 |
|
|
Am I willing to sacrifice making money for safety? We all want our savings and investments to be safe, but safety is a relative term. Commercial banks, savings and loans, and credit unions offer savings alternatives that are insured by the federal government (FDIC) or private insurers (SAIF) or (NCUA). You should always ask if your money is insured, and by what. Money can't be insured against inflation, however, which annually steals approximately 3 to 4 percent of the buying power from your money. Have I taken enough time to compare and balance the return with the risk? The return is the amount of money you will make after deducting taxes. The risk is the potential for losing your money. Is your money growing at the fastest rate you are comfortable with? The annual return from fixed assets is usually interest. The return from equity assets may include interest, dividends, rent, and any gain or loss resulting from a change in the investment's market price. Always ask:
What is the length of maturity? Sometimes you must leave a savings or investing option in place a certain length of time in order to earn the advertised return. Withdrawing it early may mean that you lose interest and/or pay other costs or penalties. If you sell a bond before maturity, you may not get the price you paid for it. What are the costs? Is there a cost to open the account? What are the service fees or transaction costs for making deposits or withdrawals or changing the account? What is the fee if you drop below the minimum balance? Are there any penalty fees? Have I considered the tax implications? When you figure how much you have made on your investment, you must always consider what you will pay in taxes. Depending on the investment, some returns are taxable and others are not. Still others are taxed at a lower rate. The higher an investor's tax rate (15, 28, or 31 percent), the more important tax considerations become. For the average investor, the tax implications should not be the primary reason to choose an option. You can determine your after-tax return by deducting the amount of taxes due (federal and state) from the amount of return (interest) that you receive. Saving in tax-deferred accounts (IRA, 401(k), 403(b), Keogh, or SEP) for retirement goals helps to make the most of savings dollars but ties up the money until retirement.
|
