Any reliable and professional financial planner or stock broker must know this so he can help you determine your risk tolerance. Then, that professional needs to help you by recommending which investments don’t exceed that risk level.

It’s a commonly believed misconception that people’s emotions are the only factor in determining investment risk tolerance. That’s not the case at all. Actually, a lot is involved with determining what your risk tolerance level is, and emotions are only a piece of the overall picture.

Understanding your risk tolerance level, with regards to online stock market investing, requires that you consider multiple factors. One is that you have to know how much money you have available to invest, and you also have to be completely cognizant of your financial end game.

As an illustration, If you think you’ll retire in 10 years and you haven’t accumulated any money in your savings account,’ you’ll need a substantial risk tolerance and do some aggressive investing to reach your financial goals by the time you want to retire.

On the other hand, if you start investing quite early for your retirement, your beginner stock market investing risk tolerance will be low. Starting early will allow you to grow your money slowly. When you combine this with what you know about your emotional reaction to financial issues, you will have the investment formula that’s right for you.

This can be difficult to figure out for yourself, so it’s best to use a dependable financial planner or stock broker that can help you find an acceptable risk tolerance, and assist you with selecting appropriate investment opportunities.

Understanding your personal risk tolerance will help you find your own investment approach and allow you and the investment professional you select to invest with confidence. Even though there are myriad investment types, there are really only three specific investment styles – and those three styles tie in with your risk tolerance. Those three styles are called aggressive, moderate and conservative. But I will cover those in another article!

Think back to when you first started investing in the account. Remember what you were told? See if this sounds familiar:

1) Put money away today in a retirement account and you’ll be able to use your contribution as a tax deduction against your other income.
2) Invest the contribution that you made to the retirement account whenever you want and the growth on that contribution will grow tax deferred
3) When you retire, and begin to take withdrawals from your retirement account, you’ll be able to put money away on a tax deductible basis when you’re in a higher tax bracket and take money out during retirement when you’re in a lower tax bracket.

Assuming that you were told all three things when you started to contribute to a retirement plan, my question for you is this: Were all three things true?

My experience working with clients tells me that in many cases only 2 of these 3 things were proven true – remember 3 above, for many clients, was not.

Don’t get me wrong, IRA’s and retirement accounts are useful products, but many folks who put money away in one tax bracket while they were working are now retired and drawing money from these retirement accounts only to find out they’re actually in a higher tax bracket now that they were when they were putting the money away.

Why did that happen?

It could be a number of reasons, but in many cases the culprit is the fact that the IRS (Internal Revenue Service) code, the rules that the ‘tax’ game is played by, changed.

In fact, under today’s tax code, if your estate is large enough, up to 67% of your IRA could be lost to tax at death, unless you do appropriate planning.

This assumes maximum federal estate and income tax, and no state income tax. If your state has income tax, your tax may be higher. For example: $500,000 IRA @ 45% Estate tax. Remaining taxed at 35% Federal Income Tax Rate. Total tax of $322,500 which is approximately 65% of $500,000

That’s where the SmartIRA planning strategy may come in. The SmartIRA planning process is designed to reduce, or in some cases, even eliminate taxes on a client’s IRA. However, the outcome of the strategy is dependent upon the circumstances of your individual situation, so results will vary.

If you have an IRA, you may want to get more information about the SmartIRA planning process.

Remember this special note: With traditional IRA’s, early withdrawals may be subject to a surrender charge. I addition, distributions prior to age 59 1/2 may be subject to a 10% tax penalty.

Author:  Robert G. Poage Jr. – Wealth Enhancement & Preservation Strategies – Call (916)784-0520

What I love about Andy Rooney is he says what most of us only think. Andy Rooney of the CBS “60 Minutes” show thinks Americans should know more about their money.

Starting with the $700 billion federal bailout plan and and be aware of where we invest our hard earned money ….. Take a listen and enjoy.

So what should we do? Everyone has an opinion of course, but nobody knows for sure.

Many investors are angry, frustrated and disillusioned with stocks. Anecdotal evidence suggests that some people have decided to swear off stocks forever. Others may be wondering how much more pain they can endure before they also bail out. Those reactions to the bear market are no surprise.

But if you’ve already sold all of your stocks, please reconsider. And if you’re thinking of jumping ship, stay onboard. No one knows what the stock market will do tomorrow or over the next few weeks and months. But with the market at such low levels, the opportunities are far greater than the risks.

Kiplinger’s forecasts that U.S. stocks will return 5% to 8% in the coming year (see Outlook 2009). In my view, there’s a decent chance that stocks will be considerably higher a year from now. Here are six reasons you should hang on to (or boost) your stock holdings.

