Like the carpenter or plumber, Finance too has its’ “ tricks of the trade”. Many simply require watching for “windows” of opportunity ; others by using tactics long established. Each also require some “jumping through hoops” to achieve, but the rewards can be substantial.
Trick no.1, has to do with dollar cost averaging. That is to say that, as an investor, you’ve purchased shares in, let’s say, a mutual fund. Sometimes buying high sometimes buying low. Since the value of the shares fluctuates, buying high may “hurt” a little, but buying low “levels the playing field” Ex: 10 shares @ $30 costs $300 and 10 shares @ $20 costs $200….total 20 shares, but, now, the “average” cost is $25 per share for the same $500 investment. Now every share earns money when the price per share rises. Of course this is aimed at the frequent investor and doesn’t apply to the “One time “ purchaser.
This 2nd is no trick, but rather responding to one or another of those offers we get every day by TV or advertisement. One such offer was: “Open a new checking account and receive $150”. This one I know first hand. It required a minimum $50 deposit monthly; keep the account open and active for 6 months and the $150 is payable to the account on month 7. Already saving more than $50 monthly, I was only to happy to divert $50 to this new account to receive the offer. By month 7 they held $350 (if I hadn’t written any checks)and $150 appeared in the account. If I’d saved for a YEAR somewhere else $600 @ 5% interest, I could earn $30. Instead, I earned $150 (okay $120 ……after the taxman came knocking) in only 7 months …. But Still…..
Here’s one for the family with children. You know I think the 529 College Savings Plan is the next best thing since “sliced bread”; but what if your child isn’t college bound and you’ve been saving like crazy in a plan enjoying all the tax breaks allowed for many years??? Current rules allow a transfer of assets in the account to another person, but still, the monies must be earmarked for education costs. Other wise, any income earned as well as the tax breaks you’ve enjoyed will face the Taxman. The “trick” here is to open a Roth IRA where you can do your savings as well as a 529 Plan (where you can put money given the child from others i.e. grandma aunts uncles etc) You’ll be saving for retirement/college while earning tax free interest and when college is on the horizon, you can transfer monies from Roth (principal only) to 529 Plan enjoying all the tax breaks for saving& spending for college. If your child doesn’t attend school, you still have a retirement savings underway Remember though, this is just a “Trick” Retirement comes 1st; college costs can be deferred; you can always help your children with college costs when they begin to pay their loans and your retirement is more secure.
Cents Maker