Diving Into Mutual Funds
You may have heard the phrase, "A mutual fund is a like a basket of stocks." (Here, we compared a mutual fund to a box of wines.)
Now it's time to explore what that really means, as part of our new Investing 101 series.
When you buy shares of a particular mutual fund, you're pooling your money with thousands of other investors (that's the mutual part).
All that money—typically millions or billions of dollars in a single fund—is then used to buy stock in different companies, bonds, real estate or other investments.
Most mutual funds are "actively managed," which means that a team of investment experts decides what goes into the fund. Index funds are "passively managed", and simply mirror what a segment of the market does.
You probably chose certain mutual funds for your 401k account or IRA. While the amount you contribute each month may be small, say $200, you are actually buying a tiny fraction of all the investments (stocks, bonds, etc.) within those mutual funds.
How do you know what's in your mutual funds? (For those of you into the Invest-Along-With-Ashley, she's working on this, too.)
According to Morningstar, Inc., a top investment research company, there are about 8,000 different mutual funds. Each one, you might say, is a different flavor, because each contains different ingredients. Think Ben & Jerry's, but on a very large scale.
There are mutual funds that are invested primarily in stocks, bonds, overseas companies—or some combination of the above, plus a few things we haven't mentioned yet. Everything except pistachio.
To learn where your money goes in each fund, get your funds' ticker symbols (the code used to look up all investments), and plug it into the search box on Morningstar.com.
Tell us what you find! We're all about swapping investing adventures.
Inflation Translation
Remember when a slice of pizza was $1.00 or a cup of coffee was 50 cents? (If that was before your time, bear with us.)
These days, depending on where you live, a slice is about $2.00 and a cup of ordinary non-designer coffee is about $1.25.
That's inflation. It's not a surprise. But it's common to think of inflation retrospectively: "God, remember when it was only $4.50 to see a movie!"
When it comes to money, you have to cast your eyes and your wallet forward: What impact will inflation have on your savings in years to come?
Assuming inflation increases at the rate of 3% per year (historically, the average is about 3.4% per year), by 2040 you would need about $4.85 to buy a slice. Yep, five bucks for a scant triangle of tomato sauce, crust and cheese.
Now imagine similar, inexorable price increases across the board. How much more is your life going to cost in 10, 20 or 30 years?
That's why it's vital to save, save aggressively, and to learn how to invest your money. Ideally, the return on your investments will help your savings grow, and protect your cash from inflation.
Because you want to eat more than pizza when you're 65.
Questions about inflation? We had fun comparing past prices to the present here, and learning more about inflation here.
How to Open an IRA
When we met Ashley on Monday, she was pacing the floor, worried about her future savings—when suddenly she got the news that her mother had already opened a Roth IRA in her name.
This raised several questions for Ashley, and a particular one for many readers, who asked: How do you open a dang IRA anyway?
Because we don't want you to miss a single step in this invest-along-with-Ashley, here's the answer.
- A common misconception. Many people assume that when they open any sort of IRA or 401k, that this IS the investment. It's an easy mistake to make, because people always say that you "contribute to your IRA or 401k." Not quite.
- To open an IRA, call Fidelity, Vanguard or another low-cost or discount brokerage and tell them that you want to open an IRA or a Roth IRA, if you prefer.
The IRA or 401k is just a vessel: an empty egg carton, a truck with no cargo. You select mutual funds (usually) to put onto your truck or into your egg carton. The money you deposit grows inside these investments.
If you're not sure which mutual funds or investments to pick yet, that's fine. Get started simply by depositing cash into a money market account, in the IRA—which is like a savings account—and later, when you know more, you can transfer that cash to the investments of your choice without incurring a penalty. This is a first step! We won't let your new IRA languish, uninvested. Keep following Ashley's story here on DailyWorth.
Note: If you're calling HR to open your 401k, the rules and options may be quite different, but there is often a money market option you can pick.
