portfolio http://www.wisebread.com/taxonomy/term/7611/all en-US 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> <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-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/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/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/7-traps-to-avoid-with-your-401k">7 Traps to Avoid With Your 401(k)</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-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-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 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> <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-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-too-much-investment-diversity-can-cost-you">How Too Much Investment Diversity Can Cost You</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-dollar-cost-averaging-the-right-strategy-for-you">Is Dollar Cost Averaging the Right Strategy for You?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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/10-questions-to-ask-before-you-sell-a-stock-or-a-fund">10 Questions to Ask Before You Sell a Stock or a Fund</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment 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 Why Warren Buffett Says You Should Invest in Index Funds http://www.wisebread.com/why-warren-buffett-says-you-should-invest-in-index-funds <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/why-warren-buffett-says-you-should-invest-in-index-funds" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-465649794.jpg" alt="Learning why Warren Buffett says you should invest in index funds" title="" class="imagecache imagecache-250w" width="250" height="142" /></a> </div> </div> </div> <p>About nine years ago, Warren Buffett <a href="http://www.usatoday.com/story/money/personalfinance/columnist/2017/03/08/buffetts-best-investment-tip-everyone-index-funds/98525306/" target="_blank">made a $500,000 bet</a>. He wagered that a simple index fund would outperform an actively managed hedge fund run by expert investors. Which would you pick?</p> <p>Before you decide, here is some additional information about the fund contenders:</p> <ul> <li>Index funds buy a mix of stocks in a proportion that represents the overall stock market or a particular market segment. Index funds are typically managed automatically by a computer algorithm, and management fees for this type of fund are usually very small &mdash; around 0.1 percent or sometimes even lower.<br /> &nbsp;</li> <li>Hedge funds put money into alternative investments that can go up if the stock market goes down. Of course, hedge funds also try to provide maximum returns and beat the stock market if possible. Hedge funds may invest in real estate, commodities, business ventures, and other opportunities that fund managers think will hedge against potential stock market losses and produce good returns. These funds are actively managed and have high management fees of around 2 percent or more.</li> </ul> <p>Buffett picked a simple S&amp;P 500 index fund for the wager. He bet against an investment manager who picked a set of five hedge fund portfolios. After letting these investments play out for nine years, Buffett announced the results of this wager in the chairman's letter in this year's annual report for the holding company he controls and runs, Berkshire Hathaway: The index fund outperformed the actively managed funds. (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>Buffet's experience mimics numerous studies that have shown that index funds consistently beat the results of actively managed funds. Why does a simple and essentially automatic investment strategy (the index fund) outperform sophisticated investment funds managed by active expert investors?</p> <h2>Low fees</h2> <p>Fund fees, also known as expense ratios, are much lower for index funds than for actively managed hedge funds or mutual funds. You can find index funds with fees under 0.1 percent, while actively managed hedge funds can have fees of 2 percent or more.</p> <p>Although the wager Buffett made concerned hedge funds with high expense ratios, the same principle applies when comparing index funds to actively managed mutual funds, which can have fees as high as 1 percent. Higher fees mean that actively managed funds have to outperform the market significantly to offset them. Over the long run, actively managed funds may not consistently outperform the market by enough to make up for the higher fees.</p> <h2>Investment errors</h2> <p>Another reason actively managed funds can fall behind index funds is investment errors. In active funds, someone is making investment decisions and moving money around trying to get higher returns. Sometimes an investment manager can outperform the market and get higher returns, but this doesn't always work out. It only takes one mistake to wipe out a lot of investment gains. In an index fund, the only investment decision is to adjust the ratio of holdings to match the market segment of interest.</p> <p>Index funds accurately reflect the performance of the market they are mirroring. The investment strategy is simple, and there is no opportunity for investment error. If you invest in an index fund, you will reliably receive similar returns to the market that your index fund represents.</p> <h2>How to buy an index fund for your portfolio</h2> <p>During my research for this article, I moved around $10,000 of my own investment funds from actively managed funds into index funds with much lower fees. I figured if index funds are good enough for Warren Buffett, they are good enough for me!</p> <p>You can log in to your investment account website and view the expense ratios for your current investments and for other available funds. I found that my investment choices had expense ratios ranging from 0.02 percent to 0.83 percent &mdash; a difference of more than 40-fold. This is definitely a big enough difference to worry about.</p> <p>A good first step is to check your own investment funds and find out how high the fees are. You may be happy with what you find, or you may decide you want to move to index funds with much lower fees.</p> <p>Of course, when choosing your investment funds, you shouldn't look only at the expense ratio. You should balance your portfolio to include a strategic mix of large cap, medium cap, and small cap investments and an intentional balance of foreign and domestic stocks to meet your investment goals.</p> <p>When I moved my investment money into index funds with very low fees, I picked funds that made sense to balance my portfolio. For example, I moved some funds from a mid-cap growth fund with a 0.3 percent expense ratio into a mid-cap index fund with a 0.07 percent expense ratio &mdash; over four times lower fees. In the long run, I think this is a bet that will pay off.</p> <p>Even if you don't have $500,000 to wager, you might as well minimize what you are paying in fees by moving from actively managed funds to index funds. You'll keep more of your money working for you instead of having it go to work for someone else.</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-warren-buffett-says-you-should-invest-in-index-funds">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-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/what-are-income-stocks">What Are Income Stocks?</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/11-investing-tips-you-wish-you-could-tell-your-younger-self">11 Investing Tips You Wish You Could Tell Your Younger Self</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-steps-to-getting-started-in-the-stock-market-with-index-funds">3 Steps to Getting Started in the Stock Market With Index Funds</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment actively managed funds expense ratios fees hedge funds index funds mutual funds portfolio returns stock markets Warren Buffett Mon, 10 Apr 2017 09:00:08 +0000 Dr Penny Pincher 1922477 at http://www.wisebread.com The 3 Rules Every Mediocre Investor Must Know http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-3-rules-every-mediocre-investor-must-know" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-508414008.jpg" alt="Learning three rules evert mediocre investor must know" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Mediocre financial advice can earn you mediocre investment returns &mdash; and mediocre investment returns are all you need to save for a house, send your kids to college, and fund your (potentially early) retirement. <a href="http://www.wisebread.com/why-you-should-take-investment-advice-from-a-mediocre-investor" target="_blank">Mediocre investment advice</a> is pretty straightforward. In fact, the only thing that's complicated about getting mediocre financial results is the stuff that comes before investing: Things like earning money, keeping your debt in check, finding a career, living frugally, and most crucially, building an adequate <a href="http://www.wisebread.com/a-step-by-step-guide-to-creating-your-emergency-fund" target="_blank">emergency fund</a>.</p> <p>Once you've got those things taken care of, you're ready to start investing. If you're at that point, here's my mediocre investment advice: Create a diversified portfolio of low-cost investments and rebalance it annually.</p> <h2>Diversified Portfolio</h2> <p>It's important to have diversity at several levels. Eventually you'll want diversity in investment types &mdash; not just stocks, but also bonds, real estate, precious metals, foreign currency, cash, etc. More importantly, you want finer-grained diversity especially in the earlier stages of building your portfolio. Don't let your portfolio get concentrated in just one or a few companies. (For what it's worth, don't let it get concentrated in the stock of your employer, either. That sets you up for a catastrophe, because if your employer runs into trouble, the value of your portfolio can crash at the same time your job is at risk.)</p> <p>In the medium term &mdash; after you've got a well-diversified stock selection, but before it's time to branch out into more exotic investments &mdash; you'll want to expand the diversity of types of companies. Not just big companies, but also medium-sized and small companies. Not just U.S. companies, but also foreign companies. Not just tech companies, but also industrial companies and financial companies, and so on.</p> <p>Diversity wins two ways. First, it's safer: As long as all your money isn't in just one thing, it doesn't matter so much whether it's a good year or a bad year for that thing. Second, it produces higher returns: No one can know which investment will be best, but a diversified portfolio probably has at least <em>some </em>money invested in <em>some </em>investments that will do especially well. (Of course retrospectively, there will have been one investment that does best, and risking having all your money in that would have produced the highest possible return &mdash; but that's exactly what a mediocre investor knows better than to attempt.)</p> <p>Of course, you don't want a random selection of investments, even if such a thing might be quite diverse. You want a reasonably balanced portfolio &mdash; something I'll talk about at the end of this post.</p> <h2>Low-Cost Investments</h2> <p>The less money you pay in fees and commissions, the more money you have invested in earning a return.</p> <p>Getting this right is so much easier now than it was when I started investing! In those days, you could scarcely avoid losing several percent of your money right off the top to commissions, and then lose another percent or two annually to fees. Now it's easy to make a stock trade for less than $10 in commissions, and it's easy to find mutual funds and exchange-traded funds that charge fees of only a fraction of 1%.</p> <p>Still, it's easy to screw this up. Any investment that's advertised is paying its advertising budget somehow &mdash; probably with fees from investors. Any investment that's sold by agents or brokers is paying those agents or brokers somehow &mdash; probably with commissions or fees from investors.</p> <p>All those costs come straight out of your return. Keep them to a minimum.