What exchangeable bonds are

Exchangeable bonds are a way for countries and financial institutions to borrow money from capital markets with specific terms. In some cases, countries may make use of financial institutions such as investment banks to underwrite or facilitate the issuance of these bonds to supplement monetary policy. Otherwise, exchangeable bonds can be issued by central banks and traded via bond exchanges.

Exchange

A key feature of exchangeable bonds is they can be traded for stock held by, but not of the issuer according to Reuters. In other words, exchangeable bonds are similar to convertible bonds because they can be exchanged for stock, but not the stock of the issuer. The price at which stocks are acquired is important in receiving an equitable exchange for the bond. For example, if a 10 year bond with a face value of $1,000.00 yields 4 percent per annum at an inflation rate of 3 percent, the value of the stock should equal the present value of the annual payments plus the bond's present value per the  New York University Stern School of Business bond valuation method i.e. $931.46 at the time of issue.

Rates

Rates on exchangeable bonds vary, but have been as high as 5.25 percent for Portuguese exchangeable bonds and as low as 1.5 percent for those issued by KwG Bank Group. The yield of bonds is linked to the credit rating and demand for the bonds, but also by how much an issuer is willing to borrow money for. To limit opportunity cost, the rate at which exchangeable bonds ideally equal the highest yields and lowest price of existing bonds with the same credit rating in either primary or secondary bond markets. Furthermore, if bonds are purchased in a secondary market their purchase price can also be discounted if new issues of the same bond offer a higher rate.

Terms

Issuers of exchangeable bonds can do so with conditions such as bond recall or cash exchange option. This is evident in exchangeable bonds issued by the Portuguese Government. Moreover, these particular exchangeable bonds were issued with the understanding that the issuer would maintain ownership of the exchangeable amount of Galp Energia shares until traded. However, the issuer also had the option to keep those shares and instead offer cash with value equal to the average trading price of those shares in exchange for the bonds. Additional conditions of exchangeable bonds include the qualifying exchange period and recall of the bonds prior to their maturity date.

Risks

Exchangeable bonds that are rated by agencies such as Moody's assist investors in evaluating the risk level of the bonds and the credibility of the issuer. In some cases 'events' such as legislative adjustments can cause the terms of an exchangeable bond to change. Predicting these events is not an exact science but can be assisted with a review of the economic and market trends in addition to analysis of existing bond yield curves. Other risk includes opportunity cost and market risks such as transaction speed, or inaccurate inflation discount rates and/or risk premium in the case of exchangeable bond repurchases.

Why the price-to-earnings ratio is not an adequate valuation metric

The price to earnings ratio is often used as a measure of corporate performance and overall market performance via the P/E ratios of whole indexes. If the ratio is low in comparison to previous levels then the market is sometimes believed to have room to rise even if it is already inflated. For example, market analysts and observers such as StockCharts.com illustrate this point. Moreover, since 82 percent of companies that reported Q4, 2011 earnings had GAAP vs Operating P/E ratios that were in-between 15 month highs and lows, then those companies are believed to be fairly valued per Stock Charts.

Even GAAP or Generally Accepted Accounting Principle Price to Earnings ratios can be misleading however. This is because it measures earnings and not revenue. Earnings are what are left after a company deducts outflows such as expenses, and dividends. So if revenues decline quarter after quarter, but earnings rise relative to price via cost cutting, then it will appear as though the company is becoming cheaper. For example, ABC Corporation earns $100 million on 5,000,000 shares in Q3, 2011 and has a share price of $300 giving it a P/E ratio of 15. Then in Q4, 2011 ABC Corporation increases earnings to $125 million by laying off 625 workers at 40k/yr; the price rises to $325/share and the P/E ratio drops to 13 making it seem undervalued.

Clearly the above corporation is questionable investment if it has to lay more people off to stay profitable. The price to earnings ratio does not measure underlying financial conditions.  But that's not all, if cost cutting has already been tried, and that option is no longer available because it would actually cause earnings to decline, ABC Corporation can also reduce the P/E ratio by purchasing existing shares or issuing new shares if the price per share declines. To illustrate,  if ABC corporation purchases 1,000,000 shares in Q1, 2012 and both earnings and share price remain near their $125 million and $325 levels, the P/E ratio then drops even more to 10.4. All the company did was shrink its own shares outstanding.

