Answers and Guides from Top Financial Advisors

Call the HR person or department at your former employer. They should be able to direct you to the plan provider. You might also look through you financial records to see if you can find an old statement. Alternatively, you might also contact a former co-worker and ask them for the provider's contact information.

In the truest sense, understanding a company means the following:

-How does it make money? -What is its business model? -Does it have a long term sustainable competitive advantage? -Does it have a wide and deep MOAT around it? -Will it able to sustain and grow its margins/profits over the longer term? -Will it's products always be in demand? -Is the company's business a fad? -Is it the subject of technological obsolescence? -Will the company continue to be professionally managed longer term, long after the initial founders are gone? -What is the company's culture and DNA?

Hope that helps answer your question, as it is the most esoteric and qualitative one to get your arms around.

As I'm sure you know, during the late '90's tech bubble, Buffett avoided buying tech stocks because he didn't understand them. As many investors learned the hard way, while tech fund managers pretended to understand the many tech companies with no real business models and justify their lofty valuations, Buffett was the like the little kid who shouted "The Emperor has no clothes." Buffett not only likes to invest in companies with business models he understands, he especially likes the ones that are easy to understand. Coke makes coke. Gillette makes razors. Pretty easy to understand. Of course, I remember when Peter Lynch loved Service Corp the funeral home providers. There's is an easy to understand, recession-proof business. Still, there was a time (during the go-go 90s) when its stock got cut in half about every week. So easy to understand and seemingly recession-proof does not guarantee indefinite profits.

Warren Buffett is referring more to understanding how a company makes money. This rule of thumb does not mean you need to know the financial statements inside and out and be able to take over as the company CFO tomorrow. He is referring to it more in a broad sense. If you don't understand how a company makes money then how can you evaluate if it is a quality company or not. Starbucks sells coffee, Nike sells shoes and clothing and McDonalds sells hamburgers. The problem most investors get into is they look at a company or industry they don't understand and make an investment decision off of what the herd is doing or off of one metric, such as dividend yeild. This can sometimes lead to disasterous results. Enron is a great example of this. If you asked a common investor how Enron made money, they would have no clue. Mortgage REITS, some MLPs, and some other hard to define industries for the common investor are other great examples. Many investors look at a mortgage REIT and see the juicy yield, but they don't know how to evaluate the quality of the company management, the impacts of the housing market, interest rate risk, etc. I'm not saying any of these types of investments are bad, but you need to know how they make money so you can know how they are impacted by different enviroments. Buffett is merely making a broad statement on knowing how they make money.

This is a really difficult question, which is actually why I asked it :). I wanted to force myself to quantify what in my opinion is a the threshold of “understanding.”

In order to understand an investment you have to understand:

x) the business model x) the products x) the market opportunity x) the customers x) the competitors x) the company’s competitive advantage x) the history of the company x) the culture of the company x) the management of the company x) how much that’s all worth.

In order to truly understand an investment, you have to understand enough to have trust:

?) In the company’s future. ?) In management. ?) In yourself.

Following the crowd and investing in unfamiliar areas is not a sound investment strategy. You're much more likely to make money over the long term by focusing on investing in assets that you understand and are comfortable with. Invest in what you know, even if that means that you're slightly less diversified. Modulate your risk by holding excess cash. And always pay attention to valuation.

They're actually more different than most people realize. Both are contracts that entitle the owner to something, but that "something" is very different for each.

A bond, or fixed income security, entitles an owner to a fixed stream of payments denominated in a currency over a specified period of time. It is an agreement or a promise to deliver a specific amount of money.

A stock, or equity security, entitles the owner to a share of the assets of a corporation. These assets may produce income in dollars or they may not. They can be valued in dollars, but equities of companies with operating assets are not dollars or money themselves. For example, if I own equity in a shoe factory, I own a share of the factory, which has tradable monetary value, but is not money itself. I have ownership of the physical structure and its productive capacity to turn raw materials into finished products.

People who invest in stocks often mistake the market value of shares in their investment account as money just like in their bank account, but in actuality when you purchase shares of a company, you don't have money anymore you have ownership of an asset. If you bought an apartment building it would be clear to you that you have exchanged money for an asset. With shares of a company it is the exact same thing. The only difference is that Wall Street brokerages show you the tradable market value of the shares in your account on a daily basis if you choose to look at it that frequently. This can cause you to feel irrationally wealthy in a bull market, and like you are losing money in a bear market. These are psychological tricks to get you to trade in your account more frequently than you need to. The value you see in your brokerage account is only marginally related the real value of the assets you hold.

The other crucial similarity between stocks and bonds is that they are both savings mechanisms. They are ways for you to store the wealth that you have accumulated from working hard and transfer its purchasing power to a later date. They accomplish this in very different ways though. Depending on the price that you pay for each contract and the current investment environment, one can be riskier than the other. It's not always a fixed proposition as to which one is the riskier one though.

