I am worried about the irregular returns offered by the stock market. An annuity seems like just the thing to provide more stable returns. A variable annuity seems like just thing, guaranteeing against losses, while offering the opportunity to see larger gains. Is a variable annuity a good idea?

As with all things personal finance, it is up to you to decide whether a variable annuity is a good idea in your specific situation. But it can help you to have a little more information to help you make a decision.

First of all, realize that a variable annuity is different from a fixed annuity in that there is more flexibility with a variable annuity — along with a greater risk that you won’t get as much as you would like. It is also worth noting that right now many companies are reducing their guarantees and increasing their fees when it comes to annuities. This is especially true of variable annuities, so carefully consider why you want an annuity, and what you hope to accomplish. If it is part of a balanced retirement plan or investment portfolio, perhaps that is a good reason for one. If your entire reasoning is driven by fear, it may be time to step back and reconsider.

If you are a long ways away from retirement, an annuity may not be the best option. Instead, you might consider a low-cost index fund. Over time, the stock market has traditionally gained, and if you have a 15 – 25 year timeframe, you might do well with index funds. If you are close to retirement and have enough to sock into an annuity that will guarantee to you a fixed income. Immediate annuities have been very popular in recent years due to their ability to provide regular income.

Remember, though, that any investment can result in loss. And realize that even with guarantees on annuities, insurers can go down, and you can lose some of what you thought you were gaining. In the end, it is a good idea to study your options and yourself, and look at what else there is available to you before locking in an annuity.

Disclaimer: I am not a financial professional. Any information you get from this site is not intended as advice. It is likely to be incomplete, and it may not apply to your individual circumstance. Do your own research, consider your situation and/or consult a professional before making money decisions.

Image source: nathangibbs via Flickr

Post from: EveryJoe

Ask the Piggy Bank: Variable Annuity?

Let me know what you think — whether it’s for your passive income or your retirement account, what, if anything, are you doing about your investment portfolio?

Post from: EveryJoe

Personal Finances Poll: What Are You Doing With Your Investment Portfolio?

No, the bailout plan isn’t some magic cure-all.

This is stuff we’ve seen coming for weeks now.

So now is not the time to start panicking.

Nor is it time to give in to fear-mongering. (I’m talking to you, CNN! Compare these two photos — thanks markzero — and see that far from being in a panic, the guy is just talking into his microphone: CNN cropped photo vs. Yahoo! full photo.)

Take a look at your investment portfolio and at your personal finances. Do what you can to get things in order.

Investment portfolio

Look at your allocation. Is it weighted somewhat conservative? Do you have a good mix? Index funds? Companies that are likely to survive? Try to avoid looking at your retirement account statement, and remind yourself that over the long haul, the stock market gains. Consider unloading only the especially vulnerable investments. If something still has solid fundamentals, stick with it.

Also, consider cash investments right now. You won’t get big returns, but many of them are guaranteed, including a recent guaranty for money market funds and also an increase in protection for FDIC-insured accounts. They can present a reasonable way to get some return for those who have a lower risk tolerance and are especially concerned about riskier investments.

Personal finances

It’s back to basics here:

• Try to reduce your debt as much as possible.
• Redo your budget and cut out the non-essentials to ensure that you spend less than you earn.
• Look for true bargains.
• Try to find ways to earn a little more money to pad the emergency fund.

Chances are, you are not going to see an immediate impact from this. But down the road, things could get a little rough. With proper preparation now (even better if you’ve been preparing for a few weeks or months  now), you should be able to weather things fairly well.

What are you doing to prepare for the future?
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Post from: EveryJoe

Stock Market Crash 2008: Stop Panicking. Seriously. Stop.

• As a rise in prices.
• As a decline in the value of your money.

Either way, inflation has a very real effect on your personal finances. And it’s not just “regular folks” feeling the pinch. Millionaires are feeling the pains of inflation as well.

Here are 5 ways that inflation can affect you:

1. Cost increases. This is the most obvious way that inflation can affect your personal finances. Your food, energy and other products increase in price. Additionally, you will find that loans often cost more, as inflation causes interest rates to rise.
2. Investment returns. From your retirement account to your savings account to your online brokerage stock portfolio, inflation can knock your investment returns. Your returns are lower in times of inflation, as companies grow slower — and can even go negative. Additionally, inflation erodes your return rate on your investments.
3. Cost cutting by companies. As inflation cuts into company profits, you will find that there are efforts to stem the outflow. This means that some benefits and perks may be left out. And, in this sort of an economy, it is no surprise when downsizing becomes a regular part of the job picture. You might lose your job.
4. Infrastructure development. The roads you drive on and the grid that carries your electricity are all results of infrastructure development. As costs go up, governments slow their projects. This can affect you in terms of car maintenance, time spent going somewhere, the efficiency at which you receive power and any number of services we have come to expect from the government.
5. Higher taxes. Inflation tends to lead to higher taxes. Money to pay for all the things we expect has to come from somewhere. And as those bills get bigger, so does the tax bill for individuals.

