This page may include affiliate links. Please see the disclosure page for more information. Bonds are often an integral part of a diversified investment portfolio. In our Worthy Bonds review, we’ll introduce you to a unique type of bond investment open to all investors. If a 5% interest is attractive to you, you’ll want to learn about…
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SEP IRA stands for Simplified Employee Pension Individual Retirement Account. (Many people mistakenly think âSEPâ stands for âSelf-Employedâ.) Itâs a retirement plan that an employer or self-employed individuals can establish. This account is primarily for…
The post What Is a SEP IRA and How Does It Work? appeared first on Crediful.
For investors with short-term saving goals, short-term bonds can be appropriate investments for your money.
They are stable and they certainly provide a higher return than a money market fund.
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However, even with the best short term bond funds, there’s also a risk of losing a percent or two in principal value if interest rates rise.
There are many options available to you, but your best option is to invest in taxable short-term bond funds, U.S. Treasury short-term bond funds and federally tax-free bond funds.
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What are short-term bonds?
Short-term bonds, or any bonds for that matter, are debts instruments that companies and the government issue. They typically mature in 1 to 3 years.
When you buy a bond, you are essentially lending money to the issuing company or government agency.
They are obligated to pay back the full purchase price at a particular time, which is called the “maturity date.”
Short-term bonds are low risk investments and you can have access to your money fairly quickly.
As with all bond funds, one of the risk of short term bond funds is that when interest rates rise, the prices of the bonds in the fund decrease.
But short term bond funds have a reduced risk of default, because the bond funds are backed by the full faith and credit of the U.S. government.
Moreover, because the term is short, you will earn less money on it than on an immediate-term or long term bond fund.
Nonetheless, they are still competitive and produce higher returns than money market funds, Certificate of Deposits (CDs), and banks savings accounts. And short-term bonds are more stable in value than stocks.
At a minimum, don’t buy a short-term bond fund if you’re saving for retirement or if you want to hold your money longer.
If you’re looking to invest your money for the long term and are still looking for safety, consider investing in Vanguard index funds.
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Short-term bonds: why do you need to invest in them?
You should invest in short-bonds if you intend to use the money in a few years or so. However, don’t push your emergency cash into bonds. That is what a bank savings account is for.
Also, you should not put too much of your long term investment money into bonds, either. If you have a long term goal for your money, it’s best to invest in mutual funds such as Vanguard mutual funds, real estate, or your own business.
Here are some situations where you should invest in short term bonds.
You want to stabilize your investment portfolio. If you have other aggressive investments, you may need to balance it out with short term bond funds. The reason is because short term bonds are safer comparing to stocks.
Buying a house.
Retirement. If you’re thinking of retiring in a few years, short-term bonds are appropriate.
Purchasing a car.
You’re a conservative investor. Not all investors can stomach the risk of losing all of their money due to the market volatility. So instead of investing in stocks, which falls on the riskier end of the securities spectrum, you should invest in short term bond funds.
Best short-term bond funds to consider:
Most people prefer to buy bonds through a broker such as Vanguard or Fidelity.
If you’re looking for the best short-term bond funds to buy now, consider these options:
Vanguard Short-Term Treasury Index Fund Admiral Shares (VSBSX)
Vanguard Limited-Term Tax Exempt Fund Investor Shares (VMLTX)
The Fidelity Short Term Bond Fund (FSHBX)
Vanguard Short-Term Tax-Exempt Fund Investor Share (VWSTX)
Vanguard Short-Term Investment Grade fund (VFSTX)
T. Rowe Price Short-Term Bond Fund (PRWBX)
Vanguard Short-Term Bond Index Fund (VBIRX)
Tax free short-term bonds
There are some short-term bond funds that are both state and federally tax free. But there are not too many out there.
However, the ones that are available are good investments. So, if you are in a low state bracket and in a high federal bracket, consider investing in these Vanguard bond funds.These are federally tax free bond funds:
Vanguard Limited-Term Tax Exempt Fund Investor Shares (VMLTX)
This Vanguard bond fund seeks to provide investors current income exempt from federal taxes. The fund invests in high-quality short-term municipal bonds.
This bond fund has a maturity of 2 years. So, if you are looking for a fund that provides modest income and is federal tax-exempt, the Vanguard Limited-Term Tax Exempt Fund is for you.
The fund has an expense ratio of 0.17% and a minimum investment of $3,000. This makes it one of the best short term bonds to buy.
