But how should you diversify your portfolio? To diversify correctly, you need to know what kinds of investments to buy, how much money to put into each one, and how to diversify within a particular investment category.
Having a lot of investments doesn’t make you diversified. To be diversified, you need to have lots of different kinds of investments.
You should have some of all of the following: stocks, bonds, real estate funds, international securities, and cash.
Investments in each of these different asset categories do different things for you.
How do you figure out how much money to put into each investment category? Here are the rules of thumb for developing a diversification strategy.
First, set aside enough money in cash and income investments to handle emergencies and near-term goals.
Next, use the following rule of thumb: Subtract your age from 100 and put the resulting percentage in stocks; the rest in bonds. In other words, if you're 20 years old, put 80% of your assets in stocks; 20% in bonds. (Most 401(k) plans contain both stock and bond offerings; you can also buy these investments through an IRA.)
Then, to diversify your money among the other investment categories, adjust the percentages you got using the above rule of thumb as follows:
The result: Our hypothetical 20-year-old would have an emergency fund and the remaining assets would be split 75% stocks (of which 25% were international), 15% bonds, and 10% REITs.
Once you've diversified by putting your assets into different categories, you need to diversify again. It's not enough to buy one stock, for instance, you need to have a lot of different types of stocks in that portion of your portfolio. That protects you from being ravaged when a single industry—say, financial services or healthcare—takes it on the chin.
If you're not super rich, diversification while buying individual shares can be costly because you might have to pay trading fees each time you buy a different stock. The most cost-effective way for investors of modest means—and that means people who have less than $250,000 to play with—is to buy mutual funds.
Mutual funds are investment pools that combine the money of many individuals to buy stocks, bonds, real estate, international securities, and the like. To make things simple, you can buy so-called "index" funds, which purchase all the shares of a particular index, such as the stock market's Standard & Poor's 500 Index of big company stocks. There are also bond index funds, international indexes, real estate index funds, and money market funds, which are essentially an index fund for your cash.
Diversification protects you from devastating losses, but it also costs you in average annual returns. That's because risk and reward go together in the financial markets. So, anything that reduces your risk will also reduce your return. Give yourself permission to take a little risk unless you're close enough to retirement that the additional security is particularly valuable.
Some people argue that the rule of thumb is too conservative because it suggests that a 50-year-old, who likely has another 30 years to invest, should have a 50-50 stock and bond mix. These people suggest a better rule of thumb is to subtract your age from 110.
The best strategy is one that's geared to you. If a little extra risk won't keep you up at night, this modified rule of thumb can work. But, if it will cause you distress, stick with the original rule of subtracting your age from 100, even if it isn't as lucrative. You'll save money on antacids.
This article discusses just a few possible strategies and tactics for diversifying your investment portfolio. However, ensuring your investment portfolio is sufficiently diversified can be tricky and risky. Be sure to use all available resources to assist you, such as reading investment books and meeting with financial advisors.
]]>If you’re considering buying a timeshare or plan on attending a sales presentation to get a free hotel stay or another gift, you should go into the timeshare tour with your eyes open to avoid getting taken for a ride. (Better yet, don’t deal with timeshare sellers or presentations at all.)
And if you’ve already bought a timeshare and want to unload it, you need to protect yourself from the many timeshare resale scammers who will try to take advantage of your situation.
Keep reading to learn the answers to the most frequently asked questions about timeshares.
Timeshare sellers are notorious for offering a half-price parasail ride, a free day's rental car, a free hotel stay, or a free gourmet meal (you name it) to get you to attend a sales pitch. The presentations vary, but most include high-pressure sales pitches that drone on for hours, leaving visitors desperate to leave.
Timeshare salespeople frequently go over the advertised time allotted for their presentation and don't respond if you complain. They sometimes refuse to give the promised gift or discount if you don't buy. Although it might be illegal to refuse to give you a gift or discount, few consumers complain—they want out.
If you go to a timeshare presentation, you’ll likely hear about the money you’ll save over the years by buying a timeshare or timeshare plan instead of paying for hotel rooms. The salesperson will probably downplay how much the timeshare will cost you, including the purchase price, special assessments, annual maintenance fees (which are already expensive), and other fees that might and probably will go up.
Here's how timeshares generally work.
With a deeded timeshare, you own an interest in the property, typically a percentage of a timeshare unit, along with other people who purchased interests. You’ll get a deed that lays out your ownership rights, and your interest is legally considered real property.
If you take out a loan to buy a deeded timeshare, you’ll ordinarily sign:
You'll have to make mortgage payments, typically monthly, until you repay the debt. In addition to making mortgage payments, you’ll ordinarily have to pay annual maintenance fees, special assessments, utilities, and taxes.
You don’t get a legal interest in real property if you purchase a right-to-use timeshare interest. Instead, as you might expect, you’re buying the right to use the property. Right-to-use timeshares often expire after a certain number of years, like 20 or 99 years, and at the end of this time, your right to use the timeshare ends.
