Why learn about investing?

Do you need to learn more about investing, but it seem too complex or dry as dust? Investing  can actually be quite interesting as you watch your money grow and compare it with benchmark growth indexes such as the S&P 500. Anyone can learn about investing  and become a smart investor. Investing is all about setting financial goals and planning for a better future by placing your extra money where it will grow over time with acceptable risk and taxes. By learning  about investing and investing wisely, you can achieve great, long-term financial goals for a car, child’s college, home down payment, retirement income, financial security or just an expensive toy.

Imagine that you invested $1,000 into a quality growth fund at age 23. In 10 years, at age 33, that should have doubled to be worth $2,000. Then-

$4,000 by age 43
$8,000 by age 53
$16,000 by age 63

Now, imagine investing $5,500 each year, starting at age 23 into a Roth IRA growth fund:
$11,000 by age 33
$22,000 by age 43
$44,000 by age 53
$88,000 by age 63

Now, imagine a couple of the same age, each investing $5,500 each year, starting at age 23 into a Roth IRA growth fund:
$22,000 by age 33
$44,000 by age 43
$88,000 by age 53
$176,000 by age 63

Now, imagine a couple of the same age, each investing $10,000 each year, starting at age 23 into a Roth IRA growth fund:
$40,000 by age 33
$80,000 by age 43
$160,000 by age 53
$320,000 by age 63

You can learn about investing to become a smart and savvy investor, and I am here to guide you in learning to invest and become a smart citisumer, so let’s get started!

Just as we should all identify the greatest threat to our homes and other possessions, we should all identity the greatest threat to our financial portfolio, then do something about that threat. There are many potential threats (risks) to our portfolios. The greatest threats to any portfolio are lack of diversification and excessive fees.

Inflation Protection

If you do absolutely no investing and store you money at home or in a bank, your money is actually losing value, little-by-little, invisibly over time, due to the ravages of inflation, the rising cost of living.

Wherever you store your money, if it is earning less than the inflation rate, (currently about 2% and about 3% average rate), it is actually shrinking over time. If you are under the impression that we have licked inflation and it is gone forever, think again. The economy works in cycles, and because we have enjoyed low inflation for a long time, we are due for some high inflation in the near future. In 10 years, each dollar will be worth about 70 cents. So, when considering the return of any investment, you must always subtract about 3% to account for inflation.

Some investments grow more than others, but the greater the growth potential, the greater the risk of losing some or all of it. Perhaps the most important principle to reduce risk and achieve your financial goals is diversification. Now let’s learn about investing to diversify.

Diversification

Remember the old saying “Don’t place all your eggs in one basket?”  Diversification involves not placing all of your money in one basket, but spreading across several baskets. Research has found that the more you are diversified, the lower your risk of losing money and the better your portfolio will perform over the long-term. You can reduce your risk by spreading your money around. There are many ways to diversify. Spreading your money across individual stocks, mutual funds and ETF’s is not one of them! Each of these may contain the same stocks, so this allocation is like trying to diversify your investment in fruit by buying some apples in a bag, more apples in a basket, and other apples in a crate! Ultimately, you still only own apples! If the price of apples drops, you’re in trouble! Effective ways to diversify include allocating your money by stock:bond ratio, market capitalization size, geography, industry sector, growth:value ratio, adding bonds of various duration, and time.

Another way to diversify is by time using a technique called dollar cost averaging. You contribute some regular amount from every paycheck, say $100-200 on the 15th and 30th of every month. You can setup an online account to do this automatically. Let me explain. Imagine that you inherited $500,000! So, you decide to place it all immediately into your Roth IRA the next day when the markets open. Now imagine that you happened to pick a bad day to do this, when the markets tumbled 5%! Ugh! Your money just depreciated 5%, and is now worth $475,000! You lost $75,000 in 1 day (actually 6.5 hours)! However, if instead, you decide to automatically invest $10,000 every week for 50 weeks, if the market tumbles 5% during the first month, you have lost much less. So, by spreading out your investment period, you reduce your potential for loss! That is a smart form of diversification over time.

You should utilize all of these ways to create a low risk, highly diversified portfolio.

You’ve probably heard the phrase that President Clinton made famous: “It’s the economy, stupid”. Well, no insult intended, but with investing, it’s asset allocation, stupid! A well-diversified portfolio should have your money allocated (spread) across many asset types, capitalization sizes and places for a well-diversified portfolio.

