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Prohibited Transactions and Disqualified Persons

Dec 1st, 2010
by jblankenship.
4 comments

prohibited by Phillip McI have covered the topic of Prohibited Transactions in an earlier article – basically that you can’t self-deal with your IRA by borrowing from, selling to, or allowing a class of persons, called Disqualified Persons, to transact business with your IRA as well.

The problem that often comes up, especially with IRAs that invest in “self-directed” activities like Real Estate, is that folks look at the list of Disqualified Persons and determine that there are other persons that they can have making transactions with their IRA – and that since these others are not Disqualified, the transaction will no longer be a prohibited transaction.

Let’s back up and define Disqualified Persons – this means you, as the account owner, your spouse, your parents, grandparents or other ancestors, as well as your children, grandchildren, or other descendants, as well as the spouses of any of these persons.  So, for example, your step-child wouldn’t be a Disqualified Person, as long as you haven’t adopted the child.  In addition, your siblings aren’t Disqualified Persons either, nor would your girlfriend or boyfriend.  So technically, one of these people could transact business with your IRA – as long as there is no other reason to prohibit the transaction.

The problem is, if you (or another Disqualified Person) benefit directly or indirectly from a transaction with the IRA, the transaction is prohibited – no matter who the person is that you’ve transacted with.  So, for example, if you’ve invested in a condo with your IRA money, and you rent the condo out to non-related persons, you’re in good shape.  But if you try to play it cute and rent the condo out to your boyfriend, and you send your children to vacation with him for three weeks in the summer, the rental transaction is prohibited since disqualified persons have benefited from it.

In this case, it’s possible that the transaction could result in a penalty, or possibly invalidating your IRA, prompting an immediate disqualification and distribution including taxes and penalties, which could be a very bad thing.

Photo by Phillip Mc
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Organization, Efficiency & Discipline

Nov 29th, 2010
by jblankenship.
2 comments

organization by BLW PhotographySimplification is usually beneficial to any pursuit.  If you can break down the basic principles of whatever “big thing” it is that you’re hoping to accomplish into simple concepts, you’ll do well in your pursuit.

This is true for whatever you’re hoping to accomplish – climbing Mount Everest (train, prepare, keep going up); write a book (gather information, organize, keep writing); or get a college degree (show up, pay attention, study).  In preparing for retirement, I’ve always broken the concepts down to organization, efficiency, and discipline.

Organization

In order to get things started, it’s important to know where you are in your financial life.  When you’re getting driving directions from Google Maps, the first thing they ask you is where you’re starting from.  The same goes for “mapping” your financial path.  Gather together your information and organize it so that you know what assets and what liabilities you have.  This can be as simple as listing everything out on a piece of paper, or a computer spreadsheet, or using some of the tools available on the internet, such as Mint.com.

Also gather your information about your monthly and annual expense requirements – preferably with an eye toward understanding what is a “must” expense and what is a “nice” expense.  If you’re having trouble balancing your budget (your income is less than your expenses) you’ll need to look at the “nice” expenses and determine what you can do without.

The last piece of Organizing is to set forth a goal – or several goals, depending on your situation.  Maybe it’s a goal to retire in five years… or to send your kids to college in 8 years.  Whatever is the goal, you need to quantify it (put it in terms of dollars and time), and so that you can map out the way to get there from where you are now.

Having everything organized will tell where you are financially, and knowing what your expenses are, compared to your income, will help you to understand what you can do to make changes in your financial life in order to reach those goals.

Efficiency

Now that you know where you are and where you’re going, it’s time to figure out how to get there.  As you know, there are many types of investment accounts, investment products, and the like, that you could use to increase your bottom line.  My preference is to use the most Efficient methods, in terms of placement of funds, taxes, expenses, and risks, in order to take you toward those goals.

We discussed the most Efficient placement of funds in an article some time back, entitled Retirement Savings – Where to Start.  This article will help you to understand which types of accounts are the best for saving your money.  The article also helps you with maintaining efficiency in terms of the tax treatment of your various savings vehicles as well.