Overview of Small-Cap Stocks

Small Capitalization Stocks are stocks that contribute to no more than $1 billion dollars of a company's equity. The value of a company's capitalization is commonly calculated by multiplying the number of a company's outstanding shares by it's share price or average share price. There are also micro-capitalization stocks that have even lower amounts of equity capitalization, but this article will focus on Small cap stocks. A few of the general features of small cap companies are as follows:

• Smaller share prices on market exchanges
• Subject to higher risk from larger competitors
• Greater growth potential
• Potential stock price volatility

Benefits and risks

Each capitalization class of stocks have certain advantages and disadvantages associated with them. Some tend to be higher risk whereas others tend to be lower risk. These benefits and risk also vary depending on the economic sector in which stock trading occurs. An overview of the benefits and risks associated with small cap stocks is provided below:

• Benefits of Investing in Small Cap Stocks:

 Small cap stocks are cheaper to buy than mid cap and large cap stocks. What's more, small cap stocks under $5.00 per share are not as well studied by financial analysts. This can be an advantage as a company may be undervalued due to this media deficit. Also, since these stocks represent smaller companies, there is more potential for earnings to grow at a larger percent than a well established company with strong market positioning. Since these companies are smaller, they may also be acquisition targets for larger companies which is often good for a stock price.

• Risks

Since small cap stocks are cheaper to buy, one can buy more of them. What's more at a lower cost per share, any decline in value is a proportionally greater percentage loss of invested capital than with a higher priced stock. For example, if person A owns 100 shares of Berkshire Hathaway Class A shares and Person B owns 1000 shares of Little Cap's Are Us Corp. and Person A's shares cost $100K per share and Person B's shares cost $10 per share, person B is going to experience a far greater investment loss if his or her shares decline $1 than if Person A's shares decline $1.

Risk avoidance techniques

The risks associated with Small Cap stocks can be mitigated through investment strategies or trading tactics. In an investment strategy an investor may choose to diversify one's small cap investments by purchasing several small cap companies across several industries and/or purchasing a large cap competitor in the same industry. This reduces the risk of investment loss should one company go belly up in competition.

In terms of trading, long positions can be hedged with short positions and short positions can be hedged with put options. While risk mitigation reduces the potential for loss it may also inhibit potential gains. A few of the risk mitigation methods one may utilize when investing in small cap stocks are as follows:

• Diversify across multiple industries
• Select only small cap companies with proved financial strength
• Purchase mutual funds that specialize in small cap companies
• Avoid small caps altogether

Tips for investing in small cap stocks

Investing in Small Capitalization stocks is generally for investors and traders with at least some taste for risk. For this reason it is important to utilize a well thought out entry and possibly exit strategy. Below are some techniques to stabilizing an investment strategy:

Stop loss orders:

By not allowing stocks to decline by more than 10% investors are in effect risking no more than 10% of their capital per investment.

Emotional control:

Emotional investing is shunned by some professional investors. Emotions can cause one to sell a stock that is about to rocket or buy a stock that is about to tank. Using logic and exercising fiscal discipline helps one manage money unemotionally and can reduce risks associated with emotional investing.

Research:

Due diligence is a hallmark of fundamental stock analysis. If it's done right, it can probably reduce risk if accompanied by good decision making.

As with most investments, risk is always a factor that can only be minimized but not always eliminated. Many investors have experienced loss at one time or another. Even large brokerage firms, high powered investors and sophisticated investment computing algorithms are not completely immune to unexpected events in the World and economic markets. Nevertheless, investment in small capitalization stocks can be profitable and the potential for profitability may increase by utilizing the information in this article.

What Does a Financial Planner Do?

Financial planners help clients plan for future financial needs, grow net worth, minimize taxes, set up budgets and more. Depending on how wealthy one is, who one's financial planner is, and where one goes to find financial planning assistance can all affect what a financial planner does. Financial planners can include a wide range of professional, educational and experiential milieus that focus on different tiers of wealth, life stage financial planning, investment goals etc.

The advice received from different financial planners should be consistent in terms of some financial practices, but may also vary depending on what financial products the financial planner is promoting, the financial planner's experience and knowledge, and the unique objectives of the client-planner relationship.

