Pelham Bell Pottinger

Our guide to investing 101


There are many different ways to approach technology investing. Under the technology industry umbrellas are other sub-sectors, including software, hardware and networking stocks. Each of these sectors are comprised of both leading and smaller stocks on those respective groupings. Tracking the performance of broad, technology indexes and ETFs devoted to each of these categories provides a historical perspective on investment returns. Also, it offers a glimpse into the many companies that comprise the technology industry.

Selecting individual stocks is one way to gain exposure to the technology industry. Industry bellwethers or leaders have a proven track record and are a frequent addition to a technology portfolio for stability. Smaller companies with less operating history and trading performance offer the promise of growth but can be risky bets. Recognizable companies are typically behind hardware makers, but the companies that make the wiring, including networking and semiconductor plays, can offer similarly attractive returns in the right environment.

Gaining exposure to multiple technology stocks can be achieved via mutual funds and ETFs. Some of these investment vehicles may require an investment minimum so this type of investing is best reserved for investors with a set sum of money to invest. Mutual funds and ETFs could invest in dozens or hundreds of individual securities, which means an investors gains exposure to all of these names. ETF performance can be tracked because like stocks, these indexes trade under a specific symbol.

According to MarketWatch, there are reasons to invest in this industry during both good and bad times in the markets. During the good times, technology stocks often lead the markets higher as technology continues to evolve. When the economy falters, information technology budgets frequently remain intact the longest out of necessity. This of course affects profitability, which means if the stock pays dividends it is less likely to stop doing so when other industries may have no other choice.

Investing for yours and your children’s futures

Think of an Investment Retirement Account as an investment in yourself when your paycheck days are over.

And think of creating a trust for your children’s future.

First, a simple IRA grows partly through participant contributions. Employees are allowed to contribute up to 100 percent of their income, capped at an amount indexed for inflation–in 2010, this was $11,500. Participants over age 50 may also make additions classified as catch-up contributions. These are also indexed for inflation–in 2010, the amount was $2,500.

investment2Simple IRAs also grow through mandatory employer additions. The government requires employers to contribute either a match of up to 3 percent of employee contributions or an addition of 2 percent of each eligible employee’s salary, regardless of his participation. Because small businesses sometimes struggle to maintain consistent cash flow, the rules allow employers to cut contributions to 1 percent for two years during any five-year period.

Employers may choose plans featuring one investment firm, or may allow employees to choose an eligible firm themselves. The IRS encourages firms to find a plan with several options to encourage participation. Simple IRAs may use most popular investment types, including mutual funds, stocks, annuities, and guaranteed interest accounts. Most accounts include stock mutual funds, with choices ranging from aggressive, small company, and international funds, to more conservative large company options. Bond funds range from low-risk government funds and money markets, to high-risk, high-yield bond funds.

Simple IRA contributions enter the account as pre-tax money. Employees receive statements detailing contributions to the account, but contributions are not included as income on the annual W-2 form used to complete a 1040 tax return. Money must remain in the Simple IRA, growing tax-deferred, until at least age 59 1/2. Although early withdrawals are allowed, the IRS enforces a 10 percent penalty. If in the first two years of contributions, the early withdrawal penalty is increased to 25 percent. Money leaving the Simple IRA is taxed as ordinary income, and participants receive a 1099-R that details withdrawals.

Simple IRAs are not exempt from investment management or custodial fees, which weigh on the growth of the account. Mutual funds may have front-end or back-end fees, as well as management expenses and 12b-1 advertising expenses. Annuity-based funds may have management fees, contract charges, and back-end fees for early withdrawal. Most back-end fees allow participants to move dollars between accounts without transaction fees or penalties, only charging for withdrawal from the plan.

How to set up a trust for children’s insurance

  • Decide whether you want term or permanent insurance on your children. If you desire to have coverage for them only while they are dependent on you, then term insurance probably makes more sense. You can out a policy that lasts for the remaining term of their dependence.
  • Purchase a life insurance policy on each of your children. Your local agent or broker can get you a policy, or you can find one online.
  • Draw up a living or testamentary trust that specifies what to do with the insurance proceeds. The trust instructions can include burial and memorial plans, the foundation of a memorial fund, the distribution of the deceased child’s assets and other details.
  • Name the trust as the beneficiary of the life insurance policy. Do not list yourself or anyone else. The money from the policy should be paid directly into the trust, where the trustee will use it according to the trust directions.
  • Inform your children of their coverage when they reach the appropriate age. If you purchased cash value policies on them, consider allowing them to draw out the cash value for their own use once they reach adulthood.

