Usually, it doesn’t look easy to invest, however that’s not always the case, and it doesn’t have to be.
Adopting a well-organized approach characterized by a few funds and accounts would help you get the best possible out of your money. Besides, it increases your chances of a significant Return On Investment (ROI).
Here are some of the tips that if you apply effectively going into the new year, you will find it easy to invest and even realize a growth.
Consider the Consolidation of Accounts
As an investor, you will always have a 401(k) tied to your employer. What does this mean? Well, it means whenever an employee switches jobs, they get a new 401(k) account. In the end, you will have many of these accounts. Owning most of these accounts makes it difficult for you to track the records of your savings effectively; in fact, they’ll soar up the costs of saving. You should, therefore, consolidate the accounts into an IRA. You can as well use your current employer’s 401(k).
The one good thing about the IRA is that it’s not tied to your job; they avail to you a more extensive range of investment to choose from, among them mutual funds, ETFs, and stocks.
Other than its simplicity, the consolidation of several different accounts into one large account can further reduce the costs involved by qualifying you for funds with lower expense ratios attached.
Remember that it’s only possible to consolidate the accounts if you have a job at the time of doing the Consolidation. You must be a contributor to the 401(k). Married individuals cannot combine their accounts; they have to remain separate.
Adopt the Use of Total Market Funds
Try as hard as you can to create your portfolio around total market index funds.
Most of the more prominent firms in the United States are currently selling these funds. You can buy from firms such as Vanguard, Fidelity, Schwab, and iShares. They offer them conveniently and at fair prices, which makes it hard to beat the expense rates on market index funds.
While adopting the use of total market funds, focus on these three areas, the total international market, Total U.S. stock market, and total U.S. bond market indexes. Alternatively, you can do your investment portfolio by opting for the use of target-date funds, a system that holds a mix of stocks and bonds. These two become more conservative with age and remains one of the most effective ways to save for retirement.
As an investor, it’s wise to abandon the sector-specific specialty funds. It can be tempting to use these funds, especially on the impressive sectors, as the technology companies in the U.S, having these options, as well as a total-market fund, amounts to doubling down on the likes of Apple and Amazon. These two are already the biggest individual owned holdings in the broad-based funds.
Another reason to think twice about specialized funds is that they are more expensive. A perfect example is the U.S. Financials ETF (IYF) that charges an annual fee of 0.43%. On the contrary, iShares Core S&P 500 ETF (IVV) costs 0.04% — this is less than a tenth of the price.
If you are seriously looking to consolidate your holdings, keep taxes in your mind too. As long as it’s a taxable account, all the selling fund shares that have appreciated would mean recognizing a taxable gain, even if you reinvest the money immediately. Accounts like 401(k)s and IRAs are tax-advantaged. The capital gains are a non-issue and leave you free to adjust your holdings as you wish.
Have Cash in Your Mind
Cash remains an essential aspect of your portfolio that you might find it easy to overlook. However, you should know that with a little bit of extra effort, you can boost your returns. The distinct options, such as brokerage sweep accounts, have a reputation for low yields.
In their place, check out the available options in the online savings accounts. In recent years, the constant rise in the interest rates, together with the fierce competition to acquire new customers, has resulted in a pricing war among the big players in the online banks. Meaning, there are great deals for people who are looking for them. Some of the best rates in the market today include accounts Synchrony, which extends a savings rate of 2.25%. A stark contrast is evident in the brick-and-mortar banks, which offer savings rates to as low as 0.1%.
Another viable option is to put your money into CDs; this mostly suits those that target a low-risk cash account- for retirement. You can get high interest rates in banks such as Ally and Barclays. They offer up to 3% for a 12-month maturity.