FACTS EVERYONE SHOULD KNOW ABOUT TAX SAVINGS INVESTOR

First, I would like to thank everyone for their interest in the first part of this article - "The Fast Track to Your Financial Freedom Part 1 - Leveraging your Money".

Now, you may now be thinking that this whole idea of leverage is great and earning $81,000 on a $20,000 investment over seven years would be terrific. The problem with this is "IT'S STILL TOO SLOW." We can still do much better. Besides leverage, we need to add the principle of VELOCITY. Here's how it works:

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In the first year, the investor takes the $20,000 and buys the same $200,000 home as previously illustrated in The Fast Track to Financial Freedom (Part 1) - Leveraging your Money. The home still appreciates at 5% each year and the rents on the home cover the expenses of owning the homes, including the mortgage payment.

After two years, this home will be worth approximately $220,000. Instead of letting that appreciation sit and accumulate, the investor borrows it out and buys another $200,000 home. How is this possible? Quite simply, the investor puts a second mortgage on the home in an amount equal to the appreciation. The rent is raised just enough to cover the interest on this additional loan. (Most landlords raise the rent at least every two years.)

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The second home also is rented out and appreciates at 5% per year. Every two years, the appreciation for each home the investor owns is borrowed out and used to buy new homes.

By doing this, at the end of seven years the investor will own eight homes with a total value of $2,020,000 and equity of $273,000. This is compared to equity of only $101,000 if the investor only bought the first home and compared to equity of $39,000 if the investor had relied on the compound interest from mutual funds. This is what we call VELOCITY. Velocity of money is simply the process of continually moving money into new and better investments.

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At a net equity of $273,000 the investor has more than thirteen times their original investment in seven years. This is so much better than compound interest that most people have a difficult time believing it.

When I do this demonstration in a seminar, there is always at least one person who will not believe it is possible. At that point, I ask the audience if anyone has ever put the concepts of leverage and velocity into practice. Invariably, someone raises their hand and explains that in actual practice, it has worked much faster than what I have demonstrated, because of the very conservative nature of this demonstration.

You probably would be thrilled with this level of returns. Our clients at ProVision would be disappointed in a value of ONLY $2 million at the end of seven years from a $20,000 investment. Why? Because, this return does not factor in any of the tax benefits from investing. Tax benefits, when properly taken, CAN DOUBLE YOUR INVESTMENT. Here's how.

Let's go back to our example. Suppose our investor is in a combined federal and state tax bracket of 35%. Suppose also that our investor has excellent tax advisors, like those at ProVision, who understand the MAGIC OF DEPRECIATION.

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Depreciation, quite simply, is a non-cash deduction each year for a portion of the purchase price of the rental real estate. This deduction will put a considerable amount of money back into the pocket of the investor.

Suppose that the investor takes the tax savings from the depreciation and uses it to purchase additional single-family homes. And just like the other homes, every two years, the investor borrows out the appreciation and buys another homes. At 10% down and 5% annual appreciation,

So let's recap. If the investor had listened to a typical financial advisor, the investor would have invested $20,000 in a mutual fund and, with a very good market, would have $39,000 at the end of seven years. On the other hand, if the investor had used the concepts of leverage and velocity, including tax benefits, the investor would have $540,000 at the end of seven years and a portfolio worth over $4 million.

What's amazing about the concepts of leverage and velocity is that they are not limited to real estate. They work equally well in business and in the stock market. But if these concepts are so great, why doesn't' the average investor use them? The answer is simply, KNOWLEDGE AND EFFORT.

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There is one final factor - EFFORT. It is easy to give your money to an investment advisor and it is easy for the advisor to put the money in a mutual fund. It is not nearly as easy to gain the knowledge necessary to put the concepts of leverage and velocity to work in real estate, business or the stock market. It takes effort, both from the investor AND from the investor's advisors.

The uncertain condition of today's economy is not encouraging investors. This lowered investment trend can be traced back to the past 5 years where investments have been slow with subscriptions to how to manage your investment holdings magazines taking a dip. Many investors are uneasy over investing their money into a volatile market as stocks have been plummeting in value in recent years, with small rebounds here and there, now and then. This does not give investors enough confidence although there are many investing associations that offer courses or tips on how to manage your investment holdings.

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Good Monitoring of Investment

It is crucial to monitor your investments especially in this time of market uncertainty or volatility. Choosing the best investments is no guarantee of positive returns, much less huge returns, if you are not tracking the movements of your portfolio. As in any investment, there will be profits and losses; you can waste a lot of time and your hard earned money if you do not have good tracking habits or strategies such as proper record keeping. It is essential for any serious investor to review their portfolio's performance when you are serious about how to manage your investment holdings for good returns.

There may be taxes that are incurred, retirement computations which may lead you to make further decisions on your portfolio or opportunities that come by your way to grow your wealth. There are now many online resources for your picking to assist you on how to manage your investment holdings by keeping careful records on every investment you make, be it stock, bond, mutual fund or security. Once the easy setup is done, you will only need to commit to a weekly or bi-weekly check up on the performance of your portfolio. This way, you will not be taken by surprise on any adverse news as you monitor the organizational news of your portfolio.

