mutual funds http://www.wisebread.com/taxonomy/term/7708/all en-US 7 Ways to Compare Stock Market Investments http://www.wisebread.com/7-ways-to-compare-stock-market-investments <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-ways-to-compare-stock-market-investments" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_uses_a_paper_fortune_teller_to_make_multiple_decisions.jpg" alt="Man uses a paper fortuneteller to make multiple decisions" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>When investing, we are faced with an overwhelming menu of things to choose from. There are tens of thousands of stocks, a mind-boggling number of mutual funds and ETFs, plus a dizzying array of bonds. How can we make sense of any of this to decide what makes a good investment?</p> <p>It helps to know the basic elements of an investment so you know how to compare one product to another. This may require some work, but it can often be fun to dig into the details of why one investment is better than another. Here are some key things to examine.</p> <h2>1. Growth potential</h2> <p>Most people that are far away from retirement age seek investments that will grow over time. Ideally, they're looking for investments that will allow them to build a sizable retirement fund and outpace the returns offered by a basic bank account. There are some investments, such as stocks, that historically rise in value and are great for younger investors. Mutual funds and ETFs can offer solid growth as well. Bonds, however, are more likely to offer lower, but more stable returns.</p> <p>As you become savvier in grasping the inner workings of specific investments, you can become skilled at knowing when an investment is undervalued and perhaps poised for big growth &mdash; or overvalued and ready for a price decline. Understanding the growth potential in certain investments can help you find the right mix for your individual portfolio. (See also: <a href="http://www.wisebread.com/9-ways-to-tell-if-a-stock-is-worth-buying?ref=seealso" target="_blank">9 Ways to Tell If a Stock Is Worth Buying</a>)</p> <h2>2. Sector and industry</h2> <p>If you don't know a lot about a stock investment at first, it helps to learn what the company does to make its money. Companies are grouped into sectors based on the type of business they operate in; within sectors, there are smaller segments called industries. Typically, stocks are grouped into 11 different sectors &mdash; including health care, financials, energy, and consumer staples, to name a few &mdash; and there can be anywhere from two to 15 industries in each sector. A well-balanced stock portfolio will have some exposure to all of these sectors and as many of these industries as possible.</p> <p>When investing, it helps to learn how these sectors perform compared to the broader stock market. Some sectors perform better than the market, while others underperform. Some are resilient in tough economic times, while others are more vulnerable to bad news. Understanding these industries can help you make smart comparisons when evaluating stocks.</p> <h2>3. Market capitalization and asset class</h2> <p>Stocks are usually categorized by size, also referred to as market capitalization. A company's market capitalization, or market cap, refers to the value of all outstanding shares (which is its stock price multiplied by the total number of shares outstanding).</p> <p>There are large-cap stocks, which comprise the largest publicly traded companies. There are mid-cap stocks, which are medium-sized firms. And there are small-cap and even micro-cap stocks, comprising smaller companies. These categories are also called asset classes.</p> <p>Generally speaking, large-cap stocks offer solid, steady growth potential for shareholders. Shares of smaller companies can offer bigger returns, but may also be riskier investments. Understanding the unique characteristics of stocks in each asset class can help you make comparisons between investments and find stocks that make sense for your financial goals.</p> <h2>4. Risk and volatility</h2> <p>Stocks of smaller companies can be riskier than some other investments. Understanding risk &mdash; and your own tolerance for it &mdash; can help you compare investments with confidence.</p> <p>It's important to note that the potential for higher returns comes with the potential for higher risk. Finding that risk-reward sweet spot is the key to successful investing. Too much risk can result in you losing a lot of money. Avoiding risk altogether may prevent you from getting the returns needed to reach your financial goals.</p> <p>Volatility and risk go hand in hand. When an investment goes up and down in value rapidly, we often say it's a volatile investment. There are ways to make money off that volatility, but for most investors, it's best to see steadier, consistent returns. (See also: <a href="http://www.wisebread.com/how-the-risk-averse-can-get-into-the-stock-market?ref=seealso" target="_blank">How the Risk Averse Can Get Into the Stock Market</a>)</p> <h2>5. Earnings, and earnings per share</h2> <p>Companies make money. They also spend it. When companies make more money than they spend, that's usually a good thing for everyone, including investors. This extra money is often referred to as net earnings. And as an investor, you want to see earnings increase over time.</p> <p>When comparing two companies in the same industry, it can help to examine earnings to see which may be doing better financially. But it's also important to look at earnings in the context of a company's size. To do this, simply take the earnings total and divide it by the number of shares outstanding. So, a company with $9 million in earnings and 20 million shares would have earnings per share of 45 cents. (See also: <a href="http://www.wisebread.com/beginners-guide-to-reading-a-stock-table?ref=seealso" target="_blank">Beginner's Guide to Reading a Stock Table</a>)</p> <h2>6. Financial news</h2> <p>Sometimes, just paying attention to the headlines can help you grasp whether an investment is a good one or not. Financial news can let you know of macroeconomic trends that may help or hurt certain investments, and update you on specific news regarding companies or products. When trying to decide between investments, do a quick news search to see if there's anything big you need to know. You don't have to go overboard; you can overwhelm yourself reading financial magazines and watching CNBC all day. But staying generally informed can certainly be helpful.</p> <h2>7. Dividends and dividend yields</h2> <p>Many companies choose to distribute earnings to shareholders on a quarterly basis. This is great if you are a shareholder, because it's free income just for owning shares. When examining dividends, you should look at both the amount of the dividend and the &quot;yield,&quot; which is the amount when compared to the share price.</p> <p>For example, a company may pay shareholders 50 cents per share they own every quarter. That's the dividend yield. If shares of the company are priced at $35, the yield is about 1.4 percent per quarter, or 5.6 percent annually. When examining dividends, look to see if a company has a history of maintaining or even increasing dividends each year. If they do, that's a sign of a company on strong financial footing.</p> <p>Keep in mind that if a company doesn't distribute dividends, that's not necessarily a bad thing. Many fast-growing companies choose to instead reinvest their earnings into business operations, and this can often help boost growth and make the company more valuable over time. Amazon may be the best example of a strong company that does not pay dividends.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F7-ways-to-compare-stock-market-investments&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F7%2520Ways%2520to%2520Compare%2520Stock%2520Market%2520Investments.jpg&amp;description=7%20Ways%20to%20Compare%20Stock%20Market%20Investments"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/7%20Ways%20to%20Compare%20Stock%20Market%20Investments.jpg" alt="7 Ways to Compare Stock Market Investments" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/7-ways-to-compare-stock-market-investments">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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/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-3 views-row-odd"> <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-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/dont-be-fooled-by-an-investments-rate-of-return">Don&#039;t Be Fooled by an Investment&#039;s Rate of Return</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-questions-to-ask-before-buying-any-stock">8 Questions to Ask Before Buying Any Stock</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment comparing investments dividends earnings ETFs historical performance market capitalization mutual funds returns stocks volatility Mon, 23 Apr 2018 08:30:09 +0000 Tim Lemke 2130606 at http://www.wisebread.com Start an Investment Deathmatch to Find the Best Investments http://www.wisebread.com/start-an-investment-deathmatch-to-find-the-best-investments <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/start-an-investment-deathmatch-to-find-the-best-investments" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/republicans_and_democrats_in_the_campaign_symbolized_with_boxing.jpg" alt="Republicans and Democrats in the campaign symbolized with Boxing" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You can learn a lot about investing by setting up what I call an &quot;investment deathmatch&quot; in your portfolio. In such a setup, your hand-picked investments compete with each other to produce the best return and rack up the biggest balance.</p> <p>An investment deathmatch starts off by investing equal amounts of money in several investment funds at the same time. This makes it easy to monitor how your investments are performing relative to each other simply by glancing at the fund balances.</p> <p>Some benefits of this &quot;investment deathmatch&quot; approach for your portfolio are:</p> <ul> <li> <p>You get the experience of picking out multiple investments.</p> </li> <li> <p>You learn from seeing how different investments perform over time relative to each other.</p> </li> <li> <p>Your portfolio risk is reduced due to diversification.</p> </li> <li> <p>Based on your investment performance results, you can invest more money in your best performing funds.