Investing

A Beginner’s Guide to Understanding Mutual Funds

October 14, 2020 By Susan Paige Leave a Comment

Mutual funds are considered as a well-varied, low-cost, and tax-efficient way to make your money grow. Nowadays, it’s an ideal investment medium for those who don’t have expertise in investing in the stock market. However, despite their comparative simplicity, there are still several things beginners need to know about mutual funds. [Read more…] about A Beginner’s Guide to Understanding Mutual Funds

Is Now the Time to Start Investing?

October 1, 2020 By Tamila McDonald Leave a Comment

When COVID-19 started making waves, the stock market went into flux. Many businesses were negatively impacted by shelter-in-place orders and alterations to the economy. As a result, some once high-cost stocks saw stunning price drops. These shifts didn’t go unnoticed. Many people who hadn’t previously gotten involved in the stock market started to wonder if now was the right time to start investing. If you’re trying to figure out if the time is right. Here’s what you need to know.

The Impact of Your Investment Strategy

Whether or not now is a good time for you to hop into the stock market may depend on your investment strategy. While low prices on certain stocks may make it seem like using the self-directed. Pick-and-choose approach is a reasonable choice at the moment. That isn’t always the case.

Trying to time the market to snag a high-potential or high-value stock at a low point is incredibly challenging. Individual stock picking, particularly when you plan to actively trade, is a complex endeavor.

Plus, with this approach, there’s little to no diversification. It’s the equivalent of putting all of your eggs in one (or a very small few) baskets. A single event can wipe out most of the value of your portfolio. That’s never a good position to be in as an investor.

However, if you are focusing more on a buy-and-hold approach, there’s no reason you should avoid the stock market. Additionally, if your goal is to diversify your investments, such as by mainly choosing index funds or ETFs, then you are taking active steps to reduce your overall risk. You may be able to take advantage of some bargain-level pricing along the way, but your approach makes that more of a bonus than a core part of your strategy.

This is especially true if you intend to invest regularly going forward. For example, if you’re planning on putting a set amount into your investment account every month, you are also mitigating your risk. While you may not always pick up shares when they are at their lowest price, you likely won’t overpay often either.

Often, with regular, automated contributions, some of the emotional parts of the equation goes away, as well. You aren’t making investment decisions on a whim. Instead, you are following a preplanned approach, which is typically more methodical.

Whether the Stock Market Will Rally

As mentioned previously, COVID-19 has had a significant impact on the market. Some sectors tumbled, others flourished. Some may assume that certain industries will rebound, or that the thriving ones will come sliding back down, once the pandemic resolves. The trick is, none of it is guaranteed.

Historically, after a downturn comes an upswing. Overall, the markets tend to rise over time, overcoming challenging periods – as it did with the Great Recession – eventually.

But no one can know for certain when the low will hit or when an upturn is the mark of a new positive market trend. While it may be reasonable to assume that the market will rally, precisely when, how, and how fast simply can’t be known until it occurs.

Luckily, if you’re going with a buy-and-hold strategy, the exact timing may be irrelevant. You can afford to shoulder short-term losses for the potential of long-term gains.

However, if you’re looking at short-term investments only, it’s impossible to predict whether you can achieve that goal in the current climate, or any other, for that matter. The landscape is volatile today, and that’s important to factor into the equation. But even when volatility is low, no investor is guaranteed positive growth, especially when the investment window is small.

Your Current Financial Situation

Technically, there is no perfect moment to start investing, per se. The right time is generally when you are financially able to do so. After all, the stock market typically moves up over time. If you’re in it for the long-term, then what works in your favor is hopping in sooner rather than later, regardless of the day’s market conditions.

Ideally, you need to consider what makes financial sense for you at the moment. Do you have a substantial emergency fund? Are you maximizing your retirement savings? Are you making solid progress toward your other savings goals? Have you gotten rid of all of your high-interest debt?

If the answer to all of those is questions is “yes,” then you could be in the right financial shape to start investing. If you answered “no” to any of those, then you may want to see what it would take to handle those goals first. That way, you can focus on areas that may be more critical, ensuring you don’t incidentally prioritize investing over something that should take precedence.

Do you think now is the right time to start investing? Why or why not? Share your thoughts in the comments below.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started. If you want to be able to customize your blog on your own domain and need hosting service, we recommend trying BlueHost. They offer powerful hosting services for $3.95/month!

How Robinhood Traders Are Changing the Way We Invest

September 30, 2020 By Tamila McDonald Leave a Comment

In June, Robinhood – the popular investment platform – saw 4.3 million daily average revenue trades. That means the company outperformed every other public-traded brokerage firm, including giants like TD Ameritrade and Charles Schwab, some by a landslide. But the platform isn’t just catching on with more investors; it’s also fundamentally altering how people invest. Here’s a look at Robinhood’s impact.

