bonds http://www.wisebread.com/taxonomy/term/4414/all en-US How to Make Sure You Don't Run Out of Money in Retirement http://www.wisebread.com/how-to-make-sure-you-dont-run-out-of-money-in-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-make-sure-you-dont-run-out-of-money-in-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/nest_made_of_american_currency_horizontal.jpg" alt="Nest Made of American Currency Horizontal" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>An annuity is a stream of fixed payments that's guaranteed, often for as long as you live. Having an annuity can make retirement more secure, but it's hard to recommend them as investment vehicles, because almost every annuity on the market is a terrible investment. They tend to be sold by salesmen, so they're often loaded with fees. And, because being upfront about the fees would make them hard to sell, these fees are obscure (often outright hidden) and are typically different for every product, making it especially hard to comparison shop. (See also: <a href="http://www.wisebread.com/dont-know-what-annuities-are-you-might-be-missing-out?ref=seealso" target="_blank">Should You Get an Annuity?</a>)</p> <p>But my experience these past few years &mdash; helping older relatives with their finances, and starting to take the little pension I earned as a software engineer &mdash; has given me a new perspective on annuities. Having an annuity is more than just nice: It's wonderful! It's just <em>buying</em> them that's usually terrible.</p> <p>Fortunately, there are a few that are worth buying. You don't hear about them often, because they don't siphon off a big chunk of your investment to pay a salesman, so salesmen don't push them.</p> <h2>Why annuities are great</h2> <p>It used to be that anyone with a good job retired with an annuity in the form of a pension. This is how I've gotten my recent experience with just how great it is to have an annuity: All my older relatives are now receiving pensions.</p> <h3>You never outlive your income</h3> <p>The main thing that's great about an annuity is that having one means you're never going to be broke. Even if you overspend and run down your savings, even if the stock market crashes or you make terrible investment decisions and your investment portfolio takes huge losses, you'll still get that monthly check for as long as you live.</p> <p>You don't <em>need</em> to have an annuity to arrange that &mdash; you can live off capital in a way that makes it last the rest of your life &mdash; but an annuity makes it much easier.</p> <h3>They can raise your income</h3> <p>The other thing that's great about an annuity is that it can, at least potentially, be more money to live on. See, the only safe way to live off capital is to just spend the income from your investments. But that's not much money (especially these days).</p> <p>If you knew how long you were going to live, you could spend down your capital so that you'd die with just enough money to pay off your last month's bills. But since you don't know how long you're going to live, you have to make a conservative estimate, holding back enough capital so that you won't go broke even if you live to 100. (Of course even that might not be enough. What if you live to 114?)</p> <p>The company that provides your annuity has a much easier job. They don't need to know whether you'll live to 97 or kick the bucket at 67. They count on the fact that the average person will live an average life span. They can arrange the terms of the annuities so that the payouts don't exhaust the total pool until the last person dies. The fact that some people die the month after their pension starts means that there's enough money to pay for the people who go on to live for decades.</p> <p>Offset against that is the fact that the company that's providing your annuity needs to make a profit, and it also needs to hold back a reserve against the possibility that it'll get unlucky and a bunch of their customers will live longer than average &mdash; but both of those factors are relatively small.</p> <h2>Annuitize, but how much?</h2> <p>If you accept the idea that you probably ought to have an annuity of some size, the next question is: How big should the annuity be?</p> <p>At one extreme, you could just annuitize all your money &mdash; take all your savings and investments (except your checking account and your emergency fund) and buy an annuity. Then you'd know what your income would be for the rest of your life and you could budget for it.</p> <p>I recommend against that. There are many reasons why it's <a href="http://www.wisebread.com/on-the-importance-of-having-capital" target="_blank">worth having some capital</a>. Your capital earns an investment return and it also provides a measure of safety as a backup to your emergency fund. It makes it possible to fund expenses beyond your bare-bones budget. Perhaps most important, having some capital saves you money in all kinds of different ways &mdash; because you have funds on hand, you can take advantage of deals, you can avoid high-interest borrowing, and you have money to put down a large security deposit in cases where that will save you money.</p> <p>At the other extreme, you could annuitize none of your money and just live off your capital. I've just explained the downsides to that.</p> <p>You want to be somewhere in the middle. With a modest annuity, you're protected from running your income down to zero, and yet you can preserve some amount of capital.</p> <p>My advice is this: You should annuitize <em>enough to cover your rock-bottom expenses</em>, the lowest amount you could live on indefinitely. That way, you're putting yourself in a position where you can be sure you can get by no matter what happens to your investments, while preserving enough of an investment portfolio to fund your other life goals &mdash; travel, making a major purchase, leaving an estate to your heirs, etc.</p> <p>Before you start shopping for annuities, be sure to take into account any annuities you already have. But unless you're old, and even then only if you had a pretty good job at a pretty big company for many years, you probably aren't going to have a great pension. (If you're only kind of old, and worked at a pretty big company for a few years before they all phased out their traditional pensions in the early 2000s, maybe there's a small pension waiting for you. If so, that's great. Even if it's not enough to live on, it's a very positive contribution to your retirement income.)</p> <p>However, most people reading this probably won't get a good pension.</p> <p>Fortunately, there is an annuity you very likely do have.</p> <h2>The annuity you already have</h2> <p>You almost certainly already have an annuity in the form of a national pension scheme, such as Social Security. The amount of Social Security you will get depends on your own employment history. For most people, it will provide a large fraction of the &quot;rock-bottom expenses&quot; I recommend you cover with an annuity, but you can generally expect there to be some gap.</p> <p>If you have an employer-sponsored pension, even a small one, it may well cover the gap. If you don't, I recommend that you cover it with an annuity that you buy.</p> <h2>How to buy an annuity</h2> <p>As I said at the beginning, most of the annuities you can buy are terrible investments, but there are good ones. It is possible to buy an individual annuity and get an OK deal. It's just hard because the companies that sell them make it virtually impossible to compare one annuity to another.</p> <p>This is especially true for the sorts of annuities that are most like a pension: The ones set up so you make a payment every month starting in your 30s or 40s, then get a check every month starting when you're 65.</p> <p>Those are called deferred annuities (because you defer getting your money until age 65), and they're always terrible. They always have what are called &quot;back-end&quot; fees &mdash; money that the salesman gets to keep when you figure out that you've made a terrible deal and want to get (some of) your money back. The rules on back-end fees are always different.</p> <p>To make it even harder, these sorts of annuities are usually bundled with some sort of life insurance (supposedly so that if you die before you retire your estate won't &quot;lose&quot; all the money paid into the annuity) &mdash; and of course the details of those insurance policies are always different as well.</p> <h3>Comparison shopping</h3> <p>It is possible to buy an annuity in a way that does allow you to compare them. Don't buy one with monthly payments. Instead, save and invest the money in the stock market yourself during your working years. Then, when you're ready to retire, buy what's called a &quot;single premium immediate annuity&quot; &mdash; you put up a big chunk of money today, and then start receiving monthly payments immediately that last for the rest of your life. (The monthly payments, of course, should equal the gap you identified between your Social Security and your rock-bottom budget.)</p> <p>That is something that's easy to compare: How much do you have to pay today for a stream of income that starts next month and lasts the rest of your life? You can get a few quotes and pick the best deal.</p> <p>These sorts of annuities usually don't have the life insurance policy that supposedly protects against your dying before you start taking payments, because the payments start immediately. That's good. Bundling in life insurance just makes it harder to compare prices. If you need life insurance, buy a life insurance policy separately.</p> <p>Be very careful of letting them include any sort of survivor benefit, because that can also make the annuities harder to compare (although as long as the rules are exactly the same, it is at least possible). One alternative, if you need a survivor benefit, is to buy a life insurance policy that will pay off enough for your spouse to buy his or her own annuity.</p> <p>As an aside, let me mention that the annuity salesmen among you are going to jump in and point out that you're giving up an important tax advantage if you only consider an immediate annuity. This is technically true, but in fact is pretty unimportant. Let me just say this: If you are maxing out your 401(k), <em>and</em> your IRA, <em>and</em> your Roth IRA, there is an opportunity to tax shelter a bit more money through an annuity contract. In practice, I'm willing to bet that the tax advantage will never equal the fees you're going to end up paying.</p> <p>If you do save your money in a 401(k) or IRA, there are tax rules for using that money to buy your annuity. Follow the rules and you won't owe any taxes when the money is used to buy the annuity. You will, however, pay taxes on the annuity payments when you receive them (just like you would if you'd taken distributions from the tax-deferred plan directly).</p> <h3>Where to buy</h3> <p>Pretty much any life insurance company will sell you an annuity, but I only know of two places to get a good one: Vanguard and TIAA-CREF. (There used to be a third, but Berkshire Hathaway got out of the business a few years ago.)</p> <p>The main problem with buying directly from an insurance company is just that their annuity sales operations are organized around their annuity salesmen, who will immediately start trying to sell you something that's more profitable (to them) than a single premium immediate annuity &mdash; that's the step you avoid by going through Vanguard or TIAA-CREF. (They also have enough buying power to get especially good rates, because they bring in large numbers of customers.)</p> <p>If you're sure you can bear up under the sales pressure, there's no reason not to get quotes directly from the insurance companies. (Just because I don't know of any other good places to buy one doesn't mean there aren't any.) Insurance companies that sell annuities will be very easy to find &mdash; just do an internet search for information about annuities and you'll get a dozen ads for them and for online tools to compare their offerings.</p> <p>You're handing over a large fraction of your wealth and counting on the insurance company to be around for the rest of your life, so you want to have considerable confidence in the financial soundness of the company you pick. I would not consider any company rated less than A by the insurance grading firm A.M. Best, and I'd be happier with one rated A+.</p> <h3>Buy when rates are high</h3> <p>To buy an annuity, you have to put up a pretty sizable chunk of cash. (Vanguard quotes the cost today to a 65-year-old male buying a single premium immediate annuity of $1,000 a month for the rest of his life as being $180,052.)</p> <p>Unless you're rich, the cost of an annuity that covers your rock-bottom expenses is going to be a large fraction of your entire retirement savings &mdash; which is OK, because it's going to be a large chunk of your entire retirement income.</p> <p>The insurance company that sells you your annuity is going to invest that sizable chunk of cash in a portfolio of stocks and (mostly) bonds, and then use the dividends from those stocks and (mostly) the interest payments from those bonds to pay your annuity. Because of this, an annuity is much cheaper when interest rates are high.</p> <p>If you bought an annuity right before the financial crisis, you made out very well. If you wanted to buy one in the past eight or nine years, you probably found that they were incredibly expensive. But in the current era of rising interest rates, annuities are becoming more affordable again.</p> <p>Still, if you're approaching retirement age, understand that there is no rush. Figure out your rock-bottom expenses &mdash; and then live with that budget as an experiment. Maybe you'll find that you'll need more than that in retirement. Maybe you'll actually need less. Do some comparison shopping. Take your time. Then, when you've got a pretty good handle on the expense of your retirement lifestyle, at a time when interest rates are up a bit and you're ready to quit working, go ahead and buy that annuity.