risk http://www.wisebread.com/taxonomy/term/8974/all en-US 7 Reasons to Invest in Stocks Past Age 50 http://www.wisebread.com/7-reasons-to-invest-in-stocks-past-age-50 <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-reasons-to-invest-in-stocks-past-age-50" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_sitting_on_floor_with_piggy_bank_under_money_rain.jpg" alt="Man sitting on floor with piggy bank under money rain" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Conventional investing wisdom says that as people age, they should put less of their money in stocks and more into stable investments such as bonds and cash. This is sound advice based on the idea that in retirement you want to protect your assets in case there is a major market downturn.</p> <p>But there are still strong arguments to continue investing in stocks even as you get older. Few people recommend an all-stock portfolio, but reducing stock ownership down to zero doesn't make sense, either.</p> <p>Consider that many mutual funds geared toward older investors still comprise hefty doses of stocks. The 2020 Retirement Fund from T. Rowe Price, for example, is made up of 70 percent stocks for retirees at age 65, and is still made up of 25 percent stocks when that same retiree is past 90 years of age.</p> <p>Why does owning stocks make sense even for older investors? Let's examine these possible motivations.</p> <h2>1. You're going to live a lot longer</h2> <p>If you are thinking about retirement as you approach age 60, it's important to recognize that you still may have several decades of life remaining. People are routinely living into their 90s or even past 100 these days. Do you have enough savings to last 40 years or more? While it's important to protect the assets you have, you may find that higher returns from stocks will be needed in order to accrue the money you need.</p> <h2>2. You got a late start</h2> <p>If you started investing early and contributed regularly to your retirement accounts over the course of several decades, you may be able to take a conservative investing approach in retirement. But if you began investing late, your portfolio may not have had time to grow enough to fund a comfortable retirement. Continuing to invest in stocks will allow you to expand your savings and reach your target figure. It still makes sense to balance your stocks with more conservative investments, but taking on a little bit more risk in exchange for potentially higher returns may be worth it. (See also: <a href="http://www.wisebread.com/7-retirement-planning-steps-late-starters-must-make?Ref=seealso" target="_blank">7 Retirement Planning Steps Late Starters Must Make</a>)</p> <h2>3. Other investments don't yield as much as they used to</h2> <p>Moving away from stocks was good advice for older people back when you could get better returns on bonds and bank interest. The 30-year treasury yield right now is about 2.75 percent. That's about half what it was a decade ago and a third of the rate from 1990. Interest from cash in the bank or certificates of deposit will generate a measly 1.5 percent or less. The bottom line is that these returns will barely outpace the rate of inflation and won't bring you much in the way of useful income.</p> <h2>4. Some stocks are safer than others</h2> <p>Not all stocks move up and down in the same way. While stocks are generally more volatile than bonds and cash, there are many that have a strong track record of steady returns and relative immunity from market crashes. Take a look at mutual funds comprised of large-cap companies with diversified revenue streams. Consider dividend-producing stocks that don't move much in terms of share price, but can generate income. To find these investments, search for those that lost less than average during the Great Recession and have a history of low volatility.</p> <h2>5. Dividend stocks can bring you income</h2> <p>Dividend stocks are not only more stable than many other stock investments, but also they can generate cash flow at a time when you're not bringing in other income. A good dividend stock can produce a yield of more than 4 percent, which is more than what you'll get from many other non-stock investments right now. This will help ensure the growth of your portfolio is at least outpacing inflation.</p> <p>If you are unsure about which dividend stocks to buy, take a look at a well-rated dividend mutual fund. The T. Rowe Price Dividend Growth Fund [NYSE: PRDGX], for example, has a three-year total return of more than 10 percent, outpacing the S&amp;P 500. Its overall returns also dropped less than the S&amp;P 500 during the Great Recession.</p> <h2>6. Busts are often followed by bigger booms</h2> <p>A person who retired 10 years ago would have stopped working right when the market crashed, and there's a good chance they may have lost a significant chunk of their savings. That's bad. But it's important to note that in the decade since, the S&amp;P 500 has gone up every year at an average of more than 8.5 percent annually. In other words, someone who lost a lot from the crash of 2007&ndash;2008 will have gotten all of their money back and much more if they stayed invested in stocks.</p> <p>This is not to suggest that older investors should be unreasonably aggressive, but they should be aware that a single bad year or two probably won't completely wipe you out financially. If your retirement is long, you may see some market busts, but you'll also see some long stretches of good returns.</p> <h2>7. You may still be helping out your kids</h2> <p>When you're retired, you're supposed to be done with child rearing and helping out your kids financially, right? Unfortunately, it seems that older Americans are continuing to lend a hand to their children even as they grow into adulthood and have children of their own.</p> <p>A recent survey from TD Ameritrade said that millennial parents between the ages of 19 and 37 receive an average of more than $11,000 annually in the form of money or unpaid child care from their parents. With these additional costs on the horizon, those approaching retirement age may still want to invest in stocks to build their nest egg further. (See also: <a href="http://www.wisebread.com/are-you-ruining-your-retirement-by-spoiling-your-kids?ref=seealso" target="_blank">Are You Ruining Your Retirement by Spoiling Your Kids?</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F7-reasons-to-invest-in-stocks-past-age-50&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F7%2520Reasons%2520to%2520Invest%2520in%2520Stocks%2520Past%2520Age%252050.jpg&amp;description=7%20Reasons%20to%20Invest%20in%20Stocks%20Past%20Age%2050"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/7%20Reasons%20to%20Invest%20in%20Stocks%20Past%20Age%2050.jpg" alt="7 Reasons to Invest in Stocks Past Age 50" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/7-reasons-to-invest-in-stocks-past-age-50">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-save-for-retirement-when-you-are-unemployed">How to Save for Retirement When You Are Unemployed</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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/what-you-need-to-know-about-the-easiest-way-to-save-for-retirement">What You Need to Know About the Easiest Way to Save for Retirement</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-there-such-a-thing-as-a-safe-investment">Is There Such a Thing as a &quot;Safe&quot; Investment?</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/9-threats-to-a-secure-retirement">9 Threats to a Secure Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement adult children bonds cash dividend stocks giving money to kids income late starters life span living longer risk saving money stocks yields Thu, 05 Oct 2017 09:00:06 +0000 Tim Lemke 2031342 at http://www.wisebread.com 8 Types of Investors — Which One Are You? http://www.wisebread.com/8-types-of-investors-which-one-are-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-types-of-investors-which-one-are-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/businessman_reading_a_newspaper.jpg" alt="which type of investor are you" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Do you tend to invest in a particular way? Identifying which type of investor you are can help you understand the potential pitfalls of your investment approach &mdash; and how to improve your chances for better investment returns. Which type of investor are you?</p> <h2>1. Automatic investor</h2> <p>The automatic investor is all about convenience. Everything related to investing is set on autopilot. Automatic contributions to investment funds come out of every paycheck or are withdrawn from the bank account on a certain day of the month. This type of investor doesn't spend much time or effort thinking about investing, and doesn't need to since everything is automatic. They don't have to remind themselves to invest; it's checked off their financial to-do list.</p> <p>The potential downside for the automatic investor is losing touch with where investment funds are going and how the investment portfolio is performing. If you are not paying attention, you may not have investment selections that meet your current goals, and you may not identify and remove low performing investments or funds with high fees. If you don't check in at least occasionally, this hands-off approach may cost you. Rebalancing your portfolio once or twice a year by transferring funds to maintain your desired proportions of stocks to bonds should be sufficient to keep your investment portfolio on track. (See also: <a href="http://www.wisebread.com/the-most-important-thing-youre-probably-not-doing-with-your-portfolio?ref=seealso" target="_blank">The Most Important Thing You're Probably Not Doing With Your Portfolio</a>)</p> <h2>2. Daily Dow watcher</h2> <p>The Dow watcher is constantly up to speed. They know at any time if the stock market is up or down. The current market price and chart is only a tap away on their smartphone. This type of investor knows how much their portfolio is worth and worries about how much they are losing when the market has a bad day. Nothing goes over the Dow watcher's head.</p> <p>The risk for the Dow watcher is that he or she can easily get stressed out by day-to-day ups and downs in the market. They may even get discouraged when the market is going down and decide to sell stock when the price is low &mdash; the worst time to sell! It's good to be informed, especially when it comes to your investments, but if you find yourself too glued to the Dow's daily performance &mdash; it might be a good idea to <a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news" target="_blank">step away from the news</a> for a bit. Checking in on the stock market and your investment portfolio quarterly is probably more than frequent enough, and you can use the time you save for something more productive and enjoyable.</p> <h2>3. Active trader</h2> <p>The active trader is a studious investor. This type of investor tries to time the market by figuring out that a stock is going up before other investors realize it &mdash; and then selling when it is near the peak price before most investors figure out that it is going down. This type of investor pores over market and economic data, reads business articles, and is well-informed about business trends and news. He or she is willing to take risks for a chance at big returns.</p> <p>If you're an active trader, tread carefully; you can easily lose significant money if your timing is off. Trading fees can also get expensive if your investment approach requires making a lot of trades. You are much more likely to make money from buying good stocks and holding them for the long haul.</p> <h2>4. Conscientious investor</h2> <p>Conscientious investors put their money where their morals are. They have limits to what activities and products they are willing to be involved with in order to make a buck. For example, some conscientious investors invest only in socially-responsible or environmentally-responsible companies, and avoid owning shares in companies that promote values or products contrary to their moral principles. This type of investor is likely to exert economic influence through consumer purchasing decisions as well as through their stock picks.</p> <p>This type of ethical investing unfortunately can limit a person's investment options, which may result in lower returns. But some things are worth more than money to conscientious investors. (See also: <a href="http://www.wisebread.com/a-simple-guide-to-socially-responsible-investing?ref=seealso" target="_blank">A Simple Guide to Socially Responsible Investing</a>)</p> <h2>5. Property investor</h2> <p>Not every investor owns stocks. The property investor owns real estate, collectibles, gold, and maybe even bonds. He or she wants to invest in things that they can understand and control to some extent. This type of investor may not trust Wall Street and avoids the volatility of stocks.