The best financial planning services may include, but not be limited to all the following attributes, however this is not to say that all financial planners with such attributes may be the most suitable financial planners for all financial planning scenarios. This article will discuss financial planning in terms of 1) an example of what a financial planner does, 2) types of financial planners, 3) financial planning services, and 4) attributes to look for in a financial planning service.

Financial planning example

Sometimes a financial planner can help one not make a bad financial decision. For example, before cashing out a large sum of retirement funds to invest in a condominium, consider the tax consequences of withdrawing such a large sum of money on annual income. If the retirement funds withdrew are $250,000.00 and the retiree was in the 25% tax bracket the year before, that individuals income for the year could quite possibly rise into the 35% tax bracket making the tax on the retirement funds $25,000. Good financial planners can help with decisions like these to avoid unnecessary costs and consequences of financial decisions.

In addition to assisting with costs and consequences of financial decisions, a financial planner can help one achieve one's own financial goals. That is to say, the interest of the client should be more important than whatever financial products the financial planner may be trying to sell. Some financial planners may not sell any products and simply help one re-organize one's finances for improved cost savings, greater income retention, wealth creation, retirement planning etc. A few of the key areas a well-rounded financial planner may be able to help with are the following:

• Retirement Planning
• Wealth Building
• Budget planning
• Cost management
• Insurance needs
• Taxation issues

Types of financial planning

As noted above, many types of financial planners exist, each of which may have a different specialty. Knowing which planner is most useful for which situation can be helpful in case of specific financial concerns. Financial planners may or may not hold professional certifications and/or licenses depending on what their career objectives and requirements are. Many such financial certifications and licenses exist, a few of which are listed below as sourced from the Certified Financial Planner Board of Standards, Inc.

i) Certifications:

• Chartered Property Casualty Underwriter (CPCU)
• Chartered Retirement Planning Counselor (CRPC)
• Certified Pension Consultant (CPC)
• Chartered Mutual Fund Counselor (CMFC)

ii) Licensure:

• Certified Public Accountant (CPA)
• Licensed Realtor
• Securities Licensed
• Licensed Insurance Underwriter

Financial planning services

Not everyone needs or should need a financial planner as finances aren't always that complicated. If an individual or household has relatively few expenses, little or no debt and a steady income and are fiscally savvy, a financial planner may be of little or no assistance. However, the perspective of a financial planner may enhance or improve the know how of peers in the industry as well as financial professionals, and thus may be worth hearing out in specific aspects of financial planning.

To illustrate the above point, a mortgage broker can generally be thought to have a good sense of money, however a financial planner may know more about insurance products than the mortgage broker and if the mortgage broker is need of insurance, the advice of the financial planner may be beneficial or helpful. Other areas of specialized knowledge where financial planners may be of use are the following:

• Brokerage services
• Tax management techniques
• Investment planning
• Income dispersal strategies
• Estate planning
• Insurance assessment
• Life stage financial goals

Positive attributes of a financial planner's services

When deciding whether or not a financial planner is worth while a few things might be worth considering beforehand. Specifically, is the decision to make use of a financial planner's services a financially sound decision in the first place. Hiring a financial planner may be less cost effective than not hiring one and only if the benefits outweigh the costs should a financial planner be used financially speaking.

However, in some cases it may take a financial planner to know whether or not one actually needs a financial planner. The following tips may help in the decision of whether or not to choose a financial planner and things that might be worth thinking about after that decision is made.

• Consider commissions and products: Commissions and products may have the potential to affect a financial planners assessment of a financial situation and the financial tools they recommend. Financial planners that work for specific companies may be obligated to promote those products so inquiring if the products are actually helpful is a good idea.

• Costs: Determine hidden costs, surcharges, maintenance fees, commissions and any other fees associated with financial products recommended by a financial planner.

• Expertise: Financial planners with specific areas of expertise may be more helpful in certain situations than financial planners with a broad range of knowledge. For example, some financial situations, such as specific tax strategies may benefit more from in depth and sophisticated knowledge associated with tax accountants.

• Self-Reliance: Look first to one's own abilities and skills before deciding whether or not help is needed. Sometimes, all that is needed to solve a complicated financial situation can be solved with a few common sense principles, organization and forward thinking.