Below is a model portfolio of funds:

50-70% Stocks, Stock ETF’s, Stock Mutual Funds or Closed-end Funds (Equities):

  • US Large cap growth
  • US Large cap value
  • Mid-cap growth
  • Mid-cap value
  • US Small cap value
  • International (blended stocks and bonds from developed countries of Europe and Asia)
  • Emerging market growth

25-45% Bonds, Bond ETF’s or Mutual Funds:

  • US bonds (short and intermediate duration bonds during times of rising interest rates; long duration bonds when interest rates are high and falling)
  • International bonds
  • Emerging market bonds
  • High yield bonds

Have you ever tried using a screwdriver handle or wrench as a hammer, and found the results, well… less than satisfactory? Maybe you can recall proudly telling your spouse after fixing something well, that “it just takes the right tool for the job!” Using the right financial “tool” for achieving your financial goals is just as important as using the right tool to do the job right on your home improvement project. Understanding the proper function of each investment asset “tool” can pay off big time for you.

There are several investment asset tools to choose from, including stocks, bonds, etc. Each “tool” has its function, advantages and disadvantages. Conventional strategies of a balanced portfolio will allocate 50-70% toward stocks (equities) and 30-50% toward bonds, with the remainder in cash. For specific asset allocation percentages, read Randy Thurman’s book, The All-Weather Retirement Portfolio or Ray Levitre’s book 20 Decisions You Need to Make Right Now. However, in our current climate of rising interest rates, most bonds will not perform well. Now let’s learn about investing objectives.

The first step with investing is to identify and prioritize your investment objectives.

  • Do you need monthly income?
  • Do you need to save for retirement?
  • Do you need to save money for college?
  • Do you need to save for a down payment on a house?
  • Do you want to retire comfortably at age 65 or earlier, perhaps by age 50?

These are achievable goals, if you plan and invest early and wisely.
Your investment objectives will be one or a mix of the following:

  1. Capital protection from thieves
  2. Capital protection from inflation
  3. Capital protection for retirement security
  4. Capital appreciation (growth)
  5. Income
  6. Leaving a financial legacy to your children

Protections from Thieves
This may seem obvious to you, but many people risk their savings by keeping it stored in their house where thieves can get to it! You should keep a small amount of cash available at home:

  1. $200-$300 hidden where you and your spouse agree is a safe place (and both will know where to access it. This is your emergency money in the event you need cash quick to pay for something. If this does get stolen, it is not a major loss.
  2. One months expenses in a local checking account with a local credit union or local bank (always a locally owned one; never a major, national bank). Credit unions are best, as you are part-owner of the institution, and generally offer lower interest-rate loans. This account is for paying local bills and for emergencies like a car or home repair.
  3. Three months expenses in a high-interest, online savings account. This should be linked to an account where you can transfer money between accounts for access when needed to withdraw, pay bills, or invest.

Capital Appreciation (Growth)
This objective is probably most appealing to you. Naturally, we all want our money to grow, but it is important to identify why. Without any financial goals identified and planned, we can end up throwing our hard-earned money into risky ventures, where we can actually lose money! Or we work hard, save and invest for years and never achieve our goals. We need to identify our goals, available time, available money to invest, and our tolerance for risk (typically age-based).

The two most basic asset classes are stocks and bonds. Stocks are generally for growth and bonds are for income. At various stages of the economic cycle, stock prices will rise and fall. Generally, as stock prices rise, bond process will fall, and vice versa. Also, as bonds rise, their interest rate yield will fall and vice versa. Bond interest rates determine the income you get from bonds. Because of this economic ebb and flow, you need a mix of stocks and bonds in your portfolio. The general ratio that most advisors recommend is 60% stocks and 40% bonds, but this should be customized for your particular investment goals, time horizon to achieve your goals, and tolerance for risk. Next, let’s learn about investing in stocks.

Stocks (equities)
A stock share is basically a unit of partial ownership of a company. When you buy a stock, you are buying into partial ownership of a company that you believe will and should prosper over time. You are basically investing your money into the company for them to build and develop the company, its products and services. You should understand the company’s products, services, business model, and financial status and be convinced that the company will prosper in a competitive market environment. You should also believe their products or services will be beneficial to people in some way. It would be foolish and unethical to invest in a product (like tobacco) if you know they cause cancer, for example.

