Protective Life Insurance Company has a great record or working with its clients and can offer some of the best term life insurance rates available.
If you have ever shopped for life insurance, then you are probably well aware that there are several important variables that you should keep in mind when determining how and where to purchase your coverage.
First, at the top of your list, should be knowing how much protection to obtain. This is because you will not want your loved ones or other survivors to fall short when it comes to proceeds. For example, if your beneficiary (or beneficiaries) will need a certain amount to pay for final expenses or other specific debts, then it will be important to purchase at least that amount of coverage.
But equally as important, though, will be ensuring that the life insurance company through which you purchase the protection is strong and stable from a financial standpoint. This is because you will want to know that the company will be there to make good on its promise if or when the time comes for the policy’s beneficiary to file a claim. One insurer that has been positive when it comes to paying out its policyholder claims for many years running is Protective Life Insurance Company.
The History of Protective Life Insurance Company
Protective Life Insurance Company has been in the business of offering life insurance coverage for nearly 110 years. In the year 1907, the company’s founder, Governor William Dorsey Jelks started the insurer, just as President Theodore Roosevelt started his 7th year as a United States President.
Just a short two years later, in 1909, Protective Life Insurance Company paid out its very first death benefit claim – and the company has been faithfully doing so ever since. By the year 1932, after just 25 years in the business, Protective had more than $65 million of insurance in force. And, by the time the company was in business for 50 years, it had nearly $1 billion.
Throughout the years, the company has grown and expanded. In part, it has done so by acquiring other insurers. For instance, in 1997, Protective acquired West Coast Life, which helped in solidifying the insurer’s national presence. And, in 2006, Protective acquired Chase Insurance Group.
By 2007, the insurance carrier’s 100th anniversary, it had more than $252 billion of insurance coverage in force. In 2015, the company became a wholly owned subsidiary of The Dai-ichi Life Insurance Company, Ltd. Protective Life Insurance Company was, and still is, headquartered in Birmingham, Alabama.
Protective Life Insurance Company Review
Protective Life Insurance Company is known for serving its customers first. Based on testimonials, the firm is known for being flexible, as well as for providing dedicated service. Also, it is also very involved in the communities in which it serves.
The company provides a learning center directly on its website. This can help consumers to learn more about life insurance and how much protection that they may need, based on their specific situation.@media(min-width:0px)#div-gpt-ad-goodfinancialcents_com-banner-1-0-asloadedmax-width:580px!important;max-height:400px!important
Protective also offers a claims center on its website, as well. Here, claims can be filed directly online. Forms can be downloaded and sent in, and questions may be asked of customer service representatives.
Reps may be contacted in a number of different ways, including via a toll-free telephone line (during business hours), email, and an email form. Business hours for reporting a life insurance claim are Monday through Thursday between 8:00 a.m. and 5:00 p.m. Central time, and Friday between 8:00 a.m. and 3:00 p.m.
Additional information is also provided within the Protective Life Insurance Company online claims filing center, such as details regarding what to do when a loved one dies, and life insurance FAQ.@media(min-width:0px)#div-gpt-ad-goodfinancialcents_com-large-leaderboard-2-0-asloadedmax-width:300px!important;max-height:250px!important
Financial Strength and Ratings
Protective Life Insurance Company is considered to be a very strong and stable company from a financial standpoint. It also is well respected for paying out its policyholder claims. In 2015 alone, Protective paid out over 20,000 life insurance claims in the amount of approximately $1.9 billion. The average processing time on a life insurance claim at Protective Life Insurance Company was 6.22 days. For this reason, the company has been given high marks from the insurer ratings agencies. These ratings include the following:
A+ from A.M. Best (Superior) This is the second highest out of a possible 15 total ratings.
AA- from Standard & Poor’s (Very Strong) This is the fourth highest out of a possible 21 total ratings.
A from Fitch (Strong) This is the sixth highest out of a possible 22 total ratings.
A2 from Moody’s (Good) This is the sixth highest out of a possible 21 total ratings.
Although Protective Life Insurance Company is not BBB (Better Business Bureau) accredited, the BBB has provided Protective with the grade of A+. This is on an overall grade scale of A+ to F.
Over the past three years, Protective Life Insurance Company has closed a total of 39 complaints through the BBB. Of these, ten were closed over the past year. Of the 39 complaints that were closed during the past three years, 18 had to do with problems with the company’s products and / or services, 10 were concerning billing and / or collection issues, 3 were with regard to advertising and / or sales issues, another 3 were having to do with guarantee / warranty issues, and five had to do with other issues.
Life Insurance Products Offered Through Protective
Protective Life Insurance Company offers a wide variety of different life insurance policies to choose from. This can help its customers to gear coverage more towards their individual protection needs.
Policy types offered through Protective include the following:
Term Life Insurance
Term life insurance can provide level death benefit protection for a set amount of time. This type of life insurance doesn’t offer cash value build up, so it is often more affordable than a comparable amount of permanent insurance such as whole life or universal life coverage. Therefore, it can be a good option for those who want a nice amount of coverage, but who may not have a lot to spend in premium.
Protective Life Insurance Company offers term life insurance plans that range from 10 to 30 years in level death benefit protection.
Universal Life (UL) Insurance
Universal life insurance is a form of permanent life insurance coverage. This means that it provides both death benefit protection, as well as cash value build up. The cash value will grow tax-deferred, meaning that there is no tax due on the gain unless or until the time that it is withdrawn by the policyholder. This can allow the funds to grow and compound exponentially over time.
A universal life insurance policy can be more flexible than some other types of permanent coverage like whole life insurance. This is because the policyholder can choose – within limits – how much of their premium dollars will go towards the death benefit, and how much will go towards the cash component of the UL policy.
@media(min-width:0px)#div-gpt-ad-goodfinancialcents_com-leader-1-0-asloadedmax-width:728px!important;max-height:90px!importantThe Protective Life Insurance Company’s Custom Choice UL policy is a very affordable way to protect one’s family’s financial security if the unexpected were to occur. It offers low premiums for life, as well as a death benefit that is non-taxable (from income tax) to beneficiaries.
The premium rates can start as low as $7.32 per month – and, provided that the premium is paid, the coverage will remain in force for the remainder of the life of the insured. Also, the premium will also remain level for an extended period.
Protective Life Insurance Company also offers a survivor universal life insurance product. This could be a good option for someone who is married or part of a couple and has estate planning needs, such as helping beneficiaries to pay estate taxes and / or helping a loved one with special needs.
These types of policies are also often referred to as second-to-die or joint life insurance coverage. They cover two individuals under just one single life insurance policy – and because of that, they are often less costly than purchasing two single policies. The death benefit that is paid out will be free of income tax to the beneficiary (or beneficiaries), and the proceeds may be used for whatever needs the survivor or survivors may have.
Variable Life Insurance
Variable life insurance is another type of permanent life insurance coverage. With variable UL, there is also a death benefit and a cash value component. However, with this type of insurance coverage, there is additional flexibility with the investments that can be chosen in the cash component. For example, equities may be chosen, which can allow for additional growth. They can, however, also pose more risk. Therefore, it is important to be aware of this before getting into any variable life insurance product.
Overall, a variable universal life insurance policy will essentially combine the “core” benefit of life insurance coverage via an income tax-free death benefit, along with a great deal of flexibility for the policyholder / investor in terms of cash value / investment build up over time. It is important to note that there may also be additional fees with variable universal life insurance because of the investments that are included in the policy.
Other Coverage Products Offered
Protective Life Insurance Company also offers a Protect My Child life insurance policy. While most people do not want to ever think about the passing of a child, the truth is that sometimes accidents or illnesses do occur. In this case, the cost of final expenses and / or uncovered medical expenses can be paid through a life insurance policy on a child.
The Protect My Child policy offers coverage of between $10,000 and $100,000. Because the policy is a permanent life insurance policy, it will also have cash value build up. Therefore, the plan will have tax-deferred savings that may be used for future college costs, the down payment on a house, a wedding, or any other need down the road.
When the child turns age 18, the amount of the life insurance coverage will automatically double – at no additional premium cost. When purchasing the Protect My Child life insurance plan, premium rates can start as low as $6.37 per month. And, because the policy is permanent, the rate is locked in never to increase. This means that the child can keep this same premium rate throughout the lifetime of the policy.
How to Find the Best Premium Quotes on Life Insurance Coverage
When seeking the very best premium quotes on life insurance coverage, whether it is through Protective Life Insurance Company, Banner Life Insurance, or any other insurer, it is typically best to do so via an agency or a company that works with more than just one life insurer. This is so that you will be able to compare and contrast all of the options that are available to you, as well as the cost of each. This is not only true when seeking the best life insurance coverage but for when shopping for other forms of coverage as well such as the best auto insurance companies and rates.
We know that buying life insurance can be somewhat confusing, There are lots of details to keep in mind – and you want to be sure that you are getting the very best deal from the best insurer for your needs. We can help you in sorting it all out so that your coverage will best meet the protection requirements that you have. We can do it all without you having to meet in person with a life insurance agent. Just simply go online or give us a call. So, contact us today – we’re here to help.
BlackRock, one of the world’s largest financial firms, says three key moves can sharply boost retirement income. Most people focus on building up their savings when they make retirement plans. However, by also focusing on the drawdown phase, the duration of the nest egg that you have accumulated can be significantly extended, BlackRock says in a recent report.
Consider working with a financial advisor as you develop a long-term retirement plan for yourself.
Add Guaranteed Lifetime Income via an Annuity
Annuities have become a hot topic in recent years, as financial professionals have increasingly debated their pros and cons. On the upside, they hedge against longevity risk. A lifetime annuity can guarantee, aside from catastrophic failure on the part of the insurance company, that you will receive a minimum income for life. On the downside, annuities can sometimes post weaker growth than even the standard S&P 500 index fund.
BlackRock argues that the benefit of hedging against longevity risk, though, is quite powerful. By putting up to 30% of your portfolio savings into a retirement annuity, you can create a strong base for the future of your retirement income. Alongside Social Security, this gives you an income that never draws down and will not fade.
Shift to an Aggressive Asset Allocation
There’s a catch to an annuity plan, though. Perhaps the biggest risk with annuities, as noted, is their low rate of return. In fact, Fidelity says that in recent years annuities often return one-eighth the amount of a simple S&P 500 index fund. That’s a recipe for low, slow growth.
So, BlackRock suggests balancing your annuity investments with a more aggressive market portfolio. In other words, leverage the security that you have with your annuity to rebalance your portfolio toward higher-return assets like stocks, if even just a stock market index fund, like the S&P.
