The White Coat Investor has a good advice for individual stock investors or those who are tempted: Picking individual stocks is a loser’s game. The reasons are that individual stocks have a higher risk, under perform on average and lower return with worse risk control. According to the White Coat Investor, “if you’re enjoying investing (researching, buying, selling, discussing etc), at least in the stock market, chances are good you’re spending a great deal of time and effort engaging in an activity that is actually decreasing your returns. Do yourself a favor and get a hobby that makes money, a free hobby, or at least one that costs you less than stock picking.”
Not only Millennials and small investors are using robo-advisers, but wealthy clients are drawn into AI investing technology, which use computer programs to provide investment advice online. That scares banks, and that’s one of the reason they are pushing to release their own versions of the automated investing technology to compete in the new robo-advising environment. It will be good for customers as the fees will go down gradually. Robo-advisers normally charge less than half the fees of traditional brokerages, which cost at least 1 percent of assets under management. (bloomberg.com)
More than 50% of those ages 18 to 34 have less than $1,000 in savings and 62% of all Americans have less than $1,000 saved. No doubt the Millennial generation is falling behind. However, with a long investing horizon, they can get their saving into shape. USA Today points out 7 ways Millennials can get a jump-start on retirement planning:
- Pay yourself first
- Put your money to work
- Get every penny of your 401(k) match
- Consider a Roth IRA
- Keep investments simple
- Think beyond savings
- Be wary of advice from peers or parents
An article on The Wall Street Journey reports that the cost of investing is falling toward zero for mutual funs and ETFs. This is an excellent news for common investors everywhere. However, “some money managers that get much of their revenue from actively managed funds are fighting back, partly by getting more vocal about the potential risks of index investing. They say the strategy forces investors into risky bonds or pricey stocks just because they are part of a benchmark.” Despite their talks, indexed funds consistently out perform actively managed funds. That’s not good news for fund managers. They still don’t accept their fate yet in order to get some revenue by being a market-leader in indexed mutual offerings and by profiting more so due to high volume. The tough time is ahead for actively money manager as fee cutting pressure remains relentless while Vanguard automatically lowers fees as its funds grow. (wsj.com)
Personal finance blog Frugal Vagabond shows that financial independence can mean more than just the financial freedom to buy what we need. Financial independence also grants us the freedom of changing your mind, too. “If we’re not happy, we’ll change our minds. We’ll move. We’ll come home. We’ll settle someplace new that we can’t imagine leaving. We’ll take on part or full time jobs just to pass the time, assuming we enjoy them completely. That’s part of complete financial freedom too.” Indeed, financial independence is the luxury of changing your mind.
Some of the basic concepts of personal finance needs to repeat as often as possible. One of them is to live below your means as written by Jonathan Chevreau of Financial Post. Live below your means is considered as an eternal truth of personal finance. “This is the granddaddy Truth of personal finance. Without it, there’s little point talking about the rest. The only way to become financially independent is to be consistent about spending less than you earn, year in and year out, decade in and decade out.” The formula for happiness, attributed to Charles Dickens, is based on living below your means. If translated into today’s world, in David Copperfield the character Micawber would say: “Annual income $50,000, annual expenses $40,000, result happiness. Annual income $50,000, annual expenses $60,000, result misery.”
The Price of Happiness is confirmed to be $75,000 Per Year by a study from Princeton University. Another article written for About Money delves into the relationship between money and happiness as Joshua Kennon discuss this topic of how much money it takes to be happy. The first step to financial success is to define what you want. Once you narrow down the income the next step is to figure out the safe withdrawal rate to be happy with that income level. By selecting the proper asset classes, you can deride how much money you need in your portfolio to achieve your desired level of happiness.
The White Coat Investor just wrote a detailed guide on how to do a backdoor Roth IRA. It is a must read if your income is over the limit and you need to take advantage of a backdoor Roth IRA. The author shows each step from making the contribution to filling out the tax form 8606. The three main steps detailed as follow: “1. Get rid of any SEP-IRA, SIMPLE IRA, traditional IRA, or rollover IRA money. 2. Make a $5500 ($6500 if over 50) non-deductible traditional IRA contribution for yourself, and one for your spouse. 3. Convert the non-deductible traditional IRA to a Roth IRA by transferring the money from your traditional IRA into your Roth IRA at the same fund company.”