Brokerage account – Sarah Long http://sarahlong.org/ Fri, 19 Aug 2022 15:00:55 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://sarahlong.org/wp-content/uploads/2021/10/icon-44-120x120.png Brokerage account – Sarah Long http://sarahlong.org/ 32 32 Awesome Ways to Use Your Brokerage Account as a Savings Account https://sarahlong.org/awesome-ways-to-use-your-brokerage-account-as-a-savings-account/ Fri, 19 Aug 2022 15:00:55 +0000 https://sarahlong.org/awesome-ways-to-use-your-brokerage-account-as-a-savings-account/ SmartAsset: brokerage account vs savings account Brokerage accounts and savings accounts can help you get more out of the money you store there. However, there are major differences in how they work. When comparing brokerage accounts and savings accounts, it’s important to consider things like how much money you’ll be depositing, what kind of return […]]]>

SmartAsset: brokerage account vs savings account

Brokerage accounts and savings accounts can help you get more out of the money you store there. However, there are major differences in how they work. When comparing brokerage accounts and savings accounts, it’s important to consider things like how much money you’ll be depositing, what kind of return you want, and how long you can hold the money in the account. Depending on your financial situation, speaking with a financial advisor might be your best option to help you determine which direction to take.

Brokerage accounts vs savings accounts

A brokerage account is basically an investment account through which you can buy securities, such as stocks, mutual funds, bonds, etc. A savings account is a banking vehicle that is liquid and helps you earn interest that a checking account cannot. By federal law, savings accounts are limited in the number of outgoing transactions you can make, which is best suited for those who simply want to keep cash in hand for a while, but still see a some growth.

Don’t miss news that could impact your finances. Get news and tips for making smarter financial decisions with SmartAsset’s bi-weekly email. It’s 100% free and you can unsubscribe at any time. Register today.

A brokerage account has the potential to generate huge returns at any time, but nothing is guaranteed due to the volatility of the investment market. On the other hand, a savings account will never see significant returns, but you will know that the value of your account will never decrease. The returns from a savings account are also always clear, meaning you can plan ahead what you will earn.

Your savings account will come with an annual percentage yield (APY). This is the percentage of your deposited money that you will earn each year. For example, if you have $100,000 in your savings account with an APY of 1%, you will earn $1,000 in your first year. Then, the following year, you’ll earn 1% of your then $101,000, assuming you don’t deposit anything else.

Your brokerage account can’t guarantee anything and the value of what you invest could go up or down significantly. This fluctuation depends entirely on your investments, both in terms of types and choices.

When to use a brokerage or savings account

A brokerage account is probably the choice for you whether you want to invest your money for the long term or the short term, with maximum gains at the forefront of your mind. This way, you can select higher-yielding investments from a diversified portfolio so you can save for your long-term goals, like retirement. For example, if you feel comfortable setting aside your money for at least five years, a brokerage account is probably the way to go.

The two major advantages of a savings account are the certainty of knowing exactly what your return will be and the liquidity of being able to withdraw the entire amount at any time, without penalty. This makes savings accounts a good choice for you if you just need a place to store your cash or emergency fund, but don’t want it earning nothing. There is no volatility with a savings account, although your APY may change from year to year depending on the financial institution you choose and the broader country rate environment.

Ways to use your brokerage account as a savings account

SmartAsset: brokerage account vs savings account

SmartAsset: brokerage account vs savings account

It is possible to use your brokerage account the same way you would use a savings account, although returns may be lower than a riskier investment. This can be useful if you want to put your money in a safe place, while earning a little something extra compared to what a traditional or online savings account can provide.

Here are three ways to use your brokerage account to cover your savings needs:

  • Keep your money in your brokerage deposit account: In other words, just don’t invest money. You can earn on the money market fund, although the returns will be significantly lower than on a high yield savings account and many brokers will require a minimum balance to do so.

  • Create an account with a robo-advisor: Many cash management accounts with robo-advisor apps, like Wealthfront or Betterment, will pay a return so your money just stays in your account. You can expect a return of 0.05% to 0.20%, depending on which one you use.

