Featured, Investing

Hidden Fees That Could Ravage Your Investments

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Hidden Fees That Could Ravage Your Investments

Most of the time higher quality things cost more money. As the saying goes, “you get what you pay for.”

But the opposite is true when it comes to investing. Research has shown again and again that lower cost investments perform better. Quite simply, the less you pay, the more likely you are to get better returns.

And the great thing is that cost is one of the few investment variables you can really take charge of. You can’t control or predict how the markets will perform, but you can definitely control how much you pay to be in the market.

The bottom line is that finding lower cost investments is one of the easiest and most effective ways to increase your investment returns. Here’s how to do it.

Two Big Investment Costs to Watch Out For

For most people, the majority of their investment costs will come from the following two places. If you can minimize these two things, you’ll be in good shape.

1. Expense Ratio

Every mutual fund or exchange-traded fund (ETF) has something called an expense ratio, which is simply the annual cost of investing in the fund. That money is used to pay for the cost of managing and administrating the fund for you.

The expense ratio is charged as a percent of the money you have invested in the fund. So if a particular mutual fund has an expense ratio of 1%, that means that 1% of the money you have invested in that fund will be taken out as a fee each year.

And while 1% may not sound like much, it can add up to a huge difference over a long period of time. Assuming you contribute $5,500 per year and earn an 8% annual return, a 1% difference in fees will likely lead to more than a $100,000 difference in retirement savings over a 30-year period.

In other words, you’ll want to pay close attention to your expense ratios and minimize them as much as possible. Most good mutual funds these days have expense ratios of 0.2% or lower, though some specialized funds might go as high as 0.5%.

2. Sales Loads

Sales load is a fancy term for commission. It’s a percent of your investment that goes to the person who sold it to you.

For example, if you contribute $1,000 to a mutual fund that has a 5% sales load, only $950 will actually go into the fund. The other $50 will go to the person who sells you that mutual fund. And that will be true for every additional contribution you make to that fund in the future.

There are two big things to understand about sales loads:

  1. Not all mutual funds or ETFs have them. In fact, it’s pretty easy to avoid them.
  2. Research has shown that mutual funds with sales loads underperform those that don’t have them.

For those reasons, it will usually make sense to avoid mutual funds that have a sales load. There are simply better options out there.

Four Other Investment Costs to Watch Out For

While expense ratios and sales loads are the two biggest costs to watch out for, there are plenty more to keep an eye on. Here are four of the most common.

  1. Trading Fees

Depending on the company you use to do your investing, you may be charged a fee each time you buy or sell an investment. For example, E*TRADE currently charges $9.99 per ETF trade (with some exceptions) and between $0 and $19.99 for mutual fund trades.

And while that may not sound like much, it can add up pretty quickly. If you make monthly contributions to three ETFs, you’ll end up paying about $360 per year just for the privilege of contributing.

Of course, there are ways around this. For example, major investment companies like Vanguard, Schwab, and Fidelity allow you to trade their own funds for free. And many ETFs are commission-free on certain platforms. So there are plenty of ways to eliminate or at least minimize this cost.

  1. Taxes

If you’re investing in a retirement account like a 401(k) or IRA, you don’t need to worry about taxes until you start taking withdrawals.

But every trade within a taxable account is subject to potential taxes, and the more you trade, the more you may have to pay. And even if you never sell anything, the mutual funds you own will make trades, and those tax consequences will be passed on to you.

We all have to pay our fair share in taxes, but there’s no need to take on more than that. In general, the less often you trade, and the more tax-efficient your investments, the less you’ll have to pay in taxes.

  1. Management Fees

Whether you work with an investment adviser who manages your money for you or you invest through a company like Betterment, there’s a cost to having someone else in charge of your investments.

And while that cost can be worth it, make sure you know what you’re getting and that you’re not paying more than you should.

  1. Account Maintenance Fees

Some companies will charge you a monthly or annual fee simply for the service of providing you with an account.

These can often be avoided by meeting certain conditions. For example, Vanguard charges a $20 annual fee for IRAs, but it’s waived if you either sign up for e-delivery of statements or you have a certain total account balance with them.

In some cases, like with health savings accounts, a small maintenance fee might be unavoidable. But in most cases there’s no need to incur this kind of cost.

The Bottom Line: Lower Costs = Better Returns

Watching out for fees may sound kind of boring, but it’s one of the easiest and most effective ways to improve your investment returns.

Remember, not only does a smaller fee mean that more of your money is invested, but the research shows that lower cost investments actually perform better.

It’s a double win that you should definitely be taking advantage of.

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Featured, Investing

How to Set Up Your Investment Strategy for 2017

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

How to Set Up Your Investment Strategy for 2017

The end of 2016 is upon us, and it is the perfect time to reflect and retool your investments for the coming year. Fortunately for investors, 2016 was a pretty good year by most standards. Unemployment dropped to its lowest point in more than 9 years, and the stock market reached record highs at multiple points this year.

But before you set your sights on 2017, how do you figure out how well your investments did this year — and how to set yourself up for success next year? We’ll guide you in the right direction in this post:

Find out where you stand

To set an effective investing goal for next year, it is important to find out exactly where you are today. Openfolio allows you to compare your investment performance with more than 70,000 investors and benchmarks like the Standard & Poor’s 500 index. You can also create your own benchmark by comparing investors around your age and investing habits. Once you’ve got a handle on where you are, you can start to focus on your objectives for next year. 

As a guideline a good investment return in any given year is determined by the overall economy and your age. A gauge of the overall economy would be an index like the S&P 500; though difficult, any return near or above above the index is considered very good. This year the S&P 500 is up more than 10%. Usually a return between 5-8% is considered solid. A return below 4% is conservative if you’re at or in retirement and poor in you’re decades away from retirement. The average investor earned 5% in 2016 according to Openfolio.

If your investment performance falls below these thresholds in one year, don’t be too quick to ring the alarm. It could be that your investments aren’t properly allocated (more on that below) or it was simply a bad year. These thresholds are averages and it is rare that you’ll earn an exact percentage every single year. It is better to evaluate your performance by looking at 3, 5 and 10 year averages and make adjustments based this information.

Ask yourself: What are my goals and objectives for 2017?

Ask yourself: What are my goals and objectives for 2017?

Some people are looking to improve their investment performance generally, while others are investing for specific goals like retirement or college. Before deciding how to invest for those goals, you need to determine how much time you have. Your time horizon is the amount of time between today and the goal you want to reach. The amount of time you have to invest will determine what investments are best and what type of accounts are most beneficial for you.

Typically, for short-term goals (1 to 3 years) you’ll want to be more conservative in your investment strategy. This is because you’ll want to play it safe in case the market turns against you. Most goals that fall into this category are usually best suited for certificates of deposit or high-yield savings accounts. For goals that are four years away or more, you can usually afford to take on a bit more risk. This is where you’ll want to find the right mix of stocks and bonds in your portfolio.

One exception, however, is retirement. Unlike investing to pay for a down payment on a home or for college at some time in the future, retirement is not a financial goal that happens at one point in time. Though you may choose a specific retirement date, your money needs to be properly invested to last as long as you do. Your goal for retirement should be to invest “through” retirement not “to” retirement. Your tolerance for risk and the age at which you want to retire will be the biggest factors in determining the right mix of stocks and bonds. To find out what mix works best for you, you can use a risk-tolerance questionnaire.

