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The Key Difference Between Index Funds and Traditional Mutual Funds

5/16/2012 11:00:00 AM

For the sake of convenience, many investors do not look to manage their own portfolios or choose their own investments. Investors who don’t want to take the time to manage their own portfolios may be interested in purchasing shares in either an actively managed mutual fund or in an index fund. Although both types of funds seek to make things easier for investors, they have different objectives that may make one more appropriate than the other for certain investors.

Differences Between Index Funds and

Actively Managed Mutual Funds

An index fund is set up to match the performance of a particular index, such as the S&P 500. The fund accomplishes this by simply purchasing the same investments in the index it represents, and since the securities in many indices stay relatively constant, there is no need for frequent buying and selling of index fund holdings.

An actively managed mutual fund, however, may frequently buy and sell securities according to the fund’s objective and the manager’s discretion. These funds have higher expenses than index funds, and seek to outperform instead of simply match a benchmark index. For example, an actively managed fund that invests in large cap domestic stocks may seek to outperform the S&P 500 index.

Due to the fact that index funds and actively managed mutual funds are structured differently, you will need to understand the advantages and disadvantages of each before you decide which is best for you.

Advantages of Actively Managed Mutual Funds

Actively managed mutual funds are goal-focused. They do not seek to match the returns of an index, but rather to provide what index funds do not.

Potential to Outperform the Market. These mutual funds can provide investors with the opportunity to outperform the market. Although it is a difficult standard to meet, some funds are able to successfully achieve this, though few, if any, do on a consistent basis.
Can Offer Greater Diversification. Actively managed funds can invest in many different types of securities. For example, they can hold stocks, bonds, derivatives, and real estate according to the fund’s objective and at the discretion of their management. In this way, they may be able to better limit themselves from the risks associated with any single market.
Goal Oriented. Actively managed mutual funds are set up to provide a specific purpose for investors. This can be to provide high returns, minimal risk, or tax incentives. Since fund offerings and objectives are extensive, investors can focus on finding a fund that satisfies their individual needs and risk tolerance.

Advantages of Index Funds

Index funds, however, provide a variety of advantages relative to mutual funds.

Lower Costs. Index funds are not actively managed. Therefore, they tend to have a significantly lower annual expense ratio than their actively managed counterparts.
Often Report Higher Returns. On average, index funds outperform the majority of actively managed mutual funds. In fact, some analysts have found that leading index funds outperform actively managed funds 85% of the time.
Lower Capital Gains Taxes. Due to the fact that index funds aren’t actively managed, turnover is not as high. Therefore, investors are less likely to have to pay capital gains taxes than they would with actively managed funds, which typically sell holdings more regularly.

Which Fund Is Best for You?

You will need to consider your investing goals to choose which type of fund is best for you.

One of the most appealing things about index funds is their low-cost structure; especially if you’re investing for the long-term, annual expenses can significantly eat into your gains year after year. Also, index funds are advantageous for investors who are interested in saving on their taxes, as they rarely report capital gains comparable to most actively managed funds.

That being said, investors should also consider that there are a number of different types of both index and actively managed mutual funds, and with actively managed mutual funds, they may be able to find a more specialized fund that satisfies their investing needs. For example, an investor who is interested in investing in both bonds and stocks could purchase an actively managed balanced fund. To accomplish this in index funds, he or she would have to separately purchase both a stock index fund and a bond index fund.

Final Thoughts

While you may be tempted to invest in an actively managed mutual fund if you want to beat the stock market, you should be realistic about your chances of doing so. The majority of these funds do not outperform stock market indexes, so your best bet could be to invest in an index fund that replicates the index itself.

That said, if you’re willing to do the research required to find a winning fund, going the active management route could pay off. Regardless of whether you invest in an index or actively managed mutual fund, the most important thing is to make sure that you are investing in a fund that is consistent with your own financial goals.

This article was originally written by Ted Jenkin for Your Smart Money Moves on March 2, 2012.

All investments carry some level of risk, and may not be suitable for all investors. Before deciding on any investment, you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. Seek advice from an independent financial advisor if you have any questions or doubts.

Can Your Protect Yourself From Online Hackers?

5/15/2012 11:00:00 AM

We have seen a steady rise in online shopping with consumers over the last decade. Many people choose to purchase their goods and services online versus waiting in lines and rummaging through department stores. With all of these types of online and wireless payments, protecting yourself from unwanted hackers is becoming more important than ever.

It isn’t just the small guy that is at risk. Recently, Global Payments was the latest company to fall victim to a large-scale hacking incident. The company reported that hackers stole debit and credit card account information for nearly 1.5 million consumers (source: lowcards.com).

