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Working Definition

Let’s begin with a good clear definition of what we are talking about here so that everyone is on the same page. For the purposes of this article, we will define an online investment service as any sort of investment service where you don’t have the dedicated attention of a specific financial adviser. In most cases, this is done as a sort of lowering the bar if you will so that those with fewer dollars to invest can still benefit from professional advice.

Robo-Advisers?

Although you may have encountered the term robo-advisers in and around your Google Searches for investment advice, this phrase is something of a disservice to the industry.

Uh, hmm; not so much. Actually this is considered to be somewhat of a derogatory term by those in the business. Although you may have encountered the term robo-advisers in and around your Google Searches for investment advice, this phrase is something of a disservice to the industry. For example, the term “robo” implies more of a commoditized, mass produced product. Yet as you already know, each financial situation is unique. Consequently it would not make sense to try and use one size fits all approach to your personal finances.

What’s Available?

It turns out that there is a wide range of online investment services out there. Depending on which firm you are looking at, you can receive access to services such portfolio management, asset management, investment advising, financial planning, portfolio analysis, online brokerage services, asset allocation advice and more. The point is that depending on your own personal financial situation, chances are you can locate an online investment advisory service that fits your needs.

How Do They Do It?

Understand that even the best online investment service can only work with what you give them. Most of these firms start the process with an online questionnaire for you to fill out. For example, should you happen to interested in how best to allocate your assets among the various investment choices available to you, the online questionnaire will have specific questions about your time horizon. Using this information, the adviser will then suggest a model portfolio for you to model based on that timeline.

Using an online investment adviser means you have to take the time out to carefully think through the initial part of the setup.

At the same time, there are some online investment advisory services that offer to select which portfolios that best fit your time horizon, your risk tolerance, that sort of thing. The point to get here is that using an online investment adviser means you have to take the time out to carefully think through the initial part of the setup. Otherwise, the advice you receive, the portfolio models and such will have little to no real meaning.

Real World Examples

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Here is what this looks like in the real world. Take a look at how it works at the online investment company named Betterment. Betterment begins their process with an online interview process that is specifically focused on your time horizon for specific goals. During this process, you have a wide range of different investment goals to choose from such as wealth building, retirement savings amount, retirement income targets, safety net funding amounts, IRA and more.

Going a step further is another online investment adviser firm named Hedgeable. Hedgeable takes this process one step further. Instead of merely offering you up model portfolios and the like, Hedgeable will actually manage your money for you to meet the goals you have identified. This means Hedgeable will buy and sell securities for you account.

One more step up the online investment service can be found at Personal Capital. Like Hedgeable, Personal Capital will also manage your money for you. Yet Personal Capital takes it one step furhter. Personal Capital provides wealth management services.

Now What?

The above list is but a small sampling of what is available out there in terms of online investment services. Bottom line is this: if you are the type who doesn’t mind taking care of your personal finances online, then online investment advisers are the next logical step for you. On the other hand, should you be more comfortable dealing with your financial adviser face to face, well that option is still available also.

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The post Making Cents of Online Investment Services – Which is Best? appeared first on Provision | Benefits Recovery Division.

Yeah, it may look like a bit of work. It may even not look so appealing with all of those pundits on TV jumping up and down and screaming at the market gyrations. Yet the fact remains that taking care of your personal financial future is your responsibility and yours alone. Unless and until you happen to hit the Big One with the Powerball lottery or some sort of odd windfall, the reality is you need to start putting money away, like right now.

Not under your mattress

The only sure thing you can count on is our friends at the Internal Revenue Service (IRS) doing what they do to make sure you pay your fair share.

Now it goes without saying but better we just go ahead and say it anyway; putting money away does not mean stuffing it under your mattress or throwing your hard earned money at a company stock your pal insists is a “sure thing”. Nope, not so much. The only sure thing you can count on is our friends at the Internal Revenue Service (IRS) doing what they do to make sure you pay your fair share. The point of all this: strategically putting your money into the market is a recognized way to help fund your retirement.

Fund the 401(k) first

Now that being said, for the purposes of this article this investing stuff is going to only ever be done after you have maximized your 401(k) plan options at work and after you have also set up your very own Individual Retirement Account. In other words, maximize the retirement plans and options you already have first and foremost. Then, its time to dip your toe into what the pro’s refer to as the equities market.

Reality of investment returns

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And lest you should be thinking that there are better options out there, well to be blunt, you would be wrong. You see, the truth of the matter is that any investment can show off and have a stellar performance for a short period of time. The bigger and better question is what is the long term return of the investment option you happen to be looking at?

With just a little bit of homework, okay not even that much, you can easily check this out for yourself with a quick Google search.