  • Buy short-term government-backed securities: You can buy an exchange-traded fund (ETF) or money market mutual fund that makes short-term investments in government bonds. You’ll need to hold your money in the investment for 30 days to a year, but you can often get a higher, similar, or slightly better return than a savings account.

How to choose a brokerage account

Brokerage accounts are typically used for on-demand securities trading or as a supplemental retirement vehicle. A normal retirement account, like a 401(k) or an IRA, has a specific purpose and is much more restricted in how and when you can withdraw. However, they have incredibly significant tax advantages, which makes brokerage accounts better served as an ancillary retirement nest egg.

When you compare the usefulness of a savings account to a brokerage account, you’ll probably want a traditional brokerage account. This will allow you to withdraw or change your investments at any time.

When opening a traditional brokerage account, you can choose between a cash or margin account type. A cash account is as it looks, with the value of the cash or securities in it being the total dollar value you can withdraw or redeem. A margin account means you can borrow money to invest, but it’s not the type of account you’re likely to want if you need to keep cash on hand.

Choosing where to open your brokerage account can depend on a number of factors. Here are three important things to consider when looking for a new brokerage account:

  • Commissions and trading fees: Each time you transact with your brokerage account, your broker may charge a fee or commission. If you plan to trade a lot, this can add up quickly. However, many brokers charge no fees for trading stocks and ETFs, with bonds and options having marginal fees.

  • Selection of funds: The number of investment opportunities can be important for you if you have a lot of money to invest or if you are not yet sure where you want to invest your money. A financial advisor can help you determine the types of investments that will benefit you, but you may want to find a brokerage account that has access to as many mutual funds as possible.

  • Account minimums: Many brokerage accounts will require certain account minimums to be maintained in your account at all times. If you just want to put your money in an account to get a return while waiting to use it, an account with no minimum will probably be very important to you.

Conclusion

SmartAsset: brokerage account vs savings account

SmartAsset: brokerage account vs savings account

Brokerage and savings accounts allow you to set aside your money for the future. The right one for you will depend on how quickly you need to access your funds and how much you potentially want to earn from that money in the short and long term. Brokerage accounts often come with higher risks and costs, but much higher earning potential. On the other hand, savings accounts offer certainty and immediate access to all your funds at any time.

Tips for saving for the future

  • Managing a savings or brokerage account can be difficult to do in the long run. If this is your case, you may want to speak to a financial adviser who can answer your questions. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your matching advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.

  • There are many options when it comes to savings accounts. That’s why we’ve put together a collection of the best savings accounts available today, and keep it up to date with the latest industry developments.

Photo credit: ©iStock.com/sturti, ©iStock.com/g-stockstudio, ©iStock.com/Prostock-Studio

Brokerage account vs savings account: where should you keep your money? appeared first on SmartAsset Blog.

]]>
What are the rules of a deposit brokerage account? https://sarahlong.org/what-are-the-rules-of-a-deposit-brokerage-account/ Fri, 19 Aug 2022 07:00:00 +0000 https://sarahlong.org/what-are-the-rules-of-a-deposit-brokerage-account/ Deposit brokerage accounts can help ensure your child’s financial success. Unlike a savings account you might open for your child, these brokerage accounts allow your child to benefit from the wealth-building potential of the stock market. And unlike 529 accounts, which typically also offer some market exposure, deposit brokerage accounts can be used to fund […]]]>

Deposit brokerage accounts can help ensure your child’s financial success. Unlike a savings account you might open for your child, these brokerage accounts allow your child to benefit from the wealth-building potential of the stock market. And unlike 529 accounts, which typically also offer some market exposure, deposit brokerage accounts can be used to fund much more than just education.

They work the same way as an investment account that you would open for yourself. But they have their own rules and regulations. Here’s what you need to know.

Who can contribute to a deposit brokerage account?

Parents, guardians, friends and family members can all deposit money into a child’s custody brokerage account. But only the person who created the account (the custodian) can choose how that money is invested.

What are the contribution limits for custodial accounts?

Unlike 529 accounts, custodial brokerage accounts have no contribution limits, which means you can invest as much money as you want for your child’s future. That said, those who make large gifts may be subject to gift taxes whenever their contributions to a recipient exceed $15,000 per year.

