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New Year Means New Opportunities for Roth IRA Conversion

Here’s Your Year-End Investment Checklist

We’ve pretty much seen it all this past year— a bear market, a long rally and even a period of neither-up-nor-down. But even though we’ve only got a few weeks left of 2009, you still have time to make some moves that can pay off for you in 2010 — and beyond.

 Here are a few suggestions to consider:

• “Max out” on your IRA — and make regular contributions next year. For the 2009 tax year, you can contribute up to $5,000 to a traditional or Roth IRA, or $6,000 if you’re 50 or older. And you have until April 15, 2010, to fully fund your 2009 IRA. Of course, it’s not always easy to come up with lump sums of money, but do whatever you can to make up for any shortfalls in your IRA for 2009. And in 2010, consider setting up automatic monthly contributions to your IRA — it’s a much more efficient way to maximize a great retirement-savings vehicle.

• Increase your 401(k) contributions. If your employer permits it, try to add more money to your 401(k) or other retirement plan before the year ends. By increasing your 401(k) contributions, you can lower your adjusted taxable income while you potentially build more resources for retirement.

• Convert your traditional IRA to a Roth IRA.  Depending on your individual situation, a Roth IRA, which offers the potential for tax free growth, provided you meet certain conditions, may be a better choice for you than a traditional IRA, which offers the potential for growth on a tax deferred basis. Consequently, if you meet eligibility limits, you may want to convert your traditional IRA to a Roth IRA. However, this conversion is likely going to be a “taxable event,” so you’ll need to have money available outside your IRA for the tax bill. You’ll want to discuss this move with your tax advisor.

• Sell your “losers.” If it’s appropriate for your portfolio balance and long-term goals, you may want to sell some investments that have lost value to take the tax losses. If these losses exceeded your capital gains from selling appreciated stocks, you can deduct up to $3,000 (or $1,500 for married couples filing separately) against your other income, reducing the amount on which you must pay taxes. And if you lost more than $3,000, you can carry over the excess into subsequent years. Consult with a tax advisor before selling investments to claim a tax loss.

• Consolidate your investment accounts. Instead of having an IRA with one firm, some other investments with another and a cash-value insurance policy with a third, you might want to consolidate all your assets with one provider. That way, you’ll be better able to align all your assets with a central, unified investment strategy.

• Review your insurance coverage.  Over the course of a year, you could experience significant changes in your life: marriage or divorce, the birth of a new child or the departure of an older child from your home, the start of a new job or retirement from an old one, and so on. That’s why you’ll want to make sure you have the right amount and type of insurance to protect your family and your financial future.

 By making these moves, you can close out 2009 on a positive note — while positioning yourself for progress on your long-term goals.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor. Edward Jones, its associates and financial advisors are not estate planners and cannot provide tax or legal advice.

Plan for Retirement – This Week and Every Week

You might not see it on your calendar, but Oct. 18 – 24 is National Save for Retirement Week. This event, endorsed by Congress, is designed to promote the benefits of saving for retirement and to encourage workers to take full advantage of their employer-sponsored retirement plans — so you may want to use this week as a starting point to do just that.

For many of us, the need to boost our retirement savings is critical. In fact, some 53 percent of Americans report that the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000, according to the 2009 Retirement Confidence Survey, sponsored by the Employee Benefit Research Institute.

            Also, the decline in popularity of these defined benefit plans — the traditional pension plans that make payments based primarily on years of service — is one reason that saving for retirement has become such a major issue. From 1986 to 2008, participation in defined benefit plans among full-time workers in private industry declined from 76 percent to 24 percent, according to the Bureau of Labor Statistics. In many cases, these defined benefit plans have been replaced by defined contribution plans, such as 401(k) plans — which means that much of the responsibility of adequately funding retirement has shifted from the employer to the individual.                   

            Given these factors, it’s clear that you must be proactive in building resources to achieve the retirement lifestyle you’ve envisioned. So, consider taking the following steps:

            • Contribute to your 401(k) or other employer-sponsored plan. If possible, try to put in as much as you can afford to your 401(k) or other tax-advantaged, employer-sponsored plan, such as a 403(b) or 457(b).  It’s a good idea to spread your 401(k) dollars among the available investments in a way that reflects your risk tolerance and time horizon.  And as your income increases, try to increase your 401(k) contributions.  At a minimum, put in enough to earn your employer’s match, if one is offered. Due to the prolonged economic slump, some employers have cut back or eliminated their 401(k) matching contributions, but if one is offered, take advantage of it.

