Monthly Archives: February 2011

The Ideal Investment Portfolio

When a finance-based company starts to build the ideal investment portfolio, at the same time, it will set up an investment analysis.  A customer who needs portfolio management services will approach such a company, especially if they are looking for a way to create their own investment portfolio.  Creating an ideal investment portfolio will assist with a retirement budget but when doing that, one first has to determine exactly when they plan to retire.  So financial planners (or investment portfolio managers) are the ideal people to help with this, while creating the best investment portfolio once you have worked how the amount of money you want to invest; your level of risk tolerance and your financial returns expectations.


Investment Portfolios

If you want to make the most of your retirement, planning is key.  One way of doing this is getting an investment portfolio which facilitates personal investment management and helps with organizing budget and savings. An investment portfolio is basically a cohesion of investments an institution/individual has.  If this is done in an efficient way, your risk will be able to be spread out evenly which will protect against “sudden financial crisis.”  Balanced portfolios that have investments with different risk levels will enable the client to limit exposure should one of the investments begin to substantially decline.

FTSE, Oil Prices and Libya’s Crisis

Oil prices rose; Britain’s benchmark stock index plummeted as Muammar Gaddafi “tightened his grip on Tripoli,” yet failing to exert that control over eastern Libya.  The premier’s loyal security forces allegedly forced protestors out of the capital’s streets which was undergoing major chaos as close to 300 civilians have been killed according to a Human Rights Watch report which was perhaps ignited following Gaddafi’s encouragement of his supports to attack the anti-government protestors.  The (Paris-based) International Energy Agency said it wasn’t going to release oil from emergency stockpiles unless it really had to since the Organization of the Petroleum Exporting Countries would adopt this role.

The FTSE 100 index of blue-chip shares dropped 0.53% (32 points) and the Mid-250 index fell 0.39% (45 points).  Such unrest makes “worrying” news for equities, according to Derek Mitchell, manager of the Royal London UK Opportunities Fund.  Nonetheless, the pound strengthened 0.4% against the dollar and 0.03% against the euro.  IAG (airlines) plummeted; but Barclays rose 2p to £3.24.  Other financial European news was in France, the CAC 40 index dropped 0.23% and Germany’s DAX index’s surge was 0.43%.


Retirees and Immediate Annuities

Retirees who withdrew a lump sum from their retirement plans would seemingly benefit from an immediate annuity.  In theory the sum can be changed into monthly, quarterly or annual payments “that represent a portion of principal plus interest” and will last over a lifetime.  But this has risks: a) getting a lifetime of regular payments doesn’t counter inflationary issues; b) you don’t know if you’re going to live long enough to get your money back; c) since the interest rate is fixed when you buy it, you run the risk of getting low rates for good.  Those who are more elderly may have less concern about inflation or liquidity but then they really need to ask whether they will benefit at all from such annuities.

Other options therefore include choosing a “period certain” or “term certain” as this guarantees payment to beneficiaries for a certain amount of time if you die earlier than expected.  The “joint and survivor” option makes payments to the spouse until s/he dies and the “refund” will return all or at least some of the principal to your beneficiaries.
There are so many different packages out there that you need to analyze what is best for your circumstance.  A balanced portfolio of mutual funds will ensure a comfortable retirement income.


Annuity Fees

It’s important that the client reads the small print before signing an annuity contract.  There can be various additional fees that might not be so clear.  These include:  the fee incurred for an early withdrawal which usually starts at 7 percent and then drops a percent each year until the seventh year; mortality fees of 1 to 1.35 percent of your account; maintenance fees of approximately $25 a year; investment advisory fees of between 0.3 to 1 percent.  Sometimes – to your advantage – you have the option of a “bail-out” provision whereby the annuity can be cashed in when interest rates fall below a stated amount.  As well, a “persistency” bonus rewards clients who keep their annuity for a set time frame.

Where to Get an Annuity

Annuities can be purchased via insurance companies, agents, stockbrokers or banks.  To get the best deal vis-à-vis fees and quality, shop around carefully.  Here is what you need to do:  Learn about the insurer and then compare contracts. Since there are so many discrepancies in these areas, it is important you do all your homework ahead of time.  Look into the reputation of the agent/company you are using and speak to others who have taken out an annuity with them too.

Taxes of Payouts

Payouts will be taxed in different ways depending on whether you have a qualified or non-qualified annuity.  In the first case, this is basically some kind of retirement plan and will be privy to all tax benefits/penalties Congress established.  Benefits include: no payment of income tax on withdrawal of nondeductible/after-tax amount imputed into the plan; investment earnings aren’t taxed until withdrawal.  However, money withdrawn from this plan before 59½ renders a 10 percent penalty on amount withdrawn as well as regular income tax (with some exceptions).  At 70½ withdrawals need to be taken in minimum amounts set out by tax law (with some exceptions).

In the second case, after-tax dollars are used for purchase which has the advantage of tax deferral on earnings but tax is paid on withdrawals from earnings on original investment.  Taking money out before 59½, incurs the 10 percent penalty on part of withdrawal representing earnings.  Only from 70 ½ are you subject to the minimum distribution rules applicable to qualified plans.
In addition, beneficiary/heirs may be liable to taxes if the annuity continues after your death.

Withdrawing Annuities

There are two ways of withdrawing your deferred annuity: a one-time payment or monthly payment.  Monthly payments are more common.  The amount of money you will receive depends on: size of your contract; your life expectancy; if payments continue after your death; if you have chosen the minimum requirement payment options.  If you opt for a fixed amount you choose that amount and you will receive it per month until there is no more money left in the annuity.  Likewise, a fixed period is a choice you make – so you can choose to receive payments over a 20 year period.  You can choose to have payments until you die (lifetime option).  Or you can choose the life with period certain option in which you will receive payments until you die but with the addition of a time your beneficiary receiving payments.  With an installment refund plan you receive money as long as you live but if you die earlier than expected the remainder of the money goes to a beneficiary.  The joint and survivor option pays out monies each month during annuitants’ joint lives; the same or lesser amount paid to the one who survives.

Types of Annuities

There are different types of annuities, dependent on: how the money is paid in; withdrawn and how it is invested.  The most basic ones are: single-premium (where you make the investment in one go); flexible-premium (series of payments); immediate (payments begin once annuity has been funded – popular with retirees); deferred (receive payouts a long time after contract is issued either in payments or a one-time sum); fixed (funds are placed in a low-risk fixed income investment, i.e., a bond); variable (higher risk than fixed annuity enables client to decide how money should be split among different managed funds).

How Investors Benefit from Annuities

Investors can benefit from annuities in the following two ways: saving money for a long-term project and a guaranteed income for a set period of time.  Annuities are great for funding a retirement or for large education fees when it is set in the child’s name under “Uniform Gifts to Minor Acts.”  When the money is withdrawn, the child has to pay tax and a 10 percent penalty on the earnings.