Investing in Stock Market

If your looking to beat a money market or saving account returns, you're probably considering investing in equities. Remember, stock market has historically provide better returns as compared to other fixed income and more conservative investment strategies but it is more risky as well. If you don't have a million dollar to invest, you probably don't have the luxury of dedicated investment managers or personal financial advise. However, in this age and time, there are plenty of options available to fit and suit everyone's budget. Regardless how you proceed with your investment planning and strategy, there is no substitute for being an educated consumer and that's where fiscalwealth.com comes in to your financial world. If you understand the financial language and how each and every piece of the puzzle fits in, you'll be more comfortable, confident and successful in your financial planning. This article address some of the basic things that you need to be aware of before you start investing your money in stock market.

As you can see, it is easier said than done. How many times you have seen stock market turning south right after you put some money into it or contribute to your IRA? Probably plenty of times for most people. These short-term moves could be very disappointing and discouraging and all of us would like to work out a short term investment strategy to avoid these. However, basing your investment decision on short-term results can be detrimental to your long-term financial health. After all, there's no need to lead every mile of a marathon; all you need to do is finish well at the end.

In today's world, there is widespread availability of investment return data that has allowed investors to keep a close watch on markets and personal finances. You can compare results from quarter to quarter on from month to month and get a perception about certain months or quarters that are usually bad. This could make you preoccupied with short-term results and you might be tempted to replace your long term mutual funds or investment with the ones with good short-term results. But short-term results can be very deceptive. Remember, the days of internet bubble? This was the time when every investment house was offering a mutual fund dedicated to investing in internet related companies. Results were outstanding with 200% to 400% return year over year. But what happened in the end? Those internet mutual funds don't even exist 10 years later and if you invested in them, you probably lost enough money to derail all your retirement and investment planning. On the other hand, well established reputable mutual funds that returned 10%-15% back in that period are still providing solid return on your investment and if you would have stayed with them, you're probably very happy today.

So what should an investor do? One good option is to examine how a mutual fund has held up over full market cycles - periods that encompass a series of low-to-high and high-to-low periods. The average market cycle has exceeded four years, and that figure has been lengthening. In fact, the most recent one lasted well over six years. This is important since some funds may experience stellar results during booms, but decline more precipitously than the market themselves during down markets. This is equivalent of running too fast during the first mile of marathon and then fading at the finish. Remember, stock market during a rise period is amazing but it is spectacular during fall or decline. So you would rather be with a mutual find that gains slowly as compared to the one that declines quickly.

Working with your financial advisor to look beyond the numbers when evaluating short-term investment results - both good and bad - is very important. Your financial advisor can shed light on what was driving the market and fund results, how diversification helped mitigate risk and whether your current investment remain aligned with your long term financial objectives. The bottom line? Decision-making based on short-term results can be counterproductive and deprive investors of long-term benefits of a high-quality mutual fund.

Most people don't even calculate the tax liabilities until they do their taxes. Effective tax management is as equally important as sound strategy in bringing you the best return over the life of your investments. Remember, aggressive tax management strategies can improve your overall returns. We can add substantially to your after-tax returns by implementing aggressive tax management strategies with the taxable portions of your portfolio. Over a lifetime, the additional growth for your investment can be considerable. Here are some simple income tax strategies that could save you lot of money in long run.

a.) Delaying taxation when it is practical. b.) Taking advantage of tax favored treatment on some type of income. c.) Taking maximum advantage of marginal rate structure of the tax code d.) Getting the most out of your itemized deductions.

Delaying taxation is not to be confused with avoiding paying taxes. Remember, income tax filing deadline is April 15th and if you owe taxes, there is absolutely no reason to file your taxes before that deadline. On the other hand, if you're expecting return, file your taxes as soon as possible since there is no reason to allow the government to keep that money any longer than it already has. If you're getting a fat income tax check every income tax season, you should adjust your W4 form. Sometimes people think that keeping their exemptions at minimum will get them this extra money at the time of return that they could use for some big ticket items or vacation. However, the fact of the matter is that you deposited this extra money every month with federal government and got it back at the end of the year without any interest. Why in the world someone would do that when there are money market accounts and CDs that could get you as much as 3% to 5% return on your money? If you fear that you would just spend it if you get it with your paycheck, open a saving account and set up direct deposit so that you never see this money on your paycheck to start with.

Remember wages, interest and most other types of income are taxed at normal rates. However, the tax law has special provisions for long-term capital gains, most dividends and interest on bonds issued by state and local municipalities. For stocks for more than one year and sold after 5/15/03, the maximum tax rate on the gain is 15% compared with the normal top rate of 35%. Stocks have other risks and you should not let the hope of saving some taxes unduly influence any decisions to sell stocks. Be sure to review your portfolio carefully, especially at year-end, to understand how your positions stand relative to the one-year holding period. Net capital losses for a year can only be used up to $3000. Net losses in excess of $3000 can be carried forward to offset gains in future years.

Interest on bonds issued by municipalities and states are generally exempt from federal income tax. These bonds usually pay lower interest rates than comparable taxable bonds. To determine if tax-free bonds make sense for you, compare the after-tax returns of the two types. The higher your income (and marginal tax bracket), the more likely you may find tax-free bonds to be to your advantage.

Our income tax laws are built around a marginal rate structure. This means that income at lower levels is taxed at lower rates and income at higher levels is taxed more heavily. The current rates start at 10% and rise to 35%. If your income varies greatly from year to year, consider steps that even it out so you get the maximum benefit of the lower rates each year. Individuals that control portions of their income like bonuses and commissions are the ones most likely to be able to apply this. The other way to deal with marginal rates is to take full advantage of lower rates for each member of your family. It used to be common for parents to give money to children so the earnings would be taxed at the child’s lower rates. However, the rules were changed and now this is most practical after the child has turned 14. Children under age 14 get a small “exemption,” but have most of their unearned income (dividends, interest and other investment income) taxed at their parents’ highest rates.

You are able to reduce your taxable income for certain types of expenses. These itemized deductions are mostly for state and local taxes (income and property), mortgage interest, charitable contributions and certain expenses if they exceed a percentage of your adjusted gross income. Medical expenses can also be deductible if they are large relative to your income. If your itemized deductions are not large, the tax tables have a “standard deduction” built into them.

To get the most benefit for your deductions, consider the timing of when you pay them. For example, you may want to make your last quarterly estimated state income tax payment in December rather than January (if your state has a January due date) or carefully choose when you make charitable contributions.