Spread Betting and the Stock Market

This past week offered the worst performance of the stock market so far in 2012, and the outlook doesn’t look much better for many factors: the global economy, rising debt, poor employment, political instability in Greece and a Spanish banking crisis. With such uncertainty in the market, there will inevitably be a lot of volatility in stocks and other financial products. It is important to look for an investment that allows you to play off this volatility.

Stock Market

Spread Betting

That is where spread betting comes into play. Spread betting is very similar to options trading, where you can profit from moving prices, whether they are going up or falling down. Just like investing in a call or put, you take a position and indicate whether you believe the market will rise or fall. You profit if you are correct in your spread bet.

For example, if you think a major index will increase in value over the next month, you buy that spread, and you can profit if the price moves higher. However, if the index doesn’t go higher and falls against your buy price, you will encounter a loss.

The Benefits of Spread Betting

Spread betting has some benefits that are different from a traditional options trade or indeed regular share dealing. Depending on the provider you use, you get choices on which investments you can bet on. If you choose a provider like City Index, there are literally thousands of different options to bet on. You can bet on stocks, indexes, currencies, commodities, sectors, and more.

Another benefit of spread betting is that you trade with leverage meaning that you can take a large position for a relatively smaller initial deposit (similar to a mortgage on a house). The amount of leverage once again lies in which company you invest with, but since your trades are leveraged, you can increase your gains dramatically. However, at the same time, you need to be cautious because leverage can also exaggerate a loss as well.

Finally, spread betting UK profits can be tax free, unlike profits from trading stocks or options. This is because many jurisdictions treat the profits from spread betting different than regular investing income. This can make a profitable trade even better since you don’t have to tax tax on the gains! However, UK tax laws are subject to change and may differ depending on your personally circumstances.

Retiring Early is Only Going to Get Harder

Retirement

Photo by Tax Credits on Flickr

My neighbor retired from being a corrections officer at the age of 55. That was 30 years ago. He’s still retired and is doing well enough to maintain his lifestyle. However, after asking him how he put his retirement together, I was disappointed in my knowledge that it would be a path I could not follow.

He lives mostly off of his state pension and social security. Not a crazy recipe for those that retired 30 years ago, but they are hardly optimal for me today. The truth is, a lot has and is changing with regards to how people get retirement income and those changes will create challenges for those looking to retire early.

 

State Pension Changes

Private pensions are almost unheard of these days and government pensions are following in their wake. It isn’t a big surprise. State governments have long made promises that they could not keep to their employers. However, as pensions become more restrictive, it is important to note that early retirements are in the legislative crosshairs.

Just last week, the State of Washington passed a reform on state pensions which penalizes early retirement. For those retiring before 62, 55 and 50, the state progressively reduces pension benefits. If you plan to retire early from your State employment, you might need to consider making up for pension losses in your early retirement plan.

Social Security Changes

Just this year Canada changed the age for those looking to collect on the country’s equivalent social security program OAS. They added two years to the benefit age requirements going from age 65 to age 67. If Canada can increase retirement age, so can the US. Especially since raising retirement age is often used as a potential solution in Washington.

Two years probably doesn’t sound like much, but to a young professional starting out, it can be more than you think. Social security benefits are usually adjusted to inflation, so while annual benefits might be an annual benefit of $10-15 thousand today, it could be $40-50 thousand by the time you are retirement age. It’s a large potential loss for those who still have a long way to go for early retirement.

Increasing Taxes

There seems to be one thing both political parties agree on: something needs to be done with deficits, but that something is disconcerting for those seeking early retirement. Politicians on the left and right are talking about new tax structures to raise revenue. The good news is that no one is talking about raising income taxes on the middle class, but the bad news is that other tax raises are being considered.

Most of our retirement incomes are built around the income tax system. We pay income tax on interest and defer tax benefits on Roth IRA plans. However, what happens if several years down the road, government introduces a heavy new VAT, sales tax or carbon tax? Our retirement income which was once taxed through income taxes would now be subject to a second round of taxation be it consumption, production or carbon emissions.

It seems as though this blog’s job is getting more difficult, because retiring early is progressively getting harder.

