Easy Money: Make The Most With These 4 Investment Hints

When looking to enjoy a decent return on investment, most people do not have a clue as to where to begin. Financial markets are not easy to understand. A complex maze of options leaves many individuals puzzled about the best places to put their money. While plenty of people try to invest in the stock market, they usually fail in the long run but don't know which way to turn. With that being said, here are four ways to make easy money if you have a desire to try something new.

Index Funds:

Most people cannot beat the market averages. When trying to, the average investor will miss out on gains and waste valuable time picking stocks. Instead, one should buy index funds and continue contributing money every month in a retirement or cash account. With this, an investor will not pay too much in fees and will enjoy solid returns on his or her investments.

Free Money:

When trying to save for the future, one should take advantage of tax benefits. For example, when opening an IRA or 401k, one can put money away for retirement without having to pay taxes. This is a massive benefit for a person who wants to save money for the future while enjoying a lower tax rate. Furthermore, some companies match 401k contributions and an employee would be foolish to skip this free money.

Refinance:

When carrying a mortgage, many overpay the on interest as they do not shop around often. This is a mistake and can cause a person to waste thousands of dollars over the life of the loan. Instead, a smart consumer should opt to refinance and get a lower rate on their mortgage. Luckily, with Low VA Rates, one can save money on their mortgage. In fact, when heading to LowVARates.com a customer can enjoy lower rates than others. This will enable a person to pay off their loan quickly and without as much struggle.

Do Nothing:

When trading too often, a person will miss out on market gains. Furthermore, he or she will have to pay taxes and deal with commissions and fees. Instead, when investing for the future, a person should sit back and do nothing. When relaxing and watching the account grow, an investor will beat most people who try to trade the market every day. Without a doubt, when trading too often, a person will have to work harder just to meet the market averages. Remember, with a slow and systematic approach, one will save enough money for retirement without much stress.

With these four investment tips, a consumer can save money for the future and pay off old loans. Most of these ways are sure fire to gain you some revenue if you have the extra cash to invest or if you are in a bind but remember it is important to have a long-term outlook on the situation when your finances are concerned.

3 Smart Investments

One of the major contributing factors to the economic crisis of 2008 was the lack of personal savings. Easy credit was a way of life through the early 2000's up until the crash, and consumers used that credit to fuel consumption. When the market tanked, wages dropped and jobs were cut, leading to a nasty decline in consumer purchases. Many of the newly-unemployed had no savings upon which to draw in order to maintain their level of spending. For those with adequate savings, however, the situation was much less dire. While you cannot prevent a widespread economic disaster, you can organize a plan to be prepared no matter the situation.

Traditional IRA or Roth IRA

An Individual Retirement Account (IRA) is a legal construct of the Internal Revenue Code that allows investors to shield their savings from taxes. There are two forms of the IRA. The first form is a Traditional IRA, which allows savers to fund their retirement account with pre-tax dollars. Essentially, if you put money into a Traditional IRA, you can deduct that amount from your taxes. You can continue making annual contributions to your account and you won’t pay taxes on it until you start withdrawing from the account in retirement. The second type of IRA is the Roth IRA, which takes contributions of after-tax dollars. This means that when you withdraw from your Roth IRA in retirement, you will not pay any taxes on it. Also, the Roth IRA has more flexible rules for pre-retirement withdrawals from the principal. One of the great things about both types of IRA's is that you can put whatever investments you want in the accounts: stocks, bonds, real estate, baseball cards, etc.

Index Funds

Many investors think that stocks are the best way to make money over time. While that can be true, this strategy only works if you pick the correct stocks; if you pick the wrong stocks, you can lose your entire portfolio overnight. Unfortunately, many experts believe that it is impossible to reliably pick the correct stocks over time. Even if you do pick the right stocks, you have to buy them and sell them at the right time. One commonly-used strategy is to invest in mutual funds, which are managed by professionals who charge a fee and take a cut of the earnings. The problem is that most mutual funds do not consistently beat the market. Even those funds that do outperform the market will eat away at your gains with their fees. A good alternative is to invest in an index fund. An index fund is a fund that consists of stocks from a stock index, such as the Dow Jones Industrial Average and Standard & Poor's 500. These funds are meant to track the economy as a whole, which consistently outperforms most mutual funds. Even better, index funds have much lower fees than a typical mutual fund, preventing the erosion of your investment.