</p> </li> </ul> <p>Here's how to set up your own investment deathmatch.</p> <h2>1. Select categories of funds</h2> <p>While you could pick funds from the same investment category to compete in your deathmatch, there is more to be learned by selecting funds from a variety of categories. Plus, you will build a more diversified portfolio if you choose a variety of funds, reducing your risk in case one investment sector falters.</p> <p>Here are some ideas for fund categories to choose from:</p> <ul> <li> <p>S&amp;P 500 index fund: A good &quot;pace car&quot; to see how your other investments perform relative to large-cap equities in the stock market.</p> </li> <li> <p>Growth fund: Will a growth fund provide better returns than the overall market?</p> </li> <li> <p>Mid-cap fund: Mid-sized businesses have established products and customer bases and lots of room to grow.</p> </li> <li> <p>Just-for-fun: Pick an international fund, real estate investment trust (REIT), gold fund, or whatever investment you think is interesting and could perform well.</p> </li> </ul> <h2>2. Pick your funds</h2> <p>Now that you have outlined your investment categories, it's time to do your homework and pick your favorite fund in each category. Some of the key criteria to consider when selecting funds for your investment deathmatch are:</p> <ul> <li> <p>Investment objective: Do you want an aggressive growth fund that takes higher risks to seek higher returns, or would you rather have a more conservative fund that will be more likely to protect your investment?</p> </li> <li> <p>Active vs. passive management: Do you want a fund with a fund manager making trades to try to maximize returns, or a passive fund that simply tracks a segment of the market?</p> </li> <li> <p>Fees (expense ratio): Funds with lower fees are best for maximizing the growth of your investment over time, but some investment types are more complex and tend to have higher fees. Actively managed funds have higher fees than passive funds and index funds.</p> </li> <li> <p>Performance record (return): While past performance does not predict future results, most investors tend to select funds with returns that have performed well compared to similar funds over the past one to five years.</p> </li> <li> <p>Management team tenure: Some investors prefer funds that have had a consistent management team for a number of years.</p> </li> </ul> <p>(See also: <a href="http://www.wisebread.com/how-to-invest-in-mutual-funds?ref=seealso" target="_blank">How to Invest in Mutual Funds</a>)</p> <h2>3. Invest exactly equal amounts in each fund</h2> <p>With your investment funds picked out, the next step is to invest exactly equal amounts in each one. For example, for a $2,000 investment with four funds in your deathmatch, put exactly $500 in each fund to start off the competition.</p> <p>The reason for putting the exact same amount in several investments on the same day is to make it easy to compare the performance of your funds simply by checking the fund balances at any time. You don't need to keep track of anything or calculate rate of return to evaluate their performance. Whichever fund has the biggest balance is winning.</p> <p>Of course, you will need some money to fund your investments. If you already have cash in hand (in after-tax dollars), it might be easier to invest the funds in a Roth IRA rather than a traditional IRA. Another source of funding to start an investment deathmatch is to execute an exchange to sell funds you already own and move the proceeds into the funds for your deathmatch. This can be done easily in a traditional IRA, Roth IRA, or 401(k) plan.</p> <h2>4. Watch and learn as funds compete to make you money</h2> <p>Now for the fun part &mdash; watching your fund choices fight it out to see which will perform the best. The investment deathmatch format makes it effortless to see which investment are performing well simply by checking in on the fund balances. There is no substitute for the experience you get picking out funds and investing your own money to learn what works and what doesn't.</p> <h2>5. Start new investment deathmatches as a smarter investor</h2> <p>Over time, some of your investments will perform better than others. You might decide to leave the best performing funds in place and start a new deathmatch using funds from investments that are not performing as well.</p> <p>You can pick a different amount to invest in each deathmatch you start so you can better track which funds are directly competing with each other. For example, if you have a deathmatch running with $500 investments, you could start another one with $1,000 investments so you can tell which investments are in which deathmatch.</p> <p>The funds in your investment deathmatch are competing to win the title of best investment, but the real winner is you. You get an easy way to learn about investing all while watching your portfolio grow.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fstart-an-investment-deathmatch-to-find-the-best-investments&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FStart%2520an%2520Investment%2520Deathmatch%2520to%2520Find%2520the%2520Best%2520Investments.jpg&amp;description=Start%20an%20Investment%20Deathmatch%20to%20Find%20the%20Best%20Investments"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/Start%20an%20Investment%20Deathmatch%20to%20Find%20the%20Best%20Investments.jpg" alt="Start an Investment Deathmatch to Find the Best Investments" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dr-penny-pincher">Dr Penny Pincher</a> of <a href="http://www.wisebread.com/start-an-investment-deathmatch-to-find-the-best-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-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/think-outside-the-index-when-you-rebalance-your-investment-portfolio">Think Outside the Index When You Rebalance Your Investment Portfolio</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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/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/dont-be-fooled-by-an-investments-rate-of-return">Don&#039;t Be Fooled by an Investment&#039;s Rate of Return</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment competition deathmatch diversification mutual funds performance portfolio returns risk s&p 500 Tue, 13 Mar 2018 09:30:19 +0000 Dr Penny Pincher 2115990 at http://www.wisebread.com How to Invest in Mutual Funds http://www.wisebread.com/how-to-invest-in-mutual-funds <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-invest-in-mutual-funds" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/tree_growing_on_coins.jpg" alt="Tree growing on coins" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Mutual funds are an easy way to invest in a broad portfolio of stocks, bonds, and other securities. You don&rsquo;t need to spend a lot of time picking individual stocks and making trades. Just invest in a mutual fund, and the mutual fund takes care of managing an investment portfolio for you.</p> <p>There are thousands of mutual funds to choose from that contain different investment portfolios and fund features. Here are the most important types of mutual funds to consider to find the right ones for your portfolio.</p> <h2>Equity funds</h2> <p>Equity funds invest in stocks. You can choose an equity fund that specializes in certain types of stock investments, such as U.S. stock, international stock, growth stock, or value stock. Another variation is the size of companies that are targeted by the fund. Small-cap funds buy stock of smaller companies, mid-cap funds buy stock in midsize companies, and large-cap funds buy stock in large companies. Some equity funds specialize in stocks from specific sectors of the economy such as finance, energy, or health care.</p> <h2>Fixed income funds</h2> <p>Also known as bond funds, fixed income funds invest in debt issued by local and national governments and by large businesses. Bond funds are typically considered a lower risk alternative to stock investments, but offer less growth potential.</p> <h2>Balanced funds</h2> <p>Balanced funds invest in a mix of stocks and bonds. Many investors want to capture the growth potential of stock investments and the lower-risk income from bonds. A balanced fund provides a simple way to cover both stock and bond investments in a single fund.</p> <h2>Index funds</h2> <p>Index funds are designed to track a broader market such as the S&amp;P 500. The main advantage of index funds over equity funds is that they typically have very low fund expenses since index funds require almost no management. (See also: <a href="http://www.wisebread.com/why-warren-buffett-says-you-should-invest-in-index-funds?ref=seealso" target="_blank">Why Warren Buffett Says You Should Invest in Index Funds</a>)</p> <h2>Target-date funds</h2> <p>Target-date funds adjust their asset allocation mix over time, from more aggressive investments to more conservative choices as the target date approaches. These funds are usually named with a date that represents the retirement or target year that the investor expects to begin accessing the funds. For example, &ldquo;Freedom 2035&rdquo; would target the year 2035 to reach its most conservative investment position. (See also: <a href="http://www.wisebread.com/start-planning-now-for-when-your-target-date-fund-ends?ref=seealso" target="_blank">Start Planning Now for When Your Target-Date Fund Ends</a>)</p> <h2>How to select the best mutual funds</h2> <p>Once you have identified the best types of mutual funds for your investment goals, you will need to select the specific mutual funds you want to purchase. Some of the key criteria to consider when evaluating funds are:</p> <ul> <li> <p>Investment objective: Do you want an aggressive growth fund that takes higher risks to seek higher returns, or would you rather have a more conservative fund that will be more likely to protect your investment?</p> </li> <li> <p>Active vs. passive management: Do you want a fund with a fund manager making trades to try to maximize returns, or a passive fund that simply tracks a segment of the market?</p> </li> <li> <p>Fees (expense ratio): Funds with lower fees are best for maximizing the growth of your investment over time, but some investment types are more complex and tend to have higher fees. Actively managed funds have higher fees than passive funds and index funds.</p> </li> <li> <p>Performance record (return): While past performance does not predict future results, most investors tend to select funds with returns that have performed well compared to similar funds over the past one to five years.