Make money when the stock market goes down

Ever wonder how people make money in the market when the stock market goes down?

One way to do this is to execute a short sale. A short sale is just the opposite of buying a stock. You are speculating the stock is going to go down rather than up.

Let's say you are looking at ABC stock and it is trading at $50 a share. Maybe it has had a nice run up or you think the stock price is too high. To take advantage of the decline in share price, you would execute a short sale. If the price declined to $45 a share, you would profit $5 per share (less commissions).

In order to sell a stock short, you first must open a brokerage account and be approved for a margin account. Once you are approved you would place an order to "sell short". The broker will then borrow the shares for you to sell in the open market. The selling proceeds go to your account.

When the stock declines (hopefully), you purchase the shares back from the market and return the borrowed shares to your broker. You enter an order to "buy to cover" your short sale to execute this transaction. The difference between the selling proceeds and what you bought it back for will be your profit or loss.

That is just one of many ways to profit from a declining stock market.

Investment Options

Do you understand all the investment options that are available to you?

Before you invest a dime of your money, you will need to understand that each investment has a risk/reward value tied to it. Below is a summary of investment types from conservative to aggressive.

• Money market accounts, bank savings accounts, and CD's. These investments are very stable investments that protect your principal.
• Bonds carry a little more risk/reward value. The best time to invest in bonds is when interest rates have peaked and are on their way DOWN. Sounds strange, but bonds increase in value as interest rates decline. Bonds have varying degrees of risk depending on who issued the bond and their ability to make good on the debt.
• Real Estate can be a great investment, but contrary to what many people think, this investment can be very risky. Real estate is subject to market conditions like any other investment. Unlike many investments, liquidity (ability to convert to cash quickly) is a problem.
• Stocks (or equities) can be conservative to very risky. There are many strategies out there for investing in stocks. If you don't have a lot of money to invest , your best option is to purchase shares in a mutual fund that invests in stocks.
• Options are becoming a more popular investment. This should not be confused with "stock options". Stock options are a form of compensation that an employer grants. With options you have a multitude of ways to make or lose money. The beauty of an option is that you have limited risk (the price of an option). The negative side to this type of investment is that it expires at some date in the near future. If you would like to learn more, visit http://www.cboe.com/
• Currency trading is something most people are unfamiliar with. You can pile up gains and losses very quickly because it is a highly leveraged investment. For the beginner, the "mini" account will allow you to trade currency for as little as a $50 investment. The leverage on the investment can be up to 200 to 1. For $50 you can control a $10,000 "mini" contract. If the $10,000 mini contract were to gain 1% in value, you would triple your $50 investment. Of course if the contract lost 0.5%, you would lose your $50. Learn more about currency trading at http://www.fxcmtr.com/index.html
• Commodities trading is at the bottom of the list. Not many people can afford to invest in things like oil and orange juice. These investments can produce substantial gains and losses. Like currency trading, you can control a very large investment for a small outlay of cash. This is not an investment to put your nest egg in. Someday when you have built a substantial net worth, you may want to give it a try. This type of investment is not for beginners or those with a weak heart.

If you don't have a lot of time to devote to researching good individual investment opportunities, you should invest in a mutual fund or two. The advantage to investing in mutual funds is that you have a professional team of investors working for you.

A mutual fund pools money from many investors and purchases a basket of investments based on the intent of the mutual fund. The investments can be very aggressive, very conservative, or somewhere in between. They can invest in bonds, stocks, real estate, etc. , or a particular sector, like health care. The overall risk of a mutual fund is dependent on what they invest in and how well it is managed. Morningstar is a great place to learn more about mutual funds and their performance. Visit http://www.morningstar.com/Cover/Funds.html to view more on the subject.

Depending on your goals and your tolerance for risk, there is an investment that can fit your personality and needs. Before investing, make sure you understand all the risks. All investments have the potential to lose money. Keep an eye on fees, penalties, and commissions as they can erode away at your profits or add to your losses. Practice good financial habits and you will be on your way to saving some big money.