Certificates of Deposit

Many people know CD’s or certificates of deposit. The traditional CD is still considered as the most popular type. But over the years, many financial institutions have been offering an increasing number of non-traditional CD’s that provide some added flexibility. Different types cater to fit into the financial needs of other people. Here are some of the popular types of CD’s now available for you to choose from.

Traditional CD

For a traditional CD, people invest a fixed amount of money that can be withdrawn at a specific time frame. In exchange, holders receive a predetermined interest rate for the CD. After the term expires, traditional CD holders have the option to cash out the amount or roll it over for another term. Other institutions allow adding funds to the CD during its term. But there can also be stiff penalties for early withdrawal of the CD.

Liquid CD

Liquid CD’s give holders the opportunity to withdraw money from the CD without incurring any penalties. But maintaining a minimum balance in the account is required. The interest rate on a liquid CD is higher than the bank’s prevailing money market rate. However, it is usually lower compared to a traditional CD belonging to the same term and minimum amount. Liquid CD’s also indicate how soon the holder can withdraw money from the account after opening it. Laws require that money in the account should stay for seven days before any withdrawal is made without penalty. But banks can set the first penalty-free withdrawal after that period. Some banks also set the maximum number of withdrawals allowed for a particular term.

Zero-Coupon CD

Zero-coupon CD’s are like zero-coupon bonds in some ways. You can buy this type of CD at a steep discount to par value, just like zero-coupon bonds. The name zero-coupon refers to the interest rate. This means holders do not get periodic interest payments until the CD matures. But the deep discount more than makes up for it. A good example- you can buy a 12-year zero-coupon CD with a $100,000 face value and 6 percent interest rate at a $50,000 discount price. You will not get any interest payments during the term of the CD, the interest rate on the CD is reinvested instead. You only get the $100,000 face value of the CD when it matures.

Bump-Up CD

Bump-up CD’s allow holders to take advantage of rising interest rates. For example, you buy a bump-up CD that matures in two years at a certain interest rate. But during the course of the CD’s term, the bank announces that it is increasing the interest rate of the same CD by a percentage point. As a holder of a bump-up CD, you have the option to inform the bank that you wish to get the higher rate for the rest of the term. Mostly, banks allow only one bump-up per term. One drawback of a bump-up CD is that it may have a lower initial rate than a traditional CD. There are times when banks may not offer a higher rate of interest during the CD’s term. Make sure that you have a good idea of the interest rate environment before you pursue taking a bump-up CD.

Brokerage CD

A brokerage CD is simply a CD offered by a brokerage firm instead of a bank. Some banks make use of brokers to look for investors willing to put their money on a CD. You only need to have a brokerage account in order to buy brokerage CD’s. There is no need to open accounts in different banks for CD’s. Many brokerage firms handle different CD’s from different banks. Most brokerage CD’s usually offer higher rates compared to banks because of the competition in the national marketplace. Brokerage CD’s can also be traded in a secondary market. They are also considered to be more liquid than bank CD’s because they can be traded like bonds. But there is also a risk of experiencing losses with a brokerage CD. The only way to guarantee no loss is if you hold on to the brokerage CD until it matures.

Callable CD

A callable CD is a type of CD that comes with the “call” option for banks. It works more for the banks than with the holder of the CD. What this CD offers is for banks to call back the CD before it matures. The call option usually is installed after a six-month period, called the call protection period. This means that banks can call back your CD after the six-month call protection period expires. This option may be used when a bank moves to pay CD’s at a lower interest rate than when you started getting them. For example, if a bank issues a five-year CD and after six months see interest rates drop, the bank may call back your CD. You get paid the principal and original interest rate earned to date. But you are left with the option to reinvest the amount in a CD with a lower interest rate.