The Death of Caesar

So, what does any of this have to do with investing and the stock market?

I’m glad you asked.

Minyanville has an article that asks if March 2010 is going to be October 1987 all over again. For those of you who weren’t investing in 1987, let me share why this is a watershed moment in recent stock market history:

Monday, October 19, 1987 is known as “Black Monday” because it was the largest single-day crash in the post-Depression era.

So, according to the Minyanville article, hedge fund managers see a crash coming….

Jon Markman of Markman Capital Insight has been talking to a lot of fund managers, and they see a lot of similarities in the way the market (S&P 500) is behaving these days and how it behaved in the run up to the ‘87 crash.

“Now these managers think the next set of steps would be a sharp decline on Thursday or Friday, a series of 0.5% to 1% single-day declines next week, followed by a plunge, let’s say, next Friday and a crash around March 15,” Markman writes.

They have a scary looking chart to go along with this speculation.

But the managers that Markman has spoken with see many fundamental and economic similarities between then and now, so it’s more than just an eerie chart they say.

Here’s a list of those similarities:

• legislation that could cause investors to dramatically lower their estimates of stock values

• a lack of liquidity

• a sense of overvaluation after a steady recent advance

• revelations of a massive budget deficit

• expectations of a sharp fall in the value of the dollar and an expectation of higher interest rates

They also interviewed Mike O’Rourke, chief market strategist at BTIG, and he sees things differently.

“He doesn’t see any indications that this stock market is ready to take such an awesome tumble.

“I see the market as in a recovery rally,” the strategist tells us. “Liquidity has slowed down and dried up, but that’s because we had a nice rally and now we’re consolidating and building a base.”

Who’s to say who is right? Even Markman admits “There isn’t enough data.”

Time will tell who’s view is the correct one, but it’s never a bad idea to nudge your stop losses up a little to act as a safety net.

• 5 Energy Stocks To Invest In. Introducing the "new, pragmatic approach to energy investing" (as it is called by SmartMoney) - also known as the having it both ways approach. It's a new way to invest in energy stocks, and it mimics what the big oil companies themselves are doing. It's a hedge, really. It's investing......
• A Tale of 4 High Income Bond Funds. Bonds have gotten a lot of attention over the past year and it's easy to see why when you look at this chart. What you're looking at is a relatively smooth ride up until the world collapsed in October of 2008. The investorspeak for that smooth ride is "low volatility",......
• The One-Minute Portfolio. Here's the ultimate in super-simple investment portfolios, for those who don't have the time or inclination to pick and monitor individual stocks. The One-Minute Portfolio. The One-Minute Portfolio is comprised of just 3 asset allocations: Domestic Stocks, Foreign Stocks and Bonds. Here's a recommendation for each category: 1. Buy America......
• How to buy low and sell high - for real! The number one reason people don't buy low and sell high is emotion. Emotions cloud our thinking, and make us do things we wouldn't think of doing otherwise. Think of the fall of 2008 into spring 2009 when the market was shedding hundred of points on a daily basis. I......
• 6 Tips For the Beginning Investor. Here's a list of some investing insight I've learned over the years that I hope will help accelerate the beginning investor's road to wealth. 1. Don't go all in at once. If you have a lump sum of money to invest and you are doing so when the market is......

• All About Index Funds For decades, the stock market was the exclusive stomping ground of the nation's business elite.  Transaction costs at a full-service brokerage were enough to bankroll a family of five for a month, or so it seemed. What Is An Index Fund? An index fund is simply a mutual fund that......
• Pay down debt or invest There’s a debate you read often on personal finance blogs: if you have a large sum of money, should you use it to pay down debt or invest? The answer is usually dependent on the person’s risk tolerance, but I think it also depends on the nature of the......
• Investing 101: Hedge Funds (Welcome back my friends, to the column that never ends, we're so glad you could attend, come inside, come inside!  Indeed, it's that time of the week again, to cover some basic investments that you might be considering.  Today, we're going to go a little outside our typical range of......
• Investing For Beginners: Basic Steps To Start Investing I’ve spent a lot of time lately reading about how to get started as a first time investor. For me, an avowed spender, the concept of risking money and hoping that it grows for use in the future is very foreign. The closest I had been to “investing” until recently......
• Managing Stocks in an Economic Crisis 2008 is showing all of the hallmarks of being a difficult year financially, and for this reason, having control over your cash flow is absolutely vital. Managing stocks in an economic crisis is one of the best possible defenses that you can take during the credit crunch. By monitoring the......

Here’s the 30-second takeaway from the video:

• Individual investors should focus on commodity ETFs, unless they have a deep understanding and interest in commodities futures trading.

• Forget gold, and invest in other material instead like lead, zinc, copper and silver.

• Agriculture is the next big crisis, with the Food and Agriculture Organization warning countries that the world is one disaster away from a major food shortage in much of the world.

“I think I’ll make money in other commodities that are more useful.”

Rogers owns gold, but he not very bullish on it. I think his argument against gold is a good one. He basically thinks that it has some intrinsic value, but only from a subjective point of view. It simply isn’t as practical a metal as lead, zinc or silver. And because gold “is mystical to many people”, it’s garnered the lions share of attention, but that also means there’s less upside potential than there is in more over looked, less attractive metals.

“most agricultural products are still depressed on a historic basis.”

Speaking of useful commodities, Rogers is quite bullish on agricultural commodities. Rogers sees a vast lack of supply, and calls it a looming catastrophe. He thinks that the world is in for a period ahead when some parts of the globe won’t be able to get food at any price.

“The story is not over, not for a while. I don’t see any reason it’s going to be over for a few years because no one is bringing new supply on stream.”

Is Jim Rogers right?