1. Stocks are battered and cheap.Between its peak on October 9, 2007, and its low on November 20, 2008, Standard & Poor’s 500-stock index plunged 52%. That makes this bear market the worst since the Great Depression (through December 12, the S&P was 44% below its high).

In my view, we’ve been punished enough for our excesses of speculation and imprudent borrowing. That’s another way of saying the market has already discounted the current recession — and then some.

On the surface, the market doesn’t look all that cheap. The S&P 500 trades at 19 times the past four quarters’ earnings. But those earnings numbers are depressed by write-offs at financial companies.

The Leuthold Group, a Minneapolis investment-research firm, calculates price-earnings ratios using “normalized” earnings (Leuthold defines normalized as average annual earnings over five years). At the market’s November 20 low, says Leuthold, the S&P 500′s P/E of 10.4 on normalized five-year earnings was in the bottom 10% of P/Es over the past 52 years. That is cheap, and the market hasn’t gotten that much more expensive since.

2. Stocks are overdue.Let’s not forget that the current bear market is the second megacollapse of this decade. From December 31, 1999, through December 11, 2008, the S&P 500 produced an annualized return of -4.0% (if you invested $10,000 in an S&P 500 index fund at the start of 2000, the fund would be worth roughly $6,960 today).

The index’s worst ten-year period since 1926 was an annualized loss of 0.9%. According to Leuthold, the median ten-year annualized return is 11.1%; that means half the returns were above that figure and half were below. After nine years of pitiful performance, stocks are due for a period of solid gains.

3. The low-risk alternatives are pathetic. Yes, we all know the old Will Rogers line that you should be more concerned about return of investment than return on investment. But will you really be satisfied with a ten-year Treasury note that pays a mere 2.5% (or a T-bill that yields virtually nothing)? It won’t take much for stocks outpace the risk-free alternatives.

4. It’s not the 1930s. Yes, the economy stinks. Joblessness is up, a growing number of companies are filing for bankruptcy, and consumer spending and sentiment are in the tank. But the economy is nowhere near a depression, which by one popular definition is a decline in real growth of at least 10%.

And we won’t have a depression because central banks everywhere are working feverishly to flood their economies with money and because governments are spending like drunken sailors. (The Federal Reserve’s decision December 16 to cut short-term interest rates to just above 0% underscores the Fed’s committment to revive the economy). Add the benefits of lower gasoline prices, which are like a gigantic tax cut, and mortgage rates that could approach 4% in the U.S. These are ingredients not just for preventing a depression but also for spurring an economic surprise to the upside.

5. The market shows signs that the worst is over.Between November 20 and December 15, both the S&P 500 and the Dow Jones industrial average climbed 11 of 16 trading sessions. Perhaps more significantly, the stock market has risen on days when the news has been awful — for example, on December 5, when the government reported that the number of jobs lost in November was the highest since December 1974, and on December 12, the day after authorities accused Wall Street legend Bernard Madoff of orchestrating a fraudulent investment scheme that could cost his clients as much as $50 billion.

6. If not now, when? Say you’ve sold a bunch of stocks and plan to reenter the market when things look better. Or perhaps you have inherited some money and are waiting for the “right time” to put it to work. The chances that you’ll nail the right time — or come anywhere near it — are slim.

Why? Bear markets almost always end in an atmosphere of deep gloom, and stocks start going up well before the economy bottoms. For instance, the month with the previous record for most jobs lost was December 1974. The horrific 1973-74 bear market bottomed in October ’74. But most people are constitutionally incapable of pulling the “buy” trigger when the news is unfailingly bleak.

If you wait for the news to get better, however, you’ll almost certainly miss the initial leg of the next bull market. And the early moves are typically fast and furious. T. Rowe Price, the fund company, looked at returns of the S&P 500 following each decline of at least 20%. In those six instances (not counting the current bear market), the S&P has been up an average of 31% in the subsequent year. The lesson: Not owning stocks can also cost you dearly.   Source: Kiplinger

Well good news arrived. The recent legislative changes were passed by both houses of Congress and signed by the President this past year. This legislation, entitled The Worker, Retiree and Employer Recovery Act of 2008 (The Act), is designed to help alleviate the financial burden facing investors who have seen their retirement savings shrink dramatically due to this year’s economic downturn.

The Act will provide relief during 2009 to two types of investors:

” Over age 70 ½ who hold retirement assets in 401(k)s, 403(b)s, 457(b)s and traditional IRA accounts.

” Holders of inherited assets still registered in the name of the decedent in 401(k)s, 403(b)s, 457(b)s and traditional IRA accounts.

