6 Top Robo-Advisers for Investing

Getting started on retirement saving can be daunting when there are so many confusing options. There are thousands of stocks, not to mention other complex-sounding things to buy: bonds, mutual funds, exchange-traded funds, futures. And when you start reading about them, you’re liable to run into an impenetrable wall of investment jargon. So do you go it alone, taking shots in the dark with your…

Source: moneytalksnews.com

What’s the Difference Between 401(k) and 403(b) Retirement Plans?

Investing in your retirement early is the best way to ensure financial stability as you age, especially when it comes to understanding various retirement options. Getting started may feel overwhelming — luckily we’re here to help. We help break down the difference between 401(k) and 403(b) accounts, and how they can impact your financial life.

You may already know the value in adjusting your budget to make saving for a rainy day a priority. But are you also prioritizing your retirement savings? If you’re just getting started in the workforce and looking for ways to invest in yourself, 401(k) and 403(b) plans are great options to know about. And, the main difference between a 401(k) and a 403(b) is the company who’s offering them.

401(k) accounts are offered by for-profit companies and 403(b) accounts are offered by nonprofit, scientific, religious, research, or university companies. To understand the similarities and differences between plans in depth, skip to the sections below or keep reading for an in-depth explanation.

How a 401(k) Works
How a 403(b) Works
The Difference Between 401(k) and 403(b)
The Similarities Between 401(k) and 403(b)
5 Ways to Grow Your Retirement Savings
What is a 401(k) and 403(b)
$19,500 with your employer matches. Plus, most retirement funds have required minimum distributions (RMDs) by the time you turn 70. This essentially means you have to take a minimum amount of money out each month whether you want to or not.

In most cases, employers will offer 401(k) matching to encourage consistent contributions. For example, your employer match may be 50 cents of every dollar you contribute up to six percent of your salary. For example, with this employer match on a $40,000 salary, you would contribute $200 and your employer would contribute an additional $100 each month. This pattern would continue until your annual contributions hit $2,400 and your employer contributes $1,200.

Employee matching is essentially free money. You’re monetarily rewarded for your retirement payments. Be sure to pay attention to vesting periods when setting up your employer match. Vesting periods are an agreed amount of time you need to work at a company before you receive your 401(k) benefits. For example, some companies may require you to work for their team for a year before earning retirement benefits. Other employers may offer retirement benefits starting the day you start working with them.
403(b) accounts include school boards, public schools, churches, hospitals, and more. This type of account is also known as a tax-sheltered annuity plan — they allow pre-tax income to be invested until taken out.

Employers that offer 403(b) retirement plans may offer a pool of provider options that undergo nondiscrimination testing. This allows employers that qualify for this account to shop around for plans that offer the best benefits and don’t discriminate in favor of highly compensated employees (HCEs). For instance, some 403(b) accounts may charge more administrative fees than others.

Employers are able to offer employee matching on 403(b) accounts if they decide to. To cut costs for nonprofit companies, 403(b) retirement plans generally cost less than 401(k) accounts. Costs associated with starting up these accounts may not affect you, but it may affect your employer.

Account Type
401(k)
403(b)
Yearly Contribution Limit
$19,500
$19,500
Employer-Issued Packages
For-profit employers:
Corporations, private establishments, etc. and sole proprietors
Non-profit, scientific, religious, research, or university employers:
School boards, public schools, hospitals, etc.
Minimum Withdrawal Age
59.5 years old
59.5 years old
Early Withdrawal Fees
10% penalty, tax, and additional fees may vary
10% penalty, tax, and additional fees may vary
Source: IRS.org

 

The Differences Between 401(k) and 403(b)

Both a 401(k) and 403(b) are similar in the way they operate, but they do have a few differences. Here are the biggest contrasts to be aware of:

  • Eligibility: 401(k) retirement plans are issued by for-profit employers and the self employed, 403(b) retirement plans are for tax-exempt, non-profit, scientific, religious, research, or university employees. As well as Hospitals and Charities.
  • Investment options: 401(k)s offer more investment opportunities than 403(b)s. 401(k) accounts may include mutual funds, annuities, stocks, and bonds, while 403(b) accounts only offer annuities and mutual funds. Each employer varies in retirement benefits — reach out to a trusted financial advisor if you have questions about your account.
  • Employer expenses: 401(k) accounts are generally more expensive than 403(b) accounts. For-profit 401(k) accounts may pay sales charges, management fees, recordkeeping, and other additional expenses. 403(b) plans may have lower administrative costs to avoid adding a burden for non-profit establishments. These costs vary depending on the employer.
  • Nondiscrimination testing: This form of testing ensures that 403(b) retirement plans are not offered in favor of highly compensated employees (HCEs). However, 401(k) plans do not require this test.