Get organized

Get organized

Where are all of your accounts? When was the last time they were checked? Do you know what you’re investing in? All these are questions you need answered before heading into 2017. It can become very difficult to understand how well your investments have done and what investments you own if they’re scattered in different places. Take inventory of your investment accounts, including any accounts like a 401(k) left at a previous job. Also, be sure to update any beneficiary information on your accounts. You may have had an account at a previous job before you were married or had children, or in some cases you may have a different spouse. Outdated beneficiaries or no beneficiaries listed at all, can be a huge headache for families. If your account is at your previous job, you will need to contact them to make any changes. Alternatively, you can choose to roll over the old account to your new job (if they allow it) or roll it over to an IRA. 

Get properly allocated/balanced 

Get properly balanced

Your asset allocation should be aligned with your tolerance for risk, age, and how many years you have until your retirement date. If you do not reallocate at least yearly, you could be taking on more risk than you bargained for. A conservative 50/50 portfolio (stocks/bonds) could become a 70/30 portfolio if it goes unchecked for too long. The latter is considerably more risky, because 70% of the assets are in stocks. Staying properly balanced is much easier said than done. Because when the market does well, as we have seen this year, most investors prefer to ride the wave of growth. Though your portfolio could be growing, it could be growing too much in the wrong investments. When the market pulls back, you will not have enough in bonds and cash to balance the portfolio out.

To make sure you’re properly allocated for 2017 there are a few steps you can take. The first, as I said earlier, is getting organized. It can be extremely difficult to properly evaluate your total asset allocation across different accounts with different types of investments. For example, it would be hard to determine how to rebalance if you had a target-date fund at your previous job, individual stocks in your IRA, and index funds at your current job. The main reason this is difficult is because target-date funds don’t need to be rebalanced, they automatically change as you get closer to your retirement date. But if that fund is a small portion of your overall portfolio, you may need advanced software to determine what the allocation is when you factor in all of your investments. If you need help figuring out your allocation across different accounts, Personal Capital is a great, free tool.

Once you’ve gotten organized, you need to determine what your current allocation is. Most investment companies will show you a summary of your asset allocation, as seen below.

Now that you know what your allocation is, it is time to find out if you need to rebalance. Use your company’s risk-tolerance questionnaire or click here to use one from Personal Capital. 

Assest Classes

Comparing the two graphs, I would be very close to my ideal allocation and I do not need to rebalance; 82% of my money is in stocks and 18% is in bonds (as seen in the first chart). It is best to do this at least once a year, and if the numbers are too far off, sell some of the stocks, buy more bonds, or vice versa.

Screen shot 1 5th Janunary

There are two instances in which you will not have to rebalance your portfolio: if all of your money is invested in a target-date fund, or it is in an automatically managed account. Both will rebalance periodically according to your goals and time horizon.

Stay focused

Take advantage of your age and experience to expand your possibilities

Once you’re clear on your goals, stay the course. As we learned in 2016, those who were properly allocated and stayed the course after Brexit and the presidential election profited. Investing is a long-term game, and if you’re doing it right, it should be boring. While many investors check their accounts monthly, and in some cases daily, you’re much better off checking your progress no more than four times per year. Studies have confirmed that investors who check their progress frequently tend to get in their own way.

Additionally, remember that investing is a hurdle, not the high jump. It takes consistent efforts to succeed, not huge dramatic gains. Every year there are about 250 trading days; each will change the value of your investments. Do not make decisions because of one bad day. You will have 249 others to help you recover and grow. And if you’re holding for the long term, you have thousands more.

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Investing, Personal Loans

Earnest: Personal & Student Loans for Responsible Individuals with Limited Credit History

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Earnest - Personal & Student Loans for Responsible Individuals with Limited Credit History

Updated December 27, 2016

Earnest is anything but a traditional lender for unsecured personal loans and student loans. They offer merit-based loans instead of credit-based loans, which is good news for anyone just starting to establish credit. Their goal is to lend to borrowers who show signs of being financially responsible. Earnest is working to redefine credit-worthiness by taking into account much more than just your score.

They have a thorough application process, but it’s for good reason – they consider different variables and data points (such as employment history, education, and overall financial situation) that traditional lenders don’t.

Earnest*, unlike traditional lenders, says their underwriting team looks to the future to predict what your finances will look like, based upon the previously mentioned variables. They don’t place as much emphasis on your past, which is why a minimal credit history is okay.

Additionally, as their underwriting process is so thorough, Earnest doesn’t take on as much risk as traditional lenders do. With their focus on the financial responsibility level of the borrower, they have less defaults and fraud, which allows them to offer some of the lowest APRs on unsecured personal loans.

Personal Loan (Scroll Down for Student Loan Refinance)

Earnest offers up to $50,000 for as long as three years, and their APR starts at a fixed-rate of 5.25% and goes up to 12.00%. They claim that’s lower than any other lender of their type out there, and if you receive a better quote elsewhere; they encourage you to contact them.

Typical loan structure

How does this look on paper? If you needed to borrow $20,000, your estimated monthly payment would be $599-$638 on a three- year loan, $873-$911 on a two- year loan, and $1,705-$1,744 on a one-year loan. According to their website, the best available APR is on a one-year loan.

Not available everywhere

Earnest is available in the following 36 states (they are increasing the number of states regularly, and we keep this updated): Arkansas, Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, Washington D.C., West Virginia, Wisconsin and Wyoming.

Get on LinkedIn

Earnest no longer requires that you have a LinkedIn profile. However, if you do have a LinkedIn profile, the application process becomes a lot faster. When you fill out the application, your education and employment history will automatically be filled in from your LinkedIn profile.

What Earnest Looks for in a Borrower

Earnest AppEarnest wants to lend to those who know how to manage and control their finances. They want borrowers to know the importance of saving, living below their means, using credit wisely, making timely payments, and avoiding fees.

They look at salary, savings, debt to income ratio, and cash flow. They want borrowers with low credit utilization – not those maxing out their credit cards and experiencing difficulty in paying.

Borrowers must be over 18 years old and have a solid education background. Ideally, they attended college or graduate school, have a degree, and have a history of consistent employment, or at least a job offer that gives them the opportunity to grow.

Overall, Earnest wants to make sure borrowers are taking their future as seriously as they are. After all, they’re investing in it! The team at Earnest knows that money often holds people back when it comes to being able to achieve their dreams and goals, and they’re all about helping borrowers get there.

For that reason, Earnest seeks to learn more about those that apply for loans with them. They review every line of your application, and they want to develop a lifelong relationship with their borrowers. They genuinely want to help and see their borrowers succeed.

The Fine Print – Are There Any Fees?

Earnest actually doesn’t charge any fees. There are no late fees, no origination fees, and no hidden fees.

There’s also no penalty for prepaying loans with Earnest – they encourage borrowers to prepay to reduce the amount of interest they’ll pay over the life of the loan.

Earnest states that one of its values is transparency (and of course, here at MagnifyMoney, that’s one of ours as well!), and they are willing to work with borrowers who are struggling to make payments.

