Category Archives: Financial Literacy

Just Buy Low Cost Index Funds

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“The less you spend on investing, the more you get to keep.”. Rick Ferri

When investors who don’t manage their costs, they pay a significant price for their inaction and inexperience. As John Bogle has famously said, “In investing, you get what you don’t pay for.” The primary issue is that investment product providers, especially annuities and actively managed funds, and financial intermediaries are selling commission-based products that take advantage of unsophisticated investors by marketing high-fee, high-commission funds that earn low returns. 

Cost Matters Hypothesis.

It costs money to try to beat the market, according to Bogle, and you pay whether or not the manager succeeds. When a group of financial people try to out perform the market, some will win and be successful, some will lose, but collectively they will get the market’s return—before fees. After fees, they will get much less. Bogle once calculated that “active stock investors lose close to 3% a year in fees, trading costs and taxes.”

“Costs matter. They matter more than past performance.” John Bogle

Occasionally, you might get lucky for a year or five or ten. Eventually, though, your luck will run out. With each passing year it becomes more likely that you will be overtaken by the law of averages.

Buffet advice to investors

Billionaire investor Warren Buffett recommends that most investors should buy low-cost index funds. In his sage opinion, buying index funds would go a long way toward solving this serious problem of overpaying for investments. Buffett’s recommends inexperienced investors and investors without time or inclination to conduct research buy index funds. His view is that index funds, such as those that mimic the S&P 500 benchmark, are a smart investment that almost anyone can follow.

“Costs really matter in investments,” Buffett says in a CNBC interview. “If returns are going to be 7 or 8 percent and you’re paying 1 percent for fees, that makes an enormous difference in how much money you’re going to have in retirement.”

The appeal of index investments is their low cost compared to most actively managed mutual funds and ETFs. With active funds and ETFs, according to Fidelity Investment, a manager attempts to deliver performance that outpaces a chosen index, often referred to as a benchmark. Passive ETFs and mutual funds, on the other hand, try to match the performance of a benchmark.

Benchmarks may include familiar indexes such as the S&P 500, as well as custom benchmarks created by a fund’s managers. Passive investments may not offer the potential to outperform an index, but they typically offer lower costs than active funds managed against a similar index or benchmark.

When evaluating cost, most investors focus on the expense ratio—the annual percentage of assets that mutual funds and ETFs charge investors to cover services such as investment management, recordkeeping, compliance, and shareholder services. In general, these costs are much lower for passive strategies than for active ones. And, even this expense that can vary dramatically even among seemingly similar passive index funds and ETFs.

Labor Secretary Thomas Perez said during a Senate panel meeting: “The problem with our [financial] system in the U.S. is it incentivizes complexity when simplicity is all too frequently what’s called for. … It incentivizes complexity because complexity generates more fees.”

The solution and best defense against those who prey on investor ignorance, according to Rick Ferri, is investor education and requiring financial literacy in our schools and colleges. Perhaps we need to scream continuously, “Just buy low-cost index funds!” every time an investor is pitched a hyped-up mutual fund advertisement or a high-cost fund.

Investing in index mutual funds and ETFs can be an outstanding low-cost strategy. And, like any other investment strategy, investing in index funds requires that you understand what you are investing in. You need to ensure that you are investing in a low-cost product that tracks a benchmark that fits with your investing strategy.

References:

  1. https://rickferri.com/forewarned-is-forearmed-on-investment-expenses/
  2. https://www.cnbc.com/2018/01/03/why-warren-buffett-says-index-funds-are-the-best-investment.html
  3. https://www.fidelity.com/viewpoints/investing-ideas/how-to-shop-smart
  4. http://johncbogle.com/wordpress/

Financial Literacy: Saving for Retirement

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“We teach our kids everything in high school: sex education, geography, math, reading, etc. We do not teach them anything about credit cards, or debt, or investing. Then we ask ourselves why we end up in a situation as we are today, which has been highlighted by the pandemic a bit: There’s 100 million people in America that have set nothing aside for their retirement.” Kevin O’Leary

The retirement crisis in America is an ongoing worry for most Americans. As companies have shifted away from offering traditional (defined) pension plans to employees, much of the responsibility in planning for financial life after work now relies heavily on individuals. Unfortunately, the crisis is mostly due to a lack of financial literacy and consumer spending on new shiny things, and as a result, most are struggling to keep up.

A March 2019 Bankrate survey found that more than 1 in 5 working Americans aren’t saving any money for retirement, emergencies or other financial goals. Major barriers as to why respondents said they weren’t saving included not making enough money, financially helping adult children, and large credit card and other personal debt payments.

Financial assistance to adult children

Parents are helping their adult children financially and the majority of those parents say that financially supporting their adult children is hurting their savings for retirement and their financial futures, according to Bankrate. In total, 50 percent of respondents to a Bankrate survey say they have sacrificed or are sacrificing their own retirement savings in order to help their adult children financially.

Living and remaining in the workforce longer

American baby boomers are healthier and are living longer; as a result, they’ll need a bigger nest egg to fund their retirements, especially since the number of employers providing pensions has been steadily shrinking. As some reach retirement age and realize they don’t have enough saved, it’s keeping them in the workforce longer. Workers older than 55 years young filled almost half of all new jobs in 2018 even though they make up less than a quarter of the nation’s labor force, according to an analysis of Labor Department data by The Liscio Report.

“Many seniors are having a hard time making ends meet and find they have to work when they had not planned to.” Dean Baker, cofounder of the Center for Economic and Policy Research.