Who knows? But he was right when he called a global commodities rally in 1999. And he presents sensible arguments to support his views on various commodities, which is more than I can say for many of the gold pushers that have been crawling out of the woodwork in the past 3-5 years.

• Free Trades From ShareBuilder For All Of 2010 ! ING is offering commission-free trades through its ShareBuilder service for the entire year, when you open an IRA with this promo code. Here are the details: All IRA plans are no-fee plans; no fees for a low balance, no fee for inactive accounts, no annual fee for being a member.......
• Ivy League Investing For The Common Man. David Swensen has managed the Yale University endowment from 1984 to 2008 and during that time, the endowment returned an annualized 16.6% - 5 points better than the S&P 500 and a generic balanced portfolio of 60% in a stock index, and 40% in bond index. That equates to a......
• Best Funds To Invest In Now. These are peculiar times we find ourselves in. Here's a list of funds from Kiplinger that not only cover just about every bogeyman bandied about in the financial press these days, but hit upon some classic needs in a mutual fund as well. Inflation protection Sooner or later, the reckless......
• Investing Term Tuesday: Riskless Society. A riskless society is a fictional society where the markets of the world are sophisticated enough to anticipate and mitigate any and all risks. While the idea is credited to Dr. Kenneth Arrow and Gerard Debreu, it is similar to one of Einstein's famous thought experiments, where the thinker hypothesizes......
• Investing Term Tuesday: Commodity Index. A commodity index is an index that tracks a collection of commodities in order to measure their performance. Commodity indexes are often traded on exchanges, such as the Chicago Board of Trade (CBOT). By being traded on an open exchange, investors gain access to commodities without having to deal in......

• Learn to Invest Money: Free Global Market Opportunities Technology Stock Picks (April 19 2006) Looking for some tech stocks to add to your portfolio? Here are three technology stocks that are well positioned for the remainder of FY2006.TKO: AMEXTelkonet, Inc. (TKO) is a small cap company that develops and sells proprietary equipment that enables the transmission of voice, video, and data communications over......
• Gold Cracks $1000/Oz: Investing For A Recession Based on continuing weakness in the dollar, gold briefly breeched the $1000 level yesterday along with oil hitting an all time high of $111 per barrel. I had a really strong suspicion that we'd see $1000 gold by mid-March. Despite what Bernanke and Paulson said last summer, the housing......
• The Great Gilded Bubble: Gold Investing There has been an enormous flight to gold investing over the past few months.  It started towards the end of 2008, but has really picked up steam as the stimulus plan was unveiled and ultimately approved stirring more worries about deeper recession. With the price recently surpassing the $1000 mark......
• Investing 101: Gold (*Hums the Jaws theme.* Da-dum... Da-dum... Da-dum, da-dum, da-dum, da-dum, da-dum, DA!  Welcome my friends, to yet another installment of Investing 101.  We're going to get a little bit off the beaten path with this post, looking into investments in gold.  There are times, particularly when the future seems to......
• Jim Furyk Wins Chevron World Challenge After a low-speed car accident that's prompted tabloid-esque speculation about Tiger Woods' private life, he cancelled his participation in the Chevron World Challenge in Thousand Oaks, California, the golf tournament that he sponsors and usually wins. His departure from the tournament led to a lucky invitation to Graeme McDowell, who......

A. More than you think.

Most investors know about a fund’s expense ratio, and use that attribute for comparing various funds before buying. But there are a host of hidden costs that are much more difficult to uncover for many mutual funds.

That’s what this article from the Wall Street Journal is about.

These hidden costs are related to the buying and selling of the individual securities held by the mutual fund, and they can make a fund 2-3 times more costly than the expense ratio alone would imply. That can be a pretty significant amount on a fund with an expense ration in the 1-2%.

While the expense ratio is an important consideration when pricing a fund, it simple doesn’t capture all the costs. The reason is that every mutual fund and its associated expenses is different. Then there’s the complex nature of the costs not covered by the expense ratio, specifically: brokerage commissions, bid-ask spreads, opportunity costs and market-impact costs.

And since the SEC has yet to mandate any unified form of measurement, the individual is left to try and scrutinize the often inscrutable. Even most experts arrive at drastically different estimates of the true cost of mutual funds.

So how do you find the true cost of mutual funds?

While it is difficult to get at the information required to determine the exact cost of a mutual fund, it turns out that the fund’s Annual Holdings Turnover ratio is a pretty good clue. While it is an imperfect measure, it is a standard measure. So, every fund must report this data the same way.

A fund’s annual turnover ratio is the percentage of assets that were replaced over the past year. So if the fund’s manager sold half its stocks and replaced them with an equal value in new stocks would have turnover of 50%. This is an imperfect measure though because in some cases, a fund can take in a lot of new money and not have to sell any assets to buy new ones. In such a case, the fund would incur additional buying costs that would not be accounted for in the expense

• Mutual Fund Monday - Blogosphere Feb 2010 Edition. It's Mutual Fund Monday again, and I thought that I'd do something a little different this week. Rather than focus on a single fund or concept about funds, I'm focusing on a topic and sharing some of the interesting posts I've found on other blogs recently about that topic. The......
• A Possible Change to Mutual Fund Tax Implications on Capital Gains. Investors in U.S. mutual funds might want to keep an eye on this. The Committee on Capital Market Regulation (CCMR) has recently issued a report by Harvard professor John C. Coates which recommends that mutual fund regulators eliminate the requirement for yearly capital gains distributions. The change would only affect......
• Mutual Fund Monday - Tips For Mutual Fund Investment. With thousands of mutual funds to choose from, picking the "right one" can be a daunting task. Most investors know not to fall for a short term hot streak - one or two years isn't a long enough track record to show superior skill of the management team over sheer......
• Mutual Fund Monday: PIMCO Launching New Global Fund. According to a recent Edgar filing , PIMCO will soon be launching a new fund: PIMCO Global Opportunities Fund . It's going to be a global value fund of common and preferred stock. The fund will target equities in one of 3 countries, one of which may be the U.S........
• 13 ETFs to Hedge Against Inflation. Inflation is in the news again, thanks to worries over the historic deficit spending in Washington today. If the Fed gets the timing wrong on the next round of interest rate hikes, then inflation could be a real problem. According to a recent working paper by the International Monetary Fund:......

