Advertiser Disclosure

Investing

10 Ways to Invest Outside of Your 401(k) in 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

iStock

So you’ve got plans to max out your 401(k) and your emergency fund is cash-flush. What next?

You have plenty of options, many of which we’ve listed below. Wherever you put your money, remember that each type of investment comes with drawbacks. You should understand your risk tolerance and be comfortable with the potential pitfalls involved before getting started with a new investment. Asset diversification is a way to offset the potential risks — do not put all your eggs in one basket. If you are looking to diversify your assets, here are 10 ways to invest outside a 401(k). We’ve put them in order (roughly) of how complicated it is to get started with these investment strategies.

Upgrade your savings

Stashing your extra money in a certificate of deposit (CD), high-yield savings account, or money market account might be the least risky investment you can make in 2018.

The Federal Reserve has gradually raised its benchmark funds rate in 2017. The latest hike was in December, when the Fed raised the funds rate target range by 25 basis points. When the Fed rates increase, banks often raise savings rates as well. So it may be the time to upgrade your ho-hum deposit accounts.

Most accounts are insured by the Federal Deposit Insurance Corporation, a government agency, for up to $250,000. The risk with these accounts is you might not earn enough interest on your deposits to outpace inflation. If you choose a CD, you usually can’t access your money until the term ends without paying a hefty fee, so it’s probably not a good idea to lock all your savings into a five-year CD account.

You can read our reviews on CDs, online-bank savings accounts, and money market accounts with the highest yields and best perks.

Best for: Conservative investors who are not comfortable with investing in the market and those who need a place to save their emergency fund.

Get an automated micro-investing app

iStock

Small savings add up quickly.

A wave of micro-investing apps have allowed users to invest spare money in small amounts in selected exchange traded funds (ETFs), which are securities that track a basket of stocks, bonds, commodities, or indexes — like the S&P 500 index, for instance. You can often select a ready-made portfolio depending your risk tolerance and invest as little as $5 each day.

Take Acorns as an example: It automatically invests a small amount of your money daily, weekly, or monthly. One of Acorns’ interesting features is rounding up your purchases to the nearest full dollar amount and makes the change available for you to invest.

Let’s say you used a credit card to buy a cup of coffee for $2.75. You can choose to invest the 25 cents on the app, or Acorns will invest the change for you if you elect automatic-roundup investments. It’s free to open an Acorns account. The app charges $1 per month if your balance is under $5,000, or 0.25 percent per year if your balance is $5,000 or more.

We’ve reviewed four micro-investing apps. Read more about their features here.

One thing to note: These apps target investors saving small amounts of cash, so you want to make sure the fees don’t eat into your returns. As a reference, the average ETF fee is 0.24%, and the average for target-date funds is 0.71%, according to Morningstar. So, it really doesn’t make much sense for you to pay $12 a year if you only invest $200 a year through Acorns — the fee would be a sky-high 6%.

Best for: People with cash sitting idle in their checking account. And those who have the best intention to save but struggle to get over the emotional barrier. The automated apps help you save spare money and potentially grow it through investing.

Open a Roth IRA

Consider opening a Roth IRA if you have maxed out your 401(k) or you are simply not happy with the investment choices in your plan.

It’s a more flexible retirement investment vehicle, especially for early-career professionals, than a 401(k), according to financial planners. With a Roth, you save after-tax dollars. Money invested in a Roth grows tax-free, and you can withdraw your original contributions — but not the earnings — before retirement without tax consequences or penalty. Many parents also make it a piece of their college savings plan, thanks to its tax efficiency.

The total allowable amount contributed to a Roth is $5,500 for 2018 ($6,500 if you’re age 50 or older). The IRS does have income limitations for who is eligible for a Roth IRA. Check if you qualify for a Roth here.

Best for: Young professionals who expect their incomes to rise as their careers advance, or their tax bracket to stay the same in retirement as it is now. Parents saving for their children’s education.

Health savings account (HSA)

Experts say an HSA is one of the most tax-favored, yet underused, investment vehicles.

People with a high-deductible health plan (HDHP) are eligible for a tax-advantaged Health Savings Account. Pros highly recommend that those who have an HSA use it not just as a medical fund for unexpected emergencies, but also as a long-term retirement savings account.

HSA has a triple-tax benefit: The money you put into an HSA is tax-deductible; the balance grows tax-free and rolls over each year; and withdrawals from your HSA for qualified medical expenses are not taxed. There are a variety of HSA investment options, from regular savings accounts to mutual funds.