With deeded and right-to-use timeshares, weeks or points are commonly used to allocate the property’s use.
Week-based system. In a week-based system, the timeshares (both deeded and right to use) are sold in one-week intervals, typically numbered 1 to 52 (because there are 52 weeks in a year). You can purchase as many weeks as you want, which are fixed, floating, or rotating.
Point-based system. Deeded and right-to-use timeshares are also sometimes point-based. A points-based timeshare generally appeals to purchasers interested in staying at the main property and other places. With a deeded points-based timeshare, you get an ownership interest at one location, commonly called your “home resort,” and you get a deed to that property. Your interest in the property is also worth a certain amount of points each year, which you may use to visit your home resort or a different resort associated with the same development. The number of different locations you can choose from varies widely among timeshare developments.
Sometimes, points-based plans don’t have a home resort. Rather than purchasing an ownership interest in a home resort, you buy into a timeshare trust. This setup is a right-to-use point-based system, sometimes called a "vacation club" or "vacation plan." You won’t receive a deed.
Basically, you buy a certain number of points and exchange them for time at different resorts.
Yes. If you take out a mortgage loan to buy a deeded timeshare and stop making the payments, the lender, usually the resort developer, will probably foreclose.
Also, in most cases, timeshare owners must pay annual maintenance fees and special assessments to their homeowners’ association (HOA.) If, as an owner, you don’t pay the fees and assessments, the HOA may sue you for money or foreclose your timeshare.
State law governs timeshares, and the foreclosure process varies from state to state. Depending on state law, the procedure could be judicial (the lender goes through state court to foreclose) or nonjudicial (where the foreclosure occurs outside the court system).
The procedure for a timeshare foreclosure might be different than the typical process for residential properties. In Florida, for example, residential foreclosures are judicial, but state law allows the lender to use a nonjudicial process to foreclose timeshare properties. (Fla. Stat. Ann. § 721.855 and § 721.856.) (To find out which foreclosure process lenders regularly use for residential properties in a particular state, check our Key Aspects of State Foreclosure Law: 50-State Chart.)
In a foreclosure, the borrower's total debt might exceed the foreclosure sale price. The difference between the total debt and the sale price is called a "deficiency." For example, say the total debt owed for a timeshare is $15,000, but it only sells for $10,000 at the foreclosure sale. The deficiency is $5,000.
Whether you'll face a deficiency judgment (a personal judgment for the deficiency amount) after a timeshare foreclosure depends on state law. In Florida, for instance, the lender can't get a deficiency judgment against you after a nonjudicial timeshare foreclosure so long as you don't object to the nonjudicial foreclosure process. (Fla. Stat. Ann. §§ 721.81, 721.855, and 721.856.)
With a right-to-use timeshare, people generally sign a contract and agree to make monthly payments. While a developer may foreclose a deeded timeshare, a right-to-use timeshare is repossessed, a legal process different from foreclosure.
Maybe. Most states have "cooling-off" laws; these laws let you get out of a timeshare contract if you act within a few days after signing, usually within three to ten days, depending on the state.
If state law doesn't provide a cooling-off period, or if you change your mind after the time has passed, your only recourse might be a formal lawsuit. Timeshare sellers are accustomed to handling claims from unhappy buyers and are unlikely to refund your money unless they're forced to do so.
If you decide to attend a timeshare presentation, even if your intention is just to get a free gift, you need to be on the lookout so you can avoid a bad deal.
When you think about timeshares, it might conjure up the image of a shifty, fast-talking salesperson who pressures you relentlessly to make a purchase. But maybe you're willing to put up with the presentation to get a free night at a hotel or another prize.
Keep in mind that many people who attend timeshare sales presentations walk out as timeshare owners whether they plan on buying one or not. To stop this from happening to you, go into the presentation fully informed about how timeshares work so that you can make a rational decision about whether or not to purchase a timeshare.
If you’re considering buying a timeshare in a particular resort, evaluate the developer before entering the presentation. Even if you think you won’t be tempted to purchase a timeshare, it’s a good idea to investigate the developer or seller ahead of time so you’ll know who you’re dealing with and, perhaps, their tactics. Here's how to start:
Unfortunately, if you get roped into buying a timeshare and your cancellation period has already expired, you'll probably have trouble unloading it. There’s virtually no resale market for timeshares, and finding a buyer can be next to impossible. This is where the scammers come in.
Sample scam #1. In a common scam scenario, a timeshare reseller promises to set you up with a buyer, but first, you must pay an upfront fee. Timeshare scammers often convince owners to pay large upfront fees by saying they have someone ready and willing to buy the property or that the timeshares would be sold in a specified period of time. Once the timeshare owner pays the fees, the scammers either disappear or claim that they were simply offering to advertise the timeshare unit, and no buyer ever materializes.