• Different Financial Planning Services: Choosing the right financial planner may be beneficial. One does not generally need a stock broker to help with debt management issues or an Insurance underwriter to solve tax problems. Sometimes a simple sliding-scale financial planner may be all that is required if that.

Financial planners should ideally be experienced, knowledgeable and skilled with money management concerns in addition to being aware of client's unique situations and communicate possible solutions for each situation. A financial planner should benefit clients more than they cost them, otherwise the cost of utilizing a financial planner is financially unsound.

Depending on who a financial planner works for, where they are located and what their area of expertise is can and does influence the type of advice, products and commissions associated with that advice. For this reason it is important to first identify one's own financial goals when making the decision of which financial planner is most worthwhile.

Sources:

1. http://www.fpanet.org/ http://www.cfp.net/downloads/RenewalCE1_06.pdf
2.http://www.cfp.net/

Overview: U.S. Savings Bonds

U.S. savings bonds are essentially loans to the Government from whoever is willing to make them. Due to the stability of the U.S. Government, these bonds are considered safe i.e. low risk investments. The receipt for the loan is called a Bond and carries an interest rate paid to the bond holder along with the final face value of the Bond. Depending on the type of bond interest payments vary, and maximum holding periods are between 20-30 years.

Options: If one includes Treasury Inflation Protected Securities, there are four types of U.S. savings bonds according to the U.S. 'Treasury Direct' website http://www.savingsbonds.gov. These bonds can be purchased directly from the U.S. Treasury Department of Public Debt website or through financial institutions such as commercial banks. The U.S Treasury's Bonds are illustrated as follows:

• EE/E: These bonds are fixed rate bonds are fixed rate bonds with interest rates competitive with some money market accounts and less than some Certificates of Deposit. The interest and face value of these bonds are payable upon maturity and/or redemption and the income is state and locally tax free.

• I: Also known as I-Bonds or Inflation Bonds. These bonds offer fixed rates of return competitive with some money market accounts and interest is payable upon redemption.

• HH/H: Pay bi-annual taxable interest through direct deposit at a lower interest rate but are not currently being issued by the U.S. Treasury.

• TIPS: Offer higher yields that vary in accordance with the consumer price index inflation gage. Interest and face value are paid upon redemption and interest is applied bi-annually.

Benefits: Holding savings Bonds almost guarantees the bond holder savings that yield between 1-7% if EE, 3-4% for I 1-4% and 5-7% for TIPS. These benefits can be useful retirement savings tools because all but the HH/H bonds can provide state and local tax free or tax deferred interest income at a higher rate than savings, checking and some money market accounts. Bonds can also be held, bought and sold electronically essentially eliminating the need to go to a bank for bond related activities.

Risks: An opportunity cost presents itself in the holding of bonds. For example, if a U.S. Savings Bond is paying 4.75% interest and a commercial certificate of Deposit is paying 5.5% one is losing 75 basis points in opportunity cost. Additionally, U.S. savings bonds are locked money until the non-redemption period expires, and even though they can be redeemed prior to expiration, there is an interest forfeit penalty associated with early redemption.

Costs: Bond prices vary based on the type of bond issued. I-Bonds and EE/E bonds come in denominations as small as $50 and as large as $10,000 whereas HH/H bonds' smallest face value is $500.00.

Ideas to Consider before Purchasing Bonds:

In terms of getting the most return on money loaned, TIPS offer the best interest rates of the bonds discussed above. However, depending on what one's needs are the HH/H Bonds might be a useful source of liquidity if held in a large volume. Since EE/E bonds and TIPS have tax deferred interest income both these financial instruments are possible considerations for a retirement portfolio.

The time value of money is also an important consideration because the longer one holds a Bond the greater the potential decrease or increase in savings is in relation to alternative financial investments. For example, in reverse of the opportunity cost risk mentioned above, there may also be adversity protection from harsh market conditions, recessions or any other event that might reduce the value of non-Government backed investments. As time progresses the combination of market forces, economic conditions and investment decisions amount to either an opportunity cost or gain depending on the circumstances.

Bonds are generally secure and stable investments that can anchor an otherwise volatile investment portfolio. However, if one invests entirely in HH/H or I bonds, one may forfeit higher returns available through other investment vehicles. Since some bond rates are variable the rate can become more favorable after one has purchased them. In this respect it can be wise to consider past, present and possible future prices of bonds when deciding whether or not to buy them.

