Investment http://www.wisebread.com/taxonomy/term/4808/all en-US 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-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/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-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-boring-investments-that-are-surprisingly-profitable">10 Boring Investments That Are Surprisingly Profitable</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/learn-how-to-invest-with-these-5-stock-market-games">Learn How to Invest With These 5 Stock Market Games</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-questions-to-ask-before-you-sell-a-stock-or-a-fund">10 Questions to Ask Before You Sell a Stock or a Fund</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 How "Carried Interest" May Affect Our Taxes http://www.wisebread.com/how-carried-interest-may-affect-our-taxes <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-carried-interest-may-affect-our-taxes" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-508011393.jpg" alt="what is carried interest" title="" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>A lot has happened since now-president Donald Trump and candidate Hillary Clinton debated on October 9 at Washington University in St. Louis. If you're like most taxpayers, you probably don't remember the candidates bantering about something called &quot;carried interest.&quot;</p> <p>During the debate, Trump was asked what steps he'd take to make sure that the wealthiest of U.S. taxpayers pay a fair share of taxes. Trump responded by saying that he'd eliminate carried interest. What Trump actually meant, though, was that he would change the way carried interest is taxed. Clinton, too, supported making this change. And so did former president Barack Obama.</p> <p>You can be forgiven if you have no idea what carried interest is. That's because it's something that only benefits the general partners who manage private equity and hedge funds. And most of us can't invest in these private funds because it is so expensive to do so. Investors must usually pony up at least $250,000 to make an investment in one of these funds.</p> <p>Carried interest is one way that the managers of these expensive hedge funds and private equity funds make a profit. But just because carried interest only benefits a select few, doesn't mean that it's not important to the U.S. economy. According to the Tax Foundation, if Congress taxed carried interest as ordinary income, it could <a href="https://files.taxfoundation.org/legacy/docs/TF_Options_for_Reforming_Americas_Tax_Code.pdf" target="_blank">cost the country 2,200 jobs</a>. On the positive side, the Tax Foundation said that changing how carried interest is taxed would also generate about $15 billion during the next 10 years in the form of more taxes sent to the federal government.</p> <h2>What Is Carried Interest?</h2> <p>The best way to understand carried interest is to look at your own investing habits. Say you invest some money in a stock. You hold onto that stock for five years, and its value rises. You then sell the stock and earn a solid profit.</p> <p>That profit is known as a capital gain, and you have to pay taxes on it. But the tax rate for a capital gain is lower than the tax rate for standard wages and income. In general, wages and salary income is taxed at a top rate of 39.6%. Capital gains, though, are taxed at a top rate of 23.8%.</p> <p>You can then see that income made from capital gains is even more valuable than the income you make from your salary.</p> <p>The same basic concept holds true for the managers of hedge and private equity funds. These managers are paid from fees generated by the fund. But they are also paid in carried interest, which is a share of the profits made by the fund. If the fund increases in value, the managers of the fund receive a financial boost in the form of carried interest.</p> <p>Today, carried interest is taxed as capital gain income, not as salary or wage income. Obviously, this is a nice perk to fund managers, who have to pay less in taxes on carried interest.</p> <h2>How Should It Be Taxed?</h2> <p>During the campaign, Trump said that carried interest should be taxed the same way the country taxes ordinary income. Why? Because carried interest is really part of the salary of a fund manager. So why shouldn't it be taxed that way?</p> <p>Others, though, make a different argument. The Tax Policy Center cites the common argument that fund managers should not be viewed as typical workers, but <a href="http://www.taxpolicycenter.org/briefing-book/what-carried-interest-and-how-should-it-be-taxed" target="_blank">rather as entrepreneurs</a>. Entrepreneurs are allowed to treat part of their financial returns as capital, and fund managers should be given the same tax break, according to this argument.</p> <p>Will Congress ever change the way carried interest is taxed? That's probably not a priority right now. And you can bet that most U.S. taxpayers will remain unaware of what carried interest even is.</p> <p>But the topic of carried interest might come up again whenever politicians, financial experts, and policymakers debate how the country can make its tax code fair to everyone.</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/how-carried-interest-may-affect-our-taxes">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/heres-how-your-taxes-will-change-when-you-retire">Here&#039;s How Your Taxes Will Change When You Retire</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/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-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/101-tax-deductions-for-bloggers-and-freelancers">101 Tax deductions for bloggers and freelancers</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/one-simple-trick-to-get-the-best-tax-benefit-from-your-retirement-portfolio">One Simple Trick to Get the Best Tax Benefit From Your Retirement Portfolio</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Taxes capital gains carried interest donald trump fund managers income tax advantages wealthy Mon, 13 Mar 2017 10:30:10 +0000 Dan Rafter 1904507 at http://www.wisebread.com A Field Guide to Lousy Investment Advisers http://www.wisebread.com/a-field-guide-to-lousy-investment-advisers <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/a-field-guide-to-lousy-investment-advisers" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-482448336.jpg" alt="Learning about lousy investment advisers" title="" class="imagecache imagecache-250w" width="250" height="143" /></a> </div> </div> </div> <p>You can easily hire people who claim to be good investment advisers. They hardly ever are. But there are several different kinds of downright lousy investment advisers, and it's worth learning how to identify them. (See also: <a href="http://www.wisebread.com/the-surprising-truth-of-investing-mediocre-advice-is-best?ref=seealso" target="_blank">Mediocre Advice Is Best for Investing</a>)</p> <p>I group them into three categories: The delusional, the liar, and the secretly mediocre.</p> <h2>The Delusional</h2> <p>The most common sign of the delusional financial adviser is that they can tell you about all the winning trades they've made, but they don't know the average annual return of their portfolio as a whole.</p> <p>You'll find this same trait in a lot of ordinary investors, as well &mdash; they're full of stories of their investing successes. They may also have a few self-deprecating stories of investments that went wrong. But they simply don't know what their all-in return actually is.</p> <p>For the ordinary investor, this is no big deal. But for someone selling their investment expertise, not knowing whether their advice beats what you can get following mediocre advice should disqualify them completely.</p> <p>There is one important subcategory of lousy investment adviser that might not show this sign. I call them the &quot;lucky so far.&quot; They're usually young with a pretty new track record. Typically, they're people who have a strong sense that one sector of the market &mdash; financial stocks, say, or precious metals &mdash; is the right choice for long-term investing. If they happen to get into the investment advising game right when their sector gets hot, they can produce outstanding investment returns, sometimes for a long time. Eventually the market turns against them and they lose a whole lot of their clients' money.</p> <p>Of course there are a few <em>legitimately</em> superior investment advisers out there. It's really impossible to tell one of them from one of the &quot;lucky so far,&quot; except that once they establish a record of shifting from this year's hot sector into next year's hot sector for several years in a row, somebody rich will notice and pay up to get their advice. One pretty good indication is that you won't be able to afford them.</p> <h2>The Liar</h2> <p>Just like the delusional financial adviser, there are many kinds of lying financial advisers. (Note that I'm not talking about scammers or fraudsters, just ordinary financial advisers who know their advice doesn't produce superior results, but hold themselves out as superior anyway.)</p> <p>Probably the most common are the ones who used to be delusional, but eventually figured out that they weren't actually superior. Of course the honest thing to do then would be to find another career, but delusional financial advisers can make a lot of money, and that's hard to give up.</p> <p>It's pretty easy to slip gradually into lying about your performance &mdash; just talk about your successes, and don't mention your failures.</p> <p>The clearest sign of the liar is that they claim an &quot;average annual return,&quot; but can't point to the specific trades that they or their clients made that produced this return. Instead, they'll point to lists of suggested trades &mdash; but if you have access to all the suggestions, it'll turn out that some of the bad ones don't make the list.</p> <p>Another strong clue is vague advice, such as that you buy a stock &quot;on dips,&quot; without specific numbers attached. This will make it easy for them to leave out losing trades (on the grounds that the dips were never low enough for them to enter the trade). They will also suggest that you use peaks in the market to &quot;begin to lighten up&quot; your position. If the stock continues to outperform, you'll find that they still list it in their model portfolio. Once it starts to lag, you'll see that they exited their position at the last high point.</p> <p>Another common habit among the liars is to ignore trading costs &mdash; and the cost of their advice &mdash; when figuring the bottom line.