The point is to start investing regularly, we hope immediately, so that it becomes second nature.
Helping Ashley Start Her IRA
We recently heard from Ashley, 25, a documentary filmmaker in Seattle: "How do I get started on an IRA? Or a Roth? I want $340,000 in 30 years!"
We offered to help Ashley launch her retirement account, and she agreed to share her saga, as it unfolds, right here.
In addition to that all-important decision to get started, Ashley also had an initial savings goal: $340,000 in 30 years.
To meet that target, Ashley would need to save $3,000 per year, or $250 per month.
There was drama from day one: Unbeknownst to Ashley, her mom had already opened a Roth IRA for her. The Roth was at a bank in Ashley's hometown in Oregon. There was about $400 in the account, in a mutual fund.
Ashley had about 12,000 questions—which is the standard amount. Here are three:
Where exactly is the money? Is it invested in the bank or the Roth IRA?
All retirement accounts (401ks, IRAs, 403bs) are like big, empty trucks. You drive your truck to the loading dock (i.e. bank or brokerage house) and say: "I'd like to put in the following mutual funds and other investments."
You hand over some money; they stack some boxes on your truck. That's your retirement account.
Mom already put one mutual fund in my account. What is it?
You need the ticker symbol to look at the information.
What's that?
Any investment (stocks, bonds, mutual funds, etc.) is abbreviated with a ticker symbol, which resembles the call letters of a radio station: JABAX, FFFFX, WNEW-FM (kidding). You need the ticker to learn about each investment product, and decide which you like or don't.
Tune in next time to find out... What mutual fund did Ashley's mom pick? What is the ticker symbol? Did Brett sleep with Adrianna?
Target Date Mutual Funds
A recent study found that most investors who have target date mutual funds don't understand how they work.
What makes this discovery sort of funny—but not in a good way—is that the point of target date funds (TDFs) is that they were supposed to make the retirement saving process a no-brainer:
Like putting meat and onions in a slow cooker, allowing you to come home to a fully cooked meal.
Here's the idea: You park your money in a TDF, timed to the year you want to retire—say, 2040—set it and forget it. Target date funds have all the ingredients pre-assembled: stocks, bonds, cash, etc. You come back at 65 and, voila!—a fully cooked retirement nest egg.
At least in theory.
According to a study, published by the Employee Benefits Research Institute in November, many people have failed to grasp the one-stop-shopping logic of TDFs. They stuff other funds into their accounts, and end up "with a potentially inferior portfolio."
Given that about 58% of 401k plans at mid-size to large companies rely on TDFs as the default investment choice (i.e. the one you get if you don't pick specific funds)—this is problematic.
We're not endorsing TDFs, which can be flawed and cost more than other mutual funds. But understanding how this popular type of investment works is essential, especially if you own a target-date fund. Do you? It's something to check, as you put your financial house in order.
Doing the Math on a Roth IRA
Now that we're all focused on Saving UP!, I want to address one of the great IRA puzzles: What is the difference between a regular IRA and a Roth? Luckily, it's an easy and fun question to answer.
Let's imagine you have two cars: a Chevy Ira and a Ford Rothie. They are very special cars, designed to gain value over time.
You decide to put $5,000 a year into each one to keep it running smoothly ($5,000 is your limit for 2010 and you stick with it).
That's fine, because you know that in 30 years these cars will be considered valuable antiques. But…because of the contracts you signed for each car, there's a catch!
In 30 years, you can sell your vintage Chevy Ira, but you have to pay taxes on all the money you make. That's because, under a special clause, you were allowed to put in pre-tax dollars—i.e. all those years, you never paid tax on those $5,000 chunks.
Assuming that this whiz-bang car has gained immense value on the antique car market--say, 7% per year--your Chevy Ira is now worth about $340,000.
But because you owe taxes on it, you pocket only about $240,000.
