Browsing Category: Investing

Make Retirement Easier – Automate Contributions

retirement invest

Planning and investing for your retirement doesn’t have complicated or difficult. While you should definitely have some overall plan with your money, getting paralyzed by all the options and choices you have can make unproductive and leave you financially vulnerable.

Start Contributing to Your 401(k) retirement invest

When you’re just starting to look around for which account to invest in, start with your job. My husband’s job offers a 401(k) with a match and we try to take advantage of it. Try to at least set aside enough money to receive the company match as it’s basically free money in your pocket.

Depending on your employer, you’ll have different funds to invest in. If available consider putting your contributions towards low cost index funds. My husband doesn’t have this option, but he has found funds that have lower expenses and track different sectors to diversify his portfolio.

My advice is to increase the amount as you receive raises and promotions through work. It doesn’t have to be significant, just take it up a notch every increase. Besides allowing you to invest more, you’re also lowering your taxable income, a double bonus.

By the way, if your company an Employee Stock Purchase Program, you may want to consider participating.  ESSP allows you to have some of your paycheck deducted to buy your company’s shares at a discount from its market price. Just remember to be diversified with your retirement fund and not too heavily invested in your company.

Open Up an IRA and Take Advantage of the Benefits

Once you’ve set yourself up to get teh full company match, you may want to look at contributing to your IRA (traditional or Roth). The main difference between the two IRAs has to do with when you’ll be taxed:

  • Roth IRA – contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free.
  • Traditional IRA – contributions are often tax-deductible (often simplified as “money is deposited before tax” or “contributions are made with pre-tax assets”), all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income.

Banks, brokerages, and credit unions offer IRAs. Some charge a flat fee for the year, some take a fee for each transaction made, others can take a percentage, and some do all of this. Compare your options to see if you’re getting a good deal.

Thoughts on Automating Retirement Contributions

For those who are investing automatically, what percentage of your income to do set aside every month? Where do you do invest (employer’s 401(k), brokerage, local bank) your money?

Note: This post was included in the Carnival of Personal Finance

Betterment: Investing Made Easy

betterment investing stocks and bonds

This week I’m reviewing Betterment. I’ve been looking at different investment options for ourselves and Couple Money readers and after hearing about Betterment.

While getting this review up, I had the pleasure of talking with Betterment VP Alan Cohen on the phone to get some questions answered and points clarified. Not sure if Betterment is the right option for you? Hopefully my review will help you make the decision.

Betterment – Background Info

For their clean cut approach to investing, Betterment received recognition as “Best in Show” at Finovate 2010.

Since this is a fairly new company, you’re probably wondering if it’s safe to put your money in their accounts. Rest assured that Betterment is registered with the Securities and Exchange Commission.  As they explain on their site:

Securities in your account are protected up to $500,000 by the Securities Investor Protection Corporation (SIPC). SIPC helps people whose money, stocks and other securities are stolen or put at risk if a brokerage fails.

The focus of the company is to help people invest their money in a system that is as easy as depositing money into a savings account. It’s to encourage more people to start investing and reduce some for the hassle associated with the process. How do they do it?

Investment Options at Betterment

The method for investing is fairly straight forward. The company uses exchange-traded funds (ETFs) for their portfolios and users choose how much of their portfolios they want invested in stocks and portfolios. ETFs track a particular index (like a index fund), but they’re traded like stocks.

Stocksbetterment investing stocks and bonds

Here are Betterment.com’s stock ETFs:

  • 20% Vanguard Total Stock Market (VTI)
  • 20% iShares S&P 500 Value Index (IVE)
  • 20% iShares S&P 1000 Value Index (IWD)
  • 15% iShares Russell 2000 Value Index (IWN)
  • 15% iShares Russell Midcap Value Index (IWS)
  • 10% DIAMONDS Trust Series 1 (DIA)

Bonds

There are only two ETFs for bonds:

  • 50% iShares Barclays TIPS Bond Fund (TIP)
  • 50% iShares Barclays 1-3 Year Treasury Bond Fund (SHY)

Investing Made Simple

Investing with Betterment does have a huge advantage in that it’s simple to use and track. Keeping investment options simple also helps to keep their fees low. There’s a small annual fee based on your account’s balance.

Betterment’s fee is a straightforward 0.3% to 0.9%, depending on your balance. For balances under $25,000 the fee is just 0.9% annually. The portion of balances over $25,000 will be charged 0.7% annually, the portion of balances over $100,000 will be charged just 0.5% annually, and the portion of balances over $500,000 will be charged at 0.3% annually.