• Open an IRA. Even if you contribute to a 401(k), you are probably still eligible to open an IRA. . A traditional IRA can grow on a tax-deferred basis, and a Roth IRA grows tax-free, provided you’ve had your account for at least five years and don’t begin taking withdrawals until you’re 59-1/2. Plus, you can usually find that an IRA provides more investment options that a 401(k) plan.

• Rebalance your investment portfolio regularly. During the long bear market, many new retirees faced difficulties when they were forced to tap into investment portfolios whose value had dropped significantly. You can help avoid this problem by periodically reviewing and rebalancing your investments. So for example, if you know you’re going to retire within the next five years, you may want to consider shifting some of your assets into shorter-term investments that may not be as susceptible to market volatility. You can speak with a financial advisor, who can help you review your specific situation.

By making the right moves, you can turn every week into a “Save for Retirement” week. And you’ll probably be glad you did, once your actual retirement week arrives.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.

Do You Have Enough Insurance- and the Right Type?

September has been designated as Life Insurance Awareness Month — so you may want to take this opportunity to learn more about your life insurance needs and determine if you’re adequately covered.

In fact, helping people understand the necessity of being properly insured and the need to seek professional advice regarding those needs is the ultimate goal of Life Insurance Awareness Month, which is coordinated by the nonprofit Life and Health Foundation for Education (LIFE). Some 68 million adult Americans have no life insurance at all, according to LIMRA International, a worldwide association of insurance and financial services companies. And many people with insurance have far less coverage than they need.

If you have loved ones depending on your income, it’s important to discuss how life insurance may protect them. But choosing the right amount of coverage, and the right type, is not quite that simple. So let’s take a look at two key questions you need to ask: How much insurance do I need? And what type of insurance is right for me?

There are many factors to consider when determining how much insurance you need. That’s why you’ll need to look at some key variables in your life, such as: How many children do you have? Do you plan for them all to go to college? Do any of them have special needs? How many years left on your mortgage? What other debts do you have? An experienced financial professional will be able to use the answers to these questions and others to help determine how much life insurance you need.

Your next step is to decide which type of coverage best fits your needs. Essentially, your choice is between term insurance, which offers a death benefit for a specific period of time, and permanent insurance, which can provide lifetime protection  plus the potential to build cash value tax-deferred. Keep in mind that all guarantees are based on the claims-paying ability of the issuing insurance company and that certain features come at additional costs.

There’s no hard-and-fast rule as to which type of coverage to choose. However, when you’re starting out in your career, and your children are young, you might find that term insurance could be a cost effective way for covering a short-term need (generally 20 years or less).  On the other hand, if you choose a permanent insurance policy, such as whole life or universal life, you can potentially build cash value that you can access during your life on a tax-advantaged basis. Since permanent insurance has a cash value component, the premiums may initially be more costly than those for term insurance.

Which choice — term or permanent — is right for you? It depends on a variety of factors, including your cash flow, your investment portfolio and how many years you plan on keeping your coverage. Also, you’ll need to review your insurance coverage regularly to make sure it still meets your needs and addresses any changes in your situation. A financial advisor can help you make the right selections. 

Taking steps today allows you to celebrate Life Insurance Awareness Month secure in the knowledge that you’ve taken the right steps to help protect your family.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.

Are Socially Responsible Funds Right for You?

Over the past several years, you might have heard about socially responsible investing, sometimes known as “sustainable investing” or “ethical investing.” Probably the most common way to take part in this type of investing is through socially responsible mutual funds — but are these funds suitable for your overall financial goals?

Before you can answer that question, you need to become somewhat familiar with how these types of mutual funds operate. Basically, the managers of socially conscious funds seek to own companies that, in various ways, may promote such things as human rights and environmental and consumer protection. These managers also typically “screen out” those companies involved with the military, tobacco, alcohol and other industries involved with products or services that may be controversial.

So you may ask yourself, after these qualifications are imposed and screens are applied, can socially responsible mutual funds still find the right investments to earn a reasonable rate of return? And the answer is yes — the performance of many of these funds has been comparable to that of non-screened funds.