Efficiency in expenses can be addressed by utilizing no-load index mutual funds and/or Exchange-Traded Fund (ETF) indexes.  These two types of investment products generally provide the most cost-efficient methods of investing.  In addition to the cost-efficiency, ETFs are also very tax-efficient, due to the structure of the funds.

Not only are indexes very cost-efficient and tax-efficient, but indexes are also risk-efficient as well.  If you invest in indexes you are getting (generally) the market’s movement in returns – something that less than 40% of managed funds can do regularly.

Discipline

Now that you’ve figured out the methods to use in getting to your goals, you have generated a plan to accomplish those goals.  This is where discipline comes into the picture.  In order to achieve these goals, you have to create your plan and stick to it, through thick and thin.

When the market is having difficulties and your accounts are experiencing a downturn, you need to maintain the intestinal fortitude to continue with your investing activities.  This is where a good financial advisor or just an accountability partner can help you out a great deal.

It’s maintaining the long-term view in the face of short-term “noise” like a market downturn that helps you to meet those goals.  Chickening out and selling at the wrong time can derail things.

Discipline also extends to creating your budget and sticking to it as well.  By reviewing your expenses and determining where you can reduce, you’ll be able to free up more money each month to eliminated debt and increase your savings balances.

Bottom line

By putting these basic tenets of Organization, Efficiency & Discipline to work for you, you will soon begin to see progress toward your goals.  Keeping things as simple as possible helps to ensure that you’ll stay with your plan.  As with everything else, let me know if you have questions!

Photo by BLW Photography
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Update on Time Out of the Market

Nov 19th, 2010
by jblankenship.
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paintbox by ZixiiAs an update to the article I wrote last month about the Cost or Benefit of Time Out of the Market, as promised I went back and ran the numbers for all the S&P 500 data that I could locate, starting in January, 1871.  This information is taken from an ongoing study by Robert Schiller for his book “Irrational Exuberance”, and since the S&P 500 index hasn’t actually been around for that whole time, the earlier numbers are an approximation of the index.

So anyhow, I looked at both five-year and ten-year data for a buy-and-hold strategy and the same periods for our momentum strategy (discussed in the earlier article).

In the buy-and-hold strategy, in the average five year period the return averaged approximately 6% per year, an aggregate of 31.49%, and for the ten-year periods, the average was a little higher, at just over 7¼%, for a total return of 72.60%.  Using the momentum strategy, these numbers increased for each period on average, to over 8% (42.49% total) and more than 10½% (105.38% total).

In the buy-and-hold tests, this strategy resulted in a positive (greater than zero) return in 68.34% of the five-year periods, and 75.76% of the ten-year periods.  By comparison, in the momentum tests, the results were even better:  94% positive returns in the five-year periods, 99.61% in the ten-year periods.

This is good information, but what about comparing the two strategies in terms of how often one is better than the other?  Not as often as you might think, given the results we see in the other categories:  67.90% of the time in the five-year tests the momentum strategy came up with a better result, and 69.62% of the time in the ten-year tests.

So, in roughly 7 out of 10 circumstances, you could be better off with the momentum strategy… when does the momentum strategy not work?  That is, when does a buy-and-hold strategy pay off better than the momentum strategy?

There are a few sustained examples (just using the 10-year periods, for brevity) where a buy-and-hold strategy gives a better result than the momentum strategy.  Those are the ten-year periods ending during these dates:

  • March, 1952 to May, 1966
  • August, 1967 to April, 1970
  • April, 1980 to May, 2002

If you don’t recognize these periods, these were the most rampant economic expansion timeframes that our market experienced over the past 140 years.  During these periods, the average monthly return on the S&P 500 was 0.66%, while the 140 year average was only 0.42%.  The aggregate return of the buy-and-hold strategy during these periods averaged 129.54% for each 10-year period, while the momentum strategy only returned an average of 109.54%, losing 2% for each year in the ten-year period.

