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Choose Index Funds as a Long Term Investment

01.09.2012 by Guest Author //

For young investors these days, there are a wealth of indicators out there that may dissuade them from almost every long-term investment vehicle available. We are told that Roth IRAs can be a bad investment. We see the stock market turning into a roller coaster that is no more predictable than the outcome of the European debt crisis. We hear that any collective savings fund, most notably Social Security, will be long dead and buried by the time we reach retirement. We realize that real estate may no longer be the most prudent investment. And we know that the growing popularity of CDs and Treasury bills translates into lower rate, even long-term.

So what to do? Where to invest? For those of us who are in our twenties and entering the working world under the cloud of economic recession, we certainly want to start putting our savings aside and investing in our future. But every investment vehicle has some glaring faults at the moment.

If we’re investing long-term we want to be thinking long-term, so perhaps a better question would be: which of these currently-unappealing options will recover well and provide the best combination of low-risk and high-return over the course of decades?

History tells us that the answer to this question is an investment in the stock market. Even though the market has been wildly unpredictable as of late, and even though it has gone through decade-long periods of stagnation in the past, the stock market has never failed to gain over time. As the world population continues to grow, developing countries continue to develop, and new industries and cultures rise to prominence, there is little doubt that the market – as an indicator of the overall economy – will show vibrancy over the next half century.

But it is important that your investment in the market is adequately diversified so as to reflect its role as an indicator of the global economy. Here is where index funds and ETFs come into play: rather than buying stocks you deem strong and profitable, switching between solar energy firms, tech stocks, and financials as the market dictates, your best long-term bet is to invest in the economic system as a whole. This means buying no-fee index funds that capture the full system – funds that track the S&P 500, for example, or funds that provide a snapshot of the London Stock Exchange.

Buying index funds allows you to invest for the long-haul without to constantly check your portfolio or worry that you won’t gain value over time. Doing so allows you, despite the current market conditions, to start saving for retirement at the most opportune time in your life – the present.

Categories // Investing Tags // index funds, Investing

Simplify Your Financial New Years Resolutions

01.06.2012 by Matt Jabs //

To start 2012, many people will set New Year’s resolutions to better their finances. Starting is the easy part, to follow through on the resolutions you will need to make sure they are simplified and effective.

Employ these 3 tips to ensure your financial resolutions are a life long success.

1. Create a Spending Plan (Budget)

Nobody likes the word budget so think of budgeting more like a “spending plan.” Rather than spending money with no plan and wondering where it went, create a plan that tells your money where to go. This gives you more control over your money and also provides a lot of security and piece of mind.

“Beware of little expenses; a small leak will sink a great ship” – Ben Franklin

2. Pay Off Debt

If you have high interest debt (i.e. credit cards) be sure to allot for it in your spending plan. This type of debt steals your wealth so pay it off as soon as you can to avoid throwing money away. I recommend using the debt snowball method in one of two ways:

  • Highest interest debt first – Arrange your debt snowball to pay off your debts in order from the highest interest rate to the lowest. This method saves the most money.
  • Smallest to largest debt – Order debts from smallest to largest and pay them off in that order. This method focuses more on small wins to maintain motivation.

3. Invest and Save with Betterment

Once your spending plan is in place and you’re apportioning money toward debt be sure to set aside money for saving and investing. This is where Betterment helps simplify things for us. Create savings goals for things like vacations, emergencies, auto repair and maintenance, etc., and begin funding them automatically from your bank account each month. This type of  “autopilot saving” is the only way to successfully save money. If you don’t do it automatically chances are you’ll save for a few months, quit when “something comes up,” and never start again. The simplicity of the Betterment system will help make you successful, all you have to do is use it!

Try Betterment now, they give a $25 bonus to all new accounts opened with at least $250.

Take these 3 important tips to heart as 2012 approaches and put yourself on a path to a financially fit future.

Categories // Debt, Investing, Money Management, Savings Tags // simplify

High Return Investments for Low Income People

12.19.2011 by Matt Jabs //

Betterment is now offering a $25 bonus for all new accounts. There are no minimum balance requirements to sign up and no transaction fees.

High return investment advice

Olivia asked:

Greetings Matt,

Do you know of any investment return situations for lower income people? The best out there for our situation seems to be ShareBuilder, or CDs. The idea of a “side hustle” has crossed my mind as well, like selling on eBay, or writing more extensively. Doing daycare, heavy lifting, anything that ties up the car, etc. are not options. Thanks for putting your mind to this.

Regards, Olivia

If you have debt…

The easiest way to make a high return on your investments is to pay off debt.  If you have high interest debt, focus on paying that off.  When you pay off debt you continually lower the principal value of that debt thus reducing how much your debt costs you each month.  I currently choose debt reduction over investing because I earn more by reducing debt.  When that debt is gone I will shift my focus to building my Emergency Fund and investing in low-cost index funds.

If you have NO debt…

  1. Build a 3 – 6 month Emergency Fund using a high yield savings account by funding it with automatic monthly contributions.  I prefer Capital One 360 as a bank.  You could also go with CDs but then you sacrifice the liquidity of your funds for no added benefit – at the time of writing CD rates are comparable to high yield savings accounts.
  2. If you already have your Emergency Fund in place consider peer-to-peer lending and invest with Lending Club. or Peer to peer lending is one of the most sound investment advice I can give would be
  3. Another wise choice is to focus your efforts on long-term, buy & hold investing using low cost index funds or ETFs.  With income limitations, a wise choice is to invest with Betterment.  Betterment is one of the easiest, most effective ways for the layman to invest in index ETFs, which is really the best investment I know of… and they’re currently offering a $25 bonus for all new accounts, so it’s a great time to check them out.

$25 Betterment Account Bonus

Betterment is now offering a $25 bonus for all new accounts. There are no minimum balance requirements to sign up and no transaction fees.

Save for Emergencies, invest in peer-to-peer loans, and focus on index funds and ETFs.

One of your biggest allies to saving and investing is automatic deposits and automatic rebalancing… which is another reason I suggest you invest with Betterment.  They allow you to set up regular automated contributions, make it easy to determine your risk profile and diversify accordingly, and automatically rebalance your portfolio for you, all for a fee lower then any financial planner will offer.  Good stuff.

Regardless of debt amounts…

You mention starting a “side hustle” – I would recommend you follow through on this.  Making money from a blog is possible, but not easy.  It’s very time consuming and is usually slow to show returns.  Unless you can afford to work for approximately 6 months with no return, then a monetized blog may not be your most lucrative route.

Make sure you choose a business idea you are passionate about.  Life is too short to spend our time doing things we do not like for money.

In Summary…

  1. Pay down debt.
  2. Build your Emergency Fund in a high yield savings account.
  3. Invest in peer-to-peer lending with Lending Club.
  4. Invest in index ETFs with Betterment – automation is your best friend.
  5. Start your own side business you’re passionate about.
If you need debt help or personal finance advice – Ask Matt Jabs.

*Disclaimer*
We accept no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material. Our comments are an expression of opinion. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Any advice taken from this site does not in any way establish a client/advisor relationship.  We always recommend that you consult with a licensed, qualified professional before making any financial or investment decisions.

Categories // Debt, Investing, Savings Tags // Advice, Investing

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