The best investing books
are a great way to introduce yourself to new strategies and expert opinions.
They can also help you gain
insight and increase your chance of earning a good return without paying
Investing requires skill,
strategy, and intuition. Time can help alleviate short-term losses, but there’s
no substitute for experience. Pick up a book and educate yourself instead of
settling for the idea that you’re “just not good” at investing.
Even if you’re a seasoned
investor, there’s always more to learn. The best books on personal investing
are full of experience and insights from financial experts.
10 Best Investment Books
to Add to Your Reading List
With so many titles
available, narrowing your reading selection is no easy task. This collection
ranges from stock market books for beginners to books about overall investing
1. The Little Book of
Common Sense Investing
This classic guide has
useful advice on how to get more from your funds, and it’s a top stock market
book for beginners.
Advanced investors may
recognize author John Bogle as the founder and former CEO of Vanguard. Bogle’s
investment company is one of the largest in the world and has more than $5.2
trillion in assets under management.
Investment gurus are quick
to share complicated strategies, yet Bogle says the best solution is often the
simplest one. He believes the average investor can add millions to their
portfolio just by minimizing fees as much as possible.
The Little Book of
Common Sense Investing is one of the best investing books to consider if you’re looking for
real-world advice in an easy-to-understand format. This most recent edition
includes two extra chapters and updated data that can help you maintain a
long-term perspective in the market.
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Best Investing Apps for Beginner Investors
2. The Intelligent Investor
This book contains a
practical approach to investing which makes it one of the best investment books
for investors at all levels. Author Benjamin Graham expands on the concept of
“value investing” that helps you avoid costly investment mistakes, which is a
much better strategy than timing the market.
Besides value investing, The
Intelligent Investor covers topics like portfolio policy, asset
allocation, diversification, and dividends. The content is so valuable that
Warren Buffett calls it “the best book on investing ever written.”
First published in 1949,
it’s had several updates to make it relevant for the current market. This book
is a must-read for every investor no matter their level of expertise.
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3. One Up on Wall Street
Author Peter Lynch shares
his investing secrets and teaches you how to research companies before buying
their stock in his book, One Up on Wall Street. Lynch is a well-known
mutual fund manager on Wall Street. His long-standing record of outperforming
the stock market makes him somewhat of a legend.
His philosophy is that
rising stock prices aren’t enough to base your decision on because numbers
don’t tell the whole truth. You need to look beyond the balance sheet to
understand why a company is a good business and why you should invest in it.
If you’re new to the
market, One Up on Wall Street is one of the best books to learn stock
investing. It encourages you to stick with industries you’re familiar with,
listen to your intuition and ignore the so-called experts.
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4. The Essays of Warren
No list of the best
investing books would be complete without the notable Warren Buffett. Author
Lawrence A. Cunningham lets you in on Buffett’s expertise as an investor and
business leader in his book, “The Essays of Warren Buffett: Lessons for
This book is an excellent
choice, even if you’re a new investor and not a high-level executive. The
insight in the book goes beyond the corporate landscape to help you understand
the relationship between corporations and their stockholders.
Cunningham expands on
Buffett’s many years of investing wisdom. The Essays of Warren Buffett
is about how to make money in the stock market using real-world advice.
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10 Best Business Books of All Time
5. Common Sense on Mutual
Another outstanding book by
the founder and former CEO of Vanguard, Common Sense on Mutual Funds
by John Bogle is essential reading for every investor. The content provides an
in-depth take on investing strategies and how to handle fluctuating share
Bogle encourages you to
focus on long-term investing and ignore short-term changes in the market. This
advice isn’t rocket science, but the book guides you through understanding the
role of speculators in short-term changes and how they can increase your profit
From there, Bogle takes you
through more advanced principles such as asset allocation, equity styles,
global investing, and fund selection.
Common Sense on Mutual
Funds is a breath
of fresh air in the investment industry. If you enjoyed The Little Book of
Common Sense Investing, this book should be next on your list.
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6. The Millionaire Next
What separates the typical
middle-class individual from millionaires? That’s the question authors Thomas
J. Stanley and William D. Danko set out to answer in The Millionaire Next
You’ll find this classic
book on nearly every list of the best personal finance books
because the teachings expand beyond basic money management. Stanley and Danko
present an inside look at the thoughts and behaviors of wealthy individuals.
They share observations
from a study of more than 1,000 self-made millionaires over a 20-year time and
break the data down to provide actionable advice to help you become a
millionaire as well.
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7. The Four Pillars of
You need a solid
understanding of investing fundamentals to make money in the stock market. It’s
this underlying principle that author William Bernstein discusses in what many
readers agree is one of the best investing books of all time, The Four
Pillars of Investing: Lessons for Building a Winning Portfolio.
Whether you’re a beginning
or expert investor, the detailed analysis of investments in this book can help
you build your portfolio, even though Bernstein is more conservative in his
Reading about the history
of investing and the psychology behind it can help you make more lucrative
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8. You Can Be a Stock
Although the title sounds
like a too-good-to-be-true sales pitch, it’s a good choice to get unique ideas
to grow your nest egg.
Author Joel Greenblatt,
founder of Gotham Capital, might be better known for his New York Times
bestseller, The Little Book That Beats the Market. But the real-world
examples in You Can Be a Stock Market Genius: Uncover the Secret Hiding
Places of Stock Market Profits are insightful and useful for those
struggling with investing.
This book is perfect for
average investors who want to understand complex situations. You could become a
stock market genius by applying Greenblatt’s advice to your strategies.
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9. Beating the Street
In Beating the Street, author
Peter Lynch includes his own strategies for investing to help you build a
A beginner investor will
appreciate the straightforward explanations in this book. If you’re more
experienced, you’ll still get value from the lessons Lynch includes with his
In Beating the Street, Lynch
outlines a practical approach to take your investing to the next level.
You can’t time the market
or predict when a company’s stock will rise and fall. But knowing when to buy
or sell stock is a valuable skill as an investor.
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10. Security Analysis
Wall Street Crash and the Great Depression, investors learned a lot of painful
— and expensive — lessons. The unprecedented losses at the time led Benjamin
Graham and David Dodd to publish one of the best books on personal investing, Security
The authors introduced a
new concept at the time called “value investing.” It’s a strategy still used
today to determine if an investment has the potential to deliver a reasonable
Security Analysis goes beyond stock investing to
explain how to analyze bonds and other types of investments. You’ll want to
keep this book on hand for reference and as a refresher on investing
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Best Online Brokers for Buying and Selling Stocks
Start Your Investing
Journey with The Best Books on Personal Investing
Many people get overwhelmed
with the idea of investing, and some can’t afford to hire a financial advisor
to tell them what to do. Reading these books can help you educate yourself
before you see a professional. The information in these books is valuable and
can help you if you’re not sure where to start.
Even if you’re an expert
investor, it’s still good to read the latest literature. If you always stay
educated, you’ll be ahead of the curve.
In this Stash
Review, we’ll cover the pros and cons of the Stash Invest app and help you
decide if this tool deserves a spot in your investment plan.
Almost everyone knows that
they should be investing in their future. The problem is that many people have
trouble finding extra money to sock away. Even the people that do have the cash
to spare aren’t sure how to invest their money or are scared that their
investments could lose value.
While it’s true that all
investing is subject to risk, you’re taking a risk by not investing, too. Money
in your savings account loses value thanks to inflation, so doing your best to
invest and earn a return on your money is essential to making sure you have
enough money in the future.
Stash is an app that aims to make
investing easier, less scary, and more fun. You can get started with just a
little bit of money and add to your balance over time. You can also choose to
invest in just the industries that you’re interested in, giving you more
incentive to keep up on your investments.
What is Stash?
Stash is one of many
investment apps available for modern smartphones. It gives you quick and easy
access to your investment portfolio from your phone.
Stash Banking: Coming Soon
The app originally launched
in October of 2015 and it has grown quickly in the past few years. Since its
launch, Stash has amassed more than 2 million users and added support for
retirement and custodial accounts. In the near future, Stash banking will be
offered to provide online banking services such as checking and savings
Stash keeps things as
simple as it possibly can for its users. You can link your bank account or
debit card to the Stash app and transfer money to your investment accounts on
demand. You can also set up automatic investment plans to save more without
having to manually make transfers.
Stash Review: How It Works
Stash is an easy-to-use
investment app perfect for beginners. Here’s what you need to know before setting
up your account.
To get started with Stash,
the first thing that you have to do is download the Stash app. Stash also offers its services
through its website, but the app is the primary way that you’ll interact with
When you open the app for
the first time, you’ll be prompted to make an account. Provide an e-mail
address and password as well as a few personal details in order for Stash to
confirm your identity. You’ll also be prompted to enter information for the
account you’ll use to fund your investments. Save your Stash login information
in a safe place.
Once you’ve handled the
administrative bits, answer some questions to set up your investment account.
The Stash questionnaire displays a variety of the investment options available
through Stash as well as information about them, their potential benefits, and
their risks. It also asks questions to help assess your goals and risk
Best Investments On Stash
Based on your answers,
Stash will show you a list of investment options. These options are broken down
into three broad categories: conservative, moderate, and aggressive. Choose the
best investment on Stash that matches your future goals.
The categories correspond
to the expected risk-reward ratio of each investment and are designated as your
risk profile. Once you select the style of investment you want, you can choose
from a number of themes that focus on specific sectors, such as technology,
clean energy, or other business divisions that you’re passionate about.
Investing with Stash
After you’ve set up your
account and chosen your investments, the only thing left to do is to actually
add money to your account. Deposit at least $5 to get started. After that, you
can add money at any time.
Stash makes saving fun with
a variety of goals and milestones to work toward. If you start by putting $5 in
your account, Stash might challenge you to get your balance to $50 or $100.
When you meet that goal, Stash will come up with a new one.
Stash also places a major
emphasis on education. When you view your current balance and your goals, Stash
will show how your money might grow over the next 5 or 10 years and how
changing your savings patterns will influence your earnings.
Stash also allows automatic
investment. Set up a weekly or monthly transfer to add more money to your
investment account and grow your balance even faster.
Related: How to Start Investing with $100
Investing is a waiting
game. The old adage that time in the market trumps timing the market still
holds true. If you’re thinking about the long-term, you might want to take
advantage of Stash Retirement. This feature offers the same investment
services that the standard Stash Invest service does, but with retirement
You can open either a Traditional or Roth IRA through Stash and use them to save
for the future. Just remember the restrictions for each account. Once you
deposit money, you can’t take it out until you turn 59½ without incurring a
penalty. Roth IRA contributions, but not earnings, can be withdrawn
penalty-free at any time.
Nothing in life is free,
which means that you don’t get all of the benefits of Stash without a cost.