</p> <h2>Rebalance Annually</h2> <p>Your diversified portfolio will immediately start getting less diversified: Your winning investments will become a larger fraction of your portfolio while your losers will become a smaller fraction. In the short term, that's great. Who doesn't want a portfolio loaded with winners? Pretty soon though, you start losing the advantages of diversification. Last year's winners will inevitably become losers eventually, and you don't want that to happen after they've become a huge share of your portfolio.</p> <p>The solution is to restore the original diversity. Sell some of the winners, and use the resulting cash to buy some more of the losers. It's the easiest possible way to buy low and sell high. (Maybe you don't want to buy exactly the losers &mdash; not if their poor performance leads you think there's something really wrong with them. But buy something kind of like them. Health care companies probably belong in your portfolio, even if many of them did badly this year.)</p> <p>There are costs to rebalancing &mdash; costs in time and effort (figuring out what to sell and what to buy), and actual costs in commissions and fees. Because of that, you probably wouldn't want to rebalance constantly. You could make a case for monthly or quarterly rebalancing, but even that seems like a lot of effort for a small portfolio. Annually seems to hit the sweet spot.</p> <h2>What Goes Into a Diversified Portfolio?</h2> <p>What I'm going to suggest is that you start with a balanced portfolio of stocks and bonds.</p> <p>It's not that there aren't plenty of other worthy investment options &mdash; cash, gold, silver, real estate, foreign currencies, etc. &mdash; it's just that they all have complications of one sort or another, and you can get started on earning your mediocre returns without them.</p> <p>My mediocre investment advice then is that your portfolio should be a balance of stocks (for maximum growth) and bonds (for income and stability).</p> <h3>Finding the Right Balance Comes Down to Age &mdash; Yours</h3> <p>What's the right balance? An old rule of thumb was that 100 minus your age would be a good target percentage for the stock portion of your portfolio. At the start of your career, you'd have nearly 80% of your investments in stocks, and that fraction would gradually decline to about 35% as you approached retirement. The theory was that a young person can afford to take big risks, because he or she has time to wait for an eventual market rebound (and because during the early phase of building up a portfolio, even a large percentage loss is a small dollar amount). This makes a certain amount of sense. In fact, you could argue that a stock market that collapsed and then stayed down just when you started investing would be great &mdash; it would give you decades to buy stocks cheap.</p> <p>That rule of thumb isn't bad, although with people living longer these days, it probably makes sense to keep a higher portion of stocks in your portfolio during the last years before and first years after retirement. Once you hit 50, maybe only cut your stock portfolio by 1% every two years.</p> <p>When you're just getting started, feel free to keep it very simple. Perhaps just start putting money into a broad-based stock fund (such as an S&amp;P 500 index fund). You can add a bond fund right away if you want, or wait until your annual rebalancing.</p> <p>There are mutual funds that will manage this balance for you, holding stocks and bonds with a balance that shifts over time to some target date, at which point they'll hold a portfolio suitable for someone who has retired. You don't need them. In particular, they tend to have higher expenses, violating the &quot;low cost&quot; principle. You can do it easily enough for yourself. (Of course if you find that you don't do your annual rebalancing, then maybe paying a fund to do it for you is worth the expense.)</p> <p>As an alternative to mutual funds, you can use exchange traded funds or ETFs. It doesn't matter.</p> <p>Once your portfolio of stocks is large, you probably want to move beyond a single fund. Look at the other low-cost funds offered by the same fund family that provides your S&amp;P 500 index fund. Consider adding a fund that includes foreign stocks (especially if the dollar seems strong at the time you'll be buying). Consider adding a fund that includes dividend-paying stocks (especially if interest rates are low relative to dividends).</p> <p>Follow these mediocre tips, and you'll be racking up mediocre returns in no time! And remember &mdash; mediocre returns are all you need to live well and retire well.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-you-choosing-the-right-fund-for-your-portfolio">Are You Choosing the Right Fund for Your Portfolio?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-build-an-investment-portfolio-for-under-5000">How to Build an Investment Portfolio for Under $5000</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/11-investing-tips-you-wish-you-could-tell-your-younger-self">11 Investing Tips You Wish You Could Tell Your Younger Self</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/11-investment-mistakes-we-all-make">11 Investment Mistakes We All Make</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment advice balancing bonds diversification ETFs mediocre investments mutual funds portfolio returns stock market stocks Mon, 27 Feb 2017 10:30:46 +0000 Philip Brewer 1896815 at http://www.wisebread.com The Easiest Way to Invest in the World's Biggest Companies http://www.wisebread.com/the-easiest-way-to-invest-in-the-worlds-biggest-companies <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-easiest-way-to-invest-in-the-worlds-biggest-companies" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/invest_money_476336804.jpg" alt="Learning how to invest in the biggest companies" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Here's a classic way to build up an investment portfolio: Regularly invest modest amounts of money in growing companies. Do that for a few decades, reinvesting the dividends as you go along, and &mdash; if you've picked the right companies &mdash; you will end up with sizable holdings. Perhaps even real wealth.</p> <p>If you want a diversified portfolio, and you really should, there are a lot of cheap ways to get one. Any number of mutual funds will let you open an account with a modest initial deposit, and the minimums for subsequent investments are quite reasonable for even a small saver.</p> <p>But what if you don't like someone else's idea of a diversified portfolio? What if you have some strong opinions about which companies are worth investing in, and out of the thousands of mutual funds available, none of them focuses on those companies? What if you really want to invest in specific companies picked by you?</p> <p>One option would be to open an account at an online brokerage and make your purchases there. That will work great if you have ample money to invest. But what if your free cash for investing is small?</p> <p>Even small investments can add up to a lot of money, if you've got both time and a good annual return working for you. If the companies you pick can average an 8% annual return for 40 years, just $20 a week will build to a fortune of over $300,000.</p> <p>But the online brokerage solution is no good for investments that small, because of commissions. Even the cheap online brokers charge $5 on a trade, and plenty of them charge closer to $10 &mdash; there's half your investment gone right there.</p> <p>Fortunately, there's an alternative that's tailor-made for this situation: Direct Stock Purchase Plans, or DSPPs.</p> <h2>Direct Stock Purchase Plans</h2> <p>Back in my day they were called Dividend Reinvestment Plans, or DRIPs, but they're basically the same thing: Big companies hire somebody &mdash; usually the stock transfer agent &mdash; to create and manage accounts that let individuals buy small quantities of stock &mdash; usually for no commission &mdash; and reinvest their dividends.</p> <p>It's a win for the investor, because they get to invest in the stock for free. It's a win for company, because they get a dependable stream of new capital, and a stable base of shareholders who are aren't likely to sell out at the first sign of bad news or to go chasing after the next hot trend.</p> <p>Besides charging no commissions, they also solve another problem for the very small investor: the cost of whole shares. Suppose you want to invest $20 out of every paycheck, but the stock you want to buy is $63 a share. It would take you four paychecks to save up enough money to buy one share. With a DSPP you'd get 0.317 shares with the first contribution, and a similar amount each paycheck after.</p> <h2>Things to Know</h2> <p>There are a few caveats.</p> <p>First, only certain companies go to the trouble and expense of offering a DSPP. Happily, as suggested by the title of this article, they're mostly the largest companies on the U.S. stock exchanges. The web has plenty of lists of companies that offer DSPPs or DRIPs. Alternatively, if you know which company you're interested in, go to the company website and look for a link like &quot;investors&quot; or &quot;shareholder information.&quot; If there's a direct investment program, you'll find the information about it there.</p> <p>Second, buying stocks this way &mdash; through numerous small purchases &mdash; may make figuring your taxes a lot more complicated in the years that you sell. (This may be less true than it used to be, now that brokers are required to track your cost basis for you.)</p> <p>Third, be aware that these sort of plans don't offer the services of a broker. They are basically just for accumulating shares in one specific company. They will probably let you shift from reinvesting your dividends to receiving them in cash, something you might want to do when you retire and will be living off your investments. They usually let you take delivery of your stock (if at some point you want to transfer it to a regular broker) or sell it (if you have found a better investment, or need the money to live on). They won't let you borrow against it, they won't have cash management tools, they won't be interested in holding any other shares you own, or selling you bonds, or advising you on other investment opportunities.</p> <p>Fourth, investing in just one company won't give you a diversified investment portfolio. You'd need a dozen carefully chosen companies to get something reasonably diversified. Of course, as an adjunct to some well-diversified mutual funds, a DSPP in a company that does very well, can provide a considerable boost to your total return, without completely unbalancing your portfolio.</p> <h2>History</h2> <p>Plans like these used to be a much bigger deal. Especially before 1975 (when minimum commissions were abolished), but continuing right up until Internet brokers got big in the 1990s, the costs to trade stocks were high enough that it was completely impractical for a small investor to gradually accumulate shares in a growing company. Investing in individual stocks was a game only for the wealthy.</p> <p>It's generally not important these days, but there's a technical difference between DRIPs and DSPPs. Back in the day DRIPs usually required that you purchase your first share from a broker (or acquire it some other way, such as by inheriting it). Then you could reinvest dividends, or even make additional cash purchases of shares, but that first share had to come first.</p> <p>Starting in the mid-1990s, the SEC relaxed some rules, making it practical for companies to offer DSPPs that could sell you your first share, as well as shares beyond that.</p> <p>It's kind of a technical point, but that's the difference between the two kinds of plan.</p> <h2>Small Versus Tiny Investors</h2> <p>With internet brokers, even a fairly small investor can buy and sell stocks. You need a certain amount of capital &mdash; a few thousand dollars &mdash; to make it possible to buy a round lot of 100 shares and to make the $5 or $10 commission a small enough percentage of your total investment.</p> <p>But if you're a tiny investor &mdash; if your investable capital is only a few hundred dollars &mdash; something like a DSPP makes it possible for even the smallest investors to accumulate sizable portfolios through frequent, modest investments made over a long period of time.</p> <p>It's what they were designed for.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/the-easiest-way-to-invest-in-the-worlds-biggest-companies">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-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/what-are-income-stocks">What Are Income Stocks?