Investment http://www.wisebread.com/taxonomy/term/4808/all en-US Think Outside the Index When You Rebalance Your Investment Portfolio http://www.wisebread.com/think-outside-the-index-when-you-rebalance-your-investment-portfolio <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/think-outside-the-index-when-you-rebalance-your-investment-portfolio" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/businesswoman_using_tablet.jpg" alt="Businesswoman using Tablet" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>As the year winds down, it's common for investors to examine their portfolios and consider some rebalancing. This means looking at your investments to make sure you're not over-invested or underinvested in certain areas.</p> <p>Many investors will simply buy shares of a mutual fund that mirrors the performance of the S&amp;P 500. You can do well with this simple approach, but you will lack exposure to many smaller or midsize companies, and will be heavily invested in some industries (such as technology) but not others.</p> <p>Here are some sectors and asset classes that you can invest in to make your portfolio truly diverse.</p> <h2>1. Utilities</h2> <p>They aren't the sexiest investments, but this sector contains many great dividend stocks that can boost your income while offering the stability your portfolio might need. Consider that during the market tumble between 2007 and 2009, the S&amp;P 500 lost about half its value, while the Dow Jones Utility Average index lost about one third.</p> <p>Right now, utilities make up around 3 percent of the S&amp;P 500, so many investors don't have much exposure. Consider mixing in some utilities by investing in mutual funds like the Vanguard Index Utilities Fund [VUIAX] or ETFs such as the iShares Global Infrastructure ETF [IGF].</p> <h2>2. Materials</h2> <p>This is another underappreciated sector that deserves more love from investors. What are &quot;materials&quot; in stock market lingo? This refers to companies that discover and process raw materials. Think of steel manufacturers, mining companies, or chemical producers. The materials sector also makes up about 3 percent of the S&amp;P 500, but has outperformed the broader stock market over the last year. Materials also outperformed the S&amp;P 500 during the Great Recession.</p> <p>Well-performing materials mutual funds include Vanguard Materials Index Fund [VMIAX] and the Fidelity Select Materials Portfolio [FSDPX].</p> <h2>3. Telecommunications services</h2> <p>This sector includes companies such as Verizon, AT&amp;T, and T-Mobile. Companies like these have not been the best performers in recent years, but they can bring stability to your portfolio and offer a very healthy dividend yield. Investors might earn an annual dividend of 5 percent or more with these stocks, which is helpful income during this time of low interest rates. Older investors who are willing to sacrifice growth for income and stability may want to take a hard look at telecom services, which currently make up about 2 percent of companies in the S&amp;P 500.</p> <h2>4. Energy</h2> <p>This sector comprised more than 10 percent of the S&amp;P 500 as recently as three years ago, but that's down to about 6 percent now. That's a shame, because the sector includes some very strong companies including ExxonMobil and Chevron. It's been a very volatile few years for the energy sector due to the tumble in oil prices, but there are bargains to be had, and the world is not going to cease demanding energy, especially from developing countries. Investing in green energy can offer some growth opportunities, and you'll be helping the planet in the process. Energy stocks can also offer higher dividend yields than many sectors.</p> <h2>5. Consumer staples</h2> <p>This sector likely has some of the most familiar stocks you can think of. Currently making up over 8 percent of the S&amp;P 500, consumer staples includes firms like Coca-Cola, Procter &amp; Gamble, Unilever, and Walmart. And yet, this sector is somewhat underrepresented in the S&amp;P 500. This sector is considered a safe haven for investors, because it often performs better than other sectors during times of market uncertainty. That's because even during the worst of times, we all still need basic household products. This sector also has an average dividend yield of nearly 3 percent, making it attractive to income investors.</p> <p>To get more exposure to consumer staples, take a look at ETFs such as the iShares Consumer Goods ETF [IYK] and Vanguard Consumer Staples ETF [VDC].</p> <h2>6. Small cap stocks</h2> <p>When you invest in the S&amp;P 500, you're investing only in the largest companies. These companies may offer solid returns, but it's never good to be invested too heavily in companies of a similar size. To build a truly diversified portfolio, it helps to invest in a healthy dose of smaller companies as well. Small cap stocks are generally those with market capitalization between $300 million and $2 billion. These firms tend to be more volatile, but their gains can be more dramatic. Consider that the T. Rowe Price Small Cap Fund [OTCFX] has averaged a return of around 20 percent over the last year, compared to about 16 percent for the S&amp;P 500. Small cap value stocks &mdash; comprised of small companies generally considered undervalued by fund managers &mdash; have performed even better over the last year.</p> <h2>7. Mid-cap stocks</h2> <p>Not too big and not too small, mid-cap stocks include some very well-run companies in a wide range of industries, and they can bring growth and stability to your portfolio. If you want to invest in midcaps, forget the S&amp;P 500 and go with the S&amp;P 400, which includes the top mid-sized companies and routinely outperforms the smaller and larger asset classes.</p> <p>The Vanguard MidCap ETF [VIMSX] has seen a 10 percent annual return since 2004, and the T. Rowe Price Midcap Growth Fund [RPMGX] has seen a 13 percent annual return since the early 1990s.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fthink-outside-the-index-when-you-rebalance-your-investment-portfolio&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FThink%2520Outside%2520the%2520Index%2520When%2520You%2520Rebalance%2520Your%2520Investment%2520Portfolio.jpg&amp;description=Think%20Outside%20the%20Index%20When%20You%20Rebalance%20Your%20Investment%20Portfolio"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/Think%20Outside%20the%20Index%20When%20You%20Rebalance%20Your%20Investment%20Portfolio.jpg" alt="Think Outside the Index When You Rebalance Your Investment Portfolio" width="250" height="374" /></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/think-outside-the-index-when-you-rebalance-your-investment-portfolio">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-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/bookmark-this-a-step-by-step-guide-to-choosing-401k-investments">Bookmark This: A Step-by-Step Guide to Choosing 401(k) Investments</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-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-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-costly-mistakes-diy-investors-make">9 Costly Mistakes DIY Investors Make</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-the-risk-averse-can-get-into-the-stock-market">How the Risk Averse Can Get Into the Stock Market</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment diversification mid-cap stocks portfolio rebalancing returns s&p 500 sectors small cap stocks Mon, 20 Nov 2017 09:30:10 +0000 Tim Lemke 2054955 at http://www.wisebread.com 5 Investment Moves That Prove You're Finally a Grown-Up http://www.wisebread.com/5-investment-moves-that-prove-youre-finally-a-grown-up <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-investment-moves-that-prove-youre-finally-a-grown-up" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/businessman_protecting_coins_in_saplings.jpg" alt="Businessman Protecting Coins In Saplings" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You know that investing is a smart move: It's a way to grow your wealth over time and boost the odds that you'll have enough money to live the happiest possible retirement. But how do you know when you're investing your money like a grown-up and not like a kid?</p> <p>It's about taking reasonable risks, doing your research, and changing your investment mix when it makes sense. In other words, you know you're investing like a grown-up when you treat investing like what it is: work.</p> <p>These are the five investment moves that prove you're finally a grown-up.</p> <h2>1. You're not afraid to invest in stocks</h2> <p>It's true that stocks come with more risk. But investing in stocks comes with the potential for much higher rewards, too. If you ignore stocks and only invest in safe assets such as bonds, you run the risk of losing significant profits over time.</p> <p>According to TIME Money, since 1926, portfolios made up mostly of stocks have never had losses that last 20 years or more. These same portfolios reported average gains of more than 10.8 percent annually, while portfolios made up of bonds averaged returns of just 4 percent a year.</p> <p>If you're investing like a grown-up, you won't run away from the high-reward potential of stocks. Instead, you'll make sure to include stocks as part of your overall investment portfolio. (See also: <a href="http://www.wisebread.com/7-reasons-to-invest-in-stocks-past-age-50?ref=seealso" target="_blank">7 Reasons to Invest in Stocks Past Age 50</a>)</p> <h2>2. You do your research</h2> <p>Your friend comes to you with a hot tip, claiming that you absolutely must invest in this new company. They tell you you'll be getting in on the ground floor of something big. An immature investor might jump at that opportunity, but a grown-up will do the research before acting on the tip.</p> <p>This means reading company reports and listening to conference calls. It means studying the product or service this &quot;hot&quot; company is offering. It means seeking out the advice of true financial experts. And, yes, all of that takes time and work. But to invest like a grown-up means you're willing to put in that effort before investing your dollars. (See also: <a href="http://www.wisebread.com/7-dumb-stock-picking-mistakes-even-smart-investors-make?ref=seealso" target="_blank">7 Dumb Stock Picking Mistakes Even Smart Investors Make</a>)</p> <h2>3. You don't sell too quickly</h2> <p>It's tempting to sell a stock when it's either soaring in value or falling. But reacting too quickly to changes in value, whether positive or negative, is the sign of an immature investor. The grown-up investor realizes that investing sometimes requires patience.</p> <p>Consider a stock that rises in value after you buy it. Sure, if you sell it, you'll make a quick profit. But what if you held onto the stock longer? If the stock is a solid one, it might continue to increase in value over time. If you sell too early, you might miss out on plenty of future profit.</p> <p>You also don't want to hold onto a losing investment for too long, but it's still possible to sell too quickly. If you're patient, and if you've done your research on the company before investing, it might make sense to hold onto the stock until its value begins to rebound. If you sell as soon as the stock loses value, you're certain to take a loss. (See also: <a href="http://www.wisebread.com/the-secret-to-successful-investing-is-trusting-the-process?ref=seealso" target="_blank">The Secret to Successful Investing Is Trusting the Process</a>)</p> <h2>4. You're not hunting for bargains</h2> <p>You don't want to overpay for stocks, but sometimes investing in a quality company takes a significant amount of money. Grown-up investors know that it's better to invest in a strong company while paying a bit more than it is to get a bargain price for a company that won't perform as well.</p> <p>The truth is, if you want to invest in top companies, you'll have to spend more to do so. Don't let your quest for bargain prices trick you into investing in underwhelming companies.</p> <h2>5. You don't cash out your 401(k) when you change jobs</h2> <p>When you change jobs, you'll usually have to figure out what to do with the 401(k) plan in which you've been investing. The immature move? Cashing it out for a quick buck. The grown-up move? Rolling that 401(k) over into an IRA.</p> <p>If you cash out your 401(k), you'll lose a good portion of the money you saved because of taxes and, depending on your age, penalties for withdrawing the cash too early.</p> <p>By rolling over the funds, you won't suffer any penalties or tax hits, and your money will continue to grow over the years. (See also: <a href="http://www.wisebread.com/the-step-by-step-guide-to-rolling-over-your-401k?ref=seealso" target="_blank">The Step-by-Step Guide to Rolling Over Your 401(k)</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F5-investment-moves-that-prove-youre-finally-a-grown-up&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F5%2520Investment%2520Moves%2520That%2520Prove%2520You%2527re%2520Finally%2520a%2520Grown-Up.jpg&amp;description=5%20Investment%20Moves%20That%20Prove%20You're%20Finally%20a%20Grown-Up"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/5%20Investment%20Moves%20That%20Prove%20You%27re%20Finally%20a%20Grown-Up.jpg" alt="5 Investment Moves That Prove You're Finally a Grown-Up" width="250" height="374" /></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/5-investment-moves-that-prove-youre-finally-a-grown-up">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-millennial-investors-can-get-past-the-great-recession">How Millennial Investors Can Get Past the Great Recession</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-money-lessons-we-can-learn-from-baseball">8 Money Lessons We Can Learn From Baseball</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-types-of-investors-which-one-are-you">8 Types of Investors — Which One Are 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/7-reasons-to-invest-in-stocks-past-age-50">7 Reasons to Invest in Stocks Past Age 50</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-things-you-need-to-know-about-investing-in-company-stock">7 Things You Need to Know About Investing in Company Stock</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment 401(k) bargains buy and hold fear grown-up money moves retirement risk stocks Tue, 07 Nov 2017 09:01:07 +0000 Dan Rafter 2045997 at http://www.wisebread.com How the Risk Averse Can Get Into the Stock Market http://www.wisebread.com/how-the-risk-averse-can-get-into-the-stock-market <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-the-risk-averse-can-get-into-the-stock-market" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/business_team_thinking_about_risk_management.jpg" alt="Business team thinking about risk management" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The stock market can be risky. Just 10 years ago, due to the financial panic and subsequent Great Recession, stocks lost half their value in the course of not much more than a year. But the stock market is also a great investment: Long term gains are large, and even the biggest losses are routinely reversed in a matter of a few years.</p> <p>The upshot is that you should almost certainly have at least some money in the market.</p> <p>But since it's always either rising or falling, and since nobody wants to be foolish, it's often hard to get into, or back into, the market. And yet, because of the large gains the market routinely offers over the long term, it's absolutely worth doing &mdash; even for those terrified of risk. (See also: <a href="http://www.wisebread.com/how-to-get-over-these-5-scary-things-about-investing?ref=seealso" target="_blank">How to Get Over These 5 Scary Things About Investing</a>)</p> <h2>Figuring out how much to invest</h2> <p>The best way to think about your portfolio when you're risk-averse is by recognizing that a significant amount of your money is <em>not</em> part of it and should not be invested at all. If you cover your other important financial bases first, you may feel better about investing.