401(k) Matching

One very common financial mistake happens when employees who are eligible for 401(k) matching by their employers do not contribute up to the full match. For example, imagine a 401(k) match of 50% of employee contribution on up to 6% of the employee’s salary. This means that your employer will put fifty cents in your 401(k) for every dollar you put in on up to 6% of your salary. If you make $100,000 per year, 6% of your salary is $6,000 and your employer will contribute up to half of that, which comes out to $3,000. If you do not contribute at least $6,000, you are literally turning down free money from your employer!

Investments can be confusing and dangerous. A few wrong moves and you can delay or even eliminate your retirement. There are no guarantees in life, and even fewer in investing. However, if you invest in IRA's, index funds and 401(k) matching, you are definitely giving yourself a major advantage.

Ken Myers is a father, husband, and entrepreneur. He has combined his passion for helping families find in-home care with his experience to build a business. Learn more about him by visiting @KenneyMyers on Twitter.

Index Fund Investors Do Better in the Long Run

If your not much of a gambler then index funds are best suited for you. Trying to find the hot stock or mutual fund is a lot of work and the odds that you will pick a winner are extremely low. The returns on index funds are better than the average active funds in every investment category  It's easy to build a portfolio of all index funds because there are funds covering every asset class in every market in the world.

Thirty-five years ago Vanguard CEO John C. Bogle along with his meager staff launched the first publicly available index mutual fund. It was named the Vanguard First Index Trust, later renamed the Vanguard 500 because it tracks the S&P 500 index.

Vanguard has recently released a white paper on performance entitled The Case for Indexing. It documents the poor results of active management versus indexes over the years — a result that worsens over extended periods. The following chart illustrates the decreasing success rate of active management.

A portfolio that holds only index funds in different asset classes has a very high probability of beating a portfolio that holds only actively managed funds in those asset classes. The table below highlights the probability of an all-actively managed fund portfolio outperforming an all-index fund portfolio.

There is a 30 percent chance that a single actively managed mutual fund will outperform an index fund over a 10 year period of time, but that probability drops to 9 percent when three managed funds in a portfolio are judged against three comparable index funds. The results get worse as more active funds are added and as more time passes. A portfolio with 10 active funds held for 20 years has only a 1 percent chance of beating a comparable all-index fund portfolio.

Index fund investing has proven to be the best strategy for most people. A low-cost index portfolio has the greatest probability for meeting long-term financial goals. 

Betterment.com Review Update: $25 Bonus, Asset Allocation, Fees

Since my previous review of Betterment.com there has been some changes made for the better. What still hasn't changed is the simple process of application, choosing investments, and getting started.

The hardest part of investing is taking that first step. Most people never start investing because they lack the knowledge of where to invest. Today we have so many different investment companies competing for our money. Their advertising can sometimes be confusing and contradictory. Even if you do manage to sign up for an account then you are faced with the choice of what to invest in. All these concerns have been addressed and solved by Betterment.com.

Application

The application process allows you to get started entirely online. They say you can the process only takes 60 seconds. It takes a little longer but couldn't be easier. Enter your personal information, they verify it through information on your credit report. You then enter your bank information so they can link it to set up quick deposit and withdrawls.

Asset Allocation

After answering a few simple questions Betterment.com offers a asset allocation suggestion based on my answers, goals and age. They gave me an allocation of 50% stocks/50% bonds.


Their current breakdown of stocks and bond portions are:

Stock Portion Only

• 25% Vanguard Total Stock Market (VTI)
• 25% iShares S&P 500 Value (IVE)
• 25% Vanguard Europe Pacific (VEA)
• 10% Vanguard Emerging Markets (VWO)
• 8% iShares Russell Midcap Value (IWS)
• 7% iShares Russell 2000 Value (IWN)

Bond Portion Only

• 50% iShares Barclays TIPS Bond ETF (TIP)
• 50% iShares Lehman 1-3 Year Treasury Bond ETF (SHY)

I like it that they are investing with passive index ETFs that are very low in fees. The weighted expense ratio of all the stock ETFs together is 0.16%. The weighted expense ratio of all the bond ETFs together is 0.18%.