“Most Americans haven’t made saving [for retirement] a priority”, says Nick Holeman, CFP at Betterment. “Most people don’t like to admit that, but we live in a consumer culture and it can be difficult to turn down the new shiny gadgets.” Saving for retirement is your largest and most important financial goal. Even if it feels very far away, it’s important to start saving early.

Holeman recommends that Americans wanting to retire to take three steps:

  1. Create financial goals and a financial plan. At a minimum, you should have these two financial goals: Create an emergency fund and save for retirement. SoFi calls these “bookend goals”—your primary short-term and primary long-term goal. Your financial plan should consist of small, achievable goals; they’ll help you see your finish line and empower you to stay on track. Start by determining how much you need to retire comfortably.
  2. Come up with a strategy to execute. Selecting an investment strategy depends on your financial goal amount (how much you want to save each month or year) and the time horizon (when you’d like to use that money). Decide how you plan to save that amount.
  3. Get creative. For those struggling to save, consider retiring later or working part-time during retirement. Holeman says there are tons of other options out there, which he refers to as “levers,” like moving to a low-cost state or downsizing your home. Engaging them can help get your retirement savings back on track.

Investing

It has been regularly reported that billionaire investor Warren Buffett made 99% of his current wealth after his 50th birthday.  At an age when most Americans give up hope achieving financial independence, Buffett was just getting started on the capital assets he controls today.  Building wealth could mean financial peace, taking a spur-of-the-moment international travel.

Many older Americans are advised to sell or significantly reduce their stock holdings and frankly, this advice is antiquated, shortsighted and wrong.  Buffett built his incredible level of wealth by continuing to buy stocks despite his advanced age.

References:

  1. https://www.bankrate.com/personal-finance/financial-independence-survey-april-2019/
  2. https://www.bankrate.com/retirement/baby-boomers-unable-to-retire-gig-economy/
  3. https://www.usatoday.com/story/life/allthemoms/2019/04/24/adult-children-robbing-parents-retirement-savings-study-finds/3559812002/
  4. https://d32ijn7u0aqfv4.cloudfront.net/wp/wp-content/uploads/20170718165706/Guide-to-Investing-Intelligently_V5-1.pdf

Habits for a more Abundant Life

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Two most important:

  • Read at least thirty minutes everyday
  • Know and pursue a goal your passionate about

Intelligence, talent and charm are great, but more often than not these aren’t what separate the wealthiest among us from the poorest.

Instead, the differences are in our daily habits.

Do you realize that these subconscious, second-nature activities make up 40 percent of our waking hours? That means that two out of every five minutes, all day and every day, we operate on autopilot.

It’s true: Habits are neural pathways stored in the basal ganglia, a golf ball-size mass of tissue right in the center of our brains, in the limbic system.

This neural fast lane is meant to save the brain energy: When a habit is formed and stored in this region, the parts of the brain involved in deeper decision-making cease to fully participate in the activity. However, we all know there are good habits and bad habits.

5 habits

We know that habits can either help or hurt your success in life. Bad habits can fester and grow into a lifestyle that takes you away from the things you want to do—and good habits can help you create a life that’s full of action and accomplishment.

If you were to look at someone you respect, someone who’s successful, you would see that they spend each day doing the things that help them accomplish their biggest goals. This isn’t to say they’re perfect—because no one is—but despite the things that are not perfect in their lives, they continue to make moves that have a positive impact. And it starts with their daily habits.

Now, while we can all study successful habits, it’s meaningless if we don’t implement that knowledge. So, according to Kimanzi Constable, here are five daily habits you can adopt to create the life you truly want to live:

1. Plan out your day the night before.

It’s easy to get off track when you don’t have a plan. Without planning what your day will look like, you wake up not knowing what you want to do or accomplish. Spend a little time the night before giving yourself clear goals for the next day. Life rarely works out as planned, but with a plan, you can adjust without losing momentum.

2. Read books and novels to get inspired.

Reading is an essential element in success—books contain so much knowledge. Forming a daily reading habit will expand your knowledge, allow you to learn more about your profession and help you on your journey to success.

3. Make your health and fitness a priority.

What you eat and how much you exercise affects every area of your life. Successful people use their exercise as a time to reset and reinvigorate. And they make smart food choices that will give them the energy they need to accomplish everything on their daily to-do list.

4. Don’t get distracted by what other people are doing.

Other people’s journeys to success can be inspiring; you can learn so much—about their mistakes, their victories, what to do, what not to do. But if you start comparing your progress to theirs, instead of using their stories as inspiration, you can lose focus and fail to keep your eyes on your own mountain top. Realize your journey is unique and can’t be compared. So don’t get stuck in the comparison trap—stay focused on your why.

5. Live each day as if it were the last.

Life is busy, it’s chaotic, and so you tend to want to focus on the future—we all do it, worry about what’s next. But while planning is important, so is living—being fully present.

Life is short, and there’s no guarantee as to when it will end. Successful people live each day as if it were their last and make the most out of each moment—and so should you.

When you look at a big goal, it’s common to get frustrated at the enormity of what you’re trying to accomplish. If you wake up each day determined to spend it forming good habits, you give yourself a better chance at success. So use these five habits as a starting place to build whatever a successful life means to you.

Read more:

  1. https://www.success.com/16-rich-habits/
  2. https://www.moneycrashers.com/productive-habits-wealthy-successful-people/

6 simple ways to take action in your financial life without hurting your long-term goals | Vanguard

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“It’s natural and human to feel like you need to take action and “do” something–anything–to stay in control and protect your financial interests.”

