstorm or a non-covered risk of flooding.Much time, stress, and potential heartbreak can be prevented by simply carry-ing both types of insurance so that in a situation where it is questionable as toexactly whether the property was damaged due to wind or due to flooding,yourhome and the contents of your house can be covered against the losses.

If you purchase a home located in a defined flood plain, your mortgage lenderwill require that you carry flood insurance. However, any area can flood unex-pectedly due to unusual weather systems and you can experience losses due towater coming from inside your own home that may not be covered by yourstandard homeowners insurance coverage.

Depending on where you live and how high the risk of flood in your area maybe, you may find that flood insurance carries a very low premium. Only thoseareas that are located in an area that carries an extremely high risk of flooding,such as those located on a river bank that has a history of flood, will result in asubstantially high premium on flood insurance coverage.

Flood insurance not only covers, in most cases, the same items covered byyour standard home insurance policy coverage, but it also covers the itemswhen the loss is caused specifically by rising waters from any source. This isan important form of homeowners insurance coverage and, even if yourmortgage lender does not require that you carry this form of insurance cov-erage, you should consider purchasing this type of coverage to protect yourhome and its contents. Rising water can come from many sources other thanthose you might think of initially. For example, your home could floodbecause your water heater bursts, or because a pipe breaks inside your home.Your home could also flood because a water pipe supplying water to yourhome and those around it fails.




A crucial point to consider about flood insurance for home owners and whyyou need to carry this type of insurance at all times is the fact that flood insur-ance policies often have a thirty-day waiting period between the date of pur-chase and the date at which coverage takes effect. The reason for this waitingperiod is to prevent home owners from rushing out to purchase flood insur-ance policies only after situations such as storms are predicted and, thereby,bankrupting the insurance providers. Be sure you understand exactly whatand when your flood insurance for home owners covers your residential prop-erty and the contents of your home.

Hurricane Insurance

Yet another type of homeowners insurance policy coverage is specifically forlosses due to hurricanes and the associated damage resulting from these oftendevastating tropical weather systems. Hurricane damage occurs in as many as20 of the 50 states in the U.S. or 40 percent of the nation. Of course, some areasare more prone to hurricane damage than others.

The states from Florida to Maine on the Eastern Seaboard are prone to hurricanedamage with the southernmost states of Florida, Georgia, North Carolina, andSouth Carolina being the most likely to experience direct hits by hurricanes ortropical storms. Also, those states along the Gulf Coast experience a high risk ofhurricanes.

Many people associate damage from a hurricane with beachfront and oceanfront homes. Too often people believe that because they live a few milesinland, their homes will not be devastated by a hurricane. Unfortunately,this is not the case at all. An especially strong hurricane, such as the category4 storms of Camille and Katrina, can result in damage to property hundreds of miles inland. While both of these specific storms made landfallalong the Gulf Coast of the United States, property damage was experiencedin Tennessee and even farther north. As an example of how serious this risk




is to home owners, Floodsmart.gov (http://www.floodsmart.gov/floodsmart/pages/nfip_on_everyone_at_risk.jsp) provides this surprising infor-mation:“Many consumers think that flooding related to hurricanes and othertropical disturbances are limited to coastal areas. However, some of the mostdamaging flooding can happen well inland and days after a storm makes itsinitial landfall. In 2004, Pennsylvania, which has no ocean coastline, receivedmore than $175 million in flood insurance payments—second only toFlorida.” You probably would never think of hurricane damage in land-locked Pennsylvania, but it does happen!

Hurricane insurance for home owners must be purchased in advance becauseinsurance underwriters will not provide insurance coverage during a period oftime in which a named storm is active in your area and often this type of insur-ance requires a thirty-day waiting period for the benefits to become active(http://www.coastalliving.com/coastal/homes/coastalcarpenter/arti-cle/0,14587,1192323,00.html).

Of course, the most serious and devastating damage may occur directly onthe coastline where the rising waters from hurricane driven storm surgescan easily remove a home from its foundation and leave nothing but a con-crete slab. People who live in areas that are most likely to be impacted byhurricane damage are required by their mortgage company to carry specifictypes of insurance that may include hurricane insurance and flood insur-ance in order to obtain home financing loans from these lenders. This isbecause the mortgage underwriter wants to ensure that the property inwhich they have an interest will not be lost and not replaced. You, as thehome owner, want this type of insurance coverage if you live in an area thatis prone to hurricane damaged, because you want to ensure you and yourfamily have a place to live the items they enjoy that have accumulated in thecontents of your home.




(ht t p : / / w w w. co a s t a l l iv i n g . com / co a s t a l / h om e s / co a s t a l c a r p e nter/art icle/0,14587,1192323,00.html).

The cost of hurricane insurance for home owners usually reflects the locationof your home. The cost of this type of insurance for people who choose to ownhomes directly on the oceanfront where the risk of damage and loss is highestmust pay the highest premiums. These home owners may have to accept a sig-nificant deductible amount in order to obtain an insurance policy that isdesigned to specifically cover the risk of loss of structure and/or contents of ahome that is located directly on the Atlantic Ocean or Gulf of Mexico. As thedistance from the waterfront increases, the cost of premiums for hurricaneinsurance becomes lower and lower as the risk of losses reduces.

If hurricane insurance is not required by your home mortgage lender and youdo not live extremely close to the Atlantic Ocean or Gulf of Mexico, your choiceto carry it can only be made you along with the advice of your financial advisorand insurance agent. Obviously, however, there are some states where this formof insurance is unlikely to be needed and perhaps not even offered due to thedistance from any hurricane prone waters.

Earthquake Insurance

In some areas,especially in California,earthquakes are common hazards and candestroy a home in seconds without warning.However,any part of the country canexperience an earth movement.In 2001,Puget Sound experienced an earthquakecausing damage to homes. Unfortunately, many home owners learned that theirstandard homeowners insurance coverage did not apply to their losses due to theearth movement (Mike Kreidler, “Facts About Earthquake Insurance,”http://www.insurance.wa.gov/factsheets/factsheet_detail.asp?FctShtRcdNum=20).

Like hurricane insurance, this type of homeowners insurance coverage is pur-chased as a separate policy and the rates are generally reflective of the locationof the property as well as the value of the property. It covers losses due to themovement of the earth, which includes mudslides, sink holes, landslides, aswell as earthquakes. In earthquake prone areas, you may be required to carry




this type of homeowners insurance protection in order to obtain a home mort-gage loan.

You and your financial advisor should discuss whether this type of homeown-ers is important to insuring you and your family’s financial future. It is impor-tant to be aware, however, that this type of loss is normally not covered in basichomeowners insurance policy coverage.

How Much Homeowners Insurance Should You Carry?

When determining how much homeowners insurance coverage you shouldcarry, you must consider the structural building of your home, the items con-tained in your home that are personal possessions,potential liability issues,andthe cost of living expenses should your home be damaged forcing you to seektemporary housing.

If your home is destroyed, you would need to be able to rebuild your home atcurrent cost of construction. This doesn’t take into account the land on whichyour home is built.When determining the cost to rebuild your home, you mustrealize that it should not be based on the purchase price, but on what it wouldcost to rebuild the structure today. This might be significantly more or less thanyour purchase price or even the price you could obtain if you sold the house ontoday’s market. In most cases, you will be required to carry homeowners insur-ance coverage that covers at least the amount of your mortgage if your home isnot paid for in full. Of course, if the home is paid for, you still need to carryhomeowners insurance protection.

The Insurance Information Institute (http://www.iii.org/individuals/homei/hbs/howmuch/) offers some good guidelines for a way to determine quick estimatesof homeowners insurance needs:“Multiply the total square footage of your homeby local building costs per square foot.To find out construction costs in your com-munity, call your local real estate agent, builders association or insurance agent.”




You may want to consider purchasing homeowners insurance protectionthat covers the cost associated with rebuilding your home to meet anychanges in the building codes since the construction of your home. You mayalso want to consider purchasing homeowners insurance protection that hasa clause to guard against inflation, adjusting the limits on your insurance atrenewal to reflect changes to costs in your region. In cases of older homes,you may want to choose modified replacement cost homeowners insuranceprotection. This type of coverage allows the home to be repaired usingtoday’s techniques and materials. These policies vary greatly, and if you pur-chase an older home, you’ll want to carefully investigate what the availablehomeowners insurance policies cover.

If you have items inside your home of special value such as collectibles orantiques, you will certainly want to address this coverage with your insuranceagent and purchase an endorsement or rider that adds specific coverage to yourpolicy to cover items such as these at the appraised or replacement cost.

Coverage for temporary living expenses after a coverage loss that causes yourhome to be uninhabitable during repairs can be quite important. Loss of usecoverage varies greatly from one insurance underwriter to another. The cost ofliving in a hotel or other form of temporary housing can be a significant finan-cial impact if your home must be completely rebuilt or if damage is significant.This is an area you should talk to your insurance agent and financial advisorabout to determine what coverage amounts are best for your personal situation.

Protection against potential liability to others is an important considerationwhen reviewing homeowners insurance coverage amounts. It can be veryexpensive if you must defend yourself against a lawsuit brought aboutbecause of bodily injury or property damage caused by you, your familymembers, or your pets. Also, the court could determine that you must pay ahuge amount to the party bringing the lawsuit against you should they win




their case. You need to carry enough liability insurance to cover your finan-cial assets that may be significantly more than in your standard home own-ers insurance policy. Many standard homeowners insurance policies provideone hundred thousand dollars in liability coverage. Investigate the amountin the policies you are considering and, if necessary, consider purchasingexcess or umbrella liability insurance coverage.

Health, Dental, Prescription Medication, and DisabilityInsurance

Insurance coverage that covers costs of medical care, health maintenance, pre-scription medication, and even insurance to cover the loss of income shouldyou or your covered spouse become unable to work can be very important tothe financial security of you and your family. Understanding your insuranceneeds in these areas is a smart way to make sure your family maintains theirfinancial position in the event of a major health problem or even catastrophicmedical issue.

In 2005, studies indicate 46.6 million people were without health insurance(http://www.census.gov/hhes/www/hlthins/hlthin05/hlth05asc.html). Eachstate has different laws regarding health care, health maintenance, and varioustypes of insurance coverage. These can be quite complex, but you can find aguide for the state in which you live at the Health Insurance Consumer Guideweb site (http://www.healthinsuranceinfo.net). Simply enter the state in whichyou reside, and you will be able to access a guide that covers the laws in yourlocale. This report will only address general concepts of health, medical, pre-scription medication, and disability insurance.

If you work for a large company, chances are that you may be offered very goodinsurance coverage at reasonable prices. However, in most if not all states, noemployer is required by law to offer any type of employee health or medicalinsurance coverage.Also, if you leave the employ of that company, you may not




be able to convert your insurance into an individual family policy. Dependingon the size of the employer’s staff and other issues, you may be able to contin-ue insurance coverage under COBRA (Consolidated Omnibus BudgetReconciliation Act), a federal law enacted in 1986. There are specific limitationson the time period that coverage can be extended under COBRA, but it allowsyou a means of carrying coverage should you leave the employ of one employ-er for any reason until you either obtain coverage through another employer ormake arrangements for your own insurance coverage needs.

Types of Health Insurance Coverage

Insurance to cover basic health care is available in many types of coverage. Theexact type of health care insurance coverage that is right for you and your fam-ily will depend on your personal situation. No one answer is right for everyone.




Traditional or Indemnity Health Care Insurance

This type of health care insurance was, only a matter of a few decades ago, themain form of health coverage available. With this type of insurance, youchoose your doctor, hospital, or other health care professional and the coveredexpenses are paid by your insurance company after meeting the annualdeductible. Even today, this type of health care coverage is offered by somelarge employers.

Traditional health care insurance coverage is the most costly type of healthinsurance. The insurance policy states exactly what the amount of the annualdeductible per person and, in the case of family policies, for the family as awhole; i.e., the total out of pocket deductible expense per family may be lessthan the total if the deductible amount is multiplied by the number of familymembers covered by the insurance, depending on the provisions of that specif-ic health care insurance policy. After the deductible amount is met, the insur-ance begins paying covered expenses or the percentage of covered expenses asprovided in the specific insurance policy. For example, one policy might pay for80 percent of covered expenses after the deductible, meaning that if you visityour doctor for a reason that is covered by the policy and your deductible hasalready been met for that annual period, and the cost of the office visit were$100, you would pay $20 out of pocket and the insurance company would pay$80. The portion of the service you are required to pay is commonly called theco-payment.

This type of health care insurance may require proof of insurability or investi-gate your past medical history. Certain conditions that exist before the insur-ance is purchased may not be covered by the insurance for a specific period oreven for the rest of your life, again depending on the provisions of the specifichealth care insurance policy being considered. The amount paid by the insur-ance company over the lifetime of an insured policyholder almost always has acap amount defined in the health care policy.




Health Maintenance Organizations (HMOs)

Because of ever-increasing cost of medical and health care,HMOs have becomea type of health care plan that many people turn toward in seeking affordablehealth coverage.When you choose an HMO plan, you must use the doctors andmedical facilities that are members of the HMO in order for any part of theexpense to be paid for you. HMOs offer low or even no annual deductibles andsmall co-payments for regular doctor visits. HMOs also provide more optionsfor preventative services.

With an HMO plan, you usually select a primary care physician (PCP) from theHMO doctors available in your area.This doctor then directs and manages youroverall health care, directing you to preventive procedures, specialists, andother services as required.

Some HMOs offer a network that extends nationwide so that you can obtainmedical care during periods of travel; while other HMOs have provisions foremergency medical care if no HMO services are readily available. There aresome HMOs that operate their own facilities including hospitals, while otherscontract with doctors and hospitals to provide services. HMOs cannot normal-ly exclude prexisting conditions nor require proof of insurability. Often, HMOsdo not have a lifetime maximum payment for an insured member. However, itis your responsibility to understand any provisions of an HMO you mightchoose to join.

Point of Service Plans (POS)

Point of Service plans operate much like an HMO except that you can select adoctor or medical facility as long as that doctor or facility is within the POS net-work. Being a member of a POS network means that the service provider orfacility has agreed to accept payments for specific services at specific ratesnegotiated between the POS underwriter and the provider or facility. In theevent you choose to seek services that are not part of the POS network, you may




be responsible for the difference in cost or all of the cost, depending on the pro-visions in your specific health coverage policy.

With POS plans, you choose a primary care physician (PCP) from the POS net-work. That PCP controls and directs your health care, referring you to special-ists if necessary. There are usually provisions with a POS plan that provideaccess to emergency and urgent medical care during travel but may require thatyou contact your PCP by phone no matter where you are within a specific peri-od of time after seeking care.An annual deductible of a specific amount is partof most POS plans, and you can expect to be required to pay co-payments forsome or all services with a POS plan. There is often a lifetime maximum that aPOS will pay for any one insured person. A POS plan may exclude payment forprexisting conditions,but frequently this is only for a period of time rather thanpermanently. However, each health care insurance coverage provider may offerdifferences in this area, and it is your responsibility to fully understand thespecifics of any policy you are considering.

Preferred Provider Organization (PPO) Plans

Preferred Provider Organizations (PPO) coverage offers a wide range of healthcare options. Members of PPO plans are provided a list of doctors and facilitieswhich are “preferred providers.” Benefits are paid for services based on specificsof the policy,usually carrying a low co-payment as long as you choose to use PPOmember services. If you choose to obtain services outside the PPO plan network,you will be required to pay more, or perhaps all, of the costs, depending on thespecifics of a particular plan.Many PPO plans require you to select a primary careprovider (PCP) as your main doctor and allow that doctor to refer you to special-ists, but your choice of specialists in a PPO network is almost certain to be muchbroader than with some of the other types of health care coverage.

PPO health care plans often carry an annual deductible that may range from verylow to quite high and, of course, the premiums tend to reflect the deductible size




with higher premiums being paid for low deductible policies. There may also beco-payments that you must pay for doctor visits and services. There may be alifetime maximum payment for any single insured person with this type ofcoverage.

Seven Important Points to Consider When Comparing Health Insurance

● Will you have to change doctors in order to obtain benefitsthrough this plan? If you have a long-term relationship with a doc-tor and do not wish to change doctors, you will want to seek outhealth care insurance coverage that allows you to continue to seethat health care provider.

● Will your relationship with your doctor change significantly?Many health care plans require that doctors follow specific guide-lines when treating a patient covered by a particular plan. Talk toyour doctor to learn how your relationship might have to change ifyou chose to participate in a certain health care plan.

● Is a primary care physician (PCP) required by the plan, and howeasy or hard is it to change PCPs if you wish to change? Also, is yourcurrent doctor listed as an accepted PCP?

● Are the doctors participating in the plan board certified? A doc-tor must pass extensive examinations directly related to the areas ofhealth care services he or she provides in order to become boardcertified. The more board certified doctors that are included in theplan the better; however, this is no guarantee of a specific level ofservice.

● What happens if you have to go outside the plan to seek medicalhelp? You may be traveling,become ill,and find that no doctors in the




area are members of your network. Does the plan provide for situa-tions such as these? Is emergency medical care provided for in aneffective and reasonable manner both locally and out of area? Willyou have to pay the cost of care upfront if you go outside the plan andwait for reimbursement? Can you afford to do this is the situationwere to arise?

● Does the plan provide readily available care? When comparinghealth care coverage,you want to be certain that many of the doctorsand medical facilities included in the plan or network are conve-niently located or within easy driving distance for you. Do you haveto wait for weeks to get to an appointment with a PCP? How is criti-cal care handled? What happens if you need a specialist? Are therespecialists included in the plan or network that are nearby?

● What about preexisting conditions? If you have had serious med-ical problems in the recent past, or in some cases even many yearsago, you may find exclusion clauses limiting or completely voidingany payment either for a period of time or permanently for that par-ticular problem. This could even include certain chronic diseasessuch as diabetes or treatment requirements such as dialysis.Compare your specific situation to the exclusions involved in eachavailable option to determine which type of coverage or plan is bestfor you and your family members. If you must change health careplans,can you afford to cover the necessary expenses until the insur-ance begins to provide benefits if there is a waiting period.

Prescription Medication Coverage

This type of insurance coverage may be purchased as a part of your health carecoverage or as a separate insurance coverage. The benefits of this insurance gen-erally pay for part or all of the cost of medications prescribed by any of your doc-




tors after meeting an annual deductible amount specified in the policy. Someprescription medication coverage pays a large portion of the cost of the medica-tion and the patient only pays a small co-payment.The co-payment is often lowerwhen generic medications are selected. Some prescription medication coveragewill not pay for name brand prescription medication if a generic medication isavailable unless your doctor specifically requests that non-generic medication beprovided.

Some prescription medication coverage plans use pharmacy networks wherethey have negotiated the price they will pay the pharmacy for specific medica-tions and therefore will only pay benefits if you use a pharmacy inside the net-work of medication providers. Some of these programs also offer reduced costprescription medication by mail.

Dental Insurance Coverage

Dental insurance coverage is very similar to health care insurance except that itcovers dental preventive maintenance, required services, dental surgeries, andservices related to the mouth and teeth. There are plans that can be purchasedfor dental insurance coverage that are similar in type of each of the types ofmedical insurance coverage plans.You may also find the option of adding den-tal coverage to your health care policy at an affordable cost is available to you.