What's all this going to cost me? (fees)

When I last reviewed Betterment.com they had a 0.9% annual fee for all accounts with balances up to $25,000. There were no monthly fees, no maintenance fees, no minimum requirements, and no commission charged for any trades. In March, their fee schedule has been changed to lower fees for most users, but also raised some fees for certain smaller accounts.

Here is the new fee schedule:

If your just getting started there is a requirement to have $100 per month added to your account. If you do not they charge a $3 monthly fee. This should not be a problem if you plan on making the $100 minimum deposit every month. If you are not ready to at least invest $100/month do not sign up for this program. 

Remember that to open an account and receive the $25 bonus you must have an initial deposit of $250. Add that to the monthly deposit of $100, at the end of the year your balance should be $1,450. With a 0.35% annual fee you will be paying about $5 of annual fees. Compare that to a discount brokerage that charges from $9.99/trade to $3.95/trade. Using Betterment,com keeps fees low and more money working for you.

$25 Bonus Offer For New Accounts

The $25 bonus offer for opening a new account, with a $250 initial deposit is a sweet way to try the process out.

Index Funds: The Best Investment Advice Is Not Always The Most Popular

Image via WikipediaOne of the worst problems an investor has is figuring out how to ride the highs and lows of your portfolios performance. The highs can be exhilarating and the lows are always gut wrenching. There has to be a way to invest that allows you to not worry so much. 


What is the key for staying the course?

At the nytimes.com an article describing  the research of Janet M. Brown, president of DAL Investments, revealed the returns of 306 mutual funds over a 20 year period.  She wanted to see if active management was actually the best way. Brown said, “The overall challenge of mutual fund investing is selecting funds in advance that people think will do well in the future,” Ms. Brown continues. “The easiest thing would be to buy and hold or to select a manager with a good long-term track record and buy it and forget it. That was not an effective way of selecting funds.”

Find more information at The Best Investing Advice? Maybe Not the Conventional Method

Performance.
Mutual funds usually compare their returns to the returns of the S.& P. 500 or the Vanguard S.& P. 500 Index Fund. Strategies that use mutual funds in different combinations to build portfolio's can't produce superior results. But Browns research indicated, over the last two decades, no non-index fund investment strategy dominated. At best, some strategies were only successful for a four to five year period on average. Not one fund beat the benchmark every year.

Investment Management.
You will always find the hot manager of the year making tons of money for their clients. Eventually, all managers under perform the benchmark S&P. No particular investment strategy was successful for the entire period of this research.

Expenses.
All investors usually can agree on the idea that high expenses wear away performance. You can always find some funds with high expenses that have outperformed the index. But you will find they have, on average, returned only 1 percent more than the benchmark S&P 500.

Brown's Best Non-Index Fund Strategy. Brown's best non index fund strategy for using mutual funds surpassed the benchmark S&P 500 with a 12.19 percent return. Yet it underperformed the benchmark 9 out of 20 times. 

Takeaway.
Brown admits that the benchmark S&P 500 index has returned 7.65 percent over the last 20 years. I think most investors would be quite happy with that. There are mutual funds that produce a higher return but they don"t do it consistently. The trouble is finding these great performers on a consistent basis. The bottom line is index funds make the most sense for the average investor.

I have found the best implementation of an index fund centered portfolio is Paul Merrimans "Ultimate Buy and Hold Strategy". It has 11 different asset classes giving a broad, diversified group of index funds that will provide a good return over time. The days of tracking down the so called best funds will be over. You will be able to sit back and know you have done all you can to properly invest your money.


Check out Paul Merriman's Ultimate Buy and Hold Strategy here.

Find all Paul Merriman's great strategy and sample portfolios here.

Related articles

• Book Review - Financial Fitness Forever: 5 Steps to More Money, Less Risk, and More Peace of Mind by Paul Merriman (50plusfinance.com)
• Walking With Giants: An Interview with Paul Merriman (businessinsider.com)

Happy 35th Birthday Index Funds

Image via WikipediaIt was 35 years ago that John Bogle and the Vanguard Group launched the First Index Investment Trust that tracked the popular S&P 500 index. The fund name was changed to the Vanguard 500 in the 1980s. Bogle and his company has forever changed the investing landscape.

