- Contribute to your retirement accounts.
If you work for a company that matches your 401(k) contribution, try to contribute at least up to the percentage they match. Otherwise, you’re leaving money on the table.
- Make your required minimum withdrawal from your IRA.
Do you have a traditional IRA? Starting at 70 ½, the IRS requires you to withdraw a certain amount each year, known as a required minimum distribution (RMD).
- Use up your flexible spending account (FSA).
Find out the deadline for using this money if you have an FSA, since you will lose it if you don’t use it by the deadline.
- Think through your holiday spending.
Now is the time to also think about paying down any debt or padding your emergency fund.
- Check your credit reports.
If you haven’t checked your credit reports in the last 12 months, the end of the year is a great time to do so.
- Consider year‑end charitable giving.
In addition to using your dollars to support a cause you are passionate about; many charitable contributions of money or property are also tax deductible.
- Assess the last 12 months.
Reflect on how you did this year from a financial standpoint. Think about what went right and what would you like to adjust.
- Plan for the next 12 months.
If your assessment of the past year calls for some changes, use that information to start planning for the new year.
Take these eight steps now:
Q. What are the good ways to teach young kids lessons about money?
A. Teaching kids about money is one of the best educational foundations parents can give. And if you’re a money-savvy parent, you may have all the skills to put your children on the path to financial success. Here are 5 lessons smart parents could teach their kids about money -
Q. I was always reminded that funds' past performance is no guarantee of future performance. But if we can’t evaluate past performance, what are we supposed to look at to make reasonable and thoughtful investment decisions?
A. Averages derived over many years do matter because future performance tends to progress or regress toward the long-term average. It’s helpful to know the past to get a sense of the present.
For example, as shown in the chart “Performance of funds,” mutual fund and ETF average performance by category over more recent time frames has, in some cases, diverged considerably from the 30-year average performance. The general notion here is that the longer the time period is, the more reliable and useful the performance figure.
The same could be said for the chart "Performance of Indexes" below.
If you take a macro look at the tables, it’s clear the concentration of yellow highlighting is in the October, three-year, five-year and 10-year figures. Secondly, growth-oriented funds and indexes are more “in the yellow” than blend and value-oriented funds and indexes. Growth-based funds have enjoyed more recent success than blend- and value-oriented funds, hence are more likely to suffer more as they revert toward their longer-term average performance.
There is another metric in both tables that is somewhat unique and hopefully helpful. In the far-right column there is a standard deviation calculation. This figure represents the variation among the returns for all seven time periods. While this represents an unusual approach to the calculation of standard deviation, it is actually quite revealing.
What we see is a consistent pattern in which the standard deviation for growth-oriented funds and growth-oriented indexes is higher than blend (where blend is a mix of growth and value) and value-oriented funds and indexes. This clearly suggests that growth-oriented funds and indexes demonstrate wider swings in performance based on the time period being looked at. Mutual funds and ETFs that are classified as “blend” are the second-most volatile in terms of performance variation over different time periods, while value-oriented funds and indexes have the least amount of time-period performance variation.
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This browser extension automates your savings, it's best for online coupons and private alerts. When you check out at Amazon or any other 30,000 websites, you just click on Apply Coupons in a pop-up box, and HOney will input coupon codes for you. It can also alert you when a product's price drops and provide price histories on many items.
This browser extension is essential if you shop at amazon.com, walmart or any other e-retailers that offer products sold by third parties. It checks if a review is fake or real. It's best for you to decide what and where to buy!
This browser extension checks prices at 11,000 stores. When you shop at Amazon.com and land at a product page, a yellow bar will pop up, click on Compare Prices and you will get a list of prices for that item at other stores.
Use this browser extension on your computer will earn you cash back when you making qualifying online purchases at more than 3,500 stores such as amazon.com. It sends out a check in the mail quarterly once you reach $5 in rewards.
Credit scores could have big impact on many things, from better terms on credit cards and lower mortgage rates, to lower premiums on auto and homeowners insurance, and sometimes even the ability to get approved to lease an apartment (or to waive the upfront deposits).
