Although tax season may not be a crowd favorite, there are instances where individuals and employers can benefit. Taking preemptive measures and planning year-round in anticipation of everyone’s favorite day, Tax Day, there are situations that allow for lowering taxable income. In our previous edition, we discussed strategies for individuals and in this edition, we are going to delve into the strategies geared towards small business owners. Business owners have the opportunity to lower their taxable income and to motivate and entice their already hardworking employees.
We at Mitlin Financial hope that you had a healthy and successful 2016. As we move full steam ahead into 2017 and into tax season, we want to make sure that you are all set when it comes to saving for your retirement. Contributing to an Individual Retirement Account, better known as an IRA, can be a powerful retirement saving tool. It is important to understand your time and contribution constraints for making last minute contributions. In addition to the inherent benefits of contributing to your IRA, staying informed of the correct contribution limits and deadlines can be the difference between contributing to your account correctly and incurring unwanted penalties or fees.
Life insurance can be very effective in providing financial insulation, security and peace of mind to those who elect to safeguard their loved ones from the financial travesty that can result from an unexpected tragedy. It is important to understand that just because you’ve implemented this layer of financial protection by securing an insurance policy does not mean that you can lock it away for decades and expect it to remain optimal for your ever-changing financial life.
You may have full faith and confidence in your current insurance broker and the policy they helped you secure based on your facts and circumstances at the time. It is very important to ask yourself and identify any impactful life changes that may have occurred since you had this insurance policy written. As time goes on, it is likely that your financial facts and circumstances have changed. Based on these changes, it is important to review your own insurance coverage on a regular basis to make sure that it is still relevant.
Now that we have a working knowledge of both passive and active investing, let’s compare the two. While some individuals may be best suited for a passive approach, others may find active investing to be a better choice. There are many different components that must be analyzed and assessed before deciding whether actively managed mutual funds or passively managed index funds are the best fit for your own facts, circumstances and financial future.
There is no such investment or strategy that can possibly fit the needs of every investor. It is crucial that you, as the investor, work with a seasoned financial professional who can educate and guide you appropriately. An individual that would be best suited by passive investing is someone who is looking for a simple, cost effective method of investing. As a passive investor, you must be content to perform as well or as poorly as the index. Meanwhile, an active investor believes that portfolio managers can add value to their portfolio by discovering opportunities in the markets that will allow them to outperform their appropriate benchmarks.
As we had learned about the inner-workings of passive investing in the previous edition, we will now focus our attention on passive management’s counterpart, active investing (active management). Under this type of investment management, managers take a more proactive approach in effort to achieve optimal returns and to outperform the market.
What is active investing and how does it work? This investment strategy uses the human touch to actively manage an investment portfolio. Managers will utilize analytical research, forecasts, as well as their own investment experience, expertise and judgment in an effort to make the best possible investment decisions regarding what securities to buy, sell or hold. Active managers tend to believe that short-term price movements are significant and that these movements can often times be predicted. They are not bound by any single index fund’s performance potential and can deploy a multitude of strategies with the goal of outperforming an investment benchmark index. Some of the strategies used by active fund managers to construct their portfolios include risk arbitrage, short positions, option writing and asset allocation.
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