Now, the Ford Rothie is different. You used after-tax money to pay those $5,000 chunks each year. So the tax is already paid. You pocket $340,000.
Obviously, there are some finer financial points to understand, but this covers a key one. For example: You can contribute to both a an IRA and a Roth, but your contribution limit is $5,000 combined for 2009 and 2010. For the purposes of our fable, we allowed $5K in each "car" so you could see how each performed.
Next up: What's a Roth conversion? Is it spiritual? If you are thinking of converting to a Roth, contact us and we'll walk you through it!
Investing Lingo Demystified, Part 1
The primary reason many people (especially women) feel anxious and alienated by the investment world is they don't know the lingo. Think about it. Most women can quickly decode the following:
Sales of the new Donna Karan Hobo soared after Michelle Obama was seen with this luxe tote (and a pair of Chrissie Lous). Roll over, Miu Miu!
It didn't take years of study to know what a Hobo bag was (or why you wanted one). Regular exposure to the names of products and the trends behind them has made you fashion fluent.
Now we'll do the same with your finances. Here, two terms to start the year:
Mutual Fund: A mutual fund is like a huge case of wine, holding many bottles: i.e. various stocks, bonds and other investments. By putting your money into a mutual fund-which is what most investors do--you buy a bit of all those different investments. The sheer diversity of items helps to keep returns (profits) high.
Ticker symbol: Every investment that is publicly traded has a name, but is known by its ticker symbol, which look like the call letters of a radio station. WFMI is the ticker symbol for Whole Foods stock, for example. JABAX is the ticker symbol of the Janus Balanced Mutual Fund. To decipher what's in your 401k or IRA, find out the ticker symbols of your investments and type them into Google to begin to explore what you've bought.
Check out Marketplace Money 101: Buzzwords—free minute-long vocab lessons on iTunes.
Live on 40%, Save 60%?
Could you live on 40% of your income—and save the other 60%? It sounds impossible (or tortuous), yet Mary-Jo Dionne says she's learned to make it happen—and happily—with a system she calls the 1-2-3 saving strategy.
"Every time I get paid, I instantly pop 10% into my shopping/mad money account; 20% into a business expenses account; and 30% into a taxes account. I've learned to live on the remaining 40% only--this is what I use to cover mortgage, retirement, bills and real-life stuff," Dionne wrote to us.
Really?! Live on less than 50% of your income? Even in the disciplined corridors of DailyWorth's headquarters, we struggle to save 20%.
I contacted Dionne, a freelance advertising copywriter and amateur pet lobbyist in Vancouver, to learn how she became a mega saver.
Dying to hear how she does it? Us too!
Self-Employed Retirement Magic
It's much harder to save when you're self-employed. Nobody in HR is going to coax you out for a power point, some coffee and a few prospectuses—and then set up automatic contributions for you. You have to do it yourself. And you must. And with Daily Worth's growing arsenal of retirement planning strategies, your future security is almost in the bag—as soon as you set up that sweet little retirement account.
A relatively new option you may want to consider is the solo 401k.
Normally, a 401k plan is run by a larger company for its employees. The advantage of a 401k account is that it lets people save a lot more than traditional IRAs (individual retirement account), and many companies offer matching funds.
A solo 401k allows you to sock away $16,500 of your gross income; then you can match yourself, the same way a company would--but for a heftier gain.
»In addition to the $16,500, you can then stash an additional 25% of your gross income (or 20% if you're a sole proprietor), up to a total of $49,000 if you're under 50, $54,000 if you're 50 or older.
Even better, the more you contribute, the more you save in taxes (i.e. you deduct all contributions from your gross profits and only pay tax on the remainder).
These are the current limits for 2009. To learn more, read this nifty breakdown from SmartMoney.
How does that stack up against a SEP IRA, which is another popular self-employed retirement account?
Let's say you earned 80,000 in 2009.
- With a SEP IRA, you could save up to $20,000.