The Stash app has three
subscription plan options, with each plan offering its own unique features. All
options are available to all customers, regardless of account balance.
Here’s a quick glance at
Stash’s fee structure.
*Clients may incur
ancillary fees charged by Stash and/or its custodian
Keep in mind that the fees
charged directly by Stash aren’t the only fees you’ll pay. Stash invests your
money in Exchange Traded Funds, which hold a variety of stocks and bonds.
ETFs also charge management fees, which can range from .05% to 1% or more of
your balance per year.
The ETFs Stash offers charge
fees between .20% and .40%, so you could wind up paying .5% or more of your
balance each year to use the service.
Related: Qapital Review: Is Automating Your
Savings a Good Idea?
Stash App FAQ
Investing is complicated,
so it’s no wonder that an app designed to help people invest would be a little
complicated itself. Here are some common questions about Stash and its
Is investing with Stash a
Many companies and advisors
require that you commit thousands of dollars or more before you’re allowed to
invest. Stash lets you get started with $5 by giving you ownership of a
fractional share of a stock or ETF.
Consider this example: ABC
Company costs $100 per share. You and 19 other people sign up for Stash and you
each invest $5 in ABC Company. Stash pools your money to buy one share, and
then assigns ownership of 1/20th of the share to each person. In
this way, you can own less than a full share.
How does Stash make money?
Stash makes money by
charging a monthly fee (regardless of account balance) for its services. You
pay either $1 per month (STASH Beginner), $3 per month (STASH Growth), or $9
per month (STASH+) to use Stash.
Is Stash safe?
Yes, Stash is safe to use.
Even if Stash goes bankrupt, your investments will be safe and will still belong
Stash works with a company
called Apex Clearing Corporation to hold the investments it purchases for its
customers. The investments are held in a federally regulated broker-dealer
(Apex), and this company acts as a custodian for Stash.
Apex is a member of the
Securities Investor Protection Corporation (SIPC). Under SIPC, cash is returned
up to $250,000 and up to $500,000 for non-cash investments.
This protection only
applies if the companies holding investments on your behalf close. That said,
don’t expect to be reimbursed if your investments lose value. Remember,
investing involves risk.
Who Should Use Stash?
Stash was designed with
beginner investors in mind, and it shows. While it’s a great way for people to
get started, and it offers valuable educational tools, its fee structure and
inability to take full control of your investments make it a poor choice for
people with more money to commit or a desire to be more hands on.
Stash vs Acorns
Stash and Acorns both
provide a decent opportunity for brand new investors to build a portfolio.
Choose from 150+ investment themes and single stocks
Support for taxable and tax-advantaged accounts
Full access to educational content
Personalized investment coaching
Monthly pricing structure
(plans starting at $1/month) to keep your money invested
Can only purchase securities
from a set list of ETFs and stocks.
Missing features, like tax-loss
harvesting, offered by robo-advisors
Best for: Stash is a good choice for young people who just want to get their feet wet with investing. More serious investors who want a hands-on experience or someone who has more money to commit to a full-fledged robo-advisor can get a better deal elsewhere.
How Stash stands out:
Stash is a simple investing
app that makes it easy to start putting money to work, even if you’re only
looking to invest a small amount of money. Stash allows you to invest money
online by letting you choose from 150+ stocks or investment “themes”; pick from
the best options for your goals, interests, and beliefs. Each theme includes a
group of companies to invest in rather than just one.
Stash Review Summary
Overall, Stash is an
adequate service that does a good job of helping new investors. It falls short
of being a great app for everyone as more advanced investors will want to take
a hands-on approach that simply isn’t possible with the services that Stash
However, as we wrap up our
Stash review, a major bonus is that you can start investing with Stash with just $5.
*DollarSprout is a paid
Affiliate/partner of Stash. Investment advisory services offered by Stash
Investments LLC, an SEC-registered investment adviser. This material has been
distributed for informational and educational purposes only and is not intended
as investment, legal, accounting, or
All you have to do is
deposit money into your account and M1 Finance will invest it in a diversified
portfolio on your behalf.
is M1 Finance and How Does it Work?
M1 Finance is a robo-advisor company that aims
to make investing easier for people who want help with choosing and managing
Unlike human financial
advisors, robo-advisors are programs that automatically invest your money for
you. You provide the program with information about yourself, such as your age,
financial situation, goals, and risk tolerance.
The software takes your information
and uses a series of algorithms to design a portfolio that will meet your
needs. It then purchases the investments required to build that portfolio. As
you add or remove money from your account, the M1 Finance robo-advisor
automatically keeps your portfolio balanced.
M1 Finance describes itself
as “the ultimate financial tool,” which helps you save time, earn more, feel
confident, and join the excitement of investing.
It’s easy to get started
with M1 Finance. There are no minimum balance requirements to meet or account
opening fees to pay. Simply download the app to your phone or visit the
company’s website to sign up for
a free account.
You can create your account in minutes.
Starting a free account
requires some basic information about yourself. M1 Finance will use this
information to verify your identity. You’ll also need to link a bank account.
This account will be used for making deposits into your M1 Finance account.
Additionally, any money withdrawn from M1 Finance will be sent to this linked
Once your account has been
created, you’re ready to start investing.
Traditional brokerages let
you invest in a variety of assets, including stocks, bonds, real estate, and cash. You can determine what
percentage of your money you’d like to invest in each asset, but it’s up to you
to maintain those percentages.
With M1 Finance, the
program does everything for you. When you decide which investments to make, M1
Finance asks you to create your “Pie.” This is your set of chosen investments,
which can include individual stocks or bonds, Exchange Traded Funds, and more.
Your Pie is visualized as a
pie chart. It shows the breakdown of the investments that you’ve chosen. You’ll
be asked to set the target percentage for each slice (investment) of your Pie.
Upon creating your Pie, all
you have to do is deposit funds into your M1 Finance account. The software will
automatically distribute your money to your chosen investments as specified by
As time passes, each slice
will grow or shrink based on the recorded returns. When you make additional
deposits, M1 Finance will allocate your money with the goal of bringing each
Slice back to its target.
If you need some help designing
your Pie, you can choose from a list of curated Expert Pies.
These Pies have been put
together by investment professionals and are aimed at different goals, risk
tolerances, and industries. You can use one of these Expert Pies as an easy way
to target your goals or to get exposure to specific companies in an industry.
There are a wide variety of
account types that you might want to open when you invest. If you’re investing
for the medium term, you might want a taxable brokerage account. Saving for
retirement lets you use special retirement accounts that offer tax benefits. If
you have a partner, a joint investment account gives you both access to the
When you open your M1 Finance account, you’ll need to choose the type of
investment account(s) that you’d like to open. The company offers individual,
joint, trust, and retirement accounts.
If you want the robo-advisor
to work as well as possible, you should try to keep as much of your money with
M1 Finance as possible. A wide variety of account types is important for
There are two essential
elements of long-term investing success: investing regularly and rebalancing
M1 Finance offers a variety
of automation tools to make it easy for you to invest without having to think
about it. You can set up automatic deposits from your bank to your M1 Finance
The robo-advisor will
handle everything for you, from taking the money out of your account to
purchasing the investments. You can schedule the deposits to be weekly,
monthly, or on any other schedule that works for you.
Rebalancing is the process
of keeping your asset allocation on target. If you want to have a portfolio
that is 80% stocks and 20% bonds, it takes some effort to maintain that ratio.
If the stock market falls, you might wind up with a portfolio that is 60%
stocks and 40% bonds simply because the value of your stocks fell. The
Rebalancing process entails selling high and buying low.
M1 Finance provides
automatic dynamic rebalancing using the money that you deposit, saving you from
the effort of calculating how you should allocate new money.
When you invest, your money
is tied up in the market. You don’t want to sell your investments because
you’ll incur taxes and you might miss out on gains. Still, you want some way to
use your money if you need it.
M1 Finance offers lending
services, allowing you to borrow up to 35% of your investment portfolio’s
Upon signing up for M1
Finance, you get access to its lending service instantly. There is no extra
paperwork to do, no credit check, no loan officer to speak to, and no denials.
There are also very few
restrictions on what you can use the money for. You can use the loan to make a down payment on a house, fund a wedding, or buy a new car.
Many people use the loan to refinance existing debt at a lower interest rate.
If you prefer, you can even borrow money to invest in your M1 Finance Pie,
adding leverage to your portfolio.
The interest rate on M1
Finance’s loans is very low, making it an attractive choice for people who keep
their money at M1 Finance. It’s even lower than typical loan sources, such as
personal lenders or credit cards.
Here are some of the most
common questions people have about M1 Finance.
Does M1 Finance Make Money?
M1 Finance makes money by
charging interest on the loans it offers to its account holders. It also lends
the securities that its customers purchase to other investors, earning money
from those loans. The company does not make money from account fees charged to
M1 Finance Allow Fractional Shares?
If you do not deposit
enough money to buy a full share in a company’s stock, M1 Finance will purchase
a fractional share of the stock for your account.
There a Minimum Amount You Can Invest in a Stock?
You can open an M1 Finance
account without meeting a minimum balance requirement. Once you open an account
and build your Pie, you can invest in any number of securities. While you can’t
buy securities for less than a penny, M1 is able to invest your money without
Should Use M1 Finance?
M1 Finance offers a lot of
attractive features. Most robo-advisors charge fees that have a noticeable
impact on your returns, so the chance to get free robo-advisory services can be
The people who will get the
most use out of M1 Finance are those who don’t want to spend much time thinking
about their investments and who don’t want to pay for more advanced advisory
services. As a great “set it and forget it” solution, M1 Finances appeals
to many people who prefer a simple investing solution.
Finance Review Summary
Every company has its pros
and cons, and M1 Finance is no exception. As a free robo-advisor
that makes investing easy, M1 Finance is worth your consideration.
Multiple account types –
taxable, IRA, trust, etc.
tax-loss harvesting service
execute once per day
Best for: M1 Finance is a good choice
of robo-advisor for most new investors. Its lack of fees and minimum
investment mean that anyone can easily start using the service. Where it falls
behind is in more premium features, such as tax loss harvesting, which other robo-advisors
claim can make up for the fees they charge.
Betterment review, we’re going to show you the details of how Betterment works,
what services it offers for investors, and whether investing with Betterment is
the best choice for you.
Once upon a time, having
your investments managed by a professional was reserved for the rich. Hiring a
portfolio manager was expensive and often required a minimum net worth that no
one but the 1% could afford.
Betterment, and companies like it, aim to
By using sophisticated
technology, robo-advisors can make high quality investing available to
everyone. Even if you are new to investing and only have a small amount of
money to start with, robo-advisors make it possible to easily get
Betterment gives you an
individualized, professional portfolio. All you have to do is tell them a bit
about yourself, then fund your account.
