FaceBook will soon launch their IPO and shares of the company will soon be available to the general public and institutional investors (the IPO is scheduled for Friday May 18th). But I don’t count myself as one of those who will be lining up at the opening bell to purchase stock in FaceBook. Why? Well, there are a lot of reasons, but perhaps Warren Buffet said it best:

“The idea that something coming out…that’s being offered with significant commissions, all kinds of publicity, the seller electing the time to sell, is going to be the best single investment that I can make in the world among thousands of choices is mathematically impossible,” said Buffett.

Buffett’s business partner Charlie Munger also added:

“I don’t invest in what I don’t understand. And I don’t want to understand Facebook.”

Well, it looks like shares of FaceBook won’t be added to Berkshire Hathaway any time soon, but should it be added to your portfolio?

Are you buying FaceBook at the opening bell?

Should You Invest in FaceBook?

Deciding to invest in a company depends on many factors, and you should always do more than read a quote from a famous businessman and investor when making a decision to invest. So let’s look at a few other issues before making the decision. Most investors are interested in things such as valuation, earnings, growth potential, long term business plan, and other intangibles. You can find much of that information in the company’s S-1, which is filed with the SEC.

How Much is FaceBook Worth?

Right now, FaceBook hasn’t announced the exact price of their initialstock offering, though there is a range of $28 – $35 $34 to $38 per share (FaceBook has already raised the target price due to high demand). They are offering 337 million Class A shares, which puts the valuation at roughly $106 billion on the high end (based on 2.8 billion outstanding shares, which is the number if all employee stock options are exercised). That’s an extremely high valuation for a company that only earned $1 billion last year. (That makes the P/E ratio for FaceBook somewhere in the range of 100 t0 1, which means it will take 100 years of earnings at the current rate to pay off).

Will FaceBook Continue Growing? The only way Facebook can justify their P/E ratio of 100 is to continue growing at a massive rate. Google, for example, had an IPO price of $85, and  P/E ratio of 185 at their IPO date. The stock has since risen to the $600 range, given initial investors a nice return on their investment. Google’s current P/E ratio is in roughly 18 (on date of initial publication if this article, click the previous link to find the current P/E ratio and other stock info).

But FaceBook isn’t Google. It’s true that they are in similar markets and both are internet based. FaceBook also has an enormous user base, with over 900 million users. The only way for this to be a good initial investment is for FaceBook to continue growing at a breakneck pace. Without the continued growth, there is no way to justify a P/E ratio of 100. The question many investors are asking is whether or not FaceBook has saturated the market already and if they will continue to grow.

What is FaceBook’s Long Term Business Plan?

FaceBook currently makes the majority of their money from advertising, though they also make money through FaceBook Credits which are used for in game apps, and FaceBook also recently announced plans for a paid app system. FaceBook has also recently acquired several other internet companies, most namely the recent $1B acquisition of Instagram. Will they be able to turn those new businesses into revenue growth? It’s quite likely that FaceBook has other revenue streams in work.

How to Buy Shares of FaceBook

If you want to get in on the IPO, then you need to act quickly – there are rumors that the underwriters will stop taking orders for FaceBook stock Tuesday afternoon, in advance of the Friday launch. If you want to place an order, then you will need an account with Charles Schwab, TD Ameritrade, Fidelity, E*Trade, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, BC Capital Markets LLC, Wells Fargo Securities LLC, or one of the other brokerage firms helping to underwrite the IPO. (there are approximately 31 in all). Keep in mind that if you don’t make the initial offering, you should be able to buy shares starting the next business day.

Will I ever Own FaceBook Shares?

As I mentioned above, I don’t plan on buying FaceBook in their initial offering. Perhaps FaceBook will follow in the steps of Google and look like a bargain a few years from now, or it might follow the path of many other IPOs and drop shortly after the offer goes live. But one of the other reasons I’m not investing in FaceBook at the onset is that I rarely buy or trade individual stocks. I primarily invest in index funds and low cost mutual funds, and currently only own two individual stocks, both of which are fairly stable blue chips that I plan on holding for the long haul. That isn’t to say I will never own FaceBook. Even though I don’t plan on buying now, I’m sure that FaceBook will one day be included in one of the major indexes and find its way into  a variety of index and mutual funds, so at some point, I will probably indirectly own a few shares. As for now, my involvement with FaceBook will remain purely social. <<— get it? heh.