</p> <p>Historically, however, stocks have had great investment returns compared to other investment types, so property investors who shy away from the stock market could be missing out. Large cap value stocks can be a relatively safe way to start off in stock investing for first-time stock investors.</p> <h2>6. Bargain investor</h2> <p>This is the kind of investor that pounced on GM stock when it was $1 per share in 2009. Of course there is risk that bargain stocks could become worthless, but there is potential for the stock price to bounce back. The bargain investor looks carefully at P/E ratios to check the share price relative to earnings per share when deciding what stock to buy.</p> <p>Bargain hunters should be wary though &mdash; sometimes stocks with low prices are trading at a low price for a good reason. The bigger the bargain, the more research is merited into why the price is so low before you buy.</p> <h2>7. Company loyalist</h2> <p>The company loyalist owns a disproportionate amount of stock from an individual company. This could be a trendy stock that inspires loyalty like Apple or Tesla, or the company loyalist could own a large amount of his or her own employer's stock.</p> <p>Owning a large amount of any single company stock can be risky. The company could <a href="http://www.wisebread.com/how-these-8-company-stocks-fared-following-scandal" target="_blank">experience a major scandal</a> or product failure and the stock price could tank. Remember Enron? Owning a lot of stock in the company you work for is even riskier, because if something goes wrong you'll not only lose value in your stock fund, but you may lose your job at the same time. Some financial advisers suggest that owning more than 10 percent to 15 percent of your company's stock may be too much.</p> <h2>8. Portfolio tweaker</h2> <p>The portfolio tweaker is not really an active trader, but likes to adjust and fine tune his or her portfolio frequently by making transfers between funds to get the desired balance between large cap, mid cap, small cap, foreign, domestic, growth, value, and bond investment categories.</p> <p>While it is good to adjust your portfolio occasionally to meet your investment goals, frequently selling investments that are performing well just to meet an arbitrary &quot;balance&quot; in your portfolio may not be the best move and could hurt your overall return. As we advised the automatic investor, portfolio rebalancing once or twice per year is a good interval for most investors.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F8-types-of-investors-which-one-are-you&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F8%2520Types%2520Of%2520Investors%2520Which%2520One%2520Are%2520You.jpg&amp;description=8%20Types%20of%20Investors%20%E2%80%94%20Which%20One%20Are%20You%3F"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/8%20Types%20Of%20Investors%20Which%20One%20Are%20You.jpg" alt="8 Types of Investors &mdash; Which One Are You?" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dr-penny-pincher">Dr Penny Pincher</a> of <a href="http://www.wisebread.com/8-types-of-investors-which-one-are-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-too-much-investment-diversity-can-cost-you">How Too Much Investment Diversity Can Cost You</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-dollar-cost-averaging-the-right-strategy-for-you">Is Dollar Cost Averaging the Right Strategy for You?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news">Want Your Investments to Do Better? Stop Watching the News</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-essentials-for-building-a-profitable-portfolio">5 Essentials for Building a Profitable Portfolio</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment automatic company stock dow ethical investing portfolio property investors returns risk stock market stocks types Fri, 08 Sep 2017 08:00:05 +0000 Dr Penny Pincher 2017190 at http://www.wisebread.com This One Mental Bias Is Harming Your Investments http://www.wisebread.com/this-one-mental-bias-is-harming-your-investments <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/this-one-mental-bias-is-harming-your-investments" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/young_man_holding_his_head_counting_pennies.jpg" alt="Young man holding his head counting pennies" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Are you holding your breath just waiting for the market to fall? If so, you're not alone. Many investors seem to be waiting for the other shoe to drop. That seems logical: After all, today's bull market has been running for more than eight years, and bull markets don't last forever.</p> <p>But is it really logical to think that way? Bull markets don't die of old age. They die from other causes, such as rising inflation or a recession. As of today, inflation is in check and most economy watchers say they see no signs of trouble.</p> <p>Making it far more difficult to decide what, if anything, to do with your investment portfolio are the many cognitive biases that plague us all. One such bias, however, can be especially dangerous in a stock market environment such as the one we're in right now.</p> <h2>A financially dangerous disposition</h2> <p>Think about your portfolio. You probably have several investments that have done very well in recent years. And, if you're well diversified, you may have some that have lost value. Are you thinking about &quot;taking profits&quot; by selling some of your winners? At the same time, are you planning to hang onto those investments that haven't done so well? Perhaps it would be too painful to sell. And besides, they're bound to come back eventually, right?</p> <p>Be careful. You may be under the spell of what behavioral scientists call the <em>disposition effect</em>. That's the tendency to sell winning investments too soon and keep losing investments too long.</p> <h2>The unequal nature of gains and losses</h2> <p>The disposition effect has much to do with a foundational behavioral bias first identified by researchers Daniel Kahneman and Amos Tversky. It theorizes that losses &mdash; whether in the stock market, real estate, or other domains &mdash; have far more emotional impact on us than equivalent gains.</p> <p>Objectively speaking, it's been well documented that the recent past performance of an investment &mdash; its momentum &mdash; tends to persist. We'd be better off keeping our winners longer and selling our losers sooner.</p> <p>But we are not objective beings. For most of us, in the daily battle between facts and feelings, the truth seldom gets in the way of a bad decision.</p> <p>So strong is our subjective, irrational desire to avoid the pain of regret &mdash; in this case, the regret of having made a losing investment in the first place &mdash; that we tend to keep poorly-performing investments longer than we should.</p> <p>Hersh Shefrin, one of the behavioral finance experts who identified the disposition effect, described it as a &quot;predisposition toward get-evenitis.&quot; Rather than cutting our losses, we tend to hang on in the hope of at least getting back to even.</p> <h2>How to beat the disposition effect</h2> <p>Telling yourself to stop trying to avoid the pain of regret is about as effective as telling yourself not to think about an elephant. But that doesn't mean you're destined to spend your life fighting the disposition effect. Three steps can help.</p> <h3>1. Follow a process</h3> <p>First and foremost, don't make investment buy/sell decisions on your own. Find and follow a proven, objective, rules-based investment selection process. That may mean working with an experienced investment adviser, using a target-date fund that's designed according to your optimal asset allocation, or subscribing to an investment newsletter with a solid track record.</p> <h3>2. Stop the daily updates</h3> <p>Prevent yourself from looking at your investments so often. Research by psychologist Paul Andreassen found that people who receive frequent updates about their investment portfolios tend to trade more often and generate poorer returns than those who receive less frequent updates. Watching the daily gyrations of the market is a prescription for heartburn and bad decision-making. Check in with your holdings once a quarter, or once a month if you must. If you signed up for daily or weekly updates on how your portfolio is doing, today's the day to unsubscribe. (See also: <a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news?ref=seealso" target="_blank">Want Your Investments to Do Better? Stop Watching the News</a>)</p> <h3>3. Form a plan</h3> <p>Lastly, create a written investment plan. It should identify your investment goals and time frames, the strategy you're using to accomplish them, the process you're following for choosing specific investments, and perhaps most importantly, what you are committed to doing (or not doing) under various market conditions. Then review it anytime market conditions tempt you to veer from your plan.</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%2Fthis-one-mental-bias-is-harming-your-investments&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FThis%2520One%2520Mental%2520Bias%2520Is%2520Harming%2520Your%2520Investments_0.jpg&amp;description=This%20One%20Mental%20Bias%20Is%20Harming%20Your%20Investments"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/This%20One%20Mental%20Bias%20Is%20Harming%20Your%20Investments_0.jpg" alt="This One Mental Bias Is Harming Your Investments" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/this-one-mental-bias-is-harming-your-investments">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/your-loss-aversion-is-costing-you-more-than-your-fomo">Your Loss Aversion Is Costing You More Than Your FOMO</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/learn-how-to-invest-with-these-5-stock-market-games">Learn How to Invest With These 5 Stock Market Games</a></span> </div> </li> <li class="views-row views-row-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/6-stocks-to-buy-before-black-friday">6 Stocks to Buy Before Black Friday</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-too-much-investment-diversity-can-cost-you">How Too Much Investment Diversity Can Cost You</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment bull market cognitive bias disposition effect downturn gains losses overthinking risk stock market Fri, 28 Jul 2017 08:01:05 +0000 Matt Bell 1990503 at http://www.wisebread.com 8 Surprising Ways Confidence Can Hurt Your Investments http://www.wisebread.com/8-surprising-ways-confidence-can-hurt-your-investments <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-surprising-ways-confidence-can-hurt-your-investments" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/strong_man_self_confident_young_entrepreneur.jpg" alt="Strong man, self confident young entrepreneur" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>There may come a moment when you feel like you have this investing thing all figured out. You've made some great stock picks and your portfolio is going gangbusters. But are you letting your confidence get the best of you and your investments?</p> <p>Being confident is OK. You need some confidence in yourself to invest in the first place. But being too cocky can lead you to make bad investment choices, and have a blind spot to your own weaknesses. Here are some of the ways confidence may actually hurt your investments.</p> <h2>1. You develop a selective memory</h2> <p>Maybe you bought shares of Facebook when they were trading below $25, and have made a killing on the investment since. You like to hold up that one purchase as proof of your genius as an investor. But are you forgetting about the other investments that didn't do so well? On balance, are you really any smarter than anyone else out there?</p> <p>Don't let your memory of one great decision delude you into thinking you have a special gift as an investor. Doing so can make you believe that every stock will eventually turn out to be a winner, even if there's no rational basis for your confidence.</p> <h2>2. You have too much faith in the market</h2> <p>While it's true that history shows the stock market has gone up consistently over time, it's still important to protect your investments against a possible downturn. As you get older and approach retirement age, consider shifting some investments into less volatile instruments, such as bonds, even if you believe the market will continue to go up.</p> <p>It's also important to avoid being too optimistic about markets in the short term. If you're investing money that you need in a year or two, the stock market may not be the best place to put it. Having faith in the market is crucial to building wealth over time, but protecting your investments against a down period is also part of the formula for success.