Photo from Wall Street Journal online

 The following article was taken from the Wall Street Journal online article on August 16, 2011. This article discusses some investing strategies that are used by one of the richest families in America: The Walton’s.

 Smart investing tips from Sam Walton

To view full article, please visit Wall Street Journal online.

After the stock market lost 20% of its value in October 1987, Sam Walton, then one of America’s richest men, was unfazed.

In less than a week, the value of his Wal-Mart stores stock had dropped almost $3 billion, reducing his wealth to a mere $4.8 billion. It’s paper anyway,” he told the Associated Press. “It was paper when we started and it’s paper afterward.”

Given the wrenching swings of the past two weeks, many of us may wish we could be so sanguine about our own losses. But even without a few extra billion dollars in the bank, there are useful lessons to be gleaned from the way the Waltons and other ultrarich families cope with investments and market volatility.

Just like us, the rich want to maintain their lifestyle, preserve wealth and hyave money for their heirs or philanthropy. And when it comes to investing, there are several ways the rest of us should take a cue from them:

The very wealthy have a plan. Sam Walton’s plan started in the early 1950s, when, on the advice of his father-in-law, he set up a family partnership, made up of him, his wife, Helen, and their four children, to own his two variety stores. By doing that, he began planning his estate and building family wealth years before he opened the first Wal-Mart in 1962.

Nowadays, most very wealthy people have a team of advisers and an investing strategy in place that should work even when the worst imaginary case becomes real. Small investors, too, should have a comfortable investment process that works in good times and bad.

A financial adviser can be invaluable in helping you with this, but so can a trusted family member or friend who will help you stick to your plan when you start to doubt it.

The very wealthy live below their means. Walton, who died in 1992, was famously frugal, driving an old pickup truck and flying coach. Many very wealthy people spend much more extravagantly, but even so, “most of our ultrawealthy clients have a lifestyle that is well below their means,” says Craig Rawlins, president of Harris myCFO Investment Advisory Services, which serves wealthy families.

When you don’t spend everything, he says, “you have a better opportunity to weather this volatility because you know there’s a cushion there.”

The very wealthy focus on risk, not return. Larry Palmer, managing director, private wealth management, at Morgan Stanley Smith Barney, said he has never had a client says, “My objective is to have my family wealth beat the S&P 500.” Rather, he says, clients focus on what kinds of risks they are taking with their portfolio.

The Walton family weatlh long has been tied to its Wal-Mart stock, now valued at $83.6 billion. But Sam also bought the tiny Bank of Bentonville in 1961, and it is now part of the family-owned Arvest Bank, an $11.5 billion banking company. Walton Enterprises also owns a chain of small newspapers that, along with other interests, offer diversification and push the family’s estimated combined wealth close to $100 billion.

Small investors need to similarly manage their portfolios, making sure that their holdings of stock and other volatile investments aren’t so great that they are putting more at risk than they intended to.

The very wealthy hang on. The super-rich don’t sell because they are fearful-though some may be selling right now for investment reasons, such as cutting the tax bite on holdings with big gains. The Walton family ownerships of Wal-Mart stock hasn’t changed since late 2002, when some shares were transferred to charitable funds.

In that sense, Sam was spot on. Though the Walton family’s Wal-Mart shares have dropped by more than $10 billion since mid-May, until the stock is actually sold, the losses really are nothing more than paper.

 Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Many people have a difficult time selecting a financial adviser or firm to manage their hard-earned money. It can be a very confusing and long process. In the following video, David Young, founder and owner of Paragon Wealth Management, discusses the advantages and benefits of investing with a smaller investment firm rather than a larger investment firm.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following article discusses when a non-deductible IRA contribution makes sense for investors depending on their individual situations and goals.

Does a Non-Deductible IRA Make Sense For Your Situation?

To view full article, visit Figuide

If you find yourself in the position of having too high of an income to make a deductible contribution to your IRA for the year ($110,000 for joint filers in 2011, $66,000 for Single and Head of Household), you may be wondering if it’s a good idea to make a non-deductible contribution to your IRA.

There are two opposing camps on this issue, and the deciding factor is how you’re intending to use the funds in the near term.