Unfortunately, this has become a fairly common news story. Last year, hackers stole personal information from a reported 24 million accounts from Sony Online Entertainment. In 2010, 130 million accounts were stolen from a payment processing company, Heartland Payment Systems. In 2007, 46 million accounts were stolen from TJ Maxx and Marshall’s. Even MasterCard had 40 million accounts compromised in 2005 (source: lowcards.com). That's just on the corporate side; you can only imagine what it looks like on the personal side.

In my opinion, the most important precaution is to check your credit and debit card accounts regularly for any unauthorized charges. Don’t just look for large purchases. People who find your credit card or steal your credit card information sometimes make small transactions since they are more likely to fly under the radar. It seems there is always a gas station or department store around the corner where they can make a few purchases before you find out. By checking your accounts every other day, you’ll likely catch major hacking on your card and be able to notify your credit card company before it becomes a problem.

Here are some tips on protecting yourself from unwanted hackers with your credit and bank information:

Don't Store Passwords and Change Them Frequently

Many people get lazy and have the computer remember their passwords. If you choose to do this and lose your computer, hackers will have easy access to get at your information. Don’t publicly post anything you may use as a password: your birth date, pet’s name, mother’s maiden name, or your school. Identity thieves can use the information you post to guess your password.

Don't Email Your Credit Card Number to Anyone

No financial institution or legitimate company will contact you by phone or email to ask for your Social Security number, credit card number or other personal information. There are many phishing items that I see from companies that look like they are your bank, credit card, or PayPal account. Be careful about opening these as hackers may be looking to steal your information.

Check Your Credit Reports at Least Once Per Year

You can get one free credit report every year from each of the three credit bureaus. Go to www.AnnualCreditReport.com or call (877) 322-8228 to order. By doing a thorough review of your credit, you can catch information that is inaccurate before it sticks with your credit record and negatively impacts your creditworthiness and financial health.

Secure Your Wireless Router

If you use a wireless router, password protect it and enable the encryption to scramble the data you send online. I’m amazed that some people still have an unsecured network, be it a residential or commercial router. This is important as someone could post up close by and easily hack into your network if it is without the protective encryption code that you should put in place when you set up your network.

Use Bank Account Protection Software

Ask your bank if it has free software to protect your bank account. Some banks and credit unions will offer free software to protect your bank account. You should ask questions about security and how your bank checks activity to see how they actually monitor the accounts.

There are so many exciting inventions that have evolved to make our lives easier every day. Shopping through the Internet, using programs like Square, and the soon-to-be mainstream electronic wallet are all advancements that should make our purchasing process simpler. However, you need to make sure you protect yourself from unwanted hackers or you could end up with a nightmare on Credit Card Street!

This article was originally written by Ted Jenkin for Your Smart Money Moves on April 11, 2012.

The Most Common Scholarship and Financial Aid Scams

5/14/2012 10:00:00 AM

Applying for educational loans and grants is a time-consuming process. Individuals interested in furthering their education often find themselves having to take out a loan or grant to help pay the costs. Unfortunately, there are many scammers promising loans and grants to students, only to disappoint them in the end. These educational scammers do not pay for a student's education and usually there is an enormous processing fee for the application. These types of lenders are not worth wasting time on. There are many types of educational scams that center around people looking to further their education.

Scholarships for Profit

Scholarship programs for profit are often set up to look just like a real scholarship. The only difference with this program is there is a fee attached to the application. The scammers charge around $35 dollars for each application and receive thousands of applying applicants each year. These scammers usually pocket all the money and may award one or two scholarships totaling a thousand dollars. The odds of even getting a scholarship from these scammers are highly unlikely.

Scholarship Prize

Beware of the infamous scholarship prize scam. These scammers alert prospective college students of their thousands of dollars won toward their education. The only catch to getting the money is students must pay a "redemption" fee before they can receive the money. Beware of receiving a prize from a contest that you have never entered. Also these scammers will send students a check for more than the amount needed and will ask that the difference is sent back. The scholarship check will bounce and the person who received it will be out of the money they sent to the scholarship sponsors.

Charging Money for Free Services

In your search for financial aid, you may come across certain companies that require you to pay a fee for the use of their financial aid resources although the same service is offered for free elsewhere. While many unsuspecting parents or students will readily pay the money in their eagerness to find the best aid opportunities, these unnecessary costs can be easily avoided with a little bit of research on your part. For instance, the FAFSA (Free Application for Federal Student Aid) is a FREE online form (www.fafsa.ed.gov) that all students interested in financial aid for college must complete, yet there are companies that charge users money to access the same form. In the case of the FAFSA, you can avoid making this mistake by verifying the URL of the website you are visiting (see above). For all other cases of financial aid services—whatever it may be—before you agree to pay any fees, double-check to make sure that the same service isn’t offered for free by the Department of Education or your school.