Investor Mentality Shifts

Robinhood has only been available for about five years. While it released during a period where fintech apps weren’t anything new, it garnered interest quickly. In just a few years, Robinhood overtook E-Trade when it came to the size of its user base. Currently, more than six million people have accounts on the platform.

Since it has such a broad user base, Robinhood’s capabilities and approach ultimately influence investor actions. The way it presents information and engages with users matters, altering how people perceive investing overall.

Along with being simple to use, Robinhood incorporates gamification techniques. This can encourage more frequently trading as users are getting an endorphin boost each time, even if their investment choices aren’t ideal.

Additionally, Robinhood understands the importance of engagement. Users can curate watch lists, each with fluctuating colors, to quickly highlight a stock’s current performance. The use of a chatbot makes finding answers to questions and learning about various changes – such as incoming dividends or deposits processing – feel conversational and friendly, not cold and matter-of-fact.

Essentially, Robinhood aimed to make trading feel good. As a result, investors began to view the activity as less intimidating.

However, this also has drawbacks. It may make the entire process feel like a game. It can create a disconnect between the fact that there’s real money on the line, or could produce a sensation not unlike many experience when gambling. Incredibly risky moves may not seem like such a bad idea in the environment Robinhood creates, causing some naïve traders to make horrible moves, leaving them to deal with the consequences.

Fee Eliminations

With Robinhood, users don’t have to pay per-trade fees. This was a major shift away from the traditional brokerage approach. Plus, even discount only brokers in the mid-2010s generally charged fees, commonly coming in between $5 and $10.

When investors could suddenly trade stocks without per-trade fees, it opened up new possibilities to small investors. As interest in Robinhood skyrocketed, many other brokers had little choice but to follow suit. No-fee trading quickly became a standard, not an exception.

There were a few other financial-oriented moves that worked in Robinhood’s favor. For example, having no account minimum allowed even the smallest investor to open an account. Penny stocks and cryptocurrency trading drew in interest from those not interested in large company stocks.

Fractional Shares

One major investment hurdle for new investors was often affording the stocks they wanted. If they had their eye on a high-value stock – such as the Apple’s or Netflix’s of the world – they might have to scrimp and save or make some strategic trades to get their account balance high enough to buy even a single share.

However, with Robinhood, that approach isn’t always necessary. The platform offers fractional share buying. Investors with the fractional share feature can purchase incredibly tiny pieces (as little as $1) of stock market giants. That completely alters the landscape for traders, opening up doors that may have been closed previously.

The Impact of Robinhood

Ultimately, Robinhood traders are influencing how people invest. In some ways, Robinhood has been incredibly beneficial. It allows even the smallest investor to get started with ease, making investing highly accessible.

But this also means many people are jumping into the world of trading without much knowledge of how to do it well. Couple that with gamification and social-style rewards, and some users are going to get sucked in by the feel-good triggers, only to make poor decisions because they didn’t know any better.

Now, Robinhood isn’t to blame for any investor’s choices. It’s simply a tool, and a well-designed one at that. However, that doesn’t mean traders aren’t impacted by Robinhood’s approach. Plus, other brokers are going to take cues from Robinhood due to its success. Some of the changes will be positive for investors, like fee reductions, while others may not. As with many significant shifts, only time will tell if the impact of Robinhood leads to a net gain.

Are there other ways that Robinhood traders are changing how people invest? Share your thoughts in the comments below.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

5 Ways Gold IRA Can Protect Your Retirement

September 24, 2020 By Susan Paige Leave a Comment

A gold IRA or gold individual retirement account is a self-directed IRA that has become popular in recent years. People who value stability and diversity in their investment portfolios are the ones who usually patronize this financial instrument. It gives investors the ability to include physical precious metals to their tax-sheltered retirement accounts. [Read more…] about 5 Ways Gold IRA Can Protect Your Retirement

Are We In a Second COVID Stock Market Crash?

September 24, 2020 By Trey LaRocca Leave a Comment

COVID lockdowns caused quite a bit of economic turmoil. While the damage was evident in many places, the stock market was one of the first places to see an immense downturn. There were talks of an irreparable stock market crash, and people were panic selling their portfolios around the nation. After a long period of uncertainty, the stock market actually managed to bounce back to record numbers much sooner than expected.

This past week, though, we have seen another frightening dip in the market. A second COVID stock market crash is the last thing we need, but are we in one? We have a video by Graham Stephan to analyze that may have some explanation.

Election Year Patterns

As Graham said, it is pretty typical to see downturns like this around election time. Regardless of your political views, a shuffled local and national government has a big impact on business. As a result, there are many that shy away from big investments right before the election. this is due to the fact that certain policies can render entire business models and markets completely useless. Nobody wants to chance their investments tanking in a matter of months, so the demand for shares goes down naturally. SO, we aren’t really in an unprecedented COVID stock market crash.