By doing this, you’re more protected against loss by the guaranteed income of the annuity, while also boosting your overall spending power in retirement with the projected growth of the equities. This lets you retain a strong equity portfolio later in life, when many investors would otherwise start shifting their investments in favor of more stable, fixed-income assets, like bonds or CDs.
“Adding guaranteed lifetime income combined with a more aggressive asset allocation generates 29% more annual spending ability from one’s retirement savings (excluding Social Security) and reduces downside risk by 33%,” BlackRock states in the report.
Retire (and Take Benefits) Later in Life
Finally, BlackRock recommends delaying retirement by two years. The firm suggests delaying retirement, along with Social Security benefits and annuity payouts, from age 65 until age 67. This is not, however, a delayed retirement. For anyone born after the year 1960, the goalposts have been moved back and full retirement age is set at 67.
The firm’s basic analysis still stands though. As the firm writes, “[a]mong all retirement decisions, the choice of when to retire and claim Social Security often has the single greatest impact on one’s financial security.”
Putting this off even by just two years can significantly boost your Social Security benefits. It will also give your annuities time to continue growing, making their lifetime benefits stronger, while allowing your portfolio to accumulate extra years of high-value growth as well.
BlackRock finds that pushing back retirement by two years can boost a retiree’s lifetime spending power by 16% and reduce downside risk by an additional 15%. In combination with the 29% retirement increase gained by getting an annuity and having an aggressive, stock market-based asset allocation, retirees can sharply extend the duration of their retirement income.
Bottom Line
For many investors, the good news here is that BlackRock probably recommends a version of what you are already pursuing: diversification. This approach suggests that you should balance high-security assets, in the form of lifetime annuities, against high-return assets, such as stocks. It recommends delaying retirement as a way of boosting your lifetime Social Security benefits and maximizing your late-in-life portfolio returns. For the average investor and saver, this is all very doable.
Retirement Savings Tips
A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Longevity risk is the possibility that you will live too long, and that’s a perverse way of looking at life. So start making plans right now to celebrate your hundredth birthday in style.
Eric Reed
Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
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If you have ever shopped for a life insurance policy, then you may be well aware of just how important this type of coverage is to your overall financial planning. That is because, without it, you could be leaving your loved ones or other survivors at risk of financial hardship.
Before purchasing a life insurance plan, though, there are some different criteria that you will need to keep in mind. The type and the amount of coverage are certainly key. Yet, while most people are aware of these factors, what many are not aware of is that the company through which you purchase your life insurance can be equally important.
This is because the ratings of the life insurance companies you consider should be strong and stable financially – and it should be able to pay out its policyholder claims if and when the time should come. Otherwise, your loved ones could be left without the proceeds that they were counting on to move forward. One life insurer that has a long-standing reputation in the industry for paying out as promised is the Guardian Life Insurance Company.
The History of Guardian Life Insurance Company
The Guardian Life Insurance Company has been providing insurance coverage to its policyholders since 1860. This New York-based insurer began with a group of 21 business men, who started a company called the Germania Life Insurance Company of America with $200,000 in initial equity capital. At the time, this was double the amount of funds that was required by the state of New York for staring an insurance carrier.
With that, from the very beginning, Guardian Life Insurance Company – also known as “The Guardian” – proved its commitment to financial strength. Doing so has also proven beneficial to the company’s policyholders throughout the years.
Over time, in the early 1900s, the company changed its name to The Guardian Life Insurance Company of America. It has also expanded over time through both the acquisition of other carriers, as well as by adding new products to its line of wealth expansion and protection mix. Presently, Guardian Life Insurance Company is considered to be one of the largest and financially strong mutual life insurance companies in the U.S.
Guardian Life Insurance Company Review
Due to both its size and financial strength, Guardian Life Insurance Company is listed on the Fortune 250 global financial services companies. The insurer provides a variety of different financial and insurance products that are offered via more than 3,000 reps throughout the United States.
At the end of 2015, The Guardian held roughly $82 billion in assets under management and approximately $565 of life insurance in force. Throughout 2015, the company paid out approximately $5.6 billion in insurance benefits to its policyholders and / or their beneficiaries.
As a mutual insurer, The Guardian also pays out dividends to its policyholders – and in the year 2015, the company declared more than $838 million, while that same year taking in roughly $19 billion in insurance premiums and deposits.
While Guardian Life Insurance Company provides financial stability to the policyholders that it serves, the company also provides support in other ways – such as through corporate citizenship and community involvement. Also, many of the company’s employees volunteer their time via educational and community events in a wide variety of different areas.
Guardian Life Insurance Company Ratings and Better Business Bureau Grade
Due to its financial strength and stability, The Guardian Life Insurance Company has been given very high ratings from the insurer rating agencies (as of December 31, 2015). These include:
A++ (Superior) from A.M. Best Company. This is the highest possible rating out of 15 total.
AA+ (Very Strong) from Fitch. This is the second highest possible rating out of 21 total.
Aa2 (Excellent) from Moody’s. This is the third highest possible rating out of 21 total.
AA+ (Very Strong) from Standard & Poor’s. This is the second highest possible rating out of 22 total.
The Guardian Life Insurance Company also has a Comdex Rating of 98.
Also, The Guardian has been an accredited business through the Better Business Bureau since January 1, 1957, and it has been given a grade of A+ (on a possible grade scale of A+ through F).
The Guardian, throughout the past three years, has also closed 55 total complaints through the Better Business Bureau – 20 of which have been closed within the past 12 months. Of these 55 complaints, 36 had to do with the company’s products and / or services, 13 dealt with billing and / or collections issues, four had to do with advertising and / or sales issues, and two were in regards to delivery issues.
Life Insurance Products Offered By Guardian
The Guardian offers a wide range of life insurance products to choose from. This can be a great way for clients to build a life insurance strategy to better suit their needs. It can also help clients to revise their coverage as their needs may change over time.
Coverage that is offered is both term and permanent. These products include the following:
Term Insurance Offered By Guardian
Term life insurance is coverage that provides death benefit coverage without cash value build up. Because of this, term life insurance can be fairly affordable. These types of policies – as the name implies – are offered for a certain period or “term.”
Many people consider term life insurance as “temporary” coverage because it can be purchased for a certain time frame and can, therefore, be bought to cover for certain needs, such as paying off the balance of a mortgage.
Many term life insurance policies will allow the insured to add additional riders in order to enhance the coverage. Also, some term policies will also allow the insured to convert the policy over into a permanent insurance policy (within certain guidelines) – often without having to prove insurability or take a medical exam.
Permanent Life Insurance Offered By Guardian
Permanent life insurance policies are also offered through Guardian. With permanent coverage, there is both death benefit protection, as well as a cash value or savings component. The cash that is in the cash value is allowed to grow without being taxed unless or until it is withdrawn. This is referred to as being tax-deferred.
There are several different types of permanent life insurance policies to choose from. One of these is whole life insurance. With whole life, both the death benefit coverage and the premium on the policies are guaranteed. Also, the cash value in the policy will grow at a set rate of interest. Whole life policies are intended to last for the “whole of the insured’s life” – as long as the premium is paid.
There is also universal life insurance. A universal life insurance policy provides death benefit protection and cash value. However, these plans are considered to be more flexible than whole life insurance. This is because a universal life insurance policyholder may be able to choose how much of his or her premium dollars can go into the cash value component, and how much will go towards the death benefit.
Another offshoot of universal life is variable universal life insurance. Here, the cash value can be invested in equities such as mutual funds. This means that there is the opportunity for substantial growth within the cash portion of the policy. However, this also means that there can be more risk in the event of a market downturn.
Other Coverage Products Offered
Guardian Life Insurance Company offers many other products which can enhance and protect the financial lives of its customers. Just some of these include:
Investments
Employee Benefits
Disability Insurance
Dental Insurance
Annuities
How to Get the Best Life Insurance Premium Quotes
If you are looking for the best life insurance quotes, then working with an agency or a company that has access to more than just one single life insurer is typically the way to go. This is because doing so; you will be able to compare policies, benefits, and prices of multiple possibilities – and then determine which will be the best option for you.
When you are ready to proceed in looking for the right life insurance coverage for you – at the very best price – we can help. We work with many of the top life insurers in the market today, and we can assist you with obtaining all of the information that you need. All you need to do to get started is fill out the quote form on the side of this page.
Today’s Millennials face challenges unique to their generation. With the cost of education on the rise, setting money aside for the future can be challenging.
That’s where Unifimoney can help. Combining banking and investing, you’ll get the all-in-one platform you need to save, as well as spend and invest with a unique combination of automation and easy access to alternative assets including cryptocurrencies and precious metals.
Ben Soppitt founded Unifimoney to make it easier for Millennials to manage their money and protect their long-term wealth.
What’s Ahead:
Why Unifimoney?
Based in San Francisco, Unifimoney serves the banking needs of young professionals in the United States. From high-yield checking, a robust multi-asset investment, a range of partner services including insurance and loans, and a credit card (launching in August!) – you can really manage most, if not all of your money in one app.
Unifmoney also has auto-transfer rules that you can set up to automatically move money from your old bank to your Unifimoney account on a schedule you determine.
But where Unifimoney really shines through is in its investment platform and automation features. The app includes both passive (robo) investing and active commission-free trading, 37 cryptocurrencies with more being added regularly, and even precious metals; gold, silver, or platinum can be delivered. The robo product builds a portfolio that fits your own goals and risk tolerance level.
Meet Unifimoney CEO – Ben Soppitt
Ben Soppitt has a long history in fintech leadership, including roles with Samsung Pay, Fitbit Pay, and Visa. He founded Unifimoney in 2019 and continues to serve as its CEO.
In addition to his work with Unifimoney, Ben is a member of the Forbes Business Council, an invitation-only organization for small and midsized business owners. He also performed a fellowship at On Deck, an accelerator that helps top talent accelerate their careers.
Recently, we spoke with Ben about his vision for Unifimoney and where he sees the field of finance going in the coming years. He also had a few great insights about personal finance for the Millennial generation.
Money Under 30’s interview with Ben Soppitt
What drove you to start Unifimoney? Do share any backstory about naming your company Unifimoney.
I had been in the financial services business for over two decades and witnessed the rapid increase in consumer Fintech companies launching bringing innovation, choice, and value to consumers. But I noticed a few things that the industry was not solving for and the wasted value to consumers was massive – over $20 trillion, money that could be going back to consumers and the wider economy.
These included ignoring the needs of mass affluent consumers including young professionals. These customers are in a very challenging position – they are high-earning but also high-debt from an extended period in education. They often live in high-tax and high-price areas like major cities. They have busy, stressful, and demanding jobs, and they have a lot going on in their lives. Managing money well is rarely high on their list of things to do, and it’s decisions that are made or more often not made at that time that can have an impact many years later – the opportunity cost of not managing your money is paid in the future and not today.
