Your Questions About Purpose Of Investing Money

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Donald asks…

What is the parameter in Solar power that specifies the amount of time it takes to pay back your investment?

This is an awkward question.

So let’s say you buy a solar panel and it costs you $750, and at the current price of electricity (and other factors), it will take x years for the solar panel to SAVE you $750 on your electricity bill, thus paying for itself.

What is this phenomenon or duration of time called?

I guess you could compare it to “breaking even”, except you were not investing money for the purpose of making money. You were investing money for the purpose of saving money.

Justin answers:

In business, you’d call it amortization. To simplify, it’s the process of spreading your cost over a number of years.

In this case, if the panel lasts long enough, you wind up amortizing your cost over the number of years it takes you to recover in “free” electricity

a) the initial $750 purchase/install price, plus
b) the interest you didn’t make on the $750 over that number of years (the “value” of your money), plus
c) any maintenance costs.

Less

d) any government rebates or tax incentives available at the time. If you’re lucky, they’ll be providing these when you decide to install.

Steven asks…

Grandparents want to invest money for grandchild (not educational), what type of account is best?

Basically, they want to invest money on a regular basis into a fund of some sort for their grandchild. The funds will not be used for any educational purpose, but for helping to build very long term/retirement savings. Ideally, the fund would grow tax free but be built with after tax dollars.

What is the best manner to do this?
Alchemis… thanks, but with an ordinary mutual fund, are the gains tax free? What about after the child is 18?

Justin answers:

With an ordinary mutual fund the gains are not tax free. The only way for the fund to grow tax free would be if they were invested in a federal, state and local tax free muni bond fund or the child had a job and earned wages.
Anyone can give, tax free, up to $12,000 as a gift to anyone else each year. So if the grandparents are working, they can set up a ROTH IRA for themselves for many years and gift as a couple $24,000 to the mother, $24,000 to the father (who if they are trustable will later gift it to the child) and $24,000 to the child. If the grandparents are not working, their tax bracket may be low. Or, Vanguard, T. Rowe Price and other mutual fund companies have Tax-Managed mutual funds designed to keep taxes to a minimum.
You may want to consult a lawyer and set up a trust. Many children reach the age of 18 and are not really mature yet. You state you want it to be a very long term/retirement type savings. Without a trust, the day the child reaches 18, he/she get control of the money. Depending how he/she grows up, what is to keep him/her from buying a big hog (Harley-Davidson motorcycle) and heading for Fla for a month of “spring break.” A trust can keep you (or a bank) in control for as long as you want.

Thomas asks…

If you invest money into your business and the business loses money, how do the taxes work?

I want to start a business and I know most lose money in the beginning so I was wondering how the taxes work between filing business tax returns and personal tax returns. I wasn’t planning on doing a DBA so there would be two returns but do I claim business loss of revenue AND personal loss of investment?

Justin answers:

The money you invest in a business is not deductible most of the time. If you purchase assets they are normally depreciable which allows you to expense a portion of your investment. Revenue-Expenses=Profit or Loss. That profit or loss for a sole proprietorship is reported on a Sch C and carries over to the ordinary income section of your 1040. If your business is structured as a partnership more complex forms are filed but the principle remains the same. If you are losing money because your expenses exceed your revenue it is subtracted from any other form or ordinary income you have and the net effect is that it reduces your taxable income and tax. You may need to file a sch. Se and report and pay self employment taxes and dont forget to look into the requirement that you may have to make estimated tax payments. A corporation is a totally different entity considered in and of itself for tax purposes. Good Luck with you endeavor.

Charles asks…

How to get the word out about a new business?

My mother was unemployed but really needed another job. When she went to the store to buy something she ended up talking to the owner and as it turned out the lady owns the rec center next door too. The owner never payed much attention to it, just rented it out for weddings once in a while, but recently decided to try and expand upon it.