• Buying and Selling Stocks 101 When it comes to investing in stocks, most people predominantly rely on mutual funds. Mutual funds are a type of professionally managed investment pool that allows you to cast your lot along with thousands of other investors at the same time. Mutual funds are a truly wonderful way for you......
• Dollar Cost Averaging for Retirement Investing Dollar cost averaging as a so-called investment strategy has been around for a long time. When the markets started showing signs of recovery this summer, many pundits were suggesting getting back into equities a little bit at a time, i.e. dollar cost averaging. As a retirement investor, does this really......
• Why Index Funds Beat Actively Managed Funds The financial media has a vested interest in portraying investing to be an especially difficult task, and they do a pretty good job of it.  But deciding between various types of investments you should buy to build a strong and diversified portfolio should not be based on some flashy advertisement.......
• The Pros and Cons of Investing in ETFs In last decade, specialty ETFs (Exchange Traded Funds) are probably the hottest thing to hit Wall Street since the rise of the discount brokers in the mid 1990s. Initially, ETFs were not very popular because they only tracked the performance of a few stock market indices. However, in today's investing......
• What is a Mutual Fund? Mutual fund is a corporate body, which works as an intermediary and invests in financial markets. Mutual funds collect money from the public and invest in financial instruments like equity, government securities, bonds, debentures etc.Investing through mutual funds is good for people who do not have much knowledge about......

Flash Player 9 or higher is required to view the chart
Click here to download Flash Player now

Enterprise Products Partners L.P. (EPD) Dividend History.

Here’s a look at EPD’s dividend history over the past five years:

Even though the price has risen about 15.5% over the past 6 months, it still sports an attractive 6.90% yield and has a lot of upside potential if energy demand soars again like it did in the early part of 2008. After the fall in energy prices, Enterprise Products Partners saw its share price slashed with other oil and gas stocks even though it has a fairly limited exposure to commodity price changes of the underlying energy source. It is mostly an energy product transporter and facilitator, which means its costs are relatively fixed as compared with those of energy explorers.

• 3 Recommended Pimco Bond Funds. Bonds are an important part of any good asset allocation, and here are 3 bond funds from the Pimco firm as recommended in a recent Kiplinger magazine article. PIMCO bond total return (PTTAX). Manager Bill Gross sticks to investment grade, intermediate-term U.S. bonds for this fund. The expense ratio for......
• When it Comes to Investing, Simplicity Rules. There was a time when only the wealthy and well connected could invest in the stock market. Then IRAs and 401(k) plans ushered in a new era of the "common man" investor. Flash forward a bit more, to the Internet age, and we have a grand democratization of the stock......
• A Tale of 4 High Income Bond Funds. Bonds have gotten a lot of attention over the past year and it's easy to see why when you look at this chart. What you're looking at is a relatively smooth ride up until the world collapsed in October of 2008. The investorspeak for that smooth ride is "low volatility",......
• A Sample ETF Portfolio for Maximum Income (and Fat, Juicy Yields). With the low fees and wide selection of ETFs, you can now build a portfolio for maximum and minimum fees relatively easily. Here's one such sample portfolio from Kiplinger that allocates 65% to bonds, 35% to stocks. The bond section is spread between conservative, laddered treasures and riskier junk bonds.......
• How to buy low and sell high - for real! The number one reason people don't buy low and sell high is emotion. Emotions cloud our thinking, and make us do things we wouldn't think of doing otherwise. Think of the fall of 2008 into spring 2009 when the market was shedding hundred of points on a daily basis. I......

• Yield On 10 Year TBill Keeps On Dropping Even though the past few sessions in the stock market have been rather choppy, the yield on the 10 year treasury has steadily dropped over the past several weeks.Ever since the subprime mortgage issue led to a global liquidity crunch and subsequent stock market correction, the yield has been steadily......
• What is the Feed in Tariff Program? The impact of climate change has resulted in many governments coming up with programs to counter the negative impact. To do this, there has been an effort to move towards using renewable energy sources. A Feed-In Tariff (FiT) is an incentive program to promote the implementation of renewable energy......
• Real Estate Investments - Good Idea or Bad Idea? Right now, if there was a market that had bad news written all over it, it would be real estate. The housing crisis has made investors jumpy, the economy appears to be tanking and home values are plummeting across the country. Would you believe that this is actually a good......
• Bad Energy Mojo From an Op-Ed piece in a recent New Your Times story titled, "Dumb as We Wanna Be": "Congress has been bickering over whether and how to renew the investment tax credit to stimulate investment in solar energy and the production tax credit to encourage investment in wind energy. The bickering......
• Weakon 220: Microeconomics We've talked about economics already, it's time to talk about one of the two main branches of economics, microeconomics. The other branch is macroeconomics. The prefix "micro" originates from the land of Zeus, Athena, and Hercules - Greece. Micro means small. Coupled with "economics" microeconomics is the study of how......

Annaly Capital Management, Inc. (NLY)

Annaly Capital Management is a mortgage REIT (real estate investment trust), and as such the company is not subject to federal corporate income tax, provided it distributes at least 90% of its taxable income to its stockholders in the form of dividends. NOTE: The income generated by a REIT may be taxable at your income tax rate, and not at the capital gains rate. So check with your tax advisor if this is a point of concern.

Flash Player 9 or higher is required to view the chart
Click here to download Flash Player now

What makes NLY attractive.