So, the conclusion is that, while this is an interesting strategy, it’s not fool-proof.  If you’re looking only to have a positive return on your 10-year investing horizon, the momentum strategy seems to be almost waterproof on that score.  Just keep in mind that, as I mentioned previously, this strategy requires the utmost of discipline to the task – missing a few days here and there can derail the strategy altogether.  It might be interesting (if you’re so inclined) to use this momentum strategy on a small portion of your portfolio – but as I’ve mentioned before, you can certainly do much worse than following the buy-and-hold strategy.

I’ll keep doing the research on this (since I never met a spreadsheet I didn’t love!), most likely adding in analysis of the P/E ratios and any other pertinent information that I can track.  I’ll keep you posted!

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Social Security vs. Saving

Nov 12th, 2010
by jblankenship.
3 comments

bank safe combination by Todd Ehlers I received a question from a reader that sort of dovetails with the post from last week about payback from Social Security, so I thought I’d run through the numbers on his question here.  As you may have noticed, I never met a spreadsheet I didn’t like!

Here’s the question from the reader, verbatim:

started work at age 20 retire at age 70.

Over 50 years of work I average $50,000 a year.

If I put 10% of my income away every month from age 20 to age 70 how would I come out versus depending on the government social security checks I would receive after retirement.

Initial Reaction

My initial reaction to this question was that you’d be much better off with the savings option, since you’re saving at a much greater rate (10%) than the withholding, and for fifteen more years than the Social Security system takes into account.  However, that’s not altogether correct, since the Social Security system includes both your withholding and your employer’s withholding, for a rate in 2010 of 12.4%.  But this rate is much lower in the earlier years of the calculations. So let’s go ahead and run the numbers.

Assumptions

There are a few assumptions that we have to make in order to complete this problem:

  • In order to come up with an average of $50,000 per year, I first looked at the maximum Social Security withholding.  By calculating the average from 1961 to 2010, we come up with an average of $43,804.  This is a little less than the average that the reader suggested, but it will work for our purposes and keep the calculations a bit simpler.
  • Putting aside 10% each year requires that we come up with a rate of return for this investment account.  I used a simple 5% return, which is reasonable over that period of time.
  • I assumed that the side account is an IRA or a 401(k), so taxes have not been factored into the equations.

Calculations

As we saw in the previous post, earning the Social Security maximum over the final 35 years of your working career will give you a monthly benefit of $3,204 in 2011.

Saving 10% of your earnings (using the maximum Social Security wage base) over 50 years at 5% will bring you to a total in your IRA or 401(k) of $443,969.  Unfortunately, just running a few simple quotes from single premium annuity websites indicates that a joint and survivor annuity paying a $3,200 monthly payment will cost a total of $584,830 or $610,909 depending on the website you choose.  And that’s a fixed payment, not a COLA-adjusted payment like your Social Security benefit is.

However, upon the death of both you and your spouse, there is nothing left over – so the question becomes one of longevity.  If you both live long, full lives, the Social Security option works out much better.  If you and your spouse die earlier, any time before about age 85, there will be something left over for your heirs in the savings option.

Of course, the Social Security benefit could be taxed, up to 85% depending upon your other income.  Since the savings option is in a qualified account or an IRA, 100% of the disbursements will be taxed.  If it was a non-qualified account, just a regular savings or investment account, the taxation would be considerably less.

Conclusion

In the end result, it seems that the Social Security benefit option is a pretty good deal, especially since we all hope to live a long, full life.  The savings option works better if you die earlier than (roughly) age 85, providing a residual amount to your heirs.  This is a little different from what I’d originally thought, but when you consider that the average life expectancy of a male age 70 is roughly 84 (86 for females), there’s a high probability that you won’t outlive your savings, although there’s a similarly high probability that you will outlive your savings.

And finally, since you don’t really have a choice in the matter, the entire question is really moot – but an interesting exercise, nonetheless.

Photo by Todd Ehlers
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Are You Really Diversified?

Oct 25th, 2010
by jblankenship.
1 comment

alter eggo by turtlemom4baconSometimes we fool ourselves.  Sometimes we think we’re doing the right thing, when in fact the result is that we’re not doing what we think we are.

