ProFunds Group Has A Number Of ETFs Designed To Perform This Way

Category: Finance, Financial Planning.

Exchange traded funds are index funds which have advantages over open- end index mutual funds.

There are a number of reasons, which we ll discuss, for investing in index funds( Exchange Traded Funds or mutual funds) but let s start with the fact that the S& P 500 index beats 80% of all actively managed funds. (And, an index fund has lower expenses than an actively managed fund, further enhancing its net return. ) If you can invest in an index fund and be in the top 20 percentile of fund returns, that s a pretty good place to start. ETFs trade all day long on the stock exchanges, may be purchased through any broker, have lower fund expenses than mutual funds, and have less likelihood of generating unwanted taxable gains than mutual funds. You can construct a well- diversified portfolio entirely out of ETFs. Exchange Traded Funds enable you to diversify into assets which you may not otherwise feel comfortable owing because of expertise, risk and/ or liquidity issues. There are Exchange Traded Funds for almost every type of investment you can imagine. They are well- suited for investing in exotic areas such as currencies and commodities. One of the most attractive features of Exchange Traded Funds is their ability to provide you with greater liquidity than if you were to directly own their underlying investments.

Of course, they re great for sectors such as small cap or international stocks. Take municipal bonds, for example. Minimum investment size can be another problem. Most Muni issues trade infrequently and the transaction costs for the individual investor are substantial. Munis typically have a$ 1, 000 denomination and trade in large blocks. You can buy as little as one share of an ETF( generally less than$ 100) during market hours and at the same cost as for a stock.

ETFs are the answer to all these issues. You can hedge an investment and/ or lock in gains using ETFs. Investing on margin can magnify your returns and your losses. Unlike open- end mutual funds, Exchange Traded Funds can be bought on margin and shorted. The ability to short enables you to make money when something goes down in value. However, to paraphrase TV commercials, these strategies should only be employed by a professional driver on a closed course.

Think shorting the dollar or home building stocks. It s also important to note that you don t have to short an ETF if you think an asset is going to decline in value. ProFunds Group has a number of ETFs designed to perform this way. You can probably find an ETF which is structured to generate an inverse return to that asset. So, for example, if you think the Chinese stock market will decline, you can purchase a ProFund which should increase in value if you re right. One S& P 500 ETF may weight its stock holdings by market cap, another may weight them all equally.

All ETFs, even those which track the same index, are not the same. This will result in different returns. Since most indexes are not strictly defined, think technology versus S& P 500, there will be a variety of different investment strategies employed. Two ETFs which track the technology sector may hold different stocks and/ or in different weightings. Different strategies to mimic an index are not good or bad, but they may have different risk levels and will produce different returns. You need to know what you re investing in.

Some ETFs also use leverage to enhance their returns or structure there holdings to magnify any gains( thus, also losses) of an index. To understand how a specific ETF works, visit its website and read its prospectus. Also, there will be, within five years more money invested in ETFs than in open end index mutual funds. Within five years most investors will have at least one ETF in their portfolio. The advantages of Exchange Traded Funds- liquidity, transparency and lower expenses, to name a few- will force changes in open end mutual funds. Happily, the investor will be the winner in the competition between these two investment vehicles.

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How Much Money Will You Need During Your Lifetime

Category: Finance, Financial Planning.

If making a million bucks were easy, we d all be millionaires. According to the statistics shared by Mike Peterson, co- founder of The American Credit Foundation and author of" Reality Millionaire: Proven Tips to Retire Rich, " most Americans are losing the money- making game.

Right? Take 100 people at age 20 and fast forward them to retirement. That s not even great or independent . Only five percent of them will be financially okay. Just okay. Let s take another step, at the point that you manage your finances and income so you re no longer in the red, but actually have a little money left over at the end of every month. In fact, most people lose in rounds one and two. "There are different levels to financial freedom, " says Peterson. "The first level of financial freedom is when you decide to take control of your finances.