Grant Kit Scams

There are dozens of grant kit scams that promise to help individuals find the right grant to help with education costs. These scammers offer to send a kit with all the information needed for a one-time low fee of $1.99 and up. Individuals are required to sign up for the information and use a credit card to pay for the information. Once a person enters their credit card information their card is usually charged the $1.99 along with other charges. Most of the time the person's credit card will continue to be charged a monthly fee. By the time cardholders realize what has happened, they are already out of hundreds of dollars.

Advance-Fee Loan

The advance-fee loan is a low-interest loan which requires a recipient to pay a fee before the loan is received. Once the fee is paid to receive the loan, the loan never happens. Students should never have to pay a fee for an educational loan. Fees are usually deducted from the disbursement check from the lending agency. There is also never an upfront fee to process a student loan or grant application. It is best to take out educational loans with well-known banks and lending agencies.

Looking for scholarship money to cover the cost of school? Check out iGrad's College Scholarship Search page, a comprehensive database of legitimate aid opportunities and programs.

And don't miss these additional resources to help in your financial aid search:

Financial Literacy: Financial Aid and Other Ways to Pay for College (Video)

The Best Online Tools to Help Pay for School

Paying for College: Scholarships, Grants and Loans

9 Must-Read Articles to Help Pay for College

Personal Finance 101: College Education Planning—What Kinds of Money are Available

The Most Common Job Listing Scams

5/11/2012 10:00:00 AM

The Internet is a fantastic resource to find the perfect new job when you are looking for one. In today's world, many companies only advertise online and only accept electronic applications and resumes, and so the Internet has become vital to successful job searching. Unfortunately, there are plenty of scams out there where people advertise that they are hiring and are really just phishing for your information and money. If you aren't careful, you could wind up with a big mess to clear up and money taken out of your pocket.

So how do you tell the difference between a legitimate job posting and a scam? Here are some tips to assist you:

Work From Home and Mystery Shopping Scams

Work from home jobs are some of the most common places for scammers to target and one of the most popular ways they scam you is through mystery shopping. Mystery shopping is a service used by market research companies to provide objective feedback to their clients regarding the quality of their goods, services, and customer service. The market research firm pays someone (usually through reimbursements of the cost of services) to go into a store or restaurant and act like a regular customer. The shopper then fills out a survey about the experience and submits it to the firm via an online form. Once the company accepts the form, the shopper is reimbursed for the costs. While you probably can't earn a full-time living, it can be a great way to be reimbursed for things such as movie tickets, meals, oil changes, even vacations.

How do you tell the legitimate ones from the scams? The biggest red flag is if they ask you for money. Real market research firms do not charge you to mystery shop, and the only out-of-pocket expense you should have is whatever you spend while performing the shop. There shouldn't be any set up fees, membership fees, or any other fees. Another way to recognize scams from the real companies is to utilize web site portals that are devoted to mystery shopping. Two excellent resources are The Mystery Shopper Providers Association and Volition.

Craigslist Job Posting Scams

One great Internet resource for finding jobs is Craigslist.org. Unfortunately, this site is also a place that scammers love to hang out.

So how do you tell the difference between legitimate company postings and postings that are used to scam you? The best thing to do is to follow up on the contact information. If there isn't any listed, then the job probably isn't real. If they do have contact information it is still a good idea to follow up on it. You should go to their website, call the phone number, and check out the company. Do not email them, however, until you are certain it isn't a scam or you will quickly find your SPAM folder full of unwanted junk mail or worse, malicious viruses. Another way to tell whether or not a company is legitimate is if they ask you to pay for something. A lot of scammers will ask for membership fees, offer paid "training," or require you to purchase a start-up kit of some kind. These are all red flags that you are dealing with a scammer and the job opportunity isn't legitimate.

Information Collection Scams

A final tip to help keep you safe is guard your information. Information is powerful and scammers will attempt to steal yours and use it for their own profit. Common tools that they use to do this are surveys, or registrations that promise you something free in return. They ask for your name, address, phone, email address, and sometimes your social security number. While there are legitimate paid survey companies out there, they will not offer you some kind of free deal and will qualify you first with a brief survey of about five questions before they ask for your information or allow you to take the longer survey.

The Bottom Line

Remember to be careful when you are out there searching for the perfect career. Follow these tips and use good judgment and you will avoid the scammers and increase your chances of landing that new, high-paying position. A good rule of thumb when online browsing is, if it sounds too good to be true, chances are it's a scam.

Here are some additional iGrad resources to help you learn about ways you can protect yourself against scams or theft of your personal information and/or money, and what you can do if you've already been a victim.

Preventing Identity Theft for College Students

Identity Theft Scams: Tips to Protect Yourself From Identity Theft

9 Steps to Recovery After Identity Theft

How to Protect Yourself From Identity Theft and Fraud (Video)

Also, try out iGrad's Job Genius job search engine. For the best search results, log-in or register for a free account to view personalized and premium job listings.