To learn more about investments, try this site out. http://www.investopedia.com/

For more ideas visit http://www.givemebigmoney.com/

Tax filing status

Many people have more than one filing option available to them. Choosing the wrong one can cost you a bundle.

Single - This one seems pretty simple, but if you are married and separated, this filing status could apply to you. You can be legally married, but for tax purposes you could be considered unmarried if certain conditions apply. The parameters that consider you unmarried are contained in IRS Publication 501. Visit this link for more information.
http://www.irs.gov/publications/p501/ar02.html#d0e1485

If you are married for tax purposes, you have two choices on your filing status. Married filing jointly and married filing separately. In most cases, filing jointly will provide you a much better benefit. The status of filing separately is restrictive and eliminates or reduces some common deductions and credits.

There will be instances where filing separately will produce a better benefit. For example, in the state of Ohio you will generally get a better benefit on your state taxes by filing separately. Your Ohio filing status has to match your filing status on your federal return. You may pay more in federal tax, but what you saved on your Ohio taxes could be enough to offset it providing you with a greater overall refund or lower overall tax bill. Ohio has a progressive rate structure with no penalty for filing separately. They actually encourage it for the savvy tax person. I am not sure why Ohio lets this happen because the net result will mean more tax dollars for the Federal government and less for Ohio.

The last filing status, and this one causes the most confusion, is Head of Household. You must be unmarried for tax purposes and have a "qualifying person" in order to use this filing status. The most common use of this status is for a single mother or father with a child that fits the definition of a qualifying person. A lesser known use is if your parent is a qualifying person. If you are taking care of a parent and qualify for the Head of Household filing status, make sure your Tax Preparer is aware of you situation. The tax rates are significantly better for Head of Household than it is for the Single filing status.

Life insurance

Do you know why you need life insurance? So many people buy life insurance for the wrong reasons and most people that truly need it rarely purchase enough.

Life insurance is not for yourself. If you are single and have no dependents, spending money on a huge amount of life insurance is a waste of money. If you have a family with young children, then you should be heavily insured on life insurance.

Life insurance is for your family to replace the loss of income that the household unit will lose if something happens to you. It should be able to cover your outstanding debts and provide living expenses for your family.

What is the best type of life insurance to buy? TERM life insurance is the cheapest and the right product to buy. Do not buy policies that have a cash value or some sort of "investment vehicle" built into it. Keep your investments separate. There are plenty of great mutual fund companies out there that will provide a substantially better return on your money. See an example of how a better return on your money will add up to a fortune in the long run. Visit http://www.givemebigmoney.com/pay.html

When shopping for life insurance make sure that the company is financially strong. Click here http://info.insure.com/ratings/ to check out the financial strength ratings for over 4,000 companies.

How should you calculate what you need? Here is a good place to learn more.
http://www.smartmoney.com/insurance/life/index.cfm?story=intro

Adjustable Debt Instruments

Have you ever gotten a credit card bill or your mortgage statement and had the interest rate or payments go up? Unless you pay close attention, you may not notice it on the credit card bill, but I can bet you would if your house payment went up.

Adjustable or variable rate credit cards and adjustable mortgages can put you in a world of hurt if interest rates go up quickly. The low interest rates that teased you to apply, can turn your payments into an albatross.

Adjustable or variable debt instruments are tied to an index, such as the LIBOR or Treasury Bill. As interest rates rise, so will your adjustable mortgage and variable rate credit card. If you don't understand how these instruments work and what makes them move up or down, you will be better off with a fixed interest rate.

Do your homework prior to applying for a credit card or any other type of debt. Understand what type of debt you will be taking on and how your payments will change over time. Pay it off in the shortest amount of time and limit your exposure to any long-term debt. Good discipline and good habits will result in a stronger financial future.

For more ideas on getting the most from your money, visit http://www.givemebigmoney.com/

Cost Basis

What does cost basis mean? During tax time, this is one area where taxpayers make mistakes. Some of these mistakes will even garner a visit from the IRS. If you invest in anything, you need to know how to accurately calculate your cost basis. You also need to keep accurate records to prove how you calculated your cost basis.