Understand and Avoiding Student Loan Debt at Retirement Age

There was a frightening article for future retirees in the Washington Post last week. Some $35 billion in past due student loan debt is owed by those 60 and older. While anyone can fall behind in student loans, it’s important to understand how much student loan debt can ruin your retirement dreams and how those currently struggling found their way into their current predicament.

Sallie Mae Student Loan

Photo by jk5854

Still Paying Loans 30 Years Later!

The problem with tackling our debt is that there are so many loans to deal with. It’s not uncommon for someone to have credit card debt, student loans, a car payment and a mortgage. What debt is worse? What do you pay off first? Credit card debt has the highest interest, but student loans are unforgiveable.

There are those that are retirement age still paying for their education from decades ago and the biggest factor is that student loans are unforgivable. So regardless of what you can or do pay, the interest on student loans is going to accrue until you finally pay them off. Not to mention that government loans have multiple payment options that can extend terms of payment.

What you need to walk away understanding is that if your loan balance is not decreasing every month, you could be paying off the loans for the rest of your life.

Is College a Good Idea Late in Life?

One growing career trend over the last twenty years has been the extinction of lifetime employment. It’s left many seasoned employees out of work, late in life, with credentials lacking an advanced degree, certification or training. For many, the obvious step has been to get up to date on education. While going back to school might be your only viable option, you do need to weigh the risks of student loans.

The biggest thing to remember is that any amount you spend in loans needs to be offset by income. It requires you to take a serious look at what you might be earning after college, how long you want to be working and whether those gains are worth the costs. I hate to be the bearer of bad news, but if you need to go back to school in your late fifties just to retain the income you lost, that trip back to academia is probably not going to be worth the effort.

Picking up the College Tab for Your Grandchild

This really needs to be written across the top of any student loan promissory note:

“When you cosign, the debt is yours, not your progeny’s, and if you do assume payment on this debt, it’ll be a lot more than you thought!”

Here is how this story goes. Grandma cosigns on $20,000 for her gifted granddaughter thinking at worst, $20,000 is no worry. In this case Grandma has vastly underestimated the amount of money she is risking.

Think of it this way. A student can defer loans while interest accrues until they are done with college. This means that if your grandchild takes 6 years to graduate that $20,000 is already several thousand larger. What if your grandchild goes off to graduate school for 2 years? Now interest has accrued for 8 years and hasn’t once needed to make a payment. If the loans are government backed, there will be a 6 month grace period before loans are due.   Then there are several years of potential forbearance and creative payment plans like income-based and graduated that will keep you out of the loop and the loan balance growing.

It’s not out of line to believe you could be on the hook for $60,000 or more by the time the bank comes to you for payment.

Student loans are risky, but less so for young adults who have a long time to make up for them. If you are nearing retirement age, you should avoid student loans if you can and accept them with extreme caution if you can’t, because struggling with student loans once is all it takes to struggle with them forever.

Are You Spending Too Much on Business Expenses?

With cash flows being down for many small businesses due to the economy, business owners are looking for ways to save on expenses.  However, it can be difficult to know if you’re spending too much on some expenses versus others, or if you can really get a better deal.

As such, here are some tips to see if you’re spending too much on your business expenses.

Business Office Supplies

Photo by 19melissa68

Get a Budget

Take a page out of personal finance and start a budget for your business.  First, you need to make sure that you have specific details on cash outflows, and what the categories of each line of spending are for.  Once you have the categories, you can look at your data from month to month.

Then look at the categories which make up the largest percentages of your spending.  Do categories such as printing and reproduction, office supplies, or utilities seem rather high? Are you paying an accountant when you can earn your online associates degree in accounting and do your own bookkeeping?  If so, chances are you are spending too much on your expenses.

Ways to Cut Costs

Once you’ve identified your highest expense categories, it’s time to look where you can trim.  The first step is to shop around to see if you can get a better deal on the products and services you normally buy.  The internet is a great place to start.

For printing and office supplies, there are a lot of online retailers that offer these services at very low costs.  See what you’re paying, and try out a few orders through the online company.  You may be surprised at the quality you get for the price.  For regular office supplies, check on Amazon or even office supply stores like Office Depot online. Many times the online prices are more competitive than in store prices.

You can even shop for utilities such as phone service online.  If you have 0800 telephone numbers, there are several sites that let you compare your options for pricing and services for these types of phone lines.  You can also look at VoIP services to see if you can save even more money compared to your local phone company.