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Seven right financial steps for 2004
By Jonathan P. Decker | Correspondent of The Christian Science Monitor
It has been a great year for investors. The Dow and the Nasdaq both soared to levels not seen in more than 19 months. Fed Chairman Alan Greenspan kept interest rates at historically low levels. And the economy showed signs of resurgence.
It's anyone's guess where the financial markets are headed in 2004. But whatever happens, financial planners say, there are steps you can take around New Year's to whip your finances into shape. Of course, not everyone's financial situation is the same. And a "sit-down" with a planner may be in order, especially for those nearing retirement. Still, there are some resolutions anyone can make to increase the likelihood of a profitable 2004. Here are seven to get you started:
1. Get serious about saving
You may not know it, but there are several ways to sock away money for a rainy day. The most popular method is funding an Individual Retirement Account or IRA. Since 1997, investors have had two main types of IRAs from which to choose - a traditional IRA and a Roth. Both now allow a $3,000 individual contribution per year ($3,500 if you are 50 or older). But a Roth is taxed immediately and grows tax-free. Which type is right for you depends upon your situation.
"I prefer the Roth for most of my clients who are in their 30s and 40s," says Annette Simon, a financial planner in Rockville, Md. "For them, it's a matter of a little tax savings now with a regular IRA versus a lot of tax savings later with a Roth."
Not every financial planner agrees. "The Roth is a promise of a future benefit," says Ric Edelman of Edelman Financial Services in Fairfax, Va. "I'd rather take the benefit now than the promise of a benefit in the future. I just don't trust the Congress to leave things unchanged."
Of course, there's another popular savings vehicle: the 401(k) and similar employee-retirement plans. "These tax-deferred retirement plans are a great way to increase your savings - especially if there is a company match," says Gary Ambrose, a financial planner with Personal Capital Management in New York City. "You should take advantage of any opportunities to increase your tax-deferred income."
2. Diversify your portfolio
Determining a proper mix of investments depends entirely on how conservative or aggressive you are and, especially, how close you are to retirement.
"We are all unique and we need to make decisions based on our own circumstance," says Joel Ticknor, a certified financial planner in Reston, Va. "But by diversifying your portfolio as widely as possible, it's the best way of dealing with the unknown."
If you're not certain how to allocate your money between stocks, bonds, and cash, many fund companies and retirement-plan sponsors have online questionnaires to help determine those ratios. Or try the Security Industry Association's investor website ( www.siainvestor.org ).
Once you determine the proper mix, you can take a closer look at your investments. For those who rely on mutual funds, the first of the year is an appropriate time to do this because funds will be reporting their year-end results.
For tax reasons, make changes to your holdings after Jan. 1. Do so before the end of the year and you risk having to pay capital-gains taxes on distributions a fund made earlier in the year. Shareholders of record at the end of the year can still be liable for those taxes. But this doesn't apply to retirement accounts, where taxes are deferred until you withdraw money.
3. Refinance your mortgage
This is the third consecutive year that most financial-resolution lists have included this advice. Mortgage rates, although up from record lows in June, remain at historically low levels. Refinancing a 30-year mortgage in which you're paying above 6.5 percent could save you a few hundred dollars per month and thousands of dollars over the course of the loan. The Federal Reserve has hinted that rates will remain low for the foreseeable future - at least until the threat of recession recedes and there is steady job growth in the US economy.
"Interest rates should remain unchanged through the middle of next year, but they can't remain this low forever," says Kevin McCormally, editorial director of Kiplinger's Personal Finance Magazine. "Homeowners should take advantage of this great opportunity to refinance as it may not come around again for a long time."
Refinancing is not always a good idea, however. Remember, refinancing will probably extend the term of your loan. So if you are 25 years into a 30-year mortgage, refinancing makes little sense. Also, if you plan to sell your home within two years, the closing costs associated with refinancing may not make the move worthwhile.
[此贴子已经被作者于2005-3-31 8:14:35编辑过]
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