The cost basis is what you paid for your investment, plus any commissions and any other purchase costs. If your investment is subject to depreciation (i.e. rental real estate), this would reduce your cost basis. Your taxable gain or loss on the sale of the property will be calculated as your selling proceeds selling costs less your cost basis.

Especially troublesome is when an investor participates in an employer sponsored stock purchase plan or decides to put a monthly amount into a mutual fund. Ten years later when they need the money, they sell their shares. The taxpayer takes their tax return in to be prepared and the Tax Preparer will then want to know what the cost basis is so the gain or loss on the sale of the investment can be determined.

Let's say you have an automatic deduction taken from your paycheck each pay period and you are investing in your employee stock purchase plan. Each deduction from your paycheck will result in a separate purchase of shares of stock. It is your responsibility to keep accurate detailed records for each purchase. You will need this information when you sell the stock. Don't assume the company will keep these records for you. It isn't their responsibility to do so. It is in your best interest to keep records of each purchase so that you don't pay too much tax when you sell the shares.

If you have to reconstruct 500 tiny purchases over a period of 10 years....well, it won't be fun. Remember to keep all records of purchases and sales of any property. It will serve you well, keep you from paying too much tax, and protect you in case of an audit.

Telephone Excise Tax Refund

A little extra bonus will be added to our tax returns this year. This is a one-time payment available for the 2006 tax year. It is a return of previously collected long distance telephone taxes.

For more information, visit http://www.irs.gov/newsroom/article/0,,id=164032,00.html

Do you want to know why we are getting this refund? Check out these stories.
You might be interested to know the reason!
http://www.marketwatch.com/news/story/end-long-distance-tax-brings-up/story.aspx?guid=%7B932C0308%2D78A4%2D48B4%2DBAA7%2DB719EF9897E6%7D

http://www.marketwatch.com/news/story/long-distance-callers-have-some-money/story.aspx?guid=%7B30B70EC3%2D2344%2D4635%2DB8FC%2D879B638AD8D9%7D

For more information you can use, visit http://www.givemebigmoney.com/

Tax Terms for Beginners

Are you confused by tax terminology? Here are a few basic terms to get you started.

Adjusted Gross Income [AGI] is all of your income adjusted for a handful of items. If you contributed to an IRA, paid alimony, or have school loan interest. These items are reductions to your AGI.

A standard deduction is based simply on your filing status (joint, single, etc.). Alternatively you can itemize your deductions. You use the deduction that provides you the greatest overall benefit.

Itemized deductions are deductions that are allowed in the tax code to reduce your taxable income. Examples include your mortgage interest, real estate taxes, state and local taxes paid in the current tax year.

Exemptions are like deductions. You generally get an exemption for yourself. If you are married, have three small kids and you file jointly, you will get an exemption for each person. In this case you would have 5 exemptions. Exemptions, like deductions, reduce your taxable income. Each exemption is assigned a value. You multiply the exemption value by the number of exemptions. The total will be used to reduce your taxable income.

Taxable Income is your Adjusted Gross Income less your deductions and exemptions.

Tax - Once your taxable income is determined you then compute the tax owed on this income. The IRS provides tax tables for this. It is simply a matter of locating your taxable income amount on the tax table.

Credits reduce your tax. They are different than deductions and exemptions. For example, if your tax is $2,000 and you have a credit of $500, your tax will be reduced to $1,500. Common credits are the child tax credit, education credits, and the credit for child care expenses. Credits reduce your tax, dollar for dollar.

The most important concept to know is that a tax return filing is a reconciliation of what you owe for the year versus what you paid in. A large tax refund means that you loaned the government your money interest free. See my earlier post [Tax Refunds] on 1/13/07 for an idea of what you can do with your refund.

For more ideas, visit http://www.givemebigmoney.com/
For more tax information, visit the IRS website at http://www.irs.gov/

Management skills 101

Are you a manager, but not getting the type of results you want? Not sure what the problem is?