Hala Baig, a member of Earnest’s Client Happiness team, says, “We would work with the client to make accommodations that are appropriate to help them through their situation.”

She also notes that if borrowers are late on payments, they do report the status of loans on a monthly basis.

What You Can Do With the Money

The $30,000 loan limit is enough to pay off debt such as an undergraduate student loan, medical debt, or consumer debt, relocate for a job, improve your home or rental property, help you fund a down payment, or further invest in your education.

Earnest’s APR is much, much better than you’ll receive on many credit cards, and it could be a viable way to decrease the burden of debt you’re currently experiencing.

 Earnest

Apply Now

The Personal Loan Application Process

Earnest does a hard inquiry upon completion of the application. They’re very open about this on their website, stating that hard inquiries remain on credit reports for two years, and may slightly lower your credit score for a short period of time.

Compared to Upstart, their application process is more involved, but that’s to the benefit of the borrower. They aim to underwrite files and make a decision within 7 business days – it’s not instantaneous.

However, once you accept a loan from Earnest and input your bank information, they’ll transfer the money the next day via ACH, so the money will be in your account within 3 days.

Student Loan Refinance

When refinancing with Earnest, you can refinance both private and federal student loans.

The minimum amount to refinance is $5,000 – there’s no specific cap on the maximum you can refinance.

We encourage you to shop around. Earnest is one of the best options, but there are others. You can see the best options to refinance your student loans here.

Earnest offers loans up to 20 years. Unlike other lenders, Earnest allows borrowers to create their own term based on the minimum monthly payment you’re comfortable making. Yes, you can actually choose your monthly payment, which means the loan can be customized to your needs. Loan terms start at 5 months, and you can change that term later if needed.

You can also switch between variable and fixed rates freely – there’s no charge. (Note that variable rates are not offered in IL, MI, MN, OR, and TN. Earnest isn’t in all 50 states yet, either.)

Fixed APRs range from 3.38% to 6.74%, and variable APRs range from 2.34% to 6.02% (this is with a .25% autopay discount).

If you refinance $25,000 on a 10 year term with an APR of 5.75%, your monthly payment will be $274.42.

The Pros and Cons of Earnest’s Student Loan Refinance Program

Similar to SoFi, Earnest offers unemployment protection should you lose your job. That means you can defer payments for three months at a time, up to a total of twelve months over the life of your loan. Interest still accrues, though.

The flexibility offered from being able to switch between fixed and variable rates is a great benefit to have should you experience a change in your financial situation.

As you can see from above, variable rates are much lower than fixed rates. Of course, the only problem is those rates change over time, and they can grow to become unmanageable if you take a while to pay off your loan.

Having the option to switch makes your student loan payments easier to manage. If you can afford to pay off your loans quickly, you’ll benefit from the low variable rate. If you have to take it slow and need stability because you lost a source of income, you can switch to a fixed rate. Note that switching can only take place once every 6 months.

Earnest also lets borrowers skip one payment every 12 months (after making on-time payments for 6 months). Just note this does raise your monthly payment to adjust for the skipped payment.

Beyond that, Earnest encourages borrowers to contact a representative if they’re experiencing financial hardship. Earnest is committed to working with borrowers to make their loans as manageable as possible, even if that means temporary forbearance or restructuring the loan.

Lastly, if you need to lower your monthly payment, you can apply to refinance again. This entails Earnest taking another look at your terms and seeing if it can give you a better quote.

Who Qualifies to Refinance Student Loans With Earnest?

Earnest doesn’t have a laundry list of eligibility requirements. Simply put, it’s looking to lend to financially responsible people that have a reasonable ability to pay their loans back.

Earnest describes its ideal candidate as someone who:

  • Is employed, or at least has a job offer
  • Is at least 18 years old
  • Has a positive bank balance consistently
  • Has enough in savings to cover a month or more of regular expenses
  • Lives in AR, AZ, CA, CO, CT, FL, GA, HI, IL, IN, KS, MA, MD, MI, MN, NC, NE, NH, NJ, NY, OH, OR, PA, TN, TX, UT, VA, WA, Washington D.C., and WI
  • Has a history of making timely payments on loans
  • Has an income that can support their debt and routine living expenses
  • Has graduated from a Title IV accredited school

If you think you need a little help to qualify, Earnest does accept co-signers – you just have to contact a representative via email first.

Application Process and Documents Needed to Refinance

Earnest has a straightforward application process. You can start by receiving the rates you’re eligible for in just 2 minutes. This won’t affect your credit, either. However, this initial soft pull is used to estimate your rates – if you choose to move forward with the terms offered to you, you’ll be subject to a hard credit inquiry, and your rates may change.

Filling out the entire application takes about 15 minutes. You’ll be asked to provide personal information, education history, employment history, and financial history. Earnest takes all of this into account when making the decision to lend to you.

The Fine Print for Student Loan Refinance

There aren’t any hidden fees – no origination, prepayment, or hidden fees exist. Earnest makes it clear its profits come from interest.

There are also no late fees, but if you get behind in payments, the status of your loan will be reported to the credit bureaus.

Earnest

Apply Now

Who Benefits the Most from Earnest

Those in their 20s and 30s who have a good grip on their finances and are just getting started with their careers will make great borrowers. If you’re dedicated to experiencing financial success once you earn enough money to actually achieve it, you should look into a loan with Earnest.

If you have a history of late payments, being disorganized with your money, or letting things slip through the cracks, then you’re going to have a more difficult time getting a loan.

Amazing credit score not required

You don’t necessarily need to have the most amazing credit score, but your track record with money thus far will speak volumes about how you’re going to handle the money loaned from Earnest. That’s what they will be the most concerned about.

What makes you looks responsible?

Baig gives a better picture, stating, “We are focused on offering better loan alternatives to financially responsible people. We believe the vast majority of people are financially responsible and that reviewing applications based strictly on credit history never shows the full picture. One example would be saving money in a 401k or IRA. That would not appear on your credit history, but is a great signal to us that someone is financially responsible.”

Conclusion

Overall, it’s very clear that Earnest wants to help their borrowers as much as possible. Throughout their website, they take time to explain everything involved with the loan process. Their priority is educating their borrowers.

While Earnest does have a nice starting APR at 4.25%, remember to take advantage of the other lenders out there and shop around. You are never obligated to take a loan once you receive a quote, and it’s important to do your due diligence and make sure you’re getting the best rates out there. If you do find better rates, be sure to notify Earnest. Otherwise, compare rates with as many lenders as possible.

Shopping around within the span of 45 days isn’t going to make a huge dent in your credit; the bureaus understand you’re doing what you need to do to secure the best loan possible. Just make sure you’re not applying to different lenders once a month, and your credit will be okay.

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Investing, Reviews

Hedgeable Review: Robo-Advisor for Investors Who Don’t Mind Risk

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

hedgeableYou may get overwhelmed when you think about wealth management. It can feel complex, and you may not consider yourself wealthy enough to justify the expense of having someone manage your investments.

In the past few years, though, wealth management services have been largely democratized by robo-advisers. Rather than paying an individual to handle your investments, robo-advisers manage your money through technology, letting algorithms do the heavy lifting.