Sample scam #2. In another common scam, the supposed reseller might not ask for an upfront fee, but you'll have to pay "tax fees" (such as a "federal tax" or "state tax"), "insurance premiums," "gains taxes," "customs fees," or something similar—but fake—before the deal can happen. Fees will keep popping up for various hurdles that supposedly need to be overcome before you can sell the timeshare and collect your money. As long as you pay these fees, the scammer strings you along, maybe telling you that you'll get reimbursed. But no buyer exists, and you won't recoup your money. This scam might also involve fake lawyers and documents.
Many states have strict laws governing timeshare resales, including restrictions on collecting advance fees. Talk to an attorney in the state where the timeshare is located to learn about relevant laws.
Don't sign a contract at the first meeting if you're considering using a resale company (or buying a timeshare). Take the documents the company provides with you when you leave the meeting so you can read the fine print.
If specific promises were made, make sure those promises are covered in the contract. You should also review the contract and documents with an attorney.
If you decide to pay a fee to a timeshare resale service to help you sell your timeshare (even though you probably shouldn't), investigate it thoroughly before moving forward with the deal. Ask lots of questions and verify everything the company tells you.
If you think you've been a victim of a timeshare scam, contact:
Reporting unscrupulous timeshare schemes can help prevent others from becoming victims.
Timeshares themselves aren't necessarily scams. But they're usually not a wise investment or a good deal. And sometimes, timeshare salespeople are scammers who will say anything to make a sale. You must be extremely wary of any deal that sounds too good to be true. (Most timeshare contracts disclaim any statements or promises the salesperson made when selling you the timeshare.)
If the offeror says you'll have no trouble getting out of the timeshare deal or you can sell it for a profit if you don't like it, that's not true. Don't ignore these kinds of red flags.
Again, there's basically no after-market for timeshares. You can purchase most timeshares on the internet for pennies on the dollar. Very rarely does anyone make a profit when selling one.
You might bring several types of claims against a slippery timeshare seller.
The first, breach of contract, involves promises explicitly made and set forth in the sales agreements. If the size, location, condition, or some other important fact about the timeshare is materially different from what you agreed to in the sales contract, you might have a basis for claiming a breach of the contract.
But beware: the timeshare sellers' attorneys carefully draw up these contracts and are likely to cover almost any contingency—scrutinize the contract carefully before signing.
You may also bring claims based on tactics used and promises made before you agreed to purchase your timeshare. These claims might be covered under state laws prohibiting unfair business practices or those designed to prevent fraudulent inducement.
In both cases, the idea is that the seller used unfair sales tactics or outright lies to get you to buy the timeshare. You will have to show:
Timeshare sales contracts usually include clauses that disclaim any promises made during the sales pitch. The contract you sign will ask you to agree that you are making the purchase only based on the representations in that contract.
Prospective purchasers who notice differences between what is in the contract and what was promised by the salesperson are likely to be told that the contract is only legal jargon, which isn't true. If a timeshare salesperson won’t put a promise in writing, don't go through with the sale.
Otherwise, you might have to argue afterward that you relied on that promise, even though you signed a contract that explicitly says you didn't rely on any promises.
If you need more information about timeshare laws, how to cancel a timeshare purchase, whether you should sue a timeshare operator, or your options if you’re facing a timeshare foreclosure, consider talking to a local foreclosure attorney or timeshare attorney.
]]>When and if you end your carshare, make sure that you transfer title to the remaining owner. If you leave both names on the title, you might have to track down your former co-owner in order to sell the car later. Best to get all of the paperwork done at once.
(Learn more about different ways you can co-own and use a shared car.)
This agreement is between Catherine Love and Theo Dancer, who agree as follows:
We agree to share ownership and use of a 2018 Toyota Camry, VIN#: 97233lksfd9f7f, ("the car").
Transferring title: Within one (1) week of signing this agreement, Catherine will transfer the title of the car from her name to both of our names, "Catherine Love and Theo Dancer, as tenants in common." Theo will pay all taxes and title fees related to the transfer.
Ownership of the car: In consideration for 50% ownership of the car, Theo will pay Catherine $11,150, which we agree is half of the current Blue Book value of the car.
Accessories: We agree that the following accessories in the car will remain Catherine's separate property: the roadside emergency kit and the steering wheel locking device.
Parking: We will keep the car at Theo's apartment on Sluggage Street.
Use of the car: Catherine can use the car on Sundays, Mondays, and Tuesdays, and Theo can use the car on Wednesdays, Thursdays, and Fridays. We will take turns using the car every other Saturday. We may from time to time negotiate a new schedule. If either of us needs to use the car on a day when the other person is designated to use the car, that person may ask the other for permission to use the car. The person to whom the car is designated may refuse without giving a reason.
Long trips: Unless we agree otherwise, if one of us wants to use the car for a trip longer than three days, that person will rent a car for the other to use on the days the other normally would have had the car.