When It’s a Good Idea

If you’re intending to convert your IRA to a Roth and your income is too high to just make the contribution directly to the Roth account, the non-deductible IRA may be the right choice for you. This way you’re effectively working around the income limitations of the Roth contribution ($179,000 for joint filers in 2011 or $122,000 for single or head of household filers).

You also have more funds available in your IRA account, which provides you with the ability to take advantage of economies of scale - certain mutual funds have higher minimum purchase amounts, for example. Since the money is in an IRA you don’t have to track holding periods, non-qualified dividends versus qualified dividends, and your paperwork is reduced.

In addition, depending upon your state laws your money may be protected against creditors since it’s part of an IRA.

When It’s a Bad Idea

If you’re not planning to convert this IRA to Roth, you’re effectively increasing the tax cost of your investment gains (under today’s law). Since withdrawals of investment gains from your IRA are taxed at ordinary income tax rates (up to 35% under today’s rates), you’re effectively giving yourself a tax increase over the capital gains rate which is 15% maximum these days.

Instead of making a non-deductible contribution to your IRA, you could just make your investment in a taxable account. Then within this account you could make investments geared toward long-term gains rather than income or dividends, therefore deferring tax until you sell the investment. And when you do sell the investment it will be taxed at the currently much lower capital gains rate versus the ordinary income tax rate (which would be applied if you made your contribution in the IRA).

Conclusion

So- depending on what you’re planning to do with the account, a non-deductible contribution could be a good idea or a bad idea. You will have to make that call. Hopefully the information above will help you with your decision.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following article discusses what a custodial IRA is and how it can be beneficial in helping your children learn about investing. The knowing what a custodial IRA is, your can help your children start a nest-egg of their own for retirement.

The Benefits of Custodial IRAs for Your Children

To view full article, please visit Military Money.

Would you like to help your children accumulate more than $1 million in tax-free retirement assets with a relatively small investment?

You can do exactly that with a highly effective but often overlooked financial strategy: Open a Roth IRA for your child!

The Rules

A child can open an IRA (traditional or Roth) only if he or she has legitimate “earned income” through self-employment or W-2 wages. This money can come from typical jobs such as cutting grass, delivering newspapers, bagging groceries or working at a fast-food restaurant.  A child that performs real work or duties in a family business- data entry, filing, cleaning the office-also qualifies. (It is a good idea to pay any children working for the family business periodically- say, monthly- by check and to keep a time sheet.)

A child, regardless of age, can use this income to fund an IRA subject to the lesser of $5,000 or 100 percent of earned income. As with all IRAs, you have until April 15 of the following year to put the money into the account.

Some children may be reluctant to turn over their hard-earned babysitting or life guarding money to mom and dad to fund an investment they won’t be able to use for many years. Fortunately, parents and grandparents can give kids some or all of the IRA funding money as gifts, allowing the children to keep and/or spend what they make. Any money gifted in this manner must be aggregated with any other gifts and are subject to the $11,000 annual gift exclusion.

If the child is a minor, the account must be set up as a “custodial IRA” with the child’s social security number on the account but an adult parent or guardian shown as the custodian. Once the child turns 18, the custodial feature may be removed.

The Benefits

How powerful is this savings tool? Let’s look at two examples:

Example #1: Johnny, age 13, has a part-time paper route and earns $1,400 per year. His parents open a custodial Roth IRA for Johnny and fund it through gifts limited to the amount of his earned income each year. If Johnny keeps the paper route until age 18 (five years of funding), continues to earn $1,400 per year and never puts another dime into the Roth IRA, it will grow to $305,787 by the time he turns age 65(assuming an eight percent annual rate of return). Not bad for a total investment amount of only $7,000!

Example #2: Sarah, age 15, works for her mother, a real estate agent. She helps her mother with data entry and promotional fliers. Her mother can pay her what she would reasonably pay an outside employee for the same duties (say, $15 per hour). Sarah works 300 hours each year until age 18, earning $4,500 per year. Sarah contributes $2,000 to a custodial Roth IRA and her mother matches that with a $2,000 gift for the total of $4,000 per year. In four years, she will accumulate $18,024 in her Roth IRA (assuming an annual eight percent average annual rate of return). If Sarah continues to work for her mother through college (an additional four years) and make additional contributions, the account will grow to $42,546. If she stopes and lets the money grow tax-free until age 65, she will have amassed $1,164,341. If she continues to contribute $4,000 per year after college until age 65, she will have a whopping $2,482,673-all available tax-free!

