With trends like “soft start” morning routines and cozy cardio becoming increasingly popular, I think it’s safe to say we’re all feeling the desire to slow down a little more and hustle a little less. Especially as the year comes to a close and we start spending more time inside, it’s only natural to want to settle into a calmer headspace, and that often starts with our homes. Enter: the blue home decor trend that’s poised to be huge in 2024.
Paint companies including Dunn-Edwards and Sherwin-Williams have selected soft, steely blues as their picks for the 2024 color of the year. According to the experts at Dunn-Edwards, these cool tones represent a collective desire to “achieve balance and tranquility in the year to come.” Similarly, Sherwin-Williams’ color of choice was intended to reflect that sense of peace found when you “slow down, take a breath, and allow the mind to clear.” All in all, it sounds like the perfect trend to try as we gear up for our annual New Year’s resolution-setting.
Interested in hopping on this tranquil trend? Read on for five ways you can incorporate blue into your home for a more calming, energizing space.
How to Try the Blue Home Decor Trend in Your Home
Source: Bria Hammel Interiors
1. Mix and match patterns and textures
Some say there’s no such thing as too much of a good thing. When it comes to color, though, I have to disagree. Repeating the same color throughout your home without any variation will quickly make your home feel too matchy-matchy. The secret to bringing in color without going too monochromatic? Incorporate a variety of textures and patterns in your decor. Instead of adding multiples of the same solid blue pillow to your couch, for example, mix in a patterned pillow that’s accented with blue, or layer on one with a shaggy texture. This will create visual interest and prevent the room from looking too one-note while still maintaining a cohesive look.
2. Use different shades of blue
While Dunn-Edwards and Sherwin-Williams both selected muted shades of blue for their 2024 colors of the year, that doesn’t mean you can’t play around with other blue tones. Mix and match bold hues like deep navy and bright cerulean, or keep it muted with shades of slate blue and denim. Blue comes in so many different shades that you can easily create a whole palette using just this section of the color wheel. Whatever variations bring you the feeling of tranquility, lean into these shades as you refresh your home for 2024.
3. Start with small accessories
If you’re not ready to paint all your walls blue, start by dipping your toes in with subtle changes. You can’t go wrong with small accessories like candles, vases, and throw pillows to quickly and inexpensively try out a new color trend. Especially if your existing decor scheme is fairly neutral, these new pieces will fit in seamlessly.
4. Swap out artwork
One of the easiest ways to keep your home feeling fresh is to swap out your artwork. If you aren’t sure where to start, there are plenty of retailers on Etsy that sell digital prints you can download and print inexpensively yourself. Pro tip: Invest in high-quality frames that’ll make any kind of artwork look good, then find creative ways to save on the art itself.
5. Try out wallpaper
This may sound extreme when it comes to trying out a new home decor trend, but with so many peel-and-stick options on the market, it’s easier than ever to swap out your wallpaper or try it out for the first time. Wallpaper is a fun way to add texture, color, and pattern to an otherwise blank space. If you’re a renter, it’s also a great alternative to painting your walls since the paper will easily peel off when it’s time to move out.
It’s that time of year again. December is the final call for (most) annual tax issues, and the topic of tax-loss harvesting rears its head. Let’s break down the basics and ask an important question: is tax-loss harvesting more than a simple fad?
Before answering the critical question (“Is tax-loss harvesting worth it?“), let’s baseline ourselves with some basics.
What is Tax-Loss Harvesting, and Why Bother?
Tax-loss harvesting is a strategic investment practice where investors sell assets at a capital loss to offset other capital gains. This minimizes taxable income. This technique is commonly employed to optimize investment portfolios and enhance after-tax returns.
Here’s a primer on capital losses, capital gains, and the entire capital gains tax structure.
Why bother tax-loss harvesting in the first place?
You might have assets in your portfolio with unrealized losses. Selling those assets turns that lame asset into a “tool” in your toolbox. That tool can neutralize taxes, lowering this year’s tax bill. Not bad, right?!
Losses can even neaturalize future year tax bills! Any unused losses this year are tracked on your tax returns and, eventually, can be used to cancel a future year’s capital gain.
But there’s more to the story. We’ll get into those details later.
The Wash Sale Rule
Tax-loss harvesting has a limitation. When you sell an asset at a loss, a 30-day look back and a 30-day look forward period bookend that sale. If, during those 61 days (30+1+30), you bought a “substantially identical” asset in any account**, then your capital loss doesn’t count.
The wash sale rule prevents manipulating a stock portfolio to accelerate the recognition of tax losses or defer the recognition of tax gains.
**This is a huge detail many people miss. The Wash Sale Rule looks at all investing accounts from which an owner controls or benefits.
If you execute tax-loss harvesting in your taxable account by selling an S&P 500 index fund at loss, then you cannot trade materially similar S&P 500 index funds in any accounts (IRA, 401(k), HSA, 529, etc) during the 61-day wash sale window. This even includes innocuous occurences, like a previously held S&P 500 fund paying out a dividend which is automatically reinvested.
If you’re going to tax-loss harvest, you need awareness of all your investing accounts.
If you plan on tax-loss harvesting, you must know the wash sale rule.
When is Tax-Loss Harvesting Worth It?
When misused, tax-loss harvesting can be a net-zero or even harmful activity. Let’s talk through some good and bad examples.
Good: Tax-Loss Harvesting to Offset a Liquidation Event
Perhaps you’re selling a business or a second home (primary homes typically don’t suffer capital gains taxes) and facing a significant capital gain from that sale. Tax-loss harvesting makes sense here.
Why?
In this scenario, you’re making the sale anyway. You might as well seek out ways of saving money. You’re fundamentally reallocating your net worth away from the real estate or business to something new (perhaps a stock/bond investment portfolio).
The gains and losses are from different pools of money, which permanently offset one another. This is good. But as we’ll see later, this isn’t always the case.
Example:
You sell a business for a $500,000 (long-term) capital gain.
As it happens, the S&P 500 index fund holdings in your taxable account are down $100,000 from where you bought them (also long-term).
You sell all of the S&P position, realizing a $100,000 loss.
That loss offsets $100,000 of the business gains.
Now you only have to pay taxes against $400,000 of gains (likely saving at a 23.8% Federal rate, or saving ~$23,800)
You re-invest the $100,000 proceeds of the S&P 500 fund in a similar but not materially identical manner. “Similar” because we want to maintain our overall portfolio allocation. But “not materially identical” because we don’t want to violate the wash sale rule. A good candidate here would be an “Total US Stock Market Index Fund” to replace our S&P fund.
You invest the business proceeds (less remaining capital gains taxes) according to your financial plan.
Good: Offsetting Income (Usually)
You can use tax losses to offset up to $3000 in annual earned income. This is an excellent use of tax-loss harvesting (usually).
The reason is tax-rate arbitrage.
Many taxpayers have a Federal tax rate of 22% or higher. Every dollar of income they can offset results in a 22% (or greater) savings. Meanwhile, harvesting tax losses usually creates a 15% capital gain in the future (we’ll discuss how and why this is below).
By saving 22 cents today and spending 15 cents in the future, taxpayers can arbitrage a net 7% on their $3000 for free. The benefit is even more stark in higher brackets (24%, 32%, 35%). Not bad!
Another common tax arbitrage occurs when an investor might owe capital gains at the 23.8% bracket. Losses can offset those gains (saving 23.8%), likely resulting in a 15% capital gains tax later on. That’s a deal we’d take every time.
Good: Diversifying from Over-Concentration
Uncle Ed bequested 10,000 shares of the ACME Corporation to you in 1990 at $1 each. Now they’re worth $20 each. You own $200,000 of ACME, representing a considerable over-concentration in your portfolio (and a huge capital gain if you try to diversify away from it).
Similar to the business example from above, diversifying away from ACME is something you should be doing anyway. You might as well reduce your capital gains tax while doing so.
Bad/Neutral: Zero’ing Out Gains in Your Portfolio
Perhaps the most common reason I see people tax-loss harvest is to zero out gains inside their portfolio. They have (unrealized) losses on their books and feel the need to use them. So, they think they might as well realize gains in the portfolio, use their losses to negate the gains (and negate this year’s taxes), and then reinvest the proceeds.
I think this is, at best, a neutral use of tax-loss harvesting, not to mention a waste of time. The math explains why.