You may receive a distribution from your 401-k when one of the following events occurs: •The participant dies, becomes disabled, or otherwise has a severance from employment. •The plan terminates and no successor defined contribution plan is established or maintained by the employer. •The participant reaches age 59½ or incurs a financial hardship. • Plans with loan provisions would allow you to borrow up to a maximum 50% or $50k from your account and avoid possible taxable income issues

In some circumstances, the plan administrator must obtain the participant’s consent before making a distribution. Generally, consent is required if the participant’s account balance exceeds $5,000. Depending on the type of benefit distribution provided for under the 401(k) plan, the plan may also require the consent of the participant’s spouse before making a distribution. A plan may provide that rollovers from other plans are not included in determining whether the participant’s account balance exceeds the $5,000 amount.

If a distribution in excess of $1,000 is made, and the participant (or designated beneficiary) does not elect to (i) receive the distribution directly or (ii) make an election to roll over the amount to an eligible retirement plan, the plan administrator must transfer the distribution to an individual retirement plan of a designated trustee or issuer and must notify the participant (or beneficiary) in writing that the distribution may be transferred to another individual retirement plan.

HI Romika! I have to agree with my fellow advisors, here. Ask yourself if it is truly a financial emergency. This could be something as dire as a job loss or medical need. If you "need" the money to make a purchase, then you may want to rethink your savings plan. Work toward building up cash reserves of 3 - 6 months worth of income, then work toward building your retirement. This will give you a cushion of funds so that you don't have to dip into your long term savings to fund a short term item.

Elissa,

If your company uses Paychex as the payroll provider, look for the following:

401k EE - This is your deduction amount. 401k ER - This is the company match portion.

If you do not see these categories on your paycheck, I would recommend an appointment with HR to go over your individual situation and the company's 401k matching provision.

David

You can contact your current, or former, employer's HR department. They should have a person designated as the plan administrator. They are the go to person in the company for the 401k. If you have received a statement from your 401k plan, there should be a phone number or address of whom to contact with questions.

David

Romika,

You should make an appointment with your HR plan administrator. They will be able to walk you through the necessary steps to obtain a loan, if your plan allows. The process is usually pretty simple. Sign a form with the stated amount, an interest rate, and a payback period. It is sent to the plan custodian and a check arrives a few days later.

Caveats,

A 401k loan can make sense when you have to borrow money and you have no other options. So, your 401k should be a last resort. While a 401k loan has some benefits, I think it should generally be avoided except during a genuine financial emergency.

David

Romika,

I would start by talking to your HR department at work. The Summary Plan Description (which they should have) will state whether you can and how you do take loans from your 401(k).

With that said, loans from 401(k) plans should be very carefully considered before they are taken. Borrowing against your retirement is risky. Additionally, if you lose your job with your current employer or leave by your own choice the loan is payable in full or it becomes a taxable distribution which may also be subject to penalty.

Eric,

The decision to purchase I-Bonds in your retirement account depends on your investment strategy and outlook on inflation.

You should look to diversify your portfolio into different asset classes to help grow your assets. Putting all of your assets in I-bonds is not prudent even if you believe we will have inflation in the future. In fact now there is more evidence we are in a deflationary economic environment and not inflationary. Given where you are now in saving for retirement you need to save the maximum in your 401k ($17,500 + $5,500 catch-up for 2013) and grow the assets in your retirement account.

I suggest you revamp your investment allocation and start by reading the Karp Capital Financial Focus newsletter for direction. Our newsletter is available at http://karpcapital.com/news-archives.htm. If you would like to discuss your allocations in greater detail please call us at 415-345-8185 or email peter@karpcapital.com.

Disclosure: The posted information is for informational purposes only. This message does not constitute an offer to sell or a solicitation of an offer to buy any security. All opinions and estimates constitute Karp Capital's judgment as of the date of the report and are subject to change without notice. Accordingly, no representation or warranty, expressed or otherwise, is made to, and no reliance should be placed on, the fairness, accuracy, completeness or timeliness of the information contained herein. Securities offered through Financial Telesis Inc., member SIPC/FINRA. Financial Telesis Inc. and Karp Capital Management are not affiliated companies.

Howard,

I agree with the comments made by the other advisors. The key is to determine if the annuity you purchased is fixed or variable as they each have their own set of guidelines to follow. As David mentioned you can evaluate Transamerica Advisors rating at insure.com to determine their solvency.

Disclosure: The posted information is for informational purposes only. This message does not constitute an offer to sell or a solicitation of an offer to buy any security. All opinions and estimates constitute Karp Capital's judgment as of the date of the report and are subject to change without notice. Accordingly, no representation or warranty, expressed or otherwise, is made to, and no reliance should be placed on, the fairness, accuracy, completeness or timeliness of the information contained herein. Securities offered through Financial Telesis Inc., member SIPC/FINRA. Financial Telesis Inc. and Karp Capital Management are not affiliated companies.