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Not All Investments Are Equal

So you've got a while until you retire, and you've decided stocks are the right choice for your IRA. That decision only gets you so far. For an IRA, not all stock investments are created equal.For example, index funds' popularity has soared over the past decade, thanks in no small part to these offerings' often-rock-bottom costs as well as the fact that so many active stock-pickers routinely lag their benchmarks. Such funds may also have the benefit of very good tax efficiency, because managers of large-cap index funds tend to buy and sell infrequently. In the same vein, actively managed funds with very low turnover often don't generate a lot of taxable gains, either.Either fund type would work well as an IRA holding. However, to the extent that you own funds that do generate a lot of taxable capital gains, it makes sense to hold them in an IRA or other tax-sheltered account. In so doing, you take maximum advantage of the IRA's key attribute: tax-deferred (traditional IRA) or tax-free (Roth IRA) compounding.  Morningstar.com

Do money managers earn their keep?

QUESTION: I have my retirement account diversified among six different funds whose annual expenses range from just under 0.4 percent of assets to roughly 1.1 percent. But I'm considering rolling my money into a "diversified investment portfolio" that divides my money among a variety of investment options. The pitch is that my money will be overseen by a fund manager who will use his professional judgment to re-allocate and re-balance my account. My concern is that I'll be charged 2 percent a year. Help! I'm a science teacher, not a financial expert. Do you think I would be better off switching to this account? Money.com

Six stock market values

Despite solid long-term outlooks, these six companies are being overlooked by most investors. Every week or so, I get an e-mail from a reader asking which stocks among the Sivy 70 list are my favorites. My answer is always the same: No one can predict the direction of the stock market or turning points for individual companies with any degree of consistency. Instead of looking for a short-term buy list, it's more important to focus on developing a consistent long-term investing plan.At any given point in time, of course, some stocks look more attractive than others, either because they have stellar growth prospects or because they have unjustly fallen to big discounts. I try to spotlight such stocks in my weekly columns on this Web site and in the articles I write for MONEY Magazine. And it's always satisfying to catch a company right before its shares take off. money.com

More on Plans for Retiring Entrepreneurs

Two weeks ago my colleague Sue Stevens gave an overview of tax-sheltered retirement plans for entrepreneurs. In this follow-up piece, I'd like to dig a bit deeper into some of the options available, point you toward institutions that can handle the more complex plans, and discuss investing your money once you've set up your plan.

Which Options Should I Consider First?
The most popular plan and the easiest to run (and, therefore, the one you'll likely consider right off the bat) is the SEP-IRA. It's run on an IRA platform, which means the application is often the same as a Traditional or Roth IRA application and is easy to complete. The plan can be used for one-person operations or for businesses with multiple employees. You can set up a SEP at virtually any financial institution that offers an IRA. As far as contribution limits go, you can jam 25% of your compensation, up to $42,000 for 2005 and $44,000 for 2006, in a SEP. The contributions are tax-deductible for the business owner, but not for employees. All accounts (employer and employee) are tax-deferred and function like other IRAs, with mandatory distributions beginning at age 70 1/2.  Morningstar.com

Top Things To Know

1. Over the long term, stocks have historically outperformed all other investments.

From 1926 to 2005, the S&P 500 returned an average annual 10.46 percent gain. The next best performing asset class is bonds. Long term U.S. Treasury notes returned, on average, 5.08 percent over the same period.

2. Over the short term, stocks can be hazardous to your financial health.

3. Risky investments generally pay more than safe ones (except when they fail).

Investors demand a higher rate of return for taking greater risks. That's one reason that stocks, which are perceived as riskier than bonds, tend to return more. It also explains why long-term bonds pay more than short-term bonds. The longer investors have to wait for their final payoff on the bond, the greater the chance that something will intervene to erode the investment's value.  Money.com