We’ve researched all there
is to know about this company and spill it all right here in our complete
Review At a Glance
Best for: New investors and investors
primarily with tax-advantaged accounts that want hands-off investing at a low
The Bottom Line: Betterment is the largest
robo-advisor on the market and is a high-quality investment option for anyone
who doesn’t want to get their hands dirty optimizing their own account.
Betterment is an online
service that will invest your money for you, and keep it invested in a way
that is aligned with your goals using tested algorithms. Companies like
Betterment are commonly referred to as robo-advisors.
Founded in 2008, Betterment
is the largest robo-advisor on the market with $13.5 billion in assets under
management. In 2017, it became the first online financial advisor to exceed $10
billion in assets.
For a low management fee of
0.25% and a $0 minimum investment, you can open traditional investment
accounts, retirement accounts, or trusts with Betterment to help you save for a
variety of goals.
Besides its standard portfolio,
Betterment offers three portfolio
optionsfrom which to
choose. Then Betterment will manage your assets based on your goals, risk
tolerance, and personal financial situation.
While you won’t have access
to a certified financial advisor in-person or on the phone, you can ask
questions at any time in Betterment’s app. All inquiries will be answered by a
Certified Financial Planner (CFP). The Betterment app is certainly handy to
have on your smartphone for this reason alone.
If you want a little more
hand-holding, you can get unlimited phone access to CFPs for personalized
advice. This service has a higher management fee of 0.40% and a minimum
investment size of $100,000.
Betterment Facts & Figures
Assets Under Management
$100,000 for Betterment
Account Management Fee
0.40% for Betterment
Investment Expense Ratios
expense ratios average 0.13% for Betterment portfolios. Slightly higher for
Socially Responsible, Blackrock Income and Goldman Sachs Smart Beta options
Other Account Fees
Account Types Offered
and joint taxable accounts
Roth, Traditional, SEP
and Rollover IRAs
customers can reach Certified Financial Planners (CFPs) via in-app messaging.
Premium customers get unlimited access to advisors via phone.
How Does Betterment Work?
Like most robo-advisors,
Betterment uses modern portfolio theoryto determine asset allocation. It then invests
across 12 asset classes in its standard portfolio. This portfolio automatically
rebalances to keep your risk profile in-line with your goals and personal
By using ETFs, Betterment
keeps underlying investment costs low, which keeps costs from eating away at
your wealth over time. The company’s platform also lets you track different
financial goals, and lets you know if you’re on track each time you log in.
Much Does It Cost to Invest With Betterment?
Betterment charges a flat management fee of 0.25%. This means a $10,000 account will
pay $25 a year in management fees.
There are no trading fees,
sales fees, or other fees when you invest with Betterment. However, the
underlying ETFs that Betterment buys do have internal costs paid to the ETF
provider, not Betterment. These fees average 0.13%.
there a way to lower fees?
Betterment’s promotion to
lower fees for new clients isn’t much help for smaller investors. Deposits of
$15,000 to $99,999 get one month free; $100,000 to $249,000 get six months
free; and a deposit of over $250,000 gets one year free.
Betterment offers a
referral program. For each friend you refer to Betterment, you get 30 days of
free management, and they get three months free. To qualify, your friend needs
to open and fund a new account. But refer three friends, and you get an extra
Ultra-high net worth
Investors with over $2
million invested will Betterment won’t be charged fees over that amount. You’ve
got that hidden in the couch cushions, right?
The vast majority of
Betterment’s assets are invested with its proprietary Betterment Portfolio. But
the company recently added a few new options. All four investment strategies
provided by Betterment rebalance as needed.
This portfolio is built
with up to 12 asset classes, depending on your goals and risk tolerance. It
includes domestic and international stocks and government bonds and U.S.
REITS or Commodities to Increase Betterment Returns
One knock on Betterment by
professionals is that its portfolio does not include REITsor commodities. Betterment states that, based
on testing, these securities can add cost but don’t benefit returns. However,
both of these asset classes can provide more stability to a portfolio than one
just made up of stocks and bonds.
Betterment has 3
additional portfolio strategies:
investing (SRI) involves investing more dollars in companies whose business
practices benefit different social causes. It is a rapidly growing area in the
investment world. For heart-focused investors, Betterment offers such a fund.
Socially Responsible Portfolio substitutes three ETFs in the standard portfolio with three SRI ETFs.
These ETFs exclude companies with poor records on specific issues, while
allocating more to companies with excellent records.
However, the majority of
the ETFs in this portfolio are the same as the standard portfolio. Betterment
is working on adding more SRI ETFs but is balancing social benefit with cost.
This is a new investment arena, so options are still coming on the market. As
low-cost alternatives become available, Betterment plans to switch more of the
standard ETFs to SRIs.
Target Income Portfolio
Built by BlackRock, this is
a 100% bond portfolio focused on generating income from interest payments. For
investors living off their assets, this can insulate you from some of the ups
and downs of the stock market.
Keep in mind; the BlackRock Target
is only meant to be a piece of your investment strategy. Having no stock
exposure limits your returns over time, which can increase the probability of
running out of money in a long retirement.
Sachs Smart Beta Portfolio
Designed by Goldman Sachs
Asset Management, this portfolio seeks
by taking on somewhat higher risks. While this strategy still sticks to
Betterment’s principles of diversification and tax optimization, it is also a
little less passive.
This portfolio will select
for areas of the market where greater returns are expected over time, using a
distinct algorithm. It looks for areas of the market with good value,
high-quality, robust momentum, and low volatility.
If you’re risk averse, this
strategy isn’t for you. There will be times when this portfolio will under
perform the standard Betterment Portfolio, in pursuit of higher long-term
Introduced in May 2018,
Betterment took a small step away from formula-based robo-advising.
In the past, investors
could select their balance of stocks and bonds. But they couldn’t control how
much of each of the underlying ETFs in the Betterment Portfolio they owned.
That was determined by the algorithm.
The problem with this was
high-net worth investors who had significant investments outside of Betterment.
Betterment’s platform (and all robo-advisors at the time of this writing) can’t
balance asset allocations over funds they don’t manage. If an investor already
owned a significant amount of international stocks in another portfolio, she
might not want to own any in her Betterment portfolio.
So, Betterment handed over
control to clients with more than $100,000 in assets invested at the company.
The standard formula will still manage portfolio composition for most
investors. But if you choose, you can alter how much your portfolio owns of the
12 different underlying asset classes.
This is for more advanced
investors who want to set the rules for how their money is invested.
No one wants to send more
money to Uncle Sam than they have to. Robo-advisors like Betterment use
strategies to reduce your tax burden from investment gains.
do they do it?
Well, when you sell an
asset that has increased in value you have a taxable realized gain. But when
you sell an investment at a loss, that loss offsets any potential gains. So,
robo-advisors like Betterment balance selling investments with losses and
assets with realized gains to reduce taxable amounts.
This means that when you go
to withdraw money or rebalance, Betterment is always taking tax implications
into account automatically.
tax handling is one area where it falls short of its main competitor –
Wealthfront. Wealthfront uses what is called “direct
indexing” for portfolios with over $100,000 in investments. This means instead
of buying an ETF; it buys all the tiny pieces that make up the ETF directly.
Why? Well, it gives them far more options when looking for small offsetting
losses than Betterment’s 12 ETFs. Which makes its tax-loss harvesting strategy
Betterment has added some
features to be more competitive, but if your primary investments are in taxable
accounts, you would still likely be better off with Wealthfront.
If you have both taxable
and tax-advantaged accounts, you can choose to have your asset allocation
balanced across all your Betterment accounts. This allows Betterment to take
advantage of asset location. Placing funds that generate a high amount of
taxable returns in tax-advantaged accounts. And funds that are tax-efficient in
Based on research,
Betterment expects Tax-Coordinated Portfolios to provide an additional annual return
from tax savings of 0.10% to 0.82%, depending on assumptions.
Tax Loss Harvesting
If you are married and file
taxes jointly, Betterment can manage taxable gains for the family. Similar to
tax-coordinated portfolios, this makes it easier for Betterment to reduce the
total tax burden.
Want to know whether you
are on track for retirement? Link all your investment accounts to Betterment
and give them some details about your goals.
Enter simple facts like
your age, when you plan to retire, and how much you are currently saving a
year. Then Betterment will let you know how much you need to set aside and
whether you’re on track for success.
Betterment’s RetireGuidewill also calculate your current asset
allocation across all your portfolios, to help give you a full picture of your
Beyond investing, we want
to share in our Betterment reviews the other offers and many other benefits
that Betterment provides to investors. Here are a few of their perks.
Betterment’s app connects
all users with Certified Financial Planners (CFPs). Get answers about your
financial situation, whether or not it specifically has to do with your
If you have complex issues
or want a more personal relationship, it may make sense to upgrade to
Betterment Premium or seek out a fee-based CFP. But written contact through the
app can help you tackle the little things that come up.
When your portfolio earns
dividends or interest, Betterment doesn’t automatically reinvest it in the ETF
the payment came from. Instead, it uses the funds to buy whichever ETF bestrebalances your portfolio.
This method results in less
buying and selling, reducing your tax burden and managing your risk more
efficiently over time.
Let’s say an ETF costs $50
a share and you’ve only got $40 to invest. Instead of buying one share while
$10 sits in cash in your account, Betterment allows you to buy 1.25 shares.
This way all of your money is always invested and working for you.
With investing, research
shows the sooner you can get your money in the market, the better. But
sometimes, you’re just sitting on too much cash.
Betterment helps you avoid
sitting on the sidelines with its SmartDeposit tool. Let Betterment know how
much you need in your checking account at any given time, and it will
periodically scoop extra cash out of your checking account and invest it.
Don’t worry about cash
moving without your knowledge. You will be notified before each transfer and
can cancel it before it happens.
Betterment allows you to
set up different accounts within your main Betterment account to save for
multiple goals. Saving for a house requires a different investment strategy
than preparing for retirement. The system understands that and will manage your
risk. And let you know whether you’re on track.
My one issue with
Betterment’s goal-based savings is its safety net goal. This is meant to be an
emergency fund but recommends investing for this goal with 40% stocks and 60%
bonds. In general, you don’t want your emergency fund to be invested at all.
Investing is a long-term game. And you might need your emergency fund in the
short-term. I would recommend a high-interest savings account like CIT Bank or
Discover instead of Betterment for this particular goal.
Many people know that
donating to charity is a tax deduction. But did you know it can save you from
capital gains taxes too?
organizations allow you to donate shares instead of cash. By gifting the shares,
instead of selling it into cash first, you don’t pay capital gains tax. Plus,
the full value of the shares become a tax deduction.