Four Signs Your Job Might Be in Danger

5/10/2012 12:00:00 PM

With the high unemployment we have today in the United States, it is more important than ever to prepare financially for employment layoffs. You should make sure you have a fresh copy of your resume prepared in case of this unforeseen event. We normally don’t wake up in the morning with the thought that our job will be eliminated, but in times of economic uncertainty it is always smart to be prepared and aware. Pay attention to these four warning signs that could indicate your job may be on the cut line.

1.) Your Last Performance Review Was Lower Than Normal

Most large companies will rate and rank their employees against a set of individual and corporate goals. They will have measures such as a G1, which means far exceeds expectations; G2, above expectations; G3, meets expectations; G4, below expectations; and G5, far below expectations.

Although the last time many of us saw a bell curve used was in our 9^th grade chemistry class, large companies use bell curves each and every year. This allows them to create forced distributions for bonus, stock, merit increases, etc. Even if you are normally a high performer, if you find in your latest review that your boss says you’re performing below expectations and you’re going to be put on a performance improvement plan, a red flag should go up in your head. In many cases, a performance improvement plan is your manager’s way of saying you are on the way out. More importantly, if your company has to do job cuts, last year’s performance review usually determines the first person to get cut in a department.

2.) You're Randomly Being Asked to Document What You Do

The easiest way to find someone to replace you is to have you train them yourself. This works well and can be an exciting, promising sign when you are up for a promotion. An alternative strategy your boss might use to get a bulk of information ready for the next person in your job is to ask you to document your day-to-day tasks and responsibilities; you may also be asked to create a manual of processes and procedures which your company now suddenly wants to make the department run better. While in some instances, an internal promotion or departmental improvements may indeed be the case for these requests, you should anticipate these as warning signals that some structural changes may be taking place within the company, and that may mean replacing you with somebody new.

3.) Lots of Closed-Door Meetings Taking Place Without You

Have you noticed as of late that the managers in your department are meeting lots of times behind closed doors in the office? Or, is your boss taking one-on-one meetings with other employees besides you in their office? When you see lots of commotion within the office circulated with rumors that cuts may be coming, this can be imminent danger that your job might be ready to walk the plank. A smart course of action would be to set up a proactive meeting with your boss to find out what exactly is happening, and to see which of your coworkers has been playing a game of political office football as of late. When the environment in the cubes seems very quiet and there are a lot of closed-door meetings taking place, this can be a indicative sign that cuts are coming.

4.) Your Goals Are Unattainable

One approach a boss might take if they really want to get rid of you is to give you work and goals that they know you will not be able to reach. This is a more slow and painful approach and requires a ton of documentation on the part of your company, but if next year’s goals seem truly ridiculous, then this could be a sign that the end is near. The real thing to watch out for here is if, on top of the lofty goals, your boss adds even more responsibilities to your list or makes you completely document all the tasks that are involved in your job.

Surely, there are more obvious signs that your job may be in danger, like if you are asked to take a pay cut, reduce the number of days you are working, or job share. Looking for both subjective and objective signs will help you be proactive instead of reactive when it comes to these types of situations. It is important to get a good financial strategy in place for a job loss so you aren’t stuck in the rain using credit cards and other means to put you in a financial hole. Use these four signs to help you make smart money moves to keep your job!

This article was originally written by Ted Jenkin for Your Smart Money Moves on September 21, 2011.

Is it Time to Trigger Your Stock Options?

5/9/2012 11:00:00 AM

I worked for a Fortune 100 company for over 15 years. When you rise through the ranks of management at a large company, they generally stop talking to you about salary and instead use the word Total Economic Package (or Total Compensation Package). The reason they do this is because every year you start receiving something called Long Term Incentive Awards. These can come in the form of stock options, performance units, restricted stock, or incentive type stock options—essentially, all types of compensation linked to the hopeful future growth price of the stock of the company you work for every day. Unfortunately, most executives who receive this type of compensation do an awful job of constructing a smart strategy on what kinds of options to take if they are offered choices; they also struggle with how to most effectively build an exit plan if they have too much money in their company stock.

Types Of Stock Options

The three main types of stock options I run into most are Non-Qualified Stock Options, Restricted Stock Plans, and Incentive Stock Options. Before we talk strategy on exercising these options, here is a short debrief on each of these plans.

1.) Non-Qualified Stock Options

A non-qualified stock option is one methodology for a company to compensate key employees or others in an organization without having to actually pay them cash. They work best for employees at a company with a rising stock price.