First, by reinvesting all the proceeds of the transactions, the overall portfolio construction doesn’t change. There’s no fundamental investing benefit (unlike the earlier example of diversifying a concentrated position). And there’s no factor of “I’d be doing this anyway,” like the earlier example of selling a business.
But is there a tax benefit?
No, there’s no net tax benefit. The assets with gains get an increase in cost basis, while the assets with losses get a decrease in cost basis in equal magnitude, leading to zero change in the overall cost basis of the portfolio.
This means that any capital gains you “saved” this year will simply be paid in a future year.
Now, if you think you’ll pay at a lower tax rate in that future year, that’s worthwhile; it’s the tax arbitrage benefit we discussed before. But in most real-life examples I’ve encountered, there’s no arbitrage. It’s just a postponing of the inevitable for no net benefit.
What About the Time Value of Money?
“Postponing the inevitable” might be a good thing in some cases.
Would you rather pay $1000 in taxes today, or $1000 in 10 years? The answer is easy: in 10 years.
The benefit of tax-loss harvesting – simple tax deferral – is technically good. But, in my opinion, only becomes worthwhile at large dollar amounts for long periods of time.
If you’re able to defer $100,000 for 10 years, then go ahead and use tax-loss harvesting. But if you’re deferring $500 for a year, the juice isn’t worth the squeeze.
Other Bad Scenarios
Tax-loss harvesting has other downsides. Some scenarios include:
Losses Must Negate Gains First
When you realize a capital loss, it must be first-and-foremost used to offset capital gains – even if you don’t want it to.
You want to use losses to offset regular taxable income? Only if you’ve already offset all your capital gains.
You happen to be in the 0% capital gains bracket this year, and so you want to “pay” that 0% tax? Too bad. Your losses negate those gains – a.k.a. your losses were used for zero real benefits.
Without careful tax planning, your tax losses might be wasted.
Death Ends the Conversation
If a taxpayer dies with unused tax losses, the opportunity disappears forever.
Questions of mortality should be thoughtfully considered as part of a long-term tax plan.
Tax-loss harvesting, like all tax planning tactics, should never be considered in a vacuum. There are simply too many complicating factors involved. Instead, tax-loss harvesting is a tool to be used as part of a long-term tax plan.
Thank you for reading! If you enjoyed this article, join 7000+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.
-Jesse
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Nvidia, best known for manufacturing graphics processing units and integrated circuits, has been a hot topic among investors during the artificial intelligence boom. Here’s what to consider when deciding if Nvidia has a place in your investment portfolio, and how to buy it.
How to buy Nvidia stock
You can buy Nvidia stock through an online brokerage account. You’ll need to put money in the account, then search for Nvidia stock within the brokerage’s platform.
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1. Do your research into Nvidia
Investing in a top-performing S&P 500 stock might be tempting, but choosing which stock to buy based on how it’s currently performing — or even how it’s performed in the past — won’t tell you everything you need to know.
Make sure you do some qualitative and quantitative research on a company you’re considering investing in to get the full picture. This can mean looking into the company’s leadership, competition and financials.
You’ll also want to think big picture when deciding what stock to pick, like what your investment goals are and if Nvidia might be part of the path toward achieving them.
2. Decide if Nvidia makes sense for you
Stocks are long-term investments. It can be good to prioritize an emergency fund and your short-term financial goals before you consider investing. Short-term financial goals might look like paying down debt, saving money to travel or planning for home improvements.
As a general rule of thumb, it’s recommended that you only invest in stocks with money you won’t use in the next five years — this allows your investment time to survive any market fluctuations.
When it comes to investing, you also don’t want all your eggs in one basket. Having a diverse portfolio of investments means if one type of investment falls, those losses could be offset if a different type of investment rises. So if the majority of the stocks you own fall into the technology category, you might consider investing in something different to reduce the risk of big losses if the technology sector takes a dive.
3. Open a brokerage account
If you don’t have a brokerage account already, you’ll need one to buy Nvidia stock. But opening an account online is quick and simple — it should only take about 15 minutes, and then you’re ready to buy. It’s a good idea to double-check that the online broker you’re signing up for offers the specific investment you’re interested in.
When weighing brokers, look for one that has low or no account fees, requires no account minimum and has positive ratings from users.
If you’re not in the financial position to buy a full share of Nvidia, or you just don’t want a full share, it might be worthwhile to look into brokers that offer fractional shares. This would allow you to buy a portion of Nvidia stock as opposed to a full share. That’s because fractional shares are based on a dollar amount instead of the number of shares.
4. Consider how much to invest in Nvidia
You’ll want to think about how many shares of Nvidia you want to buy and what type of order you want to use.
How many shares of Nvidia you buy is up to you. But you’ll want to consider what kinds of investments you already have and how comfortable you are in your other financial goals before making a decision.
After you’ve decided how many shares to buy, there are a few ways to make your purchase, including market, limit, stop-loss and stop-limit orders. Generally, market orders are the easiest for beginners.
Looking to build your investing portfolio further? The process of buying stocks is generally the same across the board. Check out our full guide on how to buy stocks for more info.
Neither the author nor editor held positions in the aforementioned investments at the time of publication.
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All too often we make investing far more complicated than it really is. I was guilty of this when I first started investing back in 1993. Like the search for the Holy Grail, I was convinced that there was a perfect asset allocation plan. And I searched for it. I spent hours upon hours trying to construct the perfect investment plan.
I’ve mellowed a bit since then. I’ve ditched my micro cap value fund for a much simpler asset allocation. It’s not that a micro cap fund, a China ETF, or mortgage REITs are bad investments. Rather, I’m no longer convinced that such asset classes are necessary to achieve my investment goals. I’m also not convinced such a complicated portfolio will outperform a simpler approach.
This Philosophy informs my responses when I receive email from readers about their own investments. They want to know if they should have a small cap value fund, or REITs, or a dividend fund, or dozens of other asset classes in their investment portfolio. This article and podcast is in response to all of those questions and similar emails I’ll certainly receive in the future.
How the Pros See Asset Allocation
There are a number of excellent sources we can turn to for investment ideas. Here are four of them.
Target Date Retirement Funds
The major mutual fund companies offer target date retirement funds. These fund of funds as they are called, split the amount of your investments into several mutual funds. Reviewing exactly which funds these target date investments to use give us insight into the asset allocation chosen by the likes of Fidelity.
Robo Advisors
Much like target date retirement funds, we can also peer into the asset allocation plans of automated investment services. Three of the most popular are Betterment, Wealthfront, and Future Advisors. Wealthfront, for example, has an excellent white paper on its investment philosophy. It not only shows its asset allocation plans for taxable and retirement accounts, but it also provides an in depth explanation for the asset classes it has chosen.
Investment Books
Any number of investment books provide excellent ideas on asset allocation plans. Two of my favorites are All About Asset Allocation by Ric Ferri and Unconventional Success by David Swenson. I interviewed Ric about his investment philosophy in Podcast 3. I’ve written about David Swenson’s model asset allocation plan as well. Both are worth reviewing.
Bogleheads Forum
The Bogleheads Forum has a wealth of information about investing. Of particular interest to asset allocation plans is what they call Lazy Portfolios. That resource lists a number of asset allocation plans that are easy to implement and maintain. It’s a great resource.
Same Kind of Different as Me
What’s interesting about the above resources is that none of the asset allocation plans is identical. While some are similar, they all take a slightly different approach. So much for the “perfect” asset allocation plan. It doesn’t exist.
As I was pursuing the Bogleheads forum while writing this article, I came across the following comment:
I couldn’t say it better myself.
Alternatives to Stocks
In fact, it’s worth mentioning that plenty of investors look for alternatives to stocks to further diversify their portfolio and have a little fun with their investing, while still growing their nest egg.
For example, Masterworks is an investment platform that lets you buy shares in blue-chip artworks: Pieces by household names like Andy Warhol. The blue-chip art index has outperformed the S&P 500 over the last 18 years, making blockbuster art a quirky but potentially lucrative addition to your personal portfolio. Find out more about Masterworks in our full review.
Of course, all of this raises an important question. How do we choose the asset allocation plan that is best for us?
