Archives For Investing

Traditional vs Roth IRA

Justin W —  February 18, 2020

It’s never too late to start saving for retirement. Discover the differences between a traditional and Roth IRA, then choose the one that’s the most beneficial.

If there’s one thing every person should know about, it’s the importance of starting a retirement account. Although there are many possibilities, there isn’t a “one-size-fits-all” solution. That means you need to select what’s going to be the most beneficial to you and your unique situation.

For instance, if you work for a company that doesn’t offer any type of retirement savings, you might consider an Individual Retirement Account, otherwise known as an IRA. If you opt to take that route, you’ll need to decide between a traditional IRA and Roth IRA. As with any savings, it’s essential to factor in all the variances to ensure you make the right decision.

Understanding the Basics of IRAs

When it comes to investing in either a traditional or Roth IRA, the process works much the same. You open an account, put money in it, and then continue adding more if wanted. While exchange-traded funds and mutual funds are the most popular choices, you also have the option of investing in securities, including stocks and bonds.

Regardless, the goal is to make decisions that’ll help your money grow, thanks to compound interest.

Tax Considerations

The primary difference between a traditional and Roth IRA is taxes. If you go with a traditional IRA, the money you invest is tax-deductible. Therefore, every dollar contributed helps lower the amount of taxable income. Of course, the reduction must line up with what the Internal Revenue Service (IRS) allows. In 2020, the IRS limit is $6,000.

With a traditional IRA, your money grows but without any taxes applied. It’s only after you begin taking distributions that the government would tax the money. At that point, the amount of tax paid would be the same as if the money were standard income. In some states, money in a traditional IRA is tax-exempt, meaning you wouldn’t pay any state taxes.

At the age of 70.5, you’d need to take Required Minimum Distributions, or RMDs. As such, your ability to contribute to the account would end. Simply put, with a Traditional IRA, you don’t have the option of growing your money indefinitely.

Now let’s look at how taxes work with a Roth IRA. For this, you fund the account using after-tax money. For that reason, you can’t deduct any of the contributions made. Since you pay taxes on the money when putting it into the account, you’re not taxed when taking it out. Not only does that apply after you retire but before retirement as well.

Another difference, with a Roth IRA, there are no RMDs. Therefore, you can take money out as and when needed as opposed to waiting until you’re 70.5 years of age. Something else worth noting is that with a Roth IRA, as long as you’re working, you can contribute funds. With so many people still employed into their 70s and even 80s, that’s a nice benefit.

Choosing the Right IRA

As someone who takes retirement seriously, it’s essential to make the right choice between a traditional and Roth IRA. First, understand fully how the taxes work for each. If you’re currently in a somewhat higher tax bracket but believe you’ll drop to a lower one after retiring, it makes perfect sense to open a traditional IRA. However, if the opposite is true, then you should go with a Roth IRA.

There are free calculators that can help you figure out if a Roth IRA makes sense for you, but most of them are pretty inaccurate. You can also use a more sophisticated (not free) planning tool called WealthTrace, which allows you to run more complex what-if scenarios including Roth IRA conversions.

You also want to factor in a 401(k). If you have one through your employer, you’re already enjoying several benefits offered by a traditional IRA. For instance, the contributions you make reduce the amount of your taxable income. As your money grows, it’s tax-deferred.

The contribution limits set by the IRS are higher for a 401K than they are for both a traditional and Roth IRA. Therefore, if you’re putting money into a 401K, opening a Roth account as well can prove beneficial. That way, you can diversify your retirement holdings. Simply put, when you retire, one source of income isn’t taxed.

Additional Factors

Without RMDs, a Roth IRA is beneficial to a lot of people. If you have other sources of income to support you in your retirement years, you won’t have to dip into your savings. There’s one other appeal about a Roth IRA. Unlike a traditional IRA, you can leave the money in a Roth account in your will for distribution to heirs.

If you have taxable accounts with gains or income, you can use that money to fund a Roth IRA. As far as the income limit, it’s $137,000 for singles and $203,000 for married couples who file taxes together. Also, for this type of IRA, there’s a conversion known as a “backdoor.” For that, you would put money into a non-deductible traditional IRA, followed by rolling it over to a Roth.

If you choose the “backdoor” conversion, any money you roll over is taxable. While this is currently an option, it may not always be available. Some tax reformists believe it’s a legal loophole that the government should close. Doing so would prevent extremely wealthy Americans from gaining access to it.