The Caveats

First, remember that the money must come from legitimate earned income, so it will be difficult for a very young child to qualify unless he or she is a child actor or model.

Second, some financial institutions are unfamiliar with these rules and may be hesistant to open a custodial IRA or ask for verifiable W-2 income. If the bank, brokerage house or mutual fund company seems reluctant, as to speak with a manager to resolve the issue. If they still refuse, take your business to another institution, since there are plenty that will help you.

Third, since the time frame is so long on this investment, use a growth-oriented stock mutual funds for maximum long-term appreciation.

Roth IRAs for working children are an immensely powerful wealth-building tool and an excellent way to teach kids about money and investing. If your situation qualifies, open one today!

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following article discusses what a Roth IRA is and how it can be your best option for your retirement savings account.

What is a Roth IRA?

The view full article, please visit YourRothIRAGuide.com

Saving for retirement is something most people don’t want to think about when they are in their twenty’s but that is the perfect time to begin the process. The more money an individual can save for retirement, the more financially secure the golden years will be. There are mechanisms in place to help plan and save for retirement and the Roth IRA is one of them.

A Roth IRA account is an Individual Retirement Arrangement allowed under the United States tax law and named for its legislative sponsor Senator William Roth, late of Delaware. The Roth IRA has existed since 1998. A Roth IRA is subject to the same rules as a traditional IRA but with some exceptions.

A Roth IRA account can simply be a savings and/or investment account or an annuity and it must be designated as a Roth IRA when it is opened. Contributions to a Roth IRA account must be made from money earned through employment efforts. The effort can be self employment or employment through a legal business. The income can be wages, tips, salaries, bonuses, and professional fees. The Roth account holder will be required to pay taxes on contributions. The benefit is no taxes are required to be paid on earnings or on the principal that is withdrawn from the account at any time. Investments in a Roth IRA can be used for a variety of investments such as stocks, bonds or certificates of deposit. The investor must not exceed established income requirements to contribute to a Roth IRA account, the fund owner must not exceed maximum income criteria. The limits change year to year. A Roth IRA account holder can contribute up to a specified amount between 02 January and the tax deadline of 15 April of the following year. For 2011, the maximum contribution is $5,000. The contribution limit changes with inflation and account holders age 50 or older have the ability of making additional catch up contributions. For 2011, that is $1,000. You will not be able to contribute to a Roth IRA if your income exceeds the income limit. You will be able to continue contributions when your income decreases or the limit is raised.

If one spouse has a Roth IRA account, the other can contribute to the account provided the couple files a joint tax return. Anyone at any age can open a Roth IRA account. Minors can establish and contribute to a Roth IRA provided the minor has verifiable income.

Contributions can be made to a Roth IRA account as well as a 401(k) or 402(b) plan without any contribution effect on either account. A traditional IRA converted to a Roth IRA account can still reveive the current contributions during the year of conversion.

A Roth IRA account can be opened with any Roth IRA providers and they might be a bank, mutual fund companies, brokerage firms or insurance companies. Be sure to compare fee’s providers charge before choosing a Roth IRA account provider.

Facts about IRAs

The following article discusses what IRAs are and the difference between the different types of IRA accounts that are available to investors.

To view the full article, visit Monster Money

Individual retirement accounts (IRAs) were established by the federal government and given special tax treatment primarily to encourage people to save for retirement. With an IRA, you can set aside a certain amount of money every year in a special account managed by a bank or other financial institution, or by a mutual fund, life insurance company or stockbroker. IRA accounts can be invested according to your choice of investment options. Your money grows tax-deferred, and in some cases, even tax-free. While this article explains some of the different types of IRAs, you should consult with your own tax or financial adviser to see if a particular type of IRA is right for you.

Traditional IRAs

A traditional IRA is a personal savings account that gives you tax advantages for saving for retirement. Contributions to a traditional IRA may be tax-deductible, either in whole or in part, depending on your modified adjusted gross income — a figure used by the Internal Revenue Service (IRS) that’s arrived at by first deducting some adjustments from your total income and then adding certain items back.