Scientific studies have shown that the human brain really likes to feel in control. We’re built to take action to protect ourselves and the people we love when signs point to trouble.

That’s why when markets become volatile, it’s natural and human to feel like you need to take action and “do” something–anything–to stay in control and protect your financial interests. You might feel anxious or worried. Don’t worry; you’re not alone in feeling that way.

Taking action during uncertain times may help you feel more confident about the way things will turn out. That said, if you feel like you need to make changes to your portfolio, it’s important to make sure that the action you take won’t put your long-term financial goals in jeopardy.

Here are some things you can do to feel in control without losing sight of the bigger picture:

Run some numbers

If you feel you have to do something, consider starting with your calculator. Numbers can give you a rational way of framing things that can settle some of those anxious feelings. For example, you can analyze how market conditions have affected your portfolio and compare it with the expectations you had based on your risk tolerance. Or compare your current asset mix with your target and rebalance if it differs by 5 percentage points or more.

Speak the language of action

Describing your strategy as “staying the course” or “doing nothing” may make you feel you’re not doing enough. Instead, describe what you’re doing as fighting the impulse to get out of the market or giving your portfolio an opportunity to rebound. You’re trusting your mix of assets to get you through market ups and downs, and that takes mental strength. Give yourself credit where it’s due.

Talk it over

Consider sharing your plan of action with others. Take a look at the Vanguard Blog for inspiration. When other people show support for what you’re doing and chime in that they’re doing it too, it can make you feel good about your choices. Helping others when they have questions can also go a long way toward building your confidence.

Take comfort in history

So far, every market downturn in history has been followed by a rebound. We don’t know when it will happen or how big it will be, but there’s good reason to believe that better times are ahead.

Think about what you can control

If you’re saving for retirement, you may be able to control how much you save or how long you can save (if you have a retirement date in mind). If you’re retired, you may be able to adjust the percentage of your portfolio you withdraw during a market downturn.

Your spending habits are within your control too. Of course, it’s probably not realistic to expect that you’ll start clipping coupons, switch to generic brands, and skip your afternoon coffee run all at once. Try cutting down your spending in just one area at a time to see what works best for your life.

We recognize that this is your portfolio, and you control your asset mix. We don’t recommend changing your asset mix in response to market movement, but if you’re determined to make a change to your portfolio, make it a small one. Some examples of small things you can do: Direct one of your stock funds’ investment earnings to a bond fund, or change the asset mix of a single account rather than your entire portfolio.

Lean in

Lean on personal financial advisors to provide you with the leadership you need to make it through uncertain times. Trusting a financial expert to bring order to a situation that feels out of control can help you ease anxious feelings.

Source: https://investornews.vanguard/6-simple-ways-to-take-action-in-your-financial-life-without-hurting-your-long-term-goals/?cmpgn=BR:OSM:OSMFB:OTHERS:072920:TXL:OTM:xx::OTHR:OTH:OTS:XXX::XX&sf235757186=1

Note: All investing is subject to risk, including possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.

Personal Emergency Fund

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Emergencies—from a vehicle breakdown to a layoff—are a fact of life. When you’re faced with life’s unexpected events, you can be ready.

When things are going well financially and monthly expenses are being paid, emergency savings can seem unimportant. Yet, emergencies are unpredictable and can quickly derail your financial stability. And, a recent FINRA Study finds that 56% of people in the United States don’t have a rainy day fund that would cover 3 months of expenses.(1)

A sudden illness or accident, unexpected job loss, or even a surprise home or car repair can devastate your family’s day-to-day cash flow if you aren’t prepared. While emergencies can’t always be avoided, having an emergency fund can take some of the financial sting out of dealing with these unexpected events.

Being prepared for the unexpected – ensuring you’ve done what you can to protect yourself and the ones you love – can reduce stress and provide a good feeling. Many people at some time in life find they need to dip into savings during a rough patch, so make an effort to open an emergency savings account and try to make deposits on a regular basis.

An emergency fund are savings used to cover or offset the expense of an unforeseen situation. It shouldn’t be considered a nest egg or calculated as part of a long-term savings plan for college tuition, a new car, or a vacation. Instead, this fund serves as a safety net, only to be tapped when financial crises occur.

It is a good idea to work toward an emergency fund equal to 3 to 6 months of living expenses. But anything you can put away is better than being unprepared. Saving up emergency cash can be easier if your financial institution has an automatic payroll savings plan. These plans automatically transfer a designated amount of your salary each pay period – before you see your paycheck – directly into your account.

An emergency fund is useful for unexpected expenses, and to maintain personal financial liquidity and cash flow.

Reasons why emergency savings are important:

  • Being prepared – Issues like car or home appliance repair are common occurrences. However, since they do not happen regularly, people often overlook these costs as they create a budget. By anticipating these costs, you can be prepared for these potentially expensive items.
  • Avoiding debt – Emergency savings give you the option of dealing with the unexpected without having to take on debt. Without the cushion of emergency savings, you may be unable to pay regular bills if you face an emergency, and are more likely to take on debt.
  • Having peace of mind – Having emergency savings will give you peace of mind. Even if you can’t save much, a little money set aside may make a big difference when you need it and reduce stress.
  • Emergency savings give you the option of dealing with the unexpected without having to take on debt. Without the cushion of emergency savings, you may be unable to pay regular bills if you face an emergency, and are more likely to take on debt.

