Fortune Magazine - Ultimate fund portfolio

Ultimate fund portfolio

The best choices for stable, long-term growth in five essential categories.

By Yuval Rosenberg, Fortune Magazine contributing writer

The funds we assembled in 2005 averaged a one-year return of 16 percent, vs. 10 percent for the S&P 500 index.

Last year we updated our picks, and the portfolio returned 21.2 percent from June 7, 2006, through June 5 of this year, vs. 23.4 percent for the S&P (our four equity funds averaged a 24.2 percent return, and our capital preservation fund returned 9.2 percent).

Given that success, we kept the basic building blocks in place this year.

The anchor of our lineup remains a total-market index fund, which invests in companies of all sizes. To complement that core holding, we have an actively managed large-cap fund along with more specialized small-cap and international picks for diversification and return potential. There's also an alternative-asset fund for additional balance.

I find this to be a good source for things to look into.  You will find many of these recommenditions in many other similar articles.  Again note the focus on diversification.

Start Investing With Just $100 (article review)

I've been reading MSN money and I noticed something in the investing section. It's called investing basics. I went to that section and this link particularly caught my interest.Start Investing with just $100
http://articles.moneycentral.msn.com/Investing/StartInvesting/StartInvestingWithJust100.aspxIs this a good tip for beginning investors?Thanks!

I would say the article is both pretty good and also somewhat dangerous all at the same time.

Pros:

• People do perform badly because of the culprits he outlines:
  
  
  
  • Market Timing - people are bad at it on average
  
  
  • Buying High and Selling Low - people often panic and try to "cut their losses" - a loss is still a loss
  
  
  • Failure to Diversify - especially for those with a company 401(k)
  
  
  
  


• Graph clearly illustrates the need to diversify


• Explaination of ETFs versus mutual funds


• Discussion of diversification in respect to losing asset classes

Cons:

• Does not issue warnings about when to start investing!!!
  
  
  
  • You could be making killer earnings (think 15% a year!) but if you have credit card debt, you more than erase all those earnings.  Pay down your high interest debt!  And of course if you're making a more down to Earth 8-9% you're losing money big time.
  
  
  
  


• Lacking any discussion of bonds until very late in the article with no real explaination of their benefits


• DISCUSSES NEITHER 401(k)s NOR IRAs
  
  
  
  • Whether to put your money into a 401(k), IRA, or Brokerage account depends on your short-term and long-term goals
  
  
  • Depending on your goals, the brokerage account may be a big-time mistake especially considering the penalty-free withdrawl provisions for different IRAs and/or the free money you may get from your employer for a 401(k).
  
  
  
  


• He does not discuss why these particular ETFs
  
  
  
  • What are the pros and cons?
  
  
  • Why this particular breakdown?  17% in bonds seems quite conservative for youth which I assume is the target audience
  
  
  
  


• Not being distinctly clear you NEED to ride out the fluctuations and not "cut and run" as our President loves to say
  
  
  
  • You need to stay in.  Cutting could rack up Short Term Capital Gains which will seriously cut into your balance.
  
  
  • Not to mention those commissions come into play again when you sell!
  
  
  
  


• The article does not discuss at all when to buy
  
  
  
  • It looks to be $100 a month for 1 year getting you the $1200 he illustrates
  
  
  • Further confirmed by the 4% comissions on the $1200 (which means you lose $48 right off the bat)
  
  
  • I'd recommend a high interest savings vehicle for 1 year and making your purchase at the end of the year
    
    
    
    • Check ING Orange, HSBC, E*Trade Savings, Citi Ultimate Savings etc. all over 4% interest
      
      Assuming you're in the 25% tax bracket that leaves you with $20-21 after taxes
    
    
    • If you then make your purchases according to his plan you spend 5 ETFs x $4 = $20 on commission leaving you $1200 to put into your investments rather than $1152 (granted, you may be able to make the same amount on gains and dividends depending on the market, but I would prefer the sure thing to reduce trade commissions - even more of a big deal if you go with anyone other than ShareBuilder.com which charges more than $4 per trade)
    
    
    
    
  
  
  
  

What You Learned on April 17

Your 2006 tax return is telling you something. Are you listening?

