Family Finance, Investing

10 Risky Investments That Could Make You Lose Everything

If the stock market crashed again, would you respond by investing more? Is day trading your sport of choice? Do you smirk at the idea of keeping money in a savings account instead of investing it?

If you answered yes to these questions, you’re probably an investor with a high risk tolerance.

Hold up, Evel Knievel.

It’s fine to embrace a “no-risk, no-reward” philosophy. But some investments are so high-risk that they aren’t worth the rewards.

10 Risky Investments That Could Lead to Huge Losses

We’re not saying no one should ever consider investing in any of the following. But even if you’re a personal finance daredevil, these investments should give you serious pause.

Sure, if things go well, you’d make money — lots of it. But if things go south, the potential losses are huge. In some cases, you could lose your entire investment.

1. Penny Stocks

There’s usually a good reason penny stocks are so cheap. Often they have zero history of earning a profit. Or they’ve run into trouble and have been delisted by a major stock exchange.

Penny stocks usually trade infrequently, meaning you could have trouble selling your shares if you want to get out. And because the issuing company is small, a single piece of good or bad news can make or break it.

Fraud is also rampant in the penny stock world. One common tactic is the “pump and dump.” Scammers create false hype, often using investing websites and newsletters, to pump up the price. Then they dump their shares on unknowing investors.

2. IPOs

You and I probably aren’t rich or connected enough to invest in an IPO, or initial public offering, at its actual offering price. That’s usually reserved for company insiders and investors with deep pockets.

Instead, we’re more likely to be swayed by the hype that a popular company gets when it goes public and the shares start trading on the stock market. Then, we’re at risk of paying overinflated prices because we think we’re buying the next Amazon.

But don’t assume that a company is profitable just because its CEO is ringing the opening bell on Wall Street. Many companies that go public have yet to make money.

The average first-day returns of a newly public company have consistently been between 10% to 20% since the 1990s, according to a 2019 report by investment firm UBS. But after five years, about 60% of IPOs had negative total returns.

3. Bitcoin

Proponents of bitcoin believe the cryptocurrency will eventually become a widespread way to pay for things. But its usage now as an actual way to pay for things remains extremely limited.

For now, bitcoin remains a speculative investment. People invest in it primarily because they think other investors will continue to drive up the price, not because they see value in it.

All that speculation creates wild price fluctuations. In December 2017, bitcoin peaked at nearly $20,000 per coin, then plummeted in 2018 to well below $4,000. That volatility makes bitcoin useless as a currency, as Bankrate’s James Royal writes.

Unless you can afford to part ways with a huge percentage of your investment, bitcoin is best avoided.

4. Anything You Buy on Margin

Margining gives you more money to invest, which sounds like a win. You borrow money from your broker using the stocks you own as collateral. Of course, you have to pay your broker back, plus interest.

If it goes well, you amplify your returns. But when margining goes badly, it can end really, really badly.

Suppose you buy $5,000 of stock and it drops 50%. Normally, you’d lose $2,500.

But if you’d put down $2,500 of your own money to buy the stock and used margin for the other 50%? You’d be left with $0 because you’d have to use the remaining $2,500 to pay back your broker.

That 50% drop has wiped out 100% of your investment — and that’s before we account for interest.

5. Leveraged ETFs

Buying a leveraged ETF is like margaining on steroids.

Like regular exchange-traded funds, or ETFs, leveraged ETFs give you a bundle of investments designed to mirror a stock index. But leveraged ETFs seek to earn two or three times the benchmark index by using a bunch of complicated financing maneuvers that give you greater exposure.

Essentially, a leveraged ETF that aims for twice the benchmark index’s returns (known as a 2x leveraged ETF) is letting you invest $2 for every $1 you’ve actually invested.

We won’t bore you with the nitty-gritty, but the risk here is similar to buying stocks on margin: It can lead to big profits but it can also magnify your losses.

But here’s what’s especially tricky about leveraged ETFs: They’re required to rebalance every day to reflect the makeup of the underlying index. That means you can’t sit back and enjoy the long-haul growth. Every day, you’re essentially investing in a different product.

For this reason, leveraged ETFs are only appropriate for day traders — specifically, day traders with very deep pockets who can stomach huge losses.