Related:
The Perfect Asset Allocation Plan for You
Given that there is no one “right” investment plan, the key is to find a solid plan that fits your personality and investment options. You can start with any of the asset allocation models listed above, and then customize it to fit your investing style. To do that, consider these four factors:
Risk Tolerance: The starting point is to understand how much volatility you can handle. This comes with experience. As you start to invest, you typically don’t have a lot of money invested. As a result, losing 50% (the 2007-2009 market dropped 57%) seems awful, but the actual dollar loss may not be much. If you have $1 million invested, losing 50% can be traumatic.
Complexity: I know some investors that embrace complexity. Their portfolios have literally dozens of asset classes. They don’t invest in one or two international funds, they invest in country-specific ETFs and slice the U.S. market into six or more asset classes. It’s a lot to manage, particularly when it comes time to rebalance. If that kind of complexity is not your cup of tea, keep your portfolio simple. It’s more than reasonable to build a well-diversified portfolio with just three or four asset classes.
Boredom: Some would be bored with a 3-fund portfolio. They aren’t interested in a wildly complex portfolio, but they do want some exposure to additional asset classes. These often include REITs, small cap, and emerging markets. If that’s you, and it’s certainly me, expand your portfolio to cover one or more of these asset classes. The key is to find a plan you’ll stick with in good times and bad.
Investing Options: Finally, we have to work with the investing options available to us, particularly in a 401k or other workplace retirement plan.
Rob Berger is the founder of Dough Roller and the Dough Roller Money Podcast. A former securities law attorney and Forbes deputy editor, Rob is the author of the book Retire Before Mom and Dad. He educates independent investors on his YouTube channel and at RobBerger.com.
Inside: Balancing a shoestring budget is possible and provides great rewards. With savings and budget strategies, you will find genius tips to manage your finances smartly!
With the rise of economic inflation, a growing number of people are finding the need for shoestring budgets to effectively navigate through their expenses.
Whether it’s planning for a low-cost holiday, initiating a frugal home makeover, or launching a start-up business with minimalist funds, the concept of a shoestring budget comes into play.
Moreover, it’s not only limited to low-income families but also extends to larger households and entrepreneurs that need to strategically lessen costs to achieve their goals. This is how many people reach financial independence sooner.
Then, let’s talk about a shoestring budget – an effective tool used to stretch finite resources, manage money wisely, and achieve financial goals, all while minimizing expenses.
If you’re familiar with the feeling of every dollar in your wallet counting, then this blog post is for you.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What is a Shoestring Budget?
A ‘shoestring budget’ means to accomplish a task or a project within a very limited or bare minimum budget. The shoestring budget work strategy involves curbing discretionary spending dramatically to take care of high-priority expenses.
Understood across various contexts like travel, events, and lifestyle, the term implies an approach of resourcefulness and discovery of low-cost alternatives to achieve desired results.
Not exclusive to households with low incomes, working with a shoestring budget expresses the art of making what’s deemed impossible possible, navigating time constraints, and maximizing minimal available funds.
Shoestring Budget Idiom Definition
According to Merriam-Webster, the official definition of a shoestring budget is: 1
“involving a relatively small amount of money for planned spending.”
‘Shoestring Budget’ Origin
The phrase ‘shoestring budget’ has an intriguing origin story that dates back to the 1800s in the United States. Fact-checks reveal that this term is indeed a reference to the precarious nature of a thin and weak shoestring, metaphorically implying a scarce and strained budget.2
Several theories have been proposed regarding its original use.
One theory suggests that the term ‘shoestring gambler,’ meaning someone gambling with a limited budget, might be the precursor to the idiom.
Another theory, based on British history, suggests that prisoners would lower a shoestring out of their cell to collect small donations from passersby, symbolizing the idea of managing with few resources.
Despite the debates around the phrase’s exact origins, it is undisputed that it signifies a tight budget situation.
How to live on a shoestring budget?
Living on a shoestring budget can be challenging but doable with a bit of dedication and planning.
Start by reviewing your regular expenses per month.
Cut down on unnecessary expenses as much as possible.
Monitor your small, daily expenses as they can add up significantly over time.
Refinance any existing debt to reduce interest payments.
Renegotiate contracts with utility providers, subscription services (consider uninstalling unused ones), or insurance for better rates.
Shop at thrift stores or choosing used items over brand new can also help you save.
The key to surviving a shoestring budget is self-control and determination to avoid impulsive spending.
Your goal is to prioritize essential needs over wants – a no spend challenge will help you with this. Remember, regular tracking and analysis of your personal site usage can provide valuable insights to manage your budget better.
How to travel on a shoestring budget?
Embarking on an adventure while on a shoestring budget requires creativity and pre-planning.
Be flexible with your travel dates, destinations, and mode of transport to take advantage of the best deals available.
Consider options such as budget airlines, off-peak travel times, and less touristy locations.
Staying in budget accommodations, or even trying out housesitting, can significantly cut down your lodging costs.
Eating at local fresh markets rather than restaurants will not only save you money but also provide a more authentic experience.
Plan your daily activities; consider free local events, parks, and attractions.
Always carry a water bottle to avoid buying expensive drinks.
With careful planning, traveling on a shoestring budget can make your journey all the more rewarding and memorable.
How to Save Money on a shoestring budget?
Saving money while on a shoestring budget might appear challenging, but it’s not impossible. Begin by monitoring your expenditures and identifying areas where you can potentially save money. Also, consider substituting costly activities with more affordable or free ones.
Every small action counts when you’re on a shoestring budget, and these savings accumulate over time. Remember, consistent small savings can make a significant difference in the long run.
Starting a business on a shoestring budget
Starting a business on a shoestring budget requires careful financial planning and innovative thinking. Indeed, it may sound challenging, but numerous shoestring startups have surged to success by optimizing their business budgets. It is all about crafting a solid business plan that clearly delineates your budget and the efficient utilization of each dollar.
Maintain focus on essential expenses only. These expenses might include mandatory licenses, essential software for business operations, or even crucial industry-specific tools. Leverage your personal and professional networks for free advice and resources.
Also, make the most of free or low-cost online marketing strategies as these can be vital to shoestring business budgets. You can use effective strategies, like using different social media platforms for marketing or creating a blog, to broaden the reach of your business.
Remember, having the capital to start is important but it’s secondary to a truly novel idea, intense hard work, and a strategic approach. So, let your creativity thrive and work passionately towards growing your business.
Shoestring Budget Examples
Shoestring Vacation
Wedding or Honeymoon
Home Improvement
Business on a Shoestring Startups
Savings Goals
Financing your Next Car
A shoestring budget is not always related to bigger projects. It can also refer to the scenario where the money required for daily expenses, buying an item, or completing a project isn’t enough. Here, the person has to be creative and find ways to stretch the money to make ends meet.
Practical Tips for Surviving on a Shoestring Budget
In this section, we will present practical advice for managing a shoestring budget, derived from case studies of my readers and my own personal experience who have thrived despite financial limitations.
Whether you are budgeting on a low income or looking to reach FI number faster, this guide has you covered.
1. Starting with a Budget: Your First Step
Before you embark on your journey of living on a shoestring budget, the first step is to define a realistic budget.
Understand your total earnings and list all your monthly expenses.
Identify which expenses are necessary (rent, utilities, groceries) and which are discretionary (eating out, entertainment).
Now create a spending plan such that it covers all necessities, allocates some amount towards savings, and leaves a little for leisure.
A well-defined budget will be your roadmap to financial management success.
Remember, the goal is to live within your means but also to ensure you aren’t depriving yourself.
2. Make Saving Automatic
A proven way to save money on a shoestring budget is to make saving automatic.
In such a method, you can set up an automatic transfer when you get paid. Another idea is to use Acorns, which rounds up purchases made with your debit card to the nearest dollar and deposits the change daily into your savings account.
Essentially, you’re saving without even noticing it! These little amounts add up over a period and can really bolster your savings.
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3. Cut Back on Expenses
One of the most effective ways to operate within a shoestring budget is by reducing expenses. These can be small lifestyle changes, like cutting back on takeaways and preparing meals at home, walking or cycling instead of driving short distances or canceling unused subscriptions.
Specifically, you are looking to cut back your flexible expenses the most.
4. Look for Ways to Make Extra Money
Alongside cutting back on expenses, we continually stress the importance of finding ways to supplement your income. This could be from a side hustle, passive income, part-time job, or even a pay raise.