However, here are 7 myths regarding what may (but actually doesn’t) help or hurt the credit scores -
1. Checking credit scores can hurt the credit score (a “hard inquiry” where a financial firm is evaluating a potential loan to you can have an impact, but a “soft inquiry” like an employer conducting a background check does not, nor does a soft inquiry of checking your own credit score);
2. Paying bills on time is all you need to worry about (it’s not, as “credit utilization” also matters, because paying on time but always being maxed out is a negative compared to ‘just’ using 30% of your available credit each month, which can be remedied by spending less or simply asking for a credit limit increase);
3. Carrying a balance helps boost the credit score (it doesn’t, it just racks up interest charges!);
4. Closing an old card with a high interest rate will help (it doesn’t, and closing a long-standing card can actually reduce the score by reducing the average age of your credit accounts);
5. Opening a new retail card at a 0% rate is good for your score (it’s not, it’s a hard inquiry that’s more likely to reduce the score);
6. Shopping for a mortgage/auto/student loan hurts the credit score (hard inquiries matter, but if multiple hard inquiries come together, they’re bundled together as a single query, and recognized as a single transaction that reflects the borrower is likely just shopping around);
7. Assuming credit reports are accurate in the first place (the FTC found in 2012 that 21% of consumers had errors, with 5% of the cases so serious it impaired their credit… which means it really is important to monitor your credit score to ensure credit events are being reported properly!).
A yield curve is a graphical representation of yields on bonds with different maturities. The most common example is the government bond yield curve, but it is very well possible to render a yield curve for other types of bonds, such as corporate bonds, high yield bonds, etc.
The government bond yield curve is often referred to as the benchmark yield curve; the image above shows this curve for US government bonds on 1 November 2019. Data to draw a yield curve (for US gov bonds) are readily available from various sources. A good source to check yields for various maturities of government bonds is the website of the US Department of the treasury (www.treasury.gov). The image above is rendered using data from that source.
On the horizontal axis the maturity of the bonds is translated to no of months in order to get a proper scaling on the chart. On the vertical axis the yield is shown.
In a normal situation, one would expect to receive a higher compensation (yield) for longer maturities. When you lend money to the government for 20 or 30 years, it intuitively makes sense to receive a higher compensation than when you lend it only for a year or a few months.
As these yields change every day, the shape of the curve will change accordingly. Because financial markets have a tendency of throwing curve balls from time to time, unusual/unintuitive situations can and will happen.
In general, the yield curve reflects the way investors think about risk. In a normal yield curve situation, the thinking is that the shorter the maturity, the less risk for the investor and, therefore, a lower yield (compensation) than for longer-dated bonds.
A normal-shaped yield curve is usually seen in an economic environment that shows normal growth and little-to-no changes in inflation or available credit.
An inverted curve is usually seen as a signal that economic growth will soon stabilize or reverse, maybe even signaling the start of a recession. This is caused by investors thinking that the period of economic growth is or will soon be over, making them more likely to accept lower rates before they fall even further. This process can cause (partial) yield curve inversions.
An inverted yield curve does not have to be "completely" inverted as in the image. Sometimes only part(s) of the curve are inverted; this can cause humps or dents in the curve as we would expect it to be shaped.
It is not so much the current shape of the curve that can help us to solve the financial puzzle, but more the transition and the changing of the shape of the curve that will provide us with clues for the potential future direction of the economy.
As with many graphs/tools/relationships/etc. that we use in our analysis, the yield curve will not provide us with the definitive answer. Like all other tools that we have at our disposal, it is just a piece of the puzzle that we are trying to solve every day.
If you are optimistic about China's stock market futures, you may want to consider invest in some of these top 20 China region funds with the best 5-year returns ...
Q. What factors should I consider when diversify my stock and bond portfolios?
A. You should have different considerations for stocks and bonds.
Among individual stocks and stock funds, for example, your holdings could include a mix of investments in each of the following categories:
Your bond and bond fund holdings can be diversified within the following categories:
Keep in mind the risks associated with the different types of holdings, and remember that just creating a diverse mix isn't enough. You also need to make sure that your individual investments remain in line with your plan and to adjust them as necessary. For instance, a small-cap portfolio can grow to become mid-cap, or a period of high returns in one region of the world can leave you over-exposed to the fortunes of that part of the market.
What commissions are being eliminated?
Zero commission rates for trading stocks, ETFs and options listed on U.S. and Canadian exchanges. It will also eliminate commissions on online over-the-counter stock trades, but the standard $50 foreign transaction fee still applies. All domestic retail brokerage accounts other than Schwab One Organization accounts are eligible for the commission-free trading regardless of account size.
Zero commission rates on online trades of U.S. exchange-listed stock, ETF and options trades. No account minimum applies. There will be no limits on commission-free trades, but the standard rules will apply to day-trading on margin.