 

The Similarities Between 401(k) and 403(b)

Aside from their differences, both accounts are set up to aid employees in retirement savings. Here’s how:

  • Contribution limits: Both accounts cap your annual contributions at $19,500. In the event you contribute over this limit, your earnings will be distributed back to you by April 15th. If you’re under your retirement contributions by the time you’re 50 years old, you’re allowed to make catch-up contributions. This means that, if you’re eligible, you can contribute $6,500 more than the yearly contribution limit.
  • Withdrawal eligibility: You must be at least 59.5 years old before withdrawing your retirement savings. In the case of an emergency, you may be eligible for early withdrawal. However, you may be charged penalties, taxes, and fees for doing so.
  • Employer matching: Both retirement account options allow employers to match your contributions, but are not required to. When starting your retirement fund, ask your HR representative about potential benefits and employer matching.
  • Early withdrawal penalties: If you choose to withdraw your retirement savings early, you may be penalized. In most cases, you need a valid reason to withdraw your funds early. Eligible reasons may include outstanding debt, bankruptcy, foreclosure, or medical bills. In addition, you may be charged a 10 percent penalty fee, taxes, and other fees. During a downturned economy, as we’ve seen with the COVID-19 pandemic, fees may be waived.

5 Ways to Grow Your Retirement Savings
retirement plan options and their benefits. When employers offer retirement matches, consider contributing as much as you can to meet their match.

2. Set up Monthly Automatic Contributions

Save time and energy by setting up automatic contributions. You may feel less interested in contributing to your retirement as your payday approaches. Taking time to set up a retirement fund and budgeting for this change may be holding you back. To meet your retirement goals, consider setting up automatic payments through your employer. After a while, you may not even notice the slight budget adjustment.

3. Leverage Employer Matching

Employer matching is essentially free money. Employers may put money towards your future for nothing but your own contribution. This encourages employees to consistently put money towards their retirement savings. Not only are you able to earn extra money each month, but this “free money” will grow with interest over time. If you can, match your employer’s contribution percentage, if not more.

4. Avoid Early Withdrawal

Credit card balances, student loans, and mortgages can be stressful. Instead of withdrawing early from your retirement fund to pay for these, consider other debt payoff methods. If you’re eligible to withdraw from your retirement early, you may face penalty fees, taxes, and administrative expenses. This may hinder your savings potential or push back your desired retirement date.

5. Contribute Your Future Raises and Bonuses

If you’re saving less than $19,500 to your retirement fund this year, consider contributing more. If you earn a bonus or a raise, stick to your current budget and consider increasing your contributions. Ask your employer to increase your retirement payments right before you receive a bonus or raise. The more you contribute, the more interest you’ll accrue over time.

Whether your retirement funds are established through a 401(k) or a 403(b), these accounts offer you the chance to build your financial portfolio. Consistently funding your retirement account may better your financial plan and set you at ease. As your contributions age, so do your interest earnings. You’ll be able to make money on your pre-taxed income and set your future self up for success. Get started by checking in on your budget and carving out a specific amount to put towards your retirement each month.

The post What’s the Difference Between 401(k) and 403(b) Retirement Plans? appeared first on MintLife Blog.

Source: mint.intuit.com

Mortgage Rates vs. the Coronavirus: We Might Test New All-Time Lows

Mortgage rates can be pretty volatile. Just like stocks, they can change daily depending on what’s happening in the economy. Beyond that, mortgage rates can move based on news that doesn’t involve a report on the economic calendar, such as a jobs report, GDP, housing starts, inflation, etc. Even if there isn’t a direct financial [&hellip

The post Mortgage Rates vs. the Coronavirus: We Might Test New All-Time Lows first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

How to Copy Warren Buffet’s Biggest Investment of 2020

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Warren Buffett is notoriously a good investor. Sure, he’s made some mistakes along the way (who hasn’t?), but whatever move he makes, you can bet he’s thought it through, and it will pay off — big time.