The other thing I noticed was that most Fintechs were solving for very specific and discrete parts of the financial ecosystem – active investing, Robo investing, cryptocurrencies trading, mortgages, loans, banking, etc., ironically with so many apps it actually makes it harder to manage your money than easier and that work falls on the consumer. Humans are not, on the whole, prepared to do hard, manual, repetitive work on a sustained basis, especially when the payoff may be decades in the future, so we put it off and that’s what managing your money can require. The result is that almost all mass affluent consumers suffer from three sins in managing their money:
Having too much money held in cash at a Big Brand Bank that pays little or no interest.
Having a credit card that does not maximize your return on spend.
Not dollar-cost averaging (in fact, less than 30% of Millennials are investing in the stock market at all).
If these were solved for the entire Millennial generation, it would create through their working lives and the power of compound interest over $20 trillion dollars of value by the time they retire. Solving for this is what we want to do at Unifimoney, and we do it through automation and product design so that our customers are automatically and by default solving for the three sins of personal finance and ensuring their money is working as hard for them as they do to earn it in the first place.
What sets Unifimoney apart from other investing apps?
We are an all-in-one app where you can manage most if not all of your investing and money management needs. We use automation to remove the manual work involved in managing money on a day-to-day basis. We have a comprehensive investment platform including Robo investing, Self Managed Commission Free trading, over 30 cryptocurrencies, and precious metals. We support fractional investing in equities and ETFs, crypto, and precious metals so any customer can get going with just a few dollars. We intend to progressively add more alternative investment assets over time like collectibles.
We have a full banking service – a hybrid high-interest checking account and are launching a credit card soon. This will be the only credit card in the world that pays rewards as Bitcoin, gold, or equities.
More important than the features and product functions, though, is that we enable our customers to truly automate their money. You can set rules to transfers funds automatically from your old banking institution into Unifimoney – move your money not your bank, we recognize that is a hassle. You can auto-invest any amount (the minimum is $25) each month into your Robo and trade in crypto, metals, and equities to the maximum in your account.
Deposit interest and credit card cash back are automatically rolled up and deposited into your Robo fund – unless gold or Bitcoin is selected for the credit card (this can be changed each billing cycle). We want to make saving and investing as easy and effortless as paying for an Uber.
You’ve shared that Unifimoney’s San Francisco-based team speaks 7 languages; tell us more!
We are a fully distributed team with both U.S. and international team members. At the last count, we can collectively speak seven languages. The Founders Ben and Ed are British and British/Australian respectively but both living in San Francisco. Whilst the U.S. is in many respects the leading Fintech market in the world, there are learnings and experiences from other markets that help inform our product design. Credit Cards, for example, is a very commoditized business in the U.S. – with almost no innovation in 30 years. Other markets in Asia and Europe are doing far more interesting things with Credit Card proposition design.
What advice do you have for a Gen Z and/or Millennial who hasn’t started investing at all yet but is interested in learning?
A few innovations have made the path to investing very easy, low cost and low risk. Fractional investing means you can buy into company stocks (or crypto or gold) for just a few dollars, you are buying a fraction of a share not the whole share. This reduces the barriers to entry considerably. Commission-free trading likewise makes it low cost to trade. Robo platforms can help create a portfolio based on your own risk profile, and auto invest means that you can set a schedule to invest even a very small amount of money regularly.
The average age to start saving for retirement is 32 in the U.S. – meaning for most, they have lost a decade of compound growth. Most people understand conceptually how compound growth but it’s hard to really imagine its power. We all almost all forget or ignore that compounding increases both our good decisions and our bad. Losing the first 10 years of your 30-40 year investing potential is a very hard blow indeed – these are the most important years – the early ones with the most compounding to benefit from.
When looking for a bank, what advice do you give Gen Z and Millennials? What features should they prioritize?
Well, we are a little biased to be fair.
Some things to consider we would suggest:
Whose interests are the banks really being run for? Customers vs Shareholders
The values of the institution should be considered.
How the institution is going to actually help you increase your wealth.
Try and actively think beyond the marketing – the top 10 Big Brand Banks spend over $15 billion a year on marketing – they are influencing your judgment, whether you realize it or not.
Be aggressively rational – e.g., metals credit cards are irrational and deflect focus from what you should really be looking at and assessing.
Unifimoney offers an all-in-one financial management solution. Do you find many of your members use it for all their banking needs, including checking and savings?
We are a complex answer to a complex problem – how to manage your money better without effort so it takes time for customers to really understand what we do plus we are still building and developing the platform.
We don’t expect our customers to give up their old bank and move to us immediately. It’s why we have created ways to automate funds flow from your old bank to Unifimoney. You don’t have to move bank, just the money.
We see two categories of customers so far – those who create an account, fund a few thousand dollars and then spend time learning about the services and increasing their funding over time. The second category is moving over larger portfolios of $100-500K either into the Robo or Self Managed platform. We hope our customers will develop and evolve alongside us, and we actively seek their feedback and incorporate that into our design roadmap.
Everyone is talking about cryptocurrency. How do you see digital currencies changing the financial landscape over the next decade?
It is clear we believe that blockchain technology and cryptocurrencies have vast future potential in many dimensions of life. Without any doubt, cryptocurrencies are a highly volatile investment choice, and we recommend that they are treated as such.
There are a few philosophies we believe largely hold true in investing for most people most of the time:
Spend less than you make.
Invest what you can.
Maintain a cash cushion appropriate to your needs.
The 85:15 ratio – 85% of your investments should be in a highly diversified portfolio matching your individual risk profile. 5-15% can be used for more high risk/high reward investments if you feel compelled to actively trade.
Dollar-cost average to manage market timing risk.
Cryptocurrencies and precious metals and indeed all forms of alternative asset we think have a role in diversification and the high risk 5-15% part of your active investing if that is of interest to you.
Equally important alternative assets – be they wine, sports memorabilia, collectibles, cryptocurrencies, gold coins, etc., tend to be much more interesting and engaging than ETFs for example.
They are a great way to get people interested in engaging in their wealth journey, and that is an important component we think to consider as well.
You did a fellowship with an accelerator called On Deck. What was that experience like? How has it helped you as you lead your company?
I did – it was early on in our journey, and it’s a community of Founders from all industries and levels of experience and career change. Coming out of a 20+ year corporate career, it was incredibly powerful and energizing to be around such a diverse group of people, all embarking on similar journeys to start new projects and companies that they believe so strongly in. I am still an active member of the online community and try and participate and support the community by giving back whatever I can. I have gravitated to more Fintech founders, which is natural, but I recently worked with a Founder from On Deck working on an education startup – teaching kids mechanical engineering skills starting with 3D Printing tech. My kids and I were part of his pilot.
As a business leader in a competitive market, what advice do you have for aspiring entrepreneurs?
I think there is a lot more randomness and luck involved that is generally talked about. Accepting that is very helpful. The most powerful force, though, I believe is serendipity “the occurrence and development of events by chance in a happy or beneficial way”.
As the old saying goes, the harder I work, the luckier I am. I work hard at having as many interactions with as wide a group of people as I can, and I find that the most powerful relationships often come from the most unlikely places and people, and they compound over time. Like money – smaller positive changes and actions done frequently compound to be very powerful. Same with relationships and people.
What is the biggest challenge you’ve faced in your career, and what did you learn from it?
I have been incredibly fortunate to have had the opportunity to travel and work in many countries during my career, including the UK, Kazakhstan, Indonesia, Singapore, and now the U.S. Very diverse environments and cultures, but I have often found the biggest challenge is always when people’s values and goals are not aligned. It’s hard to achieve that in a big corporate environment at the best of times, and some companies do it better than others. But when people are aligned, there is almost nothing that cannot be achieved.
Who in your life has been the most instrumental in teaching you about money management?
My Father who was very good with money, very disciplined, and thought long term – and my Mother who was truly awful with it. My parents divorced at an early age, so I saw the two paths evolve over time and in parallel to their natural conclusions. A hard and long lesson to be sure.
I have seen the long-term effects on physical and mental health and quality of life that money stress causes, and I will do anything I can to help as many people as possible avoid that fate.
What’s the best advice you’ve received (not necessarily money-related) that has shaped how you lead your life?
I am still learning – when I have reached a conclusion I will most assuredly let you know.
What’s your top personal finance tip?
Spend less than you earn, and invest the rest.
What is the financial book/website/podcast that has most influenced you?
I am really diverse in my personal finance media in part because so few of them can agree on really core things, so I try and read/watch as much as I can, and it’s a never-ending quest of learning, e.g. active vs passive, growth vs value, crypto vs gold, etc., but I take it all with a pinch of salt – I am personally very much following the boring but systematic approach in my investing whilst dipping into new things to learn and for fun – I recently invested in gold for the first time (via Unifimoney) and also sports collectibles via a third-party app just to learn.
The problem with a lot of financial media is that it’s interesting/informative, sometimes amusing, but ultimately fails because most people don’t act on it. The fact that less than 30% of Millennials are invested in the stock market is a shocking statistic to me, even lower below aged 30.
We as an industry collectively need to solve for the wasted trillions that are caused by poor financial management, and we are not there yet.
What piece of wisdom would you give your 20-year-old self about managing money?
Spend less than you earn, and invest the rest. I made my first equity investment at age 14 during Maggie Thatcher’s privatization of the UK’s government-owned utilities. I think it was in British Gas. I doubled my money.
I also placed my first bet around the same time, I think it was on the Grand National Horse race – held once a year in the UK. I lost all my money. That was a great lesson.
Summary
Unifimoney is a full-service financial platform offering all the tools necessary to efficiently manage your money. You’ll not only have the support you need to build a strong portfolio, but you’ll also learn positive financial habits that will carry you through the rest of your life.
A few weeks ago, I attended the Morningstar Investment Conference and took in the insights and predictions of all kinds of mutual fund managers and financial experts. On the whole, these folks weren’t too optimistic about earning exceptional returns on any kind of investment. Bonds and cash have paltry yields, and stocks aren’t as cheap as they were a couple of years ago. I think the collective investment advice of the event could be summed up by a line from Tom Hancock of money-management firm GMO, who said, “The only thing I like about stocks is they’re not bonds.”
During the opening session, Pimco co-chief investment officer and bond fund manager Bill Gross bemoaned the low rates on Treasuries. He also argued that investors shouldn’t expect 10% returns from stocks. But at the end of his talk, Gross suggested investors look for a solid, inflation-beating return from companies that pay steady dividends — companies such as Coca-Cola, Proctor & Gamble, Johnson & Johnson, Southern Company, and Duke Energy. (Full disclosure: I own shares of Johnson & Johnson, and when children pass me in the street they scream, “Gross!”)