6. Collectibles

A lot of people collect cars, stamps, art, even Pokemon cards as a hobby. But some collectors hope their hobby will turn into a profitable investment.

It’s OK to spend a reasonable amount of money curating that collection if you enjoy it. But if your plans are contingent on selling the collection for a profit someday, you’re taking a big risk.

Collectibles are illiquid assets. That’s a jargony way of saying they’re often hard to sell.

If you need to cash out, you may not be able to find a buyer. Or you may need to sell at a steep discount. It’s also hard to figure out the actual value of collectibles. After all, there’s no New York Stock Exchange for Pokemon cards. And if you do sell, you’ll pay 28% tax on the gains. Stocks held long-term, on the other hand, are taxed at 15% for most middle-income earners.

Plus, there’s also the risk of losing your entire investment if your collection is physically destroyed.

7. Junk Bonds

If you have a low credit score, you’ll pay a high interest rate when you borrow money because banks think there’s a good chance you won’t pay them back. With corporations, it works the same way.

Companies issue bonds when they need to take on debt. The higher their risk of defaulting, the more interest they pay to those who invest in bonds. Junk bonds are the riskiest of bonds.

If you own bonds in a company that ends up declaring bankruptcy, you could lose your entire investment. Secured creditors — the ones whose claim is backed by actual property, like a bank that holds a mortgage — get paid back 100% in bankruptcy court before bondholders get anything.

8. Shares of a Bankrupt Company

Bondholders may be left empty-handed when a corporation declares bankruptcy. But guess who’s dead last in terms of priority for who gets paid? Common shareholders.

Secured creditors, bondholders and owners of preferred stock (it’s kind of like a stock/bond hybrid) all get paid in full before shareholders get a dime.

Typically when a company files for bankruptcy, its stock prices crash. Yet recently, eager investors have flocked in to buy those ultracheap shares and temporarily driven up the prices. (Ahem, ahem: Hertz.)

That post-bankruptcy filing surge is usually a temporary case of FOMO. Remember: The likelihood that those shares will eventually be worth $0 is high.

You may be planning on turning a quick profit during the run-up, but the spike in share prices is usually short-lived. If you don’t get the timing exactly right here, you could lose big when the uptick reverses.

9. Gold and Silver

If you’re worried about the stock market or high inflation, you may be tempted to invest in gold or silver.

Both precious metals are often thought of as hedges against a bear market because they’ve held their value throughout history. Plus in uncertain times, many investors seek out tangible assets, i.e., stuff you can touch.

Having a small amount invested in gold and silver can help you diversify your portfolio. But anything above 5% to 10% is risky.

Both gold and silver are highly volatile. Gold is much rarer, so discovery of a new source can bring down its price. Silver is even more volatile than gold because the value of its supply is much smaller. That means small price changes have a bigger impact. Both metals tend to underperform the S&P 500 in the long term.

The riskiest way to invest in gold and silver is by buying the physical metals because they’re difficult to store and sell. A less risky way to invest is by purchasing a gold or silver ETF that contains a variety of assets, such as mining company stocks and physical metals.

10. Options Trading

Options give you the right to buy or sell a stock at a certain price before a certain date. The right to buy is a call. You buy a call when you think a stock price will rise. The right to sell is a put. You buy a put when you think a stock price will drop.

What makes options trading unique is that there’s one clear winner and one clear loser. With most investments, you can sell for a profit to an investor who also goes on to sell at a profit. Hypothetically, this can continue forever.

But suppose you buy a call or a put. If your bet was correct, you exercise the option. You get to buy a winning stock at a bargain price, or you get to offload a tanking stock at a premium price. If you lose, you’re out the entire amount you paid for the option.

Options trading gets even riskier, though, when you’re the one selling the call or put. When you win, you pocket the entire amount you were paid.

But if you end up on the losing side: You could have to pay that high price for the stock that just crashed or sell a soaring stock at a deep discount.

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What Are the Signs That an Investment Is Too Risky?

The 10 things we just described certainly aren’t the only risky investments out there. So let’s review some common themes. Consider any of these traits a red flag when you’re making an investment decision.