Can you think of any other effects of inflation?

Post from: EveryJoe

5 Ways that Inflation Affects Your Personal Finances

Diversify your investments.

You don’t want all your eggs in one basket. Indeed, it is very important for you to have a reasonably diverse investment portfolio so that you can better handle things when one of your investments is down.

image credit: US government

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Post from: EveryJoe

Personal Finance Tip #20: Diversify Your Investments

But there is a qualification. Look at your investment portfolio and make sure that you are investing in companies with strong fundamentals. You can get some good deals right now while there is some turmoil in the market. Buy more stock when the prices are low (but choose your stocks wisely), so that when the market recovers you will be in better shape.

Here is some good investing advice from a investment professional, as reported by Bloomberg:

“Given the current environment, investors should stick to companies with strong fundamentals,” said Nicole Sze, a Singapore-based investment analyst at Bank Julius Baer & Co., which manages $350 billion in assets worldwide. “So far, the bad news has been confined to the financials and we haven’t seen a spillover into other sectors yet.”

Hmm…the investment professional and I are on the same page! :0)

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional.

Post from: EveryJoe

Stock Investing Now: Stick to Strong Fundamentals

The stock market wasn’t overly impressed by his testimony, and that means that it could be a good time to evaluate your investment portfolio for fundamentally strong stocks, buying those (while they are low) that are likely to recover.

Post from: EveryJoe

Ben Bernanke Mentions Possibility of More Rate Cuts

What are real estate investment trusts?

Real estate investment trusts (REITs) are specific companies. These companies are comprised of a variety of real estate related properties and concerns, such as mortgage lenders, warehouses, residential property and/or commercial properties. They are traded on the stock market like equities, which makes them fairly simple. And, REITs ensure that real estate investing isn’t just about owning property.

Many REITs have fallen in value recently. Some are likely to recover in the coming years. If you choose properly, you might be able to get a good bargain in a real estate investment trust with strong fundamentals (look for low debt, cash flow and fewer land holdings). Then, if your investment portfolio is in a place that you can afford to wait the years it will take to fully move out of this real estate down cycle, you may find that you are in a great place.

Disclaimer: I am not an investment professional. I am an enthusiastic amateur. Before making your own investments, you should do your own research and/or consult with an investment professional.

Post from: EveryJoe

Real Estate Investment Trusts

Other advantages include such things as the small amount needed to get started (some DRIPs will allow you to start with as little  $10), the fact that you automatically investing, without having to think about it, and some companies allow you to buy stock through your DRIP at a discount rate (look for these companies).

Of course, on the flip side, your growth isn’t as dramatic as if you took a lump sum and invested in a growth company. But if you are looking for a steady way to build your investment portfolio with solid holdings, a DRIP or two might be just the thing. Just remember to diversify with some riskier holdings as well.

The Motley Fool offers this summary assessment of investing in DRIPs:

Drips are a way to begin investing with a very small amount of money, and to keep investing monthly (or as frequently as you can afford) in small or large amounts, while avoiding brokerage commissions and reinvesting all dividends, too. In the long-term, it’s a great and “patient” way to grow money over time, as you have dollar-cost averaging working for you as well, and you’re investing, ideally, in great companies that you can’t foresee selling at any time.

Post from: EveryJoe

Investing: DRIPs

The idea is to figure out how much risk your investment portfolio can handle. Even though many green investing vehicles are offering great returns, they also have higher risks. But, for those who choose carefully, the result could be very good. The key is to look for stocks and funds that have a good chance to grow in the future.

Another option is to invest in established companies that invest in alternative energy. Companies like Nike (NKE) have a reputation for green practices, and BP (BP) invests in Jatropha, which has potential as a biofuel, as well as other alternative energy. These are both established companies that have enough capital to sustain losses, but that also could benefit greatly if their alternative energy practices and/or investments pay off.

So, consider your options. If you can handle it, green investing in some carefully chosen companies could pay off big down the road. But you have to be able to hang in there for the long haul.

Post from: EveryJoe

Are You Into Green Investing?