Money & Investing - Banks.com

One of the realities we are facing right now is that inflation is coming. We got a taste of it last summer, but we are likely to see even more of it in the time to come. As the money supply increases, the value of the dollar goes down — and that means inflation. One way you can protect yourself — to a certain extent — is to plan your investing to beat inflation. Here are some investing ideas that can help you stand a chance at beating inflation:

• TIPS are Treasury Inflation-Protected Securities. These are bonds guaranteed by the government. And they are guaranteed to keep up with rising prices. Right now, deflation is more of a concern for the economy, but in the future inflation will once again rear its ugly head — especially if the economic stimulus plans hatched by the Obama Administration have the desired effect. BusinessWeek offers this about TIPS: “TIPS are relatively cheap, and may be necessary insurance for investors who can’t risk a loss of buying power. “For the person who will retire in less than 10 years or who has already retired, it may make sense to allocate some to TIPS,” Gambera says.”
• I-bonds are also guaranteed against inflation, and available from the government. The U.S. is about to go on a debt-fueled spending spree, and investing in some of the debt can protect you from inflation.
• Commodities are riskier than government debt. However, if you have the risk tolerance for them, they often serve as a hedge against inflation. Gold is especially popular as a hedge against inflation. The advent of gold ETFs make it rather easy to invest in the precious metal.

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.

Many people invest in mutual funds because they grant instant diversity, and they offer novice investors the chance to “set it and forget it.” Unfortunately for many with mutual funds, 2008 proved to be devastating as funds lost all sorts of value. But if you don’t have your mutual fund investments in a tax-deferred retirement account, you may still owe taxes. The New York Times reports on why some investors are getting socked with taxes on mutual funds — even if the funds lost value:

When markets plunged in the fall, many investors rushed to redeem shares, causing fund managers to sell some holdings to raise cash to make redemptions. And some managers had already sold some holdings and currency contracts. Whatever the reason for the sales, many resulted in capital gains.

Mutual funds are legally classified as pass-through entities, meaning they must pass along any net realized capital gains to shareholders as dividends. But most fund investors choose to have their dividends reinvested, and if they look only at the net value on their statements, the dividends paid may have escaped their notice.

It is nice to know that you are protected from this tax issue if you have a tax advantaged account, such as a 401k or an IRA. (If you are doing conversions between types of retirement accounts, though, there are separate tax issues.)

Make sure you check your statements carefully — going beyond just the value — from your mutual fund managers to see whether you ended up with dividend earnings or some other issues. It is also a good idea to have a tax professional look over your investment statements as well to help you properly determine what (if any) your tax liability might be.

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.

One of the more interesting effects that has taken place on the stock market has been what is known as the “January Effect.” This is an effect in which the stock market often posts gains during the month of January. Here is what Noble Trading says about the January Effect:

The main reason for January effect is related to Tax paying. Investors and traders sell-off their holdings to claim a capital loss or to get lower taxes before the end of the tax calendar (in December) causing the prices to fall. In first week of January these investors/traders reinvest their money and buys-back stocks, and the prices rise. For S&P January effect took place 32 times out of total 39 years from 1979.

Of course, this year the January Effect doesn’t seem to be very strong. One of the main reasons is that the stock market is struggling due to the global economic recession. Investors are skittish about stocks, and they are not buying. Sure, there have been some rally attempts this month, but most days the stock market has been losing. (Today is no exception, with the Dow lower — although the S&P 500 managed to eke out a gain.)

In coming years, though, the January Effect is unlikely to regain much of its power. This is because substantial changes have developed in the way stock investing is conducted. For instance, Noble Trading points out, most people trade from tax-advantaged retirement accounts, so there is no reason to rush to get things taken care of at the end of the year.

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.