Vanguard Short-Term Tax-Exempt Fund Investor Share (VWSTX)
Like the Vanguard Limited Short Term fund, this fund also provides investors with current income that is exempt from federal income taxes.
The majority of the fund invests in municipal bonds in the top three credit ratings categories. It also invests in medium grade quality bonds.
This fund too has an expense ratio of 0.17% and a minimum investment of $3,000, making it one of the best short term bond funds.
U.S Treasury Short-term Bond Funds: Vanguard Short-Term Treasury
If you’re interested in a bond fund that invests in U.S. Treasuries, then U.S.Treasury bond funds are a great choice for you. One of the best U.S.Treasury bond funds is the Vanguard Short-Term Treasury.
This bond fund seeks to track the performance of the Bloomberg Barclays US Treasury 1-3 Year Bond Index. The Vanguard Short-Term Treasury invests in fixed income securities with a maturity between 1 to 3 years.
This bond fund has an expense ratio of 0.07% and an initial minimum investment of $3,000. Currently, this short term bond fund has a 1-year yield of 4.51%, making it one of the best short term bond funds.
Of note, this fund is also available as an ETF, starting at the price of one share.
The Fidelity Short-Term Bond Fund (FSHBX)
The Fidelity Short Term Bond Fund is one of the best out there for those investors who want to preserve their capital. This fund was established in March of 1986 and seeks to provides investors with current income.
The fund managers invests in corporate bonds, U.S. Treasury bonds, and assets backed securities. Over the last 10 years, this bond fund has a yield of 1.98% and a 30-day yield of 1.98%. This Fidelity bond fund as an expense ratio of 0.45%. There is no minimum investment requirement.
Taxable short-term bond funds: Vanguard Short-Term Investment Grade fund (VFSTX)
If you are not in a high tax bracket, then you should consider investing in a taxable short term bond fund. One of the best out there is the Vanguard Short-Term Investment Grade fund.
This bond fund provides investors exposure to high and medium quality investment grade bonds, such as corporate bonds and US government bonds. This fund has an expense ratio of 0.20% and an initial minimum investment of $3,000, making it one of the best short term bond funds out there.
T. Rowe Price Short-Term Bond Fund (PRWBX)
The T. Rowe Price Short-Term Bond Fund invests in diversified portfolio of short term investment-grade corporate, government, asset and mortgage-backed securities. This bond fund also invests in some bank mortgages and foreign securities. This fund produce a higher return than a money market fund, but less return than a long-term bond fund. The T. Rowe Price Short-Term Bond Fund has a minimum investment requirement of $2500, making it one the most favorite short term bond funds out there.
Vanguard Short-Term Bond Index Fund (VBIRX)
The Vanguard Short-Term bond is a good choice for the conservative investor. It offers a low cost, diversified exposure to U.S. investment-grade bonds. This has fund has a maturity date between 1 to 5 years. Moreover, the fund invests about 70% in US government bonds and 30% in corporate bonds. The bond fund as an expense ratio of 0.07% and a minimum investment requirement of $3,000.
How to Invest in Short-Term Bonds
If you’re considering in investing in these or any of Vanguard bond funds, you need to do your due diligence.
First, think about what you need the bond fund in the first place. Is it to diversify your investment portfolio?
Are you a conservative investor who need a minimize risk at all cost? Or, do you want to invest in a short term bond fund because you need the money to use in a few years for a vacation, buying a house, or planning for a wedding?
Once, you have come up with answers to this question, the next step is to do your research about the best bond fund available to you.
Use this list to start. If it’s not enough, do your own research.
Look into how much the initial minimum investment is to buy a bond fund. Most Vanguard short term bond funds require a $3,000 minimum deposit.
Some Fidelity bond funds, however, have a 0$ minimum deposit requirement.
Next compare expense rations, performance for different funds to see if they match your investment goals. But you have to remember that past performance is not an indication of future performance.
Your final step is to open an account to buy your bond funds. If you choose Vanguard, you can do so at their website.
How do you make money with short-term bonds?
You can make money with short-term bonds the same ways you make money with a mutual fund (i.e., dividends, capital gains, and appreciation). But most of your returns in a bond fund comes from dividends.
The bottom line
In brief, short-term bonds are great investment choices if you have short term saving goals. You may be interested in buying these bonds because you expect to tap into your investment within a few years or so. Or, you want a more conservative investment portfolio.
Short term bonds produce higher yields than money market funds.
The only problem is that the share prices can fluctuate. So, if you don’t mind market volatility, you may wish to consider short-term bonds.