In this post we’ll look at Hedgeable, a highly personalized digital investing platform.

What Is Hedgeable?

Hedgeable is a private wealth management platform that is accessible on your computer, tablet, and smartphone. Hedgeable actively invests across a wide range of asset classes, including exchange-traded funds (ETFs) and individual stocks. Because past performance cannot predict future returns, we have no way of knowing if this method will be successful in the future. But we do know that studies have repeatedly shown that the best-performing portfolios over time have often been forgotten.

While forgetting about your retirement account is certainly one way to passively invest, a more conscious option is investing in low-cost index funds. If, however, you are willing to take on the risk of lower returns associated with an actively managed account, Hedgeable’s personalization makes it worth examining.

Unlike other robo-advisers, Hedgeable takes and more active approach to managing client portfolios. When you sign up for an account, you take a portfolio customization quiz that asks you about your assets, goals, and risk tolerance. The quiz takes all of five minutes and then assigns you a very specific portfolio to match your needs.

You can either open a new investment account directly through Hedgeable, transfer an existing account, or roll over a 401(k), 403(b), or 457 to an IRA.

How Hedgeable Chooses Your Investments

While many robo-advising apps use modern portfolio theory to allocate money in a portfolio, Hedgeable uses an objective-based model, which relies less on what the market will do and more on what the investor wants their money to do.

The approach is three-pronged. First, it widens the amount of available asset classes. Your money may be invested in any of the following, depending on your personal risk tolerance:

U.S. Equities

International Equities

Emerging Market Equities

U.S. Fixed Income

International Fixed Income

Emerging Market Fixed Income

Commodities

Real Estate

Master Limited Partnerships

Alternatives

Absolute Return

Currencies

Short U.S. Equities

Short Emerging Market Equities

Short Fixed Income

Cash

To better understand the list above, there are a few key terms you should be familiar with. “Equities” generally means stocks or exchange-traded funds (ETFs). “Fixed Income” is typically indicative of bonds. When you “short” something, you’re betting against it.

Using all of these asset classes, Hedgeable then looks at the goal end date of your portfolio, whether or not you want to invest exclusively in a social cause such as female leadership, LGBTQ equality, or alternative energy, and your risk tolerance to decide where it should invest your money. Riskier portfolios generally have a better potential for return, while lower risk portfolios will likely bring in less, but run a lower potential for losing value.

After your money is invested in specific assets, Hedgeable doesn’t wait a year to rebalance your portfolio. Instead, it implements something called dynamic hedging. As assets become more volatile, the algorithm will cut exposure to them, moving your money into safer assets immediately. Portfolios on this platform are very much actively managed.

Users are also encouraged to take advantage of Hedgeable’s account aggregation, which allows you to link all of your financial accounts to the app. This gives Hedgeable an overall view of your cash and debts. When the app has more information, it can better allocate your money to fit your specific financial situation.

Fees and Costs

Hedgeable’s pricing depends on the size of your portfolio. While there is no account minimum, those with the least amount of money in their accounts pay the highest fees.

While the fees on Hedgeable’s pricing page are annual fees, customers are billed on a monthly basis. For example, if a customer’s fee is 0.75% per year, they would be charged 0.0625% each month. 

Fees cover management fees, trading costs, product fees, administration, technology, analytics, and customer support.

$0-$49,999 – .75%

$50,000-$99,999 – .70%

$100,000-$149,999 – .65%

$150,000-$199,999 – .60%

$200,000-$249,999 – .55%

$250,000-$499,999 – .50%

$500,000-$749,999 – .45%

$750,000-$999,999 – .40%

$1,000,000-$9,999,999 – .30%

Customer Service and Rewards

Hedgeable has a variety of ways to get your problems resolved and questions answered. You can open up a ticket and monitor the progress the support team has made in addressing your concerns. Alternatively, you can text or do live chat with the organization’s customer support team seven days a week. On top of all this, the CIO himself holds office hours twice a week via video conferencing.

In order to increase customer retention and give users the best experience possible, Hedgeable runs a rewards program known as ?lph? clu?. You can earn points by becoming a member, funding your first account, referring new users, sharing on social media, investing specifically for retirement, adding a recurring deposit, and sticking with the company. When you are rewarded for financial activity, your points correspond with how much money you add to your account.

You can claim points for prizes such as Airbnb gift cards, VR headsets, and donations to charitable causes. The more expensive an item is, the more points it will cost to acquire it.

Pros and Cons

Pro: The quick onboarding quiz makes it very easy for users to find an appropriate portfolio and invest without doing mental gymnastics.

Con: While the user might not feel actively engaged in the process, these portfolios are very much actively managed by Hedgeable’s algorithm. Many finance experts stay away from this type of management as it is extremely difficult to do successfully.

Pro: You can start investing with any amount of money, and can do so in accordance with your values through socially responsible investments.

Con: Those with the least amount of money will pay the highest annual fees.

Pro: There is one, flat-rate, easy-to-understand fee that is only assessed once per year.

Other Investing Apps to Consider

Betterment is another investing app with a relatively low barrier to entry. There are no minimum required investments, though it does not invest in as wide of an array of asset classes as Hedgeable. Its fees are lower though, ranging from .35% to .15% annually, depending on the size of your account. Betterment does require a $100 monthly contribution or you will incur a $3 fee.

Wealthfront uses modern portfolio theory like Betterment, but offers a wider variety of potential investable assets. Wealthfront is also free until you have $10,000 or more invested; at that point your fees jump to .25% annually, making it the cheapest option of the three. To get started, though, you must open an account with at least $500.

 

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3 Common Mistakes Savers Make When They Invest in Target-Date Funds

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archer target arrow investing retirement saving

Target-date funds (TDFs) are one of the most popular investment options offered by employers because they provide employees an all-in-one portfolio within their retirement plans. To show how popular they are, more than 70% of all 401(k)s provide TDFs, and approximately 50% of participants own them. However, most employees don’t even know what target-date funds are or how they work.

So why the fuss about target-date funds? Although popular, many participants are misusing them and hurting themselves in the long run.

What a Target-Date Fund does:

A TDF is simply an investment fund that owns a bunch of index-style mutual funds. Because TDFs include funds with broad exposure to different types of assets, they allow novice investors to access countless stocks and bonds. For example, the Vanguard 500 Index Fund tracks the S&P 500, which gives investors access to 500 different stocks. A TDF may contain several funds similar to the Vanguard one.

According to a recent study by Aon Hewitt, retirement savers who choose to invest in a single TDF and no other funds had higher investment returns by over 2%. In addition, those participating in TDFs outperformed people who manually managed their retirement investments by a whopping 3%.

Here are some reasons they have been misused, how to overcome them, and why you only need one in your portfolio.

Choosing the wrong year

The name “target-date fund” means exactly what it sounds like. You choose a fund based on the year or “target date” that you plan to retire. TDFs are offered in five-year increments — 2035, 2040, 2045, 2050, and so on. Your goal is to pick a TDF associated with a date that is closest to when you expect to retire.

For example, if you’re 25 years old today and plan to retire at age 65, you would opt for a 2055 TDF option.