Bill Gross was singing a tune similar to what has been wafting from the pages my Rule Your Retirement newsletter over the past few months: Stocks are not priced for exceptional returns over the next decade, and in a sideways market, dividends play an even bigger role in your portfolio.
As I listened to Gross, I wondered what would happen at the extreme: What if stocks didn’t gain a penny and all we received was dividends? I fired up Excel and found some fascinating figures.
Benefits of Stock Dividends
First off, let’s recap the benefits of stock dividends.
Unlike the interest from bonds, dividends tend to grow over time, historically at a rate that exceeds inflation. For most investors, the smart strategy is to use those dividends to buy more shares of stock, so that they’ll receive even more dividends, so they can buy even more stocks, and so on. In a previous post, I likened dividend-paying stocks to money-growing trees that produce a little more financial fruit each year. If you buy more trees with that cash crop, you reap even more fiscal flora. Given long enough time, you could have a whole greenhouse producing the green stuff.
To illustrate how this can pay off over the long term, let’s move from stalks to stocks and assume you own 1,000 shares of a stock that trades for $100, for a total investment of $100,000. (Note that this is just a hypothetical illustration; very, very few people should have so much money in one stock; also, the same principles apply to a mutual fund that pays dividends, even if you invest just $100.) The stock has a 3% dividend yield, so over the past year you received $3 per share, or a total of $3,000 in dividends.
Unfortunately, the price of this stock doesn’t move much over the next decade. In fact, it doesn’t move at all. Here’s what such an investment would look like after 10 and 20 years, if the dividend increases 6% a year but the stock price doesn’t budge.
Now
After 10 Years
After 20 Years
Value of Investment
$100,000
$151,726
$319,120
Number of Shares Owned
1,000
1,517
3,191
Dividends Received During the Last Year
$3,000
$7,885
$28,943
Annualized Return
N/A
4.3%
6.0%
While ten or twenty years of no price movement in a stock is disappointing, all is not lost. By reinvesting the dividends, you still earned money, thanks to owning more shares that each pay higher dividends.
Slowly Get Rich with Dividends
Like all illustrations of compound interest — i.e., earning interest on interest, or, in this case, dividends on dividends — it’s not something that will make you wealthy overnight — but it could help you get rich slowly. (Hey, that would be a great name for a website!). Also, like all illustrations of compounding growth, it looks better the more time you give it.
If you can stretch your investing horizon even further — or if you’re trying to convince a young investor to get started early — 30 years of reinvested dividends, growing 6% a year, will turn that $100,000 starting sum into $1.2 million, for an 8.6% annualized gain.
Earning 4% or even 8% on your long-term money may not sound exciting to some people. But that’s not tragic considering it’s based on a dire scenario: a stock that doesn’t increase in value for 10, 20, or 30 years. Of course, I hope that any stock or mutual fund you buy does increase in value. And when that happens, dividend reinvestment pays off even more, because you’re accumulating more shares to benefit from that capital appreciation.
An Uncertain Future with Stock Investments
This article isn’t intended to persuade you to buy stocks. Stocks are volatile and risky and often stinky and all that. I am not offering boilerplate legalese when I say that I’m not 100% confident stock investments will be worth more in 20 years than they are today.
At the Morningstar Investment Conference, BlackRock CEO Larry Fink said, “Anyone who plans to be around in 10 years should be in equities.” It’s not hard to see his point when you look at the alternatives. On the other hand, if you read the aforementioned link to Doug Short’s site, you won’t feel so sanguine about stocks.
As for me, I continue to own stocks in all forms — index funds, some actively managed funds, a handful of individual companies — but I don’t expect exceptional returns; I’m basing my retirement on my ability to save, not on the return I earn on the savings. And I expect that dividend reinvestment will be a large source of any returns I receive.
When Robert submitted this, he advised, “File this under the ‘long and tedious but important’ category. It might need pictures of cats.” So, once again, J.D. has obliged with photos of one of his cats.
Want to have more money and pay less in taxes? It’s easy! Just call this number and send in your three easy payments of — no, wait. Actually, all you have to do is learn a little about asset location. No, not asset allocation — asset location: deciding which assets should go in which accounts. A recent surge of Roth assets, thanks to the increasing availability of the Roth 401(k) and the wave of conversions that occurred last year, makes this a particularly timely topic.
Wait! Don’t leave! Though a little tedious, this is an important subject.
To understand asset location, you need to remember that most investors have accounts that receive different tax treatment, such as the following:
A traditional tax-deferred account, like a traditional IRA or traditional 401(k): Contributions may be tax-deductible, and the investment growth and income isn’t taxed until money is withdrawn. Those withdrawals will be taxed as ordinary income — the highest tax rate most Americans pay. It ranges from 10% to 35%.
A Roth IRA or Roth 401(k): Contributions aren’t tax-deductible, but withdrawals are tax-free (as long as you follow the rules).
A taxable, non-retirement account: The taxation of an account that isn’t an IRA or employer-sponsored retirement account (e.g., a 401(k)) varies. Interest from bonds and CDs as well as short-term capital gains are taxed as ordinary income, but qualified stock dividends and long-term capital gains are taxed at lower rates, currently between 0% and 15%.
Studies have shown that making the right choices about which investments belong in which accounts can increase an investor’s after-tax wealth by 15% to 20% over a lifetime. So what are those “right choices”? They can be summed up by five basic rules.
Rule #1: Keep Taxable Bonds and Certificates of Deposit in Tax-Deferred Accounts
If you hold these investments outside of a traditional IRA or 401(k), the interest is fully taxable at ordinary income rates. You essentially hand over a good portion of the return each year to Uncle Sam and Sister State, leaving less to grow through the years.
Rule #2: Consider Keeping Bonds With Tax Advantages in Taxable Accounts
Some bonds have their own built-in tax advantages. Treasuries are exempt from state and local taxes, and municipal bonds can be exempt from all taxes — federal, state, and local. If you place muni bonds in a traditional IRA, however, you lose the tax advantages.
Unless you live in a state with high taxes, it likely still makes sense for you to hold your Treasuries in your tax-deferred account, especially if you’re years away from retirement. However, it rarely makes sense to buy municipal bonds in your tax-advantaged retirement accounts. The only exception is if you’re buying bonds that are trading below par value (the price at which they were originally issued) and you expect the price to rise, leading to a capital gain. While the interest from government-issued bonds might have tax benefits, a capital gain — for example, the $100 profit you made if you bought the bond at $850 and sold it later for $950 — is fully taxable if held outside of an IRA or 401(k).
Hold off the tax man by putting the right investments in the right accounts.
Rule #3: In Taxable Accounts, Favor Stocks With Little to No Dividends and Those You’ll Hold for Many Years
Let’s say two investors put $50,000 in the exact same stock and hold it for a decade. The stock doesn’t pay a dividend and earns an average of 8% annually. Investor A holds the stock in his traditional IRA, and Investor B holds it in her taxable brokerage account. A decade later, here’s the value of each account and the taxes each investor has paid through the years (at this point, they haven’t sold the stock yet):
Investor A holds the stock in a traditional IRA. The pre-tax value of the account is $107,946 and Investor A has paid no taxes on the gain — yet.
Investor B holds the stock in a taxable brokerage account. The pre-tax value of the account is $107,946, and Investor B has paid no taxes on the gain — yet.
Surprise! The values of the investments and the taxes paid (i.e., none) are exactly the same, even though Investor B held the stock in a “taxable” account. That’s because when you buy and hold stocks, especially ones that pay little to no dividends, you have built-in tax deferral.
But what happens when these investors sell their stocks to spend the proceeds in retirement? Assuming they’re both in the 25% tax bracket, Investor A will have to pay a 25% tax rate on everything he withdraws from the IRA, whereas Investor B will pay just a 15% long-term capital gains rate — and only on the profit. If they each liquidated the investment and withdrew the cash from the accounts:
Investor A would pay $26,987 in taxes and have $80,960 remaining.
Investor B would pay $8,692 in taxes and have $99,254 remaining.
As if more after-tax wealth weren’t enough, there are other benefits to holding equities in your taxable account:
If shares drop below what you paid for them, you can harvest the losses by selling the shares and using the capital loss to reduce taxes. Of course, you can do that with any type of investment, but stocks present more opportunities since they’re more volatile.
If you hold dividend-paying foreign stocks in your taxable account, you can claim the foreign tax credit for any taxes assessed by the country in which your stock is headquartered. However, you can’t claim the credit if you hold the stock in an IRA or 401(k).
Investments in a taxable account receive a stepped-up cost basis upon the owner’s death. Say a person buys stock for $10,000, and its value grows to $50,000. When he dies, this person bequeaths the stock to his daughter. Her new cost basis will be $50,000; she will not owe taxes on the $40,000 of capital appreciation.
A less fatal way to escape paying capital gains taxes is by donating appreciated stock held in a taxable account to a qualified charity. Bonus: The donation can also be deducted on your tax return.
While all these benefits sound good, the tax efficiency of holding equities in a taxable account relies on your buying and holding for years and keeping dividends to a minimum. What do you do for high-yielding stocks or those you trade more frequently? Read on!
Choosing the right accounts lets you keep more of your money.
Rule #4: For Your Roth, Choose High-Growth, Tax-Inefficient Investments
When it comes to deciding what to put in this tax-free account, keep two principles in mind:
Generally speaking, the assets in your Roth should be the last you withdraw in retirement. Studies indicate it’s best to first tap your taxable accounts, then your traditional tax-deferred accounts, and your Roth last.
Which account do you hope will be the biggest when you retire? The one with the best tax advantages, of course. That’s the Roth, since withdrawals are tax-free.
Given those two principles, the ideal investments for your Roth are those that have the greatest return potential, especially if they’re tax-inefficient. Historically, small-cap value stocks have posted the highest returns, and because of their generally higher turnover and higher dividends, the mutual funds that invest in that sector are among the most tax-inefficient — so these would be good candidates for a Roth. You could also use the account for any other active-trading strategies or real estate investment trusts, which pay a high yield but have dividends that aren’t eligible for the lower qualified-dividend tax rate.
Also note that Roth assets are the best kind for your heirs to inherit, since they’ll also enjoy tax-free growth. If leaving a legacy is important to you, then the Roth has an investment time horizon that extends beyond your lifetime; thus, it can theoretically hold riskier assets.
Rule #5: Retirement Changes Asset Location a Bit
Once you retire, if you plan to invest in high-yield stocks for the income, it makes sense to hold them outside of a tax-deferred account to take advantage of the lower tax rate on qualified dividends. It’s less important where you hold the bonds that produce interest you plan on spending, since that interest will be taxed as ordinary income no matter what (muni bonds excepted).