Do you plan on buying shares of FaceBook?

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3. Win a $50 Amex Gift Card from GoBankingRates.com!

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One of the most common investment portfolio management strategies in use today is asset allocation. The theory behind asset allocation is that you can create a portfolio that helps you limit risks from the market with the help of the asset classes you include. You use a mix of asset classes to help you create an investment portfolio that grows during good times, and that helps you limit your losses during difficult times.

If you plan to build your portfolio according to the principles of asset allocation, there are two main items to consider:

1. Risk tolerance: This includes both your financial and your emotional risk tolerance. If you have a higher tolerance for risk, you can handle more stocks in your portfolio, and maybe even include other asset classes, like commodities or currencies. However, if you have a lower risk tolerance, the stock portion of your portfolio is likely to include index funds, and you are likely to have more bonds and cash.
2. Time frame: The second important consideration is your time frame. When you have a longer time frame, it might make sense to take more risks with your asset allocation, since you can make up losses. However, a shorter time frame might mean that it’s time to start shifting assets to investments considered less risky.

How Asset Allocation Protects You

The point of asset allocation is to add diversity to your portfolio. The idea is to build your portfolio in a way that the include asset classes move differently, depending on market conditions. Bonds are supposed to go up while stocks are going down, so if you have a portfolio that includes bonds as well as stocks, you can take advantage of both situations. Additionally, adding other asset classes can help you limit your losses when one of the asset classes in your portfolio is struggling.

It’s important to carefully consider your situation and goals, though. Many studies have shown that asset allocation has more to do with long-term success and the ability to meet your goal than attempting to pick the right investments. An appropriately diversified portfolio is more likely to do well for the average investor than stock picking.

Rebalancing

Part of asset allocation, though, is rebalancing. You should realize that the asset allocation you have right now may not be appropriate later. A good example is the retirement account. When you are younger, your asset allocation might favor stocks, with perhaps 60% of your portfolio in stocks, 30% in bonds, and 10% in cash. As you approach retirement, though, shifting that allocation is important. You might move to a position where you have 65% in bonds, 30% in stocks, and 5% in cash. What scenario you end up depends on your own situation and your goals, but the reality of rebalancing is there. Periodically check your portfolio, and determine whether you need to rebalance it so that your asset allocation fits your current risk tolerance and time frame.

Asset allocation can help you see appropriate growth for your portfolio while at the same time limiting some of your risks. Take the time to consider your investments, and your allocation, and you might be surprised at what you can accomplish.

Additional resources: SEC Beginner’s Guide

Related Articles:

1. What Percentage of Your Assets Should be Allocated to US Based Investments?
2. Target Date Retirement Funds
3. Help! My 401(k) is Losing Money!

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Several years ago I opened a brokerage account with ShareBuilder because they offered a $50 cash bonus for opening a new account and placing a trade (the bonus is still available for those who are interested).

Since I was more or less playing with house money, I decided to roll the dice and I bought a few shares of a company in a speculative market. I figured there was room for growth and the potential upside far outweighed the risk. After all, it was $50 of free money!

Unfortunately, the stock crashed and burned and I was left holding a dozen shares of stock which were barely worth more than the cost of trading them. And that brings up one of the problems with ShareBuilder… their real time trade fees.

Why I am Moving Away from ShareBuilder

Thanks for the memories...

ShareBuilder really only does one thing well – they offer a place for the systematic growth of wealth and building shares (get it, ShareBuilder?). Right. Their business model is built on inexpensive scheduled trades, which ring in at $4 a trade (or even as low as $2 if you join one of their monthly premium plans which costs a monthly fee).

To take advantage of the low cost stock purchases, you must set up automatic trades to execute on a regular basis – weekly, monthly, semi-annually, whatever. This makes ShareBuilder an affordable company to use for dollar cost averaging.

When they came on the scene, they more or less offered investors one of the least expensive ways to trade stocks outside of buying DRIPs directly from a company (no commissions) and reinvesting your dividends (again, no commissions). ShareBuilder also offered the ability to buy partial shares, which made the systematic investment of a set sum of money each month an easy way to invest.