Zero commission rates for online U.S.-listed stock, ETF and options trades. It also plans to cut its options contract charge—a premium buyers pay to sellers—to 65 cents per contract while maintaining its active-trader pricing at 50 cents per contract.
Interactive Brokers Group
Zero commission rates for trades of U.S.-listed stocks and ETFs on a new “lite” version of its trading platform, which offers a simplified trading experience for less-active traders. There is no account minimum.
Zero commission rates for online U.S.-listed stock, ETF and options trades, plus 65 cents per contract on options.
Its self-directed program will expand its zero-dollar online trades, which were limited and varied in number by customer segment. Now it will offer unlimited commission-free trades of stocks, ETFs and options for self-directed clients who are also enrolled in the bank’s Preferred Rewards, a program that gives clients additional benefits — like rewards on credit cards or preferential interest rates — for using multiple products and services at the company.
Does this mean trading is free?
Trading won’t be free in all cases. Schwab will still charge a commission for trading foreign stocks and fixed-income investments. Additional fees may apply if a Schwab client wants assistance when trading large blocks of stocks, typically 10,000 shares or more of illiquid securities.
Service charges of $25 and $5, respectively, will still apply for trades placed through a broker or by automated phone. Though Schwab does not generally charge a withdrawal fee, fees may apply if a client wants funds wired out of their account the same day.
Schwab and TD Ameritrade will also continue to levy a 65-cent fee per options contract.
At TD Ameritrade, a $6.95 commission applies to trades of over-the-counter stocks. IBG also will charge a commission on OTC stocks.
What are some pitfalls for investors?
Commission-free trading could tempt some investors to trade more frequently, which could prove detrimental to their returns through untimely trades and potentially higher tax bills on short-term holdings.
Brokerages could also offset some of the losses from commissions by increasing charges that are less transparent to investors or dipping into their pockets in other ways. For example, consumers may save on commissions but earn less on the cash in their brokerage accounts. Brokerages earn money by borrowing from account holders and lending to others at a higher interest rate, and they could adjust the interest paid to help negate free trading.
There are other ways for brokerages to recoup their losses. When an investor buys or sells a stock, for example, he usually pays more or receives less than the stock’s prevailing price. That’s because market makers, the trading firms that handle the trades, are compensated. This difference is known as the bid/ask spread. To make up for revenue lost from commissions, brokerages could route trades in a way that leads to wider spreads.
Plan administrative fees
Many plans have a fee that is charged for the administration of the 401(k) plan. This is a charge to cover services, such as record keeping, compliance, accounting, legal, and trustee services. In some 401(k) plans, the cost of this fee is paid by the employer.
This is typically a flat fee, say $50, that is charged annually. While it won’t have much affect on a high-balance plan, it can impact plan returns on smaller accounts. It’s also possible that the administrative fee will be higher, say $100 or $150, in which case it will be a factor even on larger accounts.
Individual service fees
These fees may apply if the plan offers optional services. These services can include customer service contact, educational services, retirement planning software, and even investment advice from an investment professional. Such services may come with a flat fee arrangement, or be based on services actually rendered.
Investment advisory fees
If the plan is being managed by a professional investment advisor, there may be a fee charged as a percentage of your total 401(k) portfolio balance. For example, the investment advisor may charge 1 percent of the value of your plan in order to manage the investments contained within it.
Since most plans offer numerous mutual fund options, the fees associated with these can be a major part of the overall fee structure of the plan.
These are sales charges imposed by mutual funds. They are expressed as a percentage of the principal amount invested in a fund. They can be as high as 8.5 percent, but generally do not exceed 3 percent.
Load fees can be charged upon the purchase of a fund, commonly known as a front-end load. They can also be charged on the sale of the fund, which are commonly known as back-end loads, deferred sales charges, or redemption fees.
Some funds may charge a front-end load only, while others may charge only a back-end load. Still other funds charge both. In a situation where both loads are charged, it might be set up as something like a 1 percent front-end load and a 1 percent back-end load, or even as a 2 percent front-end load and a 1 percent back-end load.
With many funds, the back-end load can be waived if the fund is held for a certain minimum period of time, such as two years or three years.
Loads are most often charged in connection with mutual funds, because such funds are typically actively managed (involving management activity and frequent trading within the fund). On the other hand, index funds—as well as exchange-traded funds (ETFs)—are no-load funds, since the portfolio is tied to an underlying index, and involves very little trading or management expertise.
