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Annuities offer several benefits for investors, including tax-deferred retirement savings, fixed or variable income for retirement, and investment flexibility. However, annuities aren't suitable for every investor. Your Wilmington Capital financial consultant can help you decide if investing in annuities would benefit your unique situation. Annuities are primarily used for creating an income stream during retirement, whether you are planning ahead for retirement and want to take advantage of the tax-deferred savings feature or are already retired and need to generate an income stream immediately. When you are ready to receive income from your annuity, you can choose to receive income payments for one life, two lives, a certain time period or a combination of these. Your financial consultant can explain the different income alternatives available. Fixed annuities provide income payments in fixed amounts, which can help you, pay fixed expenses during retirement. The payments are determined by the annuity contract. Variable annuities are long-term investment vehicles that provide income that can vary from payment to payment based on the performance of the underlying investments. They're designed to help offset the effects of inflation. Your investment, when redeemed, may be worth more or less than the original cost and the guarantee of payment is based on the claims paying ability of the insurer. Withdrawals prior to age 59 1/2 are fully taxable and may be subject to a 10% IRS penalty.
Certificates of Deposit (CDs):
Certificates of deposit (CDs) are investments that let you earn a fixed rate of interest for a specified period of time, usually between three months and 10 years. The principal and accrued interest of most CDs is FDIC insured for up to $100,000 per issuing institution. That insurance can give you the confidence of knowing that when you invest in a CD, your investment is secure. We offer a wide selection of traditional, non-callable certificates of deposit issued by banks and thrifts nationwide. In addition, our relationship with the banking community frequently lets us offer you some of the most competitive CD yields in the nation and higher CD yields than you may be able to find on your own. If you are a conservative investor or you are in need of a relatively liquid, interest-earning investment, then you may want to consider investing in a CD. While most investors intend to hold their CDs until maturity, you can sell, or in some cases redeem, your CD before it matures. Like other fixed-income investments, the market value of a CD will vary depending on current interest rates, the length of the CD's maturity and other special features of the CD. In general, when interest rates rise, a CD's value will decrease and vice versa. In addition, early redemption of a CD prior to maturity may be subject to a penalty.
A fund with a fixed number of shares outstanding and one that does not redeem shares the way a typical mutual fund does. Closed-end funds behave more like stock than open-end funds: closed-end funds issue a fixed number of shares to the public in an initial public offering, after which time shares in the fund are bought and sold on a stock exchange, and they are not obligated to issue new shares or redeem outstanding shares as open-end funds are. The price of a share in a closed-end fund is determined entirely by market demand, so shares can either trade below their net asset value ("at a discount") or above it ("at a premium"); also called closed-end investment company or publicly-traded fund.
Like open-end funds and other pooled investment vehicles, closed-end funds offer several advantages over investing in individual securities. One of the major advantages of closed-end funds is the diversification they provide. As diversification increases, price changes of individual securities have less impact on the value of the overall portfolio. For high-risk asset classes like stocks or high-yield bonds, diversification can significantly reduce overall risk. Funds typically allow individual investors to achieved far better diversification than can be achieved through the purchase of individual securities.
A type of bond issued by a corporation. Corporate bonds often pay higher rates than government or municipal bonds, because they tend to be riskier. The bondholder receives interest payments (yield) and the principal, usually $1000, is repaid on a fixed maturity date (bonds can mature anywhere between 1 to 30 years). Generally, changes in interest rates are reflected in bond prices. When interest rates rise, bond prices will fall and vice versa. Bonds are considered to be less risky than stocks, since the company has to pay off all its debts (including bonds) before it handles its obligations to stockholders. Corporate bonds have a wide range of ratings and yields because the financial health of the issuers can vary widely. A high-quality blue chip company might have bonds carrying an investment-grade rating such as AA (with a low yield but a lower risk of default), while a startup company might have bonds carrying a "junk bond" rating (with a high yield but a higher risk of default). Corporate bonds are traded on major exchanges and are taxable.
Employee Stock / Cashless Option Exercise:
Companies typically use employee stock options as a way to retain and attract employees and tie part of their compensation to the company's performance. Employee stock options give you the right to purchase a predetermined number of shares in your company's common stock at a specified price (grant price) for a set period of time. If you don't exercise them before the end of the time period, your employee stock options will expire, and you can no longer exercise them. It's important to realize that you don't own the shares until you actually purchase them. After exercising your stock options to purchase the shares, you can either sell the shares at the current market price or hold them and sell them later. One of the benefits of working with a Wilmington Capital financial consultant is the ability to use a "cashless stock option exercise," which lets you complete the transaction without having to first come up with the cash to purchase the shares.
Individual Retirement Accounts (IRAs)/401K Plans:
A tax-deferred individual retirement account for an individual (IRA) or defined contribution plan offered by a corporation (401K) that permits individuals to set aside money each year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later (or earlier, with a 10% penalty). The exact amount depends on the year and your age. IRAs can be established at a bank, mutual fund, or brokerage. Only those who do not participate in a pension plan at work or who do participate and meet certain income guidelines can make deductible contributions to an IRA. All others can make contributions to an IRA on a non-deductible basis. Such contributions qualify as a deduction against income earned in that year and interest accumulates tax-deferred until the funds are withdrawn. 401Ks have the potential to allow the employer to match the employees' contributions dollar for dollar.
