Archive for March, 2015

5 Excellent Tips for Beginner Investors

If you’re brand-new to investing and possibly just starting to do your online research, good for you!   One of the best things that you can do if you’re just getting into investing is teach yourself first, before you start risking any of your hard-earned money.

Today’s blog looks at 5 Tips that will get you started on the right foot, with basic but important information that you need to keep in mind so that the investments you make are sound and will pay off. Enjoy.

1) KISS. This is an acronym for Keep It Simple, Stupid. Many beginner investors focus on either irrelevant points or, even worse, try to predict the unpredictable, something that almost always ends in failure. If you focus on strong companies that have a history of excellent returns, and learn to “tune out” all of the noise that you will hear about which stocks to buy and sell, your odds of success will increase significantly.

2) Don’t expect too much or too little. As a beginner, many consumers believe that stocks will be the key to quick riches. The reality however is that, aside from extreme luck, investing rarely makes any investor a windfall of money. In almost all cases the best returns are achieved by patient investors who have the time to wait for their investments to grow, research the companies that they invested and have the proper expectations of what their returns will be.

3) Prepare yourself to hold on to your stocks for a long time. Here’s a fact that most new investors either don’t know or overlook; in the short run, stocks can be quite volatile, bouncing up and down like a ping-pong ball. If you try to protect what the market will do in the short term, you can literally drive yourself crazy.

In the long run however, stocks have been shown through the decades to be a very good investment choice, with stable and consistent returns. What this means is, as above in number 2, you need to be patient. You also need to focus on the fundamental performance of the company who’s stock you own, knowing that, in time, the market will recognize the best and reward you for your patience.

4) Ignore the market noise. Today there are a ridiculous amount of media outlets competing for your attention as an investor. Most of these talking heads focus on daily price movements in various markets and try to justify why they have gone up or down. The fact is however that it’s extremely rare that daily price change will mean any long-term change in a stock’s value.

The worst thing that you can do is listen too closely to all of this noise and let it control your choices, investment wise. Let’s put it this way; a baseball player never got better by looking at statistics but instead by practicing relentlessly. As an investor the more research you do and the better you know a company whose stocks you own, the more success you’ll have.

5) Act like you own the place. Lastly, remember this one fact; if you own stock you actually are part owner of the company. If you were to buy a business, you would act like a business owner, yes? You would read and analyze financial statements, weigh the strengths and weaknesses of the business and not act impulsively about changes. If you own stocks, you need to be able to do the same thing if you want to be successful.

Looking to Invest in Annuities

Saving for retirement means putting as much money away as possible and placing it in different, diverse investments in order to protect it best. When it comes to many of these investments, including employer-sponsored 401(k) plans, individual retirement accounts (IRAs) and so forth, many plans have contribution limits that make them a bit restrictive.

Not to say that they aren’t a great way to put money away, because they are, but if you’re looking for a less restrictive investment option, annuities are definitely a great choice.

Two of the most common contract types of annuities are fixed annuities and variable annuities and, if you want to invest in them, understanding each and the difference between the two is vital if you want to create a good savings strategy.

First is a fixed annuity, which is, like the name suggests, based on a fixed or specific amount of return. What happens with a fixed annuity is that, when you sign a contract to purchase them, the company insuring them is guaranteeing that your gains won’t drop below a certain percentage of the investment you made.

During the first year of a fixed annuity contract, the original interest rate remains the same.  Once that first year has ended however, the insuring company that sold them to you can change the interest rate, but it can’t go below that original, predetermined level.

Fixed annuities also guarantee a payment every month once you start collecting on them and, because the terms of that payment are set in stone when the annuities are first purchased, your capital is protected. This makes fixed annuities a very appealing investment option. Keep in mind however that, if the institution that sold you these annuities happens to fail, you will lose your money because they’re not insured by the FDIC. Luckily this doesn’t happen very often.

Variable annuities, in some ways, might appear to be a bit riskier than fixed annuities. They’re very similar to mutual funds in that the capital in a variable annuity is taken and invested in various bonds and stocks, usually in line with your level of risk. The amount of return that you get from a variable annuity is going to be based on the performance of the investments that are made.

What that means is that you assume the risk of the investments being made but, on the upside, there’s a much greater potential for income then with a fixed annuity.

Variable annuities also come with extra benefits, including a guaranteed  death benefit to the beneficiary of your account if you pass away before payout begins.

If you have questions about annuities, or about personal finance in general, please let us know by leaving a comment or sending us an email. We’ll make sure to get back to you ASAP with answers and advice.

Because of the flexibility that they give investors, letting them buy and sell at any time during the trading day, Exchange-traded funds or ETF’s have become extremely popular among traders as well as long-term investors.