Betterment allows you to
donate shares from taxable accounts to charities. It will even recommend the
best shares to optimize your tax savings while making a positive impact.
Should Invest with Betterment?
If nothing else, we hope
you understand from our Betterment review that this company is the largest
robo-advisor on the market for a reason. Its flat, low investment fee of 0.25%
with no investment minimum makes it an excellent choice for most hands-off
The platform is powerful
and easy to use. With continual rebalancing, tax-loss harvesting, and
fractional shares Betterment makes sure your investments are always working for
you. All while encouraging you towards their goals with regular progress
updates. Finally, by giving more flexibility to advanced investors, it creates
a middle ground for those who want a say but don’t want to be completely DIY.
However, for high-net-worth
investors with significant taxable investments, the tax-loss harvesting
strategy at Wealthfront is more efficient for the same fees.
Betterment has low fees,
automatic rebalancing, and high-quality investment options. This is a top
choice for hands-off investors that are planning for retirement or other
Since Betterment has no
minimum investment, you can open an account with no commitment today. Take the
time to test out their tools before funding your account. You can discover if
you are on track for retirement and discover how Betterment can help you get
In this Acorns
review, we’re going to show you how Acorns works, what the potential savings
and risks are, and help you determine whether Acorns is a smart investment tool
Remember your piggy bank or
loose change jar you had as a kid? How you would drop all your nickels, dimes,
and quarters in there until it was packed full?
If you’re like me, every
time you brought that change in the bank it added up to more cash than you thought.
Acornswants to take this “out of sight, out of mind” savings strategy to the next level. They round-up your expenses to the nearest dollar, then invest your nickels and dimes for future goals.
Recently, the company added
retirement accounts, a debit card account, and a $10 sign-up bonus.
But can this
micro-investing strategy really grow your wealth?
Let’s take a look.
What is Acorns?
Acorns is part spare change
jar, part robo-advisor. This app rounds up your purchases on linked credit or
debit cards — now with the option to boost those round-ups by 2x, 5x, or even
10x — and invests that money for you.
Summary: Round purchases up to the nearest
dollar and invest the difference in a taxable account. Add cash to your
investments regularly and get kickbacks to boost your investments from
purchases at partner retailers.
For $1 per month, this is
Acorns’ lowest cost option. To sign-up, you connect your bank account and link
any credit and debit cards where you want round-up investments to occur.
Then you select the amount
of money you want to contribute to your Acorns investment to get started. There
is no minimum, but the app won’t actually begin investing for you until your
Round-Up balance equals $5 or more.
Finally, you’ll answer some
questions about your financial situation, goals, and risk tolerance. Acorns
will use this to recommend one of its five ETF-based investment portfolios. You
can override their selection if you want more or less risk in your portfolio.
In addition to your
Round-Up investments, you can set recurring investments that occur daily,
weekly or monthly. Acorns Found Money service is also partnered with over 200
brands that give you cash back, automatically invested, for purchases.
Note: This account level used to be free
for college students for up to 4 years, but Acorns no longer offers this perk.
Invest + Later: $2/month
Summary: Original Acorns plus the
ability to invest in an Individual Retirement Account (IRA).
In 2018, Acorns added retirement investments to their
you can invest in a Roth, Traditional, or SEP IRA with Acorns. Investments into
your Acorns Later account occur the same way as with the original Acorns
Invest + Later + Spend: $3/month
Summary: Acorns online checking account
with full bank services, FDIC insurance, and the ability to boost your Acorns +
Acorns later investments with instant Round-Up and cash back from local
The most recent addition to
the Acorns platform is a digital checking account. Acorns Spend is a full-service checking
allowing digital direct deposit, mobile check deposit and payment, and
unlimited fee-reimbursed ATM withdrawals.
Acorns Spend allows for
real-time Round-Ups, custom spending strategies to boost your savings, and
increased Found Money cash-back with up to 10% invested from local places you
How Does Acorns Work?
Acorns’ investing service,
like most robo-advisors, is based on Modern Portfolio Theory created by Dr. Harry Markowitz. It
has five optimized
choose from and automatically rebalances your portfolio and reinvests all
dividend payments regularly.
Each Acorns portfolio is
made up of ETFs, or Exchange Traded Funds, with exposure across multiple asset
classes. These ETFs have internal expenses that equal about 0.10% of your
investment over time.
Here is how
Acorns portfolios are broken down today:
Short Term Government Bonds
Ultra Short Term Corporate Bonds 40%
Ultra Short Term Government Bonds 20%
Large Company Stocks – 24%
Small Company Stocks – 4%
Real Estate Stocks – 4%
Government Bonds – 30%
Corporate Bonds – 30%
International Large Company Stocks – 8%
Large Company Stocks – 29%
Small Company Stocks – 10%
Emerging Market Stocks – 3%
Real Estate Stocks – 6%
Government Bonds – 20%
Corporate Bonds – 20%
International Large Company Stocks – 12%
Large Company Stocks – 38%
Small Company Stocks – 14%
Emerging Market Stocks – 4%
Real Estate Stocks – 8%
Government Bonds – 10%
Corporate Bonds – 10%
International Large Co. Stocks – 16%
Large Company Stocks – 40%
Small Company Stocks – 20%
Emerging Market Stocks – 10%
Real Estate Stocks – 10%
International Large Company Stocks – 20%
As you add money to your
account through Round-Ups or scheduled deposits, Acorns will invest that money
for you based on your risk-profile. If you are using the basic Acorns account,
this will occur in a taxable investment account.
You can withdraw your money
from Acorns at any time, but investment withdrawals can take 5 to 7 business
days. And the reality is, you don’t want to use your Acorns savings as a
regular source of cash.
Investing is a long-term
game. By pulling money from this account for day-to-day expenses and goals,
you’ll increase the chance of losing money in the market.
Acorns Review: Frequently
With so many options out
there, investors have questions. Here are the top queries we’ve seen around the
web that we’d like to cover in our Acorns review.
Are small Round-Up
investments enough to matter?
When it comes to saving for
your future, every little bit helps.
At the same time, should
Round-Up investments be the core part of your investing strategy? No.
But even investing $30 a
month at a 7% market return adds up to over $4,900 in 10 years. Put that same
amount in an online savings or money market account, and you’re only looking at just under $3,900.
And the gap between investing and saving only increases over time. That’s the
power of compound growth.
How much does Acorns cost?
Acorns offers three plans:
Invest, $1 per month
Later, $2 per month
Later + Spend, $3
For small accounts, the $1
monthly fee is very high and offsets any reasonable potential gain from the
Let’s assume you had 50
Round-Up transactions a month, at an average round up value of $0.40. The
Acorns app would invest $20 for you each month but would take 5% of those
savings in Acorns fees.
As your account value
increased, that percentage would decline. But you would need to have $5,000
invested before Acorns’ fees were as low as Betterment at 0.25%. And Betterment offers those fees with no
minimum investment threshold and with access to a retirement account. You would
need $10,000 invested in an Acorns IRA to match Betterment’s fees.
What a $1/mo Fee
Means for a Taxable Account:
Are there risks with
investing with Acorns?
As with any investment,
performance isn’t guaranteed. Investing has risks which means the value of your
portfolio can trend up and down over time. While the S&P 500 has
consistently provided returns around 8% annually, year-to-year variations could
mean your account loses substantial value — sometimes in excess of 10% or more.
The biggest risk for Acorns
users is deciding to stop contributing to your account and keeping it small.
Remember, the smaller your account balance remains, the more impact the monthly
fee has on your overall account balance.
If you have plans for your money in the next three to five years, opt for a high-interest savings account instead. Some online banks, likeChime Bank, offer free checking accounts with automatic savings that don’t auto invest.
Is it okay to invest large
sums of money with Acorns?
For hands-off investors
with large sums to work with, the flat-rate fee may look attractive. For
example: If you have over $10,000 to invest in the Invest + Later membership level and your fees drop
to below the levels of top robo-advisor competitors like Betterment and Wealthfront, Acorns appears to be a cost
However, I would still not
recommend investing large amounts with Acorns. Their investment options aren’t
as robust as the bigger players. Portfolios include less diversification across
asset types and no ability to customize asset allocation outside the five key
In addition, if you are
primarily investing in a taxable account (the basic Acorns level), you don’t
improve long-term returns offered by many competitors.
Finally, you don’t get
access to professional financial support with Acorns. Larger robo-advisors
provide some access to Certified Financial Planners (CFPs) to answer your
burning questions. You might not have any today, but as your portfolio grows or
we hit a downturn in the market, it can be a comforting option.
Who is Acorns best for?
Acorns is best for new
investors who are looking for a hands-off solution to growing their savings.
Acorns App Review Summary
When it comes to round-up investing apps, Acorns is among the best in the
business. It’s easy to use, has an excellent education platform for new
investors, and simple, straightforward fees.
However, whether the $1-3
monthly fee is a benefit or a detriment really depends on your account balance.
If you’re only adding a few dollars a month to your Acorns account, that $1 a
month will hinder your investment growth.
$0 Account minimum You’ll need $5 to start
How Acorns stands out:
The Acorns app is very easy
to use, which is perfect for new investors who are learning the ropes. Users’
everyday purchases are rounded up and the change is invested, which makes
investing a daily habit.
for Beginners’ Guide will walk you through, step by step, how to start
investing without feeling completely overwhelmed.
Do you want your money to
earn you more money?
Well, it can’t do its work
hiding in a bank account.
Whether you want to save
for your child’s college or prepare for retirement, you’ll reach your goal
faster by investing.
Here’s everything you need
to know to get started today.
What is Investing?
When you invest, you
purchase something with the expectation of profiting off of it in the future.
In the 1990s, some people
thought they were making smart “investments” in Beanie Babies and McDonald’s
toys. But traditional investments include things like ownership in a business,
real estate assets, or lending money to a person or company in exchange for
Why Should I Invest?
Merely saving money isn’t
enough to build wealth. A bank will keep your money safe. But, each year,
inflation makes every dollar you’ve tucked away slightly less valuable. So, a
dollar you put in the bank today is worth just a little less tomorrow.
Comparatively, when you
invest, your dollars are working to earn you more dollars. And those new
dollars work to earn you even more dollars. Which then work to earn you even
more. The snowballing force of growth is known as compound growth.
Over the long term,
investing allows your assets to grow over and above the rate of inflation. You
past savings build on themselves, instead of declining in value as the years
pass. This makes it significantly easier to save for long-term goals like
Should I Start Investing?
Yesterday. But if you
haven’t started yet, today is a great second choice.