  • They’re confusing. Are you perplexed by bitcoin and options trading? So is pretty much everyone else.If you don’t understand how something works, it’s a sign you shouldn’t invest in it.
  • They’re volatile. Dramatic price swings may be exciting compared with the tried-and-true approach of investing across the stock market. But investing is downright dangerous when everything hinges on getting the timing just right.
  • The price is way too low. Just because an investment is cheap doesn’t mean it’s a good value.
  • The price is way too high. Before you invest in the latest hype, ask yourself if the investment actually delivers value. Or are the high prices based on speculation?

The bottom line: If you can afford to put a small amount of money in high-risk investments just for the thrill of it, fine — as long as you can deal with losing it all.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to DearPenny@thepennyhoarder.com.

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

Budgeting, Investing

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

Bank Accounts, Budgeting, Insurance, Investing

The Top Financial Resolutions for 2021

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The most surefire way to achieve your financial resolutions and stay within that budget you made is to earn more money.

1. Make A Realistic Budget And Stick To It

Source: thepennyhoarder.com
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2. Look For A Better Job: Make up to $69/Hour

Have you made your resolutions yet? It can feel a little daunting trying to figure out what you need to focus on, so we made it easy: These are the resolutions everyone else is taking on in 2021, according to a survey by Wallethub, and you should, too. Plus — how to accomplish them.

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Those are the perks of working as a bookkeeper, says Ben Robinson, a CPA and business owner who teaches others to become virtual bookkeepers through online courses called Bookkeepers.com.

3. Pay Off Credit Card Debt: Wipe Out All Your Debt by Tomorrow

Kari Faber is a staff writer at The Penny Hoarder.
Can you open an excel spreadsheet? Does earning an hour sound appealing? How about the freedom to work remotely while helping others succeed?
James Cooper, of Atlanta, used Credit Sesame to raise his credit score nearly 300 points in six months.*** “They showed me the ins and outs — how to dot the I’s and cross the T’s,” he said.
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50% of your take-home income every month covers your fixed expenses — rent, utilities, groceries, minimum debt payments, etc. 30% goes towards the things you can live without, but don’t want to (like food delivery, a Netflix subscription and travel). Finally, the last 20% of your monthly income is dedicated to your financial goals.
We recommend the 50/30/20 method. It’s simple, yet effective, and has a bit of a cult following, too! Here’s how it shakes out:

4. Monitor Your Credit Report

It’s easy to get swept up in the joy that is payday and immediately start buying things you don’t need. But as the final financial resolution on this list, paying your bills right away can help keep the rest of your goals on track.
If you owe your credit card companies ,000 or less, AmOne will match you with a low-interest loan you can use to pay off every single one of your balances.
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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.
Did your credit score take a dive this year? Or is still stuck at a “fair” grade? Then monitoring any changes on your credit reporting and working to improve your score should be one of your financial resolutions for this year, too.
Within two minutes, you’ll get access to your credit score, any debt-carrying accounts and a handful of personalized tips to improve your score. You’ll even be able to spot any errors holding you back (one in five reports have one).

5. Get Insured In Case Of A Catastrophe. You Could Give Your Family up to $1 Million

***Like Cooper, 60% of Credit Sesame members see an increase in their credit score; 50% see at least a 10-point increase, and 20% see at least a 50-point increase after 180 days.
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It’s easy to slip away from our good financial habits as the year goes on, so it’s particularly important to find a budgeting system that works for your lifestyle and won’t be hard to maintain.
So prioritize your emergency fund this year. If you don’t have one yet, start by opening an account that will help you grow your money.
2020 was actually a good year for paying down credit card debt — Americans did more of it this year than they ever have.

6. Add A Month To Your Emergency Fund

Having an emergency fund is important; you know that. But it’s easy to deprioritize it when things are going fine. And as 2020 showed us, you can lose your job at the drop of a hat, meaning a full emergency fund can be what keeps your lights on.
This one sounds familiar, right? Oft-regarded as Old Faithful when it comes to New Years’ resolutions, it holds that title for good reason. Having a budget you can actually stick to will set you up for financial success, no matter what your goals are.
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7. Pay Bills Right After Payday

But what if you could create that higher-paying and more rewarding job? There’s an idea…
Want to check for yourself? It’s free and only takes about 90 seconds to sign up.
But there’s still work to be done, which is why paying off credit card debt is one of the top financial resolutions this year.  Because if you still have credit card debt, you know. The anxiety, the interest rates, the fear you’re never going to escape…
It means you can avoid late fees on your utilities, which can really add up and destroy your budget. You can pay off your credit card debt without mounting interest charges. And you can prevent any hiccups that would dock your credit score a few points.
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2020 made that really hard for most people. Which is why finding a better job, that you actually enjoy — and will pay you more — is a top resolution for 2021.
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Financial Freedom, Investing

Have You Met Mr. Market?

