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- The only time it doesnât make sense to kill your debt is when the interest rate youâre being charged is lower than the rate you can receive on an investment.
- Your safest choice is to have money automatically withdrawn from each paycheck and funneled into an old-school savings account.
- the annual fees charged by the fund that can take a huge bite out of your investment returns if youâre not careful.
- The first step toward turning your financial desires into achievable goals is calculating the dollar value of your dreams. (Yes, it may seem unromantic)
- An acceptable savings cushion is equal to at least three monthsâ worth of living expensesâ six months is even better.
- The Housing Rule: Spend no more than 30% of your monthly take-home pay on rent or mortgage payments.
- The Savings Rule: Save at least 15% of your take-home pay each month.
- As a rule, youâre almost certainly better off investing directly with a low-cost mutual fund company rather than with a bank.
- Internet-only banks may offer higher interest on your deposits but may not meet all your banking needs because they lack branches or their own ATMs.
- Resist buying stocks, bonds, or other investments from your bank. Instead, look into some of the investment options.
- investing in a fund is that you reduce your investment risk.
- mutual fund, you are actually buying units known as shares.
- The least risky type of mutual fund is called a money market fund, also sometimes called a money fund.
- The rate of return you receive on an investment (known as the nominal rate of return) minus the rate of inflation is called the real rate of return.
- A stockâs price rises and falls depending on supply and demand.
- New information that might lead investors to believe that a company will make more money than previously expected, for example, will generally cause its share price to rise. Unanticipated bad news typically leads to a decrease in price.
- Dow Jones Industrial Average, which, despite its fame, is actually based on the stock prices of only thirty large companies.
- Standard & Poorâs index of 500 stocks. The S& P 500, as itâs called, is more representative because it tracks changes in the stock prices of 500 large companies.
- CRSP U.S. Total Market Index, represents nearly 100% of the U.S. stock market, including the stocks of small, medium, and large companies.
- A bond is an IOU issued by a company, a government, or some other institution. When you buy a bond, youâre basically lending a sum of money (the principal) to the issuer for a fixed period of time (the term), which can range from one day to one hundred years. In return for the loan, the issuer pays you interest, computed at a fixed rate called the coupon rate.
- The first, which is often referred to as default risk or credit risk, is the possibility that the issuer may fall on hard times and be unable to pay you interest or repay your principal. The second, which is somewhat more complicated, is known as interest rate risk. If interest rates rise unexpectedly during the period in which you own the bond, you wonât be able to take advantage of those higher rates. Youâll be left with the same fixed coupon rate.
- Concentrate on one thing: fees. Studies have shown that bond fund managers have little effect on the performance of bond funds, so thereâs no point in researching managers.
- the case with investment decisions, too. When stocks are falling, we tend to think they will keep on falling. And when the market is doing very well, we think the good times will just keep on rolling. This phenomenon is known as recency bias.
- men were much more active traders, thinking they could beat the market. Meanwhile, women traded less often and earned an annualized return that was 1.4 percentage points better than the guysâ.
- 50% of your assets to stock funds and 30% to bond funds, 20% in âcashâ.
- There is also an old rule of thumb to subtract your age from 100 to get the percentage of your money you should put in stocks, while the rest goes into bonds and money funds. For example, a 25-year-old would invest 75% in stocks and 25% in bonds, and then gradually reduce her risk over time as she approaches retirement.
- expense ratios average a little under 1% a year for actively managed stock funds and 0.60% for actively managed bond funds. 0.10% for index bond funds. Loads are typically one-time fees paid to advisors or brokers when you buy certain mutual funds. commissions are fees that some brokerage firms charge you when you buy or sell investments from them. Never work with someone who is paid by commission (or loads). You want to work with a fee-only professional who charges you a flat fee (hourly or a percentage of assets). The fee-only system removes a potential conflict of interest: Someone on commission needs to get you to buy and sell to make any money.
- stick with index funds. Both index mutual funds and index ETFs offer low-cost ways to invest in a broad range of stocks rather than betting on just one stock and hoping it takes off.
- before-tax salary, also known as your gross income, was an illusion. Your actual take-home pay, or net income, was much smaller.
- Medical expenses. You can deduct out-of-pocket medical and dental expenses, for yourself or any dependent, that are greater than 10% of your adjusted gross income.
- Books: The Science of Hapier Spending, The Happiness Project for personal finance, A Random Walk Down Wall Street, The Only Investment Guide Youâll Ever Need.