Over time, your investment can grow (or lose) significantly, and unpredictably. On average, stocks tend to rise about 7% annually, but each year can be vastly different for the previous year, as well as each company. As with the economy, the stock market runs in cycles, typically about 5-6 years in length. The period when stocks are appreciating, we call a “bull market”; the period when stocks are in decline we call a “bear market”. Within bull markets, the market has small, but nerve-wracking declines, what are known as “corrections” where stocks can decline 5-10%. This is nerve-wracking, but normal spouts of sell-offs before the market resumes its climb.

Each company has a “ticker” symbol it uses when trading stock. For example, the ticker symbol for Apple computer is AAPL. Stocks are commonly bought in lots (bundles) of 50 or 100 shares, so investors will often order shares in lots of 50, 100, 150, 200, 300, 500, 1,000, etc. shares. Odd lots (137 shares) can be bought, but may be harder to sell. Stocks can also be bought in broader market bundles of funds called mutual funds or exchange traded funds (ETF’s). Financial companies such as Fidelity, Vanguard, T Rowe Price, Charles Schwab, etc. bundle multiple company stock shares together into a fund, and sell these funds in dollar units rather than share units. You can buy these funds in particular industry sectors (Technology, Healthcare, etc.), geography (US, Europe, Asia, etc.), company market capitalization size (market capitalization (large, mid, small) and many other creative ways to meet a market demand. Funds enable you to diversity and invest with less money (often as little as ($2,500). So, you might be interested in investing in a large cap US Technology fund, for example. Incidentally, stocks, mutual finds and ETFs are traded and taxed differently. One versatile investment type are commodities, which perform well during most economic climates. Therefore it is wise to hold a portion of your portfolio in commodity funds at all times. You can research funds of interest at www.morningstar.com.

Fees
Fees can eat away at your profits. There are many types of fees. One fee to be aware of with funds is the expense ratio or management fee. Actively managed funds are managed by highly trained professionals who are paid well. This cost is passed to the investor in the expense ratio. Generally, you want to avoid funds having expense ratios greater than 1.0%, and strive to invest in funds with expense ratios under 0.5%. Generally growth funds and emerging market fund fees are large and index fund fees are tiny.
Another large type of fees is the big sales commission that front-loaded funds charge. Generally, you want to avoid “front loaded” funds, as there are many funds available with no sales charge. Be a smart citisumer!

Investing vs. Trading
Now, it is very important to understand the distinction between “investing” and “trading”. Investing is the process of buying and holding for the long-term (at least 1 year, and typically 3-10 years or longer). Holding an investment for less than 1 full year will cause the profits (when sold) to be classified by the IRS as a “short-term” capital gain (or loss) and be taxed at a much higher rate than a long-term capital gain (or loss). Also, excessive trading will increase your cumulative transaction costs.

Trading is the (stressful, time-intensive) process of buying stocks and holding them for less than a single day, perhaps as little as 10 seconds! Why would anyone want to do this? Well, some people are looking for a quick profit, and will focus on the moment-by-moment price fluctuations of a particular stock, buying on a dip and selling on a spurt. This is quick, but foolish activity, as these traders must surely have a heart attack in mid-April when they see their annual tax bill!

Don’t be a foolish trader; be a smart citisumer and invest informedly for the long term! And when you invest, do it rationally and coolly, without emotion! There is no room in the market for unbridled emotions! Imagine that you just invested $10,000 in a stock or fund, and the next day, its value drops by 5%! How will you respond? Will you panic and sell it, will you keep an iron will and hold it, or will you see it as an opportunity (a stock sale) and buy more shares? No one, not even yourself can predict how you will respond; you must experience this for yourself! Actually, you should not be monitoring your investments on a daily basis; a quarterly review of you investment portfolio should be sufficient. If you can’t control your emotions and responses, then hire a qualified, professional “fiduciary” financial manager to do it for you with your interests in mind. Now let’s learn about investing for retirement income.

Investing for Retirement Income
Everyone who lives a long, natural life will one day be unable to work for a living, so we should all plan for this stage of our lives. Retirement investing stages can be organized into pre-retirement and post-retirement. Each has its own objective. When investing before retirement, your objective will likely be growth of the principal. When you retire, you objective changes from growth to income and preserving your principal. During retirement, you must generally shift the bias of your portfolio from growth to income. The conventional (but not only) asset type for income is bonds.