Do you know the allegory of Mr. Market? This useful parable—created by Warren Buffett’s mentor—might change everything you think about the stock market, its daily prices, and the endless news cycle (and blogs?!) built upon it.

The Original Mr. Market

The imaginary investor named “Mr. Market” was created by Benjamin Graham in his 1949 book The Intelligent Investor. Graham, if you’re not familiar, was the guy who taught Warren Buffett about securities analysis and value investing. Not a bad track record.

Graham asks the readers of his book to imagine that they have a business partner: a man named Mr. Market. On some days, Mr. Market arrives at work full of enthusiasm. Business is good and Mr. Market is wildly happy. So happy, in fact, that he wants to buy the reader’s share of the business.

Thestreet GIFs - Get the best GIF on GIPHY

But on other days, Mr. Market is incredibly depressed. The business has hit a bump in the road. Mr. Market will do anything to sell his own shares of the business to the reader.

Nyse GIFs - Get the best GIF on GIPHY

Of course, the reader is always free to decline Mr. Market’s offers. And the reader certainly should feel wary of Mr. Market. After all, he is irrational, emotional, and moody. It seems he does not have good business judgement. Graham describes him as having, “incurable emotional problems.”

How can Mr. Market’s feelings fluctuate so quickly? Rather than taking an even emotional approach to business highs and lows, Mr. Market reacts strongly to the slightest bit of news.

If anything, the reader could probably find a way to take advantage of Mr. Market’s over-reactions. The reader could buy from Mr. Market when he’s feeling overly pessimistic and sell to Mr. Market when he’s feeling unjustifiably euphoric. This is one of the basic principles behind value investing.

But Mr. Market is a metaphor

Of course, Mr. Market is an imaginary investor. Yet countless readers have felt that Mr. Market acts as a perfect metaphor for the market fluctuations in the real stock market.

The stock market will come to you with a different price every day. The market will hear good news from a business and countless investors will look to buy that business’s stock. Will you sell to them? But a negative headline will send the market tumbling. Investors will sell. Please, they plead, will you buy my shares?!

Don’t like today’s price? You’ll get a new one tomorrow.

Is this any way to make rational money decisions? By buying while manic and selling while depressive? Do these daily market fluctuations relate to the true intrinsic value of the businesses they represent?

“Never buy something from someone who is out of breath”

Burton Malkiel

There’s a reason why Benjamin Graham built Mr. Market to resemble an actual manic-depressive. It’s an unfortunate affliction. And sadly, those afflicted are often untethered from reality.

The stock market is nothing more than a collection of individuals. These individuals can fall prey to the same emotional overreactions as any other human. Mr. Market acts as a representation of those people.

“In the short run, the stock market is a voting machine. Yet, in the long run, it is a weighing machine.”

Benjamin Graham

Votes are opinions, and opinions can be wrong. That’s why the market’s daily price fluctuations should not affect your long-term investing decisions. But weight is based on fact, and facts don’t lie. Over the long run, the true weight (or value) of a company will make itself apparent.

Warren Buffett’s Thoughts

Warren Buffett is on the record speaking to Berkshire Hathaway shareholders saying that Mr. Market is his favorite part of Benjamin Graham’s book.

Why? Because:

If you cannot control your emotions, you cannot control your money.

Warren Buffett

Of course, Buffett is famous for skills beyond his emotional control. I mean, the guy is 90 years old and continues his daily habits of eating McDonalds and reading six hours of business briefings. That’s fame-worthy.

Warren Buffett

But Buffett’s point is that ignoring Mr. Market is 1) difficult but 2) vitally important. Your mental behavior is just as important as your investing choices.

For example: perhaps your business instincts suggested that Amazon was a great purchase in 1999—at about $100 per share. It was assuredly overvalued at that point based on intrinsic value, but your crystal ball saw a beautiful future.

