I am aware of the consequences of annuity payments versus dividends and/or capital gains from a portfolio of equities (the annuity is taxed as income and the the others are at a reduced rate - for now). However, I'm not aware of any differences between interest from CDs versus annuity payments. It seems that both are charged as income. Can you elaborate?

You are correct that they are both equally charged as income.
For us if we held out of a CD what we needed for the year vs getting an equal monthly amount from an annuity that is where we had a tax concern. The interest rate paid on CD's right now is so low that we would have paid more in taxes by changing to an annuity vs the CD dividends.

I'm a little confused. If someone took 250K out of the market and put it into CDs, - what is constituted as "income" ... as in ...."Obama has proposed higher taxes for families earning more than $250,000 a year". Is the 250K AND interest "income", just the interest or is the entire 250K seen as "income"? -- many thanks !

If you had 250K in the market, meaning the stock market, you would have been paying taxes on the "interest" all along in the form of the taxes imposed on dividends that the stocks were generating. The only taxable event that occurs when taking money out of the stock market is any capital gains that may result. Hence if you bought your stock portfolio a number of years ago and paid 200K (i.e., its cost basis), then your capital gains would be 50K (250-200=50). You would then pay capital gains tax on the 50K. The current maximum rate for this is 15% which is likely better than if the gains were taxed as ordinary income.

The $250,000, the principal, is not taxed. The interest generated by the principal is taxed.

401's and certain other employer retirement accounts can be rolled over into IRA CD's and remain tax-deferred. But you have to be sure that you do the rollover right so that you do not trigger tax consequences earlier than you need to. (It's not that hard to do it right though. Ask lots of questions along the way if you need to.)

There is some fairly recent news on the FDIC insurance coverage of bank deposits. The FDIC's temporary increase in coverage from $100,000 to $250,000 was set to expire at the end of 2009. But the timeline for the increased coverage has been extended through December 31, 2013. After that date IRA accounts are to remain at the $250,000 amount of FDIC coverage, as they have been for the past few years. But other accounts are slated to revert to $100,000 coverage. See www.myfdicinsurance.gov for details.

If you go to this particular FDIC site, the opening picture is of Suze Orman. It is a .gov site, but Suze Orman must have worked with the FDIC to get things set up to be easily navigated. Orman's investment advice is really conservative, and she is committed to making financial education accessible and clear.

Yes. I know that Suze Orman can get quite dramatic on her show when she starts hollering, "YOU CANNOT AFFORD IT," at those silly people who call her up and ask about buying ridiculous things. But those people deserve to be hollered at. And so sometimes I help Suze holler.

I used to holler a lot at Alan Greenspan when he was on television giving money away. But he never listened to me. I would get so aggravated with Al. How lowwww could heeeee go.......I know the Fed fears inflation, but..........

And, yeah, I know Alan Greenspan used to party with Ayn Rand. But maybe he should have been partying with Boomer.

Boomer

PS: Please do not forget that I have no piece of paper that says I can give financial advice. And I have no financial alphabet designations after my name. My financial musings and theories and advice are worth exactly what you pay me.

try Parady ....11 per cent bonus up front and 7.5 per cent per year
Parady Financial group
Lady Lake
352. 751.3016

What's interesting is that if you had not moved the $250K out of the market and kept it in a broad stock index like the S&P 500, you would have had a gain of over 33% between the date of your original post and yesterday's market close (ignorning taxes and mutual fund fees). If you put that $250K in a money market over that period, you might have made a total of 1% on your money, or $2,500. Leaving it in an S&P 500 index fund, (ignoring taxes and fees) your balance would now be around $330K. Good lesson here - one that I've learned the hard way - invest it and forget it. Even in the bad years, it has always come back . . . so far, at least.

drdodge
You have to be kidding me to think that someone can provide you 11% interest or even 7.5% interest return worry free in todays market.

If its too good to be true ..well you knowthe answer.

This thread began almost a year ago, and since then we have seen quite a run-up in the market, as it shakes off all kinds of bad news -- to the point where I sometimes have to wonder if this market is completely immune to reality.

Out of curiosity, I just now looked up one of the most well known index funds. I wanted to see how the numbers told the tale over time. Here's what I found.