Yearly Contribution limits for traditional IRAs and Roth IRAs
Tax laws limit how much you can contribute each year. If you are 50 or older you may contribute more to help "catch up" on your retirement savings.
Year||Annual IRA Contribution|
|Under Age 50||Age 50 +|
|2011||Reverts Back to $2,000|
Initial Public Offerings (IPOs):
When a private company plans to go public (i.e., allows its stock to be traded to the public) it files for an Initial Public Offering with the Securities and Exchange Commission. Once the proper forms are filed and proper requirements are met, the private company agrees to offer a percentage of its company to the public in the form of stock shares, and sets an initial sale price for those shares. The goal of an IPO is to raise a specific amount of money for the company to use to meet a business objective, get the initial stockholders wealth, and/or take a business to the next level.
Stocks may help you achieve your investment portfolio goals by providing potential growth, income from dividends, or a combination of the two.
However, the value of any stock you invest in can fluctuate, and when you sell your stock, it may be worth more or less than you originally paid. That's why you should carefully consider investing in the stock market and develop a diversified strategy that fits your goals, investing time frame, and risk tolerance.
Diversifying your stock portfolio is a way to help offset the risk your stock investments are exposed to. The goal is to spread out your stock investments in different sectors or regions.
Your financial consultant can help you develop an investment mix that's suitable for your situation and investment goals.
Investing in Stock through Wilmington Capital
When you invest in stock through Wilmington Capital, your financial consultant can provide you a wide range of stock services, including:
- Individual stock selection
- Help in deciding when to buy and sell your stock investments
- Stock portfolio reviews
- Concentrated equity strategies (for when you own too much of one stock, such as company stock)
- Access to a variety of stock investment programs
Money Market Accounts (w/ Checking):
A savings account, which shares some of the characteristics of a money market fund. Like other savings accounts, the Federal government insures money market accounts. Money market accounts offer many of the same services as checking accounts although transactions may be somewhat more limited. These accounts are usually managed by banks or brokerages, and can be a convenient place to store money that is to be used for upcoming investments or has been received from the sale of recent investments. They are very safe and highly liquid investments, but offer a lower interest rate than most other investments.
Mutual funds offer the potential to enhance the value of your long-term investment assets. With a strategic selection of mutual funds, you can potentially:
You can choose from among thousands of mutual funds, each with its own investment strategy, management style and level of risk.
- Minimize risk by diversifying your assets among a number of stocks, bonds or other securities within the mutual funds.
- Get the benefit of spreading your money across a number of investment styles (growth, value, large cap, international, etc.), depending on the mutual funds you choose. This may help reduce your exposure to the potentially volatile performance of a single stock, style or sector.
- Take advantage of the skills of a professional investment manager with a known track record and proven expertise in a specific investment style.
Your Financial Advisor can help you review appropriate investment strategies and select mutual funds designed to pursue your investment goals. As with any other security, mutual funds are subject to market risk and fluctuate in value.
Options (Index and Equity):
Much like stocks, options can be used to take a position on the market in an effort to capitalize on an upward or downward market move. Call options give the contract owner the right to purchase a security at a specified price. Put options give the contract owner the right to sell a security at a specified price. Both types of options expire within a given time frame. Unlike stocks, however, options can provide an investor the benefits of leverage over a position in an individual stock or basket of stocks reflecting the broad market. Options investors enjoy leverage over individual securities investors as each option contract controls 100 shares of the underlying stock. Option buyer's capital risk is limited to their purchase price. Conversely, options writers assume significant risk if they do not hedge their positions. A major advantage of options is their versatility. They can be as conservative or as speculative as your investing strategy dictates. Options enable you to tailor your position to your own set of circumstances. Consider the following benefits of options:
- You can use options to hedge or offset price declines in your stock holdings
- You can increase income against current stock holdings
- You can use options to potentially purchase stock at a lower price below the current market price
- You can benefit from a stock price rise without incurring the cost of buying the stock outright
Options can involve significant risk and are not suitable for all investors. An options investor may lose more than the entire amount committed to options in a relatively short period of time. Investors must be approved by the firm to invest in options and not all investors obtain such approval.
Prior to buying or selling an option, a person must receive a copy of Characteristics and Risk of Standardized Options. Copies of this document may be obtained from your registered representative, the senior registered options principal, from any exchange on which options are traded or by contacting the Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, IL 60606 (1.800.678.4667)
Capital stock that provides a specific dividend that is paid before any dividends are paid to common stock holders, and which takes precedence over common stock in the event of a liquidation. Like common stock, preferred stocks represent partial ownership in a company, although preferred stock shareholders do not enjoy any of the voting rights of common stockholders. Also unlike common stock, a preferred stock pays a fixed dividend that does not fluctuate, although the company does not have to pay this dividend if it lacks the financial ability to do so. The main benefit to owning preferred stock is that the investor has a greater claim on the company's assets than common stockholders. Preferred shareholders always receive their dividends first and, in the event the company goes bankrupt, preferred shareholders are paid off before common stockholders. In general, there are four different types of preferred stock: cumulative preferred, non-cumulative, participating, and convertible shares.