</p> <h2>The Secretly Mediocre</h2> <p>When &quot;index investing&quot; first started getting big, financial magazines (and others who rated financial advisers) started comparing investment advisers' returns to the market averages. Lousy advisers often fell short, which was pretty embarrassing. A fair number reacted by shifting their advice to just the sort of mediocre advice I'm suggesting that you follow. That way, they'd at least match the market returns.</p> <p>These investment advisers are giving you perfectly good advice, they're just charging you money to achieve performance you could get for free on your own.</p> <p>You can spot the secretly mediocre advisers either by looking at their returns or by looking at their portfolio. In either case, it will end up looking a lot like the return or portfolio you could get from just following the indexes.</p> <h2>My Mediocre Advice</h2> <p>Genuinely superior advice from (extremely rare) genuinely superior investment advisers is generally so expensive it makes no sense to pay for it, unless you have a portfolio of millions of dollars.</p> <p>Since Wise Bread is all about living large on a small budget, I figure it's pretty likely that you don't have the multimillion-dollar portfolio that would let superior financial advice pay for itself. In that case, I suggest that you just follow the <a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know?ref=internal" target="_blank">mediocre advice</a> I wrote about last time. Doing that, you'll get mediocre returns &mdash; which it turns out, are good enough.</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/a-field-guide-to-lousy-investment-advisers">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-surprising-truth-of-investing-mediocre-advice-is-best">The Surprising Truth of Investing: Mediocre Advice Is Best</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-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-3 views-row-odd"> <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-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-essentials-for-building-a-profitable-portfolio">5 Essentials for Building a Profitable 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/want-your-investments-to-do-better-stop-watching-the-news">Want Your Investments to Do Better? Stop Watching the News</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment advice delusional financial advisers liars mediocre returns success Mon, 06 Mar 2017 10:30:37 +0000 Philip Brewer 1902765 at http://www.wisebread.com The Fiduciary Rule Is Under Review — How Will This Affect Your Investments? http://www.wisebread.com/the-fiduciary-rule-is-under-review-how-will-this-affect-your-investments <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-fiduciary-rule-is-under-review-how-will-this-affect-your-investments" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-531215119.jpg" alt="Man learning how fiduciary rule will affect investments" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you have money invested in a retirement plan, such as a 401K or an IRA, chances are high you'll be impacted by an executive order issued recently by President Trump.</p> <p>It centers on the &quot;fiduciary rule,&quot; one of former President Obama's initiatives that was scheduled to go into effect on April 10th. President Trump put the brakes on it by ordering the Labor Department to study the issue further.</p> <p>Whether the rule goes into effect or not, you would be wise to understand what all the fuss is about and how it could affect you.</p> <h2>Fiduci&hellip;What?</h2> <p>Financial professionals, such as financial planners, insurance agents, brokers, and others, are legally bound to adhere to certain standards of conduct, the highest of which is a fiduciary standard. Anyone working under that standard, which today includes Certified Financial Planners and Registered Investment Advisers, is required to act in their clients' best interests, detail all commissions and fees, and disclose any potential conflicts of interest.</p> <p>Others, including many brokers and life insurance agents, are held only to a suitability standard. That means if two financial products could meet a client's needs, but one would pay the financial adviser a higher commission, he or she could recommend that product to their client.</p> <p>The Obama administration estimated that biased advice steering people to needlessly high-cost, high-commission financial products and services costs investors $17 billion per year in fees and lost investment income. Its fiduciary rule would require any financial professional recommending retirement-related financial products or services to adhere to a fiduciary standard.</p> <h2>What It Means for You</h2> <p>Here are some steps you can take to help make sure your retirement accounts are run in your best interest, rather than the managers'.</p> <p>If you participate in a 401K, 403(b), or other workplace retirement plan, ask questions about how your investment options were selected. Some plans have a very limited set of choices or offer mutual funds with high fees. In particular, take a look at the &quot;expense ratio&quot; tied to the funds. That's the percentage of the money you invest in the fund that goes toward the expenses of operating the fund. For example, if you buy shares of a fund with an expense ratio of 0.73%, for every $1,000 you invest, $7.30 will go toward the fund's operating expenses. (See also: <a href="http://www.wisebread.com/watch-out-for-these-5-sneaky-401k-fees?ref=seealso" target="_blank">Watch Out for These Sneaky 401K Fees</a>)</p> <p>According to Morningstar, the average expense ratio is .78% for an actively-managed mutual fund and .18% for a passively-managed (index) fund. If the funds in your plan are significantly higher than that, ask your plan administrator to explain why.</p> <p>Find out if any of the companies behind the funds in your plan participate in &quot;revenue sharing agreements&quot; in which they pay to be part of your plan. Often, these are higher-fee funds.</p> <p>A good resource is <a href="https://www.brightscope.com/" target="_blank">Bright Scope</a>, an independent evaluator of workplace retirement plans. See if it has evaluated your employer's plan, and if so, see what it says about the fees charged by your plan.</p> <p>Employees at some companies have even sued their workplace retirement plans over what they felt were needlessly high-cost investment options. In 2015, the U.S. Supreme Court gave employees the right to do so.</p> <p>If you work with a financial planner, insurance agent, or other financial professional, ask whether the person you work with adheres to a fiduciary standard. As awkward as it may be, ask about the commissions or other compensation they receive from the products or services you purchase through them. Before committing to working with someone, interview a couple of others and compare costs.</p> <h2>Three Situations That Warrant Extra Caution</h2> <p>Be especially careful about deferred annuities, mutual funds with a &quot;front-end load,&quot; and 401K &quot;rollovers.&quot; In each situation, you may be especially vulnerable to receiving biased advice. (See also: <a href="http://www.wisebread.com/the-3-step-plan-to-choosing-your-first-or-next-mutual-fund?ref=seealso" target="_blank">3-Step Plan to Choosing a Mutual Fund</a>)</p> <p>With deferred annuities, you invest now in order to receive a stream of income in your later years. Deferred annuities usually provide salespeople with high commissions and come with especially onerous surrender charges if you decide to cancel your contract. Be very cautious. Generally, the type of annuity that makes the most sense is an immediate fixed annuity purchased around the time of retirement, and even then only with a portion of your nest egg. If someone is recommending an annuity for you and retirement is far down the road, at very least, ask lots of questions about fees, commissions, and surrender charges. And carefully weigh the comparative advantages of investing in mutual funds outside of an annuity instead.</p> <p>Some financial advisers exchange their advice for the commissions they receive by recommending mutual funds with front-end loads, or sales fees. If you put $1,000 into a mutual fund with a 5% front-end load, that means you've lost $50 right out of the gate. At a time when there are countless no-load funds available, including target-date funds that automate some of the most important steps an adviser would do for you (such as, determine and then manage your asset allocation), it's difficult to imagine a situation where it would make sense to pay such fees. (See also: <a href="http://www.wisebread.com/commission-free-etfs-a-great-option-for-cost-conscious-investors?ref=seealso" target="_blank">Commission Free ETFs: A Great Option for Cost Conscious Investors</a>)</p> <p>When you leave your employer &mdash; whether for retirement or to move on to another company &mdash; plenty of brokers would love to have you <a href="http://www.wisebread.com/a-simple-guide-to-rolling-over-all-of-your-401ks-and-iras?ref=internal" target="_blank">rollover your 401K money</a> into an IRA at their firm. Such rollovers often do make sense because an IRA will give you more investment options. Just be sure to ask questions. Are there account fees? Is investment advice available to you from a fiduciary adviser? Compare the costs and services of at least three brokers.</p> <h2>Bottom Line</h2> <p>No matter what happens with the fiduciary rule, it's in your best interests to require all financial professionals you seek advice from to adhere to a fiduciary standard. At very least, they should fully and clearly disclose any fees, commissions, and potential conflicts of interest.</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/the-fiduciary-rule-is-under-review-how-will-this-affect-your-investments">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-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-2 views-row-even"> <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-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/boost-your-retirement-savings-avoid-401k-fees">Boost Your Retirement Savings: Avoid 401(k) Fees</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/the-10-biggest-myths-about-investing">The 10 Biggest Myths About Investing</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/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">4 Reasons Why a Roth IRA May be Better Than Your 401(k)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Financial News Investment 401k advisers brokers commissions ethics fiduciary rule insurance agents IRA trump Fri, 03 Mar 2017 10:30:38 +0000 Matt Bell 1901229 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-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/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/11-investment-mistakes-we-all-make">11 Investment Mistakes We All Make</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-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-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news">Want Your Investments to Do Better? Stop Watching the News</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 The Surprising Truth of Investing: Mediocre Advice Is Best http://www.wisebread.com/the-surprising-truth-of-investing-mediocre-advice-is-best <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-surprising-truth-of-investing-mediocre-advice-is-best" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-538027758.jpg" alt="Man learning mediocre investing advice is best" title="" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>My investing success made it possible for me to quit working a regular job 10 years ago, at age 48. Even so, I have written very little about investing compared to what I've written about other personal finance topics. There's a reason for that: I'm a mediocre investor.