This additional income can help ease pressure on your shoestring budget. Also, it might provide an opportunity to explore new interests or passions. By diversifying your income streams, you make your financial situation more secure and flexible in unexpected circumstances.
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5. Utilize Free Resources
When it comes to saving money on a shoestring budget, the key is to utilize free resources and focus on essentials before spending money.
Thankfully, there are many vital ways to do this:
Find free things to do without spending money.
Use your local Buy Nothing group to find items before spending your hard-earned cash.
Learn and enhance your skills through free or low-cost online platforms like Udemy, Coursera, and YouTube.
Leveraging such resources can have a significant impact on your budget, leading to substantial savings for other meaningful expenses.
6. Look for Deals and Coupons
Another wise strategy when operating on a shoestring budget is seeking out deals and using coupons whenever possible. This game-changing approach can be applied to your grocery budget, dining, clothing purchases, and even travel.
Search for coupons in newspapers, magazines, or on coupon websites. Perhaps, subscribe to newsletters from your favorite retailers, a move that will provide straightforward access to information about sales and discount codes. Be mindful while shopping online or in stores, and always remember to rein in impulses, checking for any available discounts before purchasing.
Moreover, take advantage of holiday sales or Amazon Prime Day for larger purchases. Taking a little extra time to hunt for the best deals can significantly cut down your expenses and help you stick to your shoestring budget.
7. Utilize Household Resources
Leveraging what you already have in your household is another fantastic way to save money.
For instance, before running to the grocery store, take stock of what’s in your pantry and design meals around these items.
Also, consider repurposing and upcycling household items. An old ladder can turn into a chic bookshelf; jars can be used for storage.
Optimizing utility usage by switching off lights when not in use and limiting water usage can also reduce bills.
Start treating everything in your house as a resource with a specific purpose and value, including leftover food, old clothes, and used furniture. Every household item utilized efficiently can add up to visible savings over time.
8. Get Rid of Unnecessary Expenses
Perhaps the most crucial aspect of managing a shoestring budget is identifying and eliminating unnecessary expenses. These could include subscriptions to magazines or online services that you hardly use, dining out frequently, or buying expensive coffee daily.
Analyze where your money is going every month. You’d be surprised how the smallest changes can have a big impact on your budget. Eliminating even a few unnecessary monthly expenses can add up to substantial yearly savings.
Remember, the key is not to deprive yourself of everything but to find that balance between living comfortably and within your means.
9. Reduce Your Monthly Rent or Mortgage Payment
Want to slash a significant expense of your shoestring budget by considering ways to reduce your rent or mortgage payments? Could you move to a more affordable area or a smaller property?
For homeowners, look at refinancing your mortgage or negotiate better terms, resulting in lower monthly payments. Always remember to check if any fees would apply before proceeding with refinancing.
If relocation isn’t an option, consider renting out a spare room in your home or offering it on a vacation rental site.
If you are a renter, look at becoming a permanent housesitter.
Lowering these substantial expenses can make a huge difference in your budget, allowing you to allocate funds to other pressing areas, save, or even invest in building wealth.
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10. Be Creative When Paying Bills
When managing a shoestring budget, it can be helpful to get creative with the way you pay your bills. Sometimes, splitting payments between paychecks or paying on certain days can make managing your budget easier.
You could also consider bill negotiation services or check if you qualify for reduced rates based on your income. If meeting all payments becomes too strenuous, communicate with your service providers about it. They may have hardship programs or payment plans to assist during tough financial periods.
Remember, the key is to avoid late fees or penalties that could further strain your budget.
11. Leverage Technology to Save Time and Money
Make the most of technology to manage your shoestring budget. There are numerous mobile apps and online resources to help you track your expenditures, save money, pay bills, and even invest.
Budgeting apps can help you keep track of your income and expenditure, warn you when you’re nearing your limit, and provide valuable insight into your spending habits. Digital wallets can help you make secure transactions without the fear of losing cash.
Moreover, there are apps and websites to compare prices of different products, get the best deal alerts, apply instant coupons, or even earn cashback like Rakuten.
Quicken
Personal finance and money management software allows you to manage spending, create monthly budgets, track investments, retirement and more.
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Birds-eye view of your complete financial picture.
Conveniently download your spending activities, and automatically categorize them (Quicken connects to over 14,000 financial institutions).
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Cons:
Little complex to use at first, the learning curve is moderate.
Yearly subscription-based model to use the platform.
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12. Participate in a Mini Savings Challenge
As a fun and effective way to boost your savings, consider embarking on a mini savings challenge! These challenges break the intimidating concept of saving into manageable, small steps. They can vary based on duration and the amount you’re aiming to save.
For example, in a 52-week challenge, you save $1 in the first week, $2 in the second, and so on, until you’re saving $52 in the 52nd week. By the end of the year, you’ll have saved $1,378!
Not only does it make saving fun, but it also allows you to develop a consistent saving habit, crucial when budgeting on a shoestring.
Frequently Asked Questions (FAQ)
If you’re fortunate enough to have a budget that’s more than a shoestring, the principles discussed still apply. Having more resources doesn’t mean you should ignore opportunities to save and invest wisely.
So, whether your budget is minimal or ample, consider adopting these healthy financial habits to achieve your financial goals. Make sure to sock away any extra money into a savings or investment account so you aren’t tempted to spend it.
Starting to invest on a small budget involves several key strategies. You must pay yourself first each and every time you are paid.
Set up an auto savings plan through a high interest savings account to make sure you start earning interest.
Contribute enough to your 401(k) to take full advantage of your employer’s match, if available, and consider mutual funds with an initial investment as low as $500.
Pick one solid company wherein you believe data and financials are stable enough to invest in, and buy 1 share.
If you receive a work or tax refund bonus, allocate it towards your investments instead of immediate spending.
Key Takeaways: Managing Money Well on a Tight Budget
Managing finances on a shoestring budget can be a daunting task, but with the right strategies in place, it can become a way to achieve financial health.
This is something I did when I was a stay-at-home mom looking for ways to make money.
In the grand scheme of things, managing a shoestring budget is less about the money and more about your mindset. Yes, limited resources can present challenges, but your attitude and creativity can make a difference.
Embracing frugality, taking control of your financial choices, and building resourceful strategies can turn your constraints into opportunities.
Money comes and goes, but the ability to manage it effectively is a life skill that will always be beneficial. The real wealth lies in your ability to live within your means and make the most of what you have – turning your shoestring budget into a stepping stone towards financial independence and stability.
Remember, every journey starts small.
Day by day, these tips can help you improve your financial stability and achieve your goals, regardless of your budget size.
Source
Merriam-Webster. “on a small/tight/shoestring budget.” https://www.merriam-webster.com/dictionary/on%20a%20small%2Ftight%2Fshoestring%20budget. Accessed December 5, 2023.
Grammarist. “Shoestring Budget – A Creative Expression for Limited Money.” https://grammarist.com/idiom/on-a-shoestring-and-shoestring-budget/. Accessed December 5, 2023.
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What should you do with your 401k or 403b when you leave your job? This is a question that confronts more and more people. According to the Department of Labor young Baby Boomers held on average 11.3 jobs from age 18 to 46. So it was no surprise when I received the following email from a reader named Juan:
In this article, we’ll look first at your options. Then we’ll cover some factors to consider as you choose the best option for your circumstances. And finally, we’ll cover some of the mechanics of actually rolling over a 401k to another 401k or IRA. Note that this article applies equally to both 401k and 403b retirement accounts.
Listen to this Article:
Options for a 401k When You Leave a Job
The first thing is to understand are options. When you leave a job with a 401k or 403b you have potentially four options when it comes to your retirement plan:
Take the Money: While I include this as an option, it’s not one that will do your retirement planning any favors. Taking the money will trigger ordinary income tax. If you are not 59 1/2 or older (or otherwise able to take a qualified distribution), you may also get hit with a 10% additional tax. So while this is technically an option, I’m going to assume for the sake of this article that it’s not one you are considering.
Leave it Alone: Most 401k plans allow you to leave your money in the 401k at your old employer. You won’t be contributing to the account anymore, but you can continue to invest the money in the funds available in the plan. Note that this option may not be available for 401k accounts with balances of less than $1,000. For balances of less than $5,000, you may need to take steps to prevent your old employer from automatically distributing the funds to you.