When you’re ready to retire, you may want to mix things up a bit.
Remember: It’s Not What You Make, It’s What You Keep
Smart asset location also means you’ll pay fewer taxes. The higher your taxable income, the less likely you are to qualify for certain tax breaks. Also, once you begin receiving Social Security, the more you earn, the more likely your benefits will be taxed, and the more likely you’ll pay higher Medicare premiums.
So while paying attention to your asset location won’t double your portfolio overnight, it will pay off for decades to come — perhaps even after you’ve headed off to the Antiques Roadshow beyond the pearly gates.
Asset Location at a Glance
Here’s a quick summary of which investments to keep in which accounts:
Roth accounts: Small-cap stocks; REITs; active-trading stock strategies; high-turnover and/or high-yielding funds, especially if they have above-average growth potential.
Traditional tax-deferred accounts: Corporate bonds; Treasuries (especially TIPS); high-yielding and slower-growth stocks; diversified commodities funds; investments listed in the Roth category above if your Roth accounts aren’t very big or you don’t have a Roth.
Taxable, non-tax-advantaged accounts: Low- or non-yielding stocks you plan to hold for several years (decades, even); low-turnover stock funds (e.g., many index funds and ETFs as well as “tax-managed” funds); municipal bonds; U.S. government savings bonds or I-bonds; maybe Treasuries if escaping state income taxes is important to you.
Note: This article uses current federal tax rates, which will continue through 2012. Tax law will certainly be different a few years from now, but I think it’s a good bet that some current principles — such as long-term capital gains rates will be lower than ordinary income rates, and that municipal bonds will have tax advantages — will continue.
Tail risk is the danger of large investment gains or losses because of sudden and unforeseen events. The term “tail risk” refers to the tails on a bell curve: While the fat middle of the bell curve represents the most probable returns, the tails — both positive and negative — represents the least likely outcomes.
When looking at the bell curve that gives the phenomenon its name, investors sometimes also refer to tail risk as “left-tail risk,” as it refers to the very unlikely and very negative outcomes on the curve.
What Is Tail Risk?
Tail risk is defined by a concept called standard deviation. As a metric, standard deviation shows how widely the price of an asset fluctuates above and below its average. For a volatile stock, the standard deviation will be high, while the standard deviation for a stock with a steady value will be low.
Standard deviation is an important number that investors use to understand how historically volatile a stock is, as well as the level of volatility they can project for it in the future. That projection is based on the underlying assumption that the price changes of a stock will follow the pattern of what’s called normal distribution.
Normal distribution is a statistical term used to describe the probability of an event, and it shapes the bell curve. If you flip a coin 10,000 times, how often will it land on heads or tails? Each time, there is a 50% probability it will land on heads or tails, and the curve describes the likelihood that those 10,000 flips will come out 50/50. The fat middle of the curve says it will be close to 50/50, but there are extremely low probabilities at the low (or skinny) ends of the bell curve that it could be more like 80/20 heads or 80/20 tails.
That approach to probability predicts that a stock selling at a mean price of $45 with a $5 standard deviation is 95% certain to sell between $35 and $55 at the close of that day’s market.
“Tail risk” is used to describe the risk that an investment will fall or rise by more than three standard deviations from its mean price. To continue the example, the hypothetical stock $45 stock has entered the domain of tail risk if, at the end of the trading day, it is priced at $30 or below, or at $60 or above.
What are Fat Tail Risks?
Unpredictable events are ironically predictable, and happen in the markets on a regular basis. And those markets, such as the one following the onset of the pandemic in early 2020, exhibit much “fatter” tails. Another period characterized by having an extremely fat tail was the 2008 Financial Crisis.
They’re called “fat tails” because the outcomes that had been on the extremes were suddenly happening, instead of the ones previously considered probable. This condition is also called by the mathematical term leptokurtosis. As a general rule, because they deviate so wildly from the expected norm, fat tail events present great risk as well as great opportunities for investors.
Tail Risk Strategy
Financial models such as Harry Markowitz’s modern portfolio theory (MPT) or the Black-Scholes Merton option pricing model, employ the assumption that the returns of a given asset will remain between the mean and three standard deviations.
The assumptions made in these long-term market projections can help with planning. But they’re not realistic about how investors receive their market returns over the long term. Rather, the bulk of their returns, no matter how diversified their portfolio, are largely the result of positive tail events. The power of tail events over long periods is one reason that experts tell investors to stay in the markets during fat-tail periods of volatility, even if it is stressful at the time.
Why Investors Hedge Tail Risks
Left-tail events also have the potential to have an extremely negative impact on portfolios. That’s why many investors hedge their portfolios against these events — aiming to improve long-term results by reducing risk. But these strategies necessarily come with short-term costs.
Downside Protection
One strategy that’s designed to protect against tail risks involves taking short positions that counterbalance the rest of a portfolio, also known as buying downside protection. For example, if an investor is heavily invested in U.S. equities, they may consider investing in derivatives on the Chicago Board Options Exchange (CBOE) Volatility Index (VIX), which correlates to the inverse of the S&P 500 index. (Using short strategies is also one way to invest during a bear market.)
Another way to hedge by buying downside protection is to purchase out-of-the-money put options. When the assets connected to these put options go down, the put options become more valuable. Granted, buying those options costs money, but it can be a strategy to consider for investors who believe the markets are likely to be volatile for a while.
Tail Risk Parity
Tail risk parity is a way to structure a portfolio based on the expectations that events that have a negative impact on one asset class will likely be a boon to others. This requires looking at each asset class in terms of how it might fare in the event of a particular crisis, and then finding an asset class that would likely do well in that same circumstance, and then keeping them in balance within your portfolio.
Managed Futures Funds
Other investors who want to trim their exposure to tail risks may invest in managed futures funds. These funds buy long and short futures contracts in equity indexes, and can thrive during times of crisis in the markets.
The Takeaway
A tail risk is the risk that an event with a low likelihood of happening will happen. And it’s something that investors need to keep in mind. There are a few different ways to mitigate the impact of tail risk in an investment portfolio, but for long-term investors, it can be helpful to keep in mind that tail risk is responsible for most returns over time.
Tail risk and fat tails may seem like granular investing terms, but they do play a role in the markets, which means that every investor can benefit from learning about them, and how they can affect a portfolio.
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There are numerous types of stocks, categorized by company characteristics, size, region, sector, and more. Equipped with an understanding of different stock types, an investor can start building a diversified portfolio. Though all stocks can experience volatility and potentially lose value, holding a mix of different types of shares can mitigate the risk of being too heavily invested in any one category.
An Overview Of Stocks
A stock represents a percentage of ownership in a publicly traded company. So essentially, investors can own small pieces or “shares” of companies.
Generating returns via the stock market can usually happen in one of two ways. First, the value of the stock can increase over time, something known as capital appreciation. The second is through dividend payments, where companies make cash payouts periodically to all owners of that company’s stock. Some people make investments based on a company’s ability to pay consistent dividends, or “income.” Utility and telephone companies often fit into this bucket.
When you own a stock, you hold equity (or ownership) in that company. That’s why stocks are sometimes referred to as equities. Each individual share represents an equal proportion of ownership. Owners of stocks are often referred to as stockholders or shareholders.
Stock Classifications
Here are some of the ways different stocks are categorized:
Common stock represents shares of ownership in a corporation. When an investor receives common shares, they are typically also granted voting rights to the company and can participate in shareholder voting processes — usually one vote for each share.
Preferred stocks make regular dividend payments, but holders of preferred shares often have zero or limited voting rights. If a company becomes financially insolvent however, preferred stockholders have a claim on assets before common shareholders do.
Exchange-traded funds (ETFs) group multiple securities into a single share. For instance, a stock ETF will hold numerous companies, while a bond ETF can hold many individual bonds, whether it’s a collection of Treasurys or high-yield debt. ETFs are popular because of the cheap, instant diversification they offer.
Initial Public Offerings (IPOs) is the process of a private company listing and debuting on a public stock exchange. Investors can buy IPO shares on their first day of trading.
Special Purpose Acquisition Companies (SPACs) are shell companies that go public on the stock exchange, and then try to find a private operating business to purchase.
Real Estate Investment Trusts (REITs) are companies that own and operate real estate, usually focusing on one type of property, such as warehouses, hotels or office buildings. There are pros & cons to investing in REITs. For example, one pro is that they tend to pay consistent dividends. Cons include sensitivity to interest rates, and taxed dividends.
Different Market-Caps
The sizes of stocks are classified by the market capitalization of the company’s publicly traded stock. Market cap is calculated by multiplying the stock price by the total number of outstanding shares.
Generally speaking, larger companies tend to be older, more established, and have greater international exposure — so a higher percentage of a large-cap company’s revenue comes from overseas. Meanwhile, smaller-cap stocks tend to be newer, less established and more domestically oriented. Smaller-cap companies can be riskier but also offer more growth potential.
While the market-caps that determine which companies are small or large can shift, here’s a breakdown that gives some rough parameters.
Micro-Cap: $50 million to $300 million
Small-Cap: $300 million to $2 billion
Mid-Cap: $2 billion to $10 billion
Large-Cap: $10 billion or higher
Mega-Cap: $200 billion or higher
Stock Style Categories
Stocks are also sometimes classified by styles of investing. These categories often have to do with how that company makes money and how the stock is valued. You may often hear this associated when discussing value vs growth stocks.
Value stocks are stocks that are considered to be trading below their actual worth. Investors hope that by buying companies that are priced below their “true” value, they can profit as the gap narrows over time.
Growth stocks are companies that are growing at a fast pace or those that are expected to continue growing at a faster rate than other stocks or competitors. Investors can encounter higher valuations in growth investing.
Stocks By Sector
Additionally, stocks are often grouped by the industry that that company works within. According to the Global Industry Classification Standard (GICS), there are 11 recognized sectors, with numerous industries within those sectors. They include (but are not limited to):
Energy: Energy equipment and services, oil, gas, and consumable fuels
Materials: Chemicals, construction materials, containers and packaging, metals and mining
Industrials: Aerospace and defense, building products, machinery, construction and engineering, electrical equipment, industrial conglomerates
Health Care: Health care equipment and services, pharmaceuticals, biotechnology, life sciences
Financials: Banks, insurance, consumer finance, capital markets, financial services
Information Technology: IT services, software, communications equipment
Communication Services: Diversified telecommunication services, media, entertainment
Utilities: Electric utilities, gas utilities, water utilities, independent power and renewable electricity producers
Real Estate: Real estate management and development, various REITs (retail, residential, office, etc.)