But Buffett’s real question for you would be: did you sell Amazon when the Dot Com bubble burst (and the stock fell to less than $10 per share)? Did Mr. Market’s depression affect you? Or did your belief in the company’s long-term future allow to hold on until today—when the stock sits at over $3000 per share.

The Woefully Ignorant Sports Fan

I know about 25 different versions of this guy, so I bet you know at least one of them. I’m talking about the Woefully Ignorant Sports Fan, or WISF for short.

The WISF is a spitting image of Mr. Market.

When Lebron James has a couple bad games, the WISF confidently exclaims,

“The dude is a trash basketball player. He’s been overhyped since Day 1. I’m surprised he’s still in the starting lineup.”

Skip Bayless: ESPN's different rules for me and Stephen Smith
Stephen A. Smith and Skip Bayless: Two Gods of the WISF world

Wow! That’s a pretty outrageous claim. But when Lebron wins the NBA finals and takes home another First-Team All-NBA award, the WISF changes his tune.

“I’m telling you, that’s why he’s the Greatest of All Time. The GOAT. Love him or hate him, you can’t deny he’s the King.”

To the outside observer, this kind of flip-flop removes any shred of the WISF’s credibility. And yet the WISF flip-flops constantly, consistently, and without a hint of irony. It’s simply his nature.

Now think about the WISF alongside Mr. Market. What does the WISF actually tell us about Lebron? Very little! And what does Mr. Market tell us about the true value of the companies on the stock market? Again, very little!

We should not seek truth in the loud pronouncements of an emotional judge. This is another aphorism from The Intelligent Investor book.

But I Want More Money!

Just out of curiosity, I logged into my Fidelity account in late March 2020. The COVID market was at the bottom of its tumble, and my 401(k) and Roth IRA both showed scarring.

Ouch. Tens of thousands of dollars disappeared. Years of saving and investing…poof. This is how investors lose heart. Should I sell now and save myself further losses?

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No! Absolutely not! Selling at the bottom is what Mr. Market does. It’s emotional behavior. It’s not based on rationality, not on the intrinsic values of the underlying businesses.

My pessimism quickly subsided. In fact, I began to feel silver linings. Why?

I’m still in the buying phase of my investing career. I buy via my 401(k) account every two weeks. And I buy via my Roth IRA account every month. I’ve never sold a stock. The red ticks in the image below show my two-week purchasing schedule so far in 2020.

Buy when high, buy when low. That’s the Lazy Portfolio way!

If you’re investing for later in life, then your emotions should typically be the opposite of the market’s emotions. If the market is sad and prices are low and they want to sell…well, great! A low price for you increases your ability to profit later.

And Benjamin Graham agrees. He doesn’t think you should ignore Mr. Market altogether, but instead should do business with him only when it’s in your best interest (ooh yeah!).

“The intelligent investor shouldn’t ignore Mr. Market entirely. Instead, you should do business with him, but only to the extent that it serves your interest.”

Benjamin Graham

If you log into your investment accounts and see that your portfolio value is down, take a step back and consider what it really means. You haven’t lost any money. You don’t lock in any losses unless you sell.

The only two prices that ever matter are the price when you buy and the price when you sell.

Mr. Market in the News

If you pay close attention to the financial news, you’ll realize that it’s a mouthpiece for the emotional whims of Mr. Market. Does that include blogs, too? In some cases, absolutely. But I try to keep the Best Interest out of that fray.

For example, here are two headlines from September 29, 2020:

Just imagine if these two headlines existed in another space. “Bananas—A Healthy Snack That Prevents You From Ever Dying” vs. “Bananas—A Toxic Demon Food That Will Kill Your Family.”

The juxtaposition of these two headlines reminds me of Jason Zweig’s quote:

“The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap).”

Jason Zweig

More often than not, reality sits somewhere between unsustainable optimism and unjustified pessimism. As an investor, your most important job is to not be duped by this emotional rollercoaster.

Investing Based on Recent Performance

Out of all the questions you send me (and please keep sending them!), one of the most common is:

“Jesse – I’m deciding between investment A, investment B, and investment C. I did some research, and B has the best returns over the past three years. So I should pick B, right?”