Eventually we get to what I call ultimate financial freedom. There are certainly many related causes for our society- wide tendency toward money blunders. I define that as, where you have enough money put away in investments that are spinning off enough of an income for you that you no longer have to go to work. " The real key to getting started according to Peterson is that people need to make a decision to be responsible for their own finances. Lack of financial education in schools is certainly a factor but Peterson thinks the real problem is closer to home. Once you commit to getting started, begin with rounds one and two below: Round one is all about looking- really looking at your finances. As an adult, there is no reason someone can t go to a local library and tap into the wealth of information available and teach himself.

How much money will you need during your lifetime? Now consider how much you ll earn. Consider vacations, a child s wedding, cars and then, a house add a million because you d love to have a million someday and you will need something to retire on. If you continue earning the same amount you currently do, how much will you earn over your working lifetime? Without conscientiously managing your money, the discrepancy will get worse, not better. There s a discrepancy there for most people and it s easy to see why people who don t pay attention are loosing the money game big time. Since most people don t just buy a house with cash, they ll actually be paying a lot more than the asking price.

The great thing about money is that there are lots of ways to make it. That goes for anything purchased with credit. Of course, there are at least as many ways to spend it. Round two is about finding your own pot of gold with the 10- 15% of your spending that doesn t buy you very much and putting it where you need it most. "I ve been teaching classes in financial management for years, and I have never met anyone that couldn t find this extra money in their current budget, " says Peterson. Riches, is not about, cautions Peterson how much you earn, it s about how much you re saving and how well that money is working for you. Start by writing down all of your monthly expenses.

To get more exact numbers, you need to actually track your spending for at least 7 days but preferably a month. Most Americans can t account for 10- 15% . Write everything, even the loose change vending machine purchases, down. That will come next as you fund an emergency savings account. Don t change your spending habits just because you re tracking it this time around. The first two steps really do keep most people from winning.

If numbers aren t your thing, there are online calculators and other free resources on Reality Millionaire s book website that can help set realistic goals. Once you ve committed to controlling your financial future and you ve found a little extra money in your budget, you ll have the energy and excitement to move on to building an emergency fund, planning your debt repayments and starting to invest. Ultimately, how far you go, and what you do are up to the attitude you start off with. In real life, unexpected costs are common and it is easy to lose confidence, patience, but through persistence, and above all, you can achieve, education and practice your dreams of being debt free and have a million dollars in your bank accounts and investments.

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Where To Focus Your Alpha Energy

Category: Finance, Financial Planning.

A current theme among Wall Street wealth managers is for individual investors to have index funds as their core holdings and to focus the remainder of their assets in high alpha investments, which will produce returns not correlated with the market.

In traditional finance, return not correlated with a broad market index, such as the S& P 500, is referred to as alpha. A quick digression for those of you who aren t familiar with alpha and beta. The return which is correlated to the market is beta. You can t outperform the major indices, so don t waste your time. An index fund should have the same return( positive or negative) as the index it mimics. (One of the controversies surrounding some ETFs is their performance has not tracked their underlying index. ) The theory behind Alpha and Index Funds is multi fold: the major indices are a good place for an investor to be, both from a risk and return perspective. Find those investment niches with high alphas to increase your return and reduce the overall risk in your portfolio. They will tell you something about the correlation and diversification of your portfolio.

Even if you don t subscribe to this theory, you might find it an interesting exercise to review the alphas- - every investment has one- - of your current holdings. Where to focus your alpha energy? The Wall Street pros also recommend stock fund mangers who have unique strategies and can demonstrate a high alpha relative to the market( and, positive relative performance, of course) . Investments in real estate, and energy are, commodities less correlated with the stock market( although I ve never thought commodities were suitable for individual investors) . Ask your investment adviser for suggestions. Alpha and index fund investing makes a great deal of sense.

