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Example research essay topic: 401 K Plan 000 Per Year - 1,467 words

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... 7). Caps on accounts. A $ 4, 000 limit exists on every IRA that is established for a couple. However, a new account can be established every year. In order to have a traditional IRA, one also must make under $ 61, 000 per year, and under $ 161, 000 per year for the Roth IRA.

Mutual funds are yet another investment strategy for starting a retirement fund. The definition of a mutual fund is "a corporation which manages a diversified portfolio of investments for its shareholders" ("mutual" 389). Shareholders are the people who are gaining the most profits to put toward their child's college education or a retirement fund. Corporations such as Putnam A, Fidelity Investments, and John Hancock pool shareholder's money together and invest it into stocks and bonds ("Investment" 1).

There are four main categories of funds to invest in: 1. Bond Funds-There are two choices here; taxable and tax-free. Taxable bond funds invest in corporate and government bonds. Tax-free bond funds are invested in municipal bonds. Federal taxes do not apply to the money in tax-free bond funds. 2.

Money Market Funds-The share price for these funds will not always remain the same and the United States government does not back them. Shareholder's money is invested in short-term debt securities while hoping to keep the share price at one dollar. 3. International Funds-As the name suggests, these funds are invested overseas in foreign stocks and bonds. This investment strategy is commonly used. 4. Stock Funds-An investment company picks new companies that they feel will experience economic growth and invests shareholder's money into their stocks. There are many advantages to investing in mutual funds.

There is such a variety of types of funds to invest in. The hardest part is to pick which fund would best suit a person's needs. Another advantage to mutual funds is that one can but funds directly from the fund company without having to pay a stockbroker. There area usually only minimal fees charged with a mutual fund, so the net gains are generally more than investing through a stockbroker. Your money also has greater buying power since your money is invested in a wide variety of securities ("Investment" 1). A large diversity of types of funds is an advantage, but it is also a disadvantage.

There are over 9, 000 funds ("Frequently" 1), so you have to be an expert in picking the good ones. Most everyday people are not experts, so they must seek help from financial advisors. Their services are not free. Also, depending on if money is invested in tax-free or taxable funds, your tax liability may increase ("Frequently" 1). As with ant other type of investment, there are risks involved. There are no guarantees that a certain fund will be successful or unsuccessful.

Savings Accounts and Certificates of Deposit Savings Accounts and Certificates of Deposit are ideal for a person who wants to wait until more income is accumulated before making a long-term investment, these accounts are ideal because existing income will more money than if it were just in a checking account. They are specialized to be relatively liquid investments that have few limitations. They are also easily obtained at any bank in the area, or over the phone from a bank across the nation. Advantages of Savings Accounts and Certificates of Deposit Many advantages exist when a person invests in savings accounts and Certificates of Deposit (CD).

Ease in set up. These investment are very easy to set up. All one needs to do is go down to the local bank and ask a teller to set up an account, and in fifteen minutes, they will have their money in an account gaining interest. Over 100 banks are in the area, however, Norwest and Commercial Federal are two of the most widespread banks in the area (Goldwasser). The one thing to keep in mind in choosing banks is location and the bank with which one feels most comfortable. Short-term investments.

These investments are very short term, which means that money won't be tied up for a while, and money will be easily accessible. A savings account has no limit of time that money may be left in it. Money can also be retrieved from this account for the duration of the time that money is in the savings account (Bennie). Certificates of Deposit have a higher return than savings accounts because the money in these accounts is not accessible to the investors for the duration of the time that money is in the account. However, the money usually is in the account for only 3 to 12 months. Disadvantages of Savings Accounts and Certificates of Deposit The main reason that savings accounts and certificates of deposit are not the best places to invest is that they do not have a great return rate.

On savings accounts, the return at Commercial Federal and Norwest banks is 2 percent (One), and this does not compare well with the return of mutual funds and stocks. In terms of CD's, the top yielding six-month CD is 6 percent from Safe National Bank (Goldwasser 42), but Bob Bennie says "It is best to invest in a company that you feel comfortable with. " The going rate at a local bank is around 5 percent. From the variety of investments that have been investigated, a portfolio has been chosen that will make the safest and most economical investments for the Edwardes. These conclusions and recommendations will sum up our findings and show why our recommendations are the most beneficial. IRAs provide tax benefits on all types of investments, however they do have a cap of $ 4, 000 per year. The traditional IRA provides tax free input of income in an IRA and tax free growth, while the newer Roth IRA provides tax free withdrawal of the investment as well as tax free growth.

Savings accounts and Certificates of Deposit are safe, short-term investments that have a small return. They are ideal for a person that wants to earn more money placing a long-term investment. 1. The 401 k plan has proven to be the best investment for retirement, however the Edwardes do not want to tie up all of their savings in this account, so they should invest in other venues. 2. Savings accounts and CDs are the best short term investments for the Edwardes, and the easy deposits and withdrawl's from these accounts make this a very economical short-term investment. 3. IRAs are a very beneficial investment because the tax benefits that they provide, and the ease of combining them with other investments.

The return from mutual funds, and the safety of these investments make them the best non- 401 k investment for the Edwardes. 4. The volatility of stocks has made them an uneconomical investment for the Edwardes at this time. After they have more financial security in their retirement savings, the return of the stock market will make it a very beneficial investment. 1. The Edwardes should take 50 percent of the $ 300 that they have set aside for retirement savings per month and invest it in a 401 k plan. 2. The remaining 50 percent of each month's $ 300 should be put into a savings account for one month and then into a six month CD after that. 3. At the end of the year, the Edwardes should take 50 percent of the retirement savings they have invested in savings accounts/CDs, and place it in mutual funds via an IRA.

This will eliminate the broker fees that accompany mutual fund investment. 4. Investment in stocks should be put on hold until the Edwardes accumulate more money. The Edwardes should wait until they no longer have their children as dependents, and then invest 10 percent of their yearly retirement income in the stock market. If they comfortable with the stock market, they can increase the percentage up to a 15 percent maximum. Figure 1 shows the future savings disbursement of th Edwardes. Future Savings Disbursement of the Edwardes Bibliography: WORKS CONSULTED Clash, James M... "Best Buys. " Forbes 25 Aug. 1997.

On-line. Available web 8 Nov. 1999. Eisenberg, Daniel. "Mutual Fund Meltdown. " Time 14 June 1999. On-line. Available 8 Nov. 1999.

Freeman, Albert J. , and Russ Wiles. Building Your Mutual Fund Portfolio. New York: Dearborn Financial Publishing, 1996. Site, Michael. "Investing in Funds the Right Way. " Time 21 June 1999. On-line.

Available 8 Nov. 1999. T weddell, Jerry, and Jack Pierce. Winning With Index Mutual Funds. New York: AMACOM, 1997.

Johnson, Linda. Office manager, Cattipellar Corporation. Telephone Interview. Coon Rapids, MN, 9 November 1999. "How 401 (k) Plan Works. " Basics of 401 k Plans. On-line. World Wide Web.

Available http: // web how. html 11 November 1999.


Free research essays on topics related to: short term, mutual funds, 401 k plan, 000 per year, savings accounts

Research essay sample on 401 K Plan 000 Per Year

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