Decisions: We will both take part equally in decisions related to the car. Neither of us will agree to sell, encumber, or make expensive repairs or improvements to the car without the other's permission. If we cannot reach an agreement about any matter pertaining to the car, we agree to discuss the issue with the help of a mediator.
Responsibilities: We will each be equally responsible for filling the gas tank and keeping the car clean. Catherine agrees to take the car for regular maintenance.
Rules: Each of us agrees not to lend the car to anyone without first discussing it with and getting permission from the other. We will never lend the car to an unlicensed driver. Smoking is not allowed in the car.
Costs: We will divide all insurance, registration, maintenance, and repair costs equally. We will each keep our receipts in separate envelopes in the glove compartment. Every three months, we will add up our costs and reimburse each another for any differences in expenses. Each of us will pay for the gas we use. Rather than keep strict records of our mileage and gas expenses, we will try to buy gas in rough proportion to the number of miles we drive. The car gets about 30 miles per gallon. (To learn more about splitting costs, see Splitting Car Purchase and Maintenance Expenses for a Shared Car.)
Insurance: We will carry an auto insurance policy with the following company: Our policy will cover up to $500,000 per victim, $1,000,000 per accident, and $50,000 for property damage. Catherine will be listed as the primary driver and Theo as a secondary driver. We will each pay half of the insurance premiums. If one of us receives a speeding ticket or does anything to mar his or her driving record, that person will be responsible for any increase in insurance premiums that result. If the insurance company deems that the car is "totaled" and pays us to replace it, we will split those proceeds.
Indemnification: If one owner is involved in an accident for which that owner is partially or completely at fault, that owner will pay any insurance deductibles, and will indemnify and compensate the other owner for any expenses related to the accident that are not covered by insurance. That owner will also pay for any increases in the insurance premium rates.
If one owner is involved in an accident for which that owner is not at fault, owners will each pay half of the insurance deductible (if applicable), any costs related to fixing the car, and any increase in insurance premiums. Any other costs related to the accident, such as medical bills, will be paid by the owner involved in the accident.
Dispute resolution: If a conflict or dispute arises that we are unable to solve through discussion, we agree to attempt to resolve the dispute through mediation. We will seek to mediate through Los Alamos Community Mediation.
Termination: If one of us wants to stop sharing the car, we will consider these options in the following order: (1) the other owner will keep the car and pay the departing owner half of the Blue Book value of the car at that time; (2) the departing owner will keep the car and pay the remaining owner half of the Blue Book value of the car at that time; or (3) we will sell the car and split the proceeds.
Name:_________________________________
Address:_______________________________
______________________________________
Date:___________
Name:_________________________________
Address:_______________________________
______________________________________
Date:___________
You will want to revise this agreement if only one of you owns the car. For example, you'll need to use different language regarding insurance, as in the example below:
Catherine owns a car and shares it with Theo. They include this language in the Insurance section of the agreement:
"If Theo is involved in a car accident, he agrees to indemnify Catherine for any accident-related costs not covered by Catherine’s insurance policy. If Theo is partially or completely at fault in the accident, he will pay the insurance deductible and any increase in insurance premiums. If Theo is not at fault in the accident, Catherine and Theo will split the deductible and any increase in insurance premiums.
If Catherine is involved in a car accident, she will pay for all accident-related expenses, except, if Catherine is not at fault in the accident, Theo will pay for half the deductible and any increase in insurance premiums."
It’s a good idea to have an attorney review your carsharing agreement to make sure you’ve covered all key issues.
To learn about joining an established carsharing program or starting your own, see The Basics of Carsharing Programs.
For information on how to finance, schedule car use, and handle other details of a carsharing program, see Carsharing Membership Requirements, Procedures, and Financing.
]]>These accounts differ in their eligibility requirements, contribution guidelines, and the advantages they offer to account holders. Learning the basics about each type of account will help you decide which one is right for you.
A health care FSA, as opposed to a dependent care FSA, is an employee benefit that allows you to set aside money on a pre-tax basis to pay for medical expenses not paid by insurance.
Generally, any employee whose employer offers an FSA as a benefit can participate. However, certain limitations may apply if you are a highly compensated or key employee.
If you are enrolled in an HSA, you might also be able to enroll in a "limited" FSA if your employer offers one. This account is similar to a regular FSA but limits qualified medical expenses to dental and vision so that it complies with HSA requirements.
Contributions are made with dollars deducted from your paycheck before your employer calculates your taxes. The more out-of-pocket medical expenses you have over the course of a year, the higher your annual election (the amount you want to set aside in your FSA) should be, and the greater your tax savings would be.
Withdrawals for qualified medical expenses are typically tax-free.
Your employer will deposit your annual election into your FSA in equal installments throughout the year, depending on your paycheck schedule. The employer also may contribute to your account.
The IRS places no limit on the amount of money you or your employer can contribute to the account. However, the plan itself is required to set either a maximum dollar amount or maximum percentage of compensation that can be contributed.