</p> <h2>3. Your portfolio is not properly balanced</h2> <p>So you've had some great success with some of your investments, and decide to buy more shares of those that have done the best. There's nothing wrong with buying a lot of something if it performs well for you, but it's important to keep your overall portfolio from getting out of whack. This means not being too heavily invested in one particular stock or group of stocks.</p> <p>Ideally, your portfolio should have a nice mix of stocks from various industries, sectors, and asset classes. Depending on your retirement age, mixing in some bonds and dividend stocks may also make sense. You may fall in love with a certain investment, but you should not let it dominate your portfolio. Diversification is key to mitigating risk. (See also: <a href="http://www.wisebread.com/the-basics-of-asset-allocation?ref=seealso" target="_blank">The Basics of Asset Allocation</a>)</p> <h2>4. You're taking on too much risk</h2> <p>Investing is not without risk, and you must be comfortable with that if you plan to accumulate wealth over time. But don't be too tempted to take on extra risk just to chase higher returns. It's one thing to invest heavily in stocks, but it can be financial suicide to go after notoriously volatile investments, or to engage in risky practices like trading on margin or buying and selling options.</p> <p>The best approach is to build a portfolio that roughly performs in line with the whole stock market, ensuring that you'll likely make money over time but will avoid catastrophic downturns that wipe out your whole savings.</p> <h2>5. You never check up on your investments</h2> <p>For most people, it's not necessary to check your investments every day and obsess over every movement in the markets. But you don't want to completely ignore your investment accounts, either. Even if you are invested in simple, reliable things like index funds, an occasional check-in is usually a good idea. (See also: <a href="http://www.wisebread.com/the-4-best-investments-for-lazy-investors?ref=seealso" target="_blank">The 4 Best Investments for Lazy Investors</a>)</p> <p>Without a checkup, you may be unaware that certain investments are underperforming. You might allow your portfolio to become unbalanced, leaving you under- or over-invested in some areas. You may be left unaware of company sales or mergers that result in changes to your investment mix. Don't get cocky; the stock market has gone up reliably over time, but your investments still need some tending to from time to time.</p> <h2>6. You trade too often</h2> <p>Let's face it: Buying and selling stocks can be fun. And when you feel confident in your stock picking abilities, you'll feel the urge to trade stocks frequently. You may even feel like you can &quot;time&quot; the market. But trading frequently has financial consequences.</p> <p>First, if your stocks are in a taxable brokerage account, you'll end up paying tax on any gains when you sell. Second, most brokerage firms charge a commission for every trade. These expenses can put a dent in the value of your portfolio.</p> <h2>7. You miss out on popular, but well-performing investments</h2> <p>Imagine there's a hot stock that everyone is buying. But you stay away, because you think everyone else is dumber than you. Your confidence got in the way of rationally examining an investment on its merits rather than being influenced by the decisions of others. Buying a stock just because it's popular is silly, but so is refusing to buy it for the same reason. (See also: <a href="http://www.wisebread.com/7-everyday-things-that-are-surprisingly-awesome-investments?ref=seealso" target="_blank">7 Everyday Things That Are Surprisingly Awesome Investments</a>)</p> <h2>8. You hold on to investments too long</h2> <p>Years ago, you bought 100 shares of OmniCorp and it netted you a massive return in the first year. You still have some of those shares, but the company has since been struggling, and may even declare bankruptcy. But still, you refuse to cut your losses and sell, because you made so much money from this stock early on. You are utterly convinced the company will turn things around, despite all evidence to the contrary. This is a dangerous mentality to have, and can cost you plenty in the long run.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F8-surprising-ways-confidence-can-hurt-your-investments&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F8%2520Surprising%2520Ways%2520Confidence%2520Can%2520Hurt%2520Your%2520Investments.jpg&amp;description=8%20Surprising%20Ways%20Confidence%20Can%20Hurt%20Your%20Investments"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/8%20Surprising%20Ways%20Confidence%20Can%20Hurt%20Your%20Investments.jpg" alt="8 Surprising Ways Confidence Can Hurt Your Investments" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/8-surprising-ways-confidence-can-hurt-your-investments">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-too-much-investment-diversity-can-cost-you">How Too Much Investment Diversity Can Cost You</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-signs-an-etf-isnt-right-for-you">8 Signs an ETF Isn&#039;t Right for You</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-costly-mistakes-diy-investors-make">9 Costly Mistakes DIY Investors Make</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-to-invest-in-stocks-past-age-50">7 Reasons to Invest in Stocks Past Age 50</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/bookmark-this-a-step-by-step-guide-to-choosing-401k-investments">Bookmark This: A Step-by-Step Guide to Choosing 401(k) Investments</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment arrogance confidence fees rebalancing risk stock markets stocks taxes trading Wed, 26 Jul 2017 08:00:17 +0000 Tim Lemke 1988261 at http://www.wisebread.com Is Dollar Cost Averaging the Right Strategy for You? http://www.wisebread.com/is-dollar-cost-averaging-the-right-strategy-for-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/is-dollar-cost-averaging-the-right-strategy-for-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/saving_money_and_banking_for_finance_concept.jpg" alt="Saving money and banking for finance concept" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You've just received a bonus or an inheritance, and you know that investing your money in stocks and bonds is one of the best ways to create long-term wealth. But you're also worried that your investments might lose value instead of gaining it.</p> <p>It's a common struggle: You want the financial rewards that can come with investing, but the potential risk of losing money nags at you. (See also: <a href="http://www.wisebread.com/how-to-get-over-these-5-scary-things-about-investing?ref=seealso" target="_blank">How to Get Over These 5 Scary Things About Investing</a>)</p> <p>An investing strategy known as dollar cost averaging might be the answer.</p> <h2>What is dollar cost averaging?</h2> <p>In dollar cost averaging, you invest just a small chunk of money at a time. This differs from the more traditional approach to investing, in which you'd invest all the money that you've targeted for stocks, bonds, or real estate at the same time.</p> <p>Say you've inherited $6,000. You'd like to invest that money in the stock market so that it will grow over time. If you were investing in the traditional way, you'd invest that money all at once. With dollar cost averaging, though, you would invest more gradually, perhaps investing $500 each month throughout the course of a year. That way, you'd buy more stocks when prices are low, and fewer stocks when they're high. (See also: <a href="http://www.wisebread.com/9-investing-questions-youre-too-embarrassed-to-ask?ref=seealso" target="_blank">9 Investing Questions You're Too Embarrassed to Ask</a>)</p> <p>The main benefit of dollar cost averaging is that it reduces your financial risk. Say you invested all that money in stocks at once. A market crash three months later would then impact all your money. But if you'd just invested, say, $1,500 before the market crashed, you'd still have $4,500 of your original $6,000 left untouched by the financial turbulence.</p> <h2>Paycheck contributions versus lump sum investing</h2> <p>If you contribute the same amount to your 401(k) every paycheck, that's equivalent to dollar cost averaging. By default, most people have the same amount deducted from their paycheck each month, so there is no choice to make. Dollar cost averaging, however, usually refers to a choice the investor makes when they've got a lump sum of money, such as an inheritance, royalty check, or bonus. If you don't have a windfall of some sort, you usually don't have to worry about whether or not to do dollar cost averaging.</p> <h2>Pros and cons</h2> <p>The main advantage of dollar cost averaging is the reduced risk of losing as much money in a market downturn. But there's another advantage, too: Dollar cost averaging makes it easier for reluctant investors to enter the market.</p> <p>If you're hesitant about investing, you might find it easier to take the jump if you are investing a smaller amount of money. And that's a good thing: Over time, the stock market has tended to increase in value. If you don't invest, you won't get the chance to take advantage of this.</p> <p>Anything that encourages you to invest &mdash; such as dollar cost averaging &mdash; is a positive.</p> <p>There is a drawback, though, to this approach: By limiting your risk, you are also limiting the potential size of your financial rewards.</p> <p>Because the stock market has historically increased in value over time, the odds are that you'll make more money if you invest a larger sum all at once. The sooner you invest the money, the more time it has to grow. By contrast, if you invest smaller bits of money over time, you will tend to see smaller returns in what has historically been an upward-trending market.</p> <p>A recent study by Vanguard illustrates this. Vanguard studied whether people would see higher returns by <a href="https://personal.vanguard.com/pdf/ISGDCA.pdf" target="_blank">investing a large sum of cash</a> all at once or in smaller doses over a six-month period into a portfolio of 60 percent stocks and 40 percent bonds. They found that investing the lump sum of cash all at once produced higher returns about two-thirds of the time. The longer the investment period, the higher the chance that the lump sum investment would outperform the dollar cost averaging strategy. (See also: <a href="http://www.wisebread.com/the-basics-of-asset-allocation?ref=seealso" target="_blank">The Basics of Asset Allocation</a>)</p> <p>You'll have to decide whether the reduced risk outweighs the potential of losing out on bigger returns.</p> <p>Of course, it's most important that you do invest your money over the long term. And if dollar cost averaging, and the reduced risk that comes with it, is what encourages you to do this, then it might be the best approach for you.</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%2Fis-dollar-cost-averaging-the-right-strategy-for-you&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FIs%2520Dollar%2520Cost%2520Averaging%2520the%2520Right%2520Strategy%2520for%2520You-.jpg&amp;description=Is%20Dollar%20Cost%20Averaging%20the%20Right%20Strategy%20for%20You%3F"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/Is%20Dollar%20Cost%20Averaging%20the%20Right%20Strategy%20for%20You-.jpg" alt="Is Dollar Cost Averaging the Right Strategy for You?" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/is-dollar-cost-averaging-the-right-strategy-for-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-types-of-investors-which-one-are-you">8 Types of Investors — Which One Are You?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-too-much-investment-diversity-can-cost-you">How Too Much Investment Diversity Can Cost You</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news">Want Your Investments to Do Better? Stop Watching the News</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-millennials-should-stop-being-afraid-of-the-stock-market">7 Reasons Millennials Should Stop Being Afraid of the Stock Market</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-stocks-that-are-actually-having-a-good-year">10 Stocks That Are Actually Having a Good Year</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment dollar cost averaging growth inheritances lump sums returns risk stock market Mon, 24 Jul 2017 08:30:14 +0000 Dan Rafter 1986884 at http://www.wisebread.com Your Loss Aversion Is Costing You More Than Your FOMO http://www.wisebread.com/your-loss-aversion-is-costing-you-more-than-your-fomo <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/your-loss-aversion-is-costing-you-more-than-your-fomo" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-585490666.jpg" alt="Person learning why loss aversion is worse than FOMO" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Imagine the following scenario:</p> <p>You can either pocket a guaranteed $500, or flip a coin. If you get heads, you get $1,000. If you get tails, you get nothing.