These are fees that cover commissions to brokers and salespeople, as well as advertising and any costs associated with marketing the fund, as well as certain fees for bundled-services arrangements with 401(k) plans.
The fee can range between 0.25 percent and 1 percent of fund assets. It is often overlooked, since it is deducted from the fund balance, and not charged to the account owner as a stand-alone fee. However, all mutual funds are required to disclose their 12(b)-1 fees to their shareholders in their prospectus.
This is an annual fee charged by some funds, most typically as an account maintenance fee on fund positions that are below a certain dollar threshold. It is not universal, and the amount of the fee will vary from one mutual fund to another.
Apart from load fees, there may also be certain fees charged by an investment brokerage account for specific transactions.
These are sales charges paid to the investment broker that is actually holding the account. They’re most typically charged on the purchase and sale of stocks, options, futures, and certain types of mutual funds. They are usually a flat fee per trade, such as $9.95 on either the purchase or sale of the security position.
Purchase, redemption, or exchange fees
These are fees that can be charged by a mutual fund that is considered to be a no-load fund. It is essentially a small fee, like a commission, that will be charged on any exchanges involving a particular mutual fund.
These fees are not considered loads because they are paid directly to the fund itself, and not paid to brokers.
Interest rate spreads
These are fees charged in connection with stable-value funds, including short-term bond funds and individual fixed-income securities, such as Treasury securities or certificates of deposit. Because such investments rely primarily on interest-rate returns, and because short-term interest rates are so low, they do not charge load fees. Rather they charge a certain percentage of the interest-rate return on the underlying securities.
For example, on a portfolio of short-term fixed income securities yielding 1 percent, the net amount payable to you may be 0.90 percent. The difference between the two—0.10 percent—is the interest-rate spread paid to the fund manager.
Interest rate spreads can apply in either a mutual fund, or in a brokerage account that allows the direct purchase of individual interest-bearing securities.
Calculating your 401(k) fees
This can be a complicated process since different types of fees are being charged in connection with the various components of your plan. In addition, how much you will pay depends largely on how active you are with your account. For example, if you frequently purchase or sell securities or funds, your overall fees will be much higher.
Much also depends upon the type of funds your plan holds. For example, if your plan is comprised mostly of actively managed mutual funds, you will likely have to pay loads on those funds. If on the other hand, the plan has mostly index-based ETFs, there won’t be any load fees.
If you’re the do-it-yourself type, you can start by using FINRA’s Fund Analyzer, which can analyze more than 18,000 mutual funds, ETFs, and exchange-traded notes (ETNs). The tool provides an estimate of the fees and expenses connected with each fund.
Once you have that information, you can add in the dollar costs of any fixed fees associated with the 401(k) plan itself, as well as any investment advisory fees. You should also calculate the cost of any commissions or other applicable trading fees.
If you can convert all of your percentage-based fees into actual dollar amounts, you can total up those amounts, and divide them by your average 401(k) account balance for the year. This will give you the percentage that you are paying in 401(k) fees every year.
For example, if you have a plan administrative fee of $100, and during the past year, you paid $1,000 in mutual fund loads, $200 in commissions, and $300 in 12(b)-1 fees, your total expenses are $1,600. If your 401(k) plan had an average balance of $100,000 for the past year, your 401(k) fees paid will be 1.6 percent ($1,600 divided by $100,000).
Here are 10 of the most common mistakes landlords make and how to avoid them - from Zillow.
1. (Not) Understanding your local market
The three most important words in real estate investing continue to be location, location, location. This is twofold: First, it means making sure your rental is in a desirable area so you can attract more potential tenants. Just because the price is right doesn’t mean that the location is. Get to know the neighborhood, including access to transportation, grocery stores, area features and businesses. Second, understanding your location means learning about the dynamics of the local market, researching area taxes and determining what you can charge for rent — all of which are key to estimating the return on investment for your property so you can predict your monthly rental income.
2. (Not) Understanding fair housing laws
Before you start looking for tenants, you need to understand fair housing and discrimination laws; otherwise, you risk getting into legal trouble. Fair housing laws are federal statutes that ensure equal access to housing for everyone. It is illegal to discriminate against anyone on the basis of race, color, religion, national origin, sex, familial status or disability. Many local and state governments have additional protections that you’ll want to become familiar with. A general rule of thumb is to focus on the property and amenities in your advertising and conversations — not on who you think the ideal tenants would be or features geared toward a specific group. The bottom line is to treat and communicate with every applicant and renter in the same way.