You can tap your FSA to pay qualified medical expenses up to your annual election amount, even if you have not yet placed the funds in the account.
To access account funds, pay for qualified medical expenses (which range from copayments and deductibles to orthodontics and eyeglasses) out of your own pocket and then submit a request for reimbursement. Or, you can use a debit card, credit card, or stored value card linked to the FSA if your employer provides one.
You cannot receive distributions from your FSA for health insurance premiums, long-term care coverage or expenses, or expenses that are covered under another health plan.
Carefully estimate your annual medical expenses. Make sure your estimate is as accurate as possible, because you forfeit any money in your FSA that you don't use by the end of the year. (The IRS now allows plans to provide an additional two and one-half months after the end of the plan year during which employees can use their funds. Not all plans provide this option.)
An HRA is an employer-funded account from which employees are reimbursed for qualified medical expenses not covered by the employer's health plan.
Any employee whose employer offers an HRA as a benefit can participate, though contribution limitations may apply for highly compensated employees. You can take advantage of both an HRA and an FSA, if they are offered.
Contributions by your employer aren't added to your gross income. Employees aren't taxed on their HRA reimbursements.
Only your employer can contribute funds to your HRA, and the schedule and amount of the contributions are determined by your employer.
To use your available HRA funds, pay for eligible expenses and submit a request for reimbursement. Or, if your employer provides a debit card, credit card or stored value card linked to your HRA, you can use that to make payment.
Eligible expenses may include all medical expenses allowed by the IRS, or they may be limited by your employer. Unlike an FSA, an HRA does allow distributions for health insurance premiums and long-term care coverage.
Depending on your employer's policy, unused funds in your account may carry over to the next year.
Employers can customize an HRA program to meet their needs. Because of this, program guidelines vary from company to company. See your employer's plan documents for rules about your HRA benefit.
An HSA is a tax-exempt account that allows account holders to use employer contributions and earnings to pay future medical expenses.
An eligible individual may establish an HSA at any number of banks, credit unions, insurance companies, or other entities that meet IRS requirements. Or, the account may be established as part of an employee benefits program.
To be eligible for an HSA, you:
You might or might not be eligible for an HSA if your employer offers a flexible spending account or a health reimbursement arrangement; it depends on the particular account the company offers.
There are three ways to reduce your federal taxes with an HSA.
State tax treatment of HSAs varies according to your state's law.
Contributions to an HSA can come from you, your employer (if the company offers such a benefit), or both. For 2023, you can contribute up to $3,850. If you have family coverage, you can contribute up to $7,750. A catch-up provision of $1,000 also applies for participants who are over 55.
You can withdraw funds from your HSA, tax-free, to pay for any qualified medical expense not paid by your health plan. Qualified medical expenses are defined in IRS Publication 502, Medical and Dental Expenses. If you use your HSA funds for anything other than qualified medical expenses, you will pay taxes on the withdrawal. If you are not disabled or older than 65, you also will be subject to a 20% penalty.
Unlike a flexible spending arrangement (discussed below), an HSA allows unused funds to roll over from year to year. There is no limit on how much you can accumulate in your HSA for future use.
You own your HSA. That means the account goes with you when you leave the company, even if it was established and funded as an employer-sponsored benefit.
Like an HSA, an MSA is a tax-exempt account that allows account holders covered by a high-deductible health plan to save for future medical expenses. But the introduction of the more flexible HSA (described above) has made the MSA obsolete.
The MSA, also known as the "Archer MSA," was created specifically for self-employed individuals and small business employees.
An MSA offers the same tax benefits as an HSA (see "HSA Tax Treatment," above).
You can no longer open a new MSA and you can't contribute additional money into an existing MSA. You can, however, continue to maintain an existing MSA and take tax-free distributions to pay for qualified medical expenses. If the account still has a balance when you retire, it will be converted to an individual retirement account (IRA).
Unless you are disabled, MSA distributions for anything other than qualified medical expenses prior to age 65 are subject to income taxes and a 15% penalty. Distributions made after age 65 for non-qualified expenses are subject to income taxes, but there is no penalty.
The account balance can roll over from year to year.
There is much more to know about each of these accounts. To learn more about the particular type of account that is available to you or that you are considering establishing, check with your employer or see IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.
If you are an independent contractor, freelancer or consultant and want to know more about HSAs, see Working for Yourself, by Stephen Fishman (Nolo).
Particularly for novices, the club environment can provide the support and structure they need to get started in investing. It encourages them to save money, in order to make their expected contribution to the joint investment pot. And clubs can make the stock market accessible for those who can't afford to make a large initial investment.
Thousands of investment clubs exist across the country, with billions of dollars in their collective portfolios. How do you decide whether or not to join one of these groups, start your own club, or go it alone?
Before you can decide if joining or starting an investment club is right for you, you have to know something about how they operate.
