Drip Investing Frequently Asked Questions

What is Drip investing?
What is the difference between a Sep IRA and a Roth IRA?
What is a US savings bond?
What is the best way to invest money for beginner investing?
What is an ING Direct bank account?
Ways to save money?
Why is drip investing one of the best ways to save money?
Do you have a retirement calculator?
What other save money strategies do you have?

What is Drip investing?

Drip investing is the acronym for Dividend Reinvestment Plan. Financial analysts found that the best way to invest money is to make a series of equal investments over time as opposed to lump sum investments. Drip investing, or dollar cost averaging, reduces risk because your predetermined set amount of money is able to purchase more when the price is down and less when the price is up.

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What is the difference between a Sep IRA and a Roth IRA?

SEP IRA (Simplified Employee Pension) – is essentially a profit-sharing plan set up by small companies or those who are self employed. An employee is eligible after working for the company for three years and the contributions by employer are tax deductible.

Roth IRA (after Senator William V. Roth Jr.) – is a non tax deductible IRA that allows individuals to invest up to $5,000 if they are under age 50 (or $6,000 if they are age 50 or older) in 2008. There are income limitations regarding who is allowed to contribute to a Roth IRA. Roth IRA holders can withdraw the principal and earnings tax free after age 59½ if the assets remained in the account for at least 5 yrs. Early withdrawals (before age 59½) of principal are tax and penalty-free, but withdrawals of earnings are taxed at regular tax bracket plus 10% penalty.

To learn more about IRA’s and use our Roth IRA calculator, Traditional IRA calculator and Retirement Calculator% see the Financial Tools section of our website or click here: http://www.save252.com/free_financial_tools.asp . Also see our IRA FAQ section that describes how to open IRA account, how to start a Roth IRA and how to set up a SEP IRA.

There are two main types of savings bonds. The Inflation Indexed - or I Savings Bonds - is designed to offer all Americans a way to save that protect the purchasing power of their investment by assuring them a real rate of return over and above inflation. I Savings Bonds have features that make them attractive to many investors. They are sold at face value in denominations of $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000 and earn interest for as long as 30 years. I Bond earnings are added every month and interest is compounded semiannually. They are state and local income tax exempt and federal income tax on I Bond earnings can be deferred until the savings bonds are cashed or stop earning interest after 30 years. Investors cashing I Bonds before five years are subject to a 3-month earnings penalty.

The Series EE Savings Bonds% pay interest equal to 90 percent of the average 5-year Treasury securities yield for the preceding six months. This means that the rates on EE Savings bonds are based on rates set by participants in the large government bond trading market. The Series I Savings Bonds, on the other hand, carries a fixed base rate plus a semi-annual calculation based on the rate of inflation as measured by the Consumer Price Index. (taken from the US Dept of Treasury website http://www.treas.gov/offices/treasurer/savings-bonds.html )

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What is the best way to invest money for beginner investing?

Two important strategies to save money include starting early and investing often. Starting investing/saving early results in much higher yields over the long haul as compound interest kicks in. You can use our Savings Interest Calculator% under the Financial Tools section of our website as well as read about other ways to save money. Plus, investing often (ie. saving every month) adds up faster than you’d think. Using an automatic investing account, such as those offered by Save252.com, makes it possible to save/invest money every month without continuing time or effort. You simple set it up once and let it run and before you know it you have a sizeable savings. This is an especially useful tool to use when teaching teens to save money. Learn more about beginner investing here http://www.save252.com/Learning_About_Money.asp.

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What is an ING Direct bank account?

ING Direct, and ING orange, is a branchless/virtual bank that offers high-interest savings accounts, with no service charges or minimum account balance requirements in multiple countries. To learn more about ING Direct and ING Orange, click here http://home.ingdirect.com/

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Ways to save money?

Two of the best ways to save money is to start early and save often. For beginner investing, it is probably a good idea to invest in low risk stocks and mutual funds or to put your money into an IRA (Sep IRA, Roth IRA or Traditional IRA - see our IRA FAQ page to learn how to open IRA account). Furthermore, you can have your money automatically taken from your bank account and deposited into an investment account so you don't have to worry about managing it. Other strategies to save money might include using Drip Investing (see description of Drip Investing above) or placing your money in a high-interest savings account such as ING Direct and ING Orange.

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Why is drip investing one of the best ways to save money?

Drip investing is different than lump sum investing (where you choose to buy a certain amount of stocks/funds at one time) because it reduces risk over time. With Drip investing you decide ahead of time how much money over what period of time (ie. $100 per month) to use to invest and it automatically purchases shares, partial shares, or funds with that amount of money. The reason this reduces risk is because you end up purchasing more of any given fund/stock when the price is down and less when the price is up. If you buy shares/funds with a lump sum your risk is much higher; the stocks/funds could drop and you could loose all your money or, conversely, the price could rise and you would make more money. These high risk stocks are not necessarily a smart idea for beginner investing and for those without a bit of expendable income who could afford to loose. Drip investing is a low risk option that can still yield great results, especially in the long run.

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Do you have a retirement calculator?
Yes, we have a retirement calculator, click here: http://www.save252.com/free_financial_tools.asp.Our retirement calculator ratings are excellent. We also have a savings interest calculator, a Roth IRA calculator, a Traditional IRA calculator, and some other tools/information that will help you learn the best way to invest money, which is especially helpful for beginner investing.

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What other save money strategies do you have?

ITry to find ways that you are wasting money. For example, could you make coffee at home instead of buying Starbucks everyday? Could this $4 be invested in into an automatic investing brokerage account or an ING Direct high-interest savings account? Could you sacrifice one soda at lunch per day and invest an additional $2 per day into a Roth IRA? These small ways to save money can add up faster than you know. This is the best way to start out with beginner investing.

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