Which is why when Mr. Buffett made his biggest stock purchase of the year into Apple, we thought, “Isn’t it too late to do that?” Apple is already trading at the highest price it ever has. It feels out of reach for us non-billionaires.

But it turns out, that’s not the case. While we don’t have the ability to own $111 billion (yes, billion with a B) in AAPL shares, we can still get our hands on some — and reap the rewards as the market goes up.

One of our favorite ways to get into the stock market and be a part of infamous big-tech returns, without risking billions is through a free app called Stash.

It lets you be a part of something that’s normally exclusive to the richest of the rich — on Stash you can buy pieces of other companies — including Buffett’s choices — for as little as $1.

That’s right — you can invest in pieces of well-known companies, such as Amazon, Google, Apple and more for as little as $1. The best part? If these companies profit, so can you. Some companies even send you a check every quarter for your share of the profits, called dividends.1

It takes two minutes to sign up, and it’s totally secure. With Stash, all your investments are protected by the Securities Investor Protection Corporation (SIPC) — that’s industry talk for, “Your money’s safe.”2

Plus, when you use the link above, Stash will give you a $5 sign-up bonus once you deposit $5 into your account.*

Kari Faber is a staff writer at The Penny Hoarder.

1Not all stocks pay out dividends, and there is no guarantee that dividends will be paid each year.

2To note, SIPC coverage does not insure against the potential loss of market value.

For Securities priced over $1,000, purchase of fractional shares starts at $0.05.

*Offer is subject to Promotion Terms and Conditions. To be eligible to participate in this Promotion and receive the bonus, you must successfully open an individual brokerage account in good standing, link a funding account to your Invest account AND deposit $5.00 into your Invest account.

The Penny Hoarder is a Paid Affiliate/partner of Stash. 

Investment advisory services offered by Stash Investments LLC, an SEC registered investment adviser. This material has been distributed for informational and educational purposes only, and is not intended as investment, legal, accounting, or tax advice. Investing involves risk. 

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

Should You Keep Investing At All-Time Highs?

A note from a dedicated reader inspired today’s article. It’s a question about the stock market and investing at all-time highs. It reads:

Hey Jesse. So, back in March you said that you were going to keep on investing despite the major crash. Fair enough, good call!

Note: here and here are the two articles that likely inspired this comment

But now that the market has recovered and is in an obvious bubble (right?), are you still dumping money into the market?

Thanks for the note, and great questions. You might have heard “buy low, sell high.” That’s how you make money when investing. So, if the prices are at all-time highs, you aren’t exactly “buying low,” right?

I’m going to address this question in three different ways.

  1. General ideas about investing
  2. Back-testing historical data
  3. Identifying and timing a bubble

Long story short: yes, I am still “dumping” money into the stock market despite all-time highs. But no, I’m not 100% that I’m right.

General Ideas About Investing

We all know that that investing markets ebb and flow. They goes up and down. But, importantly, the stock market has historically gone up more than it has gone down.

Why does this matter? I’m implementing an investing plan that is going to take decades to fulfill. Over those decades, I have faith that the average—the trend—will present itself. That average goes up. I’m not betting on individual days, weeks, or months. I’m betting on decades.

It feels bad to invest right before the market crashes. I wouldn’t enjoy that. But I’m not worried about the value of my investments one month from now. I’m worried about where they’ll be in 20+ years.

Stock Market Crash GIFs | Tenor

Allowing short-term emotions—e.g. fear of an impending crash—to cloud long-term, math-based thinking is the nadir of result-oriented thinking. Don’t do it.

Don’t believe me? Here’s a fun idea. Google the term “should I invest at all-time highs?”

When I do that, I see articles written in 2016, 2017, 2018…you get it. People have been asking this question for quite a while. All-time highs have happened before, and they beg the question of whether it’s smart to invest. Here’s the S&P 500 data from 2016 to today.