Inflation bonds 101

When an investor, financial institution, mutual fund or foreign Government seeks inflation protection, it is a good idea enter into one or more of several financial vehicles designed to protect financial interests and worth. One such financial instrument is the inflation bond.

• What is an Inflation Bond: An inflation bond protects against inflation by offering an interest over and above a periodically adjusted inflation rate.

• Where you can find Inflation Bonds: U.S. Government inflation bonds can be bought directly from the department of the treasury, bureau of public debt. (http://www.publicdebt.treas.gov/) and foreign inflation bonds such as the Canadian Real Return Bond can be purchased through brokerage firms.

• Benefits of Inflation Bonds: Inflation bonds can do more than protect against inflation. Inflation bonds can also help one diversify an investment portfolio against adverse economic and market conditions. Additionally, since interest is not paid until maturity or redemption, inflation bonds can be utilized as an untaxed retirement savings vehicle. When they expire and/or are redeemed the owner may benefit from being in a lower tax bracket than at the time of purchase.

• Costs of Inflation Bonds: Government Inflation Bonds come in a number of different denominations and generally the amount one pays for them is the face value of that denomination. Corporate inflation bonds can be purchased either through a broker or directly form a company.

Tips on buying inflation bonds

When buying inflation bonds there are several things worth thinking about as in many forms of investing. Essentially those things revolve around finding the best deal with the least amount of risk. Some of the factors to consider are as follows:

• Bond Grade: Investment grade is an important indicator of the financial credibility of the institution(s) issuing the bond. The closer the rating is to AAA, the more accountable the issuer is.

• Secured Versus Unsecured: Collateralized bonds may not always be what they are cracked up to be. For example, secured AAA bonds backed by mortgage securities can decline in credibility if the housing market experiences a downturn. Unsecured bonds or 'debentures' rely on credit alone making the grade even more important.

• Real Rate of Return: The real rate of return is the actual amount of interest after inflation is deducted. Not all inflation bonds offer the same real rate of return. Shopping around can assist in finding the best rate.

• Rate Adjustments: Government I-bonds typically readjust interest rates every 6 months. It is a good idea to investigate how corporations readjust for inflation before purchasing their bonds.

• Foreign Inflation Hedge: If one lives in a country where inflation is high, investing in U.S. I-Bonds, Treasury Inflation Protected Securities (TIPS) and/or Corporate Inflation bonds may be a wise choice to protect ones income from losing value. Additionally, such investments can earn money in lieu of a less secure foreign savings vehicle.

Inflation Bonds are an attractive choice for both individuals and institutions wishing to protect, secure, diversify and stabilize investment capital and/or investment portfolios. While the returns on these types of bonds are not always as high as some other possible choices of investment, they do provide a consistent source of capital growth. Such capital growth can also be tax deferred in the case of I-Bonds, and interest gained from TIPS is both state and locally tax free.

How to Avoid Common Investment Mistakes

"Zut alors" echoes the investing disenchantment, "not again". Avoiding the mantra of common investment mistakes, and while we are on the topic, common financial advice, can cost money and are therefore ideally taken with a little thought.

The first step in avoiding common investment mistakes is to leap into a new way of thinking about your investments and then look at your past investing from that perspective. The reason being, if you look at investments with the same reasoning every time, you're likely to get similar if not the same solutions every time as well. What good is that if the standard investment advice yields lethargic results? Keep reading to find out.

According to the CFA Institute, an organization that certifies financial professionals, there are several common investment errors some of which include poor strategy, too many investment expenses, high investment turnover, and inadequate buying and selling habits. (cfainstitute.org). These investment mistakes are important and should be avoided but what they are not is individual specific. Standard investment advice often leads to standard investment results. So, in light of this, the first investment mistake discussed here will be tuning into financial gurus too much.

• Financial guru syndrome

Financial guru syndrome is the ongoing belief in the steady stream of re-wrapped investment terminology, information and reasoning. Financial gurus be they hedge fund managers, Chief Executive Officers of Banks, or mainstream economists may be wise, learned, and have a lot of experience and know how within the financial sphere but what they are most definitely not, is you, the individual investor. In the media, financial gurus speak to the masses not to the individual and who is more important than you when it comes to investing. Get it? The same advice for Mr. A may also apply to Mr. B, but that doesn't mean it applies to Mr. B's investments in the way Mr. B wants it to.