In general, you want to
start investing as soon as you have a solid financial base in place. This
includes having no high-interest debt, an emergency fund in place, and a goal
for your investments in mind. Doing so allows you to leave your money invested
for the long-term – key for maximum growth – and be confident in your
investment choices through the natural ups and downs of the market.
of Starting Young
Compound growth requires
time. The earlier you start investing, the more wealth you can create with
When it comes to investing,
time is your most powerful tool. The longer your money is invested, the longer
it has to work to create more money and take advantage of compound growth. It
also makes it far less likely that one harsh market downturn will negatively
impact your wealth as you’ll have time to leave the money invested and recover
Let’s look at an
Since 1928, the average
return of the S&P 500 (a set of 500 of the largest public companies in the
U.S. that is often used to approximate the stock market) is about 10%.
So, let’s say you’re 25 and
put $5,000 in the S&P 500. You see a 10% increase in value each year, letting
your money continue to grow. When you turn 65, you open your account to find
you have over $226,000. An excellent retirement gift to yourself!
However, if you waited
until you were 35 to start investing, your value at 65 would only be $87,000.
Still impressive. But less than half of what you would have had if you started
a decade earlier.
Off High-Interest Debt First
View paying down
high-interest debt as investing until you no longer have those debts. Every
dollar towards principal earns you an instant return by eliminating future
If you still have
high-interest debt, such as credit cards or personal loans, you should hold off
on investing. Your money works harder for you by eliminating that pesky
interest expense than it does in the market. This is because paying off $1 of
debt balance saves you 12%, 14%, or more in future interest expense. More than
traditional investments can be expected to return.
To reduce the risk of
having to pull money out of your investments early, have an emergency fund to
protect from life’s unexpected twists and turns.
Remember how we said time
is the most powerful tool? To start investing, you have to be set up to let
that money stay invested. Otherwise, you limit your time horizon and
could force yourself to withdraw your money at the wrong time.
To protect yourself from unexpected expenses or job layoffs, save a sufficient emergency fundfor your needs. Do not plan for your investment accounts to be a regular source of cash.
Small is Okay
Sometimes people think they
can’t start investing until they have a significant amount of money. But this
means many people give up years of compound growth waiting until they feel rich
enough. No matter how small, get your money working for you as soon as
Consider our previous
example of the $5,000 invested at 25- or 35-years-old. Pretend for a moment the
35-year-old didn’t have $5,000 to invest at age 25. But she did have $500. And
she thought, maybe, she could scrape together $50 a month to add to her $500
If she invested $500 at age
25, and then $50 a month until she had put away a total of $5,000, she would
have almost $174,000 at retirement age. Double what she would have had if she
waited until she had $5,000 at age 35.
Starting small makes a
significant difference, especially if it means you get in the market sooner.
Investing 101: Basic Investing Terms
The number one thing that
scares off new investors is the jargon. The investment market has a ton of
jargon. So, we’re going to give you the inside scoop to make it less
is a Stock?
A stock, also known as a “share,” is a tiny
ownership stake in a business. Public companies allow anyone to buy or sell
ownership shares of their business on exchanges.
If you own a stock, you are
actually a part owner of the company. Go you! While owning a share of Walmart
won’t give you the power to fire the slow cashier at your local store, you do
have some rights. You can, for instance, vote on members of the Board of
is a Bond?
A bond is
debt of a corporation, municipality, or country.
By purchasing a bond, you
are loaning money to one of these entities. For companies, bonds are typically
segmented into $1,000 increments that pay interest every six months, with the
full value paid back at “maturity,” i.e., the date the debt is due. Government
bonds are typically known as “treasuries.”
is a Portfolio?
A portfolio is a collection
of all your investments held by a particular broker or investment provider. You
may own some individual stocks, bonds, or ETFs. Everything in your account
would be your portfolio.
However, your portfolio can
also mean all your investments across all account types, as this gives a better
picture of your entire exposure.
Does Diversification Mean?
Just like you wouldn’t
invest all your money in your friend’s idea for a pumpkin-spiced toothpaste
business, you don’t want to only invest in one stock or bond. Diversification
means owning a variety of different investments, so your success or failure
isn’t dependent on just one thing.
To be properly diversified,
you want to make sure your investments actually have variety. Owning three
different clothing companies still means you’re facing all the same risks. An
import tax on cotton products, for example, could crush the value of all three
companies at once.
is Asset Allocation?
There are three main asset
classes for most investors: stocks, bonds, and cash. Asset allocation is how
you split your investments across those three buckets.
Stocks offer greater
long-term returns, but significantly greater swings in value. These swings,
sometimes north of 20% up or down in a given year, can be a lot to stomach.
Bonds are safer but provide lower returns in exchange for that security.
You determine your asset
allocation by considering the length of time until you need your money, your
risk tolerance, and goals.
ETFs, or exchange-traded
funds, allow you to buy small pieces of many investments in one
An ETF is a fund that holds
numerous stocks, bonds, or commodities. The fund is then divided into shares
which are sold to investors in the public market.
ETFs are an attractive
investment option because they offer low fees, instant diversification, and
have the liquidity of a stock (they are easy to buy and sell fast). Buying a
stock or bond ETF gives you access to numerous investments, all held within
A stock ETF often tracks an
index, such as the S&P 500. When you buy a stock ETF, you
are purchasing a full portfolio of tiny pieces of all the stocks in the index,
weighted for their size in that index.
For instance, if you
purchased an S&P 500 ETF, you are only buying one “thing”. However, that
ETF owns stock of all 500 companies in the S&P, meaning you effectively own
small pieces of all 500 companies. Your investment would grow, or decline, with
the S&P, and you would earn dividends based on your share of the dividend
payouts from all 500 companies.
A bond ETF owns a basket of
bonds, often tracking an index, just like the stock ETFs.
These funds could own a
mixture of government bonds, high-rated corporate bonds, and foreign bonds. The
most significant difference between holding an individual bond and a bond ETF
is when you are paid interest. Bonds only make interest payments every six
months. But bond ETFs make payments every month, as all the bonds the fund owns
may pay interest at different times of the year.
of Investment Accounts
If you’re ready to buy
stocks, bonds, or ETFs, you may be wondering where these types of investments
There are a few different
types of accounts in which you can hold investments. But they can’t live in
your standard bank account. Here are your options.
Saving for retirement is
most people’s biggest long-term goal. With the average person retiring at 62,
either by choice or due to layoffs and health issues, most Americans face 20
years or more of retirement in which they need assets to support themselves.
To help you prepare for
this massive goal, the government offers tax incentives. However, if you invest
in these accounts, your access to your funds is limited until 59 ½. In some
cases, there are penalties for withdrawing your money earlier.
Here are the type of
accounts that offer tax savings.
retirement accounts such as 401(K)s, 403(B)s, 457s, and more, allow employees
to save for retirement directly from their paycheck. Some employers offer
contribution matches as a perk to double-down on your retirement preparation.
Typically, you put
“pre-tax” money into these accounts, which means you don’t pay income tax on
those dollars. Any money invested grows without tax until you ultimately
withdraw it for living expenses in retirement. As you withdraw funds, you will
pay income tax on the withdrawals. However, most people are in a lower tax
bracket in retirement so pay lower rates.
As of 2019, you can
contribute up to $19,000 in a given year to one of these accounts, not
including any employer contribution. If you are 50 years or older, you can
contribute up to $24,500 a year.
vs. Roth IRA
If you don’t have access to
an employer-sponsored retirement account or have already maxed out your
contribution, you can also open an Individual Retirement Account (IRA)
There are two types of
IRAs: Traditional and Roth.
A Traditional IRA works the same way as
employer-sponsored plans when it comes to taxes. Any money contributed will be
treated as “pre-tax” and reduce your taxable income for that year.
A Roth IRA, on the other hand, is funded with
post-tax dollars. This means you’ve already paid your income tax, so when you
withdraw it in retirement, you don’t pay income or capital gains tax. The money
is all yours. Roth IRAs offer excellent tax benefits but are only available to
certain income levels. If you make more than $135,000 a year as a single filer
or over $199,000 as a married filer, you aren’t eligible for a Roth IRA.
As of 2019, you can
contribute up to $6,000 per year to an IRA. If you are 50 years or older, you
can contribute up to $6,500 a year.
Related: Traditional vs. Roth IRA:
Which One is Better For Me?
College Savings Plans
These accounts, offered by
each state, provide tax benefits for parents saving for college. Operating like
a Roth IRA, contributions are made post-tax, but all withdrawals are tax-free
as long as the funds are used for higher-education expenses.
Your state may offer tax
benefits or contribution matches for investing in your local 529 plan, but you
can utilize any state’s 529. Since each state has different fees and investment
options, be sure to find the best 529 for your money.
Brokerage accounts offer no
tax benefits for investing but operate more like a standard bank account to
hold your investments. There are no limits on annual contributions to these
accounts, and you can access your money at any time.
or Cash Equivalents
Since investing should only
be undertaken for the long-term, you may need to hold onto cash while saving
for shorter-term goals. In that case, a traditional bank account might not do
the trick. Checking and savings accounts offer incredibly low interest rates,
if any at all, which means you are entirely at the mercy of inflation.
are cash accounts that pay higher interest:
A CD, or Certificate
of Deposit, is a savings account that restricts access to your cash
for a specified period (6 months, 12 months, 24 months, etc.). There is a small
penalty if you want to withdraw your money before the term is up, but these
accounts typically offer a higher interest rate in exchange for the lack of access.
High-yield online savings accounts are the middle ground between CDs
and traditional savings accounts. They pay higher interest than a conventional
savings account but still allow a few transactions a month so you can access
your cash if you need it. Many online high yield savings accounts have no
deposit minimums or fees.
market accounts are very similar to high yield savings accounts, but with slightly
higher interest rates and higher deposit requirements. For instance, CIT Bank’s
money market account offers a 1.85% interest rate but requires a $100 minimum
In any of these accounts,
your cash deposited is not at risk. FDIC insurance guarantees you your money
back, even if the bank that holds your account goes bankrupt.
Related: 10 Best Online Savings
Accounts with High Interest Rates
to Focus First
When first starting to
invest, it can be hard to choose between the multiple types of investment
accounts. As you begin, remember to focus where you see the most value.
First, contribute enough to your
employer-sponsored retirement plan to get the full value of any match the
company offers. This is free money and an instant return on your investment. If
you aren’t sure if your employer offers a contribution match, reach out to HR
for the most up-to-date policies.
Second, max out contribution limits on
your tax-advantaged accounts – if you are primarily saving for retirement or a
child’s college. The tax benefits in these accounts save you money that you
don’t want to turn over to Uncle Sam unnecessarily.
Finally, invest any excess capital in
brokerage accounts. This will help you save for long-term goals like buying
that vacation house in ten years.
