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Financial Tools from the Ground Up

Spelling out the Alphabet Soup

Beginning with cash, what places can it be put to be relied upon later? Checking and Savings Accounts are liquid or readily accessible for immediate spending needs. Some even pay a small interest amount but rarely do these keep pace with inflation. They are best used for living expenses and short-term deferred spending.

A “money market” account usually pays a higher interest rate than standard checking/savings but these often require a minimum balance of over $10,000 to be maintained. A CD (certificate of deposit) has a maturity period and usually outpaces inflation by a little bit as long as money is not withdrawn early. The longer period accounts often pay better returns but still often lag behind inflation in preserving spending power.

Other “fixed rate” accounts include things like immediate and fixed rate annuities, traditional life insurance, indexed life and annuity products and even hard assets like gold, jewels and other precious metals can provide some preservation of capital and spending power.

Some authors and self-proclaimed gurus even decry certain assets and asset classes as foolish and tell their followers to “never buy” those types of assets. Frankly, if the assets they speak so strongly against were as unreliable as they claim, those asset classes would not be legal.

Finance is such a specialized field that there are numerous professions requiring current licensing and ongoing continuing education. Much like healthcare professionals are required to stay abreast of new developments, financial professionals - CPAs, Attorneys, Financial Advisors, Investment Advisors, Insurance Professionals, Financial Consultants and Financial Analysts are all required to keep current licenses. So what about the alphabet soup of retirement accounts?

IRA - Individual (personal) Retirement Arrangement - allows contributions before tax on current income.

ROTH IRA - Contributions go in after income is taxed and growth comes out tax-free after retirement age.

401k and SEP now allow “Roth” contributions allowing individuals to create diversity in tax treatment upon assets built up for later use.

SEP IRA - Simplified Employee Pension has among the highest annual contribution limits for individuals of high income allowing for a plan that maintains lifestyle in retirement years.

To explore these options, speak with a licensed financial professional.

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