TO KEEP YOUR financial life simple, you’ll want to stash your investment dollars at just one or two financial companies. Which firms should you pick? Look for fund companies and brokerage firms that offer the investments you’re aiming to buy—and do so at a modest overall cost.
That immediately brings up a key decision: Do you plan to buy index mutual funds, exchange-traded index funds (ETFs) or some combination of the two? Index mutual funds are bought directly from the fund company involved,
FIGURE OUT HOW much money you’ll need from your portfolio over the next five years. We’re talking here about the funds needed to pay your teenager’s college bills or to cover the next five years of your retirement expenses. With such a short time horizon, you simply can’t afford to take a whole lot of investment risk. You should also play it safe with your emergency money, even though you can’t be sure when you’ll need it.
NOW THAT YOU have your next five years of portfolio withdrawals stashed in conservative investments, it’s time to deal with your longer-term money—those dollars you won’t need to spend in the next five years.
While stocks have historically notched gains over most 10-year holding periods, there have been some five-year losing stretches. The implication: You might buy stock funds if you have 10 years to invest. But once you’re within five years of spending the money,
IF TARGET-DATE index funds are so great, why buy anything else with your long-term investment money? There are two reasons: By building your own portfolio of index funds, you could potentially lower investment costs, while also putting together an investment mix that’s less risky or has a higher expected return.
To that end, you might start with three core holdings: a total U.S. stock market index fund, a total U.S. bond market index fund and a total international stock index fund.
LOOKING TO BUILD an investment portfolio—or rethink the mix you already own? Welcome to HumbleDollar’s portfolio-building guide. This guide takes the most important advice from the site’s chapters on investing, markets and taxes, and turns it into nine simple steps that should help you build a sensible, low-cost portfolio of index funds.
Step 1: Ask Why
Step 2: Pick Your Provider
Step 3: Cover Cash Needs
Step 4: Off the Shelf
Step 5: Build Your Own
Step 6: Fend Off Inflation
Step 7: Tilt Your Portfolio
Step 8: Add Alternatives
Step 9: Keep Your Balance
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THERE ARE FIVE key scenarios where hackers could potentially wreak havoc with your financial life. Data thieves could:
Rack up charges on your credit cards.
Apply for a loan or credit card using your identity.
Steal money from your financial accounts.
File a false tax return claiming a refund.
Steal your medical information and then use it to, say, fraudulently fill prescriptions or submit medical expenses for insurance reimbursement.
How can you defend yourself?
DURING ITS BRIEF existence, HumbleDollar has run a large number of articles devoted to kids and money. For instance, we published a series of five pieces by our bloggers devoted to what they learned about money when they were children: Growing Up (I), Growing Up (II), Growing Up (III), Growing Up (IV) and Growing Up (V). There were also three earlier pieces by Sam X Renick, two of which discussed what his father taught him: Keep Your Earnings,
WHEN YOU SETTLE on your portfolio’s split between stocks and conservative investments, you should take a broad view of your finances—and factor in the many parts of your financial life that look suspiciously like bonds. If you think of a bond as something that kicks off a steady, predictable stream of income, that description doesn’t just fit the paycheck you might be collecting. It also describes a host of other assets, including certificates of deposit,
LOOKING TO GET more out of your money? You could dive into each of the money guide’s chapters and peruse the sections that seem most relevant to you. As you’ll discover, each chapter begins with a short introduction and a list of all sections in that chapter.
But here’s an alternative way into the money guide: Check out the key questions you need to consider. The articles below ran as a series of articles—and each includes links to relevant pages in HumbleDollar’s money guide.
WHAT ARE YOUR favorite financial websites? That question was put to HumbleDollar’s writers. Here’s what they came up with:
Adam M. Grossman
INVESTORS ARE OFTEN described as risk averse. But in truth, we aren’t risk averse, but rather loss averse. We tend to think less about our absolute level of wealth and more about changes in our wealth relative to some reference point—and we hate it when we fall below that value.
It’s been estimated that, for many of us, the pain we get from losses is at least twice as great as the pleasure we receive from gains.
WE TEND TO BE a self-confident lot, believing we’re above-average drivers, smarter than most and better looking. This isn’t necessarily a bad trait. Self-confident, optimistic individuals tend to be happier, more resilient and enjoy greater career success. But when our excessive confidence spills over into investing, it can hurt our portfolio’s performance.
As a group, investors will inevitably trail the market averages, once investment costs are figured in. Could you and I do better?
IN THE BATTLE between our current self and our future self, it’s no contest: We overwhelmingly favor today. We spend excessively and take on too much debt, while giving scant thought to how we’ll service these debts or how we’ll pay for distant goals like retirement and the children’s college education. We also procrastinate over buying insurance and organizing our estate, thereby putting our family and our future self at risk.
What explains this behavior?
AMERICANS MAY celebrate the notion of rugged individualism. But in truth, we’re social creatures. Want a better life? The more robust our network of friends and family, the happier we’re likely to be.
This is one reason spending money on experiences tends to deliver more happiness than spending on possessions. When we go on vacation, attend a concert or go out to dinner, we typically do these things with others. An added bonus: The pleasure extends beyond the experience itself.
OUR LIVES are an endless cycle of desire and dissatisfaction. We might have our eye on a promotion and the accompanying pay raise, or we might hanker after a new car. We muse about how much better our life will be once we start collecting that larger paycheck and once we drive off the dealership lot in the new sedan.
But even if our wishes come true, they often prove to be a letdown.