Wonderful Readers

Great question! I’ve got a few different answers.

What is Mr. Market saying?

Let’s look at the FANG+ index. The index contains Twitter, Tesla, Apple, Facebook, Google, Netflix, Amazon, NVIDIA, and the Chinese companies Baidu and Alibaba. Wow! What an assortment of popular and well-known companies!

The recent price trend of FANG+ certainly represents that these companies are strong. The index has doubled over the past year.

Mr. Market is euphoric!

And what do we think when Mr. Market is euphoric?

How do you make money?

Another one of my favorite quotes from The Intelligent Investor is this:

“Obvious prospects for physical growth in a business do not translate into obvious profits for investors”

Benjamin Graham

You make money when a company’s stock price is undervalued compared to its prospects for physical growth. You buy low (because it’s undervalued), the company grows, the stock price increases, you sell, and boom—you’ve made a profit.

I think most people would agree that the FANG+ companies all share prospects for physical growth. But, are those companies undervalued? Alternatively, have their potentials for future growth already been accounted for in their prices?

It’s just like someone saying, “I want a Ferrari! It’s such a famous car. How could it not be a great purchase?”

The statement is incomplete. How much are you paying for the Ferrari? Is it undervalued, only selling for $10,000? Or is it overvalued, selling at $10 million? The product itself—whether a car or a company—must be judged against the price it is selling for.

Past Results Do Not Guarantee Future Performance

If investing were as simple as, “History always repeats itself,” then writing articles like this wouldn’t be worthwhile. Every investment company in the world includes a disclaimer: “Past results do not guarantee future performance.”

Before making a specific choice like “Investment B,” one should understanding the ideas of results-oriented thinking and random walks.

Farewell, Mr. Market

Mr. Market, like the real stock market, is an emotional reactionary. His daily pronouncements are often untethered from reality. Don’t let him affect you.

Instead, realize that only two of Mr. Market’s thoughts ever matter—when you buy from him and when you sell to him. Do business with him, but make sure it’s in your best interest (oh yeah!). Everything else is just noise.

If the thoughts of Benjamin Graham, Warren Buffett, and the Best Interest haven’t convinced you, just look at the financial news or consider the Woefully Ignorant Sports Fan. Rapidly changing opinions rarely reflect true reality.

Stay rational and happy investing!

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.

Source: bestinterest.blog

Financial Freedom, Investing

Worthy Bonds Review: Earn 5% Interest on Your Money

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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Banking, Financial Freedom, Financial Planning, Investing, Personal Finance, Retirement

The 8 Best Vanguard Funds for Long-Term Investments

If you’re busy and want to invest your money in the long term, you will love the best vanguard funds. They are cheaper.

They are high quality funds, well diversified, and professionally managed.

Thus, vanguard funds are a favorite for long-term investments and for retirement.

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Vanguard mutual funds, like any mutual funds, are money invested by investors. They are pooled together in a single investment portfolio. The mutual fund is then managed by a professional manager who then use the money to buy a bunch of stocks, bonds or other assets.

With Vanguard index funds, they are passively managed. That is, they are managed by a computer with its only job is to track an index, such as the S&P 500.

Nonetheless, both mutual funds and index funds are cost-efficient and a huge time saver for a busy investor. And because of that, the best vanguard funds are superior investment vehicles for long term-investment. 

In this article,  we will discuss the 8 best vanguard funds that offer a high-quality, cost and time-efficient way to invest in the stock market.

Understanding the Advantages of the Best Vanguard Funds

Before jumping into the best vanguard funds, it’s important to go over the main reasons for investing in mutual or index funds rather than individual stocks, bonds, or other securities.

Diversification. You have probably heard of the popular saying “don’t put all your eggs in one basket.” Well, if so, it applies well to mutual and index funds. Diversification is when you have a mix of investment to help control the total risk of your investment portfolio.

Unless you have a lot of money, buying individual stocks yourself can be costly. But with a mutual or index fund, you’re able to buy dozens of stocks and invest in different types of stocks in a variety of industries, thus diversifying your portfolio.

Because you invest in multiple stocks across various industries, you are spreading your risk. If one stock plummets, the others can balance it out. Most Vanguard funds, if not all, are diversified.