3. (Not) Putting your best marketing foot forward
While advertising a rental property may not be as sexy as advertising a hot new car, there are many similarities. Just like the best product ads, you’ll want to feature high-quality photos of your rental — and the more, the better. It’s worth the expense to have professional photos taken during the spring and summer months so your property looks its best. You’ll also want a clearly written, accurate and error-free description of the property and amenities. Consider posting your property on Zillow Rental Manager to reach as wide of an audience as possible.
4. (Not) Conducting a thorough tenant screening
While speed is important in filling your vacancy, you still want to choose a highly qualified renter. Create a documented process and criteria for finding, screening and securing your tenants. Make each potential renter fill out an application and verify everything from employment to past addresses (and get landlord references while you’re at it). You’ll want to perform a tenant background check and run a tenant credit report. Confirm that renters have paid the rent on time and have not caused problems for their previous landlords or employers.
5. (Not) Completing accurate leasing paperwork
A lease serves as a binding, legal agreement between you and the tenant. As such, you’ll want to make sure it thoroughly addresses the rules, policies, and conflict resolution procedures for living on your property, and clearly defines tenant and landlord responsibilities. Remember to put everything down in writing: A handshake or verbal agreement won’t hold up in court. You can find many generic leases online, but you’ll want to review the lease requirements specific to your state or municipality and incorporate them into your rental agreement. Have it examined by a legal professional to ensure that the terms protect your interests and comply with local and state regulations.
Tip: Zillow Rental Manager offers state-specific, customizable online lease agreements for free. This feature is currently available in select locations.
6. (Not) Knowing your landlord responsibilities
Securing a tenant for your property is a huge milestone. But, your work is not done. As a landlord, it’s your job to meet your terms of the lease agreement: Check in with your tenants, keep tabs on the condition of the property, complete regular preventative maintenance and seasonal maintenance, and respond quickly to requests. Make sure your property is a healthy and safe place to live, and that you keep up on your taxes and financial reporting. Neglecting your tenants and your property can result in higher turnover, more vacancies, less rental income or even lawsuits.
7. (Not) Anticipating maintenance costs
Be prepared for the possibility that your property won’t always be occupied. If you aren’t able to fill a vacancy right away, do you have enough cash set aside to pay for the mortgage, utilities and other maintenance costs? Maintaining a rental property comes with unforeseen expenses, such as damages and unexpected repairs, and the bills still need to be paid. Complete a cash flow analysis and establish a budget so you’ll be able to cover these potential costs, then track your expenses to ensure you’re staying in the black.
8. (Not) Knowing when to hire a professional
If you live in the area, are handy around the house and have the time to quickly respond to requests, you can maximize your rental income by handling some of the general maintenance and management of your property. However, if you have several properties or are juggling an investment on top of a full-time job, you may be better off enlisting the services of a professional property manager. Also, depending on your experience and the condition of the rental after your tenants leave, you might want to hire a contractor to make significant improvements or repairs.
9. (Not) Managing your time efficiently
For many landlords, managing even one investment property can be a full-time job. Between securing a tenant and keeping up the books, you should understand that any investment property is a big time commitment. No matter how much you love what you do, make sure to take time for yourself and create a list of people you can rely on for backup. Having a network of people who can help in a pinch is important for the maintenance and safety of your property.
10. (Not) Treating your rental like a business
However you got into landlording, your rental property is a business and an income source — and you need to treat it that way. Consider setting up a Limited Liability Company (LLC) for ownership. This can help protect you personally from legal actions or claims. In addition, consider using accounting software or a spreadsheet to keep close track of your income, expenses and ultimately your return on investment. Document all of your procedures and communications with applicants and tenants, and make sure to stick to your procedures. When you’re renting a property, you will hear a lot of different stories, and some of them may be sad. There are many opportunities to help your community, but you want to make sure any action you take makes good business sense.
Successful landlords leverage skills from many different areas: customer service, marketing, accounting and home repair, among others. Reduce the risks that come with being a landlord by educating yourself and networking with other experienced landlords and related professionals. Join local or national landlord associations to keep up with changing rules and regulations, and share your experiences, so you can avoid the most common landlord mistakes.
In our last blogpost, we discussed key consideration points when deciding between ETFs and Mutual Funds. Now to we will further discuss the decision based on what kind of investor you are.
Typically, the best way for an investor to choose an investment is to use their own goals, financial situation, risk tolerance, and investment timeline to create a strategy. Using that perspective may help to identify appropriate investment vehicles. Consider the following types of investors and their varied objectives.