Speak with the Right Financial Advisor
If you have questions beyond short-term bonds, you can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc).
Find one who meets your needs with SmartAssetâs free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
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The post 7 Best Short-Term Bonds Funds to Buy in 2020 appeared first on GrowthRapidly.
Although investing in the stock market can feel intimidating at first, it could be the key to achieving your financial goals. Short of hitting the lottery or building a thriving business that you can sell, buying securities that increase in value over time is usually the easiest path to wealth.
After all, the average savings account pays out a paltry 0.05% APY according to the Federal Reserve Bank of St. Louis, yet the average stock market return is around 10% per year before accounting for inflation.Â
Unless you want your money to languish in a savings account where itâs worth less with each passing year, learning to invest should be at the top of your to-do list.
6 Steps to Start Investing in the Stock Market
But, how do you start down a path that is notoriously complicated and has the potential to leave you withless money than you started? Here are a few top steps you should take to get started.
1. List Your Goals
Ask yourself what you hope to accomplish by investing in the stock market. A few examples of investment goals might include:
Making a quick profit by investing in the short-term, and reselling stocks at a higher price,
Creating a source of passive income you can use later on,
Growing investment earnings so it can cover your retirement, or
Saving money for a specific goal.
As you list out your goals, make sure you have the extra money to invest on a regular basis, while also having cash set aside for emergencies. If you have a lot of credit card debt or other high-interest debt, you might even consider paying it off before you begin investing. After all, the average credit card interest rate is currently over 16% â and you might not get an investment return anywhere close to that.
2. Start With Retirement Savings Accounts
There are advantages that come with investing in a retirement account. Accounts, like a workplace 401(k), a SEP IRA, or a Solo 401(k) are tax-advantaged, giving you the chance to reduce your taxable income (and thus, pay less in taxes) when you contribute.
With a 401(k) plan from your job, for example, you can contribute up to $19,500 in 2020 and again in 2021. If youâre age 50 or older, you can also contribute another $6,500 each year which is called, a âcatch-up contributionâ. The amount you contribute is taken off of your taxable income, so your tax liability is lower.
You might also qualify for an âemployer matchâ on contributions to your employer-sponsored retirement account. Check with your companyâs human resource department to learn if your employer offers this benefit.
Other retirement accounts to consider include a traditional or Roth IRA. You can deduct your full traditional IRA contribution from your taxable income, if you donât have a retirement plan at work. Another option is funding a Roth IRA which lets you contribute using after-tax dollars instead. This means you wonât get a tax deduction for contributing, but Roth IRA funds grow tax-free and you can take distributions at retirement age without paying any taxes.Â
In 2021, contribution limits for IRAs stay the same as 2020. You can contribute up to $6,000 to an IRA, or $7,000 if youâre age 50 and older.
3. Open a Brokerage Account
In addition to investing for retirement, you can also open a taxable brokerage account. You wonât get any upfront tax advantages for opening a brokerage account, but you get the chance to buy and sell stocks and other securities, or buy and hold them for the long-term.
There are excellent brokerage account options for beginners or experienced investors, many of which let you invest in some capacity without any fees. Some of the top firms to consider include:Â
Betterment: Best for Beginners
Robinhood: Best for No Minimum Balance Requirement
M1 Finance: Best for Free Trades
Learn More About Betterment
4. Compare Costs and Fees
You might not have a lot of options if youâre investing in your workplace retirement plan at first. If you have the option to select a brokerage firm, youâll need to compare the fees and costs involved in investing. Fees and costs to watch out for include:
Investment management fees. These fees can be nonexistent or as high as 1% of your account balance (or more).
Expense ratios. Specific funds, like index funds or mutual funds, might carry this fee.
Transaction fees. You might pay transaction fees when buying or selling a stock or another security.
Front-end loads. This fee can be charged on some investments upfront.
Annual account fees. A charge thatâs tacked on just for using your brokerage account.
These are just some of the main fees to watch out for, but there are plenty of others. If you want to figure out how much youâre paying in fees on your investment accounts, the free retirement fee analyzer tool from Personal Capital is a good place to start.
5. Start Off With Simple Investments
Youâve probably heard plenty about the âhot stocksâ of the last few years, and how investors who got in early have gotten rich by being in the right place, at the right time. Unfortunately, most âregularâ investors donât hear about hot stocks until itâs too late.
