Spring is here, and for many people, that means seasonal cleaning and a home refresh. If youâre looking for some budget-friendly changes that will bring new life to your rooms, we have those for you. Before you start, itâs a good idea to clear any clutter you may have. If you tend to hoard, you […]
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It has taken some time, but actively managed exchange-traded funds (ETFs) are finally gaining traction with investors.
According to Nicholas Elward, head of Institutional Product and ETFs at global asset management firm Natixis Investment Managers, assets of actively managed ETFs in the U.S. will jump to $400 billion by the end of 2022, double where they were at the end of 2020.Â
There are several reasons that explain the increased interest in active ETFs, says Elward.
First, increased market volatility has investors looking to cushion downside risk through active management and tactical stock-picking. Second, the introduction of semi-transparent ETFs in 2020 has led active managers to be more open to managing active ETFs, knowing that they won’t be giving away their best ideas. Lastly, the trend of mutual funds converting to ETFs that began in 2021 will likely continue.
While actively managed ETFs remain a small part of the overall ETF market, investors can expect this to change in 2022 and beyond.
Here are seven actively managed ETFs to consider for your portfolio. This is a list of equity and fixed-income options that are right for a variety of risk tolerances and investing horizons.
Data is as of April 6. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.Â
During your working years, your largest income stream is generally from employment. When you retire, however, your income will likely need to come from a variety of sources, such as retirement accounts, after-tax investments, Social Security, pensions or even continued part-time work.
For those looking to create a retirement income stream, there are a variety of strategies available depending upon your specific income needs and lifetime goals. Two simple retirement income strategies include the total return approach and the bucket approach.
The total return approach is probably the best-known strategy. With this approach, assets are invested with a focus on diversification, using a portfolio of investments with a varied potential for growth, stability and liquidity, based on your time horizon, risk tolerance and need for current and future income. There are three defined stages within this approach, which are contingent upon how near you are to retirement:
Pros and cons: The benefit of adopting the total return approach is that, as a rule, the portfolio should outperform one that is heavily weighted toward income generation over a longer time frame. The largest disadvantage of this approach is that it takes discipline. It is important to remember that the appropriate withdrawal rate should depend upon your personal situation and the economic environment, though many advisers suggest starting with a withdrawal rate of 3%-5%, which may then be adjusted each year for inflation.
This approach behaves similarly to the total return approach throughout the accumulation phase, but as you enter pre-retirement, you divide your assets into smaller portfolio âbucketsâ with each holding investments geared toward different time horizons and targeted to meet different needs. Generally there are three common bucket types based upon specific needs, but you are certainly not limited to just these three:
Pros and cons: The benefit of adopting the bucket approach is that it can help create a sense of calm during market storms. Instead of panicking oneself out of growth assets during a downturn, a retiree can feel confident knowing their next several years of income needs are already in a more conservative position. The difficulty with this approach is deciding when to move assets from one bucket to the next, again requiring discipline. Â
Beyond Social Security and pensions, a number of instruments can be used to create retirement income. Which ones you use will depend upon your specific goals.
Interest and dividends: The benefit of this source is that investors can expect to receive a stated consistent monthly or quarterly payment using an instrument like dividend-paying stocks, closed end funds (CEFs) or exchange-traded funds (ETFs) with a long-term track record. The disadvantage of relying on interest and dividends is that most retirees cannot live on these payments alone, especially when yields are low and inflation is high. Additionally, when it comes to dividend payouts, companies can adjust them, cut them, or even stop them altogether.
Bond ladder: This strategy involves building a portfolio of multiple individual bonds that mature at varied stepped dates, often annually. When each bond matures, the ladder is extended by purchasing another bond, or it may fund the income need in that given year. The benefit is that a bond ladder can offer consistent, predictable return on investment. Additionally, it provides protection from some call risk, as it is unlikely the bonds would be called at the same time. The disadvantage of this income source is you may be forced to reinvest at lower interest rates, quality of bonds can vary in risk, and they can have a return lower than inflation, especially if purchased at a premium to the par value.
Certificate of deposit (CD) ladder: Similar to a bond ladder, this type of investment involves purchasing multiple certificates of deposit with stepped maturity dates. A new CD is purchased as each one matures later than the next, extending the ladder, or again used as income at maturity. While this income source is more secure than the bond ladder because CDs are insured by the FDIC, interest is not paid upon maturity. Â Also, be aware that some CDs automatically reinvest, which could keep you from receiving the income, so it is wise to look specifically for CDs without this feature.
Annuities:  With immediate annuities that are backed by an insurance company, you pay a lump sum in exchange for a guaranteed payment that starts immediately. With deferred annuities, you invest in a contract, but the payout may not start for several years. While they are reasonably secure and offer tax-deferred growth and potentially tax-advantaged income, there are several disadvantages. The fees can be high, there is a tax penalty for withdrawals prior to age 59½, and they may be difficult to get out of without surrender charges if you later change your mind. Itâs important to look for highly rated insurance companies when searching for guarantees because they can be dependent on the claims-paying ability of the insurance company.
Managed payout: A managed payout fund is also known as a Retirement Income Fund (RIF), income replacement fund, or monthly income fund. This source often consists of mutual funds generally created with retirees in mind, which pay regular and predictable income. The caveat being that income is not guaranteed and payments often fluctuate, and the fund manager may use principal to meet the payout schedule.
Real estate investment trusts (REIT): A REIT is a company that owns or invests in income-producing real estate and allows individuals to invest in large-scale commercial real estate or real estate loans. Types of REITs include:
REITs are further broken down by type, including:
The benefit of REITs is that they may offer a reasonable hedge against inflation as most of their taxable income must be distributed to shareholders.