If you prefer to manage your own accounts and want to trade during market hours to implement your preferred investment strategies, ETFs can offer the flexibility to meet your needs. Similar to stocks and other types of investments, ETFs can be traded throughout the trading day and on margin. Investors also have the ability to set limit orders and sell short. Most open-ended mutual funds can only be purchased at their closing prices, or NAVs. ETFs offer transparency, allowing investors to review holdings daily and monitor portfolio risk exposures more frequently than with traditional open-ended mutual funds.
For the active investor, ETFs may may satisfy the investor's need for more trading flexibility and holdings transparency.
With a long-term view, investors may not want to devote a lot of time to worrying about the intricacies of an active trading strategy; they might have little use for the potential of buying or selling shares during the day; and they would likely want to minimize transaction costs for regular purchases.
Many open-ended mutual funds are available with no loads, no commissions, and no transaction fees. Many brokerages and banks offer automatic investing plans that allow regular purchases of mutual funds. These programs generally do not exist for ETFs. Moreover, open-ended mutual funds are bought and sold at their NAV, so there are no premiums or discounts. While an ETF also has a daily NAV, shares may trade at a premium or discount on the exchange during the day. Investors should evaluate the share price of an ETF relative to its indicative NAV.
Finally, any tax benefits that may exist for an ETF are irrelevant for someone saving in a tax-deferred IRA or workplace savings account, such as a 401(k), since taxes are paid upon withdrawal.
For the long-term investor, a traditional open-ended mutual fund could be an investor’s preferred option due to low transaction costs and automatic investing options.
Investors in a high tax bracket
Investors in a high tax bracket who are saving in a taxable account, like a brokerage account, may be interested in investments that offer tax efficiency for their taxable assets. In this scenario, if an investor finds that an open-ended index mutual fund and an index ETF are similar relative to their investment objectives, passive investments—index funds and passive ETFs—have the potential to be more tax-efficient than active funds and active ETFs.
Relative to actively managed mutual funds, some actively managed ETFs offer potential tax advantages. However, we caution investors against making long-term investment decisions based solely on any potential tax benefits. Investors should evaluate how an investment option fits with their time horizons, financial circumstances, and tolerance for market volatility, as well as cost and other features.
Investors in a high tax bracket may choose ETFs to take advantage of potentially greater tax efficiency.
In our last blogpost, we discussed the key differences between ETFs and actively managed Mutual Funds. Now we will show you how to decide if ETFs or Mutual Funds are right for you.
While mutual funds and ETFs are different, both can offer exposure to a diversified basket of securities, and can be good vehicles to help meet investor objectives. Here are some points to consider when weighing vehicle options:
In our next blogpost, we will further discuss how to make the ETF vs Mutual Fund choice based on what kind of investor you are.
Q. What are the key differences between ETFs and Mutual Funds?
A. The table below summarizes the key differences between ETFs and actively managed Mutual Funds -
In our next blogpost, we will show you how to evaluate and decide if ETF or Mutual Fund is right for you.
The Wall Street Journal asked prominent financiers and leaders how they'd advise young people on money. Here are excerpts of what five of them said.
Beth Ford, Land O'Lakes CEO
I think you have to work for money in order to understand its value. My advice to this generation of young adults would be to get started developing their work ethic even before they start their careers. Find a job, work hard and develop a strategy for managing your money—save for the future, invest your time and money in others and in your community, and spend on what makes you happy and healthy
Hank Paulson, former Secretary of the Treasury
Among the most important things we've tried to communicate to our children is to live in an environmentally and financially sustainable way which helps protect the planet and your economic security in a world where there is almost certain to be unforeseen adversity and risks. That means consuming less and saving and investing more.
As young people make decisions about which jobs to pursue, I always tell them that learning is more important than initial compensation. They can't afford not to learn. They should choose a career that truly fits their skills and interests because, ultimately, they are only going to enjoy something where they can do well and succeed.
When it comes to how they spend their money, young adults owe it to themselves to be financially literate, to try to live within their means and never to borrow or invest if they don't understand the terms. Often the terms are framed in technical jargon, which is difficult to understand and unfortunately there are sometimes unscrupulous lenders who take advantage of trusting people. So, they should insist that terms be explained in plain English.
Whitney Wolfe Herd, Founder and CEO of Bumble
Never be financially dependent upon anyone else in your life. Don't rely on a parent, a spouse or a boss. It will only erode your self worth and negatively impact the important relationships in your life. Instead, learn to save money, make money and then you can rule your own world!