I’m talking about your investment diversification.  Within your 401(k) you have certain options available for you to choose from:  a large cap stock fund, a mid cap stock fund, an international stock fund, and a bond fund.  Recalling an article you read somewhere… you know you need to split up your investments among many allocation options.  So, wanting to do this diversification thing right, you split up your 401(k) contributions with 25% in each of the funds available.  You’re well-diversified, right?

Wrong city, bucko.

Correlation

Welcome to correlation.  Investopedia defines correlation as: a statistical measure of how two securities move in relation to each other.  It’s pretty complicated, but the gist is this – if two securities are perfectly correlated, when one moves up or down, the other moves up or down in perfect relation to the other.  Such securities are said to have a correlation coefficient of +1.

On the other hand, if one security moves up and the other moves down (and vice versa, by the same proportions), they are said to be negatively correlated, with a correlation coefficient of -1.

Lastly, if one security’s movement has no relationship whatsoever to the other security – that is, any particular movement by one of the securities may or may not result in a movement in the same direction, the opposite direction or no movement at all.  These two securities have a correlation coefficient of 0 (zero).

Most pairs of common securities fit somewhere along the spectrum between +1 and 0, since very few are perfectly correlated.  Negative correlation is typically found in hedge funds – which are a costly, complex sort of asset to hold, being designed to work opposite of the general market movements.

With the above explanation, hopefully it becomes clearer to you why we want securities in our portfolio that are not correlated closely to one another… having such pairs of securities spreads out our risk of any single market event having adverse impact on everything in our portfolio.

Examples of Correlation

Back to our example portfolio, here are the correlation coefficients for your four choices, shown in a matrix:

1 2 3 4
1. Large-Cap Stock 1.00 0.96 0.93 0.28
2. Mid-Cap Stock 0.96 1.00 0.91 0.27
3. International Stock 0.93 0.91 1.00 0.44
4. Bond Fund 0.28 0.27 0.44 1.00

As you can see, the large cap, mid cap, and international stock choices are very closely related to one another.  That’s why, even though you thought you were well-diversified during the market slump a couple of years ago, everything you had took a dive.

This is why the first, most important allocation choice you can make is between stocks and bonds (we’ll get to some other allocation options later).  These two, of the choices you have, are the least correlated, so it’s very important to include these non-correlated assets together in your allocation scheme.  And then within your chosen split into stocks, you can choose some of the other asset options – large cap, mid cap, small cap, international – since those assets aren’t perfectly correlated, it can be beneficial to include diversification among these options as well.

The same goes for bonds – other types of bonds, such as Treasury Inflation-Protected bonds, are not perfectly correlated with the total bond market, so it might make sense to include some of these as allocation options as well.

What about other types of assets?

We’ve talked about some very basic allocations – but what about other types of assets?  There’s real estate (both domestic and international), emerging markets stocks, commodities, and others.  How does the correlation of these assets look?

The table below details the correlation matrix for these additional assets in relation to domestic stocks, international stocks, and bonds.

1 2 3 4 5 6 7
1. Domestic Stock 1.00 0.93 0.27 0.84 0.93 0.89 0.60
2. Int’l Stock 0.93 1.00 0.44 0.79 0.96 0.93 0.65
3. Domestic Bond 0.27 0.44 1.00 0.33 0.39 0.32 0.25
4. Domestic RE 0.84 0.79 0.33 1.00 0.83 0.68 0.44
5. Int’l RE 0.93 0.96 0.39 0.83 1.00 0.88 0.65
6. Emerging Stock 0.89 0.93 0.32 0.68 0.88 1.00 0.71
7. Commodities 0.60 0.65 0.25 0.44 0.65 0.71 1.00

As you can see in the matrix, adding these additional asset classes gives you even more diversification (per the correlation).  Commodities show up as the next most non-correlated, after bonds, which explains why this is an important asset class to include.  Not only are commodities not well correlated with stocks, they are even more non-correlated to bonds.

Real estate, both domestic and international, gives you some diversification, but not nearly as much as bonds and commodities – turns out that real estate, while not a perfect match for stocks, does follow the movement of stocks somewhat closely.

How?