- With a solo 401k, you're able to save up to $36,500.
Here's and a calculator on PensionOnline.com.
A 401k No-No
Dear DailyWorth,
I recently heard that a co-worker used some of his 401k money to pay off a credit card. I am 27, and have $11,000 in credit card debt. Should I do the same?
~ Katie M
Dear Katie,
GACK! NO. And here's why: It will cost you a fortune.
Money you withdraw from your 401k before the age of 59 1/2 is called an early withdrawal, and the IRS doesn't like that. You would pay a 10% penalty, on top of owing state and federal taxes on that money.
(Remember: Your 401k contributions go in tax-free, but you owe taxes whenever you withdraw them.)
Depending on where you live, that means you could lose, say, 30% of your money or more; i.e. that $11,000 would get knocked down to $7,700—possibly less.
Bottom line, you would have to withdraw approximately $16,000 to net the $11,000 you'd need to pay off your card.
But wait, there's more!
Just 4% of Venture Capital To Women
While the number of women-owned businesses has increased exponentially over the past decade, we're not raising venture capital to grow our businesses. What is venture capital, and why should it be on your radar?
Venture capital (VC) is a type of funding designed to help small companies become big companies; it's usually hitched to some form of "exit strategy," such as sale to a larger company. A business owner seeking traditional venture capital has to show the potential for rapid growth and extraordinary returns.
Consider this: “In 2006, only 4% of venture capital-backed companies had female chief executives, and those companies with women as leaders received just 3% of the total dollars raised from VC.” (source)
Just 4%? Why?
- Women aren't starting “VC-worthy” companies projecting rapid growth
and exit strategies. We want to run small
companies, and avoid the headaches
of leading large ones. - We're so resourceful and skilled when it comes to
bootstrapping that we think we don't need VC. - We struggle, more than men, when it comes
to asking for money.
We need to build networks
According to Amanda Clayman, a psychotherapist specializing in financial wellness, women are still limited by "trying to do it ourselves" and lack networks needed to grow our businesses. "Women, for the most part, still operate outside of the traditional power structure. It's time we direct more energy toward establishing our own power networks. In order to grow, we need to learn how to ask for resources, support — and investment — when we need it."
Please share your opinion below.
Socially Responsible Investing Does Not Mean Lower Returns
By choosing a socially responsible investment (SRI) fund, you don't have to sacrifice performance. According to Victoria Collins, PhD, CFP, a Senior Managing Director of First Foundation Advisors, "SRI funds perform as well if not better than any other funds."
Screens
The first step in seeking out an SRI option is to consider your personal "screens." There are negative screens and positive screens, and it's up to each fund how it defines its screens. Positive screens identify companies with progressive practices, such as established renewable energy programs. Negative screens exclude companies with destructive practices, such as those with poor human records or weak labor standards.
Sample List of Funds
Below is a list of SRI funds, some well known, others less so:*
- Pax World Investments launched its first SRI fund in 1971. We were quite pleased to see that Pax also offers a Women's Equity Fund.
- Domini Money Market Accounts are invested exclusively with ShoreBank, the nation's first and leading community development and environmental banking corporation. Corporate earnings are invested back into the environment of U.S.'s Pacific Northwest and economically distressed neighborhoods of inner city Chicago.
- Calvert Investments offers the Calvert Global Alternative Energy Fund, with holdings such as First Solar, Inc. and Vestas Wind Systems.
- Social(k) offers a diverse socially responsible retirement platform.
- The CRA Qualified Investment Fund seeks to produce above-average, risk-adjusted returns while financing community, economic and environmentally sustainable initiatives.
Are you invested in a SRI fund? Leave a comment and tell us about it.
* DailyWorth.com does not endorse the quality or reliability of any of the products or services listed above. You hereby acknowledge that any reliance upon any information shall be at your sole risk.
IRA vs. 401K - What's the Difference?
