Investing Tips: Some Thoughts On
IRA's
By Morton Litwak
 A young man, 37 years old wanted to
know how he could lower his tax liabilities. He was dreaming up
complex ways of creating expenses that were tax deductible. I
suggested he merely open an IRA since his income would be lowered by
the amount invested in the IRA. He was also eligible for a 401k up to
10% of his income. That's another way to lower income and decrease
tax liability. Then, he asked, well what should I invest in with tax
deferred moneys? That's a good question.
He considered a CD (certificate of deposit) in a bank, or perhaps
a money market account at a brokerage. Those are two ways to do it,
but at his age, he could certainly afford to take a greater risk. The
point is, he has 22 1/2 years before the money is to be redeemed, so
he can afford to be more aggressive in his selection of instruments.
He asked what would I recommend.
Mutual funds are a more conservative way to proceed than stocks.
Because with mutual funds, there is a manager who is watching daily
and managing the portfolio in the mutual funds. I asked what were his
interests in companies. Here are some major categories of mutual
funds. They are:
- Growth Funds
- Value Funds
- Balanced Funds
- Income (Bond) Funds
- Growth and Income Funds
- International Funds
- Specialty Funds :
- Financial, Health, Precious Metals, Technology Funds
There are significant differences between categories of funds. One
distinction is between growth funds and value funds. A growth fund
investment is for those who aren't interested in current income but
want a portfolio of companies' poised for growth. Growth, of course,
will increase the worth of the fund's shares.
Value funds are made up of stocks which are out of favor in the
market. The fund manager assembles a group of depressed stocks which
have intrinsic value. These stocks are selling at a discount and the
manager anticipates the prices will be going up at a future time.
This category is for investors who believe in taking advantage of
bargain stock prices.
Balanced funds are composed of 50% stocks and 50% bonds. This is a
more conservative approach to the market. Frequently, when stocks go
down, bonds go up.
Income Funds are made up of interest paying securities such as
government bonds and corporate bonds. These are for investors who
want take little risk and want a fixed income. In the writer's
opinion, these are conservative for a retirement account.
Growth and Income funds are composed by using two criteria for
stock selection. They must be growth stocks that also pay a dividends
in order to be considered by the fund manager. This is for investors
who want to have income while waiting for the growth of their
investments.
International funds are made up of investments in foreign
countries. This is a way of bringing diversification to an investors
portfolio. Some advisors recommend 25% of the total investment be in
International funds. This is for investors who believe they can
better balance out their portfolio by including mutual funds with
stocks from other countries.
Specialty funds are self explanatory. They contain more risk
because of their goal to remain in one sector of the economy.
For those of you who are on the internet, Mutual Funds magazine
offers a comprehensive mutual fund database, fund screening, chat
rooms, personal portfolio monitoring system by subscription.
http://www.mfmag.com/zzz.
You can also call Subscriber Services at
1-800-442-9000 for information.
So, there you have it. A smorgasbord of opportunities to invest
your moneys in mutual funds that potentially can grow to support you
in your retirement.
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