You can contribute to a traditional IRA for each year you receive compensation and have not reached age 70½. For any year in which you do not work, contributions cannot be made to your IRA unless you receive alimony or file a joint return with a spouse who has compensation.

There is a limit to how much you can contribute each year. For tax years 2005 through 2007, you can make contributions to a traditional IRA of up to whichever amount is smaller: (a) your taxable compensation for the year or (b) $4,000. In 2008, the $4,000 limit will be raised to $5,000. In addition, if you are 50 or over at the end of a tax year, you may contribute an extra catch-up amount — an additional $1,000 in 2006 and beyond.

You are not required to make a contribution to only one type of IRA during the year. If you qualify, you can divide your permissible contributions between a traditional IRA and Roth IRA.

There is no upper limit on how much you can earn and still contribute to a traditional IRA. But there are some rules that limit how much you can deduct. Information regarding employer retirement plans and other rules for IRAs can be found in IRS Publication 590, “Individual Retirement Arrangements (IRAs).”

The investment earnings in your IRA account won’t be taxed until you withdraw them. In most cases, IRA account holders withdraw their money upon or after retirement, when they are in a lower tax bracket than at the time the money was invested.

You can withdraw or use your traditional IRA assets at any time, but those withdrawals will be treated as income for tax purposes. Moreover, you may be subject to an additional 10 percent penalty tax if you make withdrawals prior to age 59½ unless there are special circumstances, such as death, a disability, certain higher education expenses or a qualifying first-time home purchase.

With a traditional IRA, you must start withdrawing money from your IRA by April 1 of the year following the year in which you reach age 70½, and each year you must withdraw a required minimum distribution or face a penalty. The IRS provides formulas for figuring out this required amount based on varying circumstances.

One of the benefits of IRAs is that it is easy to move retirement savings from one account to another without tax penalties. IRA funds can be moved in the following ways:

• Rollovers: With a rollover, you receive assets from your IRA (or other qualified retirement plan) and then deposit those assets in another IRA (or other qualified retirement plan). If you receive a lump sum payout from a company pension plan, perhaps because you are leaving that company, you can avoid paying taxes on the lump sum by rolling it over into an IRA — but you must do so within 60 days of receiving the funds unless you receive a waiver. A qualified employer-sponsored retirement plan may, at your request, make a “direct rollover” by distributing your plan assets directly into another plan in which you participate or another IRA you’ve set up. You may make only one rollover from any single traditional IRA to another traditional IRA in any 12-month period, but there’s no limit on your ability to roll over amounts from or to other traditional IRAs in any given time period.
• Conversions: You can move (”convert”) amounts from a traditional IRA into a Roth IRA, depending on your tax filing status and modified adjusted gross income for the year. This is discussed further under Roth IRAs below.
• Transfer from One Custodian to Another: You can transfer your IRA to another institution, perhaps to take advantage of a better deal or a promising mutual fund. To switch institutions, simply request a direct IRA-to-IRA transfer from one institution to the other. A transfer is not the same as a rollover. With a rollover, you take receipt of your funds before depositing them in another account. With a transfer, you never receive money; instead, the money goes directly from one IRA account into another. So the 60-day period doesn’t apply. Also, because this is not a rollover, it’s not subject to the 12-month waiting period required between rollovers.
• Transfers Related to a Divorce: An interest in a traditional IRA may be transferred as part of a divorce settlement. This type of transfer is generally tax-free.

Roth IRAs

A Roth IRA operates differently from a traditional IRA. Key differences include:

• Contributions to a Roth IRA Are Not Tax-Deductible: The distributions (including earnings on your contributions) are not included in income and are potentially tax-free. Because your contributions to a Roth IRA are not deductible and have already been taxed as income, you can withdraw your contributions, tax-free, at any time within certain limits — just as you can withdraw money from your bank account without paying taxes on it. The earnings on your contributions, however, are treated a little differently. Withdrawals of earnings from a Roth IRA can generally be made anytime, free of tax or penalty, if it has been five taxable years since you first opened the Roth IRA and if the withdrawals are made: After age 59½, on account of death or disability or for a qualified first-time home purchase up to $10,000 (lifetime maximum). If a withdrawal does not meet these requirements, it may be taxable and may also be subject to a 10 percent penalty if made before age 59½.
• Withdrawals Are Not Required: Unlike the traditional IRA, you may leave assets in a Roth IRA for as long as you live. You may allow your assets to continue to accumulate tax-free and/or be passed to heirs tax-free. Contributions can be made to a Roth IRA as long as you are earning income, even after you reach age 70½.