How do you treat the people that work for you? Do you know what they think of you as a manager? Are you leading them or just telling them what to do? Your employees will make or break you. If you don't have the support of your people, you won't get the most out of them.

Forget the textbooks and seminars. Management is all about how you interact with people and how you treat, support, and develop them.

Every employee is different. Each one needs to be managed in a different way. They have different emotions, passions, and thoughts. Some are creative and some like to work in their cube and be left alone. Some hate to be micro-managed, while others will need your constant attention. Your employees are your center of the universe. You, as a manager, need to understand them. Get to know them inside and out. Find out what makes them tick. Delegate work to them and give them a chance to grow. Remember you are managing them. Be there for them when they make a mistake. Let them make mistakes. Let them learn and grow.

Your primary job as a manager is to motivate, empower, and engage them in the success of the company as well as the success of whatever you are responsible for. You need to cultivate ideas, give them credit, back them up, and stand behind them. You need to be honest and sincere and they must know and believe that you are.

Finally, never lose your credibility, NEVER! The minute you do, you will lose the most valuable resource you have as a manager....YOUR PEOPLE!

How to save money

Do you have more debt than you want and a lot less saved than you want? Do you want to know how to get out of this trap?

First of all, write down what you want to accomplish and set a series of goals. Why write? Because that piece of paper will act as a reminder of the commitment you made to yourself. Post it where you will see it each and everyday. This constant reminder will help keep you on the right path.

OK, what should you be striving for? Look at your debt. List each bill by interest rate in order from highest to lowest. For example, if you have three credit cards, a car payment, a school loan, a home equity loan and a mortgage, the three credit cards would more than likely be on top and followed by the car loan, home equity loan, mortgage, and school loan. You also need to take into consideration which of these payments are tax deductible. A mortgage payment at 6% is not really 6%. If you have a marginal tax rate of 25%, the rate is really 4.5%.

Next write down what bills you have to pay. This would include such things as your utilities, insurance, real estate taxes, etc.

Now list the items you commit monthly payments to that are discretionary. Items might include your gym membership, Internet service, and magazine subscriptions.

What's next? You will need to set aside a budget for groceries, gas, and entertainment.

Finally, what is left? All the previous steps include opportunities to reduce your overall expenditures. But you are just trying to get organized for now. From what remains, you will need to have an emergency fund equal to 3 to 6 months of your take home pay. You should also be contributing as much as you can to your 401k. Once you have an emergency fund, you need to start directing money to an intermediate savings fund. In this case, intermediate is between emergency and retirement.

Take what is leftover each month and assign a percentage to go to your short term emergency fund, your 401k, and debt reduction. For example, you have $100 left at the end of every month. Take $33 and apply it to the emergency fund, take $33 and pay extra on your highest credit card bill until it is paid off, and put the remainder ($34) in your 401k. In the meantime, look for ways to save on what you owe. When you get your tax return, a raise, or an annual bonus, apply it in this manner. Soon, you will be on your way to financial freedom.

TIP - What is the best way to force yourself to save? Does your employer allow you to split your direct deposit into multiple accounts? Setup another account for emergency funds and direct deposit a portion of each check in that separate account until you reach the desired balance. Then do the same for getting your intermediate savings fund started.

Stay tuned for more money management tips that will improve your overall financial health.

Increase your 401k

OK, so you managed to get a 5% annual pay increase. Wonderful! Now what do you do with it?

Here is a simple strategy that can reap huge rewards.

Each year you receive an increase, add 1% to your contribution rate until you are contributing the maximum amount every year. You won't miss the portion of your raise from your paycheck because it was never there to start with. Don't wait to implement this strategy because once it gets into your paycheck it will likely stay there. If this happens, you will miss your best opportunity of the year to increase your 401k contribution rate.

Commit to this strategy and someday you will be glad you did. With pensions disappearing and the future of social security looking dismal, the 401k will be far and away the most important vehicle for retirement planning. This puts much more pressure on you to develop a solid savings strategy. This one is simple.

Always look to gain that extra percent. See an idea of how saving a little extra now adds up big later.