The Best Investments for your IRA

Now that it's tax time, we probably don't need to remind you Uncle Sam can take a heavy toll on your pocketbook. Fortunately, there's plenty you can do to reduce your tax outlay in 2006 and beyond. And for some folks, it might still be possible to limit the tax collector's share for tax year 2005.One tax-savvy move is to open an individual retirement account (IRA). Individuals under certain income thresholds can contribute $4,000 annually to an IRA, and those over 50 can add another $1,000 this year. You have until April 15, 2006, to contribute for tax year 2005, though the over-50 set can only add another $500 for 2005. It's worth noting that you can deduct your IRA contribution from your current income only if your income falls below a certain threshold. Roth IRA contributions, by contrast, are not tax-deductible, but qualified withdrawals will be tax-free, and the income limits are much higher than is the case for traditional deductible IRAs. (Individuals of all income levels can make a nondeductible contribution to a traditional IRA.) To learn more about the differences between traditional IRAs and Roth IRAs, click here. To access Morningstar's IRA Calculator, which can help you determine which type of IRA to which you're eligible to contribute, click here. Deciding which investments to put inside your IRA requires a little bit of savvy. To be sure, there's no reason to deliberately choose investments that aren't tax-efficient, but if you're trying to pick between competing ideas, it's only sensible that you'd put the one that might cause the biggest tax headaches in your IRA and save more tax-efficient investments for your taxable account. Here are some issues to consider as you decide what to put in your IRA. Morninstar.com

15 Stock Bets For An Election Year

As the November elections loom, congressional priorities may lean more toward job security than lawmaking. But Stuart Sweet, president of Capitol Analysts Network, cautions that election-year politics will hardly bring Washington to a halt."It's a beginner's error to say, 'Nothing will happen in an election year,' " says Sweet, whose Chevy Chase, Md.-based research group advises money managers on political risk.Sure, Congress may put off tinkering with certain hot-button items, such as entitlements reform, until future sessions. But Sweet suggests plenty of issues impacting business will see significant action before election time. "All the committees are busy working on something," he says. "And only a few of them end up on the front pages of the paper." Forbes.com

Real Estate Continues To Build Steady Gains

Home sales look sluggish. But real estate funds keep moving full-steam ahead.   (AMEX:ICF - News) hit a new high, closing at 83.65. StreetTracks Wilshire REIT  (AMEX:RWR - News), iShares Dow Jones U.S. Real Estate  (AMEX:IYR - News) and Vanguard REIT Vipers  (AMEX:VNQ - News) also reached highs. In the past three months, leading REITs have seen their share prices rise from 8% to 11%. That's well below top emerging markets and commodity funds. But real estate leaders like Cohen & Steers are still in the top 15 in last 90 days.  Within the past month, REIT ETFs from Cohen & Steers and StreetTracks have moved into the top 10 of IBD's performance ratings. They've gained 4.3%-4.5% in that time. Going back 6- or 12- months and REIT ETFs are middling performers.  Investors Business Daily

Investing Basics: Your Investment Profile

To get an idea of your investment profile, start by calculating your investment horizon. This is the number of years that you can invest. Your investment horizon depends on your financial goal. Your goal may be to save for college, retirement, or a down payment on a home. Each goal has its own investment horizon. For example, saving for retirement at age 60 when you're 25 gives you an investment horizon of 35 years. The longer the investment horizon, the longer you can save and benefit from compounding. Next, estimate your risk tolerance. Money.aol.com

OUTSIDE THE BOX: Common Pitfalls in Stock Investing

As many investors have discovered over the years, there are several tactical and timing mistakes that can be made regardless of how strong and great the investor thinks that particular company's stock might be. This article will attempt to address some of the more common mistakes the investor might encounter. Many times an investor can make a good, but late, choice and jump in during market enthusiasm. For example, the investor may buy as part of a crowd right after a positive story in Barron's or a slick ad campaign during the Super Bowl, essentially allowing the investor no particular room for gain. Plus some investors make the mistake of falling in love with a particular company or concept. By doing this, investors allow themselves to overpay even for its strong growth. They are buying from earlier entrants who now see th! is stock as fully priced.  Optionetics.com