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/how-to-make-sure-you-dont-run-out-of-money-in-retirement">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-save-for-retirement-when-you-are-unemployed">How to Save for Retirement When You Are Unemployed</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-safe-investments-that-arent-bonds">9 Safe Investments That Aren&#039;t Bonds</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-you-need-to-know-about-the-easiest-way-to-save-for-retirement">What You Need to Know About the Easiest Way to Save for Retirement</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-stocks-and-bonds-that-will-profit-from-the-fed-rate-hike">10 Stocks and Bonds That Will Profit From the Fed Rate Hike</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement annuities benefits bonds fees interest rates investment vehicles life insurance pensions stocks Fri, 26 May 2017 08:30:09 +0000 Philip Brewer 1953940 at http://www.wisebread.com Start Planning Now for When Your Target-Date Fund Ends http://www.wisebread.com/start-planning-now-for-when-your-target-date-fund-ends <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/start-planning-now-for-when-your-target-date-fund-ends" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-174631043.jpg" alt="Start planning now for when your target date fund ends" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>There's a reason why so many people invest their retirement savings in target-date mutual funds offered within their 401(k). These funds are designed to be simple: Your money is automatically invested in a mix of stocks, bonds, and other asset types based on your age and the year you plan to retire.</p> <p>As you get closer to your target date (the year you expect to hit retirement), the managers of your target-date fund gradually ramp down your risk &mdash; moving more of your dollars away from high-risk, growth-oriented investments like stocks, and focusing instead on safer, more conservative investments like bonds or cash. This &quot;set it and forget it&quot; approach allows you to easily stash money away for retirement without constantly rebalancing the fund yourself.</p> <p>The goal is to have the right asset mix when your target-date fund hits its target. But this leads to the big question: What do you do when your target-date fund finally does reach this endpoint?</p> <h2>Reaching the target date</h2> <p>According to the Investment Company Institute, the target date isn't a date when investors should automatically cash out their entire target-date fund. It's simply an estimate of when investors will retire, and therefore stop making new investments in the fund. Most target-date funds can be kept open beyond the target date.</p> <p>What happens when the fund reaches that target date depends on whether the fund is guided by one of two basic investing approaches.</p> <p>If a target-date fund has what is known as a &quot;to&quot; glide path, the fund manager will stop adjusting the fund's asset mix once it hits the target date. In this scenario, your investment mix will remain in place until you cash out the fund.</p> <p>There's also the &quot;through&quot; glide path. In this approach, the fund manager will continue to adjust the fund's mix of investments even as the target date comes and goes.</p> <p>It's important to remember that target-date funds offer no guarantees. Your fund manager will rework your asset mix as your target date approaches to minimize your investment risk. But no manager can guarantee any set amount of dollars by this date.</p> <h2>What can you do when your target date arrives?</h2> <p>When your target-date fund hits its target date, you have three basic choices of what to do with your money.</p> <h3>1. Do nothing</h3> <p>First, you can essentially choose to do nothing. You can instead leave your money in your target-date fund after you retire. You won't be able to make new contributions to the fund, of course, but as with all 401(k) investments, your target-date fund will continue to grow on a tax-deferred basis. This will remain the case until you begin making withdrawals from the fund. You are required to begin taking your minimum withdrawals from your 401(k) by age 70 &frac12; at the latest.</p> <h3>2. Roll over funds into an IRA</h3> <p>If you want to be more hands-on with your investments, you can instead roll over the target-date fund, and any other investments in your 401(k), into an IRA. If you roll the money into a traditional IRA, you can continue to make contributions until you hit the year in which you turn 70 &frac12;. If you roll your 401(k) funds into a Roth IRA, you can continue making contributions as long as you are earning income. If you are not working, though, and not earning income, you can't contribute to a Roth no matter your age.</p> <h3>3. Cash out your fund</h3> <p>Finally, you can cash out your 401(k) (and the target-date fund within it) once you stop working for the employer who offered it to you. If you rollover your 401(k) into an IRA, you won't have to pay taxes. But if you cash out, you will owe income tax on the amount you withdraw from the plan. If you cash out before you turn 59 &frac12;, you'll have to pay income taxes and a 10 percent penalty.</p> <p>The best option of the three depends on how much time you want to spend focusing on your investments. If you prefer to let others manage your investment, the &quot;do-nothing&quot; approach might be your best move. If you'd rather have more control, on the other hand, rolling over your target-date fund into an IRA is probably the better choice.</p> <p>If you need liquid cash immediately, cashing out your fund might be necessary &mdash; but the tax hit you'll take often makes this the least attractive option.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/start-planning-now-for-when-your-target-date-fund-ends">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-you-need-to-know-about-the-easiest-way-to-save-for-retirement">What You Need to Know About the Easiest Way to Save for Retirement</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-save-for-retirement-when-you-are-unemployed">How to Save for Retirement When You Are Unemployed</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in Retirement</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-most-important-thing-youre-probably-not-doing-with-your-portfolio">The Most Important Thing You&#039;re Probably Not Doing With Your Portfolio</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement assets bonds investments mutual funds rebalancing rollover stocks target date funds Fri, 12 May 2017 08:30:12 +0000 Dan Rafter 1942910 at http://www.wisebread.com What You Need to Know About the Easiest Way to Save for Retirement http://www.wisebread.com/what-you-need-to-know-about-the-easiest-way-to-save-for-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/what-you-need-to-know-about-the-easiest-way-to-save-for-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-649699796.jpg" alt="Learning about the easiest way to save for retirement" title="" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>If you have a 401(k), chances are you've been given the option to invest in a &quot;target-date&quot; fund. This is a balanced mutual fund that gradually changes its investment mix depending on how close you are to retirement. It's designed to hold a higher percentage of riskier, growth-oriented investments like stocks when you're young, and increase the proportion of more conservative investments, such as cash and bonds, as you age.</p> <p>Many brokerage firms offer target-date funds, which come with names like Fidelity Freedom 2050 or Lifepath Index 2045. The idea is to pick one associated with the year you expect to retire.</p> <p>There are advantages to these funds, especially for those who don't want to spend a lot of time managing their investments. But there are some drawbacks, too.</p> <h2>Pros</h2> <p>Let's start with the upsides.</p> <h3>1. They automatically rebalance</h3> <p>Target-date funds are designed to build wealth while you're working, and protect it as you approach retirement. They accomplish this by gradually and automatically changing the investment mix over time, which is referred to as rebalancing. Because it's not particularly easy for the average investor to make these kinds of changes on their own, a target-date fund offers the convenience of &quot;set it and forget it,&quot; saving you time and extra work.</p> <h3>2. They are easy to select</h3> <p>Picking which mutual fund is right for you is tricky, because there are often so many choices. There are funds for specific industries, funds for growth, and others for income &mdash; it can be overwhelming. When choosing which target-date fund is right for you, though, all you need to do is pick one that lines up best with the year you expect to retire. So if you are now 30 years old and plan to retire at age 63, you would pick a fund labeled with the year 2050.</p> <h3>3. They offer diversification</h3> <p>Most target-date funds are essentially &quot;funds of funds.&quot; In other words, they are comprised of a mix of mutual funds, which are already made up of a blend of stocks and bonds. Thus, investors are hardly at risk of placing too much of their money in any single investment.</p> <h2>Cons</h2> <p>All that convenience comes at a price.</p> <h3>4. They have high fees</h3> <p>If you invest in target-date funds, you can expect that fund managers and brokerage firms will take a bigger chunk of your money than they would for basic index funds. The Wall Street Journal reported last year that the average expense ratio on more than 2,200 target-date funds was more than 0.9 percent. Meanwhile, there are many basic index funds that have ratios of less than 0.1 percent.</p> <p>An expense ratio measures what it costs an investment company to run a mutual fund, and is calculated by the fund's annual operating expenses divided by the average dollar value of its assets under management. Those operating expenses are taken out of the fund's assets and lower the return for investors. Over time, a higher expense ratio could impact your overall investment balance by thousands of dollars.</p> <h3>5. They aren't one-size fits all</h3> <p>Not everyone generates the same amount of income during their lifetime, and expenses in retirement can vary wildly. Thus, the right mix of bonds, stocks, and other investments will differ depending on the investor. Target-date funds don't take this into account. One investor may be able to retire comfortably with a portfolio of bonds and cash, while another might need more growth stocks to meet their retirement goals.</p> <h3>6. Funds with similar names may actually be quite different</h3> <p>There are thousands of target-date funds out there. Many of them have very similar names and similar goals, but differ in their investment mix. For example, the Fidelity Freedom 2035 fund is currently comprised of 64 percent U.S. stocks, 31 percent international stocks, and 5 percent bonds. The Vanguard Target Retirement 2035 fund, however, is 48 percent U.S. stocks, 32 percent international stocks, and about 20 percent bonds. Thus, the performance and risk of these funds may vary even if their names and goals are very similar.</p> <h3>7. They may not be aggressive enough for some older people</h3> <p>On one hand, you probably don't want to be investing in all stocks when you are approaching retirement age. But if you become too conservative, you might miss out on big returns. There are some financial advisers who argue that it's OK to stay aggressive in retirement as long as you have enough saved to endure a possible downturn. In fact, one 2013 study argued in favor of a <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2324930" target="_blank">counterintuitive approach to retirement saving</a> &mdash; more conservative investing when you're young, and more aggressive investing as you get closer to retirement.</p> <p>If you think you want a more aggressive fund than the target date that corresponds with your projected retirement age, you can always choose one with a later target date. For instance, if you're planning on retiring in 15 years, but want a fund that's more aggressive now, you might choose a 2040 or 2050 target date fund.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/what-you-need-to-know-about-the-easiest-way-to-save-for-retirement">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-save-for-retirement-when-you-are-unemployed">How to Save for Retirement When You Are Unemployed</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in Retirement</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/your-401-k-is-not-an-investment">Your 401(k) is not an investment</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/start-planning-now-for-when-your-target-date-fund-ends">Start Planning Now for When Your Target-Date Fund Ends</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement 401(k) aggressive bonds conservative risks stocks target date funds Tue, 09 May 2017 08:30:14 +0000 Tim Lemke 1940329 at http://www.wisebread.com How One Mediocre Investor Prospered After the Market Crash http://www.wisebread.com/how-one-mediocre-investor-prospered-after-the-market-crash <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-one-mediocre-investor-prospered-after-the-market-crash" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-516182744.jpg" alt="Learning how a mediocre investor prospered after the market crash" title="" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>The <a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know" target="_blank">mediocre financial advice</a> I've offered in my last few posts boils down to this: Use low-cost funds, establish an appropriate asset allocation, and rebalance it annually.