The alphas for individual mutual funds( and individual stocks) are available from some brokers and online premium services. You know what to expect in terms of risk and return when you invest in an index fund. Picking high alpha investments, which by their nature are less correlated with the stock market, should reduce the risk/ volatility of your portfolio and, depending upon the investment, provide above market returns. Having a portion of your portfolio in index funds leaves you free to concentrate your investment time and energy( think alpha waves) on those investments which can make a difference.

The Interest Rate Will Change Your Mortgage Interest Payment Each Month

Category: Finance, Financial Planning.

When you decide to buy a home, getting the best possible loan is important.

How you can keep your monthly mortgage payments down? It can save you thousands of dollars. These are the different components of the loan that can affect your monthly mortgage payments. The rest of the price is how much you will finance with the lender. Down Payment: The down payment is how much cash you will put down up front. For example, if the purchase price is$ 300, and you are, 000 putting 20% down, that means you will be putting down$ 60, 000, and the loan amount will then be$ 240, 00The more money you can put down, the lower your monthly payment will be.

Also, you usually get a better interest rate when you put down at least 20% , so that helps out as well. Basically, the less you finance, the less will be amortized over the life of your loan. Loan Life: The number of years the loan will be amortized over affects the monthly payments. Typically, the longest term is 30 years. The longer the life of the loan, the less you pay each month because it is spread out over a longer term. Of course, the longer the term, the more total interest you will pay, so be sure to weigh that in as well. This is the rate they are charging you for borrowing the money.

Interest Rate: One major variable that will differ between lenders is the interest rate. The interest rate will change your mortgage interest payment each month. For a$ 240, the payment including, 000 loan just principal and interest at 5% would be$ 1, 51At 0% , it is$ 1, 59A$ 80 difference per month does not sound like a lot, but over 30 years, that is$ 28, 80 Property Taxes: Property taxes are added into your monthly cost of owning a home either by escrowing it with the lender or by you saving to pay it at the end of the year. The higher the rate, the more your payment. The area where your property is located will influence this more than anything. Insurance Rate: Similarly, the higher the insurance rate, the more you will pay per month.

The higher the tax rate and higher the appraisal values, the more dollar amount you will pay each month. This is mostly affects houses that are in special insurance areas that need more coverage, like flood zones or hurricane areas. If you get some insanely low interest rate from one lender that seems completely out of whack from the other quotes, this might be because they are quoting you a rate with points. Points: Points are paid by the Borrower in order to buy down the interest rate. A point is equal to 1% of the loan amount, and you pay this point as part of your closing costs. Buying down your rate will lower your monthly payment.

So for example, with a loan for$ 240, one point would, 000 be$ 2, 400 and that point might buy your interest rate of 5% down to 25% .

Have You Considered Real Estate Mutual Funds

Category: Finance, Financial Planning.

Income is hard to come by these days. The bond market is in disarray, credit spreads are widening( meaning the price of existing bonds is declining) and there are serious liquidity issues( which also impact value) .

Treasuries are yielding less than 5% . Have you considered Real Estate mutual funds? Now, let s be clear on this. Many have current yields in the 5- 8% range( primarily REIT- Real Estate Investment Trust- funds) . These are equity funds and equity funds carry greater risk, and have greater volatility, than bond funds. (Of course, investors in subprime mortgage funds have found out that debt funds are not without risk! ) However, equity funds also offer the potential for increasing income and capital appreciation. I selected two top performing funds: CGM Realty and Cohen& Steers Realty Focus I( Cohen& Steers are the godfathers of real estate funds) .

Real Estate mutual funds cover a lot of territory and you want to make sure you know how your fund invests. Take a look at their holdings. The Cohen& Steers fund s largest holdings are all US REITs. CGM s biggest holdings include two international mining companies, two real estate brokerage companies and one Real Estate Investment Trust. Both are excellent funds but they have very different investment strategies. The moral to this story is that you have to drill down into a funds portfolio to make sure it s right for you. (In addition to looking at the stocks it owns, be sure to check to see if the fund uses leverage to enhance its return. ) Income oriented investors should focus on REIT funds( although I ve avoided REITs that invest in mortgages for the time being) .