At the time John Bogle never thought how his idea would affect the way millions of people would invest. As a manager of mutual funds he wanted to find a way to make investing easy for the common man. At the time and even today mutual fund investing still means paying high management fees. He felt there could be a better way. His idea of a mutual fund that tracked an index and would always do as good as the market was a novel idea. It was simple and easy, without a lot of hassle. To make a good idea better he pioneered low management fees so the investor would benefit and not the broker salesman.

Bogle thought it was a travesty for the industry to make a fortune in management fees and wanted those fees to stay in the pockets of investors. He knew that even a small amount of reduced management fees kept in the investors account meant for higher returns.

We need to thank John Bogle and company for giving us the index mutual fund and the beginning of passive investing. Over the years the the inexpensive management fees has kept billions in the accounts of investors where it belongs. Thank you John Bogle!

More reading about John Bogle and Index Funds:

Wall Street Journal article titled How the Index Fund Was Born

The First Index Mutual Fund: A History of Vanguard Index Trust and the Vanguard Index Strategy.

The Power of Passive Investing

Vanguard Lowers Minimum Initial Investment On Target Retirement Funds

Image via WikipediaVanguard Group Inc. has lowered the minimum initial investment for it's popular Target Retirement Fund series from $3,000 to $1,000, effective immediately. This is great news to the many people who have been held back from investing with Vanguard because of their $3,000 minimums. Previously only the Vanguard Star Fund had a $1,000 minimum.

Also Vanguard is standardizing the minimum investment for all it's Investor Shares funds to $3,000. Before the fund minimums ran from $3,000 to $25,000. This affects the minimums investment for 15 Vanguard funds, including Wellington Fund, Windsor Fund, and the Health Care Fund.

The problem I saw with Vanguard is that if you wanted to create your own balanced Index Fund portfolio with it's mutual funds, you need an initial investment of $3,000 for each fund. My suggested portfolio of Vanguard funds is a good balance for someone my age.

• Vanguard's Total Stock Market Index 50%
• Vanguard's Total Bond Index 20%
• Vanguard's Total International Stock Index 30%

If I started from scratch I would need $9,000 to get started. A $3,000 minimum for each fund. The high minimums hold a lot of people back.

With the new lower minimum of only $1,000 I can buy the Vanguard Target Retirement 2025 Fund and get the same allocation and get started with only $1,000. Vanguard has made real progress with lowering the minimums on it's Target Retirement Funds. Many new and old investors will now not be held back and can now invest with Vanguard.

Here is a list of the funds with $1,000 minimum investments:


Vanguard Target Retirement 2010 Fund (VTENX)
Vanguard Target Retirement 2015 Fund (VTXVX)
Vanguard Target Retirement 2020 Fund (VTWNX)
Vanguard Target Retirement 2025 Fund (VTTVX)
Vanguard Target Retirement 2030 Fund (VTHRX)
Vanguard Target Retirement 2035 Fund (VTTHX)
Vanguard Target Retirement 2040 Fund (VFORX)
Vanguard Target Retirement 2045 Fund (VTIVX) 

Vanguard Target Retirement 2050 Fund (VFIFX)
Vanguard Target Retirement 2055 Fund (VFFVX)

Click Here To Go To Vanguard Target Retirement Funds

These Retirement funds are an easy way for new investors to get started in index mutual funds. Even seasoned investors will love the set it and forget it way Vanguard does the heavy lifting on asset allocation and rebalancing. With expense ratios being critical to a long term investment strategy, Vanguard comes through with expense ratios between 0.16% and 0.19%.

Vanguard, in reducing it's minimums, has improved it's prospects of attracting new investors who used to be unable to meet the higher minimums to start investing. But with a larger number of smaller accounts, it could be setting itself up for higher costs and turnarounds. That's why investors with larger accounts are charged lower fees.

This is the second major change in Vanguard's fee structure. In October, the company reduced fees for customers by lowering investment minimums needed to qualify for its lowest cost Admiral shares of mutual funds. The minimum for Admiral Shares dropped from $100,000 to $10,000.

