[Company Logo Image]


Home Up Contents SEARCH 

IRS Enrolled Agent Logo

Why an Enrolled Agent
Certifying Acpt Agent
Free Services
Email Advice
Track Your Tax Refund
Tax Glossary
Neat Facts & Stats
1913 US Form 1040
Questions & Library
Partner Profiles
Tax Calendar
Reasons to Call Us
Links Of Interest
Privacy & Disclosure

March 1995

Wink Tax Services




Are you making significant progress toward your financial goals? If not, is it because you are guilty of making one or more of these common financial mistakes?

PROCRASTINATION — Confused by the complicated process of financial planning and the vast number of investment alternatives, many people react by simply doing nothing. Unfortunately, years can go by with no progress made toward your financial goals. You can always adjust your plan later – the important thing is to get started now.

NOT SAVING ON A REGULAR BASIS — Don’t get trapped into believing that you don’t make enough money or that you have too much debt to start saving for your financial goals. Even if you start out by saving very small amounts, it is important to make saving a habit. Over the years, you should be able to find ways to increase your rate of saving.

NOT INVESTING YOUR SAVINGS — While saving is very important, so is investing those savings. Many people avoid investing because they believe it involves risk, only to find that inflation and taxes seriously erode the value of their savings.

LOSING PATIENCE — Some people, seeing minimal progress in the first couple of years, are tempted to abandon their plan. But it often takes years to see significant results. Assume you place $1,000 in an investment that earns 8% annually. After one year, you will have $1,080; after two years, $1,166; and after three years, $1,260. Let the money compound for 25 years, however, and you will find an investment worth $6,848. (This example is for illustrate purposes only and is not intended to project the performance of any specific investment.) Time and compound interest are powerful factors in achieving your financial goals.

INVESTING IN LAST YEAR’S HOT INVESTMENT — Don’t simply invest in last year’s star performer, be it a specific stock, mutual fund, or investment category. In addition to past performance, it is important to understand the fundamentals of an investment and to consider its prospects for the future.

NOT DIVERSIFYING — Diversification can play an important role in reducing the risks in your portfolio. Since different investments are affected differently by economic events and market factors, owning different types of investments reduces the chances that your entire portfolio will be adversely affected by a particular type of risk. But diversify appropriately – don’t accumulate investments without a specific asset allocation strategy in mind.

NOT MONITORING YOUR INVESTMENTS — Although buying and holding for the long term is often a wise investment strategy, you must review your investments on a periodic basis. Changes in the fundamentals of the investment may necessitate selling.

INVESTING SOLELY FOR TAX REASONS — In their zeal to reduce taxes, some people invest in vehicles that aren’t appropriate. Individual retirement accounts and other pension vehicles are already tax-deferred, so there is no reason to use these accounts for tax-free investments. Some investors in lower tax brackets invest in municipal bonds even though they would be better off on an after-tax basis by investing in taxable investments. It is important to consider all factors before investing.

Don’t let fear of making mistakes prevent you from achieving your financial goals. Resolve to get your financial affairs in order now. It is a complicated process, so feel free to call us at (800) 878-4036 for help.


Before making international investments, it is important to understand how fluctuations in currency exchange rates affect total return. If you purchase shares of a non-U.S. company, its sales and profits, balance sheet items, and share price are all denominated in the local currency. The value of your investments is calculated by applying the foreign exchange rate to those amounts. When the U.S. dollar declines compared to the other currency, your investment will increase in value since more dollars are now required to purchase the investment. An increase in the U.S. dollar compared to the other currency will mean that your investment will decrease in value. Currency gains can overcome investment losses or magnify gains, while currency losses can negate a gain or make a loss even larger.

Foreign exchange rates are determined by supply and demand, with shifts in demand causing rates to change. These shifts are caused by a number of factors, including inflation, interest rates, political and economic outlook, speculation, etc. The dollar does not move uniformly against all currencies — it can be rising against one currency while it is declining against another.

For most investors, trying to predict the movements of foreign currency exchange rates and reacting to those predictions is too complex. It is generally easier to find ways to reduce the risk of currency fluctuations:

Concentrate your holdings on foreign equities rather than foreign bonds, since bond investments are subject to more currency risk than equity investments.