    It does so by suspending required minimum distributions (RMD), the mandatory withdrawals previously required of all defined contribution plan participants over age 70 ½.

The suspension of RMDs in 2009 allows you to forego or reduce asset liquidations that otherwise would have been required to generate your cash distributions. As a result of the RMD suspension, you need not liquidate assets at current price levels, and may continue to keep your holdings invested on a tax-deferred basis with no penalty. If you choose to do so, you retain the opportunity to await stronger market conditions for future liquidations. You are also free to continue to receive distributions according to your current schedule if you do not wish to make any adjustments in 2009 based on The Act. 

    Please note, however, that the new tax law applies only to 2009. It does not provide a waiver of your 2008 RMDs or any 2008 distribution that has been delayed until April 1, 2009. I look forward to sharing ongoing updates regarding this important legislation with you as they become available.

    You will continue to receive systematic distributions from your retirement account according to your current election. Should you wish to change your election to take advantage of the 2009 RMD suspension, please contact me and I will work with you to establish any changes you wish to make.

The recently-signed “Emergency Economic Stabilization Act of 2008″ includes an extension of the residential tax credits for energy efficient improvements. The previous tax credits expired at the end of 2007.

It’s important to note that the new tax credits for installing energy efficient improvements are only good for 2009 installations. There are no tax credits for improvements installed during 2008.

The tax credits are available for insulation, replacement windows, water heaters, and certain high efficiency heating and cooling equipment. However, be aware that not all Energy Star rated improvements are eligible for the tax credit. Be sure to check EnergyStar.gov for rules and more details.

Here are some examples of the federal tax credits that are available to homeowners:

- Windows: 10% of cost, up to $200, for qualified ENERGY STAR windows, skylights and storm windows
- Doors (exterior): 10% of cost, up to $500, for qualifying doors (most ENERGY STAR doors will qualify)
- Roofs (metal): 10% of cost, up to $500, for qualifying ENERGY STAR metal roofs
- Insulation: 10% of cost, up to $500, for qualifying insulation (not vapor retarders or siding)
- Air Conditioning (split or package systems): $300 for qualifying systems, not all ENERGY STAR systems qualify
- Water Heaters (tankless only): $300 for qualifying systems
- Cars: Credits are available for certain cars, and is limited by 60,000 per manufacturer before a phase-out period begins
- Solar Water Heating: 30% of cost, up to $2,000, not available for water heaters used for pools or spas
- Solar Power (Photovoltaic): 30% of cost, up to $2,000, must provide electricity for the home
- Fuel Cells: 30% of cost, up to $1,000 per kW of power that can be produced

The front page news of Bernard Madoff’s alleged Ponzi scheme took a devastating toll on scores of victims. But any investors can draw important lessons, whether you lost $5 or from the sad Madoff tale of the disappearing $50 billion.

Here’s an important guide to protecting yourself when you choose a financial adviser.

Be wary of guaranteed or promised investment returns - 
Mr. Madoff allegedly wooed many investors by promising consistent returns regardless of market activity. Also be wary about promises of speedy returns. If something sounds too good to be true, it most likely is.

Reputation and referrals aren’t enough anymore - 
Mr. Madoff was a former Nasdaq Stock Market chairman and fixture on Wall Street — it’s understandable that people felt comfortable with him managing their money. Many investors are happy if they just have an adviser a friend recommends.

But don’t make a decision based on the good things you hear. Check credentials and verify certification with the Financial Industry Regulatory Authority (Finra), which issues licenses for financial advisers.

Be sure you should seek out other relevant information, too -
The U.S. Securities and Exchange Commission (sec.gov) lets you search Investment Adviser Public Disclosure forms online, which give information about advisers’ business affiliations and any disciplinary actions. Finra also has background information on approximately 660,000 currently registered brokers and 5,100 currently registered securities firms. The information on both the SEC and Finra sites are available at no cost to the public.

Demand transparency - 
It’s your money, so you have a right to know where it’s being invested. Ask lots of questions about your allocation and your money manager’s past performance. And set aside time to read through your brokerage statement — most firms send one a month — and make sure you’re clear on everything documented in it.

Be sure you get a statement from your adviser’s firm, not your adviser -
There are claims that Mr. Madoff cooked his books. A firm is less likely to do that, since it’s accountable to more parties. Likewise, you should be wary about writing checks directly to your adviser. They should go to a registered investment company.

Always get it in writing - 
Make sure that both your investments and their explanations are spelled out in writing, for future reference. While you’re at it, read the fine print — and be extremely suspicious if there’s no fine print to read.