The company will grant the employee an option to purchase shares of stock at a fixed price. For example, Coke grants an employee 1,000 options at $65, which are good for 10 years. This means that over the next year the employee has the right to purchase 1,000 shares of Coke stock at $65 no matter how high the stock prices go; if Coke’s stock goes to $95, then the option is worth $30 per share or $30,000 to the employee if gross income is exercised. All of these types of options will be taxed at ordinary income rates, which is a consideration that needs to be made at the time of exercising the option. When the stock isn’t publicly traded, the company determines the value of a share of stock on the date the option is granted. The options typically lapse on a certain date which is predominately 10 years from the grant date.

The incentive to the employee or service provider is to participate in the potential increase in value of the stock without having to risk a cash investment. The company receives a tax deduction for this ordinary income element reported by the employee or service provider.

The reason these options are called “non-qualified” is they do not qualify for special treatment of another type of option called “incentive stock options” within the IRS tax code.

2.) Incentive Stock Options

Incentive stock options are only available for employees and other restrictions apply for them. For regular tax purposes, incentive stock options have the advantage that no income is reported when the option is exercised and, if certain requirements are met, the entire gain when the stock is sold is taxed as long-term capital gains. You must be very careful and talk with your CPA or accountant, however, as you could be subject to alternative minimum tax offset, etc. if you do not plan all of this strategy cohesively at one time.

The incentive stock options look and feel a lot like the non-qualified stock options, but the difference is that at the time of exercising the option they won’t be immediately treated as ordinary income. You could decide to hold on to the company stock, and if you meet the special holding period you could be subject to capital gains tax on the money instead of paying ordinary income tax, which is a sizable difference. I did mention above that it can be very tricky with alternative minimum tax, so you should be certain to plan your tax strategy wisely.

3.) Restricted Stock Plans

Restricted stock plans are essentially grants of stock in the company stock. For example, Coke grants you 1,000 shares of restricted stock in your next round of performance reviews. If the stock is trading at $65 a share, they have really given you an additional $65,000 of compensation.

It is important to note that each of these plans comes with a hook which is called a vesting period. Typically, these plans will either vest over three or four years depending on the company. This means that although you got the grant from the company, you don’t actually own the stock or percentages of the stock until your vesting period hits. If the vesting period is three years, then you’ll receive one third of the stock each year for the next three years.

Taxation can be a little funky when it comes to restricted stock plans. Although you don’t technically own the stock, you will be responsible for paying the tax on any dividends earned on the stock plans. In addition, you have a special election called IRS code 83(b) which actually gives you the choice to either elect to pay tax on the stock when you get the grant, or to pay tax when you are actually in constructive receipt of the stock. There can be pros and cons to both of these depending on where you think the stock price will head over the three to four year period.

When To Trigger?

For most people who receive these types of option plans, they generally come to me with the idea to wait as long as possible in order to get the most out of their option plan. This can be a chancy strategy for employees, however, because with every year you wait and you get closer to the plans expiration date, you risk experiencing a sharp downturn in the stock or some other event that could essentially make your options worthless. Since the stock market has seen massive declines in 2000 and 2008, it is worthwhile to think smarter about your overall strategy for triggering your options.

It’s easy to play Monday morning quarterback with stock options. Oftentimes, individuals will have a hard time exercising these on their own and doing it well because they are emotionally vested. For example, if you set $70 a share as the price where you will trigger the options, then the day that stock hits $70 you will move the price to $80 a share. I’ve done it myself and have seen many executives who create this logic in their head because they are inside of the company every day.

One smart strategy to define is simply having a set price on each option plan as the trigger price. Regardless if the stock is booming or treading water, when the stock hits this price you are out of that set of options. To some, this may not seem too consequential because if you maintain employment at the same company you will continue receiving options from them; the advantage to this strategy, however, is that it gives you an automatic game plan no matter what happens in the stock market on a day-to-day basis.

Another route you can take is to create a holistic diversification plan. This means that you set a certain percentage of your overall portfolio to be in your company stock. Between your employee stock purchase plans, stock in your 401(k), stock options, and restricted stock, you will diversify out any money that is above that overall percentage you set within your financial plan. This provides for a great deal of discipline, especially if your company stock is performing exceptionally well. If your company stock is experiencing significant, accelerated increase in value, your emotional side will tell you to gather up as much of that stock as you can in your portfolio. But don’t be too hasty in your purchases, for this approach does not always end well; just ask the employees of companies like Enron and dotcom’s gone bust.

As you can see, navigating the sale of stock options from your company can be a challenging task. To make the most of your hard work, consider meeting with a financial advisor, a CPA, or a team of people who can help create a quality game plan for you. More companies are limiting the cash compensation for their executives and tying their performance into the performance of the stock prices. Make the right smart money moves and don’t get caught in a shootout at the OK Corral!

This article was originally written by Ted Jenkin for Your Smart Money Moves on September 28, 2011.