</p> <p>It's not new advice. My own portfolio was strongly influenced by it back in the early 1980s. By the 1990s, it was pretty much the standard advice you would get anywhere. Many studies at the time showed that a very simple portfolio &mdash; just an S&amp;P 500 index fund, plus a long-term bond fund &mdash; tended to outperform managed funds, especially after the costs of the managed funds were taken into account.</p> <p>I haven't seen as many studies in the years since the financial crisis, so I thought I'd take a quick look at how this sort of basic asset allocation held up in the aftermath.</p> <p>Most people date the financial crisis from 2008, but I tend to date it from June of 2007, because that's when I found out that I'd be losing my job. For that reason, the graphs below run from then through the latest data available as of March 29, 2017.</p> <p>As it turns out, a <a href="http://www.wisebread.com/the-surprising-truth-of-investing-mediocre-advice-is-best" target="_blank">mediocre portfolio</a> held up pretty well.</p> <h2>Criteria for success</h2> <p>To decide whether a particular style of investing is a success, it helps to know what your goals are. Most people would include &quot;maximum return&quot; as at least part of their goal, but instead, I suggest that your portfolio provide an investment return that supports your specific life needs.</p> <p>A portfolio that comfortably beats inflation is part of that. It's also a plus if the portfolio doesn't swing wildly in value &mdash; in case your circumstances require you to cash out a significant amount on an emergency basis. It's nice, too, if the portfolio provides a mix of income and growth, so that if changes in what's in fashion among investors push one category of stocks up or down, the overall value of your portfolio doesn't take too big of a hit. (Personally I've always had a sneaking preference for income, even though tax policy has often favored growth.)</p> <p>With those criteria in mind, let's look at how some of the pieces of a mediocre portfolio have done.</p> <h2>Pieces of a mediocre portfolio</h2> <p>The most basic mediocre portfolio is just an S&amp;P 500 index fund and a long-term bond fund, with the ratio between those two gradually shifting from mostly stocks (for a young person) toward mostly bonds (for someone who has already retired).</p> <h3>Stock market investments</h3> <p>The value of an S&amp;P 500 index fund dropped dramatically during the crisis itself, but it hit bottom well before the end of the recession, recovered all of its losses by 2013, and is now about 50 percent above where it started &mdash; meaning that on stock price alone, you've got an annual return of well over 4 percent. With dividends reinvested, your annual return comes to nearly 7 percent (take a look at the 10-year average annual return of your favorite S&amp;P 500 index fund).</p> <p><iframe src="//fred.stlouisfed.org/graph/graph-landing.php?g=dyOc&amp;width=605&amp;height=340" scrolling="no" frameborder="0" style="overflow:hidden; width:670px; height:525px;" allowtransparency="true"></iframe></p> <p>(Source: <a href="https://fred.stlouisfed.org/graph/?g=dbdN" target="_blank">St. Louis Federal Reserve</a>)</p> <h3>Bond market investments</h3> <p>There isn't an exact bond-market equivalent for the S&amp;P 500 index fund, so it's a little hard to say how your investments would have done during the crisis and since. (I poked around at a few major mutual fund companies and found average annual total returns on various long-term bond funds for the past 10 years ranging from 3.6 percent to 6.1 percent, depending on the fund.)</p> <p>The return on a bond fund depends on interest rates. If you buy a bond that pays X percent and rates go up, your old bond is worth less (because otherwise people will just buy the new bond that pays more). Conversely, if rates go down, your old bond is worth more.</p> <p>With that in mind, here's a graph of the interest rate paid on a U.S. government 10-year treasury bond:</p> <p><iframe src="//fred.stlouisfed.org/graph/graph-landing.php?g=dyOf&amp;width=605&amp;height=340" scrolling="no" frameborder="0" style="overflow:hidden; width:670px; height:525px;" allowtransparency="true"></iframe></p> <p>(Source: <a href="https://fred.stlouisfed.org/graph/?g=dbfK" target="_blank">St. Louis Federal Reserve</a>.)</p> <p>Long-term interest rates dropped steadily before and during the recession. They rebounded modestly as the recession wound down, but then plummeted as it became clear that the economy needed, and would continue to need, extraordinary support from the Federal Reserve. Even now, long-term rates are about half what they were before the crisis began.</p> <p>The upshot is that the value of bonds purchased before the crisis would have soared during the crisis. Bonds purchased during the crisis would also have gone up. Bonds purchased in the aftermath might be up or might be down, depending on exactly when they were bought.</p> <h2>Rebalancing</h2> <p>If you'd just had a portfolio of stocks or bonds, you'd have done ok. Your stocks would have gone down a lot, but they'd have eventually recovered. Your bonds would have gone up a lot, and would have since eased off. But the mediocre asset allocation is more than that. The essence of a mediocre asset allocation is annual rebalancing.</p> <p>At the end of 2007, and again at the end of 2008, you would have sold some of your bonds &mdash; which would have jumped a great deal as interest rates fell ahead of and during the recession &mdash; and shifted that money into depressed stocks to restore your asset allocation.</p> <p>New stocks purchased on the last day of 2008 would have been bought with the S&amp;P 500 at 891 (down from close to 1,500 when you started). At the recent price of 2,359, those shares are up 165 percent. At the same time, you would have harvested much of the gains in your bond portfolio.</p> <p>Really, the rebalancing is where the magic is.</p> <h2>Success</h2> <p>As I mentioned at the beginning, the criteria I'm using as indicators of success are return, stability, and providing a mix of income and growth.</p> <p>The mediocre portfolio did a fine job of providing a return &mdash; especially if you rebalanced annually, thereby automatically buying stocks when they were at their lows.</p> <p>Stability is always a problematic goal, because it's almost the opposite of growth &mdash; the most stable portfolio would be one invested 100 percent in cash, which would show no growth at all. The point here, just as it is with return, is not maximum stability, but rather a degree of stability that supports your life goals. Here again, the mediocre portfolio did fine, especially for older people with a larger bond portfolio, which is where it is most important.</p> <p>Finally, the mediocre portfolio did a fine job at balancing income with growth. An S&amp;P 500 index fund has produced a pretty good yield, especially compared to cash and bonds during this period of historic lows in interest rates. Annual rebalancing will have automatically shifted money out of bonds as interest rates fell (reducing the fraction of the portfolio invested where income is low) and future rebalancing will be shifting money back into bonds as interest rates rise.</p> <p>I would hesitate to call its performance better than mediocre, but that's really the point: A mediocre investment portfolio, providing mediocre performance, is all it takes to support your life goals.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/how-one-mediocre-investor-prospered-after-the-market-crash">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-does-the-stock-market-keep-going-up">Why Does the Stock Market Keep Going Up?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/heres-how-rate-of-return-can-help-you-invest-smarter">Here&#039;s How Rate of Return Can Help You Invest Smarter</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-crucial-things-you-should-know-about-bonds">5 Crucial Things You Should Know About Bonds</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-you-choosing-the-right-fund-for-your-portfolio">Are You Choosing the Right Fund for Your Portfolio?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment asset allocation bonds financial crisis low-cost funds mediocre investments performance s&p 500 stock market Tue, 02 May 2017 08:30:11 +0000 Philip Brewer 1938294 at http://www.wisebread.com Want Your Investments to Do Better? Stop Watching the News http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/want-your-investments-to-do-better-stop-watching-the-news" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-510572840.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you pay close attention to investment news, it'll either make you laugh or it'll drive you bonkers. Within the same hour, and on the same market news website, you will often see completely contradictory articles. One says the market is headed higher; the next says the market is about to tank.</p> <p>What's a smart investor to do? Be very careful about your information diet.</p> <h2>More Information, Less Success</h2> <p>In the late 1980s, former Harvard psychologist Paul Andreassen conducted an experiment to see how the quantity of market information impacted investor behavior.</p> <p>He divided a group of mock investors into two segments &mdash; investors in companies with stable stock prices, and investors in companies with volatile stock prices. Then he further divided those investors. Half of each group received constant news updates about the companies they invested in, and half received no news.</p> <p>Those who received no news generated better portfolio returns than those who received frequent updates. The implication? The more closely you monitor news about your investments, the more likely you are to make changes to your portfolio &mdash; usually to your detriment.</p> <p>In another study, renowned human behavior researchers Daniel Kahneman, Amos Tversky, Richard Thaler, and Alan Schwartz <a href="http://faculty.chicagobooth.edu/richard.thaler/research/pdf/The%20Effect%20of%20Myopia%20and%20Loss%20Aversion%20on%20Risk%20Taking%20An%20Experimental%20Test.pdf" target="_blank">compared the stock/bond allocations</a> of investors who checked on their investments at least once a month against those who did so just once a year. Those who took in the <em>least</em> information about their portfolios made fewer investment trades and generated higher returns.</p> <h2>When Helping Hurts</h2> <p>One factor at work here is &quot;loss aversion.&quot; First quantified by Kahneman and Tversky, it's the idea that people feel the pain of loss more acutely than the pleasure of gain. The frequent monitoring of investment portfolios brings every downward market move to the attention of investors, who tend to react by moving money into less risky assets (bonds instead of stocks), thereby locking in their losses. (See also: <a href="http://www.wisebread.com/how-to-trick-yourself-into-better-credit-card-behavior?ref=seealso" target="_blank">How to Trick Yourself Into Better Credit Card Behavior</a>)</p> <h2>Misinformation Is Not Power</h2> <p>Another factor has to do with the tales told in the investment press. Each day's market performance is reported &mdash; what happened, and <em>why. </em>The first part is factual. The market either went up or down and by a certain amount. The second part is mostly opinion. No one can say with certainty exactly what moved the market. Was it fear over the growth rate of China's economy, a contraction in the oil supply, or that XYZ company missed its quarterly earnings projection by a penny? No one really knows. But that doesn't stop the explanations from flowing across the pages of investment news sites.</p> <p>Late December and early January are especially dangerous times to read market news. That's when market forecasters spin their yarns, undaunted by their previous year's miss or economist John Kenneth Galbraith's scolding that &quot;The only function of economic forecasting is to make astrology look respectable.&quot;</p> <p>We pay attention to such forecasts &mdash; and even worse, we change our portfolios because of such forecasts &mdash; at our peril.</p> <h2>Selective Listening</h2> <p>You can't control the stock market or what is said about it, but there are certain factors you <em>can</em> and <em>should</em> control, such as:</p> <ul> <li>Estimate how much you need to invest each month in order to accomplish your goals;</li> <li>Determine your <a href="http://www.wisebread.com/the-basics-of-asset-allocation?ref=internal" target="_blank">optimal asset allocation</a>;</li> <li>Choose a trustworthy <a href="http://www.wisebread.com/5-essentials-for-building-a-profitable-portfolio?ref=internal" target="_blank">investment selection process</a>;</li> <li>Add to your portfolio regularly;</li> <li>Expect market turbulence;</li> <li>Be very, very careful about what investment news you take in and how much;</li> <li>Keep moving forward.</li> </ul> <p>Of the many factors involved in successful investing, selective listening may be the most important.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/your-loss-aversion-is-costing-you-more-than-your-fomo">Your Loss Aversion Is Costing You More Than Your FOMO</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-dollar-cost-averaging-the-right-strategy-for-you">Is Dollar Cost Averaging the Right Strategy for You?