Andy Sieg, President of Merrill Lynch Wealth Management
There's good news and bad news for young adults today. Thanks to longevity, you could live 100 years or more, though unfortunately your longer financial life may begin under a mountain of student debt. Start by mapping out your priorities and create a plan aligned to your financial goals. This is different for everyone. Early on, stick to a budget, and track expenses to identify areas to reduce them. For those with debt, pay off high-interest, non-tax-deductible first such as credit cards, then more aggressively tackle lower-interest debt such as student loans or a mortgage. Also, take advantage of workplace benefits such as a 401(k) and employer match, as well as health savings accounts. Discipline, early planning and guidance can accelerate your journey to financial freedom and help you achieve more life goals.
My wife and I have been in the financial advice business for decades. Our philosophy is to make sure our 16, 13 and 9-year-old children feel informed about the economy, markets and money, and not intimidated by them. We look for natural opportunities to educate them on these topics so that they understand the world.
Markets represent opportunity, and it's never too early to start learning the lifelong benefits of good saving and investing habits. Time is one of their best allies. Regardless of what path they take in their lives, we hope to instill an understanding of and appreciation for what the economy and money has the power to do, for them and for others.
Abigail Johnson, Chief Executive, Fidelity Investments
I've passed along the same advice that I was given when I was a kid: be cautious with leverage. What I mean by leverage is buying assets with borrowed money. It's dangerous and can be financially toxic when people use too much credit card or home equity debt to pay for current consumption. I was taught to have the patience to invest for the long-term and build a portfolio that can withstand market downturns, which also means being responsible with how you're spending money. I call this having an investor mind-set.
This means several things, including don't optimize the easy short-term solution at the expense of a harder and less certain—but more promising—long-term opportunity. It means your investment decision process should be analytical, logical, and grounded in empirical data. Calibrate the risks and know which ones, if not properly addressed, can sink your money plans.
When the stock market and real-estate prices are going up, leverage can seem like a sure way to boost returns. But when the bull market eventually stalls, as it always does, then too much debt can quickly overwhelm an individual's personal finances, just like it does with a company's balance sheet.
I'd encourage this generation to take a long-term view of the stock market and stay appropriately diversified across stocks, bonds, and cash. Pretty boring, I know, but as my Fidelity colleague Peter Lynch says, the most important organ for investing is the stomach, not the brain. Being diversified based on your age, personal circumstances, and tolerance for risk will help you stay the course when market volatility spikes. Asset allocation is still the most important factor in determining the long-term risk and return characteristics of a portfolio.
Whether with money or work, I tell young adults to always have a hunger and intellectual curiosity to learn. When I meet with interns and new hires at Fidelity, I encourage them to think of their career paths as a stream of experiences. Don't get caught up with trying to get a specific job title, because a title in one company could mean something completely different in another. Instead, focus on obtaining new skills, more education, and new experiences. Always bring your whole self to work and get involved in the communities where you work and live—if you do this, you'll have a lasting impact and find more meaning in your job.
How do you like this service - a price-protection services combs your email inbox for order confirmations and shopping receipts from major retailers and for hotel reservations from selected booking sites, then searches for price drops and claims the refund for you?
If you like it, here are two websites would do it for you -
It works with more than 15 retailers as well as all Citibank credit cards and all Mastercards (for up to 4 claims per year). It will deduct 25% fee from each refund, or you can pay $9.99 for a monthly subscription. If you link credit card accounts that offer price protection, you can also get refunds on purchases from Amazon.com.
It's a Capital One company, it will monitor your inbox for receipts from more than 25 major retailers, but it does not monitor your credit card accounts.
Q. Should I include stocks or bonds in my Roth IRA account?
A. Stocks. Here is why:
1) Roth IRA has no RMD requirements which means the investment horizon is longer than traditional IRA.
2) With no tax implications, you should put your most aggressive investment in Roth and let it run and maximize potential tax-free growth.
3) Bonds tend to have moderate returns so its tax bit from traditional IRA account when to take it out is smaller when compared with stocks.
4) If you hold stocks in regular IRA, you might have to sell them for a loss if the market tumbles and you have to take a required distribution, there is less risk of this happening to bonds.
Q. How much can I safely withdraw from my retirement portfolio?”
A. While there are so many personal variables to factor in, you can actually determine the best annual withdrawal rate, based on the analysis below.