Thinking of saving money for your golden years? Good thinking. You’re never too young to start stuffing the coffers. Two popular retirement investment vehicles are the 401K and the traditional IRA (individual retirement account). Simply put, a 401K is a retirement savings plan offered through your employer. An IRA is something you set up yourself with help from your bank or your mutual fund. To 401K or not?
If your company offers a 401K, contribute to it, especially if your employer matches what you put in. Some companies match up to $0.50 for every dollar you put in, for up to 6% of your salary. It’s free money! Don't turn it down. Your own contributions to the plan are taken from your paycheck on a pre-tax basis, which can means more money for you. Eventually, Uncle Sam gets his due, but that’s only when you start withdrawing funds from your 401K, after the years of the interest in your plan growing tax-free. When you do start tapping into the money, you pay income taxes – at your current income tax rate. Think you’ll be pulling in a power salary as a retiree? Probably not. So don’t touch the 401K until you retire and are in a considerably lower income-tax bracket. That said, if you have to borrow from your 401K (say you have a medical emergency), you can. And as long as you pay it all back, there’s no fine, no nasty letter and no robo-calls.
Of course there are a few strings attached, including how much you can sock away every year. For 2009, the limit is $16,500 if you’re 49 or younger, and $22,000 if you’re 50 or older. For 2010, contributions limits will be indexed to inflation. There are rules for getting your hands on the money, too. Touch it before you turn 59 ½, and you’ll be slapped with a penalty if you don't pay it back. Likewise, you need to begin withdrawing before you’re 70 ½. The only caveat with 401Ks is this: Find out what your contributions are being invested in. Even if your investment choices are limited, you should know what they are and be ready to make changes when and where you can. Why? It’s not uncommon for a company to invest a sizable chunk of its 401K plan in its own stock. Then what happens if the company goes down in flames? Think Enron. No pension. No savings. No retirement.
The skinny on IRAs
An Individual Retirement Account, or IRA, is a way for you to save money for retirement that has nothing to do with an employer-sponsored 401K. You set up your own IRA (with a little help from your bank or financial planner) and deposit money into it every year. While you don’t get any matching contributions with an IRA, you usually have more investment choices – things like stocks, bonds, mutual funds and Certificates of Deposit (CDs). If you track your investments and don’t like how they’re performing, you can rearrange them, move more into CDs or bonds or whatever you prefer.
As with a 401K, the amount you contribute to your IRA is deducted from your taxable income, and you don’t pay the piper until you start making withdrawals. Unlike a 401K, however, you can’t borrow from an IRA. (There is a complicated thing you can do, which means opening a new account so you can move money from your IRA to the new account – and then you only have 60 days before you have to re-deposit the money back into the IRA. Unless you have several IRA accounts with plenty of money in each, this rigmarole isn’t worth it.)
Like 401Ks, IRAs impose contribution limits, although they’re much lower. For 2009, if you’re 49 or younger, you’re limited to $5,000; if you’re over 50, you can contribute up to $6,000. For 2010, contribution limits will rise in increments of $500 and will be indexed to inflation. One nice perk about putting money in your IRA: You can do it until tax filing day of the following calendar year. In other words, you have until, April 15, 2010 to sock it away.
The rollover option
Remember Roth IRAs? (DailyWorth featured news about the 2010 conversion option here) Contributions to a Roth IRA are not tax-deductible (you pay taxes on it up-front), but withdrawals are totally tax-free. That’s right. No taxes on earnings. Period. And a Roth IRA isn’t bogged down by as many rules as a traditional IRA. In fact, you may want to roll your IRA into a Roth IRA. If you're thinking about doing it this year, be sure you qualify. For 2009, you can roll your IRA into a Roth IRA if you’re single or filing jointly with your spouse, and your modified adjusted gross income (MAGI) is $100,000 or less. But the rules are changing. As of January 1, 2010, those limits are gone; anyone who has an IRA can convert it to a Roth IRA. If you do convert to a Roth IRA next year, you won’t be taxed for it in 2010. Instead, you can spread the tax hit out over two years, paying half in 2011 and half in 2012. That’s how badly Congress wants your money.
