Investments & Financial Planning

Risk in the most basic sense is the chance of financial loss. Inflation erodes your purchasing power. Inflation risk is the chance that your savings lose purchasing power due to the steady increase in the cost of goods and services over time. Inflation is is a major threat for investors with a long time horizon.
These investors may want a large portion of their investment portfolios invested in securities that historically have outpaced inflation by a decent margin. Generally these investments are in common stock or common stock mutual funds.

Diversification is the spreading out of your investments among a number of different securities. Diversifying reduces risk because the value of yoyr holdings is not dependent on the performance of any single investment. A easy and quick way to diversify your investments is investing in a mutual fund.

A mutual fund pools the money of many individuals into a single fund. This fund is then used to buy a wide range of stocks, bonds, or other securities aimed at meeting a specific investment goal. When purchasing a share in a mutual fund, you are gaining a proportional share ownership of all the different investments in the fund. An investment in a mutual fund is a way to diversify your investments in a quick and easy manner. Mutual funds are investment companies regulated by the Investment Company Act of 1940.

One strategy is where the grandparents can help the grandchildren's education by making a gift under the Uniform Gifts to Minors Act. Each grandparent can give up to $13,000 per child annually free of gift tax, which should be placed in a UGMA bank account in the grandchild's name, with the grandparent or parent as custodian. Another strategy is for the grandparents to purchase Series EE or Series I bonds, or give the money to the grandchild's parent (who must be at least age 24) to buy the bonds. If the bonds are later cashed and the money used to pay qualified college education costs for the grandchild, the interest will not be taxed. The exclusion is phased out for high income taxpayers. Maximum annual purchases of Series I or Series EE are $30,000. Series I bonds also include the feature of being indexed to inflation. Speak to your local CPA about these tax saving strategies.

For all Treasury securities such as bills, bonds or notes, the minimum purchase amount is $1,000. Bids must be made in multiples of $1,000.
Non-competitive bids from a single bidder may not exceed one million for the same offering of Treasury bills, or five million for the same offering of Treasury notes or bonds.

When you make a down payment on your home, you are losing the interest or dividends that an alternative investment could have earned on those funds. This is your "opportunity cost" of money.

With an unleveraged investment such as a mutual fund, your investment return is limited to the amount invested.
For example, if you invest $100,000, and it earns 11% then you earn $11,000. However, with a leveraged investment such as a home or real estate investment, your investment return represents the gross return less the cost of the borrowed money.
For example, if you make a $100,000 down payment on a home costing $500,000 you would earn zero on the $100,000 and $12,000 on the borrowed amount of $400,000, assuming a 11% gross return less an interest expense of 8%.
The higher your expected return, the greater additional benefit of leveraging.
Exercise caution, because if your leveraged investment does not perform as well as expected, you will do worse, and in fact you might lose money if the return falls below the interest cost.

Yes in most cases. Consumer debt can have onerous interest rates like 18% or higher. Thus you have to earn more than 18% tax-free to come out ahead, and that is quite unlikely to do without a significant amount of risk.
With an unleveraged investment such as a mutual fund, your investment return is limited to the amount invested. For example, if you invest $100,000, and it earns 11% then you earn $11,000.
However, with a leveraged investment such as a home or real estate investment, your investment return represents the gross return less the cost of the borrowed money.
For example, if you make a $100,000 down payment on a home costing $500,000 you would earn zero on the $100,000 and $12,000 on the borrowed amount of $400,000, assuming a 11% gross return less an interest expense of 8%.

Yes if the amount of credit card debt is significant and you do not have sufficient investments you can sell to raise the needed cash. Home equity loans often have much lower interest rates, and home equity loans up to $100,000 are fully deductible as interest expense. On the other hand, interest expense on credit card debt is not deductible, unless it can be tied to a business expense.