Thus, an emergency savings is a stash of money set aside to cover the financial surprises life throws your way. These unexpected events can be stressful and costly. Some of the top emergencies people face are:

  • Job loss.
  • Medical or dental emergency.
  • Unexpected home repairs.
  • Car troubles.
  • Unplanned travel expenses.

Emergency funds create a financial buffer that can keep you afloat in a time of financial need without having to rely on credit cards or take out high-interest personal loans. It can be especially important to have an emergency fund if you have debt, because it can help you avoid borrowing more.

The right amount for you depends on your unique financial circumstances. Most experts believe you should have enough money in your emergency fund to cover at least 3 to 6 months’ worth of living expenses in case of an unexpected financial emergency. This account should be relatively liquid.

For your emergency or rainy day fund, you’ll want to choose savings or investments accounts that are:

  • Safe from market risk. You want to know that your money will be there when you need it—especially in times of market or economic turbulence.
  • Easy to access. This will ensure you’ll be able to take care of your emergency quickly
  • Interest-bearing. The point of an emergency fund isn’t to make money, but don’t turn down the opportunity to earn interest on your savings.

If you lose your job, for instance, you could use the money to pay for necessities while you find a new one, or the funds could supplement your unemployment benefits.

Start small, but start.

Saving even small amounts such as $500 can get you out of many financial scrapes. Put something away now, and build your fund over time.

An emergency can strike at any time, having quick access is crucial. But the account should be separate from a bank account you use daily, so you’re not tempted to dip into your reserves.
Building an emergency fundCalculate the total that you want to save. To figure out how to add up your expenses for six months.

  1. Set a monthly savings goal. Get into the habit of saving regularly. One way to do this is by automatically transferring funds to your savings account each time you get paid.
  2. Keep the change. When you get $1 and $5 bills after breaking a $20, drop some in a jar at home. When the jar fills up, move it into your savings account.
  3. Move money into your savings account automatically. If your employer offers direct deposit, there’s a good chance they can help you break up your paycheck into multiple checking and savings accounts.
  4. If there’s no money left, cut expenses. See which parts of your monthly spending you can trim, so you’ll have cash left over to build your fund.
  5. Get supplemental income. If you have the time and willpower, get a side hustle or sell unused items from home to accumulate more money for your fund.
  6. Save your tax refund. Saving tax refund can be an easy way to boost your emergency stash. When you file your taxes, consider having your refund deposited directly into your emergency account.
  7. Assess and adjust contributions. Check in after a few months to see how much you’re saving, and adjust if you need to add more.

An emergency fund is for emergencies only. Usually it’s something that affects your health, your home or your ability to earn money.

What’s not an emergency?

  • Holidays, birthdays and mental pick-me-ups for yourself or significant others.
  • Vacations.
  • The chance to get a great deal on something you don’t need.
  • Expenses that aren’t surprises, such as car insurance.

When saving, draw a line between emergencies expenses and everything else. In fact, once you’ve hit a reasonable threshold of emergency savings, it’s a good idea to open multiple savings account for irregular but inevitable items such as car maintenance, vacations and clothing.

Everyone needs to save for the unexpected. Having something in reserve can mean the difference between weathering a short-term financial storm or going deep into debt. Emergency savings can help you handle unexpected events. With money set aside for emergencies like unexpected car repairs or sudden job loss, you can better take care of yourself and your family financially.

Building an emergency fund

Calculate the total that you want to save. To figure out how to add up your expenses for six months.

  1. Set a monthly savings goal. Get into the habit of saving regularly. One way to do this is by automatically transferring funds to your savings account each time you get paid.
  2. Keep the change. When you get $1 and $5 bills after breaking a $20, drop some in a jar at home. When the jar fills up, move it into your savings account.
  3. Move money into your savings account automatically. If your employer offers direct deposit, there’s a good chance they can help you break up your paycheck into multiple checking and savings accounts.
  4. If there’s no money left, cut expenses. See which parts of your monthly spending you can trim, so you’ll have cash left over to build your fund.
  5. Get supplemental income. If you have the time and willpower, get a side hustle or sell unused items from home to accumulate more money for your fund.
  6. Save your tax refund. Saving tax refund can be an easy way to boost your emergency stash. When you file your taxes, consider having your refund deposited directly into your emergency account.
  7. Assess and adjust contributions. Check in after a few months to see how much you’re saving, and adjust if you need to add more.

An emergency fund is for emergencies only. Usually it’s something that affects your health, your home or your ability to earn money.

What’s not an emergency?

  • Holidays, birthdays and mental pick-me-ups for yourself or significant others.
  • Vacations.
  • The chance to get a great deal on something you don’t need.
  • Expenses that aren’t surprises, such as car insurance.

When saving, draw a line between emergencies expenses and everything else. In fact, once you’ve hit a reasonable threshold of emergency savings, it’s a good idea to open multiple savings account for irregular but inevitable items such as car maintenance, vacations and clothing.

Sources:

  1. FINRA Investor Education Foundation National Financial Capability Study, 2012, pg. 13
  2. https://www.nerdwallet.com/blog/banking/savings/life-build-emergency-fund/
  3. https://www.thebalance.com/do-you-need-a-rainy-day-fund-and-an-emergency-fund-4178821
  4. Building Emergency Savings, UMBC

Financial Literacy and COVID-19 | Charles Schwab Foundation

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“89 percent of respondents to a Charles Schwab’s survey believe a lack of financial literacy contributes to larger social issues—from poverty, to fewer job opportunities, to wealth and gender inequality.” Carrie Schwab-Pomerantz

  • Even in the wake of a global health crisis, Americans value financial education.
  • An overwhelming majority of Americans believe that a lack of financial literacy contributes to larger social issues.
  • Americans want our schools to take the lead in providing our youth with a financial education.