</p> <p>First, make sure you have adequate liquidity balances &mdash; that's cash on hand to deal with the fact that your income arrives on one schedule (biweekly paychecks, perhaps) while your bills arrive on a different schedule (some monthly, others perhaps annually or semi-annually).</p> <p>Second, make sure you have an adequate emergency fund to deal with events like an unexpected loss of income, or expenses that come out of the blue. (See also: <a href="http://www.wisebread.com/7-easy-ways-to-build-an-emergency-fund-from-0?ref=seealso" target="_blank">7 Easy Ways to Build an Emergency Fund From $0</a>)</p> <p>Third, make sure you have a plan to fund medium-term expenses (a savings account or CD or maybe an intermediate-term bond fund). These are things you know you're going to buy in the next few years.</p> <p>Once you've got those bases covered, the rest of your money is your investment portfolio.</p> <p>By identifying how much of your money is <em>not</em> part of your investment portfolio, you may find yourself much more comfortable thinking about committing some fraction of the rest of your money to the stock market.</p> <p>However, maybe you've done that and you're <em>still</em> not comfortable. That brings us back to where we started. In particular, it raises the question: If you know the market is the right place for a sizable chunk of your portfolio for the long term, why are you hesitating to commit funds now?</p> <h2>Ask yourself why you're afraid</h2> <p>There are probably two big reasons why people hesitate to get into the stock market: Either because the market seems &quot;too risky,&quot; or because they're &quot;waiting for the right time.&quot;</p> <p>The way to get yourself to make the move into the stock market depends on which reason is blocking you right now.</p> <h3>Too risky</h3> <p>If it's just that the market seems too risky, you can often get started investing by going small. If you can't bring yourself to put 70 percent of your portfolio into stocks (which is actually a reasonable allocation if you're fairly young), can you bring yourself to put 5 or 10 percent in?</p> <p>When I was first starting to invest, most mutual funds had minimum investments that were pretty large (compared to the size of my portfolio), but there are now ways to invest amounts as small as just a few hundred dollars into stocks.</p> <p>If the market seems very risky, pick a very small amount of money &mdash; small enough that you could absorb even a 50 percent loss without endangering your long-term goals &mdash; and take the plunge. Put that small amount into the market. Better yet, set up some sort of automatic investment (a payroll deduction into a 401(k) or an automatic transfer to a mutual fund or brokerage account) that would send a small amount away every month or every paycheck.</p> <p>If you can find an amount small enough that you're willing to risk it &mdash; and especially if you can set up some sort of automated further investments &mdash; you set yourself up to get past your risk aversion the easy way: By seeing gains start piling up right away. And if they don't &mdash; if your investments start off by losing money &mdash; you'll still be OK, for two reasons. First, you'll know that your losses are so small that they scarcely matter over the long term. Second, you'll know that your future investments are buying stocks at a lower price (and buying low is an essential part of &quot;buy low/sell high&quot;). (See also: <a href="http://www.wisebread.com/how-to-invest-if-youre-worried-about-a-stock-market-crash?ref=seealso" target="_blank">How to Invest If You're Worried About a Stock Market Crash</a>)</p> <h3>Waiting for the right time</h3> <p>If the issue is that you accept that the market is the right place to be for the long term, but <em>right now</em> is the wrong time to get in (perhaps because the market seems kind of high, perhaps because it has recently dropped and you worry it might drop further, perhaps because you see major risks to the economy from business conditions or the international situation or Congress), I have two thoughts.</p> <p>First, understand that it hardly matters. I saw a study some years back that compared two hypothetical brothers. Each had invested $2,000 a year in stocks in his IRA, but each year one brother had the good luck to make his investment on the day the stock market hit its low for that year. The other brother had the bad luck to make his investment on the day that the market hit its high for the year.</p> <p>The result? After 10 years, it barely mattered. The lucky brother had a tiny bit more money, but both of them had a lot more money than the guy who kept his money in cash waiting for a &quot;better time&quot; to invest that never came.</p> <p>Second, approach it just as I advised the person who thought the market was too risky: Start small.</p> <p>Maybe now isn't the right time to jump in with 70 percent of your portfolio, but surely having 0 percent of your portfolio in the market is the wrong choice.</p> <p>Go ahead and put a little money in. It doesn't have to be a lot. (And, once again, even better if you set up some sort of automated investment so you're continuing to put money into the market regularly over time.)</p> <h2>Finding the right balance</h2> <p>Suppose you do start small, but through a combination of further investments and growth in the market, find yourself a few years down the road with a sizable portfolio and with a large portion of it invested in stocks. When do you have too much in stocks?</p> <p>One answer is that you have too much if it's worrying you. If you're having trouble sleeping at night, or if hearing the market report on the news ruins your appetite, then by all means sell some stocks and put the money into a CD or something. If you're still anxious a month later, sell some more. (See also: <a href="http://www.wisebread.com/find-the-investing-style-thats-right-for-you?ref=seealso" target="_blank">Find the Investing Style That's Right for You</a>)</p> <p>I would advise that you <em>not </em>use this as an excuse to time the market. The market will always be going up or down and neither circumstance is a good reason to change your mind about having stocks in your portfolio.</p> <p>Instead, you should probably have a target asset allocation. Figure out what you want in stocks (and bonds, real estate, gold, cash, etc.) and buy and sell as necessary to return to that target allocation from time to time &mdash; usually annually is good. This is a process called rebalancing your portfolio. (See also: <a href="http://www.wisebread.com/the-basics-of-asset-allocation?Ref=seealso" target="_blank">The Basics of Asset Allocation</a>)</p> <p>An old rule of thumb is to set your stock allocation percentage at 100 minus your age, and invest the rest in bonds. So someone in their 20s would put 70 to 80 percent into stocks while someone in their 60s would put 30 to 40 percent into stocks. That's a perfectly good rule, although with people living so much longer now than even a generation ago, it should probably be a bit more aggressive for people in the years just before and just after retirement. (See also: <a href="http://www.wisebread.com/7-reasons-to-invest-in-stocks-past-age-50?Ref=seealso" target="_blank">7 Reasons to Invest in Stocks Past Age 50</a>)</p> <p>Your asset allocation is important, but don't let that paralyze you. The worst thing you can do is agonize over your asset allocation to the point that you never get around to investing.</p> <p>Put a little money in stocks right away. Set up some sort of automatic investment. Once you have a tidy sum invested in stocks, start putting some of the new money in bonds. Only after those investments start getting large do you need to think about whether it's time to add some more exotic choices.</p> <p>Start small. Start simple. But above everything else: Start.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fhow-the-risk-averse-can-get-into-the-stock-market&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHow%2520the%2520Risk%2520Averse%2520Can%2520Get%2520Into%2520the%2520Stock%2520Market.jpg&amp;description=How%20the%20Risk%20Averse%20Can%20Get%20Into%20the%20Stock%20Market"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/How%20the%20Risk%20Averse%20Can%20Get%20Into%20the%20Stock%20Market.jpg" alt="How the Risk Averse Can Get Into the Stock Market" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/how-the-risk-averse-can-get-into-the-stock-market">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-secret-to-successful-investing-is-trusting-the-process">The Secret to Successful Investing Is Trusting the Process</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-types-of-investors-which-one-are-you">8 Types of Investors — Which One Are You?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-one-mediocre-investor-prospered-after-the-market-crash">How One Mediocre Investor Prospered After the Market Crash</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/bookmark-this-a-step-by-step-guide-to-choosing-401k-investments">Bookmark This: A Step-by-Step Guide to Choosing 401(k) Investments</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment asset allocation bonds gains investing fear portfolio rebalancing risk averse stock market stocks Mon, 06 Nov 2017 08:30:15 +0000 Philip Brewer 2045391 at http://www.wisebread.com How to Invest If You're Worried About a Stock Market Crash http://www.wisebread.com/how-to-invest-if-youre-worried-about-a-stock-market-crash <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-invest-if-youre-worried-about-a-stock-market-crash" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/shocked_business_man_with_financial_market_chart_graphic.jpg" alt="Shocked business man with financial market chart graphic" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>It seems that every time I turn on a financial report, someone's warning that the bull market we've been enjoying for more than eight years is about to come crashing down. Some analysts point to signs such as the rising price of gold, decreased trading volume, and muted reaction to strong earnings reports as harbingers of a crash. Others just point to the calendar: Since 1926, the average bull market has lasted nine years, and ours by most measures is about eight and a half years old. (See also: <a href="http://www.wisebread.com/are-we-headed-toward-a-bull-or-bear-market?ref=seealso" target="_blank">Are We Headed Toward a Bull or Bear Market?</a>)</p> <p>While there is some truth to the notion that no party lasts forever, there is also no definitive way to predict when we might see a correction (a 10 percent decline) or a crash (a 20 percent or greater drop). So before we get into the nuts and bolts of market disaster preparedness, understand this: No matter how nervous people feel, a correction may not happen this year or even next. This is really important to know, because if you make drastic changes to your portfolio to protect it from stock declines, you may well miss out on months or even years of growth that you can never get back.</p> <p>Does that mean you should plunge your head into the sand and do nothing, no matter how worried you feel about a possible market crash? No. There are steps you can take that would both set your mind at ease and help prepare your finances for whatever the market brings. (See also: <a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news?Ref=seealso" target="_blank">Want Your Investments to Do Better? Stop Watching the News</a>)</p> <h2>Take stock</h2> <p>Harness the energy of your market jitters to perform some portfolio hygiene that you should have been doing all along. If you've been carrying too much risk without even realizing it, now's the time to adjust that.</p> <p>&quot;Figure out what your allocation is between equities (stocks) and fixed income (bonds and cash),&quot; recommends investment adviser Bob Goldman. &quot;A lot of people will find they had a higher concentration of equities than they thought they did, because equities, especially U.S. equities, have done so well in the past few years.&quot;</p> <p>How do you know if you're carrying the right amount of risk? It's all about your goals and your timeline. Riskier portfolios generally have a higher percentage of stocks and a lower percentage of bonds and cash. If you need your money to grow to meet your goals, you'll have to take on some risk to get there. If you're not sure how much risk you should take on, consider investing in a target date index fund, where you input when you need the money, and the fund manager does the rest.</p> <p>If your portfolio is considered appropriate for your timeline but you just can't sleep at night, it's OK to dial back the risk to give yourself peace of mind &mdash; as long as you can afford to. Use an online investment calculator, consult portfolio allocation models, or talk to an adviser to figure out if you could reduce your stock allocation by 10 percent and still have enough money to retire when you want to. If you'll still have enough, then go ahead. (See also: <a href="http://www.wisebread.com/5-essentials-for-building-a-profitable-portfolio?ref=seealso" target="_blank">5 Essentials for Building a Profitable Portfolio</a>)</p> <h2>Keep investing</h2> <p>If you have been contributing money from each paycheck to your 401(k) or buying stocks in a taxable account, don't stop just because you're worried the market may be peaking. Remember that if a bear market happens, it won't last forever. In fact, bear markets are almost always shorter than bull markets, with an average decline and recovery of just three years.</p> <p>You may be tempted to slow down your investment schedule, dividing your money into periodic investments instead of buying stocks and bonds in one lump sum. This would save you some losses if a crash really does come during the year, but this approach, known as dollar cost averaging, usually doesn't pay off since timing the markets is typically considered futile.</p> <p>So what if you buy today, and the market crashes tomorrow? By one expert calculation, in this worst case scenario, it takes an <a href="http://money.cnn.com/2015/06/21/investing/stocks-market-worst-case-scenario/index.html" target="_blank">average three years</a> to get the money back. If you are investing for the next 10 or 20 or 30 years, rest assured that even if the absolute worst happens, it will almost certainly work out in the long run.</p> <h2>Don't invest anything you'll need within five years</h2> <p>If a downturn happens, you don't want to be forced to sell and take a loss. This five-year rule is always a good one to follow, but if you believe that a downturn is coming, it's a great time to double check to make sure you have what you need for near-term spending in cash, CDs, or a money market fund.</p> <p>What you &quot;need&quot; means different things to different people based on their situation. If you were planning to send your kid to college in two years, it means the first three years' tuition should not be in the market at this point. If practical, Goldman suggests keeping a two-year emergency fund, covering all your minimum expenses for that period. That way if a downturn snowballs into a recession and you lose your job, you'll still be OK. When making the calculation of how much you need, don't forget that you probably won't owe taxes or be making retirement contributions if your income goes away.</p> <h2>Consider saving up for bargain shopping</h2> <p>When stock prices crashed in 2007 and 2008, I had no money to invest. Warren Buffett did, though. One of Buffett's financial crisis investments was putting $5 billion into Goldman Sachs, a stake that increased in value by 62 percent within five years.</p> <p>Probably no one reading this will ever be in the position to take advantage of a bear market to that extent. But it's not a terrible idea for investors to put aside a cache of cash earmarked for buying stocks in a downturn. Just remember not to short circuit your entire investing plan by putting all your money into that basket. As Buffett said in his most recent investor letter, investment gains and downturns will be &quot;totally random as to timing.&quot; You don't want to put off investing for years waiting for a downturn that doesn't materialize.