Catastrophic Medical Insurance

This type of insurance coverage is often called major medical insurance.Catastrophic health care insurance usually has a very low monthly premiumrate and a very high deductible amount. Some of these policies are designed,in fact, to kick in benefits after other medical insurance has paid the lifetimemaximum. The catastrophic health insurance generally pays benefits formajor in-hospital medical expenses such as surgeries, intensive care, diagnos-tic testing using X-ray, CT, MRI or other technologies, lab testing, and medica-tion while in the hospital. These policies are not designed to pay a benefit for




the normal doctor’s office visit. These policies are not designed to cover thecost of prenatal care.

You can select insurance coverage of this type with deductibles as low as fivehundred dollars or as high as many thousands of dollars. Some catastrophichealth insurance coverage policies do have a cap on the maximum amount ofbenefits that will be paid for any one insured person. However, the maximum isoften higher than with other types of health insurance and, if you obtain thistype of insurance to pick up expenses only after your basic health care insur-ance has paid the maximum, the increase in maximum benefits paid is virtu-ally added to the maximum of your other insurance.

This type of high deductible insurance coverage is popular for people who areself-employed and most of the self-employed choose the higher premium poli-cies that carry lower deductibles. Healthy older adults also find these types ofinsurance policies suitable for them, often choosing policies with higherdeductibles and lower premiums, to cover heart attacks, cancer, and otherexpensive medical care that could easily exhaust their other medical care cov-erages or because they do not have other coverage.

Another group of people that find this type of insurance quite practical areyoung adults who work for employers that do not provide group insurancebenefits.

Long-Term Care Insurance

Long-term care insurance covers the care that could be required if a person isplaced into a longterm care facility due to age, Alzheimer’s disease, braininjury, or other reason that requires long-term care. Something thought of asnursing home insurance, this form of insurance coverage is not just for theelderly, nor does it pay just for nursing home care. While it is true that elder-ly people often seek and use this type of insurance, any person can experi-




ence an accident or injury that results in their requiring long-term care serv-ices in order to live a normal, quality life including the activities of daily liv-ing. Long-term care facilities services can easily cost fifty thousand dollarsper year for basic service programs, and in some areas, the costs are nearlydouble that figure.

Some of the services you may find covered by long-term care insurance bene-fits include: visiting nurses, home health care aids, home delivered meals,homemaking or housekeeping services, day care services for adults, and respiteservices for caregivers that need a break from caring for a family member.

The cost of premiums for this type of insurance can be quite high if the insur-ance is purchased late in life. Most long-term care insurance has a set premiumamount and does not increase, so the younger you are when you purchase thistype of insurance, the less the monthly premiums.

Long-term care insurance generally pays benefits on a per-day basis rather thana percentage of cost. There is no type of insurance available that will guaranteeto pay all the costs of long term care, but you can certainly protect against thecosts.Many long-term care insurance policies have limitations on the maximumdollar amount or the maximum number of days of benefits are available underthe policy. These limitations may be broken down to the various services cov-ered by the policy.

Today, some long-term care insurance policies offer return of premium orshortened benefit period as a form of nonforfeiture benefit.This means that theinsurance policy may have a cash value if the policy is canceled or the policy-holder dies without using the benefits of the policy.

Preexisting conditions are certainly a consideration when purchasing or alter-ing existing long-term care insurance coverage. Some policies will not pay ben-




efits for long-term care resulting from the preexisting condition for a period oftime or the preexisting condition may be completely excluded.

These specifics of these benefits and limitations are included in the insurancepolicy. You must be certain you understand the coverage in order to determinewhether is it coverage that you want or need.

What to Consider When Buying Long-Term Care Insurance

● Does the policy cover Alzheimer’s disease if developed after pur-chasing the policy?

● Does the policy provide nursing home care, home health care, inter-mediate care, and custodial care? How long are the benefit periodsfor each type of care, and how much will the benefits cover?

● Is there an inflation protection clause in the policy that will allowyou to either automatically increase the benefit level on an annualbasis or guarantee you the right to increase benefit levels withoutproof of insurability.

● Is there a guarantee that the policy will not be canceled on you or ter-minated as you get older or your health changes? Is there a guaranteethat you will be able to renew the policy and what, if any,are the condi-tions?

● Do you have a thirty-day period during which you can decide to can-cel a newly obtained policy and get a premium refund?

● Be certain that hospitalization is not required to occur before anynursing home or home health care benefits will be available.




● Ascertain that there is no requirement to receive skilled nursinghome care before receiving intermediate or custodial nursing care,and that it is not necessary to receive nursing home care beforebeing eligible for home health care.

● Is assisted living included in the benefits? Will adult day care serv-ices be provided under the benefits of the policy? If a family mem-ber chooses to care for the long-term care patient, is respite care pro-vided for them? How much of each of these types of services is pro-vided for in the benefits? How long will the services be provided?

● Is there a lifetime benefit payment cap? If so, is it high enough tomeet your needs? Is there a different cap for different services?

● Are preexisting conditions covered and if so, how long is the waitingperiod?

● Does the policy offer any nonforfeiture benefits if the policy is notused?

● Are the premiums waived when benefits are being paid by the poli-cy or must the payments continue in order to continue receivingbenefits? What types of care provide premium waiver provisions?

Disability or Income Replacement Insurance

What financial position would you and your family find themselves in if you oryour spouse were unable to work for six months? What if you were unable to workfor a full year? Would you be able to survive if you could not work for even longer?

A very important protection for you and your family can be disability insur-ance or income replacement insurance. This type of insurance is available in




both short-term coverage, which covers short periods of time during whichthe insured wage earner cannot work due to accident, illness, or medical con-ditions. It is also available in long-term coverage, which covers longer periodsof time that the insured wage earner may be unable to earn income due to dis-ability. Both types of coverage may be tied together in a single insurance plan,or you may purchase these types of coverage separately. They can be one of themost important types of insurance coverage, especially for those who do nothave significant assets on which to fall back should they be unable to earnmoney for a period of time.

Social security disability income (SSDI) is not the same as having incomereplacement insurance. Should you become unable to work, social security dis-ability requires a minimum waiting period of six months after you become dis-abled before paying any benefits and that is if you can actually get your claimapproved on a timely basis. Many people experience delays of several years andget their claims denied once or more before finally getting through the red-taperequired to obtain SSDI. Even once you obtain any SSDI benefits to which youare entitled, you may find that the amounts paid to you do not allow your fami-ly to maintain a lifestyle similar to the one they had enjoyed before your loss ofincome.

According to government statistics, you have a 40 percent chance of becomingdisabled for some period at sometime during your career before you reach ageforty.As your age increases, your chances of experiencing a period of disabilityor permanent disability become greater and greater. That is a rather high riskof experiencing one or more periods of being unable to perform your normalwork for some period of time during your working lifetime.

By purchasing short-term disability insurance, you are protecting your incomeagainst periods you cannot work that are longer than a normal two-week vaca-tion but not greater than six months. These policies are great for providing




income should you require surgery that will take you away from work for a sev-eral months during rehabilitation. This coverage is especially crucial for youngfamilies that do not have substantial savings built up to survive in the event ofan emergency situation where a major breadwinner is unable to work.

Long-term disability insurance normally begins to pay, if purchased as a sepa-rate policy that compliments a short-term disability policy, at or just before thebenefits from your short-term disability insurance benefits expire. This type ofpolicy can insure your family maintains their lifestyle should one of the majorbreadwinners be unable to work for a long period of time or even permanently.

With long-term individual disability insurance policies through private insur-ers rather than employer group insurance plans, you will pay a premium basedon the amount of insurance you need. The maximum amount of insurancebenefits available to you are generally calculated based on a percentage of yourearnings over the past three-year period.

It is very important to see if an insurance coverage plan offers true incomereplacement. This term sounds complex, but it really means, quite simply, thatyou will be able to obtain benefits when you are unable to perform your regu-lar job duties. The big deal here is that if your job requires that you stand forlong periods and you are medically unable to stand long enough to meet therequirements of your job, you will be able to collect benefits until you are eitherable to return to your normal job or can find employment that allows you toearn enough not to need the disability income any longer.

When you are receiving benefits from a disability income replacement insur-ance policy, you will not receive the same amount of money as you earned atyour job. The benefits are based on a percentage of that income. The amount ofpremium you pay is tightly tied to the amount of benefits with higher premi-ums being charged for policies that pay 80 percent or more of previous income




and lower premiums being charged for those that offer 60 percent of previousincome.

Income replacement insurance will not provide benefits, generally, for any actsof self-injury regardless of the period of time you have carried the policy.Whenyou initially purchase a disability insurance policy, there is usually a periodfrom thirty to ninety days during which you will not be covered. This is calledthe elimination period. This is to prevent people who know they have a debili-tating condition from purchasing insurance and fraudulently obtain benefits.The time to purchase this type of insurance is while you are healthy and don’texpect to require the benefit.

The majority of these types of insurance policies will either expire or reduce ben-efits by up to one half once you reach the age to qualify for Medicare. Some insur-ance providers will let you convert an income replacement policy to a long-termcare insurance policy without medical proof of insurability once you reach agesixty-five.

If you become unable to return to your previous type of employment, you maybe able to work on a part-time or full-time basis and still collect some of yourincome replacement insurance benefits depending on the provisions containedin the policy. Generally, you cannot earn more between your gainful employ-ment and your benefits that you earned before your disability, but this doesallow some people to return to the workplace and maintain their lifestyleseither in different types of jobs or with reduced duties at their former work-place, which can be fulfilling and help them feel less disabled.

Vehicle Insurance

Almost everyone owns vehicles of some type or another. You probably own acar, sport utility vehicle, truck, or other daily transportation. You might alsoown a motorcycle, boat, snowmobile, all-terrain vehicle, recreational vehicle,




travel trailer, or other type of equipment that may be used on or off road. Thesetypes of vehicles must be registered and most must also have license plates.Allthese vehicles need to be covered by insurance and most are legally required tocarry certain types of insurance based on the laws of the area in which you live.

The term auto insurance covers cars, trucks,SUVs,and standard types of trans-portation that are used on the highway on a regular basis. During 2002, the lastyear for which final information is available, the number of highway fatalitiestotaled over 43,000 nationwide. That equates to about 115 highway fatalitiesper day. And those numbers only reflect the accidents involving autos wheresomeone died. There are millions of fender benders each year in this nation. Itmay be your fault; it may be the fault of another driver; or it may be a mechan-ical fault or other cause for the accident, but the result is the same: one or morevehicles are damaged and one or more people are potentially injured.That vehi-cle and those people could be your vehicle and you or your family members.




In most states, if not all, it is a legal requirement to carry certain auto insurancecoverage that usually includes minimum liability coverage to cover the dam-ages you might cause to another driver’s vehicle and/or person. Some states,especially those that have no fault insurance laws require that every drivercarry personal injury protection (PIP) coverage and that the first medical pay-ments incurred by them or the passengers in their vehicle, regardless of who isat fault in the auto accident, be paid to that auto owner’s insurance policy up tolimits stated in the specific legislation.

If you have financed your vehicle and are making monthly payments to yourlender, you are almost certainly required by the lender to cover their interest inyour vehicle by carrying collision insurance. Collision insurance covers the costof repairing your car in the event you damage your vehicle in a one-car accidentor pays for the damage to your car in an accident that is your fault, after certaindeductible amounts are met.

Comprehensive coverage covers your vehicle against losses from theft, glassbreakage, storms (with certain limitations), vandalism, fire damage not cov-ered by your homeowners insurance policy, and other specific hazards, usuallyafter a deductible has been met on many of the hazards.

It is crucial to your personal financial security that you carry sufficient liabili-ty insurance coverage to insure yourself against any lawsuit that could be filedagainst you in the event that you or one of your family members becomeinvolved in an auto accident that causes another person to be injured or theirproperty to be damaged. It is also crucial that you cover your and your family’smedical needs should an auto accident result in the need for medical treat-ments, which can be extremely expensive and may not be covered under othermedical insurance if your state laws required that you carry insurance coveragefor that type of loss.




The same features that are involved with auto insurance apply to any othertype of on-road or off-road vehicle you own that could cause damage to a per-son or any property. The same features also apply to any on-road or off-roadvehicle on which you are legally required to carry insurance coverage or onethat you are financing to cover the lender’s interest in the vehicle.

Before Purchasing Any Type of Insurance

Before you begin considering various types of insurance, there are a few pointsto consider to help you decide what types of insurance you wish to purchase tocover you, your family, your home, your health and your family’s health, andyour ability to earn money.

1. When comparing insurance prices for any type of insurance, be sureyou compare apples to apples and oranges to oranges. In otherwords, be sure the comparison is between different insurance poli-cies that provide the exact same coverage. Read any exclusions. Youmay find that one policy is much less expensive because it coversfewer situations. If the comparison is not between like products, youcan not make an informed decision.

2. Determine exactly what is the deductible and what is paid bythe policies. Many policies for almost every type of insurance,except life insurance, carry a deductible payment amount. This is aset amount of money you must pay out of your own funds towardthe expenses before the insurance policy begins paying the costincurred that are covered in the insurance policy. This deductibleamount can vary from as little as zero in some cases up to quite largesums such as one thousand dollars or even five thousand dollars ormore, depending on the particular insurance type and policy provi-sions.Again, do not compare policies that have different amounts ofdeductibles but compare policies that have equal deductibles inorder to make an informed decision. The amount of deductible you




choose for policies is entirely up to you in most cases, and a goodrule of thumb is to select a deductible amount that you feel you canrealistically afford to pay in the event of a loss or in the case of a needto use the benefits of the policy coverage. For instance, if you feelcomfortable with health insurance that has a five-hundred-dollardeductible payment for each family member before that familymember’s medical expenses begin to be paid by the health insur-ance company, then that could be the best level of deductible for youto choose. If you feel more comfortable paying a much smalleramount before the health insurance begins to pay expenses, forexample one hundred dollars per each family member, then youshould choose a health insurance policy that has a low a deductiblepayment as possible. The same concepts regarding insurancedeductible provisions are true of car and home insurance. You, andonly you, can make these decisions.

3. Understand any required co-payments. The concept of co-pay-ment applies mainly to medical, prescription medication, andhealth care insurance coverage. It is, however, a very importantpoint about these policies to understand before making your choic-es. In the case of a health insurance policy that has a $500deducible, after which it pays 90 percent of covered expenses, theamount you are required to pay for each covered doctor’s visit ortreatment is 10 percent of the cost. This is called the co-payment. Itusually must be paid at the time of the service. The higher the co-payment, the lower the cost of the insurance policy in most cases.However,you must pay the co-payment each time you seek treatmentor services covered by the policy. Another area where co-paymentsare often required is in the case of prescription medication coverage.These co-payments may be a percentage of the cost of the prescrip-tion medication or a flat amount per prescription. Prescription med-ication co-payments for generic medications are often much lower




than for name brand medications.Be sure to inquire and understandany co-payments required for each situation before buying an insur-ance policy. Also, learn if there is a payment amount that, when youhave paid that much out of pocket expenses,your insurance coveragebegins to pay without any co-payment.

4. Investigate the record of the insurance company you are think-ing of purchasing insurance from to learn if they pay quickly and ifclaims are easy to file. Some insurance companies require lengthyforms, others are quite simple. Again, this investigation and choicemust be yours alone.

5. Do you wish to purchase through an insurance agent or direct-ly from the insurance company through online choices? Forsome people, the insurance agent and their ability to explain techni-calities is very helpful. Others prefer the additional savings of buy-ing insurance on their own because they are well-versed in what tolook for in insurance policies. Here, again, is a choice you must makethat no one can make for you.

6. Don’t rush to purchase the first insurance choice offered.Investigate, compare, shop around before you choose. While this isonly common sense, many people buy the first policy that soundsgood and find later they could have saved money by making a dif-ferent choice.

7. Learn if your employer provides affordable choices before buy-ing coverage on your own for items like health care, disability, cata-strophic medical (cancer insurance), and even life insurance. Grouprates are almost always much less expensive than buying a singlepolicy. While you may wish to buy through your employer and pur-chase additional insurance privately, be sure to ask questions aboutwhich policies will pay what, which pays first, and other details soyou can make a wise choice in purchasing insurance.




8. Learn about insurance from both your employer and yourspouse’s employer if both of you are working outside the home.Sometimes having duplicate insurance doesn’t pay off while othertimes it does. That investigation and decision is, again, somethingwe can’t advise you about, but you must investigate and make aninformed decision on your own. Also, consider whether you or yourspouse may be thinking of leaving the workplace in the near future.This can impact which employer you wish to purchase insurancecoverage through.

9. Learn what insurance policies your employer provides for free,if there are any. Some employers provide a certain amount of lifeinsurance or disability insurance at no charge to the employee as anemployee benefit. If this is the case with your employer, you’ll wantto determine if the insurance provided fulfills your needs or if youwant to purchase additional coverage.

10. Learn from experiences of others. People who have experiencedlosses to their homes due to storms and flooding have learned thehard way that not every policy for home owners pays for the sameitems.You must shop for what you and your family need and desire,and it is wise to not simply purchase only the minimum required byyour mortgage company. An informed insurance shopper is a wiseand effective insurance shopper.Learn exactly what the different def-initions in the policies you consider actually mean when it comes towhat will be paid. Storm, wind, hurricane, and flood may meanentirely different situations,and one policy may not pay for all events.

11. Never make any assumptions whatsoever when shopping for anytype of insurance. Ask lots of questions whether you choose to usean agent or an online insurance information source. If the insurancecompany is not willing to answer every question you have, youmight want to move on to another insurance provider.




12. Note any exceptions. Some insurance policies will pay no benefitsin the event of death due to suicide regardless of the length of timethe policy has been held in effect. Other insurance policies will paybenefits for death due to suicide after the policy has been held fora lengthy time. Many, perhaps even all, insurance policies do notpay for death if caused due to acts of God or acts of war. If this isincluded in any policy you are considering, you must fully under-stand the exact definition of these terms as they are used andapplied by that specific insurance policy. For example, would aninsured’s death in a terrorist attack such as those of 9/11 be con-sidered an act of war under the definition used by that insurancecompany? Would being struck by lightning be construed as an actof God under a specific insurance policy? Ask questions, and besure you understand these terms as applied to a policy you areconsidering. They are not defined exactly the same from companyto company due to small differences in the fine print so always becertain to read all that tiny fine print! You are responsible for fullyunderstanding any insurance coverage that you purchase and whatthat insurance may exclude.

13. Seek unbiased professional advice when you need help determin-ing exactly what your insurance needs include. Your personalfinancial advisor, accountant, or another professional that has aclear understanding of your situation, the type of insurance youare considering, and who is not attempting to convince you to pur-chase anything but instead is able to view your situation from anobjective point of view should be consulted if you do not under-stand what insurance coverages you may need or what provisionsand coverages would be wisest for you and your family. Insuranceis a complicated and complex issue, and it is well worth spendingthe time and money to obtain objective professional advice to pre-vent making an expensive mistake.




These are only meant to be some rough guidelines to assist you in your ownsearch for appropriate insurance coverages for you and your family’s specificsituation and insurance needs as well as food for thought when you ask ques-tions about insurance of various types. The only hard and fast advice providedabove is that it is only practical to compare policies offering the same coveragesrather than policies with significantly different covered benefits. The otherpoints are only suggestions, and you must pick and choose which ones toimplement in your own personal financial situation and that of your family.