The impact of financial illiteracy is not lost on the American public. 89% of Americans agree that lack of financial education contributes to some of the biggest social issues our country faces, including poverty (58%), lack of job opportunities (53%), unemployment (53%), and wealth inequality (52%).

“Financial illiteracy is insidious. The antidote is financial education, which gives people the skills they need to make smart money decision and can help improve their lives.” Carrie Schwab-Pomerantz, president of Charles Schwab Foundation.

Americans indicated they wish they had better money management skills, according to a Charles Schwab survey. When asked what they would teach their younger selves about personal finance based on what they know today, Americans said the value of saving money (59%), basic money management (52%), and how to set financial goals and work toward them (51%).

From the survey, it is apparent that every person in America should be taught the fundamentals of money management including budgeting, saving, avoiding debt, setting financial goals and investing.

“The pandemic has underscored just how critical basic personal finance skills are in preparing for the unexpected. Financial literacy is a survival skill that everyone needs.” Carrie Schwab-Pomerantz

Carrie Schwab-Pomerantz recommends five key steps every American can take to help shore up their finances during this period of global health crisis and economic uncertainty.

  • Start an emergency fund (or add more to it) to help protect yourself against an unexpected drop in income or expense shock. Set aside whatever you can – every little bit counts. Try to aim for $1,000-$2,000 to get started, and then work your way up to 3-6 month worth of essential expenses over time.
  • Create a budget to help you prioritize and assess your financial resources. Self-isolation has led to different spending patterns for many people, including cutting back on what we may have previously thought of as “essential.”
  • Create a financial plan to help you navigate from where you are to where you want to be. You don’t need to have a lot of money to need a financial plan. Consider it a roadmap to reach your financial goals, whether that’s to pay off debt, build savings, or make a large purchase.
  • Ask for help if you’re struggling. Given the scale of this economic crisis, the government, lenders and creditors are trying to work with borrowers through this difficult time. Don’t hide from creditors – that can make things worse.
  • Focus on what you can control. You can’t predict or control the market, but you can control how you manage your investments, your savings rate, having a financial plan and how you react to events.

“The need for financial literacy is especially urgent for women and minorities, who continue to face unique challenges at home and in the workplace,” said Schwab-Pomerantz.

However, financial literacy isn’t a cure-all, but it is an essential key to unlocking doors to opportunity and financial security.

References:

  1. https://www.schwab.com/resource-center/insights/content/americans-want-financial-literacy-now?SM=URO#sf237483690
  2. https://pressroom.aboutschwab.com/press-releases/press-release/2020/Charles-Schwab-Financial-Literacy-Survey-Exposes-Grave-Impact-of-Lack-of-Financial-Education-During-COVID-19/default.aspx

Cyber Security Checklist

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Working Together to Prevent Fraud and Protect Your Financial Data

Threats to your cyber security are constantly growing.  Most organizations have systems in place to protect you, but you can take steps on your own to fight hackers.

Even with tremendous investments in cyber security, the most prevalent way for hackers and fraudsters to gain access is to exploit human behavior through social engineering or simply uncovering information that hasn’t been well protected by a consumer.

It’s hard to keep up with all your accounts and your distributed digital footprint. Following a simple cyber security checklist can help you avoid becoming an easy target for hackers and fraudsters.

1. Use strong passwords and protect them

  • Create long passwords that contain symbols, numbers, and uppercase and lowercase letters
  • Don’t store your passwords anywhere
  • Don’t reuse or recycle your passwords
  • Don’t share your passwords with anyone
  • Change your passwords using a randomly generated schedule
  • Ensure that your passwords bear no resemblance to former passwords 

2. Opt in to multifactor authentication where available. Multifactor authentication requires additional verifying information to grant access to an account. This gives your accounts an added layer of security. Multifactor authentication can include:

  • SMS or email notifications 
  • Biometric identification 
  • Tokens

3. Avoid links from unknown sources in text, email, instant message, social media and websites

  • Be suspicious of any message that asks you to provide personal information. Banks never uses emails or text messages to solicit your personal information.
  • Hover your mouse over hyperlinks to inspect their true destination
  • Make sure you’re on the right site before entering personal information—such as your name, address, birth date, Social Security number, phone number or credit card number
  • Report suspicious email that claims to be from financial institutions to the financial institution
  • Learn as much as you can about phishing

4. Limit what you share on social media and who can view your profile

You should protect the following information in particular:

  • Your birthdate 
  • Your street address
  • Geotagged photos 
  • The time you’re away on vacation

5. Secure your devices

  • Always keep your device’s software updated (use the latest operating system and browser versions available)
  • Download apps from trusted app stores 
  • Turn off Wi-Fi/file sharing/AirDrop options when not in use 
  • Avoid working with personal or sensitive data when you’re using unsecured, public Wi-Fi

6. Secure your important documents

  • Protect your Social Security cards, passports and birth certificates by storing them in a secure place such as a safe deposit box, and only carry them when you need them for a specific purpose. 
  • This information can be used by an identity thief to commit fraud like taking over your financial accounts, opening new loans and credit cards, and establishing utility services in your name.

7. Shred documents containing personal/financial information

  • When you’re done reviewing your paper documents like your receipts, financial statements, or credit card bills, put them in the shredder instead of the trash.

8. Order your credit report annually from each credit bureau

  • Best practice: Order a free copy once a year from AnnualCreditReport.com and from a different bureau (Equifax, Experian, TransUnion) every four months so that you’re always covered.

9. Keep your contact information up to date.

  • Update your email, mobile phone and mailing address.

10. Opt in to security alerts, and promptly respond to the notifications you receive

  • If you haven’t done so already, set up alerts to keep tabs on your account.

 

References:

  1. https://www.bbt.com/education-center/articles/cyber-security-checklist.html
  2. https://www.finra.org/compliance-tools/cybersecurity-checklist

Becoming Financially Responsible | Vanguard

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  • Live within your means by earning more than you spend.
  • Prepare for both an income shock and a spending shock.
  • Build a strong credit history.
  • Continue to learn and grow your financial literacy muscle

Most people do fall somewhere on the spectrum of financial responsibility.

Keep income > spending

The math behind living within your means is simple: When you subtract what you spend from what you earn, the result should be positive. If it’s negative, you’re living beyond your means.

If you’re in the positive, keep it up. Try to save even more, if you can. If you’re in the negative, don’t panic. Take control:

  • Distinguish between your wants and needs. This may be easier said than done. If you don’t have easy access to another form of transportation, a car is a need. A nice car is a want.
  • Create a budget. Just having a general goal in mind for how much you can spend on certain expenses—food, entertainment, housing, transportation—over a certain time frame can help you make smarter spending decisions.
  • Avoid your spending triggers. Do your best to maintain your discipline, and try to resist temptation. If bargain shopping is your downfall, unsubscribe from promotional emails to reduce temptation. If you overfill your cart when you go to the grocery store before dinner, don’t shop on an empty stomach.

Prioritize your savings

Prepare for an emergency

Having emergency money means you’ll be less likely to need a loan from a friend, a family member, or an institution if your car breaks down or your roof leaks. Even if your emergency stash falls short, it can still lower the amount you have to borrow (and pay back, possibly with interest).

There are two types of emergencies you should prepare for: a spending shock and an income shock. A spending shock pertains to a onetime unexpected expense, such as paying for car repairs after an accident. An income shock represents a sudden loss of continuous income (for example, experiencing a layoff).

Getting started may feel daunting, but begin small and build your savings over time. We recommend setting aside at least $2,000 to prepare for a spending shock. Consider keeping this money in a low-risk investment like a money market fund. That way, your money will be easy to access and won’t change much in value over time.

For an income shock, aim to have at least 3 to 6 months of living expenses set aside. If you’re retired, try to have 12 months of living expenses saved. Don’t be afraid to start small and work your way up: Tally your unavoidable living expenses for one month. Divide the amount by 12. Save that amount each month. When you reach that savings goal in one year, do it again until you have a few months of savings to fall back on.

It is recommended to save money for an income shock in an easily accessible account like a taxable money market account.

Get ready for retirement

You’re responsible for your retirement savings. The details of your retirement—the age at which you stop working, where you live, and how—are up to you.

Here are the top 3 things you can do to prepare for retirement:

  • Enroll in your employer’s retirement plan if one is offered. (If you don’t have a retirement plan benefit, you still have options, such as an IRA.) 
  • Save, or work toward saving, 12%–15% of your gross (pre-tax) annual income, including any employer contributions.
  • Invest your savings in a diversified, low-cost portfolio that complements your time frame and risk tolerance.

You’ll need to consider your monthly expenses when you retire. Most of them will most likely stay the same, but you may need to review new items in your budget (such as Medigap or long-term care insurance) as well as expenses you’ll no longer need to consider (such as payroll taxes, clothes, and gas for work). You’ll also need to determine your monthly income from Social Security, pensions, or any other part-time work or passive income that you may be expecting in retirement.

Give yourself credit

Your credit history refers to how you use money. Your credit report is a record of money-related activity (balances, charges, and payment history) on credit cards, some bills (such as utility bills), and loans associated with your name and Social Security number. A credit score is a number based on your credit report giving potential lenders a sense of how you handle debt payments and bills.

You need to establish a credit history to get credit. If you don’t have a credit history, it can be hard to get a job, a credit card, an auto loan, an apartment lease, or a mortgage. Before a potential employer, lender, or landlord takes on the risk of giving you something, they want to see evidence you can handle it. In the eyes of a potential lender, your credit report and credit score are good measures of how financially responsible you are. Having a strong credit history and a high credit score can also lower your cost to borrow by qualifying you for a lower interest rate.

For example, if you have excellent credit and qualify for a $20,000 auto loan with a 1.5% interest rate for 5 years, you’ll pay about $772 in interest over the course of the loan. If you have fair credit and qualify for a loan with a 3.5% interest rate for 5 years, you’ll pay over $1,800 in interest—a difference of over $1,000 that you could’ve saved or invested.

Review your credit report for accuracy each year. You’re entitled to a free copy of your credit report once a year, but there may be a charge for getting your credit score.

It’s go time

Smart money management skills can take time to develop. Start by holding yourself accountable for the financial decisions you make. You have a lot to gain by spending less than you earn, preparing for an emergency, taking control of your credit, and saving for retirement. But if you don’t take steps to be financially responsible, you also have a lot to lose.

References:

  1. https://investornews.vanguard/becoming-financially-responsible/

Financial Literacy – A National Priority

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Knowledge is your best financial asset

Financial literacy and money management skills require greater attention and urgency in the United States. According to a 2019 study by the FINRA Investor Education Foundation, there’s been a decrease in recent years of how much Americans know about interest rates, taxes, loans, and debt…the major money decisions that affect so much of our lives.