Visit www.givemebigmoney.com/pay.html

Pay raises

What was your annual increase this year? Is it what you expected? Do you want to know how to improve your performance rating and get a bigger pay increase?

As an employee, you have to be pro-active and be prepared to tell your boss exactly how you have performed for the year. I know what you are thinking, isn't that the responsibility of my manager? Here is the problem with that kind of thinking. Your boss only knows how a fraction of your day is spent. You need to fill in the blanks.

How can you improve your chances for a higher rating and a better pay increase?

First, understand what you are being measured on. Ask your manager questions on how each measure will be evaluated.

Second, get your manager to explain in detail what you need to do to get the highest rating for each measure. Your goals should be specific and give you the opportunity to exceed them. Get your boss to be specific. By doing this, you help eliminate the gray area in a very subjective rating process. You will know exactly what is expected and how to exceed those expectations.

Third, and the most important, keep a file (don't rely on your memory) that supports how well you did at each measure. When you are reviewed, your manager will be amazed at how well prepared you are. This tells your manager how serious you are about your performance and career development. It will also give you the necessary ammo to persuade your manager to rate you higher.

Fourth, accomplish your goals and be prepared to remind your manager that you accomplished exactly what was expected of you in order to exceed expectations.

By following these steps you will greatly improve your odds for getting a better performance review and higher pay increase.

Don't think a percent or two will make that much of a difference? See the example on: www.givemebigmoney.com/pay.html

Tax Refunds

Well, it is that time of year again. Time to start thinking about filing your tax returns. If you typically get a huge refund, it is time to change your ways. I know, you wouldn’t be able to save the money any other way, right? Read on my friend.

If you typically have trouble saving money and use your tax refund as a savings vehicle, consider this alternative.

Assume your typical refund is $2,000 a year. Instead of loaning it to the government, put it to work for you in your 401k plan. By increasing your 401k contribution rate enough to invest an extra $2,000 each year you will increase your retirement nest egg considerably and save money on your taxes.

EXAMPLE: You are paid twice a month and earn an average of 9% on your 401k. After 20 years, the $40,000 you added to your 401k plan will grow to $106,688. After 30 years, your $60,000 would grow to $284,253. Not too bad, huh?. Oh by the way, if your federal and state marginal tax rate is 30%, you will save an additional $600 a year in taxes.

Tax services that promote huge refunds are doing you a disservice. When you file your taxes at the end of the year, it is a reconciliation of what you owe for the year versus what you paid. You should come as close to zero as possible.

Refunds are nothing more than repayments of a loan (WITHOUT interest) that you made to the government. If you are in the business of loaning money for free, I will be happy to hold your money for a year and return it to you the following March.

For more information on how to get the most from your 401k, visit www.givemebigmoney.com/401k.html

PBGC

OK, who has heard of the PBGC? Anyone?

If you have a defined benefit pension plan, you should know what the PBGC is. It stands for the Pension Benefit Guaranty Corporation. This organization helps protect pension plan participants from companies who do not live up to their promises.

There are 1,111 companies that are more than $50 million underfunded in their pension plans. Many employees won’t find out about their pension problems until it is too late.

When a plan is taken over by the PBGC, you stop accruing benefits. So if you are still 15, 20, 25 years from retirement, you will only get a fraction of the benefits you were counting on. There are limitations to what the PBGC will be responsible for. To make matters worse, for the fiscal year of 2005, the PBGC had a net financial position of negative $23 billion! What happens if the PBGC doesn’t recover from this deficit?

Pensions are quickly becoming a thing of the past.
When will the American worker say enough is enough? Aren’t you tired of being taken advantage of by corporate America? How did companies continue to underfund their pensions and get away with it? Look at the latest news, the Delta Air Lines Inc. Pilots Retirement Plan covering 13,000 active and retired pilots was just absorbed by the PBGC. This plan was underfunded by $3 BILLION. How can these things happen? When is enough, enough?

To learn more about pensions, visit www.givemebigmoney.com/pensions.html