Rollover to Current Employer’s 401k: If your new employer has a 401k or 403b and permits rollovers, you can rollover the money to the retirement plan at your new employer.
Rollover to an IRA: Finally, you can always rollover the 401k to an IRA.
Considerations in Making Your Choice
What should you consider in deciding which option is best for you? While there is no one right answer for everybody, there are some important factors to take into consideration. The very first factor is access to good investment options.
Investment Options
One of the big potential downsides of a 401k or 403b is that some of them have lousy investment options. For that reason, it’s important to consider the investing options at both your old employer and your new employer. Part of this evaluation should look at the expense ratios of the mutual funds in both plans. Also, keep in mind that you may not need every mutual fund choice in a plan to be a good option. As you build your asset allocation plan across multiple accounts, you may only need one or two good investment choices with your 401k.
If the investment options at the old employer are good and fit your asset allocation plan, leaving them there is a reasonable option. You don’t have to go through the hassle of moving the money. In fact, that’s exactly what I did with my first employer. I was there for 10 years. When I moved to another job, I left my money in the company’s retirement plan because I was happy with the investment choices.
Simplicity
The second thing to consider is simplicity. The fewer accounts you have, the easier it is to manage. That’s true when it comes to rebalancing a portfolio and keeping track of your investments. If you have good investment options at your new employer, rolling your account over from your old employer to your new employer minimizes the number of accounts you have. If you happen to have good investment choices at both your old and new employer, you’ll have to weigh the inconvenience of the rollover with the inconvenience of managing two accounts. In the long run, I favor the simplicity of consolidating accounts. Further, as we’ll cover in a moment, it’s not at all difficult to rollover a 401k.
Age 55 Rule
The third thing is the age 55 rule. This is one I think a lot of people tend to forget. If you leave your employer in or after the year you turn 55 you can begin to take withdrawals from your 401k without incurring the 10% penalty. What happens if you leave your employer at age 54? Can you wait a year until you turn 55 and then start taking money out without penalty? No. This exception only applies if you leave your employer in the year you turn 55 or later. Of course, you’ll have to pay ordinary income tax assuming it’s a traditional 401k or 403b.
So what does this have to do with a 401k rollover? The age 55 rule does not apply to IRAs. If you rollover a 401k to an IRA, you cannot take advantage of this rule. Therefore, you should consider this factor when deciding what’s best for your retirement account.
Rollover Tips
If you decide to rollover your 401k or 403b, you’ll want to use what’s called a direct rollover. A direct rollover is the movement of your investments from one plan directly to another plan. In other words, you don’t get access to the funds. A direct rollover is quick and convenient.
There is such a thing as an indirect rollover where you do touch the money. The money comes to you and you then have 60 days to roll it over into the IRA or 401k. There are several drawbacks to an indirect rollover. First, your old employer may withhold 20 percent of the rollover for taxes. While you’ll get that money back eventually, you’ve got to come up with that extra 20 percent now to roll over the whole amount into your new account. Further, if you fail to rollover the assets within 60 days, the IRS treats the assets as a distribution. The result can be a very big tax bill, including the 10% penalty.
Finally, the easiest way to begin the direct rollover process is to contact the new plan administrator where you want your money to go. They likely have an entire department dedicated to helping investors execute a 401k rollover. They will walk you through the paperwork and make sure everything is processed properly.
Where Should You Open an IRA?
If you’re going to open up an IRA, where do you open it? The key to answering this question is to decide first what types of investments you’ll purchase. For example, if you want to invest in funds at Fidelity, then it makes sense to open the IRA at Fidelity. That’s true if you want to invest in funds at any mutual fund company. If you have a certain fund company you prefer, open the IRA with the mutual fund company. Not only do you invest for free into their investment products, but you can always add a brokerage account to invest in stocks, bonds, or ETFs.
If you want to invest in a broad array of ETFs and stocks, then a low-cost brokerage makes the most sense. Brokers offer IRA accounts that enable you to rollover a 401k. TD Ameritrade is my personal favorite because trades are inexpensive and they have physical offices just about everywhere. I’ve also used OptionsXpress, which offers a $100 new account bonus. You may have a different broker you prefer, but if you’re going to trade a lot of ETFs and individual stocks, a low-cost brokerage is a good option for an IRA.
The fourth option, of course, is a robo-advisor. These tools take a lot of the work out of creating an asset allocation plan and rebalancing your portfolio in exchange for a fee.
Related: How to Build Your Own Benefits Plan If You Leave Your Job
Rob Berger is the founder of Dough Roller and the Dough Roller Money Podcast. A former securities law attorney and Forbes deputy editor, Rob is the author of the book Retire Before Mom and Dad. He educates independent investors on his YouTube channel and at RobBerger.com.
A red herring is a preliminary prospectus filed by a company that’s planning an initial public offering, or IPO. While a red herring prospectus includes coverage of the company’s operations, total estimated IPO amount, management and competitive market standing, it doesn’t reveal the share price or number of shares to be issued.
The SEC reviews the red herring prospectus, and all subsequent iterations, to make sure that all information is accurate before allowing the company to transition to the final investment prospectus phase.
A red herring prospectus has both investment and regulatory implications for companies heading toward an IPO, and any investors who may be interested in obtaining IPO stock.
Key Points
• A red herring in an IPO is a preliminary prospectus filed by a company that provides information on operations, estimated IPO amount, management, and market standing.
• A red herring is not final, and investors must take into considerations that the filing doesn’t include the share price for the IPO or the number of shares to be issued.
• The SEC reviews a red herring prospectus to make sure that all information is accurate before allowing the company to transition to the final investment prospectus phase.
• Red herrings offer investors some insight into the pros and cons potentially associated with trading IPO shares of the company in question.
IPOs, Explained
An initial public offering is the process through which a private company goes public, with shares of the company’s stock available to the investing public. The term “initial public offering” simply refers to a new stock issuance on a public exchange, which allows corporations to raise money through the sale of company stock.
Red Herring Prospectus
When a company transitions from a private company to public stock issuance, they must file a prospectus, a formal document sharing the new company’s structure, the purpose of the issue, underwriting, board of directors, and other relevant details with the Securities and Exchange Commission (SEC).
That prospectus, while not final, may help potential investors make investment decisions based on the information included in the prospectus. A prospectus doesn’t just cover stocks — it’s also required for bonds and mutual funds.
While all stocks include some degree of risk, IPO shares are particularly high-risk investments. Despite the media hype around many IPOs, which often focuses on big wins, the history of IPOs shows plenty of losses as well, owing to the volatility of these shares.
The risks associated with IPO stock is a significant reason why investors are typically asked to meet certain requirements in order to trade IPO shares through a brokerage. 💡 Quick Tip: Access to IPO shares before they trade on public exchanges has usually been available only to large institutional investors. That’s changing now, and some brokerages offer pre-listing IPO investing to qualified investors.
How a Red Herring Works
Prospectuses are dynamic and change regularly, as new information about a company comes forth. So, an investment prospectus will likely have multiple drafts before a final draft is released after SEC review.
In a red herring document, the prospectus is incomplete and noted as such, with the word “Red Herring” included on the prospectus cover. That disclaimer lets readers know not only that the prospectus is incomplete, but also that the company has filed for an upcoming IPO. The term “red herring” refers to both the initial prospectus and the subsequent drafts.
Additionally, a stock cannot complete its IPO until it fulfills the S-1 registration statement process, which is a primary reason why a red herring prospectus doesn’t include a stock price or the number of shares traded.
The SEC will review a red herring prospectus prior to its release to ensure that all information is accurate and that the document does not include any intentional discrepancies, falsehoods, or misleading information.
Recommended: A Guide to Tech IPOs
Once regulators clear the registration statement, the company can go ahead and transition out of the red herring IPO phase and enter into the final investment prospectus phase. The time between the approval of the registration process and the time that it reaches its “effective date” (which clears the stock for public trading) is 15 days.
In clearing the IPO for stock market trading, the SEC confirms the necessary information is included in the final prospectus, and that the information is accurate and compliant, based on U.S. securities law. Once the company gets through that hurdle they can continue moving through the IPO process. 💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.
Red Herring Pros and Cons
Any investor looking to invest in an IPO stock should understand the benefits and investment risks when it comes to red herrings and in investing in IPOs.