While Vanguard Group used traditional mutual funds to build its reputation, of late it has become one of the driving forces in the ETF market and is now the number 3 provider of ETFs, challenging their competition with their big emphasis on keeping costs low.

Indeed, the company offers over 50 ETFs and, since they offer them on a commission-free basis, the enticement for would-be brokerage customers is quite high. The only drawback is that, with such a wide array of ETFs, some investors are intimidated by Vanguard’s lineup and unsure of which ETF to pick.

In order to simplify that choice, below are a number of Vanguard’s top ETFs, based on a number of criteria including cost, diversification and performance. Enjoy.

The first is the Vanguard Total Stock Market ETF, and at $.50 in annual fees for every $1000 invested, it’s an excellent choice. Like its name would suggest, the Total Stock Market ETF gives you exposure to the complete domestic stock market from small to large and value to growth, covering all sectors of the economy. In the last 10 years it’s had gains of over 80% annually, which matches up exceedingly well to the broader market.

If you’re looking for an ETF that comes with more income, then you want to take a look at both of these next products that Vanguard offers that pay dividends, their Vanguard High Dividend Yield ETF and their Vanguard Dividend Appreciation ETF.

Depending on your time horizon, the former will give you a higher current yield but, if you’ve got more time, the latter focuses on stocks that have grown their payouts quite consistently. Although it doesn’t quite equal the 16% annual gain of the Vanguard High Dividend yield, the Vanguard Dividend Appreciation has produced extremely strong returns that, over time, should give it an edge. Also, at a cost of just $1 for every $1000 invested, the price is excellent.

Vanguard also offers its Total Bond Market ETF that covers everything from high-grade treasury bonds to investment grade corporate debt (although the latter is a bit riskier). At just 0.8% in annual fees, it’s got an excellent price but its average return of 4.3%, while not terrible, isn’t terrific either. It does give you a fixed income however and should definitely be considered for your portfolio.

What Vanguard has done is used its reputation as a low-cost investment house to power itself into the ETF space. It’s using this low cost push to its advantage and, although it’s still not the biggest provider by any means, it shows that low costs and investing success can go hand-in-hand.

Let’s face it, you can certainly hire a financial advisor to help you choose your investments, but most of them sell high-priced investments on commission or charge incredibly high fees for managing your assets. If you’d like to avoid those charges and fees, below are some of the pros and cons of 4 types of investments and/or advisors so that you can make the choice yourself. Enjoy.

#1: Asset Allocation Funds

These are designed to be a type of “one-stop shop” where you can get everything from bonds and stocks to alternative investments like commodities and real estate.

The Pros: It’s easy because you simply need to pick one, set it up and then forget about it. You can choose between balanced funds, tactical funds and target date funds, all of which have slightly different investments, and different proportions of those investments.

The Cons: With an asset allocation fund, the mix of investments you get won’t be specifically tailored to your needs. The fees might also be higher since they are composed of actively managed funds rather than passively managed. Lastly, since all of the investment types, regardless of their tax efficiency, are included in an asset allocation fund, there’s no way to minimize taxes across both taxable and tax-sheltered accounts.

#2: Robo-Advisors

If you want an online program that will give you both specific and customized recommendations about investments, and manage your portfolio as well, a robo-advisor may be your best choice.

The Pros: There are a number of different Robo-Advisors available both for retirement plans and outside accounts, and they offer recommendations based on a number of factors like taxes, investments in your employer retirement account and so forth. In the very near future Charles Schwab will be introducing a new, free, robo-advisor her called Schwab Intelligent Portfolios.

The Cons: With most robo-advisors you’re going to pay a fee for the service, and also be limited by the investment options that are included in whatever program you choose. Also, it takes quite a bit of time to enter all of your information into the program at the beginning.

#3: Discount Brokerage Firms

The Pros: Ff you want to talk to someone local that can help you choose your investments, a discount brokerage firm like Fidelity, Scotttrade and Charles Schwab is a great choice.

The Cons: The help that these discount brokerage firms can give you is quite limited unless you pay an extra fee. Also, the advice and help you get can vary drastically from one representative to another.

#4: Fee Only Advisors

The Pros: If you want to avoid high asset management fees, as well as conflicts of interest, hiring a fee-only advisor is a good idea, one who charges either an annual retainer or hourly fee. They can provide a comprehensive financial plan as well as excellent investment advice and, in some cases, tax preparation services also.

The Cons: Usually, fee-only advisers are the most expensive option for handling your investments.

No matter what choice you make, what you need to focus on is that your portfolio is well diversified based on both your time-frame and your risk tolerance. You also want to keep costs under control, including taxes, fees and trading costs.

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