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How To Fix Your Online Profile

10/31/2014

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Q. How do I fix my online profiles by myself?

A.
Try the following ways:

1. Find your online profiles first
  • Google
  • Spokeo.com
  • Pipl.com
  • Topsy.com
For the above sites, when you enter your name, you will find your age, relatives' names and previous addresses, as well as links to old news stories, and even how people are saying about you on social media (Topsy).

2. Fix Your profile by yourself
First, beef up the privacy settings on your social media feeds and delete any old Flickr account.

Second, opt out from information sharing sites (spokeo.com/optout, beenverified.com/optout).  Ask Google to delete the malicious site that contains your private information from its search results (http://support.google.com/websearch/troubleshooter/3111061).

Third, create a Google Alert on your name (http://www.google.com/alerts)

Fourth, build activate and updated websites or pages about yourself, so you can push the older profile sites down the search results displays. You can get a website with your firstname.lastname.com from 1and1.com for only $1.99 (it often runs promotions), and build it free at Weebly.com


3. Get a Pro to help
A Pro can get bury your negative posts faster and deeper than you can.  Try Reputation.com or Removeyourname.com.
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Are All Financial Advisors The Same?

10/30/2014

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Q. How to pick the best financial advisor to work with?

A. Like any products or services, the financial advice you receive differs in quality.  

Not all financial advisors are created, or governed, equal.  There are two important yet different standards the "financial advisors" have to stick to - "suitability" and "fiduciary".  The table below lists the key differences between the two.


What is it




Who sets it


Who does it govern

How is the pricing


The bottom line
Suitability
It asks "if the product is suitable to be sold to the investor".


The Financial Industry Regulatory Authority (FINRA)

Most financial advisors (e.g. VP's at Wall Street firms)

Typically commissions


Loose regulation, customer interest in not the top priority
Ficuciary
It requires the advisers to act at all times for the sole benefit and interest of the investor.

The Securities Exchange Commission (SEC)

Registered Investment Advisers (RIAs)

Typically fees of assets under management

Stricter regulation, customer interest always comes first.
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The Best 529 Plans

10/29/2014

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In our last blog we mentioned that Nevada has the best 529 plans, but remember, even Nevada offers 5 different 529 plans and not all of them are the best plans.  The chart below shows which state's specific program is the best.

Picture
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The Best 529 Plans

10/28/2014

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Q. Which state has the best 529 plans?

A. If your state offers state tax incentives to participate a 529 plan, generally that will make your home state's 529 plan the best option for you.

If your resident state doesn't offer any tax incentives for 529 plan savings, you are free to shop around other states' 529 plans, in this case, your top consideration will be cost and investment options. 

A new survey of college savings plans rated the following 4 states' 529 plans:

Alaska, Maryland, Nevada, and Utah.

We will use the Nevada's 529 plans as an example to illustrate why it's one of the best 529 plans, it offers 5 options (the prepaid option is only available for residents).
  1. Prepaid tuition plan: a contract-type prepaid plan, which can be purchased to cover between 1 to 5 years of future tuition either on a lump sum or installment basis.
  2. Putnam 529 for America is a broker-sold 529 saving plan, which is sold only through financial advisors. Using an advisor means you get the benefit of advice and expertise of an investment professional, but may mean you pay sales charges or incur other fees that are used to compensate the advisor.
  3. SSgA Upromise 529 Plan is a direct-sold 529 savings plan, which allows investors to purchase directly from the plan manager. You will have to rely on your own research to identify your best options, or you can hire a fee-based financial planner. Direct-sold 529 plans are approved and monitored by each state and are managed by professional investment firms. There are no sales charges with these plans.
  4. The Vanguard 529 Savings Plan is a direct-sold 529 savings plan, which allows investors to purchase directly from the plan manager. You will have to rely on your own research to identify your best options, or you can hire a fee-based financial planner. Direct-sold 529 plans are approved and monitored by each state and are managed by professional investment firms. There are no sales charges with these plans.
  5. USAA 529 College Savings Plan is a direct-sold 529 savings plan, which allows investors to purchase directly from the plan manager. You will have to rely on your own research to identify your best options, or you can hire a fee-based financial planner. Direct-sold 529 plans are approved and monitored by each state and are managed by professional investment firms. There are no sales charges with these plans.