Online Investment Services

Online investment tracking services will update your portfolio automatically to reflect any price changes on a daily basis with a re-computation of your assets. They also assist in comparisons of your investments to your targets and the expected returns of your portfolio. These online investment services also alert the investor on potential purchases to add on to your portfolio. They may even have tips on how to manage your investment holdings that will benefit you.

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Self-directed investing

This is for those who want to manage their own portfolio; those of you who might be retirees and are keen on how to manage your investment holdings can consider monitoring your own investments with a sufficient bit of basic understanding of the various investment types available for your own consideration. You will need to be familiar with tax consequences as well as investment earnings and related costs with any investment you plan to undertake.

You will need to be computer savvy if you are engaging technology in your own monitoring of your portfolio as well as be comfortable with the investment terms and conditions.

Self-directed investment requires online accounts monitoring, evaluation and understanding before an investment transaction can be performed. There may be a substantial online research required to confirm or refute financial assumptions.

Other factors

There is still a need to engage an investment company or professional broker to perform some of your trades or investments. An online broker may charge certain fees for his services. You should check out the reputation and performance of online brokers first before engaging their services.

When you get going on how to manage your investment holdings, you may need to consider it as a long term goal so that you are able to pace your time and effort on the portfolio that you are going to set up. A good investment plan is usually for the long term to enjoy its good returns. Discipline and patience are two virtues that are required when you want to manage your own investments as most stocks do not bring in huge returns in the short run. It's a great commitment to those stocks which you think will fare well in the long run.

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Things are getting costlier and life is getting difficult. At such a point, you need to make sure that you find ways to ensure that you can survive in the future - which is undoubtedly only going to get costlier. But how do you do this when you find that a single income isn't enough today, let alone enough to save for tomorrow? The answer to that question is rather simple. Instead of allowing the money you've managed to save up lie in your house gather dust or in a bank getting a pittance as interest - you could grow it manifold. One of the easiest ways to do this is by investing in a mutual fund. But before you can do this, there are some things that you need to do. The first of those some things, is to take a review of your finances. Consider your income and your expenditure and then tally how much you can save up and invest each month.

Then, look at your goals. Generally, it's best to divide your objectives into short and long-term goals. This makes it easier to decide where you want to invest. Another thing you should do is get an idea of when you'll want total of money. Mutual funds are usually about allowing your money to grow as much as possible. And this is possible when you allow them enough time to grow. Generally, when you need money around five years down the line, it's a short-term goal and anything around 15 or 20 years is a long-term goal. You will need to decide your investment strategy depending on these factors - so pay close attention to this. If you don't have the right strategy, not even one of the top mutual funds can help you out. Once you know your goals, you can decide the strategy.

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If you have more short-term goals, then stick primarily to debt funds. This will ensure that you don't have to face unnecessary risks to your capital. On the other hand when you need to fulfil long-term goals, go for equity diversified funds. This is because there are higher chances of volatility paying off in the long run. Diversification is an important step, as well. Your losses in one sector will be compensated by the profits in another sector. Remember that you need to research before you start investing. These are simple basics that you need to do to set up a foundation - but the structure still needs to be built. And that's done by thorough research and careful investment.

Before making any mutual fund investment, the investor has to fill a form which clearly indicates his personal details such as name, address, number of units applied for and any other form of information which is required. Other details such as bank account number are also required so that there is no fraudulent encashment of any cheque/draft which has been issued by the MF at a future date. Investors can either give physical forms (paper forms) for their financial and non-financial transactions directly to CAMS; for those MFs which are serviced by CAMS.

There are numerous forms for MF transactions such as redemption forms, nomination form, STP form, SIP application form, declaration form, KYC form, etc.

An investor needs to firstly be compliant with the KYC (know your customer) norms before investing in MFs. After that he can then shortlist the MFs in which he/she would like to invest in. Once, this is done; the investor has to fill in a MF form with a supporting cheque. This particular form will be submitted to the respective Mutual fund house or at CAMS/Karvy centres. Once the form is processed and the cheque encashed, a statement will be sent to your email address or posted to your house.

Investors have the option to do this investment option, either by themselves and depositing the forms to the respective MF houses (DIRECT), or making use of the services of a financial advisor/distributor.

Mutual funds can be purchased either offline or online. Online purchases have three options where the investor can purchases MFs from online stock brokerage websites, online mutual fund distributors and a MF's website.

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To redeem means to buy back. It refers to the purchasing back of something that was previously sold. In order to redeem your MFs or buy them back, there is an easy method by which you can do so. All you have to do is fill an online or paper mutual fund redemption form which may be used for all MFs. CAMS acts as the Registrar and Transfer Agent. The form is easily available from the MFs AMC office. The mutual fund redemption form is very easy to fill; you only need to fill in details such as your name, folio number and the number of units you want to redeem. After this is given to the CAMS processing assistant your form will be put up for request.

SIP or Systematic Investment Plan is an investment mode (i.e. a means to invest in a MF) by which you can invest in MFs through period and small installments. It enables investors to save their money regularly. Part of applying for SIP is filling in a SIP Enrolment Form as well as an application form. This form usually requires details such as folio number, frequency of SIP (monthly or quarterly), enrolment period (how long you want to remain invested) and mode of payment (cheque or auto debit facility).

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