These kind of changes do not effect your upper level investors. Both these changes by Vanguard are a benefit to the small and beginner investor. These customers are the ones that need this help. I'll be watching Vanguard for further innovative changes in the future.

Are You Suffering Gold And Silver Investment Envy Syndrome?

Image by hto2008 via FlickrI opened the morning paper to read the headline "Investors Stampede To Silver". What's going on? First it was the rush to gold, now it's silver. The price of silver is definitely going up. Are you participating in this modern day silver rush?

People worried about the U.S. governments soaring debt load, the Federal Reserve's easy money policy and the slumping dollar; investors have run to silver and gold as money refuges. I can't blame them they see the value of their dollar eroding and see this as the only way to keep ahead.

For those of you who have not jumped on the band wagon yet yet; do you think you should have? Are you getting that sick feeling in your stomach that you missed something big? What should you do?

The basics of investing are to buy low and sell high but do they apply in this situation. The people who are buying gold and silver are not buying as investors, they are buying as a hedge against inflation. A way to keep the value of their money. This frenzy is being fueled buy the small time players, the average guy who is afraid of the financial future ahead.

If you are already invested in gold and silver you must be pleased with your good decision. If your not invested do you feel you should be? I for one feel no need to buy gold and silver. If there is one thing that I have learned from years of investing is never buy at the top. Don't chase an investment. Every time I did buy high, I lost money. The volatility of these precious metals makes me to nervous. The general consensus is that the price of these metals still have room to appreciate, but for me I don't have the stomach for it.

I am perfectly happy investing in my index fund portfolio. I don't envy those who are investing in gold and silver. I judge all investments by the "sleep at night factor". If I have an investment and it doesn't worry me and I sleep well owning it, then it passes for me as a good investment. I believe gold and silver investing is too speculative and not an investment. Those who understand the nuances of gold and silver investing, more power to them. If you have a core holding of good investments and you want to play around with gold set aside no more than 5% of your total investment balance and buy some gold or silver.

My investing style is simple. I use stock index funds:

• 20% VTI: Vanguard Total Stock Market 
• 20% IVE: iShares S&P 500 Value Index 
• 20% IWD: iShares S&P 1000 Value Index 
• 15% IWN: iShares Russell 2000 Value Index 
• 15% IWS: iShares Russell Midcap Value Index 
• 10% DIA: DIAMONDS Trust Series 1

Also Bond Index Funds:

• 50% TIP: iShares Barclays TIPS Bond Fund 
• 50% SHY: iShares Barclays 1-3 Year Treasury Bond Fund 

With this group I get a broad spectrum of stocks across the entire market. The bonds are short term and TIPS which are inflation adjusted.

Investing should not be hard. It's made more complicated buy the equity industry. We are always being sold something. Step back from all the noise and check out index funds.

Here are some additional resources for a short course on investing:

Asset Allocation

The rule of 120 in Asset Allocation

Behavioral Biases

Why most investors don’t make money in the stock market–they do it wrong

Index Investing

Active vs. passive management
Issues with active management
Efficiency and indexing, even for small caps

Investments

TIPS, short term bonds, and inflation hedges
Fama and French’s value and small cap findings:

If your new to investing and want index funds and a simple way of implementing a saving and investing plan check out Betterment.com

Investing 101: Index Funds

Image via Wikipedia

If your thinking about getting into investing and want an easy way to get your feet wet why not try Index Funds. We all have the common problem of which of the 3000 plus mutual funds do we put are money in. You can search for the hot fund or the fund with the great long term track record. But when you purchased it, it tanked. What to do? I would just like to pick a fund that will let me get some sleep at night!

The answer for you is Index Funds. Jack Bogle founder of Vanguard Funds and pioneer of index funds says," Why look for a needle in a haystack when you can buy the whole haystack." Get great diversification by buying everything. You will ride the markets ups and downs like a roller coaster. But always with a upward trend. You will be at ease in your choice of index funds because you won't have second thoughts. How can you? You own everything, you don't have to believe you have the wrong stock or fund, you own them all. Another plus for your index portfolio is, by not buying and selling a lot you'll save all those transaction fees. Also buying from Vanguard, there will be none if you buy their mutual funds directly.