Red Herring Advantages
• Useful overall information on the company. While investors won’t find any information on pricing or share amounts, they can review company history, operational strategies, management team, potential IPO amount, and market performance, among other company particulars.
• Some financial data points. Red herring IPOs may provide valuable information about how a company plans to use proceeds from an IPO stock offering. Knowing, for example, that a company plans to use stock proceeds to grow the company or to pay down debts gives investors a better indication of company direction, which they can use to make more informed investment decisions.
• Risk factors. Under a section known as “Risk Factors”, a soon-to-be publicly-traded company lists any potential risk factors that could curb performance and growth. Legal or compliance problems, abundant market competition, and frequent management turnover are just some of the potential risks included in a red herring IPO prospectus – and investors should factor those risks into any potential investment decision.
Red Herring Disadvantages
• No pricing data. The biggest drawback of red herring IPO prospectus is the fact that the documents don’t provide any guidance on IPO stock pricing or number of shares available. These are obviously critical components of any investment decision, but investors must wait until the registration statement process is fully complete before that data is available.
• Shifting information. IPO company information can and does change from document version to version. Investors need to be diligent and stay apprised of all information on red herring prospectuses, from version to version, if they’re interested in an IPO stock.
• Uncertainty. If government regulators cite deficiencies in a red herring prospectus they may half the IPO process until they’re addressed.
Recommended: SPAC IPO vs Traditional IPO: Pros and Cons of Investing in Each
Red Herring Example
A red herring prospectus when filed with the SEC may have the words “Red Herring” stamped on the document as a reminder to prospective investors that the information in the document is subject to change, and that the securities (i.e. shares of stock, or bonds) are not available for sale until the SEC has approved the final prospectus.
The statement typically included in a new company’s prospectus may say:
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.
The Takeaway
The red herring prospectus is the first version of a new IPO company S-1 prospectus, and may be the first detailed impression that institutional investors and the investing public gets of an initial public offering.
By providing all the necessary information on a new publicly traded company (minus the opening share price and the number of shares available), a red herring prospectus can introduce investors to a new stock, which can provide much of the information necessary for investors to decide whether they’re interested in the company, and willing to assume the risks involved in trading IPO shares (if eligible).
Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it’s wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.
Invest with as little as $5 with a SoFi Active Investing account.
FAQ
How does a red herring document differ from the final prospectus?
The red herring document is usually shorter than the final filing with the SEC. In addition the final document contains the number of shares in the IPO, as well as the IPO price.
Are there any legal or regulatory requirements associated with red herring documents?
Yes. The SEC must validate all claims and data included in the red herring to ensure that it does not include any false information, or anything that might violate existing laws and regulations. Once the red herring passes muster,
Can investors rely on the information provided in a red herring document when making investment decisions?
Investors may use the red herring document to inform their basic understanding of the company that is seeking an IPO, but it may not be enough to guide an actual decision to buy shares.
Are there any risks or limitations associated with red herring documents that investors should be aware of?
Red herring documents are an important part of a new company’s IPO process, and as such they contain key information about the company, but investors need to be aware that the details are not finalized, and the terms may change before the final prospectus is filed.
Photo credit: iStock/GOCMEN
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Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.
New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures. Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
When you look at your investment portfolio, does Rube Goldberg come to mind? Goldberg was a Pulitzer Price winning cartoonist famous for drawing complicated contraptions designed to perform simple tasks. In fact, Webster’s New World Dictionary defines a “Rube Goldberg” as a “comically involved, complicated invention, laboriously contrived to perform a simple operation.”
Investing should be simple. It’s not necessary to have a dozen or more mutual funds covering a wide range of asset classes. Such “diversity” complicates the management of your investments and isn’t likely to increase your returns or lower your risk.
Rube Goldberg came to mind when I recently read an email from a reader named Jason:
This is a great email on an important topic. Are we going to invest to mimic the overall market, or are we going to collect a dozen or more holdings? What’s the right approach?
I addressed Jason’s question about “value” funds in the podcast. In short, an index is designed to determine value versus growth based on math. They use ratios such as the p/e (price to earnings), p/b (price to book), and other objective measures of value.
But let’s get back to Jason’s main question – how complicated should investing be? The starting point is the 3-Fund Portfolio.
1. Three-Fund Portfolio
There’s a group loosely referred to as the Bogleheads (named after Vanguard founder, John Bogle)who advocate the Three-Fund Portfolio. The three-funds cover the three main asset classes (I’ve included Vanguard ETFs one could use to build a 3-fund portfolio, but mutual funds and investments from other companies could be used, too):
Total Market US Equities (Example: VTI)
Total Market Intl EquitiesExample: VGTXS)
Total Bond Market (Example: VBMFX)
With those three ETFs, you’d have the investment markets covered, but only three funds to manage, allocate and rebalance. This is the direction I’m heading as I simplify my investing. Note that you could simplify this even further with a target-date retirement fund. Vanguard’s target-date funds, for example, use the above three investment types along with an international bond fund.
2. Slice and Dice
Many investors aren’t satisfied with the above 3-Fund portfolio. They look to further diversify their investments into sub-asset classes. Frankly, I’ve taken the slice and dice approach for more than two decades.
While there is no one way that one can construct a portfolio that goes beyond the core asset classes, here are five common sub-asset classes that many investors want more exposure:
Small-Cap – Smaller companies historically have produced higher returns, but also come with more volatility.
Value Funds – These funds seek to invest in undervalued companies, and historically have outperformed growth companies (although there is some debate on the relative performance between value and growth).
Emerging Markets: As with small caps, emerging markets historically have generated higher returns in exchange for greater volatility.
REITs – real estate investment trusts offer stock-like returns with some measure of diversity.
Commodities – While the returns aren’t as rich, many believe commodities offer valuable diversity to a portfolio.
I have positions in all of these sectors, although as I mentioned I’m working to simplify my portfolio.
3. Diversity Has Nothing to Do With the Number of Mutual Funds in a Portfolio
It’s critical to understand that even a 3-Fund Portfolio has exposure to each of these asset classes. As an example, a total U.S. equity fund has exposure to small caps, value, REITs, and even commodities. Simply by owning multi-national companies gives exposure to many asset classes.
In the case of VTI, one gets exposure to the following according to Morningstar:
Micro-cap: 2.62%
Small-cap: 6.47%
Mid-cap: 29.02%
Real Estate: 3.72%
Further, VTI gives equal weighting to value and growth stocks.
Similarly, a totally international market will have exposure to emerging markets. VGTXS, for example, has 14.52% in emerging markets. The point: Most investors will get little if any benefit from seeking additional exposure to these sub-asset classes beyond what a total market fund provides.
4. Why slice and dice
Having said all of that, there are times when exposure to sub-asset classes is justified. The first is that an investor’s personality is drawn to this type of investing. While this may surprise some, the behavioral side of investing should never be ignored. Those that like to dabble in more complex asset allocation plans won’t hurt themselves, so long as they keep costs low and stick to their plan.
Second, a good argument can be made for additional exposure to real estate. REITs enjoy stock-like returns and add diversity to a portfolio.
5. Problems with slice and dice
There are some realities to a complicated portfolio that should be considered:
There’s absolutely no guarantee that it will improve your returns or lower your risk compared to a basic three-fund portfolio. Just because small caps outperformed the general market in the past doesn’t mean they will in the future. In his book Don’t Count on It!: Reflections on Investment Illusions, Capitalism, “Mutual” Funds, Indexing, Entrepreneurship, Idealism, and Heroes, John Bogle says that small caps have outperformed the general market mainly because there were a couple of years where they did very well compared to the overall market. There’s no guarantee such performance will repeat itself.
Each additional investment added to a portfolio increases the portfolio’s complexity. Additional funds add to the burden of monitoring investments and rebalancing them. It often requires one to allocate across multiple account types, which further complicates the whole affair. (See the Rube Goldberg image above for more details.)
My own feeling is both the three-fund portfolio and the slice and dice portfolio will work, but complication is the real difference. And for what it’s worth, robo advisors like Betterment use somewhat complicated portfolios. The difference is that they handle all of the rebalancing for you.