SECTION THREE:INVESTING TO

INCREASE PERSONAL WEALTH

Introduction to Investing to Increase Personal Wealth

Robert G.Allen, the bestselling author of One Minute Millionaire, CreatingWealth, and other best-selling financial advice books, is renowned forhaving said: “How many millionaires do you know who have become

wealthy by investing in savings accounts? I rest my case.”Of course, he was (andis) absolutely correct. Savings accounts are very safe and secure ways to earn asmall amount of interest on money, but they are poor ways to generate true per-sonal wealth.

So where do you start doing something about your financial future? It doesn’tmatter whether you are young or old, you have to begin somewhere and sometime. There is no time like the present! So, in this section, we will try to removesome of the mystery about investment to increase personal wealth. We will lookat stocks,bonds,mutual funds,and other elements of an investment portfolio.Wewill also look at fees charged when buying or selling these instruments,and otherfacts you’ll want to know when looking at investments and beginning to buildyour investment portfolio.

Of course, just as with any other personal financial arena, you want to seek unbi-ased, professional advice as to exactly what investment strategies, instruments,and risks make sense for you and your family’s financial situation.Your personalfinancial advisor or accountant can provide help for you in this area as well as fur-ther explain any specific concepts or strategies about which you want more infor-mation.Knowing when to seek further advice is one of the most important piecesof knowledge an investor can have in their investment tool box.

There is one asset that every investor shares and that asset is time.While makingyour move on stock purchases can at times be time sensitive, you can invest yourtime into learning as much as possible about investments and the strategies andrisks associated with them to make you a smart investor so that you can make thebest possible decisions when investing your hard-earned money into invest-



INVESTING TO INCREASE PERSONAL WEALTH

ments so that you increase your personal wealth as much as possible and avoidthe pitfalls that may be out there in the financial world.

With basic knowledge and some sound advice, any investor can improve theirfinancial standing. The concepts may sound quite complicated at first, but theyare really simple to employ once you fully comprehend them and you can applythem to your investment strategies.

It requires money to invest in a stock or other financial investment. However,unlike many people believe, you do not have to have a great deal of money tobegin to build a portfolio.You can begin with only a little money, as little as $500or $1,000.Some discount brokers advertise you can begin with as little as $50,butbecause of commissions charged for making trades, it is a good idea to beginwith a bit more than that. Of course, the more money you place in wise invest-ments that pay dividends and grow in value, the more money you will make. Butyou can still begin small and work you way up; many millionaires have begunwith only a small investment fund and made smart decisions.


INVESTING TO INCREASE PERSONAL WEALTH


THE STOCKMARKET

Investing is not some mysterious, magic formula that you somehow missedout on learning. In fact, in reality the investing is as simple as opening a bro-kerage account that permits you to purchase or sell stocks, bonds, mutual

funds, and other investment instruments based on instructions that you provideto the brokerage. You can provide these instructions to a local brokerage whereyou actually meet the brokers face-to-face or you can use an online brokerage.Most investors prefer to use an online brokerage only after they understand thebasic concepts and know how to make informed decisions on their own.

Understanding the Stock Market

The stock market is the mechanism that allows the buying and selling of stocksof various companies and other investments. The stock market is used by com-panies as a means of raising money by offering stocks to investors. It is also aplace for people who own stocks to sell them or buy more.

The stock market is often used as an economic indicator. When the economy isstrong, stock prices tend to increase because companies are in a position to



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increase their business based on consumer needs and demands. On the otherhand,when the economy is weak, the price and value of stocks tends to decreaseon the stock market due to consumers purchasing less of the products or serv-ices offered by the companies listed on the stock exchanges. This means thevalue of a company and the value of a stock held in a company can change quiteradically and rather quickly. For this reason, many people view the stock marketas risky.With sound investment advice, you should not think of investing in thestock market as a risky proposition but as a sound means of increasing person-al wealth.

During periods that the values of stocks on the stock market are generallyincreasing, people refer to the situation as a bull market. When the values ofstocks on the stock market are generally decreasing, causing investors to sufferfinancial losses, the situation is referred to as a bear market. Of course, you wantto keep on your toes so that you buy and sell stocks at the optimum times andcause your personal wealth to increase as much as possible.

Stock Exchanges

Stocks and investments are bought and sold on a stock exchange. This is anorganization that brings people together who buy and sell stock in a single place,and there are several stock exchanges. The largest and most well known of thesestock exchanges are:

● New York Stock Exchange (NYSE) (http://www.nyse.com) – TheNYSE, based in New York City, is the largest of the stock exchanges interms of dollar value.This stock exchange is commonly represented inthe minds of people as “Wall Street,” because it is located on WallStreet in New York City in the center of New York’s financial district.

● NASDAQ (http://www.nasdaq.com) – The NASDAQ Exchange wasoriginally known as the National Association of Securities Dealers



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Automated Quotations, but people found that quite a mouthful socommonly called it NASDAQ,and the official name eventually becamejust NASDAQ. The NASDAQ trades more companies than any otherexchange but is not as large as the New York Stock Exchange in termsof dollar value traded. The NASDAQ is an electronic stock exchange,which means that trading happens online. It was the first electronicstock exchange in the world and is preferred by many investorsbecause electronic trading is so fast and convenient.

● American Stock Exchange (AMEX) (http://www.amex.com) – TheAMEX, also based in New York City like the NYSE, trades mainlystocks of small to medium companies. It is significantly more liberalabout the listing rules that control what companies can trade on thatexchange than either the NYSE or the NASDAQ.

It is simple to buy and sell stock on a stock exchange. You do not have to dealdirectly with a person who is willing to buy a stock you want to sell or try to finda person who is willing to sell a stock you want to buy. Even if you were some-how able to locate these people, you would probably be in a poor position toobtain the best possible deal on the transaction. The stock exchanges, whethertheir transactions occur online or occur because of licensed traders on the trad-ing floor, are operated much like an auction. The person authorized to sell astock offers stocks for sale to the highest bidder who is authorized to purchase astock. It really is much less complex that it all seems at first!

Who Trades on the Stock Markets?

Anyone, including you, can buy and sell stocks via the stock markets. However,it would make little sense if you, personally, were to go to one of the stock mar-kets and attempt to bid on stocks in person. The process on the trading floor isso fast paced and chaotic, you would almost certainly be completely over-whelmed when you probably only want to buy or sell a small number of shares



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of stock compared to the massive number of stocks traded every single day themarket is opened for business.

For this reason, professional stockbrokers are employed by the average investorand these trained and licensed professionals handle the stock market trades foryou. The actual purchase or sale of the trade may occur because a licensed stocktrader employed by a brokerage actually stands on the trading floor at the physi-cal location of the stock market, as is the case with trades accomplished on theNew York Stock Exchange and AMEX, or the trade may be accomplished elec-tronically in the case of NASDAQ.

This trading process only makes sense. The actual trading floor of the stockexchanges is chaotic to say the least.It would be completely unmanageable if eachof the millions of people who wanted to trade on the market were required toshow up in person and try to effect a trade. Therefore, professional stockbrokersperform the actual trades on the stock market for individuals and companies.What this means to you, a private individual trying to increase your personalfinancial wealth by investing, is that you will need a stockbroker to help you per-form trades on the stock markets.

The Trade Transaction Process

The precise process of buying or selling a stock varies somewhat based on factorssuch as the type of brokerage you are using, but the general process is much thesame except for some minor nuances. The general process of the transaction is:

1. You, the investor, provide money to your broker for the purpose ofinvesting.

2. Your broker deposits the funds received into your personal tradingaccount.

3.You decide to buy or sell a certain stock and how many shares of thatstock to trade.



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4. You inform and authorize your broker to perform the desired tradetransaction.

5. In the case of a full-service broker making a trade on the NYSE orAMEX,a stock trader representing the broker physically goes onto thestock exchange trading floor and executes the transaction. Or, in thecase of a NASDAQ trade, the broker performs the transaction online.If you are using a discount brokerage, the service performs the trans-action by communicating electronically with the stock exchange toexecute the trade.

6. If you are buying a stock, the stock exchange locates a stock ownerwilling to sell the stock to process your trade. If are selling a stock, thestock exchange locates a buyer who is willing to purchase the stock.The buyers and sellers are matched as near instantly as possible so theexchange can be completed.

7. Shares that are purchased for you are registered in your name andstock certificates are issued. The actual certificates are generally heldby the brokerage but a person can request the certificates to holdthemselves if they wish.

Choosing a Brokerage

Stockbrokers, or just brokers, are professional agents who are authorized to rep-resent their clients in the purchase and sale of shares of stock or other invest-ments handled on the stock exchanges. This makes choosing the broker that willrepresent you and your investments a crucial step in building personal wealththrough investments.You want to locate a broker that you can trust and in whomyou have great confidence and respect.

Every broker must be registered with the National Association of SecuritiesDealers (NASD) (http://www.nasd.com). They must also pass a licensing exami-nation, either a series 6 exam, covering securities law on a national level, or series



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7 that is a general securities exam.A broker must also have training and on-the-job experience and, depending on the specific state in which the broker operates,they also have to meet and maintain certain state licensing requirements thatvary from state to state. In many states, the minimum requirements include abachelor’s degree, certification by the NASD, and often additional experience ortraining requirements must be met.

Brokers earn money by charging fees for their services. These fees, are calledcommissions are charged for any share trades or other transactions performedby the brokers on behalf of their clients. Some commissions are flat-fee based.Other commissions are calculated on a per-trade basis; still other commissionsare calculated as a percentage of the value of the transaction. Commissions varydepending on the brokerage, the brokerage type, and the services selected by theinvestor.

Full-service brokers represent their clients in the buying and selling of invest-ments owned by the client,but they also provide investment advice and guidanceto the clients. As a result, their commissions are generally higher than those of adiscount broker who provides little or no advice and guidance. While commis-sions are much lower when using a discount broker, the beginning investor mayfind the advice and guidance offered by the full-service broker to be more thanworth the higher commissions charged. Only you, with the advice of your finan-cial advisor, can determine what type of broker and which specific broker is theright choice for you.

There are certain points, however, that are crucial to determine and considerwhen selecting a broker who will be granted permission to oversee your invest-ments and perform transactions based on your instructions. These include:

● The broker you choose should be bonded and insured. Dependingon the requirements of the specific state, stockbrokers are generallynot required to be bonded,which means that the brokerage firm is not



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required to provide insurance protecting their clients against any pos-sible broker misconduct or fraud. Even though it may not be required,it is nonetheless wise to search for a broker that is bonded and insuredto best protect yourself and your investments. No matter how good ajob a particular broker does for you or other clients,and no matter howmuch you trust them, there is never a full guarantee that a broker orone of their employees will not fall victim to temptation and abuse thattrust you have placed in them, resulting in the loss of money investedby their clients.Choosing a broker that is bonded and insured providesyou protection against losses that could impact your financial position.Even if you really like a broker and feel you can trust him or her, besmart and only do business with a broker that is bonded and insured.

● Find out how many clients the broker handles. The more clients abroker represents on a long-term basis,the more it indicates that he orshe is competent and good at what they do professionally becausetheir clients must be pleased with their representation and perform-ance or they would not continue to allow the broker to represent them.But on the other hand, you should take into account the fact that themore clients a broker represents, the less time he or she has to devoteto each individual client. If you desire a substantial amount of guid-ance and frequent, personalized attention, you might not be comfort-able using the services of a broker if your share of the broker’s timeand attention is limited.

● Determine how many communication options are available.Depending on you and your personal style,you may be perfectly com-fortable working with a broker that can only be reached by telephoneor by making an appointment to see them personally. But, you mightwant a broker that also uses e-mail for communications.You might bemost comfortable with a broker that has a direct telephone line rather



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than one who requires that your call be first answered by an assistantor receptionist every time you try to contact him or her. If you like tocommunicate via e-mail, you may want to know whether your brokerchecks their e-mail personally and how frequently he or she does so.This question impacts not only privacy but also security.You want toinquire whether you can fax authorizations regarding trades orwhether you must personally appear and sign authorizations fortransactions. Also, be sure to ask what hours the broker can bereached, because the stock market is quite volatile and you mightwant to provide a trade authorization during hours other than 8:00a.m. to 5:00 p.m. This is especially a consideration if you live outsidethe Eastern U.S. time zone or trade in international markets.

● You need to know how quickly the broker can accomplish a trans-action on the stock market after receiving authorization from you.The stock market changes so fast at times that it can be crucial to havea transaction performed immediately once you have made a tradedecision and provide instructions for your broker to initiate the trade.Remember that it is your broker’s professional responsibility to actaccording to your wishes. Ask how long a typical turnaround of atrade requires from the time that a client makes the authorizationuntil the trade is completed. Compare turnaround times for variousbrokers in order to make certain you choose a broker that is willingand capable of acting quickly in order to make certain your transac-tion is performed as fast as possible.

● Choose a broker that provides the level of advice and guidance youwant and need. Some full-service brokers are very in-depth aboutdetails and background information and are willing to devote a lot oftime to explaining options to you and offering you advice to help youmaximize your investment earnings. On the other hand, some bro-



THE STOCK MARKET

kers, even full-service brokers, may not be readily available and maynot offer as much in-depth information as you prefer. You may findthat at different periods in your investing you desire different levels ofservice or that you need different amounts of advice about differenttypes of investments. Depending on how self-sufficient you are as aninvestor, you may or may not require that a broker have patience andprovide explicit direction.You want to select a broker that can providefor your level of needs regarding advice and guidance. If the brokeryou begin working with does not provide what you need, change bro-kers! You are paying a commission to a broker that represents you, soyou want to locate and pay for the level of service that you desire andneed. Your broker can be compared to an employee, and his or herduty is to provide the services you need when you need them at thelevel at which you are paying for them. If you are not getting what youare paying for from a particular broker, choose someone else who canprovide you with the advice you require to make the best possibleinvestments and the largest possible profit. This is an area where youwill see a big difference between discount brokerages and full-servicebrokerages. Discount brokerages do not provide the level of adviceand guidance that the full-service broker provides, but they alsocharge commissions that reflect this different level of service. Youwant to get what you pay for and pay for what you need to make smartdecisions about investments.

● Learn about the fees and commissions charged and compare vari-ous brokers’fees.Brokers charge a fee,or a commission,for their serv-ices.Most commonly, a full-service broker will charge based on a per-centage of the value of the transactions being performed. In the caseof discount brokers, it is more common to be charged a flat fee pertransaction. However, the amount of commission charged from onebroker to another is not necessarily the same and can vary widely.



THE STOCK MARKET

Compare the fees among various brokers that provide the same levelof service.You will pay a higher commission for a broker that providesmore guidance and advice because they will spend more time makingsure you choose the best investment trades for you. However, if youcompare full-service brokers to full-service brokers, you’ll get a goodidea of which commissions are lowest. The same is true of discountbrokers.They charge much lower commissions but provide much lessadvice and guidance, counting on the investor to be self-sufficient inresearch and decision making. But, you will find that some discountbrokers that charge much less than others for exactly the same leveland competence of service.

● Investigate the broker’s reputation. A good, helpful, well-qualified,and effective broker builds a reputation that is talked about by theirclients.Ask your friends and colleagues if they have a broker to recom-mend to you. Do not expect them to tell you specifics about actualamounts of money they have made; after all, that is personal informa-tion. Most people simply love to tell others about their great stockbro-ker when they are pleased with the services they enjoy. A competentbroker should also be more than willing to provide some long-termclients as references if you ask for them. Check with long-term clientsand learn how satisfied they are with the services they receive.Check the broker’s history by checking their standing with your statesecurities regulatory commission, which can be located through the North American Securities Administrators Association(http://www.nasaa.org/QuickLinks/ContactYourRegulator.cfm).

Choosing a broker is an important decision, and you should never be intimidat-ed about asking plenty of questions.It is your hard-earned money you are invest-ing, and you have every right to know who is going to represent you in makinginvestment transactions.Any broker who is not willing to provide you answers to



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your questions should be cause to simply mark them off your list of potential bro-kers and choose someone who is more professional and forthcoming.

A stockbroker may recommend a specific stock to you. When this happens, youshould ask for additional information to back up the recommendation and tolearn exactly why the broker is making the recommendation.You want to ascer-tain if there is any hidden motive for suggesting that investment to you that mightnot be in your best interest.When a broker recommends a stock, you should ask:

● How has the stock performed historically, or why is the investmenta good choice? If a broker is recommending shares of stock in a par-ticular company, he or she should have information readily availableregarding the past performance of that particular stock and the com-pany offering it. Perhaps the stock has consistently been profitable orthe company has made changes that have caused the stock to reboundfrom a recent low. In the event the stock is an initial public offering(IPO) by a company just entering the stock market, find out why thebroker feels it will soar.

● What is the projected revenue for the stock? A good broker will read-ily provide you with information regarding the outlook for a stock heor she is recommending as well as the methods he or she used to cometo that conclusion.Always ask for specific evidence to back up the pro-jections, which might include things like what independent profes-sional financial analysts are saying about the expected performance ofthe stock.These independent professional financial analysts should inno way be in a close relationship with the broker. Also, learn how,based on past trends of the specific stock or of the industry in whichthe company functions, the broker has determined what the future islikely to hold as far as performance. Find out for yourself whetherstock analysts and publications related to the investment field foresee



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the stock as a good investment. While no one can tell the future orguarantee stock performance,professional analysts are quite skilled atwatching market and industry trends and predicting what stocks willperform better than others.

Never rely solely on a broker’s recommendation. Even if he or she appears to beobjective and unbiased as well as completely convinced that a particular stock isworthy of suggesting to you as a profitable investment, it is still wise to do someresearch and checking on your own.Of course, you are never obligated in any wayto act on any recommendation of any broker regarding any stock or investmenttransaction.If you have any doubts whatsoever about whether a choice is the rightone for you and your particular situation, do not act on the recommendation.

It is true, on the other hand, the good, competent brokers are up to date on finan-cial trends and information and know the ins and outs and ups and downs of theindustry. Therefore, they are a good source of valuable information. If a relation-ship builds over time with a good broker,you may find that many of their recom-mendations prove to be very smart. The broker should never pressure you in anyway regarding any investment or trade.They should provide advice and guidancewhen requested but never pressure.

Discount Brokerages

While all brokers were once full-service brokers and charged hefty commissions,today that is not the case. Once, it was difficult for a small investor to be able tobuy and sell stock readily because of the commissions on each transaction.Today,with advanced technology and ready access to the Internet,discount brokers whooperate online have provided low commissions and transactions that are so fastthey are almost instantaneous. The disadvantage, of course, is that there is mini-mum guidance provided for the extremely low fees. Discount brokers are “nofrills” brokers, and the client must perform their own research and determinewhat investments are smart for them.