Summary

It’s sad, but roughly 50 percent of Americans don’t have any type of retirement savings account. If you’re in a position to choose between a traditional and Roth IRA, count yourself fortunate. Before making a selection, be sure to carefully review any implications of estate planning and taxes.

You want to pay attention to the fees charged for both types of IRAs. The goal is to choose an account with low fees so they don’t eat away at the value of your holdings. Regardless of your age, it’s never too late to act. Therefore, talk to a professional financial planner as soon as you can. An expert can answer more questions and guide you to the IRA that’ll serve you best.

What you might get out of day trading is very personal. Some might get a side income to help them get out of mountains of personal debt. Some might use penny stocks to build up a nest egg that allows them financial freedom and early retirement in their 40s. Others might really enjoy the day to day of small-cap stocks and their fluctuations, so they might make it a 9-5 style career.

Penny stocks are one of the avenues that day traders use to make real profits on a day-to-day basis. Penny stocks are defined by the Securities and Exchange Commission as stocks whose shares trade anywhere from $2 to $10. Anything trading under $1 tends to be listed on OTC sites and the Pink Sheets online, which harkens back to the days when penny stocks were actually listed on sheets of pink paper.

Since penny stocks are so small, how do you actually get to a profitable state while trading them? Well, as with any sector of day trading, you need strategies and techniques to cut through the noise and identify stocks that might actually make moves. The volatility of penny stocks are a warning sign for traditional, buy-and-hold investors, but a siren song for day traders of all stripes. Day traders eat their lunch, dinner and late-night snacks on volatility. The violent fluctuations of penny stocks make it that much easier to make money, when you are trading so quickly and so often.

But the key is that you must have a plan. Going into each trade with any idea of how much profits you expect to bank and how much loss you are willing to take is essential to any long-term day trading career. The stats say that 90% of day traders lose money. But that is because many novice day traders look to learn on the job, by trial and error. That results in a lot of marks losing their money.

Learn the strategies before you start trading real money is key to avoiding that sort of situation. Finding a community of traders that share your outlook and help each other with tips and advice is a great way to start trading penny stocks. You can try out a community like Warrior Trading, where you can spend time in the site’s chat rooms, with an eye on learning the ropes and making friends.

Then you can use their online day trading classes to increase your skills and absorb the strategies that will help you win, like gap & go trading. The specifics of each strategy are there for you to grasp, then you need to spend time in a trading simulator that allows you to make trades with virtual currency and learn how to plan for each and every eventuality.

Once you are making $200 a day in virtual profits, it is time to hit the real market. That experience and screen time will prove very valuable when you are trading penny stocks for real and it your actual money on the line.

Forex 101 for Beginners

Justin W —  July 25, 2017

Those beginning online Forex trading, especially beginners can find it daunting. The number one beginner mistake is to have unrealistic expectations. This is very common especially among Forex newcomers who see it as a get-rich-quick scheme. When starting Forex trading with currency, it is important to understand that rarely do Forex traders get wealthy overnight, a week or even a month. Having this mentality will save you from losing a lot of money. This is especially true when one considers that statistics show 90% of newcomers lose almost 90% of their investments in less than 90 days. To avoid being another statistic, here are a few guidelines you can start with to be a successful Forex trader.

Getting in the Forex trading can be overwhelming at first. However, you can try out using a risk-free demo account such as the CFD demo account from CMC Markets. This will at least assist you in getting acquainted with how trading is done. It is equally important to know the market you will be trading. This is because the market is shaped by the combination of all participants.

When first getting into the market, you should at least aim at preserving your capital rather than growing it. To do this, you need to minimise risk by using a long term trading stance. It is a common beginner mistake to expect to make money from short-term trends. The Forex market requires patience and modesty, and successful traders will attest to making money by mostly investing in long-term trends. By holding on to your open orders for a longer time, they act more of an investment rather than a lottery. In addition, this will be less stressful since you will not be spending a lot of time staring on the screen assessing how they are performing.

As a beginner, it is highly advisable to start simple. This will ensure that your trading strategy is manageable and easy to follow. Starting simple will also eliminate most of the frustrations associated with Forex trading. You may be confronted with a myriad of tools when trading online Forex. What you need to realize is that it is not the amount of tools that will enhance your chances of success, but how well you use the few tools you understand.

Forex trading software will come in handy both for seasoned and beginner traders. The fierce competition in the market between brokers means that there are free Forex trading software. However, you may find the free software limiting. Thus, it may be advisable to buy software if it will be of better assistance.