Vanguard 500 Index:
1 yr. 49.73%
5 yr. 1.84%
10 yr. -0.73%
since inception in 1976 10.58%

When looking at risk and at returns, I try to keep in mind the words of that great philosopher Mick Jagger -- well I guess really it is a paraphrasing of those words, "Time Is Not On My Side." Well.....not like it used to be anyway. Not that I don't like the market...still do....but....

(Oh, and btw, I was all set to digress a little by putting a You Tube clip in here of Mick Jagger singing "Time Is On My Side." But.....well....when I found it....well, it was just downright embarrassing. He was wearing some hideous white pants. He looked like one of those creepy guys that used to hang around the Greyhound Bus station picking up cigarette butts...and so I spared you...great song though.)

Boomer

Caroline 784
I think you should talk to some financial people.
, there are a lot of companies that will pay you bonus going in and between 6 and 8 percent a year and if the market goes down you do not loose any money

I am not a Financial advisor nor do I pretend to be an expert on finances.
I consider myself one of the lucky ones to have have come out of the "great recession" in good shape.
My financial advisor at Schwab advised me to get out of a portofio of mostly bonds when the market was at 9,400 and temporarily put it in a Money Markert fund until I felt safe to start reinvesting. at that point, my portfolio was down 18%.
I also had cashed out of an annuity at Merrill Lynch that has lost 25% of its principle. My accountant advised that I divide the total amount received and put into 6 month CD"s at the start of each month. So at the beginning of every month, I would have my money available to pay for any unforseen expense.
WHen the market climbed back to 8,200 from the low of 6,600 points. I was advised to put it into a Schwab Managed Portfolio. That portfolio has returned 30%.
The CD"s will give you peace of mind that you will not lose any money although your gains will not be great and you will have liquidity.
The portfolio will be subject to stock market conditions. I still see the market as growing for the next year but it will be choppy.
Liz Ann Sonders of Schwab has been one of the few financial people who has been accurately predicting how the market will do.
Since you asked, I would consider taking 100K to put in a conservative managed portfolio and the rest to be dived equally in 6 month CD's.

Again, I am not a financial advisor but so far I have been lucky to listen to the right people.

I've been poor and rich and being poor stinks. - Mae West

My humble suggestion
 

About a year or more ago a friend (57) was 'helped' by our mutual employer to retire. she was with our firm for 30 plus years had seen it coming for some time but it was still painful. Of course she was heavily invested in our firms stock; Yes, too many eggs in one basket. You can guess that shortly after her departure the crash hit. She called me and asked for advise..I urged her to wait it out ..ups and downs are all a part of the market -no matter how drastic. well I haven't heard from her in while I'll bet she panicked and missed the comeback.

Now to your question find a inflation proof investment like real estate..The current administration is spending money we don't have..hyper inflation is coming as sure as god made little green apples. Do not put it in a long term fixed income instrument...RayinPenn

Not sure this was clear so I just looked it up. The 250K FDIC protection was extended to 2014:

http://www.fivecentnickel.com/2009/0...-through-2013/

In the NYC metro area, David Lerner and Associates has a following. Since 1993, they have created a number of illiquid REITs which invest in prime hotel properties, Hilton, Marriott (and Marriott subsidiaries). Their current offering, Apple Nine ($2 billion cap) has been paying 8 percent. I've heard some financial planner poo poo this investment but it appears to have below average risk. Anyone have experience with David Lerner or their Apple REITs investment? Seems like a nice place to park money at this time.

George

Cabo35,

I can't resist -- TV issued tax-exempt bonds :a20:

Yes, please let us in on this. Are they Merrill Index funds?

Good one jmitchell.

My take on the $250K is:

1. High/Medium Risk: Invest half in a 500 Index fund and the other half in good quality companies that stand to gain on a market up turn. There are still a lot of under priced stocks. This is a good time to pick some winners if you can afford to put the money at risk.

2. Meduim Risk: Buy utility stocks for the dividend income. Some down side principal risk but more stable than most. Do not go only for the highest dividend. Take a good look at earnings per share and other assets the company owns that could affect stock price.