You might be saying “but I don’t have those kinds of options available in my 401(k)” – what can you do?  This is part of why it can be useful to have other savings plans in your scheme, such as a Roth IRA or a taxable account.  With these other accounts, you can have the flexibility to invest in whatever asset classes you like.

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3 Ways of Dealing Without Recharacterization

Oct 20th, 2010
by jblankenship.
1 comment

deal by D.C.AttyWith the new conversion opportunity made available by the passage of the Small Business Jobs Act of 2010 (see New Opportunities to Roth), there is one factor that is not available that you normally have when doing Roth conversions: recharacterization.

If you recall, the primary reason that you would want to recharacterize is if you converted funds and then, by the time you pay the tax, the holdings that you converted have dropped in value.  So, instead of paying tax on something that is much less in value than previously, for a Roth IRA conversion you can recharacterize the conversion up to October 15 of the following year (see Help Mr. Wizard – I didn’t wanna do a Roth Conversion for more details on recharacterization)

But there are ways to reduce the risk associated with your Deemed Roth Account Conversion (since you are not eligible to recharacterize the conversion).

For one thing, you could use dollar-cost averaging to spread the risk of market fluctuations over several points in time through the year.  Simply split your intended conversion amount into four amounts, and convert one of those amounts each quarter, for example.  This way if the market drops through the year, you’re converting funds at the lower values.

Another option would be to spread the date-specific risk over several years, by converting smaller amounts each year.  This would also reduce the risk of adverse market results, and spread out the tax over several years (if possible).

Yet another choice could be to convert only those assets that have very low volatility, such as bonds.  The probability of a major drop in value is much lower for these assets, so your need for a recharacterization would be far less likely.

There are many other, more complicated ways to reduce your risk against such a situation, but these are a few that are easily implemented.  Hopefully this will help you in your process of converting retirement plan assets to Roth.

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The Cost or Benefit of Time Out of the Market

Oct 18th, 2010
by jblankenship.
2 comments

evolution of vans by Spencer C. CurtisI don’t know if you’ve ever heard it before, but there have been studies done with the intent to help folks realize the benefit of remaining invested in the market… with the outcome being if you missed the ten best days of the market’s returns over a particular period of time, your overall results are significantly diminished.

I’ve always been intrigued by the concept of these studies, so I decided to undertake a similar study of my own, using a few different circumstances in order to hopefully reflect what might happen in real life.

The Study

I used S&P 500 data to represent the stock market, and for the sake of better understanding and applicability to the present, I have limited the data used to the time period of January 1990 to present.  In order to better represent what most folks would do in real life, I used monthly results, rather than daily – because I figure that most folks, if they change a position (i.e., sell out of stocks, for example), most likely they would not jump right back into the same position the next day.  I figured 30 days was a little more realistic of a timeline for making changes to your holdings.

Also, I did not include dividends in the analysis, although these can be a significant part of your returns.  It was much simpler to work with the actual returns, rather than try to estimate when dividends might be paid and whether or not you were currently invested at that time.  I figure the results would be very similar, either way.

Lastly, transaction fees and taxes have not been factored in to these calculations.  Depending upon the circumstances these two factors can have a drag on your results – but taxes won’t come into play in an IRA, for example, plus transaction fees may not apply to your case.  In addition, if you’re working with traditional mutual funds, sometimes there are repercussions to changing your position frequently – such as holding periods.  These have also not been factored into the results.

Results

For the long-term benchmark, I assumed that the investor made an investment in January 1990, and left it alone until the end of September, 2010.  If you did this, you would have seen a total return of 230.05% – that’s a simple average of 11.5% per year.  Now we’ll start making some assumptions to change things up a bit.

What happens if we got out of the market for just one month during that twenty year period?  If we did this and happened, just by chance, to miss the month during that period with the best return of all of them, we’d have reduced our overall return to 194.63%. The month was April 2009, if you wondered, and the return was 12.02% for that month.