Private equity is medium to long-term finance provided in return for an equity stake in potentially high growth unquoted companies. Some commentators use the term "private equity" to refer only to the buy-out and buy-in investment sector. Others, in Europe but not the USA, use the term "venture capital" to cover all stages, i.e. synonymous with "private equity". In the USA "venture capital" refers only to investments in early stage and expanding companies. To avoid confusion, the term "private equity" is used throughout this Guide to describe the industry as a whole, encompassing both "venture capital" (the seed to expansion stages of investment) and management buy-outs and buy-ins. Transfer of private equity is strictly regulated; therefore, any investor looking to sell his/her stake in a private company has to find a buyer in the absence of a marketplace. Returns on private equity generally occur in three ways: a merger or sale, an initial public offering, or a recapitalization.
Tax Free Municipal Bonds:
The tax advantages of municipal bonds make them appealing for many clients. And if you're in the higher tax brackets, municipal bonds can be a particularly attractive investment.
- How Municipal Bonds Work
Municipal bonds are debt obligations issued by states, cities, counties and other government entities to raise money to build schools, highways, hospitals, sewer systems and other projects for the public good.
Municipal bonds are sometimes called Tax Exempt Bonds because the interest earned on most municipal bonds is exempt from federal taxation (although it may be taxable if you are subject to the Alternative Minimum Tax). However, some municipal bonds are subject to federal income taxes and will be referred to as "taxable" in their description.
Many municipal bonds may also be exempt from state and local income taxes imposed in the state where the bond is issued. Municipal bonds trade at lower yields than taxable bonds because of the tax exemption advantage. Most municipal bonds are issued in denominations of $5,000 or multiples of $5,000.
- The Municipal Bond Market
While your goals may be clear, such as maximizing tax-free income or safeguarding principal, the complexities of the municipal bond market often require professional guidance, regular reviews and thorough analysis, particularly as the markets move and as your situation changes.
Unit Investment Trusts:
Whether your goal is long-term growth or current income, a Unit Investment Trust (UIT) may offer you a simple way to pursue your investment needs. A UIT is a trust that holds a fixed portfolio of securities that are offered in "unit" increments. Investors receive a share of the trust's earned income, if any, and their share of the holdings at the trust's maturity.
Unlike a mutual fund, a UIT is created for a specific length of time and is a fixed portfolio, meaning that the UIT's securities will not be sold or new ones bought, except in certain limited situations.
How a UIT is created?
Based on market environment and the trust's investment objective, the UIT sponsor selects the duration and the portfolio holdings for each UIT.
Each trust is designed to meet a stated investment goal, such as growth or income. Once the securities are selected, they are held until the Trust is terminated and proceeds are distributed to investors. While each trust has a fixed duration or term, investors may redeem their holdings prior to maturity.
A UIT can be attractive to individual investors for several reasons:
- You gain access to a diversified portfolio of securities through a single investment
- They employ a buy-and-hold strategy for a fixed time period judged appropriate for each particular trust
- Investors always know what they own
- UIT investors may sell their units anytime. Even in the absence of a secondary market, trusts are required by law to buy back outstanding units at their net asset value (NAV), which is based on the current market value of the underlying securities. Please note that this redemption price may be higher or lower than the initial investment price and redemption periods may vary depending on the terms of the individual trust.
- Low administrative costs
529 Educational Plans:
A state-sponsored program designed to help finance higher-education expenses. The program allows U.S. citizens and permanent residents (including parents, grandparents, friends and family) to save today for the costs of a child's education tomorrow. Section 529 plans are administered by certain investment companies and subject to contribution requirements and investment guidelines. Anyone can contribute to a Section 529 plan, regardless of their income level. In most cases, the money is invested in a portfolio of stocks, bonds, or mutual funds. Most states offer Section 529 plans. The proceeds can be used only for education withdrawals. Non-qualified withdrawals are subject to income tax and a 10% penalty. The investment company administering the account will be in control of how the money is invested, and will charge an ongoing fee for its services. For most families, the tax-free growth and potential federal tax-free distributions of 529 College Savings Plans are attractive. College savings can be used at any accredited institution of higher learning in the United States, as well as at many foreign institutions. Under certain circumstances, you can change the beneficiary of your account to any other member of the original beneficiary's family at any time and you could even transfer existing UTMA/UGMA custodial accounts into a 529 plan. Speak to your advisor to learn the tax benefits, flexibility, and different investment options of 529 plans.
Not all investments are suitable for everyone. Your Wilmington Capital Investment Executive can provide you with more information, including more complete details on investment objectives, risks, fees, charges and expenses.