3. Safe: Government Bonds/Notes. 10 Year currently about 2.74 %.

Remember the high interest rates usually go along with high inflation. Low interest rates are not a bad thing unless you are stuck there and inflation takes off. I would be happy at 1% if inflation was the same.

Where To Put 250K
 

Withdrawal from the stock market is something to consider right now because oil prices may choke off a recovery. However the Treasury yield curve is steeply up-sloping. Which is bullish.

While a healthy middle class is decreasingly important to corporate profits, one must take into account the relationship of oil prices to corporate profits.

Kiplinger's Magazine is recommends short term high grade bonds, because interest rates have nowhere to go but up.

This is a tough call.

Real estate safe?
 

"Now to your question find a inflation proof investment like real estate..The current administration is spending money we don't have..hyper inflation is coming as sure as god made little green apples. Do not put it in a long term fixed income instrument...RayinPenn[/QUOTE]

Raw land maybe but not houses.

Everyone has different circumstances, needs and risk tolerances. I suggest having a fee based financial advisor provide you with expert advise. Make sure to interview the advisor to see if you are comfortable with his/her philosophy.
Good luck!

JMitchell

The TV Municipal Bonds recently being advertised in the paper for 6+% tax free were Comunity Development District Bonds...NOt the recreational bonds that are now under scruitiny by the IRS. Totally different.

More toward the short term I would go with CD's, maybe Discover's on line bank or to get a little better return corporate bonds that are maturing in 2 to 5 years. The bonds would be stressing the return more than safety.

There are no index funds that make that claim. There are index annuities such as alliance that do give you 10% up front with guarantee of 0 loss and work off the indexes monthly or annualy and reset each month or year howerer you set it up. I preferr monthly. Example if the market goes up 2% in june you make 2 % if it drops 3% in july you lose nothing. That is if you are on a month to month annuity. I have 2 m2m and 1 annual. They work well but your money is tied up for 17 years. You can withdraw up to 10% yearly without penality. I just reinvest the dividends for now. I have made over 35K in the past 2 years on just those with no risk. Speak to a professional about them before you invest so that you get the entire picture. Now to answer the question if I was investing 250k I would open 3 50k annuities and 100k in High Dividend stocks such as ATT etc. Do not take this as finincial advise but this is only my opinion on what I would do withe the 250k question. Do your reasearch! You have to live with your decisions. GOOD LUCK!

Our broker told us, if he sends us all our money go buy bullets and can goods for the poopie is about to hit the fan. That is the best advise I ever got and thisy guy has made us money every year, no matter what the market does. Sometimes not a lot, but enough that we have had to pay capital gains every year.

I worked a five year program to qualify as a finacial advisor and before completing the last course backed away. I backed away because I felt very uncomfortable telling people how to invest their hard earned money. Giving advice in a good economy is easy but head spinning in a down turn.

Add to that the conflicting advice from the financial community and a dynamic market that spooks easy and you can see why someone like me would rethink offering advice

Remember capital gains taxes when you run the numbers. I would also assume that inflation will increase so having a fixed monthly mortgage payment for 30 years might be a good thing. I would consider a mortgage and putting trailing stop loss orders on the stock I would have sold to buy the property. You will have to put the stop 5% to 10% under the market to avoid getting sold out too soon. Maybe 10% now and if the market calms down move it to 5%. This is not risk free as you could end up selling the stock for less than you could get now.

Options
 

I trade options, usually condors or iron condors on indexes, like the Russell 2K. With that you can make money if the market goes up or down or sideways. It doesn't have to always go up to be profitable. If you know the recipe it's very safe.

..........can it be said on this forum ????? ....." S-T-R-A-D-D-L-E-S "......AND....." S-T-R-A-N-G-L-E-S "...............(YUMMY...it's time to eat)...

Remember
 

From a technical perspective, the market only goes up or down 33% of the time. Your much safer if you limit your speculative holdings and set more income earning products that make money when the market goes sideways, which is 66% of the time.

Tips
 

Treasury Inflation-Protected Securities (TIPS)

Treasury Inflation-Protected Securities, or TIPS, provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater.

TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.