6. My Own 401(k) plan
Portfolio allocations can be more complicated with 401(k) plans. Unlike an IRA, we have limited investment options, many of which are expensive. Nevertheless, I’ve worked hard to simplify my own 401(k) portfolio by investing in just three funds. In the process, I’ve tried to create a standalone portfolio that doesn’t require additional allocations from non-retirement assets or other retirement plans. The plan will be fully diversified on its own.
Here are the three funds I use in my plan:
Dodge and Cox International Stock Fund (DODFX) – 40%
Fidelity S&P Index Fund (FXSIX) – 40%
Vanguard Total Bond Fund (VBTLX) – 20%
The Dodge and Cox fund is an actively managed fund with an expense ratio of – .64%. It’s a great fund in my opinion, and the fee is actually not high for actively managed funds. My total cost for keeping all three funds is .29%, even with the Dodge and Cox fund. With just three funds, rebalancing is easy. I don’t feel that slicing and dicing into a variety of funds will have a material effect on the long-term performance of my 401(k).
I’m not entirely closed to the idea of adding some additional asset classes to my plan, particularly REITs. Whatever you choose, however, work hard to keep it simple.
Rob Berger is the founder of Dough Roller and the Dough Roller Money Podcast. A former securities law attorney and Forbes deputy editor, Rob is the author of the book Retire Before Mom and Dad. He educates independent investors on his YouTube channel and at RobBerger.com.
The internet has done wonders in the world of Investment Tracking. With websites like Mint and now Power Wallet, tracking your finances for free online is a snap. But one thing that’s been missing is a robust tool to automatically track your investments.
Best Investment Tracking App
Sites like Mint do allow you to link your investment accounts. But they don’t help you understand your asset allocation or investing expenses in any meaningful way. And that brings me to a site I’ve recently starting using called Empower.
Empower is the best investment tracking tool that I’ve ever used. It solves several problems for me:
It automatically links to my investment accounts, keeping my holdings updated throughout the trading day;
It tracks the fees I’m paying for each mutual fund and ETF I own;
It provides detailed asset allocation data for my investments, much like the X-Ray feature of Morningstar;
It alerts me when my asset allocation is over or under-weighted as compared to a target asset allocation model determined based on my age and tolerance for risk; and
It offers retirement income calculations and projections based on your investments, projected social security, pensions, annuities, and other retirement income sources.
I’ve enjoyed the tool so much, that I thought a detailed review was in order.
Getting Started
Empower is a free tool. To get started, you simply create an account with your email address and password. Once you have access to the site, you can connect just about all of your bank and investment accounts into Empower.
I had no trouble connecting accounts from Citi, Capital One 360, Scottrade and Fidelity. And once all of your accounts are connected, the fun begins.
The Dashboard
The Dashboard is the one place you’ll find high level information about all your finances. While I use Empower primarily for my investments, you can also track your checking and savings accounts. In fact, they offer what is called a Cash Manager that lets you see all of your spending in one place.
Investment Tracking
Empower does a great job of tracking investments real-time. And just as importantly, the layout of the site and the way in which information about your investments is displayed is the best I’ve seen (note, the image is not of my personal investments):
What you can’t see from the above screen shot is what happens as you roll the cursor over parts of the screen. On the graph at the top left, you’ll see your investment balance by date. And as you roll the cursor over the colored ring top right, you’ll see details about each of your investment accounts.
And what’s really cool is when you click on an individual account in the list at the bottom. As you can see from the screenshot above, the graph highlights the portion of your total attributed to that account, and the colored ring breaks out the portion of the circle related to the selected account.
Now the truth is that while the above is really cool, it’s just information. It doesn’t really give you any analysis that you can actually use. But the next few features do.
Mutual Fund and ETF Expenses
As I’ve said many times, keeping investment expenses low is one of the most important factors for successful investing. And Empower gives you two tools to help you. The first is a breakdown of your investment costs by mutual fund or ETF.
In my case, total investment costs are a real eye-opener. Empower breaks down the cost by fund or ETF, so that you can focus your analysis and determine whether you need to make any changes. Through using the tool, it became clear to me that there are a couple of funds I need to dump for less expensive alternatives.
Cryptocurrency
Empower now offers the ability to track your cryptocurrency within the dashboard. Since last year, Empower saw its users increase the value of linked accounts by about 28% – so they’ve decided to start including the ability to track crypto now, too.
Since more people are starting to invest in things like Bitcoin, it only makes sense that you’d be able to track your tokens. Currently, you have the ability to track thousands of tokens across hundreds of different cryptocurrency exchanges. This is, of course, in addition to the loads of other benefits you’ll get from Empower.
401(k) Fee Analyzer
The second tool to help fight the high cost of investing is revolutionary. It’s called the 401k Fee Analyzer.
The first time you run this tool, it will base its analysis on data not specific to your retirement funds. But you can get additional data on 401k expenses from your employer or broker to get more accurate results.
What’s so great about the analyzer is that it doesn’t stop with just the expense ratios of the funds and ETFs you own. That part’s easy. It also looks at the costs funds charge you for trading, which aren’t reflected in the expense ratio. And it looks at administrative costs charged to run the 401k, which are often passed down to employees.
If you have a 401k, this tool by itself makes it worth checking out Empower. And it’s a good reminder as to why most folks should transfer their 401k to a rollover IRA when they leave their employer.
Asset Allocation Tools
The next handy tool is its asset allocation feature. The first thing it does is breaks down all of your investments by their asset class. And if a single fund or ETF contains investments that span more than one asset class, as most do, Empower slices and dices the fund to apportion your account into each relevant asset class.
You can click on each investment in the box chart at the top or the list at the bottom to get details of your asset classes. This is extremely helpful when it comes to rebalancing your portfolio.
Investment Checkup
With the click of a button Empower will analyze your investments. It compares your actual asset allocation with your target allocation, and flags asset classes in which you are over or under-weighted. It’s an easy way to see if you need to rebalance.
Note that in the above screenshot heading is a reference to my “target allocation.” You can set this by entering your name, how many years to retirement, and your investing style (e.g., aggressive, conservative). It takes all of 10 seconds, and Empower then generates a target allocation for you.
Robust Retirement Calculator
Finally, Empower offers a free retirement calculator. The tool takes into account your current investments, age, projected social security, projected savings, and just about any other information you want to include. Using monte carlo analysis, it then determines whether you are on track to retire.
As you can see from the screenshot, the retirement planner displays the results in easy to understand graphs. It also makes change the assumptions (e.g., inflation, social security) very easy.
So what’s not to like?
Frankly, not much. One thing I haven’t mentioned is that an advisor is available for a call or a live chat. When you log into your account, you’ll see a picture of your advisor, his or her name, and telephone number. And even better, they don’t hound you. I’ve not heard from my advisor, and that’s how I want it. If I need to speak to him, I’ll give him a call. But it’s good to know that’s an option.
Empower also has mobile versions of its site for iPhone, iPad and Android. I use the iPad app and have had no issues. I’ve not had any issues with linking accounts. Occasionally I have to provide or confirm my login credentials for certain accounts. But that’s it.
But there are three things that could be improved:
You can’t enter your own target asset allocation model. Empower creates one for you based on your age, time to retirement, and investing style. This is probably fine for the majority of investors, but a custom option would be nice.
The daily updates on stock and bond prices is a bit slow. As compared to Wikinvest, another tool I’ve used before, Empower could be faster
It does not include the cost basis of your investments, which would be nice.
So there you have it. Its an excellent tool. If you want to give it a try, visit the Empower website.
Check It Out: Empower Review
Learn More: The Best Stock Tracking Apps
Empower Personal Wealth, LLC (“EPW”) compensates Webpals Systems S. C LTD for new leads. Webpals Systems S. C LTD is not an investment client of Personal Capital Advisors Corporation or Empower Advisory Group, LLC
Rob Berger is the founder of Dough Roller and the Dough Roller Money Podcast. A former securities law attorney and Forbes deputy editor, Rob is the author of the book Retire Before Mom and Dad. He educates independent investors on his YouTube channel and at RobBerger.com.
All investments carry some risk, but the difference between speculating and investing is the amount of risk involved. Speculative investments are typically short-term, and far riskier than traditional investing products and strategies, and may involve the risk of total loss.
Investing typically indicates a more long-term approach to making a profit, with an eye toward managing risk.
Defining Investing and Speculation
Speculating often describes scenarios when there’s a high chance the investment will deliver losses, but also when the investment could result in a high profit. High-risk, high-reward investments include commodities, crypto, derivatives, futures, and more.