As a beginning investor, itâs usually best to keep your stock market strategy simple by investing in what you understand. Some beginning investments to consider include exchange-traded funds (ETFs), which are made up of various investments that track an index or focus on a specific industry sector. You could even stick to index funds, which are another type of investment that tracks an index and are mostly âhands-offâ for the investor.
Target-date funds are another type of simple investment to consider. These funds include a selection of stocks and bonds that adjust for less risk over time. If you purchase a target-date fund thatâs meant to last until 2050, for example, your risk would be high at first but slowly taper down as you approached 2050 or whatever âtarget dateâ you choose for retirement.
6. Research Before Jumping on Complex Strategies
If youâre curious about more complex investing options, youâll need to learn more about how and when to invest. Some resources to turn to include investing books, like:
The Little Book of Common Sense Investing by John C. Bogle
Investing All-In-One for Dummies by Eric Tyson
You could also check out top investing forums like Seeking Alpha or the Bogleheads forum, taking the time to read through questions and answers from investors at the top of their game.
Blog posts that can help you get started with some investing basics include:
How to Invest Essentials for Beginners & Intermediates
How the Stock Market Works
How to Buy Stock Online
The Bottom Line
Investing in the stock market can be nerve-racking, but starting with common-sense investments in place (e.g. employer-sponsored retirement account) and uncomplicated investments (like index funds), lets you ease into the process slowly.
Over time and with more experience, youâll have a better sense of when â and when not to â shy away from the risks of the stock market.
The post How to Start Investing in the Stock Market appeared first on Good Financial Cents®.
Investing is an important part of everyoneâs financial life. Here are the best tools to research stocks so you can grow your portfolio over the long term.
The post Best Stock Research Tools appeared first on The Dough Roller.
They say that millionaires have 7 streams of income. And most of them are boring. Common examples of income-generating assets include your classics like real estate (rental income, depreciation benefits, equity appreciation) and dividend stocks (dividend income is taxed favorably), which I love.
But every so often, there's one in there that sounds as exciting as going to Vegas and always betting on black.
Today, I want to talk about those obscure investments. Those weird, you only hear about them in the movies, oddball investments that can produce cash flow. I don't want the obscure ones that don't produce cash (invest in whiskey, art, or some other collectible … that just makes you eccentric), these have to produce a stream of income.
Maybe the stock market has you spooked. Maybe you simply have enough in equities.
Maybe you want income but all the income-producing assets you know of are boring (or you have enough) – who really cares about certificates of deposit, Treasury bonds, and dividend stocks. If you wanted them, you would've gotten them by now (or you have and want even more diversification).
Today, you'll read about some truly interesting assets that you've probably never heard of before:
I will reference different websites and companies in this list as examples. I haven't used a single one of them. These are not endorsements.
1. Crowdfunded real estate
Crowdfunded real estate is a relatively new phenomenon. It's when you can invest in a little piece of real estate as part of a “crowd” of investors. This lets you diversify your real estate holdings without the work of buying and selling properties.
You have some companies, like RealtyMogul, that curate deals and offer you a piece of the investment. There are others, like Fundrise, that run funds that do the investing and you can buy shares of those funds. In both cases, you diversify your risk across several investments and can generate passive cash flow in the process (as well as equity appreciation).
If you aren't an accredited investor, here is a list of real estate investing sites for non-accredited investors.
2. Peer-to-peer lending
Peer-to-peer lending is older than crowdfunded real estate investing but follows the same principles. You act as a bank, lending money to borrowers, but are able to diversify your loans across a variety of different borrowers with varying levels of risk. By funding loans with $10 and $20, you can deploy thousands of dollars across hundred of borrowers that, hopefully, are not correlated.
3. Mineral rights
Mineral rights are exactly that—the rights to extra minerals from the earth for a specific plot of land. They may be called mineral rights, mineral interests, or mineral estate, but the term is clear. It gives the owner the right to mine and extract minerals from the land.
When you own the mineral rights, you own any valuable minerals trapped in the land.
This is lucrative because when you own the mineral rights, you own any valuable minerals trapped in the land. The most valuable minerals are oil and gas, gold, copper, diamonds, and coal. In the United States, most of the value is in finding oil and gas.
When you own a mineral right, you can reach an agreement with a miner or extractor to receive a royalty based on production. For example, it's not uncommon for the Lessee (the miner) to pay the Lessor (owner) 1/8th value of what is produced.
If you want to buy mineral rights, do your homework!
4. Structured settlements
Structured settlements are an interesting asset.