The “Options Magnifier”

The effect that options have on the stock market is something many are just now learning about. I call it the “options magnifier” because options in themselves don’t consistently pull markets any particular direction. By simply magnifying regular investments, they simply exaggerate what the market is already doing. So, since options trading has seen such a rapid increase over the last year, it is increasing the magnitude of a pretty typical election season market dip.

What Should I Do?

Like Graham Stephan, I’m not one to recommend timing the market. In this situation, I will simply be holding what I have to be safe. Now, if the prediction that this will rally is true, buying stocks while they are cheap isn’t a bad idea. so, I will just give my traditional stock advice: If you think it is time to buy, you should buy. Don’t spend money you don’t have, and only invest what you are willing to lose. Avoid options, as they magnify everything– including your losses.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started. If you want to be able to customize your blog on your own domain and need hosting service, we recommend trying BlueHost. They offer powerful hosting services for $3.95/month!

5 Common Fears of Investing

September 18, 2020 By Tamila McDonald Leave a Comment

When it comes to investing, the hardest part is often starting the journey. In the beginning, fear holds a lot of would-be investors back. They worry they may lose money or that they’ll choose the wrong investments. They may assume that, since they aren’t stock market experts, they simply couldn’t make smart choices. However, most investors discover that these initial fears were unfounded once they begin. If you fear is holding you back, here’s a look at five common fears of investing and how to overcome them.

1. Losing Money – One of The Biggest Fears of Investing

Likely the biggest fear that any prospective investors may have is that they’ll lose all of their money. Usually, they assume they won’t make the right investment choices, causing their cash to evaporate because of bad moves.

While it is true that investing comes with risk, that doesn’t mean you can’t lessen it. For example, a diversified portfolio can better withstand market fluctuations, offering you a degree of protection against the unexpected. Starting with index funds can also reduce risk, as they have a level of innate diversification.

However, if losing money is your biggest fear, consider starting small. Educate yourself on the various options, particularly approaches that support faster diversification. Focus on a strategy that comes with an amount of risk you can stomach.

In time, you can always invest more. The slow and steady approach allows you to get your feet wet without having to put in a ton of money right away, which may allow you to grow more comfortable with time.

2. Choosing a Bad Investment

In a similar vein, some would-be investors worry that they’ll choose the wrong investments. This is especially true for anyone looking at individual stocks, as the degree of risk there is automatically higher than using a more diversified approach.

Ultimately, when it comes to choosing investments, research is your ally. If you review information from trusted, reputable sources, you can better gauge the quality of a potential investment move.

Additionally, it’s important to note that, even if you choose a bad investment, that isn’t necessarily the end of the world. You can always adjust your strategy, using the experience as a lesson that helps you make wiser choices moving forward.

3. Market Volatility

There have been many events in recent history that show how volatile the market can be. COVID-19 is a solid example, as well as the crash during the Great Recession. Some may even remember the collapse of the Dot Com bubble. All of those events can be scary for investors, leading to significant losses seemingly overnight.

However, recovery typically flows a crash. The markets overcame the Dot Com collapse and the Great Recession. There’s positive headway after the initial COVID-19 loses as well, and some investments have even experienced gains throughout.

If you have long-term financial goals that involve investing, volatility isn’t something to fear. Usually, the market ebbs and flows, and a diverse portfolio can often weather the storms.

For those who have shorter-term goals, then market volatility isn’t necessarily a dealbreaker either. You may simply want to use a more conservative strategy. While less risk often means smaller gains, that could be a fair exchange in your eyes.

4. Whose Advice to Trust

Research is a critical part of the investment journey. However, figuring out which resources actually have your best interests in mind isn’t always easy. There are plenty of untrustworthy voices and even outright scams. For a would-be investor who hasn’t taken the leap yet, it can be anxiety-inducing.

If you have a lot of doubts, you can always start with a certified fee-only financial advisor. They don’t make money on commissions, so they aren’t being encouraged to recommend anything that’s not right for you.

It’s always wise to doublecheck any news or recommendations you spot. If you hear something from a resource you aren’t sure about, looking for additional information on the topic through reputable sources is a smart move. You can see if the details align, or if there’s another side of the story you need to consider. That way, your odds of being fully-informed go up, making it easier to make sound choices.

5. Not Having Enough Money to Get Started

Many people want to invest, but they worry they don’t have enough money available to get started. This is especially true for anyone who has researched opening accounts, only to find brokerages that expect large starting deposits.

While it’s true that some brokerages require you to start with a substantial sum, many don’t. In fact, some have no minimum starting balances, no minimum monthly contributions, and low fees.

Many robo advisors have very low barriers to entry. Explore those options to see if any support the kinds of accounts you want or the investments you’d like to make. It can let you get started even if you don’t have a ton of cash available. Then, if you decide to open up an account elsewhere once you’ve generated the money, you can always do that.

Did you have to overcome any fears of investing before you started? Share your thoughts in the comments below.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started. If you want to be able to customize your blog on your own domain and need hosting service, we recommend trying BlueHost. They offer powerful hosting services for $3.95/month!