mutual funds Archives - Faithful with a Few

[The following is a guest post by Jeff Rose about finding the right retirement plan for you – see his complete bio below]

Do you have aspirations of an early retirement? If so, it is important to investigate all of your options and even more important to start saving for retirement now.

The Typical Retirement Plan Options:

Employer-Sponsored 401(k) Plan

A 401(k) is a savings plan created by employers. Eligible employees can make contributions directly from their paycheck without being taxed. Subsequent earnings are tax-deferred. Early withdrawals are subject to penalties. If a 401(k) Plan is offered to you through your place of employment, take advantage of it.

[Take a look at the current 401k contribution limits]

Many companies offer a matching program. This means that whatever you contribute is matched by your employer, usually up to 5 or 6% of your income. In order to receive these additional funds, you need to participate at a certain level in your 401(k) plan, but as long as you can do that, why wouldn’t you? Free money is hard to come by.

Individual Retirement Account (IRA)

Another popular plan with definite tax advantages is the Individual Retirement Account. With a traditional IRA, you save tax-deferred money that gets invested in a variety of ways. If you already have a 401(k) through an employer, you can save even more for retirement with an IRA. Savings in an IRA is typically invested in the following ways.

Stocks and Mutual Funds – By far the most popular choices, these are arguably the best way to increase your savings. Some people are adverse to risk and, therefore, afraid of this option, but stocks and mutual funds generally beat inflation and allow your money to compound via dividends and increases in share prices.
Bonds – Putting your money into bonds is a good choice for the more cautious of investors. You will still end up with more than with money markets and CDs. Dividends can be spent or reinvested..
CDs and Money Markets – These options are your safest option, but give the lowest amount of interest.

[Here are the current IRA contribution limits]

Roth Individual Retirement Account

A Roth IRA is another type of retirement plan where your earnings grow tax-free, similar to that of a self invested personal pension in the UK. The difference is, you have to pay taxes up front and, in order to let your money accrue tax-free, hold the account for a five year minimum. There are fewer investment restrictions and withdrawals are tax-free, though certain rules may apply.

Changes occurring within your Roth IRA (interest, dividends, capital gains) are not taxable. Contributions are not tax deductible, but once deposited into your account, your money will grow free of taxes.

403(b) Plan

This type of retirement plan is solely for the employees of certain public schools and other organizations that are tax-exempt. Some ministers fall into this category. You, the employee, can not set up a 403(b) account for yourself. Only your employer can set one up for you. Contributions are made by your employer through salary reduction agreements. Some plans allow you to make after-tax contributions.

These are funds put into your plan from some other source of income. No income tax is paid on these contributions until you start withdrawing from your plan, normally not until you are retired. (Contributions made to a Roth program are initially taxed but then remain tax-free until you start withdrawing and, if certain requirements are met, sometimes even then.)

If you are ready to start saving for retirement, take a minute to educate yourself. You’ll be glad you did.

photo by jscreationzs

Jeff Rose is an Illinois Certified Financial Planner. He blogs at Good Financial Cents and Soldier of Finance. He loves Crossfit workouts, writes about Roth IRA rules and craves In-N-Out burger. You can follow his updates on Twitter.

Using Morningstar for Mutual Fund Research

What is Morningstar.com

Morningstar.com is a great resource for first time investors and experienced investors. There is a wealth of knowledge that is absolutely free! I have been using Morningstar ever since I worked with the Student Managed Investment Fund in college. We had to use the site to research stocks, download annual reports and gather general company information.

It is a reputable source and I use it often when I evaluate my own trades. I even wrote a tutorial on Morningstar that provides a step by step breakdown on how to get the most out of the service.

Morningstar on Mutual Funds

I was contacted recently by a friend that mentioned investing in mutual funds, rather than buying a share of stock, for retirement. She asked my opinion on a few mutual funds that she was considering purchasing. After I warned that I am not a financial advisor with no qualifications whatsoever to give investing advice, I suggested she check out Morningstar.

Mutual fund evaluation is something that they do very well. But then I started thinking about how to use Morningstar.com best for mutual funds.

No-Load And Load Funds And Management Fees

Before we get into how Morningstar can help you choose a mutual fund there are a few characteristics of mutual funds that you should know. There are two main types of mutual funds, load and no-load funds. The main difference between the two is the cost. No-load funds have no front or back end commission. If you purchase $1000 of a no-load fund, all of that $1000 is invested in the fund. A load fund has a commission either front or back-end. A fund with a 5% front end load fee would have $950 working in the mutual fund.

However, both types of funds could still have expense ratios. Also known as the management expense ratio, this is typically the fee that goes to the mutual fund manager. There could also be marketing fees or administrative fees, so you’ll want to check on what fees could be charged before investing.

Finding the Best Mutual Fund

The best mutual fund will obviously vary from investor to investor, but the idea here is simple. Take a look around and familiarize yourself with what’s out there. Once you are on Morningstar, the first thing you’ll want to do is click on the Funds tab once you are on the site. You will notice that there is news on the first page with information on various mutual funds. You will want to scroll down to the middle right-hand side of the page. Under a section that says Find a Fund, you will want to click on Fund Screener.

There is also a premium fund screener that will take into account the rating provided by the Morningstar analysts, but the free fund screener is also good. You’ll have to login to your free account to access the screener. The screener includes criteria for fees, returns and fund type. Take some time and see what options come up based on your screens. Once you narrow down your results you will want to take the research a step further by checking out the prospectus.

What’s your process when choosing a mutual fund?