Stocks by Country
Different overseas stocks can be classified by the country or region in which they’re headquartered, even if the company’s operations are global. Individuals looking to invest in international stocks have found that they can do so easily with ETFs, which hold numerous foreign companies within a single share.
Regions that are commonly used in the world of stock investing are:
EAFE is an acronym which stands for Europe, Australasia, and the Far East. Investors may see this used when making investment choices, as the MSCI EAFE is a common index used for international stock funds. These countries are all “developed” nations, which means they have established financial markets, stable political climates, and mature economies.
Emerging-market stocks, which stocks with companies based out of countries whose economies are described as developing. Brazil, Russia, Mexico, China, and India are just a few emerging markets. Emerging markets may be riskier to invest in but may pose an opportunity for high rates of growth.
The Takeaway
There are numerous types of stocks on the market, and it can be important for investors to understand the differences between them. The stock market can be volatile and prone to dramatic declines, but in order to shield themselves from the risks, investors often create diversified portfolios by stocking their holdings through various different stock types.
Diversification is easier to do if an investor understands the different types of stocks that exist in the U.S. equity market. From mega-cap stocks to ETFs to emerging-market companies, there are a myriad of investing opportunities in the equity market.
Ready to invest in your goals? It’s easy to get started when you open an Active Invest account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
For a limited time, opening and funding an account gives you the opportunity to win up to $1,000 in the stock of your choice.
SoFi Invest® The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results. Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below. 1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
An exchange-traded fund, or ETF, bundles many investments together to be bought and sold in one neat and tidy package. The purchase of one ETF provides exposure to dozens or even hundreds of different investments at once, and there are numerous types of ETFs on the market.
ETFs are an investment vehicle that allows even small and less-established investors to easily build diversified portfolios, and to do so at low relative costs. But before you start buying ETFs, it’s important to understand how they work, and their pros and cons.
What Is an ETF?
An ETF is an investment fund that you can buy and sell like a stock, but that pools together different assets, such as stocks, bonds, commodities, or currencies, and then divides its ownership up into shares.
This means that it is possible to buy one fund that provides exposure to hundreds or thousands of investment securities. ETFs are often heralded for helping investors gain diversified exposure to the market for a relatively low cost.
This is important to understand — the ETF is simply the suitcase that packs investments together. When you invest in an ETF, you are exposed to the underlying investment. For example, if you are invested in a stock ETF, you are invested in stocks. If you are invested in a bond ETF, you are invested in bonds.
Most ETFs are passive, which means to track a market index. Their aim is to provide an investor exposure to some particular segment of the market in an attempt to return the average for that market. If there’s a type of investment that you want broad, diversified exposure to, there’s probably an ETF for it.
Though less popular, there are also actively-managed ETFs, where a person or group makes decisions about what securities to buy and sell within the fund. Generally, these will charge a higher fee than index ETFs, which are simply designed to track an index or segment of the market.
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How Do ETFs Work?
Most ETFs track a particular index that measures some segment of the market. For example, there are multiple ETFs that track the S&P 500 index. The S&P 500 index is a measure of the stock performance of 500 leading companies in the United States.
Therefore, if you were to purchase one share of an S&P 500 index fund, you would be invested in all 500 companies in that index, in their proportional weights.
What Is the Difference Between an ETF And a Mutual Fund?
ETFs are similar to mutual funds. Both provide access to a wide variety of investments through the purchase of just one fund. But there are also several differences between ETFs and mutual funds:
• ETFs trade on an open market exchange (such as the New York Stock Exchange) just as a stock does, so it is possible to buy and sell ETFs throughout the day. Mutual funds trade only once a day, after the market is closed.
• ETF investors buy and sell ETFs to and from other ETF investors, not the fund itself, as you would with a mutual fund.
• ETFs are typically “passive” investments, which means that there’s no investment manager making decisions about what should or should not be held in the fund, as with mutual funds. Instead, they aim to provide the average return in the market for which they are invested. For example, an ETF for technology stocks would mimic the returns of technology stocks overall.
What Are the Advantages of ETFs?
There are a number of benefits of ETFs in an investment portfolio, including:
• trading
• fees
• diversification
• accessibility
Trading
ETFs are traded on the stock market, with prices updated by the minute, making it easy to buy and sell them throughout the day. Trades can be made through the same broker an investor trades stocks with. In addition to the ease of trading, investors are able to place special orders (such as limit orders) as they could with a stock.
Fees
ETFs often have low annual fees (called an “expense ratio”) — typically lower than that of mutual funds — and no sales loads. Brokerage commissions, which are the costs of buying and selling a stock within a brokerage account, do apply, though they are typically less than 0.25% per year.
Diversification
Using exchange traded funds is one way to achieve relatively cheap and easy diversification within an investment strategy. With the click of a button, an investor can own hundreds of investments in their portfolio.
Accessibility
Investors should be able to find what they want and build a diverse portfolio across all markets. The broad range of ETFs covers stocks, bonds, commodities, real estate, and even hybrids that offer a mix.
What Are the Disadvantages of ETFs
There are some potential downsides to trading ETFs, too, including:
Trading Might Be Too Easy
With pricing updated instantaneously, the ease of ETF trading can encourage investors to get out of an investment that may be designed to be long-term.
Extra Fees
Even if ETFs average lower fees than mutual funds, a brokerage might still charge commissions on trades. Commission fees plus fund management fees can potentially make trading ETFs pricier than trading standalone stocks.
Lower Yield
ETFs can be great for investors looking for exposure to a broad market, index, or sector. But for an investor with a strong conviction about a particular asset, investing in an ETF that includes that asset will only give them indirect exposure to it — and dilute the gains if it shoots up in price relative to its comparable assets or the markets as a whole.
What Are the Most Common Types of ETFs?
The ETF market is very diverse today but much of it reflects its roots in trying to capture a broad swathe of large public equities. The first US ETF was the “Standard & Poor’s Depository Receipt,” known today as the SPDR. It was launched on the American Stock Exchange in 1993 — and today, ETFs that cover the S&P 500 are one of the largest sectors of the industry.
Since the SPDR first debuted, the ETF industry has gotten more diverse as ETF trading and investing has gotten more popular with individual investors and institutions. But even so, market or index ETFs play a major role.
These are some of the most common types of ETFs.
Market ETFs
These provide exposure to a representative sample of the stock market, often by tracking a major index. An index, like the S&P 500, is simply a measure of the average of the market it is attempting to track.
Sector ETFs
These ETFs track a sector or industry in the stock market, such as healthcare stocks or energy stocks.
Style ETFs
These track a particular investment style in the stock market, such as a company’s market capitalization (large cap, small cap, etc.) or whether it is considered a value or growth stock.
Foreign Market ETFs
These ETFs provide exposure to international markets, both by individual countries (for example, Japan) and by larger regions (such as Europe or all “developed” countries except the United States).
Bond ETFs
Bond ETFs provide exposure to bonds, such as treasury, corporate, municipal, international, and high-yield.
Commodity ETFs
Commodity ETFs track the price of a commodity, such as a precious metal (like gold), oil, or another basic good.
Real Estate ETFs
Real estate ETFs provide exposure to real estate markets, often through what are called Real Estate Investment Trusts (REITS).
In addition, there are inverse ETFs, ETFs for alternative investments, and actively-managed ETFs. (While most ETFs are passive and track an index, there are a growing number of managed ETFs.)
ETFs designed for the modern investor.
Distributor, Foreside Fund Services, LLC
What Is ETF Trading?
ETF trading is the buying and selling of ETFs. To know how to trade ETFs, it helps to understand how stocks are traded because ETF trades are very similar to stock trades.
Stocks trade in a marketplace called an “exchange,” open during weekday business hours, and so do ETFs. It is possible to buy and sell ETFs as rarely or as frequently as you could a stock. You’ll be able to buy ETFs through whomever you buy or sell stocks from, typically a brokerage.
That said, many investors will not want to trade ETFs frequently; a simple ETF trading strategy is to buy and hold ETFs for the purpose of long-term growth. Whether you choose a buy and hold strategy or decide to trade more often, the ease of trading ETFs makes it possible to build a broad, diversified portfolio that’s easy to update and change.
When it comes to trading flexibility, ETFs can be used in different, more innovative ways than mutual funds. For example, advanced investors might choose to leverage or short markets using ETFs. ETFs also trade in such a way as to avoid short-term capital gains taxes, giving investors more control over their annual taxes.
3 Steps to Invest in ETFs
If you want to start investing in ETFs, there are a few simple steps to follow.
1. Do Your Research
Are you looking to get exposure to an entire index like the S&P 500? Or a sector like technology that may have a different set of prospects for growth and returns than the market as a whole? Those decisions will help narrow your search.
2. Choose an ETF
For any given market, sector, or theme you want exposure to, there is likely to be more than one ETF available. One consideration for investors is the fees involved with each ETF.
3. Find a Broker
If you’re already trading stocks, you’ll already have an investment broker that can execute your ETF trades. If you don’t have a broker, finding one should be relatively painless, as there are many options on the market. Once your account is funded, you can start trading stocks and ETFs.
How to Build an ETF Portfolio
Are you willing to take more risk to attempt more growth? How will you handle market volatility? Investment strategies vary based on criteria like personal risk tolerance and age. Once you have determined your desired asset allocation — that proportional mix of different asset classes — ETFs can help fulfill the exposure to those markets.
For example, if you decide that you would like to invest in a traditional mix of stocks and bonds at a ratio of 70% and 30%, you could buy one or several stock ETFs to gain exposure to the stock market with 70% of your money and another few ETFs to fulfill your 30% exposure to the bond market.
For diversification purposes, some investors like to have both U.S. and foreign stock ETFs in their portfolios, as well as both government and corporate bond ETFs. Some investors also add alternative assets to their investment strategy: gold and other commodities, emerging markets, and ETFs that invest in real estate.
Once you’ve determined your desired allocation strategy and purchased the appropriate ETFs, upkeep throughout the year is necessary. This could mean rebalancing your portfolio once a year or utilizing a more active approach. ETFs provide the flexibility to pursue any number of investment styles, philosophies, and techniques.
The Takeaway
ETFs bundle different investments together, offering exposure to a host of different underlying securities in one package. There’s likely an ETF out there for every type of investor, whether you’re looking at a particular market, sector, or theme. ETFs offer the bundling of a mutual fund, with the trading ease of stocks.
Though a DIY approach to investing using ETFs is doable, many investors prefer to have the help of a professional who can provide guidance throughout the investment process.
Ready to invest in your goals? It’s easy to get started when you open an Active Invest account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
For a limited time, opening and funding an account gives you the opportunity to win up to $1,000 in the stock of your choice.