• Mono-economic financial planning

Another technique to consider when avoiding investment mistakes is dual economic financial planning. If this sounds confusing don't be fooled because it's not. Dual economic financial planning involves investing for both good and bad economic times. Many investors choose conservative investments so they can withstand poor market performance, but that only goes half way in investing for dual economies. Taking investing to the next level, and rethinking investments for all scenarios is a useful step in avoiding the common investment mistake of ignoring down markets. By investing for both up and down markets one is not merely hedging bets, but banking on the good and the bad.

• Rewriting investment history

Ever get the feeling your "new investment strategy" isn't quite as new as it should be? If yes, you could be rewriting investment history. Consider an investor who is within 5 years of retirement and has just lost 25% of retirement net worth. Using a retain worth conservative pre-retirement strategy is useful and not to be underestimated, however, this doesn't solve the problem of weak past investment performance or loss.

One way to approach this particular investment situation would be for the investor to realize not all that money will be needed in the first few years of retirement. That opens the door to a longer term investment horizon within which the investor can regain and potentially increase his or retirement funding. Overused financial strategies can lead to a rewriting of investment history. If you want to avoid that mistake, improve your approach to investing.

• Tubular dollar vision

Tubular dollar vision is essentially the same as financial tunnel vision, and financial tunnel vision can be harmful to your financial health. By not rethinking investment strategy and technique in a new way, with new goals reduces the possibility of enhanced investment performance. For example, Mrs. Y has done reasonably well and achieved an individual average ROI of 12% after investment taxes and expenses.

Tubular dollar vision might say, that's good, keep on keeping on with that and the power of compounding and consistent ROI will leave you in good shape in such and such an amount of time. In Mrs. Y's case, tubular dollar vision might not be so debilitating, but this does not necessarily mean Mrs. Y is making the most of her money. To avoid tubular dollar vision, try a tri-kaleidoscopic frame of financial reference to avoid common investment mistakes and reach new financial attainments.

Investment plans for kids

Piggy banks are good for storing money but the money in a piggy bank doesn't teach a child about interest and inflation. They generally can't pay for college tuition either unless they pennies and nickels are invested very well. If you can teach a child to invest his or her allowance so (s)he can retire before you do, you may have done well in getting them started with investing. This article will discuss a number of different investing plans for kids.

The best time to start investing for a child and teaching a kid about investing is before they are born and during their childhood years. What's more if a child starts learning about investing at a young age they won't have to learn about it when they become adults and discover the real world for themselves. In fact financial planning may be just as important as musical training, physical education, and literacy. This article will present some of the savings and investing options for kids, and then follow up with summarizing commentary.

Child savings accounts

The ideal savings account for a child has no annual maintenance fee, a high interest rate, friendly and helpful customer service and online banking. As in the world of adult banking, some bank accounts are better than others in terms of free stuff for opening an account and free services. Credit Unions offer accounts that meet some of these requirements, otherwise separate accounts with joint ownership can be established by the parent. For example, if a financial institution offers an option to open a money market account opened under the same account number and/or owner as a checking and/or savings account, that money market account can be the child's account. Additionally, the child can learn more about the account by visiting websites such as this.

College savings plan

Eventually a child is going to turn 18 and either enter the workforce, stay at home for a little while longer or go off to some kind of post-secondary education program. For the latter there are '529' College savings plans and Coverdell Education Savings Account (ESA). Money used through these plans are completely tax deductible for parents and tax free for the future student when the money is used for education.

Toy and bicycle funds

A toy and bicycle fund can be a parent managed fund that grows with good behavior and discipline and declines with bad behavior and discipline which are things that also lead to wealth in the adult world. Kids can be updated about the amount in the fund and how much they need to do or receive as gifts to acquire additional gifts and toys. This type of fund will help give children a more constant awareness about the value of money.

Individual retirement accounts (IRA's)

It's never too early to save for retirement, however unnecessary or unrealistic it may be. In fact an annual IRA contribution started at birth at maximum contribution amounts could be worth over $120, 000 by age 29 or the same age young people may start thinking about retirement. If that isn't a head start what is?