How big are investment clubs? The typical investment club has approximately ten members. A group of that size is big enough to spread the club duties around so the time commitment is manageable, yet small enough to allow all members to actively participate.
How often do clubs meet? Clubs can meet as often as they like, but once a month is typical. Meetings usually last a couple of hours. A typical agenda includes a treasurer's report, a performance review of current holdings, the presentation of one or more new investment opportunities that meet the club's predetermined criteria, a buy-sell vote, and sometimes an educational component, such as a book report. There's usually a little time for chatting and enjoying one another's company, too.
How do clubs operate? Some clubs buy and sell investments as a group. In others, members invest independently.
Traditional investment clubs buy and sell investments—stocks, mutual funds, real estate investment trusts, and so on—as a group. Members of clubs that invest in a single portfolio often form a legal partnership or a limited liability company (LLC) or partnership (LLP). Any tax liability that is generated by club activities is passed through to the club's individual members. (To learn more about LLCs, see Nolo's Limited Liability Company area. To learn more about LLPs, read Nolo's article Limited Partnerships and Limited Liability Partnerships.)
Clubs that invest together set an amount for members to contribute to the investment pool each month—ordinarily less than $100 per month, though the required amount varies from group to group. (The infamous Beardstown Ladies—a group of older women who were touted as having beaten the stock market until someone realized that the numbers had been calculated wrong—required an initial $100 contribution and then $25 per month thereafter.)
In addition, each member might be required to pay a nominal fee for club and individual dues.
Each club sets its own guidelines for when to buy and sell. That could mean relying on a stock's P/E (price-to-earnings) ratio or recommendations from outside experts, or employing some other approach.
Self-directed investment clubs meet regularly to do many of the same things traditional clubs do—learn about investing, discuss specific investment opportunities, and develop a network with similar interests and goals. But the members of these groups do not contribute to a single portfolio; each member invests independently.
You may find great benefits in joining an investment club if:
If you are not able to make a long-term commitment or you don't have the time to make a meaningful contribution to the group's activities, then membership in an investment club isn't right for you.
Before you can join a club, you need to find one that is accepting new members. This can be a bigger challenge than you might expect. One reason is that SEC (Securities & Exchange Commission) rules effectively prohibit clubs from publicly soliciting for new members, making them difficult to learn about.
Also, most investment clubs are close-knit groups, made up of people with a common connection—coworkers, members of the same church, old college friends, or neighbors, for example. Many clubs are not open to new members who do not share the same connection.
Despite these challenges, there are ways to improve your chances of finding a club to join.
Visit a model club meeting. Check the BetterInvesting website, at www.betterinvesting.org, to learn about "model clubs" that meet regularly across the country. The meetings, which are sponsored by local BetterInvesting chapters, are open to the public, allowing prospective members to experience a typical club meeting. You may be able to get information about local clubs while you're there. Or, you might meet others who would be interested in starting a club with you.
Post a message. ICLUBcentral, at www.iclub.com, provides information and tools for investors and investment clubs.
Search the Web. Do an online search for "investment clubs in or near [your town or city]." Or check online directories. Many investment clubs have their own website.
Before you begin your hunt for a club, answer these questions:
Don't join any club until you have attended at least a couple of meetings and are sure you are compatible. If one club isn't a fit, keep looking.
If you can't find a club to join, you can always form your own—you only need a handful of dedicated members to make it work. But don't underestimate the amount of time and effort it takes to launch a new club. Before you can make your first investment, you'll need to take care of things like writing the by-laws and mission statement, creating a legal partnership or LLC, and setting up the accounting software.
If you're willing to make the commitment, here are some resources to help you get your club off the ground:
If you do the research and make a good choice, starting your own investment club or joining an existing club can provide you with both challenges and personal rewards.
]]>The Federal Deposit Insurance Corporation (FDIC), an independent government agency, insures deposit accounts—checking accounts, savings accounts, money market accounts that don't contain invested funds, and CDs, for example—at most banks and savings and loans institutions.
The easiest way to know if your institution is insured is to look for the official FDIC sign—it must be displayed at each teller window. You can also call the FDIC toll-free (877-275-3342), or use the FDIC's "Bank Find" feature.
Coverage limits are based on account ownership category and are calculated per person, per bank. In a nutshell, a customer of a single bank could be covered for up to:
If you are over the limits, move some of your money into accounts at one or more other insured banks. (To learn more about FDIC insurance, including details of coverage limits, how to monitor your accounts, and what to do if your bank fails, read Nolo's article FDIC Insurance: How Safe Is Your Money?)
If your bank fails, visit the FDIC's Failed Bank List for important information, including the name of the acquiring bank, if there is one, and how your accounts are affected. Don't rush to the bank to withdraw money—you'll probably find that all accounts are temporarily off limits, at least for a few days while the FDIC takes care of administering matters.