Here is more information about Roth IRAs:

A Roth IRA is generally available only if your adjusted gross income is less than $160,000 for joint filers or $110,000 for single filers. Check with your financial or tax adviser to see if you are eligible.

In general, if you contribute only to a Roth IRA, your contribution limits are the same as for a traditional IRA. This includes “catch-up” contributions for those 50 or older. However, if your modified adjusted gross income is above a certain amount, your contribution limit is gradually reduced. The amount you can contribute each year to a Roth IRA may also be limited if you contribute to both a Roth IRA and a traditional IRA.

A traditional IRA or other retirement account can, under most circumstances, be converted, partially or entirely, to a Roth IRA, if your modified adjusted gross income is less than $100,000 in the year of conversion. If you are married, you may convert to a Roth IRA only if you file taxes jointly. The converted amount (excluding nondeductible contributions) is subject to income tax in the year of the Roth IRA conversion. You can also roll over a Roth IRA into another Roth IRA.

Choosing Between a Traditional and Roth IRA

If you are eligible for both traditional and Roth IRAs, how do you choose between the two options? Or how do you decide how to apportion your retirement savings between the two? Here are some questions to consider:

• How long do you expect to keep earning money? If you’ll be working beyond age 70½, you will have to begin withdrawing from a traditional IRA and paying tax on those withdrawals while still paying income tax on your compensation.
• What tax bracket do you expect to be in when you start withdrawing money? If you expect to be in a lower tax bracket than you are now, a traditional IRA enables you to save money up front by deducting your contributions and put off paying some taxes until later.
• Do you plan to use up your IRA assets during your lifetime or leave them to your heirs? A Roth IRA can be used for estate planning, to build up assets for those who will inherit. While a traditional IRA can be inherited, your heirs and beneficiaries would probably gain more from a Roth IRA. Without mandatory withdrawals, your account can keep accumulating income, tax-free, until your death, when it will pass to the person you’ve designated.

IRA contributions may normally be invested in mutual funds, annuities, CDs, stocks or bonds. Which investment selection is most appropriate for you depends on your personal objectives and the amount of risk you wish to take. But one certainty applies to all types of investments: The sooner you invest, the larger your IRA will grow and the sooner you’ll be on your way to a comfortable retirement. Talk with your tax or financial adviser about choosing the plan that’s right for you.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Photo taken from Wall Street Journal Online

Fiduciary responsibility, in simple terms, is the legal responsibility to put your clients’ needs ahead of your own. Some estimates claim that only 15 percent of investment advisers have this responsibility. Paragon Wealth Management has fiduciary responsibility, and we recommend that you only work with advisers who do.

Below are excerpts from an article taken from the Wall Street Journal Online. In the past investment advisers were the only ones to have fiduciary responsibility, but Wall Street has agreed to put its brokers under the same criterion.

Fiduciary Duty Hits the Street- Sort of
August 31, 2009

Written by Jane J. Kim

For years, most investment advisers have been deemed fiduciaries under the Investment Advisers Act of 1940.

Investor groups say the existing fiduciary standard has been defined and upheld by over four decades of legal precedence, including a 1963 U.S. Supreme Court case, Securities and Exchange Commission v. Capital Gains Research Bureau.

“If you have a precise definition of fiduciary duty, what that does is exclude a number of features of fiduciary,” said Rex Staples, general counsel at the North American Securities Administrators Association Inc., which represents state securities regulators.

Trying to define what constitutes a fiduciary duty is like trying to define the duty not to commit fraud – any application of it depends on the client’s particular facts and circumstances, say adviser groups. Proponents say a fiduciary standard can’t be defined given the complexity and changing nature of the business.