In the Forex trading market, analysis is a vital concept. This means that traders who learn their way through looking at charts and making decisions are at forefront. Charts can range from daily, weekly or monthly, depending on your trading. Analysis will be both be technical and fundamental. For example, the tools for technical analysis are trend lines, support and resistance lines and indicators based on these lines. Fundamental analysis will involve gaining an understanding of how events and policies shape the market.

The market can sometimes be volatile. While this can be to your advantage, it can also wipe clean your investment. Thus, it is advisable to be extremely careful in volatile markets. You should also incorporate volatility analysis into your strategy. Nonetheless, you should always be prepared for anything to happen in the Forex market. While you can depend on Forex news such as those from Bloomberg or CNN among others, the Forex market has a way of making them obsolete. The news you see has already been discounted by the industry and it comes too late. If you rely on news, you will be too late and this may backfire.

It is also important to realize that there are hundreds of available markets you can diversify your investments. Therefore, you should not limit yourself by focusing on major markets since this often leads to over-trading. When trading, you should consider both the opening of the trade as well as the closing of the trade. Giving them equal priority will help you avoid making heavy loses. In conclusion, since financial trading is legally regulated, make sure you are legally protected.

Everyone from small individual traders to big investors need to find a balance in their daily routine, in order to develop healthy trading habits. Many traders using online trading platforms such as XTrade Europe, learn to develop a routine that benefits their needs. With so many trading markets available, it’s sometimes hard to focus on one style of trading. Trading over many markets isn’t always a bad thing, but best left to the more experienced trader. Many new traders struggle with sticking with a single trading method long enough to see it play out. Taking on various types of trades at one time or dealing with many different markets at once may limit your success.

To keep focused, just remember the simple logistics of online trading:

Keeping tabs

Stick to one market at a time. Trust me, you won’t die of boredom if you do this and focusing and mastering one market can result in a much greater return from your trades. Keep track of your trades; wins and losses, remembering to check back on your trading history at least once a week. Professional trading platforms like the one XTrade Europe has interfaces specially designed for you to easily keep track of your trades.

Plan ahead

Starting with the Sunday financial news is a great way to prepare yourself for the upcoming trading week. If you are not the type to relax with the papers (online or not), you can easily set up new alerts through your email account. You can also find useful tools which offers the latest information through newsletters and market reports.  It’s also a good idea to plan out the week’s key chart levels at the beginning of each week. Keeping track of the market offers vital knowledge such as distinguishing current and future trends in the market.

Curb your losses

Sometimes intuition fails us and loss happens, it’s just a part of the trading process. But following simple steps such as the ones above can teach you to curb your losses and increase the number of profitable trades you make each day. Educate yourself through professional tools such as XTrade Europe’s Academy, which offers online courses and “Webinars”. Once you focus your efforts towards mastering a single market, you will see just how quickly your trades will turn around to wins.

Setting your daily goals

The future is now. There is no better way to plan through the logistics of online trading, other than to begin with setting a target for today. Day trading is a big part of online trading markets. They offer you the chance to buy and sell within “working hours” and leave you rested at night and fresh for the next day’s markets. Online trading platforms such as XTrade Europe, see a great number of day traders increase their trading profits through constant day trading. Setting your daily goals not only builds your confidence but prepares you for whatever may come throughout the trading day. The first step is to identify pairs that are trending either up or down so we know the direction we should be looking to trade. This will become much easier since you would have already checked the daily analytics and ask based on educated decisions rather than just “Gut feeling”.

Remember, keep track of your trading history, that is a valuable map to your future trades going well for you. Organize yourself and your trading strategies based on your history and the history and updates of the financial markets. Learn from your past missteps and educate yourself based on current trends and past experience. Set yourself a goal before you begin your daily trading. Forming a strong trading strategy will help you whilst making multiple trades each day.

Although we all knew the UK entertained a Brexit situation, not many believed it could happen, and a few made money when it happened. What is the situation now and how can it affect your portfolio?

At XTrade we like to keep an eye on the future without loosing sight of the past. Of course, we do not stare into the past, but we know that understanding the past can prepare you for the future. Would you not agree with that?

If so, have a look at what has happened since the Brexit announcement. The first signals were “SLOW”—like what you see written on the UK roads when you approach a tight curve or a crossing. Manufacturing exporters may have benefited a bit, but the GBP seemed to explore the depths of the GBP-USD chart, reaching its lowest point in 31 years, and the UK-centric FTSE 250 sheered abruptly.

What was the reaction of the bank of England? They clearly indicated that in August, interest rates would be cut.