SoFi Invest® The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results. Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below. 1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A. Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances. Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected] Please read the prospectus carefully prior to investing. Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences. Fund Fees If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there. Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market. Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions. SOIN0523062
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Investing in stocks can seem like a daunting task.
There are so many things to consider when it comes to investing, and the stock market is constantly moving.
Stock market investing is a popular option to increase net worth and make money.
Many people are looking for ways to invest their money, with the number of individual investors increasing rapidly in recent years.
This guide covers many important factors for how to invest in stocks for beginners.
Starting out as a newbie trader can be scary and overwhelming… don’t worry, all seasoned traders had to start at the beginning too!
Let’s take away that quell those thoughts and focus on why you want to learn to invest in stocks.
This guide will give you everything you need to know about how to invest in stocks as a beginner investor!
What Are Stocks?
In the most basic form, stocks are a form of investment. When you own a stock, you have a piece of ownership in the company’s equity.
The stock market is a real-time financial market in which investors buy and sell stocks and other securites. The stock market is made up of many companies and individuals who are actively investing in stocks.
Stocks are an excellent way for companies and individuals to invest in a company and receive a share of the company’s profits.
Many of the growth stocks (FAANG stocks) are those who investors want their stock price to increase over time. Thus, increasing their overall portfolio’s net worth.
FAANG Stocks is an acronym for: Meta (formerly known as Facebook), Amazon, Apple, Netflix, and Alphabet (formerly known as Google).
Some companies like Chevron (CVX) pay out a dividend each quarter to their investors.
There are thousands of stocks available to trade.
What Can You Invest In The Stock Market?
There are many investment opportunities in the financial market, so it is important to be informed about what you can invest in. Below are some of the places where you can invest your money:
Stocks
Bonds
Mutual funds
ETFs
Commodities
Futures
Options
Now, we are going to look at the most common.
Individual stocks
Individual stocks are a type of investment that you can make yourself.
You can choose how many shares of a certain company you want to purchase.
For example, you like Tesla for how they are innovative in the electric car space. You can choose to invest 20 shares of their stock.
As a long-term investor, you want to hold a portfolio of 10-25 stocks. Find a list of beginning stocks to build your portfolio.
Individual stocks can be bought or sold as a way to dip your toe into the stock-trading waters.
As a short-term investor, you are looking to make money as the stock price increases or decreases.
Mutual Funds
Mutual funds are managed portfolios of stocks.
As a result, mutual funds typically have load fees equal to 1% to 3% of the value of the fund.
One of the most popular mutual funds is VTSAX because of its expense ratio is .04%
Mutual funds are a clear choice for most investors because of the simplicity to invest in the market. This can be a good investment for both novice and experienced investors, as they offer decent returns with lower risk.
They tend to rise more slowly than individual stocks and have less potential for high returns. Mutual funds are a great way to diversify your portfolio and gain exposure to a variety of different securities.
All mutual funds must disclose their fees and performance information so that you can make an informed decision about whether or not to invest.
Exchange traded funds (ETFs)
Exchange traded funds (ETFs) are a type of exchange-traded investment product that must register with the SEC and allows investors to pool money and invest in stocks, bonds, or assets that are traded on the US stock exchange.
They are inherently diversified, which reduces your risk.
This is a good option for beginner investors because they offer a large selection of stocks in one go.
ETFs have a lower minimum to start investing, which is a draw for many investors starting out with little funds. Plus there are many different types of ETFs to choose from.
ETFs are similar to mutual funds, but trade more similarly to individual stocks. With ETFs and Index Funds, you can purchase them yourself and may have lower fees.
Why Stock Prices Fluctuate
Stock prices fluctuate because the financial markets are a complex system. There are many factors that can affect the price of a stock,
There are a number of factors that can influence stock prices, including:
Economic indicators like GDP growth, inflation, and unemployment rates
Company earnings reports
The overall health of the economy
Political and social instability
Changes in interest rates
War or natural disasters
Supply and demand,
Actions of the company’s management
Short squeezings like what happened with GME or AMC
The volatility in the stock market is the #1 reason most people stay out of investments. However, on average, the stock market has moved up 8-10% a year.
What is the best thing to invest in as a beginner?
The best thing to invest in as a beginner is your time.
You need to learn how the stock market works. Just like you would get a certification or degree, you should highly consider an investing course.
Learn and devote as much time as you can to investing in stocks.
How To Invest In Stocks For Beginners?
Investing in the stock market can be a great way to make money! If you’re looking for ways to make money or grow net worth, investing in a stock is a smart choice.
With online access and trading being easier now than ever, it can be easier than ever to start buying stocks.
Let’s dig into how to invest in stocks like a pro.
FYI…You should do your own research before investing.
Step #1: Figure out your goals
Figure out your goals to help with setting an investing strategy.
What are you trying to achieve with stock market investing? Is it supplemental income? A certain level of wealth for retirement? Are you looking for short-term or long-term gains?
Once you know what you’re aiming for, it will be easier to find the right stocks and make wise investment decisions.
Your reason to invest in stocks will be different than everyone around you.
Some people want to supplement their weekly income.
Others want to invest in companies for the long term.
My goal is to make weekly income from the stock market. That is my investment strategy for non-retirement accounts.
You need to spend time understanding WHY you want to buy stocks.
Knowing this answer will help you define what type of trader you will be.
Step #2. Decide how you want to invest in the stock market
When you decide to invest in the stock market, you need to choose what you want to invest in.
You can invest in stocks, which are shares of ownership in a company, or you can invest in bonds, which are loans that a company makes. There are also other options like mutual funds and exchange-traded funds (ETFs), which are collections of stocks or bonds.
Also, you can expand this to what types of investments will you have in various retirement or brokerage accounts. For example, you may invest in mutual funds with your 401k, ETFs with your Roth IRA, and stick with individual stocks for your taxable account.
This is a personal decision.
Many people when they are first starting to trade stocks choose to limit purchasing stocks with a limited percentage of their overall portfolio.
Step #3. Are you invest in stocks for the short term or long term?
The buy and hold investor is more comfortable with taking a long-term approach, while the short-term speculator is more focused on the day-to-day price fluctuations.
Once again, this is a personal preference.
One of the most common themes of many investing gurus is, “Remember that stock prices can go down as well as up, so it’s important to stay invested for the long term.”
However, this full-time trader wants to make money on those highs and lows.
Knowing your overall investment horizon will help you decide how much time you plan to hold onto your investments to reach your financial goal.
Also, you can choose different time horizons for different accounts.
Step #4: Determine your investing approach
Passive and active investing are two main approaches to stock market investing.
Passive investing does not involve significant trading and is associated with index funds.
Passive investing is a way to DIY your investments for maximum efficiency over time.
Thus, you would contribute to your investment account on the xx day of the month with $xx amount of money.
This happens with consistency regardless of where the market stands on that day.
You are less warry of where the stock market will go and focused on overtime it will continue to go up.
Active investing takes the opposite approach, hoping to maximize gains by buying and selling more frequently and at specific times.
Active investing is when an investor is actively acquiring, selling, or holding bought stocks.
This could be with day trading or swing trading.
You may hold stocks for less than a day, a few days, or a couple of weeks.
The purpose of having active investing is to make profits.
In the stock market, investors make efforts to increase their net worth over time or to make income off the market.
Step #5: Define your investment strategy
When it comes to investing in the stock market, there are a few key factors you need to take into account: your time horizon, financial goals, risk tolerance, and tax bracket.
Do you want to be an active trader or stick with passive investing? What kind of investor am I?
There is no right or wrong answer as this is a personal preference.
Ultimately, you want returns to be greater than the overall S&P 500 index for the year.
Once you’ve figured these out, you can start focusing on specific investment strategies that will work best for you.
Be aware of any fees or related costs when investing. Fees can take a bite out of your investments, so compare costs and fees.
Step #6: Determine the amount of money willing to lose on stocks.
Trading stocks online is inherently risky.
You want to consider what your “risk tolerance” is. Simply put, how much are you willing to lose in stocks before you want to quit?
The biggest reason most people quit trading stocks is that they do not know their risk tolerance and fail with risk management.
You will lose on trading stocks. The goal is to lose a small amount on some of the trades and gain a greater amount of more of your trades.
How much risk you can reasonably take on given your financial situation?
What are your feelings about risk?
What happens when your favorite stock drops 25%?
Understanding your risk tolerance and how much you are willing to lose will help you keep your losses small.
Start with a small amount of money when investing in stocks. Also, make sure you have enough money saved up so you can handle any losses that may occur.
How to Start Investing in Stocks
There are a variety of ways to start investing in stocks. Some methods include getting a small account balance and then buying shares, creating an investing club with friends, or researching the companies you want to invest in.
Now, that you have determined how and why you want to invest in stocks. Let’s dig into the nitty gritty of how to manage a stock portfolio.
On the other hand, if you don’t invest enough, you could miss out on potential profits. Try starting with an amount you’re comfortable losing if the stock market does go down.
1. Open an investment account
There are a few things you need to do in order to start investing in the stock market.
The first is to open an investment account with a broker or an online brokerage firm.
There are different types of accounts you can open:
Taxable accounts like an individual or joint brokerage
Retirement accounts like IRA or Roth IRA
These are the most basic investment accounts, here is a list of types of investment accounts.
If you plan to hold EFTs or mutual funds, Vanguard is a great place to start.
If you plan to be an active trader, I would look at TD Ameritrade or Fidelity. Be wary of Robinhood or WeBull.
2. Saturate yourself in Stock Market Knowledge
On the simplest level, it can be incredibly easy to begin your investing career with little-to-no knowledge, research, and expertise.
If you have even a remote understanding of stocks, then learn what you need from an easy-to-find YouTube video, followed by watching some of your favorite TV shows to learn more about the market and its secrets.
With that said, you need to be digesting the basics from start to end of getting your first investment started.
As the title reveals, investing can seem intimidating and complicated. Thus, stock market knowledge is invaluable.
3. Consider an Investing Course
A typical investing course would teach how to invest in stocks (and possibly other investments).
As a beginner trader, it is unlikely you will know the full extent of how the stock market works. There are many intricacies you must learn and understand.
Beginners should learn about stock investing basics, such as diversification and investment criteria.
Many investing courses offer a platform on how to make money by trading stocks.
Personally, I highly recommend buying this investing course.
If you choose not to follow my advice, that is fine. Come back when you have lost more money in the stock market than the price of the courses.
I CAN NOT STRESS ENOUGH… how important it is to have a solid foundation and practice in a simulated account before you use your real money.
4. Research the companies you want to invest in
When you’re ready to start investing in stocks, it is important that you do your due diligence and research the companies you want to invest in.