Is a Roth 401(k) Right For Me?

5/8/2012 10:00:00 AM

The 401(k): Traditional versus Roth

Since 1997, Roth IRA accounts have been around as an investment vehicle. In the past several years, participants at many work places have been offered the opportunity to do a Roth 401(k).

The Roth 401(k) follows many of the same rules as your current Traditional 401(k), but there are two very large distinctions between doing a Traditional 401(k) and a Roth 401(k):

1.) How contributions are taxed: In a traditional 401(k) plan, all of your contributions will be put in your plan on a pre-tax basis. Thus, your reportable W-2 income at year end will be lowered by the amount of Traditional 401(k) contributions that you make over the course of the year. In a Roth 401(k), your contributions will be taxed now and put in your plan on an after-tax basis. Thus, you will have no change in your reportable W-2 income.
2.) How distributions are taxed: Eventually, money will have to come out of your 401(k) plan. In the Traditional 401(k) plan, all of your distributions will be taxed at whatever your ordinary income rate will be at the time of distribution. Many participants think that their ordinary income tax rate will be lower when they receive distributions down the road which is why they choose the Traditional 401(k) plan. However, in a Roth 401(k) plan, your distributions will be received tax-free at the time you take the distributions from your Roth 401(k) plan. If you believe that your ordinary income tax rates may be higher than the rates you pay today, than the Roth 401(k) would make more sense.

Both the Traditional and Roth 401(k) plans grow on a tax-deferred basis. This means that dividends, interest, etc. will all accrue without you paying any taxes while they grow in your account. Your Roth 401(k) can be directly rolled into a Roth IRA if you leave your employer down the road.

Picking the Right 401(k)

Whether to do the Traditional 401(k), the Roth 401(k), or perhaps a combination of both will really depend on your overall tax situation. When making the decision, you need to:

Consider that while your personal income may be lower in the future, the deductions you take on your tax return may be lower as well such as home mortgage interest.
Think about where the tax environment may be given our own federal deficit in the United States. Obviously, most people planning for retirement don’t expect to lessen their standard of living, so do you really believe you will have a lower income?

Over the years, I have become a bigger fan of building differently taxed buckets with your investments so you can gain more control come distribution time. One consideration would be to max out the Traditional 401(k) to the match (if your company offers one), and then put the remainder into the Roth 401(k). This way you have both taxable and tax-free money down the road at retirement.

Is a Roth 401(k) right for you? If you like the idea of getting your tax bill done now and not having to pay tax again on that money it certainly is a great place to start.

This article was originally written by Ted Jenkin for Your Smart Money Moves on December 2, 2010.

5 Things You Won't Hear at the Graduation Commencement Speech

5/7/2012 12:00:00 PM

It’s been over 20 years since I heard my college graduation commencement speech. I can’t say I remember very much of it except that it was like hearing some sort of State of the Union speech. So many kids will be graduating from school soon and beginning their journey into Real Life 101. You’ll be getting unsolicited advice soon from friends, family, professors, and then inevitably some final words of wisdom from a renowned speaker at your graduation. Here are five things that you won’t hear from your commencement speaker, but we’re going to share them with you anyways.

1.) It’s Rough Getting To The Top

Most people coming out of school have some idea about what they want to do for a career. Most dream of getting to the top and making six figures and more before the time they hit 25. However, school and the graduation commencement speaker hardly ever spend the time to tell you just how hard it is to get to and maintain being at the top. Generally, the first three to five years you go to work out of school you’ll be overworked and underpaid. Even if you get into a new job and people at your new employer seem less skilled than you do, it will be a lot of effort to work your way up the food chain. Not to mention the notion of company politics that they never teach in college. Or, what the people in human resources will think of you. If you aim to go at being an entrepreneur, most of you won’t become Mark Zuckerberg. Get prepared to spend five to seven years before you really see something steady and big with your business. No matter what, getting to the top is like fighting 15 rounds with Mike Tyson when he was in his prime.

2.) It’s Not What You Know, It’s Who You Know

Got straight A’s in school? You scored a 98 in your college statistics course? You graduated from U.S. News and World Reports top 50 schools? Once you get into your first job, a lot of these statistics don’t matter a heck of a lot for your career. Of course, it does help a few times a year if your team is good at college football or basketball. The truth is, the time you spent at your fraternity, playing intramural sports, or being active with your alumni group (and how powerful they are in business) is what will begin to matter. Growing your career within a company and finding new jobs in the market place often come down to who you know, not what you know. If you plan to stay local in your state, sometimes a state school will have a much larger and more powerful alumni base than some small, well-ranked independent school.

