Financial & Wealth Services News

:: George G. Elkin, Managing Director, Financial & Wealth Services
631.923-1595 ext. 314
G. R. Reid Wealth Management Services, LLC  

Common Stock vs. Preferred Stock

Common stock and preferred stock are the two main types of stocks that are sold by companies and traded among investors on the open market. Each type gives stockholders a partial ownership in the company represented by the stock.
 
Despite some similarities, common stock and preferred stock have some significant differences, including the risk involved with ownership. It’s important to understand the strengths and weaknesses of both types of stocks before purchasing them.
 
Common Stock
Common stock is the most common type of stock that is issued by companies. It entitles shareholders to share in the company’s profits through dividends and/or capital appreciation. Common stockholders are usually given voting rights, with the number of votes directly related to the number of shares owned. Of course, the company’s board of directors can decide whether or not to pay dividends, as well as how much is paid.
 
Owners of common stock have “preemptive rights” to maintain the same proportion of ownership in the company over time. If the company circulates another offering of stock, shareholders can purchase as much stock as it takes to keep their ownership comparable.
 
Common stock has the potential for profits through capital gains. Shareholders are not assured of receiving dividend payments. Investors should consider their tolerance for investment risk before investing in common stock.
 
Preferred Stock
Preferred stock is generally considered less volatile than common stock but typically has less potential for profit. Preferred stockholders generally do not have voting rights, as common stockholders do, but they have a greater claim to the company’s assets. Preferred stock may also be “callable,” which means that the company can purchase shares back from the shareholders at any time for any reason, although usually at a favorable price.
 
Preferred stock shareholders receive their dividends before common stockholders receive theirs, and these payments tend to be higher. Shareholders of preferred stock receive fixed, regular dividend payments for a specified period of time, unlike the variable dividend payments sometimes offered to common stockholders. Of course, it’s important to remember that fixed dividends depend on the company’s ability to pay as promised. In the event that a company declares bankruptcy, preferred stockholders are paid before common stockholders. Unlike preferred stock, though, common stock has the potential to return higher yields over time through capital growth. Remember that investments seeking to achieve higher rates of return also involve a higher degree of risk.
 
Both common stock and preferred stock have their advantages. When considering which type may be suitable for you, it is important to assess your financial situation, time frame, and investment goals. The return and principal value of stocks, both common and preferred, fluctuate with market conditions. Shares, when sold, may be worth more or less than their original cost.

This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc. All rights reserved
George Elkin and Jason Saladino are Registered Representative offering Securities through American Portfolios Financial Services, Inc. Member: FINRA, SIPC. Investment Advisory products/services are offered through American Portfolios Advisors Inc., an SEC Registered Investment Advisor. G.R. Reid Wealth Management Services, LLC  is not a registered investment advisor and is independent of American Portfolios Financial Services Inc. and American Portfolios Advisors Inc.
Unless specifically stated otherwise, the written advice in this memorandum or its attachments is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
Information is time sensitive, educational in nature, and not intended as investment advice or solicitation of any security.

Financial & Wealth Services News

: : George G. Elkin, Managing Director, Financial & Wealth Services
631.923-1595 ext. 314
G. R. Reid Wealth Management Services, LLC 

How Long Will It Take to Double My Money? 

Before making any investment decision, one of the key elements you face is working out the real rate of return on your investment. Compound interest is critical to investment growth. Whether your financial portfolio consists solely of a deposit account at your local bank or a series of highly leveraged investments, your rate of return is dramatically improved by the compounding factor.

With simple interest, interest is paid just on the principal. With compound interest, the return that you receive on your initial investment is automatically reinvested. In other words, you receive interest on the interest. But just how quickly does your money grow? The easiest way to work that out is by using what's known as the “Rule of 72.”1 Quite simply, the “Rule of 72” enables you to determine how long it will take for the money you've invested on a compound interest basis to double. You divide 72 by the interest rate to get the answer.
For example, if you invest $10,000 at 10 percent compound interest, then the “Rule of 72” states that in 7.2 years you will have $20,000. You divide 72 by 10 percent to get the time it takes for your money to double. The “Rule of 72” is a rule of thumb that gives approximate results. It is most accurate for hypothetical rates between 5 and 20 percent.