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-too-much-investment-diversity-can-cost-you">How Too Much Investment Diversity Can Cost You</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/learn-how-to-invest-with-these-5-stock-market-games">Learn How to Invest With These 5 Stock Market Games</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment bonds loss aversion misinformation news psychology reactions returns risk stock market Mon, 13 Mar 2017 11:00:09 +0000 Matt Bell 1904508 at http://www.wisebread.com The 3 Rules Every Mediocre Investor Must Know http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-3-rules-every-mediocre-investor-must-know" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-508414008.jpg" alt="Learning three rules evert mediocre investor must know" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Mediocre financial advice can earn you mediocre investment returns &mdash; and mediocre investment returns are all you need to save for a house, send your kids to college, and fund your (potentially early) retirement. <a href="http://www.wisebread.com/why-you-should-take-investment-advice-from-a-mediocre-investor" target="_blank">Mediocre investment advice</a> is pretty straightforward. In fact, the only thing that's complicated about getting mediocre financial results is the stuff that comes before investing: Things like earning money, keeping your debt in check, finding a career, living frugally, and most crucially, building an adequate <a href="http://www.wisebread.com/a-step-by-step-guide-to-creating-your-emergency-fund" target="_blank">emergency fund</a>.</p> <p>Once you've got those things taken care of, you're ready to start investing. If you're at that point, here's my mediocre investment advice: Create a diversified portfolio of low-cost investments and rebalance it annually.</p> <h2>Diversified Portfolio</h2> <p>It's important to have diversity at several levels. Eventually you'll want diversity in investment types &mdash; not just stocks, but also bonds, real estate, precious metals, foreign currency, cash, etc. More importantly, you want finer-grained diversity especially in the earlier stages of building your portfolio. Don't let your portfolio get concentrated in just one or a few companies. (For what it's worth, don't let it get concentrated in the stock of your employer, either. That sets you up for a catastrophe, because if your employer runs into trouble, the value of your portfolio can crash at the same time your job is at risk.)</p> <p>In the medium term &mdash; after you've got a well-diversified stock selection, but before it's time to branch out into more exotic investments &mdash; you'll want to expand the diversity of types of companies. Not just big companies, but also medium-sized and small companies. Not just U.S. companies, but also foreign companies. Not just tech companies, but also industrial companies and financial companies, and so on.</p> <p>Diversity wins two ways. First, it's safer: As long as all your money isn't in just one thing, it doesn't matter so much whether it's a good year or a bad year for that thing. Second, it produces higher returns: No one can know which investment will be best, but a diversified portfolio probably has at least <em>some </em>money invested in <em>some </em>investments that will do especially well. (Of course retrospectively, there will have been one investment that does best, and risking having all your money in that would have produced the highest possible return &mdash; but that's exactly what a mediocre investor knows better than to attempt.)</p> <p>Of course, you don't want a random selection of investments, even if such a thing might be quite diverse. You want a reasonably balanced portfolio &mdash; something I'll talk about at the end of this post.</p> <h2>Low-Cost Investments</h2> <p>The less money you pay in fees and commissions, the more money you have invested in earning a return.</p> <p>Getting this right is so much easier now than it was when I started investing! In those days, you could scarcely avoid losing several percent of your money right off the top to commissions, and then lose another percent or two annually to fees. Now it's easy to make a stock trade for less than $10 in commissions, and it's easy to find mutual funds and exchange-traded funds that charge fees of only a fraction of 1%.</p> <p>Still, it's easy to screw this up. Any investment that's advertised is paying its advertising budget somehow &mdash; probably with fees from investors. Any investment that's sold by agents or brokers is paying those agents or brokers somehow &mdash; probably with commissions or fees from investors.</p> <p>All those costs come straight out of your return. Keep them to a minimum.</p> <h2>Rebalance Annually</h2> <p>Your diversified portfolio will immediately start getting less diversified: Your winning investments will become a larger fraction of your portfolio while your losers will become a smaller fraction. In the short term, that's great. Who doesn't want a portfolio loaded with winners? Pretty soon though, you start losing the advantages of diversification. Last year's winners will inevitably become losers eventually, and you don't want that to happen after they've become a huge share of your portfolio.</p> <p>The solution is to restore the original diversity. Sell some of the winners, and use the resulting cash to buy some more of the losers. It's the easiest possible way to buy low and sell high. (Maybe you don't want to buy exactly the losers &mdash; not if their poor performance leads you think there's something really wrong with them. But buy something kind of like them. Health care companies probably belong in your portfolio, even if many of them did badly this year.)</p> <p>There are costs to rebalancing &mdash; costs in time and effort (figuring out what to sell and what to buy), and actual costs in commissions and fees. Because of that, you probably wouldn't want to rebalance constantly. You could make a case for monthly or quarterly rebalancing, but even that seems like a lot of effort for a small portfolio. Annually seems to hit the sweet spot.</p> <h2>What Goes Into a Diversified Portfolio?</h2> <p>What I'm going to suggest is that you start with a balanced portfolio of stocks and bonds.</p> <p>It's not that there aren't plenty of other worthy investment options &mdash; cash, gold, silver, real estate, foreign currencies, etc. &mdash; it's just that they all have complications of one sort or another, and you can get started on earning your mediocre returns without them.</p> <p>My mediocre investment advice then is that your portfolio should be a balance of stocks (for maximum growth) and bonds (for income and stability).</p> <h3>Finding the Right Balance Comes Down to Age &mdash; Yours</h3> <p>What's the right balance? An old rule of thumb was that 100 minus your age would be a good target percentage for the stock portion of your portfolio. At the start of your career, you'd have nearly 80% of your investments in stocks, and that fraction would gradually decline to about 35% as you approached retirement. The theory was that a young person can afford to take big risks, because he or she has time to wait for an eventual market rebound (and because during the early phase of building up a portfolio, even a large percentage loss is a small dollar amount). This makes a certain amount of sense. In fact, you could argue that a stock market that collapsed and then stayed down just when you started investing would be great &mdash; it would give you decades to buy stocks cheap.</p> <p>That rule of thumb isn't bad, although with people living longer these days, it probably makes sense to keep a higher portion of stocks in your portfolio during the last years before and first years after retirement. Once you hit 50, maybe only cut your stock portfolio by 1% every two years.</p> <p>When you're just getting started, feel free to keep it very simple. Perhaps just start putting money into a broad-based stock fund (such as an S&amp;P 500 index fund). You can add a bond fund right away if you want, or wait until your annual rebalancing.</p> <p>There are mutual funds that will manage this balance for you, holding stocks and bonds with a balance that shifts over time to some target date, at which point they'll hold a portfolio suitable for someone who has retired. You don't need them. In particular, they tend to have higher expenses, violating the &quot;low cost&quot; principle. You can do it easily enough for yourself. (Of course if you find that you don't do your annual rebalancing, then maybe paying a fund to do it for you is worth the expense.)</p> <p>As an alternative to mutual funds, you can use exchange traded funds or ETFs. It doesn't matter.</p> <p>Once your portfolio of stocks is large, you probably want to move beyond a single fund. Look at the other low-cost funds offered by the same fund family that provides your S&amp;P 500 index fund. Consider adding a fund that includes foreign stocks (especially if the dollar seems strong at the time you'll be buying). Consider adding a fund that includes dividend-paying stocks (especially if interest rates are low relative to dividends).</p> <p>Follow these mediocre tips, and you'll be racking up mediocre returns in no time! And remember &mdash; mediocre returns are all you need to live well and retire well.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-you-choosing-the-right-fund-for-your-portfolio">Are You Choosing the Right Fund for Your Portfolio?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/11-investing-tips-you-wish-you-could-tell-your-younger-self">11 Investing Tips You Wish You Could Tell Your Younger Self</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-build-an-investment-portfolio-for-under-5000">How to Build an Investment Portfolio for Under $5000</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/11-investment-mistakes-we-all-make">11 Investment Mistakes We All Make</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-warren-buffett-says-you-should-invest-in-index-funds">Why Warren Buffett Says You Should Invest in Index Funds</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment advice balancing bonds diversification ETFs mediocre investments mutual funds portfolio returns stock market stocks Mon, 27 Feb 2017 10:30:46 +0000 Philip Brewer 1896815 at http://www.wisebread.com Your 401K in 2017: Here's What's New for You http://www.wisebread.com/your-401k-in-2017-heres-whats-new-for-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/your-401k-in-2017-heres-whats-new-for-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-502449548.jpg" alt="Learning what&#039;s new for your 401K in 2017" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>There aren't many 401K rule changes to keep up with this year, but that doesn't mean you can't bring about some of your own positive changes to your retirement savings. Let's take a look at what you need to know to make the most of your 401K in 2017.</p> <h2>No Changes in the Contribution Limits</h2> <p>The amount the IRS allows you to contribute to a 401K plan this year remains as it was last year &mdash; $18,000 if you're younger than 50, or $24,000 if you're older. However, the Feds did make two changes to the retirement savings landscape, which pertain to people on either end of the income spectrum.</p> <h3>1. More May Qualify for the Saver's Credit<strong> </strong></h3> <p>Low and middle-income earners should be aware of the <a href="https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit" target="_blank">Saver's Credit</a>, a tax benefit that rewards those who save for their later years through a 401K or IRA. Depending on your income and filing status, the credit is worth 10%, 20%, or 50% of up to $2,000 of contributions per person (for married couples, that means up to $4,000 of contributions).</p> <p>Married couples filing joint returns can claim at least a 10% credit as long as their adjusted gross income (AGI) is no more than $62,000. That maximum income amount is $500 more than in 2016, so more households should qualify. However, the most generous 50% credit is allowed only for those couples making no more than $37,000 &mdash; the same threshold as in 2016.</p> <p>The credit/income limits for married couples filing jointly are:</p> <ul> <li>50% if AGI is $37,000 or less</li> <li>20% if AGI is $37,001&ndash;$40,000</li> <li>10% if AGI is $40,001&ndash;$62,000</li> </ul> <p>For singles, or married couples filing separate returns, the maximum amount you can earn and still qualify for a credit is $31,000, which is $250 higher than in 2016. In order to qualify for the maximum 50% credit, your income has to be no higher than $18,500.</p> <p>Here are the details:</p> <ul> <li>50% if AGI is $18,500 or less</li> <li>20% if AGI is $18,501&ndash;$20,000</li> <li>10% if AGI is $20,001&ndash;$31,000</li> </ul> <p>Keep in mind, a tax credit is much more valuable than a tax deduction because it is a dollar for dollar reduction of taxes.</p> <h2>2. Higher-Income Earners May Get More</h2> <p>On the other end of the income spectrum, the IRS expanded the contribution parameters pertaining to the retirement plans of well-paid workers. For example, contributions &mdash; by the employee and/or his or her employer &mdash; are limited by how much an employee is paid in total. In 2017, the amount of compensation on which contribution amounts can be based was increased by $5,000 to $270,000, and the maximum total contribution amount was bumped up by $1,000 to $54,000.</p> <h2>What Changes Will You Make?</h2> <p>Even if the two changes noted above don't pertain to you, that doesn't mean you need to &mdash; or should &mdash; stay the course with your retirement savings. The start of a new year is a good time to re-evaluate your goals and see if you're on track.</p> <p>Here are two areas to review.</p> <h3>1. How Much You Need<strong> </strong></h3> <p>Do you know how much you should have saved by the time you retire? Do you know how much that means you should be saving each month right now? If not, take a few minutes to run some numbers. If you're not saving enough, consider increasing your contributions.</p> <h3>2. How You Should Allocate</h3> <p>Do you know your optimal asset allocation? That pertains to how much of your investment portfolio should be in stocks, and how much in bonds (or stock and bond mutual funds). Vanguard offers a well-designed, free <a href="https://personal.vanguard.com/us/FundsInvQuestionnaire" target="_blank">asset allocation questionnaire</a>, so give it a try. Then try to bring your portfolio more in line with your optimal asset allocation.