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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/5-essentials-for-building-a-profitable-portfolio">5 Essentials for Building a Profitable Portfolio</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-too-much-investment-diversity-can-cost-you">How Too Much Investment Diversity Can Cost You</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment direct stock purchase plans dividend reinvestment plans DSPP large companies portfolio small investors stock market Mon, 28 Nov 2016 10:00:06 +0000 Philip Brewer 1839210 at http://www.wisebread.com 5 Essentials for Building a Profitable Portfolio http://www.wisebread.com/5-essentials-for-building-a-profitable-portfolio <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-essentials-for-building-a-profitable-portfolio" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/growing_money_trees_84090749.jpg" alt="Finding essentials for building profitable portfolio" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>For many people, investing is the most complicated and intimidating aspect of managing money. But it doesn't have to be. Here are some of the essentials for building a successful investment portfolio.</p> <h2>1. Know What You're Investing For</h2> <p>Investing is best done with a purpose in mind. Investing for a child's <a href="http://www.wisebread.com/when-should-you-start-saving-for-your-child-s-education">future college costs</a> is not the same as investing for your retirement. You would use different investment vehicles &mdash; a 529-plan account or Coverdell Education Savings Account for college, and an <a href="http://www.wisebread.com/401k-or-ira-you-need-both">IRA or 401K</a> for retirement.</p> <h2>2. Know Your Time Frame</h2> <p>Investing is for goals you want to accomplish in five or more years. Anything shorter than that and you can't afford to take much, if any, risk, so you would be best served by a savings account.</p> <p>Still, a &quot;five or more years&quot; time horizon contains a wide range of options. Someone planning to retire in 10 years should invest quite differently than someone planning to retire in 30 years. The first person can't afford to take as much risk as the second person. By the same token, the second person can't afford the risk of playing it too safe.</p> <h2>3. Know Your Temperament</h2> <p>This has to do with how well you sleep at night when the stock market is in free fall. Vanguard has a decent <a href="https://personal.vanguard.com/us/FundsInvQuestionnaire">free assessment</a> that combines your investment time frame with your temperament to suggest an optimal asset allocation &mdash; that is, what percentage of your portfolio you should allocate to stocks and what percentage to bonds (or stock, or bond-based mutual funds).</p> <h2>4. Know How to Choose Specific Investments</h2> <p>If investing is the most complicated and intimidating aspect of managing money, choosing specific investments is the most complicated and intimidating aspect of investing. Very few people have the wherewithal to do this on their own. It's helpful to acknowledge that. As Clint Eastwood's Dirty Harry character noted, &quot;A man's got to know his limitations.&quot; Of course, the same is true for women!</p> <p>There's just too much to know. There are thousands of different investments to choose from. And it can be crazy confusing (and dangerous) to make these decisions based on the all-too-common articles about &quot;Last Year's Best-Performing Mutual Funds&quot; or &quot;Where to Invest to Take Advantage of Advances in Wind Power.&quot;</p> <p>The crucial decision you need to make is not so much about which investments to choose; it's about which investment process to use. Here are three options.</p> <h3>Go With a Target-Date Fund</h3> <p>The simplicity of such funds has made them tremendously popular. Most of the big mutual fund companies offer them. You just choose the fund with the year closest to the year of your intended retirement as part of its name (Fidelity Freedom 2050, for example). The fund is designed with what the fund company believes is the ideal asset allocation for someone with that retirement date in mind, and it even changes the allocation as you get closer to that target date, becoming increasingly conservative. It's a very simple process, but <a href="https://www.soundmindinvesting.com/articles/view/target-date-funds-the-devils-in-the-details">all target-date funds are not alike</a>. So, be informed.</p> <h3>Go With an Investment Adviser</h3> <p>He or she will get to know you and your goals and then tailor an investment strategy to you. Along the way, you will typically pay 1% of the amount of money you have the adviser manage for you each year. Also, advisers usually won't work with anyone with less than $100,000 to manage. If you go this route, ask friends for referrals and opt for a fee-based adviser (as opposed to one compensated by commissions) who works as a &quot;<a href="http://www.wisebread.com/who-to-hire-a-financial-planner-or-a-financial-adviser">fiduciary</a>.&quot;</p> <h3>Go With an Investment Newsletter</h3> <p>Whereas an investment adviser works with clients one-on-one, an <a href="https://www.soundmindinvesting.com/articles/view/what-investing-newsletters-do-that-financial-magazines-dont">investment newsletter</a> works with investors on a one-on-several thousand (or however many subscribers they have) basis. There are hundreds of investment newsletters, each with their own investment strategies. Subscribers gain access to the strategies along with the specific investment recommendations needed in order to implement the strategies. Subscription costs range from less than $200 per year to over $1,000 per year.</p> <h2>5. Know Some Market History</h2> <p>One of the biggest threats to your success as an investor can be seen in the mirror. When the market falls, it's easy to give in to fear and sell. When the market is booming, it's easy to give in to greed, and invest too aggressively.</p> <p>Far better to understand that the market cycles between bull markets and bear markets (growing markets and declining markets). Even within a specific year, there will be ups and downs.</p> <p>That's why it's so important to have a trusted investment selection process. With a good process in place, you should have some sense as to how your portfolio is likely to perform under a variety of market situations and you should be content to stay with it in good times and bad.</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/5-essentials-for-building-a-profitable-portfolio">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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-3 views-row-odd"> <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-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/how-too-much-investment-diversity-can-cost-you">How Too Much Investment Diversity Can Cost You</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment advice college fund financial advisers money management portfolio retirement risk stock market target date funds Wed, 26 Oct 2016 10:00:11 +0000 Matt Bell 1820715 at http://www.wisebread.com What Are Income Stocks? http://www.wisebread.com/what-are-income-stocks <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/what-are-income-stocks" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/money_investments_71091499.jpg" alt="Learning the basics of income stocks" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You may think that investing in stocks is all about share price increases over time. In reality, you may be surprised to find out that the price of some stocks can vary little over time and still provide an ever-increasing stream of income. These types of securities are known as income stocks.</p> <p>Let's review the seven things you need to know about income stocks and their ability to provide a high payout to investors.</p> <h2>1. They Pay a Dividend</h2> <p>The defining feature of an income stock is that it pays a regular and predictable dividend, which often increases over time. For example, Caterpillar Inc. [NYSE: <a href="https://finance.yahoo.com/quote/cat">CAT</a>], a leading manufacturer of construction, mining, and transportation equipment, has <a href="http://www.caterpillar.com/en/investors/stock-information/dividend-history.html">paid a dividend to its stockholders</a> every quarter since 1933. For the last 22 years, Caterpillar's cash dividend has consistently increased and it stands at $0.77 per share of common stock &mdash; up from $0.35 in 1996, and without adjusting for the two-for-one stock splits of 1997 and 2005.</p> <p>A predictable, steady, and ever-increasing stream of income makes income stocks attractive to those retirement savers who're close to retirement age.</p> <h2>2. They Are Often Large Companies</h2> <p>While income stocks can be found in many industries, they are most often part of the real estate, energy, utility, natural resource, and finance industries. One example of an income stock in the energy sector is Phillips 66 [NYSE: <a href="https://finance.yahoo.com/quote/PSX/">PSX</a>], which has been in the news due to its spinoff from ConocoPhillips back in 2012. It doubled its stock price in the first year after the spinoff, and attracted Warren Buffett's investment (a <a href="http://www.barrons.com/articles/buffet-bets-1-billion-more-on-phillips-66-1472470538">15.2% share of the company</a> as of late August 2016). (See also: <a href="http://www.wisebread.com/the-5-best-pieces-of-financial-wisdom-from-warren-buffett?ref=seealso">The 5 Best Pieces of Financial Wisdom From Warren Buffett</a>)</p> <p>The Houston-based multinational energy company generated $161.2 billion in revenue in 2014, a figure that is bigger than the GDP of some nations around the world. Since its 2012 spinoff, Phillips 66 has been consistently paying a quarterly dividend that started at $0.20 per share of common stock and stands now at $0.63 per share of common stock.</p> <h2>3. They Have Been in Business for a Long Time</h2> <p>Generally speaking, the less established a company, the more likely that company can experience extraordinary growth per quarter. Think of 12-year-old Facebook or 13-year-old Tesla, whose current stock prices are seven and 10 times, respectively, their original prices after going public. Both Facebook and Tesla would be considered growth stocks. On the other hand, income stocks are those of companies with a long history. Caterpillar and Phillips 66 were originally founded back in 1925 and 1917, respectively. (See also: <a href="http://www.wisebread.com/what-are-growth-stocks?Ref=seealso">What Are Growth Stocks?</a>)</p> <h2>4. They Are an Alternative to Fixed-Income Securities</h2> <p>If you have a 401K, chances are that you have a target-date fund. In 2014, 48% of 401K plan holders <a href="https://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&amp;content_id=3347">had target-date funds</a>, which gradually lowers exposure to risk as you get closer to retirement age and helps maintain a steady stream of income during your retirement years. However, dialing back your risk doesn't necessarily mean that you will stick to municipal bonds and money market accounts from now on.</p> <p>Legendary investor Peter Lynch said it best: &quot;Gentlemen who prefer bonds don't know what they're missing.&quot; The appeal of income stocks is that they provide a steady stream of income while providing some exposure to corporate profit growth. Many investors use the yield of a 10-year treasury bond rate as a benchmark to grade the performance of income stocks. As of October 10, 2016, the yield of a <a href="http://data.cnbc.com/quotes/US10Y">10-year treasury bond</a> was 1.77% and those from Phillips 66 and Caterpillar were 3.13% and 3.48%, respectively.</p> <h2>5. They Have Modest Annual Profit Growth</h2> <p>That being said, don't expect companies behind income stocks to have ambitious goals of profit growth. Due to its long business history, some income stocks may have limited future growth options and provide only a moderate annual profit growth. However, this is the main reason why these companies are able to pay a dividend in the first place. Since there may be no need to aggressively reinvest in new infrastructure, research, or development, then the company can afford to issue a dividend every quarter to its shareholders.