Part-time income: Not everyone is fully ready for retirement, and work can offer a sense of self-worth. The additional income can help hedge against inflation by covering expenses during a down market instead of selling investments at a loss to pay the bills. The chief caveat is the potential reduction of Social Security benefits while earning income due to the Social Security Administration earnings test.
Alternative investments: These investments do not fit into the traditional equity, fixed income or cash options. For this purpose, they generally consist of private equity, venture capital, hedge funds, commodities, tangible assets and real property.Â
As you can see, there is no one-size-fits-all approach to retirement income planning. Each of these strategies requires a dramatically different approach. With this in mind, you should seek the advice of your financial adviser to help you construct a customized portfolio that will meet your retirement needs.
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This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
In March, the Federal Reserve raised benchmark interest rates for the first time since 2018. And in the intervening weeks, Fed Chair Jerome Powell has been increasingly clear that even higher rates may be on the way soon. That has investors scrambling to scrape up the best stocks for rising interest rates.
Speaking on March 21, Powell said the central bank will move “expeditiously” and “more aggressively” towards higher interest rates. That has left little doubt in the minds of many investors about what’s in store for the markets in the coming months.
To be clear, rates are still relatively low even after all this. The effective federal funds rate now sits at 0.33% instead of 0.08% prior, but that’s not even within earshot of rates from prior decades that were several full percentage points higher.
Furthermore, rising rates should never be seen as a death knell for the economy. In fact, the presence of rate increases is because the Federal Reserve sees inflation as a bigger risk to the U.S. economy than the burden of higher borrowing costs. If businesses and consumers weren’t churning along, there would be concerns of how these rate hikes would be absorbed, keeping Powell and other policymakers in check.
There are certainly changes that are afoot as a result of higher interest rates, but investors should not make the mistake of thinking these moves means you should abandon the stock market entirely. Indeed, several of the best stocks for 2022 had the potential for rising rates on the mind, and today, we’ll be looking at a few that are tailor-made for this environment.
Here are 10 of the best stocks for rising interest rates. The potential options presented here are for those concerned about mitigating the impact of rising interest rates throughout 2022.
Data is as of April 3. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.
You’ll get a lot of bang for your buck in one of these cities.
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They say real estate is cyclical, much like the stock market and the wider economy. It ebbs and flows, goes up and down, experiences booms and busts, can make us feel rich one day and poor the next. It doesnât follow a straight line up or down over time â instead, it can be rather… Read More »Are We Near the Peak of the Current Housing Cycle?
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During Womenâs History Month, we celebrated the women who have contributed to society in ways that have changed our world. We also reflected on the advances women have made in the last several decades, which are extraordinary, and acknowledge that we still have a long way to go.
For example, women still fall far behind men on the financial front. Women earn an average of 73 cents for every dollar earned by men, according to the Womenâs Institute for a Secure Retirement. That means women are earning over 25% less than men.
Discrimination, child-rearing and caring for elderly parents cause women to move in and out of the workforce and, as a result, they lose an average of 11½ years of working time in their lifetime, versus less than 1½ years for men.
This leaves women with much smaller retirement savings accounts, and as women are expected to live six to eight years longer than men, this vastly reduced amount of money must last longer than menâs retirement savings. Women of color are affected the most by the gender pay gap. Black, Native American and Latina women earn 58 cents, 50 cents and 49 cents compared to every dollar a white man earns.
After spending more than 20 years advising women on their finances, I continue to find that women, on average, are still less likely to be financially savvy than their male counterparts. After the COVID-19 pandemic, many women are in even more vulnerable financial positions than they were two years ago.
Getting control of your finances might feel overwhelming, but it is possible if you focus on a few areas, to start. Here are three basic tips to get you closer to a secure financial future that our trailblazing female forebears would be proud of:
The need for a budget is universal. People from all socioeconomic backgrounds are wise to fully understand how much they are spending â and on what â to ensure they know where their hard-earned dollars are going!
If you can find ways to cut some extra expenses (do you really need a latte seven days a week or to subscribe to seven movie channels?) you can put that money toward saving for retirement, building an emergency fund, or buying property.
There are apps for this: Try Mint or You Need a Budget to get started, remembering this is going to be a process; you will need to actively think about what you are spending and what you might need to spend for in the future â including unexpected or unplanned-for expenses. Which brings me to the next âmust haveâ:
If you do not have any cash savings, this should be the first thing you do.
You can never know if you will have a pause in income, an expensive home repair, or â in a more serious scenario â an environment of domestic violence that you need to escape.
Create a savings plan you can achieve and stick to it. Even if you put away $100 each month (in $20 increments) in a savings account, you will be surprised how quickly this can add up. Ideally, try to save at least 5%-10% of your paycheck every month.
The aim is to save three to six months of living expenses in a bank account that you can easily access. I always recommend a high-yield savings account, if you can find one. That way, your money is also earning interest as it sits there. It is critical insurance that will give you significant peace of mind, too.
In many issues related to finances, women sometimes wait to understand the issues fully before making choices or taking action. In the case of saving or investing, waiting can cost you money.
Some people delay focusing on their finances, even saving, because they havenât figured out how much they need to save yet. Or, if they are a little farther along the financial comfort spectrum, people make the mistake of doing nothing by sitting on the investing sidelines or investing too conservatively. The Simple Dollar explains that women often wait to invest, or donât invest at all, thinking that they need to know more to make any investment. However, you donât need to be an expert, and can always ask for help.
If you put a little time and energy into focusing on your finances, taking one simple step at a time, you will soon find that this financially savvy mindset becomes a natural part of how you think about work and life. And I am sure of this: You will be glad you did!