</p> <p>While tax credits and employer contributions are significant benefits, the most important factors that determine your investing success are the amount of money you save each month, and whether your asset allocation is appropriate for someone of your age and risk tolerance. Take the time to evaluate your individual retirement savings scenario, and see how you can make it even better for 2017.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/your-401k-in-2017-heres-whats-new-for-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-crucial-things-you-should-know-about-bonds">5 Crucial Things You Should Know About Bonds</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in Retirement</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-important-things-to-know-about-your-401k-and-ira-in-2016">5 Important Things to Know About Your 401K and IRA in 2016</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-tell-if-your-401k-is-a-good-or-a-bad-one">How to Tell if Your 401K Is a Good or a Bad One</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/a-simple-guide-to-rolling-over-all-of-your-401ks-and-iras">A Simple Guide to Rolling Over All of Your 401Ks and IRAs</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401k Adjusted Gross Income asset allocation bonds changes contribution limits employers investing saver's credit stocks Mon, 20 Feb 2017 10:00:11 +0000 Matt Bell 1892607 at http://www.wisebread.com Is There Such a Thing as a "Safe" Investment? http://www.wisebread.com/is-there-such-a-thing-as-a-safe-investment <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/is-there-such-a-thing-as-a-safe-investment" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_umbrella_coins_516182744_0.jpg" alt="Man learning if there&#039;s such a thing as a safe investment" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Safety. We all look for it in our investments, while also seeking out the highest return. As we get older, safety becomes more important as we get closer to retirement age.</p> <p>Is there such a thing as a truly &quot;safe&quot; investment? The short answer is that no investment is 100% safe. But there are certainly some investments that are better than others at protecting your hard-earned savings.</p> <p>Let's examine some of the most common &quot;safe&quot; investments and learn how good they actually are at shielding you from financial losses.</p> <h2>1. Cash</h2> <p>You may not be able to stomach the ups and downs of the stock market, and don't want your money tied up in bonds or other fixed-income investments. So you just hold on to large quantities of cash in a basic savings account, a money market account, or certificates of deposit.</p> <h3>Why It's Safe</h3> <p>Cash won't dive in value if the stock market crashes. You can get a predictable return from interest by keeping it in a bank account. And you can access it any time you need it.</p> <h3>Why It's Not</h3> <p>If you have a lot of cash, you can actually <em>lose </em>money in the long-term if there is inflation. But most importantly, putting too much of your investment portfolio in cash will make it hard for you to accumulate the kind of wealth you'll need for a comfortable retirement. Cash is also easy to access, which means it's too easy for you to spend.</p> <h2>2. Dividend Stocks</h2> <p>Dividend stocks are generally issued by companies that don't usually see a lot of volatility, but will pay out a healthy percentage of their income back to shareholders. Dividend stocks are often used by older investors or anyone looking to boost income without a lot of risk.</p> <h3>Why It's Safe</h3> <p>Good dividend stocks will pay out a consistent amount to shareholders each quarter, and it's usually a better return than bonds. By nature, dividend stocks won't go way up and down in price like other stocks, so they aren't as vulnerable to big market downturns.</p> <h3>Why It's Not</h3> <p>They are still stocks, and any stock is potentially vulnerable to market swings. Even dividend stocks will lose value in a down market, so it's still possible to lose money. On the flip side, dividend stocks won't rise in value like other investments when the market goes up. Moreover, dividends are never guaranteed; a company can cut its dividend at any time if its revenues drop.</p> <h2>3. Treasury Inflation-Protected Securities (TIPS)</h2> <p>TIPS are popular investments because they allow you to invest in bonds while seeing the value of the investment rise along with the rate of inflation. They are a common part of many retirement portfolios and can be helpful in diversifying holdings.</p> <h3>Why It's Safe</h3> <p>Investing in U.S. treasuries is about as safe a bet as you can get, as the U.S. government has always paid its obligations. And TIPS have the added benefit of rising in value along with consumer prices, so you're never at risk of losing your investment due to inflation. You are protected even if there is deflation, because in that case, the price at maturity will revert to the price at purchase.</p> <h3>Why It's Not</h3> <p>TIPS aren't great investments for building wealth. There are other, better investments that offer a combination of safety and growth. TIPS are also vulnerable to interest rate moves, just like most bonds.</p> <h2>4. Gold</h2> <p>We've seen gold hailed as a &quot;safe&quot; investment because it's considered a hedge against inflation and a protection against a major economic disaster. History has shown that those who held on to gold during times of crisis held onto their wealth.</p> <h3>Why It's Safe</h3> <p>Gold can protect against inflation and historically has been known to retain its value even during disastrous times. That's why gold became a popular investment during the recent debt crisis in Europe, for example.</p> <h3>Why It's Not</h3> <p>Many financial experts note that gold's reputation as a hedge against inflation is often overstated, and gold has been known to lose value. It is also no less volatile than stocks, and generally does not have the same return on investment. In other words, it's not as &quot;safe&quot; as you think, and you won't necessarily get wealthy by holding onto it.</p> <h2>5. REITs</h2> <p>A real estate investment trust (or REIT) allows individual investors to own shares of real estate without the hassle of being a landlord. REITs trade like stocks, and can also be included in mutual funds and exchange-traded funds.</p> <h3>Why It's Safe</h3> <p>REITs are generally pretty stable investments, especially if the company has many long-term leases. REITs also usually pay out a hefty dividend.</p> <h3>Why It's Not</h3> <p>Real estate can still drop in value, especially if the REIT you buy is focused on one sector of real estate. Moreover, because REITs don't have to pay corporate-level income tax, dividends from REITs are taxed at the normal income rate, not the dividend rate paid out by other stocks.</p> <h2>6. Target Date Mutual Funds</h2> <p>Most brokerages offer mutual funds that start off with an aggressive investment mix and then get more conservative as the investor ages. These are a popular &quot;hands off&quot; part of many portfolios.</p> <h3>Why It's Safe</h3> <p>These funds are designed to build value during your younger years and protect your retirement nest egg as you get older. When properly managed, you'll be able to hold onto more of your money when you are close to retirement, even during down markets.</p> <h3>Why It's Not</h3> <p>Generally speaking, targeted mutual funds come with higher fees than many other funds, and that can cut into your overall earnings over time. And while the funds are comprised of more conservative investments as you approach retirement age, they are still prone to the ups and downs of the stock market in the earlier years.</p> <h2>7. Peer-to-Peer Lending</h2> <p>In recent years, companies such as Lending Club and Prosper have allowed individual investors to profit from the debt of other regular people. These platforms match investors up with those looking to borrow money. Individuals can invest based on their own risk tolerance. (See also: <a href="http://www.wisebread.com/how-to-make-money-with-peer-to-peer-lending-service-prosper?ref=seealso">How to Make Money With Prosper</a>)</p> <h3>Why It's Safe</h3> <p>The most popular peer-to-peer lending sites report a fairly low default rate on loans. This means that those who purchase debt are likely to generate a solid return. Lending Club reports that the median adjusted net annual return is 5.1% for those who have purchased at least 100 notes.</p> <h3>Why It's Not</h3> <p>There's always a risk of loans defaulting, especially if you don't buy quality loans. Buying risky loans, or failing to diversify your loan portfolio, can lead to less-than-stellar returns.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/is-there-such-a-thing-as-a-safe-investment">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-safe-investments-that-arent-bonds">9 Safe Investments That Aren&#039;t Bonds</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-ways-to-invest-50-500-or-5000">The Best Ways to Invest $50, $500, or $5000</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-you-choosing-the-right-fund-for-your-portfolio">Are You Choosing the Right Fund for Your Portfolio?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-reasons-to-start-investing-in-bonds-now">The 5 Best Reasons to Start Investing in Bonds Now</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment bonds cash dividend stocks mutual funds peer to peer lending REITs safe investments tips Mon, 12 Dec 2016 11:00:07 +0000 Tim Lemke 1850785 at http://www.wisebread.com Could Trump Bring Higher Interest Rates and Inflation? Consider These Money Moves http://www.wisebread.com/could-trump-bring-higher-interest-rates-and-inflation-consider-these-money-moves <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/could-trump-bring-higher-interest-rates-and-inflation-consider-these-money-moves" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/donald_trump_98978789.jpg" alt="Donald Trump could bring higher interest rates and inflation" title="" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>In a matter of weeks, America will have a new President, and people are already speculating as to what a new man in the White House will mean for the economy.</p> <p>Donald Trump outlined a series of policy proposals on the campaign trail, including some that, according to economists, may impact inflation and interest rates. This comes at a time when the Federal Reserve has been hinting at raising interest rates for a while. So if all of this happens, what should you do with your money? Here are some ideas.</p> <h2>If There's Inflation</h2> <p>Ifd the federal government opens up the fiscal spigot, inflation is sure to follow.</p> <h3>1. Take a Look at Gold</h3> <p>Gold has long been a popular investment for those seeking protection against inflation, especially during times of political and global uncertainty. Prices for gold spiked in the immediate aftermath of Trump's election, but are still quite low from a historical standpoint.</p> <p>There are several ways to purchase gold. You can buy gold bars or bullion and store it, or purchase shares of companies involved in gold mining. There are also exchange-traded funds (ETFs) that track the performance of gold or gold-related industries.</p> <h3>2. Get Into TIPS</h3> <p>The U.S. Treasury offers something called Treasury Inflation-Protected Securities, or TIPS. These are pegged to the Consumer Price Index, so when the index rises, the value of the investment rises with it. These are solid, low-risk investments that are perfect for when inflation is a possibility, and they are exempt from state and local income taxes. It's also possible to own TIPS in a retirement fund, via an ETF or mutual fund.</p> <h3>3. Invest in Commodities</h3> <p>In addition to gold, there are other commodities that can be used as a hedge against inflation. Many commodities, including oil, wheat, and even live cattle naturally rise with inflation. If you're unsure of which commodities to buy, consider looking at a fund or ETF that invests in commodities broadly. The PowerShares DB Commodity Index Tracking Fund [NYSE: <a href="http://www.google.com/finance?cid=722064">DBC</a>]) and the Fidelity Series Commodity Strategy Fund [NYSE: <a href="https://www.google.com/finance?q=FCSSX&amp;ei=4G48WJC_BdWNmAHcobLABw">FCSSX</a>] are two examples.</p> <h3>4. Get Real With Real Estate</h3> <p>Real estate is another area that often does well during an inflationary period. There are many ways to obtain real estate, either by purchasing property directly, or by buying shares of real estate investment trusts, or REITs. The caveat here is that if interest rates rise, then the cost of a mortgage to purchase real estate will also go up. So it may be smart to get in now while interest rates are still at historic lows.</p> <h2>If Interest Rates Rise</h2> <p>The Federal Reserve is expected to tick interest rates up a bit soon, while Trump's economic proposals could accelerate that process.</p> <h3>1. Invest in Banks</h3> <p>Banks generally do better when interest rates are higher than they are now. Right now, these companies have a low &quot;net interest margin&quot; &mdash; the difference between the interest they earn and the interest they pay out. Higher rates will increase this margin, thus increasing the bank's profitability.</p> <h3>2. Lock in a Fixed Rate</h3> <p>If you have a mortgage with an adjustable rate, now is the time to lock into something more stable, before interest rates rise. Convert your mortgage to a fixed-rate loan now, while interest rates are low. If you don't do this, your rate could adjust upward to a level that you may find unsustainable.</p> <h3>3. Switch to Short-Term Bonds</h3> <p>If interest rates are about to go up, you don't want your money tied up in something that's not paying a high rate. Placing your money in shorter term bonds and bond funds will allow you to remove your money earlier and then reinvest it in something with a higher return once rates rise. Long-term bonds do pay a higher rate than short-term bonds, but you lose flexibility.