One of the things that makes Annaly Capital attractive is its low debt level compared to other REITs and owners of Mortgage Backed Securities (MBS). For example, Commercial banks are typically leveraged 30:1; thrifts – 25:1; hedge funds – 20-30:1; and Annaly – 8-12:1, or less than half that of a typical thrift.

Another thing is that the MBS that Annaly Capital invests in are backed by agencies of the U.S. government like Ginnie Mae, Fannie Mae and Freddie Mac. While these agencies are essentially bankrupt, the government is not likely to let them fail so they have a de-facto credit rating of AAA.

NLY dividend history.

NLY has increased its dividend from about $2.20 per share in 2008 to $2.4 in 2009, while the yield has declined from 16.6% to 13.4% as the price has risen. At the time of this post, NLY was yielding 16.80%, or $3 per share annually.

How safe is NLY dividend?

At first glance, there’s a lot of scary stuff to be seen in the summary of Annaly. After all, it was imploding Mortgage Backed Securities that began the current recession and market crash of 2008-2009. And Annaly is using leverage to purchase these securities, leverage which magnifies gains AND losses alike.

But upon further inspection, the credit risk for Annaly seems low because the MBS that it invests in are backed by the U.S. government and, as mentioned above, their leverage rate is lower than the industry average.

What can affect its performance (and dividend) is a major swing in interest rates. This is largely because of its use of leverage, or borrowing, to magnify its returns. But if management can keep ahead of rate trends it can limit the squeeze that variable interest rate MBS put on Annaly’s profits.

• Why Now is a Good Time to Open a Roth IRA. Most people think they'll be in a lower tax bracket when they retire, but this isn't always true. And if you make the right financial moves during your working years, it almost certainly won't be true. The case for the Roth. When you stop and consider the many tax breaks......
• Best Funds To Invest In Now. These are peculiar times we find ourselves in. Here's a list of funds from Kiplinger that not only cover just about every bogeyman bandied about in the financial press these days, but hit upon some classic needs in a mutual fund as well. Inflation protection Sooner or later, the reckless......
• 8 Ways to Rock Your Roth Conversion. When the calendar passed from December to January, we bid a not so fond adieu to 2009 as well as the rollover income limitation associated with transitioning a traditional IRA to a Roth IRA. This is a good thing if  converting to a Roth IRA makes sense for you. The......
• How to Tell When the Stock Market is at the Bottom. When bubbles burst, markets tumble. Sometimes the tumble is long and pervasive. Other times it's a fast a furious free fall. Whatever form a market crash takes, it will eventually end and the market bottoms. What follows is a set of common indicators that the market may be at or......
• A Sample ETF Portfolio for Growth and Income. When this portfolio was originally recommended by Kiplinger, about a month or so ago, the yield was a hefty 5.8%. A large part of that yield comes from the LQD fund that focuses on high-quality corporate bonds, the IGOV fund which buys foreign government bonds, HYG which focuses on junk......

• Customizing a Budget It is a good idea for you to put together your own unique budget work sheet when it comes to getting started in setting up a budget for your household. Make sure that the categories and the information that you use to plug in your budget information pertains to your......
• The Day the Lending Lords Died This was first written last week, before the crazyness that happened on Monday.  Updates about everything else will come later in the week. What Happened? On Sunday, September 9, Treasury Secretary Henry Paulson pulled out his figurative "bazooka" and fired it down the street to Fannie Mae and Freddie Mac......
• Consider this Likely Future Tax Benefit of Early Mortgage Payoff Mr. ToughMoneyLove has participated in many online debates among readers of personal finance blogs and retirement planning message boards.  A frequent topic of debate is the wisdom of using available free cash flow to invest or instead to make an early payoff of an existing mortgage loan.   I am not a fan of......
• Interest rate hike expected as inflation sores. With an earlier than expected rise in inflation, which soared to 2.9% in December, interest rates could be rising sooner than expected in 2010. The reading for the consumer prices index (CPI) came in well above the expected 2.4% figure making for the largest ever rise in inflation over......
• All of Obama's Proposed Taxes Listed (well not All because there are just too many)! I have never hidden my disdain for big government regardless of what political party is in charge.  I am a libertarian at heart, but only in moderation, of course.  So I got excited when I saw a post by, Executive Vice President of The Cato Institute, David Boaz, titled, “Democrats’......

According to The Wall Street Journal, Prechter told the Society of Technical Analysts in London that we are in the midst of a “grand, super-cycle top” and that all the signs are pointing toward a big market correction.

He’s got some street cred, given that he called the recent rally back in February of 2009. In fact, he said it would be “sharp and scary” for anyone shorting the market at that time.

According to Prechter, the most recent recovery gave all the text book signs and now he seeing text book signs again, but they foretell a big correction on the horizon. He points to the near record low levels of cash at mutual funds. He sees those levels approaching levels seen near major tops in 1973, 2000 and 2007.

As for the “Biggest Bubble in History”, he says that’s debt. Specifically, Corporate debt, municipal debt, mortgages and consumer loans which he speculates will get hammered by the deflationary period that began with 2005’s turnaround in home prices.

Time will tell if he’s right, but it may be time to put your stops in place and watch this video to see Prechter in his own words.