If you want to add additional investment tools to your portfolio, either for higher income, you may consider adding other income-producing asset types such as closed-end funds (CEF’s), business development corporations (BDC’s), real estate investment trusts (REITs), preferred stocks, and master limited partnerships (MLP’s). To hedge against rising interests or inflation, consider adding a smidgeon of Treasury Inflation Security Securities (TIPS) bond ETF’s and a gold ETF. These are all great asset types to add diversification.

The pre-retirement stage can and should begin as early as an adults’ first paycheck. Most adults fail to think and plan far enough into their future for retirement. The sooner one begins planning for retirement, the more money they will have accumulated upon retirement, and the sooner they can retire comfortably. Those who plan early in life can expect to retire comfortably around age 50. Imagine being able to get out of bed when you want, staying home during icy conditions, spending your day however you want and spending your money as you want!

An early planner for retirement should begin by doing all of the following:

  1. Take advantage of employer retirement plan matches. If your employer offers a company match for their 401K savings, then at least withhold the amount of their match. For example, say your employer offers to match your contributions 50% or 100% up to 3% of your salary. You should invest up to the amount that your employer will match. This match is like a pay raise, so take full advantage of it!
  2. Open your own Roth IRA independently of your job. If you are married, your spouse can and should open an IRA too! However, in 2021, if your individual annual income is more than $140k, or family income is more than $208k, a Roth is not for you, as individuals can’t contribute to a Roth if they earn $140k or more per year—or $208k or more if they’re married and file a joint return. Unlike a 401k, a Roth IRA will grow TAX-FREE and upon age 59 1/2 you can begin withdrawing from it TAX-FREE! This is because the money you contributed to it over the years was drawn from your income AFTER taxes were already taken from it. A few great places to open a Roth IRA are Charles Schwab, Vanguard, or Fidelity, (I prefer Schwab/TD Ameritrade) so compare their deals and choose one. I currently like Charles Schwab, as they offer a wide range of funds and low management fees. You should compare the number of investment funds available (theirs and others), expense ratios of their funds, and the previous long-term performance of their funds.
  3. Contribute to your Roth IRA on a dollar-cost averaging basis.

By investing for retirement early in your career, you are taking advantage of the powerful principle of compounded growth. Even a small amount invested has the capacity to grow large if left invested for decades, so a large mount will grow enormously! Val la! you are wealthy at age 50 and able to retire, or begin a career doing what you really love doing!

As you approach retirement, you should begin planning a few years ahead for this grand transition. Your investment objectives will shift from accumulation and growth to income and security. This is a major financial, emotional and psychological shift!

At this point, you need to envision your retirement and diagram it out. Recent statistics indicate that if your health and genes are fairly good, you should plan for a retirement period lasting until about age 100! That could be a 30-50 year period my friend! Do not fail to underestimate this! If you are married, your spouse also needs to carefully estimate this.

Now, keep in mind that you cannot collect Medicare until age 65 and Social Security until age 65 (which may be delayed further by Congress). Also keep in mind that you must begin collecting Social Security by age 70.5, and that for each year you delay collecting Social Security, the amount you can collect increases by 8%! Therefore, it pays to delay collecting Social Security for as long as you can afford to, up to age 70.

With all of this in mind, if your assets total about $1-2 Million, (unless you are very wealthy with more than $2 Million, hold a small portfolio of less than $1 Million, or a late planner), your financial goal should be to make it to age 70 comfortably without having to claim your Social Security benefits. By age 70, your combined income from Social Security, employer 401K, and Roth IRA, you should be set for the remainder of your retirement period! Now let’s learn about investing as a late planner for retirement.

Late Planners for Retirement
If you are a late planner, beginning to plan for retirement after age 40, you need to get serious and dedicated toward your goal of accumulating enough money to retire by age 70.

I recommend reducing your living standard, investing into growth equities on your own without a financial manager (initially), with less diversification for a few years. After you developed a nest egg of about $5,000, you should begin to diversify. The growth sectors include technology, science, healthcare, financials, and emerging markets. You can open your own brokerage account at Charles Schwab/TD Ameritrade, Fidelity, Vanguard or others. After accumulating a small amount, then begin to gradually diversify with management assistance from one of the financial management companies listed above.