At this time, I would never consider taking money out of the market. (This assumes that one is holding good quality stocks.) What about CDs and bonds? Low rates of return are giving a strong signal to stay away, in my opinion.


If you get into CDs or bonds now, for preservation of wealth, when would you plan on getting back in the market? Ever? Would you be waiting for the next market crash or bear market? If so, you might be waiting for 3 or 4 years. No one knows for sure but I believe it would be at least a few years away. Meanwhile, the value of your money would be eroding due to inflation.
And if inflation steps up it's pace, it could be a serious problem.


No investment is ever 100% safe. Example: If interest rates go up, which they will at some point, bond prices will fall.


You might consider some quality stocks that pay good dividends and which also stand to appreciate in price as the market goes up.

Good luck!

What to do with money
 

Ask Suze Orman!

If I took 250k out of the market - I would turn right around and put it back in ASAP !!!!!

Real Estate - bargains abound!

I am currently a residential real estate appraiser. I think I know something about my local market. I am a "hard money" lender. I currently have five (5)
1st mortgages that are 1-3 year notes with the entire principle payable as a baloon at the end of the specified term. My requirements are simple, 2-3% closing cost up front, 11.99% interest only payable on the 1st of each month. No greater than 60% loan-to-value ratio. I am the 1st mortgage! Also, I must inspect the property and do my own internal appraisal report. (to myself). No appraisal fee required! Must be properties that I would personally be comforable in.

I have turned down many request. The request are presented to me by a couple of mortgage brokers that I do business with. The typical borrower is someone that has a recent mark on the credit score, has a long term job employment history and can restore their credit score in a year or two. All of my borrowers have been great as far as payment history. Only one paid late a couple of times but my late charges went out and she got the message. She paid the loan of $160,000 off about 18 months ago.

The problem with investment advice is that by the time it reaches a client it is old news. This is why being one exam short of completing a five year investment designation I pulled back.

The OP presents a case of investing 250k pulled from an investment to be re-invested.

I personally would not pull 350k from my IRA. However if I had found money equal to250k it wouldn't go in CD annuities, life insurance or bonds. The latest news from Burton Malkiel author of the famous "Random Walk suggest investing in dividend stocks. However if you read all of these post you read a number of posts wherein the poster felt that not all didvidend stocks are equal. So there you go. You cannot just get a tip on dividend stock but you must research which stocks.

I am not as risk adverse as some. In fact my investment people could give over the fact that my choices more likely fit in the 20 something category than....well my true age and so i had to modify my portfolio.

Bottom line for me would be dividend stocks. Like a number of people here I built ladders which have been a blessing

I agree with most of you. I have been moving my asset allocation from about 50/50 to 65/35 on market dips. I use mostly very low expense Vanguard index funds to keep it simple. Also moving some bond money into dividend stocks. I did one mortgage with a good loan to value with a 10 year balloon. Would like to find another. Ist mortgage only, 60% loan to value, 10 year balloon at 6%. Actuals on the closing cost.

I've carried lots of mortgages over the years,but only on property that i own and have sold.Your terms and interest rate would be extremely difficult for me to accept,but there are desperate people out there and you fill a need.Have owned Vanguard funds forever,but my returns have not been great,so i own mostly blue chip companies that pay attractive dividends.I realize that my aggressive portfolio is risky,80% stocks 20% bonds, but it's paid off bigtime . Plus, it doesn't hurt that 2 of my kids,a son and daughter, are investment bankers in NYC,and give me advice constantly.I usually listen to them,but my son was very high on Steve Jobs and Apple 5 years ago,but i didn't invest because it paid no dividend....................not smart:undecided:

Real Estate flips - hot market in Florida paying 12% min return

Great idea,the real estate market in my area, Lexington, has bottomed out and is currently very active.I recently sold a rental home after it being on the market for less than a week.But since we only live once, take that $250,000 go for broke and think outside the box.Take it all and bet on Bodemeister in the Preakness Stakes,he should have won the Kentucky Derby, but got nipped at the wire.Since the Preakness is a shorter race,Bodemeister will win going away.If you want to add some excitement to your life,i think this could be the solution:D.It's better advise then i've gotten from most of my financial advisors:$: