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High Rate CDs in Your Investment Portfolio

admin — Thu, 20 May 2010 14:57:44 +0000

Many people would benefit from investing in a few CDs for their financial portfolio, and yet not many have them. A certificate of deposit makes for an ideal investment as it consistently generates a high yield return if you know how to invest in them. Many banks offer better CD rates the longer your investment term. Discover more about the advantages and disadvantages of this type of investment.

Advantages of CDs

Finding the best CD rates can greatly improve your investment portfolio’s worth. If your money is mainly in a savings account, you’re earning little to no interest at all. If you’re invested in stocks or real estate, history shows that you can lose money at a moment’s notice. Risky investments have opportunities for higher gains but can also cost you in the short term.
As mentioned, one of the best advantages of investing in a certificate of deposit account is that it generates consistent returns. In any portfolio, you’ll want to balance between investments that generate small but steady returns with high risk investments that could potentially yield high returns. That way if your risky investments start losing money, you’ll be slightly hedged with CD rates that are still making you money. CDs are also a set and forget type of investment. Once you sign up for a CD account, you simply have to wait for the maturity date and collect your interest to invest in the next CD.
Not all investment types are perfect for everyone however, so you’ll have to weigh some of the potential disadvantages.

Disadvantages of CDs

One of the biggest problems with CDs is that you will not have access to your funds for a predetermined amount of time that you decide on. If you withdraw your initial deposit, you would be charged a penalty fee. Fortunately, you can prevent this from ever occurring by only investing money that you will not need in the near future. Establishing and emergency fund and making sure all debt is paid off before you invest will ensure that you will not ever need to touch the initial deposit on your CD account.
Every financial portfolio can benefit from a certificate of deposit, so if you are not invested in them start researching for the best CD rates today.

Derivatives and Hybrids

admin — Mon, 05 Apr 2010 15:47:08 +0000

Derivatives and hybrids include options, warrants, futures, convertible debt instruments and callable and putable bonds. These are affected by two broad sets of factors:

Prices and volatility of underlying instruments. Derivative instrument values are affected by changes in the prices of underlying instruments and by changes in the volatility of these prices. Stock call options, for example, will increase in value if the underlying stock price rises or the level of volatility increases. Discount rate and time. Values are also affected by changes in discount rates used and by the passage of time. The value of a call option, for example, tends towards its intrinsic value as the expiry date approaches.

The values of hybrids, such as convertible bonds, are affected by the values of the principal instruments and the value of the option-like component taken together. First order price risks are usually taken as being those due to changes in the price of the principal instrument.

Entrepreneurial decision making and the structure, size and scope of firms

admin — Sun, 28 Mar 2010 15:46:45 +0000

Entrepreneurs must also figure out the type of business structure, scale of operation, and scope of activities that keeps per-unit costs low. Their pursuit of profit encourages them to do so. Unlike other economic systems, a market economy does not mandate or limit the types of firms that are permitted to compete. Any form of business organization is permissible. An owner-operated firm, a partnership, a corporation, an employee-owned firm, a consumer cooperative, a commune, or any other form of business is free to enter the market. To be successful, however, a business structure must be cost-effective. A form of business organization that results in high per-unit cost will be driven from a competitive market by lower-cost rivals.
The same is true for the size of a firm. For some products, a business must be quite large to take full advantage of economies of scale. When per-unit costs decline as output increases, small businesses tend to have higher production costs (and therefore higher prices) than their larger counterparts. When this is the case, consumers interested in getting the maximum value for their money will tend to buy from the lower-priced, larger

Private Annuities

admin — Sun, 12 Jul 2009 16:06:36 +0000

A private annuity differs from a commercial one in two respects. First, ordinary property other than cash, normally real estate, is used to acquire the annuity and, second, the promise to make the payment is made by an individual, often a son or daughter rather than an insurance company. Payments under a private annuity are payable periodically, but they usually cease upon death of the annuitant.
A private annuity can be used if a parent wants to transfer a farm or ranch to a child in exchange for a guaranteed income for life. However, no mortgage or other security (except life insurance in the event of death) may be given to the parent to guarantee payment of the required annual amount. Some parents might consider such an arrangement a serious drawback. In addition, there may be adverse income tax consequences to the child should he sell the real property acquired by the annuity prior to the annuitant’s death. The tax basis becomes the sum of all annuity payments.
Generally, private annuities are discouraged in estate planning; however, there may be exceptions. If a child agrees to pay to the parent a fixed payment for the farm for the rest of the parent’s life and if the parent dies prematurely, the child buying the farm receives a windfall that may make the other children unhappy. On the other hand, if the parent lives longer than a normal life, the child purchasing the farm pays in excess of the property’s value. An insurance company usually is in a financially better position to fund a lifetime annuity than is an individual.
The main advantage of selling the farm for a lifetime annuity is that the farm is not included in the seller’s estate for estate taxes. The main disadvantage to the selling parent is that the buyer’s promise is unsecured and the parent is left with little financial protection if the buyer dies or becomes bankrupt. To enjoy the tax saving features of a private annuity requires that the buyer’s promise must not be secured by seller retaining rights in the property involved. Thus, it is different from a typical installment sale. Each annual payment to the parent is usually comprised of ordinary income, return of capital, and capital gain.
A situation in which the lifetime annuity might be justified is where the parent has several farms, is short of liquid assets, such as cash, is unable to take advantage of the annual gift tax exclusions and all of his children are interested in buying a farm. In this case, if a default occurs, the parent would still have land and income remaining from the other farms. Also, if all children were involved, a charge of favoritism to one child could not be made.
The parties involved in a private annuity should seriously consider all tax ramifications of private annuity transactions. Private annuities often result in liability for income and gift taxes. Check with your attorney and tax accountant for further details on private annuities.

Estate Planning Aids

admin — Sun, 12 Jul 2009 16:05:42 +0000

Services provided by banks, insurance companies, and similar institutions are often helpful in making and carrying out an estate plan. The following section describes some of these services.

Annuities

admin — Sun, 12 Jul 2009 16:04:27 +0000

An annuity is an amount of money payable each year for a specified period. A life annuity usually refers to a sum of money to be paid yearly for the rest of the person’s life. Annuities, which can be used in a farm transfer plan, can be purchased from life insurance companies. The person buying the farm would pay the cost of the annuity to the insurance company; the company would then make payments to the seller of the farm. The person receiving the payments is called an annuitant. There are many variations of annuities, such as straight life, cash refund, joint, and deferred. Annuities can be purchased in a lump sum or in units over a period of time. An insurance company is in a much better position to assume the obligation of paying a lifetime annuity than is an individual.

Types of Wills

admin — Sun, 12 Jul 2009 16:02:18 +0000

The only type of will recommended for estate planning is a formally executed will drawn by a lawyer. The law recognizes other types of wills, but these other types are best used only in emergency situations. A nuncupative will is an oral will which can be made only by a person in military service and in fear of death connected therewith. The estate must not exceed $1,000 and cannot include real estate. The will must be proved by two witnesses. A holographic will is one that is entirely written, dated, and signed by the hand of the testator himself. It need not be witnessed. This type is not recommended for use under normal circumstances, because it is usually drawn without the counsel and assistance of a lawyer.
• Formally Executed Will. Every will, other than the two types described in the endnote, must be executed and attested as follows:
1. The will must be signed at the end by the testator himself, or he may direct someone in his presence to sign his name thereto. (Usually this would happen only if the testator is physically unable to sign).
2. The signing must be in the presence of at least two witnesses.
3. The testator must at the time of signing the will advise the witnesses that the instrument is his will.
4. The two witnesses at the testator’s request and in his presence must affix their signatures and should write their addresses in their own handwriting at the bottom of the will.
• Self-Proved Will9. Oklahoma law now permits testators to make their wills self-proving. Influenced by Texas procedure, Oklahoma has adopted the practice of allowing the execution by a testator and the attestations by the witnesses to be acknowledged. This will excuse testimony by the witnesses at the time the will is offered in probate unless the will is contested. In absence of contest, this feature will save time and costs in the probate proceeding.
• Mutual or Joint Will. A formally executed will that is executed jointly by two persons with reciprocal provisions is called a joint will. It may be revoked by either of the testators in like manner as any other will and may be executed as a self-proved will. If two separate wills are executed with reciprocal provisions, they are called mutual wills. In either case, wills that contain reciprocal provisions should generally state whether or not they were executed pursuant to any agreement. Wills executed pursuant to an agreement (contractual wills) should generally be avoided since the potential for litigation is high in such cases.