</p> <p>Now, imagine this second scenario:</p> <p>You are given $1,000 &mdash; woohoo! But you have to decide whether you'll lose $500 of it outright, or flip a coin. If you get heads, you lose nothing. If you get tails, you lose $750.</p> <p>Chances are, in scenario one, you chose to pocket the money, whereas in scenario two, you chose to flip the coin.</p> <h2>How did you know that!?</h2> <p>That's because we feel the pain of losing money so much more than we feel the joy of earning a reward. This trend is called &quot;loss aversion,&quot; but, in everyday terms, you might find it a bit familiar to FOMO: the fear of missing out.</p> <p>FOMO tends to describe the pain of seeing your friends on social media doing fun things and achieving their goals while you're left out. In a way, loss aversion is similar because you're afraid to lose out, but the pain might be a bit deeper with money.</p> <p>It might sound ludicrous that we hurt more when we lose money than we feel joy in earning it. But studies have shown we feel the heartbreak of a financial loss <a href="http://www.princeton.edu/~kahneman/docs/Publications/prospect_theory.pdf" target="_blank">twice as strongly</a> as we feel gaining the same amount of money. So, if you get a $500 bonus from your boss, you'll only be half as emotional as you would be losing that same amount on the stock market.</p> <h2>How might this affect me?</h2> <p>Loss aversion can be both good and bad. For starters, it might lead you to make &quot;safe,&quot; low-risk investments. This turns out to be helpful for investments you <em>have </em>to make, such as your retirement fund. Sure, you could put your life savings into a high-risk scheme, potentially multiply it several times over, and retire in riches &mdash; but you might also lose it all. It's often better to choose something with a low rate of risk so you have a healthy sum of money to live off one day.</p> <p>On the opposite side of the coin, loss aversion can cause you to make rash decisions regarding the stocks and investments you hold. For example, if you're an investor in oil-related stocks and have a meltdown every time oil prices drop, you might be inclined to sell off all your stocks and stop the loss as quickly as possible. While this may be a good decision in certain situations, it's always important to remember that what goes down will likely go up again, and holding onto your stock could mean you'll get it back later. (See also: <a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news?ref=seealso" target="_blank">Want Your Investments to Do Better? Stop Watching the News</a>)</p> <p>Now, that concerns a drop to the market overall. The other potential pitfall of loss aversion is to hold onto stocks that have been underperforming for <em>way </em>too long. Many investors will sell stocks that appear to be at the top of their game, only to find out later that they've continued to grow. Meanwhile, the stocks they're waiting to see flourish continue to underperform, and they lose money in the long run.</p> <h2>How can I avoid falling into this trap?</h2> <p>One of the best ways to make sure you don't feel the pain of loss &mdash; or loss aversion &mdash; is to diversify your portfolio. In other words, don't put all of your eggs in one basket: Invest in different industries, different types of stocks, and in both short- and long-term investments.</p> <p>If you're going to make a &quot;risky&quot; investment, make sure you're ready for the challenge. Prepare yourself by building your confidence and learning more about what it means to invest in whatever you're considering. Come up with a fallback plan. You've heard it before, and it's worth repeating: risk equals reward. Yes, you might lose, and that'll hurt &mdash; but you might also gain big. If that's worth the leap, then it's time to get off the ground.</p> <p>If all else fails, talk to a professional about your options. Yes, you might have to throw him or her a bit of money in order to receive financial advice. But having a professional tell you the best, most secure way to invest your money might help ease your mind &mdash; and increase your dividends &mdash; without breaking the bank or your heart along the way. (See also: <a href="http://www.wisebread.com/the-surprising-truth-of-investing-mediocre-advice-is-best?ref=seealso" target="_blank">The Surprising Truth of Investing: Mediocre Advice Is Best</a>)</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/anum-yoon">Anum Yoon</a> of <a href="http://www.wisebread.com/your-loss-aversion-is-costing-you-more-than-your-fomo">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/this-one-mental-bias-is-harming-your-investments">This One Mental Bias Is Harming Your Investments</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-essentials-for-building-a-profitable-portfolio">5 Essentials for Building a Profitable Portfolio</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news">Want Your Investments to Do Better? Stop Watching the News</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-millennial-investors-can-get-past-the-great-recession">How Millennial Investors Can Get Past the Great Recession</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/learn-how-to-invest-with-these-5-stock-market-games">Learn How to Invest With These 5 Stock Market Games</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment advice fear FOMO gains losing money loss aversion market drops risk stock market Wed, 05 Apr 2017 08:00:10 +0000 Anum Yoon 1921000 at http://www.wisebread.com Want Your Investments to Do Better? Stop Watching the News http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/want-your-investments-to-do-better-stop-watching-the-news" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-510572840.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you pay close attention to investment news, it'll either make you laugh or it'll drive you bonkers. Within the same hour, and on the same market news website, you will often see completely contradictory articles. One says the market is headed higher; the next says the market is about to tank.</p> <p>What's a smart investor to do? Be very careful about your information diet.</p> <h2>More Information, Less Success</h2> <p>In the late 1980s, former Harvard psychologist Paul Andreassen conducted an experiment to see how the quantity of market information impacted investor behavior.</p> <p>He divided a group of mock investors into two segments &mdash; investors in companies with stable stock prices, and investors in companies with volatile stock prices. Then he further divided those investors. Half of each group received constant news updates about the companies they invested in, and half received no news.</p> <p>Those who received no news generated better portfolio returns than those who received frequent updates. The implication? The more closely you monitor news about your investments, the more likely you are to make changes to your portfolio &mdash; usually to your detriment.</p> <p>In another study, renowned human behavior researchers Daniel Kahneman, Amos Tversky, Richard Thaler, and Alan Schwartz <a href="http://faculty.chicagobooth.edu/richard.thaler/research/pdf/The%20Effect%20of%20Myopia%20and%20Loss%20Aversion%20on%20Risk%20Taking%20An%20Experimental%20Test.pdf" target="_blank">compared the stock/bond allocations</a> of investors who checked on their investments at least once a month against those who did so just once a year. Those who took in the <em>least</em> information about their portfolios made fewer investment trades and generated higher returns.</p> <h2>When Helping Hurts</h2> <p>One factor at work here is &quot;loss aversion.&quot; First quantified by Kahneman and Tversky, it's the idea that people feel the pain of loss more acutely than the pleasure of gain. The frequent monitoring of investment portfolios brings every downward market move to the attention of investors, who tend to react by moving money into less risky assets (bonds instead of stocks), thereby locking in their losses. (See also: <a href="http://www.wisebread.com/how-to-trick-yourself-into-better-credit-card-behavior?ref=seealso" target="_blank">How to Trick Yourself Into Better Credit Card Behavior</a>)</p> <h2>Misinformation Is Not Power</h2> <p>Another factor has to do with the tales told in the investment press. Each day's market performance is reported &mdash; what happened, and <em>why. </em>The first part is factual. The market either went up or down and by a certain amount. The second part is mostly opinion. No one can say with certainty exactly what moved the market. Was it fear over the growth rate of China's economy, a contraction in the oil supply, or that XYZ company missed its quarterly earnings projection by a penny? No one really knows. But that doesn't stop the explanations from flowing across the pages of investment news sites.</p> <p>Late December and early January are especially dangerous times to read market news. That's when market forecasters spin their yarns, undaunted by their previous year's miss or economist John Kenneth Galbraith's scolding that &quot;The only function of economic forecasting is to make astrology look respectable.&quot;</p> <p>We pay attention to such forecasts &mdash; and even worse, we change our portfolios because of such forecasts &mdash; at our peril.</p> <h2>Selective Listening</h2> <p>You can't control the stock market or what is said about it, but there are certain factors you <em>can</em> and <em>should</em> control, such as:</p> <ul> <li>Estimate how much you need to invest each month in order to accomplish your goals;</li> <li>Determine your <a href="http://www.wisebread.com/the-basics-of-asset-allocation?ref=internal" target="_blank">optimal asset allocation</a>;</li> <li>Choose a trustworthy <a href="http://www.wisebread.com/5-essentials-for-building-a-profitable-portfolio?ref=internal" target="_blank">investment selection process</a>;</li> <li>Add to your portfolio regularly;</li> <li>Expect market turbulence;</li> <li>Be very, very careful about what investment news you take in and how much;</li> <li>Keep moving forward.</li> </ul> <p>Of the many factors involved in successful investing, selective listening may be the most important.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-types-of-investors-which-one-are-you">8 Types of Investors — Which One Are You?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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/your-loss-aversion-is-costing-you-more-than-your-fomo">Your Loss Aversion Is Costing You More Than Your FOMO</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-too-much-investment-diversity-can-cost-you">How Too Much Investment Diversity Can Cost You</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-dollar-cost-averaging-the-right-strategy-for-you">Is Dollar Cost Averaging the Right Strategy for You?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment bonds loss aversion misinformation news psychology reactions returns risk stock market Mon, 13 Mar 2017 11:00:09 +0000 Matt Bell 1904508 at http://www.wisebread.com How to Protect Yourself From Predatory Lending http://www.wisebread.com/how-to-protect-yourself-from-predatory-lending <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-protect-yourself-from-predatory-lending" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-479413254_0.jpg" alt="Man learning how to recognize predatory lending" title="" class="imagecache imagecache-250w" width="250" height="142" /></a> </div> </div> </div> <p>Predatory lending has long been a problem for consumers. There is no exact definition of a predatory lender, but in general, these lenders either try to overcharge consumers for loans, or talk them into riskier loans that come with higher interest rates. Predatory lenders have one goal: They want to make as much money as possible on their loans, regardless of whether the loan product actually makes financial sense for the consumers.</p> <p>How, exactly, do people fall for this? It's actually not surprising when you understand the degree of manipulation predatory lenders will use. By targeting mainly elderly, low-income, or simply uninformed victims, these financial predators bank on convincing folks with poor or no credit that they have no other options for obtaining financing.