What you will find is that over the long term, equity investments (think stocks) consistently return an average of 7%. Yes, that includes good years and not so good years. The point is that 7% number is actually pretty high compared to other “so-called” investments such as real estate, gold, or even collector coins.

Ease In Plan

Which brings us to the focus of today’s article: how can you ease your way into the market without taking a beating. Taking a beating would mean something like handing over $2,500 to your online broker only to discover that the value of your portfolio (the stocks you bought) has suddenly and without warning plummeted to like $1,374.00. Ouch! No wonder so many would be investors shy away from the market.

Yet, do not lose sight of that 7% long term return number discussed above. So let’s see where we are. You understand the need to get into the market. Yet at the same time you are leery of investing your hard earned money and risk losing some or all of your cash. Is there a way out of this quandary? Thankfully there is.

The Answer

The solution is to use a strategy referred to as Dollar Cost Averaging (DCA). Although the term itself may sound esoteric, the strategy is ridiculously easy to understand and put into practice. Essentially dollar cost averaging works by you only ever investing a certain fixed amount on a regular schedule. For example, suppose at the end of every three months, you put $325.00 into the market.

In other words, you are funneling $325.00 per quarter into your investments. But, that is NOT the same as putting in a lump sum at the end of the year. The point is to put in the same amount at a regular interval.

What happens is that when the market prices are high, you end up with fewer shares. That’s okay though because the same thing works in reverse. When the market is low, that same amount of money invested will get you more shares. Do you see how easy this is?

A side benefit of dollar cost averaging that could end up saving you from making a catastrophic decision is your investments are on cruise control. That is, Dollar Cost Averaging takes the emotional highs and lows out of the investing thing. Sadly most investors who aren’t up with DCA do the exact opposite of what successful investors do. That is, they buy high (when the market rises) and sell low (usually in a panic when the market drops).

Conclusion

You owe it to your future personal financial situation to get into the market like right now. Knowing and understanding the strategy of Dollar Cost Averaging is an easy way to get started and to keep it going.

Now it’s on you. Have you considered something like dollar cost averaging as a way to ease into the market?

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The ability to execute an idea

Great inventors and industrialists became great, not so much because of their ideas, but because of their ability to execute. This is the crucial aspect.

It Really Does Take Money to Make Money

Now before discouragement sets in, I want to stress that it doesn’t necessarily have to be your money. As we all know, ideas have value. This value can be unleashed by using other people’s money (OPM). OPM, has launched many a fortune based on nothing more than a fine idea.

What these great men had in common was the ability to execute, which as we’ve already determined, requires money.

Ideas, however, are like sphincters—everybody has one (or more). Taking an idea from wishful thinking to a viable business enterprise requires (you guessed it) MONEY! In the not too distant past, finding the money to turn ideas into realties was an arduous task. Loans from friends and family, bootstrapping with your own assets and credit, angel investors and venture capitalists were the only available sources of capital.

The process of turning an idea into a commercially viable product or service is known in the entrepreneurial community as execution. Great inventors and industrialists became great, not so much because of their ideas, but because of their ability to execute. Samuel Morse wasn’t the first to invent the telegraph; Thomas Edison was not the first to conceive the light bulb and the venerable Alexander Graham Bell wasn’t the first to envision the telephone. What these great men had in common was the ability to execute, which as we’ve already determined, requires money.

History of these inventions

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If we delve into the history of these three inventions, we learn that an Italian, Antonio Meucci, was the first to develop a working telephone. He filed a temporary patent 5 years before Bell but poverty and poor health prevented him from paying the patent office the $10 fee required for the patent’s renewal.

Heinrich Goebel was likely the first to invent the light bulb. In fact, he tried selling Edison on the idea but Edison wouldn’t bite. Goebel died a couple of years later and Edison bought the patent from Goebel’s impoverished widow for a song.

A French inventor by the name of LeSage invented the telegraph 60 years before Samuel Morse. The idea didn’t take root in France but Morse brought it to fruition here in America.

These examples demonstrate the important roles money and execution play.

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Challenges millennials face today are different from the challenges my generation faced, chief among them, crushing student loan debt.

I hate millennials … well, not really. I ENVY them! I envy them because they have their entire lives ahead and I’m looking at mine in the rear view mirror. I hate them because, like all young people, they are ignorant—not stupid, but ignorant. They refuse to learn from the mistakes previous generations have made and many refuse to learn from the successes. But hate is the wrong word. How about profoundly disappointed?

I’m not a sociologist, psychologist or anthropologist. Therefore, I have no academic insights into the reasons young people so often refuse the advice of their elders. All I know is—they do! And like those that have come before me, I continue to offer my advice and counsel, secure in the knowledge that it will rarely be acted upon. As a millennial, you will have your opportunity to have your own look into your own rear view mirror one day. When you do, remember these:

#1 Start early!