</p> <h2>6. They Have Low Stock Price Volatility</h2> <p>Among the many statistics that analysts report on stock tables, <em>beta </em>is one of the most relevant ones, besides dividend and yield, to incomes stocks. (See also: <a href="http://www.wisebread.com/beginners-guide-to-reading-a-stock-table?ref=seealso">Beginner's Guide to Reading a Stock Table</a>)</p> <p>Since the beta of the market as a whole is 1.0, a stock with a beta below 1.0 would move less than the market, and a stock with a beta above 1.0 would deviate more than the market. Often, income stocks have betas below 1.0. For example, machinery manufacturer Deere &amp; Company [NYSE: <a href="https://finance.yahoo.com/quote/DE/">DE</a>] has a beta of 0.63, and retailer Wal-Mart Stores Inc. [NYSE: <a href="https://finance.yahoo.com/quote/WMT/">WMT</a>] has one of 0.09.</p> <h2>7. They Are Available in Mutual Funds and Index Funds</h2> <p>Even though throughout this article we have only focused on individual companies, you can still buy a basket of several income stocks at the same time. You can do this through either a mutual fund or a low-cost index fund. One example of the second category is the Vanguard High Dividend Yield Index Fund Investor Shares [Nasdaq: <a href="http://finance.yahoo.com/quote/VHDYX">VHDYX</a>], which holds many income stocks, such as Microsoft, Exxon, Johnson &amp; Johnson, and General Electric.</p> <p>Two advantages of using index funds to include income stocks in your portfolio are diversification (e.g. 420 holdings in the mentioned index fund from Vanguard) and low cost (e.g. 0.16% annual expense ratio for the same index fund).</p> <h2>The Bottom Line</h2> <p>Before buying an income stock, make sure to evaluate it using your current investment strategy. While an income stock can offer you a way to get higher yields than those of treasury securities or certificates of deposit, you may be so far away from retirement age that you could afford a higher exposure to risk through value or growth stocks. Consult with your financial adviser to discuss more about your investment objectives and the appropriate ways to achieve those financial goals.</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-are-income-stocks">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/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-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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-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/the-easiest-way-to-invest-in-the-worlds-biggest-companies">The Easiest Way to Invest in the World&#039;s Biggest Companies</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment dividends fixed income securities growth income stocks index funds large companies mutual funds portfolio profits retirement stock market volatility Thu, 20 Oct 2016 09:30:23 +0000 Damian Davila 1815776 at http://www.wisebread.com 9 Costly Mistakes DIY Investors Make http://www.wisebread.com/9-costly-mistakes-diy-investors-make <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/9-costly-mistakes-diy-investors-make" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_ripping_paper_69469761.jpg" alt="Man making costly mistakes DIY investors make" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>With the right approach and education, it's possible for people to handle their own investments. But it's also easy to make mistakes that could cost you large sums of money in the long run.</p> <p>If you're a do-it-yourselfer, ask yourself whether you're making any of these mistakes below. If so, it may be worth seeking professional advice from a certified financial planner.</p> <h2>1. Trading Without Considering Fees and Taxes</h2> <p>For many investors, it's fun to trade stocks. The actual buying and selling can be a bit of a rush, especially when things are going well. But all of that activity can come with a cost, in the form of transaction fees and capital gains taxes. If you are finding that the returns on your portfolio seem a bit lackluster, it may be because you're investing without taking these costs into account. More experienced investors and financial advisers understand how to avoid extra fees and maximize returns as a result.</p> <h2>2. Getting Emotional</h2> <p>Investing your own money can sometimes be hard on the psyche. You may go through stretches where you see your portfolio shrink. Stocks that you personally selected may not always perform the way you predicted. Markets can be volatile, and not everyone can stomach it. If you find yourself getting stressed out by the investing process or buying and selling based on emotion, you may want to consider having a financial adviser take over the reigns.</p> <h2>3. Not Investing Enough</h2> <p>When you invest on your own, you may only be guessing as to how much you need to save. And it's common for investors to feel a little skittish and invest too little if the market is down. A financial adviser may be more tuned into the appropriate level of risk an investor can take on, and will usually advise a more aggressive approach for someone far out from retirement.</p> <h2>4. Not Diversifying Enough</h2> <p>Most do-it-yourselfers understand the basics of diversification, and will invest in index funds that track the S&amp;P 500 or broader stock markets. And that's perfectly fine. But often, these funds are heavily weighted toward larger companies or certain industries. If you are investing only in basic index funds, you may not have good exposure to international markets or smaller companies, for example. There may be entire industries that will be underrepresented in your portfolio.</p> <p>To achieve true diversification, you can have an S&amp;P Index fund as a base, but should also look for funds and stocks that fill in the gaps.</p> <h2>5. Failing to Rebalance</h2> <p>You may think you're creating a diverse portfolio based on the investments you've selected. But have you checked the balances recently? Over time, portfolios can get out of whack if certain investments are performing better than others. For example, you may think you're investing in 50% large cap, 25% small cap, and 25% mid cap stocks. Until one day, you check your account and realize that small cap stocks make up 40% of the portfolio. Financial advisers will recommend when to rebalance, and offer advice on how to avoid taxes in the process.</p> <h2>6. Trying to Beat the Market</h2> <p>Some investors insist on doing things themselves, because they believe they are expert stock pickers and can beat the performance of the overall stock market. In most cases, they are wrong. Numerous studies have shown that even professional investment managers can't beat the market on a regular basis, and that most investors would be best off with a portfolio of index funds.</p> <h2>7. Falling in Love With Shiny New Things</h2> <p>Do-it-yourselfers can become enamored with whatever the hot stock is at the moment. They go for name brands and flash rather than looking closely at a balance sheet. They also tend to go with what's familiar, rather than doing some research and finding investments that are less well known but of sound quality.</p> <h2>8. Having No Backup Plan</h2> <p>If you are an older DIY investor, do you have a plan for what happens to your investments if you are incapacitated? Are you sharing your investment accounts with your spouse or other loved ones? Many DIY investors are too stubborn to seek help from anyone, and thus run into problems when they are no longer in a position to manage things themselves. It's fine to handle your own investments if you're confident enough to do so, but it's wise to have a plan for how things will be dealt with if you're no longer in charge.</p> <h2>9. Becoming Too Consumed</h2> <p>Realistically, the average person can handle their own investments while checking in only periodically each week. A properly balanced portfolio does not need a lot of maintenance. But investing can be like an addiction to some people, and it's possible to spend hours a day buying and selling and becoming obsessed with the movement of the markets. If you're finding that your investing is having a negative impact on your relationships and other aspects of your life, it may be best to back off and let someone else handle things.</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/9-costly-mistakes-diy-investors-make">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/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-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-surprising-ways-confidence-can-hurt-your-investments">8 Surprising Ways Confidence Can Hurt Your Investments</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-questions-financial-advisers-hear-most-often">8 Questions Financial Advisers Hear Most Often</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 beat the market diversification DIY emotional investing fees financial advisers financial planning portfolio rebalancing stock market taxes Wed, 05 Oct 2016 10:30:08 +0000 Tim Lemke 1805247 at http://www.wisebread.com How Too Much Investment Diversity Can Cost You http://www.wisebread.com/how-too-much-investment-diversity-can-cost-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-too-much-investment-diversity-can-cost-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_suit_thinking_53925384.jpg" alt="Man wondering if too much investment diversity can cost him" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Financial experts agree that you shouldn't to put all your eggs in one basket. But just like with everything else in life, moderation is essential to truly reap the benefits of diversification. Spread out your investment funds into too many funds and you'll end up with a subpar portfolio bogged down with excessive charges and, even worse, potentially more risk than you're willing to bear. Here are four warning signs that you may have your investments in too many baskets &mdash; and how to fix it.</p> <h2>1. Paying Too Much in Investment Fees</h2> <p>The more that you branch out of plain vanilla investments, the more likely that you'll end up paying more investment charges and fees. Take, for example, the portfolio that Warren Buffett has <a href="http://www.berkshirehathaway.com/letters/2013ltr.pdf">laid out in his will</a>: &quot;Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&amp;P 500 index fund.&quot;</p> <p>Let's take a look at the potential investment fees of such a portfolio.</p> <p>Since the Oracle of Omaha prefers Vanguard and chases low fees, let's assume that both investments are in index funds. It's safe to assume that he meets the $10,000 minimum investment required for the Vanguard Admiral index funds. So, he allocates 90% of his portfolio to the Vanguard 500 Index Fund Admiral Shares [Nasdaq: <a href="http://finance.yahoo.com/quote/VFIAX/?p=VFIAX">VFIAX</a>], which has a 0.05% expense ratio, and 10% of his portfolio into the Vanguard Short-Term Government Bond Index Fund Admiral Shares [Nasdaq: <a href="http://finance.yahoo.com/quote/VSBSX?p=VSBSX">VSBSX</a>], which has a 0.10% expense ratio. For a $10,000 portfolio, Buffett would pay $55 in investment fees.</p> <p>If Buffett were to start diversifying into other types of investments, he would very likely run into higher expense ratios. For example, the Vanguard New York Long-Term Tax-Exempt Fund Admiral Shares [Nasdaq: <a href="http://finance.yahoo.com/quote/VNYUX/?p=VNYUX">VNYUX</a>] has a 0.12% expense ratio (despite its $50,000 minimum investment requirement!) and the Vanguard Interm-Tm Corp Bd Index Admiral [Nasdaq:&nbsp;<a href="http://finance.yahoo.com/quote/VICSX/?p=VICSX">VICSX</a>] has a 0.25% purchase fee on top of its 0.10% expense ratio. Assuming that he were to allocate 50%, 30%, 10%, and 10% to the New York muni bond fund, S&amp;P 500 index fund, short-term government bond index fund, and the intermediate-term corporate index fund, respectively, Buffet would pay $220 on investment fees!</p> <p><strong>How to Fix It: </strong>Calculate your current total of investment fees across all your holdings. If the total is above what you're willing to pay (a useful rule of thumb is that anything beyond 1% of your total investment is too much), then it's time to focus your investments in lower-cost options.