</p> </li> <li> <p>Management team tenure: Some investors prefer funds that have had a consistent management team for a number of years.</p> </li> </ul> <p>You can do research to find funds that meet your investment objectives using online research tools at your stock broker&rsquo;s website. Most brokers allow you to search for desired types of funds and review key information such as returns and fees. Some of the leading mutual fund brokerages include:</p> <ul> <li> <p>Fidelity</p> </li> </ul> <ul> <li> <p>Vanguard</p> </li> </ul> <ul> <li> <p>Merrill Edge</p> </li> <li> <p>TD Ameritrade</p> </li> <li> <p>E*TRADE</p> </li> <li> <p>Charles Schwab</p> </li> </ul> <p>In case you don&rsquo;t already have a broker, or if you want to check out a wider range of mutual fund offerings, here are some additional online mutual fund research tools to help you find and compare mutual funds:</p> <ul> <li> <p><a href="http://online.wsj.com/public/quotes/mutualfund_screener.html" target="_blank">Wall Street Journal Mutual Fund Screener</a></p> </li> <li> <p><a href="http://www.maxfunds.com/" target="_blank">Maxfunds</a></p> </li> <li> <p><a href="http://www.morningstar.com/funds.html" target="_blank">Morningstar</a></p> </li> <li> <p><a href="http://www.lipperleaders.com/" target="_blank">Lipper</a></p> </li> </ul> <h2>How to buy mutual funds</h2> <p>After you have done your research and have selected a mutual fund that you want to buy, there are two ways you can make the trade and buy into the fund through a brokerage:</p> <ul> <li> <p>Execute an exchange to sell funds or stocks you currently own and use the proceeds to purchase the mutual fund you want to buy.</p> </li> <li> <p>Transfer cash funds to your brokerage to execute a trade to buy the mutual fund you want.</p> </li> </ul> <p>You may be able to achieve tax advantages if you purchase mutual funds as part of an IRA or 401(k) retirement plan. After you buy a mutual fund, you should monitor the performance of the fund, its fees, and whether or not the fund is still a good fit for your investment portfolio on at least an annual basis.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fhow-to-invest-in-mutual-funds&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHow%2520to%2520Invest%2520in%2520Mutual%2520Funds.jpg&amp;description=How%20to%20Invest%20in%20Mutual%20Funds"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/How%20to%20Invest%20in%20Mutual%20Funds.jpg" alt="How to Invest in Mutual Funds" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dr-penny-pincher">Dr Penny Pincher</a> of <a href="http://www.wisebread.com/how-to-invest-in-mutual-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-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/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> <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/start-an-investment-deathmatch-to-find-the-best-investments">Start an Investment Deathmatch to Find the Best Investments</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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/4-simple-ways-to-conquer-your-fear-of-investing">4 Simple Ways to Conquer Your Fear of 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/why-warren-buffett-says-you-should-invest-in-index-funds">Why Warren Buffett Says You Should Invest in Index Funds</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment actively managed equity index funds mutual funds passively managed risk target date funds Fri, 02 Feb 2018 09:00:06 +0000 Dr Penny Pincher 2095997 at http://www.wisebread.com How to Pick Your First Stocks and Funds http://www.wisebread.com/how-to-pick-your-first-stocks-and-funds <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-pick-your-first-stocks-and-funds" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/cartons_of_financial_investment_products.jpg" alt="Cartons of financial investment products" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You know you need to start investing, but you&rsquo;re not sure where to begin. There are a million different investments, so how can anyone determine which to start with?</p> <p>There is no real wrong way to begin investing, but it helps to start in a familiar place and educate yourself about some of the most common stocks and mutual funds. Follow this advice, and you&rsquo;ll be well on your way to building a great investment portfolio.</p> <h2>Pick something you know</h2> <p>When just getting started, it helps to have some familiarity with the company you are investing in. So go with a company whose products or services you use every day. Maybe it&rsquo;s Starbucks, or Walmart. Perhaps it&rsquo;s Coca-Cola or Pepsi. Do you have an iPhone? Investing in Apple might make sense for you. By starting out with something you know, you&rsquo;ll have a greater interest in tracking the stock&rsquo;s movements and paying attention to the company&rsquo;s operations.</p> <p>It&rsquo;s also fun to know that when you buy something from the company, you may be indirectly boosting the stock price. Moreover, if you invest in something well known, it&rsquo;s likely to be an established company with some track record of success. (See also: <a href="http://www.wisebread.com/how-to-buy-your-first-stocks-or-funds?ref=seealso" target="_blank">How to Buy Your First Stocks or Funds</a>)</p> <h2>Listen to your grandfather</h2> <p>You may tune out when your granddad starts espousing the virtues of shopping at Sears. But there are many companies that were huge 40 years ago that are still big today. Think Coca-Cola, General Motors, General Electric, IBM, or McDonald&rsquo;s. These are still &ldquo;blue chip&rdquo; stocks that have shown consistent, solid shareholder returns over time.</p> <p>In many cases, these companies don&rsquo;t even do what they originally did when your grandfather was your age. But that&rsquo;s OK. If your granddad has invested in a stock for decades and is living comfortably in retirement, it&rsquo;s probably a solid stock. Following your grandfather&rsquo;s advice is a great way to familiarize yourself with &ldquo;large cap&rdquo; stocks that include some of the world&rsquo;s biggest companies. (See also: <a href="http://www.wisebread.com/9-ways-to-tell-if-a-stock-is-worth-buying?ref=seealso" target="_blank">9 Ways to Tell If a Stock is Worth Buying</a>)</p> <h2>Go after growth</h2> <p>The entire point of investing is to see your money grow, right? So it&rsquo;s a good idea to familiarize yourself with growth stocks. These are stocks that represent companies poised to see strong earnings growth over time, and are often in fast-growing industries, such as technology. Growth stocks will often have earnings and cash flow that are higher than the average company, and will often have some sort of competitive advantage that gives it an edge in the marketplace.</p> <p>Famous tech companies including Apple, Netflix, and Alphabet are well-known growth investments. Smaller companies can offer great growth stocks as well, because their size allows for rapid increases in share value. Keep in mind, however, that growth stocks can often carry higher risk than other investments. (See also: <a href="http://www.wisebread.com/what-are-growth-stocks?ref=seealso" target="_blank">What Are Growth Stocks?</a>)</p> <h2>Find a good dividend stock</h2> <p>When learning to invest, it&rsquo;s important to know that stocks cannot only grow in value, but provide you with some income along the way. Many stocks will pay out a portion of their income to shareholders in what is known as a <em>dividend</em>. Getting your first dividend payment can be very exciting. This is real money that a company gives you each quarter simply for being a shareholder. And many companies will shell out dividends at a rate much higher than interest from the bank.</p> <p>When researching the best dividend-producing companies, look up how much the company will pay quarterly for each share of stock. That amount relative to the company&rsquo;s stock price is known as the <em>dividend yield</em>. A good dividend yield, coupled with solid financials and some growth in share price, can make for a great company to invest in.</p> <p>To find good dividend stocks, research the list of &ldquo;dividend aristocrats.&rdquo; These are companies that have managed to increase their dividend payments for 25 years or more. They include Procter &amp; Gamble, Exxon-Mobil, and AT&amp;T.</p> <h2>Invest in &ldquo;The Market&rdquo;</h2> <p>If you&rsquo;re confused about what stocks or funds to purchase, why not invest in everything? Or at least a small piece of everything. There are many mutual funds and exchange-traded funds that are designed to mirror the performance of the broader stock market or major indexes like the S&amp;P 500. You won&rsquo;t necessarily &ldquo;beat the market&rdquo; with these investments, but you&rsquo;ll see your investments move with the overall stock market, and get exposure to a wide range of companies in various industries.</p> <p>These investments are often available with very low fees, as well. Good examples of these kinds of investments include the iShares Core S&amp;P Total U.S. Stock Market ETF [NYSE: ITOT], Vanguard Total Market ETC [NYSE: VTI], or T. Rowe Price Equity Index 500 Fund [NYSE: PREIX].</p> <h2>Look for value</h2> <p>One of the most basic pieces of investment advice you&rsquo;ll receive is to &ldquo;buy low and sell high.&rdquo; At its core, this means it&rsquo;s smart to find investments that are undervalued and have a strong potential to grow and make you a profit over time. These &ldquo;value&rdquo; stocks aren&rsquo;t always easy to find, but they have driven the portfolios of some of the world&rsquo;s most successful investors, including Warren Buffett.</p> <p>There are several key things to look for when searching for value stocks. First, it&rsquo;s important to understand why a stock may have a low price. Often, it&rsquo;s because the company is not doing well financially. But sometimes, a stock price can fall for reasons that have nothing to do with company performance, in which case it may be poised to rebound.