Entries Tagged 'Retirement' ↓

Recently there has been a lot of talk about the Dollar weakening as the Federal Reserve keeps pumping money into the economy and trying to keep interest rates low but slowly meeting failure as interest rates are increasing. When the dollar starts to weaken, what do you trade or how do you protect your portfolio from inflation?

Buy Gold

One of the safest and most popular ways to trade or protect your portfolio from inflation is investing in or trading gold. The easiest way to invest or trade gold is through the SPDR Gold Trust ETF (GLD). Looking at the chart below you can see the GLD has performed well gaining 60% over the last three years when compared to the dollar at which lost 6%. If you are looking for another way to trade gold, try looking at the Market Vectors Gold Miners ETF (GDX). Gold miners significantly increase their profits when inflation picks up; as gold moves up, mining companies profit margins expand.

Treasury Inflation-Protected Securities

Treasury Inflation Protected Securities are another way to trade inflation. ETFs like iShares Treasury Inflation-Protected Securities ETF (TIP) give you a real rate of return, do not expect to make a significant amount of money here but rather reserve the value of what you have. What happens when global inflation occurs? Try looking at global ETFs like SPDR DB International Government Inflation-Protected Bond ETF (WIP) track global inflation. Looking at the chart below again you can see TIP outperformed the dollar returning 16% while the dollar lost 6%.

Buy Commodities ETFs

Commodities are a great way to trade inflation. Commodities tend to move more rapidly than the other two ways mentioned above. Commodities ETFs like PowerShares DB Commodities Index ETF (DBC) have big price swings and should be traded and watched carefully. Buying into commodities at the wrong time can devastate a portfolio but when used right they can produce huge gains. You might want to buy the individual commodities like crude oil along with a gold ETF previously mentioned.

Whatever ETF or tracks you choose to use, do your research before getting into them. Make sure you have a good case for an increase in inflation. These ETFs will not do much good to you in a deflationary period.

Roth or Traditional? Why does it matter which one I choose, as long as I have an IRA…right? Wrong! There are benefits that both accounts have; benefits that can help you now or later during your retirement years.

How does your income stack up?
Your income can eliminate your from getting a Roth IRA, but a Traditional IRA doesn’t have income limits. If you make more than $100,000 (filing single) and $160,000 (filing married), then you will have to go with a Traditional IRA. Otherwise, you can choose to go with a Roth IRA.

Benefits of a Roth IRA

Those who qualify for a Roth IRA, should choose the Roth over the Traditional. Benefits of the Roth come later rather than sooner, helping you out more during your retirement years. Some of the benefits of the Roth include:

• Contributions are from post-taxed income. Since deposits come from income already taxed, withdrawals are not taxed during retirement.
  If you need the money early, you can take it out without paying penalties or taxes, unlike the traditional.
• $5,000 yearly contribution limits. $6,000 age 50 and over.

Benefits of a Traditional IRA

Traditional IRAs are not only for those who don’t meet the income requirements of the Roth. If you need more of your money now, choose the Traditional IRA as is lets you deduct taxed on your contributions. There are benefits to the Traditional IRA that many people make their decisions upon such as:

• Contributions can be deductible (depending on income level)
• Money grows tax deferred (taxes are paid at withdrawal)
• $5,000 yearly contribution limits. $6,000 age 50 and over
• Available to everyone.

4 Questions To Make The Decision For You.

With the current market conditions, many people are trying to obtain money from whatever source they have available but your 401k should not be one. Cashing out now, with the markets down almost 50%, is not only a terrible choice to make but also a very expensive one too.

Markets will recover, maybe not as soon as you want but when they do it will be a rapid move up. Many people can handle the fact that their accounts are 50% down. Although, I am not down that much, I am still in the market because when it does recover I want to be in to enjoy the ride up.

Cashing out your 401k right now will cause you to realize losses that you may not be able to account for on your taxes. Plus, you have to pay early withdrawal fees, federal, and state income taxes out of what little bit you have left over. If you can wait a couple years, you will be thanking yourself. As for me I am still investing but I am a bit more “choosier”, as it were, now than before.

Look around and see what other options you have available and try to use them. If you have nowhere to go then at least think long and hard about cashing out your 401k.