Now is the time to start saving and investing. For example, if you invest $5000 each year from the time you are 25 years of age, you will have over $1 million at age 65. If you put $5000 per year in a mattress, you will have only $200,000. This illustrates the power of investing and compound interest.

#2 Conquer your fears!

Forty percent of millennials surveyed are uncomfortable with investing in stock. This is a fear you need to conquer. For almost 8 decades, stocks have returned more than 10% gains when held over any twenty year period. Bonds, in contrast, have yielded about 4%.

#3 Tune in, turn on and don’t drop out!

Shockingly, about one-third of those between the ages of 25 and 34 do not participate in their employer’s 401(k). Tune in to the benefits your employer offers, turn on the payroll deduction and don’t drop out of the plan. Need a reason? Ten years of savings beginning at age 25 trumps 30 years of savings started at age 35.

#4 Guard your credit score.

Always pay on-time. Carry three or four credit cards but use no more than one or two. A good credit score will save you thousands in interest costs over your lifetime.

#5 Buy previously owned cars.

Want that new car smell? It comes in a spray bottle for $6.99. Buying a second-hand car will save you $9000 over a 5 year period. Avoid buying someone else’s problems by targeting off-lease vehicles. Lease agreements mandate proper maintenance and leasing companies charge the lessee for needed repairs. This removes the financial barrier for leasing companies to repair the problems and enhances your odds of getting a trouble free vehicle.

#6 Watch your pennies!

In short, be thrifty. If you watch the pennies, the dollars will take care of themselves. Your $4, four times a week, Starbucks latte racks up $16 of budget drain each week. Over thirty years that represents about $25,000 that you have quite literally pissed away. Don’t let anyone tell you different. And remember—that doesn’t include any gains you may have enjoyed by investing that money!

#7 Open an IRA account.

There are two types of IRAs, the conventional and the Roth. The conventional IRA is funded with pre-tax dollars. This can save you Federal income tax expense. You will be taxed on this money at withdrawal, but you will likely be in a lower tax bracket at that time. The Roth is funded with after-tax money. As a result, there is no immediate Federal tax relief. However, when you withdraw it, you won’t have to worry about Federal income taxes. Get one of each and cover all your bases.

#8 Set Goals!

If you don’t set goals, you are playing the game but failing to keep score. Goals are the destinations on your financial map. Goals force you to watch the road and keep you from making wrong turns.

Look! I get it! The challenges millennials face are different from the challenges my generation faced, chief among them, crushing student loan debt. Although the challenges faced may be different, the solutions are time-tested and as valid today as they were decades ago.

So I’m passing the baton to you. You can drop it or run with it. Your choice!

Are you willing to take advice? If not, why not? What would motivate you to take action on the tips you’ve read here? Would you be interested in ten more tips for millennials? Whose advice do you trust?

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Here is what this is all about: in a word, Benchmarks. In and of itself, a benchmark would seem to be an important part of evaluating the performance of your investment portfolio. And, truth be told, if there were actually one accepted benchmark that could be universally applied, that might actually work. But the reality is that investment performance is not so simple.

Get a better benchmark

Instead of always trying to play catchup with an industry benchmark, there is a better strategy. A strategy that will allow you to grow and expand your portfolio over time without freaking out every time you see your portfolio statement.

Lessons From The Diet World

You are barely into the entryway of the store before you notice the section with the largest selection of books. Yep, it’s weight loss.

Here’s an analogy that illustrates the point being made here. Head into any neighborhood Barnes & Noble or similar bookstore. You are barely into the entryway of the store before you notice the section with the largest selection of books. Yep, it’s weight loss. The point for you to see here is that if there were one diet that worked for everyone and every circumstance there would not be such a wide selection of diet books on those shelves.

The exact same concept applies to the world of investing. You can prove this for yourself with a quick Google search. Search for investment benchmarks and you get something like 26 Million Search Engine result pages. Obviously there are not that many ways to measure the performance of your investments, but still, the point should be glaringly obvious.

What “They” Say

Now take a look at the world of investments. Suppose you have a diversified investment portfolio that you have been funding for a few years. What do “they” tell you to look at? Most often, investors are told to compare the performance of their portfolio to that of a major benchmark. You might even discover that your financial advisor is using this benchmark to demonstrate how well you are doing. Suppose your portfolio is being compared to the S&P 500.

Actually, the S&P 500 is a commonly used portfolio performance comparison benchmark. How does this show up in the real world? Suppose you pay for the services of a personal financial advisor. Your advisor might send you a glowing report this quarter indicating that your investments outperformed the S&P 500. Wow! Your advisor is a genius. How about if you send in some more money?