</p> <p>Over the course of my career as a software engineer, I saved and invested, earning a mediocre investment return. Since becoming a full-time writer, I've continued to earn investment returns &mdash; which although still mediocre, have been enough to supplement my income from writing.</p> <p>As a mediocre investor, I have hesitated to hold myself out as an investment adviser, even if my results have met my own needs in a very satisfactory way. I figured people would quite legitimately compare me to superior investment advisers, and it was a comparison that I didn't think would put me in the best light. And yet, I'm going to overcome my hesitation, because looking for superior investment advisers is probably a mistake.</p> <p>There are two big reasons why mediocre investment advice is the better choice: It's adequate, and it's cheap.</p> <h2>Mediocre Investing Advice Is Adequate</h2> <p>The purpose of your investment portfolio is to support your goals in life, and a mediocre return will do the trick. A mediocre return &mdash; just a few percentage points over inflation &mdash; will turn a modest flow of savings into a portfolio large enough to let you buy a house, send your kids to college, and fund a retirement (even an early retirement).</p> <p>Trying to get a better-than-mediocre return requires taking financial risks that put all your life goals at risk.</p> <p>If you have plenty of money available for investing, you can do both. You can cover your basic life goals with a portfolio invested for mediocre returns, and then you can direct your surplus investible funds into a portfolio that shoots for superior returns.</p> <p>It can be fun if you enjoy that sort of thing. I did some of that. Looking back, I'd probably have been better off just going for mediocre returns on the whole thing.</p> <h2>Mediocre Investing Advice Is Cheap</h2> <p>Superior investing advice tends to be expensive. It's expensive because it's worth it &mdash; but it's really only worth that much to the truly wealthy.</p> <p>Think about it. Let's say really good advice can boost your average annual return by five percentage points. On a $100,000 portfolio, that's an extra $5,000 a year. On a $1 billion portfolio, it's an extra $50 million a year. If someone can really earn that kind of extra return, they won't be working for you. They'll be working for the 1%.</p> <p>And it's not only getting superior advice that's expensive. Just following it is expensive. Following any financial advice &mdash; good or bad &mdash; costs money, but not only is getting mediocre advice cheap, following it tends to be cheap as well. And that cost savings turns out to support your investment returns better than even pretty good advice does.</p> <h2>Go With Mediocre</h2> <p>Just looking for superior financial advice is fraught. Most people who say they're providing superior investment advice are wrong. Some are simply deluded, others are flat-out lying. Either way, you really don't want to follow their financial advice &mdash; following bad financial advice can easily cost you your life savings.</p> <p>Fortunately, it's easy to tell the difference: Bad financial advice costs money, while mediocre financial advice tends to be free (or nearly so).</p> <p>Where can you get mediocre financial advice? Lots of places. You might start with two books I reviewed here on Wise Bread years ago that provide just the sort of mediocre financial advice I'm talking about:</p> <ul> <li><a href="http://www.wisebread.com/book-review-the-little-book-of-common-sense-investing" target="_blank">The Little Book of Common Sense Investing</a> by John C. Bogle: A perfect capsule of mediocre investment advice. It's also really short, because you can say about all there is to say about mediocre investing in a really short book.<br /> &nbsp;</li> <li><a href="http://www.wisebread.com/book-review-the-only-investment-guide-youll-ever-need?ref=internal" target="_blank">The Only Investment Guide You'll Ever Need</a> by Andrew Tobias: A slightly longer book that also covers basic personal finance stuff &mdash; so, not just investing your money, but also earning, spending, and insuring it.</li> </ul> <h2>How to Know It's Mediocre</h2> <p>It's easy to tell if the advice you're getting is the sort of mediocre advice you want. There are two characteristics to look for:</p> <ol> <li>It's free &mdash; or, available for no more than the cost of a book.</li> <li>It doesn't claim to be better than mediocre.</li> </ol> <p>If somebody charges money for their advice &mdash; or, more importantly, charges a commission, or a percentage of your assets for their advice &mdash; then it's probably not mediocre financial advice. (Charging a small fraction of 1% to cover the costs of running an investment fund is fine. It's charging extra on top of that for advice that's the danger sign.)</p> <p>If somebody claims that their advice is superior investment advice, or in any way better than mediocre financial advice, then it probably isn't mediocre financial advice.</p> <p>If you spot any of those warnings signs, I suggest that you avoid those advisers. It doesn't really matter whether they are people who genuinely think they're providing superior financial advice, or people who are just playing on your hopes for superior financial advice. If you follow their investment advice, I can confidently predict that your long-term investment returns &mdash; after expenses &mdash; will be crappy. And crappy returns mean a lower standard of living, less security, no chance to retire early, and maybe no retirement at all.</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-surprising-truth-of-investing-mediocre-advice-is-best">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/a-field-guide-to-lousy-investment-advisers">A Field Guide to Lousy Investment Advisers</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-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-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-essentials-for-building-a-profitable-portfolio">5 Essentials for Building a Profitable 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/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-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news">Want Your Investments to Do Better? Stop Watching the News</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment advice early retirement financial advisers mediocre returns success Mon, 20 Feb 2017 10:30:26 +0000 Philip Brewer 1892846 at http://www.wisebread.com 5 Smart Places to Stash Your Kid's College Savings http://www.wisebread.com/5-smart-places-to-stash-your-kids-college-savings <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-smart-places-to-stash-your-kids-college-savings" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-604338428.jpg" alt="Finding places to stash a kid&#039;s college savings" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you're hoping to save the tens of thousands of dollars needed to send your children to college, you'll need to do more than stash money in a savings account. To accumulate enough cash to stave off future student loan debt, you'll probably need to invest, and do so over a long enough time horizon.</p> <p>The good news is that there are several investment vehicles out there that can help you save money while also offering some tax advantages. Some are designed specifically for college savings, while others have different purposes but can be used to help with education costs.</p> <p>When saving for college, consider stashing your money in one (or a combination) of these places.</p> <h2>1. A 529 Plan</h2> <p>Any conversation about college savings should begin with a 529 plan. These are investment plans offered by states that allow you to invest money tax-free, as long as the funds eventually go to college expenses. You can open a 529 plan as soon as a child is born and in many cases, begin contributing as little as $25 a month. In addition to seeing investments grow without fear of paying taxes later, you can also get matching contributions and additional tax benefits from some states. In most cases, there are no restrictions on which college a beneficiary can attend. A child enrolled Maryland's college savings plan, for example, can use funds to attend school in Ohio. (See also: <a href="http://www.wisebread.com/the-9-best-state-529-college-savings-plans?ref=seealso" target="_blank">The 9 Best State 529 College Savings Plans</a>)</p> <p>Most 529 plans offer a menu of mutual funds to invest in, though you may find your options limited to target date funds with relatively high fees. And it's important to note that if you don't use the funds for college expenses, you'll pay taxes and a 10% penalty.</p> <h2>2. Coverdell ESA</h2> <p>A Coverdell Education Savings Account is similar to a 529, in that you can invest money and will not see taxes on the gains. The advantage of a Coverdell is that you can invest in just about anything, and the money can be used for any educational expenses, not just college (even tuition for private high schools or grade schools would qualify).</p> <p>There is a $2,000 annual limit on Coverdell accounts, however, so it's unlikely you'll be able to save for the full bulk of college costs. There are also income limits, as those individuals with a gross income of $110,000 (or $220,000 for parents filing jointly) can't open Coverdell accounts.</p> <h2>3. Taxable Brokerage Account</h2> <p>It's smart to look at other options before exploring a regular brokerage account to save for your kids' education. But it is one option that has some advantages over other accounts.