An Outdated Business Model

But ShareBuilder stuck with their business model and failed to innovate. In my opinion, they are not the best company for making real time trades, which ring in at $9.95 each (it was as high as $14.95 as recently as a year ago). That’s simply too expensive for most people when there are a dozen other highly rated options that offer cheaper trades.

Offering inexpensive prices for scheduled trades reduces Sharebuilder’s costs, which they can then pass on to their customers. And the higher real time transaction fees encourage people to “build” their number of shares by holding them long term and reducing their turnover. In other words, ShareBuilder is a great place to buy shares, but not to sell shares.

This business model set them apart when they launched, and it stays true o their name. But it is now outdated, particularly their fee schedule for real time trades. The base price for scheduled trades with ShareBuilder is $4, which is more than real time trades with some other discount brokerage firms. Even some of the top rated discount brokerage firms charge in the $4-$5 range for real time trades (see TradeKing if you are looking for an excellent alternative in this price range). To put it another way, you get all the benefits ShareBuilder offers on the buy side (inexpensive stock purchases, ability to buy partial shares, reinvest dividends, etc.), and you can sell your shares at the same price you buy them.

No Inactivity Fees – Why Close Your Account?

The good news is ShareBuilder doesn’t charge any inactivity fees or other associated account fees, so leaving my account open wouldn’t hurt anything, but then again, it wouldn’t help me either. I still believe ShareBuilder is a good option for some investors, but I decided I wanted to be able to better control my costs for real time trades (I’m not a heavy trader, but I also don’t believe you need to buy and hold forever). So I decided to close my account in the interest of simplicity. Fewer accounts makes managing money easier and right now I value simplicity above having another dormant account.

Other brokerage options

I still think ShareBuilder has its place, but there are many other online discount brokerages out there right now offering better alternatives. For example, I currently have active brokerage accounts with Zecco, TradeKing, and Scottrade. Of these, my favorites are TradeKing and Scottrade (I opened the Zecco account before they ended their free trades; I still have holdings there, but I no longer make new trades). I also have mutual funds and other investments with Vanguard and USAA, which are both great places to invest.

There are dozens of great brokerage firms out there, so be sure to examine your needs and evaluate online brokers before signing up for one, and if your investment needs change, don’t be afraid to change to another brokerage. Many of them offer reimbursements for transferring your assets. You will do better in the long run to keep most of your investments in one or two locations instead of having them spread out like I do!

Do you have a favorite brokerage firm?

Photo credit: slimmer_jimmer

Related Articles:

1. How Does Zecco Compare to TradeKing and ShareBuilder?
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3. ShareBuilder Review – Online Brokerage for Long Term Investors

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Last year, the Irish government passed a law which placed a 0.6% levy on assets held in private pensions for each of the next 4 years. The Irish tax on private pensions was made in response to a larger financial crisis and the need to increase government revenues. Ireland isn’t the only country in recent history to seize private investments. Hungary, Argentina and France have all overhauled their private and public pension plans in recent years, in some cases seizing them in their entirety, and in others, taxing them to oblivion. There have been recent discussions of something similar in the United States, which brings up a good question – are private pensions and retirement plans in the US also at risk?

Is Your 401k or IRA in Danger of Government Seizure?

Will the government scramble your nest egg?

Lets get one thing out of the way first: unless you have an IRS lien or other legal judgment against you, the US Government has no legal standing to seize the contents of your private retirement account, such as your 401k, IRA, Thrift Savings Plan, your self-employed retirement plan, or any other retirement plan.

Can the government take your 401k? Absolutely. But not without changing the laws, and in this case, it would take an act of Congress for the US Government to be able to seize your retirement funds. That means it would need to get through Congress, the President, and the Supreme Court before it would happen. And getting past the Supreme Court is where I see there being big problems – keep in mind that ownership of private property was one of the founding principles of our country. It is very difficult for the government to seize private property at will. The government can, and does, seize private property, but only in rare cases and through a legal process called eminent domain, which is when land or other property is seized “for the greater good.” However, the government is required to pay fair market value for whatever they seize.**

**This is a simplified explanation of eminent domain, which is a highly complex and much debated topic. I’m not a lawyer, but I don’t think eminent domain would be a legal basis for seizing retirement accounts. Taxation, however, is a different topic, and the government can easily change tax laws.