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Who is the Best "Robo-advisor"?

10/27/2014

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We have reported that there is a revolution in the financial service industry - thanks to emergence of "robo advisor" firms that offer no or low cost financial services.  Some of the better known ones are Betterment, Wealthfront, Wisebanyan, Motif Investment, etc.

Traditional financial services firms saw the competition coming and have been introducing their own versions of "robo advisors", to wit -

Vanguard: it rolled out Vanguard Personal Advisor Service offering very attractively priced robo+human-based services.

Fidelity: it announced in early October 2014 that it would offer a white-label version of digital advisory service betterment to its RIA custody clients. 

Charles Schwab: it just unveiled its own robo killer - Schwab Intelligent Portfolios - a new online advisory platform that charges no advisory or asset management fees, no commissions and no account fees.  It will include automated portfolio management, rebalancing and tax loss harvesting, including low cost ETFs, as well as Schwab funds and other outside products.

TD Ameritrade: it's reported recently that TDA is also considering offering model-based portfolio management, portfolio rebalancing, client billing and online account-opening, in a guest column for Financial Planning.


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How to Estimate Expected Family Contribution

10/27/2014

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Q. My kid is going to enter college in 2 years, I want to start planning for it.  How to estimate my EFC?

A. If you already know which college your child will apply for, you should use that college's financial aid office's published Net Price calculator to estimate your EFC.

If you just want to get a general idea about your EFC, you can use College Board's EFC calculator which is a pretty clean and accurate EFC tool.

Also, here are some general rule of thumb you can use:
  1. Income is the most important factor - 20-30% of your income will go towards EFC. e.g. If your income increases by $10,000, your EFC might increase $2,000-3,000.
  2. Asset is less important - about 6% will count towards EFC.  e.g. If your assets increase by $10,000, your EFC will increase by roughly $600.
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How to Engage Customers - Contracts or Handshakes

10/26/2014

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There are two options for any business to engage customers -

1. Contracts
You and the customer sign a contract, it is filled with rules and conditions, loopholes and fine prints.  The goal is clear - do something now so to deliver as little as possible in the future.  


This is about the past.

2. Handshakes

In a handshake engagement, either party can claim loopholes and has no commitment.  The consequence is clear - if you disappoint us in the future, there will be no more handshakes.  


This is about the future.
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12 Smart Year-end Tax Moves - Continued

10/26/2014

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We have shared the first 6 smart year-end tax moves recommended by Fidelity Investment.  Now the next 6 tactic year-end tax moves:

7. Beware of deduction limitations

Thresholds and limits apply to many types of deductions, including medical expenses and charitable contributions, which could lower or even eliminate your deductions. If you’re a high earner, another concern is the Pease limitation, which affects single taxpayers with taxable income of $254,200 or more, and married couples filing jointly with income above $305,050. Finally, if you’ve been subject to the alternative minimum tax (AMT) in the past or think you might be this year, you should reevaluate your itemized deduction strategy. Under the AMT, many deductions are disallowed. 

8. Defer income
On the flip side of accelerating deductions is deferring income. Not everyone has the option to push income into next year, but if you can, you might consider doing it. This may also keep your income below the level that would subject you to the net investment income tax this year. But take into account what you expect your tax situation to be next year. If you anticipate earning significantly more next year and moving up a tax bracket, deferring income might not make sense for you.

9. Know your flexible spending account (FSA)
The standard advice for people with an FSA at work used to be to spend the money on medical expenses before the end of the year or lose the balance. A change in the law, however, now allows employers to offer either a 2½-month grace period to use up the money for the previous year or a $500 carryover per year to use in the following year. The new flexibility isn’t automatic, so make sure you know the rules for your employer’s plan, or you will run the risk of losing some of the money you deferred into an FSA.

10. Get health insurance or face a penalty
The Affordable Care Act (ACA) requires every individual, with some exceptions, to have qualifying health insurance coverage in 2014 or owe an “individual responsibility payment” of the greater of 1% of household income above the income tax filing threshold ($10,150 for an individual) or a flat amount of $95 for an adult and $47.50 per child under age 18, up to a maximum of $285. The payment will be due with your 2014 tax return. If you’re uninsured for just part of the year, 1/12 of the yearly penalty applies to each month you’re uninsured. If you’re uninsured for less than three months, you don’t have to make a payment.

