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When you learn about investing it shouldn’t come from a co-worker, family member or trusted friend. In many cases, the person being asked this advice doesn’t know much more about investing than the person asking. Even when the person providing advice does have some investing insight, it’s unknown how good the advice is to a novice investor.
The only way to feel good about your investment ideas and decisions is to do the research on your own. It never hurts to collaborate with people in your network to understand their point of view or potentially uncover an aspect of investing you aren’t aware of though.
In the end though, it is up to you to decide what is best for your situation. The advice given by a co-worker may be great advice for someone in their exact situation, but there’s likely differences between your co-worker’s financial goals and yours.
Knowledge is power. The more you know the better. The great news is, building a knowledge base for investing is not as difficult or time consuming as you may think.
Learn About the Different Types of Investing Portfolios
When you learn about investing 101 it is important to understand the different types of investment accounts. Do you wonder, “Where should I invest my money?” Well, most people are investing money into either a company sponsored retirement account, IRA or brokerage account.
Related Article: Types of Retirement Accounts Explained and Simplified
Company Sponsored Retirement Account
The most common type of company sponsored retirement account is a 401(k). 403(b) and 457(b) are a couple other examples. This is where an employee (you) sets up a 401(k), 403(b) or 456(b) account. Then, the company and the employee make contributions toward the employee’s retirement account.
Depending on if you choose to do a traditional or Roth account you may or may not pay taxes in the year you invest the money. On traditional accounts, taxes are paid in retirement when you withdraw the money. On Roth accounts, you are taxed the year you put money into the account.
Individual Retirement Account (IRA)
This is where you open a retirement savings account on your own thorough a financial institution. An IRA provides similar tax advantages that a company sponsored retirement program offers, if you chose to open a traditional account. You also have the option to open a Roth account and pay taxes now instead of at retirement.
A brokerage account can also be a type of retirement account. The main different between a brokerage account and a company sponsored or individual retirement account is there’s no tax advantage. You will pay taxes on earnings the year they are realized. Additionally, you will have to pay taxes on any capital gains when you sell investments.
Learn How to Manage Your Investment Portfolio
Some people may have multiple types of investment portfolios. Regardless of the type of investment portfolio you have, there are several investment options within each type for people to choose from and learning which option(s) suits your needs best is vital.
The longer you have to go until retirement, the more aggressive you can be with your investment portfolio. As you get closer to retirement you will likely want to invest a portion of your money into lower risk investment options like bonds.
The type of fund(s) you invest in is less important the longer you have to go until retirement. As you get older you will want to invest more and more in bonds that are low risk.
Bonds are low risk but also have low returns. While you’re young you want to invest in funds that provide higher than average annual returns and charges below average fees.
While annual returns are an important aspect of a fund’s performance, the fees associated with that fund may have greater long term costs on your portfolio than you think. Make sure you understand the impact fees have on a portfolio.
Determine Your Desired Investment Portfolio Mix
One of the best investment ideas is to set your investment portfolio based on your risk tolerance. The longer you have to go until retirement the greater risks you can take. The older you are the more conservative you should be by investing in lower risk funds (typically bonds).
The old rule of thumb was to take 100 subtracted by your age to determine how much your portfolio should be invested in stocks. For example, if you are 40, then you would invest 60% of your portfolio in stocks and 40% in bonds.
As people are living longer and bonds have lower returns than they used to, this may no longer be the best portfolio mix.
Most financial institutions offer age based investment funds based on the year you expect to retire. If you decide to go this route, it’s important to note financial institutions use different stock/bond ratios for their age based investment funds. So, if you choose this option make sure you understand what that ratio is and how it aligns with your tolerance risk.
If you have limited money saved and can’t risk losing it, then putting a larger portion of your retirement account in bonds may be right for you.
Learn How to Read an Investment Fund Chart
Wondering how to make money in the stock market? Investing 101 requires learning how to read an investment fund chart.
The financial institution where your money is being invested likely has a chart that lists all the fund’s they have available for you to invest your money in. The chart likely breaks down what the performance has been on those funds and the fess associated with them.
This type of chart can be found under the Investments or Investing section on most financial institution’s websites. Below is an example of the type of chart you will find:
The following are descriptions for columns shown in a typical Investment Fund Chart:
- The first column in an investment fund chart is the name or symbol of the fund. The type of fund (index, growth, trust, bond, etc.) is usually included in the name.