The study also showed that millennials have the biggest gap in money knowledge and skills as compared to other age groups. This is worrisome because they’re America’s largest generation, and millennialsare often shouldering outsized debts and limited economic mobility.

Moreover, George Washington University research showed that 1 in 5 American high school students lacked even basic financial skills — such as the ability to interpret a pay stub to determine how much money will be deposited into their bank account or the savvy to avoid being tricked into sharing an online bank account logon.

The average student debt in 2017 was about $29,000, according to the Institute for College Access and Success. About 1 million borrowers default for the first time on their federal student loans each year, a report from the Urban Institute found.

Learning about how to budget, how to wisely invest, and how to control your spendings can seem daunting, but money experts like Stefanie O’Connell, author of The Broke and Beautiful Life, have made it their mission to make finances empowering for everyone.

Think of it this way: The more you know about your own spending habits, the less likely you are to make a costly mistake.

https://youtu.be/vl2sasYSY4E

Financial literacy is the possession of skills that allows Americans to make smart decisions with their money, according to financial coach and guru Dave Ramsey. Financial literacy means people can regularly do the right things with money that lead to the right financial outcomes.

Financial literacy helps people develop a stronger understanding of basic financial concepts—that way, they can handle their money better, especially when you consider how the typical American handles money:

  • Nearly four out of every five U.S. workers live paycheck to paycheck.
  • Over a quarter never save any money from month to month.
  • Almost 75% are in some form of debt, and most assume they always will be.(1)

When you have financial literacy knowledge and skills, you’re able to understand the major financial issues most people face: emergencies, debts, investments and retirement. Financially literate people know their way around a budget, know how to use stocks and bonds for financial security, and know the difference between a 401(k) and a 529 plan.

References:

  1. https://www.apartmenttherapy.com/money-advice-financial-experts-give-friends-36838772
  2. https://www.tdameritrade.com/education/personal-finance.page?a=aqu&cid=PSEDU&cid=PSEDU&ef_id=fc4aabeabe19150570d4f44c54b1871a:G:s&s_kwcid=AL!2521!10!81501364379637!81501451536164&referrer=https%3A%2F%2Fwww.bing.com%2Fsearch%3Fq%3DFinancial%2Bliteracysearch%3Dform%3DQBLHsp%3D-1pq%3Dfinancial%2Bliteracysc%3D8-18qs%3Dnsk%3Dcvid%3D4F9192028F2446EAB4DC1C65810CC605
  3. https://www.daveramsey.com/blog/what-is-financial-literacy

Investing Goals, Risk and Time

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“Our goals can only be reached through a vehicle of a plan in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.” Pablo Picasso

Every successful investing journey starts with a set of clear goals, whether they’re as big as financial security during retirement or as small as what’s in your garage. It’s important to determine what are your investing goals.

Financial Security is a great investing goal

To be a successful investor, start with establishing your financial goals and evaluating your personal tolerance for risk before putting your money to work for you. Saving and investing work together depending on your goals and when you think you’ll need the money.

Setting Goals

Studies have shown you’ll be 42% more likely to achieve your goals simply by writing them down on a regular basis.

Investing is about growing your money, but to do that effectively, you have to know what you want to accomplish. It is important to lay out your short-, medium- and long-term goals. Write them down. You become 42% more likely to achieve your goals and dreams, simply by writing them down. Then, give them a time frame and put a dollar figure beside each. For instance, a short-term goal might be a vacation. A medium-term goal could be a down payment on a house. The number one long-term goal should be retirement.

In financial planning, writing down a goal first requires articulating what you want to achieve. Here are several questions you can ask yourself to help define your goals:

  • Am I adequately preparing (or prepared) for retirement?
  • Do I want to buy a house or make some other large purchase in the future?
  • Do I want to strike out on my own, either professionally or personally?
  • Do I want to set money aside for a child or a dependent? For education or something else?
  • How important is building a financial legacy I can pass along to future generations?

Use these questions to come up with specific, measurable goals. For example, if you’re saving for a house in the future, your goal can be to save 10% of your annual income for the next 5 years to put toward a down payment.

Once your goals are established, you can begin to make your plan to achieve them. Having tangible goals are a good motivation to keep saving and investing. But, before you put any money in the stock market, set aside enough cash in an emergency fund to cover three to six months of essential living expenses.

Of course, revisiting these goals on an annual basis to check on your progress and adjust if necessary is just as important as the initial plan itself.

Investing for the Future and Growing your Money

Investing is about putting your money to work for you with the goal of growing it over time. Here’s an example. If you put $3,000 each year in a savings account and earn 1 percent, at the end of 20 years you’d have about $67,000. If you invested that same amount of money and got an average 6 percent return over the same time period, you’d have nearly $117,000.

The sooner you start saving the less you may need to save because your money gets to work that much sooner. The more you save, the more you have to invest—and the more those returns can add up.

That said, you do want to stay involved. Check your portfolio at least once or twice a year to evaluate performance and to make sure your investments still match your goals and feelings about risk. And try to keep a long-term view.

Broad-based mutual funds and exchange-traded funds can form the foundation of your portfolio. Be sure to research fees and performance.  Broad-based mutual funds and exchange-traded funds (which pool the money of many investors to purchase a variety of securities) give you a simple way to begin. Funds help you automatically invest in a variety of stocks and bonds so you don’t put all your money in one investment (which is much riskier than owning several investments). Do a bit of research on performance and fees.