11. Watch for last-minute Congressional action
Several popular tax breaks that expired this year have yet to be reinstated by Congress. Among the most significant is the sales-tax deduction, which gave taxpayers in states with low or no income tax the option of deducting state and local sales tax instead of income tax. If you live in one of those states and were planning to accelerate a large purchase before the end of the year—a car or a boat, for example—to take advantage of the sales tax deduction, you might hold off to see what Congress plans to do. Other tax breaks that are up in the air are those for certain unreimbursed teachers’ expenses, tuition, mortgage insurance premiums, exclusion of employer-provided mass transit and parking benefits, and exclusion for debt forgiveness on foreclosed homes.

12. Start now 
To manage your 2014 tax bill, you need to start now and also begin putting in place longer-term strategies for 2015 and beyond. Early tax planning is always smart tax planning.

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12 Year-end Smart Tax Moves

10/25/2014

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Fidelity Investment summarized 12 smart year-end tax moves, details are below.

1. Contribute to a tax-advantaged savings plan
Contributing to a 401(k) or an IRA may be the smartest tax move that most taxpayers can make. Not only does it reduce your taxable income for the current tax year and allow your potential earnings to grow on a tax-deferred basis, it also helps get you closer to achieving your retirement savings goal. Contributions to your 401(k), 403(b), or similar workplace retirement plan must be made by December 31, 2014, to impact your 2014 taxes, so you need to act quickly to increase your deferral. The 2014 401(k) contribution limit is $17,500 ($23,000 for people age 50 or older). With an IRA, you have until April 15, 2015, to make a 2014 tax-deductible contribution of up to $5,500 ($6,500 if you’re age 50 or older).

Other possibilities for tax-advantaged plan contributions are a Simplified Employee Pension plan (SEP), for self-employed individuals, or a Health Savings Account (HSA). Contributions to either of these plans can be made up until April 15 and still apply to 2014.

2. Adjust your withholding
Ideally, the amount of money withheld from your paycheck or sent to the IRS in quarterly payments should come very close to your actual tax liability. Withhold too little and you could have a big tax bill when you file your return. Withhold too much and you’re giving the IRS what amounts to a tax-free loan of money that you could be using to pay down debt or save for retirement (and, potentially, reduce your taxes).

There’s still time to adjust your withholding for 2014 by making changes to the W-4 you have on file with your employer, or, if you make quarterly payments, by increasing or decreasing your payments between now and when the last 2014 payment is due in January. Keep in mind that the longer you wait, the fewer pay periods you’ll have to reach your target. 

3. “Harvest” your investment losses
If you have capital gains outside of your retirement accounts, you may be able to lower your tax liability through tax-loss harvesting. That simply means selling losing investments that no longer fit your investing strategy and using the loss as a write-off against some or all of your gains. If you employ a tax-loss harvesting strategy, you must be aware of the wash-sale rule that disallows the write-off if you purchase substantially the same investment 30 days before or after the loss sale. 


4. Contribute to charity
Contributing to charitable causes before the end of the year is a tried-and-true tax-reduction strategy. But remember to get a receipt for every contribution you make, not just those over $250. Also, if you want to be more strategic, you could open a donor-advised fund, which offers several advantages for managing your charitable-giving activity. You could, for example, contribute a lump sum to the fund before December 31, take the entire deduction on your 2014 tax return, and then instruct the fund to use the money to make next year’s gifts.

One strategy that offers two tax benefits is donating appreciated securities, such as stocks or bonds, to charity. The tax code allows you to use the current market value of the asset as a deduction without having to pay tax on the capital appreciation, so you get the charitable contribution deduction and avoid capital gains tax. 

5. Use your annual gift tax exemption

An individual can give up to $14,000 a year to as many people as you choose ($28,000 if you and your spouse both make gifts) to help reduce the amount of your estate and help reduce or avoid federal gift and estate taxes. This may include cash, stocks, bonds, and portions of real estate. However, anything above $14,000 per person per year may be subject to gift taxes, so it’s important to keep track of this information. For more information, speak with your tax adviser and review IRS Publication 559, Survivors, Executors, and Administrators.