- Investment fund charts will list several time frames to show the funds’ performance during that time frame. The chart above covers 1 month, 3 months, year to date, 1 year, 3 years, 5 years, 10 years and through inception (the date the fund was created through the current date). The last one in the table is the only one that has not been around for a full 10 years.
- Fund Inception Date shows when the fund was created.
- Gross Fund Exp % is the total fees associated with investing in this fund.
- Net Fund Exp % is the total fees associated with investing in this fund less any fee waivers or reimbursements. It’s important to remember these deductions may only be temporary and the Net Fund Exp % could increase to the Gross Fund Exp % later.
Learn About Vanguard’s Investing Fund Chart
Vanguard is a leading financial institution who offers funds with some of the lowest fees. Explore the options for yourself. Visit Vanguard’s website to find their investment fund chart.
Select Investing on the main toolbar, then choose Mutual Funds under Investment Products, then under Explore All Our Mutual Funds click on Browse Vanguard funds by asset class. This will take you to a table showing all of Vanguard’s mutual funds options. There is also a tab in this view that will take you to view all of Vanguard’s ETF options.
Learn How To Navigate Investing Fund Charts
Most of these types of charts are interactive, meaning you can sort the data in a format you want to see it in. Sort from lowest to highest fees to start getting an understanding of which funds have low fees and high returns. You will start to see a pattern on certain types of funds.
For example: bonds may have low fees but generally they have low returns. Stocks and bonds tend to move in opposite directions. As stocks prices drop due to a slower economy, bond prices will rise. This is because people view bonds as safe and will often move their money from stocks to bonds in a weaker economy.
Learn About Investing Options
The other most common type of investment fund to choose from in a retirement account is mutual funds. These come in the form of index funds, balanced funds, equity funds, growth funds, international funds and more. These funds will show higher returns then bonds unless the market is down and then bonds will likely have higher returns.
Individual Bonds of Stocks
Most retirement accounts offer a selection of mutual funds to invest in. If you have an IRA or a brokerage account, you will likely be able to directly invest in a specific bond or stock if you want to.
ETFs are a quickly growing investment option. The big difference between Mutual Funds and ETFs is ETFs can be traded during the day in real time while Mutual Funds are traded at the end of the day after the market closes. This article from Fidelity gives great insight on the benefits of ETFs. Also worth noting – the design of this type of fund gives way to lower fees than the average Mutual Fund.
Learn How to Read a Fund’s Prospectus
If you are having a hard time finding the performance and fees associated with a fund, you can do an internet search using the fund’s name or symbol in conjunction with the word “prospectus”. A prospectus is a report that describes the investment objectives and strategies and most importantly provides the performance and fees of the fund. Below is an example of what you are looking for:
Be careful though as a prospectus might list out multiple funds for a financial institution. The one above shows two different shares options for the same fund. The lower fee option requires you to invest more money. Make sure you are reviewing the information of the fund you are interested in.
Learn About Rolling Over Your Investments
After reviewing the overall growth potential of the funds offered by your current financial institution, you may want to look at what other financial institutions have to offer. You may be surprised by what you find.
The options offered by a different financial institution may be far superior to the one where your money is currently invested in. If this is the case, you will want to roll over your funds to the other financial institution.
Fortunately, the money you have invested in a 401K, IRA or brokerage account can be rolled over to a different financial institution if you so choose. This can only be done once within a 12 month period per account. Additionally, money in a 401K plan can only be moved after the funds have been invested for 2 years.
There are a few hoops to jump through but usually they aren’t too difficult to overcome.
Aside from deciding where you want to move your money to, you will have to fill out a transfer form from your current financial institution. Depending on their requirements, you may need to get a medallion signature. This is similar to needing a notary signature except this is only available through banks or financial institutions.
Most major banks offer the medallion signature service free of charge. It may not be available at all bank branches so call ahead and make sure an authorized signatory is available to sign your document before you go.
There may be fees associated with the sale of stocks and bonds in the account you’re moving your funds out of. The better return rate where you’re transferring your funds over to should make it worth the fees over the long run.
Go Beyond Investment Ideas
While there is a lot to learn about investing, the fundamentals don’t change. The less fees you pay and the higher your return, the more money you will have. Learn more about mutual fund investing.
Start educating yourself on the vital question of, “Where should I invest my money?” Take the investment challenge for beginners today and you will learn how your current investments rank against the other investment options available in your portfolio.
You will learn how to understand the true profitability of a fund. The growth of a fund is just as important as the fees associated with it. By the end of the challenge, you will be able to tell where your current investment funds rank against other fund options available in your portfolio.