Why does the year matter so much? Because the closer you get to retirement, the more conservative your investments should become. This is important, because you have less and less time to bounce back from setbacks as you get closer to retirement. The way TDFs work, they tend to be more heavily invested in risky assets like stocks in your early working years.

“As the investor ages and moves closer to their intended retirement date, a target-date fund will reduce the overall investment risk,” explains John Croke, a certified financial adviser with Vanguard. This process is known as the glide path.

Choosing more than one TDF

Since TDFs are pretty straightforward, many people mistakenly think that they need to split their retirement savings among more than one TDF in order to be truly “diversified.” But the whole point of a TDF is that you only need to invest in one — it is automatically diversified among many assets for you.

“TDFs are designed as ‘all-in-one’ solutions that provide automatic diversification across multiple asset classes,” Croke says. “Owning more than one TDF is not advised or necessary.”

You shouldn’t treat your TDF as if you were a day trader trading stocks either. It’s better to invest in your TDF and keep your funds there rather than to jump in and out trying to time the market.

Paying too much in fees

Compared to traditional mutual funds, TDFs are especially appealing because they charge such low fees. In the world of investing, fees come in many different forms, but the important fee to watch out for is called the “expense ratio.” This is the amount your fund manager charges you for the ability to own that fund. Expense ratios can be as low as a fraction of a percentage or as high as several percentage points. It may not sound like much of a difference, but even a difference of one or two points can mean losing tens of thousands if not hundreds of thousands of dollars over the decades until you retire.

Also, participating in more than one fund just subjects you to more fees that are unnecessary. Why pay more when you don’t have to?

The final word

All in all, TDFs provide an easy, diversified, and low-cost means to invest for retirement. All you need to do is choose one that matches the year you plan to retire, make tax-deferred payments from your paycheck into the fund, and allow your account to grow with history proving that time is on your side when it comes to the markets.

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How the Stock Market Could React if Trump or Hillary Wins

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Whether Hillary Clinton or Donald Trump wins the U.S. election this November, the question for investors is how that victory might affect the stock market.

If Clinton wins, will health care companies like Aetna prosper? If Trump wins, will oil companies like Exxon and Shell, surge?

Historically, the presidential election has had little long-term impact on the U.S. stock market. “The market responds more to Fed policy and economic conditions more than who is president,” said Sam Stovall, Chief Investment Strategist with CRFA.

Stovall looked at how the stock market has fared under past U.S. Presidents. Overall, markets from 1945 to 2016 gained 9.7% under Democrat presidents and 6.7% under Republican presidents, according to his findings. But it’s hard to say whether those gains were tied directly to the person sitting in the Oval Office.

Nonetheless, decisions the president makes can have lasting impacts on certain industries, which could have an impact on market value for publicly traded companies in those industries.

stock market graphic

MagnifyMoney reached out to a handful of experts to find out how the market might look the day after Election Day (and beyond).

Here are their predictions:

If Trump wins …

Donald Trump

Stovall noted there’s a lot of concern that a Trump victory would send the market into a nosedive. But any dip in the market would eventually level out. “If it falls, it won’t be for too long,” Stovall says.

Trump has vowed to cut regulations across many industries and let markets rule, which could lift markets if he is elected, says Jeff Auxier, president and CEO of Lake Oswego, Ore.-based Auxier Asset Management. “The perception is he would cut taxes and regulations,” he says.

For example, Trump has said that he will allow insurance companies to sell insurance across state lines, which could boost their business.

The insurance industry would particularly benefit from Trump’s insistence on deregulation, Auxier suggests. Lately, the U.S. government has worked to block a pair of potentially lucrative insurance mergers — marriages between Anthem-Cigna and Aetna-Humana. All signs point to less federal regulation under a Trump presidency.

Most large financial service companies favor a Trump triumph. “Banks favor less regulation,” Stovall says. Under a Clinton administration, some of the mega banks such as Bank of America and Citigroup would likely face pressure to shrink. In other words, they may be forced to sell off businesses and reduce total assets. If regulations under Trump declined, Capital One Financial Corp. (COF) and Discover Financial Services (DFS) stand to gain.

Another industry that might celebrate a Trump victory is construction and engineering.

“Any companies associated with building roads and bridges like engineering firms will benefit,” Auxier says. Some specific companies that could see revenues rise include Granite Construction (GVA) and Sherwin-Williams (SHW), the paint company. Stovall says these companies could do well under Clinton as well, who has said she would spike investment in infrastructure.

Large oil and energy companies would welcome a Trump victory since they prefer less regulation, a hallmark of the Republican agenda, Stovall adds.

For-profit colleges have been battered by regulations and would bounce back in a Trump presidency, Auxier suggests. Under Trump, companies such as Apollo Education Group and Lincoln Tech could “come back from the dead,” he says.

If Clinton wins …

Hillary Clinton

If Clinton wins the election, renewable stocks would prosper and many health care stocks could do well. On the downside, biotech and retail stocks might falter.

Many retail stores and restaurants are concerned about a Clinton election, Stovall says. “Retail is worried about a $15 an hour minimum wage,” Stovall says, which Clinton has supported.

On health care, don’t expect much difference if Clinton is elected. “[A Clinton victory] is basically a continuation of the Obama administration,” Stovall says. “She represents more of the center of the two candidates and that would make for less uncertainty. Wall Street doesn’t like uncertainty.”

Despite that fact that Aetna cut back its Affordable Health Care coverage in 11 states, and Humana and UnitedHealthCare also reduced coverage, the Obama administration has noted that millions of people still maintain their health plans. Health care companies can opt out of offering coverage and then return, so it’s not necessarily a permanent trend.

Under a Clinton administration, large managed health care firms, HCA Holdings (HCA), Tenet Healthcare Corp. (THC), and Molina Healthcare (MOH) could prosper as more companies drop out of the marketplace, creating less competition.

But Stovall also notes that Clinton has focused on capping the rising cost of drugs, which could trouble the pharmaceutical industry.

If Clinton wins, “biotech will shake in their boots,” Stovall adds. Clinton has stressed that controlling drug prices and avoiding massive price hikes is critical. She has said she will look to regulate and curtail pharmaceutical price increases, specifically highlighting the recent controversy over Mylan’s decision to drastically increase the price of EpiPens.

“Biotech and pharma companies would likely suffer from promised price caps. However, hospital management companies will prosper since we won’t be back to the old pattern of uninsured individuals using emergency rooms as their primary care facilities,” Stovall asserts.

While a Trump victory could likely be good news for oil stocks, a Clinton victory could send renewable energy stocks soaring.

“Democrats would be pushing for renewable energy and putting more restraints on energy,” Stovall says. Hillary Clinton has supported President Obama’s Clean Power Plan, which intends to set a national limit on carbon pollution, and she has stated that “the Obama plan is a major step forward to combat climate change.”

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How to Jumpstart an Underperforming 401(k)

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retirement growing plant

A recent study from Schwab Retirement Plan Services found that “saving enough money for a comfortable retirement is the most common financial stress inducer for people of all ages.” Some 40% of survey participants stated that building adequate retirement savings was more stressful than the prospect of losing a job.

It’s hard to blame them. Watching that nest egg grow bit by bit over the course of several decades can be a challenge. And when your main retirement savings vehicle sputters and stalls, performance-wise, it’s difficult to know whether it might be time for a tune-up — or if you are better off leaving it alone.