The analysis below is based on a portfolio composed of four primary asset classes with annual rebalancing:
A starting balance of $1 million was assumed at age 70. The four-asset retirement portfolio was tested using 15 different withdrawal rates ranging from 1% to 15% for each of the 34 rolling 25-year periods.
The results were compiled and averages computed. The impact of taxes was not accounted for. This analysis also assumes the retirement portfolio was not subject to the RMD, which would be the case for a Roth IRA account.
A 6% withdrawal rate is highlighted because it represents the highest withdrawal rate that never produced an ending balance lower than the starting balance of $1 million.
The withdrawal rate of 8% is highlighted because it represents the withdrawal rate that maximized the average annual withdrawal. In this case, it was $103,844.
Q. How could I find a financial adviser who acts in my best interest?
A. Here are four ways to find an adviser who acts in your best interest -
1. Look for an adviser who structures his or her business to minimize conflicts of interest. You can find them among fee-only financial planners through the National Associations of Personal Financial Advisors (www.napfa.org).
2. As of Jun 30, 2020, the CFP Board will begin enforcing the new standard that holds a certified financial planner to a fiduciary duty for all the financial advice they dispense. (Under the current standard, CFPs have a fiduciary duty when they engage in financial planning but not more generally when giving advice)
3. As the adviser to sign a fiduciary oath (you can download one at www.thefiduciarystandard.org). It documents the agreed-up standard of conduct in case you get into a dispute, and it's a way to separate the wheat from the chaff because non-fiduciary advisers won't want to go near it.
4. You can also look for firms with Centre for Fiduciary Excellence certification (CEFEX) at www.cefex.org. These firms have agreed to adhere to fiduciary best practices and undergo audits to ensure that they are doing so.
For years, advisors have used active fund managers to target factors, including value, low volatility, capitalization size, momentum, dividend yield and quality to obtain higher returns for clients.
These days, however, with more than 370 U.S equity smart beta ETFs that feature one or more factors available, advisors have the tools to supercharge their own asset allocation strategies.
What does "quality" mean for top providers? Below are some examples:
In last blogpost, we focused on min vol ETFs to reduce investment volatility, now a few other strategies:
Bonds tend to be less volatile than stocks. When the stock market is expected to be more volatile, investors may want to consider increasing their bond allocation. It is worth noting that the bond market is not immune to volatility.
High yielding stocks are another opportunity that investors can explore. The income component of high-yielding stocks tends to make these investments less volatile than more cyclical stocks, which have lower or no dividend yield. Of course, the 2008 financial crisis highlights that even this strategy may not be immune to severe market stress.
Some Mutual Funds
Some mutual funds that have historically exhibited lower volatility, relative to the broad market, as well as managed account solutions - particularly those with a defensive strategy are good options too.
Additionally, there are several options strategies, including straddles, strangles, and other spreads, which can be used to take advantage of expected market volatility.
Q. What are the options to reduce my investment's volatility?
A. If volatility concerns you, in addition to diversification, there are volatility strategies that may help protect your portfolio.
Below we will focus on minimum volatility ETFs, also mention a few other options.
What Is a Min Vol ETF?
A min vol ETF attempts to reduce exposure to volatility by tracking indexes that aim to provide lower-risk alternatives. Some min vol ETFs accomplish this objective by purchasing securities that exhibit relatively low volatility and concentration risk (i.e., heightened exposure to a particular asset class, investment characteristic, or other risk factor that results from a heavily weighted allocation). It is worth noting that some min vol ETFs may not have lower concentration risk than broadly diversified market indexes.
A min vol ETF does not eliminate risk exposure to volatility, and may not prevent a loss in the event of a downturn. Low volatility funds may underperform when the broad market is doing well, and they can experience declines during sharp corrections. However, the expectation for a min vol ETF investor is that any potential losses during a market decline might be smaller relative to other investments that may have more exposure to volatility. As a result, a less risky portfolio could recover more quickly than the broad market after a downturn when stocks recover.
Examples of Min Vol ETFs?
If you are concerned about a US stock market decline, you may want to consider researching min vol ETFs, the largest of which by net assets are:
If you have global investments and are concerned about some of the volatility risks that have emerged out of China, Europe, and other parts of the world, there are also non-US min vol ETFs. The largest non-US min vol ETFs by net assets are:
In next blogpost, we will mention a few other investment options to reduce exposure to market volatility.
PFwise's goal is to help ordinary people make wise personal finance decisions.