Where to Invest Your Money?

Have you been wondering lately where you should invest your money? Maybe you have been looking for a way to make more money with the money you already have but you know that the stock market is so risky and many people have been losing a lot of money in the recession. Maybe it’s time that you look to another market that is thriving, even in times of recession. The forex market is the place to look and maybe it is right for you.

The foreign exchange (forex) market is the largest and most liquid market in the world. Far out doing the stock market with a daily turnover of over $3.5 trillion. That’s a lot of money being thrown around in a time of a so called global recession. The forex market however, continues to grow and people are finding that it is a much more secure place for them to invest their money, rather than in the stock market.

For those that are new to investment in either the stock market or the foreign exchange market, it is noteworthy to remember that the forex market is much less affected by recessions in the economy and even when the stock market may be crashing, the forex market is still making many people a lot of money. You might be asking, how is that possible? Well there are many answers to that.

Unlike the stock market, the forex market is running 24 hours a day, everyday but Sunday. This gives traders much more opportunity to make good decisions and be making money. The forex market is a less complicated investment since you are only focusing on two currencies and if you take the time to learn and understand the market, you can almost always make the right choices that will make you money. No matter how the economy is doing.

Also there are now such things as automated trading programs for the foreign exchange market that allow a trader to be trading even while he is sleeping. These programs have been a tremendous breakthrough for people who are set on making money in the forex market and being able to do it anytime of the day. However, just as with most things, you will need to make sure that you choose programs that are trustworthy, because there are always some that cannot back up the things that they claim.

Overall, the forex market is a much safer and less complicated investment than the stock market. The 24 hour trading allows people to be making money even in their sleep. Also there are many trading brokers/platforms on the internet that help people start trading. There are may out there and certainly some are better than others. It will be important as you start into the forex market that you choose one that can be trusted and works for you.

Consider an Earnest Money Deposit to Let Home Sellers Know You Mean Business

Home buying can be a very exciting experience, and there’s no time more exciting than when you sit down with your Real Estate agent to draft up an offer letter on that perfect new home you’ve found. Question is, how are you going to ensure that your offer to buy this great new home is taken seriously? The answer, in most cases, is by providing an earnest money deposit along with your offer.

So, What is An Earnest Money Deposit?

In short, this type of deposit is a sum of money you provide along with your offer to buy a piece of real estate in order to let the seller know that you are making a serious offer. Normally, this money is deposited into an escrow account – where it stays until the purchase transaction closes. At that point, your earnest money deposit is applied toward the purchase of the home.

Why Can’t I Just Send in an Offer Without and Earnest Money Deposit?

In truth, you can. However, the risk you run in doing so is that your offer will be pushed aside or will not be taken seriously by the seller, who will likely move on another offer that has a good faith deposit attached to it. Look at it this way. An offer to buy a home without any “skin” in the game, so to speak, is not worth the paper it’s written on. You could, in theory, go around making offers on any number of homes with little fear of any negative outcome. By putting down a deposit, you are accepting some risk that your deposit may be forfeited in the event that your offer is accepted by the seller and you back out without cause.

What is the Suggested Earnest Money Deposit Amount?

The amount you put down as your earnest money deposit can vary from home to home. Obviously, in a buyer’s market, on a house that is priced very low, your earnest money can be on the “light side,” as opposed to when you’re making an offer in a competitive market on a home that’s just too good for most buyers in your area to pass up. If you really want the home, you’d best put down enough to be sure that the seller takes notice enough to accept your offer. As a rule of thumb, one (1) percent of the offer price for your chosen home is a good place to start.

Is it Possible to Lose My Earnest Money?

Yes, but it is rare for this to happen. In normal situations, you should be able to work in conditions that allow you to exit the offer with your deposit in hand should you find circumstances to be prohibitive to buying the home, it is possible to forfeit this deposit. Normally, conditions that allow you end the transaction and receive back your earnest money involve failure to obtain a clean title to the property, negative items discovered during inspection, and so on.

If you lose your earnest money, it’s likely going to be because you waited until too close to the closing date to back out of the deal. In situations like this, you will almost always lose your deposit.

Bottom line, if you’re serious about buying the home you’ve put your offer in on, be sure to send in an earnest money deposit to let you seller know you mean business.

The Truth About FDIC and Certificates of Deposit (CDs)

When you are told by a banker or receive a promotional letter from a financial institution regarding a special Certificate of Deposit (CD) rate, please think before you act. Most bankers love CD’s simply because it will lock your money into a product that will charge a substantial fee if withdrawn prior to maturity. In addition most bankers get a commission for new money deposited into a CD. When I was a banker, I had always been one of the few that disliked CD’s for many reasons. I find them only useful for very few things. Since I am no longer a banker I want to give you the dirty truth behind CD’s that most do not know and what is your REAL rate of return from those “promotional” CD’s you find online or in your current bank.