• Beware Target-Date Funds! Target-date funds were supposed to be the ultimate idiot-proof investment vehicle for retirement savings. The idea is that asset allocation is the single most important factor in determining investing success, and most people get it wrong. Many others never even try because they find the concept too daunting. Many people......
• An Energy Infrastructure Stock To Watch - EPD: Enterprise Products Partners. Enterprise Products Partners L.P. (EPD) provides services to producers and consumers of natural gas, natural gas liquids, crude oil, and petrochemicals. It's clients are in the continental United States, Canada, and Gulf of Mexico. EPD also develops pipeline and other energy infrastructure, and it's got a high yield and has......
• Will Your 401K Match Return? What will it look like if it does? If you're like many workers still lucky enough to have a job during this recession, you've probably seen your employer cut or eliminate the contribution match on your 401k plan. Mine did. My company match on 401k contributions was the first thing......
• 5 Overlooked Stocks Poised for Growth? These stocks are covered by fewer than 5 analysts, but they have increased both their earnings and sales by 10% or more over the past 12 months. Company Ticker Industry SharePrice PriceChangeYTD(%) SalesGrowthPast Year(%) ForwardP/E Citi Trends CTRN Clothing stores 60 $23.62 13 17.5 AZZ AZZ Industrial equipment 32.24 28......
• 5 ETFs With Large Moats. Morningstar ETFInvestor has a new list of ETFs which have the lowest percentage of no-moat stocks. (get the ETFInvester newsletter here ) For those not familiar with the Morningstar concept of "Moats", here's a quick definition: "The idea of an economic moat refers to how likely companies are to keep......

• What is Debt Leverage? Leverage is a term that is often used synonymously with debt, and for this reason, it is important that people come to understand what debt leveraging actually means, and how it works in an ordinary financial transaction, such as buying a home for example. Let us suppose that you are......
• Tiger Woods Helps End Fitting President's Cup In San Francisco The Presidents Cup wrapped up this Sunday with the American team is still undefeated at home. Making a flop shot from out in the trees, Tiger Woods won the cup, and became the third player in the history of the Presidents Cup who was able to win......
• Sunday Money Madness - Veterans Day Edition It's a little late coming, since Veterans Day is celebrated on November 11th, but I wanted to take a moment and give thanks to all the Veterans out there whose bravery and courage have kept us safe and protected. Frugal | Money Saving Tips: Am I Frugal? How I Balance......
• Is there a specific college class on investing/stock market? What kind of classes in college would I take to learn about the stock market,investing, and the like? Can you also recommend any books? I was looking for some on Warren Buffet but theres quite a few out there. Any other ideals or recommendations? This class is not for a......
• Some Thoughts On The Recent Stock Market Rally Recent is always a relative term.  In this case the recent stock market rally is in reference to indexes being at four month highs. I've said before that a likely recovery of our economy would be lead by the stock market.  Following closely behind that would be consumer spending, corporate......

The Roth IRA is one of the best retirement and estate planning tools available, and with the recent change in restrictions and tax payment scheduling, 2010 is the year of the Roth. Quite simply, if the Roth makes sense for you then 2010 is likely the year to make it happen.

Here are 8 ways not to screw it up.

1. Just Do it.

As many experts look at the mounting federal deficits and growing number of states in danger of bankrupting themselves, they see no choice but for taxes to skyrocket. Maybe, and maybe not. I’m not going to get on a political riff on the subject of reckless spending and taxes. I just want you to be aware that the chances are slim that tax rates will stay at their current rates, which are historically low.

So, the question for long term investors is not whether to fund a Roth, but how to fund a Roth IRA. Regarding a rollover from a traditional IRA, your choices are essentially:

1. Convert your IRA all at once.
2. Convert your IRA in stages, or segments.

Either way, if you don’t at least start to convert now, and you wait to do it later it may cost you dearly in terms of taxes. If you’ve decided that a Roth isn’t for you, then… why are you reading this article? Besides, since January 2010, all income limitations have been removed.

2. Understand the tax consequences.

Deciding to wait and do a conversion after taxes rise is a costly mistake, but so is jumping into a conversion without understanding the full tax implications.

For example, if you’re in a 15% income tax bracket today and you rollover a $250,000 IRA you will not pay 15% in taxes. You will end up paying quite a bit more because that $250,000 distribution can be counted as income, according to Barry Picker (who recently served as the technical editor of “100+ Roth IRA Examples and Flowcharts,” by Robert Keebler) and that will most likely bump you into a higher income tax bracket.

3. Know the direction of your tax bracket.

If you are the sole breadwinner today, but your spouse is likely to re-enter the workforce in a year or two, then you’re better off converted at today’s lower tax rate. On the other hand, if your spouse is considering staying at home with the baby that’s due in a few months, you’re better off waiting until she leaves the workforce and your combined income drops. Likewise if you file solo, but you’re thinking of tacking a pay cut to switch careers. Time your conversion when your tax rate is likely to be on the low side.

4. Don’t pay taxes with money from your transaction.

Paying the taxes with money you have withheld from the rollover transaction is a bad idea for a number of reasons, including:

Every penny you take out of the transaction is less that goes to work for you in the Roth.

The amount withheld goes to the IRS as an advance payment, and also reduces the total conversion amount. Hence, the amount withheld is considered a distribution and not part of the conversion and can impart further tax liabilities. For example, if you have a $100,000 IRA that you convert to a Roth IRA and withhold $20,000 (20%) for taxes, then the $20,000 is treated as a distribution and may be taxable in itself.

If you need to reverse the conversion (called a re-characterization – more on that below), then you can only reverse the amount actually converted. In the example above, you could reverse the $80,000 conversion, but you’d be out that $20,000 permanently – and you would still owe taxes on the $20,000.

The amount withheld for taxes is also subject to the 10% early distribution penalty, unless you are 59 1/2 when the conversion occurred.

5. Be a good judge of re-characterization.

If not converting is a mistake, not paying attention to your Roth after you’ve converted is a huge mistake. Here’s why – and incidentally, here’s one of the greatest aspects of the Roth IRA conversion. It’s called “re-characterization” and here’s how it works.