How do gift taxes work with deposit accounts?

If you give more than $15,000 (or $30,000 as a couple) to a beneficiary, you may have to pay gift tax. These taxes are generally charged to the donor and not to the recipient. Be sure to check with your financial or tax advisors to determine if you may incur gift tax.

Will my child have to pay taxes from a deposit account?

Although the account is owned by the child, the custodian is responsible for its management. If you are the guardian, you will be responsible for filing tax forms on your child’s behalf for any winnings and ensuring that taxes are paid. As long as you are still the custodian, the first $1,100 of all investment income may be tax exempt each year (starting in 2020), and the next $1,100 is often taxed according to the tax bracket of the child (usually 10 to 12%). But once the earnings reach around $2,200, your child will be taxed using brackets and rates for trusts and estates, which may actually be higher than the parents’ tax rates. This is called the Kiddie tax.

But there is a big caveat: gains are only taxed when they are made or when the investments are sold. If you’re investing for your child’s long-term future, you probably won’t sell assets for years or decades. So any annual gain would typically come only from interest or dividend payments, the regular small bonuses that some companies or funds offer shareholders as a thank you.

Although different investments offer different dividend payout rates, you’ll generally need a large balance before your child’s custody account will produce enough taxable income to even reach the $1,100 threshold. Once ownership of the brokerage account is transferred to your child, usually when they turn 18 or 21, depending on the state, your child will generally be taxed at the normal capital gains tax rate for withdrawals, in depending on their income bracket. .

One exception: Children under 19 (or 24 for full-time students) who file as part of their parent’s tax return can avoid paying taxes on the first $1,100 of investment gains, even after they own the account. . The next $1,100 would be taxed at the child’s bracket (from 2020). Unearned income over $2,200 would be taxed at the parent rate. There may be exceptions which may vary from situation to situation and state to state. Please consult your financial or tax advisor regarding your specific situation.”

What are my investment options for a deposit account?

Deposit brokerage accounts work much like regular brokerage accounts. This means you have access to the same array of investment options, from exchange-traded funds (ETFs) and mutual funds to individual stocks. You can also opt for predefined diverse mixes, like the ones you’ll find in an Acorns wallet.

Who controls my child’s deposit account?

As the custodian, you control your child’s custody account until they reach the age of majority in your state. Depending on your state of residence, this is normally 18 or 21, although some states may allow you to select an even later age for your child to take control of the custody account.

Although the prospect of an 18 or 21 year old suddenly becoming responsible for an investment portfolio may seem daunting, you can use the years before adulthood to help them develop good financial habits and healthy relationship with spending and saving, such as teaching them how to create a budget.

Can I withdraw money from my child’s deposit account?

All money placed in a custodial brokerage account irrevocably becomes your child’s. This means that you cannot withdraw money for your personal use after depositing it. Although you can technically withdraw money from a custodial account before your child reaches the age of majority, you can only do so for the direct benefit of the child. This means that all purchases must be for helping your child, such as buying new clothes or braces. Remember that the funds you withdraw may also create taxable gains for your child and the money withdrawn will not have as much time to grow.

What can I use funds from a deposit account for?

Custodial brokerage accounts aren’t subject to the same kinds of limitations as 529 accounts, which can only be used to fund educational expenses. Once a child takes ownership of their custodial brokerage account, they can use the money for anything from college fees to a down payment on a house. Before your child takes control of the custodial account, you can withdraw and spend the money you invest in it in a way that directly benefits your child.

Can I transfer funds from a custody account to another child?

Since all money paid into a deposit brokerage account irrevocably becomes that of the beneficiary, you cannot transfer funds or accounts from one child to another. This contrasts with the 529 accounts, which can be transferred between family members and can even be used for a parent’s own education expenses.

Will my child’s financial assistance be affected by a custodial account?

Since all assets held in a deposit brokerage account legally belong to your child, they weigh more heavily in Free Application for Federal Student Aid (FAFSA) calculations. Funds held in 529 accounts are considered less heavily. Keep in mind, however, that even money in a child’s savings or checking account outweighs funds in a 529 plan.