3.) Follow Your Passion, Don’t Follow the Money

A lot of kids coming out of school are in pursuit of getting a high paying job. You can quickly go through your twenties climbing the corporate ladder and getting to a six-figure income. However, once you hit your mid-thirties, you end up trapped in a career and job you really don’t love, but it’s hard to get out of because you have financial and family responsibilities. What you should do, irrespective of your income, is to follow your passion for what you love to do. If you are good at it, the income will follow.

4.) Blue Collar Businesses Are Good To Own

If you went home to mom and dad and told them that you were going to open up a plumbing company or start a scrap metal business, what would they say? Most parents would probably flip out if their new college graduate came home and said that they were going into a blue collar business. There are some great opportunities with blue collar companies to get involved in and own that you should keep your eye on in the future.

5.) The School Will Be Hitting You Up For Money

We all want to help out our alma mater, especially if we want our children to go there in the future. What they won’t tell you at graduation is that giving becomes more like soliciting. Expect that a short period of time after you graduate your school will begin a campaign on you. You’ll get mailers showing you how benevolent your other classmates have been, and the longer you are out of school the higher the expectations will become for you to give.

This is an exciting time for college graduates. Is this the last summer vacation before real life begins? Or, are you going to be working here soon beginning in June at that career you have been dreaming about? Like most commencement speakers, I recommend that you shoot for the stars and take advantage of all of the talents that you have acquired over the last four years. After 20 years in the work world having been a high-level corporate executive and now a serial business owner, I thought I would share a few smart money moves for you to think about as graduation day approaches you!

This article was originally written by Ted Jenkin for Your Smart Money Moves on April 30, 2012.

Financial Literacy Month Round Up: Protect

5/4/2012 10:00:00 AM

Earning ● Spending ● Saving ● Borrowing ● Protect

April 1^st marked the kick-off of National Financial Literacy Month, an entire month dedicated to creating awareness of the importance of financial literacy and teaching individuals how to build and maintain healthy financial habits. In an effort to promote and standardize financial literacy across the nation, the Department of Treasury’s Financial Literacy and Education Commission has developed a set of core educational concepts that should be covered be financial literacy educators. The concepts include Earning, Spending, Saving, Borrowing, and Protect.

In honor of National Financial Literacy Month, we will be doing themed link round-ups each week to highlight a different core concept using the best of iGrad’s articles and resources. This week’s round-up will bring you the best and most relevant information within the topic of Protect.

The core concept, Protect, strives to educate on the areas of disaster preparation; emergency funds; protective insurance policies; and how to avoid and protect yourself from identity theft, fraud, and scams. To help you develop a stronger understanding of these fundamental lessons, we present a comprehensive collection of iGrad’s top resources on borrowing and other related subject matter.

Budgeting Advice: How to Start Saving for an Emergency Fund
Maintaining an emergency fund of at least 3 months’ worth of expenses is vital to your personal finances. Since your first job isn’t likely throwing you fortunes every month, here are some ways to get creative with saving…

Emergency Fund Calculator (Resource)
Use this calculator to find out how much money you will need to put aside to be prepared for an unexpected emergency…

Why It’s Important to Start an Emergency Fund (Video)
Watch this video to find out how and why you start an emergency fund, as well as how much money you should save and how to manage and maintain the emergency savings fund so that you can maximize its benefit.

Protecting Your Finances if Disaster Strikes: Are You Prepared? (Resource)
Right off the shelves of iGrad’s online eBook library, this PDF discusses the severe consequences that can potentially be caused by an unanticipated catastrophe, including severe financial loss form uninsured property, the destruction of vital documents, and the inability to work. The FDIC gives tips on how to financially prepare and protect yourself from such an event…

Do Single 20-Somethings Need Life Insurance?
In your twenties, your future feels too distant to necessitate the purchase of life insurance, but it can be a good investment for certain young individuals. Each situation is different, however, so find out if it's the right choice for you…

What You Should Know About Buying Life Insurance (Resource)
Right off the shelves of iGrad’s online eBook library, this PDF teaches how life insurance can protect your financial future by providing your family or business with the resources it may need to pay for expenses if something should happen to you. This guide will explain the types of insurance available and what to ask when buying a policy.

Health Insurance 101: Coverage Options for College Students
Are you afraid of getting sick because you can’t afford health insurance? In the long run, not having insurance can cost you more financially if you actually do fall ill. Consider these economical coverage options and find a plan that’s right for you…

Getting Intimate with Health Insurance
You moved out of mom's basement, but now you have to shop around for a health insurance plan - something you've probably never done before. The acronyms and deductibles and other buzzwords are driving you nuts. Here's a cheat sheet to help!

Health Insurance: Everyone Needs it, But What is Right For You?
Millions of people, smart people, are at a total loss when it comes to understanding the jargon of the health insurance industry. And without that understanding, choosing a good health plan is a shot in the dark. Learn about coverage, basic care plans, and also get a free health quote from eHealthInsurance.