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If you choose to use an online discount broker, you should be watchful that youdo not do business with a scam artist that promises you service but ends up onlytaking your money. You should never do business with a discount broker thatcontacts you via telephone or unsolicited e-mail, nor should you reveal any per-sonal information to anyone online unless you now exactly who you are dealingwith in the communication or transaction.There are many skilled and innovativescam artists out there who can easily trick you. If you choose one of the well-established,respected,and recognized online brokerages you can feel much safer.A few of the best known include:

● TD Ameritrade (http://www.tdameritrade.com) – Commonly calledAmeritrade, this discount online brokerage currently charges $9.99for most trades and no maintenance fees are added. Their web siteoffers posted research from well-trusted sources such as Standard &Poor’s, which evaluates financial data and statistics so that theirinvestors can have help choosing when it is wisest to buy or sell sharesof stock. The web site also provides contact information forAmeritrade employees who provide limited advice and support andprovide answers to some basic investing questions. This level of serv-ice is completely unique in the world of discount brokerage services,making Ameritrade a very popular service with those new to discountbrokerages. There are also many online tools to help investors com-pare stocks and aid in making smart investment decisions.

● E*Trade (https://us.etrade.com) – E*Trade offers a range of financialservices, including stock market investing options, retirement plan-ning, college savings, and more. E*Trade charges a flat commissionbeginning at approximately $7.00 for unlimited trades through theirweb site. The exact fee does vary slightly based on the number oftrades performed. There are numerous useful online tools forinvestors such as programs to evaluate earnings potential of invested



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funds, a risk analyzer to help an investor determine the risk associat-ed with an individual investment, and an investment portfolio.

● Fidelity Investments (http://www.fidelity.com) – Fidelity Investmentscharges no standard fee and offers stock trades beginning at $8.00 pertrade. The customer service provided is available twenty-four hoursper day, every day of the week through toll-free telephone lines or thecompany’s web site. The web site provides investment advice, a port-folio planning tool, and research results that indicate performance ofstocks on the market to help an investor make smart investments.Free, in-depth management advice is available for large investors.Fidelity also offers information,advice,and services for other types ofinvestments such as retirement accounts, IRAs, annuities, and more.

● ShareBuilder (http://www.sharebuilder.com) – ShareBuilder charges$4.00 per investment and approximately $16.00 per trade with theirbasic free membership.There are other membership plans available fora monthly fee that offer reduced trade charges.So if you are consideringthis brokerage,you’ll want to compare paid membership to find out if itwill save you money in the long run.If you plan to make multiple invest-ments and frequent trades, the paid monthly membership plans maywell be the smartest option for you. There is an option for automaticinvestment in which money is automatically placed into stock invest-ments from sources such as a direct deposit from your bank account,thereby reducing time and effort you would need to make regularinvestments and helping you build your investment portfolio. The website at ShareBuilder offers a selection of tools, investment advice, and apersonal portfolio builder that many people find quite helpful.

● Scottrade (http://www.scottrade.com) – Scottrade charges $7.00 pertrade no matter how many shares are being traded in the transaction,



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and there are no maintenance fees or charges applied to inactiveaccounts. The company’s web site hosts lots of very useful toolsincluding current research results and streaming stock values. TheirInternet-based support services allow their staff members to providelimited investment advice,and there are also physical locations of thisbrokerage located throughout the United States where you can sched-ule an appointment to meet with a financial advisor to discuss invest-ments and obtain some guidance.

Seeking Stock Advice from Professional Financial Analysts

A resource you may find helpful when determining what investments to select orwhether a certain stock is a good one for you is a professional analyst.These ana-lysts are considered experts, and their advice can be found in press releases andfinancial and investment publications like the Wall Street Journal. The term ana-lyst is rather general and nonspecific and could mean anyone who offers an opin-ion so you shouldn’t take advice from just anyone who decides they are a finan-cial expert. However, there are analysts that you can trust and to whom it is wise



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to pay attention because their predictions of investment performance have his-torically be very accurate. How can you choose what professional financial ana-lysts to whom you should pay attention? When considering whether a financialanalyst is qualified, look at these factors:

● Education: Some colleges offer bachelor’s and master’s degrees infinancial analysis.

● Reputation: Financial analysts that are regularly published in respect-ed financial publications such as the Wall Street Journal are usuallywell qualified because these publications cannot afford to publishhalf-baked information to their subscribers and readers. Financialnews networks offering views from professional financial analystsalso select well-qualified contributors.

● Professional certification:❖ Membership in the American Academy of Financial

Management (AAFM) (http://www.financialcertified.com) is aclear signal that an analyst is qualified to analyze financialtrends and data. Certification that can be earned through edu-cation, passing examinations, and work experience include theregistered business analyst (RBA),certified risk analyst (CRA),chartered market analyst (CMA),and a number of others.Mostcertifications from AAFM require at least five years of profes-sional experience combined with a college degree. Many ana-lysts have upper level degrees such as master’s or doctorates,and they may have other designations such as being certifiedpublic accounts (CPAs).

❖ The Chartered Financial Analyst Institute (CFAI)(http://www.cfainstitute.org) is another organization that pro-



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vides proof of having become an expert in the financial field.Financial analysts can become certified only after passing aseries of professional examinations and obtaining at least fouryears of full-time employment in a position that requiresinvestment decision making. The CFAI requires certificationholders to adhere to a code of ethics and standards regardingtheir professional conduct to help ensure their analyses areunbiased, objective, and helpful to investors who are seekinginformation and advice regarding where to invest their money.


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BUILDING ANINVESTMENTPORTFOLIO

An investment portfolio is really just a collection of all of your investments.A portfolio might contain a variety of different individual stocks,or stockscombined with other investment options, such as certificates of deposit,

money market accounts, mutual funds, or bond funds. Most highly successfulinvestment portfolios reflect a balance of investments so that the funds are placedin different investments with different levels of risk.Your investment portfolio isyour key to building personal financial security for you and your family.

Possible Contents of an Investment Portfolio

There are a number of types of investments you might have in your investmentportfolio. Stocks are almost certainly going to be one facet of your investments,but in most portfolios they are not the only instrument contained in the group ofinvestments. Diversification can help increase the growth of the portfolio as wellas provide different levels of risk. The contents of your portfolio may change overtime based on your strategy at that point in your investing life. The following areinvestments that might be in a portfolio:

● Certificate of deposit (CD) – A CD, as you have learned earlier in thisreport, is simply an investment similar to a savings account but pur-chased for a specific duration, from several months to many years. Itrequires that your money remain until the maturity date and earlywithdrawal carries a substantial penalty. CDs are an extremely safeinvestment, carrying virtually no risk, making these popular for con-servative investors who prefer small but guaranteed returns on theirinvestment rather than potentially higher but more risky investments.

● Money market accounts –Money market accounts are simply savingsaccounts that are offered by most banks and by brokerage firms thathave certain requirements. Usually, a limited number of transactionscan be made using the funds in the account, for example, five permonth, depending on the specific terms of the financial institution.Money market accounts general require a minimum balance that is



BUILDING AN INVESTMENT PORTFOLIO

higher than the minimum amounts commonly required for regular ortraditional savings accounts. Money market accounts offer a higherinterest rate than traditional savings accounts and represent no-riskinvestment opportunities.

● Mutual funds – Mutual funds are funds created when groups ofinvestors pool financial resources into a single investment goal. It isoverseen by a fund manager who is responsible for making invest-ments on behalf of the mutual fund group. Investors in the mutualfund hold shares of the fund rather than individual stocks in whichthe mutual fund is invested.The cost of investing is distributed amongall the mutual fund members, making the cost of investment low.However if you invest in a mutual fund, you do not fully control theinvestment, only the number of shares in the fund that you choose tobuy or sell.These funds do carry risk since they are typically based onstocks, but they can provide high returns.

● Bond funds – Bond funds are mutual funds where the investment ismade into bonds rather than stocks.Bonds are loans that you make ofyour money to a company or to the government. The borrower thenpays you back in periodic installments along with interest that youearn for allowing the borrower to use your money. Bonds are general-ly less of an investment risk than stocks but there is some riskinvolved. The safest choices are government or insured bonds. Bondfunds provide less potential earnings than some other investmentsbut also carry less risk than some other choices.

● Annuities – Annuities are investments that are paid out over a peri-od of time in specified installment amounts.You invest your moneyinto an annuity by either paying a lump sum or making paymentsinto the annuity over a period of time that can extend over a peri-




od of years. When the annuity reaches maturity, you are paidmoney in regular installments, usually monthly. Put quite simply,when you purchase an annuity, you are entering a contract with theissuer of the annuity that agrees to pay you principal and interestafter the annuity matures in exchange for the money you invested.These can be good investments, especially for retirement income,because the income used to pay into some annuities is not taxableuntil the returns after maturity begin to be paid, and at which timeyou may be in a much different tax bracket.

● Real estate – Real estate investments refer to any investments in realproperty, including land, a house in which you reside, a single ormultiple family rental property, or a commercial property. The ideabehind using real estate as an investment tool is to purchase thereal estate at a low price, cause its value to increase throughupgrades or renovation, and reselling at a higher price. While thereis some risk involved with real estate investments, there is also ahigh potential for return.

● Precious metals – Precious metals are any metals that have a highvalue such as gold,silver,and platinum.The term precious refers to therarity of these metals. Just like stock, precious metals can be tradedand their value frequently changes. They are considered to be goodinvestments since their values are not as volatile as stocks and sincethey are tangible items.

Building Your Personal Investment Portfolio

Your personal investment strategy will be based on your personal goals,needs,andpersonality. You may choose an aggressive posture if you are young. You mightchoose a very conservative strategy if you are older.Or,you might choose a blend ofrisk levels anywhere in between. In general, there are three categories of investors:




● Aggressive: This type of investor is often younger, with more timeavailable to recover from any losses that might happen when investingin higher risk stocks. An aggressive portfolio is often populated withstocks of growing companies that you believe are good choices forpotential growth in value in the future.

● Moderate: This type of investor falls in between aggressive and con-servative. Many investors who are a bit older and don’t want the highrisk associated with some growth investments yet is still youngenough to recover from some minor losses should they happen fre-quently fall into this category.This type of portfolio probably containssome low-risk stocks and a limited amount of higher risk stocks com-panies. The best balance for you will shift based on your age and yourspecific financial position as well as the fluctuation of the market dur-ing your investment years.

● Conservative: This type of investor is often older or has fewerresources with which to work. People approaching retirement moveinto conservative postures to ensure their financial resources againstpossible losses due to market changes.

Portfolio Diversification

Diversification is simply choosing diverse investments for your portfolio.Diversification can mean different things to different people. In all cases itinvolves spreading the risk associated with investing money in instruments thatcan fluctuate in value so that some funds are investments in high-risk, high-growth potential stocks. Some funds are invested in moderate risk, moderatereturn investments, and some funds are invested in low risk or even no riskinvestments with lower returns.

The idea behind diversification is,obviously, the fact that you sincerely hope yourhigh-risk investments do provide a high return on investment, but should they




instead lose value, you will have moderate and low-risk investments that are stillearning. This philosophy will allow you to recover from any losses over a periodof time. For that reason, a person nearing retirement wants mainly low- and no-risk investments,because at that point in life security is the best investment strat-egy since the need to use money to supplement retirement income and there ismuch less time to recover from any losses that might be caused by a high-riskstock going down significantly in value.

If you invest mainly in stocks, diversification means buying stocks from morethan one company. You might begin by purchasing stocks in only two companies,one that is a sound but growing company and one that is a company that provideshigh potential growth. Of course, you might want to hold stocks in several differ-ent companies.

Mutual funds are, by their very nature, diversified because when you buy sharesin a mutual fund,the money is invested into the various stocks held by the mutu-al fund. This can be a very easy way to diversify investments in a way that does-n’t require spending a lot of time in research because the mutual fund managerdoes that for you.

You can also diversify by buying stocks in various companies, buying shares inmutual funds, investing in CDs, bonds, and annuities yourself. This method ofdiversification is called asset allocation.Just be sure you spread your risk into sev-eral different levels.

You should also look at correlations in your portfolio. This terms refers to the factthat stocks and other investments may be related in subtle but important ways.For example, if the price of beef rises suddenly, the values of stock in restaurantsthat serve hamburgers may decline as a result. If the cost of corn rises dramati-cally, the price of beef may rise as a result of the fact that corn is used to feed beef.Do you see the relationship? Of course,not all cases of stocks rising or falling rep-




resent correlations.If the price of rice rises and the price of stock in fertilizer risesat the same time, these could be totally unrelated. However, if you do have stocksin your portfolio that are correlated, you should watch for changes that canimpact large portions of your portfolio due to the domino effect from a singlemajor change.

You can also diversify through asset allocation,which simply means placing yourinvestments into each of the various types of investments

Understanding Stock Values

You can diversify and build a portfolio by choosing individual stocks in which toplace your personal investment funds.You’ll need to know how much your stocksare worth at any particular time so you can make trades when it is smart to do so.You’ll also need to understand the numbers used in publications, press releases,and other research resources when investigating potential stocks in which toinvest.

The values of individual stocks can be depicted in various ways.Some of the mostcommon ways to describe the value of a stock may seem quite confusing at first,but once you understand each method,you will find it much easier to understandthe information discussed by financial analysts, printed in newspapers, pub-lished online, and contained in prospectus documentation. Here are some of thecommon ways that the value of stocks may be described:

● Earnings per share (EPS): The EPS is a number that represents thetotal money realized by a company in income divided by the numberof shares of stock that are owned by stockholders called outstandingstock. The EPS value may be adjusted in some ways such as the com-pany may adjust the net income amount used in the calculation toexclude certain major one-time expenses such as charitable dona-tions. This type of adjustment can cause a stock to appear more prof-




itable than it is in reality.Generally, you should look for stocks with anEPS value that matches the company’s predicted growth rate or is atleast close to that growth rate. EPS, however, is not the sole indicatorof how good an investment choice a stock is, and you must take intoaccount all the information before choosing to invest.

● Earnings before interest, taxes, depreciation, and amortization (EBIT-DA): This long term represents how much cash flow the companyenjoys. Generally, the value of a company should be three to six timesthe EBITDA in order to be a good investment possibility.However, theEBITDA may vary based on the condition of the stock market in gen-eral and facts in the particular industry in which the company issuingthe stock does business.

● Enterprise value (EV): The enterprise value is the total value of thecompany at the actual price it is traded on the stock market. The fig-ure is calculated by the total value of all stocks that represents themarket cap from which the total debt owed by the company is sub-tracted. This is a good point of reference for the actual price of thestock, but it can fluctuate quite rapidly just as the stock prices fluctu-ate. The EV is used in calculating other ratios that reveal meaningfuldata about the company’s true value.

● Growth rate: This is the rate at which the company is expected to growand increase in value in the future. Historic growth is no guarantee offuture growth, but you can learn what the historic growth rates andthe projected growth rates are for stocks you are considering. Simplyresearch by checking several different respected sources for financialanalysis projections. As a general rule, a company with a growth rateexpected to be at least 10 percent or more over the next 5 years is agood candidate for consideration.




● Price-to-earnings ratio (P/E ratio): This is the ratio generated whenthe price of a stock is divided by the earnings per share (EPS). It canbe computed from past earnings, but it is more helpful to look at for-ward P/E that is based on the projections for the company’s future. Togenerate this ratio, divide the current stock price by the EPS projec-tions for the next four quarters. These projections are widely pub-lished in financial industry publications, company press releases, andmany online sources.

● Price-to-sales ratio: This ratio compares the current stock price to thecompany’s annual sales, indicating how much the stock costs com-pared to the earnings. It is computed by dividing the total of all thecompany’s sales for the past year by the number of outstandingshares. While it is useful for comparing to the price-to-sales ratios ofother companies, it does not take into account the debt owed by thecompany and may be reflected as a high ratio even though the com-pany is deeply in debt. Look for stocks, in general, where the price-to-sales ratio is two or less, indicating a stock that has a low market priceand is undervalued but may offer great dividends. If the ratio isgreater than two,the stock is considered a growth stock and can carrythe risks associated with growth stocks.

● Return on invested capital (ROIC): This measures how much moneya company makes each year per dollar of invested capital. The moneythat has been invested in the company by stockholders and through loansor other incurred debts are all taken into account in this ratio that is deter-mined by dividing net annual income by the amount of invested capital.In the case of this ratio,the higher the number,the better the stock.

● Return on assets (ROA): This ratio is a measure of the company’s netannual income divided by its total assets,reflecting how much money




the company is making from its assets and indicating the company’sability to manage assets. However, because the ROA can vary signifi-cantly because of certain events such as large charitable donations,write-offs, or certain other issues, be wary if the ROA is exceptionallyhigh or low.

Choosing Mutual Funds

Mutual funds can be a great choice for some of your investment portfolio. Theyare cost effective since you pay only part of the investment cost of each stock thefund invests into, and the sometimes tedious work of researching individualstocks is performed by the fund manager. That makes investing in mutual fundseasy. Even better, they provide automatic diversification by providing a spread ofthe risk. If you have investments in more than one mutual fund, the diversifica-tion is greater and the risk is spread even more.

The advantages of mutual funds lie in the fact that they provide easy diversifica-tion and as a result a spread risk associated with investing in stocks. This, com-bined with the sharing of fees associated with the fund transactions by all themany mutual fund investors involved in that particular mutual fund,makes theseinvestments popular.

The only real disadvantage—and for many investors this can really represent abenefit rather than disadvantage—is the fact that you do not personally controlthe decisions about which stocks the mutual funds are invested. If you are thetype of investor that does not wish to spend a lot of time researching stocks andattempting to make smart choices as to which stocks to buy and which to avoid,the mutual fund is a perfect investment method. The fund employs a profession-al mutual fund manager to do all that hard decision making for you. They aretrained and experienced in making smart choices for the mutual fund investors.If, however, you like to have a great deal of control over exactly what stocks are




purchased and traded, then other investments may appeal to you more than themutual fund.

Stock Funds

Stock funds operate almost exactly like mutual funds in that the money ofmany different investors who are involved in the stock fund is placed into afund for the purpose of purchasing stocks. These funds can provide a largeprofit, but they also do have some risk. Just like a mutual fund, you enjoy auto-matic diversification and the risk is spread over a selection of stocks—but justas with any investment involving stocks, there is no guarantee as to whetherthe stocks will go up or down in value and how much the change in valuemight be at any given time. There are several different types of stock fundsinto which you might invest. Each different type of stock fund differs in riskand potential profits:

● Growth funds: These are stock funds where the fund’s money isinvested in stocks that are projected to be among the fastest growingand most profitable stocks available on the stock market. These, ofcourse, by the very nature of the fact that they are projected, are notguaranteed. Typically stocks with the highest growth potential arealso the most risky as well.

● Value funds: These are stock funds where the investors’ money isinvested in stocks of large companies and some select medium-sizedcompanies that are underappreciated and tend to pay significant div-idends. They do carry some risk, but not nearly as much as withgrowth funds.

● Blend funds: These stock funds include some growth companies,some value companies, and some well-established companies. Theyare funds that provide an opportunity for the moderate investor who




wants less risk but still does not want to go into a totally conservativeinvestment posture.

● No-load funds: These are stock funds in which the investments in theform of stock shares are sold without commission or other feesbecause the shares are distributed by the investment company ratherthan through a middle man who takes a share of the money. Thesefunds let all the money work for the investor and can be a good invest-ment choice.

● Large-cap funds: These stock funds invest the money provided by theinvestors into companies with an exceptionally high market value thatare very well established firms. These are also commonly called bluechip stocks issued by blue chip companies, because these investmentchoices tend to pay large dividends regularly and the stocks are greatinvestment choices offering rather small risk.