</p> <p>The main downside is that there are no tax advantages when you try to save money in a taxable brokerage account. When you withdraw your money, you'll be stuck with capital gains taxes, and no one is offering to deduct contributions from your taxable income. But, regular brokerage accounts do offer the flexibility of investing in just about anything, so you can seek out investments that have better performance and lower fees. Moreover, there are also no restrictions on how you use the gains, so it's no big deal if your child gets a scholarship or does not attend college.</p> <h2>4. Roth IRA</h2> <p>A Roth Individual Retirement Account isn't designed for college savings, but it can be used for that purpose. Under a Roth IRA, any money can be withdrawn tax-free at age 59 &frac12;, so if you happen to have a college-aged child at that time, you can use that money for education with no penalty. Investors are also allowed to withdraw the contributions (but not the gains) without penalty at any time.</p> <p>A Roth IRA will generally offer more investment options than a 529 plan, though for people under 50, there is an annual contribution limit of $5,500. If you do use a Roth IRA for college expenses, it's important to remember that saving for retirement should remain a priority over saving for college. So it's advisable to use this account for education expenses only if you have additional plans for your retirement savings.</p> <h2>5. Municipal Bonds</h2> <p>If you're seeking some tax advantages as well as safety, municipal bonds can be a good option for college savings. You won't earn as much going this route, but you may still be able to accumulate enough for college if you start early and contribute regularly.</p> <p>Municipal bonds are nice because they are tax-free, and don't come with the volatility of stocks. Muni bonds with strong ratings can earn you a tax equivalent return of between 5% and 6%, which is quite solid. If you invest $5,000 annually into these kinds of bonds, you'll have well over $100,000 by the time the kids head off to school.</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/5-smart-places-to-stash-your-kids-college-savings">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/when-should-you-start-saving-for-your-child-s-education">When Should You Start Saving for Your Child’s Education?</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/does-your-kid-need-an-ira">Does Your Kid Need an IRA?</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-9-best-state-529-college-savings-plans">The 9 Best State 529 College Savings Plans</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/8-money-saving-hacks-every-college-student-should-try">8 Money-Saving Hacks Every College Student Should Try</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/6-ways-to-get-college-kids-home-for-the-holidays-for-cheap">6 Ways to Get College Kids Home for the Holidays for Cheap</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Education & Training Investment 529 plans brokerage accounts college Coverdell ESA kids municipal bonds Roth IRA saving money Wed, 15 Feb 2017 11:00:11 +0000 Tim Lemke 1887743 at http://www.wisebread.com 5 Investments That Aren't Stocks or Bonds http://www.wisebread.com/5-investments-that-arent-stocks-or-bonds <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-investments-that-arent-stocks-or-bonds" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-478174086.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Times are changing. Back in 2007, <a href="http://www.gallup.com/poll/190883/half-americans-own-stocks-matching-record-low.aspx" target="_blank">65% of American adults</a> reported investing in stocks. Fast forward to 2016, and only 52% said they have money invested in equities. This represents the lowest ownership rate of stocks in the 19 years of Gallup's annual economy and personal finance survey.</p> <p>So, where is all the money going? While there are no clear answers to this question, there <em>are </em>alternatives to the stock market which might be palatable to certain investors. We'll explore these asset classes and ways in which even average investors might take advantage of their opportunities.</p> <h2>5 Types of Alternative Investments</h2> <p>While there is an ever-growing list of alternative investments, here are the five most common categories.</p> <h3>1. Private Equity</h3> <p>Unlike shares from publicly traded companies or exchange-listed mutual funds, shares of private equity investments aren't available on a public exchange. Instead, private equity is only available through private companies that seek underperforming businesses, turn them around using their team of expert managers, and increase profitability of those businesses. Once the market value of the purchased business increases, the private equity firm sells that business and gains a percentage fee from the sale proceeds. Additionally, managers of private equity firms often gain an annual fee for providing their management expertise to acquired companies.</p> <h3>2. Venture Capital</h3> <p>A subset of private equity firms, venture capital companies focus on startups and small businesses that have a long-term growth potential. Venture capital is a great opportunity to secure much-needed financing for companies with very limited operational history. In exchange for that cash flow injection, startup founders and small business owners provide venture capitalists (also known as &quot;angel investors&quot;) a major say in most management decisions of the startup.</p> <p>In recent years, some recipients of venture capital have turned into &quot;unicorns&quot; &mdash; companies with an estimated valuation of <a href="http://fortune.com/unicorns/" target="_blank">more than $1 billion</a> &mdash; with Forbes listing American ride-sharing firm Uber and Chinese consumer electronics manufacturer Xiamoi in the number one and two spots, respectively. Venture capitalists are the first to profit when a startup or small business is acquired by a larger company or becomes listed on the stock exchange through an initial public offering (IPO). Unfortunately, angel investing usually requires significant capital of your own, so it's difficult for most investors to gain access to this investment class.</p> <h3>3. Hedge Funds</h3> <p>These are yet another subset of private equity firms. They're called hedge funds because when they first started, they had the objective to limit &mdash; or hedge &mdash; investment risk through a series of financial vehicles and investment strategies. However, that definition no longer applies and hedge funds are known as aggressive, risk-seeking investment funds that typically use leverage to offer &quot;alpha&quot; (abnormal rate of return against a benchmark).</p> <p>Like private equity and venture capital firms, hedge funds pool funds from a number of accredited and institutional investors. Unlike other private equity and venture capital firms, hedge funds focus on a much broader set of assets and investments strategies, including equity long-short, distressed assets, arbitrage, macro-trends, and managed futures. Like angel investing, hedge funds are often reserved for investors with significant capital.</p> <h3>4. Managed Futures</h3> <p>Wealth managers, mainly those of hedge funds, use futures (financial obligations for a buyer to purchase an asset or a seller to sell an asset at a predetermined future date) and options (rights to buy or sell an asset at expiration) to diversify among asset classes and mitigate the risk of an existing portfolio. Futures and options provide a way to diversity risk that isn't available through investments in direct equity.</p> <p>In addition to futures and options, a wealth manager could use other derivatives, such as forward contracts, swaps, and mortgage-backed securities to diversify a portfolio. All of these types of contracts are very complex and have been subject to scrutiny by several government agencies. For a primer on mortgage-backed securities and other derivatives, watch <a href="http://amzn.to/2jHONWT" target="_blank">The Big Short</a>.</p> <h3>5. Real Assets</h3> <p>These are firms that focus in the speculation of real assets. By using their expertise in a specific field, such as real estate, wine production, or art appraisal, these companies acquire tangible assets in the hope of gain &mdash; but with the obvious risk of loss. Lately, there has been an explosion in investment in luxury and collectible goods of all forms.</p> <h2>How Can You Invest in Alternative Investments?<strong> </strong></h2> <p>You can invest directly as an accredited investor or through an exchange traded fund (ETF) or retirement account.</p> <h3>Accredited Investor</h3> <p>Generally, only institutional investors (organizations that invest on behalf of its members) or accredited investors (individual investors or entities that meet income, net worth, asset size, governance status, or professional experience requirements set by the Securities and Exchange Commission) have access to private equity, venture capital, and other types of alternative investments.</p> <p>Some alternative investment firms may charge accredited investors a membership fee to be able to invest. For example, the Hawaii-based venture capital firm Hawaii Angels charges individual membership fees for out-of-state investors starting at <a href="http://www.hawaiiangels.org/investors.html" target="_blank">$700 per year</a>.</p> <p>Chances are that you won't meet the SEC requirements to become an accredited investor. For example, the SEC requires any natural person to have an individual or joint net worth of <a href="http://www.ecfr.gov/cgi-bin/retrieveECFR?gp=&amp;SID=8edfd12967d69c024485029d968ee737&amp;r=SECTION&amp;n=17y3.0.1.1.12.0.46.176" target="_blank">at least $1 million</a>, or an individual income in excess of $200,000 in each of the two most recent years ($300,000 in case of joint income) and a reasonable expectation of sustaining the same income level in the current year. According to the latest data from the U.S. Census Bureau, the median household income <a href="https://www.census.gov/quickfacts/table/INC110215/00" target="_blank">stands at $53,889</a>, which means there aren't many of us who qualify.</p> <h3>Exchange Traded Fund</h3> <p>Individual investors not meeting the SEC requirements can leverage exchange-traded funds (ETFs) to gain exposure to capital invested in alternative investments. For example, the PowerShares Global Listed Private Equity Portfolio ETF and the Proshares Global Listed Private Equity ETF allow you to invest in private equity portfolios.</p> <p>One key advantage of ETFs is their liquidity. Because they're traded just like stocks, one potential drawback is that there are over 1,400<a href="https://www.ici.org/etf_resources/background/faqs_etfs_market" target="_blank"> U.S.-based ETFs</a>, making it difficult for individual investors to pick the &quot;winners.