While compound interest is a great ally to an investor, inflation is one of the greatest enemies. The “Rule of 72” can also highlight the damage that inflation can do to your money. Let’s say you decide not to invest your $10,000 but hide it under your mattress instead. Assuming an inflation rate of 4.5 percent, in 16 years your $10,000 will have lost half of its value. The real rate of return is the key to how quickly the value of your investment will grow. If you are receiving 10 percent interest on an investment but inflation is running at 4 percent, then your real rate of return is 6 percent. In such a scenario, it will take your money 12 years to double in value. The “Rule of 72” is a quick and easy way to determine the value of compound interest over time. By taking the real rate of return into consideration (nominal interest less inflation), you can see how soon a particular investment will double the value of your money.

1 The Rule of 72 is a mathematical concept, and the hypothetical return illustrated is not representative of a specific investment. Also note that the principal and yield of securities will fluctuate with changes in market conditions so that the shares, when sold, may be worth more or less than their original cost.The Rule of 72 does not include adjustments for income or taxation. It assumes that interest is compounded annually. Actual results will vary.
 
This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc. All rights reserved. George Elkin and Jason Saladino are Registered Representative offering Securities through American Portfolios Financial Services, Inc. Member: FINRA, SIPC. Investment Advisory products/services are offered through American Portfolios Advisors Inc., an SEC Registered Investment Advisor. G.R. Reid Wealth Management Services, LLC  is not a registered investment advisor and is independent of American Portfolios Financial Services Inc. and American Portfolios Advisors Inc. Unless specifically stated otherwise, the written advice in this memorandum or its attachments is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Information is time sensitive, educational in nature, and not intended as investment advice or solicitation of any security

Financial & Wealth Services News

:: George G. Elkin, Managing Director, Financial & Wealth Services
631.923-1595 ext. 336
G. R. Reid Wealth Management Services, LLC  

 Save Now or Save Later?

Most people have good intentions about saving for retirement. But few know when they should start and how much they should save.

Sometimes it might seem that the expenses of today make it too difficult to start saving for tomorrow. It’s easy to think that you will begin to save for retirement when you reach a more comfortable income level, but the longer you put if off, the harder it will be to accumulate the amount you need.

The rewards of starting to save early for retirement far outweigh the cost of waiting. By contributing even small amounts each month, you may be able to amass a great deal over the long term. One helpful method is to allocate a specific dollar amount or percentage of your salary every month and to pay yourself as though saving for retirement were a required expense.

Here’s a hypothetical example of the cost of waiting. Two friends, Chris and Leslie, want to start saving for retirement. Chris starts saving $275 a month right away and continues to do so for 10 years, after which he stops but lets his funds continue to accumulate. Leslie waits 10 years before starting to save, then starts saving the same amount on a monthly basis. Both their accounts earn a consistent 8% rate of return. After 20 years, each would have contributed a total of $33,000 for retirement. However, Leslie, the procrastinator, would have accumulated a total of $50,646, less than half of what Chris, the early starter, would have accumulated ($112,415).*

This example makes a strong case for an early start so that you can take advantage of the power of compounding. Your contributions have the potential to earn interest, and so does your reinvested interest. This is a good example of letting your money work for you.

If you have trouble saving money on a regular basis, you might try savings strategies that take money directly from your paycheck on a pre-tax or after-tax basis, such as employer-sponsored retirement plans and other direct-payroll deductions.

Regardless of the method you choose, it’s extremely important to start saving now, rather than later. Even small amounts can help you greatly in the future. You could also try to increase your contribution level by 1% or more each year as your salary grows.