S&P 500 – Past five years. Punctuation my own addition.

So should you have invested in 2016? In 2017? In 2018? While those markets were at or near all-time highs, the resounding answer is YES! Investing in those all-time high markets was a smart thing to do.

Let’s go further back. Here’s the Dow Jones going back to the early 1980s. Was investing at all-time highs back then a good idea?

I’ve cherry-picked some data, but the results would be convincing no matter what historic window I chose. Investing at all-time highs is still a smart thing to do if you have a long-term plan.

Investing at all-time highs isn’t that hard when you have a long outlook.

But let’s look at some hard data and see how the numbers fall out.

Historical Backtest for Investing at All-Time Highs

There’s a well-written article at Of Dollars and Data that models what I’m about to do: Even God Couldn’t Beat Dollar-Cost Averaging.

But if you don’t have the time to crunch all that data, I’m going to describe the results of a simple investing back-test below.

First, I looked at a dollar-cost averager. This is someone who contributes a steady investment at a steady frequency, regardless of whether the market is at an all-time high or not. This is how I invest! And it might be how you invest via your 401(k). The example I’m going to use is someone who invests $100 every week.

Then I looked at an “all-time high avoider.” This is someone who refuses to buy stocks at all-time highs, saving their cash for a time when the stock market dips. They’ll take $100 each week and make a decision: if the market is at an all-time high, they’ll save the money for later. If the market isn’t at an all-time high, they’ll invest all their saved money.

The article from Of Dollars and Data goes one step further, if you’re interested. It presents an omniscient investor who has perfect timing, only investing at the lowest points between two market highs. This person, author Nick Maggiulli comments, invests like God would—they have perfect knowledge of prior and future market values. If they realize that the market will be lower in the future, they save their money for that point in time.

What are the results?

The dollar-cost averager outperformed the all-time high avoider in 82% of all possible 30-year investing periods between 1928 and today. And the dollar-cost averager outperformed “God” in ~70% of the scenarios that Maggiulli analyzed.

How can the dollar-cost averager beat God, since God knows if there will be a better buying opportunity in the future? Simple answer: dividends and compounding returns. Unless you have impeccable—perhaps supernatural—timing, leaving your money on the sidelines is a poor choice.

Investing at all-time highs is where the smart money plays.

Identifying and Timing a Bubble

One of my favorite pieces of finance jargon is the “permabear.” It’s a portmanteau of permanent and bear, as in “this person is always claiming that the market is overvalued and that a bubble is coming.”

Being a permabear has one huge benefit. When a bubble bursts—and they always do, eventually—the permabear feels righteous justification. See?! I called it! Best Interest reader Craig Gingerich jokingly knows bears who have “predicted 16 of the last 3 recessions.”

Source: advisorperspectives.com

Suffice to say, it’s common to look at the financial tea leaves and see portents of calamity. But it’s a lot harder to be correct, and be correct right now. Timing the market is hard.

Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.

Peter Lynch

Predicting market recessions falls somewhere between the Farmers’ Almanac weather forecast and foreseeing the end of the world. It takes neither skill nor accuracy but instead requires a general sense of pattern recognition.

Note: The Farmers’ Almanac thinks that next April will be rainy. Nice work, guys. And I, too, think the world will end—at least at some point in the next few billions of years.

I have neither the skill nor the inclination to identify a market bubble or to predict when it’ll burst. And if someone convinces you they do have that skill, you have two options. They might be skilled. Or they are interested in your bank account. Use Occam’s Razor.

Just remember: some permabears were screaming “SELL!” in late March 2020. I’ve always heard “buy low, sell high.” But maybe selling your portfolio at the absolute market bottom is the new secret technique?

“But…just look at the market”

I get it. I hear you. And I feel it, too. If feels like something funny is going on.

The stock market is 12% higher than it was a year ago. It’s higher than it was before the COVID crash. How is this possible? How can we be in a better place mid-pandemic than before the pandemic?

Crazy Pills GIFs | Tenor

One explanation: the U.S. Federal Reserve has dropped their interest rates to, essentially, zero. Lower interest rates make it easier to borrow money, and borrowing money is what keeps businesses alive. It’s economic life support.

