Financial Q&A: Retirement savers can benefit from a diversified tax strategy
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What are the best long-term investments to save for retirement: IRA, mutual funds, stocks, bonds, or something else?
P.K., via e-mail
A: Bryan Beatty, a certified financial planner in Vienna, Va., recommends mutual funds that are kept in tax-favored accounts such as a 401(k) or IRA. But one must consider taxes, says Mr. Beatty. They are a constant, yet they are constantly changing. So just as you don't put all your money into one stock, you must diversify your tax strategy to complement a diversified investment strategy.
In that case, you would likely put pretax investments into a 401(k) plan as well after-tax investments into a Roth IRA, he says. Unlike a 401(k), which avoids current taxes but will be taxed upon distribution, a Roth gets no upfront break. The Roth, however, doesn't face any taxes when you withdraw money as long as you are at least 59-1/2 years old and have held the account for five years.
If investors expect the same cash flow from Companies A and B, but are more confident that Company A's cash flow will be close to expected value, which would have the higher stock price, and why?
O.C., via e-mail
A: Assuming that both companies are in the same type of business, Nick Massey, regional vice president at Householder Group, says that Company A should have the higher stock value due to its higher price/earnings (P/E) ratio.