If you would like a way to get around the annual contribution limit on the Roth IRA, you can open a “non-deductible IRA” account. You then contribute unlimited amounts of money to this non-deducible IRA, then transfer the money legally from that non-deductible IRA to your Roth IRA as desired. This trick is sometimes referred to as a “back-door” Roth IRA. You may need to educate your financial specialist on this obscure type of account and legal trick! The only hitch is that you cannot have any other traditional IRA’s open, so you may need to convert your traditional IRA to a Roth IRA, then transfer it into your other Roth IRA. Also beware that if you are over about age 50 and have a large amount accumulated in your traditional IRA, such a conversion may not be feasible, as this account conversion is a taxable event! Consult with a tax specialist before doing this conversion!

Common Dividend Stocks and Preferred Stocks
Stocks of very mature companies that no longer grow much offer monthly cash dividend income to keep investors content and not sell their stock for something better. Dividends are regular cash payments due simply by holding stock shares in the company; the more shares owned, the higher the dividend payment. The dividend rate of regular, common stock shares can be adjusted as the company financials changes. Preferred stocks are a class of stocks that pay a higher, fixed dividend rate. Also, if the company were to default, holders of preferred stock shares would be paid before common stock holders, although investors would still not get their full original capital investment return. Now let’s learn about investing for income with bonds.

Bonds
Bonds are basically loans made by Federal treasury bonds, local municipal bonds, governments, corporations, for a fixed interest rate (yield) and pre-determined period of time (duration). Bonds provide regular income with low growth, but do not perform well during times of rising interest rates. Bonds behave inversely from stocks. As stock prices go down, bond prices generally go up, and vice versa. Also, as bond prices go down, their yields go up and vice versa. Bonds (and bond funds) can be purchased in short, intermediate and long-term durations. The longer the term, the higher the yield (but also the higher the commitment and risk).

For example, imagine you bought a long-term, 10-year corporate bond from Zilch Enterprises for $1,000 that yields 4% interest. If you hold it for its full, 10-year term until maturity before selling it, you will have received a regular, 4% income for 10 years regardless of how the economy, Zilch Enterprises, or interest rates have changed. Also, at the end of the bond’s term, Zilch Enterprises repays you your original $1,000! But, if you decide to sell the bond before its 10-year term ends, you would have to accept the going market price for the bond. A lot can change during those 10 years! Interest rates will likely be very different, which affects the prices of bonds. So, it pays to hold bonds to their maturity when interest rates have been rising. During such times, bond investors have been able to buy superior bonds that pay a higher interest rate than the one you have been holding, so you would have a harder time finding such a fool who was willing to buy your relatively inferior bond!

Bonds for Rising Interest Rate Climates
During times of rising interest rates, it is wise to avoid long-term bonds and buy short and some intermediate bonds. Other types of bonds worth considering during these times are floating-rate bond funds and unconstrained bonds, high-yield bonds and TIPS.

Floating-Rate Bonds
Floating-rate bonds are variable-rate bonds offered by companies that are viewed as having a low credit quality. The interest rate is adjusted regularly every 30-90 days. The advantage to this is that the regularly reset interest rates are independent of market interest rates. In a rising interest rate environment, the interest rate will increase.

Unconstrained Bond Funds
Unconstrained bond funds can be invested into any type of bond (corporate, government, etc.) during its term. This makes them highly versatile income investments. This type of bond fun is less sensitive to market interest rates.

High Yield Bonds
You may have seen some appealing, high-yield corporate bonds. These pay a higher interest rate because they are issued by riskier companies that have a higher risk of defaulting (going out of business). You have to take a higher risk to get a potentially higher reward. I you choose to buy some high yield bonds, research them well before buying and keep their proportion to your total portfolio small.

Treasury Inflation-Protected Securities (TIPS)
TIPS are treasury bonds that pay interest, however, the bond principal increases annually with increases in the consumer price index, this protecting you against inflation. TIPS function well during times when inflation is rising, but perform poorly when interest rates are rising, but prices and inflation are not. TIPs perform particularly poorly when interest rates are low and the demand for an inflation hedge is high. So, before investing in TIPS be confident that inflation is a true threat, and be sure the bond rates are worth the investment.