● Mid-cap funds: These stock funds invest in medium-sized companiesthat are reasonably well established but are not as well established asthe blue chip companies.These stock funds provide moderate growthand moderate risk and can be good investments.

● Small-cap funds: These stock funds invest the money placed in theirtrust by the investors mainly into newly emerging companies thathave low market value and great growth potential. These types ofinvestments are much riskier than some other types of investments.However, when the growth companies become successful, they canreturn quite large dividends and really pay off for the investors.

● Index funds: These stock funds are those in which the money providedby the investors is invested in stocks selected to match a specific index




chosen by the agreement of the investors. These stock funds can bequite cost effective and may provide very good earnings, but, as withany stock, there is always some risk.

● International funds: These stock funds may include global fundswhere domestic and international stocks are included, foreign fundswhere international stocks are included, or funds focused on stocksfrom a particular country or a particular overseas emerging market.

● Sector funds: These stock funds invest in a specific sector or industrysuch as pharmaceuticals, health care, or another specific industry.There is limited diversification in sector funds because a marketchange can result in the stocks of all companies in that sector chang-ing, but it does provide some spread to the risk and can provide goodearnings.




Adding Real Estate to Your Portfolio

Investing in real estate can be a great investment to include in your portfolio.Realestate includes single-family homes, multiple-family housing, and commercialproperty. Most people invest in at least one piece of real estate—their primaryresidence and that is, in itself,a great investment.But it isn’t the only way to investin real estate.

For many American families, the equity built into their primary residence due tothe portion of the value of the property that has been paid for via their mortgagerepresents the largest single savings account they own. Purchasing the home inwhich you and your family lives is the best way to provide for housing, becauseeach payment made on a mortgage adds at least some portion of that paymenttoward the principal of the loan, building value in the home you own. The downpayment made on a home when the house is originally purchased is automatical-ly,for the most part,turned into equity,because the home mortgage is reduced bythe amount of the down payment. When a home you are purchasing through amortgage is sold to another person, the portion of the proceeds that is notrequired to pay off any remaining mortgage due is owned by you, the seller.Historically,homes maintained in good condition in good neighborhoods tend toincrease in value simply as time passes, so the amount for which you sell yourhome, should you decide to relocate or upgrade to a larger home, may be muchmore than the price for which you bought the home some years ago.

One reason that real estate is such a wonderful investment is that people needplaces to live and places to conduct business. That is just a fact of life. Some peo-ple, for one of many different reasons,want to live in properties they lease or rent.Many businesses lease the premises on which they conduct their day-to-daybusiness functions. This can offer a real estate investor a good opportunity toinvest in properties they wish to keep their money invested in over the long term.These situations can even provide income for the real estate investor well intotheir retirement years. By purchasing rental properties, the amount the renters




pay to you, the landlord, should be enough to cover the cost of the mortgage,taxes, and maintenance, allowing you to build equity in the property. Then, youcan sell the property at any time you wish, having obtained the equity, in effect,for free. This can involve an investment in time in order to manage and maintainthe properties, but the pay off can be quite large.

Another way to make money in the real estate market, is to buy low and sell highrather than to purchase property with the intention of holding it for the long termand leasing or renting it or even living in the property yourself or using it as avacation home. When using this strategy, you purchase a piece of property,improve the structure, and then find a buyer willing to pay significantly morethan the cost you originally paid for the property and improvements. Or, you canpurchase a piece of property and hold it until the property value goes up signifi-cantly and then locate a buyer.

Because people will always need places to live and places to do business, either ofthese real estate investment strategies can be very profitable.The risk of the valueof real estate going down drastically is small. It is true, however, that real estatevalues can fluctuate over short periods of time as the general economy changes.Yet, even if the real estate market takes a downturn, if you are in a financial posi-tion to hold on to the property until prices rebound and you hold a diversifiedportfolio rather than just real estate investment, you should be in a good positionto wait out the real estate value fluctuation by simply holding on to the propertyuntil the real estate market soars again. Traditionally, over long periods of time,real estate holds its value very well, making it a very good investment prospect.

The process of buying property,upgrading it,and then selling it for profit is calledflipping real estate. In this type of real estate project, it is important to locate astructure that is basically sound but needs some changes to make it more up todate, more attractive, and more livable before offering the property for resale.The ideal situation is one in which the upgrades require minor investment for




maximum added value.In the case of a home that simply needs paint,new appli-ances, flooring upgrades, and minor changes for curb appeal, the cost of theupgrades can be turned into a large profit.

Choosing the right property to purchase either for flipping or holding over thelong term is very important. You must seek out property that is structurallysound and well located. You will also have to make certain that the title to theproperty is free and clear of any liens. You want to select property that is in aneighborhood where other properties similar to the one you are considering arelocated and where the zoning is appropriate for the type of use you plan for theproperty.

Online resources include Realty Times (http://realtytimes.com/) and CreativeReal Estate Online (http://www.creonline.com/). They have lots of articles thatcan help you.You’ll find many others as well.

Adding Retirement Accounts to Your Portfolio

One of the smartest things you can add to your personal investment portfolio,regardless of your current age or how many years it will be before you plan toretire, is one or more retirement accounts. After all, you will eventually retireand be without the steady stream of income you have enjoyed during yourcareer. Just because you no longer work at a job, however, doesn’t change thereality of having to pay bills, buy food, take care of your health and the healthof your family members, and all the other expenses associated with living aquality lifestyle.You will want to plan for those retirement years so that you canenjoy yourself and your family and can do some of the things you’ve alwaysdreamed of such as traveling, enjoying sports like golf, or whatever your retire-ment plans might include.

While you may well qualify to draw Social Security retirement income, it isbecoming more and more uncertain whether that program will survive the




volatility of the economy. This makes it crucial that you address your own retire-ment funding plans. Even if you do retire and obtain benefits from SocialSecurity, the amount of your benefits may not be sufficient to allow you to live inthe way and do the things that you desire. Therefore, it only makes good sense toinclude retirement accounts into your personal investment portfolio.Your finan-cial security is a life-long goal for which you must strive.

There are several different types of retirement accounts into which you can investand each works slightly different. Many of them provide substantial tax benefitsallowing you to pay less income tax now, paying taxes only when the funds aredistributed at which time you will probably be in a much lower tax bracket thanyou are today. Here are some of the most common types of retirement accountsavailable:

● Defined contribution plans: Defined contribution plans are retirementplans that are made through your place of employment. The employ-er may pay a specific amount into your account as well as the accountsof all the other employees who participate in the defined contributionplan, and the employee pays a defined contribution into the plan. Insome great plans, the employer may actually match the contributionof the employee up to certain limitation that is controlled by law.Youmay also be able to place additional funds into some of these plansabove the amount that the employer will match at your personaloption. These funds are then invested into various types of invest-ments such as stocks so that the amount of the money will increaseover time. The returns on the investments are reflected in the value ofthe defined contribution account, and that value may go up or downdepending on the performance of the investments. This means that ifthe stock market falls drastically the sum of money in your definedcontribution plan may decrease. When the stock market soars, thesum of money in the plan may increase significantly.All stock market




changes on the stocks into which the funds of the plan are investedreflect positively or negatively on the amount of money contained inyour portion of the plan. Individual retirement accounts (IRAs) and401(k)s are specific types of funds that can be defined contributionplans used by companies providing for their employees’ retirementyears.In these two types of accounts,the employee selects the types ofinvestments into which the money contributed on their behalf isinvested, and those choices may be quite broad or may be limited toonly a few options. Depending on the policies of the company forwhich you work, you may be able to have funds deducted from yourpayroll check to add to the investments in the fund. In the definedcontribution plan, you are normally unable to remove any funds fromthe plan before you reach a specific age that is usually at least fifty-fiveor more, depending on the policies of the specific company providingthe plan.

● Defined benefit plans: These plans are many times offered byemployers for their employees, by special institutions that workonly with defined benefits plans, and by the United States govern-ment for their employees’ benefit. The defined benefit plans arenormally based on what is known as final salary, making yourretirement income based on the number of years you worked withconsideration to the amount of your salary during your time ofemployment multiplied by the accrual rate, which is a factor thatreflects the speed your pension funds accrue with the employerfrom whom you worked. This formula is applied to determine theexact amount you are entitled to receive when you retire, and it isordinarily paid to you in monthly installments or it can, at youroption, be paid as a lump sum at the time you retire. The plan usedby your employer if this type of plan is available may be a fundeddefined benefit plan where the contributions from both you and




your employer go into your account and are invested into mutualfunds causing you to not know exactly what your future benefitsmight be at the time you choose to retire and begin drawing ben-efits. An unfunded defined benefit plan is the most common formof this type of plan and is the type of plan that is used by the U.S.government for social security. The funds paid into the plan goimmediately into a fund to pay benefits to those already drawingbenefits from the defined contribution plan.

● Roth IRA: The Roth IRA is a type of retirement account that has aspecial benefit of providing tax-free earnings even when you with-draw money from the fund at any time. This type of IRA does notcarry a penalty for early withdrawal, but you must meet specificconditions in order to qualify for this newest type of IRA plan. Thequalifications you must meet are an income lower than an estab-lished maximum, which for 2006 was $95,000 for an individualearner and $150,000 for a married couple filing income taxesjointly. You can convert a regular IRA into a Roth IRA if yourincome meets certain criteria, but this conversion involves payingtaxes in the year that you convert your IRA. During other years, theIRA is tax free. The Roth IRA contributions are not tax free as withsome other types of retirement accounts, but it can still be a verygood type of retirement account to add to your portfolio.

● Keogh plans: These retirement accounts are very similar to an IRAbut are designed to be used by the self-employed person. There arethree types of Keogh plans. Each have contribution limits of$30,000 per year. A profit-sharing Keogh limits contributions toonly 15 percent of yearly compensation, which can change annual-ly. The money purchase Keogh plan limits contributions to 25 per-cent of compensation, and no changes are allowed for the entire




life of this type of Keogh. The pair Keogh plan combines the othertwo types, limiting contributions to 25 percent but with profitsharing alterable annually and the money portion beingunchangeable during the life of the plan. These plans are a greatretirement investment options, because they are tax deferred untilfunds are withdrawn. However, the contribution limits are muchmore liberal, allowing significantly higher contributions per year.There are some penalties associated with early withdrawal andexactly which apply can be quite complex and may require advicefrom a professional financial advisor to fully comprehend anddetermine if they are wise moves for you.

Plan your retirement accounts to have enough money to last throughout yourexpected lifespan. This can be determined by using a standard figure of onehundred years of age if you are in good health, lead a healthy lifestyle, and livein a healthy environment. There are resources that can help you estimate yourlife expectancy based on your lifestyle. One resource is the Alliance for Aging




Research life expectancy calculator where you can input various factors at (http://www.livingto100.com) and find out how long you might expect to live. Another resource is appendix C of the IRS Publication 590(http://www.irs.gov/publications/p590/ar02.html). Plan your finances toexceed the expenses planned for the number of years you expect to live,because Americans are living longer and longer as medical care andadvanced research find new ways to help us live longer, productive lives.

Of course, you also want to plan to put enough money aside to provide a lega-cy for your children and grandchildren to help them have a good start in life.

When you decide to retire, you’ll be faced with the choice of a lump sum pay-ment from your retirement accounts or installment payments. The decisionabout what is best for you is up to you and your specific situation. However,there are tax advantages to accepting installments.

In the next section, we will discuss tax situations you will need to consider.




TAXES

In this world nothing can be said to be certain except death and taxes”is anoften-used cliché that is attributed to Benjamin Franklin,but it is also quitetrue. It is certain that each of us will die, and it is certain that each of us liv-

ing in the United States of America will be expected to pay taxes to the govern-ment and possibly to the state in which we live. There is just no getting aroundthe fact that taxes are a part of the life we live.

Whether you earn your income from traditional employment, as a self-employedentrepreneur, through earnings on investments, or in some cases from inheri-tance, all the money that comes into and passes through your hands is, in mostcases, taxable by the United States government in the form in income tax and,depending on where you live, by your own state in the form of state income tax.No one likes paying taxes, but it is the price of living in a free country where cer-tain services are funded by the people for the people. It is, however, a fact that aperson can become knowledgeable about taxes and use the laws and regulationsto reduce the tax burden they must carry while staying entirely within their legalrights and without violating any morals by which they live.



TAXES

“

Unfortunately, whenever the American citizen makes money from any of thesources by which we enjoy income, the Internal Revenue Service (IRS) is alwaysthere waiting to take a piece of your earnings or windfalls. Even worse, the moremoney that you earn, the more taxes that you have to pay. So, it might almostseem as if investing and,as a result, increasing personal wealth can be quite frus-trating due to the share that Uncle Sam and other taxes take from your increasesin wealth. There is no avoiding paying taxes, but we will look at some ways toreduce your personal share of the overall tax burden. Smart investors frequentlyseek out the advice of professional financial advisors and certified publicaccountants (CPAs) specializing in tax advice in order to help them seek out andutilize the very best means to increase their personal wealth while paying as lit-tle in taxes as possible.

We are all familiar with the standard income tax that is withheld from our pay-checks. Self-employed people must also pay their share of federal income taxby placing money aside and paying their taxes, in some cases in the form ofquarter tax estimates. However, there are other taxes that are specifically asso-ciated with investments.As an investor, you must become aware of these taxes,the implications they have regarding your personal investment portfolio andperhaps seek professional advice regarding these taxes and their impact onyour finances.

There are two different types of taxes that are specifically associated with stockmarket investments and the gains or losses associated with investing in stocks onthe stock market.Let us look at each of these specific taxes in detail,because theywill certainly have an impact on you as a successful stock investor.

Capital Gains Tax

A capital gain is,quite simply, the financial gain you experience when you chooseto sell any asset that you have owned for a profit for an amount that is greater thanthe sum you initially paid when you purchased that particular asset. The asset



TAXES

increase amount on which you realize a capital gain could be applied to any typeof property including your house, car, land, furniture, collectibles, stocks, orbonds.

The difference between the amount of money you paid for the asset and theamount of money for which you were able to sell the same asset is profit,and thatprofit is considered to be a capital gain. That capital gain is taxable in most cases.

The rules for capital gains on real estate are rather complex and can be avoided ifthe capital gain is reinvested in another property provided certain rather complexrules are met if the capital gain is on your primary residence. When you chooseto invest in real estate other than your primary residence, however, capital gainstaxes may apply to the profits.Your financial advisor, accountant, or other finan-cial professional can help you understand these rules and how to use them inyour best interest.

In the case of capital gains taxes as they apply to money earned from your invest-ments, the capital gains tax applies to the difference between your basis in thestock and the sales price.Basis is an interesting term,and you may not know whatit means as it applies to stocks and other investments. Your basis in a stock inwhich you invest is really simply the money you put into the investment. In otherwords, the basis is what you paid to originally obtain your share of ownership inthe stock, bond, or other investment. There is a caveat, however, if you inheritedthe shares of stock that you are now placing on the market for sale.The basis thatapplies to those shares in this type of situation is not zero even though you didnot spend any of your own actual money for the stock or investment originally.Instead it is the dollar amount of the original purchase of the investment madeby the person who bought the stock and later left it to you after their death. Thismeans that you can incur capital gains tax on inherited stocks and other invest-ments even though you did not personally pay anything for the investment.



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The sales price is simply the amount of money you obtain when you turn aroundand sell your shares of the stock or investment at the time you elect to do so.Ideally, the sales price will be some or much higher than the basis, allowing youto increase your personal wealth as a result of selling your interest in the invest-ment. But that may not always be the situation. You might sell stocks or invest-ments at a lower amount of money than you originally paid for that investmentin order to liquidate funds for some reason. In this situation you have lost moneyon your investment, making your sales price lower than your basis, and that willrepresent a loss.

The difference in your basis and the sales price of the stocks or investments is theamount that is subject to capital gains tax. If you sell your shares of stock at a loss,of course, there will be no capital gains tax incurred on that sale. If you have mademoney on the sale of the stocks,bonds,or other investments of whatever type,youwill pay capital gains tax on the amount of increase. This sounds really bad, but itis much better to make a profit and have to pay taxes as a result than it is to losemoney on an investment. It is simply a part of the process of buying and sellingstocks or other investments that must be accepted when you make money on yourinvestment choices. It just means your investment strategy is paying off for you.

When you do, unfortunately, suffer a loss when you must sell a stock or otherinvestment vehicle, you have suffered a capital loss. This capital loss can be usedto offset, at least in part, any capital gains that you have earned on your otherinvestments. Since you should have a portfolio that is diversified and you shouldmake money on most of your investment, hopefully you will not be in this situa-tion frequently but the losses you might experience can mitigate somewhat thetaxes on your capital gains.

There are basically two types of capital gains: long-term capital gains andshort-term capital gains. It is necessary to look at each of these types of capitalgains in detail.



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The long-term capital gains are those that you make on stocks or other invest-ments in which you have invested money and have held the investment for a min-imum of one year or longer.These long-term capital gains are taxed at a rate of 15percent for a person who would normally have to pay 25 percent income tax ormore. Investors who have income that places them in an income tax bracketwhere their income is taxed at 15 percent or less will normally only have to pay 5percent capital gains tax on their long-term capital gains. This means there areonly two different rates of capital gains taxes so it is really easy for an investor tocalculate how much they must set aside in order to cover their capital gains onlong-term investments. This also means that the money you earn from investingyour hard-earned money into stocks and other investment vehicles is actuallytaxed much lower than if you simply worked harder and earned more moneythrough employment or through working in your own business.

This should make you feel much better about the idea of having to pay tax on themoney gained from investments in stocks and other investment securities. Bysimply placing money into sound investments and holding the investments forover one year, the profit you earn by letting your money work hard for you ismuch less in every case than the tax levied on the money you work hard to earn!

The capital gains tax also applies to short-term capital gains, which are any invest-ments held less than one year. These capital gains are taxed at the same as the rateyour other income is taxed. In other words, if you are in a 25 percent tax bracket,your capital gains realized from short-term investments will be taxed at 25 percent.You do not get to enjoy the lower capital gains tax rates that apply to long-term cap-ital gains. Ideally, most of your investments will be held long term and will not fallinto the short-term capital gain tax category, but in the event that you do tradestocks at a profit frequently on the short term, you will pay tax on those gains.

The magic number to enjoy the lower capital gains tax rate applied to long-term cap-ital gains is 365,which is the number of days in one year.This means that you should



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consider carefully before selling stocks or other investment that you have held shortof one year. Should you need to access funds,look at investments that have been heldfor a longer period of time that might be candidates for sale while holding newerinvestments for a longer period of time.Of course,each situation is different and youmay feel you want to sell in the short term.You should just be prepared to pay theapplicable taxes when you choose to do so. Even one single day less than one yearmakes the difference.So, if you have held an investment for 364 days,ask yourself ifyou can wait until 365 days have passed before you make the sale in order to savesubstantially on capital gains tax applied to the profits enjoyed from the investment.