</p> <p>Don't forget that five-year rule here, especially, because if you buy stocks that have just declined, you have no way of knowing if the price you pay is the bottom. You may be &quot;catching a falling knife,&quot; meaning that the stock you buy may continue to plummet after you purchase it. But if what you bought is a diverse index fund, don't feel too bad if it keeps going down after you purchase. After all, within a few years, you should be gaining again.</p> <h2>Beware of salespeople who prey on fear</h2> <p>Stockbrokers and other sellers of investment products may take advantage of jittery investors to push vehicles that promise to limit downside, such as annuities, insurance policies, or even that old supposedly safe haven, gold.</p> <p>Analyze all investment opportunities with a cool head. Find out what the seller has to gain by getting you to sign on. When in doubt, stick to investments that you understand well, or consult a fee-only planner with no stake in where you put your money.</p> <p>&quot;The end of bull markets, in my experience, are often signaled by the invention of esoteric and exotic investments that sound good but are really a mix of ordinary stocks and bonds mixed with leverage to give you 'enhanced' and 'select' returns,&quot; warned Mitch Goldberg, president of ClientFirst Strategy, in a CNBC commentary. &quot;If you've recently put money, or been advised to put money, into an investment that is very narrow, or you simply don't understand, get out.&quot;</p> <h2>Avoid debt and leverage</h2> <p>One of the causes of the 1929 stock market crash was excessive leverage, which means that lots of investors were playing the market with borrowed money. Typically, brokerages will sell stocks to some investors &quot;on margin,&quot; which means that the investment bank lends you the money to buy the stock, holding the stock as collateral. This is risky, because if the market price of your investment declines sharply, the bank can call in your loan, forcing you to sell at a loss.</p> <p>Buying stock on margin can be considered reckless in the best of times. If you fear a correction is coming, getting rid of leverage is an obvious way to make your portfolio more conservative.</p> <p>If you are able to pay down debt in other areas, such as car loans and credit card debt, this can also help strengthen your financial standing to help you weather any bad times that may lie ahead.</p> <p>The other nice thing about paying down debt in an uncertain time is that it's a safe place to put your money. If you have a 4 percent interest rate on a loan, paying down that loan is like getting a guaranteed 4 percent return on your money. That's not a huge return, but if you are scared that you'll lose that money in the market, reducing your debt is a safer bet.</p> <h2>Keep it all in perspective</h2> <p>We may lose a lot of sleep worrying about a stock market crash without really knowing how such an event would affect us. Here's a little exercise that might help ease your mind: Look at your current portfolio, then cut 10 percent or 20 percent, or even 30 percent from the total. Then use an online investment calculator to figure out what the typical return would be on that money, if it was a new investment, over the course of your investment timeline. Can you live with the results?</p> <p>Then remember that even if the market does drop 10 percent or 20 percent or even 30 percent, chances are the effect on your personal portfolio won't be as extreme.</p> <p>&quot;You have to remember, if you're diversified, and the U.S. stock market drops 30 percent, that doesn't mean everything else will drop,&quot; Goldman says. That's why you have a diversified portfolio containing international stocks, bonds, and other investments.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fhow-to-invest-if-youre-worried-about-a-stock-market-crash&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHow%2520to%2520Invest%2520If%2520Youre%2520Worried%2520About%2520a%2520Stock%2520Market%2520Crash.jpg&amp;description=How%20to%20Invest%20If%20Youre%20Worried%20About%20a%20Stock%20Market%20Crash"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/How%20to%20Invest%20If%20Youre%20Worried%20About%20a%20Stock%20Market%20Crash.jpg" alt="How to Invest If You're Worried About a Stock Market Crash" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/carrie-kirby">Carrie Kirby</a> of <a href="http://www.wisebread.com/how-to-invest-if-youre-worried-about-a-stock-market-crash">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-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/your-loss-aversion-is-costing-you-more-than-your-fomo">Your Loss Aversion Is Costing You More Than Your FOMO</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-one-mental-bias-is-harming-your-investments">This One Mental Bias Is Harming Your Investments</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/are-we-headed-toward-a-bull-or-bear-market">Are We Headed Toward a Bull or Bear Market?</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-investment-moves-that-prove-youre-finally-a-grown-up">5 Investment Moves That Prove You&#039;re Finally a Grown-Up</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-stocks-to-buy-before-black-friday">6 Stocks to Buy Before Black Friday</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment advice bear market bull market diversified downside downturn fear market correction market crash risk tolerance Thu, 26 Oct 2017 08:30:09 +0000 Carrie Kirby 2038889 at http://www.wisebread.com The Secret to Successful Investing Is Trusting the Process http://www.wisebread.com/the-secret-to-successful-investing-is-trusting-the-process <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-secret-to-successful-investing-is-trusting-the-process" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/financial_chart_on_chalkboard.jpg" alt="Financial chart on chalkboard" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>To a great degree, the biggest threat to your success as an investor is <em>you</em>. Making investment decisions based on fear, greed, a hot tip from your brother-in-law, the headline of the day, or any of many other flawed inputs can wreak havoc on your results. What's needed instead is a trustworthy investment <em>process. </em></p> <p>It should be rules-based, time-tested, easy to understand and execute, and it should be one you have enough confidence in to stick with in good markets and bad.</p> <p>Here are three broad types of investment processes to consider making your own.</p> <h2>1. DIY</h2> <p>You can absolutely invest on your own. The recommended process involves following traditional rules of asset allocation, using an online calculator or questionnaire to determine your optimal stock/bond mix, choosing investments accordingly (index funds that represent each desired asset class are the easiest way to go), and rebalancing annually. Or, you could choose an appropriate target-date fund, which would simplify the asset allocation process.</p> <p>DIY is the least expensive investment process, but also the one that leaves you most vulnerable to emotion-driven portfolio tinkering. After all, the process I just described, whether you choose your own index funds or use a target-date fund, is essentially a buy-and-hold strategy. That means you need to have a strong enough stomach to handle the losses that will come with a bear market, trusting that the process will deliver respectable gains over the long haul. (See also: <a href="http://www.wisebread.com/9-costly-mistakes-diy-investors-make?ref=seealso" target="_blank">9 Costly Mistakes DIY Investors Make</a>)</p> <h2>2. DIY with help</h2> <p>You could subscribe to an investment newsletter that takes a rules-based approach to implementing an investment style you agree with (value, momentum, etc.). This process is DIY in that you maintain your own account at the broker of your choice and you make the trades, but it's &quot;with help&quot; in that the newsletter tells you exactly what to buy or sell.</p> <p>This is more expensive than a pure DIY approach because you have to pay for a subscription to the newsletter (from as little as $100 to more than $1,000 per year). Newsletters typically aim to beat the market through a more active process, providing buy and sell recommendations based on objective, rules-based criteria designed to identify undervalued, high-momentum, or otherwise attractive investments. They can also better protect you from being swayed by emotion because a trusted outside authority is guiding your decisions.</p> <h2>3. Work with an adviser</h2> <p>Here the key is understanding the <em>adviser's </em>process. First, does he or she work as a fiduciary? That means the adviser has formally agreed to only recommend investments that are in <em>your </em>best interest and to disclose all fees and commissions. Next, how does he or she make investment decisions? Again, you're looking for objective rules you understand and agree with and the adviser's discipline to follow the rules.</p> <p>Working with an adviser is usually the most expensive process you could employ (typically, you'll pay 1 percent of the value of the portfolio they manage for you). However, it <em>may</em> also provide the best protection from yourself. For one thing, a good adviser acts as a therapist during times of market stress, talking clients out of emotional buy or sell decisions. For another, the adviser typically has direct control over your portfolio; you don't. (See also: <a href="http://www.wisebread.com/ask-these-5-questions-before-deciding-on-a-financial-advisor?ref=seealso" target="_blank">Ask These 5 Questions Before Deciding On a Financial Adviser</a>)</p> <p>Each of these processes could guide you through any market. But you have a role to play as well. Here are two ways you can tip the scales further in your favor:</p> <h3>Manage your expectations</h3> <p>The market ebbs and flows and so will the performance generated by even the best investment process. Your willingness to accept some down months, and even some down years, will go a long way toward helping you stick with your chosen process.</p> <p>Having some sense of what to expect will help. If you're taking a DIY approach, you can see how various allocations have performed over the years (see Vanguard's <a href="https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations" target="_blank">portfolio allocation models</a>). By the same token, you should understand how a newsletter's strategy, or an adviser's, has performed during past bull and bear markets.</p> <p>While past performance won't tell you exactly how each process will perform in the future, it can help manage your expectations. That may not make riding out a downturn <em>easy</em>, but it should make it <em>easier</em>.</p> <h3>Tune out the noise</h3> <p>Adopting a trustworthy investment process will not silence the headline writers, investment analysts, or your coworkers who like to brag about their latest investment conquest. However, it should help you turn down their volume and keep you focused on following your chosen process. (See also: <a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news?ref=seealso" target="_blank">Want Your Investments to Do Better? Stop Watching the News</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fthe-secret-to-successful-investing-is-trusting-the-process&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FThe%2520Secret%2520to%2520Successful%2520Investing%2520Is%2520Trusting%2520the%2520Process.jpg&amp;description=The%20Secret%20to%20Successful%20Investing%20Is%20Trusting%20the%20Process"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/The%20Secret%20to%20Successful%20Investing%20Is%20Trusting%20the%20Process.jpg" alt="The Secret to Successful Investing Is Trusting the Process" width="250" height="374" /></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-secret-to-successful-investing-is-trusting-the-process">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-the-risk-averse-can-get-into-the-stock-market">How the Risk Averse Can Get Into the Stock Market</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/5-essentials-for-building-a-profitable-portfolio">5 Essentials for Building a Profitable Portfolio</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/9-costly-mistakes-diy-investors-make">9 Costly Mistakes DIY Investors 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/8-types-of-investors-which-one-are-you">8 Types of Investors — Which One Are You?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-portfolio-blind-spots-that-are-ruining-your-investments">4 Portfolio &quot;Blind Spots&quot; That Are Ruining Your Investments</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment decisions diy investor expectations financial advisers gains portfolio stock market strategy Mon, 23 Oct 2017 08:30:06 +0000 Matt Bell 2038342 at http://www.wisebread.com 4 Portfolio "Blind Spots" That Are Ruining Your Investments http://www.wisebread.com/4-portfolio-blind-spots-that-are-ruining-your-investments <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/4-portfolio-blind-spots-that-are-ruining-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/confused_executive_man_looking_at_documents.jpg" alt="Confused executive man looking at documents" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Ignorance definitely isn't bliss when it comes to your investments, and yet we all seem to be hard-wired with blind spots, or as psychologists call them, <em>behavioral biases</em>. Here are some of the more common ways we tend to make irrational and unprofitable investment decisions. (See also: <a href="http://www.wisebread.com/this-one-mental-bias-is-harming-your-investments?ref=seealso" target="_blank">This One Mental Bias Is Harming Your Investments</a>)</p> <h2>1. Assigning too much value to the most recent news</h2> <p>Try to remember what you had for dinner on each of the past seven nights. Assuming there was nothing unusual about any of the meals, which one do you think you'll remember most easily? Last night's dinner, right?</p> <p>That makes sense. It's only natural that we would remember most clearly what happened in the most recent past.</p> <p>But here's the problem when it comes to investing: It isn't just that we most easily remember what happened in the recent past; we tend to assign greater significance to the most recent events as well, viewing them as indicators of what's likely to happen in the future. That's called <em>recency bias</em>.</p> <p>For example, let's say you're thinking about buying a particular stock. Before placing a buy order, you check its performance today and are pleased to see that it's up. Without consciously thinking about it, your built-in recency bias sees this as added confirmation that the stock is worth buying. It might be a good stock to buy, and it might not. One day's performance means very little.</p> <p>What to do? Make sure you're basing your investment decisions on something more than just the most recent news. What are analysts saying about the company's long-term prospects? Where will the company's future growth come from? How much competition does it have?</p> <h2>2. Reacting too strongly to bad news</h2> <p>Recency bias can be magnified if the recent news is bad. That's because of <em>loss aversion</em> &mdash; the tendency to feel the pain of loss on a much greater magnitude than the pleasure of an equal gain. According to some studies, losses can feel twice as bad as the good feelings that accompany comparable gains.</p> <p>This can lead to many forms of bad investor behavior. During a steep market decline, some investors can't stomach the pain and decide to sell. But that often makes matters worse because selling locks in their loss. When the market eventually cycles back up, fear keeps them on the sidelines and they miss the rebound.