My mother has some history in marketing but it was mostly for apartments. But the lady talked to my mother today and decided to let my mother give it a try. She will be an independent contractor and won’t make any money unless it gets rented out/used for some purpose.
My mom is going to have it cleaned out, but beyond that we don’t know what to do. I know there’s twitter and that, but not much else. The owner is willing to invest money into advertising but she is leaving the methods up to my mother. I guess what I’m trying to say is what do we need to do to make it a success?
We don’t know how this stuff works or what to do but we need to make it work or else we’ll have to stay a burden on my grandma, who we’ve been staying with, permanently.

Justin answers:

First, I’d post ad on Craigslist in whatever you believe would be the appropriate category, perhaps commercial real estate, sale/ rent /lease, etc.. I’d also take some pictures and upload them with the ad because people will notice and click on ads from the list if they see it has an image. Before writing the ad itself I’d brainstorm with a few trusted friends or people in business you respect and think of some of the different uses that could be made of the place. The best ones could be included in the ad. Then I’d look for ads others have placed to advertise property and steal some ideas from what you see them doing. Look for the most successful examples you can find to model. If your mother has marketing experience she’ll know the main thing you want to do is sell benefits – not features. Features are secondary.

Next, you could google local classified ads/news, etc. By using a geo-modifier, e.g., classified + name of your town, and local news + name of your town and any other local online searches you can think of that would apply to what you’re trying to do.

Just get creative. Ask yourself who you know who has experience in this. I wouldn’t get too specific unless it’s someone you absolutely trust so they don’t steal your business.

As for the independent contractor agreement I’d make sure I was protected in that the compensation and terms were clearly spelled out with specifics.

Hope that helps. Get creative – you can do it! Oh yeah, you can also have flyers made out listing all the potential benefits of the place you’re trying to rent/sell/lease or whatever. Keep them with you and give them out when you go to your dry cleaners, eat out, get your hair done, etc.

Good luck!

David asks…

What are some safe ways to invest other than whole life insurance?

I understand now that term life insurance is the way to go, and then open up a Roth IRA. We are going to meet with our financial adviser and I would like to do more research, hence I’m asking you: What are some other safe ways to invest our money— other than whole life. Is there something else that is safe that falls between whole life (ultra safe) and buying a bunch of risky stock (ultra risky)?

Justin answers:

Whoever said life insurance is good way to invest or save your money is totally wrong and possibly illegal. Life insurance only purpose is to protect you family from devastation of loss of income. If you are the main provider in providing source of income to the family and you die, life insurance will cover your income. Now most people are under-insured and so this death benefit may not last that long. That why term insurance is better so that you can buy the right amount of coverage versus what coverage can you buy base on income.

The money in your whole life policy is not safe at all. Its not FDIC insured, it gets a low rate of return, and you lose it all if you die someday. If you ever wanted to use it, you have to borrow it. When you borrow money, you lower the face amount of your policy. So it is better to save your money in a Roth IRA than in life insurance. If you die someday, your beneficiary will get your investments.

Investing is a complicated matter because there is no guarantee that your money will earn a return. You can’t predict how the stock market will perform in the future. But base on past history of the stock market in United States, the long term trend is that the stock market continues to grow.

How should you invest? Have you heard about mutual funds? A mutual fund is an investment company that pools together investors money and invest it into various companies (could be as little as 25 companies or as high as 300 companies). Because mutual funds invest in so many different companies, mutual funds are said to be diversified. Mutual funds are affordable and you can invest as little as $25/month or you can put in a lump sum of $500 and just let it sit there.

There are many mutual funds out there and only a few of them can match your investment objective. Before investing, you should figure out your investment objective, meaning are you willing to accept higher risks to get higher returns? Once you figure out your investment objective, it is now time to pick the mutual funds that meets your objective.

Which mutual fund should you pick? Look at some of the popular mutual funds such as Fidelity, Legg Mason, Van Kampen, and so on. They offer all kinds of mutual funds with variety of different risks and objectives. Then obtain a prospectus of that mutual fund before investing into it. You should read this prospectus very carefully. Check its past performance, its expense ratio, its turnover ratio. Top holdings in the mutual fund, and so on. Your financial advisor should be able to help you out in this.

Good luck in investing. The best tip you can take from me is invest systematically. That means you invest the same amount of money every single month. What this do is that it lowers the cost per share.

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