What about the rumors of a government takeover?

Every few years there are rumors that a particular administration wants to seize private retirement funds, and so far it hasn’t happened. The rumors come in different flavors and several ideas have even been proposed before Congress. For example, the Clinton Administration proposed a one time tax against the value of private pensions, 401k plans and IRAs.

A more recent proposal involves seizing and converting a portion of privately held assets into US Treasury bonds. A more extreme proposal is a true government takeover of retirement plans which involves seizing private retirement accounts and converting them to government sponsored annuities that would guarantee and annual income for all Americans.

What basis is given for a takeover of retirement plans?

There are many reasons given to support these ideas, and the most frequently given reasons circle around the idea that converting some or all of the privately held investments into an annuity or into Treasury bonds would protect Americans from themselves and possible market fluctuations and guarantee an income for retirees. In essence, the government believes it can do a better job of managing your retirement funds than you can.

The reality is these proposals would represent a redistribution of wealth and further extend the problem that got the government in trouble in the first place – writing IOUs. Seizing pensions or retirement plans now and replacing them with a Government Treasury bonds or a government sponsored annuity simply gives the government money to spend now and passes the problem on to a future generation. It also goes against the reason private retirement plans were created.

The purpose of retirement plans

Let’s back up and look at the purpose of 401k plans, IRAs, and other retirement plans. These retirement plans maintain a special tax status and were created for a specific reason: to entice more people to save on their own because Social Security benefits do not pay enough for most retirees.

Social Security is not intended to be a full retirement plan for everyone; it is intended to help people through retirement. Several decades ago Congress was smart enough to realize that people needed to take more of their retirement planning into their own hands, so they created the tax incentives we know today as the 401k plan, IRA, and similar retirement plans. The special tax rules found in these retirement plans provide an incentive for people to take care of their own retirement planning and not rely on the government for 100% of their retirement needs.

How retirement plans affect the government

Retirement plans are good. They provide retirees with a source of income and in many cases help keep people off government benefits. For example, Medicaid eligibility is age and income based, starting at age 65. Social Security benefits are also taxable for retirees who meet a certain income threshold. So retirees receiving enough income from their retirement savings stay off Medicaid and pay taxes on their 401k withdrawals and Social Security benefits, both of which help the government.

While retirement plans help the government, they can also hurt it in other ways. In the case of retirement investing, what is good for investors can be bad of the US government. The tax benefits offered by retirement plans limit or defer the income tax the government collects, to the tune of billions of dollars per year.

For example, Traditional IRAs and 401k plans offer investors an immediate tax break on contributions and the proceeds are taxed when the money is withdrawn in retirement age – often deferring income tax for decades. Roth IRAs and 401ks are the opposite, with the contributions being made after taxes have been assessed, and the withdrawals and income growth being tax free. These tax benefits are the reason there are contribution limits on IRAs and other retirement plans. Without contribution limits, the government would severely limit their income tax receipts.

What will the government do with private retirement plans?

Will the US Government seize private retirement plans? The simple answer is, we don’t know. It’s very possible the government could pass a law that seizes every private pension and retirement plan in the US and replaces it with a government annuity to be paid out once retirees reach a certain age. It’s also possible they will do nothing and leave things as-is. My guess is the government won’t “seize” retirement plans like other governments have, but I wouldn’t be surprised to see things will change.

Let’s face it, our government is hurting. There are huge gaps in our fiscal policy and unless we see changes soon, something major will happen, possibly even the collapse of the dollar and our economy. But seizing private pensions wouldn’t solve that problem, and in fact, it could be seen a as sign of weakness by the global economy and hasten the fall of the US Dollar compared to other currencies. Additionally, seizing private retirement plans would be political suicide for politicians.

What changes might we see to retirement plans?

We can’t see into the future so all we can do is speculate. I don’t see the government seizing retirement funds from private individuals. However, I wouldn’t be surprised to see the government make changes to the number and scope of retirement plans. But this would probably be a gradual change and old plans would likely remain grandfathered in.

For example,the US government could decide to decrease retirement plan contribution limits, lower the income eligibility threshold, or eliminate some retirement plans altogether. But even if they do this, they would likely grandfather in current contributions, meaning your retirement plans in their current state would be safe.

What can we do to prepare for our retirement?