“For years, they’ve opposed the fiduciary duty,” said Barbara Roper, director of investor protection at the Consumer Federation of America, a consumer-advocacy group. “Now they’ve embraced it in order to gut it.”

Still, Wall Street’s support of a fiduciary standard boosts the odds that it will eventually apply to brokers. Now, the fight is over the standard itself.

Investment advisers want to extend the current standard under the Investment Advisers Act to all financial professionals who give investment advice, while the brokerage industry wants a new, federal standard to apply to any broker-dealer or investment adviser that provides personalized investment advice to clients.

Under the Treasury’s proposed Investor Protection Act of 2009, the SEC would have the authority to “promulgate rules” establishing a fiduciary duty. SEC Chairman Mary Schapiro said she favors a fiduciary standard that would that would be applied uniformly to all financial professionals.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

In the following web-cast Paragon’s Chief Investment Officer, Nathan White, gives investors advice and recommendations on where they should invest their money right now.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

photo by strobist

When calculating the performance of an investment it is important to consider the multiplying effects of compound interest.  The following article explains how compound interest works and why it is so important to implement a savings plan sooner rather than later.

The Extraordinary Power of Compound Interest

Visit Get Rich Slowly to view the entire article.

If you’re young, you may not think you need to open a retirement account. You probably think it’s easier to worry about it five years from now. Or ten. You’re wrong. No matter what your age, now is the time to begin saving for retirement. In The Automatic Millionaire, David Bach writes, “The single biggest investment mistake you can make [is] not using your [retirement] plan and not maxing it out.”

Saving is the key to wealth

If you do not spend less than you earn, and if you do not save the difference, you cannot build the wealth you desire. The rich are not rich because they earn a lot of money; the rich are rich because they save a lot of money.

You may be skeptical - I was once skeptical, too. But over the past three years I’ve read a lot on the subject of wealth-building. Books like Stanley and Danko’s The Millionaire Next Door make it abundantly clear that it’s not a high income that leads to wealth - though obviously a high income does not hurt - but the ability to save. Those who become wealthy do so by spending less than they earn.

If saving is the key to wealth, then time is the hand that turns the key to unlock the door. There is no reliable method to quick riches. There are, however, proven methods to get rich slowly. If you are patient, and if you are disciplined, you can produce a golden nest egg that will hatch later in life.

The power of compounding
The best way to ensure your future financial success is to start saving today.

“The amount of capital you start with is not nearly as important as getting started early,” writes Burton Malkiel in The Random Walk Guide to Investing. “Procrastination is the natural assassin of opportunity. Every year you put off investing makes your ultimate retirement goals more difficult to achieve.”

The secret to getting rich slowly, he says, is the miracle of compound interest. Even modest returns can generate real wealth given enough time and dedication.

On its surface, compounding is innocuous, even boring. “So what if my money earns 3.85% in a high-yield savings account?” you may ask. “What does it matter if it averages 8% annual growth in a mutual fund? Why is it important to start investing now?”

In the short-term, it doesn’t make a huge difference, but on the slow, sure path to wealth, we take the long view. Short-term results are not as important as what will happen over the course of twenty or thirty years.

For example, if 20-year-old Britney makes a one-time $5,000 contribution to her Roth IRA and earns an average 8% annual return, and if she never touches the money, that $5,000 will grow to $160,000 by the time she retires at age 65. But if she waits until she’s my age (39) to make her single investment, that $5,000 would only grow to $40,000. Time is the primary ingredient to the magic that is compounding.

Compounding can be made more powerful through regular investments. It’s great that a single $5,000 IRA contribution can grow to $160,000 in 45 years, but it’s even more exciting to see what happens when Britney makes saving a habit. If she contributes $5,000 annually to her Roth IRA for 45 years, and if she leaves the money to earn an average 8% return, her retirement savings will total over $1.93 million. A golden nest egg indeed! She will have more than eight times the amount she contributed. This is the power of compound returns.

The cost of waiting one year
It’s human nature to procrastinate. “I can start saving next year,” you tell yourself. “I don’t have time to open a Roth IRA - I’ll do it later.” But the costs of delaying are enormous. Even one year makes a difference.