</p> <p>If you don't fit the above criteria, don't think you're completely off their radar, either. Should you ever lose your job, need cash for an emergency, or suddenly find yourself facing steep medical bills, you just might be the next target of a predatory lender.</p> <p>Worried that a predatory lender might have targeted you? Here are the warning signs.</p> <h2>The Lender Wants You to Sign Now</h2> <p>Honest lenders will never pressure you to sign loan documents before you are comfortable. Legitimate lenders give you time to study the paperwork and research the fees and rates associated with the loan.</p> <p>Predatory lenders want you to sign paperwork as quickly as possible. That way, they can stick you with their high-cost loans before you have the chance to research lower-cost alternatives. Never do business with a lender who pressures you to act quickly. The odds are high that such a lender is a predator.</p> <h2>The Interest Rate Suddenly Rises</h2> <p>Predatory lenders like to entice new customers by advertising below-market interest rates on their websites or print ads. But when you actually call these lenders, you're told that you don't qualify for these low rates. Once these lenders have you on the phone, they'll try to convince you to sign up for a loan with a far higher rate.</p> <p>Don't fall for this trick. Companies that advertise interest rates that are far lower than their competitors are usually not trustworthy. The odds are high that these are predatory lenders trying to trick gullible borrowers.</p> <h2>They Tell You Not to Worry About Your Credit Score</h2> <p>Legitimate lenders rely heavily on your FICO credit score to determine if you should qualify for a loan and at what interest rate. This score tells lenders how well you've paid your bills in the past.</p> <p>Beware of lenders who say that your credit score doesn't matter or that they can approve you for a loan no matter how low your score is. Lenders who make these promises will charge you sky-high interest rates because they know that you're desperate for a loan. You're much better off working to <a href="http://www.wisebread.com/how-to-use-credit-cards-to-improve-your-credit-score?ref=internal" target="_blank">improve your credit score</a> than taking out a costly high-interest-rate loan. Pay all your bills on time and pay down as much of your credit card debt as possible. Slowly, but steadily, your credit score will start to rise, and you can avoid the high rates of predatory lenders. (See also: <a href="http://www.wisebread.com/5-ways-to-pay-off-high-interest-credit-card-debt?ref=seealso" target="_blank">5 Ways to Pay Off High Interest Credit Card Debt</a>)</p> <h2>The Lender Asks You to Lie</h2> <p>Making false claims about your income or debt on a loan application is a crime, and you could face significant fines if you do. Predatory lenders, though, might encourage you to inflate your income or provide other false information.</p> <p>Ignore this temptation. No legitimate lender will ask you to lie on an application. Instead, lenders will take extra steps to make sure that the information you do provide on an application is true. For instance, they'll ask you to provide copies of your most recent paycheck stubs, bank account statements, and tax returns to verify your income.</p> <h2>Your Lender Tries to Talk You Into a Riskier Loan</h2> <p>Be careful if your lender continues to push a loan that sounds risky. Maybe you want to apply for a fixed-rate loan with a term of 15 or 30 years. If your lender pressures you to instead apply for an interest-only loan with a balloon payment &mdash; or something equally as complicated or risky &mdash; walk away. Legitimate lenders will never try to talk you into a loan that you don't want.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/how-to-protect-yourself-from-predatory-lending">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-the-age-of-your-credit-history-matters">Why the Age of Your Credit History Matters</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/debunking-8-common-credit-score-myths">Debunking 8 Common Credit Score Myths</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-you-shouldnt-panic-if-your-credit-score-drops">Why You Shouldn&#039;t Panic If Your Credit Score Drops</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-surprising-ways-revolving-debt-helps-you">5 Surprising Ways Revolving Debt Helps You</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-signs-your-identity-was-stolen">9 Signs Your Identity Was Stolen</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Consumer Affairs credit score interest rates lies loans manipulation predatory lending risk scams warning signs Tue, 07 Mar 2017 10:31:34 +0000 Dan Rafter 1901334 at http://www.wisebread.com Why the Age of Your Credit History Matters http://www.wisebread.com/why-the-age-of-your-credit-history-matters <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/why-the-age-of-your-credit-history-matters" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-472468032.jpg" alt="the age of your credit history" title="" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>A healthy credit score shouldn't be underestimated.</p> <p>This three-digit number plays a pivotal role in your financial life, including whether or not you'll qualify for auto loans, mortgages, or credit cards, and if so, what interest rates you'll pay. It can even affect your career, particularly if it's in the finance field: A brokerage firm isn't likely to hire a candidate they suspect isn't good with money. (See also: <a href="http://www.wisebread.com/15-surprising-ways-bad-credit-can-hurt-you?ref=seealso" target="_blank">15 Surprising Ways Bad Credit Can Hurt You</a>)</p> <p>Given how much weight your credit score carries, you should do everything within your power to maintain a high score. Yet, before you can maintain a good score, you have to understand the components that make up your credit score.</p> <h2>What Makes Up Your Credit Score</h2> <p>Credit scores aren't determined by a single factor, but rather multiple factors. Once you open a credit account, your creditors report account activity to the credit bureaus on a regular basis. The bureaus compile data related to your accounts, and based on reported information, the bureaus formulate a credit score.</p> <p>It probably comes as no surprise that your payment history and the amounts you owe have a tremendous impact on your personal score. Your payment history makes up 35% of your score, while the amount you owe makes up 30% of your score. If you pay your bills on time, avoid delinquencies, and keep your balances within a reasonable range, you'll eventually build up to a solid score.</p> <p>But even when you take these measures, good credit doesn't happen overnight. Because there's another factor that contributes to your overall score: When credit bureaus formulate credit scores, they also take into account the <em>age </em>of your credit history.</p> <p>The age or length of your credit history &mdash; which makes up 15% of your credit score &mdash; doesn't have as big an impact on your score as your payment history and amounts owed. Still, you shouldn't downplay the importance of credit age.</p> <h2>How Credit Age Relates to Credit Risk</h2> <p>Most of us rely on credit for an auto loan, a house, and a credit card. Even so, being a creditor is risky business, and banks don't arbitrarily approve credit applications. They consider several factors before approving financing, such as your income and your credit score. Even if you have adequate income and pay your bills on time, the bank might reject your application if you don't meet the minimum credit score requirement for a loan. This can happen if you have a young credit history. (See also: <a href="http://www.wisebread.com/why-you-need-credit-and-how-to-build-it-from-scratch?ref=seealso" target="_blank">How to Build Your Credit From Scratch</a>)</p> <p>The age of credit history affects overall scores because a longer history provides a better assessment of risk level. Credit age takes two elements into consideration: the age of your oldest account, and the average age of all your accounts. The longer accounts remain open, the more your credit matures. And as your credit matures, credit scoring models slowly add points to your score.</p> <p>To illustrate, if you've had a credit history for the past six years with no negative activity appearing on your credit report, credit bureaus evaluate your entire borrowing pattern, and based on your history and record, deem you a responsible borrower. This is a fairly accurate assessment given the length of credit history. As a responsible borrower, you're rewarded with additional credit score points.</p> <p>But let's say you've only had a credit file for six months or a year. Given your short credit history, credit bureaus can't accurately rate creditworthiness. Despite paying your bills on time, you don't have a long borrowing track record. There just isn't enough evidence to gauge how well you manage credit &mdash; this happens with time. You have a short credit history, and unfortunately, your credit score pays the price. The good news, however, is that this is a temporary problem.</p> <h2>What Can You Do?</h2> <p>Credit scores range from 300 to 850. If you're aiming for a <a href="http://www.wisebread.com/5-ways-life-is-amazing-with-an-800-credit-score?ref=internal" target="_blank">perfect credit score</a>, understand that it takes years of responsible credit habits to achieve. It doesn't matter how well you manage your credit accounts in the first one or two years, you probably won't have as high of a credit score as someone who's had A+ credit for eight or nine years &mdash; but you can get there.</p> <p>Remember, your payment history and the amount you owe make up 35% and 30% of your credit score, respectively. So while your credit score might be low due to a short credit history today, keeping your credit card balances low and making timely monthly payments will gradually increase your score. (See also: <a href="http://www.wisebread.com/how-to-use-credit-cards-to-improve-your-credit-score?ref=seealso" target="_blank">How to Use Credit Cards to Improve Your Credit Score</a>)</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/mikey-rox">Mikey Rox</a> of <a href="http://www.wisebread.com/why-the-age-of-your-credit-history-matters">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/debunking-8-common-credit-score-myths">Debunking 8 Common Credit Score Myths</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/heres-why-credit-scores-and-reports-are-not-the-same">Here&#039;s Why Credit Scores and Reports Are Not the Same</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-you-shouldnt-panic-if-your-credit-score-drops">Why You Shouldn&#039;t Panic If Your Credit Score Drops</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-protect-yourself-from-predatory-lending">How to Protect Yourself From Predatory Lending</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-surprising-ways-revolving-debt-helps-you">5 Surprising Ways Revolving Debt Helps You</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance age credit bureaus credit history credit score interest rates loans on time payments risk Tue, 07 Mar 2017 10:01:04 +0000 Mikey Rox 1901331 at http://www.wisebread.com 8 Signs an ETF Isn't Right for You http://www.wisebread.com/8-signs-an-etf-isnt-right-for-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-signs-an-etf-isnt-right-for-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/little_boy_money_71664445.jpg" alt="Finding signs that an ETF isn&#039;t right for you" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>In recent years, exchange traded funds, or ETFs, have become a common part of many retirement portfolios. They work much like mutual funds, but can be traded throughout the day and often have lower costs. But how do you know if an ETF makes sense for you? After all, there are <em>literally thousands </em>of ETFs available, all with unique characteristics and goals.</p> <p>Most financial advisers suggest that investors keep things simple by finding ETFs that track major benchmark indexes, such as the S&amp;P 500. They should generally have low fees and fit in with other investments in your portfolio, too.</p> <p>Here are some key ways to determine if an ETF isn't right for you.</p> <h2>1. It Has High Fees</h2> <p>Anytime you purchase a mutual fund or ETF, it's important to note how much of your money is going to fund managers and other expenses. High fees can take a big cut out of your overall earnings, and there's little evidence that ETFs with higher fees perform better than cheaper ones. It's possible to own very solid ETFs with expense ratios at 0.1% or lower. If your ETF's expense ratio is significantly higher, it may be time to invest in something else.