There are other types of bonds, but I have focused on those types that are worth considering during these times of rising interest rates. One excellent strategy during times of rising interest rates is to buy bonds in ladders.

Bond Ladders
A bond ladder is an investment strategy used when interest rates are rising. An investor staggers the duration of multiple bonds in their portfolio so that when each bond in the ladder matures and is sold, the money can be reinvested into newer, higher rate bonds at regular intervals.

For example, imagine you want to invest $30,000 into a bond for income. To create a bond ladder, you would invest $10,000 in a one-year bond at 3%, $10,000 in a two-year bond at 4%, and $10,000 in a three-year bond at 5%. Now, when the one-year bond matures, you would reinvest that money into a three-year bond. At the end of the second year, you would invest that money from the matured two-year bond into a three-year bond, and so on.

A TIPS bond ladder is an excellent strategy to protect your principal while helping to provide income as a group of bonds mature each year.

Annuities
You’ve no doubt seen or heard commercials advertising “guaranteed income” investments. They never mentioned the word (intentionally), but they are all referring to annuities. You may not know anything about annuities, or you may have heard that annuities have many, high, hidden fees. Generally, this is true. Let me tell you the truth about annuities.
Annuities are a strange breed of investment. You may wonder why annuities are listed here with investment information. Annuities are, in fact, insurance products to provide you income, with security and peace of mind during retirement. Annuities are not investments; they are insurance products. Never shop for investment products with an insurance company or a bank and vice versa.

There are several types of annuities: fixed annuities, index annuities, variable annuities. These are all bad, bad, bad for you and good, good, good for the insurance sales agent! They are so bad that sales agents rarely use the term “annuity” any longer when selling them! Do not ever consider these types of annuities! They are loaded with hidden fees that get you when you sign in and again when you sign out of them after you realize what a big mistake you made signing in! If you or a friend ever get your hands on an annuity contract, rub some raw fish on it so it actually begins to smell as bad as is it! Rotten! Well, now I warned you.

There are however, two good types of annuities worth serious consideration to provide a steady, guaranteed monthly payment during retirement: Immediate Annuities and Longevity (deferred) Annuities. These 2 types of annuities are good for you, if you can afford them! They have little hidden fees.

Basically, these 2 types of annuities work like this:
You agree in writing to give the insurance company a large, lump payment of about $130k or higher. Once you give it to them, the insurance company owns this money. In return, per your contract, the insurance company agrees to pay you a regular, guaranteed monthly payment for the remainder of your life. With an immediate annuity, payments begin almost immediately; with a longevity annuity, payments begin much later, typically at age 85. The larger the lump payment, the larger the monthly payment. You may need to pay $150-300k for a satisfactory monthly income, depending on your needs.

It is your job to assess your financial situation, your health, genes, and expected retirement span to determine if either or both of these annuities are a good deal for you. You have the advantage that you know your biology. The insurance company has the advantage of having lifespan statistics of folks like you.

When considering one of these annuities, you must be sure to buy them from a sound, reliable insurance company that you can be confident will still be around in 30-50 years! AM Best rates insurance companies. You only want to buy insurance from companies having an AM Best rating of A++ or better. These are the cream of the crop that you must depend on. New York Life is a very sound insurance company.

Also, be sure to add a compounded, 3% inflation “rider” (option, sometimes called “COLA” or Cost of Living Adjustment) to the annuity contract to prevent your monthly payments from shrinking over time due to inflation. Although inflation has been low for a long time, the cycle of life principle indicates that inflation rates will rise in the future. This option will cost you, but is necessary.

Also, you can get more for your money by getting a joint annuity that will reduce the monthly payment by 50% upon the death of the first of the couple.
You will likely need to buy these through an insurance broker. The broker will show you a few options and insurance company offerings, and you select the one that makes most sense to you. The broker should rightfully be getting about 3.75% percentage fee for his/her service, but this fee should be built into the annuity, so it is of no concern to you as long as you read the annuity contract, including the fine print for any fees.

So, if you are seeking increased financial security and peace of mind during retirement, consider these 2 types of annuities for income, immediately or at age 85.