If you would like to contribute money toward a child’s education, consider a 529 plan account. Contributions are generally considered to be removed from your estate. You can also make a payment directly to an educational institution and pay no gift tax.

6. Accelerate deductions

In addition to charitable contributions, other types of deductions offer some flexibility. If you make estimated state or local tax payments, for example, you could send in the January payment before the end of this year. And maybe you could do the same with a property tax bill that’s due near the beginning of the next year. Other possibilities include accelerating payments for medical services or purchasing work-related items, such as uniforms, for which you are not reimbursed. Recognize, however, that increasing your tax deductions only makes sense if you have enough of them to exceed the standard deduction of $6,200 for single taxpayers, $12,400 for married couples filing jointly, and $9,100 for heads of household.

See our next blog post for the next 6 smart year-end tax moves.
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The Best Marketing

10/25/2014

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The best marketing in the world doesn’t remind people how great the company is or how great the product is. 

The best marketing reminds people how great they are.
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An Online Platform For Investors to Participate Private Equity Funds

10/24/2014

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Technology is revolutionizing every aspects of the financial service sector, now the latest example - an online platform that enables qualified investors to search and analyze hundreds of private fund managers and gain direct access to buyout, growth equity, real estate, mezzanine, infrastructure, real assets, and venture funds.

This new platform is iCapital Network. 

If you are a qualified investor and looking for investment opportunities, this is for you.
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Group Life vs. Individual Life: Guaranteed Premium

10/24/2014

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Group life insurance premiums are based on the company experience, and subject to potential increase which are usually passed on to the group participants.

Individual life insurance premium may be subject to increase, but it depends on the product chosen,  Term Life insurance, offers a guaranteed premium for a defined time period.  Universal life insurance may require a premium increase in order to ensure the policy does not lapse.  Whole life insurance, however, has a guaranteed level premium that never increases.
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Group Life vs. Individual Life: Maximum Limit

10/23/2014

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Group life insurance often has a maximum coverage amount for the group, which usually is not adequate over one's needs.  


Most individual life insurance carriers base their maximum coverage limits on a financial multiple of income.  The amount usually far exceeds what is obtainable through a group plan.
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Group Life vs. Individual Life: Health Based Pricing

10/22/2014

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One of the best benefits of group life insurance is minimal or no medical underwriting.  However, this can be a double edged sword.  People pay the same premium whether they are in great health, not-so-great health or a smoker.  


Individual life policies are generally medically underwritten.  If in good health and a non-smoker, one often will pay less in premium than a person who is not in good health or who smokes.
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Group Life vs. Individual Life: Equity

10/21/2014

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Group life insurance typically doesn't build equity for the insured in the form of cash value.  Depending on the type of individual life insurance policy owned, one may have the potential to build equity.


Permanent life insurance products like universal life and whole life have the potential to build significant cash value over time.  Cash value can be used as an emergency fund, or to help supplement retirement income.
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Online Stock Trading Combined with Social Networking

10/20/2014

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Ditto Trade is an innovative brokerage firm, while its trade fee of $6.95 is certainly good, what's unique about it is that Ditto provides a platform that automates relationships of investors, allowing people to participate in the actual trades of someone they trust, while maintaining complete control and transparency.
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Group Life vs. Individual Life: Portability

10/20/2014

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With group life insurance plans, one doesn't "own" the policy.  For most people, if one resigns or terminated from the company, the group life insurance policy does not go with the person.

Once employment is terminated, so is the insurance, even the person wants to continue to pay the premium.

Individual life policies are owned individually.  If the individual is no longer employed, as long as the premium is paid, the life insurance remains inforce.
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Which Is Better: Group Life or Individual Life

10/19/2014

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Q. It's corporate benefits enrollment time, I wonder should I use Group Life insurance or purchase individual life insurance by myself?

A.
The key to make the wise decision on Group Life vs. Individual Life is to understand the pros and cons of each choice.  While Group Life has its benefits, you should also consider its limitations.  On the other hand, Individual Life insurance can provide additional benefits making it complementary or potentially a more attractive option.