These are just a few of the fundamental ways in which most people save money for retirement these days. The bottom line is: If you have the luxury of an employer-sponsored 401K and opening your own IRA on the side, do both. Whenever you can, stash the cash.
Cut Your Losses
At a certain point in life, you have to confront the underperforming assets—people, investments and possessions that you stubbornly (or fearfully) hold onto, even though they no longer enrich you or your bottom line.
You know: The friends who are more trouble than they're worth, the Netflix membership you never use but keep paying for, investments in your retirement account that are not being buoyed by the recovery (but you hope that crossing your fingers might be an effective investment strategy).
Economists call this blindspot the sunk cost fallacy. You rationalize a loss—the effort you put into the friendship, the money stashed in your 401k—by fantasizing that if you hold on, you'll get your money's worth.
What have researchers found? It's smarter to take the loss—then focus on how you plan to recoup. Lesson: Let go. With money and many things in life, you can't gain until you stop losing.
If you can get past the sports analogy, here's an article that illustrates how the sunk cost fallacy can saddle you with more debt than value.
5 Reasons We Love Index Funds
Galia Gichon is the founder of Down-To-Earth Finance.
An index fund is a mutual fund that duplicates as closely as possible the performance of a particular stock market or bond benchmark, such as the S&P 500, the Nasdaq 100, the Dow Jones Industrial Average or the Barclays Bond Index. So why would someone with money to invest buy into an index fund? Here are a few reasons: - Lower fees and expenses. Because index mutual funds are passively managed, they charge lower fees and have some of the lowest expense ratios in the mutual fund market – as low as 0.19% (offered at some Vanguard funds) versus the market average of 1.50%. So if you have $10,000 invested, you’ll pay $19 a year in fees at an index fund versus $150 at a mutual fund. Hmmm…
- Better performance. Most non-index funds don’t outperform their relative index, and only 35% of active fund managers beat their index, according to investment consulting firm Ibbotson Associates. So the question becomes: Why not go directly to the index?
- Tax efficiency. For your taxable investments, you could have much lower capital gains tax due to less stock turnover – index funds don’t trade with the same frequency as mutual funds. And that will save you money on your taxes. Mutual funds with a high turnover ratio are hit with higher capital gains taxes in an up market, even if you didn’t sell your mutual fund shares.
- Less stress. It’s usually easier to monitor index funds and their performance. If you invest in an S&P 500 index fund, for instance, you can easily check its Year-to-Date performance by looking it up on money.com, msnmoney.com or in your local paper. So much easier than reading statements!
- Great performance comparison tools. Even if you don’t invest in an index fund, you can compare your mutual fund’s performance to the performance of its comparative index fund. For example, if you own a large-blend mutual fund, see how it performed relative to the S&P 500 index. Just go to Morningstar.com and look up your mutual fund. Find the performance table. Right under the fund’s actual performance, there’s a line that compares the performance to its index.
Investing 101: Why, What, and How
Today’s post is by DailyWorth expert Manisha Thakor -- financial literacy advocate and 15-year veteran of the financial services industry. For more information, you can visit Manisha's website at http://www.ManishaThakor.com or follow her on Twitter http://www.twitter.com/
Before you figure out how you should invest, it's important to understand why you should invest to begin with and what your investment options are. The more information you have, the better position you’re in to decide how you want to answer the question, "How should I invest?" At the end of the day, there are no absolute right and wrong ways to invest. That’s like asking, "What should I wear tonight?" The answer will depend on your personal style, your age, the weather, the size of your budget and where you are going. The same goes for investing; there are many variables to consider. So here's some background information to help you decide what you want your investment wardrobe to look like. Why Invest?