In the case of mutual fund investments, your money is invested in the stock mar-ket in an automatically diversified manner, and the mutual fund is managed by amutual fund manager who has control over the monies in the fund.These managersare tasked with acting in the best interests of the people who have invested moneyinto the fund by buying and selling stocks to make profit for those investments.Themoney earned through a mutual fund is taxable. Since you do not actually controleach stock in the mutual fund,some of the stocks may have lots of money but if thereis an overall gain in the value of your shares in the mutual fund,you will have to paycapital gains tax on that amount of money earned. However, if you have purchasedshares in an extremely sound mutual fund that is well managed, you will makemoney and will simply have to accept that the United States government,through theInternal Revenue Service, is going to ask for their share of this money.

Dividend Tax

A dividend is simply a monetary payment to you as one of the shareholders of astock offered by a specific company and is paid to you by the company when thecompany earns a profit. Dividends are considered to be income and therefore aretaxable just like other income.

Dividends are currently taxed at 15 percent across the board, and this rate is oneof the few places where your government is really helping you out by allowing you



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to keep slightly more of what you have made as a return on your investment. The15 percent tax rate is a tax relief provision, and it applies to all dividends paiduntil the year 2008.After that time,the United States Congress may elect to renewthe tax provision, so you will want to stay abreast of changes in the dividend taxsituation in the coming years. However, there is no assurance the provision willbe renewed.

If the provision is not renewed, dividends would then automatically carry a taxrate equal to that imposed based to your income tax bracket. This tax percent-age might be higher or lower than the current 15 percent, depending on yourpersonal income and tax situation. It could be as high as 25 percent or evenmore if you fall into a higher tax bracket. Of course, the United States govern-ment may choose to vote in other legislation that changes the tax provisionwithout renewing the tax relief provision currently in effect, so it behooves youto pay attention to this situation. In the meantime, it is wise to begin investingnow while the benefits of profits paid to you by companies in dividends aretaxed at relatively low rates.

Planning and Offsetting Capital Gains and Capital Losses

Everyone wants to pay as little tax as they possibly can and that includes payingtaxes on capital gains. Everyone wants to experience as few capital losses as pos-sible, but when investing in stocks, capital losses can happen. You can use anylosses that you experience to help you pay less capital gains tax through a processcalled offsetting. It requires some careful planning and understanding of theprocess, but it can help you reduce your tax bill.

Offsetting, basically, permits you to reduce the amount of capital gains that aresubject to the capital gains tax by the amount of any capital losses you have expe-rienced. First, you must be prepared to calculate the dollar value of each type ofcapital gain and each type of capital loss because of the differences in the capitalgains tax rates for long-term capital gains and short-term capital gains.As previ-



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ously discussed, a short-term capital gain is any capital gain resultant from buy-ing a stock or certain other investments and holding that investment for less thanone full year. A long-term capital gain is one obtained from an investment thathas been held for longer than one year.

It would seem as if you should be able to just calculate how much your totalcapital gains and total capital losses were for each category but, as with manythings involving taxes, it just isn’t that simple. There are what is known asordering rules applied by the Internal Revenue Service that state that you arerequired to apply the same types of capital gains and capital losses againsteach other before you can mix the types of capital gains and losses. Thismeans, in other words, that you must first offset your long-term capital gainsby any long-term capital losses and your short-term capital gains against anyshort-term capital losses.After you have offset each of your respective types ofcapital gains with the matching types of capital losses, if you still have any netcapital gains left over, then that amount may be offset with any remaining loss-es, whether long-term or short-term. This can be quite a complex process andmight be best handled by your tax advisor to ensure that the ordering rules arefollowed exactly to avoid any problems with your taxes.

Any qualified certified public accountant (CPA) or other income tax profes-sional should be well aware of the process of offsetting and how it works tohelp you minimize your tax burden. If you do your own taxes, you shouldinvestigate this tax implication in depth before submitting taxes that employoffsetting of capital gains and capital losses.

An interesting caveat when using capital losses for taxes is a rule imposed bythe Internal Revenue Service called the wash rule. If you sell as stock that hadresulted in a loss to you, whether it was due to part of your investment strate-gy that did not work out for you or purchased as an offset strategy to reduceyour capital gains, your loss will not apply for tax purposes if you buy that



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same stock back within thirty days. If you sell your shares of a particular com-pany’s stock and then, for whatever reason, regret your decision and if youplan to use the capital loss as part of your offsetting, you must wait at least onemonth to reinvest in that particular company. In other words, if you buy thestock back in only twenty-nine days, you would have no benefit in regards toyour capital gains taxes for the money you had lost when you sold your stocksinitially.

For planning how to best situate yourself in regards to using capital gains andcapital losses to your advantage,your broker or professional financial advisor cangive you sound advice. It is true that there are scenarios that you might actuallyneed to plan to lose money in order to place yourself in the best possible tax sit-uation. However, it requires sophisticated knowledge and experience to fullyunderstand how the many complex rules and nuances of the tax code operatewhen it comes to these tax situations. It is the wise taxpayer that chooses not togo it alone and seeks professional counsel.

How to Minimize Taxes and Maximize Income

As with most situations that involve income taxes, retirement accounts can bequite complex when it comes to understanding the tax code.However,most retire-ment accounts,with the major exception of the newer Roth IRA,are subject to taxthat is paid on the funds in the account only at the time when they are withdrawnby the owner. In fact, the money that is contributed by the account owner into anyretirement account, other than a Roth IRA, is tax deductible either in part or inwhole during the tax period in which the contribution is made into the retirementaccount.There are specific limits on how much tax deductible money can be con-tributed into these types of accounts. But if you contribute the maximum taxdeductible amount each year, you can enjoy substantial tax burden reduction.

Here’s an example of how you can save tax dollars by contributing to yourretirement accounts and paying tax later when you are probably in a much



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lower tax bracket. Let’s say you contribute two thousand dollars into an indi-vidual retirement account in one single year.You can then deduct that entiretwo thousand dollars from your yearly income tax return, reducing your tax-able income by the full two thousand dollars. Then, when you eventually doretire, you will almost certain not be in as high a tax bracket as you are dur-ing the years in which you are contributing to your retirement accounts. So,in the future, you withdraw that two thousand dollars to use during a yearand it becomes taxable that year. During all the years that the two thousanddollars has been invested in your retirement account, the money has beenearning compound interest and has grown. So, not only will you pay less taxon what you withdraw during retirement in most cases, of course dependingon your income in those years, but you will also have seen your money growand grow. Each year the increase in the amount of the retirement accounthas not been taxed so no money is paid on the fact that your investment isgrowing during the years that the money remains invested in the retirementaccount either.

There are rules in place that apply to when you absolutely must begin takingmoney from your retirement accounts. Usually that rule is that when you reachseventy years of age, you must begin removing proceeds from your retirementaccounts. However, you will have deferred any taxes that may eventually be owedfor a long time. Also, during your retirement years, you will most likely not beearning money at the level at which you are earning during your career and yourtax burden will be very low.If that turns out not to be the case and you do pay taxon the money taken from your IRA, you have still had many years of tax-freeinvestment earnings to add to your retirement income.

Retirement accounts do carry penalties in the case of early withdrawal, andthey should be the last type of asset you choose to access if you need toacquire funds in an emergency. Also, the tax implications are complexenough that you should seek professional counsel to ensure that you are



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investing in these types of accounts to best maximize your earnings andminimize your tax burden.


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PROTECTINGYOUR WEALTH

Managing your personal finances so that you build wealth is very satis-fying, but you also need to protect the wealth you’ve built.A legal judg-ment against you in a court of law can result in assets being taken away

from you. You should consider ways to protect your hard-earned money fromlegal judgments or any other situation that could result in losing large sums ofmoney. Several ways to protect your wealth will be discussed below.

Become a Corporation or LLC

When you think of a corporation, you may think only of a business that incorpo-rates, but incorporating isn’t for businesses only.You do not have to be a million-aire or mogul to incorporate yourself in order to protect your assets from legaldamages. Anyone can create a corporation that can be used to protect their per-sonal wealth.Of course, if you own a business, it makes even more sense to incor-porate your business under one corporation and your personal assets under adifferent corporation.

A corporation is a business entity that is liable for its debts and damages. It isowned by shareholders who vote on major issues. In the case of protecting your



PROTECTING YOUR WEALTH

assets, you become the major shareholder of a corporation you establish. Theboard of directors of the corporation is generally comprised of family membersin corporations formed to protect assets.At times, it may even make sense to cre-ate more than one corporation to protect your assets.

By incorporating yourself, you gain significant protection from any legal judg-ment that might take away or impound assets you hold. This is called the “cor-porate veil” and, because the corporation is legally considered an entity, onlythe corporation can be held liable for its actions.

Let’s look at an example of how incorporating can protect assets. Suppose yourhouse, automobile, and all other assets are in your name. Your minor child getshis or her drivers license at age sixteen and drives your automobile. Soon after,your minor child has a wreck in the car and another driver is seriously injured.The accident is clearly the fault of your minor child.The other driver is injured sobadly that they will never be able to work again, and they file a lawsuit againstyou, as the vehicle owner, for damages.

If, in this example, all your assets are owned by you, you could have a legaljudgment against you for all your assets, effectively bankrupting you and tak-ing everything you have worked so hard to gain. If, however, you incorporateand all your major assets are held by the corporation that would leave you per-sonally owning only the car your child was driving and a small bank account.Then when a judgment is filed against you, you have virtually no assets in yourname for the court to attach. The corporation continues untouched while you,as a person with no assets, appear to be financially bankrupt. You get to keepyour home and financial assets, which are held by the corporation.

Another scenario that people use to protect themselves when they havebuilt significant wealth is to hold several corporations, allowing each cor-poration to own a small portion of their wealth. In this scenario, the car




driven by the minor child might be owned by one of the corporations. Thatcorporation might also own a sum of cash assets. Other corporationswould hold other cash assets, houses, vehicles, and other holdings so thatno one corporation owns a large amount of your wealth. In this scenario,the corporation owning the vehicle involved in the accident could be suedand its assets taken, but the other corporations would be protected. Yourloss would be restricted to a smaller liability than if you owned all yourassets yourself.

Of course, the best way to protect yourself and your assets using incorpora-tion depends on your specific financial situations, the laws of the state inwhich you live, and other factors. You should seek professional counsel tolearn what corporate structure can best protect your assets in your situation.

Two Types of Structures Ideal for Individuals and SmallCorporations

The C corporation is usually formed by larger businesses and is not frequentlyused to protect an individual’s assets. Depending on the state and specific fed-eral regulations and laws, your attorney can explain these limits to you. Themain disadvantage of the C corporation is the fact that profits of the corpora-tion are taxed and then money paid to the board of directors and shareholdersis also taxed, creating a double taxation situation.

S CorporationAn S corporation is a smaller type of corporation that was created to conveyprotections and tax benefits for individuals and small businesses. For tax rea-sons, an S corporation is taxed like a partnership. This means that no doubletaxation will occur for the shareholders of the corporation. Instead, the share-holders will be taxed only on the profits they receive as dividends like incometaxes.




In order to qualify as an S corporation, the corporation can have no more thanseventy-five shareholders. Further, the shareholders must all be U.S. citizens andall must consent to the S corporation status.

An S corporation is the perfect solution for many businesses. It has the advan-tages of being taxed as a partnership or sole proprietorship, but it offers the sameprotections from liability as a corporation.

Limited Liability Companies (LLCs)

Forming either a C corporation or an S corporation could be the right solution foryou. There is, however, one other option very worthy of consideration and that isthe limited liability company (LLC).

An LLC does not require a board of directors.It can be formed by a single person,making it a very good choice for many small businesses in which the owner




ADVANTAGES OF AN S CORPORATION

DISADVANTAGES OF AN S CORPORATION

Limited personal liability for shareholdersNo double taxationEase of establishing creditEase of obtaining financingUpon death of a shareholder, business continuesTax benefits on items such as employee benefits

Regulations in formationOnly allows for maximum of seventy-five shareholdersComplex tax filings and reportingBusiness losses are not deductibleOnly one class of stock permitted

wants to maintain full control rather than allowing stockholders to own part ofthe business.

Let’s look at the major advantages of LLCs.First, the taxation of LLCs permits theprofits and losses of the business to be taxed only one time, unlike C corpora-tions. Then, liability of the company is limited to only the assets of the LLC, pro-tecting the owner’s personal assets from legal judgments against the LLC. TheLLC provides extreme flexibility in organization and management.Also, the flex-ibility provided in how monies are paid out to owners and partners in an LLC isquite different than corporations and does not have to be based on the percent-age of ownership.

There is only one real disadvantage of forming an LLC.Unlike corporations,LLCsare dissolved if the owner dies or declares bankruptcy.

There are tax benefits associated with forming an LLC as well.The money that theLLC pays the business owner is taxed at the personal level. This avoids the dou-ble taxation inherent to C corporations and is much like the tax advantage of theS corporation.

An LLC, as a business entity, offers much of the same legal protection as do cor-porations.An asset owned by the LLC cannot be touched in a legal action againstthe owner of the business. If the owner of the business is sued, the LLC and itsassets are protected.While there are a few exceptions on this protection, and thelaws vary somewhat from state to state, this is still a very viable solution for smallbusiness owners. The major exceptions to the LLC protection are legal scenariosin which fraud, negligence, or intentional illegal activities are involved, accordingto LLC-Explained.com (http://www.llc-explained.com/LLC11.html).

An LLC can be operated by the owner or owners of the business, known asmember management. It could be manager managed, meaning that the own-




ers delegate authority to managers who may or may not own interest in theLLC.

The flexibility of distributing money to the owners of the LLC makes this solu-tion especially attractive to small businesses. In a corporation, money is distrib-uted to shareholders based on how many share each one owns in the corporation.In the case of an LLC, the distribution of funds does not have to follow this pat-tern.Any distribution of funds agreed to by the owners can be followed.

Let’s look at an example that better explains this distribution of funds flexibility.First, we will look at how this would be handled by a corporation and comparethat to an LLC.

In this example, John Doe invested only 10 percent of the funds needed to startthe business Flowers for You, Inc. John’s uncle, Steve Doe, invested 90 percent ofthe funds needed to start the business. Business is thriving, and the corporationhas made money during the past year. John manages the business full-time, and




Uncle Steve only drops by occasionally to help out with deliveries.Yet,because thebusiness is incorporated, the distribution of money would give John Doe only 10percent of the earnings while Steve Doe would get 90 percent.

Now, let’s examine how this could differ if John and Steve Doe chose to operate asan LLC. John invested 10 percent of the money needed while Steve provided theother 90 percent. John runs the business full-time with only a little help fromSteve.John and Steve could decide to split the profits 50/50 or to pay Steve a stan-dard salary and distribute the balance of the profits in any way they choose.Theymight choose to give Steve 20 percent of profits and John the balance plus hissalary or any other distribution they desire.

If you decide that an LLC is the right solution for your business,what do you haveto do to create the LLC? It is a fairly simple process that may differ slightly fromstate to state. Here are the basic steps you will probably be required to perform:

● Select a name for the LLC that complies with the rules of your state.

● Prepare articles of organization, and file these with your state alongwith filing fees which range from $100 to $800, depending on yourstate.

● Define the rights and responsibility of LLC members in a formal oper-ating agreement.

● Publish a notice in local newspapers of the intention to form the LLC,depending on your state.

● Obtain licenses and permits that may be required by your state tooperate the business.




While the LLC is the right solution for many small businesses, you want to makecertain it is right for you before the formation of the LLC. It can be a bit complexto change an LLC into a publicly held company if the business takes off and growsto a size much larger than you expected. For many businesses, however, the LLCis the best possible way to structure the business.

Consider Incorporating in Nevada

When a corporation is formed for the purpose of managing and protecting afamily’s assets, it may be best to create a Nevada corporation.The laws regulatingcorporations in Nevada provide greater protection than incorporating in mostother states and you do not have to live in Nevada, or even visit there, in order toform a corporation under Nevada law.

By choosing to incorporate under Nevada law, you’ll enjoy some useful tax bene-fits.There are no corporate taxes in Nevada; many other states require a corpora-tion to pay corporate taxes. Nevada corporations have limited liability protectionby law, which means the officers and directors (you and your family in most




ADVANTAGES OF A LIMITED LIABILITY COMPANY

DISADVANTAGES OF A LIMITED LIABILITY COMPANY

Limited personal liability for shareholdersNo double taxationEase of establishing creditEase of obtaining financingUpon death of a shareholder, business continuesTax benefits on items such as employee benefits

Regulations in formationFiling requirementsBusiness may not continue upon death of member

cases) are provided protection from lawsuits. There is no IRS InformationSharing Agreement between Nevada and the federal government. Reporting anddisclosure requirements are very minimal. In fact, Nevada does not even requirethat the names of corporate executives be made public record.

Some of the minimal reporting requirements include such things as:

● Officers of a corporation are automatically indemnified.

● The list of officers must only be updated annually.

● For a limited liability company in Nevada, the members of the limitedliability company are not required to be listed in state records.

You may need to register as a foreign corporation in the state in which you resideif you do not live in Nevada. But because of the liability protection and minimalreporting requirements, you may come out ahead even if you must register as aforeign corporation and provide some reporting to the state government whereyou reside and do business.

You can incorporate in Nevada for as little as $300. You can learn more aboutincorporating your business in Nevada by contacting an attorney in the State ofNevada or by doing an Internet search for “Nevada incorporation.”

Offshore Investments

You’ve probably heard of Swiss bank accounts that are numbered and the nameof the account owner is held in strictest confidence.You may not know, however,that you can make investments and open bank accounts in the Caribbean, theCayman Islands,and other places outside the U.S.These offer a another means ofprotecting your assets. The information on the holders of these investments isalso held in confidence.




There are several reasons you may want to use offshore investments to protectyour assets. These investments are often top-performing investments. Some ofthe benefits of offshore investing include:

● Portfolio diversity is provided,making your overall portfolio less volatile.

● Many currencies are stronger than the U.S. dollar, which has beendeclining in value in recent years.

● Liability protection from legal judgment or divorce is provided,because the U.S. asset tracking capabilities do not extend to offshorebanking and investments.

● You can invest with privacy because many countries,by their own leg-islation, cannot legally reveal information about the owners ofaccounts and investments in their country.

These benefits combine to make offshore investments very attractive. You canlearn more about offshore investments and bank accounts by simply searchingthe Internet for “offshore investment.”

The downside of investing your assets offshore, however, is that your accountsare not protected or insured as many such institutions and financial vehiclesare in the United States. If an economic disaster cause a bank to fail or anemployee of the institution where your money is invested embezzles yourfunds, you do not have the same recourse for recovery of funds as when yourmoney is invested in American banks and covered by the FDIC.

Gifts

Another way to protect your assets and keep them within the family is to givemoney as gifts to family members.On an annual basis,a person may give money




as a gift without any gift tax being levied on the money as long as the amount ofthe gift is $10,000 or less in the case of a single person or $20,000 in the case of amarried couple receiving a monetary gift.

One benefit of gifting money in large amounts to family members is that it reducesyour tax burden.Also, the amount given to a family member reduces the amountthat could be considered an asset should you become involved in a liability lawsuit.

Here’s an example of how this can work to benefit you and your family. If youhave managed to accumulate a great deal of wealth and want to avoid as muchtax burden as possible, you could give your minor child $10,000 by depositingthe amount into a bank account with the child as primary owner, by purchasinga CD in the child’s name, or buying another type of investment vehicle in thechild’s name. If the child is young, he or she has no tax burden yet because theyhave no income. Once the gift is made, your taxable income is reduced by$10,000 and the child probably does not have to report income,making their taxburden zero. Even if the child is old enough to be employed part-time, theirincome would certainly place them into a much lower tax bracket than thebracket in which you fall.