CGM is more capital appreciation oriented where as Cohen& Steers is more income oriented. REIT stocks, have declined more, in general in price during the current market correction than has the Dow or S& P 50Some argue that Real Estate Investment Trust stocks were overvalued. Historically, this has been a good entry point. Whether or not that was true, many high quality REITs are now yielding in excess of Treasuries. Of course, many high quality Real Estate Investment Trusts are still yielding in the 2- 4% range, so the correction in the REIT market may not be over. On balance, this appears to, though be a good time for income oriented investors to own REIT funds. And, one of the drivers of REIT stock prices- buyouts by private equity firms- may be ending.

Pick a good fund and you ll get high current income and an investment whose value and income stream will increase over time.

The Policy Has A Large Loan

Category: Finance, Financial Planning.

Most people do not know they can sell an insurance policy. Even term insurance, which has no cash value, is a candidate for purchase.

There are companies that will pay you more than the cash value. This transaction is called a life settlement. They are not new. Life settlements have been on the scene since 1995. While the purchase is facilitated by an insurance company, the buyers typically are pension and institutional funds which hold the policies in their investment portfolios. The policy has outlived its usefulness. 78% of all insurance is purchased for family protection. Here are three common reasons why a person would sell their insurance policy.

Families with children insure the breadwinner( s) until they have had the time to build up an estate or an adequate 401( k) plan to provide for the family, pay off a mortgage and educate the children. However, later in life these needs may have disappeared. Most people have been there and done that. The house is paid for, the kids have been to college and your 401( k) plan has a balance ten times greater than your life insurance face value. Buy a boat, take an extended vacation or go down to the dealership and plunk down cash for that car you have always wanted. Rather than continue to pay premiums, or surrender it for its cash value, you can sell it for more than the cash value.

The policy has a large loan. First, at some point you simply took a maximum loan against your policy. There are three common ways a policy can acquire a large loan. It could have been to satisfy an emergency, take advantage of an investment opportunity- any number of things. Second, you could have taken a modest loan years ago and never paid anything toward the principal. But the loan was never repaid. Every year, you received a, however bill for the interest due.

What happens is that the interest gets added to the loan. If you are like many people, this goes in the round file and you never pay the interest. So what is originally simple interest turns into compound interest. That's when you get the letter from the insurance company telling you that to keep the policy in force, you need to come up with some astronomical amount of money. Over time, the loan and the unpaid interest can consume the entire cash value. But that's not the worst of it.

Worse yet is the fact that there is no money in the insurance policy to pay the tax( remember it lapsed for lack of premium payment and/ or lack of any remaining values) . When you call your agent to see what your other options might be, he or she informs you that if the policy lapses, there will be a gain( cash value less premiums paid) that the insurance company is required to report to the IRS. So you are going to have to come up with the tax from someplace else. You own Universal Life and interest rates have declined. I don' t think you would consider getting this information one of your better days. Getting this news is another bad day at the mail box. How this occurs goes back to when you bought your policy.

This time the letter from the insurance company says that in order to keep the policy in force, you have to come up with more than you could get for your first born. One of the major factors in determining the premium for a given face amount of Universal Life is the interest rate assumption made in the original proposal. You could have bought your policy during this time frame. Remember the double- digit interest rates? Most insurance agents would have suggested using a lower interest rate assumption to be conservative. The sale of your insurance policy averts all three of these problems. However, interest rates have declined to even below these play- it- safe assumptions.

In the first case, you don' t have to pay any more premiums for coverage that is no longer needed. And in the third, the probable lapse of the policy due to the fact that the premium to maintain the coverage is off the charts is offset by the cash received via a sale. In the second, the problem you have with the loan disappears and is replaced by cash.