First off, CD’s are a fixed income vehicle that is backed by the FDIC. Many people trust the FDIC for its insurance and the deposit is in fact guaranteed (up to $250,000 per DEPOSITOR until 12/31/2013). What you most likely did not know is how you get paid and when. You are covered up to this a certain amount but the time it takes to pay you however is never documented. From my research and what I was taught years ago as a banker is the following: The FDIC can take up to 99 years to pay (not a typo)! There is no public documentation of how long it takes to pay however based on the fact that if ANYTHING catastrophic was to occur financially, the FDIC will have time to pay. So if you expect immediate payment with a simple claim of lost funds from an FDIC insured product, you are sadly mistaken. The FDIC is also an INDEPENDENT AGENCY of the federal government. They receive no congressional appropriations (money) and it’s fully funded by the premiums (payments) from banks and thrift institutions pay per deposit coverage as well as earnings from U.S. Treasuries. Most people do not have to worry however since most major banks are more than willing to buyout smaller/failing financial institutions in order to acquire more clients and show positive PR (public relations) to the masses. This has shown more than enough evidence with what has happened in 2008-2009.

FDIC products are fully taxed. If you purchase a CD, the growth will be fully taxes (state, federal, local) just as if you have earned this income from working. This is based on your tax bracket which is as follows (2010):

Bracket / Single / Married:
10% Bracket / $0 – $8,375 / $0 – $16,750
15% Bracket / $8,375 – $34,000 / $16,750 – $68,000
25% Bracket / $34,000 – $82,400 / $68,000 – $137,300
28% Bracket / $82,400 – $171,850 / $137,300 – $209,250
33% Bracket / $171,850 – $373,650 / $209,250 – $373,650
35% Bracket / $373,650+ / $373,650+

Now, most of you that purchase CD’s are aware of this. However, what most fail to realize that CD’s do NOT catch up with the rate of inflation. The rate of inflation is measured by the CPI (Consumer Price Index, I have described what this details on a previous article which can be found in my previous post). For whatever investment, income, or interest you earn to not match or exceed the CPI, you are losing money long term. This is a volatile index but long term averages around 2.5%. This means you must earn either 2.5% or more AFTER TAXES long term in order to maintain your cost of living life style.

For example: You are in a 25% bracket and have purchased a 12 month CD at 2% APY for $50,000. You earned $1,010 from the interest which equals 51,010 but you have to pay taxes on the growth (your tax bracket) which will equal to $253. You have earned after FEDERAL taxes $757 (some state and local taxes may occur that will lower your return even further!). Now here is where most people do not pay attention to, the CPI for the year. Let’s be fair and say it is 1.6% for the year (less than the average, just to make a point). You would need to earn $800 AFTER TAXES from that 50,000 in order to keep up with the rate of inflation. Your real rate of return is negative $43. In order to keep up with this rate of inflation you would need to find a CD with the rate of (approximately) 2.8% or higher depending on what state you live in. Please remember that we are talking about a tax payer in the 25% bracket which is considered the national average. These rates become considerably higher if you’re considered “High-Net-Worth”.

Not all CD’s are bad. If you are one of many that cannot withstand volatility what-so-ever than it is best to purchase CD’s within a IRA this way taxes are deferred or Roth IRA which no taxes are paid after withdrawal (please see my article on IRA’s for details). Also, CD’s are probably the best product to purchase if you are planning on using the money short-term and cannot risk ANY volatility. Short-term can be considered 2 years or less. I highly recommend CD’s for home buyers (in 2 years or less) since the deposit in your home are tax deductable therefore the taxes on interests earned on a CD will be taken care of.

There are many considerably safe products that have low maturity dates and have considerably better returns than a CD. In the end, before you purchase the CD, know what your intentions are and when do you think you’re going to need it. If it’s for educational purposes, there are products that can be a better option for you and your child (529 plans, UGMA/UTMA for example). If it’s for medical bills, there are products out there for that as well (Health saving plans). The point is to use a CD only for short term purchases that can be tax deductable or within tax favor accounts. Many people use CDs to prepare for a birthday or holiday in that year and that is OK as well! The key is “short-term”. If it is for emergency funds, your best bet is to simply put it in a money market where there won’t be any implications or charges for early withdrawal.

I hope I was able to educate you on CDs and now more aware of what you are getting into. If you have any questions or concerns please feel free to contact me!

FDIC: http://www.fdic.gov/about/learn/symbol/index.html
SIFMA Calculators: http://www.investinginbonds.com/story.asp?id=207