Here's what will happen to your money, safe deposit box contents, and arrangements to pay bills and loans through your bank:
Insured deposits and CDs. If your bank is acquired by another bank where you already have deposits, your balances will be insured separately for six months from the date of the merger—meaning your combined balances can be over the FDIC insurance limit for six months. If your combined balances do exceed the FDIC limit, move the excess funds to a separate bank before the six-month grace period is up. CDs that mature after six months will be separately insured until their maturity date.
Uninsured deposits. Account holders who have uninsured deposits (that is, deposits over the amount insured by the FDIC) could ultimately recover all or a portion of those funds as their failed bank's assets are sold off, though this could take months or longer.
Safe deposit box contents. If you have a safe deposit box at the failed bank, you will be able to access it as usual if the bank is acquired. Otherwise, the FDIC will contact you with instructions for removing your box's contents.
Direct deposits. Direct deposits will continue uninterrupted if the failed bank is acquired. Otherwise, the FDIC will try to find another bank to temporarily process direct deposits, electronic withdrawals, and bill payments until customers have time to make other arrangements.
Credit and CD terms and payments. Loan terms, CD rates, and other such agreements already in place will not change. Continue making payments on loans and credit cards as before, until the FDIC or acquiring bank instructs otherwise.
Money market accounts. If you have a standard money market account, which is much like a savings account but usually pays higher interest in return for your depositing a minimum amount and making a limited number of withdrawals, you're insured. If, however, your money market account includes an investment component (for example, in T-bills or bonds), you won't be insured. Such accounts are often called "money market mutual funds." (Note: The U.S. Treasury Department's temporary guaranty program for U.S. money market mutual funds that was implemented on September 19, 2008 expired in 2009.)
The National Credit Union Share Insurance Fund (NCUSIF), an arm of the National Credit Union Administration (NCUA), insures deposits in all federal credit unions. The NCUSIF also protects deposits in those state-chartered credit unions that apply and qualify for the insurance. The dollar limits are the same as what the FDIC provides on bank accounts.
The easiest way to know whether your credit union is insured is to look for the official NCUA sign or symbol at the teller's desks there. You can also call the NCUA toll-free (800-755-1030), or do an online search at NCUA's website.
According to the NCUA, most states require that state-chartered credit unions be federally insured. Credit unions in states without this requirement will typically be covered by state insurance or private insurance.
The NCUSIF says it will make any necessary payouts to the members of a failed credit union within, typically, three days of the closure.
Brokerages are required to hold client assets in separate accounts so that they are not in jeopardy if the company fails. This makes it unlikely that you would lose money even if your brokerage did go bankrupt. In the unlikely event that your assets did disappear, however, the Securities Investor Protection Corporation (SIPC) would protect you.
The SIPC is a private, nonprofit entity that protects customers of those broker-dealers who are SIPC members. To be sure your dealer, brokerage firm, or bank brokerage subsidiary is an SIPC member, look for "Member SIPC" on the business's website, in its ads, or on its signs and literature. Or, search for a broker or company on the SIPC website, at www.sipc.org. If you invest through advisers, make sure they're working with SIPC member organizations.
The SIPC will replace any missing stocks, bonds, and other securities up to $500,000 per account, including a certain amount in cash. (See the SIPC website for details.) Losses exceeding these limits could eventually be recovered if there are adequate proceeds after the firm's liquidation. If you purchase and hold investments exceeding the standard limits, consider working with a broker that carries excess SIPC coverage.
It's important to understand that SIPC protection applies only to stocks, bonds, and other securities missing from a customer's account. This could happen if the broker or company committed fraud, or if it used, rather than separated, customer assets. The SIPC does not protect against the purchase of worthless stocks and securities or against a loss in market value. Also, it does not cover precious metals, foreign currency, or commodity futures contracts.
If your brokerage firm is put into liquidation, the court-appointed trustee will send you a claim form and instructions. (For this and many other reasons, it's important to maintain accurate investment records on your own, rather than leaving that task entirely to your broker.) Typically, customers receive their assets in one to three months. However, there could be delays if the broker's records are not accurate or if fraud was committed.
If your account is transferred to another brokerage, you will be notified and given the option of keeping your account there or moving it.
]]>Nobody can guarantee the success or longevity of a particular bank, but the FDIC, an independent government agency, does the next best thing by insuring customers' deposits in most U.S. banks and savings associations. If an insured institution fails—in other words, closes because it can't meet its obligations—the FDIC reimburses qualified account owners dollar-for-dollar for losses, but only up to the insurance limit.
Currently, the basic FDIC insurance limit is $250,000 per depositor (account holder), per insured bank. This amount includes principal and accrued interest through the bank's closing date.
You don't have to be a citizen, a U.S. resident, or even a person to be covered by FDIC insurance. All depositors, including businesses and other entities, are eligible for coverage.