Wills

In the event that you die and have no will, all your assets would go through pro-bate, probably resulting in a large amount of probate tax and lengthy delays, afterwhich your next of kin would end up with the remaining assets according to a setformula.This may not be at all what you intended for you assets.A will can defineexactly who gets what from your wealth and even some restrictions on how thewealth can be used—and that’s why it’s so important.

It is very easy to create a will.Your attorney can provide assistance or you can useone of the available software applications such as Intuit’s WillMaker.These softwareapplications take you step by step through the process of creating a simple will.




The laws regarding wills vary from state to state somewhat, and you’ll want aqualified attorney practicing in the state where you live to draw up this importantlegal document.You can change your will at any time to reflect changing life sit-uations such as marriage, divorce, birth of another child, minor children comingof age, and other changes that occur over time.

If you feel it would be unwise to give your children full access to all your wealth atthe time of your death,you can establish in the will how much can be made avail-able at certain times in their life while the balance is held in a trust. Often, a per-son’s will states that an executor of the estate will provide living expenses for thechildren until they reach the age of majority and then a set amount of funds willbe provided for each child to receive each year or on various birthdays.Sometimes people who have immature children will make provisions in their willthat only small amounts of money will be made available to the children until




their reach age thirty or some other milestone. Once they have reached the pre-determined age of maturity, they can access the full amount of their inheritance.Whatever arrangements you feel that best provide for your legacy while protect-ing your assets from misuse can usually be set up in your will. In fact, some peo-ple even make provisions in their wills to set aside funds to create a trust, for thecare of a special, well-loved pet.

Living Wills

The latest statistics on death are in—one out of every one people die. It is wiseto prepare for that day—not only spiritually, but also financially as well. Thenest egg you’ve worked and planned so hard to accumulate can be sometimesbe completely exhausted by medical bills at the end of life. These medical billsare not only created from procedures that extend life, but they can also be cre-ated by expenses that merely prolong death. That’s why it’s so important to cre-ate a living will that defines your wishes regarding your medical care shouldyou be incapacitated through illness or injury. A living will is a document thatyour health care professionals must follow regarding what extraordinarymeasures (or lack of them) you wish to be used to keep you alive. If you wishto be placed on life-support equipment for an indefinitely period, that can beoutlined. If you wish to have no life-support measures taken in specific situa-tions, that can be legally documented and prevent you from lying in a coma foryears on end while your finances are eaten away by medical bills. Most hospi-tals have living will information packages and forms that can help you drawup a legally binding living will. Programs such as WillMaker also allow you tocreate a living will.

Trust Funds

By creating a trust fund, you can protect assets held in the trust fund from legaljudgments,creditors,or other financial attacks that might bankrupt your person-ally held funds.Trust funds can also be useful to help you avoid probate and min-imize or even eliminate the amount of estate state tax paid at death.If you choose




to set up trust funds with your assets, when you die your final expenses such asoutstanding credit card bills are not due from the trust fund, but only from anypersonal assets remaining in your name.

A popular method of asset protection through trust funds is the discretionarytrust where the beneficiary of the trust may be the same person who establishedthe trust fund. The funds, however, are controlled by the trust fund administra-tor and can be disbursed according to the specifics laid out in the trust fund’slegal documentation.

You could create a discretionary trust fund with your child as beneficiary and youas the administrator.You could create a trust fund where you are the beneficiaryand another family member or your attorney is the administrator. In either case,your assets held in trust are protected and your tax burden is reduced becauseyou no longer own the asset.

There are many types of trust funds, and your attorney or accountant can helpyou learn about each type. One of the types of trust funds commonly used toprotect assets is the revocable living trust,also sometimes called “family trust”or“living trust.” The trust is created to avoid probate of your estate when you die,reduce estate taxes, maintain privacy, and manage finances.

The revocable living trust is establed by you, and you can make changes to thetrust any time you wish, hence the “revocable” part of this type of trust. Moneyand/or property are transferred into the trust, and the trust document establish-es how the funds are to be managed during your lifetime. It also states how thefunds can be distributed after your death.

When a person without a trust dies, there is a probate process that distributesproperty held solely in the name of the deceased. A last will and testament canhelp the probate process determine how to disburse the property and assets but




does not provide a means of avoiding probate. If a revocable living trust exists,however, there will be no probate process on the assets held in the trust.




GLOSSARY OFFINANCIAL

TERMS

accrual rate: The rate at which pension funds are accrued in a retirementaccount through a particular employer

American Academy of Financial Management: An international organizationof financial professionals

American Stock Exchange (AMEX): A stock exchange based in New York Citywith relatively liberal listing requirements, trading stock of small to mediumcompanies

amortization: Regular, periodic payments for debts incurred by a company

annual credit card fee: A charge, often as high as $35 or $50, that is applied to acredit card annually for the right to carry and use that credit card. It is undesir-able to hold credit cards that carry annual fees

annual report: A report, issued annually by a company’s management,about thecompany’s financial performance

annual sales: The volume of sales conducted by a company in the course of oneyear

annuity: A specified income payable at stated intervals for a period of time inreturn for the payment by the recipient of prior installment payments

annual percentage rate (APR):The equivalent interest rate including all added costsfor any given debt or loan.It takes into consideration the interest rate, any added costs,and the terms of the interest applied to the loan.The annual percentage rate would beequal to the interest rate if there were no added costs, but because interest chargedagainst a debt is compounded, the annual percentage rate is higher than the statedinterest rate on debts that incur interest at specific periods such as monthly



GLOSSARY OF FINANCIAL TERMS

annual percentage yield (APY): The equivalent interest rate including all inter-est earned for any given investment or savings which has earnings calculated ascompound interest. The annual percentage yield would be equal to the rate ofinterest earned in the case of simple (non-compounding) interest,but in the caseof compound interest,interest is earned on the principle at a state percentage rate.Once that interest payment is incorporated into the account,the next interest pay-ment is calculated on the then-current total balance in the account, includinginterest previously paid. This causes the annual percentage yield to be greaterthan the interest rate stated.

asset: A resource that has economic value that an individual or entity owns orcontrols and that may provide future benefit

asset allocation: The process of dividing investment funds among stocks andother categories

asset category: Categories into which assets are divided, such as stocks, bonds,or annuities

authorization: Approval by a shareholder for his or her broker to proceed with amarket transaction of his or her shares of stock

balance sheet: A statement of a company’s financial position at a specific pointin time that sets forth the company’s assets, liabilities, and shareholders’ equity

bear market: A market decreasing in strength

beneficiary: The person or persons, defined by the policyholder and subject tochange by the policyholder,who will receive death benefits in the event the ownerof a life insurance policy dies during the period of insurance coverage.




bid: The sum offered as the amount a buyer is willing to pay

blend fund: A mutual fund investing in a blend of growth and value stocks

blue chip company: A company whose stock sells at a high price because ofpublic confidence in its long record of steady earnings

blue chip stock: The stock offered in a class A company or a blue chip company

bond: An investment in which the investor loans money to an entity for a specif-ic period of time, which is repaid to the investor at a specified rate of interest

bond fund: A mutual fund that invests in bonds

broker: A professional agent who represents a client by executing the client’s pur-chases and sales of shares of stock on the stock exchange

budget: A financial plan taking into account income and expenditures that afamily uses to ensure their financial needs are met

bull market: A market increasing in strength

capital gain: Any financial gain experienced by an investor when he or she sellsan asset for a profit over what he or she initially bought it for

capital gains tax: The tax imposed upon capital gains realized by an investor

capital loss: Any financial loss experienced by an investor when he or she sellsan asset for a loss compared to what he or she initially bought it for




carry-forward: Net capital losses in any given taxable year that are greater thanthe combination of long-term and short-term capital gains,plus up to three thou-sand dollars that an investor can apply to offset his or her regular income, whichcan be carried to the subsequent tax year in order to offset future capital gains

cash-flow statement: A statement showing all instances of a company’s moneyincoming and outgoing

cash value (life insurance): Also called cash surrender value. The savings com-ponent of certain life insurance policies that pays the policyholder an amount ofmoney if they choose to terminate the life insurance.Loans against cash value aresometime issued, allowing the life insurance policy to remain in effect but usingthe cash surrender value of the life insurance as collateral against the debt.

cause-of-death exclusions: Any stated causes of death for which a specificinsurance policy will not pay death benefits to the beneficiary or beneficiar-ies. Suicide is an example of a cause-of-death exclusion in some life insurancepolicies.

certificate of deposit: A time deposit certificate issued by a financial institutionor bank that normally earns a specific rate of interest. CDs issued by banks ineither negotiable or nonnegotiable form have stated maturity dates ranging fromseven days to many years and are insured by the FDIC up to $100,000 in princi-pal and interest.

certification: Receipt of a certificate of designation as evidence of completion ofa program of education, experience, examination, or a combination thereof

certified public accountant (CPA): A professional financial expert whoadvises clients regarding financial matters and, most commonly, taxes.Certified public accountants must have passed a rigorous examination called




the Uniform Certified Public Accountant Examination and must have met anyrequired additional state-specific education and experience requirements

charitable donation: A donation by a person or entity to a charitable organiza-tion; usually tax deductible in whole or in part

Charles Schwab: An established, trusted financial company offering mutualfund investment opportunities (http://www.schwab.com)

chartered financial analyst: A professional designation from the CharteredFinancial Analyst Institute requiring professional examinations and a minimumof four years of employment in an investment decision-making capacity, as wellas adherence to a code of ethics and standards

Chartered Financial Analyst Institute: An organization offering certification tofinancial professionals as chartered financial analysts and that imposes uponmembers a code of ethics and standards

class: The designation of shares of stock, where different classes have differentvoting power and vary in dividend payment amounts

class A: Usually the highest class of stock, class A shares have greatest votingpower and highest dividend payments, also called blue chip stocks.

class B: Usually a lower class of stock than class A stock, Class B shares areless expensive but are associated with less voting power and lower dividendpayments.

client: An investor on whose behalf a stockbroker acts and to whom the stock-broker owes a fiduciary duty




COBRA: The Consolidated Omnibus Budget Reconciliation Act. A federal lawenacted in 1986 that permits a person and their dependents to continue insur-ance coverages through their employer’s group health insurance plan after thejob ends. If there are twenty or more employees at the company for which youwork, you may be eligible for COBRA continuation coverage should you retire,quit the job, be fired, or have your work hours reduced. COBRA extends to sur-viving, divorced, or separated spouses; dependent children; and children wholose their dependent status under their parent’s plan rules. In most cases,COBRA continuation coverage extends for eighteen months or thirty-sixmonths under certain circumstances, and you must pay the full cost of thepremium including the portion that may have been paid by the employer inthe past.

code of ethics and standards: A set of ethical regulations to which charteredfinancial analysts certified by the Chartered Financial Analyst Institute mustadhere; created and enforced by the Chartered Financial Analyst Institute

commission: The payment a broker receives for his or her actions on behalf ofan investor client; calculated as a contracted flat fee or as a percentage of a stocktransaction

common stock: Shares of stock, also called ordinary stock, that allow investorsto elect a company’s board of directors; the last shares to be paid out if a compa-ny faces liquidation

company: A group of people or entities incorporated under applicable law forbusiness purposes

company information: Information about a company,including financial infor-mation and information regarding managers, directors, and other executives




company ownership: A group of executives who own and control a company,and the shareholders who invest in a company

company size: The size of a company, usually measured by the number ofemployees of the company or company revenue

company specialty: The industry of which a company is a part based on thenature of goods or services offered by the company

competitor: A person or entity offering the same or similar goods or services asanother at a competitive price

competitive stock analysis: An analysis of how a particular stock compares inits valuation to other comparable stocks

compound interest: Interest that is paid on an investment, either on a flat, pre-viously agreed upon percentage or based on an interest amount that is tied to theprime interest rate or the earnings based on stocks and bonds, which is added toan account at predefined periods of time, allowing the interest paid to earn inter-est during the next period before interest payment. The best compound interestaccount is one that compounds daily.

conversion (insurance): Changing one type of life insurance into another type oflife insurance, for example converting term life insurance into whole life insur-ance. Not all types of insurance policies provide the option for conversion.

death benefit: An amount of money, defined in a life insurance policy, that willbe paid to the named beneficiary or beneficiaries upon the death of the namedinsured or policy owner provided the cause of death is covered by the life insur-ance policy and the policy was in effect with premiums current at the time ofdeath of the insured.




deductible: The amount an insured person must pay out of pocket beforethey are eligible for any insurance benefits on a particular covered expenseor loss. Often, medical, dental, prescription medication, long-term care,homeowners, and vehicle insurance coverages have provisions fordeductible amounts either annually or on a per loss basis for specific lossesor expenses.

defined benefit plan: A retirement plan, usually offered by an individual’semployer, that may be funded or unfunded, and with which the employee whoowns the account has input into how the account funds are invested

defined contribution plan: A retirement plan, usually offered by an individual’semployer, in which funds that are contributed are invested in investments such asstocks or bonds, with the benefits distributed to the employee at the time of hisor her retirement; examples include independent retirement accounts (IRAs)and 401(k) plans

discount broker: A less expensive alternative to a full-service broker, most com-monly found through online brokerages, offering stock market transactions atlow commissions but limited in the amount of guidance, advice, and supportoffered to investors

diversification: An investment strategy that involves investing in a variety ofinvestments that usually involve various levels of risk and varied growth poten-tial based on that risk in order to maximize profit and minimize risk

dividend: A payment made by a company to a shareholder when the companymakes a profit

dividend tax: A tax imposed on dividends received by a stockholder from thecompany of which he or she owns stock




E*Trade: An online brokerage offering discount stock market transactions andother financial services and advice (https://us.etrade.com)

earnings per share (EPS): A value that represents the total amount of money acompany realizes in income divided by the number of shares it has outstanding

earnings trends: Trends or patterns in a company’s earnings and losses

EBITDA: The total earnings of a company before deductions for interest, taxes,depreciation, and amortization

electronic filing: The process of filing by a company, using EDGAR, financialinformation with the United States Securities and Exchange Commission, tomake the information available to company shareholders and consumers

electronic stock exchange: A stock exchange in which trading is conductedelectronically, allowing for cheaper and faster stock market transactions

electronic trading: Participation in stock market transactions through an elec-tronic stock exchange, making trading cheaper and faster for the investor

electronic transmission: The nearly instantaneous transmission of stock ordersfor buying or selling shares of stock by electronic means

enterprise value: The total value of the company at the actual price for which itis traded on the stock market, calculated by the total value of all company stockless the total debt owed by the company

equity: The value of the total company stock divided by the number of outstand-ing shares




equity fund: Mutual funds composed of stock investments

fair market value: The value of an item if it were purchased on the open mar-ket at the age and quality that the item is currently. When referring to insur-ance coverage for contents of a home, it means the value of items if they werepurchased from sources that would provide goods that were the same age(used) as your lost goods. This value may be significantly less than the cost ofpurchasing like items from new retail sources at today’s cost. (See also replace-ment value.)

Federal Deposit Insurance Corporation (FDIC): The means by which moneydeposited into banks and other covered financial institutions is insured againstloss due to theft, fraud, or economic disasters, providing protection to the depos-itor. The FDIC came about as a result of the economic crash of the 1920s. Manybanks were forced out of business by depositors demanding all their money fromthe bank at one time,resulting in many people losing money that had been placedin unprotected deposits at the banks. Today, coverage is based on legislation andusually covers $100,000 per depositor at any bank.

federal income tax: A tax charged by the United States federal government thatis owed by income earners based on the amount of their income and the numberof deductions from that income they may exclude

financial analysis: An analysis, usually conducted by a professional analyst, offinancial information related to a particular stock or to the stock market in gen-eral, revealing valuations, trends and patterns, and predictions for future per-formance

financial analyst: A financial professional who analyzes stock data to produce afinancial analysis




financial expert: A financial professional who, by virtue of experience, educa-tion,examination,or a combination thereof, is able to offer analysis of stock mar-ket financial information and investment suggestions and advice to investors

financial statement: A record or report of a company’s financial information,such as a balance sheet, cash flow statement, or income statement

first in first out (FIFO): The accounting concept that when any funds are with-drawn from an insurance policy or other type of investment or savings vehicle, it isassumed that the first money placed into the vehicle is also the first money removed.This results in the initial funds being withdrawn being viewed as payments or con-tributions made rather than money earned from interest on the investment. Thisconcept can have significant income tax implications that your personal financialadvisor or tax consultant can explain as it applies to your personal situation.

flat fee: An agreed-upon fee, stated in a contract, that is to be paid by an investorto his or her broker without regard to the frequency or amount of stock markettransactions

forward P/E: A value determined by dividing a company’s stock price at a giventime by its projected earnings per share for the subsequent four quarters; a reflec-tion of the anticipated future growth of a stock

full-service broker: A professional who offers a full range of investment servic-es, including the handling of trades, as well as offering guidance and advice; gen-erally more accessible and personal, but more expensive, than a discount oronline broker

fund manager: The overseer of a mutual fund, responsible for making invest-ment and management decisions on behalf of and in the best interests ofinvestors in the fund group




future performance: A prediction of how a company’s stock will perform finan-cially at a future time

goals: Aims set by an individual, a company, or a stock market investor regard-ing how they expect their financial situation to improve or their investments toperform and over a certain period of time.

gross profit margin: An indication of a firm’s ability to turn one-dollar’s worthof sales into a profit after deducting the cost of goods sold, calculated by dividinggross profit by net sales

growth fund: A stock fund (equity fund) in which the pooled money is investedin stocks of what are thought to be the fastest growing companies in the stockmarket

growth rate: A measure of value that represents the predicted growth of a com-pany’s stock; growth rate can also be used to reflect past growth, which is a lessuseful measure for investment considerations

growth stock: Shares in a company,the earning of which are expected to grow ata rate that is above average as compared to the stock market as a whole

health maintenance organization (HMO): A type of health care plan that pro-vides coverage for care only from doctors and facilities that contract with theHMO. There are often no deductibles required and very low co-payments forservices such as doctor visits and, when covered, even prescription medications.

income statement: A record that shows how profitable a company is over timeby revealing the financial picture for the company over a specific period of time;also called a profit and loss statement




index: A source of data regarding companies’ financial information, analyses,and predictions for future performance; popular examples include the Dow JonesIndustrial Average (http://www.dowjones.com), Standard & Poors(http://www.standardandpoors.com),and Value Line (http://www.valueline.com)

index fund: A mutual fund with an agreed goal to match a particular index;index funds are usually very cost efficient and have low costs of operation

industry: A category of companies characterized by the particular goods orservices they offer

industry group: A group of industry leaders organized to make decisions onbehalf of a given industry and to represent the industry to outsiders

industry publication: A publication issued by a specific industry or by an inde-pendent source regarding a specific industry

industry report: A report issued by an industry group or by an independentorganization that reveals data, including financial information, related to a par-ticular industry

inflation: A persistent rise in the general level of prices of goods and services,related to an increase in the volume of money available and resulting in the lossof value of currency

initial public offering (IPO): The first time a company offers the public anopportunity to invest money in the company by purchasing shares of stock thatrepresent ownership of a part of the company

instant access savings account: A type of saving account, often called regularsavings, that allows an account holder to withdraw funds from the account at any




time without prior notice and without penalty and interest is earned on the fundsheld in the account.

insurance: An insurance policy is a legal agreement between an insuranceunderwriter (insurer) and an individual or corporation (insured) that wishes toindemnify against potential losses due to named hazards contained in the insur-ance policy contract. In the event of a loss because of a covered hazard named inthe insurance policy, the insurance underwriter must pay the insured based onthe provisions of the insurance policy contract upon receipt of an insuranceclaim and proper documentation as defined in the insurance agreement, provid-ed that premiums on the insurance policy had been paid and the policy wastherefore in effect and providing coverage at the time of the covered loss.

interest-bearing account: Any type of financial account on which interest ispaid on the principal invested in the account. Types of interest-bearing accountsinclude checking, savings, money market, and certificates of deposit.

interest rate: The percentage rate at which (1) money is earned on an interest-bearing account or (2) charges are added to a loan or debt, increasing the amountof money owed above the original principal amount of the debt

Internal Revenue Service (IRS): The government agency that is responsible forinstituting and collecting taxes on income, including income earned by stockmarket investors as capital gains

international: Encompassing persons and entities, such as companies, thatoperate or are based in nations outside of the United States

international fund: A mutual fund that consists, entirely or in part, of invest-ments in international or foreign stocks




investment: The placement of money or capital in a stock or other investment inorder to gain profitable returns, as interest, income, or appreciation in value.

investment fund: A personal fund, such as a savings account, into which aninvestor puts money regularly to be used ultimately for stock market investment

investment objective: A statement in an account prospectus that describes theinvestment goals of the account

investment options: Types of investments, such as stocks, mutual funds, bonds,bond funds,certificates of deposit,money market accounts,annuities,real estate,or precious metals

investment portfolio: A collection of investments of various types

investment strategy: The amount of risk an investor is willing to accept basedon their investment goals and other factors. They may choose a growth strategythat is higher risk but higher possible return, a conservative strategy that pro-vides less return but much less risk or a combination of these strategies.