</p> <p>How to combat loss aversion? Don't monitor your portfolio so closely. People who check their holdings frequently have been found to trade more (because of fear-based selling) and generate lower returns than those who monitor their portfolios less often. (See also: <a href="http://www.wisebread.com/your-loss-aversion-is-costing-you-more-than-your-fomo?ref=seealso" target="_blank">Your Loss Aversion Is Costing You More Than Your FOMO</a>)</p> <h2>3. Seeing only what you want to see</h2> <p>As the old saying goes, if you're a hammer, everything looks like a nail. By the same token, if you have a hunch about a stock, and especially if you've become emotionally attached to the idea of owning it, you may tend to notice only news that supports your point of view.</p> <p>When <em>confirmation bias</em> gets its claws in you, it becomes very difficult to see things differently. You will ignore contradictory information, selectively remember conversations or articles about the investment you are considering, and even read ambiguous commentary as favoring your point of view.</p> <p>Confirmation bias goes a long way toward explaining the existence of &quot;perma-bears&quot; and &quot;perma-bulls&quot; &mdash; market analysts who <em>always </em>see a bear or bull market on the horizon and can point to evidence supporting their opinions.</p> <p>To avoid confirmation bias, proactively seek opposing points of view. Feeling strongly attached to the idea of investing in XYZ Corp? Look for reasons <em>not </em>to invest in it.</p> <h2>4. Using the wrong benchmarks</h2> <p>When you walk into a car dealer's showroom and see one of its most expensive vehicles on display, the model you had in mind probably looks like a bargain. That's a type of bias called<em> anchoring </em>in action, with the expensive car serving as a very influential point of reference.</p> <p>When it comes to investing, it's common for people to anchor their portfolio's performance to &quot;the market.&quot; Even if they have 40 percent of their money invested in bonds, the fact that the market generated a 30 percent gain makes them feel bad about their paltry 18 percent. It might even prompt them to change their portfolio and take on more risk than they should.</p> <p>What's the solution? Create a written investment plan tailored to your age and risk tolerance, including a realistic assumed average annual rate of return, such as 7 percent. Using <em>that </em>as your anchor, an 18 percent return wouldn't be a disappointment; it would be amazing.</p> <h2>Other ways to combat behavioral biases</h2> <p>The ideal emotional state for an investor is <em>unemotional. </em>However, we're not robots. So, awareness of our many biases is a good starting point for preventing them from steering us in the wrong direction.</p> <p>Perhaps the most helpful step of all is to press the pause button. Since it's impossible to time the market, waiting a couple of days before executing a buy or sell order isn't going to make much difference in that investment's performance. However, using that time to question your assumptions may make a <em>big</em> difference in helping you more rationally decide whether the investment should be bought or sold in the first place. (See also: <a href="http://www.wisebread.com/5-mental-biases-that-are-keeping-you-poor?ref=seealso" target="_blank">5 Mental Biases That Are Keeping You Poor</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F4-portfolio-blind-spots-that-are-ruining-your-investments&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F4%2520Portfolio%2520Blind%2520Spots%2520That%2520Are%2520Ruining%2520Your%2520Investments.jpg&amp;description=4%20Portfolio%20Blind%20Spots%20That%20Are%20Ruining%20Your%20Investments"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/4%20Portfolio%20Blind%20Spots%20That%20Are%20Ruining%20Your%20Investments.jpg" alt="4 Portfolio &quot;Blind Spots&quot; That Are Ruining Your Investments" width="250" height="374" /></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/4-portfolio-blind-spots-that-are-ruining-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-6"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-the-risk-averse-can-get-into-the-stock-market">How the Risk Averse Can Get Into the Stock Market</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-secret-to-successful-investing-is-trusting-the-process">The Secret to Successful Investing Is Trusting the Process</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-types-of-investors-which-one-are-you">8 Types of Investors — Which One Are 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/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/what-is-cryptocurrency-anyway">What Is Cryptocurrency, Anyway?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment anchoring blind spots buying cognitive biases confirmation bias loss aversion mental biases portfolio recency bias selling stock market Tue, 17 Oct 2017 08:30:10 +0000 Matt Bell 2035896 at http://www.wisebread.com 7 Things You Need to Know About Investing in Company Stock http://www.wisebread.com/7-things-you-need-to-know-about-investing-in-company-stock <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-things-you-need-to-know-about-investing-in-company-stock" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/surging_business.jpg" alt="Surging Business" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you are employed by a public company, there is a chance that you will be offered the option to invest in company stock in your 401(k) or purchase company shares at a discount. This can be a nice perk for employees, and a possible incentive for them to work hard and remain loyal to the company.</p> <p>But investing in company stock is not without its pitfalls. You may recall stories about workers from Enron, Lehman Brothers, and other firms who lost much of their retirement money when those companies went bankrupt.</p> <p>If you have the chance to purchase company stock, consider taking advantage of it. But also be aware of some of these key pieces of information beforehand.</p> <h2>1. Sometimes you get company stock for free or at a discount</h2> <p>Companies distribute stock to employees in a number of different ways. Sometimes, it's simply given to workers as part of compensation plans. Other times, it's in the form of options that allow workers to buy shares at a certain price. (For example, you may be able to lock in shares at $45 per share even if they are selling at $60 on the open market.) This can be a nice benefit to employees beyond the normal salary, and it's often designed as an incentive to make them feel more invested in the company's success. If the company does well and share prices rise, employees can benefit financially. But the flip side is also true. If the company performs poorly, you could lose.</p> <h2>2. You already depend on your company</h2> <p>Your financial well-being is already heavily dependent on the success of your employer. The company pays your salary, offers you health benefits, and may match your contributions to your retirement plan. If you accept company stock, even more of your financial future is tied up with the health of the company.</p> <p>&quot;By using one's financial capital (i.e. 401(k) balance) to purchase employer stock, an individual is effectively over-allocating to the future success of his or her current employer,&quot; Morningstar said in a research report on the issue. This may be fine when the company is doing well, but bad news if the company is struggling. If you do accept company stock, take steps to diversify your income and investment holdings so your success and the company's success are not so intertwined.</p> <h2>3. Company stock should not be your sole retirement strategy</h2> <p>Many people have found themselves in trouble when they've decided to put all of their retirement plan contributions into company stock. Or, they've accepted company stock as compensation without contributing their own money into a diverse set of investments. This is dangerous because it places all of your retirement money into a single company that could go bust at any time.</p> <p>This is what happened with many Enron employees, who were left with nothing for their retirement when the company collapsed. Company shares should only be viewed as one component of a broader investment portfolio that includes a healthy mix of stocks from various industries and asset classes.</p> <h2>4. There may be tax implications</h2> <p>Unless your employer allows you to buy company stock as part of a tax advantaged retirement plan, you will be asked to pay taxes on any dividends you earn, and on capital gains when you sell. So keep this in mind at tax time.</p> <p>If you own a large amount of company stock, those shares could represent a sizable tax bill that you will have to plan for. And if you decide to sell shares shortly after acquiring them, remember that capital gains could be taxed at the normal income rate rather than the long-term capital gains rate, which is lower.</p> <h2>5. Companies that offer stock aren't necessarily stronger</h2> <p>You should not assume that a company's stock will perform well just because they are offering shares to you. In fact, there is some evidence to suggest that companies that dish out a lot of stock to employees actually perform worse than companies that don't. You may feel like you are cheating if you invest in companies other than your own, but your future self will thank you.</p> <h2>6. You may end up with more company stock than you realize</h2> <p>If you've acquired company stock over the years and it's performed well, you may find that over time it has taken on a disproportionate share of your investment portfolio's value. On one hand, it's good that the share price has risen, but now your portfolio is way out of balance and a big bulk of savings is at risk if those shares drop in value.</p> <p>It always makes sense to check your portfolio frequently and rebalance when you find yourself overweight with any one investment. This is especially true when dealing with company stock. As a general rule, avoid letting company stock make up more than 10 percent of your total investments.</p> <h2>7. Owning company stock has become less popular</h2> <p>Offering company stock used to be more common than it is now among organizations looking to attract top talent. The percentage of company stock in 401(k) plans has declined over the last decade. Back in 1999, company stock made up about 17 percent of the assets in 401(k) plans, but that figure has declined to 7 percent, according to the Employee Benefit Research Institute. And it appears that newer employees are less likely to place company stock in their retirement plans; EBRI reported that just 30 percent of new workers placed company stock in their 401(k) plan, compared to 44 percent of all planholders.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F7-things-you-need-to-know-about-investing-in-company-stock&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F7%2520Things%2520You%2520Need%2520to%2520Know%2520About%2520Investing%2520in%2520Company%2520Stock.jpg&amp;description=7%20Things%20You%20Need%20to%20Know%20About%20Investing%20in%20Company%20Stock"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/7%20Things%20You%20Need%20to%20Know%20About%20Investing%20in%20Company%20Stock.jpg" alt="7 Things You Need to Know About Investing in Company Stock" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/7-things-you-need-to-know-about-investing-in-company-stock">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-7"> <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/bookmark-this-a-step-by-step-guide-to-choosing-401k-investments">Bookmark This: A Step-by-Step Guide to Choosing 401(k) Investments</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-costly-mistakes-diy-investors-make">9 Costly Mistakes DIY Investors Make</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/think-outside-the-index-when-you-rebalance-your-investment-portfolio">Think Outside the Index When You Rebalance Your Investment 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/how-the-risk-averse-can-get-into-the-stock-market">How the Risk Averse Can Get Into the Stock Market</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-investment-moves-that-prove-youre-finally-a-grown-up">5 Investment Moves That Prove You&#039;re Finally a Grown-Up</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment 401(k) company stocks employee discounts portfolio pros and cons rebalancing retirement risks taxes Mon, 16 Oct 2017 08:30:10 +0000 Tim Lemke 2035892 at http://www.wisebread.com Should You Take Out a Loan Backed by Your Investments? http://www.wisebread.com/should-you-take-out-a-loan-backed-by-your-investments <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/should-you-take-out-a-loan-backed-by-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/hands_giving_and_receiving_money_usd.jpg" alt="Hands giving and receiving money USD" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you have a taxable investment account, you may have heard from your bank or brokerage lately about the opportunity to <em>borrow </em>against your stock holdings. There are many attractive aspects to securities-based loans, which have gained popularity thanks to marketing campaigns. But there are also reasons to be cautious about this kind of borrowing.</p> <p>Financial firms tout these loans as a convenient and affordable way to access quick cash for anything from a kitchen remodel to bridge financing for a home purchase. What they might not mention is that they have a strong incentive to get you to take out the loans; lending is seen as a good source of reliable income for brokerage firms looking to reduce their reliance on commissions.</p> <p>Securities-based loans (also known in the industry as non-purpose loans and securities-based lines of credit or SBLOCs) have risks, which led the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) to issue a consumer warning about them.</p> <h2>The benefits of securities-based loans</h2> <p>It's not as if your broker is lying if they tell you that taking out a securities-based loan can be a good way to get liquidity when you need it. There are real benefits.</p> <h3>1. Low rates</h3> <p>Brokerage firms have been issuing securities-based loans at rates lower than what you'd pay on a personal loan or credit card balance, and competitive with or better than what you'd pay for a home equity line of credit.</p> <h3>2. Lenient application process</h3> <p>In a 2015 investor alert, the Securities and Exchange Commission noted that &quot;some SBLOC lenders might not run a credit check or conduct an analysis of your liabilities before setting and extending the credit line.&quot; Since the lender has your stock as collateral, they don't need to worry too much about whether you can pay back the loan.</p> <h3>3. Fast turnaround</h3> <p>Funds are typically available less than a week after applying. This speed can be clutch if, say, you are in a competitive bidding situation for a house and want to have a down payment and earnest money ready at the drop of a hat.</p> <h3>4. Keeping your stock (and avoiding taxes)</h3> <p>Of course, if you have stock and you need cash, you could simply sell the stock to pay for what you want to buy. One reason some investors prefer to borrow against their portfolio value is the potential tax advantage: By keeping the stock, they avoid registering a capital gain, which they'd have to pay tax on that year. This benefit may be particularly valued by retired people who hope to hold onto their stock for life and pass it on to their heirs, since the cost basis will be stepped up to the market value at the time of death. This means that any new capital gains will be based on the price of the stocks when they were transferred to an heir, and not the price when they were first purchased.</p> <p>Another situation when avoiding selling stock might really come in handy: If you bought the stock within the past year and want to wait a year before selling it to qualify for the long-term capital gains rate, which is lower than the short-term rate. (The short-term rate is the exact same rate as your ordinary income.)</p> <p>Finally, keeping your stock means retaining the benefits of ownership, including any dividends, voting rights, and potential future gains.</p> <h2>The risks of securities-based loans</h2> <p>With all those pluses, why did the SEC and FINRA warn us about this kind of loan? Because they come with risks that may not be immediately apparent to the borrower.