FDIC insurance covers the following types of deposit accounts established with insured institutions:
The easiest way to know if your bank or savings association is insured is to look for the official FDIC sign—it must be displayed at each teller window. You can also call the FDIC toll-free (877-275-3342) or use the FDIC's "Bank Find" feature to look up your bank.
The following aren't FDIC-insured, even if they are offered by an insured bank:
Deposits in credit unions aren't covered by the FDIC. But federal credit unions are required to be members of the National Credit Union Share Insurance Fund (NCUSIF), administered by the National Credit Union Administration (NCUA). This provides deposit insurance for credit unions in much the same way as the FDIC provides insurance for banks.
Look for the NCUA logo at your credit union's teller stations. The standard maximum limit is $250,000 per individual account holder, per federally insured credit union.
Again, the basic FDIC insurance limit is $250,000 per depositor (account holder), per insured bank. and includes principal and accrued interest through the bank's closing date.
Note that coverage is calculated "per bank," not per account. That means that the insurance limits are applied to the combined balances of all accounts held by a depositor at a single bank. Not only that, but a single bank includes all of its branches and its internet division, even if it does business under a different name. Accounts held at separately chartered banks are insured separately.
However, it's possible to have more than $250,000 fully insured with a single bank, if your money is strategically divided among the different categories of account ownership. As long as you stay under the limit for each ownership category, you can safely keep much more than $250,000 in one bank.
These are the four most common categories of ownership:
These are accounts in only one person's name. All accounts owned by the same one person at the same insured bank are totaled and insured up to $250,000. For example, if you have a savings account with a $200,000 balance and a CD of $80,000, you would be uninsured for the $30,000 that exceeds the $250,000 limit.
Even in community property states, deposit accounts in either spouse's name alone are considered single accounts for FDIC insurance purposes.
These are accounts owned by two or more people. Assuming all owners have equal rights to the money in each account, each account holder's share of the joint accounts at the same insured bank are totaled and insured up to $250,000.
For example, let's say you and your spouse hold a joint checking account with a balance of $350,000, and you hold a joint checking account with your daughter that has a balance of $30,000. You would be fully covered because your half of the checking account is $175,000 and your half of the savings account is $15,000, totaling $190,000, which is still below the $250,000 limit.
Rearranging the order of names listed on joint accounts or switching between "and" and "or" on the account title doesn't qualify you for more insurance coverage.
A person's share in a joint account isn't combined with the amounts owned in single accounts to come up with a total; each account holder is entitled to $250,000 of FDIC coverage in single accounts and $250,000 FDIC coverage in joint accounts.
Trust accounts are treated differently. Only the interests of the beneficiaries to the trust are insured; owners of a trust account aren't insured. Generally speaking, funds are insured up to $250,000 for each beneficiary, per account owner.
So, for example, if a couple (mother and father) had $800,000 in a qualified living trust account naming two children as equal beneficiaries, the entire account balance would be fully insured. This is because each beneficiary is covered up to $500,000—$250,000 via the mom and $250,000 via the dad. With a balance of $800,000, the account does not exceed the combined $1,000,000 limit.
The two types of revocable trust accounts are:
Here are a few key points about trust accounts that you should be aware of:
This category includes all individual retirement accounts (IRAs), Roth IRAs, Section 457 plan accounts, self-directed defined contribution plan accounts (such as 401(k)s), and self-directed Keogh accounts owned by one person. The total balance in any one or a combination of these accounts at the same institution is insured up to $250,000.
This insurance applies only to the portion of your retirement account balance that is in bank deposits, such as CDs and money market accounts. The portion of your retirement account in mutual funds, bonds, and other investments remains uninsured, even if you purchased them through an FDIC-insured bank.
To ensure that you don't allow funds to be uninsured, keep a close watch on your account balances. If you exceed the insurance limit for a particular ownership category at one bank, move the excess into an account at another bank (or into some form of investment).
To determine your deposit insurance coverage or ask any other specific deposit insurance questions, call 877-ASK-FDIC (877-275-3342).
If you have a lot of money in CDs, you might have another option for protecting yourself. The Certificate of Deposit Account Registry Service allows you to make deposits with one member bank, which then spreads your money among CDs at other banks in the network.
Federal law requires the FDIC to make account holders' money available "as soon as possible" after an insured institution fails. So, you could have access to your money as quickly as one day after your bank's closure. Your account might remain at your current bank, which will have been taken over by the FDIC, or it might be transferred to another FDIC-insured institution.
If your bank has failed, visit the FDIC's Failed Bank List online for important information, including the name of the acquiring bank, if there is one, and how your accounts are affected.
Account holders who have uninsured deposits could ultimately recover all or a portion of those funds as failed bank's assets are sold off, though this could take months or longer.
Learn more about FDIC insurance online at www.fdic.gov/deposit/deposits. If you have further questions, contact the FDIC directly toll-free at 877-ASK-FDIC (877-275-3342/TDD: 800-925-4618).
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