There are many different types of retirement plans but the 403 (b) is specifically designed for certain public school employees, people who work at tax-exempt organizations and self-employed religious leaders. These accounts are set up and maintained by individuals who qualify.

Employers may choose to contribute to such plans but that can complicate the legal requirements involved. Without such contributions the plan does not have the same technical challenges inherent in a 401 (k) and saves effort from an administrative perspective.

There are three types of 403 (b) plans a person may choose from:

1. A 403 (b) can be set up as an annuity contract provided by an insurance company. This sort of plan is also referred to as a TSA (tax-sheltered annuity) or a TDA (tax-deferred annuity).
2. The 403 (b) can be set up as a custodial account which is provided through a retirement account custodian. Investments in such accounts are restricted to such funds as mutual funds which are regulated.
3. The final option is a retirement income account which allows investment in both annuities and mutual funds.

Employers may restrict which financial institutions are used to maintain the account and that can help determine how the 403 (b) will be established. For the employees there are certain advantages of initiating such an account: decreased taxable income, tax free income and the odds that they will pay less tax on the assets when disbursed during retirement.

Like other retirement accounts, the 403 (b) can be used to fund short term loans if necessary.

Unlike the more commonly known term Return on Investment, Return on Equity (ROE) defines the amount of net income that is returned as a percentage of a shareholder’s equity. You might also see the term Return on Net Worth (RONW) used interchangeably. This tool is used to measure the profitability of a company by displaying just how much profit the company generates from the funds that shareholders have invested.

ROE is defined as a percentage which is calculated by the formula:

Return on Equity = Net Income/Shareholder’s Equity

The full year’s net income is used, before common stock holders are paid their dividends, but after the dividends of preferred stock are paid out.

Using ROE is useful if you want to compare the profitability of more than one company in the same line of work. Additionally, by looking at changes in ROE over time an investor my get a better idea of how the company’s profitability changes in certain market conditions. Furthermore, just because a company has a high ROE yield doesn’t mean it is of benefit to the investor. In fact, chances are they will end up paying more for the stock without a commensurate gain down the line.

Where a good return on equity does help is that the earnings are reinvested in companies which have high ROE rates. That results in better growth for the company which may provide better dividends for the investor. If the earnings are not being reinvested, knowing the ROE may be irrelevant. Finally, consider that return on equity (ROE) numbers are just as easily manipulated by the company as any other such figures and other tools should be used in conjunction with ROE to determine a wise investment.

There are all sorts of ways to invest over the years. For some the prospect of constantly moving things around and deciding where to put one’s money is overwhelming. In such cases a lifecycle fund is a good option.

A lifecycle fund is a portfolio of mutual funds which is managed in such a fashion as to accommodate a specific date of retirement. The fund is set up so that as the investor ages, an increasing number of conservative purchases is made, reducing the risk to the holder. Risk is reduced by shifting funds into stable bonds. For those who know when they plan to retire this can be a real advantage.

Of course, that is the catch. It is difficult to know when you will retire any more. The days of remaining in one company for your whole working life have gone. A person may change jobs repeatedly. It isn’t uncommon to hold a position in 5 or more firms before retirement. The current economic downturn has caused people to put off retirement indefinitely, altering investment plans dramatically. The lifecycle fund depends upon the ability to predict the future to some extent.

Simple Retirement Planning

Since the fund adjusts automatically, the investor can put money in without worrying about a high level of risk as they approach retirement. Older individuals who were still heavily invested in stocks when the market plummeted in 2008 learned a painful lesson which put off retirement for many. Another advantage is the need to only track one fund, and that fund is managed for them.

Lifecycle funds also may be called age based funds, target funds or target-retirement funds. Regardless of the name, the portfolio is maintained with a specific end point in mind. Usually dictated in 5 year increments, the balance of the fund is adjusted, based upon commonly accepted percentages, so as to decrease the risks as retirement age approaches.

One Size Doesn’t Fit All

Opponents say that this kind of investment may not actually suit everyone, since people’s goals and needs vary tremendously. Additionally, circumstances may demand changes to investment goals. The investor has little to no say over how their assets are invested once they place them in the lifecycle fund.

Because of the conservative nature of the lifecycle fund, the investor doesn’t necessarily have the opportunity to take advantage of a sudden upswing in the market. This kind of fund is the plodder’s choice, and it is reliable as it is dull.

The Big Picture is Yours to Draw

In truth, the decision to invest in a lifecycle fund is one that can only be made by the individual. For an investor who wants to let their assets run on ‘autopilot’ these sorts of investments are ideal. They simply deposit their contributions on a schedule and that is the extent of their involvement.

For investors who want to be actively involved in decisions and changes, a lifecycle fund is pointless. Additionally, if circumstances change mid-stream, and you have to make changes in your investment strategy, a lifecycle fund can actually be detrimental as it will start shifting your balance whether you are ready to retire or not.

As always, investments must be carefully considered and monitored. Only you can determine whether placing a portion of your retirement income into a lifecycle fund is appropriate.

The concept of a ‘safe harbor’ is common in many environments. Whether in sailing or in investing, the basic idea is very much alike: a situation where one enjoys the benefit of additional protections.

When applied to financial matters a safe harbor may be interpreted as one of three states:

• When a company is targeted for potential takeover, it makes itself deliberately less attractive, thereby providing its own ‘safe harbor’ against attack.
• A way of accounting that generates a simpler method of determining the taxes assessed.
• A legal provision that will decrease or completely eliminate liability for as long as good faith is maintained.

Each of these harbors suit a specific goal.

The first makes the company so unattractive that it reduces any interest from potential acquirers. By presenting the firm as financially unstable a business may be able to avoid being taken over. Of course it is important not to actually fall into the trap of financial ruin.

The second allows some financial manipulation between firms owned by the same parent company. This may allow them to claim specific tax credits in a way that wasn’t possible before. As assets are moved around they may need to be leased back by the original ‘owner’ for a variety of other purposes.

The third is a protective measure for the management. The SEC allows companies to make financial projections, as long as they are made in good faith, that aren’t fulfilled. Since it is impossible to truly know the future, this limits liability when a projection is inaccurate and investors don’t earn what they expected.