Low minimum investment. Another benefit of Vanguard funds is that they require a reasonable investment minimum. Some Vanguard mutual funds require a minimum of $3000 to invest. They also offer a monthly investment plan, so you can start with as little as $20 per month.

Cost efficiency. The charges that you pay to buy or sell a fund can be significant. However Vanguard funds are known to cost way less than the average mutual fund.

Professional management. Even if you have a lot and you are an expert in investing, investing your money in a Vanguard mutual fund is a huge time saver. That means once you buy your fund and contribute to it monthly (however you chose), you can just forget about it.

A Vanguard professional manager takes care of it for you. Plus, vanguard fund managers are experienced, well educated. So you don’t have to worry about an inexperienced manager running your money.

These are the reasons why investing in the best vanguard funds is better than investing in individual stocks and/or bonds.

However, one of the drawbacks with vanguard funds, as with all mutual or index funds, is that you don’t have control over your investment portfolio. Leaving your money to someone who decides when and what to invest in can be difficult for you if you’re someone who likes to be in control.

So, if you like to be in control and things yourself, you may want to develop your own investment portfolio and not relying on these Vanguard funds.

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Are you a long-term investor?

Think about yourself and your goals before choosing these best Vanguard funds.

What are your investment goals? Do you plan on holding these funds in the long term?

A long term investor is someone who puts money into an investment product for a long period of time.

If you plan on investing money to achieve some goals in 2 years, such as buying a car or going on a vacation, you should not use these Vanguard Funds.

That is because stocks and bonds can rise and fall significantly over a short period of time. That makes it possible to lose some or all of your money. Moreover, if you need cash in a hurry, a Vanguard fund is definitely not the right investment for you.

So you’re better off using short-term investments for these kind of goals.

But if you want to build wealth for the long term or your goal is to retire in 20 or 40 years, these Vanguard funds are for you.

Likewise, what is your appetite for risk?

A long-term investor should be aware of the risks involved in investing in the stock market. They should know their own risk tolerance. Some investors are more cautious than others. Some can take risks and are able to sleep well at night.

These vanguard funds carry different level of risks. Some are more conservative than the others. 

Therefore, before you start buying Vanguard funds, figure out whether you are a long term investor. In other words, don’t keep money in funds unless you plan on holding them for at least 5 years.

The 8 Best Vanguard Funds to Buy Now for Long-Term Investments

Now that you have a pretty good idea of why a Vanguard fund is a good long-term investment, and you are aware of your risk tolerance, below is 8 of the top and best Vanguard funds to buy now for the long term. If you have questions beyond Vanguard funds, it may make sense to work with a financial planner or financial advisor near you.

Vanguard Total Stock Market Admiral (VTSAX)

  • Minimum initial investment:$3000
  • Expenses:0.04%

The biggest and perhaps one of the best Vanguard funds is the Vanguard Total Stock Market. The fund was created in 1992. It gives long term investors a broad exposure to the entire US equity market, including large, mid, and small cap growth stocks. Some of the largest stocks include Apple, Facebook, Johnson And Johnson, Alphabet, Berkshire Hathaway, etc…

This Vanguard fund has all of the attributes mentioned above, i.e., diversification and low costs. Note this fund invests exclusively in stock. So it’s the most aggressive Vanguard fund around.You need a minimum of $3000 to invest in this fund. The expenses are 0.04%, which is extremely low. Note this is also available as an ETF, with an expense ratio of 0.03%.

Vanguard 500 Index (VFIAX)

  • Minimum initial investment:$3,000
  • Expenses: 0.04%

If you want to have your money invested only in American assets, this Vanguard fund is the right one for you. The Vanguard 500 Index, as the name suggests tracks the S&P 500 index.

This index funds gives you exposure to 500 of the largest U.S. companies, spreading across different industries, making it one of the best Vanguard funds to have. Some of the largest companies you might already know include Microsoft, Apple, Visa, JP Morgan Chase, Facebook, etc. It has a minimum investment of $3,000 with an expense ratio of 0.04&, making it one of the best Vanguard funds to have. 

Vanguard Wellington Income Investor Share (VWINX)

  • Minimum initial investment:
  • Expenses:

If you’re aware of risks involved in investing in stocks and you have a low tolerance for risk, the Vanguard wellington Income is for you. This fund allocates about one third to stocks and two thirds to bonds, making it very conservative.