Look for trends and for companies that are in positions to benefit you.
Consider stocks across a wide range of industries, from technology to health care. It’s also important to remember that stock prices can go up or down, so always consider this before making any investment decisions.
5. Choose your stocks, ETFs, or mutual funds
Next, you have to decide what fits your investing strategy. Are you looking to buy:
Stocks
ETFs
Mutual Funds
Regardless of which type of investment you make, you must look for companies that have attractive valuations and growth prospects. In the case of index funds or ETFs, which fund has the companies you find attractive.
Most importantly, you should also take into account the company’s financial health and its prospects for future growth.
Make sure you understand the risks associated with holding a particular stock, including possible price fluctuations and loss of value.
7. Take the Trade
This is the hardest step for most people is to take their first trade.
Thus, why learning to trade stocks is great to learn a simulated account using fake money. Then, move to a LIVE account using your real money.
At some point, in your investing in stocks journey, you must press the buy button.
For many the investment platform may be overwhelming to use, so check out your brokerage’s YouTube videos to help you out.
8: Manage your portfolio
Managing your portfolio is important to keep your investments in good shape.
If you are a long-term investor, diversify your portfolio by investing in different types of investment vehicles and industries.
If you prefer to swing trade or day trade, then you want to make sure you always have cash on hand and are rotating your portfolio to take profit.
Investing can be difficult for beginners who often lack knowledge about the stock market.
It is important to remember to keep investing money and rebalance your portfolio on a regular basis. This will help ensure that you stay on top of your investments and achieve the desired result.
9. Selling Stocks
For most investors, it is harder to sell their stocks than to purchase them. There are a variety of factors for that. But, you must sell your stocks at some time to realize your gain.
Don’t panic if the market crashes or corrects – these events usually don’t last very long and history has shown that the market will eventually rebound. Most people tend to panic sell when stocks are low and FOMO buy when the market is at highs.
When you are ready to sell, aim to achieve a percentage return on your investment.
This will require some focus on your time horizon and the stocks you want to invest in.
Also, you need to consider any taxes that may be owed on the sale of stock.
If you’re new to stock investing, consider using index funds instead of individual stocks to gain broad market exposure.
10. Journal & Analyze your Trades
Journaling is a way of recording the important decisions you make during trading to help yourself remember what happened in your trades. It can be used as a tool for reflection, learning from mistakes, and reviewing your strategy.
Analyzing your trades means looking back on your trading history with the goal of improving it.
This is the most overlooked step of the investing process.
When it comes to buying and selling stocks, journalling what is happening in the market is an important part of being a successful investor.
Stock Market Investing Tips for Beginners
Ask any seasoned trader, and they will have a list of investing tips for beginners.
They have made plenty of trading mistakes they do not want to see newbies do the same thing.
When starting to invest in the stock market, beginner investors often seek out consistent and reliable investments.
This allows them to slowly learn about the stock market and take calculated risks while also earning a return on their investment. Over time, as they gain experience, they can expand their portfolio to include riskier but potentially more rewarding stocks.
1. Invest in Companies That You Understand
An investor should know the company they are investing in and have an idea of what type of return they expect.
When you are starting out, it is best to invest in stocks of companies that are easy to understand and have a proven track record.
Do NOT invest in stocks based on the advice of friends, what you read in the news, or on a whim – these can be risky moves. Be wary of the popular stocks you can find on the Reddit Personal Finance threads.
2. Don’t Time the Market
In the world of investing, there is one rule that no investors should ever break: do not time the market.
By following this rule, you will always be on top of your investments and will be able to reap the rewards.
There are times to buy stocks and sell stocks. This is something you will learn when investing in a high-quality investing course.
As an average investor, trying to time the market will leave you frustrated by your minimal returns or great losses.
3. Avoid Penny Stocks
Penny stocks are the lowest-priced securities on the market, and they don’t offer any significant upside potential to their investors. While you may hit a home run return on some, many penny stocks tend to trend sideways.
The risk is not worth the return.
If you plan to invest in stocks, avoid penny stocks and focus on healthy companies.
4. Consider Buying Fractional Shares
Fractional share investing lets investors buy less than a full share at one time. Many times, you may not be able to afford the price of a full share.
For example, buying a share of Amazon (AMZN) may cost you upwards of $2800 or more. Thus, you can invest a smaller amount with a fractional share.
You would have to check if your brokerage company allows the purchase of fractional shares.
5. Stay the Course
In order to be successful, a trader must stay the course and maintain their focus. By staying focused, they will have less chance of making mistakes that may lead to big losses or overtrading.
When you’re starting out in the stock market, it’s important to be disciplined with your buying. Don’t try to time the market, because you’re likely to fail. Instead, buy shares over time and stay the course.
That way, you’ll be more likely to see a profit in the long run.
6. Avoid Emotional Trading
In order to be successful in the stock market, you have to maintain a level head.
Responding emotionally will only lead to bad decision making. Instead, stay the course and trust your research and analysis.
Know your weaknesses as well as your strengths.
7. Do Your Research
When you’re ready to start investing in the stock market, it is important to do your research so you can make informed decisions.
There are a lot of stocks to choose from, and it can be tempting to invest in them all.
But remember, you don’t want to spread yourself too thin. Invest in stocks that you believe in and that have a good chance of making you money.
8. Build Wealth
Stock market investing is one of the best ways to grow your money over time.
For long-term investing, you buy stocks in companies and hold them for a period of time, typically years. Over time, as the company grows and makes more money, so does your stock. This is one of the most common ways to build wealth over time.
The other way with short-term investing is to consistently take profit and grow your account over time.
Stock investing FAQs
Here is a list of the most common questions and answers on stock investing.
Q: What is the difference between investing and trading?
Trading is buying or selling financial products with the goal of making a profit. This is normally a day trader or swing trader.
Investing, on the other hand, refers to the process of putting money into an investment with the hope that it will grow. Someone who is focused on the long-term.
Q: Do you have to live in the U.S. to open a stock brokerage account?
No, you do not have to live in the U.S. to open a stock brokerage account. You must find a brokerage company in your area of residence abroad.
Q: How much money do I need to start investing?
The very common question of, “How much should you invest in stocks first time?”
It is recommended to start investing with $500 or more. However, you can start with Acorns with as little as $5.
Check out this investor’s story by starting with a small account of $500 and growing it over $35k in less than 6 months.
It is best to grow your account with your growth or profit.
Q: Do I have to pay taxes on the money I earn from stocks?
Yes, you will be required to pay taxes on the money you earn from stocks.
Q: What are the best stocks for beginners to invest in?
The best stocks for beginners to invest in are those that have a history of staying consistently on an uptrend. These companies’ stock prices have typically risen over the course of the year.
Find a list of beginning stocks to build your portfolio.
Q: How do beginners buy stocks?
Above, we outlined this in detail. In order to buy stocks, there are a few different steps that you should follow in order to maximize your chances of success.
The first step is making sure you have an account. Once you have an account, the next step is to decide which stocks you want to invest in. Then, you must buy your stock. Finally, you must decide when you want to sell your stock for a realized gain or loss.
Q: How many stocks should you own?
The best answer is it depends on your investing strategy.
As a short-term investor, you can only manage a smaller number of trades.
As a long-term investor, you need a more well-rounded portfolio. of15-25 stocks.
More likely than not, the short answer is “as many as you can afford.”
Q: What is the best thing to invest in as a beginner?
The best thing to invest in as a beginner is an index fund.
Indexes are great because they diversify across many different types of investments and don’t require much effort on the part of the investor to maintain. Index funds are also less risky than other investments, especially in the beginning stages of an individual’s investing career.
Q: How do we make money?
Traders make money in many ways. They can trade stocks, bonds, futures, and options on equities. They can go long when the market goes up and short when the market goes down.
Traders also use trading systems that are usually automated to manage the trades they make to maximize profit.
Trading is a risky investment and it’s not uncommon for traders to lose money. In order to keep losses small, many traders use the trading strategy based on minimizing risk in order to get the desired return.
Learn how fast you can make money in stocks.
Q: Why is Youtube Option Trading So Popular?
Video on how to trade options is very popular on Youtube. This is because of the high volume of interest on this topic.
For many people, learning options is an advanced strategy that takes more time and knowledge to learn.
This is my favorite youtube option trading channel as well as an overall investing strategy.
Additionally, traders are able to get a much higher return on motion trading versus going long or short on stocks.
Q: What is volume in stocks?
Volume is a measure of the number of shares traded in a given period, usually trading days.
This is an important metric if you plan to exit your trade to know there are enough buyers to buy your stock.
Q: How to invest in penny stocks for beginners?
Penny stocks are shares of a company that typically trade for less than $5 per share, which is also known as penny stock trading.
Investing in penny stocks can be a lot of fun and the highest risk, and there are many ways to get involved. For anyone who is new to the world of investing in penny stocks, it can be intimidating to know where to start.
However, there are a few things that you should keep in mind before diving into the world of penny stocks. One of these is researching what types of companies you want to invest in. Many of these penny stocks are not healthy companies and burning through cash.
It is important to always be careful when investing in penny stocks. Keep in mind that the risk of losing money is high and you should invest only what you are willing to lose.
Q: How to invest in stocks for beginners robinhood?
Robinhood is a stock brokerage company that allows users to invest in stocks without paying any fees. It also provides real-time quotes and charts. To invest, the user must have an account with Robinhood that holds at least $0.
Most major brokerage companies have zero commission fees on trading stocks as well.
Beware, Robinhood is known for stopping to trade various stocks during times of volatility whereas other’s brokers do not.
Q: What is a good price to buy at?
This is a hotly debated question as every investor sees the market from their view.
More often than not, people wonder the best time to buy stocks.
As such, you can read is now a good time to buy stocks?
Ready for Stock Market Investing?
If you are new to investing in stocks, there are a few things you take into consideration before diving into the market.
For starters, it is important to understand how stock markets work. You should also know the difference between a stock and an investment.
Investing in stocks can be a bit complicated, but this guide walked you through the basics of how to invest.
Before you invest in stocks, it is important that you understand your investment strategy. That way, you can make informed decisions about where to put your money and how much risk you are willing to take on.
Most people shy away from learning how to actively trade stocks because of the movies about Wall Street they have watched.
You will get a deeper understanding of investing in stocks the longer you educate yourself on the concept.
Overall, it is wise to diversify your portfolio and don’t put all your eggs in one basket.
So, what is your next move to start investing?
One of the best ways to improve your personal finance situation is to increase your income.
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After taking a second job as a driver for Amazon to make ends meet, this former teacher pivoted to be a successful stock trader.
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