A/B Trusts

A/B Trusts are a financial instrument that allow parent's with estates invest their money through a trust that may reduce estate taxes. With an A/B Trust, children inherit an estate with potential tax advantages due to use of the estate tax exemption. With an A/B Trust, the surviving spouse is entitled to a portion of the value of an estate and/or its income and the children of the spouse is entitled to another portion. Since the trust is separated this way, estate taxes are reduced and in some cases done away with thereby increasing the value inherited by the children.

Life insurance policies

Other savings vehicles for kids can include a life insurance policy with cash values that fluctuate and appreciate over time. The mere concept of life insurance during childhood is quite abstract and a real step in the direction of financial savvy if a child can grasp the concept. What's more a child life insurance policy can also benefit parents in terms of being reimbursed for costs associated with accidental injury not covered by health insurance and tax deductibility.

Investment plans for kids is ideally one part of a complete financial education program for children as investing does not include other important financial lessons such as budgeting, expensing, employment income and dealing with financial institutions. Nevertheless, investing plans for kids are beneficial to both parents and children and can prevent potential financial crises later in life. The investment products and ideas presented in this article are just a few of the several investment vehicles available, but do embody some of the more important types of investing i.e. toys, college, retirement, and tax savings.

Family Investing Tips

When it comes to family, investment is includes more than just money. Family investing also involves anything intended to benefit a family's well being over time. Such investments add value to family life, family quality of living, and standard of living. In order to invest in family and/or for family one can benefit from considering how one invests, in addition to what and where one invests to maximize return on investment. This pertains to monetary and non-monetary investments.

• Choosing an investment

If one tries to invest too much or too little, one could burn out, run out of resources, not put enough into a family etc. For example, putting too much money into a 529 college savings plan may limit the growth opportunity afforded by less savings orientated asset allocations. In such case, at an early age financial instruments such individual retirement accounts and life insurance policies can be low cost and have long term benefits for parents and children.

In terms of non-monetary investments, choosing an investment one is able to reasonably make with a little more than what one usually does is a good place to start. For example, if one is a loving person, love is then an asset that is in good supply. The extra love one has can be reinvested in family to help them learn about love and grow love of their own. The same and similar principles hold true for other investment categories. Of course love alone does not necessarily make the world go around.

• Be willing to lose on the investment

Not all investments succeed or make money, this is a fact one should be fully aware of before investing anything whether it be time, money, energy, goodwill etc. Knowing how to deal with a negative investment and what to do when an investment goes down in value is just as important as any other part of investing.

Risk management is thus an important aspect of managing family investing i.e. not betting the farm on a high risk investment is generally a good idea. In terms of love, if one's love is continually invested over time with absolutely no return the investment may still not be a loss because 1) Love is free, and 2) Love can take years for the value of love to be realized. In such cases adjusting one's investment plan to include tough love may be helpful.

• Use an investment strategy

All good investors use tactics and strategies of one kind or another. The importance of strategy is highlighted by changes in market and economic conditions over time. As the financial landscape changes, it can be helpful if family investments change along with it to adapt to the new financial circumstances. This can help optimize investment performance.

• The big family investments

Often, the largest investments people make are the one's that deplete one's own resources the most. These investments are potentially the biggest sacrifices especially if they don't return a positive yield. Some of largest non-monetary investments family members and parents make include time, money and energy. These are investments because they can help a child grow with experience, knowledge and wisdom that parents offer them.

• Other non-monetary family investments

Time, money and energy wouldn't be complete without refining how they are allocated. For example, one could invest a lot of time doing nothing with a family member but that wouldn't exactly be productive other than in terms of companionship. Optimizing time, money and energy involves fine tuning the big investments into smaller investments. Some of these smaller investments include understanding, effort and love.

Summary

Family investing is more than just a monetary investment plan as family is about learning, growing, experiencing, becoming, changing and so many other important things. Investing in a family is something that is done with the risk of losing it all as with many investments. If one uses a good investment strategy and tactics however, this can lower the risk of both financial and other investments in and for family.

Family investing is a good thing, but it is important to keep in mind to successfully invest in family takes resources that one may or may not have or be willing to sacrifice. With a willingness to invest and invest wisely one can start by investing a little and then with time investing more for potentially greater returns.