</p> <h3>4. Bolster Your Cash Holdings</h3> <p>With interest rates at ultralow levels, there hasn't been much incentive to hold on to a lot of cash. But if interest rates rise, you may find it's worth it to have a little more cash on hand, as it will generate some income for you. Stocks and other investments will probably still be more lucrative, but higher interest rates means there won't be as much downside to having more liquid savings, and it may give you more peace of mind.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/could-trump-bring-higher-interest-rates-and-inflation-consider-these-money-moves">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/oh-noes-inflation">Oh noes! Inflation!</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-investments-that-may-soar-during-trumps-term">8 Investments That May Soar During Trump&#039;s Term</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-best-money-management-tips-from-john-oliver">7 Best Money Management Tips From John Oliver</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/will-high-inflation-persist">Will high inflation persist?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-live-with-inflation">How to live with inflation</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Financial News bonds donald trump federal reserve gold inflation interest rates investing president Wed, 30 Nov 2016 12:00:11 +0000 Tim Lemke 1843966 at http://www.wisebread.com 7 Best Money Management Tips From John Oliver http://www.wisebread.com/7-best-money-management-tips-from-john-oliver <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-best-money-management-tips-from-john-oliver" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/john_oliver_12450865504_98a7a40631_z.jpg" alt="Learning money lessons from John Oliver" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>I don't often admit to it, but I have a little crush on comedian and <em>Last Week Tonight</em> host, John Oliver. I mean, what's not to like? There's his adorable British accent, his hilarious takes on the modern world, his dimples, his sound money advice&hellip;</p> <p>No, really. John Oliver is actually a pretty solid source for financial tips. Over the past few years, he has cemented his place in my heart by using his comedic platform to educate his audience on everything from credit scores to debt management and retirement savings</p> <p>If you haven't had a chance to watch all of John Oliver's money-related episodes, here are my favorite financial funnyman's seven best money management tips:</p> <h2>1. Before Taking a Payday Loan, Be Absolutely Sure There Are NO Other Options</h2> <p><iframe src="https://www.youtube.com/embed/PDylgzybWAw" width="560" height="315" frameborder="0" allowfullscreen="allowfullscreen"></iframe></p> <p>As seen on:&nbsp;<a href="https://www.youtube.com/watch?annotation_id=annotation_959988635&amp;feature=iv&amp;src_vid=aRrDsbUdY_k&amp;v=PDylgzybWAw" target="_blank">Last Week Tonight: Predatory Lending</a></p> <p>Wise Bread readers are likely very well aware of the predatory nature of payday loans. Taking a short-term loan can kick off a terrible cycle of debt with annual interest rates as high as 700%. But, as John Oliver points out in his rant, a Pew survey found that &quot;a majority of borrowers say payday loans take advantage of them, [but] a majority also say they provide relief.&quot;</p> <p>The point is that there will be times when people need money in a hurry and feel that their choices are limited. However, most borrowers have more choices than they think they do. Prospective payday loan customers could always borrow from a family member or friend, pawn or sell an item, or even sell blood or plasma. In other words, it's a better idea to do almost <em>anything </em>else to generate some quick cash than visit a payday loan store. (Although some of the ideas suggested by Sarah Silverman, the official spokesperson for <em>doing anything else</em>, are clearly meant to be tongue-in-cheek.)</p> <p>Many payday loan borrowers end up turning to these anything else options in order to get out of the cycle of payday loan debt, so it would be better to just start there.</p> <h2>2. Start Saving for Retirement Now &mdash; And Build a Time Machine and Start Saving 10 Years Ago If Possible</h2> <p><iframe src="https://www.youtube.com/embed/gvZSpET11ZY" width="560" height="315" frameborder="0" allowfullscreen="allowfullscreen"></iframe></p> <p>As seen on:&nbsp;<a href="https://www.youtube.com/watch?time_continue=1249&amp;v=gvZSpET11ZY" target="_blank">Last Week Tonight: Retirement Plans</a></p> <p>We all need to be saving more money for retirement, and the earlier you start, the more time compound interest has to work its magic. According to a 2014 study from the Center for Retirement Research at Boston College, a 25-year-old would only need to set aside <a href="http://crr.bc.edu/wp-content/uploads/2014/07/IB_14-111.pdf">15% of her income</a> each year to adequately replace her income as of retirement at age 62 &mdash; but if she started at age 35 she would need to save 24%, and 44% if she waited until age 45.</p> <p>While I have no issue with encouraging people to save more (really &mdash; save more!), I do have a quibble with the slight whiff of shame clinging to the build-a-time-machine portion of this advice. We can't change our past financial behavior, but we can feel bad about it and let it affect our present behavior &mdash; which too many people tend to do. There's no point in offering coulda-shoulda-woulda advice when time machine technology is still a couple of thousand decades away from reality.</p> <p>However, the basis of this advice is more than sound. Don't waste your money on Elf School in Reykjavik. Put it in your retirement account where it can do you some real good.</p> <h2>3. Check Your Credit Report Every Year</h2> <p><iframe src="https://www.youtube.com/embed/aRrDsbUdY_k" width="560" height="315" frameborder="0" allowfullscreen="allowfullscreen"></iframe></p> <p>As seen on:&nbsp;<a href="https://www.youtube.com/watch?v=aRrDsbUdY_k" target="_blank">Last Week Tonight: Credit Reports</a></p> <p>Your credit history can affect everything from whether you qualify to make large purchases, to your ability to land a job or rent an apartment. Unfortunately, credit reports are not always accurate, even if you have been a boy scout when it comes to your responsible credit usage.</p> <p>As John Oliver reports, the credit reporting bureaus make major mistakes in one out of every 20 credit histories. That may be a 95% accuracy rate, but it does leave 10 million consumers to deal with critical mistakes on their credit reports.</p> <p>The only thing we can do to fight mistakes (and identity theft, which <em>Last Week Tonight</em> did not even get into) is to regularly check our credit reports. We are legally allowed free access to a credit report from each of the major reporting agencies &mdash; TransUnion, Experian, and Equifax &mdash; once per year. You can access that information at annualcreditreport.com.</p> <p>If you're particularly organized, you can keep an eye on your credit on a rolling basis by checking one of the three agencies every four months.</p> <h2>4. Invest in Low Cost Index Funds</h2> <p>As seen on: <a href="https://www.youtube.com/watch?v=gvZSpET11ZY" target="_blank">Last Week Tonight: Retirement Plans</a></p> <p>Seeing this particular piece of advice had me standing up and cheering in front of my laptop. The financial industry likes to tout the superiority of actively managed funds since there is an individual making decisions for your investments &mdash; which has got to be better than doing nothing.</p> <p>Except the active managers who are tinkering with investments have a couple of big detractions. First, they are human, which means they are subject to emotional reactions to market volatility. It is very hard to stick to a plan when ego, panic, or greed is driving the train. According to research by Nobel laureate William Sharpe, you would have to be correct about timing the market (that is consistently buying low and selling high) 82% of the time in order to match the returns you will get with a buy-and-hold strategy. To put that in perspective, Warren Buffett aims for accurate market timing about 2/3 of the time.</p> <p>In addition to the difficulty of market timing, an actively managed fund will have higher transaction costs because of all the active buying and selling (each of which generates a fee) going on. Even if you have the world's most accurate active manager, a great deal of your returns will be eaten up by your transaction costs.</p> <p>Low cost index funds, on other hand, keep their costs low by having fewer managers to pay, and they tend to outperform actively managed funds because they are simply set to mimic a certain index. The majority of consumers will not beat low cost index funds for satisfactory retirement investment growth.</p> <h2>5. If You Have a Financial Adviser, Ask if They're a Fiduciary</h2> <p>As seen on: <a href="https://www.youtube.com/watch?v=gvZSpET11ZY" target="_blank">Last Week Tonight: Retirement Plans</a></p> <p>A financial adviser is a fiduciary if he or she is legally required to put your economic interests ahead of their own. This is an important distinction because the terms financial adviser, financial planner, financial analyst, financial consultant, wealth manager, and investment consultant are unregulated &mdash; which means someone introducing himself by any of these titles might not have the expertise to back it up.</p> <p>But even if your financial adviser does have the credentials necessary to help you manage your money, she might be paid via commission, which could mean she recommends products to you that help her bottom line more than your retirement.</p> <p>Since a fiduciary is legally obligated to put your interests above their own, you are more likely to get objective advice from them.</p> <p>While John Oliver recommends running the other direction if you find that your financial adviser is not a fiduciary, that may not be necessary as long as you understand how your adviser is paid and you are willing to commit to due diligence in double-checking your adviser's recommendations.</p> <h2>6. Gradually Shift From Stocks to Bonds As You Get Older</h2> <p><iframe src="https://www.youtube.com/embed/gvZSpET11ZY" width="560" height="315" frameborder="0" allowfullscreen="allowfullscreen"></iframe></p> <p>As seen on <a href="https://www.youtube.com/watch?v=gvZSpET11ZY">Last Week Tonight: Retirement Plans</a></p> <p>This advice is part of target-date retirement planning. The thinking behind it is that you need to be invested in riskier (and therefore higher-earning) investments like stocks when you are young, because you have the time to ride out the volatility and reap the returns. But as you age, you need to be sure your principal is protected, which means gradually shifting more of your investments into bonds, which are more stable but have lower returns.</p> <p>This is pretty good general advice, and I love the show's take on when to remind yourself to shift more to bonds &mdash; whenever a new James Bond actor is chosen. (I'm team Gillian Anderson!)</p> <p>The only nuance I would like to add to this piece of advice is to remind investors that retirement does not mark the end of your investing days &mdash; and you should not be entirely invested in bonds by then. Theoretically, you still have 25 to 40 years ahead of you as of the day you retire, and you will still need to be partially invested in aggressive assets like stocks in order to make sure your money keeps growing.</p> <h2>7. Keep Your Fees, Like Your Milk, Under 1%</h2> <p>As seen on <a href="https://www.youtube.com/watch?v=gvZSpET11ZY" target="_blank">Last Week Tonight: Retirement Plans</a></p> <p>Except for the fact that skim milk is a watery horror I would not wish on my worst enemy's morning Wheaties, this is probably my favorite of John Oliver's money tips.</p> <p>Fees on your investments work a lot like interest &mdash; in that they compound quickly. <em>Last Week Tonight</em> showed a clip from the 2013 PBS documentary The<a href="http://www.pbs.org/wgbh/frontline/film/retirement-gamble/"> Retirement Gamble</a>, which illustrated how compounding interest would eat up 2/3 of your investment growth over 50 years, assuming a 7% annual return and a 2% annual fee.</p> <p>The only way to combat such termite-like destruction of your investment growth is to keep your fees low &mdash; under 1%. And the lower you can get your fees under 1%, the better you are. As John Oliver's segment points out, &quot;Even 1/10 of 1% can really [bleep] you.&quot;</p> <h2>Money With a Side of Funny</h2> <p>The majority of financial information is not exactly fun to read through. That's why it's so important for a satirist and comedian to take on these vitally important issues and make them entertaining. I'm thankful that John Oliver has decided to make money one of the issues he illuminates for his audience.</p> <p><em>Are you a regular watcher of Last Week Tonight? What valuable advice have you gleaned?