401(k) loan, good or bad idea?

Your 401(k) allows you to take loans up to a certain percent of your account value. Typically the loan has to be repaid over a 5 year period through payroll deductions at an interest rate set by the 401(k) plan ( usually around 6%).

Often I have clients tell me that they don't view these loans as "bad" bc they are paying themselves back the 6% into their accounts. This is true, however, things to consider when you are repaying back your own money:

1) Since the loan is being paid back with AFTER TAX money through your payroll deductions, you end up paying tax twice to Uncle Same; once on the loan repayments, then again when you take out the money out as income during retirment
Ex: Your 401(k) is $100,000 and you take a loan of $20,000 @6% ( your 401k is now worth $80,000). You pay it back with after tax payroll deductions each paycheck. So you eventually have the $100k plus some interest back in your 401(k), but in later years that $20,000 that you already paid taxes on you will pay taxes on again when you take withdrawals after 59 1/2 as 100% of the account is taxable

I don't like to pay taxes twice on my money, do you?
2) Opportunity cost- if you take $20,000 out you miss the opportunity for it to grow
3) Most people don't notice this in the fine print, but....If you leave your company while your 401(k) loan is still outstanding, you are forced to pay off the loan, and if you are under 59 1/2 you will be forced to pay a 10% penalty and ordinary income taxes ( average 15% lets say )= 25% penalty..ouch!

So if you can avoid it, 401(k) loan not the best idea...

Life Insurance

What is life insurance? Life insurance should be call death insurance, because it is an insurance policy that pays a lump sum death benefit at the time of the insurers death. You can get life insurance from several life insurance companies and through work. Life insurance you buy individually is different from insurance at work, which is typically referred to as group life insurance. Typically group life insurance is cheaper, but when you leave your company, you don't have it anymore, however more and more companies are making their life insurance portable.
If you buy life insurance individually from a life insurance company, you control the policy. There are several types of life insurance, but the main categories are TERM ( ie temporary) or PERMANENT, which typically has cash value.
Term= renting an apt, as long as you pay your premiums you are covered for a certain amount of time
Permanent= Owning a home and building equity by having cash value in your policy

What type of insurance you should purchase depends on how much you can afford, as permanent insurance is more expensive, but it does pay out more often than your term insurance. I'll get into the differences in later posts....
Should YOU have life insurance? The answer is yes, if the following applies:
1) Someone else depends on you for income, i.e. your spouse or kids and they would not be able to continue their lifestyle if your income disappeared
2) You have liabilities that you don't want to leave behind for loved ones
3) You have an estate that is subject to estate taxes that you would like to minimize

Sit down with your loved ones and discuss if you should look into it, and then get with an insurance agent to see what type is best for you, or email me askmisspenny@gmail.com

PS Did you know life insurance proceeds are TAX FREE?

Do a check in

Often times, I sit down with my clients who have been investing for a while...they are in their forties and fifties and have money in various IRA's, mutual funds, stocks and 401(k)'s, but they often neglect their accounts ( which is good for me I guess because they coming looking for my help) often never rebalancing or changing their risk tolerance as they get closer to withdrawal time.

Would you buy a rental house, rent it out and then never do any maintenance on the house like changing the air filters, new paint, mow the lawn etc?? Of course not, so you can't do that with your investments either. You should at least twice a year sit down and do an evaluation- of everything...your savings rate, how your investments are doing compared to their benchmarks and other investments in their peer groups etc.

If you don't have the time, knowledge, energy, desire etc. to have the discipline to do this, then hey guess what..there are people out thereyou can hire to do it for you...people like me, financial advisors....ask your friends for some referrals, check out a seminar, or look to your employer for guidance...it can be well worth it in the long run.

Are you smart enough to time the market?

When the market is down, I often have my clients asking me- "should we get out of the market? should I put everything in cash and bonds and less in stocks?" As simple and as frustrating as an answer that it is, the simple solution is "No, stay the course".

I can't time the market- I have no idea when it is going to peak, and no idea when it is going to bottom. Sooo...if you have time on your side, you need to stay invested! The market goes up and down and to get the ups of the market, you have to stay in it to get the ups...if you wait until the economy is stable, the elections are over blah blah blah then guess what, you're going to miss the rebound.

You always here that the market will return between 8-10% over time, well the Dalbar Study showed that from 1985 to 2004 the average mutual fund investor gained 3.7% while the s&P500 returned 11.9%...why?? Because, investors were only investing in "hot performaning funds" when the market was up, and when it was down they sold- hence why market timing doesn't work. If you have good asset allocation in place, are dollar cost averaging and rebalancing your portfolio, you will be okay- trust me.

Obama vs. McCain...Where they stand on your money

That's what it all boils down to isn't it?????

Check out this article for a brief overview of where they stand.....http://money.cnn.com/galleries/2008/news/0806/gallery.election_issues/index.html

Want to get your finances organized?

Wouldn't it be great if you had one place that you could track all of your bills, analyze cash flow and have a one stop place to track your investments? Well there are programs out there that you can do this...Quicken and Microsoft Money, my personal fav. is the ladder. Often times my clients have accounts at various financial instituions and Microsoft Money allows you to link all of your accounts and view them all in one place- very convenient!
If you share your finances with someone else, this is a great thing to sit down and do together!
PS You can try a free 60 day trial of Microsoft Money right now.

Fun Cheap Things to do this Weekend around Tampa Bay

1) Go to the beach, skip the beachside restaurants and bring your own cooler for a beachside picnic! Take along your fishing pole and try catching dinner!

2) Check out your local state park and go for a hike ( ps hiking is walking!)

3) Like to golf? Search for your local Public golf courses- the later in the day you go, it's cooler and it's about half the cost of a morning game!

4)Check out local artists at the free Ybor City First Saturday Art Walk- held the first Saturday of the month.Among the August participants are Gina Rathbun, Jedd Lancaster, Kat Wilson, Linda Chaney, Rory O'Neil, Ryan Prado, Ricklene Wren and Yvonne Watters. Guests also enjoy a full bar and complimentary appetizers. Noon-6 p.m., 1503 E. Seventh Ave., Ybor City, free admission..

5) Wazoo- not as cheap, but HEY all the proceeds benefit the animals at the ZOO..