Of course, a side effect of cheap interest rates is that some investors will dump their cheap money into the stock market. The increasing demand for stocks will push the price higher. So, despite no increase (and perhaps even a decrease) in the intrinsic value of the underlying publicly-traded companies, the stock market rises.

Is that a bubble? Quite possibly. But I’m not smart enough to be sure.

The CAPE ratio—also called the Shiller P/E ratio—is another sign of a possible bubble. CAPE stands for cyclically-adjusted price-to-earnings. It measures a stock’s price against that company’s earnings over the previous 10-years (i.e. it’s adjusted for multiple business cycles).

Earnings help measure a company’s true value. When the CAPE is high, it’s because a stock’s price is much greater than its earnings. In other words, the price is too high compared to the company’s true value.

Buying when the CAPE is high is like paying $60K for a Honda Civic. It doesn’t mean that a Civic is a bad car. It’s just that you shoudn’t pay $60,000 for it.

Similarly, nobody is saying that Apple is a bad company, but its current CAPE is 52. Try to find a CAPE of 52 on the chart above. You won’t find it.

So does it make sense to buy total market index funds when the total market is at a CAPE of 31? That’s pretty high, and comparable to historical pre-bubble periods. Is a high CAPE representative of solid fundamentals? Probably not, but I’m not sure.

My Shoeshine Story

There’s an apocryphal tale of New York City shoeshines giving stock-picking advice to their customers…who happened to be stockbrokers. Those stockbrokers took this as a sign of an oncoming financial apocalypse.

The thought process was: if the market was so popular that shoe shines were giving advice, then the market was overbought. The smart money, therefore, should sell.

I recently heard a co-worker talking about his 12-year old son. The kid uses Robin Hood—a smartphone app that boasts free trades to its users. Access to the stock market has never been easier.

According to his dad, the kid bought about $100 worth of Advanced Micro Devices (ticker = AMD). When asked what AMD produces, the kid said, “I don’t know. I just know they’re up 60%!”

This, an expert might opine, is not indicative of market fundamentals.

But then I thought some more. Is this how I invest? What does your index fund hold, Jesse? Well…a lot of companies I’ve never heard of. I just know it averages ~10% gains every year! My answer is eerily similar.

I’d like to believe that I buy index funds based on fundamentals that have been justified by historical precedent. But, what if the entire market’s fundamentals are out of whack? I’m buying a little bit of everything, sure. But what if everything is F’d up?

Closing Thoughts

Have you ever seen a index zealot transmogrify into a permabear?

Not yet. Not today.

I do understand why some warn of a bubble. I see the same omens. But I don’t have the certainty or the confidence to act on omens. It’s like John Bogle said in the face of market volatility:

Don’t do something. Just stand there.

John Bogle

Markets go up and down. The U.S. stock market might crash tomorrow, next week, or next year. Amidst it all, my plan is to keep on investing. Steady amounts, steady frequency. I’ve got 20+ years to wait.

History says investing at all-time highs is still a smart thing. Current events seem crazy, but crazy has happened before. Stay the course, friends.

And, as always, thanks for reading the Best Interest. If you enjoyed this article and want to read more, I’d suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.

This article—just like every other—is supported by readers like you.

Source: bestinterest.blog

How To Get Free Stock: 10 Companies That Will Give You Free Shares

There are quite a few ways to get free stock. This article will look at 8 companies that are offering free shares and cash bonuses to new investors.

The post How To Get Free Stock: 10 Companies That Will Give You Free Shares appeared first on Bible Money Matters and was written by Lorraine Smithills. Copyright © Bible Money Matters – please visit biblemoneymatters.com for more great content.

Source: biblemoneymatters.com

How To Buy Stocks As Gifts (And Why They’re The Perfect Present)

This holiday season, don’t give a traditional gift. Instead, learn how to buy stocks as gifts and reward your recipients financially.This holiday season, don’t give a traditional gift. Instead, learn how to buy stocks as gifts and reward your recipients financially.

The post How To Buy Stocks As Gifts (And Why They’re The Perfect Present) appeared first on Money Under 30.

Source: moneyunder30.com