Let's say you slip and fall in a store. You sue the store, because they were negligent, and you reach a settlement with the store. They offer to pay you $5,000 a year for 20 years. You see this a lot whenever there is a settlement on a massive scale with multiple claimants. The responsible party has to do this or they might go bankrupt. If they go bankrupt, no one gets paid.
Structured settlements are fine, except sometimes the person getting the money needs the whole sum. Or they don't want to wait. That's when an investor can offer to buy it from them. At this point, it's really an annuity to the investor.
This area has a bad reputation because sometimes the parties involved don't behave honorably. They might take advantage of someone in a bad situation and offer a lowball amount for a settlement. Whatever the case may be, the instrument itself is aboveboard.
Setting up automatic contributions to your 401k or Roth IRA doesnât just set you up for retirement; it lowers your stress. Boy, I wish Iâd done it sooner.Setting up automatic contributions to your 401k or Roth IRA doesnât just set you up for retirement; it lowers your stress. Boy, I wish Iâd done it sooner.
The post My Biggest Financial Mistake – Missing Retirement Contributions In My 20s appeared first on Money Under 30.
If you have a special child in your life, you may be wondering what to put under the tree this year. One long-lasting and truly meaningful way to show the child in your life that you care is by taking a few minutes to set up a UGMA/UTMA account and give them a leg up in life.
The earlier you open a UGMA or UTMA account for a child, the longer your initial gift has to grow, thanks to the magic of compound interest. For example, investing just $5 a day from birth at an 8% return could make that child a millionaire by the age of 50. By setting up a UGMA/UTMA account, youâre really giving your beneficiary a present that grows all year round. Now, thatâs a gift theyâre sure to remember!
What is a UGMA/UTMA account?
UGMA is an abbreviation for the Uniform Gifts to Minors Act. And UTMA stands for Uniform Transfers to Minors Act. Both UGMA and UTMA accounts are custodial accounts created for the benefit of a minor (or beneficiary).
The money in a UGMA/UTMA account can be used for educational expenses (like college tuition), along with anything that benefits the child – including housing, transportation, technology, and more. On the other hand, 529 plans can only be used for qualified educational expenses, like summer camps, school uniforms, or private school tuition and fees.
Itâs important to keep in mind that you cannot use UGMA/UTMA funds to provide the child with items that parents or guardians would be reasonably expected to provide, such as food, shelter, and clothing. Another important point is that when you set up a UGMA/UTMA account, the money is irrevocably transferred to the child, meaning it cannot be returned to the donor.
Tax advantages of a UGMA/UTMA account
The contributions you make to a UGMA/UTMA account are not tax-deductible in the year that you make the contribution, and they are subject to gift tax limits. The income that you receive each year from the UGMA/UTMA account does have special tax advantages when compared to income that you would get in a traditional investment account, making it a great tax-advantaged option for you to invest in the child you love.
Hereâs how that works. In 2020, the first $1,100 of investment income earned in a UGMA/UTMA account may be claimed on the custodianâsâ tax return, tax free. The next $1,100 is then taxed at the childâs (usually much lower) tax rate. Any income in excess of those amounts must be claimed at the custodianâs regular tax rate.
A few things to be aware of with UGMA/UTMA accounts
While thereâs no doubt that UGMA/UTMA accounts have several advantages and a place in your overall financial portfolio, there are a few things to consider before you open up a UGMA/UTMA account:
When the child reaches the age of majority (usually 18 or 21, depending on the specifics of the plan), the money is theirs, without restriction.
When the UGMA/UTMA funds are released, they are factored into the minorâs assets.
The value of these assets will factor into the minorâs financial aid calculations, and may play a big role in determining if they qualify for certain programs, such as SSDI and Medicaid.
Where you can open a UGMA/UTMA account
Many financial services companies and brokerages offer UGMA or UTMA accounts. One option is the Acorns Early program from Acorns. Acorns Early is a UGMA/UTMA account that is included with the Acorns Family plan, which costs $5 / month. Acorns Early takes 5 minutes to set up, and you can add multiple kids at no extra charge. The Acorns Family plan also includes Acorns Invest, Later, and Spend so you can manage all of the familyâs finances, from one easy app.
During a time where many of us are laying low this holiday season due to COVID-19, remember that presents donât just need to be a material possession your loved one unwraps, and then often forgets about. Give the gift of lasting impact through a UGMA/UTMA account.
The post Why UGMA/UTMA Accounts Are the Perfect Holiday Gift appeared first on MintLife Blog.