&quot; (See also: <a href="http://www.wisebread.com/8-ways-etfs-can-put-more-money-in-your-pocket-than-mutual-funds?ref=seealso" target="_blank">8 Ways ETFs Can Put More Money in Your Pocket Than Mutual Funds</a>)</p> <h3>Retirement Account</h3> <p>Your 401K or IRA may already offer you the option to gain exposure to some alternative investments. Many retirement accounts offer a real estate investment trust (REIT) within their available funds for plan holders. A REIT owns or invests in income-producing real estate assets, such as shopping malls, apartment buildings, and warehouses, and in real estate debt, such as mortgages and other types of loans.</p> <p>Talk with your plan administrator to learn more about your full set of options in your retirement accounts. Some retirement accounts may already offer prospectuses of all funds available in the plan through an online platform that you can access after setting up your account.</p> <h2>The Bottom Line: Invest Carefully in Alternative Investments</h2> <p>All types of alternative investment firms seek extraordinary returns through their expertise within a specific field. A higher rate of return always comes with a higher level of risk, so make sure to only invest in alternative investments when you're fully comfortable with that level of risk.</p> <p>Depending on your tolerance for risk and total available investment fund, financial advisers suggest investing between 5% and 20% in alternative investments. Less than 5% won't be enough to move the needle in your total portfolio return, and over 20% may be increasing your total portfolio risk beyond that of your desired target.</p> <p>And don't forget to check the schedule of fees! Whenever evaluating whether an alternative investment is worthwhile, consider the total cost to determine whether or not those investments are suitable to you.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/5-investments-that-arent-stocks-or-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-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/8-things-everyone-should-know-about-the-commodities-markets">8 Things Everyone Should Know About the Commodities Markets</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-reasons-you-shouldnt-invest-like-warren-buffett">7 Reasons You Shouldn&#039;t Invest Like Warren Buffett</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/4-ways-to-beat-the-stock-market-in-2015">4 Ways to Beat the Stock Market in 2015</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/6-ways-to-invest-when-youre-in-debt">6 Ways to Invest When You&#039;re In Debt</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment alternative investments angel investors assets ETFs futures hedge funds private equity REITs unicorns venture capital Tue, 07 Feb 2017 10:00:14 +0000 Damian Davila 1886390 at http://www.wisebread.com These 8 Small Cap Value Investments Are on Fire http://www.wisebread.com/these-8-small-cap-value-investments-are-on-fire <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/these-8-small-cap-value-investments-are-on-fire" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/kid_money_investments_484334330.jpg" alt="Child finding small cap value investments that are on fire" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The stock market has been on a tear as 2016 comes to a close, and there's one particular investment that has performed especially well. Small cap value investments have risen significantly over the last few months, outpacing stocks and funds representing larger companies.</p> <p>Small cap value stocks are smaller companies (usually of less than $2 billion in market capitalization) that may be perceived as undervalued based on their price-to-earnings ratios. These investments appear to be benefiting from a general run-up in the stock market. But economic uncertainty overseas has further boosted small cap value investments, because they tend to be U.S.-based.</p> <p>There are countless small cap value stocks, but the easiest way to invest in them is through a mutual fund or exchange-traded fund (ETF). Here's a look at some small-cap investments that have been supercharging investment portfolios this year:</p> <h2>1. iShares S&amp;P Small Cap 600 Value ETF [NYSE: <a href="http://www.google.com/finance?cid=700320">IJS</a>]</h2> <p>Shares of this ETF are up more than 20% just since the start of November, and more than 34% over the last 52 weeks. Top holdings include TiVo, defense contractor CACI, and chemical company Chemours. IJS is designed to mirror the S&amp;P Small Cap 600 Value Index.</p> <h2>2. SPDR S&amp;P Small Cap 600 Value ETF [NYSE: <a href="https://finance.yahoo.com/q?s=slyv">SLYV</a>]</h2> <p>This is another ETF designed to track the S&amp;P Small Cap 600, and it's had a great 2016. Shares are trading at about $123, up 23% in the last two months and a whopping 50% since hitting a low of $80 in January. Returns on the year are nearly triple that of the S&amp;P 500. SLYV's holdings are very similar to its iShares counterpart, though its expense ratio of 0.15% is slightly lower.</p> <h2>3. iShares Russell 2000 Value ETF [NYSE: <a href="https://finance.yahoo.com/q?s=iwn">IWN</a>]</h2> <p>Another strong offering from iShares, this ETF is designed to track &mdash; surprise! &mdash; the Russell 2000 Value Index. It's up 20% in the last two months and 30% over 52 weeks. IWN's top holdings include Webster Financial Corp., Prosperity Bancshares, and chemical manufacturer Olin Corp.</p> <h2>4. Vanguard Small Cap Value ETF [NYSE: <a href="https://finance.yahoo.com/q?s=VBR">VBR</a>]</h2> <p>VBR has been on a tear recently, up about 17% since the start of November, and 24% in 2016. This is a passively managed fund designed to mirror the performance of the U.S. Small Cap Value Index. An expense ratio of .08% is another strong selling point for this ETF. Top holdings include insurance brokerage Arthur Gallagher &amp; Co., technology provider CDW, and Westar Energy Inc., the largest electricity provider in Kansas. (Disclosure: I own shares of VBR).</p> <h2>5. Schwab U.S. Small Cap ETF [NYSE: <a href="https://finance.yahoo.com/q?s=scha">SCHA</a>]</h2> <p>With an expense ratio of a mere 0.06%, this ETF costs almost nothing extra to own. And returns have been great in 2016, with shares rising by 20% on the year and 16% in the last two months. Holdings include U.S. Steel, Pacwest Bancorp, and Coty Inc., a maker of beauty products.</p> <h2>6. Wells Fargo Special Small Cap Value Fund [NYSE: <a href="http://etfs.morningstar.com/quote?t=ESPAX&amp;culture=en_us&amp;platform=RET&amp;viewId1=3577733644&amp;viewId2=2545513703&amp;viewId3=2700073027&amp;test=QuoteiFrame">ESPAX</a>]</h2> <p>Shares of this fund are up 30% in 2016, making it one of the best performing funds of the year. It's powered by diverse holdings that include First Citizens BancShares, cement maker Eagle Materials, and metal manufacturer Mueller Industries. There are no transaction fees to buy and sell this fund through Fidelity, though there is a $2,500 minimum investment.</p> <h2>7. American Beacon Small Cap Value Fund [NYSE: <a href="https://finance.yahoo.com/q/hl?s=AVFIX+Holdings">AVFIX</a>]</h2> <p>This mutual fund has risen in value by 23% in 2016. That's not quite as good as the Russell 2000 Value index, but still outpaces most investments these days. This fund is weighted heavily toward financials and technology. Top holdings include Vishay Intertechnology Inc. and Portland General Electric Company. Note that its expense ratio of 0.82% is on the high side.</p> <h2>8. Queens Road Small Cap Value Fund [NYSE: <a href="https://www.zacks.com/funds/mutual-fund/quote/QRSVX">QRSVX</a>]</h2> <p>This well-regarded fund is up 12% since the end of October and 17% overall this year. This fund is weighted toward industrials and technology, with a good dose of consumer products and financials. Top holdings include Plantronics, a maker of wireless headsets; Hilltop Holdings, a bank and insurance company; and aerospace firm Orbital ATK. The minimum to invest in this fund is $2,500, and the expense ratio of 1.26% is on the higher side. However, those with brokerage accounts at Fidelity can trade this fund without paying a commission.</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/these-8-small-cap-value-investments-are-on-fire">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/10-stocks-to-invest-in-during-the-holidays">10 Stocks to Invest in During the Holidays</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-buy-your-first-stocks-or-funds">How to Buy Your First Stock(s) or Fund(s)</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-questions-to-ask-before-you-sell-a-stock-or-a-fund">10 Questions to Ask Before You Sell a Stock or a Fund</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-deliciously-profitable-food-and-beverage-stocks">10 Deliciously Profitable Food and Beverage Stocks</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment small cap small cap value small companies stock market stocks Thu, 05 Jan 2017 11:00:08 +0000 Tim Lemke 1868659 at http://www.wisebread.com 8 Stocks to Dump Before the New Year http://www.wisebread.com/8-stocks-to-dump-before-the-new-year <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-stocks-to-dump-before-the-new-year" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/alarm_clock_2017_610877858.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>We here at Wise Bread are big supporters of long-term investing. Therefore, we don't really advocate selling stocks just because they aren't trading where you want them to be at any given moment. That said, there are times when selling <em>some </em>securities at year's end makes sense.</p> <p>In some instances, it's time to sell an investment because they are stinkers, plain and simple. In other instances, it may be time to cut ties because there's little good news on the horizon to suggest they will grow in value in the coming year. But in other cases, it's a matter of selling at a loss in order to offset capital gains elsewhere, thus saving on your tax bill. (You can always buy these stocks back if they are still trading at low prices, as long as you wait more than 30 days.)</p> <p>Here are some notable stocks and other investments that may be worth selling before the calendar turns.</p> <h2>1. Nike [NYSE: <a href="https://finance.yahoo.com/q?s=nke">NKE</a>]</h2> <p>Nike used to be the king of everything athletics, but it's been facing some stiff competition in recent years from Reebok, adidas, and the new biggest player, Under Armour. Nike is still a huge brand, but shares are down 17% in 2016. Sales growth has been uninspiring, margins have been shrinking, and no one really knows how low Nike will go.