On the other hand, what if we were extremely lucky and missed the very worst month during the period?  (October 2008, at -20.39%, in case you were wondering.)   That would result in an overall result of 314.59%, or an average annual increase of more than 4%!  But how in the world can you guess that you’ve got the right month?  The very best month and the very worst month in 20 years were only six months apart…

Here’s another option to consider: what if you took two months out of the market during the 20 year period?  If it was the best two months that you missed, you’d drop your overall return to 164.73% (the second-best month during the 20 years was February of 1991).  But if your timing was immaculate and you skipped the two months in the 20 year period with the worst possible returns, you’d boost your results to 367.72% (the second worst month was September 2009).

Lastly, I took the data and calculated what would happen if you had the worst luck of all and missed the 10 best months during the 20 years studied… your result would be a paltry 46.45%, only 2.32% per year.  On the other hand, if you had near-perfect timing and happened to miss out on the ten worst months of the period – you’d have pulled down a total return of 816.90%, a yearly average of 40.85%!!  Clearly it would benefit you to have a crystal ball.

Add In Human Nature…

Since one month is a very short period of time, I took the same data and calculated what would happen if you not only missed the months in question, but then you also delayed an extra month before getting back in the market.  Here are the results under those circumstances:

Missed best month and the month following: 176.92%
Missed best two months and the months following: 142.11%
Missed best ten months and the months following: 25.06%
Missed worst month and the month following: 354.85%
Missed worst two months and the months following: 397.91%
Missed worst ten months and the months following: 943.74%

Clearly, once again, it pays to have had a degree of clairvoyance working in your favor.  But obviously you can’t plan to have this kind of timing – so far I think we’ve learned that staying the course has benefits.  Although it would be pretty cool if you had hindsight working in your favor and could miss all those bad months, the likelihood of hitting it just right is pretty low.

What About Reacting?

So – since we don’t have a crystal ball available to us, what’s the next most obvious way to handle things?  Reacting, of course.  So I took the same data and ran the calculations based upon those same months, only instead of missing the best or worst, you missed only the month following the best or worst months, in reaction to the prior months’ results.  Here’s how that turns out:

Missed the month after the best month: 210.21%
Missed the months after the best two months: 201.86%
Missed the months after the best ten months: 164.90%
Missed the month after the worst month: 262.10%
Missed the months after the worst two months: 251.36%
Missed the months after the worst ten months: 312.20%

This shows us that there may be some benefit to be had by taking the reactionary stance – for the worst ten months example, you’d have improved your overall return by over 80% for the period, more than 4% per year. But how would you know if you were choosing the right 10 months to react to?

The other thing that this shows us is that reacting to a positive result by locking in your returns and standing pat doesn’t help – I suspect that the momentum of the market is working for both cases.  This means that, if the market is on the rise, more often than not, it will continue to rise in the following month, and vice versa.

Practical Application

Since we don’t know for sure what the best and worst months will be in advance, what if we used the prior month’s return against a benchmark result and then reacted by getting out of the market for the following month?

On the upside, once again, locking in your positive results in any month with better than a 4% return (an arbitrary number that I chose), you’d wind up with a result less than half (at 111%) of what you’d have gotten by just buying the market and staying in it for the full period (which was 230%).  There were 32 months in the 20 year period that met this criteria.

The market momentum once again works its magic (at least with the data I used). If you chose to get out of the market on the first day of any month following a downside month (of which there were 97 in the period studied), you would have wound up with an overall result of 355.93%.  This is a good thing!  By putting this easily-understood method into play, your overall results increased by better than 6% per year.

Keep in mind that the study only covered the previous 20 years – a relatively small period of time, with some pretty dramatic results, both positive and negative.  I’m going to do some further study on the historical data and I’ll let you know more about those results after I’ve done that analysis.

Even with that fact in mind, I think this might be a useful tactic to consider putting into place.  I still think that the core of your portfolio should be left in place for the long term – especially with your well-balanced portfolio.  But it could work in your favor to put such a plan into place for a small portion of your portfolio, such as maybe 10-20% of your domestic stock holdings. The critically important fact here is that for this to work you have to stay disciplined and make your moves at the correct times.  Otherwise this won’t work.