Partnership

admin — Sun, 12 Jul 2009 15:58:09 +0000

A partnership may be used to enable the transfer of farm property from one generation to the next. Usually the child obtains an interest in the farm operation by gift or purchase, or by an operating agreement under which he invests part of his income share in either real or personal property, or by both gift and purchase. Later, arrangements can be made to buy a larger part of the parent’s interest. Provision is then made for the child to purchase the remainder of the parent’s interest at the parent’s death when the partnership is dissolved and liquidated. Often this provision is made by a “buy and sell agreement” whereby the partners agree that the parent’s remaining share shall be sold to one child at the parent’s death. An agreed payment by the purchaser to other potential heirs is made a part of the arrangement. The payments could be made on an installment basis or by using proceeds from life insurance policies.

Tenancy-in-Common

admin — Sun, 12 Jul 2009 15:57:22 +0000

A deed creating a tenancy-in-common can be used to pass a portion of the farm to a member of the second generation, without passing ownership of the entire farm to the same individual. Thus a parent could, if so desired, transfer a fractional share of the farm to a child. This arrangement is sometimes used in gift/purchase agreements. In the beginning the parent might transfer a small interest. As the child grows older and becomes more financially able, he may purchase a larger share.
The portion remaining in the parent’s name at death could be divided among immediate members of the family, or left to the child who already owned part of the farm. The parent could include in the will a provision permitting the child owning part of the farm to buyout the other heirs if desired. Such a provision may allow the child to pay a reasonable amount each year over a fixed period of time.
Advantages
• The surviving owner does not take all, as in joint tenancy. The decedent’s interest passes to his legal heirs or ac- cording to his will.
• A small or large fractional share can be owned or conveyed without consent of co-tenants.
• Several persons can own land in unequal undivided shares.
Disadvantages
• A tenant-in-common may use a proceeding called partition to have the jointly owned property physically divided or sold so he can receive his share. This right may jeopardize long-range planning by co-owners.
• Common ownership and responsibility may demonstrate the old maxim, “Everybody’s business is nobody’s business,” thus discouraging proper attention and care to farm management and operation. Keeping account of labor and improvements invested in the farm by co-owners may prove to be inconvenient. Some co-owners may be unable to pay or may refuse to pay their share of farm maintenance and improvement costs.

Terminating Joint tenancies for Estate Planning Purposes

admin — Sun, 12 Jul 2009 15:56:26 +0000

In large estates, with some exceptions, it is usually desirable to avoid joint tenancy with rights of survivorship. Owning property in joint tenancy prevents an individual from using a life estate plan or a marital deduction trust for such specific property. Thus, terminating joint tenancies is a part of the total estate plan for some people. As a result of the unlimited marital deduction, joint tenancies between husband and wife no longer have adverse tax consequences at the death of the first spouse.
A severance of joint tenancy can occur at the election of any co-owner by transferring the interest to another person. This can be done without the approval of the other co-owners; and if such transfer should be made, the transferee thereof becomes a tenant in common with the other co-owners who may remain joint tenants to each other. Survivorship rights would not then apply to the interest transferred but would continue to apply to interests remaining in joint tenancy.