</p> <h2>2. Starbucks [NYSE: <a href="https://finance.yahoo.com/q?s=SBUX">SBUX</a>]</h2> <p>Starbucks is a solid company, so there's an argument to be made that you should never sell shares once you own them. But the company had a less-than-stellar year, with shares falling more than 2% in 2016, and some analysts have argued that the company is no longer in a position to see massive growth year after year. The American market is a bit saturated, and it may take time for some of the company's investments overseas to bear fruit. Starbucks could be a bargain for those who don't already own shares, but if you bought shares early in 2016, you may be able to use some losses to offset gains elsewhere in your portfolio.</p> <h2>3. Coca-Cola [NYSE: <a href="https://finance.yahoo.com/q?s=KO">KO</a>]</h2> <p>Yes, we know Warren Buffett, America's #1 Coke Lover, would probably have something to say about this. But the reality is that Coca-Cola hasn't had a good year, and faces continued headwinds as it looks to sell products to a populace that is growing more health conscious. Coke shares are down more than 4.5% in 2016. Sales are expected to decline next year after the company spun off most of its bottling operation. Dividends from Coca-Cola are still solid, but some say they have come at the expense of growth. All of this comes at a time when the company's CEO announced he would resign next May.</p> <h2>4. Anheuser-Busch InBev [NYSE: <a href="https://finance.yahoo.com/q?s=BUD">BUD</a>]</h2> <p>Shares of the big beer maker are down nearly 18% in 2016 as the industry faces stiff competition from craft breweries. A-B InBev did complete its takeover of SABMiller, but it will take a while for that merger to have a positive impact. Long-term investors will probably still want to hang on to this stock, but anyone looking for a rebound in price in the short term shouldn't hold their breath.</p> <h2>5. The Walt Disney Co. [NYSE: <a href="https://finance.yahoo.com/q?s=dis">DIS</a>]</h2> <p>On one hand, Disney owns some very profitable theme parks and a humble movie franchise called Star Wars. But questions surround its television offerings, as cord cutters have led to declining subscriptions of its channels, most notably ESPN. Shares are down more than 1.6% in 2016 and 6% in the last 52 weeks. Disney has made some investments to take advantage of the shift from cable to streaming, but it may take time before we see if they pay off.</p> <h2>6. Monster Beverage [Nasdaq: <a href="https://finance.yahoo.com/q?s=mnst">MNST</a>]</h2> <p>There was a time when Monster, a top maker of energy drinks, was one of the hottest stocks available for trade. But like Coke and Starbucks, the story for beverages wasn't great in 2016. Shares of Monster have fallen 13% in 2016. Some analysts say Monster will see strong sales growth as the overall market for energy drinks expands. But with a price-to-earnings ratio that's nearly 40% higher than the national average, Monster is hardly a bargain.</p> <h2>7. Biotech and Pharma</h2> <p>It just hasn't been a good year if you invested in biotech or pharmaceuticals. Companies including Gilead, GlaxoSmithKline, Pfizer, and Bristol Myers-Squibb have all posted losses in 2016. And a look at the biggest losers among ETFs and mutual funds will include a large dose of biotech and pharma. These investments are known for their volatility, so if you knew that going in, perhaps you have the stomach to ride the wave and see if things rebound in 2017. Otherwise, it may be time to cut your losses.</p> <h2>8. Automakers</h2> <p>Major car manufacturers here in the U.S. and abroad had mediocre years at best. Shares of Ford [NYSE: <a href="https://finance.yahoo.com/q?s=F">F</a>] are down about 7.5%, while Toyota and Honda are also in negative territory. Auto sales aren't bad, so there's no massive risk in holding on to some of these stocks. But a tough market in Latin America and uncertainty about trade agreements under the incoming Trump administration are making investors wonder when the growth in share prices will return.</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-stocks-to-dump-before-the-new-year">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/10-questions-to-ask-before-you-sell-a-stock-or-a-fund">10 Questions to Ask Before You Sell a Stock or a Fund</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/help-i-bought-a-stock-dud-what-now">Help, I Bought a Stock Dud! — What Now?</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-carried-interest-may-affect-our-taxes">How &quot;Carried Interest&quot; May Affect Our Taxes</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/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-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-investments-that-usually-soar-during-the-summer">7 Investments That Usually Soar During the Summer</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment 2016 capital gains Coca-Cola Disney Nike selling Starbucks stocks tax-loss harvesting Fri, 23 Dec 2016 10:00:08 +0000 Tim Lemke 1860473 at http://www.wisebread.com How to Protect Yourself From an Investment Scam http://www.wisebread.com/how-to-protect-yourself-from-an-investment-scam <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-protect-yourself-from-an-investment-scam" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-479413254.jpg" alt="don&#039;t fall for these investment scams" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>There's nothing wrong with putting your money to work for you. Investments can be the difference between making ends meet, and making a mint. But remember your mom's advice: If it sounds too good to be true, it probably is.</p> <p>Following this warning is one of the best ways to avoid financial scams. Here's a list of some infamous investment frauds, and ways to spot red flags. Pay attention. Make your mom proud &mdash; and your wallet happy.</p> <h2>The Classic: Pyramid Scheme<strong> </strong></h2> <p>Many pyramid schemes come across as multi-level marketing opportunities. Investors pay fees to join and then make money from direct sales. Backers also get a cut of profits from folks they've recruited to the program. But pyramid organizers need this new money to pay off earlier investors, and often, the scheme collapses under its own weight. There's not enough money to make payoffs. Participants see investments and returns disappear.</p> <p>Pyramid schemes often spread through social media, websites, online ads, and group pitches. Be alert to these warning signs.</p> <ul> <li>You're told you'll make a lot of money quickly, but you won't have to put in much effort.</li> </ul> <ul> <li>You have to pay a fee to join, and your main role is getting others to sign up.</li> </ul> <ul> <li>Any product that's sold has little value outside the scheme.</li> </ul> <ul> <li>You can't find evidence, such as professionally audited financial statements, of sales profits. Money comes from recruitment.</li> </ul> <ul> <li>Profits come from within the program. Your earnings depend upon other participants, not on outside sales.</li> </ul> <p>Lots of money, little work: this is exactly what your mother was talking about.</p> <h2>Risky Business: Energy Scams<strong> </strong></h2> <p>Legitimate investment opportunities in oil and gas development come with no guarantees. They need lots of money and time, and proceeds are uncertain. Developers might drill and drill with little return for their efforts. Investors can lose everything they put in. And that's with authentic energy exploration. If the whole purpose is to separate you from your money, participants don't stand a chance.</p> <p>So how do you separate real energy investment deals from scams? Be on the lookout for these warning signs.</p> <ul> <li>Company offices are in one state, drilling is in another, and investors don't live in either. You can't easily visit the corporation or well site. If fraud is suspected, the geographic range creates a nightmare for law enforcement investigators.<br /> &nbsp;</li> <li>You receive a surprise email or phone call. You don't hear a lot of facts, just tremendous pressure to commit. You're warned that if you don't immediately jump in, you'll miss out. Real energy companies don't fish around for investors.<br /> &nbsp;</li> <li>Little risk, high returns: Is that what you've been promised? Run away, because that's not how it really works in the energy business.</li> </ul> <ul> <li>Some get-rich-quick scams use current events as lures. If high gas and oil prices are currently in the news, investors might be convinced the time is right. But remember, well development is a long process.</li> </ul> <ul> <li>If the company is secretive and doesn't want you to talk to anyone about your investment opportunity, there's a good reason for that. It's a shady proposition. You should be encouraged to consult others and investigate the deal. And all your questions should get answers &mdash; in writing. If you get shut down, close your wallet.</li> </ul> <p>Energy development is a business, not a mystery. All aspects should be open and aboveboard.</p> <h2>I'm Just Like You: Affinity Sham<strong> </strong></h2> <p>Affinity fraud targets participants based on a specific characteristic, such as age, religious affiliation, or ethnicity. Schemers present themselves as members of the same group in order to create an immediate relationship. Some hustlers are so good they enlist recognized leaders of the community. Unfortunately, these respected notables wind up falling prey to the scam &mdash; and unintentionally drawing others in.</p> <p>You might feel a connection to the individual trying to get you to invest, but that's what these con artists count on. Be wary.</p> <ul> <li>Don't invest just because you have an association with the promoter &mdash; even if it's someone you trust. That person may have been duped. Do outside research. If that's discouraged, say no. Real investments hold up against scrutiny.<br /> &nbsp;</li> <li>Avoid online opportunities that show up in chat groups, bulletin boards, or websites exclusive to your group. The Internet is a quick and easy way to target a specific audience.<br /> &nbsp;</li> <li>Steer clear of any investment that guarantees low risk and high returns. The two just don't go together. Valid deals don't promise them.</li> </ul> <p>The bottom line here &mdash; listen to your mother. When it comes to changing your socks, eating your vegetables, and avoiding fraud, she knows best.