If Britney makes $5,000 annual contributions to her Roth IRA, and she earns an 8% return, she’ll have $1,932,528.09 saved at retirement. But if she waits even five years, her annual contributions would have to increase to nearly $7,500 to save that same amount by age 65. And if she were to wait until she was my age, she’d have to contribute nearly $25,000 a year!

To make compounding work for you:

• Start early. The younger you start, the more time compounding has to work in your favor, and the wealthier you can become. The next best thing to starting early is starting now.
• Make regular investments. Don’t be haphazard. Remain disciplined, and make saving for retirement a priority. Do whatever it takes to maximize your contributions.
• Be patient. Do not touch the money. Compounding only works if you allow your investment to grow. The results will seem slow at first, but persevere. Most of the magic of compounding returns comes at the very end.

Compounding creates a snowball of money. At first your returns may seem small, but if you’re patient, they’ll become enormous.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Understanding what to look for and what to expect from a financial advisor is critical when it comes to selecting who will manage your investments.  The term financial advisor can be used loosely which makes it even more important to look at their designation and qualifications, along with how they charge their fees.

The following excerpt is taken from Wikipedia

A financial advisor, more recently often referred to as a financial planner, is a professional who renders financial planning services to individuals, businesses and governments. This can involve investment advice, which may include pension planning, and/or advice on Life insurance and other insurances such as income protection insurance, critical illness insurance etc, and/or advice on mortgages.

Ideally, the financial adviser helps the client maintain the desired balance of investment income, capital gains, and acceptable level of risk by using proper asset allocation. Financial advisers use stock, bonds, mutual funds, real estate investment trusts (REITs), options, futures, notes, and insurance products to meet the needs of their clients. Many financial advisers receive a commission payment for the various financial products that they broker, although “fee-based” planning is becoming increasingly popular in the financial services industry.

A further distinction should be made between “fee-based” and “fee-only” advisers. Fee-based advisers often charge asset based fees but may also collect commissions. Fee-only advisers do not collect commissions or referral fees paid by other product or service providers.

Some investment advisors only charge a fee based on the assets managed for the client. Typically they charge about 1.0 to 1.5% per year to make the investment decisions for the client. They do not collect commissions.

Designations

An “investment adviser” can be anyone whose vocation is consulting with clients with an intent to better their financial situations. The term can apply to Certified Financial Planners (CFP®), Certified Public Accountants (CPA), investment representatives, insurance consultants, attorneys whose practice surrounds personal financial or estate matters, or financial planners. A financial planner is one who specializes in outlining comprehensive financial plans and strategies encompassing most or all of a client’s financial areas.

Financial Adviser Qualifications

The Chartered Financial Analyst (CFA) designation, the Certified Financial Planner (CFP®) designation, the Chartered Life Underwriter (CLU), The Chartered Financial Consultant (ChFC), Chartered Retirement Planning Counselor (CRPC), Registered Financial Consultant (RFC) and the Masters of Science in Financial Services (MSFS) are all advanced specializations that require elaborate course work to obtain. These professional designations are issued by organizations such as the Chartered Financial Analyst Institute, the Certified Financial Planner Board of Standards, and the College for Financial Planning.

Goals

The main purpose of a financial adviser is to assist clients in the planning and arrangement of their financial affairs, such as savings, retirement provisions, tax treatment and wills. To ensure ethical practices, financial advisers must understand a client’s financial situation as well as their need for financial stability. Finance can be complicated and any adviser has responsibilities ethically to see that a client’s risk is minimized, and monetarily, that money is maximized within the established risk boundaries.

Retirement Planning

One of the major services that financial advisers offer is retirement planning. A financial adviser should have knowledge of budgeting, forecasting, taxation, asset allocation, and financial tools and products to establish realistic goals and the strategy by which to reach them. In the United States, this will include the use of several investment tools such as 401(k)/403(b) Roth account(s), Individual Retirement Accounts/Roth IRAs, mutual funds, stocks, bonds and CDs.

The financial adviser determines what percentage of the available income is necessary-taking into account tax liabilities, expected inflation, and projected return on investment-to meet a minimum balance by the client’s target age of retirement. This is a fairly straightforward calculation, and many automated tools do this. The financial adviser’s greatest contribution is asset allocation: determining how to maximize the return on investment while satisfying the client’s risk tolerance.

To be continued…

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