And if you don’t want to hassle with this kind of manipulation, it’s still pretty clear that you can definitely do worse than the long-term hold tactic, which is the simple, tried and true way to handle your portfolio.

Photo by Spencer C. Curtis
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Household Businesses that are Doing Well During the Recession

Sep 13th, 2010
by Louise Baker.
1 comment

recession by Anders VWhile many small businesses have been suffering as the nation tries to emerge from a struggling economy, certain household-name businesses are doing quite well. From restaurants to retail stores, there are many examples of companies having success during these tough times.

McDonald’s (NYSE: MCD)

McDonald’s has profited quite a bit in this economy. Offering meals well under $10.00 and a number of new menu items, the chain served some 60 million customers each day in 2009, up 2 million per day from the previous year. Earnings per share for calendar year 2009 were up 9% from the previous year. The latest 2010 figures for July 2010 show United States sales growing by 5.7% over the same period in 2009. Sales in Europe rose 5.3% and Asia, the Middle East and Africa had a very impressive growth rate of 10.1%.

Walmart (NYSE: WMT)

The nation’s leading retailer has been able to hold up well during this most recent economic downturn. Long known as the low price leader, Walmart has attracted more customers that used to shop at somewhat more upscale stores. The regular clientele continue to shop at Walmart for hardware, household goods and groceries. Attractive pricing, a wide variety of items and many special deals have made Walmart the preferred choice of millions struggling with the difficult times. People still need to buy all the necessities such as clothes and food and Walmart is amongst the most affordable options out there.

Dollar General (NYSE: DG)

This store has found a niche that does very well in times where people need to make the most of a dollar. Offering most of their merchandise for a single dollar (some items are more), the store is great for things like cleaning supplies, paper plates, toilet paper and all sorts of other household items. People always have a few dollars in their pocket and can fill a bag for $10.00 or less. Shoppers still like to shop in quantity and Dollar General, with its conveniently located stores, has accomodated that need.

Goodwill Stores

Goodwill Industries has experienced a surge in customer traffic and sales. The king of the second hand or thrift stores is a well managed company that sells donated second hand merchandise (and some brand new items) at highly discounted prices. Women love shopping for clothes as they can pick up jeans for $5.00 that would sell new in a Department store for $50.00.

Florida Power & Light (FPL)

Like all regulated utilities, FPL continues to make a profit by providing service at a price determined by government agencies. They have invested well and are able to cut costs in many areas while providing excellent service. Management has taken advantage of technology and has instituted innovative plans to improve productivity which transfers to the bottom line.

Louise Baker is a freelance blogger and journalist who writes for Zen College Life, the directory of higher education, distance learning, and online schools. She most recently wrote about the top online colleges.

Photo by Anders V
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No, You Can’t Contribute Stocks to Your IRA

Sep 8th, 2010
by jblankenship.
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markets china stocks close by artemuestraSometimes the question comes up – “Hey, I have this taxable stock account with my favorite stock (or mutual fund, or bond, or CD, or what-have-you).  Can I just transfer the stock over to my IRA as an annual contribution?”

In a word, NO.  Contributions to IRAs are only allowed in cash.  In order to accomplish what the contribution you hoped to, you’d have to liquidate the security holding, paying any tax on capital gains, and then use the cash proceeds to make your contribution.

Keep in mind, this doesn’t apply to rollovers – even the indirect “60-day” rollovers.  You can rollover securities holdings from one IRA (or qualified retirement plan) to another IRA in-kind.  If it’s done indirectly (not a trustee-to-trustee transfer), the same securities must be used with the roll-in.

So, for example, if you had an IRA with $50,000 worth of ABC stock, you could distribute the stock (rather than cashing it out) to a taxable account, and then within 60 days contribute the same stock to another IRA.  During that 60-day period, you could do any number of things, such as collect interest or receive a qualified dividend from the stock, which would be taxed at qualified dividend rates.  As long as you complete the transfer of the exact same stock within the 60-day window, there is no tax owed on the transfer.

Let me point out that I don’t recommend this sort of activity, I’m just explaining that it’s possible.

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