Re-characterization allows you to undo a conversion if the market value falls below your conversion amount. It’s the mulligan of the Roth world. Here’s an example:

You have $100,000 in your traditional IRA when you convert it to a Roth IRA. After a while, the your Roth is worth only $50,000. If you left your Roth alone, you’d owe taxes on the full amount at the time of conversion – $100,000. But, if you re-characterize your Roth (i.e. undo the conversion, you get your $100,000 back in a traditional IRA and you would owe taxes on the $50,000 re-characterization amount.

Of course, you have to do it before the next tax filing deadline after your initial conversion and if there are fees involved, you might want to makes sure you’ve lost enough value to make it worth your trouble.

6. Divide and conquer.

Besides the income limitations being dropped, you also get an extension on when you have to pay the taxes if you convert in 2010. For this one year only, you can spread your payment of the taxes you owe on the amount converted over the 2011 and 2012 tax periods; meaning you don’t have to actually pay them until 2012 and 2013!

7. Catch the early bird special.

If you convert early in 2010 and the market resumes its bull run, as some analysts think may happen, then you would have more time to catch those tax-free gains, while splitting the payment of the taxes owed over two year’s.

8. Hedge your bets.

You can split your conversions up into multiple conversions, by asset class for example. That way if your stocks perform well, but your bonds tank, you can re-characterize your bond conversion back into a traditional IRA and lessen the tax hit. In fact, many experts recommend slicing your IRA up into as many Roth IRA accounts as possible to gain maximum control over your taxes. This is probably only beneficial for very large accounts however.

• A Possible Change to Mutual Fund Tax Implications on Capital Gains. Investors in U.S. mutual funds might want to keep an eye on this. The Committee on Capital Market Regulation (CCMR) has recently issued a report by Harvard professor John C. Coates which recommends that mutual fund regulators eliminate the requirement for yearly capital gains distributions. The change would only affect......
• Mutual Fund Monday - 5 Things To Watch When Choosing A Fund. Picking a mutual fund can be a daunting task, but here are 5 things to look for that I hope will help make the process a little easier. This is part of my weekly Mutual Fund Monday post feature. If you find this interesting or helpful, please read more. 1.......
• 2010: The year of the ROTH. This is a friendly reminder for anyone with retirement savings who is concerned about paying higher taxes in retirement: new tax rules remove earnings limits on Roth IRAs. Prior to the start of 2010, you could not open a Roth IRA if: Your individual adjusted gross income was $120,000 or......
• Open a Rollover IRA With Sharebuilder and Get 5 FREE Trades! (Promo Code) I've had a Sharebuilder account with ING since before Sharebuilder was acquired by ING - and I've been very satisfied. It's only gotten better since the ING acquisition. Recently, I received an email offer for 5 Free trades when you open a Rollover IRA account. If you're looking to Rollover......
• An Energy Infrastructure Stock To Watch - EPD: Enterprise Products Partners. Enterprise Products Partners L.P. (EPD) provides services to producers and consumers of natural gas, natural gas liquids, crude oil, and petrochemicals. It's clients are in the continental United States, Canada, and Gulf of Mexico. EPD also develops pipeline and other energy infrastructure, and it's got a high yield and has......

• Roth IRA Withdrawal Rules Did you know contributions to a Roth IRA may be withdrawn at any time, without penalty? It's one of the lesser-known Roth IRA withdrawal rules. It is also one that I do not plan to take advantage of, but knowing it is there makes maxing out Roth IRA contributions a little......
• Roth IRA Rules Roth IRA rules are relatively straightforward, which is a shock coming from the regulation-happy U.S. congress.  A Roth IRA is a type of tax-advantaged retirement account where distributions after a certain age (59 1/2 years old, in this case) are completely tax free.  The trade-off is that contributions are taxed......
• What is Debt Leverage? Leverage is a term that is often used synonymously with debt, and for this reason, it is important that people come to understand what debt leveraging actually means, and how it works in an ordinary financial transaction, such as buying a home for example. Let us suppose that you are......
• Dear Politicians, Please Adjust Roth IRA Limits for Areas of High Cost of Living As my regular readers know, we are a dual income, no kid, couple in Silicon Valley, which has one of the highest costs of living in America. I was flipping through a real estate magazine the other day and a 1000 sq. ft, 3 bed, 1 bathroom, with no updates......
• Give Whole Life Insurance a Fair Comparison – Get Illustrations and Compare! I hope this post doesn’t end up on one of my favorite blogs, Bad Money Advice, but I wanted to actually compare some numbers for people.  Everyone, and I mean everyone tells you to stay the hell away from Whole Life Insurance, I think the main concerns are fees,......

Here are the details:

• All IRA plans are no-fee plans; no fees for a low balance, no fee for inactive accounts, no annual fee for being a member.

• Open your IRA account before April 15th, 2010 and set up an Automatic Investment Plan (AIP) and all automatic investment trades are commission free for 2010.

• Select over 7,000 stocks and ETFs.

• Schedule (AIP) investments on a weekly or monthly basis.

• Invest any dollar amount on Tuesdays exclusively online.

Some caveats to the offer:

• Real time trade commissions still apply to all sales.

• You can only make commission free trades on Tuesdays, and online. If you aren’t comfortable using the web site then this isn’t for you, but ING’s web sites are very easy to use.

These limitations aren’t ridiculous when you consider that you probably should keep trading to a minimum in an IRA plan anyway, and you should also make contributions in it regularly so the Automatic Investment Plan is ideal for dollar cost averaging into your IRA over the long term. Why not save a few extra dollars on each contribution?

Open an IRA today at www.sharebuilder.com/2010ira.