Hold on a sec! What about the other side of this equation? Suppose, the next quarter you get a different letter. This time your advisor is lamenting the fact that for some inexplicable reason your portfolio lagged the S&P 500. Now what? Is your advisor an idiot? Or is there something else going on here?

Wrong Benchmarks

You see, the reality is that if the last scenario turned out to be true, you might not have reacted so well. In fact, you may have found your self dialing your advisor to find out what the_____ is going on here?

What’s going on here is you are engaged in a comparison game that does not make sense over time. As you have probably noticed by now, the market goes up and the market goes down.

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Top notch advice

There is no better medicine for bad spending than to see what you have to pay for in the future to live the life you want. In this article we’ll offer you some top notch advice on budgeting and accounting:

# 1 – Keep Detailed Records

Most people don’t keep track of every little expense they make.

People usually rely on the online banking records to calculate their expenses. This is quite effective when it comes to having an overview, but it doesn’t help you keep an eye on bad expenses and avoidable spending.

Make a folder on your computer, as not to waste paper and to be able to edit easily, and write down everything you spend in an ‘expenses’ file, while also keeping track of all incoming money on an ‘income file’.

At the end of each month and each year you should check how much of your money went to avoidable, ‘bad’ expenses. Cut down on frivolous spending and watch your savings grow.

#2 – Predict Large Expenses

The number you’ll get will probably shock you, which is a good thing. There is no better medicine for bad spending than to see what you have to pay for in the future to live the life you want.

It might sound like an obvious tip, but you’d be surprised how few people actually plan ahead for the major expenses during their lifetime.

Buying a house or paying rent for life is one of those predictable, large expenses. Having a child (or many) is a predictable expense. If you include a few cars, a couple of large trips, furniture, college debts and similar big expenses, you can have a good look at what kind of money you’ll need to achieve the lifestyle of your dreams.

The number you’ll get will probably shock you, which is a good thing. There is no better medicine for bad spending than to see what you have to pay for in the future to live the life you want.

#3 – Make a ‘Get-Rich’ Plan

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Expert financial planners, like Dominique Brown, would advise anyone who wants to become rich to make a solid plan to achieve that goal.

Riches rarely come to those that simply wait for them. This does not mean that it is takes extreme effort to become financially secure either.

What you really need is diligence. Make a plan on your own, or get the help of a professional, and learn to stick to it as if it were a religion.

Learning to live with a strict (if not tight) budget, will help you learn to keep frivolous spending in check.

Remember that no matter how much money you make, you can easily spend it all on some luxurious stuff you don’t need and end up being poor again. Being truly rich for life means that you have to work for it and keep ahead of the financial game at all times!

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You Need a Plan

We call this a budget. That’s a four letter word to some people but if you count the letters, it’s really a six letter word … like friend. If thinking about budgeting makes you throw up a little in your mouth, try thinking of a budget as your friend.

This friend will make sure that the month and your money expire at the same moment in time. This friend will rescue you from the endless cycle of debt that traps so many of us.

You know the routine. You are out of cash with almost a week until payday. You hit the ATM for a cash advance on your credit card so you can get by until the end of the month, or worse yet, you sign-up for a payday loan, plunging yourself even further into the vicious cycle. This is not a plan! This is a band-aid!

Establish Goals

Goals are nothing more than a performance benchmark. Without goals, you have no means of measuring your progress.

Make whatever goals you set realistic. Nothing torpedoes ambition like missing a goal. For this reason, in the beginning, set modest goals. Just getting through the month with no borrowing is a real accomplishment. Remember—budgeting and planning are processes, not overnight cure-alls. When you master one goal, more aggressive goals can follow, like setting aside some savings.

Performance Benchmark

Goals are nothing more than a performance benchmark. Without goals, you have no means of measuring your progress. Make whatever goals you set realistic. Nothing torpedoes ambition like missing a goal.

Next Steps

Living within your means, which is nothing more than making the money you receive on payday last until the following payday, is only the first step. Accomplishing this critical first step, as stated previously, requires a budget and the establishment of short term goals. But laudable as this may be, you are still living paycheck to paycheck.

Oh, you’ve made progress—you are living paycheck to paycheck on your own money rather than borrowing money and increasing your debt. So what’s next? Next steps hinge on how you define your medium and long term goals. No one can define these for you, certainly not me!

Maybe your end goal is a comfortable retirement, an early retirement, travel, a huge bank balance, a dream house, unfathomable wealth or all of the above. Regardless of your goal, you must have a plan, a roadmap to get you to the destination you have chosen, and this is much more complex than drawing up a budget. The following tips are critical ones, regardless of what your medium and short term goals may be, and will help you achieve success beyond your wildest dreams.

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