</p> <h3>1. The maintenance call</h3> <p>If you buy a house and the housing market crashes, you may end up owing more than the house is worth; but at least you can keep your home as long as you can make the payments. Not so with securities-based loans.</p> <p>&quot;SBLOCs are classified as <em>demand </em>loans, which means lenders may call the loan at any time,&quot; the SEC warns. Typically, this would happen if the market goes down and the value of the securities you're borrowing against decreases sharply; the lender would make what's known as a &quot;maintenance call,&quot; demanding that you pay all or part of the loan. If you can't, the lender will sell your stock at the current price. If this happens, you'd basically be forced to sell at the worst possible time.</p> <p>What are the odds of this happening? No one can see the future, but the current bull market is considered downright elderly at eight years old, leading many experts to predict a correction or recession sometime soonish. It would be foolish to expect the value of your portfolio to always rise and never fall.</p> <h3>2. Variable interest rates</h3> <p>As with any loan, read the fine print before signing on the dotted line. Many securities-based loans charge variable interest rates, meaning that you will never know how much your interest expenses will be each month.</p> <h3>3. Unexpected tax bill</h3> <p>If you bought a stock at a low price, borrow against it at a higher price, and it dips to a price between those two prices, it could spell tax trouble. If the lender forces a sale to pay the loan, you'll owe capital gains tax on the difference between your purchase price and the sale price &mdash; which could really sting if the sale proceeds went to pay off the loan, leaving you with no cash.</p> <h3>4. Lost freedom</h3> <p>The SEC warns that you will likely have to pay off any securities-backed loans before moving your assets to another brokerage firm &mdash; which could be another reason that brokerages are pushing these loans.</p> <h2>So should you get a securities-based loan?</h2> <p>While your broker's suggestion that you get a securities-based loan might be laden with self-interest, that doesn't mean you have to say no. Weigh the pros and cons before deciding, and consider taking these measures to safeguard the process if you go ahead.</p> <h3>1. Borrow less than you qualify for</h3> <p>Lenders are offering clients loans worth as much as 95 percent of an investment portfolio. The lower the percentage of leverage, the safer you are against the risks of securities-based borrowing.</p> <h3>2. Borrow only against a diverse portfolio</h3> <p>If you only own stocks in the energy sector, it won't take an overall downturn to cause a securities-based loan disaster; a sharp downturn to that one sector could do it. Investing in diverse sectors is always a good idea, but even more so if you're borrowing against your holdings.</p> <h3>3. Have a maintenance call plan</h3> <p>If you can put up the additional funds the lender demands in a maintenance call, you won't be forced to liquidate your shares at an inopportune time. So figure out in advance other ways to meet that maintenance call, whether it's tapping an emergency fund, borrowing from family, or liquidating other assets.</p> <h3>4. Don't borrow to pay for something without resale value</h3> <p>The marketing materials brokerages use to encourage securities-based loans mention vacations. But if your loan gets called in, you can't sell your vacation memories to raise the necessary cash.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fshould-you-take-out-a-loan-backed-by-your-investments&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FShould%2520You%2520Take%2520Out%2520a%2520Loan%2520Backed%2520by%2520Your%2520Investments-.jpg&amp;description=Should%20You%20Take%20Out%20a%20Loan%20Backed%20by%20Your%20Investments%3F"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/Should%20You%20Take%20Out%20a%20Loan%20Backed%20by%20Your%20Investments-.jpg" alt="Should You Take Out a Loan Backed by Your Investments?" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/carrie-kirby">Carrie Kirby</a> of <a href="http://www.wisebread.com/should-you-take-out-a-loan-backed-by-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-8"> <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-investment-accounts-all-30-somethings-should-have">7 Investment Accounts All 30-Somethings Should Have</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-earn-a-good-interest-rate-in-a-low-rate-environment">How to Earn a Good Interest Rate in a Low-Rate Environment</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-three-interest-rates">The Three Interest Rates</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-countries-where-banks-pay-crazy-interest-rates">10 Countries Where Banks Pay Crazy Interest Rates</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Banking Investment capital gains interest rates lending maintenance call sbloc securities based loans securities-based lines of credit stock holdings Thu, 12 Oct 2017 08:30:10 +0000 Carrie Kirby 2034471 at http://www.wisebread.com Best Money Tips: 6 Basic Rules of Investing http://www.wisebread.com/best-money-tips-6-basic-rules-of-investing <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/best-money-tips-6-basic-rules-of-investing" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_money_chalkboard_637693846.jpg" alt="Woman learning basic rules of investing" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Welcome to Wise Bread's <a href="http://www.wisebread.com/topic/best-money-tips">Best Money Tips</a> Roundup! Today we found articles on the basic rules of investing, the best tactics to improve your self-control, and DIY costumes you can make with a bed sheet.</p> <h2>Top 5 Articles</h2> <p><a href="http://www.richdad.com/Resources/Rich-Dad-Financial-Education-Blog/October-2017/six-basic-rules-of-investing.aspx">Six Basic Rules of Investing</a> &mdash; To build wealth, you need to convert ordinary income to passive income. [Rich Dad]</p> <p><a href="https://www.dumblittleman.com/improve-your-self-control/">6 Best Tactics to Improve Your Self-Control</a> &mdash; Keep a journal to track your progress in self-control. You're more likely to push forward if you can see what you have already achieved. [Dumb Little Man]</p> <p><a href="https://www.popsugar.com/smart-living/DIY-Halloween-Costumes-You-Can-Make-Bed-Sheet-44078007">22 DIY Halloween Costumes You Can Create With a Bed Sheet</a> &mdash; Strip your bed, grab a staple gun, and get creative! [PopSugar Smart Living]</p> <p><a href="http://www.frugalvillage.com/2017/10/10/10-great-inexpensive-family-night-ideas/">10 Great, Inexpensive Family Night Ideas</a> &mdash; Have a fancy dinner party just for your family, where everyone shows up in costumes or outfits for special events. [Frugal Village]</p> <p><a href="http://www.everybodylovesyourmoney.com/2017/10/09/how-to-score-free-plants-for-your-garden.html">How to Score Free Plants for Your Garden or Windowsill</a> &mdash; Check with garden suppliers to see if they have any substandard plants you can take off their hands. [Everybody Loves Your Money]</p> <h2>Other Essential Reading</h2> <p><a href="http://www.onmoneymaking.com/how-to-save-money-on-your-next-cruise.html">How to Save Money on Your Next Cruise</a> &mdash; You'll score some of the best deals &mdash; plus some added bonuses &mdash; if you can book your cruise as far as 18 months in advance. [OnMoneyMaking]</p> <p><a href="https://adebtfreestressfreelife.com/choosing-a-caregiver/">5 Essential Tips To Keep In Mind When Choosing A Caregiver</a> &mdash; Make a list of daily activities and, from there, figure out what help your loved one will need in terms of health care, personal care, and household care. [A Mess Free Life]</p> <p><a href="https://wallethacks.com/government-grants-loans-assistance-programs/">7 Ways to Get Money from the Government</a> &mdash; If you need help getting financing for a small business, the federal government offers loans to business through the Small Business Administration. [Wallet Hacks]</p> <p><a href="https://blog.mint.com/early-career/how-to-find-work-life-balance-in-a-demanding-field-101117/">How to Find Work-Life Balance in a Demanding Field</a> &mdash; Got a lot on your to-do list? See if you can combine multiple activities together and kill two or three birds with one stone. [MintLife]</p> <p><a href="https://www.getorganizedwizard.com/blog/2017/10/9-ways-create-minimalism-office-decor/">9 Ways to Create Minimalism In Your Office Décor</a> &mdash; Minimalism doesn't have to be boring! Incorporate wall colors into your cushions, pens, storage and other smaller accessories, and play with textured pieces to add some interest. [Get Organized Wizard]</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/amy-lu">Amy Lu</a> of <a href="http://www.wisebread.com/best-money-tips-6-basic-rules-of-investing">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-9"> <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-investing-basics-that-can-make-you-rich">5 Investing Basics That Can Make You Rich</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/think-outside-the-index-when-you-rebalance-your-investment-portfolio">Think Outside the Index When You Rebalance Your Investment Portfolio</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-the-risk-averse-can-get-into-the-stock-market">How the Risk Averse Can Get Into the Stock Market</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-investment-moves-that-prove-youre-finally-a-grown-up">5 Investment Moves That Prove You&#039;re Finally a Grown-Up</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-invest-if-youre-worried-about-a-stock-market-crash">How to Invest If You&#039;re Worried About a Stock Market Crash</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment best money tips investing rules Thu, 12 Oct 2017 08:30:06 +0000 Amy Lu 2035385 at http://www.wisebread.com What Is Cryptocurrency, Anyway? http://www.wisebread.com/what-is-cryptocurrency-anyway <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/what-is-cryptocurrency-anyway" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/bitcoin_coin_on_white_keyboard.jpg" alt="Bitcoin coin on white keyboard" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Investors are always looking for the next &quot;big thing.&quot; Throughout 2017, cryptocurrencies have been experiencing a surge in market valuations with Bitcoin and Ethereum trading above $4,000 and $300, respectively, as of August.</p> <p>With the price of one Bitcoin (BTC) trading well above the price of one ounce of gold, more and more people are jumping on the cryptocurrency bandwagon: On August 8, 2011, there were only <a href="https://blockchain.info/charts/n-transactions?timespan=1year&amp;daysAverageString=1&amp;scale=0" target="_blank">8,638 BTC transactions</a>. Fast forward six years, and the daily number of BTC transactions has surged to 260,955! (See also: <a href="http://www.wisebread.com/heres-everything-you-need-to-get-started-with-bitcoin?ref=seealso" target="_blank">Here's Everything You Need to Get Started With Bitcoin</a>)</p> <p>So what exactly are cryptocurrencies, and should you invest?</p> <h2>What is cryptocurrency?</h2> <p>Basically, cryptocurrency is a digital or virtual asset that uses cryptography as a security measure. Designed by somebody under the pseudonym &quot;Satoshi Nakamoto&quot; back in 2009, Bitcoin was the very first cryptocurrency. Today, there are over 1,050 cryptocurrencies (often referred to as &quot;coins&quot;) with funny names, including Dogecoin, Veritaseum, Factom, and Counterparty. However, their valuations are no joke: The total market capitalization of all coins stood at $151 billion as of August 23, 2017.</p> <p>Unlike currencies issued by nations, cryptocurrencies can be issued by anybody with access to the right technology. Capitalizing on this fact, tech entrepreneurs all around the world are launching coins every day with the promise that once products or services are available, the coins will be redeemable for those products and services. For example, the developers behind Siacoin provide a decentralized storage marketplace in which hosts compete for your business, and those behind Monero deliver a private and untraceable cryptocurrency. Research firm Smith &amp; Crown reports that so far in 2017, 65 projects have raised over $520 million in coins.</p> <h2>Should you invest in cryptocurrency?</h2> <p>The upside potential of a coin is huge, but this doesn't mean that cryptos are for everybody. There are a few important details you should know before you dive in.</p> <h3>There is high volatility</h3> <p>Take for example Neo (formerly AntShares) which was trading at $1.50 per coin on June 10, 2017 and peaked at $51.94 per coin on August 13, 2017. There are very few places that you can get a 3,362 percent return in just two months. But what goes up eventually comes down and Neo traded at $31.76 on August 18, 2017. Could you stomach over a 38 percent drop in value of your investment in just four days? With big price swings on a daily basis, coins aren't for investors with low tolerance to risk.</p> <h3>Investing requires some tech know-how</h3> <p>Buying and trading cryptocurrency requires you to be comfortable using some desktop or smartphone applications. Attention to detail is critical to avoid losing your hard-earned coins. Here are some important things to note:</p> <ul> <li> <p>Typing one wrong character in your 33- to 34-character long Bitcoin address when doing transactions could mean that your money ends up in somebody else's account.</p> </li> <li> <p>Sending cryptocurrency into the wrong address (say, for example, sending Ethereum Classic coins into an Ethereum wallet address) will make your cryptocurrency disappear. Most exchanges won't even help you try to recover the misplaced coins for small amounts (Bittrex sets a $5,000 minimum) and will charge you a hefty fee for the recovery.</p> </li> <li> <p>All exchanges recommend doing a small test amount before doing a large deposit or withdrawal.</p> </li> </ul> <h3>The rules are always changing</h3> <p>With more and more people buying and selling cryptocurrencies, more government agencies at different levels are creating laws that affect consumers in different ways. For example, here are a few regulations that have been placed in recent years:</p> <ul> <li> <p>In 2014, The IRS deemed a cryptocurrency as property. This means that the same general tax principles used for reporting the sale of a piece of land would apply to the sale of 10 BTC (around $42,330 at the time this article was written).</p> </li> <li> <p>In 2015, the New York State Department of Financial Services (NYDFS) passed the BitLicense regulatory framework, requiring Bitcoin companies serving New York residents to keep detailed records of all users in that state. Claiming concerns for user privacy, Kraken and Bitfinex decided not to serve users residing in this state.</p> </li> <li> <p>In mid 2017, the Hawaii Division of Financial Institutions (DFI) created regulatory policies that required exchanges to hold cash reserves equivalent to the value of cryptocurrencies held by Hawaii residents. This requirement prompted all exchanges, including Coinbase, to stop operating in Hawaii or postpone their plans to open in that state.</p> </li> </ul> <h3>Transaction wait times can vary</h3> <p>Despite the claims that cryptos are the way of the future, it surely can feel that you're back in the stone age waiting for a Bitcoin transaction to clear. In order to verify transactions, exchanges rely on a number of confirmations from the network. Depending on the volume of transactions and other factors, the wait time can vary from a few minutes to several hours. Waiting for a purchase of $5,000 worth of Litecoin could be a nerve racking experience for a new (and even experienced) investor.</p> <p>This delay in transaction time also means that you won't necessarily get the price you wanted when buying or selling your coins. On Saturday August 19, 2017, Bitcoin Cash was trading as high as $996.92. By Tuesday August 22, 2017, one coin was now trading around $582. If you had been trying to dump your coins on Tuesday, you would probably have done so at a price much different from the one you originally wanted.