A longevity annuity with an inflation rider might be a solution to your long-term care expenses late in your life! If, at age 85, you still do not need long-term care, you can invest the monthly payment any way you like. You might invest it in an HSA account to cover current and future healthcare expenses, Roth IRA, CEF fund, MLP, dividend paying equity funds or stocks, or even your grandchild’s’ 529 college fund. The payment is yours (however, 2/3rds of it is taxable income). You need to total up your sources of potential retirement income, then determine the balance of the need to cover the expected costs of long term care. The daily cost of long-term care today is roughly $200 per person.

Get Started Now!
You can buy and sell and manage your investments on your own or through a financial services company. To this on your own, open a secure, online brokerage account at Fidelity, Vanguard, T Rowe Price, Charles Schwab/TD Ameritrade. For large portfolios over $100,000, I recommend hiring a professional fiduciary, certified, financial planner (CFP) and manager by researching them on www.finra.org and the Garrett Planning Network. A fiduciary is someone who will ethically place your interests above their own.

Join the Investment War! 

In response to Charles Schwabs’ low-cost investing services, TD Ameritrade, Vanguard and Fidelity all started new, low-cost services. The battle has begun for your service! Join the battle! You cannot lose! They may even pay you to move your assets over to them! Competition is great, isn’t it?

Choosing a Brokerage Company to Hold Your Assets

Aside from fully-professional-managed portfolio management, there are two basic types of DIY services:

  1. Robo-advisor- A so-called intelligent, robo advisor collects data about yourself and recommends a canned asset allocation model for you. From my review, the intelligent robots ain’t so intelligent; your money won’t grow very much (about 5% annual returns).
  2. Hybrid human/robot- You get the best (or worst) of both worlds.

There are thousands of brokerage firms out there to choose from, but the major players are Fidelity, Schwab/TD Ameritrade and Vanguard. In my humble opinion, Fidelity is too big and complacent. Vanguard’s niche is low-cost, moderate-performing index funds. I use Schwab/TD Ameritrade, who are in the sweet spot between the others. If you have a large portfolio of assets to invest, these companies may actually pay you to move your assets over to them, so move your assets! Competition is great, isn’t it? Some other, newer, robo-advisors are Financial Engines, Betterment, SoFi, Wealthfront, Personal Capital, and others. Unfortunately, To date, robo-advisors only give you a 5% annual return on average. In my opinion, stay away from Robinhood and keep your children away from them too! They are turning investing into playtime, like buying candy in a candy store.

Criteria to evaluate a brokerage firm include:

Reasonable fees

There are about three fee structures that brokers use to charge their clients:

  1. Fee based- Typically 1% annually, but if you have more than $1million, they may cut your rate.
  2. Fee only- They charge you per hour.
  3. No fee

They are available to talk with you.

They will hold your assets in a highly secure environment, and will take responsibility if your accounts are breeched.

Low trading fees- They should be $5 or less, perhaps zero!

Quality research tools

TD Ameritrade

TD Ameritrade is offering new customers cash for opening a new brokerage account. So get free money and start earning more of it today!

Charles Schwab

Charles Schwab (now owners of TD Ameritrade) offers several portfolio management services. One notable service is their Schwab Managed Portfolios of either mutual funds at 0.3% ETF’s at 0.5% annual fee, with a $25,000 minimum balance. These portfolios may include no, some, or all Schwab funds. Plus, if you open any Schwab account, you can receive a debit card that provides unlimited international transactions with no international transaction fees. Schwab recently purchasd TD Ameritrade.

Vanguard!

Vanguard recently started a new, pilot program for new investors. For just $50,000, you can open a Personal Advisor Services investment account at 0.3% annual fees. This account will give you a custom financial plan, personal advisory service, and access to strictly Vanguard ultra-low fee index funds that Vanguard is famous for.

Fidelity

Fidelity just began a Zero investment service with $0 minimum account balance, $0 minimum fund balances, 0% expense ratio on two of their new index funds, and $0 fees! www.fidelity.com/why-fidelity/pricing-fees

Learn More
You can learn more about investing for retirement by reading these excellent books:

  • 20 Retirement Decisions You Need to Make Right Now, by Ray Levitre.
  • The All-Weather Retirement Portfolio, by Randy Thurman.
  • Unconventional Investing, by Tim Higgins.
  • I also recommend that you read Dave Ramsey’s books on getting out of debt if you are struggling to get out of deep debt.
  • I also recommend that you consider managing your money yourself.

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