• A Tale of 4 High Income Bond Funds. Bonds have gotten a lot of attention over the past year and it's easy to see why when you look at this chart. What you're looking at is a relatively smooth ride up until the world collapsed in October of 2008. The investorspeak for that smooth ride is "low volatility",......
• When it Comes to Investing, Simplicity Rules. There was a time when only the wealthy and well connected could invest in the stock market. Then IRAs and 401(k) plans ushered in a new era of the "common man" investor. Flash forward a bit more, to the Internet age, and we have a grand democratization of the stock......
• Retirees Should Test-Drive Their Retirement Plan. Retirement is a time of great financial uncertainty and worry for many people. The common thinking is that you spend less in retirement than you did when you were working. Once you've retired, you no longer have the expenses associated with a commute, eating lunch out, new suits and career......
• 3 Tips to Make Your 401(k) Work for You. Morningstar has a terrific article (available to free members) titled Three Tips to Make Your 401(k) Work for You and I love it! Here's a brief sample of why: It's surprising there aren't many calls in the press to ditch the automobile. After all, think of all the dumb things......
• A Sample ETF Portfolio for Vanguard Fans. The Vanguard family of funds has many fans in the individual investor community. With their dedication to low expense fees, it's no surprise. Much has been made of the drag on performance of high fees, and there is a growing investment community that not only shuns investments with high fees,......

• ING Direct Announces Black Friday Deals If you recall, ING Direct is offering up some deals for Black Friday and Cyber Monday.  Well, they released what those offers actually are: - Electric Orange Checking Account: Open up an Electric Orange checking account on Black Friday and ING Direct will give you a $121 bonus!  Huh, $121......
• Roth vs. a traditional IRA Alright, I'll admit it, I don't have a Roth IRA. I have a regular IRA instead. I've been considering jumping on the Roth bandwagon, but wanted to check things out for myself first. So I went and took a look at the IRS's Publication 590, Individual Retirement Arrangements. Here is......
• How to Invest in Over-the-Counter Stocks Online Investing in Over-the-Counter Bulletin Board stocks is slightly different from normal stock trading. If you're looking to purchase OTCBB stocks or Pink Sheets over the Internet, you'll need to set up an online stock trading account. Three brokers to consider are Scottrade, E*Trade and TD Ameritrade. If you're just getting......
• Finovate Startup 2009 Live Twitter I am attending Finovate Startup 2009. It is an action packed 1 day format which I belive will lend itself perfectly to a live twitter. Stay tuned it should be an amazing day. http://twitter.com/BlogTrafficExch In the break I have scheduled some talks with SimplFi, Mint, and Calendar Budget. I am......
• Why Choice Forex Trading Forex market has several reasons why a choice for traders or investors worldwide to trade in Forex (Foreign Exchange). Some reasons include: Liquidity Liquidity is a term used to describe qualitatively how easy to make a good deal for the out (exit) and entry (entry). Trading was essentially involves two......

These funds were so universally praised by the investment community and politicians alike that when congress passed the Pension Protection Act (PPA) allowing companies to automatically enroll employees in 401(k) accounts, it was target date funds that were chosen most often as the default fund, or “qualified default investment alternative” (QDIA) in the lingo of the PPA.

Then the crash of 2008-2009 happened.

2010 Target date funds performed horribly in that crash. This gave target date funds a lot of bad publicity. After all, the idea of a 2010 target date fund was that it would be invested in less risky assets as 2010 got closer, right?

Maybe.

See, the problem isn’t really that these funds lost as much as the average stock fund, or even that they were tilted too heavily in the direction of stocks. There are really two problems at the root of all this:

1. The crash of 2008 was not a garden variety stock market crash.
2. People’s perspectives on retirement savings is skewed.

Problem One: The crash of 2008.

The crash of 2008 was a once in a lifetime kind of phenomenon, one in which almost every investment asset lost value. The problem for target date funds regarding this kind of crash is: where should the majority of assets held in a 2010 target date fund be allocated?

In a garden variety stock market crash, or correction of say 10-15% or even 20% loss in stocks, a hefty bond allocation is usually enough to provide proper ballast to limit the total losses for the fund. But in 2008, just about the only safe place was cash, or gold and in any normal investment environment a majority of holdings in cash or gold would be a money loser.

Problem Two: Investor perspective.

This problem affected target date funds because investors simply did not expect a 2010 fund to lose 35% -40% of its value so close to the target date. But I think this is really the result of an underlying mistake in expectation on the part of the investor.

Too many investors have it in their mind that they will be taking all their money out of the stock market when they retire.

Maybe it’s the way these funds are marketed, but I know a lot of investors think that the clock stops when they retire and that what they have in their investment account is what they have for the rest of their lives. This is simply not true. The average retiree today can expect to live another 15-20 years. The fact is that they will still need to be invested in stocks in order for their savings to last as long as they do.

Solutions.

I think just about the only solution one can have for the first problem (the unusual market crash) is to have a sizeable sum of cash saved up for immediate access if you have just retired or are about to retire when such a crash hits. Something along the 9-12 month of expenses range, maybe more if you tend to panic about finances. This ought to allow the investor to weather the crash and not have to deplete his investment account while it is suffering heavy losses.

The solution to the problem of investor perception is also covered by the huge sum of cash savings fix to the first problem, but there is also a long term mental shift that needs to happen. Investors and retirees need to consider post-retirement investing. Far too many people think about investing or saving for retirement as the end game, when in reality it’s just an inflection point where the nature of investing changes but the need continues; the only true end point is the end of life, after which you get into estate planning.