</p> <p>A company&rsquo;s price-to-earnings (P/E) ratio is another thing to consider. You can determine this ratio by dividing a stock's earnings by its stock price. A low P/E ratio compared to other stocks may indicate it&rsquo;s undervalued. (See also: <a href="http://www.wisebread.com/make-smarter-investments-by-mastering-this-simple-ratio?ref=seealso" target="_blank">Make Smarter Investments by Mastering This Simple Ratio</a>)</p> <p>If you are unsure of what value stocks to buy, consider mutual funds that zero in on value stocks. Popular options include the Vanguard U.S. Value Fund [NYSE: VUVLX] and the T. Rowe Price Value Fund [NYSE: TRVLX].</p> <h2>Understand competitive advantage</h2> <p>There are some companies that are just kicking butt. Their edge over their competitors is as vast as the Pacific Ocean, and they are practically synonymous with the industries they are in. Some investors refer to this as a &ldquo;moat.&rdquo; A company with a wide &ldquo;moat&rdquo; is often viewed as having a large enough competitive advantage to withstand any operating hiccup or economic downturn.</p> <p>Think Amazon in the e-commerce sector, or Facebook in the area of social media. Alphabet, the parent company of Google, also leaves most of its competitors in the dust, and Walmart dominates the traditional retail sector.</p> <p>If you&rsquo;re looking to buy one of your first stocks, consider any company that seems to be just crushing the competition. You may not be able to get shares on the cheap, but you&rsquo;ll be getting ownership in a company poised to make you money over time.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fhow-to-pick-your-first-stocks-and-funds&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHow%2520to%2520Pick%2520Your%2520First%2520Stocks%2520and%2520Funds.jpg&amp;description=How%20to%20Pick%20Your%20First%20Stocks%20and%20Funds"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/How%20to%20Pick%20Your%20First%20Stocks%20and%20Funds.jpg" alt="How to Pick Your First Stocks and Funds" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/how-to-pick-your-first-stocks-and-funds">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-ways-to-compare-stock-market-investments">7 Ways to Compare Stock Market Investments</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-are-growth-stocks">What Are Growth 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/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/dont-be-fooled-by-an-investments-rate-of-return">Don&#039;t Be Fooled by an Investment&#039;s Rate of Return</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment advice dividends growth stocks mutual funds new investor returns stock market value stocks Tue, 19 Dec 2017 09:00:07 +0000 Tim Lemke 2073021 at http://www.wisebread.com Don't Be Fooled by an Investment's Rate of Return http://www.wisebread.com/dont-be-fooled-by-an-investments-rate-of-return <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/dont-be-fooled-by-an-investments-rate-of-return" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/investor_compares_quotes_from_newspaper_and_tablet.jpg" alt="Investor compares quotes from newspaper and tablet" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>When you invest, you are looking for return. You want your money to grow over time, preferably at a rate that will allow you to achieve your financial goals.</p> <p>An investment's rate of return can be a deceptive thing, however. The amount of money that an investment has made in the past isn't a guarantee of future returns. Moreover, these returns by themselves don't tell you a whole lot about what you are investing in.</p> <p>Learning how to analyze an investment's returns &mdash; and understanding its limitations &mdash; will help you on the path to financial freedom. Just remember these key facts about an investment's return when examining it.</p> <h2>Short time frames don't tell you much</h2> <p>&quot;Hey, this mutual fund went up 29 percent last year! Woo hoo!&quot; That's great, but what did it do the year before? And the year before that? How has it performed over the last decade? Looking at the rate of return for a single year is not particularly useful, as any investment can have a hot 12 months. To get a sense of how an investment may perform in the future, it helps to have a long record of performance to examine. Fortunately, most brokerages and financial websites have comprehensive information on historical returns, so you're not simply looking at the performance of the last year.</p> <h2>It offers no information on the type of investment</h2> <p>It's great if an investment has a solid rate of return, but that should not be the only consideration when looking to buy shares. If you are buying a stock, you need to ask yourself key questions aside from just looking at performance. What industry does the company operate in? How big is the company? Does it operate internationally? If you're talking about a mutual fund, what is the investment mix? Answering these questions will help you understand whether you already own similar investments, and whether it makes sense to add them to your portfolio.</p> <h2>It's almost useless without context</h2> <p>Let's say you come across a mutual fund that earned a 9 percent return last year. You might think that is pretty good, right? Well, it doesn't look so good when you consider the S&amp;P 500 returned 11.96 percent. Information on returns is only meaningful when it is paired with information about the broader stock market, comparable investments, and specific indexes. A small cap ETF, for example, should be examined alongside the Russell 2000 index. A mutual fund focused on technology should be compared to prominent technology indexes. Fortunately, most brokerage firms and financial websites do provide this, so it's important to analyze market returns using that context.</p> <h2>It does not always factor in all costs</h2> <p>If you purchase a mutual fund or ETF, a certain portion of your investment is taken in expenses and fees. While mutual fund returns are usually reported net of expenses, not every cost is included in this calculation. Many funds have sales charges and commissions (also known as loads) that you pay when buying and selling. Your brokerage firm may also charge a commission to execute the trade. This can reduce your overall return. The good news is that there are many good no-load mutual funds out there, and many can be traded without a commission, depending on the broker.</p> <p>One more caveat regarding costs. Capital gains taxes will also reduce your balance when you sell. Be sure to factor in these costs when examining an investment's rate of return.</p> <h2>It does not offer detail on volatility</h2> <p>Let's say you have a stock that rose in value from $50 to $90 in five years. The annualized return on that stock is 16 percent. But that does not tell you whether the stock's performance has been consistent or wildly up and down.</p> <p>For example, during that five-year period, that stock may have risen 20 percent, then dropped 25 percent, then risen 44 percent, dropped 10 percent, and finally rose 53 percent. That's pretty volatile, and may be outside the comfort zone of many investors even though the overall return is good. To get a better picture of the investment's performance, you need to look at the returns from each individual year, but even that offers no insight into price swings within any given year.</p> <h2>It can't answer the question &quot;Why?&quot;</h2> <p>An investment's rate of return may be the crucial piece of information you need to know before investing, but there's a lot that it doesn't tell you. Perhaps most importantly, it does not offer any insight into <em>why </em>an investment's price moved up or doing during a certain period.</p> <p>Investment values go up and down for a variety of reasons, not all of them related to company performance. Perhaps a retailer saw its shares fall sharply during one quarter due to a series of natural disasters. Perhaps another company saw shares rise dramatically because of hype over its Super Bowl commercial. Returns on investment are crucial to know, but if you are an investor, it's important to do your own homework to understand why a price went up or down. Doing so will help you better understand how an investment may perform in the future.</p> <h2>It gives you no information on fundamentals</h2> <p>An investment's historical rate of return can give you insight into how it might perform in the future. But the company's actual financial performance may be even more important. It's not enough to just examine an investment's return. You should also look at company balance sheets, analyze earnings reports, and look at things like cash flow, debt, and price-to-earnings ratio. This will help you understand whether an investment's price is justified. Examples abound of companies that saw share prices skyrocket based on speculation although earnings weren't there to support it.</p> <h2>It tells you nothing about taxes</h2> <p>Let's say you invested $1,000 in a company stock and it earned an annual return of 9 percent a year over five years. That means you'll end up with $1,450 when you sell, right? Well, not exactly. Remember that unless you are investing in a tax-advantaged account such as a Roth IRA, the government takes its share when you sell. Assuming that you'll be taxed at the long-term capital gains rate of 15 percent, suddenly, that 9 percent annual return became something closer to 7 percent. Keep this in mind when trying to calculate how much money you'll actually walk away with.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fdont-be-fooled-by-an-investments-rate-of-return&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FDont%2520Be%2520Fooled%2520by%2520an%2520Investments%2520Rate%2520of%2520Return.jpg&amp;description=Dont%20Be%20Fooled%20by%20an%20Investments%20Rate%20of%20Return"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/Dont%20Be%20Fooled%20by%20an%20Investments%20Rate%20of%20Return.jpg" alt="Don't Be Fooled by an Investment's Rate of Return" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/dont-be-fooled-by-an-investments-rate-of-return">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/7-reasons-youre-never-too-old-to-buy-stocks">7 Reasons You&#039;re Never Too Old to Buy 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-ways-to-compare-stock-market-investments">7 Ways to Compare Stock Market 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/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/how-to-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment balance sheet bonds fees mutual funds rate of return returns roi s&p 500 stock market stocks volatility Fri, 08 Dec 2017 10:00:07 +0000 Tim Lemke 2068609 at http://www.wisebread.com 6 Ways Meeting the 2018 401(k) Contribution Limits Will Brighten Your Future http://www.wisebread.com/6-ways-meeting-the-2018-401k-contribution-limits-will-brighten-your-future <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-ways-meeting-the-2018-401k-contribution-limits-will-brighten-your-future" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/piggy_bank_with_retirement_formula.jpg" alt="Piggy Bank with retirement formula" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Starting next year, investors will be allowed to contribute more money into their 401(k)s. In 2018, the limit on annual contributions to a 401(k) plan will rise from $18,000 to $18,500.