The annual maximum HSA contribution in 2018 is $3,450 for an individual and $6,900 for a family. If you are at least 55 years old, you can contribute an additional $1,000 annually. Experts suggest you max it out if you can, given its triple-tax benefits. While you must have a high-deductible health plan to contribute to an HSA, you get to keep and use the funds even after you’ve changed insurance coverage.

You can search for HSAs on DepositAccounts.com, which, like MagnifyMoney, is a subsidiary of LendingTree. This may help you navigate the hundreds of plan providers out there.

Best for: People who have a high-deductible health plan.

529 plans

A 529 savings plan is a tax-advantaged savings account designed to encourage saving for qualified future education costs, such as tuition, fees, and room and board. Much like a 401(k) or IRA, a 529 savings plan allows you to invest in mutual funds or similar investments.

It used to only be eligible for college expenses, but under the new tax law, you can now use 529 savings for private K-12 schooling. Tax benefits are now extended to eligible education expenses for an elementary or secondary public, private, or religious school.

The new rules allow you to withdraw up to $10,000 a year per student (child) for education costs.

Edward Vargo, an Ohio-based financial planner, told MagnifyMoney that 529 plans are “excellent legacy planning tools” for one’s grandchildren or great-grandchildren.

One drawback of a 529 plan is that earnings withdrawn not used for qualified education expenses will be taxed, and an additional 10-percent penalty is applied. So parents should thoroughly evaluate the expenses that might be needed to fund education down the road.

Best for: Parents, grandparents, or couples planning on having children.

Education

iStock

If you want to advance your career, move up the ladder, or increase your earning potential, consider furthering your education.

To be sure, going back to school is a big time and financial commitment. Be prepared for a time period of uncertainty and income drop if you quit a full-time job to pursue a degree, which may require a lifestyle adjustment. But knowledge is invaluable, and there’s potential for an economic return, as well. A 2014 Georgetown University economic analysis of college majors found that obtaining a graduate degree leads to a wage bump.

Biology and life science graduate degree holders make a median of $35,000 more with a graduate degree, for instance. The median salary of those with an advanced degree in humanities and arts is $18,000 higher than their counterparts with a bachelor’s degree.

Investing in your education doesn’t necessarily require dropping everything to go back to school, either. Pursuing an unfinished degree on a part-time basis, attending professional workshops, taking ongoing education courses, or learning a new language could also be worth your time and money, depending on your career.

Best for: Professionals in fields where an advanced degree is highly preferred or those looking to advance their career or switch careers.

Open a brokerage account

If you’ve paid off your credit card debt, established an emergency fund, and exhausted all your tax-advantaged accounts, you can open a regular old brokerage account to squirrel away some more money.

A brokerage account is much like an IRA. It’s more flexible in terms of investment choices and money withdrawal than 401(k)s, but you don’t get any tax breaks. It allows you to buy and sell a wide variety of securities, from stocks and bonds to mutual funds, currency, and futures and options contracts, through a brokerage firm.

You can open a brokerage account with any of the major investment firms like Vanguard,Charles Schwab, or Fidelity. Just like with other financial accounts, you deposit money and work with a broker to buy or sell securities. The broker will recommend investments depending on your personal financial situation and goals. But you have the final say on investment decisions. The brokerage firm takes a commission for executing your trades, and there are fees linked to the transactions, ranging from account maintenance fees and markups/markdowns to wire fees and account closing fees.

Be prepared for a steep learning curve as a market newbie. You will have to study how each financial instrument works and the companies you invest in, such as learning to read their quarterly financial reports. Holding a brokerage account is also a big-time commitment. Although a broker will help you make investment decisions, you will have to stay on top of the daily market movements and news that may impact the market to make sure you are making a profit.

Best for: Aggressive investors with high-risk tolerance and extra savings.

Invest in real estate

The housing market poses a rosy picture in 2018. Nationally, home prices rose more than 6 percent in 2017, according to the S&P CoreLogic Case-Shiller Indices. Across the country, demand for houses is high while supply is tight.

It’s a good place to tap into if you are looking to diversify your portfolio.There are a couple options. If you want to get hands-on, you can buy a home and rent it out, flipp houses, or rent out your existing home. Or if you don’t want to be quite so involved, investing in Real Estate Investment Trusts (REITs) is another option.

If you are buying a property, experts advise you put the down payment funds in a fairly liquid account, so that it’s immediately available when you need to make a purchase.

Whichever way you choose to invest in real estate, you want to keep up with the latest economic trends, especially the real estate market. For example, you may want to read the real estate market outlook PwC published for 2018.