It’s one of the best ways to build your financial security, as much as you can on automatic—savings deposits, retirement contributions, even automatic monthly investments into a fund. The less you have to do, the less overwhelming it will be, and the more likely you are to stick with it.

Managing Risk

Sometimes, the best trade is the one you don’t make.

All investing–stocks, bonds, cash and real estate–is subject to risk, including the possible loss of the money you invest. And the stock market particularly will have its ups and downs. But there are ways to mitigate that risk. The key is to choose a broad range of investments in stocks, bonds, and cash based on your risk tolerance and time horizon and never put all your money in one particular stock or asset class.

Risk, unfortunately, is the scary part of investing, and there’s no way to avoid it completely. So it’s important to think about how much risk you’re taking on with each investment.  It’s also important to understand that risk and return go hand-in-hand: often the greater the potential return, the greater the risk.

The more money you invest, the greater the possible reward and the higher the risk of losing some of that money.  However, if you do not invest, then you cannot grow your money.

It is generally true that the greater the risk, the greater the potential rewards in investing, but taking on unnecessary risk is often avoidable.  Risk measures the uncertainty that an investor is willing to take to realize a gain from an investment.

There are different varieties of market risk investors should be aware of and they can originate from different situations. There is liquidity risk typically caused by central banks, headline risk due to wars and terrorist attacks, insurance risk, business risk, default risk, etc. Various risks originate due to the uncertainty arising out of various factors that influence the market or an investment.

Risk is the possibility that investors will lose money when they invest in a company and that an investment will result in a loss of principle.  There is a fundamental relationship between risk and return. The greater the amount of risk an investor is willing to take; the greater should be the potential of investment return. Investors need to be compensated for taking on additional risk.

Stocks are on the high end of the risk with small company stocks often more volatile than large company stocks and emerging markets stocks more volatile than domestic stocks; fixed income investments such as bonds are in the middle; cash investments like CDs are on the low end.

Two things will determine how much risk or uncertainty you can handle: your personal feelings and your time frame. If market ups and downs are going to give you a constant upset stomach, you can take a more conservative approach. If you’re able to live with market fluctuations and think long-term, you can be more aggressive.

Time and Tide Waits for No One

One other important factor is time. To protect yourself against market downturns, a long-term approach is essential. It is critical to have time to keep your money in the market and ride out the inevitable market lows. The trick is to stick with it through those lows, keeping your focus on the potential for long-term gains.look at how long you plan to keep your money invested.

Saving for a vacation or the down payment on a home are shorter-term goals best kept out of the stock market. The longer your time frame, the longer you have to recoup any short-term losses that might occur with normal market changes. In general, if you’ll need your money in:

  • Three years or less—Avoid stocks. They’re just too volatile. Consider cash investments like money market funds or CDs instead.
  • Three to five years—It may be appropriate to invest as much as 50-60 percent in stocks, with the balance in bonds or cash equivalents.
  • Five to 10 years or longer—You can add more stocks to the mix.

Four D’s of Investing

The four D’s of Investing are guidelines investors can follow to become better at investing.

Dynamics

  • Start investing early
  • Define your time horizon and prioritize your goals
  • Quantify your assets and determine what is available to support your goals
  • Measure your risk tolerance against your time-frame

Dollar Cost Averaging

  • Investing a fixed amount at regular intervals.
  • Take advantage of the market highs and lows
  • Buys fewer stocks when they prices are high and more stocks when prices are low. 
  • Reduces the dramatic impact of market swings and
  • Enables building wealth over the long term. 

Diversification – “Do not put all your eggs in one basket”

  • Divide your investments among equities, fixed income, and cash
  • Diversify across and within asset classes
  • Avoid concentrated exposure which may elevate your risk

Discipline – “Sticking to a long-term investing approach.”

  • Take a long-term approach
  • Base investment decisions on process rather than emotion
  • Consider costs and tax consequences
  • Review and rebalance regularly

Staying on Course

Here are some tips to help keep you on the course:

  • Remember that paying off debt can be just as valuable as building an investment portfolio.
  • Start saving meaningful amounts sooner rather than later. Let the magic of compounding work in your favor.
  • Control the things that are within your control (e.g., your asset mix, investment costs, etc.). The rest—especially market performance—is out of your hands.
  • Manage how much risk you’re exposed to. Select the appropriate mix of investments for each goal.
  • Seek balance. Maintaining balance is a guiding principle that applies well to investing. In other words, be realistic. Don’t set goals that are too aggressive to achieve. Consider breaking large goals into smaller goals so you can feel a sense of accomplishment as you make progress each step of the way.

Keep in mind, if you have 40 years left to invest, a bear market is noise and should be ignored; in fact, it should be celebrated, since stocks will be on sell. On the other hand, a stock market crash that starts the day after you retire can cause a permanent lifestyle impact if all your money is invested.

References:

  1. https://vanguardblog.com/2018/12/28/struggling-to-put-a-financial-plan-together/
  2. The Huffington Post, The Power of Writing Down Your Goals and Dreams, 2017.
  • Mutual Fund Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.
  • Past performance is no guarantee of future results.
  • Investments in bond funds are subject to interest rate, credit, and inflation risk.
  • Diversification does not ensure a profit or protect against a loss.
  • Investments in stocks or bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. Stocks of companies based in emerging markets are subject to national and regional political and economic risks and to the risk of currency fluctuations. These risks are especially high in emerging markets.
  • All investing is subject to risk, including the possible loss of the money you invest.