Portion of Balance Fee charged
$0 – $25,000 0.9%
$25,000 – $100,000 0.7%
$100,000 – $500,000 0.5%
$500,000+ 0.3%

Source: Betterment

What they don’t have is also impressive:

  • No Transaction Fees
  • No Deposit/Withdrawal  Fees
  • No Rebalance Fees

Sometimes what you don’t charge is a big plus for customers. Less fees means you can keep more of your money.

Automatic Rebalancing

Why is it important to keep your asset allocation in check? Asset allocation is about maximizing your portfolio’s return while minimizing your risk. While maximizing returns seems fairly clear and measurable, risk is subjective and differs person to person. Betterment will make sure that your portfolio stays within your guidelines. That’s one less thing to stress about and a helpful way to help you maintain your personal investing goals.

Who Betterment is For

If you believe in passive investing, this could be the model for you. If you’re an investor looking for a simple, no hassle option, then I think Betterment could be a good for for you.

One concern for new and would be investors is how risky it seems. They see the news and wonder if putting their money into the stock market is the right move for them.  How can tell when they should buy low and sell high? What metrics can they use to find out how to time the market?

There are definitely people who find it easier and more successful to work with index funds. Schultheis, author of  The New Coffeehouse Investor, provides plenty of data on the historical returns of the stock market from 1926-2008. persuasively argues that by comparing different investment vehicles, long term investing is not as risky as some imagine.

If you’re interested, you can sign up for a new account at Betterment here.

Who Betterment is Not For

Betterment is not designed for those interested in active investing. Active investing is focused on trying to beat the market. If you also want to add individual stocks into your portfolio, you’ll have to use someone else.

You also need to consider your timetable before you decide to invest. If you need your money in the next couple of years, then investing is probably not the best bet for you. Instead you should focus on other options, like savings accounts or CDs.

  • Easy access to it in case of emergency – It does you no good to have a high interest rate if you can’t get to it quickly when it’s most needed.
  • Safe place to store you money – Whatever you choose, make sure it’s either covered by the FDIC (banks) or NCUA (credit unions).

My personal suggestion is ING Direct – we’ve been very happy with their service and their rates are better than the local banks and credit unions here.

Thoughts on Investing and Betterment

If you’re handling your own investments, I’d love to hear your thoughts on the topic. How did you determine your asset allocation? What resources do you recommend on learning more? Are there any hurdles people should look out for when investing? How many of you have signed up for Betterment? What are your goals for your accounts?

Foreign Exchange Trading – A Viable Investment Option?

forex investing

Today’s guest post is  on forex investing as a possible option in your portfolio. As with everything in personal finance, you should examine for yourself if this is a good option for you.

The Traditional Method of Retirement Investing May Be Dead forex investing

The 2008 Global Credit Crisis changed things.  In the wake of a near complete collapse of the global financial system, a metaphorical “reset” button was hit.  Time will prove if this is true, but the ravishing effects of the Sub-Prime Mortgage Crisis may have set off a new trend in the global economy—and that new trend may be a gradual descent of America as the clear economic world leader, and a gradual ascent of emerging market economies such as China, India, and Brazil.

In previous generations, working-class Americans were able to invest in retirement accounts each year, and at the end of their careers, if they had a good paying job for most of their adult lives and mastered their finances successfully, they were able to retire with at least $500,000 as a nest egg, and possibly much more.  That option is no longer available for Americans.  The current economic recovery in the United States is proving to be extremely slow, and the Federal Reserve is now saying we will see unemployment remain stubbornly high for several years as the economy exhibits very sluggish growth.

The U.S. has been wounded.  And our recovery is not going so well.  But we are in good company.  Europe is struggling with us.  The western developed world is obviously in a world of hurt.  And this reality is what has possibly caused a “reset” button to be hit.  However, China, India, and Brazil have not been hit as hard as the U.S. and the rest of the West.  In fact, these countries are still expanding and growing at incredible speeds.  Thus, the revelation—each year that the U.S. continues to struggle for economic recovery, China and India are growing exponentially.  So, you have the U.S. moving forward, but very, very slowly, and some would even argue it is moving backwards from a long-term perspective.  And as the U.S. is moving forward very slowly, or even moving backwards, you have China, India, and Brazil moving forward at warp speed.  The question is when will they catch the U.S.?

Go Global with Investing?

