It's certainly nice to get an extra day off from the markets as we look forward to a weekday of catching up tomorrow.
This is a great time for investors to do what I mentioned last month when the market was closed for Martin Luther King holiday. Take a peek at your portfolio and see how things are looking. Check any recent transactions to make sure there were no errors. If you have any weeds growing in your portfolio (stocks down 25% from their 52-week highs should be examined closely) to see if there needs to be some trimming or outright selling of under-performing stocks. Every once in a while a company will lose its way and there is no reason to think you can't sell and come back in eventually if the company gets turned around.
Interesting news this past week, but not surprising was the news book retailer Borders Group was filing bankruptcy. We have seen industries being transformed, some for the better, some not. One of the side notes to do with the Border's bankruptcy centered around Billionaire hedge-funder William Ackman who runs Pershing Square Capital Management. Back in 2006, Ackman made a bad bet on bookseller Borders, buying 5.1 million shares of the company at between $18 and $20 per share. Now Ackman has made some great bets elsewhere, but it goes to show you that "smart money" can be wrong. Legendary real estate investor Sam Zell, who sold Equity Office Properties at the peak of the real estate market a few years back, turned around and made a poor bet by buying newspaper giant Tribune. Less than a year after Mr. Zell bought the company, it filed bankruptcy, listing $7.6 billion in assets against a debt of $13 billion, making it the largest bankruptcy in the history of the American media industry. The message here for investors is that you need to expect mistakes at some point. The key is recognizing when things aren't working out. A sell discipline is crucial. Unlike big money players like Ackman and Zell who have the capital to sustain themselves after a bad bet or two, an individual that fails to draws the line with an under-performing stock and buys more can see a bigger hit to returns if an "all-in" strategy backfires.
Changing subjects, we are getting closer to tax time. This is a reminder for everyone to examine numerous accounts investors can utilize to lower their tax obligations each year. Are you using any of the following options to your advantage? If your 50 and older, be sure to check out the bonus "catch-up" contribution you can be making with your IRA accounts.
If you are 50 years of age or older before the end of 2011: The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $6,000 or the amount of your taxable compensation for 2011. This limit can be split between a traditional IRA and a Roth IRA but the combined limit is $6,000. The maximum deductible contribution to a traditional IRA and the maximum contribution to a Roth IRA may be reduced depending on your modified adjusted gross income.
If you are under 50 years of age at the end of 2011: The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2011. This limit can be split between a traditional IRA and a Roth IRA but the combined limit is $5,000.The maximum deductible contribution to a traditional IRA and the maximum contribution to a Roth IRA may be reduced depending on your modified adjusted gross income.
SEP-IRA - For small businesses or self-employed individuals, the simplified employee pension IRA (SEP-IRA) allows you to contribute 25% of your income each year (to a maximum $49,000 in 2010).
401(k) and 403(b) - In 2010, the maximum annual contribution is $16,500. (If you're over 50, you can add a catch-up contribution of up to $5,500). If your company matches a portion of what you contribute, that match is like an immediate 100% return on the portion the company matches.
Coverdell Education Savings Account - You are able to make a $2,000 annual contribution limit.
There are also other education products like the 529 college savings/prepaid plans that you can consider as well. Health savings accounts are also an option where in 2010 an individual can contribute up to $3,050 pre-tax with a $1,000 catch-up if you're 55 or older.
Sit down with your tax professional and review which of these options you may be able to pursue. Take advantage of what you can and put that money to work for you. Also, you can consult our new IRA Guide for more information.
Before, I get ready to jump on "Money Matters" with George Chamberlin on KOGO-AM San Diego at 2pm EST (11am PST) today, I just want to repeat what I said on Friday in case you missed it. Dividend investing does not require a special talent, education level, years of experience, luck, or much money either. It requires a commitment from you as an investor that you will keep putting money to work each month in the best ideas available (that would be from our recommended list). That's all investing is everybody! The material you find on our Dividend.com site and some great stuff you will read in my book will help you get to where you want to be financially.
I will be sending out an e-mail tomorrow as well as I have more topics I want to share with everyone. Enjoy your Sunday and I'll talk to you tomorrow!
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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