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Warren Buffet said, “Someone is sitting in the shade today because someone planted a tree a long time ago.”
To me, this is what investing is all about. I am writing this post for experienced and new investors that want a fresh perspective and are looking to start investing in stocks online. Giving up something today for a better tomorrow is how I view the subject of investing. As they say, ‘no risk no reward.’ In fact for every purchase that I make I ask myself if it will be a good investment or not? Almost everything is an investment to me. From the clothes you buy to the physical exercises you do to better your health and hopefully live longer.
Investing in financial instruments and Real Estate is where your money will work the hardest for you. Just place your money into them and watch it grow exponentially. I’ve always loved this idea. To sit back and relax while my money does all the work for me.
Buy low, sell high. For long term investing, people tend to panic when the markets take a tumble and decide to sell. This is a mistake. When markets are down, I think of it as a huge buying opportunity. When a retail store is having a clearance sale, what do people do? They buy. The same behavior should be applied to the stock market. Buy more when you see your stock prices are down.
Time is probably the most important ingredient to investing. The more time you have to invest, the riskier moves you can take because you will have more time to recover if all hell breaks loose. Time will also give your investments more room to grow. When I was 18 years old, I wish I knew then what I know now. I would have invested everything I had (which was not much) and I would probably be a multi-millionaire today. Hindsight is always 20/20. Below I will highlight seven major financial vehicles that you need to know.
I believe this is the most important financial vehicle a person can invest in. Retirement accounts usually grow tax deferred and are eligible for withdrawals when a person reaches 59 ½ years of age. I am always thinking of retirement, and hopefully I can retire before I am 59. I can’t imagine where I’ll be at that age but I know the last thing I will want to worry about is if I have enough money and whether or not someone will hire me if I needed to work. This is why I fully fund my retirement accounts. This is money that you should NOT touch unless you are 59 ½ or older. I think trying to forget you even have a retirement account is a good way to discipline yourself, so you will not feel the urge to dip into them. All retirement accounts have contribution limits that usually increase every year.
1 – 401K or 403B – If your employer offers a 401K or 403B (this is for nonprofit, religious, education & government organizations) plan with a matching amount, then you must take advantage of your company’s match. It’s basically free money you are leaving on the table if you don’t. Contribute your pretax dollars only up to your company’s match. Many employers offer different matching %, so you should verify with your HR person. Many people ask me which funds to invest within their 401K or 403B. I put everything into an S&P Index fund because the fees are super low and you get broad exposure. You need to consider the ‘Expense Ratio’ of every fund you are thinking of investing in. The lower the Expense Ratio, the lower the fee. My one year return as of 6/30/17 is up 17.85%. Once you are age 59 ½, you MUST begin to take withdrawals. There are hefty penalties and tax implications if you take withdrawals before 59 ½. Even after you turn 59 ½ and begin taking withdrawals, you will still need to pay income taxes on the monies that grew tax free. Most people forget about this.
2 – Roth IRA – If your employer does not offer a matching contribution with their 401K or 403B plan, then I would not even bother utilizing their retirement plan and just invest in a ROTH IRA. But if they do provide a match, then you should invest in both of these vehicles. Only contribute to a ROTH after you’ve reached the matching amount at your employer’s plan. You contribute to a ROTH using after tax dollars and when you turn 59 ½, you can take everything out tax free and withdrawals are not mandatory. You do not need to pay income tax on your gains. At anytime, you can withdraw the amount you contributed with no penalties. BUT you cannot withdraw any of the capital gains you made before 59 ½ or you will be subject to pay taxes on them. There are income limits for contributing to a ROTH IRA. The amount changes almost every year for single and married filers, so make sure your income does not exceed the required amount otherwise you will not be eligible to contribute to a ROTH. I highly recommend Vanguard for opening a ROTH IRA account. They charge some of the lowest fees around. I’ve had a 14.5% total return in 5 years.
Note: Beginning in the year you turn 70 1/2, you must start taking an annual required minimum distribution from your IRA.
3 – Roth 401K – Many employers are starting to offer this type of retirement investment. You contribute with after tax dollars. When you are 59 ½, you are eligible to take withdrawals and no income tax payments are required.
4 – Traditional IRA – Almost like a ROTH, except you contribute with after tax dollars and there are no income limits that are enforced. Vanguard, Fidelity and Charles Schwab are some firms I would recommend.
5 – Individual Stocks
I believe in buying stocks with companies that you know of, trust and use. I also like stocks that pay a dividend yield. Every company pays a different Yield % and they usually pay dividends four times a year (quarterly). The Yield is not fixed and fluctuates frequently. I usually take my dividends and reinvest it back into an individual stock or into my Robo Investing account (read next section). My portfolio is up 28.36% as of 7/24/17. I also believe there should only be two reasons why you should ever sell a stock.
- You need the money
- You no longer believe in the company
Keep in mind that when you sell a stock and you’ve held it for less than a year, you will have to pay a 30% tax on the capital gains. If you sell a stock after you’ve held it for over a year, you will have to pay a 15% tax on the capital gains. If you sell a stock for less that what you paid for it, you can write the loss amount off on your taxes up to 3K per year. If your losses exceed 3K, you can carry the remainder of the amount into the following year’s tax return. Please consult with a tax professional.
Ally Invest is one of the brokerage firms that charges the least amount per online trade. Ally Invest ($4.95 per trade)
6 – Robo Investing
This is a relatively new type of financial vehicle that has emerged and proven to be a great investment for me so far. I opened my first Robo Advisor account with Betterment last year and my portfolio is up by a total of 24.1% as of 7/24/17.
A Robo Advisor is an automated portfolio service manager that will invest your money for significantly less than what financial advisers would charge. Basically a robot (or algorithm) can do everything for you in terms of diversifying your money across several low cost ETF’s and Bonds that are invested in the US and abroad.
I have written a post all about Robo Investing and will add it very soon. Some companies that provide this service are Betterment,Wealthfront, WiseBanyon, Charles Schwab and Vanguard. The fees vary from each company, but they are all relatively low.
7 – Cryptocurrency
Cryptocurrency such as Bitcoins is a digital currency that uses cryptography for security. I have just begun to play in this field and I am learning as I go along. Crypto trading is very volatile because they trade 24/7. From what I have learned, the demand and the technical trading platform limitations are what cause the prices to go up and down. But it can be very lucrative. If you invested just $5 in Bitcoin 7 years ago, you would be $4.4 Million richer. For now, I have just invested monies that I am willing to lose in Crypto trading, but I have to admit, watching the volatility of this type of investing is very exciting.
If you are going to dabble in this type of investment vehicle, I recommend opening an account with Coinbase . But they do charge a hefty 5% per transaction fee.
So there you have it, these are some of the types of financial vehicles that I invest in. Once your Emergency Fund is fully funded, then placing a portion of your leftover monies in one or all of these types of investment choices is a smart idea. When you start continually funding your investments, in time, you will have more money then you’ll know what to do with. As always you should consult with your tax and financial professionals before investing in any financial products.
I would love to hear your questions, experiences and any recommendations in the world of investing.
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