Unlike many other highly liquid investments, properties cannot be bought and sold for profit in a heartbeat. You want to set aside cash for other life expenses before jumping into real estate, because you are likely to hold the property for a long time.

Best for: Investors with a large sum of cash to cover a down payment and those who understand the real estate market.

Invest in a business

You may think it’s a type of venture only the super rich or a venture capitalists can do. Well, not necessarily.

The Securities and Exchange Commission in 2015 approved crowdfunding rules that allow startups or small businesses to seek investors through brokers or online crowdfunding platforms. This basically means, ordinary Joes can now buy into startups now.

A parade of online equity crowdfunding platforms allow non-accredited investors to put money in small businesses and startups. MicroVentures, DreamFunded, SeedInvest, StartEngine, and Wefunder are among those.

But tread carefully. Entrepreneurship gives hope and excitement, but investing in small businesses and startups is risky.

Make sure you do homework before starting a venture. Familiarize yourself with the process and understand the risks. You also want to research the company thoroughly, and understand its management structure and the product or service it offers. Basically, read up on anything you can to find about the company you buy into.

Because of the risks involved, the SEC put a cap on how much you can invest in those businesses through crowdfunding depending on your net worth and annual income. Check the limitations here.

Best for: Adventurous investors who are comfortable with the potential risks, passionate about entrepreneurship, and willing to spend time studying the businesses they invest in.

Wait, but what about Bitcoin?

Investing in the extremely volatile Bitcoin is so risky that it has the chairman of the U.S. Securities and Exchange Commission on guard.

Bitcoin has had a wild ride. Its value skyrocketed from $1,000 to $19,000 in 2017, often moving thousands of dollars a day. And it’s been in the news constantly. But, as with any high-risk financial move, you shouldn’t invest unless you are willing to lose it all. There are no consumer protections on Bitcoin. If Bitcoins are lost or stolen, they are gone forever.

That being said, if you are curious about it and want to learn how it works, you can throw in $20 or $100 to buy through a digital currency exchange or broker. You can read more about the cryptocurrency craze in our ultimate Bitcoin guide.

Best for: Curious investors willing to experiment — and potentially lose.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at [email protected]

TAGS: , ,

Advertiser Disclosure

Investing

CNote Review 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

In recent years, finding stable, reasonable yield has been difficult for savers. A traditional savings account rarely offers an attractive yield and the bond market has been somewhat anemic in recent years. This is where CNote comes in.

CNote is a company that takes your money and invests it in community development financial institutions (CDFIs). Basically, these lenders issue loans to local governments, nonprofits and businesses owned by minorities and women. CNote invests your money with its partners and offers you a return.

CNote
Visit CNoteSecuredon CNote’s secure site
The Bottom Line: CNote offers you the chance to earn relatively stable yields that beat traditional savings accounts while allowing you to make a positive social impact in communities across the country.

  • Annual return beats that of most traditional savings accounts.
  • Investments are used for social impact.
  • CNote has no fees, but it does come with liquidity restrictions.

Who should consider CNote

CNote is meant as a savings account or bond market alternative. It’s not designed to offer inflation-beating potential returns like those seen in the stock market. Instead, it’s more likely to be appropriate for savers who are frustrated with their current yields and want a relatively stable way to boost what they’re earning each year.

Additionally, the social impact aspect of CNote could make it attractive to those looking for socially conscious ways to put their money to work. CNote’s CDFI partners invest in small businesses and community development projects, so for those who like the idea of doing good while their money earns interest, this can be an option.

However, CNote comes with limited liquidity. There are only four times a year that CNote allows for withdrawals (with 30 days’ notice), and at those times you’re limited to withdrawals of $20,000 or 10% of your balance, whichever is higher. (CNote does consider special circumstances and may allow larger or unscheduled withdrawals at their discretion.)

Those who need access to their money for goals in the medium term (four to seven years out) could benefit from CNote, but withdrawals require planning. As a result, it likely doesn’t make sense to use CNote as an emergency fund where immediate liquidity is needed.

CNote fees and features

Amount minimum to open account
  • $1
Commission$0
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $0 full account transfer fee
  • $0 partial account transfer fee
  • $0 inactivity fee
Account types
  • Individual taxable
  • Trust
Customer supportPhone, Email

Strengths of CNote

CNote offers an interesting twist on social investing with the expectation of relatively stable returns.