You invest to make your money work as hard for you as you did to earn it. After the market craziness of the past few years, you may be tempted to just stash those hard-earned dollars under your mattress. After all, you worked hard for your money, and with all the options out there investing can seem complex. Unfortunately, if you leave your savings in cold, hard cash – inflation will eat away at your money's “purchasing power.” This means that in 30 years, $1,000 will only buy what $400 does today (assuming historical inflation levels of roughly 3%... it could be worse). So the reason you invest is to protect your purchasing power from the ravages of inflation.
What Should You Invest In?
The answer depends on when you’ll need to spend that money, your gender, and how old you are right now. If you need to spend that money in the next one to five years, guess what? You shouldn't invest that money. That’s right. If you know you have to spend it in five years or less, your goal is to protect that money from inflation. The way you do that is by “parking” the money in a savings account, money market account/fund, or a CD (certificate of deposit). Each of these financial products offers you a place where you can earn enough interest to hopefully keep up with inflation – and, at the same time, not put your underlying savings at risk.
For money that you won’t need to spend over the next five years, you have three basic options: stocks, bonds and real estate. Stocks are pieces of ownership in underlying businesses. Bonds are loans to governments or corporations. Real estate is tangible structures – and can be residential like homes or apartments, or commercial like office buildings and shopping centers. Personally, I believe that for most people, ownership of their primary residence is enough of an investment in real estate so I recommend splitting the money you don’t plan to spend in the next five years between stocks and bonds, using to this formula: If you are female, 110 minus your age is the maximum percentage of your portfolio that you'd want to allocate to stocks. (If you are male, the rule of thumb is 100 minus your age because your life expectancy is shorter). Say you’re a 40-year-old woman like me. The formula would be 110-40=70. So 70% is the maximum percentage of my portfolio that I allocate to stocks. I would put the rest in bonds.
How Do You Invest in Stocks & Bonds?
Index funds are my favorite keep-it-simple investment tool. Buying individual stocks and bonds can be great, but how do you know which ones to select from the thousands that are available? Here’s the good news: I’d say – don’t even try! Unless you want to analyze companies for a living, the best way to invest in stocks and bonds is by buying a whole basket of them, rather than trying to pick and choose. In the world of investing, these baskets are called mutual funds.
There are two types of mutual funds: Active and passive. Think about it as two styles of fashion. Trying to keep up with the latest fashion trends is very similar to investing in an active mutual fund. Wearing the classics is a lot like investing in passive (or index) mutual funds. Unless you just LOVE investing, I say go with the classics, or index funds. An index fund is a basket of stocks that doesn’t change very often. Personally I use a mix of Treasury inflation-protected securities, municipal bond and corporate bond index funds for the bond side of my portfolio, and a mix of the total U.S. stock market index and total international stock market index on the stock side. Another option I like are Target-Date Retirement funds, where the mutual fund company picks the mix of stocks and bonds for you based on your age. While there are many good sources of Target-Date Retirement funds, my personal favorites are offered by Vanguard, Fidelity and Charles Schwab.
Investing is a very broad subject. If you'd like to learn more, I recommend reading Little Book of Common Sense Investing by Vanguard founder John Bogle. And if you have additional comments or questions, leave them below, and I'll do my best to get back to you.
Cut Your Losses
At a certain point in life, you have to confront the underperforming assets—people, investments and possessions that you stubbornly (or fearfully) hold onto, even though they no longer enrich you or your bottom line.You know: The friend who's more trouble than s/he's worth, the Netflix membership you never use but keep paying for, investments in your retirement account that are not being buoyed by the recovery.
Economists call this blindspot the "sunk cost fallacy." You rationalize a loss—the effort you put into the friendship, the money stashed in your 401k—by fantasizing that if you hold on, you'll get your money's worth.
What have researchers found? It's smarter to take the loss—than focus on how you plan to recoup. Lesson: Let go. With money and many things in life, you can't gain until you stop losing.