If your plan is underperforming, and your balances are lower, it could be time to take some specific steps to correct the problem, and get that plan moving in an upward direction.

To get you motivated, MagnifyMoney reached out to finance and investment experts for effective strategies to turbo-boost those flatlining 401(k) plans. Here’s a look at what they said:

Kick it into overdrive when you hit 50.

The more cash you steer into your 401(k) plan, the more money you have working for you toward your retirement. That’s important, as compound interest builds more retirement wealth with more money in your 401(k) plan. “That’s why you need to take advantage of the 401(k) plan catch-up contribution,” says Shanna Tingom, co-founder and a financial planner with Heritage Financial Strategies, in Gilbert, Ariz. In a word, catch-up contributions allow retirement savers, usually older ones, to increase their 401(k) contributions.

Catch-up provisions enable plan participants who hit the 50-year-old mark before the calendar year is over to contribute extra “catch-up” 401(k) plan contributions on a pretax basis. In 2016 and 2017, for example, the catch-up limit stands at $6,000, in addition to the standard contribution limit of $18,000.

As Tingom puts it, “Too many people forget to increase their contribution when they turn the big 5-0.”

Get more aggressive, especially when you have more than 10 years until retirement.

The older investors get, the more conservative they may want to become with their retirement investments. But that could be a mistake, as Americans live longer and healthier lives and could need their nest eggs to last for decades beyond retirement. Forrest Baumhover, a fee-only financial planner with Westchase Financial Planning in Tampa, Fla., says he often sees retirement savers getting too conservative with their investments.

“You’ve got to look at your investment goals, and make sure your 401(k) selection matches those goals,” Baumhover advises. “Many people leave their money in the default money-market accounts and wonder why their plan performance isn’t going anywhere.” Studies show that investors who steered $100,000 into the Standard & Poor’s 500 stock index in 1987, would have earned over $1 million 25 years later. But a similar investment in the Barclays U.S. Aggregate Bond Index would have only accumulated $560,900, according to The Wall Street Journal, citing data from Morningstar.

Yes, stocks do represent a higher risk than bonds — the S&P 500 fell by 38% in 2008 — but historically, stocks make up the loss, and then some. Of course, if you are within a few years of retirement, it could be unwise to invest your entire portfolio in riskier stocks. Speak with a financial adviser who can help you determine the right mix of investments for your age, risk tolerance, and time horizon.

Keep a sharp eye on expensive fees.

Make sure the funds you are selecting are low cost, says Jeremy Torgerson, a money manager at nVest Advisors, in Brownsville, Texas. “Every 401(k) fund list should have a chart of the expense ratios of each fund,” Torgerson says. “Excessive fund fees — anything over 2%, especially — can really drag down your return over several years.” According to a 2014 study by the Center for American Progress, which cites government and industry plan data, the average American career professional loses $70,000 due to excessively high 401(k) plan fees over the course of their working years.

“The corrosive effect of high fees in many of these retirement accounts forces many Americans to work years longer than necessary or than planned,” the report states. Aim for low-cost exchange-traded funds, or index funds, which track major investment benchmarks, like the S&P 500, and offer management fees of well under 1%.

Get professional advice.

Too many people go it alone on with their 401(k) plans, and thus make poor choices on where and when to invest their money, warns Ed Snyder, a certified financial planner with Oaktree Financial Advisors, in Carmel, Ind. “An advisor can help you make choices and to stay the course during times of market volatility when you may have otherwise bailed out on your investments,” Snyder says.

The data backs up that sentiment. According to Vanguard Funds, a financial adviser using Vanguard’s own “best practices” can add 3% in net portfolio returns annually to an average investor’s portfolio. At 3% each year, for 30 or 40 years in the workforce, that can added hundreds of thousands of dollars to a 401(k) plan participant’s retirement savings.

And the good news is that hiring professional help doesn’t mean you necessarily have to fork over a percentage of your investment returns forever. There are low-cost alternatives to traditional financial advisers. You could hire a fee-only planner who charges on an hourly basis, or seek out services like Betterment or Wealthfront, which offer retirement investment advice at a fraction of the cost of traditional investment advisers.

Learn when to do nothing.

There’s a lot to be said for the vaunted “buy and hold,” long-term investment model. With this model, 401(k) savers (ideally working with a good money manager) choose several appropriate, low-cost mutual funds that fit their risk profile, their investment goals, and their asset allocation needs, and let the funds grow without worrying what the stock market is doing. Time and the miracle of compound interest are great retirement portfolio builders — if only 401(k) savers would leave them alone to grow, without buying and selling in an effort to time the markets.

Clearly, Americans are having problems getting their 401(k) plans on the performance fast track. Fix that issue by using the tips above to get your retirement plan into higher gear — the sooner, the better.

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5 Easy Steps to Buy Your First Stock

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5 Easy Steps to Buy Your First Stock

The stock market can seem complicated, but most people agree that it’s a necessary component to achieving financial wellness. There are a few steps needed when buying your first stock. Let’s go through the basics for your first purchase.

5 steps to buying your first stock

First thing’s first: Save money to invest.

We’ve all heard the phrase, “It takes money to make money.” Although this is true, it’s best to have a proper plan in place to build up a personal fund specifically for buying your first stock.

Before you begin setting aside funds to invest, make sure you’re actively paying down debt and setting aside money for an emergency fund. The S&P 500 has returned 11% annually on average since 1928 (not adjusting for inflation). If you owe money on a credit card or loan with an interest rate over 11%, it would actually be more beneficial to pay that off first and then start transferring money into your investment fund.

After you’ve reached your emergency fund goal, start setting aside money to invest. A great way to do this is by saving a set amount of your income in scheduled increments. Try starting with 5% of your paycheck and increase contributions as you become more comfortable. Consider setting up a direct deposit to a separate high-interest savings account so you won’t be tempted to spend this money.

Now you’re probably wondering — how much should I save before I start investing?

Some newer online investing platforms allow novice investors to buy fractional shares rather than whole shares. Fractional shares are simply smaller portions of a total share. That means you can start investing with much less than you would need at a traditional brokerage firm. Check out some of these companies if you want to start investing with as little as $5.

Check with your broker to see what their commissions are and how much it takes to make an initial investment. $100 is typically a good price point to begin when purchasing your first stock or exchange-traded fund (ETF) as many cost less than that. In contrast, a typical index or mutual fund may have an initial buy-in of more than $1,000 to get started.

Choose and fund a brokerage account.

The stock market is a highly regulated industry with stocks trading on major exchanges like the New York Stock Exchange and the Nasdaq. When you plan to buy your first stock, you’ll need to use a brokerage firm in order to complete your purchase. There are many online discount brokers that allow first-time investors to buy stocks without a lot of upfront costs.

Choosing a brokerage firm can come down to many variables, but the primary one new investors look for is cost. Online discount brokers have made it easier for new investors to participate. Typical commissions — that’s how much they charge you every time you make a buy or sell stocks — run between $5 and $10 at firms such as TD Ameritrade and TradeKing.

Newer firms such as Acorns and Stash are allowing new investors to start with as little as $5 right from their phones, allowing them to buy fractional shares.