Right now I don’t think there is anything to be scared about. We can’t control the future, so the best course of action is to continue preparing the best we can based on the information we have at hand. This means to continue making investments based on current tax laws, while being mindful of possible changes. Personally, I am preparing for retirement by investing in my 401k and IRA, and I am also investing in taxable (non-retirement) investments when I can. It is wise to be aware of possible changes to tax laws, but I don’t think it’s wise to let fear and unsubstantiated rumors drive one’s investments and retirement planning. So I will continue investing responsibly, and I will keep an eye on the news.

What do you think? Will the government take over private retirement plans?

Related Articles:

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2. 401k Plan Contribution Limits Increase for 2012
3. Compare Traditional and Roth 401k

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Udpate! New ShareBuilder Bonus code available!

ShareBuilder is one of the most popular online discount brokerage firms, with $4 automatic trades and a host of other attractive features. They are also popular because they frequently offer promotional and coupon codes good for free trades or a sign up bonus, usually from $25-$50 for a new account. For more information about ShareBuilder, then check out this ShareBuilder comparison.

ShareBuilder Coupon Codes – $50 Cash Bonus

Once upon a time, ShareBuilder allowed people to open multiple accounts and I knew people who had several ShareBuilder accounts; they would sign up to get a free $50 sign up bonus, make one trade, then leave the account dormant and repeat the process. ShareBuilder now limits each person to only one account, but they still offer the sign up bonuses and coupon codes from time to time.

The current promo code is good for a $50 sign up bonus when you open a new ShareBuilder account and deposit a minimum of $2,000. Here is the promo code:

• $50 ShareBuilder Sign up Bonus: Use promotion code 50LS12.

You must open a new ShareBuilder account and deposit $2,000 or more to be eligible for this promotion. Initial deposit must be completed by 6/30/12. ING DIRECT Investing will deposit a $50 bonus approximately 4-6 weeks after your first $2,000 deposit. The $50 bonus offer is available for Individual, Joint and Custodial accounts only. Offer not valid for IRAs or ESAs. The $50 bonus is not available for withdrawal for 90 days after it is awarded to your account. This offer is not valid with any other offers and is non-transferrable. Limit one ShareBuilder account bonus per unique customer or custodial beneficiary. We reserve the right to terminate this offer at any time and to refuse or recover any promotion award if we determine that it was obtained under wrongful or fraudulent circumstances, that inaccurate or incomplete information was provided in opening the account, or that any terms of our Account Agreement have been violated. Offer expires 6/30/12.

ShareBuilder $100 Transfer Reimbursement

Many brokerage firms will reimburse customers for the cost of moving their investments to their brokerage firm. It’s good business for them because new customers are great for the bottom line. It’s also great for the new customer because consolidating your accounts makes planning and asset allocation much easier to manage! Right now you can receive up to $100 reimbursement for transferring your investments to ShareBuilder from another broker.

How to receive a transfer reimbursement from ShareBuilder:

1. Open a ShareBuilder account, or Log in
2. Print and complete an Account Transfer Form
3. Activate your $100 bonus in an eligible account
4. Mail or fax a signed transfer form and a copy of your most recent statement to ShareBuilder

ShareBuilder IRAs

About ShareBuilder IRAs. ShareBuilder is a great place to open your IRA as there are no account fees, inactivity fees, annual IRA fees, or account minimums to drag down your investments. It’s even better when you use automatic investing to make inexpensive stock trades with ShareBuilder.

How Automatic Investing works

• Invest with over 7,000 stocks and ETFs
• Schedule investments on a weekly or monthly basis
• Invest any dollar amount
• Visit the ShareBuilder website for complete pricing & rates.

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Do I need a Roth IRA?

The short answer, is yes. Here is a longer answer:

If you are eligible to contribute to a Roth IRA, then you need to do so. The corporate pension system is dying, and unless you work within a few select industries, or work for the government, you probably won’t have a traditional pension. And even then, it may not be enough.

The majority of people won’t receive a pension. Social Security may help, but again, it may not be enough. That means you need to take your retirement planning into your own hands. There are several great ways to do this, but the most popular, and most accessible, are Traditional and Roth IRAs and 401ks. And of these, the Roth IRA is my favorite (and the favorite of a lot of other people as well).