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/emily-guy-birken">Emily Guy Birken</a> of <a href="http://www.wisebread.com/7-best-money-management-tips-from-john-oliver">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-financial-basics-every-new-grad-should-know">The Financial Basics Every New Grad Should Know</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-financial-differences-between-millennials-and-the-next-generation">7 Financial Differences Between Millennials and the Next Generation</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-money-lessons-we-can-learn-from-jay-z">7 Money Lessons We Can Learn From Jay-Z</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-ways-to-increase-your-net-worth-this-year">10 Ways to Increase Your Net Worth This Year</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-money-moves-to-make-the-moment-you-get-a-promotion">8 Money Moves to Make the Moment You Get a Promotion</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Entertainment bonds credit reports fees index funds investing john oliver money advice payday loans retirement stock market Mon, 08 Aug 2016 10:30:07 +0000 Emily Guy Birken 1766934 at http://www.wisebread.com Are You Choosing the Right Fund for Your Portfolio? http://www.wisebread.com/are-you-choosing-the-right-fund-for-your-portfolio <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/are-you-choosing-the-right-fund-for-your-portfolio" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_reading_newspaper_75921495.jpg" alt="Learning if mutual funds are better than ETFs" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>With a market of over $30 trillion, mutual funds are some of the most popular investments. But the $3 trillion ETF (<a href="http://www.wisebread.com/the-10-weirdest-etfs-you-can-buy" target="_blank">Exchange Traded Fund</a>) market is catching up quickly. So, what <em>are </em>ETFs? How do they differ from mutual funds? And are they right for you? Here's what you need to know:</p> <h2>Mutual Funds 101</h2> <p>When you invest in an individual stock, the success of your investment is completely dependent upon the success of that one company. But when you invest in a mutual fund, your money is diversified. It's pooled with many other investors' money and then invested in many companies, based on the design of the fund or the decisions of the fund manager.</p> <p>It's the same with bonds and bond funds, or real estate and real estate funds.</p> <p>Think of an exchange-traded fund as a close cousin of a mutual fund. It, too, manages a pool of money from many investors, spreading it among many investments. But there are some very important differences between ETFs and mutual funds.</p> <h3>ETFs Are Priced Throughout the Day</h3> <p>When you enter an order to purchase a mutual fund, the order will fill at the end of the day, after the value of all of its underlying assets are tallied.</p> <p>ETFs, on the other hand, can be bought and sold throughout the day like stocks. When you enter an order to purchase an ETF, your order will typically be filled very soon after entering the order at a price very close to the price you saw when you placed the order.</p> <p>That's one of the main reasons why ETFs were created. On October 19, 1987, a day now known as &quot;Black Monday,&quot; the U.S. stock market fell by nearly 23%. Mutual fund investors who wanted to sell their shares couldn't until all the damage had been done. Three years later, the first ETF was launched, giving investors all of the diversifying benefits of a mutual fund but the flexibility to buy or sell throughout the trading day.</p> <h3>ETFs Have Lower Expenses</h3> <p>Exchange-traded funds tend to have lower operating expenses than mutual funds, and that lower cost structure is passed along to investors in the form of lower expense ratios. For example, Vanguard's S&amp;P 500 index <em>mutual fund</em> (ticker symbol VFINX) has an expense ratio of .16%. If you invest $1,000 in the fund, $1.60 will go toward fund expenses. That's already very low. However, if you invest in Vanguard's S&amp;P 500 <em>exchange-traded fund</em> (ticker symbol VOO), you'll pay an even lower expense ratio of .05% &mdash; or 50 cents per $1,000 invested.</p> <h3>ETFs Have Lower Minimums</h3> <p>Many mutual funds have minimum initial investment amount requirements. Common amounts range from $250 to $3,000, but some funds require as much as $10,000.</p> <p>With ETFs, the minimum investment amount required is the cost of one share. If you wanted to invest in Vanguard's VFINX mutual fund, you'd need to come up with at least $3,000 for your initial investment. However, getting started with what, in essence, is the ETF version of the same fund, VOO, would cost only about $190 &mdash; the price of one share when this article was written.</p> <h2>Which Is Better?</h2> <p>There are three main factors that can help you decide whether to go with a mutual fund or an exchange-traded fund.</p> <h3>Availability</h3> <p>You may not have a choice. Some 401K plans don't yet include ETFs in the investment options they make available to participants. If that's true with your workplace plan, you'll have to go with one or more of the available mutual funds.</p> <h3>Strategy</h3> <p>While the ETF universe is growing rapidly, there are still many more mutual funds. So, it could be that the investment strategy you're following calls for the use of a particular mutual fund and there are no suitable ETF substitutes.</p> <h3>Cost</h3> <p>If you're following an investment strategy that calls for the use of a particular fund that's available as a mutual fund or an ETF, check on each one's expense ratio. It's very likely that the ETF will cost less, making it the better choice.</p> <h2>One Last Consideration</h2> <p>Some critics say ETFs can get investors in trouble by encouraging more trading. They argue that because the funds can be bought and sold throughout the day, they'll tempt otherwise conservative investors to take undue risk and turn them into roll-the-dice day-traders.</p> <p>But that's like arguing that because <em>some </em>people get into car accidents, <em>no one </em>should be allowed to drive. If you follow the rules of the road for wise investing &mdash; if you're a long-term investor, not a short-term trader &mdash; ETFs can be a very efficient, cost-effective investment vehicle.</p> <p><em>So, which is it for you? Mutual fund or ETF?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/are-you-choosing-the-right-fund-for-your-portfolio">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-10-weirdest-etfs-you-can-buy">The 10 Weirdest ETFs You Can Buy</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-ways-to-add-gold-to-your-portfolio">4 Ways to Add Gold to Your Portfolio</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-are-income-stocks">What Are Income Stocks?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-ways-etfs-can-put-more-money-in-your-pocket-than-mutual-funds">8 Ways ETFs Can Put More Money in Your Pocket Than Mutual Funds</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment bonds commodities comparisons ETFs exchange traded funds mutual funds portfolio stock market Wed, 27 Jul 2016 09:30:36 +0000 Matt Bell 1757851 at http://www.wisebread.com 7 Cool Things Bonds Tell You About the Economy http://www.wisebread.com/7-cool-things-bonds-tell-you-about-the-economy <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-cool-things-bonds-tell-you-about-the-economy" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/kid_investing_happy_000065886749.jpg" alt="Learning cool things bonds teach us about the economy" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Bonds are often cast as the boring stepchild of investments, but they can actually offer some great insights into the machinations of our economy. Their yields and interest rates that are affected by overall economic conditions, so you can learn a lot by owning them. And they may even predict how certain aspects of the economy will evolve. (See also:&nbsp;<a href="http://www.wisebread.com/5-crucial-things-you-should-know-about-bonds?ref=seealso" target="_blank">5 Crucial Things You Should Know About Bonds</a>)</p> <p>Here are seven things that bonds can tell us.</p> <h2>1. They Can Tell You If the Economy Is Healthy (or Not)</h2> <p>Some bonds perform well when the overall economy is in good shape. Others perform better when times are tough. High-yield bonds, emerging market bonds, and corporate bonds with low ratings tend to perform best when the economy is strong. But U.S. Treasuries &mdash; which are seen as less risky &mdash; don't perform as well when the economy is doing well.</p> <p>So, if you want to get a general sense of how the national or world economy is doing, pay attention to the types of bonds people are investing in. Generally speaking, a rush to riskier bonds means things are going well. But when times are tough, Treasuries are often the place investors flock to. Here's a <a href="http://bonds.about.com/od/bonds101/a/The-Economy-And-Bonds.htm">helpful chart</a> that shows how different bonds perform in various economic conditions.</p> <h2>2. They Can Predict a Recession</h2> <p>In the 1980s, economists began to realize that they could predict economic activity by looking at something called the bond &quot;yield curve.&quot; In simple terms, this is the difference in the interest rates between three-month and 10-year Treasury notes. If the interest rates on 10-year notes are higher than the shorter-term rates, then the <a href="https://www.clevelandfed.org/our-research/indicators-and-data/yield-curve-and-gdp-growth.aspx">chances of a recession</a> in the next 18 months are not very high, according to information published by the Federal Reserve. When the yield curve is inverted &mdash; meaning long-term interest rates are lower &mdash; then look out. This was the case in 2006, and America was in a recession within two years.</p> <h2>3. They Can Predict If You'll Pay More for Stuff</h2> <p>One of the downsides to investing in Treasury bonds is that they can lose value due to inflation. That's why the government introduced something called Treasury Inflation Protected Securities (TIPS). These are like bonds, in that they have a fixed-rate yield and regular interest payments, but the principal is adjusted according to the Consumer Price Index.</p> <p>Generally speaking, you can determine the possible rate of future inflation by examining the spread between the yield in a bond and a TIPS with a similar maturity date. So for instance, if a three-year Treasury note has a yield of 4% and a three-year TIPS note has a yield of 2%, then the expected rate of inflation over the next two years is 2%. This is not an exact science, however, as there are a multitude of factors that can drive inflation.</p> <h2>4. They Can Tell You If Stock Investors Are Skittish</h2> <p>When investors flock to bonds, it's often because they are feeling less confident about riskier investments, such as stocks. Bonds are popular investments among those close to retirement, but when all investors are drawn to bonds, it could be a sign that the stock market has taken a dive or is underperforming. Conversely, less interest in bonds could be a sign that the stock market is doing well.</p> <h2>5. They Can Tell You If Companies Are Investing in Themselves</h2> <p>Corporate bonds can give you a glimpse of what companies are doing with their money, especially whether they are looking to expand. Even large companies with a lot of cash will issue bonds in order to make big capital improvements, fund an acquisition, or invest in research and development. (Even Apple, which reported $55 billion in cash in the last quarter, also reported $10 billion in bond debt.)</p> <p>Be careful, however, as many companies go into debt simply to stay afloat. Pay attention to the ratings on corporate bonds to get a better understanding of how companies may be using debt. A company with a strong credit rating is more likely to be raising funds for investment or expansion rather than to simply fund operations.</p> <h2>6. They Can Impact What You Might Pay for Your House</h2> <p>The government does not set mortgage rates. Banks do that. But banks will often keep mortgage rates in line with those of long-term Treasury notes. That's because Treasuries and mortgages are offered for similar terms, usually in the 10- to 30-year time frame. So when Treasury notes rise, mortgage rates usually rise, as well.</p> <h2>7. They Can Let You Know if Your City Is in Trouble</h2> <p>Municipal bonds can offer insight into the economies of cities and states. Municipalities will sell bonds in order to raise money for capital projects. The size and quality of these bonds are clues into whether a city is investing properly or has too much debt. Bonds with high interest rates may come from cities with less-than-stellar credit &mdash; a sign of a city that has been struggling. (For an example, take a look at Atlantic City, which is struggling to make debt payments after years of declining tax revenue.) Moreover, bonds will tell you whether a municipality is selling bonds just to fund normal operations, or for investments in things like infrastructure that will benefit the city's financial health over the long term.</p> <p><em>Still bored by bonds?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/7-cool-things-bonds-tell-you-about-the-economy">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/cash-might-make-you-happier-but-investments-will-make-you-richer">Cash Might Make You Happier, But Investments Will Make You Richer</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in Retirement</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-investments-that-may-soar-during-trumps-term">8 Investments That May Soar During Trump&#039;s Term</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/while-waiting-for-rates-i-bonds">While Waiting for Rates: I-Bonds</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-we-headed-toward-a-bull-or-bear-market">Are We Headed Toward a Bull or Bear Market?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment bonds Economy inflation interest rates predictions recessions Thu, 12 May 2016 09:00:05 +0000 Tim Lemke 1705414 at http://www.wisebread.com 8 Assets You Can Count on During Tough Times http://www.wisebread.com/8-assets-you-can-count-on-during-tough-times <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-assets-you-can-count-on-during-tough-times" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_working_000060906050.jpg" alt="Man counting on assets during tough times" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>We've all gone through periods where money is tight. Perhaps we've had a job loss, or dealt with a major unexpected expense. Or maybe the economy has been chaotic, creating sharp market downturns.