Most economists have predicted that China will catch the U.S. by 2030, although it could be sooner.  Today’s Americans do not have the luxury of investing in mutual funds and 401k’s and expecting to get the steady 10%-12% returns over the next 20-30 years that previous generations of Americans did.  The game has changed.  In order to truly build wealth over the next 20-30 years, investors may have to go global.  It may be absolutely necessary to invest in foreign markets such as China, India, and Brazil.  To a new investor that may be a scary thought, so let’s examine how an ordinary investor can take advantage of this explosion in emerging markets.

Foreign Exchange Trading – A Hidden Oppurtunity?

There is an entire industry called managed futures.  Managed futures are hedge funds and other alternative investment funds managed by Commodity Trading Advisors.  This industry is heavily regulated by the National Futures Association (NFA).  Typically, only wealthy clients have been able to invest in managed futures accounts, but many firms are beginning to lower the entry criteria.  Previously, clients were required to have a minimum net worth of $1,000,000 and minimum investments were often at least $100,000.  But today many firms are beginning to allow investors to invest with minimum capital investments of $5000 or even less.

The benefit to investing capital in a managed futures account is that many funds engage in foreign exchange trading or foreign equities.  Both of these investment vehicles will expose your assets to emerging markets and help you take advantage of their incredible current and expected growth prospects.

An interested investor can research exhaustive databases at the NFA and at Barclay’s in order to find a fund that is in line with his or her investment objectives.  Simple research will reveal how a fund has performed throughout its history.  Although managed futures may be a great way to further diversify one’s portfolio, it should be understood that many funds trade on leverage, so it is also risky.

Cesar Zambrano is a writer for ForexFraud.com, a website devoted to educating investors in the subject of frauds and scams. He has been interested in the stock market, investments, and spreading the word about fraudulent activities for much of his life, but has most recently fulfilled this passion by working for ForexFraud.com
Photo Credit: Diego_3336

The New Coffeehouse Investor Review

Bill Schultheis the new coffee house investor review

If you read my post yesterday on whether you should buy BP stock now, I mentioned how this next book to be review was very applicable and useful. With everything that has been commented on with the market, BP, and the global economy, I thought reviewing The New Coffeehouse Investor would be great.

Bill Schultheis the new coffee house investor review

I had this book a while ago, but as I was perusing it again for the review, I kept finding myself reading the chapters and making some new notes in it. It’s still full of practical information.

The New Coffeehouse Investor Overview

This is an updated edition of Schultheis’ book from his 1998 book.  Schultheis gets right to the heart of his message in the beginning of the book. He lays out his 3 fundamental principles of investing:

  • Save for a rainy day. (Develop a long term financial plan)
  • Don’t put all your eggs in one basket. (Diversify in different asset classes.)
  • There is no such thing as a free lunch. (Capture the entire return of each basket, or asset class, through low cost index funds).

Schultheis passionately argues that the hype of Wall Street to keep buying and selling is detrimental to many investors. His book shows how simplifying investments wisely can bring better returns.

What’s Inside the New Coffeehouse Investor

It’s broken up into 12 chapters:

  • The Coffeehouse Investor
  • This Thing Called Risk
  • Approximating the Stock Market Average
  • Building Common-Stock Portfolio
  • My Favorite Piece of Pie
  • Saving It
  • Life, Logic, and Paradoxes
  • Travels of a Coffeehouse Investor
  • Spending It
  • Index Funds and Beyond
  • Let’s Have Some Fun
  • The Journey Continues

What I found intriguing was the typical investment behaviors of millionaires. Schultheis points out that less than 10% of millionaires think of themselves as active traders.More startling to me was a whopping 42% of millionaires in America makes less than 1 transaction per year for their portfolios.

Can You Beat the Market?

One concern for new and would be investors is how risky it seems. They see the news and wonder if putting their money into the stock market is the right move for them.  How can tell when they should buy low and sell high? What metrics can they use to find out how to time the market?

First off, Schultheis provides plenty of data on the historical returns of the stock market from 1926-2008. To ease potential investors’ fears, he examines  five-year and ten-year returns. Schultheis persuasively argues that by comparing different investment vehicles, long term investing is not as risky as some imagine.

The irony is that now index funds, once a simple concept that allowed you to follow the market has now become complicated with some marketing from Wall Street. Now some advisors in the financial industry are peddling sector index funds as the new way to invest.

The Coffeehouse Investor takes you through the formation of  exchange traded index funds (ETFs) and how they stack up against a total market index fund.

My Thoughts on Coffeehouse Investor

If you’re looking for a guide on how to invest that can give you solid returns minimizing some of the risk, this is a great book to start with. I really enjoyed looking at the track record of different investment vehicles and how they work.

Have you’ve read The New Coffeehouse Investor? What are your thoughts on it?