Note: The above assumes that you have
paid off all high-interest debt and have a solid budget in place.
If you haven’t done those things yet, get them squared away before you start
Golden Rules for Investing Money
You may be a rookie
investor, but that doesn’t mean you need to make costly rookie mistakes. Follow
these seven golden rules and you’ll be on the path to success.
Click here to see the whole infographic.
1. Play the Long Game
Never invest for the
short-term. The market moves up and down in natural cycles that can’t be timed.
Investing for less than three to five years doesn’t give you enough time to
rebuild asset value if you hit a downturn at the wrong time.
2. Don’t Put All Your Eggs in One Basket
Don’t put too much of your
money in any one stock or bond where one issue could destroy your wealth.
Diversify with low-cost, index ETFs and avoid stock picking.
3. Make Investing a Monthly Habit
continually calling a market top or bottom, no one can accurately determine
where we are in the cycle at any given time. The best way to guarantee that you
buy at the right times is to make investing a monthly habit. Invest each and
every month, regardless of headlines or market performance.
4. Invest Only What You Can Afford to Lose
Investing is risky. While
the long-term trend has historically been upwards, there are also years of deep
declines. If you need money in the near-term, or the thought of seeing your
account balance drop 20% makes you sick to your stomach, don’t invest those
5. Don’t Check Your Portfolio Everyday
Investing is the one place
where a “head in the sand” strategy might be the smartest method. Set up auto
deposits into your investment accounts each month and only look at your
portfolio once every three to six months. This reduces the likelihood of panic
selling when the market falls or piling in more money when everything seems
like rainbows and butterflies.
6. Keep Your Fees Low
Mutual funds and ETFs have
expense ratios. Many brokerages charge trading fees. And investment providers
from financial advisors to robo-advisors charge management fees. All these fees
eat away at your wealth over time.
Sticking to index funds and
ETFs keeps your fees low while guaranteeing you see the performance of the
market so that you can keep more money in your pocket.
7. Listen to Warren Buffet’s Investing Advice
Warren Buffett is possibly
the most famous investor in history. He’s created a multi-billion-dollar net
worth in just one generation. Learn from his advice to invest for your own
“Someone is sitting in
the shade today because someone planted a tree a long time ago.”
“I never invest in
anything I don’t understand.”
“If you don’t find a
way to make money while you sleep, you will work until you die.”
“The stock market is a
device for transferring money from the impatient to the patient.”
“It is not necessary to
do extraordinary things to get extraordinary results.”
to Start Investing Today
An easy way to start
investing today from your phone or laptop is by opening an account with Acorns.
Acorns is a micro-investing app ideal for beginner investors.
The basic plan, Acorns Invest, starts at just $1/month with a free $10
sign-up bonus for new users.
When you make a purchase
with a linked debit or credit card, Acorns rounds up to the nearest dollar and
invests your spare change. You can boost your Round-Ups by 2x, 5x, or 10x.
In addition to Round-Ups,
you can set up recurring daily, weekly, or monthly investments to your Acorns
portfolio. Their Found Money service will also find cashback opportunities from
200+ partners and automatically invest your savings when you make a purchase.
It only takes a few minutes
to set up an account. Once you complete your profile, Acorns suggests one of
their five portfolio options based on the information you provided. However,
you have the option to override their suggestion if you prefer a portfolio with
more or less risk.
The platform automatically
rebalances your portfolio and reinvests all dividend payments to continue
growing your investments.
Acorns is a smart option
for hands-off investors and those just getting started. As your account grows,
the $1-3 monthly fee stays the same, effectively making the service cheaper
Chances are you
have some goals you’d like to tick off in your lifetime.
Maybe you want to visit
three dozen countries, buy a house, retire by the time you’re 55, or start a
family and send your children off to college.
Chances are also good that
you won’t be able to achieve those goals — unless you have a plan.
Specifically, a financial plan.
A financial plan is a
document that allows you to map out the life you want and how to get there.
It sounds complicated, but
don’t worry. We’ll break it down so you know exactly what to expect when making
your own financial plan.
Benefits of Creating a Financial Plan
A recent study by
CapitalOne found that half of Americans don’t have a long-term
financial plan. Not having a plan to reach your goals is like taking a road
trip without a map and hoping you reach your destination.
The biggest benefit of a
financial plan is that it provides actionable steps to achieve what you want
out of life. It’s up to you to put in the work, but that’s easier when the
steps are laid out in front of you.
Financial plans also allow
you to examine where you’re at and what you can work to improve. If you don’t
have enough money saved for retirement, a financial plan can identify this.
Then you can take steps to address the problem before you hit retirement age.
is a Financial Plan?
At its core, a financial
plan is just a document that outlines your goals and how to eventually afford
“A financial plan is going
to look different depending on what financial planner you work with,” said
Katrina Welker, a Certified Financial Planner™ (CFP®) with Rooted Planning
Group. “At one firm, we printed a 30-50 page report that was bound and
presented to clients. I found this overwhelming for many people.”
As a result, Welker now
uses a more streamlined online interface with clients. The interface is also
interactive, so clients can see how small changes have big effects on their
Does a Financial Plan Include?
According to Patrick Logue,
a CFP® with Prudent Financial Planning and an Adjunct Professor who trains
other CFP®s at Boston University, every financial plan should include some of
This section should provide an overview of your current standing. It may include details like your net worth (your total assets minus your total debt), your budget, and your cash flow.
This section outlines the
hidden dangers that could prevent you from reaching your goals, and what you
can do to protect yourself against them. In other words, insurance, including
life, disability, health, renters, homeowners, and any other kind of coverage
you might need.
According to Logue, “This
section would dive into portfolio performance and topics such as risk, reward,
correlation, stress tests, taxation issues, investment options, risk tolerance,
portfolio risk score, and risk needed to reach goals score.”
Although similar to the
investing section, here we take a deeper dive into your retirement planning.
Are you saving enough to reach your retirement spending goals? How much do
you need to retire? What are the best accounts to save in order to
minimize your tax bill? Should you roll over your 401(k) to an IRA?
You may not realize it, but
a large chunk of your income goes towards your tax bill before any money enters
your bank account. Financial planners use this section to shrink your tax
burden so you have more money left over to reach your goals.
It’s a bit morbid to think
about end-of-life planning and what happens to your assets after you die, but
doing so now can save a lot of heartache in the future.
“Estate planning documents
must be drawn up by legal professionals,” says Logue, “but financial planners
can help quarterback the process.”
Are you planning on
returning to school to change careers, or do you want to send your kids to
school so they graduate debt-free? If so, you’ll need to start planning now.
That’s where this section comes in handy.
Steps for Creating a Financial Plan
Ready to get started with
your own financial plan? Here’s how to do it.
Find a CFP®
It’s possible to DIY your
financial plan, but there are advantages to hiring a professional if can afford
it. A CFP® can guide you through this entire process and provide you with an
objective analysis of how likely you are to reach your goals. They can also
advise you in creative and technical ways a layperson might not think of.
It’s easy to forget all the
little things, like having a power of attorney and designating your
beneficiaries. A financial planner can help you remember. Working with a
financial planner also means you’re more likely to follow through with the plan
since you’ve already invested money into it. A CFP® can help hold you
accountable for the duration of your financial journey.
You’ll need a complete
picture of your entire financial situation in order to create a solid plan. This
Your current monthly cash flow
Your current retirement
savings, allocations, monthly contributions, and plans available to you
The amounts and premiums of any
insurance plans you have
The beneficiaries of all your
relevant financial documents
You need to look at every
little piece of information because these are the tools you have to work with —
and the obstacles you’ll face along the way. Spend some time detailing the
Decide on Your Goals
Now for the fun part. What
do you want to do in your lifetime?
At what age would you like
to retire? Do you plan to pay for your children’s education? What type of
legacy do you want to leave for your loved ones?
Taking the time to sit and
really think about which goals are most important to you is key to the process.
You’re basically picking out the destination you’re heading to on a map.
Evaluate Your Financial Situation
Here’s the moment of truth.
You have your end destination in mind, and you know what tools you have
available to get there. So is it enough? If not, what will it take to get
there? What changes do you need to make in order to reach your goals? Or do you
need to adjust the goals themselves?
This part of the process
involves a lot of number crunching. You need to take stock of, among other
things, when you want to retire, how much you want to live off during your
retirement years, how much money you’re currently saving, and how much you have
invested to see if you’ll be able to reach your goals.
This is where having a
financial planner can make all the difference. They’ll be able to crunch all
the numbers with complex tools you might not have available to you. They’ll
also be able to show you whether or not you’re heading in the right direction.
Stick to the Plan
This is where the rubber
meets the road. Now that you know where you’re heading and how to get there,
it’s time to actually put the plan into place.
For example, you’ll need to
make sure you follow your budget. You’ll also need to make appointments with
other financial professionals, such as attorneys, investment brokers, insurance
brokers, and your employer’s HR department to fully implement the plan.
Financial Plan FAQs
Beyond creating your
financial plan, remember to consult an expert for assistance and check in on
your progress regularly.
I need a financial planner to make a financial plan?
There are many advantages
to working with a financial planner. The only disadvantage is cost, which can
be prohibitive for some people.
For the best results, find
a fee-only financial planner with a CFP® designation. That way you know they’ve
received the right training and aren’t working on commission, so they’re far
less likely to try and sell you products you don’t need.
often should I make a financial plan?
You may only need to “make”
your financial plan once. After that, it’s a good idea to check in at regular
intervals as circumstances change. For example, if you start a family, get a
new job, or decide to switch up your financial goals, you’ll need to tweak your
“I encourage you to look at
your plan at least annually,” said Welker. “We have clients we meet with
quarterly to stay on top of changing situations and to make sure we have time
to look at different topics throughout the year.”
the difference between a budget and a financial plan?
A budget is a plan for
spending your money each month. A financial plan is more comprehensive and
provides a road map to reach your financial goals.
“If someone just has income and expenses, they can probably get by using Mintor a similar software to help them with their budget,” says Logue. “But, if someone wants to really understand how the decisions they make impact the chance of reaching their financial goals, they could probably benefit from a comprehensive financial plan.”
a Financial Plan is a Necessity
If you don’t have any goals
in life beyond waking up each morning, going to work, and coming home to sleep,
you may not need a financial plan. But most of us have bigger dreams than that,
like retiring, saving for a vacation home, or paying for kids to go to college.
If you want to make those dreams a reality, a financial plan is the first step.
I figured that as a personal finance writer and self-proclaimed money
expert, I knew everything I needed to know about my investments. Everything
else, I assumed, was icing on the cake.
But after some friendly chiding from a colleague, I decided to consult
with an advisor to make sure I was properly diversified. After an hour in his
office, I was already scheduling another appointment for the next quarter.