</p> <p>It's times like these when it's nice to have things to count on. If you look around, you'll realize you have assets at your disposal to get you through. Some can generate extra income. Others will give you stability.</p> <h2>1. Dividend Stocks</h2> <p>It's always good to have at least <em>some </em>income-producing stocks in your portfolio. There are many stocks that reward investors with quarterly payments, often with yields that are far higher than the interest offered on bank accounts. You often will sacrifice growth for the income, but that's okay when you're having some financial troubles. Look for companies labeled as &quot;Dividend Aristocrats,&quot; for having increased their dividends every year for the last 25 years. This list includes solid companies like Procter &amp; Gamble, Coca-Cola, Johnson &amp; Johnson, and ExxonMobil.</p> <h2>2. Your Home</h2> <p>As long as you're not behind on your mortgage payments and have some equity built up, your house can help you through a challenging period. Your house is not a liquid asset, so it's not as useful as some other things you may have at your disposal. But it may be possible to get a home equity loan or line of credit to give you extra cash. If you're really in a pinch, you could always move into a less expensive location and rent out your home, pocketing any difference.</p> <h2>3. Bonds</h2> <p>Depending on your age, you may not want to own a lot of bonds yet, but it's nonetheless nice to have some. They're great for generating some income during hard periods, and can serve as a nice stabilizing force in your portfolio. And the income is often tax-free. Rather than researching individual bonds, look for well-performing bond funds such as the Vanguard Long Term Tax Exempt Fund (VWLTX) or the Fidelity Municipal Income Fund (FHIGX).</p> <h2>4. Your Emergency Fund</h2> <p>Hiding a million dollars under a mattress isn't the best financial move, but you do want to maintain a good quantity of liquid cash at your disposal. Financial advisors recommend having at least three months of living expenses in a savings account, money market account, or CD to get you through. If you anticipate a job loss, a medical procedure, or a period of financial strain, consider bolstering this account with extra cash, if you can. Cash doesn't make you a lot of money these days, but it's nice to have a lot of it during challenging times. (See also: <a href="http://www.wisebread.com/6-emergency-fund-myths-you-should-stop-believing">6 Emergency Fund Myths You Should Stop Believing</a>)</p> <h2>5. A Roth IRA</h2> <p>In general, you should try to avoid withdrawing money from retirement accounts before age 59 &frac12;, because there are taxes associated with doing so. But one of the nice things about a Roth IRA is that you can withdraw your <em>contributions</em> at any time without penalty. That's why some financial advisors say it's okay to think of your Roth IRA as part of your emergency fund. Be careful, though. You don't want to withdraw more than you've contributed, and you should come up with a plan to replenish those funds so you're not costing yourself future dollars in retirement.</p> <h2>6. Precious Metals</h2> <p>Gold and silver have always been investments of choice during times of trouble. Metals have lost a lot of value in recent years in the low interest rate environment, but they've ticked up recently as interest rates have risen and the stock market has lagged. Precious metals are useful when banks are unstable, when there is major political uncertainty, or when inflation is out of control.</p> <h2>7. Your &quot;Stuff&quot;</h2> <p>Look around your house. You probably have a lot of items that you could probably part with if finances get tight. Old books. Clothes. That mountain bike you rarely ride. Check eBay, Craigslist, or other resources for places to sell your items. It just might help you get through a tough stretch.</p> <h2>8. Your Talents</h2> <p>You're good at something. Ceramics. Singing. Graphic design. Writing. Whatever it is, see if you can leverage it for extra income. Look for freelance work, or sell your wares on sites like Etsy or Shopify. Who knows? Maybe it could bring you not only temporary income, but a whole new lucrative career.</p> <p><em>Do you have these assets to rely on when things get tough?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/8-assets-you-can-count-on-during-tough-times">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in Retirement</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-most-important-thing-youre-probably-not-doing-with-your-portfolio">The Most Important Thing You&#039;re Probably Not Doing With Your Portfolio</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-safe-investments-that-arent-bonds">9 Safe Investments That Aren&#039;t Bonds</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-times-you-shouldnt-invest-in-stocks">10 Times You Shouldn&#039;t Invest in Stocks</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment assets bonds emergencies stocks tough times Tue, 23 Feb 2016 10:30:25 +0000 Tim Lemke 1658863 at http://www.wisebread.com Stabilize Your Portfolio With These 5 Bond Funds http://www.wisebread.com/stabilize-your-portfolio-with-these-5-bond-funds <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/stabilize-your-portfolio-with-these-5-bond-funds" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_investment_000058699958.jpg" alt="Woman stabilizing her portfolio with bond funds" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Bonds are low-risk investments that can be used to stabilize your portfolio. You may already be familiar with them. Local cities, states, and the federal government are the biggest issuers of bonds, but corporations will also create bond certificates when they're seeking capital. And although they generally carry lower risk than stocks, as an investor you will still need to decide where your comfort level lies. Do you feel secure with corporate bonds, or do you prefer the assuredness that municipal and treasury bonds have to offer?</p> <p>Fortunately, there are a variety of bond funds that allow you to tailor your investment to your risk tolerance and overall needs. Here are six well-performing bond funds to help stabilize your portfolio. (See also: <a href="http://www.wisebread.com/the-most-important-thing-youre-probably-not-doing-with-your-portfolio?ref=seealso">The Most Important Thing You're Probably Not Doing With Your Portfolio</a>)</p> <h2>1. iShares TIPS Bond ETF [<a href="https://www.ishares.com/us/products/239450/ishares-05-year-tips-bond-etf">STIP</a>]</h2> <p>STIP offers exposure to short-term 0-5 years U.S. TIPS, which are government bonds whose value typically rises with inflation. The fund has some growth potential and low volatility. Use it as a short-term hedge against inflation.</p> <ul> <li>Risk: Low</li> <li>Goal: Track index of inflation protected U.S Treasury bonds of less than five years</li> <li>Expense Ratio: .10%</li> <li>Money Manager: BlackRock</li> </ul> <h2>2. iShares National Muni Bond ETF [<a href="https://www.ishares.com/us/products/239766/ishares-national-amtfree-muni-bond-etf">MUB</a>]</h2> <p>Municipalities nationwide fund capital projects with bonds; MUB iShares provides exposure to more than 2,000 U.S. municipal bonds with its top holdings in California and New York, representing 42.97% of its assets. The fund offers tax efficiency for investors in higher tax brackets.</p> <ul> <li>Risk: Moderate</li> <li>Goal: Track index of investment grade U.S. municipal bonds</li> <li>Expense Ratio: .25%</li> <li>Money Manager: BlackRock</li> </ul> <h2>3. Vanguard California Long-Term Tax-Exempt Fund Investor Shares [<a href="https://personal.vanguard.com/us/funds/snapshot?FundId=0075&amp;FundIntExt=INT">VCITX</a>]</h2> <p>This fund aims to create federal and state tax-exempt income and appeals to investors in high tax brackets, particularly those residing within the state of California. This is an intermediate-term bond and more susceptible to inflation.</p> <ul> <li>Risk: Moderate</li> <li>Goal: Long-term tax-free income</li> <li>Expense Ratio: .20%</li> <li>Money Manager: Vanguard</li> </ul> <h2>4. Vanguard Total Bond Market ETF [<a href="https://personal.vanguard.com/us/funds/snapshot?FundId=0928&amp;FundIntExt=INT">BND</a>]</h2> <p>The BND invests in more than 3,000 broad U.S. investment-grade bonds. The fund has relatively high potential for investment income with some volatility. It is appropriate for mid to long-term investors seeking a reliable income stream. Use it to diversify and balance the risks of stocks.</p> <ul> <li>Risk: Low to moderate</li> <li>Goal: Track U.S. bond market returns</li> <li>Expense Ratio: .09%</li> <li>Money Manager: Vanguard</li> </ul> <h2>5. Vanguard Total International Bond ETF [<a href="https://personal.vanguard.com/us/funds/snapshot?FundId=3711&amp;FundIntExt=INT">BNDX</a>]</h2> <p>With its eyes on the world's bond markets, BNDX employs hedging strategies to protect against uncertainty in exchange rates. The fund offers broad exposure to non-US dollar denominated investment grade bonds. Use it to hedge against inflation.</p> <ul> <li>Risk: Low to moderate</li> <li>Goal: Track Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index</li> <li>Expense Ratio: .20%</li> <li>Money Manager: Vanguard</li> </ul> <p><em>Do you have any bond funds in your portfolio?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/qiana-chavaia">Qiana Chavaia</a> of <a href="http://www.wisebread.com/stabilize-your-portfolio-with-these-5-bond-funds">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in Retirement</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-most-important-thing-youre-probably-not-doing-with-your-portfolio">The Most Important Thing You&#039;re Probably Not Doing With Your Portfolio</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-safe-investments-that-arent-bonds">9 Safe Investments That Aren&#039;t Bonds</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-times-you-shouldnt-invest-in-stocks">10 Times You Shouldn&#039;t Invest in Stocks</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment balancing portfolio bonds ETF municipal bonds risk tolerance stocks Fri, 05 Feb 2016 14:00:04 +0000 Qiana Chavaia 1650901 at http://www.wisebread.com 4 Ways to Reduce Your Tax Bill With Bonds http://www.wisebread.com/4-ways-to-reduce-your-tax-bill-with-bonds <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/4-ways-to-reduce-your-tax-bill-with-bonds" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/father_daughter_computer_000082622141.jpg" alt="Man finding ways to reduce his tax bills with bonds" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Financial advisors recommend bonds to investors for portfolio diversification, as a fixed income investment strategy, and to hedge against inflation. Even better, some major bond classes can help you reduce your tax bill, too.</p> <p>What's more, they are low-risk investments. Here's how you can reduce your tax bill with bonds. (See also:&nbsp;<a href="http://www.wisebread.com/9-tax-friendly-ways-to-save-beyond-your-retirement-fund">9 Tax-Friendly Ways to Save Beyond Your Retirement Fund</a>)</p> <h2>1. Invest in Municipal Bonds</h2> <p>Municipal bonds have long garnered the attention of high-earners seeking to minimize their tax obligations. Muni bonds are tax-exempt at the federal level and, in some cases, local and state tax exempt as well, especially if the investor resides in the issuing state or municipality.</p> <p>Though munis faced some scrutiny during the financial crisis, many &mdash; if not most &mdash; munis deserve a second look now that local government finances are on much more stable footing.</p> <h2>2. Buy U.S. Treasury Bonds</h2> <p>U.S. Treasury bonds pay interest income once every six months. That income is exempt from state, local, and the alternative minimum tax. Some treasury bonds can also <a href="https://www.fidelity.com/fixed-income-bonds/individual-bonds/us-treasury-bonds">reduce your tax bill</a>, even if investing outside of a retirement account.</p> <h2>3. Purchase Zero Coupon Bonds</h2> <p>Zero coupon bonds are exempt from state and local tax. As their name suggests, these government bonds pay no interest, but often offer higher yields. Investors beware, however: Zero coupon bonds come with higher risks than their traditional counterparts, so consider the risk-reward trade-offs before investing in this asset class.</p> <h2>4. Put Bonds Inside Tax-Free and Tax-Deferred Accounts</h2> <p>Investors can defer any taxes owed on interest income by delaying distributions and holding these investments in a tax-deferred retirement account, such as an IRA or 401K. Once the money is withdrawn at retirement age, it'll be taxed based on the individual's tax bracket. Using the same strategy, if they are kept in a tax-free account, such as a Roth IRA or Roth 401K, distributions taken at retirement are tax-free.</p> <p><em>Are bonds in your portfolio? </em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/qiana-chavaia">Qiana Chavaia</a> of <a href="http://www.wisebread.com/4-ways-to-reduce-your-tax-bill-with-bonds">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/a-simple-guide-to-series-i-savings-bonds-i-bonds">A Simple Guide to Series I Savings Bonds (I-Bonds)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-ways-more-money-in-retirement-might-cost-you">3 Ways More Money in Retirement Might Cost You</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/should-you-choose-a-roth-401k-or-a-regular-401k">Should You Choose a Roth 401k or a Regular 401k?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/did-your-parents-give-you-a-whole-life-insurance-policy-heres-what-to-do-with-it">Did Your Parents Give You a Whole Life Insurance Policy? Here&#039;s What to Do With It.</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Taxes 401 k bonds IRA municipal tax-deferred treasury Tue, 02 Feb 2016 22:00:06 +0000 Qiana Chavaia 1649194 at http://www.wisebread.com