If you’ve been a victim of fraud or are suspicious, report it. The SEC has a tip and complaint form on its Web site, sec.gov/complaint.shtml.

Whether a company you own stock in is doing very well or struggling, a common occurrence over the lifetime of owning a stock is dealing with a stock split.

So how does the stock split affect the value of your investment?
To put it simply, the stock split doesn’t change the value of your investment at all or even your percentage of ownership in the company.
 

What does change is the number of shares you hold will now be doubled since the stock price will be halved. For example, if you assume a pre-split price of $40 per share and you hold 100 shares, after the split you will hold 200 shares at $20 per share. In both cases, the value of your account remians the same – $4,000.

Another issue is determining how the stock split affects the cost basis of your shares.
For income tax purposes, the cost basis of each additional share you receive as a result of the split and each share you currently own will be equal to one-half the cost basis of the shares just prior to the split. An example to help demonstrate this is: if you hold 100 shares of company ABC with a pre-split cost basis of $30 per share, after the split you will now hold 200 shares with a cost basis of only $15 per share. Once again, same total value just a different cost per share of ABC’s stock.

So you need to quickly evaluate your account status and contribute the maximum to your retirement accounts.

Look at bumping up your 401(k) contribution to ensure you’re putting in the maximum amount of money allowed ($15,500 for 2008). If you think you can’t afford it, please evaluate the numbers. If you hold a traditional 401(k), then that pre-tax money going into your account means your actual savings increase by more than your take-home pay goes down.  It’s a win-win situation.

For example, if you are in the 25% federal tax bracket, then putting away an extra $1,000 in your 401(k) cuts take-home pay by just $750, and even less if you live in a state with a state income tax. If your company offers the new Roth 401(k) option, then an extra $1,000 into the account actually costs you $1,000 now, because after-tax money goes into a Roth 401(k). Consider that later withdrawals in retirement will be tax free so this makes this the better place for your increased contributions.

If you are age 50 or older by the end of the year, you are eligible to make “catch up” contributions to your 401(k) plan, if your employer’s plan allows this provision. If you qualify for the “catch up,” you can contribute an extra $5,000 to your 401(k) plan in 2008, for a total of $20,500. If you’re lucky enough to get a year-end bonus, you can steer part of it to your 401(k), if you haven’t already maxed out.

You should also consider contributing to an IRA for yourself and your spouse. You have until April 15, 2009, to make IRA contributions for 2008, but the sooner you get your money into the tax-shelter, the sooner it earns tax-deferred (in a traditional IRA) or tax-free (in a Roth version) returns. The basic contribution for IRAs (either traditional or Roth or a combination of the two) for 2008 is $5,000, but those 50 and older by year end can contribute an extra $1,000 for a total of $6,000.

Self-employed people should set up Keogh plans by Dec. 31. Once the plan is in place, you can contribute up to $46,000 until the tax filing deadline (including extensions) for your 2008 return. Every dime you contribute can be deducted on your return to cut your tax bill for 2008.

After weeks and weeks of anxious waiting, there is finally an answer. The reply from the Treasury is: No.

This news will likely come as a huge disappointment to many investors who have been delaying taking part, or all, of their required minimum distributions for this year in hopes of a timely Christmas gift from the Treasury.
 

Hopes for a Treasury move accelerated back in November after Treasury officials announced they were aware of investor concerns about the subject and were evaluating it.

But now the Treasury has confirmed it won’t make changes after all for 2008. So now, if you haven’t already taken your required distribution for 2008, go ahead and do it.

Congress recently approved legislation that includes a one-year moratorium on required minimum distributions, or RMDs, for 2009. But that new law doesn’t provide relief for 2008.

Questions about required minimum distributions proliferated during the presidential campaign. Then-Sen. Barack Obama said the Treasury has the authority to suspend required withdrawals for this year, and he urged officials to do so speedily. The Treasury declined comment during the campaign. But after Mr. Obama won the presidency, officials said the Treasury was considering the matter.

A Treasury official now says that since Congress has provided “broad and direct relief” on the issue, the Treasury and Internal Revenue Service decided that any further change to the rules “should not be undertaken.”

The Treasury explained that the scope of its ability to make administrative changes “has constraints.” Thus, any steps it could take would be “substantially more limited than the relief enacted by Congress and could not be made available uniformly to all individuals subject to required minimum distributions.” In addition, the Treasury decided that implementing such changes “would be complicated and confusing for individuals and plan sponsors.”

Many investors had been hoping the Treasury would at least change the valuation date and thus reduce how much they would have to withdraw for 2008. This year’s minimum distributions are based on financial-market levels as of the end of last year, when stock prices generally were much higher.