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/anum-yoon">Anum Yoon</a> of <a href="http://www.wisebread.com/how-to-protect-yourself-from-an-investment-scam">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/top-10-scams-of-2006">Top 10 scams of 2006</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-tell-if-that-home-business-opportunity-is-really-a-pyramid-scheme">How to Tell if That Home Business Opportunity Is Really a Pyramid Scheme</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-sale-aftermath-beware-of-paypal-chargebacks-0">The Sale Aftermath: Beware of PayPal Chargebacks</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/dont-panic-do-this-if-your-identity-gets-stolen">Don&#039;t Panic: Do This If Your Identity Gets Stolen</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-more-scams-everyone-should-know-about">10 More Scams Everyone Should Know About</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Consumer Affairs Investment advice energy scams fraud money protection multi level marketing pyramid schemes scams Wed, 21 Dec 2016 10:31:29 +0000 Anum Yoon 1858984 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-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/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-3 views-row-odd"> <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-4 views-row-even"> <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-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-easy-ways-to-start-green-investing">5 Easy Ways to Start Green Investing</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 8 Investments That May Soar During Trump's Term http://www.wisebread.com/8-investments-that-may-soar-during-trumps-term <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-investments-that-may-soar-during-trumps-term" 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_speech_609937238.jpg" alt="Learning investments that may soar during Trump&#039;s term" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>What will the presidency of Donald J. Trump mean for your finances? No one knows just yet, but it's possible to make some educated guesses based on some of his public statements.</p> <p>President-Elect Trump has advocated for lower taxes and higher spending on infrastructure and defense. He's also pushed for policies that could lead to higher interest rates and inflation.</p> <p>It's worth noting that all investment returns are based on a variety of factors separate from who lives in the White House. But here are some investments that might do well under a Trump presidency.</p> <h2>1. Defense Contractors</h2> <p>At various times, President-Elect Trump has spoken about the need to bolster the U.S. Military and has talked about acting more aggressively against terrorism. So it's not a bad bet to look at major defense contractors including Lockheed Martin [NYSE: <a href="https://www.google.com/finance?cid=21553">LMT</a>], Northrop Grumman [NYSE: <a href="https://www.google.com/finance?q=NYSE%3ANOC&amp;ei=D9I9WICUI8yJef_Us_AL">NOC</a>], and Raytheon [NYSE: <a href="https://www.google.com/finance?q=RTN&amp;ei=NdI9WJmYH8_BeuKspbAL">RTN</a>]. If you're not comfortable picking individual stocks, take a look at mutual funds like the Fidelity Select Defense&amp; Aerospace fund [NYSE: <a href="https://www.google.com/finance?q=FSDAX&amp;ei=QtI9WJDHLJLteM3pgcgL">FSDAX</a>] or ETFs like the iShares Aerospace&amp; Defense ETF [NYSE: <a href="https://www.google.com/finance?q=ITA&amp;ei=W9I9WPDdGsmPeYPRs-AL">ITA</a>].</p> <h2>2. Oil Stocks</h2> <p>Trump has voiced support for allowing oil companies to drill on more land, including offshore areas that were declared off limits under President Obama. Such a change would, in theory, give companies like Exxon [NYSE: <a href="https://www.google.com/finance?q=NYSE%3AXOM&amp;ei=fNI9WNDlDcq_evSXhOAL">XOM</a>] and Chevron [NYSE: <a href="https://www.google.com/finance?q=CVX&amp;ei=wtI9WNm-J8LLeZnHi-AM">CVX</a>] access to more supply. There is one big caveat here, which is that oil prices have already dropped due to a glut of supply versus demand, so it's unclear what impact any changes might immediately have.</p> <h2>3. Heavy Equipment Manufacturers</h2> <p>The President-Elect has said he will &quot;Make America Great Again&quot; through massive investment in infrastructure. This means big construction and repairs of roads, bridges, buildings, and airports. And that work can't be carried out without big machines. Look to a stock like Caterpillar [NYSE: <a href="https://www.google.com/finance?q=CAT&amp;ei=1dI9WMHkHdibee3Wn6AL">CAT</a>], which saw shares rise 7% immediately after Trump's election. Asian companies including Doosan (the maker of Bobcat), Hitachi, and Komatsu could also see good results from an infrastructure spending binge.</p> <h2>4. Steel Companies</h2> <p>The steel industry would also get a boost from more infrastructure spending, and Trump has also promised to crack down on the illegal &quot;dumping&quot; of Chinese steel into the U.S. market. If indeed he's serious about support for American steel, that could be a boon for companies like Nucor [NYSE: <a href="https://www.google.com/finance?q=NYSE%3ANUE&amp;ei=ANM9WNHtNNSIe63PqagL">NUE</a>] and U.S. Steel, [NYSE: <a href="https://www.google.com/finance?q=NYSE%3AX&amp;ei=GNM9WOmbI86feYqyrdAL">X</a>].</p> <h2>5. Cement Companies</h2> <p>Another sector that could see good profits from more infrastructure spending. And if Trump somehow manages to build that wall along the Mexican border, it has to be made out of something. Most of the largest cement manufacturers are overseas, but look at France-based Lafarge, Germany-based Heidelberg, Mexico-based Cemex, and a host of Chinese manufacturers.</p> <h2>6. Private Prisons</h2> <p>The Obama administration this year announced that the Justice Department would phase out its use of private prisons. But there's no guarantee Trump won't halt that process. And if he follows through on his efforts to deport millions of illegal immigrants, the country may need jail capacity to hold them as they go through a judicial process. Companies including Geo Group [NYSE: <a href="https://www.google.com/finance?q=NYSE%3AGEO&amp;ei=JdM9WIn8N8LLeZnHi-AM">GEO</a>] and CoreCivic [NYSE: <a href="https://www.google.com/finance?q=CXW&amp;ei=TtM9WOnyBtibee3Wn6AL">CXW</a>] could cash in. Also look to companies that provide health care and phone services to prisons.</p> <h2>7. Banks</h2> <p>President-Elect Trump has said he will roll back many regulations that were put in place after the financial crisis in 2009. Some supporters have argued that repeal of the Dodd-Frank legislation will free banks up to lend more. Shares of JPMorgan, Goldman Sachs, and Bank of America have shot up since the election. Investors in big banks also may be excited by proposals for lower taxes and more infrastructure savings.</p> <h2>8. Commodities</h2> <p>Many observers predict that Trump's economic policies could lead to inflation. And when prices go up, it's usually a good thing for things like precious metals, oil, and agriculture products. It's possible to invest in commodities directly, or invest in mutual funds and exchange-traded funds that track all commodities or commodity sectors as a group.</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-investments-that-may-soar-during-trumps-term">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/could-trump-bring-higher-interest-rates-and-inflation-consider-these-money-moves">Could Trump Bring Higher Interest Rates and Inflation? Consider These Money Moves</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/while-waiting-for-rates-i-bonds">While Waiting for Rates: I-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/7-cool-things-bonds-tell-you-about-the-economy">7 Cool Things Bonds Tell You About the Economy</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-carried-interest-may-affect-our-taxes">How &quot;Carried Interest&quot; May Affect Our Taxes</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/6-ways-to-invest-when-youre-in-debt">6 Ways to Invest When You&#039;re In Debt</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment donald trump inflation infrastructure interest rates military oil presidency prisons steel Mon, 05 Dec 2016 11:00:09 +0000 Tim Lemke 1845282 at http://www.wisebread.com The Easiest Way to Invest in the World's Biggest Companies http://www.wisebread.com/the-easiest-way-to-invest-in-the-worlds-biggest-companies <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-easiest-way-to-invest-in-the-worlds-biggest-companies" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/invest_money_476336804.jpg" alt="Learning how to invest in the biggest companies" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Here's a classic way to build up an investment portfolio: Regularly invest modest amounts of money in growing companies. Do that for a few decades, reinvesting the dividends as you go along, and &mdash; if you've picked the right companies &mdash; you will end up with sizable holdings. Perhaps even real wealth.</p> <p>If you want a diversified portfolio, and you really should, there are a lot of cheap ways to get one. Any number of mutual funds will let you open an account with a modest initial deposit, and the minimums for subsequent investments are quite reasonable for even a small saver.</p> <p>But what if you don't like someone else's idea of a diversified portfolio? What if you have some strong opinions about which companies are worth investing in, and out of the thousands of mutual funds available, none of them focuses on those companies? What if you really want to invest in specific companies picked by you?</p> <p>One option would be to open an account at an online brokerage and make your purchases there. That will work great if you have ample money to invest. But what if your free cash for investing is small?</p> <p>Even small investments can add up to a lot of money, if you've got both time and a good annual return working for you. If the companies you pick can average an 8% annual return for 40 years, just $20 a week will build to a fortune of over $300,000.</p> <p>But the online brokerage solution is no good for investments that small, because of commissions. Even the cheap online brokers charge $5 on a trade, and plenty of them charge closer to $10 &mdash; there's half your investment gone right there.</p> <p>Fortunately, there's an alternative that's tailor-made for this situation: Direct Stock Purchase Plans, or DSPPs.</p> <h2>Direct Stock Purchase Plans</h2> <p>Back in my day they were called Dividend Reinvestment Plans, or DRIPs, but they're basically the same thing: Big companies hire somebody &mdash; usually the stock transfer agent &mdash; to create and manage accounts that let individuals buy small quantities of stock &mdash; usually for no commission &mdash; and reinvest their dividends.</p> <p>It's a win for the investor, because they get to invest in the stock for free. It's a win for company, because they get a dependable stream of new capital, and a stable base of shareholders who are aren't likely to sell out at the first sign of bad news or to go chasing after the next hot trend.