</p> <h2>2. Rebalancing Portfolio More Often</h2> <p>Speaking of fees, there is a higher chance that you'll run into more of them when you hold lots of investment categories. In the 90%-stocks-and-10%-bonds portfolio example, you only need to keep track of two funds. This means that figuring out when your portfolio is no longer meeting your target asset allocations is straightforward &mdash; and you may not need to do it as often. For example, you could set a target to rebalance when 80% of your portfolio is in stocks and 20% in bonds.</p> <p>On the other hand, spreading your money out too thin can complicate keeping track of asset allocations and make you trade more often. Here's an example: Assuming a target 3.5% allocation in an emerging markets index fund, big market swings could force you to buy or sell many times throughout the year, triggering many charges. From front-end loads to back-end loads, there are plenty of investments to keep an eye on. And yes this even applies to 401K accounts! (See also: <a href="http://www.wisebread.com/watch-out-for-these-5-sneaky-401k-fees?ref=seealso">Watch Out for These 5 Sneaky 401K Fees</a>)</p> <p><strong>How to Fix It: </strong>Tabulate how much you're incurring in fees on top of the regular annual expense ratios of your portfolio holdings. If that percentage is too high, or consistently increasing throughout the years, you need to consolidate your portfolio into fewer holdings.</p> <h2>3. Experiencing Diminishing Returns</h2> <p>Of course, you might be thinking that the extra returns of a very diversified portfolio may more than compensate for those additional fees and charges.</p> <p>Let's bust that investment myth.</p> <p>In a joint-study by The Wall Street Journal and Morningstar, the portfolio that generated the highest return over a 20-year period was a 70-30 mix of U.S. stocks and bonds, yielding a <a href="http://www.wsj.com/articles/is-your-portfolio-too-diversified-1408032582">9.1% annualized return</a>. A portfolio with 40% in U.S. stocks, 20% in U.S. bonds, 10% in foreign developing market stocks, 10% in international bonds, and the rest in a mix of investments, including emerging market stocks, commodities, and hedge funds, yielded only an 8.8% annualized return.</p> <p><strong>How to Fix It: </strong>Measure each of your funds against its respective benchmark. If an investment has been missing the benchmark for too many quarters or years, it may be time to cut that fund loose.</p> <h2>4. Owning Too Much of the Same or Wrong Type of Investments</h2> <p>Another issue with putting many eggs in many baskets is that you can unintentionally end up with more eggs than you thought in a particular basket or, worse, a wrong basket.</p> <p>Let's assume that you hold an index fund tracking the S&amp;P 500. As of August 8, 2016, that means that your portfolio would hold about 3.08% on Apple Inc, 2.40% on Microsoft Corporation, and 1.53% on Facebook Inc. Class A shares. If you were to also hold an index fund on the technology sector, you'll probably end up increasing your holding on each one of those investments. For example, the Vanguard Information Technology Index Fund Admiral Shares [Nasdaq: <a href="http://finance.yahoo.com/quote/VITAX/?p=VITAX">VITAX</a>] has those same three stocks among its top four largest holdings.</p> <p>Additionally, if you're open to throwing more money around investments, you could end up buying some investments that fail to meet your investment objectives. Remember the late 1990s dot-com bubble? How about 2008's housing bubble? During those times, too many individual and institutional investors were buying financial instruments that they shouldn't have been purchasing. If you force yourself to allocate 5% &quot;somewhere,&quot; then you could end up with the wrong type of investment.</p> <p><strong>How to Fix It: </strong>First, read the prospectuses of your mutual funds and other accounts and understand their actual holdings. Using this information, you can spot whether or not you hold too much of the same investment. Second, review your investment objective (ie; income vs growth) and evaluate whether or not your current investment funds qualify for that objective.</p> <h2>The Bottom Line</h2> <p>Holding all of your money in a single stock is definitely not a good idea because it would have a 49.2% average standard deviation (a measure of risk). At 20 stocks, your portfolio risk is reduced to 20%. However, every additional stock added to your portfolio will only further decrease your portfolio risk by about 0.8%.</p> <p>The evidence suggests that due to greater returns, very marginal risk reductions, and lower fees over time, you would be better off with simpler diversification on stocks and bonds. Some financial advisers suggest that when you have more than <a href="http://money.usnews.com/money/personal-finance/mutual-funds/articles/2011/02/17/diversification-can-you-have-too-much-of-a-good-thing">20 stocks or mutual funds</a>, you're actually minimizing returns instead of maximizing them. So, before adding that extra holding, keep in mind that an index fund tracking the S&amp;P 500 is already splitting your investment into 500 baskets!</p> <p><em>How many different types of investments is too many?</em></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/how-too-much-investment-diversity-can-cost-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-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/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-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/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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-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 fees portfolio rebalancing returns risk stock market too diverse warning signs Thu, 25 Aug 2016 10:30:14 +0000 Damian Davila 1778732 at http://www.wisebread.com 8 Money Moves to Make Before You Start Investing http://www.wisebread.com/8-money-moves-to-make-before-you-start-investing <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-money-moves-to-make-before-you-start-investing" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/coins_growing_plants_67145371.jpg" alt="Finding money moves to make before you start investing" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>I'm a staunch advocate for investing &mdash; especially if the alternative is piling up money in a savings account just to have &quot;savings.&quot; Savings are great, but you only need so much in that offensively low-interest account. Put the excess to work, hopefully making even more money out of your investment. Before you take that plunge, however, there are a few financial matters you need to mind.</p> <h2>1. Organize Your Budget and Expenses</h2> <p>If you're considering making an investment &mdash; whatever it may be &mdash; you should have a solid handle on how much money is coming in and going out on a monthly basis. You want to make sure you can afford the investment without teetering on the edge of debt, but this also is a good time to find any weak spots in your budget so you can address them accordingly. Online money-tracking services like Mint.com can make this task much easier on you, and help you stay on track over the long term.</p> <p>&quot;When you know where your money goes, you are in control and can be thoughtful about aligning spending with priorities,&quot; says Carla Dearing CEO of SUM180, an online financial planning service. &quot;Mint, for example, gives you complete access to your data through the website and your mobile device, whether you use iOS or Android. Better yet, Mint keeps an eye on your money for you. It even sends alerts to remind you to pay your bills or when you go over budget.&quot;</p> <h2>2. Get That Emergency Fund in Order &mdash; Stat!</h2> <p>In almost every &quot;money moves&quot; article I write, the &quot;emergency fund&quot; usually pops up somewhere. That's because it's a critical and indispensable part of your overall financial picture. You should have a sizable cushion in the bank to cover life's little mishaps, and that &quot;should&quot; becomes a &quot;must&quot; when you add investing to the equation. If you don't have an emergency fund, you have no business investing &mdash; bottom line.</p> <p>Just how much dough are we talking for an emergency fund to be considered satisfactory? Six times your monthly expenses, according to Dearing.</p> <p><strong>&quot;</strong>Be disciplined about saving a little every month until your emergency fund is where it needs to be, even if it means sacrificing little luxuries once in a while,&quot; she says. &quot;Remember to replenish the account every time you use it. Having your cushion ready whenever you need it will give you a great sense of security and freedom. It will also free you up to work on other savings goals without getting derailed by unexpected expenses.&quot;</p> <h2>3. Pay Off Your High-Interest Debts</h2> <p>You don't need to be completely out of debt before you start investing. Many financial advisers argue that you should be debt free before you start investing, but that's just not true. Most people don't pay off their homes for up to 30 years, and you wouldn't want to wait that long before you start a retirement fund.</p> <p>You should, however, pay off your high-interest debts. They'll drag you down faster than the Titanic.</p> <p>&quot;Whether it's a credit card or student loan, it doesn't make any sense to invest and make a market average return of 7% annually while you're paying 20% on credit debt,&quot; says Nick Braun, founder of a pet insurance company. &quot;Pay off your high-interest debts first, then start using excess income to save for the future.&quot;</p> <p>See also: <a href="http://www.wisebread.com/fastest-way-to-pay-off-10000-in-credit-card-debt?utm_source=wisebread&amp;utm_medium=seealso2&amp;utm_campaign=article">Fastest Way to Pay Off Your Credit Card Debt</a></p> <h2>4. Contribute to Your Retirement Savings</h2> <p>Retirement savings <em>is</em> an investment. It may not seem like it now, because what you're funding seems so far away &mdash; but you'll see it as such when you reach retirement age. Which is why, before you start throwing money at other investment opportunities, you need to invest in yourself. If you don't have a retirement account set up yet, make that a priority. If you have one currently, like a 401K, for instance, take advantage of free, pretax contribution opportunities where available, like matching funds from your employer. Then max those contributions out so you don't miss a single cent.</p> <h2>5. Contribute to an HSA</h2> <p>If you have a health insurance policy that comes with a qualifying Health Savings Account, take full advantage of it and fully fund it.</p> <p>&quot;Most contributions are tax-deductible, and withdrawals to pay qualifying medical expenses &mdash; at any time in life &mdash; are tax-free,&quot; explains Kevin Gallegos, vice president of Freedom Financial Network in Phoenix. &quot;These accounts are essentially emergency funds devoted to health care costs, and so savings have a double benefit of tax relief and savings.&quot;</p> <h2>6. Refinance Your Student Loans</h2> <p>Are student loans holding you back from building your savings or investment accounts or from making other types of investments? Free up some of your budget by <a href="http://www.wisebread.com/should-you-refinance-your-student-loan?ref=internal">refinancing your loans</a> for a lower monthly payment.</p> <p>&quot;The average Class of 2016 graduate owes more than $37,000 in student loan debt,&quot; says financial expert Michael Blattman, professor at University of Maryland. &quot;With 43 million borrowers nationwide, Americans owe nearly $1.3 trillion in student loan debt. Individually, this crushing debt delays borrowers' life decisions, such as getting married, investing in the stock market, buying a house, or having children. Collectively, it's hampering the U.S. economy.&quot;</p> <p>You don't, however, have to be part of these statistics. Take back some of your financial freedom by making a call to your loan provider(s) to discuss refinance options that are right for you.</p> <h2>7. Get Started on a Taxable Investment Portfolio</h2> <p>After you've maxed out your retirement accounts, Dearing suggests starting a taxable investment portfolio. You can get started investing with just a few simple steps.