Now what do you do to get started? What funds to buy? Start with the basic three with percentage allocations:

• Total Stock Market Index Fund. 60%
• Total International Market Index Fund. 30%
• Total Bond Market Index Fund. 10%

This is a good place to start. Your allocations can be adjusted based on years till retirement. There are many other index funds to add to this list for further diversification. There are TIPS, Small-Cap,Specialty Foreign, REITs and others. As your portfolio increases new money can be put here. To get some good advice study the work of John Bogle. He's the main source to go to. Others like Paul Merriman on his web site Fundadvice.com. He offers his own proprietary work on index funds including his "Ultimate Buy an Hold Strategy". He offers sample index fund portfolios. He also produces many educational videos on investing. His active web site keeps you going back for more good advice. Also Paul Farrel over at Marketwatch.com keeps a scoreboard of the top eight index fund portfolios. He has there performance over the last 10 years and its updated daily. You'll also enjoy his "Andy Rooney" style commentary's. He is many years experience in the equity markets and writes a thoughtful column. Here's a list of the Index Fund Portfolios Courtesy of Paul Farrel's column at Marketwatch.com.

Take the strain and worry of investing away with index funds. Open an account Or if you have one see if you can purchase them there. If you go to Vanguard Funds there is a minimum investment of $3000. At Schwab their index funds have a minimum of $100. You can start there and latter move to the mother ship Vanguard. To be sure you will be saving money because a nice feature of these index funds is the low expense fees. Vanguards Total Stock Market Index Fund has an expense ratio of  0.18%. One of the lowest. But be careful because I have seen some expense fees as high as 1.5%. There is no reason for these high fees.

Book Review: The Elements of Investing

Image by Christopher Chan via Flickr

When reading a good book on investing you try to find some thing new you didn't know or understand before. Many of us that read a lot of person finance or investing books find the information repetitive. So finding these treasures, is the fun of reading, to find that little jewel that makes you look up and take notice. For me I have gotten a lot of info and enjoyment from reading a book called "The Elements Of Investing" by Dr. Burton Malkiel and Charles Ellis. 
 
They have written other books on investing notably "A Random Walk Down Wall Street". That book was a hefty read at 400-500 pages. They have written this new book, which is a boiled down version of just the best stuff. In 176 pages they give just the best advice on investing, saving and how to do it. They write about the different types of investing accounts and what type of investments to put in them. 
 
They describe a wide variety of scenarios and stories of investing and how it works into your life. One of the jewels of this book is their discussion on Asset Allocation. It's explained in a clear and concise way. They write how it's not just important but it's importance is paramount to your success in investing. 
 
What they write about in asset allocation is that whatever your ratio of equities to bonds are, it must be one that you will be able to live with when the market is volatile. If it is wrong you may sell at the wrong time totally destroying your hopes for making a growing portfolio. 
 
Another key technique of good investing is re-balancing your account every year. The first of the year would be a good time to do this. The importance of this is if your 50/50, 60/40 or whatever your equities to bond ratio is, if it goes out of balance, you should sell and buy to get it back in balance. The jewel in this strategy is your selling an asset that has appreciated and buying one that is at a low price. Selling high and buying low at a predetermined time. This technique forces you to take profits and buy low. It restricts you to never buy at the top. It makes a contrarian out of you and increases you rate of return. 

Malkiel and Ellis take on the prognosticators who make a living telling us what to do. They denounce the nonsense they try to tell us. While saying they all get it wrong, in fairness they write about a few who called it right. They go on to say there were a few to get it right but so far in advance that following their advice would have been counter productive. 

The good advice kept coming when they said that it was important to have some fixed income in your portfolio to see you through the time of equity turmoil. It will keep you calm until the roller coaster slows down. 

Many times they told how diversity was key to long term profits. Investing in value and growth equities was important for for a well rounded portfolio. Broad diversity also abroad with investing in fast growing economy's like China, India and Brazil. 

They don't recommend SPDR's or Large-Cap funds, they suggest Total Stock Market Funds that include broad array of stocks like one that follows the Wilshire 5000. Large, Mid and Small-Cap stocks all together. Of course they recommend you do all this investing using only Index funds.

I really enjoyed this book. Its a quick read with a good conversational style. I know I'll keep it and reference again.