</p> <h3>There are liquidity issues</h3> <p>With over 1,000 cryptocurrencies to choose from, you may end up with a &quot;winner&quot; that performs well for some time. But as government laws or exchange rules evolve, your coin of choice may be dropped from several exchanges.</p> <p>IOTA is a great example. U.S. residents could buy IOTA from Bitfinex, but on August 11, 2017 the exchange announced that it would stop accepting new U.S. customers and will discontinue services to all current ones over the next 90 days. If you held IOTA, you're now forced to seek a new exchange to trade and/or wallet to store your coins. In the very worst case scenario, you may have to liquidate your position to avoid losing your money. Just ask owners of SpaceBIT, Quebecoin, and DAO.</p> <h2>The bottom line: Trade cautiously</h2> <p>There are several individuals who are making money trading Bitcoin and other cryptocurrencies. If you had purchased $100 BTC on January 1, 2011, you would have acquired 333.33 coins at $0.30 each. By August 24, 2017, that original investment would be worth over $1.4 million!</p> <p>However, make sure that you understand all the potential risks involved with these virtual currencies. Given their inherent volatility, don't bet the house on cryptocurrencies. Additionally, to have a true picture of how much money you're making with cryptocurrencies, include all applicable fees. Remember that every cryptocurrency transaction, whether it's a purchase, sale, deposit, or withdrawal has a fee from an exchange, financial institution, or both. Happy trading!</p> <p><em>[Disclaimer: The author owns some Bitcoin and Siacoin. He received no payment from any of the cryptocurrencies or exchanges mentioned in this article.]</em></p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fwhat-is-cryptocurrency-anyway&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FWhat%2520Is%2520Cryptocurrency%252C%2520Anyway-.jpg&amp;description=What%20Is%20Cryptocurrency%2C%20Anyway%3F"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/What%20Is%20Cryptocurrency%2C%20Anyway-.jpg" alt="What Is Cryptocurrency, Anyway?" width="250" height="374" /></p> <p style="text-align: center;">&nbsp;</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/what-is-cryptocurrency-anyway">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-10"> <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/4-portfolio-blind-spots-that-are-ruining-your-investments">4 Portfolio &quot;Blind Spots&quot; That Are Ruining Your Investments</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/4-ways-to-add-gold-to-your-portfolio">4 Ways to Add Gold to Your Portfolio</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/who-really-owns-your-digital-assets">Who Really Owns Your Digital Assets?</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/beginners-guide-to-reading-a-stock-table">Beginner&#039;s Guide to Reading a Stock Table</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-surprising-ways-confidence-can-hurt-your-investments">8 Surprising Ways Confidence Can Hurt Your Investments</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment bitcoin buying coins cryptocurrency digital currency marketplaces selling technology trading volatility Wed, 11 Oct 2017 08:30:06 +0000 Damian Davila 2034469 at http://www.wisebread.com 7 Reasons to Invest in Stocks Past Age 50 http://www.wisebread.com/7-reasons-to-invest-in-stocks-past-age-50 <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-reasons-to-invest-in-stocks-past-age-50" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_sitting_on_floor_with_piggy_bank_under_money_rain.jpg" alt="Man sitting on floor with piggy bank under money rain" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Conventional investing wisdom says that as people age, they should put less of their money in stocks and more into stable investments such as bonds and cash. This is sound advice based on the idea that in retirement you want to protect your assets in case there is a major market downturn.</p> <p>But there are still strong arguments to continue investing in stocks even as you get older. Few people recommend an all-stock portfolio, but reducing stock ownership down to zero doesn't make sense, either.</p> <p>Consider that many mutual funds geared toward older investors still comprise hefty doses of stocks. The 2020 Retirement Fund from T. Rowe Price, for example, is made up of 70 percent stocks for retirees at age 65, and is still made up of 25 percent stocks when that same retiree is past 90 years of age.</p> <p>Why does owning stocks make sense even for older investors? Let's examine these possible motivations.</p> <h2>1. You're going to live a lot longer</h2> <p>If you are thinking about retirement as you approach age 60, it's important to recognize that you still may have several decades of life remaining. People are routinely living into their 90s or even past 100 these days. Do you have enough savings to last 40 years or more? While it's important to protect the assets you have, you may find that higher returns from stocks will be needed in order to accrue the money you need.</p> <h2>2. You got a late start</h2> <p>If you started investing early and contributed regularly to your retirement accounts over the course of several decades, you may be able to take a conservative investing approach in retirement. But if you began investing late, your portfolio may not have had time to grow enough to fund a comfortable retirement. Continuing to invest in stocks will allow you to expand your savings and reach your target figure. It still makes sense to balance your stocks with more conservative investments, but taking on a little bit more risk in exchange for potentially higher returns may be worth it. (See also: <a href="http://www.wisebread.com/7-retirement-planning-steps-late-starters-must-make?Ref=seealso" target="_blank">7 Retirement Planning Steps Late Starters Must Make</a>)</p> <h2>3. Other investments don't yield as much as they used to</h2> <p>Moving away from stocks was good advice for older people back when you could get better returns on bonds and bank interest. The 30-year treasury yield right now is about 2.75 percent. That's about half what it was a decade ago and a third of the rate from 1990. Interest from cash in the bank or certificates of deposit will generate a measly 1.5 percent or less. The bottom line is that these returns will barely outpace the rate of inflation and won't bring you much in the way of useful income.</p> <h2>4. Some stocks are safer than others</h2> <p>Not all stocks move up and down in the same way. While stocks are generally more volatile than bonds and cash, there are many that have a strong track record of steady returns and relative immunity from market crashes. Take a look at mutual funds comprised of large-cap companies with diversified revenue streams. Consider dividend-producing stocks that don't move much in terms of share price, but can generate income. To find these investments, search for those that lost less than average during the Great Recession and have a history of low volatility.</p> <h2>5. Dividend stocks can bring you income</h2> <p>Dividend stocks are not only more stable than many other stock investments, but also they can generate cash flow at a time when you're not bringing in other income. A good dividend stock can produce a yield of more than 4 percent, which is more than what you'll get from many other non-stock investments right now. This will help ensure the growth of your portfolio is at least outpacing inflation.</p> <p>If you are unsure about which dividend stocks to buy, take a look at a well-rated dividend mutual fund. The T. Rowe Price Dividend Growth Fund [NYSE: PRDGX], for example, has a three-year total return of more than 10 percent, outpacing the S&amp;P 500. Its overall returns also dropped less than the S&amp;P 500 during the Great Recession.</p> <h2>6. Busts are often followed by bigger booms</h2> <p>A person who retired 10 years ago would have stopped working right when the market crashed, and there's a good chance they may have lost a significant chunk of their savings. That's bad. But it's important to note that in the decade since, the S&amp;P 500 has gone up every year at an average of more than 8.5 percent annually. In other words, someone who lost a lot from the crash of 2007&ndash;2008 will have gotten all of their money back and much more if they stayed invested in stocks.</p> <p>This is not to suggest that older investors should be unreasonably aggressive, but they should be aware that a single bad year or two probably won't completely wipe you out financially. If your retirement is long, you may see some market busts, but you'll also see some long stretches of good returns.</p> <h2>7. You may still be helping out your kids</h2> <p>When you're retired, you're supposed to be done with child rearing and helping out your kids financially, right? Unfortunately, it seems that older Americans are continuing to lend a hand to their children even as they grow into adulthood and have children of their own.</p> <p>A recent survey from TD Ameritrade said that millennial parents between the ages of 19 and 37 receive an average of more than $11,000 annually in the form of money or unpaid child care from their parents. With these additional costs on the horizon, those approaching retirement age may still want to invest in stocks to build their nest egg further. (See also: <a href="http://www.wisebread.com/are-you-ruining-your-retirement-by-spoiling-your-kids?ref=seealso" target="_blank">Are You Ruining Your Retirement by Spoiling Your Kids?</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F7-reasons-to-invest-in-stocks-past-age-50&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F7%2520Reasons%2520to%2520Invest%2520in%2520Stocks%2520Past%2520Age%252050.jpg&amp;description=7%20Reasons%20to%20Invest%20in%20Stocks%20Past%20Age%2050"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/7%20Reasons%20to%20Invest%20in%20Stocks%20Past%20Age%2050.jpg" alt="7 Reasons to Invest in Stocks Past Age 50" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/7-reasons-to-invest-in-stocks-past-age-50">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-11"> <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/4-ways-to-protect-your-retirement-from-inflation">4 Ways to Protect Your Retirement From Inflation</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in Retirement</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-save-for-retirement-when-you-are-unemployed">How to Save for Retirement When You Are Unemployed</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-threats-to-a-secure-retirement">9 Threats to a Secure Retirement</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-you-need-to-know-about-the-easiest-way-to-save-for-retirement">What You Need to Know About the Easiest Way to Save for Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement adult children bonds cash dividend stocks giving money to kids income late starters life span living longer risk saving money stocks yields Thu, 05 Oct 2017 09:00:06 +0000 Tim Lemke 2031342 at http://www.wisebread.com Why the Dow Will Hit a Million, Eventually http://www.wisebread.com/why-the-dow-will-hit-a-million-eventually <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/why-the-dow-will-hit-a-million-eventually" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/businessman_building_business_graph.jpg" alt="Businessman building business graph" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>At an event earlier this month, Warren Buffett, one of the most successful investors of all time, revealed his prediction that the Dow Jones industrial average (DJIA) will be &quot;over 1 million&quot; in 100 years.</p> <p>With the DJIA currently sitting at about 22,400, is it even reasonable to think that the stock market could grow that much? Growth from the current value of the Dow to 1 million would represent an increase of about 45 times over. My first impression was that a value of 1 million for the Dow is very high, and Mr. Buffett must be either confused or overly optimistic to put forth such a prediction.</p> <p>But since this prediction came from someone who <em>clearly </em>has a good understanding of investments and the stock market, I decided to check out the math behind this prediction to see if it makes sense.</p> <p>An important part of Warren Buffett's prediction is the &quot;in 100 years&quot; part. One hundred years is a long time, and although it may be surprising, Warren Buffett's prediction of the Dow topping 1 million is actually quite reasonable given the historical performance of the market. In fact, the prediction of the Dow reaching 1 million in 100 years may even be <em>conservative</em>.</p> <h2>Here's the math</h2> <p>Let's look at what kind of growth rate would be required for the Dow to reach 1 million in 100 years. As I mentioned, the Dow would need to grow by 45 times its current value. When thinking about investment growth, it is informative to look at the growth in terms of the number of doublings that would be required.</p> <p>2<sup>n</sup> = 45</p> <p>n ln(2) = ln (45)</p> <p>n = ln(45) / ln(2)</p> <p>n = 3.81 / 0.693</p> <p>n = 5.5</p> <p>So the market value would need to double 5.5 times from its current value to reach 1 million. Let's look at this in the form of a table to make sure it makes sense:</p> <table> <tbody> <tr> <td> <p><strong># of Doublings</strong></p> </td> <td> <p><strong>Resulting Dow Value</strong></p> </td> </tr> <tr> <td> <p>0 doublings</p> </td> <td> <p>22,400 (current Dow)</p> </td> </tr> <tr> <td> <p>1 doubling</p> </td> <td> <p>44,800</p> </td> </tr> <tr> <td> <p>2 doublings</p> </td> <td> <p>89,600</p> </td> </tr> <tr> <td> <p>3 doublings</p> </td> <td> <p>179,200</p> </td> </tr> <tr> <td> <p>4 doublings</p> </td> <td> <p>358,400</p> </td> </tr> <tr> <td> <p>5 doublings</p> </td> <td> <p>716,800</p> </td> </tr> <tr> <td> <p>6 doublings</p> </td> <td> <p>1,433,600 (Dow over 1 million)</p> </td> </tr> </tbody> </table> <p>From the table above, you can see that doubling the current Dow five times yields 716,800, and doubling six times yields <em>over</em> 1 million, so the number of doublings for the Dow to reach 1 million must be somewhere in between. Our estimate of 5.5 doublings makes sense.</p> <p>So the Dow would need to double 5.5 times in 100 years &mdash; or in other words, it would need to double every 18.2 years: 100 years / 5.5 doublings = 18.2 years to double.</p> <p>The next step to checking out Mr. Buffett's prediction is to figure out what rate of growth would be required for the value of the Dow to double every 18.2 years.</p> <p>For a quick estimate, I turned to the &quot;Rule of 72.&quot; The Rule of 72 is a handy approximation to find how many years it will take an investment to double &mdash; simply divide 72 by the annual rate of growth. I flipped the Rule of 72 formula around to check the rate of growth required:</p> <p>72 / growth rate = years to double</p> <p>72 / growth rate = 18.2 years</p> <p>Solve for growth rate:</p> <p>72 = 18.2 x growth rate</p> <p>growth rate = 72 / 18.2 = 3.96 percent annual growth</p> <p>So the &quot;Rule of 72&quot; approximation tells us that an annual growth rate of 3.96 percent would be required to double the Dow every 18.2 years, which is the rate of growth needed for the Dow to hit 1 million in 100 years.</p> <p>If you don't want to settle for an approximation, or if you are just geeky in a cool sort of way, you can do a more exact calculation:</p> <p>2P = Pe<sup>Yr</sup></p> <p>2P = Pe<sup>(18.2)r</sup></p> <p>ln(2) = 18.2r</p> <p>r = ln(2) / 18.2</p> <p>r = 0.038 or 3.8 percent</p> <p>The approximation from the Rule of 72 matches pretty closely with the exact calculation, so it seems we have nailed down the rate of growth that is required for the Dow to reach 1 million.</p> <p>It turns out that that an annualized growth rate of 3.8 percent is well within the historical growth rate of the stock market over the past 100 years. The average rate of return from the stock market is typically considered to be as high as 7 percent.