Keogh plan: A type of retirement plan,for self-employed sole proprietors or part-nerships, similar to an IRA but with a contribution limit of $30,000 annually

laddering: A philosophy of purchasing multiple CDs that mature at various datesso that at any given time one or more CDs will be within a short period of reach-ing maturity, providing quick access to those funds if needed

large-cap fund: Mutual funds that invest in companies with a high marketvalue and that are usually long-time, well-established entities; also referred toas blue chip




liability: Money debt owed; the opposite of an asset

life expectancy: The number of years a person expects to live based on theirlifestyle and health. For retirement planning purposes, age one hundred is usual-ly used as a base factor for healthy, active persons.

life insurance: A form of insurance that pays benefits to survivors in the event ofdeath of the insured or, in the case of a family policy, in the event of the death ofone of the insured parties. Some forms of life insurance may earn cash value;some are permanent insurance, and others are only for specific periods of time.

longevity: The length of time a company has been established and/or trading onthe market; also the predicted future life of a company

long-term capital gain: Capital gains earned on a long-term investment, that is,an investment with a holding period of more than one year

long-term capital loss: Capital loss suffered on a long-term investment, that is,an investment with a holding period of more than one year

long-term investment: An investment that is held by the investor for a long peri-od of time; with respect to capital gains, over one year

lump sum: A payment that is made all at one time, rather than distributedamong periodic installment payments

market analysis: A set of data that reflects financial information regarding com-panies within a particular industry, narrowed to specifications that may have aneffect on the value of a company’s stock

market cap: The total value of all stock of a company




market cycle: An extended period of time in which the stock market experiencesa predominant trend, such as increase or decrease in stock value

market dip: A period of time during which market-wide stock values experiencea decrease

market strength: The value of stocks on the market and the likelihood thatstocks will retain their value over a particular time period

mid-cap fund: A mutual fund with investments in middle-sized companies,usually fairly well established but with market values less than those of large-capfunds

minimum investment: The minimum amount of money required by some bro-kers, brokerage firms, or mutual funds to be invested by an investor

money market account: A type of bank or other financial institution depositaccount that permits the institution to invest the money into money marketfunds earning a higher interest rate than some other types of accounts but thatmay have restrictions on the account such as minimum balances that must bemaintained, maximum withdrawals that may be made without penalty, and oth-ers based on the specific bank or financial institution and their account policiesand regulations

mortgage: A type of loan or financing arrangement where one party, usually abank or financial institution, provides funds to a person who wishes to purchasereal estate so that the seller of the real estate receives payment and the buyer hasa defined payment to be made at specific periods that include principal and inter-est as defined in the mortgage loan documentation




mutual fund: A fund, overseen by a fund manager, in which a group of investorspools their investment resources for diversified investments with a view to meet-ing a common investment goal

mutual fund company: A company that offers mutual fund investment oppor-tunities to investors

named insured: An individual named in an insurance policy as the person cov-ered by the insurance

named beneficiary: A person, trust, or in some cases a corporation or otherorganization that a named insured has requested receive benefits paid by lifeinsurance should the named insured died during the period of insurance cover-age thereby resulting in the benefits of the insurance policy being paid to the ben-eficiary or beneficiaries

NASDAQ: The most popular and highest trade volume electronic stock exchangethat was also the first to allow electronic stock trading (http://www.nasdaq.com)

negative yield: An overall loss on an investment

net asset value: The current value per share of a stock,as determined by the totalvalue of the assets of a mutual fund less the fund’s liabilities and divided by thenumber of shares outstanding

net assets: The total assets of an individual, company, or mutual fund before thededuction of liabilities and debts

New York Stock Exchange (NYSE): A New York City–based stock exchange; thelargest stock exchange in terms of monetary value




online broker: A brokerage option available online, offering low trading fees butassociated with limited guidance and personalized investing advice

optional insurance: Insurance coverage that is available for purchase but forwhich there is no legislation requiring that you carry this type of insurance cov-erage

outlook: A future projection for how well a particular stock, mutual fund, indus-try, or the stock market generally is expected to perform

outstanding share: A share of stock issued by a company to a shareholderowned by the investor

passbook savings account: See instant access savings account.

past performance: The history of a company’s financial performance

per-share earnings: Earnings of a company divided by the number of stock-holders holding shares of the company stock

per-share value: The value of a company divided by the number of stockholdersholding shares of the company’s stock

personal trading account: An investment account into which a broker depositsthe money of an investor for draw and deposit by the broker pursuant to theinvestor’s directives regarding stock market activity

per-trade: The schedule of fees charged by some brokers, requiring payment bythe investor of either a flat fee per stock market trade accomplished by the brokeror a percentage of the amount of money transacted in a particular market trade




portfolio: The complete set of investments of an individual investor

portfolio adviser: A financial professional, often a broker, who advises aninvestor regarding composition and diversification of an investment portfolio; anadviser who works with a mutual fund manager to determine how to best allo-cate the fund’s resources

positive trend: A general increase in stock value over an extended period oftime.

positive yield: An overall profit on an investment.

precious metals: Metals that are treated as an investment due to their value andtheir ability to retain value over time, and which are tradable assets, includinggold, silver, platinum, and some others

prediction: A forecast regarding the anticipated future performance of a stockusually made by on the part of a financial analyst or other professional in thefinancial field

preferred stock: Shares of stock whose owners have priority over commonshareholders to company assets in the event of a liquidation or bankruptcy; pre-ferred stock is limited in terms of shareholders’ voting rights

preexisting condition: When referring to insurance coverage, a condition thatexists or has existed in the past that could impact the risk incurred to the insur-ance underwriter should they cover you.Often,insurance coverage may not covera specific condition for a period of time if that condition was existing before theinsurance was purchased.




press release: A public statement by a company describing the company’s finan-cial status or informing the public about changes or decisions regarding the com-pany that have the potential to change the value of its stock

price: The cost of a share of stock on the market at a given point in time

price-to-earnings ratio: The price of a stock divided by the stock’s annual earn-ings per share

price-to-sales ratio: A comparison of the price of a particular company’s stockat a specific point in time to the total annual sales of the company

principal: In the case of investments or savings, the basic amount of an invest-ment before any interest or dividends are earned. In the case of a debt, the basicamount of money borrowed before any interest charges or other fees are appliedto the debt.

professional analyst or professional financial analyst: A professional whoanalyzes stocks and the stock market based on a number of financial factors topredict future activity and offers an overall picture of the financial strength of astock or the market as a whole

professional experience: On-the-job experience in a financial capacity,requiredin many instances of financial professionals before they can secure particularjobs or specific professional certifications or designations

profit: The monetary value of a company’s income, as determined by the totalsales of a company’s goods or services reduced by liabilities and operational costs

profit and loss statement: A financial statement that reflects a company’s prof-it and its loss for a particular period of time, usually issued annually




profitability: The past profit-realizing capability of a company and the anticipat-ed future ability of a company to realize a profit

projected revenue: A future forecast of the volume of sales a company is expect-ed to make of its goods or services

proof of insurability: When purchasing some types of insurance such as med-ical or life insurance coverage, in some situations you may be required to provideproof that you do not have any serious medical problems that might cause you tobe an extremely poor insurance risk to the insurance underwriter

prospectus: A prospectus is a document that provides the potential buyer of asecurity, including variable life insurance and important facts about the compa-ny and the investment offered.

quality: A general description of how well the stock has performed in the past,what its current value is, and how it is expected to perform in the futurequarterly—the frequency with which some company financial information ismade available, every three months

quarterly gross income: The total income realized by a company over a three-month period

quarterly report: A report issued by a company every three months offeringfinancial information

real estate: Property that is “real,”or land based, such as land, a house, or a phys-ical business or other building.

regular savings account: See instant access savings account.




reinvestment: An investment strategy that involves putting money made on aninvestment back into the stock market rather than cashing out

replacement value: The value of an item if it had to be replaced in today’s mar-ket from a new retail source. This term is used to refer to insurance coverage onthe building structure and contents of your home and some types of other insur-ance coverages to refer to amount of money that would be required to rebuild astructure of the same quality and type as the lost structure or to purchase itemsof the same quality and type as the contents lost in case of a covered loss due toa covered hazard. (See also fair market value.)

required insurance: Insurance that are you compelled to purchase because oflegal requirements in your state or legal contract with a lender holding an inter-est in an item you are purchasing through a financing contract such as a home orautomobile

resale: The sale of shares of stock by an investor after his or her holding periodof those shares; the sale of shares of stock on the market by a company that thecompany has repurchased back from investors

research: The process of gathering and evaluating information regarding indi-vidual stocks, mutual funds, the stock market, companies, and industries from avariety of sources in order to create an investment strategy

retirement: The point in one’s life when he or she leaves the work force

return on assets: A value of a company’s stock calculated by dividing the com-pany’s net annual income by its total assets




return on invested capital: A measure of how much money a company makesper year per dollar of invested capital, or the amount of money that has beeninvested in the company by its shareholders and by debtors who owe the compa-ny money for goods or services

return of premium life insurance: A type of life insurance that will pay the pol-icyholder the actually premiums paid to the insurance underwriter if the insur-ance benefits do not have to be paid because the named insured did not die.

returns: Money made by an investor on his or her stock market investment

return on investment (ROI): The amount of money that increases an invest-ment due to the interest earnings, including compound interest, causing thegrowth of that investment. ROI is usually expressed as a percentage

revenue: The dollar amount earned by a company over a specific period of time;growth in revenue is a common indicator of a company’s financial health

risk: The danger associated with investment in the stock market, representingthe possibility of a loss on one’s investment

risk tolerance: An individual investor’s ability to risk a loss by investing in thestock market in exchange for profits realized from money made through stockmarket investment

Roth IRA: A type of retirement account that is completely tax-deferred and hasno withdrawal restrictions, but contributions to which cannot be deducted on anindividual’s income tax return

Scottrade: An online brokerage offering discount stock market transactions andother financial services and advice (http://www.scottrade.com)




sector: A category of goods or services,also referred to as an industry such as thepharmaceutical sector.

sector fund: A mutual fund the investments of which are limited to a particularsector, or industry, thus offering limited diversification potential

state income tax: A tax placed on a person’s income because of legislation enact-ed by the state in which the person resides or the person is employed. Some, butnot all, states extract an income tax from their residents.

short-term capital gain: Capital gain realized on a stock that is held short term,or less than one year.

short-term capital loss: Capital loss suffered from an investment in a stock thatis held short term, or less than one year

short-term investment: An investment that is held by the investor for a shortperiod of time; with respect to capital gains, less than one year

small-cap fund: A mutual fund that invests primarily in new, growing, emerg-ing companies with low market values, with investments intended to used toencourage and support growth, rather than to pay substantial dividends; a riski-er investment strategy than mid- and large-cap funds but with high earningspotential

simple interest: Formula for calculating interest by multiplying the principaltimes the rate of interest times the number of times the interest is paid with-out ever adding any interest to the principal. Savings accounts and debts arecalculated in almost all cases on compound interest formulas rather than sim-ple interest.




Social Security Administration (SSA): An independent agency of the UnitedStates government that was established to manage the social insurance programthat consists of retirement,disability,and survivors’benefits that are paid to qual-ifying American workers upon meeting certain criteria and qualifications

Social Security Disability Income (SSDI): A benefit paid to qualifyingAmericans workers who have become disabled and are no longer able to work buthave worked in the past and paid taxes into the Social Security funds.

stock: The combined shares of ownership of a company

stock analyst: A financial professional who analyzes stock data to produce afinancial analysis

stock exchange: An organization that brings together persons and entities tofacilitate the sale and purchase of stocks

stock fund: A mutual fund with investments in a variety of stocks

stock market: A market in which shares of stock are bought and sold, calledtrading.

stock split: An action by a corporation that increases the total number of sharesof the company’s stock

stockbroker: A professional agent who represents a client by executing theclient’s purchases and sales of shares of stock on the stock exchange

stockholder: An investor who owns one or more shares of a company’s stock andcan sell their share or shares at will through the stock market as well as vote onactions the company makes through proxy voting




Supplemental Security Income: A benefit paid to qualifying American workerswho have become disable and are no longer able to work but have not paidenough into the Social Security fund to qualify for Social Security DisabilityIncome.

tax: Money payable to the government in exchange for its support of particularservices, which is levied upon income of all kinds, including capital gains frominvestments

tax consequence: A tax payment that results from certain actions by investorswith respect to their stock market investments

TD Ameritrade: An online brokerage offering discount stock market transac-tions and other financial services and advice (http://www.tdameritrade.com)

teaser offers: Any offer made by a credit card company or any other type of busi-ness that offers a special rate, free merchandise, or other special incentive to getyour business, but after a certain period of time, the teaser rate or price changesto a much higher level or the free merchandise is used to get you to use a creditcard to qualify for the “free” items.

teaser rates: An offer made by a credit card or other interest-charging type offinancing that offers an exceptionally low interest rate for a specific period oftime, after which the interest rate increases to an interest rate that is either aver-age for that market or may be even higher than average.

term life insurance: Life insurance that is purchased for a specific period oftime, usually ten, twenty, or thirty years, and for which the insured must submitmonthly premium payments to keep the policy in force. This type of insurancebuilds no cash value.




trading: The process of conducting transactions of stock (buying and sellingshares of stock) on the stock market; typically accomplished by a broker onbehalf of an investor

trading floor: A large room in a stock exchange, such as the New York StockExchange of the American Stock Exchange, in which brokers meet to buy and sellstock shares

universal fife insurance: This is a form of life insurance that allows the poli-cy owner to determine the portion of each payment that will be used for deathbenefits and how much of each payment will be used for your plan’s invest-ments. Universal life frequently returns significantly higher investment yields,increasing the cash value sometimes so much that the increases will even paythe premiums

universal variable life insurance: See variable universal life insurance.

value: The investment worthiness of a particular company’s stock, determinedby the cost of shares of stock compared to the potential for making a profit on theinvestment

value fund: Mutual funds that invest specifically in companies that are large orat least medium-sized and are underappreciated

Value Line: A comprehensive stock market index that publishes the Value LineInvestment Survey, a report that offers information and advice on numerousstocks, industries, the stock market as a whole, and the economy as a whole(http://www.valueline.com)




variable life insurance: This is a form of permanent type of insurance protec-tion in which the amount of benefits paid should the named insured pass awayvaries based on the return on the investments the insurance company has madewith your premium payments.

value stock: An underappreciated stock that sells for a low price and is likely toincrease in value,allowing an investor to resell the stock for a higher price to real-ize a profit

variable universal life insurance: A type of life insurance that combines thefeatures of universal life insurance and variable life insurance

Wall Street: The street in New York City that is the location for the physical trad-ing floor of the New York Stock Exchange

Wall Street Journal: A long-established, highly respected finance- and business-focused newspaper publication offering information on stocks, the stock market,and related issues

whole life insurance: One of the types of permanent life insurance that is pur-chased for an amount and builds cash value that can be withdrawn in exchangefor reducing the policy benefits.This type of insurance also permits loans againstthe cash value of the policy. The death benefits are paid to a defined beneficiaryor to several defined beneficiaries based on the amount the policy owner deter-mined each beneficiary should receive. This insurance type is more costly thanterm life insurance but also has significant benefits that are not available withterm life insurance.




Short-Term Goals (next two to three years):

Goal one:

Projected completion date:Amount required:

Goal two:


Goal three:

Projected completion dateAmount required:

Medium-Term Goals (four to ten years from now)

Goal one:

Projected completion date:Amount required

Goal two:


Long-Term Goals (eleven years from now to retirement)

Goal one:


Goal two:




WORKSHEET FOR FINANCIAL GOAL SETTING

TOTAL MONTHLY GROSS INCOME$_________Less taxes, health insurance, payroll deductions $_________Less savings, 401k, etc. $_________

Total Monthly Spendable Income$_________

HOUSING EXPENSESRent or mortgage $_________Utilities $_________Monthly share of insurance (set aside for pmts) $_________Repairs (set aside for future needs) $_________Taxes $_________TOTAL $_________

VEHICLE EXPENSESLoan payments $_________Fuel $_________Maintenance $_________Insurance (set aside for when due) $_________TOTAL $_________

DEBT-REDUCTION PAYMENTSCredit card payments $_________Other loan payments $_________TOTAL $_________

OTHERChurch tithes and offerings $__________Charitable donations $__________Childcare $__________Entertainment $__________School supplies $__________Food $__________Medical expenses $__________Clothing $__________Gifts $__________Miscellaneous cash expenses $__________TOTAL $__________

INCOME TOTAL (copy total from total monthly spendable income) $__________

EXPENSE TOTALS (copy total from each section above)Housing expenses $__________Vehicle expenses $__________Debt-reduction payments $__________Other $__________

TOTAL EXPENSES $__________

Income subtracted from expenses = surplus or shortfall$__________


BUDGET WORKSHEET

Instructions: Use one sheet for each day of the week, and provide a copy to your spouseand any other family members that spend money on a daily basis that is not reflected onyour own expense tracking worksheet. Under each column heading, list the expense, theamount spent, and the reason for the expense.

Date:

Expense Amount Reason



DAILY EXPENSE TRACKING WORKSHEET

Date post:	12-Sep-2014
Category:	Economy & Finance
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