Below is a quick Group Life vs. Individual Life comparison:



Portability

Equity (cash value)


Pricing based on health

Maximum face amount limit

Guaranteed premiums
Group Life

No

No

No

Yes

No
Individual Life

Yes

Depends on product chosen

Yes

Yes

Depends on product chosen
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The Million Dollar Reason to Start Saving Early

10/18/2014

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Q. I am just out of college and with a annual salary of $30,000, I cannot afford saving for my retirement.  What should I do now?

A. How about $1 million dollars at the time when you retire, will that give you enough incentive to start saving?

Here are the details, it should be painless to implement for most people -

If you just save 6% each month from your pay, it will be $150 a month to your 401K.  Most employers offer a match to employee 401k contributions, let's say the match is 50% up to 3% of your pay, it will be $75 contributed by your employer.

There is more - as retirement money is pretax, assume you are in the 15% tax bracket and state income tax of 3%, your $150 per month pre-tax saving will reduce your tax bill by $23 at the Federal level and $5 at the State level.

Assume you can get annual salary raise average 3% each year, and assume your retirement can achieve average annual growth rate of 8% (which requires the portfolio to be an aggressive portfolio with 70% weight in stocks), in 40 years, your account balance will reach $1M!

How to fund the $150 per month saving?  Bring your own lunch, find a roommate, save the gym membership fee, use an used car, cut the cable cord, ... you should have no difficulty to find the sources if you really want to!
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Life Insurance and Tax Questions and Answers

10/17/2014

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How is life insurance taxed?
Historically, life insurance has been tax free. As insurance products have become more sophisticated, however, the line separating insurance products from investment products has become a bit more complicated, depending on the type of policy(s) you own. As a result, a mix of complex rules and exceptions now govern the taxation of insurance products. Familiarity with these rules will help you avoid an unwary consequences and help you plan accordingly.


Tax considerations
Taxes are typically levied whenever cash changes hands. During the term of any life insurance policy, there are a number of occasions when money can and does change hands. The only question is whether the transaction amounts to a taxable event that triggers current income tax liability. For instance, in most cases, premiums are paid with after-tax dollars. To the extent they are deemed a return of premiums, benefits paid out during your lifetime are usually paid out tax free. Typically, death benefits are received tax free by your beneficiaries after your death. But, the sale or surrender of your policy during your lifetime triggers a tax on the realized gain.


Premiums may be paid with pre-tax dollars
If your company offers the option to purchase life insurance through a qualified retirement plan, then your pre-tax contributions to the plan (and/or your company's contributions) can be used to buy a life insurance policy. However, few companies offer their employees the option to purchase life insurance through their qualified retirement plan. If you do not purchase the insurance policy through a qualified retirement plan, then the premiums have to be paid with after-tax dollars.

Cash value accumulates tax deferred
As the investment element of your policy grows, you realize gains. Generally, you are allowed to defer taxes on those gains as long as you don't sell or surrender the policy. There are a few rare--but important--exceptions.


Dividends are typically not taxable
Dividends are paid out of the insurer's surplus earnings for the year. Regardless of whether you take them in cash, or keep them on deposit with the insurer, they are considered a return of premiums. As long as you don't get back more than you paid in, you are merely recouping your costs and no tax is due.


Cash withdrawals in excess of basis are taxable income
When you begin to withdraw cash from a cash value life insurance policy, the amount of withdrawals up to your basis in the policy will be tax free. Your basis is the amount of premiums you have paid into the policy. Any withdrawals in excess of your basis will be taxed as income. If the policy is classified as a "modified endowment contract," then untaxed earnings must be withdrawn first and taxed. 

Policy loans usually not taxable
If you take out a loan against the cash value of your insurance policy, the amount of the loan is not taxable (except in the case of a modified endowment contract). This result is the case even if the loan is larger than the amount of the premiums you have paid in. Such a loan is not taxed as long as the policy is in place.

Interest on policy loans usually not tax deductible
The interest on any loans you take out against the cash value of your life insurance is usually not tax-deductible.

Surrender of policy may result in taxable gain
If you surrender your cash value life insurance policy, any gain on the policy may be subject to federal (and possibly state) income tax. The gain on the surrender of a cash value policy is the difference between the net cash value and loan forgiveness amounts and your basis in the policy. Your basis is the total premiums you paid in cash, minus any policy dividends and tax free withdrawals that you made.