  • Yield that beats traditional savings accounts: One of the stand-out features is CNote’s advertised return of 2.75% APY (or more). This is much better than most traditional savings accounts. In fact, as of this writing, CNote offers returns higher than the five-year Treasury yield. That means you could see a higher yield for medium-term savings than what’s available with other savings options.
  • No fees: CNote doesn’t charge any fees. Instead, the service makes money on the difference between what they pay you in yield and what they receive from investments made with CDFI partners.
  • Social impact investing: If doing good is important to you, CNote offers a way for you to do that. Your money goes toward helping provide affordable financing to underserved communities for projects like affordable housing, community development and minority-owned businesses.
  • Trust and business accounts: You can open a CNote account as part of a trust or use it for business purposes. Depending on your needs, this can be helpful in your asset management plan.

The service is fairly straightforward and comes with no costs, but it has the potential to help you earn a higher yield on money that might otherwise be sitting in a low-yield savings account.

Drawbacks of CNote

While CNote offers an innovative way to maintain a stable yield, there are some issues that you need to be aware of before you invest.

  • Limited liquidity: This isn’t a deposit account and your money doesn’t remain immediately accessible to you. CNote isn’t simply holding your money; instead, it’s investing your money with its partners. As a result, you need to provide advance notice before withdrawing your money — and you can only withdraw at certain times during the year.
  • Yield is still too low for long-term wealth building: Even though the yield is higher than a traditional savings account, it’s still not high enough for effective long-term wealth-building. If you’re looking for a way to build your nest egg, consider Stocks, Mutual funds and ETFs.
  • No tax-advantaged options: CNote doesn’t offer you the opportunity to invest with tax advantages. There aren’t IRA or 529 options.

If you decide to use CNote, it’s important to understand how you want to use it in your overall portfolio, since there are limitations to when you can access to your money and limited usefulness as a long-term investment vehicle.

Is CNote safe?

It’s important to note that CNote isn’t a depository institution and it isn’t protected by the FDIC. That means if CNote fails, there’s no guarantee you’ll get your money back. However, the loans made by its CDFI partners to community and municipal projects are generally considered low-risk with stable returns, on par with high-quality Bonds. Most of the projects funded by CDFIs are usually vetted heavily and CDFIs impose their own requirements on borrowers.

CNote also uses what it calls Triple Protection to limit potential losses. Because CNote isn’t a holding company, they don’t keep your money; instead, it goes to CNote’s CDFI partners. CNote only contracts with partners that use government-guaranteed programs, which offer a layer of protection. CNote’s partners are also contractually obligated to repay the loans they receive from CNote, even if something goes wrong. Finally, CNote has a loan loss reserve to help cover potential losses.

However, like any investment, there is still a risk, and you could lose capital in addition to missing out on returns.

Final thoughts

If you’re interested in boosting your yield on a chunk of capital that isn’t doing much, CNote could be an interesting place to park your cash. The returns could be fairly stable and may beat what you’ll get at with a savings account. Plus, you get the added bonus of feeling good about making a positive social impact.

However, you do need to be aware of the liquidity limitations and understand that pre-planning is needed before you access the money you invest using CNote.

Open a CNote accountSecured
on CNote’s secure website

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Miranda Marquit
Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

TAGS:

Advertiser Disclosure

Investing

SpeedTrader Review 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

SpeedTrader is an online broker that caters to active day traders. It offers a choice of platforms and a full selection of research and data tools, making it a competitive option. You also get direct market access with more than 25 routing options, a choice of per-share or per-trade pricing, and the ability to trade Stocks, Options, and Bonds.

However, SpeedTrader has a higher minimum deposit requirement than TradeStation and Lightspeed, which are designed for active traders as well. SpeedTrader doesn’t offer as many options for trading platforms as Lightspeed does, and you won’t have access to multiple free trading platforms with SpeedTrader — unlike with either of its close competitors.

SpeedTrader
Visit SpeedTraderSecuredon SpeedTrader’s secure site
The bottom line: SpeedTrader offers direct market access and advanced trading features, including point-and-click trading, real-time market data and hot keys for faster order entry.

  • SpeedTrader provides a choice of trading platforms, including ActiveWeb, SpeedTrader Pro, and SpeedTrader Mobile.
  • Investors get direct market access — with a choice of more than 25 routing options — to allow for faster execution and better filling of orders.
  • Commissions and fees are affordable, especially for high-volume traders.

Who should consider SpeedTrader

If you’re a day trader who needs real-time market data at your fingertips with the ability to place and execute orders as quickly as possible, then SpeedTrader could be an ideal broker for you. SpeedTrader allows you to save multiple screen layouts, create customized watchlists, stream quotes in real time, manage multiple trading accounts in one platform, and customize 100 different hot key options for the fastest possible order entry.