</p> <p>Of course the stock market does not march steadily along at an average rate of growth year after year. The market swings up and down from day to day and follows longer upward and downward trends during bull and bear markets. But over the long haul, the average trend for the stock market has been upward at a rate of well over 3.8 percent average growth over the past 100 years.</p> <p>In addition to the mathematical consideration of the rate of growth required for the Dow to reach 1 million in 100 years, another consideration is whether the world's people and natural resources will continue to sustain economic growth over the next 100 years. With development of exciting new technologies and emerging global markets to drive growth, it seems reasonable that the <a href="http://www.wisebread.com/why-does-the-stock-market-keep-going-up" target="_blank">stock market could keep going up</a>.</p> <p>So it looks like Mr. Buffett's thinking makes good sense as usual, and the prediction of the Dow 1 million makes perfect sense.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fwhy-the-dow-will-hit-a-million-eventually&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FWhy%2520the%2520Dow%2520Will%2520Hit%2520a%2520Million%252C%2520Eventually.jpg&amp;description=Why%20the%20Dow%20Will%20Hit%20a%20Million%2C%20Eventually"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/Why%20the%20Dow%20Will%20Hit%20a%20Million%2C%20Eventually.jpg" alt="Why the Dow Will Hit a Million, Eventually" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dr-penny-pincher">Dr Penny Pincher</a> of <a href="http://www.wisebread.com/why-the-dow-will-hit-a-million-eventually">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-12"> <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/why-does-the-stock-market-keep-going-up">Why Does the Stock Market Keep Going Up?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-buy-berkshire-hathaway-and-other-blue-chip-stock-for-17-off">How to Buy Berkshire Hathaway and Other Blue Chip Stock for 17% Off</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-reasons-millennials-should-stop-being-afraid-of-the-stock-market">7 Reasons Millennials Should Stop Being Afraid of the Stock Market</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-are-income-stocks">What Are Income Stocks?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-we-headed-toward-a-bull-or-bear-market">Are We Headed Toward a Bull or Bear Market?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Financial News Investment 1 million calculations djia dow jones industrial average estimates growth math predictions stock market Warren Buffett Fri, 29 Sep 2017 08:30:10 +0000 Dr Penny Pincher 2028010 at http://www.wisebread.com How Millennial Investors Can Get Past the Great Recession http://www.wisebread.com/how-millennial-investors-can-get-past-the-great-recession <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-millennial-investors-can-get-past-the-great-recession" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/businessman_cowering_on_blue_blackboard_background_with_chalk.jpg" alt="Businessman cowering on blue blackboard background with chalk" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>For many millennials, jumping head first into investing is not easy. Many of them have jarring memories of rough stretches in the market &mdash; most notably, the crash in 2007&ndash;2008 that led to the Great Recession. One recent survey from Legg Mason Global revealed that 82 percent of millennials say their investment decisions are influenced by that financial crisis and ensuing economic downturn.</p> <p>This wariness, however, could be harmful to millennials' long-term financial prospects. If they are not investing now, they may not be accumulating enough wealth for a comfortable retirement.</p> <p>How can millennials <a href="http://www.wisebread.com/7-reasons-millennials-should-stop-being-afraid-of-the-stock-market" target="_blank">get over their fear</a> and begin putting their cash back into stocks and other investments?</p> <h2>Look at the market's historical performance</h2> <p>It's impossible to ignore the 35 percent plunge in stock market prices that took place in 2008. No question, a lot of people lost a lot of money that year. But do you know what happened in 2009? The market rose by more than 25 percent. And it went up the next year. And the year after that. In fact, the S&amp;P 500 has seen positive gains every single year since the market crash, and 2017 promises to be the ninth straight year of positive returns.</p> <p>Moreover, the market rose for the five years before the 2008 crash. That's positive returns in 14 out of the last 15 years. With consistent returns like that, it's silly to dwell on a single rotten year, especially when you have a long way to go before retirement.</p> <h2>Start with what you know</h2> <p>You may be terrified about putting your money in stocks after enduring the Great Recession. So consider starting small, with something you're familiar with. Buy some stock in a strong company you know and like. If you eat a lot at McDonald's, buy some shares. Do you subscribe to Netflix? Buy shares of the company. Do you shop at Amazon? Go ahead, buy a few shares. This will get you started, and if you see these investments go up in value, you may overcome your fear of investing. When that happens, begin placing more of your savings into a wider array of investments and build a full portfolio.</p> <h2>Talk to an unbiased financial adviser</h2> <p>Sometimes you just need someone to talk to. Deep down, you know you should probably be investing your money and saving aggressively for retirement, but you aren't sure where to start. Perhaps you don't feel equipped with enough information to feel at ease.</p> <p>Most certified financial planners will be happy to sit down and have a conversation with you. They can help you get started investing in a way that will be within your risk tolerance. They'll explain how the investments work and point to the average annual returns. They can tell you about strategies that can help you grow your money while protecting it against any future market crashes. Any adviser worth their salt is not going to talk down to you; in fact, if they want your business, they will do whatever they can to make you feel comfortable before you invest a dime.</p> <h2>Chat with those who have endured a crash &mdash; and rebounded</h2> <p>The Great Recession wasn't the first time that the markets took a tumble. They fell precipitously after the tech bubble burst, and after the attacks of September 11. The markets fell more than 20 percent in a single day in October of 1987. Just about every decade has had at least one year that was bad for investors.</p> <p>Those who lived through those crashes, however, will tell you that things rebounded every time, and in many cases they were able to take advantage of depressed prices to realize larger gains in the end. For sure, there are people who chose to shy away from investing altogether after enduring a bad loss. But most people who lived through these downturns will offer the advice of &quot;This too shall pass.&quot;</p> <h2>Think about tomorrow</h2> <p>The Great Recession was painful, but imagine the pain of not having enough money to retire. That's what could happen if you shy away from investing. If you are afraid of investing because of your awareness of what happened a decade ago, it's time to flip that fear toward the future. Think for a second about what it will be like to fall short of your retirement goals. Consider what it means to be working well past what should be your retirement age. Scary, right? (See also: <a href="http://www.wisebread.com/are-you-making-the-biggest-investment-risk-of-all?ref=seealso" target="_blank">Are You Making the Biggest Investment Risk of All?</a>)</p> <h2>Take a lower risk approach</h2> <p>Most millennials are still decades away from retirement, so it makes sense to invest in mostly stocks, which usually offer high returns in exchange for some risk. But if you're risk tolerance is low, it's still possible to generate solid returns with a more conservative approach. Feel free to mix in some bonds or dividend stocks that have performed well over time. Look at industry sectors like consumer goods that have shown solid growth over the years with relatively low volatility. Be aware that you will sacrifice some return for taking this lower-risk approach, but you can still build a sizable retirement fund if you give it time to grow.</p> <h2>Save as much as you can</h2> <p>If you are skittish about investing, that should not be an excuse to avoid saving money at all. You may not feel comfortable putting your money in the markets, but it's imperative that you at least spend less money than you earn and avoid the crippling effects of debt.</p> <p>Ideally, you will want to invest a good portion of your savings, but if you can't get over your fear of the markets, make sure you're putting aside cash for emergencies and large expenses. Perhaps after building a large enough cash reserve, you'll become frustrated with the measly returns from bank interest and look to invest more aggressively.</p> <h2>Recognize free money when you see it</h2> <p>Have you even bothered to sign up for your employer's 401(k) plan? If it's something you've avoided because you don't want to invest, recognize that you may be turning down free cash. Most employers match their workers' contributions into a plan up to a certain amount, and may even throw in additional direct contributions. This is free money that you can invest along with your own, and is designed to replace the defined benefit plans (pensions) that employers used to offer. In the past, no reasonable worker would turn down a pension payment, so it's just as important to accept matching contributions to 401(k) plans. (See also: <a href="http://www.wisebread.com/10-signs-you-arent-saving-enough-for-retirement?ref=seealso" target="_blank">10 Signs You Aren't Saving Enough for Retirement</a>)</p> <h2>Add to your knowledge and skills</h2> <p>Outside of financial market strategies, there are other ways you can make yourself less vulnerable to a financial crash. You may not be able to control the economy or the performance of the stock market, but you can control how attractive you might be to employers. Your education shouldn't end when you leave college. Don't be afraid to continue learning, both in the classroom and on the job.</p> <p>Take on new challenges and learn new skills. This might mean learning to code or becoming an expert in Excel or web design. Or, maybe some advanced writing or graphic design skills will help you. Bolstering your resume in this way will improve your chances of landing and keeping a job, and may lead to a higher income. If there is another market crash and recession, you'll feel confident that you can weather the storm.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fhow-millennial-investors-can-get-past-the-great-recession&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHow%2520Millennial%2520Investors%2520Can%2520Get%2520Past%2520the%2520Great%2520Recession.jpg&amp;description=How%20Millennial%20Investors%20Can%20Get%20Past%20the%20Great%20Recession"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/How%20Millennial%20Investors%20Can%20Get%20Past%20the%20Great%20Recession.jpg" alt="How Millennial Investors Can Get Past the Great Recession" width="250" height="374" /></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/how-millennial-investors-can-get-past-the-great-recession">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-13"> <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-investment-moves-that-prove-youre-finally-a-grown-up">5 Investment Moves That Prove You&#039;re Finally a Grown-Up</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-millennials-should-stop-being-afraid-of-the-stock-market">7 Reasons Millennials Should Stop Being Afraid of the Stock Market</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-things-you-need-to-know-about-investing-in-company-stock">7 Things You Need to Know About Investing in Company Stock</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/your-loss-aversion-is-costing-you-more-than-your-fomo">Your Loss Aversion Is Costing You More Than Your FOMO</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-dumb-401k-mistakes-smart-people-make">5 Dumb 401(k) Mistakes Smart People Make</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment 401(k) fear great recession loss aversion market crashes millennials retirement Mon, 25 Sep 2017 16:26:40 +0000 Tim Lemke 2023545 at http://www.wisebread.com Bookmark This: A Step-by-Step Guide to Choosing 401(k) Investments http://www.wisebread.com/bookmark-this-a-step-by-step-guide-to-choosing-401k-investments <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/bookmark-this-a-step-by-step-guide-to-choosing-401k-investments" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/real_estate_agent_working_with_client_online.jpg" alt="Real estate agent working with client online" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>It's no secret that 401(k) fund options are notoriously opaque. While target-date funds provide convenience to investors, they often come with higher fees than alternative investment vehicles, have highly variable returns, and aren't a good fit for many retirement savers. Let's simplify things, and review a low-stress strategy for building a solid two-to-three-fund portfolio for your 401(k).</p> <h2>The downsides to target-date funds</h2> <p>Designed to gradually adjust your investment mix as you approach retirement age, target-date funds have exploded in popularity since their designation as qualified default investment alternatives by the 2006 Pension Protection Plan. The upsides of target-date funds are that they're easy to select (96 percent of Vanguard plans make it the default investment option), they automatically rebalance, and they offer appropriate investment diversification. (See also: <a href="http://www.wisebread.com/what-you-need-to-know-about-the-easiest-way-to-save-for-retirement?ref=seealso" target="_blank">What You Need to Know About the Easiest Way to Save for Retirement</a>)</p> <p>However, all that convenience comes at a high price. A 2015 review of over 1,700 target-date funds by FutureAdvisor determined that their average expense ratio (the annual fee charged to shareholders to cover operating expenses) was a relatively high 1.02 percent, meaning that you'd pay $51 every year for every $5,000 in your balance. Assuming an average investment return of 7 percent per year, you would miss out on an extra $4,998 in retirement savings over a 30-year period.</p> <p>On top of high fees, some target-date funds' returns barely cover their high annual expense ratios. The same review of 1,700 target-date funds pointed out that the lowest five-year average annual returns were 2.9 percent. (Returns are expressed net of expense ratios.) As of September 2017, 2.9 percent is not that much higher than the rate of a five-year CD at a credit union.</p> <p>Here's a better alternative to target-date funds.</p> <h2>Your guide to choosing your 401(k) investment options</h2> <p>In his 2013 letter to Berkshire Hathaway shareholders, Warren Buffett (aka The Oracle of Omaha) provided an investment strategy that would &quot;be superior to those attained by most investors who employ high-fee managers.&quot; Buffett recommended putting 90 percent of one's investments in a very low-cost S&amp;P 500 index fund, and the remaining 10 percent in short-term government bonds. This is the same advice that he has set in his will. (See also: <a href="http://www.wisebread.com/the-5-best-pieces-of-financial-wisdom-from-warren-buffett?ref=seealso" target="_blank">The 5 Best Pieces of Financial Wisdom From Warren Buffett</a>)</p> <p>More and more 401(k) plans are offering passively managed index funds that track a benchmark, such as the S&amp;P 500. And for good reason: The Vanguard 500 Index Investor Shares Fund [Nasdaq: VFINX] has an annual expense ratio of 0.14 percent, just a $7 annual fee for a balance of $5,000. That's $44 in annual savings when you compare it to a target-date fund with a 1.02 percent annual expense ratio.