In contrast, investing generally refers to transactions where an individual has researched an asset, and puts money into it with the hope that prices will rise over time. There are no guarantees, of course, and all types of investing include some form of risk.
Examples of Investments and Speculative Investments
Assets that are thought of as more traditional types of investments include publicly traded stocks, mutual funds, exchange-traded funds (ETFs), bonds (e.g. U.S. Treasury bonds, municipal bonds, high-grade corporate bonds), and real estate.
Even some so-called alternative investments would be considered more long-term and less speculative: e.g., jewelry, art, collectibles.
Assets that are almost always considered speculative are junk bonds, options, futures, cryptocurrency, forex and foreign currencies, and investments in startup companies.
Sometimes it isn’t as simple as saying that all investments in the stock market or in exchange-traded funds or in mutual funds hold the same amount of risk, or are “definitely” classified as investments. Even within certain asset classes, there can be large variations across the speculation spectrum. 💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.
The Traditional Approach to Investing
When it comes to the more traditional approach to investing, individuals typically buy and hold assets in their investment portfolios or retirement accounts, with the aim of seeing reasonable, long-term gains.
Traditional forms of investing focus on the performance of the underlying business or organization, not on the day-to-day or hour-by-hour price movements of an asset.
For this reason, more traditional investors tend to rely on various forms of analysis (e.g. fundamental analysis of stocks) and analytical tools and metrics to gauge the health of a company, asset, or market sector.
Speculation: A High-Risk, High-Reward Game
The difference between speculating and investing can be nuanced and a matter of opinion. (After all, some investors view the stock market as a form of gambling.) But when traders are speculating, they are typically seeking super-high gains in a relatively short period of time: e.g., hours, days, or weeks.
In the case of commodities or futures trading, the time horizon might be longer, but the aim of making a big profit fairly quickly is at the heart of most speculation.
Speculators may also use leverage, a.k.a. margin trading, to boost their buying power and amplify gains where possible (although using leverage can also lead to steep losses).
The Psychology of Investing vs. Speculating
The psychology of a typical investor is quite different from that of a speculative investor, and again revolves around the higher tolerance for risk in pursuit of a potentially bigger reward in a very short time frame.
Long-Term Investing
Speculating
Taking calculated or minimal risks
Willing to take on high-risk endeavors
Pursuit of reasonable gains
Pursuit of abnormally high returns
Willing to invest for the long term
Willing to invest only for the short term
Uses a mix of traditional investments and strategies (e.g. stocks, bonds, funds)
Uses single strategies and alternative investments
Infrequent use of leverage/margin
Frequent use of leverage/margin
Historical Perspectives on Investing and Speculation
The history of investing and speculating has long been entwined. In the earliest days of trading thousands of years ago, most markets were focused on the exchange of tangible commodities like livestock, grain, etc. Wealthy investors might put their money into global voyages or even wars. Thus many early investors could be described as speculators.
But investing in forms of debt as a way to make money was also common, eventually leading to the bond market as we know it today.
The concept of investing in companies and focusing on longer-term gains took hold gradually. As markets became more sophisticated over the centuries, and a wider range of technologies, strategies, and financial products came into use, the division between investing and speculating became more distinct.
Recommended: What Causes a Stock Market Bubble?
Speculation History: Notable Market Bubbles and Crashes
The history of investing is rife with market bubbles, manias, and crashes. While the speculative market around tulip bulbs in 17th-century Holland is well known, as is the Great Financial Crisis here in the U.S. in 2008-09, there have been many similar financial events throughout the world — most of them driven by speculation.
What marks a bubble is a well-established series of stages driven by investor emotions like exuberance (i.e., greed) followed by panic and loss. That’s because many investors tend to be irrational, especially when in pursuit of a quick profit that seems like “a sure thing.”
Some classic examples of financial bubbles that changed the course of history:
• The South Sea Bubble (U.K., 1711 to 1720) — The South Sea company was created in 1711 to help reduce national war debt. The company stock peaked in 1720 and then crashed, taking with it the fortunes of many.
• The Roaring Twenties (U.S., 1924 to 1929) — The 1920s saw a rapid expansion of the U.S. economy, thanks to both corporations’ and consumers’ growing use of credit. Stock market speculation reached a peak in 1929, followed by the infamous crash, and the Great Depression.
• Japanese Bubble Economy (1984 to 1989) — The Japanese economy experienced a historic two-decade period of growth beginning in the 1960s, that was further fueled by financial deregulation and widespread speculation that artificially inflated the worth of many corporations and land values. By late 1989, as the government raised interest rates, the economy fell into a prolonged slowdown that took years to recover from.
• Dot-Com Bubble (1995 to 2002) — Sparked by rapid internet adoption, the dot-com boom saw the rapid growth of tech companies in the late 1990s, when the Nasdaq rose 800%. But by October 2002 it had fallen 78% from that high mark.
Key Differences Between Investing and Speculating
What can be confusing for some investors is that there is an overlap between investing in the traditional sense, and speculative investing in higher risk instruments.
And some types of investing fall into the gray area between the two. For example, options trading, commodities trading, or buying IPO stock are considered high-risk endeavors that should be reserved for more experienced investors. What makes these types of investments more speculative, again, is the shorter time frame and the overall risk level.
Time Horizon: Long-term Goals vs. Quick Gains
As noted above, investors typically take a longer view and invest for a longer time frame; speculators seek quick-turn profits within a shorter period.
That’s because more traditional investors are inclined to seek profits over time, based on the quality of their investments. This strategy at its core is a way of managing risk in order to maximize potential gains.
Speculators are more aggressive: They’re geared toward quick profits, using a single strategy or asset to deliver an outsized gain — with a willingness to accept a much higher risk factor, and the potential for steep losses.
Fundamental Analysis vs. Market Timing
As a result of these two different mindsets, investors and speculators utilize different means of achieving their ends.
Investors focused on more traditional strategies might use tools like fundamental analysis to gauge the worthiness of an investment.
Speculators don’t necessarily base their choices on the quality of a certain asset. They’re more interested in the technical analysis of securities that will help them predict and, ideally, profit from short-term price movements. While buy-and-hold investors focus on time in the market, speculators are looking to time the market. 💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.
Real-World Implications of Investment vs. Speculation
To better understand the respective value and impact of investing vs. speculating, it helps to consider the real-world implications of each strategy.
The Impact of Speculation on Markets
It’s important to remember that speculation occurs in many if not all market sectors. So speculation isn’t bad, nor does it always add to volatility — although in certain circumstances it can.
For example, some point to IPO shares as an example of how speculative investors, who are looking for quick profits, may help fuel the volatility of IPO stock.
Speculation does add liquidity to the markets, though, which facilitates trading. And speculative investors often inject cash into companies that need it, which provides a vital function in the economy.
Strategic Approaches to Investment
Whether an investor chooses a more traditional route or a more speculative one, or a combination of these strategies, comes down to that person’s skill, goals, and ability to tolerate risk.
Diversification and Asset Allocation
For more traditional, longer-term investors, there are two main tools in their toolkit that help manage risk over time.
• Diversification is the practice of investing in more than one asset class, and also diversifying within that asset class. Studies have shown that by diversifying the assets in your portfolio, you may offset a certain amount of investment risk and thereby improve returns.
• Asset allocation is the practice of balancing a portfolio between more aggressive and more conservative holdings, also with the aim of growth while managing risk.
When Does Speculation Make Sense?
Speculation makes sense for a certain type of investor, with a certain level of experience and risk profile. It’s not so much that speculative investing always makes sense in Cases A, B, or C. It’s more about an investor mastering certain speculative strategies to the degree that they feel comfortable with the level of risk they’re taking on.
The Takeaway
One way to differentiate between investment and speculation is through the lens of probability. If an asset is purchased that carries a reasonable probability of profit over time, it’s an investment. If an asset carries a higher likelihood of significant fluctuation and volatility, it is speculation.
A long-term commitment to a broad stock market investment, like an equity-based index fund, is generally considered an investment. Historical data shows us that the likelihood of seeing gains over long periods, like 20 years or more, is high.
Compare that with a trader who purchases a single stock with the expectation that the price will surge that very day (or even that year!) — which is far more difficult to predict and has a much lower probability of success.
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