What I learned in that short meeting has stuck with me ever since – I
may be an “expert” in some areas, but there’s a difference between a layman’s
knowledge and the expertise of a Certified Financial Planner™.
My advisor was able to point out the blind spots I never knew existed,
examine the areas I needed to improve on, and give me a concrete strategy for
the future. Since I started working with an advisor, I’ve never been more
confident in my portfolio.
If you’re in the market for a good financial advisor, don’t pull the
trigger just yet. Here’s
what you need to know first.
How to Find a Financial Advisor That’s
Right for You
1. Know What You Need from Your
Financial Planning Company
2. Understand the Financial Advisor
3. Hire a Certified Financial Planner™
4. Make a List
5. Look for a
How to Find a Financial Advisor: Don’t
How to Find a Financial
Advisor That’s Right for You
Finding the right financial advisor is about more than shopping for
quality service. It’s about establishing a relationship with someone you can
Even if you decide to go with an automated robo advisor, you need to
feel like your financial future is safe in their hands. That means knowing what
you need, what to look for, and what to avoid.
1. Know What You Need from
Your Financial Planning Company
Financial planning companies can help in a few different ways. You can
hire a planner from the company on a monthly basis to monitor your accounts and
provide feedback if anything changes. Many people go over their accounts with a
planner on an annual or a quarterly basis. Think of it as financial spring
A financial planning company can be especially helpful if your money
situation changes drastically. For example, a 22-year-old who inherits $200,000
when their parent dies should see a planner to determine the best way forward.
How often you need to see a financial planner depends on how comfortable you are with investing and how complicated your financial situation is. Someone who’s interested in learning more about retirement accounts, index funds, and the difference in their IRA vs. 401(k) might not need to see a planner as often as a consumer less interested in investing.
It’s also helpful to find a financial advisor who’s familiar with your
particular situation. For example, if you’re divorced, look for a financial
planner who specializes in divorces and blended families. They’ll be able to
point out particular blind spots that a general financial planner could miss.
You might also want an advisor close to your age because they’ll understand
your specific concerns in a more personal way.
2. Understand the Financial
Advisor Business Model
There are three main ways that advisors get paid: commission-based,
fee-based, and fee-only.
Commission-based advisors receive compensation when a client purchases a
product based on their recommendation. If you buy an advisor-recommended life
insurance policy, they’ll get paid from the life insurance company. Clients don’t
pay commission-based advisors directly.
It’s generally best to avoid commission-based advisors because their
recommendations, such as annuities and whole life insurance policies, are often
Fee-based advisors can get paid directly from the client, but can also
earn a commission if the client buys one of their recommendations. Be cautious
of financial planners who earn money based on a commission of any kind. This
model encourages planners to pick investments that make them more money, even
if they aren’t right for the client.
The most unbiased pay structure for a financial planner is the fee-only
model. Fee-only advisors may be paid hourly, as a flat fee, or as a percentage
of assets under management (AUM), depending on their business model.
For example, if you invest $1 million with a financial planner who
charges 1% AUM, you’d pay $10,000 per year. With a flat-fee financial planner,
on the other hand, you may pay a one-time fee of $2,000 for a comprehensive
A qualified fee-only planner should give you an estimate of how much
they’ll charge beforehand. I’ve paid between $500 to $750 for one financial
planning session, where I got specific investment recommendations based on my
3. Hire a Certified
There’s no accreditation needed to refer to yourself as a financial
planner or advisor. If you don’t do your research, someone claiming to be a
financial planner could swindle you or prescribe products that don’t work for
The best kind of financial planner is a Certified Financial Planner™
(CFP®). This designation means they’ve passed a complicated exam with topics
ranging from insurance to budgeting to taxes. A CFP® also has a fiduciary duty,
which means they have to recommend investments and other products that are in
the best interest of their client, regardless of whether or not they receive
compensation for doing so. This is the highest ethical obligation a financial
planner can have.
4. Make a List of Questions
You should always investigate a financial planner before you hand over
any money. Here are
some good questions to ask:
Are you a Certified Financial Planner™?
What qualifications do you have?
Do you have a fiduciary duty to your clients?
How long have you been in business?
Do you have any reviews or testimonials?
What is your average client like (age, income,
What kind of situations do you specialize in?
How do you charge your clients?
5. Look for a Financial
There are two main types of financial advisors to consider: robo
advisors and human advisors. It’s important to consider which type of advisor
is best for you before taking the plunge.
If you’re ready to learn how to start
investing but not up for the commitment of paying for a
full-fledged financial planner, a robo advisor could be your best option.
Robo advisors are financial companies that use tried-and-tested
algorithms to provide advice based on a user’s specific financial situation.
Most robo advisors charge low fees and have little or no minimum deposit
Robo advisors pick where you should invest and take care of all the
nitty-gritty details. You set up a retirement account directly with a robo
advisor and they handle buying the funds. They can even suggest how much you
should save for retirement based on your goals, income, and age.
Some robo advisors offer access to human advisors who can answer more
specific questions. This is often only available if you have a certain amount
of assets invested with the company or if you pay an extra fee.
A robo advisor is a good alternative if you can’t afford a traditional financial planner but still want expert help in picking investments and deciding how much to save for retirement.
3 Robo Advisors to Consider
Blooom is a robo advisor focused on 401(k)s, 403(b)s, and other
company-sponsored retirement accounts. Users sync their employer-based
retirement accounts and the app suggests what you should be investing in.
Blooom will examine each fund’s fees to minimize those expenses. This
robo advisor has two options – a free, simple analysis and a comprehensive plan
for $120 a year. To learn more about this robo advisor, check out our Blooom review.
Betterment works with employer-sponsored accounts, IRAs, and taxable brokerage accounts. There is a .25% fee for all accounts and no minimum deposit. You can sync all your external accounts with Betterment and create a Betterment IRA or taxable account. Our Betterment reviewcovers all the details you’ll want to know.
Wealthfront is another well-respected robo advisor. Investors can either open a
Wealthfront-based account and allow the app to choose what they invest in or
link all their current investment accounts to Wealthfront and allow them to
make recommendations. The app chooses low-cost funds to minimize fees.
Wealthfront charges a .25% advisory fee for all accounts, and there’s a $500
Finding a human financial planner is easy. Finding a qualified financial
planner that you can trust with your money is another story. Here are some
networks you can mine to a planner that meets your needs.
XY Planning Network: This network of planners is designed for Generation X and millennials
looking for affordable, professional help. All of the advisors listed are
fee-only Certified Financial Planners™ who have a fiduciary responsibility to
their clients. You can find an advisor based on location or specialty.
National Association of
Personal Financial Advisors (NAPFA):Advisors accredited by NAPFA need to have at least three years of
experience, be fiduciaries, and be approved by a peer review. NAPFA advisors
specialize in areas including LGBT couples and families, professional athletes
and entertainers, socially responsible investors, among others.
The Garrett Planning Network: Anyone in this network has to be a Certified Financial Planner™ or working toward their CFP® license, have a fee-only payment structure, and charge on an hourly or retainer basis. You can search for local options or virtual advisors who can do phone or video consultations.
How to Find a good Financial Advisor: Don’t Settle
A financial planner is like a mechanic. Picking the right one can mean
the difference between driving your car for 15 years or breaking down on the
side of the highway. Don’t settle for a planner who’s condescending, too busy,
or seemingly unconcerned with your needs.
If you’re not sure how to choose between a robo advisor and a financial
planner, make a list of the pros and cons. You can also try out both to see
which experience you prefer.
Remember, the best option is the one you’ll actually do. If you can’t
stomach the cost of a financial planner, just use a robo advisor. If human
interaction is a priority, pick a financial planner. The important thing is to
feel comfortable, confident, and secure in your financial future.
“How much should
I invest and where should I invest it?”
The question may be
straightforward, but the answer isn’t quite so cut and dry. How much any person
or family should invest depends on several factors, including their income,
goals, and current financial stability.
However, there are some
good practices for investing that you can work to implement regardless of your
Should I be investing 10%
of my income?
Many experts say that a
good rule of thumb is to invest 10-15% of what you earn. While that’s a great
starting point, personal finance is never as simple as a one-size-fits-all
New investors often wonder
about the balance between saving vs. investing, asking questions like “How much
of my savings should I invest? Should I invest all my money, or should I split
my excess income between savings and investments?”
In order to answer those
questions, we first have to look at the differences between saving and
Money is liquid, meaning it
can be withdrawn at any time without tax penalties or fees.
higher potential return
Less liquid. Funds in the
account may not be available for immediate withdrawal, and there may be
taxes or fees incurred if funds are withdrawn before a specific date.
With those differences in
mind, your first course of action should be to build up an emergency fund in a traditional savings account. That way, you’ll have money available
in case something happens, like your car breaks down or you have to replace the
refrigerator in your home.
If you’re paying off
high-interest debt, such as credit cards or private loans, then a $1,500 to
$3,000 emergency fund is a good place to start. Once you’ve at least paid off
your high-interest debt, aim for an emergency fund of 3 to 6 months worth of
your living expenses.
How much should I invest
in my 401(k)?
Once you have an emergency
fund, the next place you should focus your investment efforts is your 401(k).
Many employers offer to match employee 401(k) contributions up to a certain
For example, a 2% match
means that if you contribute 2% of your salary to your 401(k) account, your
employer will throw in an additional 2%. However, if you continue to add to
your account, your employer will not match contributions above the set limit.
Say you make $50,000 with a
2% 401(k) match. If you contribute $1,000 to your 401(k) — 2% of your annual
salary — your employer will add an additional $1,000. If your current employer
offers a 401(k) match, then you’re turning down free money by not contributing
to your account.
However much your employer
offers to match in 401(k) contributions is the minimum you should invest in
that account. If it’s 1% of your salary, then you should be contributing a bare
minimum of 1%. If it’s 3%, you should contribute at least 3%.
Employer matching in a
401(k) is literally free money for your future and an immediate 100% return on
your investment. If you can’t afford to contribute the maximum amount your
employer matches, find places to make cuts in your budget and increase your
Talk to your boss or the
human resources department for details on your company’s 401(k) program.
How much should I invest
in stocks and other accounts?
Once you have an emergency
fund and you’re maxing out your employer match for your 401(k), what comes
This is where the
hard-and-fast rules end. The next step varies depending on your situation,
goals, and where you are on your financial journey. There’s no right answer for
At this point, you might
want to consider opening an individual retirement account (IRA). When it comes
to IRAs, there are two types to choose from.
A Traditional IRA works
much like a company 401(k) in terms of taxes. In other words, you don’t pay
taxes on the money you contribute today. You’ll only pay taxes once you
withdraw the funds in the future.