Distributions from tax-deferred retirement plans, such as 401(k) plans and traditional IRAs, are taxed as ordinary income and may be subject to an additional 10% federal income tax penalty if withdrawn prior to age 59½.

*This hypothetical example of mathematical compounding is used for illustrative purposes only and does not represent the performance of any specific investment. Rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return involve a higher degree of investment risk. Taxes, inflation, and fees were not considered. Actual results will vary.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.



George Elkin is a Registered Representative offering Securities through American Portfolios Financial Services, Inc. Member: FINRA, SIPC. Investment Advisory products/services are offered through American Portfolios Advisors Inc., an SEC Registered Investment Advisor. G.R. Reid Consulting Services, LLC  is not a registered investment advisor and is independent of American Portfolios Financial Services Inc. and American Portfolios Advisors Inc. Unless specifically stated otherwise, the written advice in this memorandum or its attachments is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Information is time sensitive, educational in nature, and not intended as investment advice or solicitation of any security.


This material was written and prepared by Emerald.

Financial & Wealth Services News

:: George G. Elkin, Managing Director, Financial & Wealth Services
631.923-1595 ext. 336
G. R. Reid Wealth Management Services, LLC  



What Is An Exchange-Traded Fund?
 
Exchange-traded funds (ETFs) are just one of the many types of investment funds available, but they have some qualities that are unique and set them apart from other vehicles. ETFs are securities that attempt to track all types of indexes, industries, or commodities. For example, an ETF might be made up of securities representative of the technological industry or of the S&P 500.*
 
When ETFs were first created in the 1990s, the aim was to mimic the movements of an index of a specific financial benchmark. Today, ETFs also follow industries and commodities, not just indexes. The investment vehicle with the sole purpose of mirroring a specific index is called an index fund.
 
One of the reasons some investors may choose ETF funds is because they combine the diversification of a mutual fund with the flexibility of a stock. ETFs do not have their net asset values calculated each day, as do typical mutual funds, but rather their prices may fluctuate throughout the day based on the rate of demand on the open market.
 
Although the value of an ETF comes from the worth of the underlying assets comprising it, shares may trade at a “premium” or a “discount.” ETF shares are sold on stock exchanges; investors can buy or sell them at any time during the day. The underlying assets of the fund are not affected by market trading.
 
Exchange-traded funds may have expense ratios that are lower than those of an average mutual fund, and they are usually more tax-efficient than most mutual funds. Additionally, shareholders can often invest as little or as much as they desire. However, an ETF cannot be redeemed by a shareholder; rather, it can be sold only on the stock market.
 
A downside to exchange-traded funds is the commission fee, which is generally not associated with a mutual fund. Commissions are involved because ETFs are traded like stocks, rather than like mutual funds. However, despite this downside, an ETF can be a diversified and low-cost investment that often has a low turnover rate, so you might want to consider ETFs as part of your investment portfolio. Keep in mind that diversification is a method to help manage investment risk; it does not guarantee against loss.
 
The return and principal value of ETF and mutual fund shares fluctuate with market conditions. Shares, when sold or redeemed, may be worth more or less than their original cost.
 
Exchange-traded funds and mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

 
* The S&P 500 is an unmanaged group of securities that is widely recognized as being representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index.
 
The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.

This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc. All rights reserved.

George Elkin is a Registered Representative offering Securities through American Portfolios Financial Services, Inc. Member: FINRA, SIPC. Investment Advisory products/services are offered through American Portfolios Advisors Inc., an SEC Registered Investment Advisor. G.R. Reid Consulting Services, LLC  is not a registered investment advisor and is independent of American Portfolios Financial Services Inc. and American Portfolios Advisors Inc.
 
Unless specifically stated otherwise, the written advice in this memorandum or its attachments is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
Information is time sensitive, educational in nature, and not intended as investment advice or solicitation of any security