Using Exchange Traded Funds (ETFs) to Create a Diverse Portfolio

Exchange Traded Funds (ETFs) are a great way to diversify your investment portfolio without adding lots of risk to your current portfolio. ETFs are a useful tool for beginners, or even seasoned experts, for portfolio diversification for a few key reasons. First, ETFs are similar to managed funds in that an investment professional has pre-selected a set of stocks, bonds, and/or other types of funds and ETFs, but with one great advantage – ETFs can be purchased in incremental amounts in exactly the same way stocks are bought and sold! This means “getting into” an ETF requires much less start-up cash, than say, getting into a Mutual Fund (which can typically only be purchased in increments of $5,000 or more). Second, the fees associated with ETFs are much lower than Mutual Funds or other fund types, and typically range from 0.20% to 0.50% per annually. Third, since ETFs are more liquid than Mutual Funds, but slightly less liquid than stocks (fees may apply for holding an ETF less than 30 days for some brokers), they offer an intermediate ground for investors seeking a mixture of growth and financial security.

Let’s discuss a particular ETF to elucidate why these types of funds are such a great way to diversify your investment portfolio. Let’s look at the Vanguard Total Stock Market Index Fund ETF (Stock ticker: VTI). Currently shares of this stock (VTI) can be purchased for $116.77 (as of 12/18/2016). VTI is a large cap blend stock, which means that it has a diversified blend of large capital stocks already built into its portfolio, which has a current market value of $488 billion dollars. It’s always a good idea to only invest in ETFs that have a minimum market capital value of $1 billion or more – this ensures that the fund will not be disappearing anytime soon! Importantly, we will note that VTI pays a 2.40% annual dividend, which is payed out in four quarterly allotments. When looking at ETFs, try to only purchase ones that will meet or beat the average U.S. inflation rate of 2% – VTI does this. Taking a closer look at VTI’s portfolio, we will see that it is truly made up of a diverse array of stocks and funds. For example, we can see that VTI’s portfolio includes stocks and funds in industries such as basic materials (e.g., aluminum, copper, steel), real estate, financial services, consumer defensive (e.g., food products), communication services, energy, and technology – just to name a few! The important lesson here, is that VTI is protected from major changes in the stock market by being diversified, and yet has enough growth funds that it will produce a reliable dividend and grow in value over the years.
The examples and key points I’ve outlined here are all great reasons to look into ETFs as a way to diversify your investment portfolio. I hope you’ve learned some of the basics of investing in ETFs, and why they are important to creating and managing a diverse portfolio. Remember that maintaining a diverse investment portfolio will not only protect your assets from major changes, losses, or downturns in the stock market, but also position your portfolio to take advantage of times of growth across multiple financial sectors. Good luck and always remember to do plenty of research before investing in any type of fund (stock or ETF).

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Life insurance & protecting your investments

Life insurance has become a new player in the new investment world. The back and forth reeling of the stock market, fear of higher tax brackets in the future for government sponsored programs, and lack of liquidity that comes with many traditional investments, has opened doors for safer and smarter investments. However, is life insurance one of them?

Well, let’s look at the fundamentals of an insurance policy and find out if this is something that makes sense.

In the past, life insurance has been sold by most insurance agents for the death benefit. There have been two types of insurance sold whole life and term (all other products revolving around one of the two).

However, in the past, both of these types of insurance could be extremely expensive. Whole insurance could take years to build up any cash value, and although there would be growth on the death benefit, seeing any of that money while living is nearly impossible. On the other hand, although term insurance may be cheaper, it is basically like throwing money out the window, as only 1 percent of term policies payout in a death claim.

Presently, there have been new ways of utilizing whole life insurance that differ from the traditional methods. Structured properly, this new type of investment utilizes whole insurance. However, it utilizes it for its cash values instead of the death benefit.

With this new strategy, you are able after a few years to have 100 percent of the cash you have put into the insurance policy growing as an investment. In this way, the life insurance becomes an asset, not a liability.

Now that we have an understanding, let’s look at some of the advantages and disadvantages of this type of investment.