</p> <p>To get set up, call one of the high-quality, low-fee money management companies, like Vanguard, Fidelity, or T. Rowe Price, tell them about yourself, and ask them to tell you what type of account or fund you need, and what minimum investment requirements apply. These companies, which are the gold standard in the financial services industry, are extremely knowledgeable and committed to serving their clients (who, in the case of Vanguard, are also their shareholders).</p> <p>&quot;Companies like this get you started with a comprehensive, diversified, low-cost fund that will serve you well as a beginning investor,&quot; says Dearing. &quot;Follow their recommendations and you won't go wrong.&quot;</p> <h2>8. Set Savings Goals for Your Taxable Investment Portfolio</h2> <p>Once you have your taxable investment portfolio established, set goals &mdash; $10,000, then $25,000 and, eventually, $100,000.</p> <p>&quot;When you are just starting out, choose one or two tax-advantaged funds, like the Vanguard Total Stock Market ETF or the Vanguard Small Cap Index ETF, or similar index funds,&quot; Dearing suggests. &quot;These passively managed funds do a minimum amount of buying and selling &mdash; what the industry calls 'churning' &mdash; which translates into significantly less taxable investment income for you to deal with each year. They also tend to outperform most actively managed mutual funds over time.&quot;</p> <p>Revisiting the goal aspect of this equation, it helps to have a contribution target in place so you have a solid idea of what you're trying to achieve. Likewise, make sure that it's a goal that you <em>can</em> achieve. $10,000 may take a while to reach, but you can do it. If that goal is too steep for you right now, start smaller. There's no harm in that. The most important part of this is that you set the bar just high enough to accomplish it and be motivated by your success to continuing striving further.</p> <p><em>Do you have additional suggestions on money moves to make before investing? I'd love to hear your thoughts in the comments below.</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/mikey-rox">Mikey Rox</a> of <a href="http://www.wisebread.com/8-money-moves-to-make-before-you-start-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-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/7-money-moves-to-make-as-soon-as-you-conquer-debt">7 Money Moves to Make as Soon as You Conquer Debt</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-essentials-for-building-a-profitable-portfolio">5 Essentials for Building a Profitable Portfolio</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-money-moves-every-new-college-student-should-make">7 Money Moves Every New College Student Should 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/the-easiest-way-to-invest-in-the-worlds-biggest-companies">The Easiest Way to Invest in the World&#039;s Biggest Companies</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment advice emergency funds health savings account money moves Paying Off Debt portfolio retirement savings stock market student loans Wed, 17 Aug 2016 09:00:08 +0000 Mikey Rox 1771628 at http://www.wisebread.com How to Tell if Your 401K Is a Good or a Bad One http://www.wisebread.com/how-to-tell-if-your-401k-is-a-good-or-a-bad-one <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-tell-if-your-401k-is-a-good-or-a-bad-one" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_thinking_laptop_88870639.jpg" alt="Woman learning how to tell if her 401K is good or bad" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you work for a company, there's a good chance that your employer offers a 401K plan. (Some organizations offer 403b plans, which operate similarly.) These funds give you the chance to invest in a series of mutual funds and other investments, with the added benefit that any money you contribute is deducted from your taxable income.</p> <p>Not all 401K plans are the same, however, and there is a wide range in the amount of expenses and the quality of investments offered.</p> <p>It's not easy to immediately know if your 401K plan is a good one, and whether it's worth putting money into. But here are some things to examine.</p> <h2>Do You Get a Company Match?</h2> <p>Arguably the most positive aspect of a 401K plan is the ability of companies to match a certain percentage of employee contributions. Typically, a company might agree to contribute up to 5% of a worker's earnings, if the worker does the same. This match is essentially free money, so it usually makes participating in the 401K plan a no-brainer, even when the plan is otherwise subpar.</p> <p>If your company does not <a href="http://www.wisebread.com/401k-or-ira-you-need-both" target="_blank">contribute to your 401K plan</a> or offer a match, you'll want to examine other characteristics of the plan to determine whether it's worth it to contribute. You may find that contributing to a traditional or Roth IRA is a better alternative.</p> <h2>Examine the Investment Options</h2> <p>A 401K plan is only as good as the investment options in them. There's no perfect menu, but a strong plan is anchored by one or two mutual funds that mirror the broader stock market. These are called &quot;index&quot; funds, because they are designed to mirror the performance of a specific index, such as the S&amp;P 500. A good plan will also have some large-cap, mid-cap, and small-cap funds, and the ability to access international and real estate investments. Older investors will want to see a selection of quality bond funds.</p> <p>You'll want to look for a diverse array of investments, but there is a point at which more options aren't necessarily better.</p> <p>&quot;More funds can just confuse you,&quot; said Ralph Grauso, founder of ASC Financial. &quot;You don't need three different types of large-cap growth funds.&quot;</p> <h2>Check the Fees</h2> <p>One of the most common criticisms of 401K plans is that they often contain funds with high expenses. The best 401K plans should offer access to the lowest cost funds available.</p> <p>Management fees, plan operating expenses, and other costs can take a chunk out of your returns without you even being aware. Over time, that can lead to tens of thousands of dollars in lost earnings. A survey by AARP noted that 80% of 401K plan participants don't know what they are paying in fees. Most information on fees is available by reading plan and fund documents, but you may still have to do some digging.</p> <p>&quot;If you're investing for 30 years or more, those fees are going to take a huge chunk of your money,&quot; Grauso said.</p> <p>Grauso said it's best to find funds with expense ratios of less than 1%. Index funds are particularly low in cost because they are not actively managed, and often perform better than managed funds anyway, he said. Look for low-cost index funds from a broker such as Vanguard, and stay away from niche funds with high costs.</p> <h2>Study the Fund Performance</h2> <p>Ultimately, you want to put your money in funds that will generate a nice return and help you develop a sizable nest egg. Predicting future performance is not possible, but you can get a good sense of the quality of a fund by examining its long-term performance.</p> <p>Look at five-year and 10-year returns, and compare them to a comparable benchmark. (For example, a large-cap fund should be compared to a large-cap index.) It's also worth comparing funds to the overall performance of the stock market and the S&amp;P 500. If the fund has historically generated returns that are in line with or better than the overall stock market &mdash; especially after fees are taken into account &mdash; that's a good sign. Stay away from funds that appear to underperform the market and their respective benchmarks.</p> <h2>Who Is the Custodian?</h2> <p>When employers set up 401K plans, they partner with a company that actually manages the plans and many of the investments. Usually, it's with a brokerage firm such as Fidelity, Vanguard, or Charles Schwab.</p> <p>The best 401K plans will be managed by companies who have the expertise and ability to offer quality investment options with low fees, easy online account access, and research. It is worth noting that these custodians manage not only the plans, but many of the mutual funds in them, and that is often viewed as a conflict of interest. If it seems like the custodian is favoring their own underperforming plan in favor of a better plan from another company, that's a bad sign.</p> <h2>Look for Institutional Class Shares</h2> <p>There are many high-quality mutual funds that are unavailable to average investors unless they can meet very high account minimums. But, investors can often access these funds through their 401K plans, because companies can guarantee a sizable combined investment from their employees. Mutual fund companies will often waive fees and other expenses if certain investment levels are met. These funds are often advertised as &quot;institutional class,&quot; or &quot;premium class,&quot; and usually it translates into very low-cost funds for the investor. Fidelity's 500 Index Fund Premium class, for instance, has an expense ratio of just .045%.</p> <h2>Is There a Self-Directed Option?</h2> <p>A typical 401K plan will allow investors to put their money in any of about a dozen mutual funds. But some will offer the ability for account holders to take a more active role, through self-directed brokerage accounts. This is a good option for those wishing to have more direct control over their investing, though evidence is mixed on whether this actually results in higher returns for the investor.</p> <h2>Is It Wrapped in an Annuity?</h2> <p>Many 401K plans have an annuity option, in which earnings are disbursed in the form of monthly payments. This is a nice option to have, as it ensures a steady stream of income in retirement. However, some plans are &quot;wrapped&quot; in an annuity contract that is often expensive and with minimal benefit to the investor.</p> <p><em>How good is your 401K?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/how-to-tell-if-your-401k-is-a-good-or-a-bad-one">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-signs-your-retirement-is-on-track">8 Signs Your Retirement Is on Track</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-occasions-when-you-should-definitely-hire-a-financial-advisor">7 Occasions When You Should Definitely Hire a Financial Advisor</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-are-income-stocks">What Are Income Stocks?</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/is-paying-off-your-mortgage-early-costing-you-money">Is Paying Off Your Mortgage Early Costing You Money?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-only-8-rules-of-investing-you-need-to-know">The Only 8 Rules of Investing You Need to Know</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement index funds investing portfolio retirement stocks Fri, 05 Aug 2016 09:00:12 +0000 Tim Lemke 1764992 at http://www.wisebread.com 8 Signs Your Retirement Is on Track http://www.wisebread.com/8-signs-your-retirement-is-on-track <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-signs-your-retirement-is-on-track" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/couple_retirement_accounts_78210119.jpg" alt="Couple finding signs their retirement is on track" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You feel like you're a diligent saver, and are doing all you can to ensure you have a comfortable retirement. But how do you know if you're doing things right? It's hard to predict how much money you'll need, and it seems impossible to know if you're on the right track when retirement is years or even decades away.</p> <p>Thankfully, there are some easy ways to tell if your retirement planning is sound. If your portfolio has most or all of these characteristics, keep up the good work and don't fret!</p> <h2>1. Most of the Funds Are in Tax-Advantaged Accounts</h2> <p>When saving for retirement, it's important to place your money in accounts that shield you from paying unnecessary taxes. A 401K is a common plan offered by employers that allows you to contribute and invest in a variety of different mutual funds. Any money you contribute will be deducted from your taxable income. It's also possible to invest in a Roth IRA, which allows you to invest and avoid paying taxes on any gains. If all or most of your money is in these accounts, you'll be saving thousands of dollars and will have a much higher net return on your investments.