Policy exchanges are typically not taxable
The tax code allows you to exchange one life insurance policy for another without triggering current tax liability. However, you must follow the IRS's rules when making the exchange.


Death benefits usually not subject to federal income tax
Whoever receives the death benefits from your insurance policy (at the time of your death) usually does not have to pay federal income tax on those proceeds. Thus, if you die owning a cash value life insurance policy with a $500,000 death benefit, then the beneficiaries under the policy will generally not have to pay any federal income tax on the receipt of the $500,000. In addition, the payment of death benefit proceeds from a cash value life insurance policy to a beneficiary is usually not considered a taxable gift.

Insurance proceeds may be included in your taxable estate
If you hold any incidents of ownership in an insurance policy, the proceeds from that insurance policy will be included in your taxable estate. Furthermore, if you gift away an insurance policy within three years of your death, then the proceeds from that policy will be pulled back into your taxable estate. Incidents of ownership include the right to change the beneficiary, the right to take out policy loans, and the right to surrender the policy for cash.

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Should I Chase Junk Bonds for Higher Yields?

10/17/2014

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Q. My money in the bank is earning me almost nothing.  Should I buy some high yield bonds?


A. The average junk bond recently paid out around 5.8%, well below its historical average of 9.5%, but still a lot higher than the savings rates offered by banks.  However, the junk bonds offer higher yields for a reason - they are below investment grade and pose higher risks to investors.


Holding some junk bonds in your portfolio makes sense for their higher yields and lower risks than the lower yield investment-grade bonds when interest rates start moving up.  However, don't hold more than 10%, because in any serious economic recession will hit those junk bonds hard.


The Vanguard High-yield Corporate (VWEHX) is a good option to consider - its annual expense ratio is only 0.23%, and so far in 2014 has returned nearly 5%, better than stocks.



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Dollarbird - Finance Calendar 

10/16/2014

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Try the smart calendar app for your finances - dollarbird
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2 New Credit Score Calculation Changes That Will Benefit Consumers

10/15/2014

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FICO is making to major changes to how it calculates a consumer's credit score -

a. Medical bills no longer matter
The new score will ignore medical bills in collection, this is a big news for many Americans who were double hit by the sicknesses and then the bills.

b. Settled or paid off debts no longer matter
If you have paid off your debt, it should not negatively affect your credit score anymore, but it's not always this way - previously, your unpaid and paid collections counted the same in credit score calculations.
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Tricks to Save Wireless Data Usages

10/14/2014

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Q. I pay a lot for my wireless bill mainly due to data usages.  Is there anyway to save on wireless data usages, other than not using it?


A. Yes, there are a few tricks that can help you cut your wireless data bill.


a. Opera Mini
It's a mobile browser that shrinks the amount of data you need to open web pages by up to 90%!  It's compatible with most smartphones and is very easy to use.


b. Opera Max
This app is available in beta testing right now for Android devices, it compresses pictures and videos that you view on your device so they require less data, although the image quality might suffer.


c. Onavo Extend
This app compresses data while you are online to lower your consumption, but it doesn't squeeze streaming video.  It is available for Android, iPad and iPhone.


d. Onavo Count
This app lets you monitor your data usage as well as the amount of data each app is using.


e. WiFi
Of course, the best way is to get on WiFi wherever available.


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Why Interest Rates Rise, Bond Prices Fall

10/13/2014

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Q. Can you use simple English to explain why bond prices fall when interest rates up?


A. Bond is a contract between the borrower and the lender, the borrower promises to pay a fixed interest rate during the term of the contract.


Now assume a bond is issued today with face value of $100 and interest rate 5%, with 2 year term.  This 5% interest rate is determined based on several factors, including the issuer's credit rating, as well as general market competition.


In one year, assume the external environment changed, Fed raised interest rates, so potential bond investors have better alternatives out there, if this bond still sells at 5%, it will not be competitive anymore.


If you are the bond holder and needs to sell the bond in one year, you have to lower the price of the bond to, say $95, so the new investors can get market competitive interest rate from this bond.  


For you as the bond holder who didn't hold the bond till maturity, you lose some principal money, that's why bonds might not be safe investor vehicles in interest rising environment.

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