Tax-deferred growth – like a 401k or IRA, an insurance policy grows tax deferred. However, unlike most government sponsored programs, the money going into a life insurance policy has already been taxed. Therefore, if a life insurance policy is treated correctly, it will never be taxed again. In this way, it differs from a 401k or an IRA, which will be taxed in the future.

Tax-free retirement – as in the above situation, an insurance policy can provide you with retirement funds that will not be taxed.

Tax-free transfer (death benefit) – this is still an insurance policy, meaning that it still provides a death benefit or a portion of actual insurance. This insurance, or death benefit, is not taxable at death, it transfers tax-free (all cash values are included in the death benefit).

No market growth, no market risk – Life insurance isn’t tied to the market. It adjusts with the market. However, there is no upswing for good years, and no downswing for bad years. Many of the companies used for the life insurance investment system have paid out an increase throughout multiple recessions and depressions. This is why people utilize this strategy, for its safety, not for its huge market returns.

Liquidity, use, and control – An insurance policy allows you to take loans based on cash values, in this way you always have access to your money. In fact, this is the reason most individuals put their money into life insurance. It gives them a way to save money and have growth, while at the same time using their money for purchases they need such as cars, boats, homes, etc.

No penalties – various government sponsored programs, you can always liquidate a life insurance policy with no penalties, although you may pay some taxes on growth.

Time to build – an insurance policy will take a few years to build up. In this way, it takes some planning to utilize the full benefits of this strategy.

Death benefit costs – although every dollar that is paid into the actual death benefit (life insurance) costs transfers to your heirs at death, there are costs. A proper insurance policy does guarantee growth over costs (you will always be in the positive every year). However, it is good to be aware that a small portion of your total growth will be going to cover the life insurance costs.

Now you have a pretty good understanding of the benefits and disadvantages of utilizing whole insurance. This system is most commonly used to be treated as a banking system (where you can fund your purchases and pay yourself back with interest) However, speak to a professional to properly set up a life insurance policy for its benefits. If done improperly, you will lose out on all the advantages of the system.

Self-Direct IRA Investing Tips for the Inexperienced

Experience is a good school. But the fees are very high.Investing can be simplified and restricted to one asset class, or it can be made more complex and can involve numerous asset classes. It can provide great learning opportunities; it can introduce you to numerous new people and concepts. It can change your world view and your personal expectations. Self-directed investing is a fascinating challenge. There are almost unlimited investment vehicles from which to choose.

There are several IRA plans available. You will need guidance to select the plan that is best for you. Several self-directed IRA custodians and administrators can help you. Selecting the right self-directed IRA administrator is a very important step.

Types of retirement plans

  • *Traditional IRAs.
  • *Self-Directed IRAs.
  • *401 (k) Plans.
  • *403 (b) Plans 457 Plans.
  • *SEPs SIMPLE Plans.
  • *Defined Benefit Plans.
  • *Rollover Plans.