Invest in parts of the world where the political and economic arena is stable and the local currency is strong. Avoid areas where inflation rates are extremely high.

While it is difficult for individual investors to hedge currency risks, some mutual funds practice hedging.

Diversify your investments by country and by region in order to reduce the effects of overall currency risk.

Please call us at (800) 878-4036 if you’d like to discuss how fluctuations in currency exchange rates can affect your international investments.


By far the most common estate plan is to leave everything to your spouse, who then leaves everything to your children after his/her death. But if this is a second marriage with children from a prior marriage, that plan often doesn’t work. In order to ensure that "your, mine, and our" children are properly protected, more complex estate planning is required. Some suggestions include:

Use a premarital agreement if you intend to leave all your assets to your children. A spouse can challenge a will if they are excluded.

Consider the use of a qualified terminable interest property trust (QTIP trust). Your property is placed in a trust for the use of your spouse during his/her lifetime, but the proceeds go to beneficiaries you designate after the spouse’s death.

Inform your children of your estate plans so they realize that these are your wishes, not the wishes of your spouse.

Be careful of how you title property during a second marriage. If you use joint tenancy, the asset will automatically pass to your survivor and cannot be changed by the provisions of a will.

Engage the help of a qualified estate planner. Wills and trusts are complex legal documents. If they are not properly drafted, the intended outcome may not occur.


When investing in the stock market, you can purchase either individual stocks or invest in a stock mutual fund. There are several differences between the two methods, including:



You have to take an active role in managing individual stocks.

Full-time professional managers watch the fund’s portfolio, making all buy, sell, and hold decisions.


Liquidity will depend on how widely traded the stock is and the market demand for the stock.

Open-end mutual funds must buy back your shares when you want to sell them. The redemption price equals the current net asset value, which may be more or less than your original cost.


You may need up to $25,000 to build a portfolio with adequate diversification.

With a minimum initial investment of $1,000 to $3,000, you obtain a share in a diversified portfolio of stocks.


You must generally find investment alternatives for your dividend payments.

You can generally reinvest any dividend payments in the same fund.


When you purchase and sell stocks, you pay commissions but have no on-going operating expense fees.

Some funds have sales charges while others are no-load funds, meaning there is no initial or contingent sales charge and any 12b-1 fees equal no more than .25%. Almost all mutual funds charge a fee for on-going operating expenses.


You must first sell the stock, receive the proceeds, and then invest in another investment.

If your mutual fund is part of a family of funds, you can switch money from one fund to another within the family.

There are advantages and disadvantages to either option. The right choice will depend on your personal situation, including the size of your portfolio, your investment objectives, the types of stocks in which you’re interested, and how much time you want to spend making investment decisions. Please call us at (800) 878-4036 if you’d like to discuss your individual situation.



Dividend reinvestment plans (DRIPs) are a shareholder service offered by over 1000 companies. Instead of sending cash dividends to shareholder participants, the dividends are used to purchase additional shares of the company stock. In order to participate, you must own shares registered in your name. Shares purchased through the DRIP are held in common account by the company; you receive statements but no stock certificates unless requested. Some of the advantages of DRIPs include:

Many programs don’t charge commissions for these shares, but be sure to check carefully since some companies are changing their policies. More companies are charging at least a nominal fee to prevent all shareholders from paying for a service that only some shareholders utilize.

Fractional shares can be purchased, so that your entire dividend can be invested.

Many DRIPs allow you to make additional investments through the plan, although limits are normally set on the minimum and the maximum amount that can be purchased in a given year. Before sending any money, find out when the company will invest the payment and time your accordingly.

When you want to sell your shares, many companies will purchase them directly. However, some plans will only redeem shares at certain times and most take several weeks to complete your transaction.

Although you should not select a stock just because it has a DRIP, this could be a valuable benefit if you are already interested in a specific stock. Before participating, read the plan prospectus carefully to determine eligibility requirements, plan options, costs, when purchases can be made, and how to withdraw.



  [Back] [Home] [Up] [Next]

We do not offer legal advice. All information provided on this website is for informational purposes only and is not a substitute for proper legal advice. If you have legal questions, we recommend that you seek the advice of legal professionals.

Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

Copyright © 2017 Wink Tax Services / Wink Inc.
Last modified: January 30, 2017