SpeedTrader also provides support for institutional clients, including hedge funds. Or if you are diving into day trading for the first time, you can request free virtual practice accounts with virtual buying power to make sure you’re ready before you risk any real money.

But if you’re looking for features that cater to hands-off traders, such as commission-free ETFs, no-load Mutual funds, or robo-advising services, SpeedTrader is the wrong tool for you. Online brokers such as Ally Invest, Charles Schwab and E-Trade would be more your speed.

SpeedTrader fees and features

Amount minimum to open account
  • $30,000
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $75 full account transfer fee
  • $75 partial account transfer fee
  • $30 inactivity fee per quarter
Current promotions

When you open a new account with SpeedTrader, you can get up to $100 in free trades or one month of free trading.

Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Rollover IRA
  • Coverdell Education Savings Account(ESA)
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • SEP IRA
  • Solo 401(k) (for small businesses)
  • SIMPLE IRA (Savings Incentive Match Plan for Employees)
  • Trust
  • Guardianship or Conservatorship
Automatic rebalancing
Tax loss harvesting
Offers fractional shares
Ease of use
Mobile appiOS
Customer supportPhone, Chat, Email

Strengths of SpeedTrader

Some of the key benefits of SpeedTrader include the following:

  • Affordable commissions: With SpeedTrader, you have a choice of how the commissions are structured. You could pay a per-trade fee as low as $2.95 if you make 500 trades or more per month or up to $4.49 per trade if you trade less frequently at under 200 trades in a month — or you could pay a per-share fee instead. Per-share fees start at just $0.0025 if your monthly share volume is at least 500,000 and goes up to $0.0044 if you trade under 250,000 shares. This is comparable to Lightspeed, which charges $0.0045 if you trade under 249,999 shares per month and as low as $0.0010 if you make 15,000,000 or more in trade volume per month. And it’s below TradeStation’s pricing of $5 per trade.
  • Tools to facilitate timely ordering: SpeedTrader is focused on allowing you to place orders as quickly as possible. That’s why you have direct market access with a choice of routing options as well as hot keys to facilitate trades. Most conventional brokers don’t offer direct market access, instead routing customer orders to centralized trading desks, which in turn route to other liquidity providers.
  • Advanced data, charting and research tools: SpeedTrader has multiple platforms, each of which offers customization and advanced tools to help active traders. Investors can create customized watch lists; view streaming quotes as well as time and sales data in real time; and choose from a full array of chart types, including candlestick and price charts.

Drawbacks of SpeedTrader

  • High minimum deposit requirements: SpeedTrader offers only margin and options accounts, and there is a minimum $30,000 deposit for U.S. and foreign clients. There is also a minimum $30,000 deposit if you want to open a day trading account.
  • Costly inactivity fees: There is a $30 inactivity fee per quarter if you execute less than 15 trades.
  • A lack of options for free trading platforms: Lightspeed offers two free trading platforms, while TradeStation doesn’t charge software fees and provides free access to its advanced trading tools. SpeedTrader, on the other hand, charges a minimum of $25 monthly for ActiveWeb unless you generate at least $199 in monthly commissions. And its other platforms are even costlier, with SpeedTrader Pro Level I starting at $49 monthly unless you generate $199 in commissions and SpeedTrader Pro Level II coming in at $104 per month if you have less than $499 in monthly commissions.

Is SpeedTrader safe?

SpeedTrader is committed to account security. It is in full compliance with all regulatory requirements, according to FINRA BrokerCheck. And client assets held with SpeedTrader are insured up to $500,000 since SpeedTrader is a member of the SIPC.

SpeedTrader clients also get additional protection through Lloyd’s of London for up to $24.5 million in assets. That means a combined total of $25 million per client is protected, including up to $1 million in cash.

This insurance does not, however, protect you if the assets you invest in lose value. There are inherent risks to investing, and you could end up losing money if your investments perform poorly.

Final thoughts

SpeedTrader, more than most other online brokers, focuses on facilitating the fastest ordering speeds possible, which is a big benefit for day traders. If speed is of the essence, SpeedTrader is likely the right choice for you. But if you’re looking for a wider choice of trading platforms and are interested in not paying a fee to use them, then you may want to consider Lightspeed or TradeStation instead.

Open a SpeedTrader accountSecured
on SpeedTrader’s secure website

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Christy Rakoczy
Christy Rakoczy |

Christy Rakoczy is a writer at MagnifyMoney. You can email Christy here

TAGS: