Featured Posts, Investing

What Type of Investor Are You?

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So, you’re ready to start investing… but first, what is your risk tolerance level? WHAT TYPE OF INVESTOR ARE YOU? Understanding your risk tolerance level is one of the most important factors in investing. This will shape your investment strategy and become a guide to building your portfolio. Risk tolerance is the level of risk you are willing to accept. We all get excited about the gains, but can you handle the losses? The three risk tolerance/investor types:

A conservative investor is all about protecting his/her principal (original investment) by minimizing risk. This investor “plays it safe”, similar to the granny who likes to stuff her savings in her mattress as opposed to trusting the bank. A conservative investor is okay with smaller gains between 0-5% because they are taking a smaller level of risk. These investors have likely already built their portfolio to ensure a comfortable and steady income stream or they are just scared to lose money. A conservative investor has a portfolio comprised of:

  • Regular bank savings account
  • Certificate of deposit (CDs)
  • Government bonds (municipal, treasury, etc.)
  • Annuities

A moderate investor focuses on diversifying his/her portfolio in a way that limits risk while pursuing stronger returns. Think of this as a hybrid between conservative and aggressive. A moderate investor may have an expectation of between 5-20% annual return. Moderate is typically the most recommended portfolio for most investors:

  • Equities (focusing on diversification)
  • Mutual funds
  • Exchange-traded Funds (ETFs)
  • Individual bonds

An aggressive investor understands “the greater the risk, the greater the return”… similar to that one uncle willing to risk it all at the casino to triple his paycheck. These investors are able to handle the unpredictable shifts that Wall Street brings. By accepting less diversification in comparison to moderate, this investor is susceptible to far greater levels of risk. An aggressive investor typically looks for returns greater than 20%. This investor’s portfolio could oftentimes include:

  • Equities (individual stocks)
  • Cryptocurrencies (Note: though there have been many success stories, be careful with cryptocurrencies as these are not regulated).
  • Options and other special contracts

Though some portfolios may include the same type of investments (bonds, stocks, etc), they are weighed differently depending upon your investment strategy. Overall, it is typically advised to be more aggressive in your earlier stages of life. The closer an investor gets to the age of retirement, the more conservative the investor should become. Regardless of your investment type, investing in the stock market is a good strategy to provide long-term wealth. Once you have an understanding of what category you may fall under, consult a financial advisor on ways to incorporate your preferred strategy into your respective financial plans.

Featured Posts, Personal Finance

2018 Tax Reform… how does it affect me??

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By now, we are all aware of the new tax reform bill and many have already seen changes reflected in their paycheck. However, the number one question still on the minds of many is: HOW DOES IT AFFECT ME??

The Tax Cuts and Job Act will not affect the 2017 taxes that you are filing in April 2018. This act will impact the 2018 tax year with an April 2019 filing date. Affecting both individuals and corporations, the 2018 tax reform has the most changes the United States has seen in the last 30 years. For individuals, the bill reduced income tax rates, eliminated personal exemptions, and doubled the standard deduction.

The highest income tax rate was reduced from 39.6% to 37%. Please keep in mind that this benefit is only temporary. In 2026, we will revert back to 2017 tax rates. BUMMER!! The standard deduction was doubled from $6,350 to $12,000 for individuals filing single ($18,000 for head of household and $24,000 for married). Due to the increase in the standard deduction, there will be a drastic decrease in the amount of filers able to cross the threshold to itemize their returns (Schedule A form). On a positive note: if you are taking the standard deduction as opposed to itemizing, then your days of keeping track of receipts are over!!!

There were also several itemized deductions either eliminated of limited. Though you can still deduct state and local taxes and property taxes, these are now capped at $10,000. Are you in the market to purchase a new home? Well, the new reform bill has reduced the limit for those claiming a deduction on mortgage interest. In 2017, homebuyers could itemize and deduct the mortgage interest payments for homes with a mortgage that did not exceed $1million. Now, the mortgage amount is limited to $750,000. Please note, this will only affect new homebuyers. So… if you purchased your million dollar home last year… you’re good!!!  

Another major change to note is the adjustment in the child tax credit which increased from $1,000 to $2,000 per qualifying child. Prior to the Act, taxpayers could subtract $4,150 from income for each person claimed. Going forward, personal exemptions are eliminated. This will greatly affect those households with many children.

Other noteworthy changes:

  • Alimony payers can no longer deduct payments and the recipients are no longer required to report income (effective for filings after December 31, 2018).
  • Moving expenses are no longer deductible, excluding military personnel relocating due to military order

I hope this brief overview has given you some additional insight into what to expect with you 2018 tax year. Feel free to contact me through the CONTACT US tab if you have additional tax questions.

 

Investing

A Million Ways to Get It… CHOOSE ONE!

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Sorry Jay-z!! If there are a million ways to get it, then why just choose one?! I’m thinking two, three, four…

Statistics show that millionaires have an average of seven sources of income. (I’m sure Jay-z has more than that). Hence the saying, “the rich get richer” because the more you have the more you’ll get.

There are two types of income:

Active income: refers to income received from performing a service. This includes wages, tips, salaries, commissions and income from businesses in which there is a material participation.

Passive income: earnings derived from a rental property, limited partnership or other enterprise in which a person is not actively involved.

There is often this misconception that passive income requires absolutely no work at all; however, there is some work involved in the creation stage. However, the income is not tied to work hours.

For the average American, we start with active income. The “day job/9 to 5” that we use as an investment tool to fund our side hustles until they are running on their own. There are only 24 hours in a day so the ideal goal is to maximize your streams of passive income.

Common types of passive income:

  1. Interest – from a variety of loans, either to individuals or companies
  2. Dividends – from investments or partnerships
  3. Capital gains – from the sale of investments
  4. Royalties – from products you sell or licenses
  5. Rental income – from real estate investments
  6. Publishing an e-book or online course
Personal Finance

8 Smart Money Moves for Your Tax Refund

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IT’S TAX SEASON… For many Americans, the first word that comes to mind is: REFUND!!!

The 2017 filing season opened on January 29, 2018, so by this point I am sure many of you have already received your IRS Refund. People have mixed feelings when it comes to tax refunds: some look at this as the government repaying them the money they should have been able to use throughout the year while others look forward to this annual act of “finding money”.

No worries, I will post more blogs on tax planning for those who would prefer to keep their money during the year and balance out at year-end.

So, the refund has hit your bank account. STOP!!! Before you “do it for the gram”, let’s discuss 8 smart money ideas for your refund:

1)     Start Or Increase Your Emergency Fund

An essential part of adulting is preparing for the rainy days. Though putting your refund in a high-interest bearing savings account will not yield the highest possible return, it will provide a return while the money is not being used.

2)     Pay Off Debt

As we focus on this path toward financial freedom, opting to pay down/off debt is always an ideal choice. Depending on the size of your refund, this could impact you in more ways than one. For example, paying down a credit card balance will not only reduce or eliminate the monthly minimum payment owed, but it will always increase your credit score.

3)     Fund Your Retirement

Regardless of your age, funding your retirement should always be a focus for NOW rather than LATER. If you’re not sure where to start, then consider opening a Roth IRA. I will elaborate on retirement in an upcoming post so stay tuned for that latté.

4)     Invest In The Stock Market

Similar to your retirement funds, choosing to invest in the stock market sooner than later is ideal. If you aren’t comfortable making this jump alone, that is completely understandable. Consult with a financial advisor to help determine your risk tolerance and get your portfolio started. I will advise that regardless of the professional advice you seek, it is always wise to fully understand where your money is going.

5)     Home Improvement

Using your tax refund to make home improvements can always be helpful. Whether it’s painting a room or finishing a later project, your home should always be comfortable. Depending upon the type of home improvements completed, it may increase the value of the home.

6)     Prepay Mortgage

Majority of homeowners are aware they have the option, but few understand the great degree of benefit that is derived from mortgage prepayments. Mortgage prepayments not only decrease the future payments but also increase the amount of equity in the home. Some investors even view prepayments as a top retirement strategy.

7)     Invest In Yourself

I cannot stress enough the importance of personal development. If you don’t sow into your life and bet on yourself, then how can you expect others to bet on you. We’re on the pursuit of good to great. Purchase some new books, enroll in a course, invest in a lifecoach.

8)     Start A Business

The average millionaire has approximately seven streams of income. What are you waiting on?? Let’s go get it!!