</p> <p>That additional $500 may not seem like a lot, but you should try and hit the new maximum if you can. Maxing out your 401(k) is often the best way to accumulate a healthy sum for retirement, and there are great tax benefits as well.</p> <p>If you're on the fence about whether you need to direct another $500 into your 401(k), consider these arguments.</p> <h2>1. It could net you tens of thousands of dollars</h2> <p>It's not easy to contribute $18,500 annually into a retirement account. But if you can do it, that extra $500 each year can really pay off. Let's say you're 30 years old and plan to retire at age 65. Assuming a conservative 7 percent return, that extra $500 annually could mean an additional $74,000 overall. If you start contributing that extra $500 starting at age 25, and keep doing it for 40 years, the difference is $106,000 over time &mdash; more than an entire year's worth of living expenses for many people.</p> <h2>2. It's more money for you and less to taxes</h2> <p>If you have $500 in income available, that's money that the IRS will get a share of, unless you place it in a 401(k) plan or traditional IRA. Any money you contribute to these retirement accounts is deducted from your taxable income. If you are in a high tax bracket, that $500 could actually just represent about $300 in your paycheck. If Uncle Sam would take that much anyway, why not invest the whole amount instead?</p> <h2>3. You can find $42 a month</h2> <p>If you are at the maximum contribution now, you can find a way to hit the new ceiling. Eat out less. Ditch the morning coffee. Quit that gym you never go to. If you break down $500 over the course of a year, it comes out to less than $42 a month &mdash; or barely $10 a week. That's the cost of a mediocre lunch out. Even the smallest amount of belt-tightening can help you hit this goal, and it's probably not money you'll notice. But you'll notice it later at retirement time.</p> <h2>4. You may have already maxed out your IRA</h2> <p>If you've been placing money in an individual retirement account (IRA), you may be aware that contribution limits are lower than 401(k) plans. People under age 50 are permitted to contribute only $5,500 each year to an IRA, and it's not uncommon for people to hit that maximum. If your IRA is maxed out, having permission to place an additional $500 in a 401(k) is a huge bonus.</p> <h2>5. The limit might be decreased in the future</h2> <p>We should be thankful that in 2018, the 401(k) contribution limit is rising. That's because some members of Congress have suggested that the limit could be drastically reduced in the future as part of tax reform. Thankfully, it seems like discussion of such changes has been tabled, but there's no guarantee the idea won't be resurrected in the future. In the meantime, it's a good idea to contribute as much as you can.</p> <h2>6. Where else are you going to put your money?</h2> <p>If you have $500 a year to spare, the stock market may be the smartest place to put it. Interest rates are still very low, so placing it into the bank would only result in a few bucks each year. And very few other investments offer the same kinds of consistent returns as stocks. Unless you plan to use the money to purchase a home or start a business, you likely won't do much better on a consistent basis than &mdash; or get the same tax advantages of &mdash; investing in stocks in a 401(k).</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F6-ways-meeting-the-2018-401k-contribution-limits-will-brighten-your-future&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F6%2520Ways%2520Meeting%2520the%25202018%2520401%2528k%2529%2520Contribution%2520Limits%2520Will%2520Brighten%2520Your%2520Future.jpg&amp;description=6%20Ways%20Meeting%20the%202018%20401(k)%20Contribution%20Limits%20Will%20Brighten%20Your%20Future"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/6%20Ways%20Meeting%20the%202018%20401%28k%29%20Contribution%20Limits%20Will%20Brighten%20Your%20Future.jpg" alt="6 Ways Meeting the 2018 401(k) Contribution Limits Will Brighten Your Future" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/6-ways-meeting-the-2018-401k-contribution-limits-will-brighten-your-future">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-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/3-common-retirement-regrets-you-can-avoid">3 Common Retirement Regrets You Can Avoid</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-only-8-rules-of-investing-you-need-to-know">The Only 8 Rules of Investing You Need to 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/should-you-choose-a-roth-401k-or-a-regular-401k">Should You Choose a Roth 401k or a Regular 401k?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/intimidated-by-retirement-investing-get-professional-help">Intimidated by Retirement Investing? Get Professional Help!</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement 401(k) limits government investing IRA mutual funds stocks taxes Wed, 29 Nov 2017 09:00:07 +0000 Tim Lemke 2058941 at http://www.wisebread.com Here's How Rate of Return Can Help You Invest Smarter http://www.wisebread.com/heres-how-rate-of-return-can-help-you-invest-smarter <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/heres-how-rate-of-return-can-help-you-invest-smarter" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/bussiness_growth_new_life_growing_before_blackboard.jpg" alt="Business growth:new life growing before blackboard" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>At first glance, judging an investment's past performance would seem to be a fairly simple exercise. For most stock market investments, such as individual stocks, mutual funds, and exchange-traded funds, a lot of performance information is readily available online.</p> <p>However, the sheer quantity of information that's out there can make understanding it all somewhat overwhelming. And some of the terminology can be confusing.</p> <p>So, let's make sure you understand a couple of key metrics and how to put them to use &mdash; whether you're evaluating the performance of an investment you already own, or you're thinking about making a new investment.</p> <h2>Annual return and average annual return</h2> <p>Two of the most fundamental ways of looking at an investment's results are how well it performed in a specific year and what its average annual return has been over multiple years.</p> <h3>Annual return</h3> <p>This is how an investment performed in one particular year. Let's use Vanguard's 2030 target-date mutual fund [VTHRX] as an example. If you go to Yahoo Finance, enter that ticker symbol in the search box, and then click on the fund's Performance tab, you can see how the fund performed each year going back to 2006. For example, in 2016, it generated a return of 7.85 percent.</p> <h3>Average annual return</h3> <p>To see an investment's average annual return over multiple years, look on the same Yahoo Finance page under Trailing Returns (%) vs. Benchmark&quot; (&quot;trailing&quot; just means &quot;looking back&quot; &mdash; we'll get to the &quot;benchmark&quot; reference in a minute). You can see that VTHRX's average annual return for the past five years was 9.9 percent.</p> <p>On their own, such metrics aren't very useful. However, when used together, they can provide helpful insight. For example, a 9.9 percent average annual return may seem attractive. But when you examine the past five years individually, you can see how unrealistic it is to expect that return each and every year. In 2015, the fund even suffered a loss.</p> <p>When looking for meaning in performance numbers, context is king.</p> <h2>What's a &quot;good&quot; return?</h2> <p>To properly judge how well an investment has performed, you have to choose the right benchmark. Many investors make the mistake of comparing a specific investment or their entire portfolio to &quot;the market.&quot;</p> <p>It's fine to do that if you're investing in an S&amp;P 500 index fund, which is designed to mirror the market. However, sticking with our previous example, VTHRX isn't designed to perform like the market.</p> <p>It's designed for people who have less than 15 years until retirement. According to the basic rules of asset allocation, as you get older, the percentage of your portfolio that's invested in stocks should decrease and the portion invested in bonds should increase.</p> <p>That's exactly how target-date funds, such as VTHRX, are designed. This particular fund holds a 72 percent/28 percent mix of stocks and bonds. Plus, it's diversified across U.S. and foreign stocks and bonds.</p> <p>If you compared VTHRX's performance over the past five years to the S&amp;P 500 (through the end of June), you might be disappointed. The S&amp;P 500 has delivered an average annual return over that time period of 14.6 percent whereas VTHRX has averaged 9.9 percent.</p> <p>But again, that's an apples-to-oranges comparison. A better comparison would be how VTHRX has performed against <em>other </em>2030 target-date funds, and the same Yahoo Finance page referenced earlier tells you that as well.</p> <p>The table showing the fund's average annual returns over various time periods also shows how its performance has compared with the &quot;category&quot; &mdash; in this case, the average 2030 target-date fund. As you can see, it has done a good job of outperforming its category.</p> <h2>Should past performance impact which investments you choose?</h2> <p>The prominent display of historical performance information can give the impression that it's what's most important in choosing investments. However, how an investment has performed in past years has virtually nothing to do with how it'll perform in future years.