After selecting the self-directed custodian/advisor and funding your plan, you will be ready to start your investing experience. IRS Tax Code allows you to invest your IRA dollars in almost anything, except life insurance and collectibles. Collectibles include works of art, rugs, antiques, metals, gems, jewelry, stamps, coins, alcoholic beverages, and certain other tangible personal property.
Stocks, bonds, mutual funds, exchange-traded funds, options, real estate, mortgages (promissory notes), oil, natural gas, commodities, etc. are all approved as investment classes and are all potentially useful investment vehicles.
The inexperienced investor can become a target for swindlers and cheats. To protect yourself, you need to develop some guidelines and rules.
One rule is to plan on getting rich slowly. A swindler always promises “quick profits” or “fast money.” Just remember, if “quick profits” were available, a stranger would not be offering them to you; that stranger would be keeping all of those “quick profits” for himself and his friends and family.
Another rule is to be wary of unusually high returns. All investments carry risk. Normally, high returns are created by high risk. Examples of high risk are speculative stocks, speculative real estate, speculative bonds, start-up companies, new ventures, etc. Examples of low-risk investments that pay proportionately low returns are FDIC insured savings account, U.S. Government bonds, blue chip stocks, and bonds, etc.
Remember: Price is what you pay, the value is what you get.
Rarely do any of us pay a low price for a high-value asset. Even rarer is when a stranger provides you with such a bargain!
Be wary of swindlers who claim loyalty to your group or your organization.The subject group may be your religious organization, your community volunteer organization, your school alumni organization, or any other group that you like and trust. In our world of complexity, many people feel that they need a quick way of deciding who to trust. Deciding who to trust takes on serious considerations in the world of investing.
Remember: Investing in something is the same as trusting in something.
Investing Tips for the Inexperienced Investor;*Don’t rush the investing process—don’t let anyone rush you into a decision.*Don’t invest all of your capital into one investment.*Understand the asset that you are investing in.*Understand how that asset will repay your investment.*Understand the downside (risk) as well as the upside (gain) potentials.*Understand what will happen if the investment develops problems.*Understand what rules and laws govern your rights and your duties.*Understand any contract or document that you sign.*Understand who you are doing business with.
As you can now see, there are many steps in this process. As a beginner, it might be advisable for you to engage an experienced investor to work with you initially. If you build your knowledge foundation, select the right self-directed IRA administrator, select appropriate investments, and select the right advisor to get you started on the right track you will be dollars ahead, and you will sleep better knowing that you are not “out there on a limb all by yourself.”

Tips For a Beginner Investing in the Stock Market

For most of the people, the stock market is a frightful thought because they have witnessed the awful effects it can have when things go screwy. Stock plunged after Enron, and even if amalgamations are voiced as with the case of Chase and Bank One, the stock market feels the effects. Even DuPont saw its stock costs drop when negative info is publicized, so the stock exchange, most of the time, is a variable entity.

How does a new financier avoid the problems of the exchange? Research is the only real way, and it’s no ironclad guarantee. That means before you invest, you adopt the habit or reading the NYSE and DJX reports in the daily papers as well as reading the business section of the newspaper for any reports that may affect the stock costs of a company you could be considering. Naturally, unfortunately, utility firms are always earning, but they do it at the cost of purchasers like me and you. For a few people, making an investment in the electrical or water company is the one place they feel safe, but with all the alliances of electrical firms, that is not even a safe investment in the 21st Century.

A new investor needs to do some heavy reading and studying before investing in the stock market. This is not something that should be decided impulsively, but rather needs fully researched over time. In addition to following the current trends in the stock market, the potential investor needs to also research past trends, and be sure to research far enough in the previous years to ascertain that the company stock is stable for the most part. This requires, as an educated guess, at least five years worth of research, maybe more if time allows. For those who have been in the working force for a few years, the trend has been one of difficulties, and sometimes the most stable company has seen their stock plunge during times of recession or bad publicity.

As well as checking the history of a firm and the exchange overall, a potential financier should check the trends of corporations who’ve been concerned in coalitions to discover how their stock fared before the alliance was declared, after, during purchase, and after purchase. In fact, the aptitude for a company after an amalgamation might be a negative one, so it is important to understand how the backers and potential stockholders saw the strength of the company. The cost of a company’s stock is a measure of its strength in the economy, and without that, strength, the investors can force an unfriendly fusion, whereby the speculators take over the company.

When you’ve decided the safest investment for you to make, you want to choose a financial consultant or broker. It’s not smart to try and make a direct buy because although it could be less expensive, the services of a broker will forestall or reduce the monetary loss in the eventuality of a drop in cost. A broker can see the trend and counsel you to sell your stock in a stipulated corporation based primarily on trends that are showing. Unless you have learned a good deal about the stockmarket, there’s no way you, as a new financier, can forecast these things. The price paid a broker for managing your account is definitely worth the confidence you’ll have in knowing your finance interests are uppermost in the mind of your broker. Even with funds, if you’ve got any stocks in your portfolio, which most hedge funds speculators do, it is important to have a broker who can move those stocks around in the eventuality of a downward trend.