• A Sample ETF Portfolio for Vanguard Fans. The Vanguard family of funds has many fans in the individual investor community. With their dedication to low expense fees, it's no surprise. Much has been made of the drag on performance of high fees, and there is a growing investment community that not only shuns investments with high fees,......
• Mutual Fund Monday - 5 Things To Watch When Choosing A Fund. Picking a mutual fund can be a daunting task, but here are 5 things to look for that I hope will help make the process a little easier. This is part of my weekly Mutual Fund Monday post feature. If you find this interesting or helpful, please read more. 1.......
• Mutual Fund Share Class Comparison Gets Easier. Investors who own shares of mutual funds are probably familiar with the 3 most common classes of shares: A, B, and C. But recent market conditions have led over 400 mutual funds to eliminate class B shares form their offerings. The reason for the elimination is cost. It simply costs......
• 4 Reasons Cash Is King For The Individual Investor. We've all heard that Cash is King when analyzing company balance sheets. This is especially true in times of recession, since companies without a cash cushion are less likely to be able to survive trying times. But cash is king for the individual investor as well. Here's why. 1. Lower......
• 3 Recommended Pimco Bond Funds. Bonds are an important part of any good asset allocation, and here are 3 bond funds from the Pimco firm as recommended in a recent Kiplinger magazine article. PIMCO bond total return (PTTAX). Manager Bill Gross sticks to investment grade, intermediate-term U.S. bonds for this fund. The expense ratio for......

• Mutual Funds Stuck In Between a Rock & a Hard Place Think back to our two courses on mutual funds, Weakon 205 and 305.  For a brief review, mutual funds are companies that pull investments from many people together.  The advantage for the investor is access to a professional advisory, the reduction in expenses over buying your own stocks, and quick......
• All Intelligent Investing Is Value Investing Today's post is courtesy of Wealth Building Lessons. This past year, the stock market has seen incredibly volatile swings. My non-retirement portfolio has been up 20% and then down to 0%. Twice. Of course, my portfolio doesn't have a direct correlation with any of the indices but it just as......
• 4 Safe Funds The link at the bottom is just the source for my rant today. You needn't read it and I would rather you not support Kiplinger by viewing their site at all. This is a quick summary of the article: The author introduces the article by reminding you of all......
• Pros And Cons Of Investing In Target-Date Retirement Funds. Photo by Mike LichtI'm sure that if you do any kind of investing at all you have heard about target-date retirement funds, where the stock and bond allocation inside the fund changes as you near your retirement date. All you have to do is pick a year (for me, it......
• New Loan Funded — cash for small business — $25,000 at 14.5% — AA Credit — DTI 1422125% A new loan funded (cash for small business — $25,000 at 14.5%).  I participated via a manual bid the loan was Autofunding.  The borrower had AA credit and 1422125% DTI (undocumentable income).  As a reminder my standing orders (and manual bids) only find loans with 0 current delinquencies, 10 or less delinquencies......

The process is also commonly called “harvesting capital losses”, because it often involves the purposeful selling of a losing investment for the explicit reason to gain a tax advantage.

Tax selling is perfectly legal, but there are a few restrictions:

• Any assets sold for a loss must have been owned by the investor for at least 30 days prior to being sold.

• The investor cannot purchase assets of a same type within 30 days of the assets being sold.

So, you can’t buy shares in a small cap fund, sell them 29 days later at a loss to harvest the capital gain tax offset, and then buy shares in the small cap fund 15 days after you sold them. Violation of either of these restrictions is called a wash sale, and that is illegal. This 30 day limitation is often referred to as the 30-day wash sale rule.

Tax selling usually occurs in December, but keep an eye on the market as some are speculating there will be an increase in tax selling as the Bush tax cuts expire at the end of this year, and tax rates rise again.

• Ivy League Investing For The Common Man. David Swensen has managed the Yale University endowment from 1984 to 2008 and during that time, the endowment returned an annualized 16.6% - 5 points better than the S&P 500 and a generic balanced portfolio of 60% in a stock index, and 40% in bond index. That equates to a......
• Best ETF's For... Kiplinger has released their annual "best of" edition, where they rate the best of just about everything. One of the categories is ETF's. I thought I'd share the picks, and some thoughts on them here, but you should check out the complete issue if you get a chance. Best ETF......
• 3 Key Signals When Timing The Stock Market I'm not a practitioner of market timing, and I'm not a proponent of it. That being said, I read an article about it in a recent issue of Kiplinger's Personal Finance Magazine that made me reconsider. To be fair, the article was more about timing big swings in the overall......
• Healthcare Stocks Ripe for Growth: BIOTECH. Healthcare may not seem like a great investment right now, with all the talk of a government take over of the industry, but sometimes those are just the times that create great contrarian opportunity. Today, I'm profiling 3 healthcare sector stocks that show promise of growth in the coming years,......
• Investing Term Tuesday - January Barometer. The January Barometer is based on the theory that the performance of the S&P 500 during the month of January is indicative of how the market will perform for the year. For example, if the S&P 500 is up for January, the January Barometer states that the stock market as......

• Finding the best hotel rates To compare prices on hotels, there are several methods you can use. You can call the hotels themselves, use a travel agent, or use the internet. I've found that the best way to choose a hotel is to use a combination of these methods while keeping my own personal preferences......
• Tax Benefits Of Passive Income Since this is tax season and this site is dedicated to earning passive income, I thought I should post something about the taxation of passive income. From the IRS's point of view passive income is any income that you get without having to to materially participate in. Examples of passive......
• How To Use Variable Annuities the Right Way First things first:  variable annuities are poor investments for most people (with a few important exceptions I'll get to in a moment).  They are usually expensive, complicated, illiquid, and hard to understand for all but the most sophisticated of investors.  Unfortunately, the target of a variable annuity sales pitch is usually a......
• Beware of the Refund Anticipation Loan! Get a fast cash loan and pay through your nose! There are many of you that can’t wait to file your taxes each year because you are expecting a decent refund. Unfortunately, it’s only too often that families in need of some fast cash will not think through the consequences......
• Slow Weight Loss This is an excerpt of my Free Weight Loss Plan, the Don't Go Broke Weight Loss Plan. Everyone wants to lose weight quickly. It took ten years to gain the weight, but you want to lose it in ten minutes. You watch reality shows where people lose over fifteen pounds......