</p> <p>What's more important is designing a portfolio around your optimal asset allocation &mdash; the mix of stocks and bonds that's appropriate for your investment time frame and risk tolerance. Then, if you're using a target-date fund, choose one with that asset allocation, keeping mind that funds with the same target date may be designed with very different asset allocations.</p> <p>Even more importantly, use an online calculator to develop an investment plan &mdash; how much you need to have in your investment accounts by the time you retire, how much money you need to invest each month, and the average annual rate of return you need to achieve.</p> <p>Such a plan would serve as the best possible benchmark because it's based on what you need to achieve in order to meet your long-term investing goal.</p> <p>On its own, investment performance data isn't very helpful. But with the proper context &mdash; how an investment performed versus other similar investments, and most importantly, how your investments performed compared to the rate of return you're trying to achieve &mdash; can be very helpful indeed.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fheres-how-rate-of-return-can-help-you-invest-smarter&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHeres%2520How%2520Rate%2520of%2520Return%2520Can%2520Help%2520You%2520Invest%2520Smarter.jpg&amp;description=Heres%20How%20Rate%20of%20Return%20Can%20Help%20You%20Invest%20Smarter"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/Heres%20How%20Rate%20of%20Return%20Can%20Help%20You%20Invest%20Smarter.jpg" alt="Here's How Rate of Return Can Help You Invest Smarter" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/heres-how-rate-of-return-can-help-you-invest-smarter">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/dont-be-fooled-by-an-investments-rate-of-return">Don&#039;t Be Fooled by an Investment&#039;s Rate of Return</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/should-you-treat-your-social-security-benefits-like-a-bond">Should You Treat Your Social Security Benefits Like a Bond?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-the-risk-averse-can-get-into-the-stock-market">How the Risk Averse Can Get Into the Stock Market</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-one-mediocre-investor-prospered-after-the-market-crash">How One Mediocre Investor Prospered After the Market Crash</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment asset allocation ETF financial news mutual funds performances rate of return stock market target date funds Wed, 19 Jul 2017 08:30:18 +0000 Matt Bell 1985090 at http://www.wisebread.com Start Planning Now for When Your Target-Date Fund Ends http://www.wisebread.com/start-planning-now-for-when-your-target-date-fund-ends <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/start-planning-now-for-when-your-target-date-fund-ends" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-174631043.jpg" alt="Start planning now for when your target date fund ends" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>There's a reason why so many people invest their retirement savings in target-date mutual funds offered within their 401(k). These funds are designed to be simple: Your money is automatically invested in a mix of stocks, bonds, and other asset types based on your age and the year you plan to retire.</p> <p>As you get closer to your target date (the year you expect to hit retirement), the managers of your target-date fund gradually ramp down your risk &mdash; moving more of your dollars away from high-risk, growth-oriented investments like stocks, and focusing instead on safer, more conservative investments like bonds or cash. This &quot;set it and forget it&quot; approach allows you to easily stash money away for retirement without constantly rebalancing the fund yourself.</p> <p>The goal is to have the right asset mix when your target-date fund hits its target. But this leads to the big question: What do you do when your target-date fund finally does reach this endpoint?</p> <h2>Reaching the target date</h2> <p>According to the Investment Company Institute, the target date isn't a date when investors should automatically cash out their entire target-date fund. It's simply an estimate of when investors will retire, and therefore stop making new investments in the fund. Most target-date funds can be kept open beyond the target date.</p> <p>What happens when the fund reaches that target date depends on whether the fund is guided by one of two basic investing approaches.</p> <p>If a target-date fund has what is known as a &quot;to&quot; glide path, the fund manager will stop adjusting the fund's asset mix once it hits the target date. In this scenario, your investment mix will remain in place until you cash out the fund.</p> <p>There's also the &quot;through&quot; glide path. In this approach, the fund manager will continue to adjust the fund's mix of investments even as the target date comes and goes.</p> <p>It's important to remember that target-date funds offer no guarantees. Your fund manager will rework your asset mix as your target date approaches to minimize your investment risk. But no manager can guarantee any set amount of dollars by this date.</p> <h2>What can you do when your target date arrives?</h2> <p>When your target-date fund hits its target date, you have three basic choices of what to do with your money.</p> <h3>1. Do nothing</h3> <p>First, you can essentially choose to do nothing. You can instead leave your money in your target-date fund after you retire. You won't be able to make new contributions to the fund, of course, but as with all 401(k) investments, your target-date fund will continue to grow on a tax-deferred basis. This will remain the case until you begin making withdrawals from the fund. You are required to begin taking your minimum withdrawals from your 401(k) by age 70 &frac12; at the latest.</p> <h3>2. Roll over funds into an IRA</h3> <p>If you want to be more hands-on with your investments, you can instead roll over the target-date fund, and any other investments in your 401(k), into an IRA. If you roll the money into a traditional IRA, you can continue to make contributions until you hit the year in which you turn 70 &frac12;. If you roll your 401(k) funds into a Roth IRA, you can continue making contributions as long as you are earning income. If you are not working, though, and not earning income, you can't contribute to a Roth no matter your age.</p> <h3>3. Cash out your fund</h3> <p>Finally, you can cash out your 401(k) (and the target-date fund within it) once you stop working for the employer who offered it to you. If you rollover your 401(k) into an IRA, you won't have to pay taxes. But if you cash out, you will owe income tax on the amount you withdraw from the plan. If you cash out before you turn 59 &frac12;, you'll have to pay income taxes and a 10 percent penalty.</p> <p>The best option of the three depends on how much time you want to spend focusing on your investments. If you prefer to let others manage your investment, the &quot;do-nothing&quot; approach might be your best move. If you'd rather have more control, on the other hand, rolling over your target-date fund into an IRA is probably the better choice.</p> <p>If you need liquid cash immediately, cashing out your fund might be necessary &mdash; but the tax hit you'll take often makes this the least attractive option.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/start-planning-now-for-when-your-target-date-fund-ends">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-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/what-you-need-to-know-about-the-easiest-way-to-save-for-retirement">What You Need to Know About the Easiest Way to Save for Retirement</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-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-reasons-youre-never-too-old-to-buy-stocks">7 Reasons You&#039;re Never Too Old to Buy 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/how-the-risk-averse-can-get-into-the-stock-market">How the Risk Averse Can Get Into the Stock Market</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement assets bonds investments mutual funds rebalancing rollover stocks target date funds Fri, 12 May 2017 08:30:12 +0000 Dan Rafter 1942910 at http://www.wisebread.com 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/bookmark-this-a-step-by-step-guide-to-choosing-401k-investments">Bookmark This: A Step-by-Step Guide to Choosing 401(k) Investments</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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/start-an-investment-deathmatch-to-find-the-best-investments">Start an Investment Deathmatch to Find the Best 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/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/dont-be-fooled-by-an-investments-rate-of-return">Don&#039;t Be Fooled by an Investment&#039;s Rate of Return</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-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/dont-be-fooled-by-an-investments-rate-of-return">Don&#039;t Be Fooled by an Investment&#039;s Rate of Return</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/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-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-youre-never-too-old-to-buy-stocks">7 Reasons You&#039;re Never Too Old to Buy 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/how-the-risk-averse-can-get-into-the-stock-market">How the Risk Averse Can Get Into the Stock Market</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-ways-to-compare-stock-market-investments">7 Ways to Compare Stock Market Investments</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 Is There Such a Thing as a "Safe" Investment? http://www.wisebread.com/is-there-such-a-thing-as-a-safe-investment <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/is-there-such-a-thing-as-a-safe-investment" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_umbrella_coins_516182744_0.jpg" alt="Man learning if there&#039;s such a thing as a safe investment" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Safety. We all look for it in our investments, while also seeking out the highest return. As we get older, safety becomes more important as we get closer to retirement age.</p> <p>Is there such a thing as a truly &quot;safe&quot; investment? The short answer is that no investment is 100% safe. But there are certainly some investments that are better than others at protecting your hard-earned savings.