Another good thing about this Vanguard fund is that it invests in stocks that have a strong track record of providing dividend income to its investors. So, if you are one of those long term investors who has a low appetite for risks and who likes to receive a steady dividend payment without a lot of volatility in the share price, you should consider this fund.

Vanguard Star (VGSTX)

  • Minimum initial investment: $1,000
  • Expenses: 0.31%

The great thing about this Vanguard fund is that the minimum investment is relatively low ($1000), making it a good choice among new investors. Plus, it’s well balanced.

It is invested 60% in stocks and 40% in bonds. For those investors looking for a broad diversification in both domestic and international stocks and bonds, this fund should not be overlooked.

Vanguard Dividend Growth (VDIGX)

  • Minimum initial investment:$3000
  • Expenses:0.22%

Vanguard Dividend Growth, as the name suggests, focuses on companies that pay dividends and have the ability to grow their dividends over time.

If you’re an investor with a long term focus and likes to receive a steady dividend income, you may want to consider this fund. The minimum investment is $3000 with an expense ratio of 0.22%.

Vanguard Health Care (VGHCX)

  • Minimum initial investment: $3,000
  • Expenses: 0.34%

As the name suggests, Vanguard Health Care only invests in the Health Care Section. That’s the only downside. Apart from that, it gives investors a great exposure to various domestic and international companies within the health care sector, such as pharmaceutical firms, research firms, and medical supply and equipment companies.

If you’re considering this Vanguard fund, you should also have another and more diversified fund to reduce your risk.

Vanguard International Growth (VWIGX)

  • Minimum initial investment: $3000
  • Expenses: 0.43%

If you’re looking to build a complete investment portfolio and want to have more exposure to foreign stocks, the Vanguard International Growth is the one of the best Vanguard Funds to accomplish that goal. The fund focuses on non-U.S. stocks in developed and emerging markets with a high growth potential.

However, one thing to consider is the high volatility of this fund. Because it also invests in developed countries, the share price can rise and fall significantly. So you should consider this fund if you want more exposure to foreign stocks. But you also want to have another fund as well to balance it out. The minimum initial investment is $3,000 with an expense ratio of 0.43%.

Vanguard Total Bond Market Index (VTBLX)

  • Minimum initial investment: $3000
  • Expenses: 0.05%

Bond funds may be appropriate and advantageous for long term investors who want a bond fund that invests US and Corporate bonds. If that’s your goal then the Vanguard Total Bond Market Index is the right one for you.

Just as any Vanguard funds, it’s cost efficient, safe and high quality. It has a minimum initial investment of $3,000 and an expense ration of 0.05%. Also note that this fund is also available as an ETF.

The Bottom Line

If you’re looking to invest in mutual or index funds, those are the best Vanguard funds to buy now and hold for the long term. They are high quality, low-cost, and are safe. 

Related:

  • How to Save 100k?
  • 5 Mistakes People Make When Hiring a Financial Advisor
  • IRA vs. 401k: What Are the Key Differences?
  • Can I Retire at 60 with 500k? Is It Enough?

Speak with the Right Financial Advisor

  • If you have questions beyond knowing which of the best Vanguard funds to invest, 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 SmartAsset’s 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 The 8 Best Vanguard Funds for Long-Term Investments appeared first on GrowthRapidly.

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Financial Freedom, Investing

Traditional And Roth IRA Contribution Limits Announced

The contribution limits for the Roth IRA and Traditional IRA were just announced. Here’s what IRS limits are for the upcoming year.

The post Traditional And Roth IRA Contribution Limits Announced appeared first on Bible Money Matters and was written by Peter Anderson. Copyright © Bible Money Matters – please visit biblemoneymatters.com for more great content.

Source: biblemoneymatters.com

Financial Freedom, Investing

How To Invest In Commodities

Learning how to invest in commodities isn’t for everyone, but for the right investor it can add a lot of value to an already-diversified portfolio. Learn how to do it in this guide.Learning how to invest in commodities isn’t for everyone, but for the right investor it can add a lot of value to an already-diversified portfolio. Learn how to do it in this guide.

The post How To Invest In Commodities appeared first on Money Under 30.

Source: moneyunder30.com