</p> <p>Worried that this approach doesn't provide you enough diversification? Think again: An index fund tracking the S&amp;P 500 is investing in 500 large-cap companies. That's as diversified as you can get. (See also: <a href="http://www.wisebread.com/how-too-much-investment-diversity-can-cost-you?ref=seealso" target="_blank">How Too Much Investment Diversity Can Cost You</a>)</p> <p>Let's use Buffett's advice to build your 401(k) plan's portfolio.</p> <h3>Step 1: Check your plan for a U.S. equities index fund</h3> <p>There is a good chance that your 401(k) plan offers a low-cost S&amp;P 500 index fund. Buffett personally recommends an S&amp;P 500 Vanguard index fund. Vanguard is an investment management company known for having very low fees compared to competitors, especially on its index funds. In 2016, close to 60 percent of Vanguard plans offered an index core giving you access to broadly diversified index funds for U.S. stocks. In truth, you can do just as well with other index funds tracking the S&amp;P 500, such as the Fidelity 500 Index Investor [Nasdaq: FUSEX] and the Northern Stock Index [Nasdaq: NOSIX].</p> <p>In the event, that you don't have access to a low-cost index fund tracking the S&amp;P 500 through your workplace 401(k), you have two action items. First, see if your plan offers another large cap index fund (one investing in large U.S. companies based on a market index). This type of fund normally invests at least 80 percent of its assets in securities within its benchmark index, such as the Fidelity Large Cap Stock Fund [Nasdaq: FLCSX] and the Vanguard U.S. Growth Fund [Nasdaq: VWUSX]. Second, contact your plan administrator and request adding a low-cost S&amp;P 500 index fund.</p> <h3>Step 2: Check your plan for a fund of short-term investment-grade bonds</h3> <p>Just like there are index funds for investing in equities, there are also index funds for investing in bonds. For example, there is the Vanguard Short-Term Investment-Grade Fund [Nasdaq: VSFTX], which has an annual expense ratio of 0.20 percent, or $10 in fees for a balance of $5,000.</p> <p>Don't have access to such a fund? Look for a low-cost fund giving you the most exposure to high- and medium-quality, investment-grade bonds with short-term maturities, including corporate bonds, pooled consumer loans, and U.S. government bonds. Why short-term maturities? Short-term bonds tend to have low risk and low yields, ensuring that one portion of your nest egg remains stable at all times &mdash; something you'll really benefit from during any recessions.</p> <p>Then, request that your plan administrator add a low-cost index fund for domestic bonds.</p> <h3>Step 3: Allocate 90 percent to the equities index fund and 10 percent to the bonds index fund</h3> <p>Now you're ready to rebalance your portfolio. Using your online portal, look for an option that says &quot;exchange funds&quot; or &quot;transfer money between funds&quot; to move your nest egg dollars from your existing investments into the equities index fund and bonds index fund. (Note: Depending on your plan rules, including vesting rules, you may not be able to move 100 percent of your balance until a certain date. In that case, move everything that you can and the remaining once it becomes eligible.)</p> <p>Exchange your entire 401(k) balance and allocate 90 percent of that amount to the equities index fund and 10 percent to the bonds index fund. Confirm your transaction.</p> <h3>Step 4: Adjust your future contributions</h3> <p>To keep future contributions going into the right place, adjust your paycheck investment mix so that 90 percent of withholdings go to the equities index fund and 10 percent go into the bonds index fund.</p> <p>If your 401(k) offers an automatic rebalance feature, opt-in for it so that your portfolio is automatically readjusted to the 90/10 without you moving a finger. If your 401(k) doesn't offer that feature, plan to manually rebalance your account once a year.</p> <h3>Step 5: Revisit the 90/10 allocation at important life changes</h3> <p>Marriage. Birth of your first child. Purchase of your first home. Being able to start making catch-up contributions. Reaching age 59 1/2. These and more critical milestones in your life may require you to adjust your 90/10 allocation. As you get closer to retirement age, you should gradually shift from a growth strategy (selecting funds that exhibit signs of above-average growth) to an income strategy (picking funds that provide a steady stream of income) so that you hold fewer stocks and more bonds. The beauty of a target-date fund is that is does all of this for you automatically as you age. Without one, you'll need to stay on top of this occasional rebalancing yourself.</p> <h2>The bottom line</h2> <p>One of the main reasons that your 401(k) will perform better is that you're minimizing fees. If you were to allocate 90 percent of a $5,000 401(k) balance into the Vanguard 500 Index Investor Shares Fund [Nasdaq: VFINX] and 10 percent into the Vanguard Short-Term Investment-Grade Fund [Nasdaq: VSFTX], you would just pay $7.30 in annual fees. That's $43.70 in annual savings over putting the entire $5,000 in a target-date fund with a 1.02 percent annual expense ratio. It doesn't sound like a large amount of savings, but compounded over the years it can add up to thousands of dollars more in your retirement fund.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fbookmark-this-a-step-by-step-guide-to-choosing-401k-investments&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FA%2520Step%2520By%2520Step%2520Guide%2520To%2520Choosing%2520Investments.jpg&amp;description=A%20Step-by-Step%20Guide%20to%20Choosing%20401(k)%20Investments"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/A%20Step%20By%20Step%20Guide%20To%20Choosing%20Investments.jpg" alt="A Step-by-Step Guide to Choosing Investments" width="250" height="374" /></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/bookmark-this-a-step-by-step-guide-to-choosing-401k-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-14"> <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/why-warren-buffett-says-you-should-invest-in-index-funds">Why Warren Buffett Says You Should Invest in Index Funds</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/think-outside-the-index-when-you-rebalance-your-investment-portfolio">Think Outside the Index When You Rebalance Your Investment Portfolio</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-the-risk-averse-can-get-into-the-stock-market">How the Risk Averse Can Get Into the Stock Market</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in Retirement</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-things-you-need-to-know-about-investing-in-company-stock">7 Things You Need to Know About Investing in Company Stock</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement 401(k) bonds equities expense ratios fees index portfolio rebalancing s&p 500 short-term bonds target-date funds Warren Buffett Thu, 21 Sep 2017 08:31:06 +0000 Damian Davila 2023013 at http://www.wisebread.com 8 Types of Investors — Which One Are You? http://www.wisebread.com/8-types-of-investors-which-one-are-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-types-of-investors-which-one-are-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/businessman_reading_a_newspaper.jpg" alt="which type of investor are you" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Do you tend to invest in a particular way? Identifying which type of investor you are can help you understand the potential pitfalls of your investment approach &mdash; and how to improve your chances for better investment returns. Which type of investor are you?</p> <h2>1. Automatic investor</h2> <p>The automatic investor is all about convenience. Everything related to investing is set on autopilot. Automatic contributions to investment funds come out of every paycheck or are withdrawn from the bank account on a certain day of the month. This type of investor doesn't spend much time or effort thinking about investing, and doesn't need to since everything is automatic. They don't have to remind themselves to invest; it's checked off their financial to-do list.</p> <p>The potential downside for the automatic investor is losing touch with where investment funds are going and how the investment portfolio is performing. If you are not paying attention, you may not have investment selections that meet your current goals, and you may not identify and remove low performing investments or funds with high fees. If you don't check in at least occasionally, this hands-off approach may cost you. Rebalancing your portfolio once or twice a year by transferring funds to maintain your desired proportions of stocks to bonds should be sufficient to keep your investment portfolio on track. (See also: <a href="http://www.wisebread.com/the-most-important-thing-youre-probably-not-doing-with-your-portfolio?ref=seealso" target="_blank">The Most Important Thing You're Probably Not Doing With Your Portfolio</a>)</p> <h2>2. Daily Dow watcher</h2> <p>The Dow watcher is constantly up to speed. They know at any time if the stock market is up or down. The current market price and chart is only a tap away on their smartphone. This type of investor knows how much their portfolio is worth and worries about how much they are losing when the market has a bad day. Nothing goes over the Dow watcher's head.</p> <p>The risk for the Dow watcher is that he or she can easily get stressed out by day-to-day ups and downs in the market. They may even get discouraged when the market is going down and decide to sell stock when the price is low &mdash; the worst time to sell! It's good to be informed, especially when it comes to your investments, but if you find yourself too glued to the Dow's daily performance &mdash; it might be a good idea to <a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news" target="_blank">step away from the news</a> for a bit. Checking in on the stock market and your investment portfolio quarterly is probably more than frequent enough, and you can use the time you save for something more productive and enjoyable.</p> <h2>3. Active trader</h2> <p>The active trader is a studious investor. This type of investor tries to time the market by figuring out that a stock is going up before other investors realize it &mdash; and then selling when it is near the peak price before most investors figure out that it is going down. This type of investor pores over market and economic data, reads business articles, and is well-informed about business trends and news. He or she is willing to take risks for a chance at big returns.</p> <p>If you're an active trader, tread carefully; you can easily lose significant money if your timing is off. Trading fees can also get expensive if your investment approach requires making a lot of trades. You are much more likely to make money from buying good stocks and holding them for the long haul.</p> <h2>4. Conscientious investor</h2> <p>Conscientious investors put their money where their morals are. They have limits to what activities and products they are willing to be involved with in order to make a buck. For example, some conscientious investors invest only in socially-responsible or environmentally-responsible companies, and avoid owning shares in companies that promote values or products contrary to their moral principles. This type of investor is likely to exert economic influence through consumer purchasing decisions as well as through their stock picks.</p> <p>This type of ethical investing unfortunately can limit a person's investment options, which may result in lower returns. But some things are worth more than money to conscientious investors. (See also: <a href="http://www.wisebread.com/a-simple-guide-to-socially-responsible-investing?ref=seealso" target="_blank">A Simple Guide to Socially Responsible Investing</a>)</p> <h2>5. Property investor</h2> <p>Not every investor owns stocks. The property investor owns real estate, collectibles, gold, and maybe even bonds. He or she wants to invest in things that they can understand and control to some extent. This type of investor may not trust Wall Street and avoids the volatility of stocks.</p> <p>Historically, however, stocks have had great investment returns compared to other investment types, so property investors who shy away from the stock market could be missing out. Large cap value stocks can be a relatively safe way to start off in stock investing for first-time stock investors.</p> <h2>6. Bargain investor</h2> <p>This is the kind of investor that pounced on GM stock when it was $1 per share in 2009. Of course there is risk that bargain stocks could become worthless, but there is potential for the stock price to bounce back. The bargain investor looks carefully at P/E ratios to check the share price relative to earnings per share when deciding what stock to buy.</p> <p>Bargain hunters should be wary though &mdash; sometimes stocks with low prices are trading at a low price for a good reason. The bigger the bargain, the more research is merited into why the price is so low before you buy.</p> <h2>7. Company loyalist</h2> <p>The company loyalist owns a disproportionate amount of stock from an individual company. This could be a trendy stock that inspires loyalty like Apple or Tesla, or the company loyalist could own a large amount of his or her own employer's stock.</p> <p>Owning a large amount of any single company stock can be risky. The company could <a href="http://www.wisebread.com/how-these-8-company-stocks-fared-following-scandal" target="_blank">experience a major scandal</a> or product failure and the stock price could tank. Remember Enron? Owning a lot of stock in the company you work for is even riskier, because if something goes wrong you'll not only lose value in your stock fund, but you may lose your job at the same time. Some financial advisers suggest that owning more than 10 percent to 15 percent of your company's stock may be too much.</p> <h2>8. Portfolio tweaker</h2> <p>The portfolio tweaker is not really an active trader, but likes to adjust and fine tune his or her portfolio frequently by making transfers between funds to get the desired balance between large cap, mid cap, small cap, foreign, domestic, growth, value, and bond investment categories.</p> <p>While it is good to adjust your portfolio occasionally to meet your investment goals, frequently selling investments that are performing well just to meet an arbitrary &quot;balance&quot; in your portfolio may not be the best move and could hurt your overall return. As we advised the automatic investor, portfolio rebalancing once or twice per year is a good interval for most investors.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F8-types-of-investors-which-one-are-you&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F8%2520Types%2520Of%2520Investors%2520Which%2520One%2520Are%2520You.jpg&amp;description=8%20Types%20of%20Investors%20%E2%80%94%20Which%20One%20Are%20You%3F"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/8%20Types%20Of%20Investors%20Which%20One%20Are%20You.jpg" alt="8 Types of Investors &mdash; Which One Are You?" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dr-penny-pincher">Dr Penny Pincher</a> of <a href="http://www.wisebread.com/8-types-of-investors-which-one-are-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-15"> <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/how-the-risk-averse-can-get-into-the-stock-market">How the Risk Averse Can Get Into the Stock Market</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/want-your-investments-to-do-better-stop-watching-the-news">Want Your Investments to Do Better? Stop Watching the News</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-essentials-for-building-a-profitable-portfolio">5 Essentials for Building a Profitable Portfolio</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment automatic company stock dow ethical investing portfolio property investors returns risk stock market stocks types Fri, 08 Sep 2017 08:00:05 +0000 Dr Penny Pincher 2017190 at http://www.wisebread.com