HSA: The “Other” Insurance
A Health Savings Account (HSA)-qualified health plan is a different approach toward paying smaller medical bills, while having an affordable health insurance policy for larger medical expenses...

Guide to Long-Term Care Insurance (Resource)
Right off the shelves of iGrad’s online eBook library, this PDF covers the ins and outs of everything concerning long-term care insurance so that you will be an empowered consumer with the ability to discern whether this type of insurance is right for you…

Don’t Shy Away From Short-Term Coverage
Many recent college graduates remain uninsured as they search for full-time employment, and are no longer eligible to remain on their parents’ insurance plan. Short-term health insurance is designed to temporarily meet such insurance needs...

Auto Insurance: A Must-Have for a Secure Future
Car accidents happen nearly 100,000 times a day, and insurance can be the only thing standing between you and financial catastrophe. Use these tips and tools to help you know exactly what kind of coverage you should be looking for, how to get the best deal, and how to understand your policy…

Home Insurance: A Must-Have for a Secure Future
As much as we hate to believe it, accidents and unexpected disasters do happen and it's smart to have home insurance protection. As an owner or renter, you should understand the ins and outs of your coverage options, so we’ll walk you step by step through the basics of this policy type…

9 Steps to Recovery After Identity Theft
While printing out your credit report, you notice a huge red flag in the form of a delinquent store card account or an unauthorized cell phone bill. As your stomach slowly sinks, you realize you are the victim of identity theft. Now what?! Here is what you’ll need to recover…

How to Protect Yourself From Identity Theft and Fraud (Video)
Every time you enter a credit card number or reveal your Social Security number you're risking exposure to identity theft. Learn the warning signs--and how to avoid exposing yourself to this crime--in our iGradTV Identity Theft episode.

ID Theft Faceoff (Resource)
This fun financial literacy game for college students and recent college graduates educates you on the most common identity theft techniques.

How to Stop Identity Theft
Use these tips to stop identity theft and protect your credit score.

Preventing Identity Theft for College Students
Identity theft may not be a high priority topic for college students, but this demographic is a common target for such crimes, and victims are faced with damaging results. Take these preventative measures to ensure your personal data is safe…

Identity Theft Scams: Tips to Prevent Your Identity From Theft
Despite the fact that most recent college graduates and current students think they have very little to rob - outside of an outstanding student loan bill and credit card debt - they are actually prime targets for identity theft. Know what to look for to avoid becoming a victim…

Spotting a Job Scam
With Craigslist, and even more secure job search websites like Indeed and Monster, you are bound to come across employment scams. Sometimes the scam ads are obvious, and other times they’re pretty convincing. Either way, if the opportunity seems too good to be true, it is. Learn to spot the red flags…

Identity Theft and Your Social Security Number (Resource)
Right off the shelves of iGrad’s online eBook library, this PDF explains the dangerous repercussions of someone illegally using your Social Security number and assuming your identity. Be extremely careful when sharing your number, even if asked for it by a seemingly legitimate source. Here are some things to consider before giving out your number…

Identity Crisis: What to Do if Your Identity is Stolen (Resource)
Right off the shelves of iGrad’s online eBook library, this PDF from the Federal Trade Commission (FTC), the nation’s consumer protection agency, gives its recommendation for the first four steps you should take as soon as your realize you’ve been a victim of identity theft…

Phishing and Pharming: Helping Consumers Avoid Internet Fraud (Resource)
Right off the shelves of iGrad’s online eBook library, this PDF highlights the two forms of identity theft that are at the forefront of Internet piracy: Phishing and Pharming. Learn how to avoid fraudulent access to your personal information online…

How to Read Your Credit Report
Understanding the information contained in your credit report is a crucial element of successfully maintaining your credit health. We explain how to decipher a report, section by section, to help you accurately assess your financial situation…

Disputing Items on Your Credit Report: A Guide for Grads
A good financial habit to get into is habitually checking your credit report for errors that may affect your overall score. The more frequently you check your report, the more likely you are to catch any mistakes or spot instances of fraud before too much damage has been done to your credit. Learn what you need and how to go about disputing a credit error…

Financial Literacy and Credit Cards Survey

5/3/2012 3:15:00 PM

Financial Literacy and Credit Cards:

A Multi Campus Survey

The questions in this survey model the same questions asked in a survey conducted by the International Journal of Business and Science as part of a multi-campus research study on American college students and their use of credit cards. In America, credit cards on campus have been a disaster, leaving students buried in debt before graduation, an amount that only increases over time with high fees and interest. The original study found significant differences between students and their knowledge of credit cards and certain demographic factors. iGrad wants to see how it’s student users measure up against the financial literacy level of the original students surveyed.

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