Research companies to buy.

There are over 6,200 publicly traded companies listed on the New York Stock Exchange and Nasdaq, which can seem extremely intimidating to first-time investors. Basic research methods can narrow down your list tremendously, helping you find your first stock faster. This can be done through your broker’s online portal or with free sites like Yahoo Finance and Google Finance.

An easy way to get started is to think about items you use on a daily basis or companies you frequently patronize. Simply looking at who makes your cellphone, the type of car you drive, or whom you bank with can present potential companies when buying your first stock.

Once you have a list, use your broker to find and read over quarterly and annual financial reports of those companies. Just as you would personally want consistent positive cash flow (more income than expenses), you want to make sure a company you plan to own does too.

Buying individual stocks can be time consuming and stressful, particularly for new investors. Consider low-cost exchange-traded funds (ETFs), index funds, or other mutual funds to alleviate some of the search process and provide great diversification at the same time. In addition to diversification, you also want a fund that has a low expense ratio, fund manager stability, and an overall consistent positive performance. Strive for a fund that averages over 3% growth annually to combat inflation.

Fidelity and Vanguard are leading the industry in regards to low-cost index and mutual fund options.

Decide how many shares you want to buy.

Once you’ve narrowed down your list to one stock you want to buy, you’ll need to decide how many shares of that stock you want to own. One share represents a single unit of ownership within a company. The more shares you buy, the bigger the percentage of the company you own. Don’t think you have to buy a lot initially. Start small, and grow your holdings.

A great method to use is dollar-cost averaging (DCA). This is when you buy a block of shares based on how much money you have, not how many shares you want. This technique is popular because it makes sure investors purchase more stocks when the value of a stock is low and fewer stocks when the value of a stock is high. For example, if you have $200, you can buy 20 shares at $10 each. When you save up another $200, and shares have appreciated to $18 each, you can now only buy 11 shares. Since you spent a total of $398 on 31 shares, your average purchase price is $12.84. That’s how DCA works.

As mentioned earlier, newer firms are allowing new investors to buy partial shares because they are buying based on price, not quantity.

Place your order.

There are two major types of orders when buying your first stock: market order and limit order. A market order allows you to buy shares at current market value, while a limit order allows you to buy shares at a specific target price.

Market orders are typically the method new investors use as limit orders are primarily used for short-term investing.

Welcome to the club!

You’re officially a stockholder. In a perfect world, your stock will always increase in price, but the stock market isn’t perfect. Remind yourself that you’re in it for the long term and that the annual average is on your side.

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8 Blogs to Help You Understand Investing

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8 Blogs to Help You Understand Investing

As a financial planner and an overall money nerd, I read a lot of investment material. Some of it is for fun. Some of it is for my general education. Some of it is done to answer specific client questions. And because my livelihood depends on it, it’s important for me to find information that’s useful, accurate, and easy to understand. To be completely honest, most investment sites just don’t cut it.

But there are some good ones out there, and below are eight of my favorites.

1. The Bogleheads Wiki

URL: https://www.bogleheads.org/wiki

Okay, so I’m cheating a little bit right at the start. This one isn’t technically a blog, but it is updated regularly, and it’s a goldmine of investment know-how, so here we are.

The Bogleheads named themselves after John Bogle, the founder of Vanguard, and their overall philosophy centers around using low-cost index funds to implement a simple, yet effective, investment plan.

You can think of this wiki as an encyclopedia of investment knowledge, with articles ranging from the basics of getting started to the intricate details of advanced strategies like asset location.

As a bonus, there’s also an active forum where people are constantly asking questions and talking about the best ways to put these investment practices into place.

If you’re looking for an answer to a specific question, this is a fantastic place to start.

2. The Oblivious Investor

URL: http://www.obliviousinvestor.com

Mike Piper is one of my favorite investment writers because he gets right to the point and explains everything with a simple clarity.

Though he clearly has a detailed understanding of the nuances of investing, he’s a fan of simplicity and backs it up with his own personal investment strategy. He makes things easy to understand so that you walk away knowing exactly how to apply his advice to your specific plan.

He’s also a CPA and shares a lot of advice about how you can maximize your investments from a tax perspective, which isn’t something you’ll find on a lot of other sites. 

3. Ms. Cheat Sheet

URL: https://mscheatsheet.com/blog/

Kathryn is not only smart, she’s hilarious (check out the video on her home page).

Kathryn combines her 10+ years of hedge fund experience with humor and common sense to make investing both interesting and easy to understand. And she strikes a great balance between timeless investment advice and commentary on current events, so no matter what you’re looking for you’re bound to find it.

4. The Mad Fientist

URL: http://www.madfientist.com

Brandon reached financial independence in his 30s, and he’d like to show you how to do the same.

What I love about this site is that it explores ideas and tactics you won’t find almost anywhere else. He shows you things like:

5. JL Collins

URL: http://jlcollinsnh.com

Many of the readers of my site have credited Jim for their investment success, so I’ve gotten to hear firsthand how much of an impact he’s made on others.

Jim is a regular guy who’s learned how to harness a set of powerful investment principles and use them to create a lifetime full of choices based on happiness instead of money. For example:

  • At the age of 21 he negotiated an extra six weeks of paid time off per year because the money he had saved and invested gave him the freedom to not need the job.
  • Later in life he chose to be unemployed for three years so he could spend that time with his young daughter.
  • These days he spends his time writing, reading, riding his motorcycle, and generally doing what he pleases as he lives off his investments.

I would suggest starting with Jim’s Stock Series, which is a fantastic overview of all the most important investment lessons he’s learned.

6. Betterment

URL: https://www.betterment.com/resources/tags/investing-101/

Betterment sells an automated investment platform, so you will see some sales pitches on their blog. But it’s also packed with good advice that’s worth using no matter where you invest your money.

Betterment explains the basics around concepts like diversification and rebalancing while also diving deep into more complicated topics like tax loss harvesting and asset location strategies. No matter where you’re starting from, there’s almost certainly something to learn.

7. Retire by 40

URL: http://retireby40.org/

Joe started Retire by 40 six years ago when he realized that his physical and mental health were suffering as a result of his job. He wanted out, and he started documenting his journey toward financial independence.

His blog is a fantastic and down-to-earth overview of what it’s really like to pursue financial independence and what it’s like when you get there. It’s a mix of life lessons and investment lessons from a regular guy trying to figure it all out, which makes it an enjoyable and educational read.

8. Nerd’s Eye View

URL: https://www.kitces.com

If you’re looking for technical detail, this is the place to find it.

Michael Kitces has made a name for himself in the financial planning community by being the guy who knows it all. The breadth and depth of his knowledge is second to none, and he shares all the intricate details on his blog.

He writes for financial professionals, so there’s a lot of industry-specific language, and he takes each topic into more depth than you’ll find in most other places. But if you nerd out on investing, and if you’d like to up your game, this is the place to do it.

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Investing, Reviews

Stockpile Review: A No-Hassle Way to Give the Gift of Stock

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You can now give the gift of stock ownership through stock gift cards.