</p> <p>&quot;Anything above 0.3%, and it gets a little excessive,&quot; says Justin Halverson of Great Waters Financial in Minneapolis.</p> <h2>2. You Don't Understand It</h2> <p>As ETFs have grown in popularity, they've also grown in number &mdash; and complexity. That means there are many &quot;boutique&quot; ETFs with very unique philosophies and goals. There are ETFs that zero in on very specific industries or market sectors. There are ETFs that do elaborate things involving leverage, or track obscure indexes. For most investors, these ETFs are complicated and unnecessary.</p> <p>&quot;You can get as fancy as you want with it,&quot; said Charlie Harriman, a financial adviser at Cloud Investments LLC in Huntsville, Alabama. &quot;We usually advise that investors stick with the staples and things they know.&quot;</p> <h2>3. It's Too Risky</h2> <p>Some of the unique ETFs mentioned above are designed to generate big returns in some cases, but there's a huge downside if markets go south. Some ETFs use leverage to potentially amplify returns by two or three times an underlying index &mdash; thus, they can amplify losses during downturns. The average investor who is saving for the long term does not need to take on additional risk with ETFs that are designed for short-term trading.</p> <h2>4. It's Too Conservative</h2> <p>It's important that your investments match up with your financial goals. This means that if you're a young investor, you probably don't need a bonds ETF, or an ETF with low-growth dividend stocks. These types of ETFs may help you avoid a big loss during a market downturn, but you'll never be able to amass the kind of wealth you need in retirement unless you get a bit more aggressive.</p> <h2>5. Its Holdings Overlap With Other Things You Own</h2> <p>Diversification is great, but sometimes you can go overboard. When you invest in an ETF, you are getting exposure to a wide range of stocks, and there may be other ETFs with similar holdings. For instance, an ETF that tracks the overall stock market may own a good chunk of Apple stock, and a tech-focused ETF may own a lot of Apple stock as well. So it may not necessarily make sense to own both. Be sure to check the list of holdings for each ETF you own in order to avoid redundancy in your portfolio.</p> <h2>6. You Can't Trade It for Free</h2> <p>Many discount brokerage firms allow account holders to trade certain ETFs without paying a commission. For example, Fidelity allows fee-free trades for all ETFs offered by iShares. By eliminating this commission, you could save upward of $7 on every stock purchase, which is a lot of money if you make frequent purchases. This is particularly advantageous for younger investors who prefer to invest a little at a time rather than one large sum.</p> <p>If you're looking at an ETF to buy but it's not available without paying a commission, consider switching to a similar ETF that is. If your broker does not offer commission-free trades on ETFs, maybe that's a good excuse to switch brokers.</p> <h2>7. It Doesn't Track an Index Very Well</h2> <p>Many ETFs are designed to track a specific benchmark index, such as the S&amp;P 500 or Russell 2000. If they do what they are supposed to, your returns will be closely aligned with the performance of these indexes. But some ETFs do it better than others. It's easy to find an ETF's &quot;tracking error,&quot; which measures the difference between an ETF's performance and the benchmark it's supposed to be tracking. Most ETFs will have a tracking error of less than a tenth of a percent.</p> <p>&quot;If you see a high tracking error, this could work out to an investor's benefit, but it may also be to their detriment,&quot; Halverson says.</p> <h2>8. It's Not Traded Very Heavily</h2> <p>The only way an ETF is sold is if there is a buyer. Likewise, you can't buy a stock if no one is selling. With most ETFs, it's easy to buy and sell because there is a large trading volume &mdash; meaning that there are plenty of buyers and plenty of sellers. And when there is a high volume, there is rarely a big spread between the &quot;bid&quot; and the &quot;ask&quot; prices. But what happens if an ETF has a low trading volume?</p> <p>Halverson said this could mean that the ask and bid prices are far apart, and it may be hard to complete a sale at the price you want. Most investors, he said, will find it easier and better financially to trade ETFs that are more commonly traded.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/8-signs-an-etf-isnt-right-for-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-surprising-ways-confidence-can-hurt-your-investments">8 Surprising Ways Confidence Can Hurt Your Investments</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-you-shouldnt-invest-like-warren-buffett">7 Reasons You Shouldn&#039;t Invest Like Warren Buffett</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-ways-to-add-gold-to-your-portfolio">4 Ways to Add Gold to Your Portfolio</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-questions-to-ask-before-you-sell-a-stock-or-a-fund">10 Questions to Ask Before You Sell a Stock or a Fund</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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> </ul> </div> </div> </div> </div><br/></br> Investment ETFs exchange traded funds fees funds retirement risk trading Thu, 03 Nov 2016 09:30:25 +0000 Tim Lemke 1825852 at http://www.wisebread.com 5 Essentials for Building a Profitable Portfolio http://www.wisebread.com/5-essentials-for-building-a-profitable-portfolio <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-essentials-for-building-a-profitable-portfolio" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/growing_money_trees_84090749.jpg" alt="Finding essentials for building profitable portfolio" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>For many people, investing is the most complicated and intimidating aspect of managing money. But it doesn't have to be. Here are some of the essentials for building a successful investment portfolio.</p> <h2>1. Know What You're Investing For</h2> <p>Investing is best done with a purpose in mind. Investing for a child's <a href="http://www.wisebread.com/when-should-you-start-saving-for-your-child-s-education">future college costs</a> is not the same as investing for your retirement. You would use different investment vehicles &mdash; a 529-plan account or Coverdell Education Savings Account for college, and an <a href="http://www.wisebread.com/401k-or-ira-you-need-both">IRA or 401K</a> for retirement.</p> <h2>2. Know Your Time Frame</h2> <p>Investing is for goals you want to accomplish in five or more years. Anything shorter than that and you can't afford to take much, if any, risk, so you would be best served by a savings account.</p> <p>Still, a &quot;five or more years&quot; time horizon contains a wide range of options. Someone planning to retire in 10 years should invest quite differently than someone planning to retire in 30 years. The first person can't afford to take as much risk as the second person. By the same token, the second person can't afford the risk of playing it too safe.</p> <h2>3. Know Your Temperament</h2> <p>This has to do with how well you sleep at night when the stock market is in free fall. Vanguard has a decent <a href="https://personal.vanguard.com/us/FundsInvQuestionnaire">free assessment</a> that combines your investment time frame with your temperament to suggest an optimal asset allocation &mdash; that is, what percentage of your portfolio you should allocate to stocks and what percentage to bonds (or stock, or bond-based mutual funds).</p> <h2>4. Know How to Choose Specific Investments</h2> <p>If investing is the most complicated and intimidating aspect of managing money, choosing specific investments is the most complicated and intimidating aspect of investing. Very few people have the wherewithal to do this on their own. It's helpful to acknowledge that. As Clint Eastwood's Dirty Harry character noted, &quot;A man's got to know his limitations.&quot; Of course, the same is true for women!</p> <p>There's just too much to know. There are thousands of different investments to choose from. And it can be crazy confusing (and dangerous) to make these decisions based on the all-too-common articles about &quot;Last Year's Best-Performing Mutual Funds&quot; or &quot;Where to Invest to Take Advantage of Advances in Wind Power.&quot;</p> <p>The crucial decision you need to make is not so much about which investments to choose; it's about which investment process to use. Here are three options.</p> <h3>Go With a Target-Date Fund</h3> <p>The simplicity of such funds has made them tremendously popular. Most of the big mutual fund companies offer them. You just choose the fund with the year closest to the year of your intended retirement as part of its name (Fidelity Freedom 2050, for example). The fund is designed with what the fund company believes is the ideal asset allocation for someone with that retirement date in mind, and it even changes the allocation as you get closer to that target date, becoming increasingly conservative. It's a very simple process, but <a href="https://www.soundmindinvesting.com/articles/view/target-date-funds-the-devils-in-the-details">all target-date funds are not alike</a>. So, be informed.</p> <h3>Go With an Investment Adviser</h3> <p>He or she will get to know you and your goals and then tailor an investment strategy to you. Along the way, you will typically pay 1% of the amount of money you have the adviser manage for you each year. Also, advisers usually won't work with anyone with less than $100,000 to manage. If you go this route, ask friends for referrals and opt for a fee-based adviser (as opposed to one compensated by commissions) who works as a &quot;<a href="http://www.wisebread.com/who-to-hire-a-financial-planner-or-a-financial-adviser">fiduciary</a>.&quot;</p> <h3>Go With an Investment Newsletter</h3> <p>Whereas an investment adviser works with clients one-on-one, an <a href="https://www.soundmindinvesting.com/articles/view/what-investing-newsletters-do-that-financial-magazines-dont">investment newsletter</a> works with investors on a one-on-several thousand (or however many subscribers they have) basis. There are hundreds of investment newsletters, each with their own investment strategies. Subscribers gain access to the strategies along with the specific investment recommendations needed in order to implement the strategies. Subscription costs range from less than $200 per year to over $1,000 per year.</p> <h2>5. Know Some Market History</h2> <p>One of the biggest threats to your success as an investor can be seen in the mirror. When the market falls, it's easy to give in to fear and sell. When the market is booming, it's easy to give in to greed, and invest too aggressively.</p> <p>Far better to understand that the market cycles between bull markets and bear markets (growing markets and declining markets). Even within a specific year, there will be ups and downs.</p> <p>That's why it's so important to have a trusted investment selection process. With a good process in place, you should have some sense as to how your portfolio is likely to perform under a variety of market situations and you should be content to stay with it in good times and bad.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/5-essentials-for-building-a-profitable-portfolio">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-types-of-investors-which-one-are-you">8 Types of Investors — Which One Are You?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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/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-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-are-income-stocks">What Are Income Stocks?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-too-much-investment-diversity-can-cost-you">How Too Much Investment Diversity Can Cost You</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment advice college fund financial advisers money management portfolio retirement risk stock market target date funds Wed, 26 Oct 2016 10:00:11 +0000 Matt Bell 1820715 at http://www.wisebread.com 8 Money Lessons We Can Learn From Baseball http://www.wisebread.com/8-money-lessons-we-can-learn-from-baseball <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-money-lessons-we-can-learn-from-baseball" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/baseball_player_63715703.jpg" alt="Learning money lessons from baseball" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>We're deep into baseball's postseason, and we'll soon be left to fend for ourselves in the long, cold winter. But even in the offseason, the National Pastime can teach us many good lessons, like, the value of working as a team, and how even the best people can fail more often than not.