A Roth IRA is the opposite.
You pay taxes on your contributions today, but then you withdraw money tax-free
in the future. This is ideal if you expect to be in a higher income tax bracket
later on. Since income tends to increase with age and experience, that’s often
You can open an IRA online or at your local bank in just a few short minutes. Keep in mind, there are limits to how much you can contribute to individual retirement accounts per year. Once you’ve reached this limit, you might want to consider opening a brokerage account and investing in the stock market.
While there’s no one right
amount to invest, it can be helpful to set goals in terms of a percentage of
your income. For example, let’s say your goal is to invest 10% of your annual
salary. If you make $50,000 per year, you would aim for $5,000 towards your
However, you always have the
option to increase this number. Once you’re comfortable investing 10% of your
income, challenge yourself to invest 13%, then 15%, 20%, and so on. The more
you invest now, the faster you’ll reach your financial goals.
How much should I risk
with my investments?
The amount of risk you
should take depends on your goals, risk tolerance, and investment timeframe.
For example, a 24-year-old
who plans to retire at 60 has 36 years to invest. Since they won’t need their
money for several decades, they can afford to take on more risk today. On the
other hand, someone who is 55 has a much shorter investment timeframe.
Therefore, they’ll want to take on less risk in order to protect their money.
Regardless of your age, one
of the best ways to protect your investments is to create a diversified
portfolio. In other words, you’ll want to own a variety of different types of
investments. That way, your success isn’t dependent on just one thing.
For example, you wouldn’t
want to invest entirely in software companies because they each face many of
the same risks. A swing in the technological landscape could wipe all of your
investments off the map.
A diversified portfolio
means investing in companies across a variety of industries.
In addition to the types of
investments you choose, you’ll also need to decide how much to invest in each
type of asset. The three main asset classes are stocks, bonds, and cash.
Each one comes with its own
set of risks and potential returns. Generally speaking, however, greater risk
equals greater reward.
If you’re younger and have
more time to build up your savings before retirement, you might prefer an asset
allocation of 85% stocks and 15% bonds. As you get older, your allocation will
likely shift to fewer stocks and more bonds to shield against drops in the
Is investing 10% of my
income really enough?
Again, the amount you
should invest depends on your current financial situation and goals.
Thanks to the snowball
effect of compound interest, the earlier you start investing,
the less you’ll need to save overall. Saving 10% of your income could be plenty
if you start investing early enough. On the other hand, if you waited to invest
and are catching up, you may need to save 15% or more in order to reach your
Should I invest monthly or
Whether you invest monthly
or yearly comes down to personal preference. For most people, however, monthly
is the better option. That way, you can build investing into your monthly budget.
Investing monthly also
gives your money more time to work for you. If you start setting money aside in
January, but only invest it once yearly in December, the money you save in
January, February, March, and so on won’t earn a return until after December
when it’s invested.
The exception is if you
plan to receive and invest a lump sum, like a holiday bonus or tax return. Even
so, it’s still a good financial practice to build saving into your monthly
How Much Should I Invest?
That Depends on You.
Knowing exactly how much to
invest can be tricky. Like everything in personal finance, it depends on your
budget, goals, and financial situation. The most important takeaway is that
it’s never too early to start investing. If you haven’t started already, now is
the perfect time.
Even if you can only swing
a few dollars a month, you can begin to build a habit that will change the rest
of your life.
When it comes to
your investment portfolio, diversification is the best strategy.
Unfortunately, many people
struggle when it comes to finding diversified investments that meet their
financial goals. According to a Bankrate survey, 23% of
Americans listed cash as the best way to invest money they wouldn’t need for a
while, compared with just 17% who prefer stocks.
One of the troubles is
deciding which types of investments to include for the best performance.
Consider the two popular options: ETFs, or exchange-traded funds, and
ETF and Mutual Fund Comparison
Both ETFs and mutual funds
involve pooling money and using it to buy a mix of different assets. Depending
on the ETF or mutual fund you select, a single purchase could gain exposure to
a broad range of various assets. When it comes to your portfolio, is an ETF or
a mutual fund a better investment choice? In order to properly compare
mutual funds and ETFs, it’s important to understand each investment
What is an ETF?
An exchange-traded fund, or
ETF, is a collection of securities bundled together in a single basket. Common
assets you might see are stocks, bonds, and commodities, or some combination of
the three. Grouping these different securities into a single basket makes them
more attractive because it delivers an almost automatic diversification.
The redemption and creation
of ETSs come in larget lots. The shares trade throughout the day directly
between investors on the open market. This gives you the added value of transparency
because their holdings are generally disclosed daily.
ETFs come in a wide
variety, and you can use the different funds to accomplish clear investment
goals. Two examples are market ETFs, which are designed around a particular
index such as the S&P 500 or NASDAQ, and bond ETFs that provide exposure to
bond investments like the ones you’ll find in the U.S. Treasury, corporate,
international, and more.
What is a Mutual Fund?
Mutual funds are a collective pool of money used to invest in various securities like stocks and bonds. Once you buy shares, you get a claim to the profits from the investments contained in the fund. Due to the combined nature and the distribution of expenses, every shareholder in a mutual fund shares equally in the value of gains and losses.
Mutual funds aren’t bought
and sold by individual investors, which is an added benefit of including them
in your portfolio. Instead, a money manager who has the professional skill and
time available to allocate your funds better, handles the funds.
The fund manager uses your
money to buy into various securities according to your investment goals like
long-term growth or fixed income. Some funds are riskier than others, but the
diversity of assets in a mutual fund keeps the risk relatively low.
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Cons of an ETF vs. Mutual Fund
Since both ETFs and mutual
funds are made up of a mix of assets, the two are similar in structure. Though
there’s no perfect fund, you need to understand the best and worst of each
before deciding which is right for your portfolio.
Pros and Cons of ETFs
You can utilize ETFs for short-term
trading, long-term trading, or a combination of both. Here are the advantages
and disadvantages of including exchange-traded funds in your investment
Pros and Cons of Mutual Funds
Buying a mutual fund is a
relatively simple process. Banks and brokerage firms often have their own line
of in-house options and include a wide range of asset classes and strategies.
Here’s an overview of the pros and cons to consider with mutual funds.
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Between ETFs vs. Mutual Funds
Both ETFs and mutual funds
are an easy avenue to invest in stocksand bonds. When deciding between the two, here
are some of the factors you should consider before investing.
Perhaps the most
significant advantage of a mutual fund is that it’s more actively managed than
most ETFs. With an actively managed fund, you gain access to the professional
insight and skill of a professional money manager. They use their knowledge to
attempt to beat the market and aim for a better return by buying and selling stocks
on your behalf.
Actively managed ETFs
exist, but they usually come at a much higher price. Most ETFs are passive, and
they’re set up to automatically track an index such as the S&P 500 or the
The best part of an ETF is
the enhanced flexibility over mutual funds when it comes to trading. The
investor and fund handle ETF sales directly rather than going through a
ETF prices fluctuate
throughout the day according to market demand. This is different than the cost
of a mutual fund, which is set at the end of the business day when the net
asset value (NAV) is determined.
Fees and Expenses
Mutual funds often come
with higher fees because most are actively managed by an experienced person or
group of professionals. The costs of owning an ETF are typically lower, though
buying and selling can get expensive.
You can trade an ETF at any
time during a trading day, and you’ll pay a commission for each trade you make.
Mutual fund trading happens after the markets close, which leads to limited
Investors have to pay taxes
on capital gains and dividend income for mutual funds and ETFs since they’re
both treated the same by the IRS. However, mutual funds are subject to more
frequent taxable events than exchange-traded funds.
The manager of a mutual
fund is continuously rebalancing the assets to distribute them properly or to
accommodate shareholder redemptions. Asset sales, in this case, become a
taxable event. For ETFs, the underlying securities aren’t sold because the
shares are traded directly between investors. This process usually excludes the
exchange as a taxable event, making them more tax efficient overall.
Many mutual funds have high investment minimums, making it a challenge to add them to your portfolio if you don’t have a lot of money saved. Even less experienced investors who are saving for specific goals through target-date mutual funds often have to meet a minimum investment of $1,000 or more.
ETFs typically don’t have a
minimum investment requirement, and you can buy as little as a single share to
add to your portfolio. This low barrier to entry makes it an excellent option
for small investors who are looking to include ETFs in their portfolio.
Since the liquidity of a
particular investment represents how quickly it can be converted to cash, ETFs
are considered more liquid than mutual funds.
An ETF is adaptable to
short-term trading, mostly due to a higher number of shares traded throughout
the day and the ability to buy and sell at any time the exchange market is
open. Having the option to enter and exit ETF positions quickly makes the
liquidity of this type of fund higher.
Mutual funds are less
flexible because the trading is done only once per day after the markets close.
While this is a great option for long-term investors, this limited period to
buy and sell mutual funds reduces the liquidity.
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ETF vs. Mutual Fund Performance FAQs
When considering an ETF or
mutual fund, here are answers to some common questions about performance and
safety you’ll ask yourself.
Do ETFs Pay Dividends?
If you own shares of an
ETF, you receive dividends based on the number of shares you own relative to
the number of shares in the fund. Some dividends pay interest instead, such as
in fixed-income ETFs. However, most do offer a payout, and you’ll get a
dividend each quarter.
Which is Safer, ETFs or Mutual Funds?
Whether an ETF or mutual
fund is safer depends on your individual goals. There’s no such thing as a safe
investment, but there are strategic advantages to each that you should
To determine an
investment’s safety, evaluate the mangament of the fund, the fees and expenses
involved, the performance history and the types of underlying assets contained
in the fund.
is Better for Long-Term Investing?
There isn’t one clear
winner when it comes to deciding if an ETF or mutual fund is better for
long-term investing. ETFs are generally better for short-term investing because
they can be traded multiple times during the day on an open market. Though
their tax efficiencies make ETFs a good option for long-term investing, too.
Mutual funds can only be
traded once per day after the market closes, making them less adaptable to short-term
investing. But considering a short-term investment is one you hold for
a year or less, you can easily apply this investing strategy to mutual funds.
Mutual Fund: Which Should You Choose?
When it comes to investing,
there is no one-size-fits-all solution. Mutual funds and ETFs are both suitable
choices to diversify your portfolio. You’ll want to consider your tax strategy,
how much you can spend, and if you’re going to be more hands-on or would rather
leave it to a professional money manager.
Overall, it depends on your
individual investment goals. There’s more selection to choose
from when it comes to buying a mutual fund, but ETFs have more flexibility because
they’re traded like stocks. As you evaluate your options, you’ll see how each
might impact your investment process. This will help you pick the perfect fund
for your portfolio.
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