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Q. Which investment style is better: growth investing or value investing?
A. It really depends on your investment goals. We will take a look at the pros and cons of growth investing and value investing below to help you make the decision. First, what's growth investing? Growth investors look for companies that are expected to grow faster than the economy and inflation. What's less important for a growth investor is a stock's current price level, also, growth stocks tend to be young companies that reinvest their earnings into the company instead of paying dividends, that's why you can find many growth companies in the technology industries that are expanding rapidly. Here are some characteristics of the companies that growth investors look for:
In our next blog post, we will discuss the pros and cons of growth investing. If you have a project and are thinking about crowdfunding, this infographic from Wrike gives you a step by step guide to crowdfunding:
Q. Can I rollover my 401k to a IRA when still employed by the same employer?
A. The answer is NO and YES, you cannot rollover the employee contribution to 401k plan to an IRA account while still employed by the same plan sponsor. However, you can rollover the employer match portion of the 401k plan to a IRA! Knowing this exception could be very helpful. For example, if you have contributed to your 401k for a few years, and have accumulated a sizable employer match in 401k. Now you plan to buy your first home and need money for down payment. If you take money out of 401k, there will be both income tax and 10% early withdraw penalty. However, you can rollover the employer match to an IRA (if you don't have IRA yet, open one first), then use the $10K first time home buyer exception to take $10,000 out of IRA as the down payment. Your spouse can do the same, which means you will have $20,000 ready as down payment! Note that not all companies allow this "in-service withdrawal", you can contact your 401k provider and company HR department to find out if they do for your 401k plan. Q. The U.S. dollar has been up 22% in 9 months and hurting U.S. firms selling overseas and their earnings. What an investor could do to deal with such current risk?
A. With a strong U.S. dollar, the exporting U.S. firms are hurt by not only weak sales, but also by weak earnings as they convert the sales back to dollars. There are two simple strategies an investors can use to deal with such strong U.S. currency risk: 1. Invest in Truly Domestic Stocks Large cap stocks tend to have more exposure to overseas market, but there are many service-oriented firms with most of their businesses in the domestic market. Looks for good investment candidates in small and medium cap categories. 2. Invest in Overseas Stocks Analysts expect European earnings to beat S&P 500 results in 2015, thanks to the weak euros. A good investment option is Vanguard European Stock Index (VEURX), its expense is only 0.26%. Q. I am concerned the market is near the historical high and could be in for a correction. Is it safer to get into dividend ETFs?
A. Dividend ETFs are hot right now as investors seek income and safety. But can dividend ETFs really do so? If you look at historical numbers, you may be surprised by the answer. We will use 3 famous Dividend ETFs to illustrate: VTV, DVY, and SDY reached their all-time high on May 23, 2007. How did they handle the 2007 – 2009 stock market crash compared to the S&P 500? From May 23, 2007 – March 06, 2009 the S&P 500 lost 55.11%. Did dividend ETFs fare much better? The answer is NO! VTV lost 58.50%, DVY lost 63.01%, SDY slightly “outperformed” the S&P with a loss of “only” 54.83% (see chart below). Q. Is there a good and free retirement planning tool I could use for my retirement planning?
A. For people who plan their retirement, there are two key questions to ask:
Both Fidelity and T.Rowe Price have free online tools to help you answer those two questions. Unfortunately you have to be a Fidelity customer in order to use its free tool. The Fidelity tool is here: fidelity.com/rip The T. Rowe Price tool is here: troweprice.com/ric What's nice about these tools is that each will give you a detailed budget worksheet so you can exhaustively list your living expenses, and they will assign an inflation rate for different categories so you can project future living expenses. Both tools also factor in your assets, your social security benefits, etc. when trying to determine how you can withdraw from your assets to meet any income shortfalls. As expected, at the end of both tools, both institutions will offer help to manage your investment portfolios. In our last blog post, we introduced an online tool that could be used to help you figure out how much emergency savings fund you might need. The follow up question is - where to park the emergency fund?
There are a few factors to consider: 1. Safe and Liquid You need to ensure quick access to the emergency funds, which rules out investing the money in stock market. Why? Because what if the stock market is at a low point, but you need access to the fund? 2. Avoid Costs Due to consideration above, emergency funds are best to park at savings or money market accounts. It's important to pay attention to monthly fees or minimum required amount requirements. You should look for $0 monthly fee accounts and as low as possible minimum balance requirements. Here are a few good options to consider, they all offer at least 1.05% annual rate and no or low minimum requirement: Q. How much should I save for emergency funds?
A. There is no set answer to this question, as you might hear the rule of thumb is anywhere from 3 to 6 months' regular living expenses. If you want to get a more detailed view about the emergency savings, for example, what it to cover (mortgage or rent, health insurance premium, car expense, etc.) and what are your sources (partner income, current savings, etc.), you can run an online tool from hellowallet: HelloWallet.com/emergencysavings After answering a bunch of questions, it will give you a minor and a major emergency saving amount. In our next blog post, we will discuss where to put the emergency funds. |
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