</p> <p>Baseball can teach us about money, too. When you examine the game, you can come away with some lessons that will help you manage your spending and your investments.</p> <p>Consider these truths about the game we love.</p> <h2>1. It's a Long Season</h2> <p>Do you get upset when your baseball team loses a game or two? Do you have trouble with the ups and downs of the season? When you're a fan of team, it's easy to forget that there are a <em>lot </em>of games to be played, and the only thing that matters is where you finish.</p> <p>Your investing approach should reflect a similar reality. Don't get emotional about a stock price being down on any individual day. Like a baseball team, the stock market can slump, but often rebounds. Keep your eyes on your long-term financial goals, and eventually you'll be popping Champagne just like a team that won the title.</p> <h2>2. Homers Are Great, But So Are Singles and Doubles</h2> <p>In baseball, you'd love to have a team that hits a lot of home runs. But you might be just as successful if you have a team that just gets on base and knocks in runs one by one. This is true when it comes to investing. While we'd all like to see that single stock that explodes and makes us rich, the reality is that most of your success will come from small, incremental gains that compound over time.</p> <h2>3. Protect Your Lead</h2> <p>Every good baseball team has a &quot;closer,&quot; or a pitcher who comes in late in the game to get the final outs. When investing, it's also smart to have a plan for protecting your investments when you approach retirement age. As you get older, it's wise to move away from growth stocks and other more volatile investments, and move toward bonds, stable dividend stocks, and cash. This way, your retirement fund will be protected even if there is a big downturn in the stock market.</p> <h2>4. It's Okay to Take a Risk</h2> <p>Sometimes in baseball, you need to try and run for home even though you might be tagged out. If you play too conservatively, you may not win. This is also true for investing. A young person who is investing for the long term will never get rich if they have a conservative portfolio. Most financial advisers recommend investing in mostly stocks when you're young, because the risk is usually outweighed by the potential for higher returns. Sure, you'll get burned sometimes. But more often than not, you'll come out ahead.</p> <h2>5. It's Simpler Than You Think</h2> <p>Baseball has a thick rule book, and it's not easy to master. But at it's core, it's pretty easy to understand. Throw the ball. Hit the ball. Catch the ball. And try to score more than your opponent. Money management and investing are simple things, too, even though they can seem intimidating. Spend less than you earn. Invest as much as you can, in things that mirror the overall performance of the stock market. Get the basics right, and you'll do fine.</p> <h2>6. Think Globally</h2> <p>Baseball may be an American sport, but it's an international game. It's played around the world, from the tropical ball fields of the Caribbean to busy cities like Tokyo. And Major League Baseball teams know that they need to look globally to find the very best talent. Your approach to money and investing should also take on an international approach. Consider investing in emerging markets that offer strong potential for growth. Take a look at currency trading, or even international commodities. There is money to be made if you look outside the United States to build your investment portfolio.</p> <h2>7. Limit Your Mistakes</h2> <p>No one's perfect, either in baseball or with their money. But frequent errors can mean the difference between winning and losing. In baseball, fielders want to catch the ball and throw it accurately. Batters want to avoid swinging at bad pitches. Pitchers want to avoid walking in the winning run.</p> <p>Your finances are just as vulnerable to being hurt by mistakes. Don't buy things you can't afford. Don't invest in things you don't understand. Don't raid retirement funds without understanding the consequences. There are many things you can do wrong to send your financial planning off the rails. With baseball and with your money, it's important to play smart.</p> <h2>8. Look for Value</h2> <p>The best-selling book <a href="http://amzn.to/2dxAyjC">Moneyball</a> by Michael Lewis outlined how the Oakland Athletics were able to field competitive teams despite having a lower payroll than most competitors. The book's core message was that the A's had developed ways to find players that were undervalued by the rest of the league. This desire to find &quot;value&quot; is a key part of money management. When looking to buy something, remember that expensive items aren't always the best. Look for a good combination of quality and price. When looking to purchase stocks, seek out companies that may be undervalued by the marketplace.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/8-money-lessons-we-can-learn-from-baseball">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/10-times-you-shouldnt-invest-in-stocks">10 Times You Shouldn&#039;t Invest in Stocks</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/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-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/10-questions-to-ask-before-you-sell-a-stock-or-a-fund">10 Questions to Ask Before You Sell a Stock or a Fund</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-essentials-for-building-a-profitable-portfolio">5 Essentials for Building a Profitable Portfolio</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment analogies baseball money lessons retirement risk saving sports stocks teamwork Fri, 21 Oct 2016 09:01:03 +0000 Tim Lemke 1816943 at http://www.wisebread.com 9 Threats to a Secure Retirement http://www.wisebread.com/9-threats-to-a-secure-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/9-threats-to-a-secure-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/couple_holding_hands_88407163.jpg" alt="Couple learning threats to a secure retirement" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Saving and investing for retirement isn't easy. There's a lot that can happen to take you off track, potentially leaving you less money than you hoped for.</p> <p>From poor financial planning to unexpected events and even nationwide economic woes, here are some of the things that could pose a threat to your secure retirement.</p> <h2>1. Not Investing Enough</h2> <p>It's never easy to figure out how much to invest. After all, you want to make sure you have enough money to deal with your current needs. It's common for people to invest too little, and this can hurt them in the long run.</p> <p>When saving for retirement, it's smart to contribute as close to the maximum each year into 401K and IRA plans. (That's $18,000 for the 401K and $5,500 for the IRA.) If you can't contribute quite that much, at least put enough in to get the company match on your 401K plan.</p> <p>Even a few extra dollars per month into retirement accounts can make a big difference. For example, let's say you have $50,000 in an account and contribute $500 per month for 25 years. Assuming a 7% return, your portfolio would amount to about $677,000. But what if you contributed $1,000 monthly? Then it would hit nearly $1.1 million.</p> <h2>2. Starting Too Late</h2> <p>When investing, time is your biggest friend. The more time you have to invest, the bigger your nest egg can grow. Thus, one of the biggest threats to a secure retirement is failing to contribute to your fund early in life. If you're past 40 years old, you may have only a couple of decades to invest before you wish to stop working, and that may not be long enough to amass the kind of wealth you'll need for a long and comfortable retirement.</p> <p>Let's say you invest $25,000 today and add $1,000 per month until you are 65. If you're currently 45 and get a 7% annual return, you'll have about $625,000 upon retirement. Not bad, but if you had started when you were 25, you'd have nearly $3 million.</p> <h2>3. Raiding Retirement Funds</h2> <p>Retirement accounts such as a 401K or IRA are designed to have money grow more or less untouched until you reach retirement age. You can withdraw money from them, but there's a cost.</p> <p>When you raid these retirement funds, you'll lose the money in penalties, but you'll also lose the potential earnings of the money you take out. Over time, this can cost an investor thousands of dollars.</p> <h2>4. Economic Growth</h2> <p>For decades following World War II, the annual growth rate of the American economy averaged more than 3%, with some years seeing double that. But in recent years, that annual rate has shrunk to barely 2%. In short, the American economy is not growing as fast as it once was, and that has implications for household income, corporate growth, and employment.</p> <h2>5. Possible Entitlement Cuts</h2> <p>Many lawmakers on Capitol Hill have been warning Americans of a looming crisis in entitlement funding. Observers of the federal budget note that unless there is serious reform, Social Security Trust Funds could be depleted within 20 years. This means that for the younger generation, there may not be as much left from the government upon retirement.</p> <p>It's important to note, however, that workers who want to live comfortably after they are done working should not be counting on Social Security to carry them through the end of their life. Someone who saves aggressively and invests wisely should be able to amass enough in a retirement fund to get by even if Social Security benefits are adjusted downward or even eliminated.</p> <h2>6. Declining Pensions</h2> <p>If you currently work for a company that offers a defined benefit plan, you are a rare breed. In recent years, companies have shifted from offering pensions to instead offering 401K plans, in which workers invest on their own. In most cases, they will also get a contribution from their employer, but that's not guaranteed. This doesn't necessarily mean you'll be destitute at retirement, but it does require employees to be much more engaged in their retirement planning.</p> <h2>7. Placing All Your Eggs in One Basket</h2> <p>Even if you are saving aggressively and investing every penny you can, it's possible to end up with less money than you need in retirement. It can happen when your portfolio is too heavily balanced toward a single investment. It's unwise to invest a high percentage of your savings in one company or even one industry or asset class, because one bad day could wipe out a large chunk of your savings. (Consider the plight of Enron employees who lost nearly everything had most of their savings in company stock.)</p> <p>To protect your retirement money, invest in a diverse mixture of stocks in various sizes and asset classes. Buy mutual funds instead of individual stocks, if at all possible.</p> <h2>8. Funding College Instead of Retirement</h2> <p>It's never a bad idea to save money to contribute to your children's education. There are several vehicles including 529 plans that allow you to invest money tax-free toward college. But many investors become so focused on saving for college that they fail to contribute enough to their own retirement fund.</p> <p>Remember that it's possible to <em>borrow </em>money for college, but you can't borrow money to fund your retirement if you find you're lacking in funds when you're done working. Ideally, you'll be able to amass enough money to fund college and your retirement comfortably. But if you have to make a choice, pay your future self first, then contribute to the college fund.</p> <h2>9. Being Poorly Insured</h2> <p>You may feel like nothing bad will ever happen to you. You are young and healthy. You're a safe driver and you live in a nice neighborhood. So you skimp on things like health, auto, and homeowner's insurance. You may think you're saving money, but you're at serious risk for big financial loss if you get seriously ill or have a serious accident.</p> <p>Being uninsured or underinsured can leave you struggling to make ends meet, placing retirement savings on the back burner. You may even have to raid your retirement accounts to pay the bills. It's wise to perform an insurance assessment to determine if you have the proper level of insurance to protect yourself financially.