Also Clifton, remember that any money you put in a child's name outside of something like a 529 plan is theirs when they reach 18. Also assets in the child's name might reduce any financial aid. If you do use a separate account (and it may be difficult to open one unless you put in a certain minimum amount), I would keep it small. Also, if you but shares directly and reinvest dividends, be SURE to keep up with the cost basis.
Thanks for your question, Cecil!
Virginia has a great plan. Do does Utah which uses Vanguard funds.
Smart choice Clifton. I often see people get into horrible 529 plans through a broker.
Clifton: Good for you. Planning for college is important. If you have an online brokerage account, you could open an ESA (education savings account also called Coverdell Education Savings account) and fund it to the child's age 18. As the parent there are income restrictions married filing jointly phase out is $190000. There's also the UGMA (Uniform Gifts to Minors) or UTMA (Uniform Trust for minors) custodial accounts. These can hold stocks of your choice.
Stacy, actually I find the best interest rates on internet savings accounts online. They typically provide access to funds by transferring directly to your brick-and-mortar bank or credit union from which you can write checks.
Stacy, try checking out some of the options offered by online banks such as Ally and Capital One. Unfortunately, low rates have been the theme for way too long, but anything else that looks better right now carries risks.
My online emergency fund account is with Capital One (used to be ING Direct), and it does take a day or two to access the funds (and to have money credited to your account when transferred in) - a minor issue, in my opinion.
I do see that Ally has greatly reduced the interest they pay on checking accounts (.1% up to 15K then .6%) but this is still better than most.
Jenny, are you saying you don't have a bank or credit union checking account?
I agree, some of the best opportunities today are the online banks that offer competitive rates, such as Capital One 360 or AMEX Hi-Yield Savings. Check the current rates, should be in the 0.75% to 0.85% range.
Stacy, I love ETFs, especially in taxable accounts because of their tax advantages. But these buckets of stocks are great in any account and provide wonderful diversity. You make a good point on REITS. Since all of their income is treated as ordinary income, they are best in retirement accounts. I do usually put them in 401Ks if that option is available or in traditional IRAs.
One concept that we use is called, Asset Location. Whereby investments that have dividend income are "placed" in an individual's taxable account and investments like REITs that have interest income are "placed" in your IRA or other tax deferred accounts.
I should have said "can" provide wonderful diversity. You can get an ETF on almost anything now to include the smallest market or geographically sectors. But things like Vanguard Total Market or Total World Market are great diversified ETFs.
Aaron, yes, you can use "new money" to rebalance and buy more shares of the under performers. But part of the rebalancing discipline is to buy low, sell high...not the opposite.
Peter, I am often surprised by how many people come to me who have exactly the same allocation in all of their accounts: taxable, traditional IRA, and ROTH. Yes, I'm sure it made it easier for their previous advisor to rebalance the portfolio but it totally ignores the benefits of using an Asset Location strategy.
Aaron, one of the most painful things a prudent investor does is trim their "winners" and buy more "losers." Yet this is the principle of "buy low, sell high." It helps if you actually convert your thinking away from thinking of winners and losers, since all investments contribute, at their particular moments, to an overall successful strategy.
Yes, it takes time for clients to get used to it, but it is more tax efficient.
It is always fun to tell clients you want to buy more of the under-performing asset:-)
Stacey, can I ask how old you are?
Aaron, yes, you are buying low with the new money, absolutely. And perhaps the high performers, over the long run, will continue to perform. I'm thinking you may just have a higher risk tolerance than you started with. It's okay to say you're an aggressive investor and want a high percentage to equities. But you know, when the market's up ALL of our clients come to the realization that they're aggressive investors
. Then the market takes a dip and they change their minds. That's why we all speak of rebalancing.
Stacey, you can't fund both a traditional IRA and a ROTH (for the full amount...you could split the maximum between the two). I would really prefer you use a ROTH at your age if you don't really need the tax savings of using the traditional IRa.
Stacy, it might be worthwhile to review the Guaranteed Interest investment choice as a substitute for a Core Bond allocation. Sometimes, the guarantees are pretty attractive. Clients that work with TIAA-CREF have very attractive guaranted interest rates.
The risk characteristics (standard deviation, R-squared, etc.) are important to help an advisor build a risk-adjusted investment design for clients.
Beta is more relevant if the R-squared or correlation coefficient is high. Then negative beta would mean the investment's movement is not correlated or "reverse" correlated to the stock market. All of that is a little academic for sure and you may not want to go that far. Alpha is a measure of risk adjusted return; i.e. how an investment performs is more relevant when you factor in the risk you are taking. The object is to get the best return for the amount of risk you are willing or NEED to take.
KittyMomma: It is advisable to work with a fee-only advisor to help design the optimal investment portfolio for your goals, time horizon, and risk tolerance.
You said you took at 42% hit. That is VERY high for any portfolio. Were you concentrated in a sector like financials? In any event, I hope you held on instead of selling as most of my clients where "whole" in a year to 18 months. And since then.....such amazing performance.
KittyMomma: I am answering your second question: I prefer Morningstar ratings, which tell you how a fund has done relative to its peers. A higher ranking fund usually has done relatively well AND has lower expenses. T
Stacy: If the guaranteed rate is 3% or better, you should consider using it as part of your fixed income allocation. Sounds like you need an advisor.
KittyMomma, Pat is spot on. Morningstar is a great source (they do not have a horse in the race so to speak). You can get their enhanced membership at a reasonable price. They also offer investment learning opportunities online.