</p> <p>Let's examine some of the most common &quot;safe&quot; investments and learn how good they actually are at shielding you from financial losses.</p> <h2>1. Cash</h2> <p>You may not be able to stomach the ups and downs of the stock market, and don't want your money tied up in bonds or other fixed-income investments. So you just hold on to large quantities of cash in a basic savings account, a money market account, or certificates of deposit.</p> <h3>Why It's Safe</h3> <p>Cash won't dive in value if the stock market crashes. You can get a predictable return from interest by keeping it in a bank account. And you can access it any time you need it.</p> <h3>Why It's Not</h3> <p>If you have a lot of cash, you can actually <em>lose </em>money in the long-term if there is inflation. But most importantly, putting too much of your investment portfolio in cash will make it hard for you to accumulate the kind of wealth you'll need for a comfortable retirement. Cash is also easy to access, which means it's too easy for you to spend.</p> <h2>2. Dividend Stocks</h2> <p>Dividend stocks are generally issued by companies that don't usually see a lot of volatility, but will pay out a healthy percentage of their income back to shareholders. Dividend stocks are often used by older investors or anyone looking to boost income without a lot of risk.</p> <h3>Why It's Safe</h3> <p>Good dividend stocks will pay out a consistent amount to shareholders each quarter, and it's usually a better return than bonds. By nature, dividend stocks won't go way up and down in price like other stocks, so they aren't as vulnerable to big market downturns.</p> <h3>Why It's Not</h3> <p>They are still stocks, and any stock is potentially vulnerable to market swings. Even dividend stocks will lose value in a down market, so it's still possible to lose money. On the flip side, dividend stocks won't rise in value like other investments when the market goes up. Moreover, dividends are never guaranteed; a company can cut its dividend at any time if its revenues drop.</p> <h2>3. Treasury Inflation-Protected Securities (TIPS)</h2> <p>TIPS are popular investments because they allow you to invest in bonds while seeing the value of the investment rise along with the rate of inflation. They are a common part of many retirement portfolios and can be helpful in diversifying holdings.</p> <h3>Why It's Safe</h3> <p>Investing in U.S. treasuries is about as safe a bet as you can get, as the U.S. government has always paid its obligations. And TIPS have the added benefit of rising in value along with consumer prices, so you're never at risk of losing your investment due to inflation. You are protected even if there is deflation, because in that case, the price at maturity will revert to the price at purchase.</p> <h3>Why It's Not</h3> <p>TIPS aren't great investments for building wealth. There are other, better investments that offer a combination of safety and growth. TIPS are also vulnerable to interest rate moves, just like most bonds.</p> <h2>4. Gold</h2> <p>We've seen gold hailed as a &quot;safe&quot; investment because it's considered a hedge against inflation and a protection against a major economic disaster. History has shown that those who held on to gold during times of crisis held onto their wealth.</p> <h3>Why It's Safe</h3> <p>Gold can protect against inflation and historically has been known to retain its value even during disastrous times. That's why gold became a popular investment during the recent debt crisis in Europe, for example.</p> <h3>Why It's Not</h3> <p>Many financial experts note that gold's reputation as a hedge against inflation is often overstated, and gold has been known to lose value. It is also no less volatile than stocks, and generally does not have the same return on investment. In other words, it's not as &quot;safe&quot; as you think, and you won't necessarily get wealthy by holding onto it.</p> <h2>5. REITs</h2> <p>A real estate investment trust (or REIT) allows individual investors to own shares of real estate without the hassle of being a landlord. REITs trade like stocks, and can also be included in mutual funds and exchange-traded funds.</p> <h3>Why It's Safe</h3> <p>REITs are generally pretty stable investments, especially if the company has many long-term leases. REITs also usually pay out a hefty dividend.</p> <h3>Why It's Not</h3> <p>Real estate can still drop in value, especially if the REIT you buy is focused on one sector of real estate. Moreover, because REITs don't have to pay corporate-level income tax, dividends from REITs are taxed at the normal income rate, not the dividend rate paid out by other stocks.</p> <h2>6. Target Date Mutual Funds</h2> <p>Most brokerages offer mutual funds that start off with an aggressive investment mix and then get more conservative as the investor ages. These are a popular &quot;hands off&quot; part of many portfolios.</p> <h3>Why It's Safe</h3> <p>These funds are designed to build value during your younger years and protect your retirement nest egg as you get older. When properly managed, you'll be able to hold onto more of your money when you are close to retirement, even during down markets.</p> <h3>Why It's Not</h3> <p>Generally speaking, targeted mutual funds come with higher fees than many other funds, and that can cut into your overall earnings over time. And while the funds are comprised of more conservative investments as you approach retirement age, they are still prone to the ups and downs of the stock market in the earlier years.</p> <h2>7. Peer-to-Peer Lending</h2> <p>In recent years, companies such as Lending Club and Prosper have allowed individual investors to profit from the debt of other regular people. These platforms match investors up with those looking to borrow money. Individuals can invest based on their own risk tolerance. (See also: <a href="http://www.wisebread.com/how-to-make-money-with-peer-to-peer-lending-service-prosper?ref=seealso">How to Make Money With Prosper</a>)</p> <h3>Why It's Safe</h3> <p>The most popular peer-to-peer lending sites report a fairly low default rate on loans. This means that those who purchase debt are likely to generate a solid return. Lending Club reports that the median adjusted net annual return is 5.1% for those who have purchased at least 100 notes.</p> <h3>Why It's Not</h3> <p>There's always a risk of loans defaulting, especially if you don't buy quality loans. Buying risky loans, or failing to diversify your loan portfolio, can lead to less-than-stellar returns.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/is-there-such-a-thing-as-a-safe-investment">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-9"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-to-invest-in-stocks-past-age-50">7 Reasons to Invest in Stocks Past Age 50</a></span> </div> </li> <li class="views-row views-row-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/3-easy-ways-to-invest-in-real-estate-without-buying-real-estate">3 Easy Ways to Invest in Real Estate (Without Buying Real Estate)</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-ways-to-invest-50-500-or-5000">The Best Ways to Invest $50, $500, or $5000</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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 cash dividend stocks mutual funds peer to peer lending REITs safe investments tips Mon, 12 Dec 2016 11:00:07 +0000 Tim Lemke 1850785 at http://www.wisebread.com 6 Ways to Invest When You're In Debt http://www.wisebread.com/6-ways-to-invest-when-youre-in-debt <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-ways-to-invest-when-youre-in-debt" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/plant_tree_stump_462868653_0.jpg" alt="Learning ways to invest when you&#039;re in debt" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You know you need to begin investing to save for the future, but you still have some debt to pay off. It is possible to take care of both at the same time?</p> <p>The short answer is that yes, you can pay down debt and invest at the same time. In many ways, this is a personal choice. If you despise debt and sleep better at night knowing that you're paying it off as quickly as possible, that's fine. But if you can tolerate paying off debt at a slower rate and investing some money, you may end up ahead of the game financially over the long-term.</p> <p>Here are some things to consider when deciding how much to invest and how much debt to pay off.</p> <h2>1. Minimum Payments First, Then Invest</h2> <p>While it's certainly possible to pay down debt and invest at the same time, it's never a good idea to invest if you can't make your minimum payments first. If you don't make minimum payments, you'll be on the hook for higher interest, late fees, and penalties. Not to mention that your credit score will take a big hit. Consider investing your money only if you know you can set money aside and still make at least the minimum payments on debt.</p> <h2>2. Tackle the High Interest Debt</h2> <p>If your debt is tied up in credit cards and other things that come with high interest rates, you may want to hold off on investing until that's under control. Credit cards have interest rates in the double digits, and you're unlikely to generate an investment return that outpaces that. Once that high-interest debt is down to zero, then investing becomes much more possible. (See also: <a href="http://www.wisebread.com/fastest-way-to-pay-off-10000-in-credit-card-debt?ref=seealso">Fastest Way to Pay Off 10K in Credit Card Debt</a>)</p> <h2>3. Use Your 401K Plan</h2> <p>If you work for an employer that offers a 401K plan or something similar, it's worth taking part even if you have some debt. That's because most employers will match contributions up to a certain amount. So it's like getting free money. Any contributions you make to a 401K are deducted from your taxable income, so there are great tax advantages for taking part. Invest what you can while still paying down your debt. Then, when your debt is paid off, increase your contributions.</p> <h2>4. Look at Low-Cost Mutual Funds and ETFs</h2> <p>If most of your debt is tied up in low-interest things like student loans or mortgages, it's okay to set aside some money to invest in things that will generate a good return. In fact, there are many financial planners that argue against paying off low-interest loans early if market returns are higher than interest rates. Over time, stocks have averaged returns of about 7%, which is much higher than interest rates these days. To get this type of return, consider looking at mutual funds and exchange-traded funds that have low fees and are designed to track the performance of the overall stock market.