By Penelope Wang, Money Magazine senior writer

April 17 2007: 10:24 AM EDT

NEW YORK (Money Magazine) -- Still smarting over the shocking sum you doled out to Uncle Sam for 2006? If only you'd known at the start of last year what you know now.

Well, at least it's not too late to save 2007. "You have time to make adjustments that can reduce taxes for the current year," says American Institute of Certified Public Accountants vice president Tom Ochsenschlager.

Read over your 1040 to see if you got snagged by any of these common traps - and learn from experience.

Lines 8, 9 and 13

You hit the jackpot on interest, dividends and capital gains. Too bad.

In 2006, for the fourth consecutive year, most stock funds made money - the average domestic equity fund was up 12.5 percent. At the same time, many of them used up the losses they'd been carrying forward from the 2002 bear market, which had offset previous years' gains.

That means you were probably hit with a bigger investment tax bill than you'd seen in years. Interest income and short-term gains were levied at your federal tax rate, up to 35 percent depending on your income.

Granted, long-term capital gains and qualified dividends were taxed at a modest 15 percent. But even that's a lot if you weren't expecting it.

Lesson>> On your equity funds, switch to tax-efficient entries, such as tax-managed or index funds. For the fixed-income portion of your portfolio, move to tax-exempt municipal bond funds. (Recently a five-year muni was yielding 3.7 percent, equivalent to 5.1 percent for someone in the 28 percent bracket, at a time when five-year T-bonds yielded just 4.6 percent.)

These changes may trigger a gains bill for 2007, but they'll almost certainly help you pay less in 2008.

Line 44 (of your 1040 or your child's)

Your kids earned a lot of interest. For decades, parents stashed cash for their kids in custodial accounts, since investment income earned by children was taxed at a lower rate. But starting in 2006, kids up to age 18 began paying taxes at their parents' rate on amounts of more than $1,700.

The result: a bigger tax bill for those who amassed accounts in the mid-five figures.

Lesson>> Reduce the tax bill by spending down the account in ways that benefit your kid -camp, say, or college visits. Then use the money that would've gone to those expenses to fund a 529 college savings account, which is tax-free if used for higher education.

Bonus: Your state may let you deduct your 529 contributions.

Line 45

Surprise! You get to pay the rich man's tax. The alternative minimum tax, or AMT, is a complex parallel tax code originally designed to prevent the richest households from dodging Uncle Sam. All taxpayers are technically supposed to calculate their bill two ways (the regular way and the AMT way) and pay the higher amount.

But the AMT isn't indexed to inflation, so many middle-class Americans end up in its grip. They pay considerably more, since the AMT caps or disallows favorite breaks, like the deduction for state taxes or the exemption for kids. Alas, once the AMT has you by the ankle, it's hard to shake loose.

Lesson>> Get a sense of whether you'll be hit again using H&R Block's AMT calculator (hrblock.com; click on Calculators). If you may fall victim, set aside some money to cover yourself. And book an appointment with a C.P.A. While you usually can't avoid the AMT, a pro may be able to help you reduce its impact.

Line 73

You got a really huge refund. What's so bad about that, you ask? By overpaying, "you made a free loan to the government," says Mark Luscombe, principal analyst at tax law publisher CCH. "And you missed out on the interest you could've earned on that money."

Lesson>> Ask your HR manager for a new W-4 and reduce your withholding. Remember, more exemptions means more cash in your pocket - and less in Uncle Sam's.

There is lots of sound advise in here. I would also recommend using tax calculators to figure out how to help minimize the money you lose to taxes. For example, TurboTax includes tools to help you modify your exemptions claimed and witholding on your W-4 coupled with your 401(k) deductions to find an ideal way to contribute more money to your 401(k) without impacting your take home pay. Ideally looking at the fact that increasing your 401(k) contributions descreases your taxible income such that you don't end up oweing at the end of the year.

Also pointing out that if you are not maxing your contribution to a Roth IRA, I would recommend it. There are limitations of course, but remember that a Roth IRA takes after-tax contributions and any gains you make are NOT taxed upon distribution. This makes it a great (although there are limitations) vehicle for hitting the jackpot on interest, dividends, and capital gains.