Investing

Mutual funds have a sneaky way to charge you with what they call an expense ratio. You never see a bill, they just take the money out of your account, like a boat with a leak in it. A 1% expense ratio will take 30% of your returns over 30 years (assuming a 6% annual return). You’d lose $142,154.88 over 30 years if you initially invested $100k. With a low-cost fund at 0.1%, you’d only lose $16,034.83 over 30 years.

No, you shouldn’t touch your money until you had originally planned to use it. And if it’s in the stock market, that should be a minimum of 5 years out. This is basically trying to time the market, which will burn you 99% of the time because you not only have to time it right when you take your money out, you have to time it right when you put your money back in. The biggest stock market climbs happen after the biggest falls, leaving you on the sideline.

A bond is a loan to either a government or a company. They usually pay a fixed interest rate. Bonds are graded based on how trustworthy the company or government is to pay back its debts.

Paying off your mortgage early will give you a guaranteed return of your mortgage rate. But you should have an emergency fund and maximize your 401K and IRA contributions first.

You can establish a Solo 401k or a SEP IRA to save for retirement with great tax benefits. You can avoid paying income tax on the money you contribute today and the money grows tax-free. You only pay income tax when you take money out at retirement.

Index funds greatly reduce your investing risk. Rather than going all-in on a single bet, you can buy thousands of stocks and bonds in an index fund. You own each underlying stock or bond based on how much it’s worth, not on based on some “expert’s” guess. This lets you easily bet on the entire world economy, which is almost guaranteed to go up in the long run. 

They should start with a Roth IRA. They’ll need to have income, but that could just be from babysitting or mowing the lawn. They need to keep track of the money they made.

Investing is the best way to fight the ever-increasing price of everything. A movie ticket cost $2.89 in 1980 and today it cost $9.16. So if you had just put that $2.89 under your mattress in 1980 and pulled it out now to go to the movies, you’re out of luck. Investing grows your money to outpace the rise of prices.

You’re less likely to lose money in the stock market if you own more stocks and you hold them for a long period of time. If you owned an S&P 500 mutual fund that holds the 500 largest company stocks in the U.S., you would have never lost money if you held it for at least 15 years – whether you bought it in 1973, 1983, 1993, or 2003 or any year in between!

They’re just fancy names for stocks of large companies, mid-size companies, and small companies.

It’s your mix of stocks, bonds, and cash that controls your risk. If you’re heavy in stocks you’ll have higher risk – you’ll potentially make more money but potentially lose more too. As you add bonds and cash to your mix, you can reduce your risk.

It’s a way to reduce your risk when investing. Rather than going all-in on a single bet, you can buy thousands of stocks and bonds in a mutual fund. This lets you easily bet on the entire world economy, which is almost guaranteed to go up in the long run. Until the Apocalypse.

Rebalancing is how you can get your investment portfolio mix back in order. Over time, your mix of stocks, bonds, and cash can drift as each performs differently. Once a year, you’ll want to reset them back to your target mix. A target-date mutual fund does this automatically for you.

Normally when you buy a stock, you have to buy an entire share. So if you wanted to buy Tesla trading today at $736.27, you had to have at least $736.27. With fractional shares, you can buy a smaller sliver for as little as a dollar.

The best way to save on taxes is through special investment accounts like a 401K, IRA, Roth IRA, HSA, and 529. They let your money grow tax-free and some even let you take your money out tax-free.

In a savings account. Any investment account runs the risk of losing value over the short-term. If you don’t need the money for three or more years, you should consider an investment account.

Usually, a ripoff. You hand over a giant lump sum of cash and they’ll guaranty payments for life when you retire. But annuity companies need to make money too, so they’ll keep those payments to a minimum.

If junior gets that full ride to Stanford, you will not pay a withdrawal penalty on the 529 money that you normally would for the amount of the scholarship. You just pay income tax on the money that was earned on the investments.

Capital gains is the money you make when you sell a stock for more than what you bought it for. If you have owned the stock for more than 1 year, you’ll pay lower taxes on this money.

Dividends are cash that a company pays to anyone who owns their stock every 3 months. For example, Apple recently paid a $0.22 dividend per share, with each share costing $128.

Go with a Roth if you’re single and make less than $85k/yr or married and make less than $170k.

No. If you’re rich, maybe.

It’s basically a mutual fund. Just ignore them and invest in low-cost index mutual funds.

A stock is an ownership slice of a company. When you own part of a company, you can earn money when the company shares some of its profits and you can sell your ownership for more money if the company has been successful.

It’s as if your money was like a pair of bunnies, who have babies, who have babies, who have babies …. Your money grows fast because the money it makes, makes more money. A giant, green, money snowball.

No.

It’s the fee that a mutual fund charges you, every year, and you never even see the bill – they just take it directly out of your account. It’s shown as a small percentage, but it adds up to big bucks. If you have $100,000 in a mutual fund with 0.8% expense ratio, you pay $800 dollars per year.

It’s a way to reduce your risk by adding your money to your investments over time. Rather than putting all your money in your account at once and risking that your investment drops the next day, you could invest a portion of your money every week or month.

The Nevada 529 Plan. You can use this plan no matter what state you live in.