</p> <h2>5. Find Investments That Trade Without a Commission</h2> <p>If you're trying to invest and pay down debt at the same time, there's a good chance you may only be able to invest a little at a time. That's okay, but it's important to be aware of the fees and commissions you pay every time you buy and sell. If you're only buying a few shares of a stock but paying $8 in a commission, for example, that fee is cutting into a sizable percentage of your investment. Fortunately, many discount brokerages allow you to trade certain types of investments without paying a commission. Fidelity offers fee-free investing on all iShares ETFs, ETrade offers many commission-free ETFs from WisdomTree and Global X, and TD Ameritrade offers more than 100 ETFs with no transaction fees.</p> <h2>6. Automate as Much as Possible</h2> <p>Finding the balance between investing and paying off debt requires some discipline. If you have some debt but are considering investing, determine in advance what your ideal balance is. Then, set up automatic monthly transfers of money into an investment account, and automate your bills as well. If you get extra money or a raise, consider tweaking the balance accordingly. When you automate, it takes the guesswork out, allows you to stay consistent, and makes it easier to do other financial planning.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F6-ways-to-invest-when-youre-in-debt&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F6%2520Ways%2520to%2520Invest%2520When%2520Youre%2520In%2520Debt.jpg&amp;description=6%20Ways%20to%20Invest%20When%20Youre%20In%20Debt"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/6%20Ways%20to%20Invest%20When%20Youre%20In%20Debt.jpg" alt="6 Ways to Invest When You're In Debt" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/6-ways-to-invest-when-youre-in-debt">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-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/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/how-to-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in Retirement</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-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/7-ways-to-compare-stock-market-investments">7 Ways to Compare Stock Market Investments</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/should-you-pay-down-debt-first-or-invest">Should You Pay Down Debt First or Invest?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management Investment 401k ETFs fees interest rates market returns mutual funds saving money Wed, 23 Nov 2016 11:30:07 +0000 Tim Lemke 1838645 at http://www.wisebread.com 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-6"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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/should-you-treat-your-social-security-benefits-like-a-bond">Should You Treat Your Social Security Benefits Like a Bond?</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/7-ways-to-compare-stock-market-investments">7 Ways to Compare Stock Market Investments</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/beginners-guide-to-reading-a-stock-table">Beginner&#039;s Guide to Reading a Stock Table</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 How to Buy Your First Stock(s) or Fund(s) http://www.wisebread.com/how-to-buy-your-first-stocks-or-funds <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-buy-your-first-stocks-or-funds" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_drawing_desk_98135205.jpg" alt="Woman learning how to buy her first stocks or funds" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>So you're ready to start investing. That's great, because it's never too early. The sooner you start investing, the more you'll be able to take advantage of the power of compound interest. Here's how to get started.</p> <h2>Open an Account</h2> <p>In order to invest, you'll need an investment account at a broker such as TD Ameritrade, Schwab, Vanguard, or Fidelity. Prominently displayed on their sites, you'll find &quot;open an account&quot; buttons.</p> <p>After clicking, you'll have to decide whether to open a taxable account or a tax-advantaged account, such as an IRA. If your purpose for investing is to build a retirement nest egg, you'll probably want to open an IRA. Keep in mind, however, that IRAs have relatively low annual contribution maximums. If you want to invest more than $5,500 per year, a taxable account would be necessary.</p> <p>After entering some personal information, you'll need to fund the account, usually with an electronic transfer from your checking account.</p> <p>Of the brokers just mentioned, only TD Ameritrade has no minimum required amount for opening an account. The others require $1,000 to $2,500, although some allow you to open an account with less if you sign up for automatic monthly contributions. At Schwab, the monthly commitment is $100. Shop around to find a broker that best meets your needs.</p> <h2>Choose Your Investment Vehicle</h2> <p>There are two primary types of stock market investments &mdash; stocks and mutual funds.</p> <p>Buying individual stocks probably sounds like a fun way to get started with investing. There's something inherently appealing about the idea of owning a piece of some of the most famous companies in the world, such as Amazon, Facebook, and Apple.</p> <p>However, while investing in stocks might be exciting, mutual funds have some advantages over stocks. When you buy the stock of one company, your money isn't diversified at all. The performance of your portfolio is completely dependent on the performance of that one company. If the company has a bad year, your portfolio will have a bad year.</p> <p>However, if you invest in 10 companies and one has a bad year, some of the other ones will likely have good years, which may more than offset the one company's losses. That's why making sure your portfolio is diversified is so important.</p> <p>In order to be adequately diversified, you would need to buy stock in many companies. But when you're starting out, you probably don't have all that much money to work with &mdash; which is why you may want to consider using a mutual fund.</p> <p>When you buy shares of a mutual fund, your money is inherently diversified. That's because a mutual fund is a pool of money from many investors that the fund manager invests in many companies (there are also bond funds, real estate funds, etc.). Buying a single share of a mutual fund gives you instant diversification.</p> <h2>Decide What to Invest In</h2> <p>One of the easiest ways to invest for your retirement is to choose a target-date mutual fund. With such funds, you just choose the one with the year of your intended retirement in its name (Fidelity Freedom 2040, for example, or Schwab Target 2035). The fund will be designed in a way that the fund manager believes is appropriate for someone with your investment time horizon.</p> <p>If you're 30 years old and plan to retire when you're 70, you would choose a 2055 fund (most target-date funds are offered in five-year intervals, so you choose the one that's closest to the year of your intended retirement). Such a fund would likely be mostly invested in stocks and a little bit in bonds. As you get older, it will automatically change that investment mix to become appropriately more conservative.</p> <p>Many mutual fund companies offer such funds. Here are the target-date offerings from <a href="http://www.schwab.com/public/schwab/investing/accounts_products/investment/mutual_funds/mutual_fund_portfolio/target_funds">Schwab</a>, <a href="https://www.fidelity.com/mutual-funds/fidelity-fund-portfolios/freedom-funds">Fidelity</a>, and <a href="https://investor.vanguard.com/mutual-funds/target-retirement/#/">Vanguard</a>. TD Ameritrade doesn't have its own mutual funds, but offers target-date funds from several mutual fund companies.</p> <p>Look for no-transaction-fee (NTF) funds, which means there will not be a fee associated with buying the fund, and be sure to check the fund's minimum required investment amount.</p> <h2>Invest</h2> <p>Now you're ready for action. After logging onto your account, look for a button that says &quot;trade&quot; or &quot;buy and sell.&quot; You buy or sell mutual funds in one place, and stocks in another.</p> <p>To buy a mutual fund, you'll need to look up and then enter its &quot;ticker&quot; symbol &mdash; the four- or five-letter abbreviation for the fund's name. Then enter the amount you'd like to invest and click &quot;buy.&quot;</p> <p>Of course, there's more to know about investing and there are many different ways to invest. But this simple tutorial will get you started.</p> <p>Welcome to the world of investing.</p> <p><em>Have you gotten started investing? What are you waiting for?</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/how-to-buy-your-first-stocks-or-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-7"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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/dont-be-fooled-by-an-investments-rate-of-return">Don&#039;t Be Fooled by an Investment&#039;s Rate of Return</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-youre-never-too-old-to-buy-stocks">7 Reasons You&#039;re Never Too Old to Buy 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/how-the-risk-averse-can-get-into-the-stock-market">How the Risk Averse Can Get Into the Stock Market</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-ways-to-compare-stock-market-investments">7 Ways to Compare Stock Market Investments</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Fidelity first time mutual funds new investors schwab stock market stocks target-date funds vanguard Wed, 10 Aug 2016 09:30:35 +0000 Matt Bell 1767152 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-8"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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/how-the-risk-averse-can-get-into-the-stock-market">How the Risk Averse Can Get Into the Stock Market</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-things-everyone-should-know-about-the-commodities-markets">8 Things Everyone Should Know About the Commodities Markets</a></span> </div> </li> <li class="views-row views-row-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