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/9-threats-to-a-secure-retirement">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-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/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/how-to-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in Retirement</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-signs-your-retirement-is-on-track">8 Signs Your Retirement Is on Track</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-tell-if-your-401k-is-a-good-or-a-bad-one">How to Tell if Your 401K Is a Good or a Bad One</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/dont-let-outdated-money-advice-endanger-your-money">Don&#039;t Let Outdated Money Advice Endanger Your Money</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement college Economy education funds income insurance investing late start pensions risk stocks threats Fri, 07 Oct 2016 09:00:06 +0000 Tim Lemke 1807026 at http://www.wisebread.com What Are Growth Stocks? http://www.wisebread.com/what-are-growth-stocks <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/what-are-growth-stocks" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/coins_in_jar_82501487.jpg" alt="Learning what growth stocks are" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Growth. It's what you want if you're an investor, especially if you're many years away from retirement.</p> <p>Any investment portfolio should have a heavy dose of stocks that offer strong returns over time, from companies with solid earnings records. These are growth stocks. But what exactly is a &quot;growth&quot; stock? What are its characteristics, and how does it differ from other kinds of investments? And what are some ways to invest in them?</p> <p>Here are nine things you need to know about growth stocks and their ability to supercharge your portfolio.</p> <h2>1. It's All About Earnings</h2> <p>When seeking out quality growth stocks, it's key to look for the company's track record of earnings that are above the market average. The best companies will have reported consistent earnings growth quarter after quarter and year after year. A track record of five years in a row of growth is usually a good barometer, according to guidelines offered by Investor's Business Daily.</p> <h2>2. They Often Don't Pay a Dividend</h2> <p>When you buy growth stocks, you want to see the share price rise and don't care much about income. And that's good, because growth stocks generally don't pay out dividends to investors. Instead, these companies take whatever net earnings they have and reinvest them in research, new products, new business lines, infrastructure, and acquisitions. In other words, their cash is being used to make the company bigger.</p> <h2>3. They Are Often Smaller Companies</h2> <p>Many growth stocks fall into the category known as &quot;small cap,&quot; which is shorthand for saying a company has a small market capitalization (usually less than $2 billion). This small size means that there's the potential for quick growth. Smaller companies are often aggressively investing money back into the company to boost earnings and grow.</p> <h2>4. They Are Often Younger Companies</h2> <p>Generally speaking, the more established a company, the less likely they are to see supercharged growth on a quarterly basis. In fact, most companies see their fastest growth in the first decade after going public. Consider that Facebook has seen shares rise sevenfold since the summer after going public in 2012.</p> <h2>5. Their Stock Prices Don't Always Make Sense</h2> <p>For many growth stocks, share prices aren't always a reflection of the company's current value. Rather, their share price is based on what investors think a company may be worth in the future. In other words, the growth is often &quot;baked&quot; into the stock price already. Often, a growth stock will seem overpriced based on its price to earnings ratio. But with many growth stocks, the price to earnings ratio does not have much bearing on a company's price. In fact, many of the stock market's biggest success stories, including Apple and Amazon, have seen big run-ups even when price-to-earnings ratios were high.</p> <h2>6. Growth Comes With Risk</h2> <p>If you want growth, you're going to have to be comfortable with losing money once in awhile as well. Growth stocks tend to be more volatile than the broader market. In essence, the potential for growth is your reward for accepting some additional risk. That's why growth stocks aren't the best investments for someone who is close to retirement age.</p> <h2>7. You Can Buy Funds of Growth Stocks</h2> <p>If you're not sure which growth stocks to buy, there are mutual funds that have you covered. Most major brokerage firms offer the ability to invest in a wide range of stocks that are younger and growing more quickly than the rest of the market. Like the stocks within them, growth stock funds can be volatile, but rewarding for a patient investor. Top examples include the <a href="https://personal.vanguard.com/us/funds/snapshot?FundId=0023&amp;FundIntExt=INT">Vanguard U.S. Growth Portfolio</a> and the <a href="https://fundresearch.fidelity.com/mutual-funds/summary/316200203">Fidelity Growth Strategy Fund</a>. There are also exchange-traded funds, such as the <a href="https://www.blackrock.com/ca/individual/en/products/239562/ishares-growth-core-portfolio-builder-fund">iShares Growth Core Portfolio Builder</a>, which are often available to trade without a commission.</p> <p>One caveat is that there are often a plethora of confusing choices, including small-cap, large-cap, and mid-cap growth funds, and growth funds focused on specific industries. It's fine to own more than one of these funds, but it's best to research these funds first to ensure there is no overlap in the companies you are invested in.</p> <h2>8. They Are Not to Be Confused With Value Stocks</h2> <p>We often hear growth and value stocks mentioned together because they both offer great opportunities for investors to make money. But value stocks differ from growth stocks in that they are considered to be undervalued by the market, and thus offer a potential bargain for investors. Growth stocks are often overvalued and less of a bargain for investors, but have a stronger track record of earnings. Most financial advisers recommend holding a mix of growth and value stocks in your portfolio.</p> <h2>9. Look for Leaders and Innovators</h2> <p>Typically, the best growth stocks are those from companies that are leaders in their industries, and who have shown a penchant for innovation. Consider a company like Starbucks [NASDAQ:&nbsp;<a href="http://www.nasdaq.com/symbol/sbux">SBUX</a>], which is synonymous with coffee. Apple, Amazon, and Facebook are examples of solid industry leaders and great growth stocks. But it's also worth looking at fast-growing companies that aren't yet their industry leader. Under Armour [NYSE: <a href="https://finance.yahoo.com/q?s=UA">UA</a>] is one example of a company that isn't yet #1 but has seen better-than-average earnings and share growth in recent years.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/what-are-growth-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-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/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-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/learn-how-to-invest-with-these-5-stock-market-games">Learn How to Invest With These 5 Stock Market Games</a></span> </div> </li> <li class="views-row views-row-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/this-one-mental-bias-is-harming-your-investments">This One Mental Bias Is Harming Your Investments</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-questions-to-ask-before-you-sell-a-stock-or-a-fund">10 Questions to Ask Before You Sell a Stock or a Fund</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment dividends earnings growth stocks risk stock market Thu, 06 Oct 2016 09:00:08 +0000 Tim Lemke 1805691 at http://www.wisebread.com 3 Smart Ways Young Millionaires Manage Their Money http://www.wisebread.com/3-smart-ways-young-millionaires-manage-their-money <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/3-smart-ways-young-millionaires-manage-their-money" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_happy_phone_73769569.jpg" alt="Young millionaires finding ways to manage his money" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you're lucky enough to wake up tomorrow as a young millionaire, it's time to learn a few tips to keep your wealth working for you. Here are three ways that financially-savvy millionaires under 40 manage their money wisely:</p> <h2>They Use Buckets</h2> <p>Good financial planners will tell you that it's not so much about the amount of money you have, but about <a href="http://www.wisebread.com/the-basics-of-asset-allocation">how you spread that money out</a>. It's a concept called diversification, and it doesn't just apply to your 401K mutual funds.</p> <p>Millionaires under 40 understand can't rely on just one approach to save and grow their money. Instead, many young millionaires build an investment portfolio with the traditional securities, such as stocks and bonds, but also add in less-traditional investments like real estate, and other alternative investments.</p> <p>Real estate is an excellent example of how young millionaires use buckets. They might hold a REIT (Real Estate Investment Trust) in their investment portfolio, and also have <a href="http://www.wisebread.com/when-location-isnt-king-how-to-choose-income-rental-property">rental income streams</a> that aren't tied to their job. Rental income provides an extra source of income that can be used for many smart purchases to grow even more wealth, like investing in a business or starting a small business to diversify further.</p> <p>The best part of utilizing buckets is you're spreading your risk to avoid an all-out <a href="http://www.wisebread.com/are-you-being-had-learn-from-5-crazy-ponzi-schemes">Bernie Madoff</a> situation with your money. What young millionaires know is that if one bucket isn't performing, they can either reduce the exposure in that bucket or look to another bucket for growth or cash flow.</p> <h2>They Have a Cause</h2> <p>Millennials love a good cause. They're passionate and want to know that their money and time are going toward helping the greater good. Whether it's building an orphanage in Africa, rebuilding a community after a natural disaster, or marching in Washington to champion a cause, young millionaires believe in benefiting society.</p> <p>There are many different options for <a href="http://www.wisebread.com/a-simple-guide-to-socially-responsible-investing">socially responsible investing</a> that young millionaires are incorporating into their financial plan. Most investment platforms now offer a selection of funds that either exclude certain companies, like oil and gas, or are inclusive of companies that focus on environmental or socially responsible products. Whatever your cause of choice is, there is a socially responsible investment to meet your needs.</p> <h2>They Are Curious</h2> <p>Most millionaires under 40 understand the importance of a financial adviser. When you get to the millionaire status, you probably also have a good lawyer and CPA on your &quot;team.&quot; However, millionaires under 40 stay curious. They don't just rely on the advice of one person. They search for answers to money questions and read articles to find any other gems that might help them grow their net worth. They talk to friends and family about wealth as well.</p> <p>It's a constant cycle that proves to be very successful with millionaires under 40. They understand that you need to spread your money around in different buckets to limit risk and maximize your growth potential. They become passionate about causes and want their money to make a difference in the world. At the end of the day, they stay restless and curious about finding more answers, asking more questions, and being ready to jump at opportunities.</p> <p><em>Do you adhere to any of these &mdash; or other &mdash; precepts for managing your money?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/shannah-game">Shannah Game</a> of <a href="http://www.wisebread.com/3-smart-ways-young-millionaires-manage-their-money">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-reasons-being-a-millionaire-is-overrated">5 Reasons Being a Millionaire Is Overrated</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/millennial-millionaires-how-the-brokest-generation-can-also-become-the-richest">Millennial Millionaires: How the Brokest Generation Can Also Become the Richest</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-mental-habits-that-make-the-rich-richer">5 Mental Habits That Make the Rich Richer</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/if-youre-so-smart-why-arent-you-rich">If you&#039;re so smart, why aren&#039;t you rich?</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/if-you-won-the-lottery-you-would">If You Won The Lottery, You Would...</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance buckets income millennials millionaires real estate investing rich risk socially responsible wealth management wealthy Fri, 09 Sep 2016 10:30:15 +0000 Shannah Game 1788929 at http://www.wisebread.com