Furthermore, the performance of socially responsible funds can be tracked and measured against other funds with similar objectives. Socially responsible funds even have their own index — the Domini Social 400 Index. While this index is not managed, and you can’t invest directly in it, you will find it a useful tool should you decide to invest in socially responsible funds.

Yet, despite these factors, there is at least one potential drawback to investing in socially responsible mutual funds: lack of diversification. The problem isn’t so much that an individual socially responsible fund may not be properly diversified, although that could happen, given the necessity to screen out entire industries. The bigger issue is that the universe of socially responsible funds is much smaller than that of other funds, and socially responsible funds, by definition, resemble each other to a certain extent. Consequently, you may have a hard time achieving a diversified portfolio of socially responsible funds across different asset classes — small, mid-size and large companies, “value” stocks, international stocks, etc. — that is so important when investing.

Of course, diversification, by itself, cannot guarantee a profit or protect against a loss. However, the more asset classes you can diversify into, the better opportunity you have to help reduce the effects of volatility on your portfolio. This helps explain why socially responsible portfolios tend to have more volatile returns and are more susceptible to sharp downturns during bear markets than non-socially responsible mutual funds. 
Before you invest in a socially conscious fund, or any mutual fund, for that matter, be sure to read the prospectus carefully, because it describes the fund’s investment objective, risks, charges and expenses. In the investment world, knowledge is power.

Ultimately, in evaluating socially responsible funds, you will have to decide just how much your sense of social responsibility will affect your investment choices. So take your time, evaluate all the factors involved, consider the alternatives— and make the decisions that are right for you.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.

Mutual funds are offered and sold by prospectus. You should consider the investment objective, risks, and charges and expenses carefully before investing. The prospectus contains this and other information. Your Edward Jones financial advisor can provide a prospectus, which should be read carefully before investing.

Upgrade Your Portfolio in 2009

It’s no secret that 2008 was rough on most investors. And 2009 didn’t get off to a particularly good start, either. Yet there’s still plenty of time left this year to upgrade your investment portfolio in a way that can help you stay on track toward your long-term goals.

But what exactly does it mean to “upgrade” your portfolio? Do you have to systematically go through your investments and eliminate all those that performed poorly last year? Or should you just sell of any investments that you think are risky?

Neither one of these ideas are good solutions. In the first place, a bear market such as we’ve experienced tends to drag everything down, even quality investments. Furthermore, you can’t get rid of all investments that carry some risk — because all investments carry some risk. So instead of taking either of these two approaches, consider the following moves:

• Review your portfolio objectives. Your investment objectives are based in large part on your risk tolerance and stage of life. If these factors have changed, you may need to rebalance your portfolio. In fact, it’s a good idea to rebalance your holdings at least once a year, regardless of the markets or your life situation.

• Increase your portfolio’s quality. Right now, you can find many quality investments that are attractively priced. In past market recoveries, these types of investments usually have recovered faster than lower-quality ones. Although past performance is not an indication of future results, the biggest gains usually occur early in market rallies. You don’t want to wait too long to explore these opportunities.

• Don’t overload on a single investment. In general, it’s not a good idea for a single stock to total more than 5% of your portfolio. In recent months, many investors have learned the hard way about the dangers of holding too much stock in a single company — even one that once appeared to be a blue chip firm. And the same principle applies to your employer’s stock: If it’s offered as an option in your 401(k), don’t go overboard on it.

• Own a sufficient number of stocks. How many stocks should you own to diversify the equity portion of your portfolio? There’s no one right answer for everyone, but to really attain proper diversification, you may need to own at least 20 to 25 stocks, spread out among all the major industry sectors. Of course, diversification by itself cannot guarantee a profit or protect against loss, but it can give you more chances for success while helping to reduce the effects of volatility on your portfolio.

• Invest in a range of fixed-income securities. Just as you need to own a reasonable amount of stocks, you should also own a number of fixed-income vehicles — perhaps 10 to 20, depending on your situation. You can diversify these holdings by purchasing different types of bonds — corporate, municipal and Treasury — and certificates of deposit. To further diversify, buy fixed-income vehicles with varying maturities.

You can’t control the economy or the financial markets. But by following the proven techniques described above, you can help control your own financial destiny. Consider taking action soon.  

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.