Why You Need a Roth IRA

Yes, you need a Roth IRA!

The Roth IRA is one of my favorite investment vehicles. Hands down, it offers one of the greatest investment opportunities available. What makes it so great? The long term tax benefits. Let’s start by comping the two most common forms of IRAs – the Traditional and Roth IRA. They have some similarities: for example, they are both tax advantaged retirement accounts and they have similar contribution limits. However, there are two major differences: when you pay your taxes, and whether or not you are required to make withdrawals. Let’s look at these in more detail:

Traditional IRA: Traditional IRA contributions are made with pre-tax money, giving you a tax break in the current tax year if you meet income eligibility requirements. You don’t pay taxes on the contributions now, but you will pay taxes when you make withdrawals in retirement age. The other difference is the Required MInimum Distribution, which states that you are required to take withdrawals (and pay taxes on those withdrawals) once you reach a certain age. This law is primarily in place because the IRS wants to receive taxes on your IRA while you are still living.

Roth IRA: Roth IRA contributions are made with income that has already been taxed, and withdrawals are made tax free in retirement age. This is a huge long term advantage and makes it easier for tax planning in your retirement age. Since you have already paid taxes on the income used for contributions, there is no Required Minimum Distribution, allowing you to better plan how and when you take your withdrawals – if you decide to take them at all (Roth IRAs can be a powerful tool for estate planning).

Where to Start

First things first, you need to make sure you meet the Roth IRA eligibility requirements before you can start your Roth IRA. If you don’t meet the income requirements, you can always contribute to a non-deductible IRA (which is essentially a Traditional IRA without the tax deduction), then convert it to a Roth IRA. This makes it easy for high income individuals to open a Roth IRA.

The next thing you need to be aware of is contribution limits. Eligible participants under age 50 can contribute up to $5,000 per tax year (up to the tax deadline). Those who are age 50 and over can make an additional “catch-up” contribution of $1,000, for a total of $6,000 per year.

If you meet the general requirements, then you are a good candidate for a Roth IRA. Starting one could just be the best financial decision you ever make. For more information, check out our Roth IRA Guide, or the Roth IRA Movement.

Where to open a Roth IRA. We have put together a list of the best places to open an IRA. You can also visit the Mint.com IRA tool to compare brokers.

Related Articles:

1. Comparing Roth IRA Versus Traditional IRA
2. Compare Traditional and Roth 401k
3. Roth IRA Withdrawal Rules

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Would you like to win $5,000 for to invest in a Roth IRA (or for any other reason)? Yeah, me too! Fortunately for you, we are participating in a $5,000 giveaway. Unfortunately for me, I’m ineligible to win. But you can, so let’s get to the good stuff!

Win $5k for Your IRA

Do you want to win $5k?

OK, it’s actually win $5k for your IRA if you are under age 50, or win $6k if you are over age 50, but that just doesn’t have the same ring, does it? These amounts were chosen because they represent the IRA contribution limits by age. And as alluded to above, the intent is to have the winners invest this money in an IRA, but you can actually use the money however you wish. But wouldn’t it be super sweet to have a portion of your retirement paid for by winning a giveaway?

Why give away $5,000 for a Roth IRA?

There is a #RothIRAMovement happening right now, in which over 125 financial bloggers and columnists, media companies, and financial companies are spreading the word about Roth IRAs and why they are such a great retirement investment opportunity.

Companies around the US are freezing their pension plans, leaving most employees with the prospect of facing retirement with Social Security, and what money they have saved in their 401k plans or IRAs. Unfortunately, most Americans aren’t saving enough. The idea behind the #RothIRAMovement is to make people more aware of the long term benefits of investing in an IRA.

About the sponsor. This giveaway is sponsored by IRAmarket, a new service that helps you compare banks’ and brokers’ IRA programs. Their goal is twofold:

1. To increase the number of US households who contribute to IRAs each year from 15% in 2010 to 20% by 2016.
2. To make it easier for everyone to compare IRA providers in a quick and easy manner so they can make informed decisions about their retirement investments.

IRAmarket uses a variety of comparison tools to help investors find the best bank or brokerage firm for their investments. They can also help you analyze your 401k plan to determine if you would be better off rolling your 401k into an IRA (hint: in many cases, you can find lower expense ratios and other overhead if you roll your 401k into an IRA).