In view of this, it is completely understandable that consumers and business confidence plummeted.

XTrade’s Advice for Investors

XTrade agrees with the majority of experts when they say that it is wise to be cautious. What usually happens in big-impact situations like the Brexit? Normally there is an instinctive reaction, the same as when you hear the horn of a car behind you—you jump. But what if the car is not beeping at you, but at someone else? If you instinctively jump you could actually be putting yourself at risk by moving towards the car. So, first make sure of what is happening and then take the right action, if necessary. We say if because at XTrade we are aware that many investors’ outlooks may have not changed, therefore it would not be advisable to change their strategy.

Nonetheless, it is evident to all that the vote to take the jigsaw piece with the English flag away from the European puzzle can and will have big consequences for investors which will affect their pensions, properties, and even the capacity to trade collectibles.

Should I Buy Government Bonds?

The reality is that while the future of the economy of the United Kingdom is a bit gloomy since it lost the AAA rating, quite a few investors seem to be purchasing UK bonds, why? Well, that depends on the amount of optimism they have.

For those who believe that the UK economy will thrive as a result of the challenge presented by saying au revoir to the European Union, buying fixed income securities right now may not be the best idea.

However, what would happen were inflation to continue lethargic over a long period of time? The Bank of England would be obliged to kick into action and cut rates, in which case it would be beneficial for you to lock in the interest now, before it goes into a tailspin.

So far, UK government bonds have managed to be one of the top assets, recompensing owners—or those who trade CFDs with XTrade—with substantial returns. And it is quite likely that the Bank of England will work to support UK government bonds.

5 Stock Market Myths

Corey —  June 26, 2015

We have all heard of them. We have laughed them off but secretly have wondered whether they are true or not. Like any other profession, the stock market also has developed quite a lot of myths. While some may be true most of them are not. These are just random stories made up by people who have suffered a loss in the market. Listed below are the top 5 stock market myths which are not true

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Tips When Buying a Home

Corey —  February 25, 2013

Buying a new place, whether it be a condo, house, townhouse, and so on, can be a very long and difficult process.  When we bought our current house that we live in, it was extremely easy. Of course easy is relative, but it sure did seem easy.

We looked at a lot of houses, but we only put a contract down on one and it was accepted (after a couple of negotiations). Our move in date was set for just a couple of weeks after that and we moved in maybe less than one month from the day that we first toured the house. Even our loan officer said he’s never been through a home process as quick and as easy as process was.

However, I have heard others’ stories about how hard their home buying process was. Some have to wait months to sign the papers and move in. Some submit multiple offers just to be outbid by tons of other people.

There are so many things to think about when you buy a new home, and in today’s post I will be listing some of those.

Put 20% down

Putting 20% down has many positives for a home buyer. It will lower your payment in more than one way, mainly that you will take out a smaller home loan.

If you don’t put down at least 20%, then most mortgage companies will require that you pay Private Mortgage Insurance (PMI). This can add an extra $50 to $150 to your monthly mortgage amount, and possibly even more. We made the mistake of not putting 20% down and now have to pay PMI. We definitely won’t be making this mistake with our next house.

Get pre-approved

Getting pre-approved is a big step.  Not knowing what you can “afford” and looking can be a big problem because you might fall in love with something but then no bank approve you for that amount. If you are pre-approved, then you can eliminate houses out of your search that are not possible due to your budget. It will save you a lot of time and the possibility that you will buy way outside of your budget.

Buy what you can truly afford

Now, just because you were pre-approved for a loan, it does not mean that you can truly afford that loan amount. Banks are notorious for approving individuals for MUCH more than they can afford. When we bought our current house, we were pre-approved for much more than could truly afford. Also, you are pre-approved normally on your gross income, not net income. Your gross income is of course much higher than your net and can make it seem like you can afford a house, when in reality you cannot.

Our real estate agent also gave us a little tip: if you are pre-approved for much more than you ever plan on buying a house for, then ask the loan officer to send you a pre-approval letter stating that you are pre-approved for a smaller amount. This way when you put a contract on a house, the seller and/or their real estate agent do not see some crazy number that someone believes you can afford. This way there will be less negotiations as the seller won’t be trying to get you to your top dollar.

Think about the long-term

How long do you plan on living in your home? A lot of people will say that their first home will just be a starter home, but what if that ends up not being the case and you live there for quite some time? You might want to look into the school district there just in case you do decide to have children, make sure the house is something that you would like for quite some time, and so on.

What tips do you have for a potential homebuyer?