</p> <h2>2. You've Been Contributing Heavily</h2> <p>It's hard to know exactly how much you should put into your retirement accounts, but &quot;as much as you can&quot; is usually good advice. If you're maxing out your allowable contributions to 401K or IRA plans (or both), you're probably doing quite well. For 401K plans, you can contribute up to $18,000 annually. IRA plans can accept $5,500 in contributions each year. Even if you're not maxing out these accounts, contributing enough to take advantage of your employer's match of 401K contributions is one good threshold to hit. As much as people like to talk about stock market gains helping them get rich, the truth is that your portfolio's value is helped a lot more by the amount you're contributing in the first place.</p> <h2>3. You've Seen Steady Growth Over Time</h2> <p>Take a look at your portfolio's performance on a line chart. Are you generally seeing an upward trend, without a lot of wild ups and downs? Does it seem like your savings is steadily growing over time, even during periods when the stock market is not doing well? A good retirement portfolio should generally be free of volatility, and see steady gains as time goes on.</p> <h2>4. Your Projections Look Good</h2> <p>No one knows how the stock market will perform in the future, but you can make some reasonable assumptions based on historical market returns. The S&amp;P 500 has seen average annual growth of about 7% since 2006, and annual average gains are even higher the farther you go back. If your portfolio's performance has been in line with these annual averages, you're probably in good shape, as long as you're contributing a significant amount.</p> <p>It may be possible to project how much money you'll have in retirement by taking the amount you have now, then adding your contributions and the annual average return through your retirement year.</p> <h2>5. Your Investments Are Focused on Growth</h2> <p>Unless you are close to retirement, your portfolio should be heavy on investments that promise growth over the long term. This means a big dose of stocks, rather than bonds or cash. Small cap and value stocks should be a driver of most retirement portfolios, as they often promise the most growth potential.</p> <p>It's tempting to want to be conservative with your investments, because stocks can be risky, and no one likes to feel vulnerable to a bad day in the stock market. But building a large retirement next egg requires you to overcome your fears and recognize the positive historical returns of stocks.</p> <h2>6. Your Portfolio Is Well-Balanced</h2> <p>It's always a good exercise to examine your investments to see if you are too heavily invested in any one sector or asset class. Sometimes, your portfolio can get out of whack, and will require rebalancing of your assets. If you are working hard to keep your investments nicely balanced, you'll likely be shielded from any major swings in the market and should see solid growth over time. There is one caveat here, which is that buying and selling during rebalancing could have tax implications, so you'll want to weigh the costs and benefits each time you're considering it.</p> <h2>7. You're Not Paying Too Much in Fees</h2> <p>A robust retirement portfolio should probably contain some mutual funds and/or exchange traded funds (ETFs). But these investments often come with management fees, commissions, transaction fees and other costs. A typical investor pays about 1.5% in fees, according to Rebalance IRA. That could add up to thousands of dollars over time. To avoid losing money to fees, look for investments with very low expense ratios, and those that trade without a commission. Low-cost investments often outperform those with higher expense ratios anyway. So if the costs in <a href="http://www.wisebread.com/stabilize-your-portfolio-with-these-5-bond-funds" target="_blank">your retirement portfolio</a>&nbsp;are low, that's one more thing you're doing well.</p> <h2>8. You Haven't Spent Any of It</h2> <p>There may be times in your life when you'll be tempted to withdraw money from your retirement accounts to pay for other expenses. There's a cost to doing this; any money taken early from these accounts is subject to being taxed, and you'll have to pay a 10% early withdrawal penalty if you take money early from a 401K. And of course, on top of these penalties and taxes, you'll lose out on any future growth this money might have accrued. If you've been diligent about not touching your retirement savings early, you'll be in much better financial shape than if you had raided these funds.</p> <p><em>How's your retirement looking?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/8-signs-your-retirement-is-on-track">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-tell-if-your-401k-is-a-good-or-a-bad-one">How to Tell if Your 401K Is a Good or a Bad One</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-reasons-every-millennial-needs-a-roth-ira">6 Reasons Every Millennial Needs a Roth IRA</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-best-online-brokerages-for-your-ira">5 Best Online Brokerages for Your IRA</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/how-to-save-for-retirement-when-you-are-unemployed">How to Save for Retirement When You Are Unemployed</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement contributions ETFs growth index funds investing on track portfolio stocks tax advantaged Thu, 28 Jul 2016 09:00:11 +0000 Tim Lemke 1760749 at http://www.wisebread.com Are You Choosing the Right Fund for Your Portfolio? http://www.wisebread.com/are-you-choosing-the-right-fund-for-your-portfolio <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/are-you-choosing-the-right-fund-for-your-portfolio" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_reading_newspaper_75921495.jpg" alt="Learning if mutual funds are better than ETFs" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>With a market of over $30 trillion, mutual funds are some of the most popular investments. But the $3 trillion ETF (<a href="http://www.wisebread.com/the-10-weirdest-etfs-you-can-buy" target="_blank">Exchange Traded Fund</a>) market is catching up quickly. So, what <em>are </em>ETFs? How do they differ from mutual funds? And are they right for you? Here's what you need to know:</p> <h2>Mutual Funds 101</h2> <p>When you invest in an individual stock, the success of your investment is completely dependent upon the success of that one company. But when you invest in a mutual fund, your money is diversified. It's pooled with many other investors' money and then invested in many companies, based on the design of the fund or the decisions of the fund manager.</p> <p>It's the same with bonds and bond funds, or real estate and real estate funds.</p> <p>Think of an exchange-traded fund as a close cousin of a mutual fund. It, too, manages a pool of money from many investors, spreading it among many investments. But there are some very important differences between ETFs and mutual funds.</p> <h3>ETFs Are Priced Throughout the Day</h3> <p>When you enter an order to purchase a mutual fund, the order will fill at the end of the day, after the value of all of its underlying assets are tallied.</p> <p>ETFs, on the other hand, can be bought and sold throughout the day like stocks. When you enter an order to purchase an ETF, your order will typically be filled very soon after entering the order at a price very close to the price you saw when you placed the order.</p> <p>That's one of the main reasons why ETFs were created. On October 19, 1987, a day now known as &quot;Black Monday,&quot; the U.S. stock market fell by nearly 23%. Mutual fund investors who wanted to sell their shares couldn't until all the damage had been done. Three years later, the first ETF was launched, giving investors all of the diversifying benefits of a mutual fund but the flexibility to buy or sell throughout the trading day.</p> <h3>ETFs Have Lower Expenses</h3> <p>Exchange-traded funds tend to have lower operating expenses than mutual funds, and that lower cost structure is passed along to investors in the form of lower expense ratios. For example, Vanguard's S&amp;P 500 index <em>mutual fund</em> (ticker symbol VFINX) has an expense ratio of .16%. If you invest $1,000 in the fund, $1.60 will go toward fund expenses. That's already very low. However, if you invest in Vanguard's S&amp;P 500 <em>exchange-traded fund</em> (ticker symbol VOO), you'll pay an even lower expense ratio of .05% &mdash; or 50 cents per $1,000 invested.</p> <h3>ETFs Have Lower Minimums</h3> <p>Many mutual funds have minimum initial investment amount requirements. Common amounts range from $250 to $3,000, but some funds require as much as $10,000.</p> <p>With ETFs, the minimum investment amount required is the cost of one share. If you wanted to invest in Vanguard's VFINX mutual fund, you'd need to come up with at least $3,000 for your initial investment. However, getting started with what, in essence, is the ETF version of the same fund, VOO, would cost only about $190 &mdash; the price of one share when this article was written.</p> <h2>Which Is Better?</h2> <p>There are three main factors that can help you decide whether to go with a mutual fund or an exchange-traded fund.</p> <h3>Availability</h3> <p>You may not have a choice. Some 401K plans don't yet include ETFs in the investment options they make available to participants. If that's true with your workplace plan, you'll have to go with one or more of the available mutual funds.</p> <h3>Strategy</h3> <p>While the ETF universe is growing rapidly, there are still many more mutual funds. So, it could be that the investment strategy you're following calls for the use of a particular mutual fund and there are no suitable ETF substitutes.</p> <h3>Cost</h3> <p>If you're following an investment strategy that calls for the use of a particular fund that's available as a mutual fund or an ETF, check on each one's expense ratio. It's very likely that the ETF will cost less, making it the better choice.</p> <h2>One Last Consideration</h2> <p>Some critics say ETFs can get investors in trouble by encouraging more trading. They argue that because the funds can be bought and sold throughout the day, they'll tempt otherwise conservative investors to take undue risk and turn them into roll-the-dice day-traders.</p> <p>But that's like arguing that because <em>some </em>people get into car accidents, <em>no one </em>should be allowed to drive. If you follow the rules of the road for wise investing &mdash; if you're a long-term investor, not a short-term trader &mdash; ETFs can be a very efficient, cost-effective investment vehicle.</p> <p><em>So, which is it for you? Mutual fund or ETF?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/are-you-choosing-the-right-fund-for-your-portfolio">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-10-weirdest-etfs-you-can-buy">The 10 Weirdest ETFs You Can Buy</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-ways-to-add-gold-to-your-portfolio">4 Ways to Add Gold to Your Portfolio</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-are-income-stocks">What Are Income Stocks?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-build-an-investment-portfolio-for-under-5000">How to Build an Investment Portfolio for Under $5000</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment bonds commodities comparisons ETFs exchange traded funds mutual funds portfolio stock market Wed, 27 Jul 2016 09:30:36 +0000 Matt Bell 1757851 at http://www.wisebread.com Should You Invest in Start-Ups? http://www.wisebread.com/should-you-invest-in-start-ups <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/should-you-invest-in-start-ups" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/people_working_together_000061670306.jpg" alt="Learning the risks and rewards of investing in startups" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Can regular people even invest in those high-flying startups? Should they?