In October 2015, Stockpile started offering physical gift cards in stores and for order online for people to present their loved ones with $25, $50, or up to $1,000 of stock ownership in their favorite companies, such as Apple, eBay, Yahoo, Facebook, and more.

The idea behind the stock gift cards is to allow anybody to give, receive, or purchase their own stock in their favorite companies.

Stockpile has nearly a thousand stocks, exchange traded funds (ETFs), and American depositary receipts (ADRs) to choose from. When you buy a gift card for yourself or redeem one someone gave you, you’ll have stock in a real brokerage account.

In this review, we’ll go over how to use Stockpile, prices and fees you’ll need to look out for, the fine print, and the pros and cons of using this unique brokerage for investment.

How Stockpile Works

Stockpile gift cards are available in stores, but you can also shop on their website and pick out the card you want, depending upon which company you’d like to hold a share in. If you’re buying a stock gift card for someone else, when the recipient redeems it, they’ll get fractional shares of real stock in a real brokerage account.

Stock holders can hold onto their stock and track its progress, buy more, or cash it out by selling it at any time.

Stockpile GiftChildren and teens can own their own stock as long as an adult is on the account with them, but they will be referred to as the beneficiary until they turn 18. Minors can set up their own login on Stockpile separate from the adult on their account and place trades with the adult’s consent.

It’s also important to note that there is no expiration date on the stock gift card, and the value of the card doesn’t change until the card is redeemed for stock. Then, the value of the stock will fluctuate based on the market. Redeeming the card and getting the stock is as easy as entering the code on the back of the card at stockpile.com and signing up for an account on the website.

Stockpile has a short form that needs to be completed before opening an account, which usually takes about three to four minutes to complete. Then, your information will be verified electronically, and you can set up your account instantly in most cases.

Costs and Other Fees

Stockpile prides itself on having affordable fees that are also clear to understand so customers don’t have to feel like they are buying and trading stock on Wall Street.

Customers can purchase e-gift stocks, which are stock ownership gifts delivered via email, that range from $1 to $1,000 plus fees. There are a few fees to consider, depending on how much stock you buy. For stock gift cards that are purchased for $100 and under, there will be a $1.99 fee charged per gift card.

For gift cards over $100, there will be a $1.99 fee plus 3% per gift card. If you want to trade or sell your stock, a $0.99 fee will apply per trade.

Most cash transfers are free, including linking to your bank account and incoming and outgoing Automated Clearing House (ACH) transactions. There is no minimum balance requirement or monthly fees, and electronic statements, trade confirms, and tax forms are all free.

On the other hand, there are a few fees that might come as a shock if you’re not prepared, such as the their $30 returned check/ACH/stop-payment fee. If a customer wants to transfer their account to another brokerage, there is also a $75 fee to consider.

Fine Print

Stockpile has pretty straightforward information on its website about how to purchase and use its stock gift cards, but overall, the company has introduced a Stockpile giftcardnewer concept by allowing customers to purchase stock gift cards as opposed to doing it through a brokerage firm so it’s important to be aware of the fine print.

Stockpile Investments is a member of the Securities Investor Protection Corporation (SIPC) and insures customers’ accounts for up to $500,000. You can transfer your stock to another brokerage, but Stockpile does charge a fee, and it recommends you check with the other brokerage to make sure you meet their minimum balance requirements (if any) and check for any other fees they might have.

While Stockpile gift cards are capped at $1,000, that doesn’t mean you can’t buy more than one. Stockpile sets the limitation due to federal regulations that indicate closed-loop gift cards (cards offered and redeemed by one company) can’t exceed $2,000.

When selling or trading your stock(s), timing is everything. If you place a trade before 3 p.m. EST, your trade will take place that day at the stock’s closing market price, and your stock will be in your account by 6 p.m.

If you are selling a stock and place a trade before 3 p.m. EST, your trade will take place that day at the stock’s closing market price minus the $0.99 commission charged by Stockpile, and the funds will show up in your account within three business days.

If you have tax liability concerns, Stockpile addresses them by providing you with an annual 1099 form that will be posted to your account. While the company doesn’t provide any tax advice, the 1099 will show information about the stocks sold and cash dividends received during the calendar year.

For customers who buy a gift card for others, their taxes will be unaffected and treated as if they were simply buying a gift card with prepaid value. For those who receive a stock gift card, their taxes will remain unaffected until they sell stock or receive any dividends.

Pros and Cons

Pro: Simplified stock buying and trading process. Stockpile’s process is very simple compared to other online brokers. It allows customers to send the gift of stock or to invest in large, well-known companies that they might not have had the option to invest in with other brokers due to the cost and complexity of the overall process.

Con: Variety of fees to consider. While we didn’t find any hidden fees, there are quite a few fees to look out for, including the $75 transfer fee if you want to change brokerages.

Pro: It’s easy to convert to a regular gift card. If gift-givers purchase a card for someone who doesn’t want to get into the stock market or won’t find it useful, the recipient can always opt out of using it for stock and use it as a regular prepaid gift card at the retailer or company.

For example, if you purchased a share of stock through a Stockpile gift card for a loved one with a company like Apple, Amazon, or Burger King and the recipient didn’t want the stock, they could redeem it for cash instead. Kids need an adult’s permission to do this. This way, the money spent initially doesn’t go to waste.

Con: Limited purchase amount. Some customers may view the limited purchase maximum as a disadvantage if they want to buy more stock than allowed. While the limit is put in place to avoid situations like money laundering and other types of fraud, it’s not necessarily cut out for someone who wants to purchase lots of stock. When a customer initially tries to purchase stock for certain companies, Stockpile may even post a stricter limit in an attempt to help customers avoid high debit and credit card fees. For example, customers can only purchase a maximum of $200 in Amazon stock on the website, but they will have the opportunity to purchase more when they link up their bank account. This two-step process can seem tedious.

Who Stockpile Is Best For

Overall, Stockpile is not best for people looking for a long-term investing strategy. That’s because it is widely considered unwise to invest in individual stocks as part of a long-term investing strategy. If long-term investing is your aim, then you should explore better long-term investing options such as opening a low-cost brokerage account or contributing to your employer’s 401(k). We have tips on finding a low-fee brokerage firm and a simple guide to setting up a 401(k) here.  We’ve also reviewed several roboadvisors, which are firms that offer low-cost access to the market and mostly allow members to invest in mutual funds and exchange traded funds.

That being said, Stockpile can be used if you’d like to give a loved one a gift of stock, which they can watch grow and learn about investing along the way. The low purchase and sharing fees make buying stock gift cards simple and affordable. For that reason, Stockpile might be a good option for adults who would like to give children in their family an easy way to begin their investing education.

Investing early is important in order to build wealth. Minors who receive stock gift cards for their favorite companies, such as Disney and Mattel, can log in to their account whenever they want and learn more about placing trades and check on the value of their stock with the account’s adult custodian.

However, if you are looking to encourage long-term investing, Stockpile can be an expensive tool to use. If the gift card recipient wants to transfer their stock to a low-cost brokerage firm, where they could diversify their holdings and build a long-term investing strategy, Stockpile will charge them a hefty $75 fee to do so.

For that reason, Stockpile should best be considered an additional way to invest in stocks alongside a more traditional investment portfolio through a brokerage firm, IRA or 401(k).

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