</p> <p>Besides charging no commissions, they also solve another problem for the very small investor: the cost of whole shares. Suppose you want to invest $20 out of every paycheck, but the stock you want to buy is $63 a share. It would take you four paychecks to save up enough money to buy one share. With a DSPP you'd get 0.317 shares with the first contribution, and a similar amount each paycheck after.</p> <h2>Things to Know</h2> <p>There are a few caveats.</p> <p>First, only certain companies go to the trouble and expense of offering a DSPP. Happily, as suggested by the title of this article, they're mostly the largest companies on the U.S. stock exchanges. The web has plenty of lists of companies that offer DSPPs or DRIPs. Alternatively, if you know which company you're interested in, go to the company website and look for a link like &quot;investors&quot; or &quot;shareholder information.&quot; If there's a direct investment program, you'll find the information about it there.</p> <p>Second, buying stocks this way &mdash; through numerous small purchases &mdash; may make figuring your taxes a lot more complicated in the years that you sell. (This may be less true than it used to be, now that brokers are required to track your cost basis for you.)</p> <p>Third, be aware that these sort of plans don't offer the services of a broker. They are basically just for accumulating shares in one specific company. They will probably let you shift from reinvesting your dividends to receiving them in cash, something you might want to do when you retire and will be living off your investments. They usually let you take delivery of your stock (if at some point you want to transfer it to a regular broker) or sell it (if you have found a better investment, or need the money to live on). They won't let you borrow against it, they won't have cash management tools, they won't be interested in holding any other shares you own, or selling you bonds, or advising you on other investment opportunities.</p> <p>Fourth, investing in just one company won't give you a diversified investment portfolio. You'd need a dozen carefully chosen companies to get something reasonably diversified. Of course, as an adjunct to some well-diversified mutual funds, a DSPP in a company that does very well, can provide a considerable boost to your total return, without completely unbalancing your portfolio.</p> <h2>History</h2> <p>Plans like these used to be a much bigger deal. Especially before 1975 (when minimum commissions were abolished), but continuing right up until Internet brokers got big in the 1990s, the costs to trade stocks were high enough that it was completely impractical for a small investor to gradually accumulate shares in a growing company. Investing in individual stocks was a game only for the wealthy.</p> <p>It's generally not important these days, but there's a technical difference between DRIPs and DSPPs. Back in the day DRIPs usually required that you purchase your first share from a broker (or acquire it some other way, such as by inheriting it). Then you could reinvest dividends, or even make additional cash purchases of shares, but that first share had to come first.</p> <p>Starting in the mid-1990s, the SEC relaxed some rules, making it practical for companies to offer DSPPs that could sell you your first share, as well as shares beyond that.</p> <p>It's kind of a technical point, but that's the difference between the two kinds of plan.</p> <h2>Small Versus Tiny Investors</h2> <p>With internet brokers, even a fairly small investor can buy and sell stocks. You need a certain amount of capital &mdash; a few thousand dollars &mdash; to make it possible to buy a round lot of 100 shares and to make the $5 or $10 commission a small enough percentage of your total investment.</p> <p>But if you're a tiny investor &mdash; if your investable capital is only a few hundred dollars &mdash; something like a DSPP makes it possible for even the smallest investors to accumulate sizable portfolios through frequent, modest investments made over a long period of time.</p> <p>It's what they were designed for.</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-easiest-way-to-invest-in-the-worlds-biggest-companies">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-are-income-stocks">What Are Income Stocks?</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-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-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-essentials-for-building-a-profitable-portfolio">5 Essentials for Building a Profitable 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/8-money-moves-to-make-before-you-start-investing">8 Money Moves to Make Before You Start Investing</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-too-much-investment-diversity-can-cost-you">How Too Much Investment Diversity Can Cost You</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment direct stock purchase plans dividend reinvestment plans DSPP large companies portfolio small investors stock market Mon, 28 Nov 2016 10:00:06 +0000 Philip Brewer 1839210 at http://www.wisebread.com 6 Ways to Invest When You're In Debt http://www.wisebread.com/6-ways-to-invest-when-youre-in-debt <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-ways-to-invest-when-youre-in-debt" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/plant_tree_stump_462868653_0.jpg" alt="Learning ways to invest when you&#039;re in debt" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You know you need to begin investing to save for the future, but you still have some debt to pay off. It is possible to take care of both at the same time?</p> <p>The short answer is that yes, you can pay down debt and invest at the same time. In many ways, this is a personal choice. If you despise debt and sleep better at night knowing that you're paying it off as quickly as possible, that's fine. But if you can tolerate paying off debt at a slower rate and investing some money, you may end up ahead of the game financially over the long-term.</p> <p>Here are some things to consider when deciding how much to invest and how much debt to pay off.</p> <h2>1. Minimum Payments First, Then Invest</h2> <p>While it's certainly possible to pay down debt and invest at the same time, it's never a good idea to invest if you can't make your minimum payments first. If you don't make minimum payments, you'll be on the hook for higher interest, late fees, and penalties. Not to mention that your credit score will take a big hit. Consider investing your money only if you know you can set money aside and still make at least the minimum payments on debt.</p> <h2>2. Tackle the High Interest Debt</h2> <p>If your debt is tied up in credit cards and other things that come with high interest rates, you may want to hold off on investing until that's under control. Credit cards have interest rates in the double digits, and you're unlikely to generate an investment return that outpaces that. Once that high-interest debt is down to zero, then investing becomes much more possible. (See also: <a href="http://www.wisebread.com/fastest-way-to-pay-off-10000-in-credit-card-debt?ref=seealso">Fastest Way to Pay Off 10K in Credit Card Debt</a>)</p> <h2>3. Use Your 401K Plan</h2> <p>If you work for an employer that offers a 401K plan or something similar, it's worth taking part even if you have some debt. That's because most employers will match contributions up to a certain amount. So it's like getting free money. Any contributions you make to a 401K are deducted from your taxable income, so there are great tax advantages for taking part. Invest what you can while still paying down your debt. Then, when your debt is paid off, increase your contributions.</p> <h2>4. Look at Low-Cost Mutual Funds and ETFs</h2> <p>If most of your debt is tied up in low-interest things like student loans or mortgages, it's okay to set aside some money to invest in things that will generate a good return. In fact, there are many financial planners that argue against paying off low-interest loans early if market returns are higher than interest rates. Over time, stocks have averaged returns of about 7%, which is much higher than interest rates these days. To get this type of return, consider looking at mutual funds and exchange-traded funds that have low fees and are designed to track the performance of the overall stock market.</p> <h2>5. Find Investments That Trade Without a Commission</h2> <p>If you're trying to invest and pay down debt at the same time, there's a good chance you may only be able to invest a little at a time. That's okay, but it's important to be aware of the fees and commissions you pay every time you buy and sell. If you're only buying a few shares of a stock but paying $8 in a commission, for example, that fee is cutting into a sizable percentage of your investment. Fortunately, many discount brokerages allow you to trade certain types of investments without paying a commission. Fidelity offers fee-free investing on all iShares ETFs, ETrade offers many commission-free ETFs from WisdomTree and Global X, and TD Ameritrade offers more than 100 ETFs with no transaction fees.</p> <h2>6. Automate as Much as Possible</h2> <p>Finding the balance between investing and paying off debt requires some discipline. If you have some debt but are considering investing, determine in advance what your ideal balance is. Then, set up automatic monthly transfers of money into an investment account, and automate your bills as well. If you get extra money or a raise, consider tweaking the balance accordingly. When you automate, it takes the guesswork out, allows you to stay consistent, and makes it easier to do other financial planning.</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/6-ways-to-invest-when-youre-in-debt">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/7-money-moves-to-make-as-soon-as-you-conquer-debt">7 Money Moves to Make as Soon as You Conquer Debt</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-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-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-prevent-a-debt-spiral">5 Ways to Prevent a Debt Spiral</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/beware-of-these-common-debt-consolidation-traps">Beware of These Common Debt Consolidation Traps</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/7-ways-to-invest-in-biotech-without-getting-burned">7 Ways to Invest in Biotech Without Getting Burned</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management Investment 401k ETFs fees interest rates market returns mutual funds saving money Wed, 23 Nov 2016 11:30:07 +0000 Tim Lemke 1838645 at http://www.wisebread.com