How to enter the giveaway

Entry is free and easy – all you have to do is click the “Go to Contest” button and “Like” the IRAmarket FaceBook page. Then you will have a chance to enter the giveaway. You can also click the “Like” and “Follow” buttons for each of the giveaway partners, including Special thank you to everyone involved: IRAMarket, GoodFinancialCents, Christian Personal Finance, PT Money, GenX Finance, & Budgets Are Sexy.

This contest is open from now through April 8, 2012. You can enter one time for a chance to win the maximum IRA contribution of $5,000 or $6,000 if you’re age 50 or older. After you enter, you can share the contest with friends and family for additional chances to win a matching prize.

Here are the official rules.

Best of luck, and don’t forget to contribute to your IRA even if you aren’t the lucky winner!

Related Articles:

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2. TaxCut Giveaway
3. TaxCut Giveaway – How Would You Change the Tax Code?

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We recently receive a question from a reader who received a fairly large sum of money several months ago and he wanted to know the best way to invest it. The first thing I did was send him to the article we previously wrote about dealing with a financial windfall. Basically take care of the important things like taxes, then wait until you have come to terms with the large amount of money you received before deciding how to use it.

In the e-mails we sent back and forth, he mentioned he had already decided how to split up his money, including paying his taxes, donating some, paying off a few bills, helping some family, and a few other fun things (like I said, it was a large windfall!). When it was all said and done, he still had a decent amount of money to invest and wanted to know the best way to do that.

Do you have a large sum of money to invest?

We went back and forth for a few more e-mails, and I gave him a few ideas which, with his permission, have been condensed into this article. The goal of this article isn’t to give anyone specific investments, but rather to get them thinking about their financial goals and how they can use their large sum of money to get there. Hopefully these tips will help you or someone in a similar situation.

Make Sure your House is in Order Before You Invest

Before you take the plunge and invest your lump sum of money into the stock market, take a long look at your financial situation and make sure you have your finances in order. Do you have any credit card or other high interest debt? Do you have an emergency fund in place? Do you have any large expenses looming on the horizon that you haven’t saved for (new vehicle, home improvements, college, vacation, wedding, children, etc.)?

If you don’t have any other debt, you have a solid emergency fund, and you have saved for any anticipated expenses, then you should definitely consider investing. If this isn’t the case, then I recommend paying off any high interest debt first, ensuring you have an emergency fund in place, then saving for any large expenses. There is no sense in investing if it leaves you open to debt now or in the future.

Set Investment Goals

Once you do that, you need to decide where to invest your money. Before deciding where to invest, I recommend taking a look at your short and long term financial goals and prioritize your investments based on your goals.

• Short term (within 5 years) – Do you have any major expenses coming up soon? Buying a house? Buying a car? Replacing a roof?
• Medium term (within 10-15 years) – Are you planning on paying off your home in the near future? Sending children to college?
• Long term (retirement) – Do you have any retirement investments or other investment accounts?

Basically, it’s a good idea to look at all your options before deciding how/where to invest, and keep an open mind – for example, it may be a good idea to split your large sum of money into a combination of short term, medium term, and retirement investing. You certainly don’t have to use it all toward the same goal.

How I Prioritize Investments

If I were in this position, I would at the minimum make sure I was out of debt, had an emergency fund in place, and had taken care of my short and medium term financial goals. I would also look at investing in a Roth IRA or other retirement account – for two reasons: you only get one shot at retirement investing; you can’t borrow your way out of retirement and you can’t play catchup as easily. The other reason is that in many cases, Roth IRAs have better long term tax benefits than many other investments. From there I would focus on maxing out other retirement accounts to take advantage of the tax breaks, then look at other medium and long term goals.

Where to Go From Here

Recommending specific investments is where I stop giving advice. Everyone has different levels of investing experience and different risk tolerance levels. Because of this, I recommend everyone do his or her own research before investing, or hire a financial advisor to guide them through the process. Here are some tips to help with the specific questions when hiring help.

What would you recommend to someone looking to invest a lump sum of money?

Related Articles:

1. How to Become a Millionaire Step Four – Invest
2. Where Should You Invest First – 401(k) or IRA?
3. Invest As Much As You Can Now, So You Will Have Options Later

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