</p> <p>Some of the biggest and most valuable companies today were startup businesses in someone&rsquo;s garage or dorm room not that long ago. Apple, Google, Facebook, and eBay are spectacular startup success stories that come to mind. A small investment in a startup in its early stages can quickly grow to be worth millions of dollars. How can a regular person invest in a startup? And is it worth the risk? (See also:&nbsp;<a href="http://www.wisebread.com/starting-your-dream-business-is-easier-than-you-think-heres-how?ref=seealso" target="_blank">Starting Your Dream Business Is Easier Than You Think &mdash; Here's How</a>)</p> <h2>How Startups Grow &mdash; And When to Invest</h2> <p>Initial funding for most startups comes from the founders of the business themselves. A brand new startup has no product, no customers, and usually lacks a detailed business plan. You can see why it is hard to find anyone besides the founders who are interested in investing in a brand new business.</p> <p>As the startup gets rolling, additional investments to get the company growing may come from friends and family. By this time, the founders have clarified their business plan at least enough to be able to explain their business concept to others and are making progress toward launching a profitable product or business. This stage of startup financing is often the best opportunity for a small investor to get involved, since the startup is often strapped for cash. A little bit of investment can buy a lot of equity in a startup at this point.</p> <p>The next funding stage for startups is typically &ldquo;angel&rdquo; investors. Angel investors are successful local business people familiar with the business area of the startup. They have significant assets, are willing to take a risk with some of their money in exchange for a big potential payoff. Investing in a startup as an angel investor is another opportunity for a regular person to invest in a startup, although the level of investment required at this stage of development is significantly higher than in the earlier days of the startup.</p> <p>As the startup grows, the next step up for financing is venture capital. The venture capital stage of funding often involves millions of dollars of investment in exchange for a substantial amount of equity in the startup. Venture capitalists require extensive documentation of financial records and intellectual property ownership in addition to a rock solid business plan and time commitments from key personnel.</p> <p>After one or more rounds of venture capital investment, the startup may sell stock through an initial public offering (IPO), raising more capital to support growth and business development. At this point, the business is no longer a startup, but is an established corporation. If you invested in a startup that reaches IPO, you are going to be rich!</p> <h2>How Risky Is Investing in a Startup?</h2> <p>An unfortunate fact is that most startups fail within a few years, for a number of reasons. Sometimes startups simply run out of cash and have to close shop because they can&rsquo;t pay their bills. A key contributor may decide to pursue another opportunity and effectively pull the plug on any chance for the startup to survive. The anticipated market can fail to materialize. Technical issues can derail a key product launch and doom a startup to failure.</p> <p>Many personal finance advisors do not recommend holding individual company stock and instead recommend to diversify by holding funds consisting of many stocks. This strategy reduces the risk that your investment in an individual stock will be ruined by an Enron-style meltdown. Investing in a startup is much more risky than holding individual company stock in an established company.</p> <p>If you invest in a startup, there is a good chance will lose your money. The startup may fail before you have a chance to sell your equity and make a return on your investment, or even get your principal back. However, there is a small chance you could make a lot of money if the startup you invest in is successful. If you are interested in a high risk, high reward investment opportunity, then investing in a startup may be right for you.</p> <h2>How to Find a Startup for Investment</h2> <p>Investing in a startup takes a lot of work to find the right business opportunity. You need to find a startup that has a good chance to succeed based on the people involved and the business opportunity.</p> <p>Some people who invest in startups have a motto: &ldquo;Bet on the jockey, not the horse.&rdquo; This means to look for company founders who have experience working in the type of business they are trying to start and have a track record of success rather than focusing on the details of the business plan of a startup. The business plan will likely change a lot in the early days as obstacles pop up, and talented people will have a better chance to find a way to succeed anyway.</p> <p>Look for connections with startups at business development centers or business incubators in your community or at nearby universities. Another place to learn about local startups is to watch for stories about inventors developing a new product or startup businesses in your local newspapers or on TV news reports. Once you start meeting entrepreneurs, they can often introduce you to others who may be a good match for the startup investment opportunity for you are seeking.</p> <h2>How to Invest in a Startup Without Risking Your Money</h2> <p>If you are interested in getting the upside potential of a startup investment but the high risk makes you uncomfortable, consider contributing sweat equity to the startup instead of money. You may be able to convert your time and skills into equity in a startup, keeping your cash safe.</p> <p>Most startups have tons of work to do as they launch initial products and seek sales, but not enough cash to hire many workers. A cash-strapped startup may be interested in taking your labor in exchange for some equity in the business. You might be able to commit to working a certain number of hours per week for a year in exchange for ownership of a percentage of the startup. If you have relevant experience or connections with potential investors, the founders will be more interested in taking you on as a partner to help the startup grow.</p> <p><em>Would you be willing to invest time or money in a startup for a chance at a big reward?</em></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/should-you-invest-in-start-ups">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-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-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/stabilize-your-portfolio-with-these-11-dividend-stocks">Stabilize Your Portfolio With These 11 Dividend Stocks</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-stocks-warren-buffett-loves-and-you-should-too">7 Stocks Warren Buffett Loves — And You Should, Too</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-easy-ways-to-start-green-investing">5 Easy Ways to Start Green Investing</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-reasons-july-is-a-great-month-for-stocks">5 Reasons July Is a Great Month for Stocks</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment entrepreneurs high reward high risk investors new businesses portfolio small businesses startups stocks Mon, 25 Apr 2016 10:30:06 +0000 Dr Penny Pincher 1691585 at http://www.wisebread.com Stabilize Your Portfolio With These 11 Dividend Stocks http://www.wisebread.com/stabilize-your-portfolio-with-these-11-dividend-stocks <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/stabilize-your-portfolio-with-these-11-dividend-stocks" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_stocks_rising_000022607854.jpg" alt="Man stabilizing portfolio with these dividend stocks" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you're an income investor looking to stabilize your portfolio, or just want a little extra cash, dividend-paying stocks are a often a great thing to own. With interest rates still historically quite low, you can get yields that are more than three or even four times what a bank might pay.</p> <p>But which dividend stocks are the best? There are many great options, but I like to look for <a href="http://www.wisebread.com/4-quick-ways-to-decide-if-a-company-is-worth-your-investment">companies with a solid track record</a> of paying and even increasing dividends, along with some potential for share price growth.</p> <p>Here are 11 dividend stocks that are worth a look right now.</p> <h2>1. Caterpillar</h2> <p>This is a very solid company that is trading near its 52-week low. But it hasn't backed off its quarterly dividend, paying out 77 cents per share. Buy now, and there's a good chance you'll see growth in both dividends and share value.</p> <h2>2. Mattel</h2> <p>With a current dividend yield of more than 6%, investors could do a lot worse than Mattel. Shares are down 25% over the last year, but have rebounded nicely in October, suggesting that buying now could offer a growth opportunity.</p> <h2>3. AT&amp;T</h2> <p>Full disclosure: I own shares of AT&amp;T stock, and it's a pretty boring stock when it comes to growth. But sometimes boring is good, especially when you can generate a 5.5% dividend yield like right now. The company recently completed its merger with DirecTV, which could give shares a bump.</p> <h2>4. Merck</h2> <p>Shares of this big pharmaceutical company have risen about 6% over the last month, suggesting that they'll end a tough year on a high note. Merck is a consistent payer of its dividends, currently dishing out a solid 45 cents per share each quarter, for a yield of nearly 3.5%.</p> <h2>5. Tanger Factory Outlet Centers</h2> <p>People will be looking for bargains during the holidays, so don't be surprised if this retail REIT has a good November and December. While shares dipped to a 52-week low in August, they've rebounded since and are in positive territory for 2015. Tanger, which operates 43 outlet malls in 23 states, pays out 29 cents per share quarterly, or a yield of about 3%.</p> <h2>6. ExxonMobil</h2> <p>Oil stocks have been hammered in 2015, but this is still a large and healthy company, with shares that can be had for relatively cheap. Exxon always pays a dividend and always increases it each year. A payout of nearly $3 per share annually means a yield of 3.5% right now, and there's the potential for an increase in share value.</p> <h2>7. Johnson &amp; Johnson</h2> <p>After dipping to a 52-week low in August, shares of JNJ have regained almost all their value. And that's good, because this has been one of the most solid dividend producers for decades. Investors can enjoy a solid 75 cents per share each quarter, for a yield of about 3% annually, from this big health care company.</p> <h2>8. Ford</h2> <p>People are back to buying cars, and Ford is expected to have a great 2016, with earnings expected to rise about 14% next year. You can bet that the company will maintain or even increase its current dividend of 15 cents per share. Right now, investors can grab a dividend yield of 3.8% from Ford shares.</p> <h2>9. Procter and Gamble</h2> <p>As a seller of consumer products that people around the world use every day, P&amp;G is one of those companies that you assume will be around forever. It's a stable bet and has a nice quarterly dividend of 66 cents per share, for an annual yield of 3.44%. Buy shares, hold them for decades, and be happy.</p> <h2>10. Yum! Brands</h2> <p>The operator of KFC and Taco Bell restaurants recently upped its quarterly dividend to 46 cents per share, representing a yield of about 2.5%. The company is expected to see big growth overseas, especially in China, and analysts expect earnings to jump by about 13% in 2016.</p> <h2>11. HSBC</h2> <p>This large bank has a dividend yield of 6.26%, one of the highest in its industry. Normally, yields of that size are a red flag that a cut is due, but that may not necessarily be true for HSBC, which is still on track to generate enough surplus capital to meet its obligations to shareholders. Shares hit a 52-week low at the end of September, but have rebounded since.</p> <p><em>Do you hold any dividend stocks in your portfolio? Which?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/stabilize-your-portfolio-with-these-11-dividend-stocks">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/9-ways-to-tell-if-a-stock-is-worth-buying">9 Ways to Tell If a Stock is Worth Buying</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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/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/5-reasons-july-is-a-great-month-for-stocks">5 Reasons July Is a Great Month for Stocks</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment dividends good yields portfolio shares stocks Thu, 12 Nov 2015 13:15:15 +0000 Tim Lemke 1606470 at http://www.wisebread.com