]]>
Should you stop investing in a brokerage account due to recession fears? https://sarahlong.org/should-you-stop-investing-in-a-brokerage-account-due-to-recession-fears/ Thu, 18 Aug 2022 11:00:23 +0000 https://sarahlong.org/should-you-stop-investing-in-a-brokerage-account-due-to-recession-fears/ Image source: Getty Images Recessions can be scary. Is it time to put your investment plans on hold? Key points Many financial experts believe a recession is on the horizon. You shouldn’t stop investing because you fear a downturn is coming, but you may want to reduce your investment if your savings need a boost. […]]]>

Image source: Getty Images

Recessions can be scary. Is it time to put your investment plans on hold?


Key points

  • Many financial experts believe a recession is on the horizon.
  • You shouldn’t stop investing because you fear a downturn is coming, but you may want to reduce your investment if your savings need a boost.

Inflation has, for months, driven up the cost of living. And now the Federal Reserve is desperately trying to get inflation under control and relieve consumers through a series of interest rate hikes.

The logic is as follows: if borrowing becomes more expensive, consumers should start reducing their spending. This should, in turn, reduce the gap between supply and demand that spurred this surge of runaway inflation in the first place.

But with the Fed raising interest rates quite aggressively, economists fear its actions could end up fueling a full-fledged recession, one where job losses will rise very noticeably. And that’s a disturbing thought.

If you’re concerned about an impending recession, you might be inclined to stop putting money into your brokerage account. Although recessions don’t always go hand in hand with stock market declines, they can. Additionally, you may need the money you invest to cover some of your essential bills if you lose your job.

But should recession fears keep you from investing? Or should you overcome these fears and persevere?

What are your finances like?

Money in your brokerage account is money you should have spent on a distant goal, like retirement. In contrast, the money you have in your savings account is money you should have set aside for emergencies, like home repairs, medical bills, or layoffs.

The Ascent’s Picks for the Best Online Stock Brokers

Find the best stockbroker for you from these top picks. Whether you’re looking for a special sign-up offer, exceptional customer support, $0 commissions, intuitive mobile apps or more, you’ll find a stockbroker to meet your trading needs.

See selections

If you are in a position of strength when it comes to your savings – that is, you have enough money in the bank to cover several full months of living expenses – then there is no need to quit. to put your extra money in your brokerage account. But if your savings can use the work, it’s wise to stop investing for a while and bolster your emergency fund so you have enough money to cover at least three full months of living expenses.

In the meantime, if your savings are good, there’s no need to cut your investments just because you’re worried that a recession will drag the market down. First of all, it may not even happen. And third, if you don’t plan to cash out your investments in your brokerage account for many years, a short-term blow caused by a recession shouldn’t really matter.

Stick to your plan

If you’re used to investing $100 a month on a regular basis and your savings look good, it’s wise to stick with this strategy, even in a recession. The sooner you make your money grow by investing it, the more time you give it to grow. Moreover, if a recession hits in the short term, it could be short-lived and could also be followed by a period of booming market growth. And you don’t want to end up blaming yourself for missing that opportunity.

]]>
3 reasons not to check your brokerage account too often https://sarahlong.org/3-reasons-not-to-check-your-brokerage-account-too-often/ Thu, 18 Aug 2022 10:32:35 +0000 https://sarahlong.org/3-reasons-not-to-check-your-brokerage-account-too-often/ Image source: Getty Images It is really important to find the right balance. Key points A brokerage account is not something you have to set up and forget. At the same time, there is something like checking your account too frequently. Some people like to check their brokerage account balance once a week. For others, […]]]>

Image source: Getty Images

It is really important to find the right balance.


Key points

  • A brokerage account is not something you have to set up and forget.
  • At the same time, there is something like checking your account too frequently.

Some people like to check their brokerage account balance once a week. For others, once a month or even once a quarter is enough.

When it comes to keeping track of your brokerage account, there really is no right or wrong answer when it comes to how often you check in. And to be clear, the occasional check-in is a good thing. You don’t want to put together a mix of stocks and walk away without checking to see how your portfolio is doing.

But checking too often your brokerage account certainly exists. And if you pass every day, you are definitely going too far.

Even a weekly record is too much for the typical investor. A better balance is a check once a month, or even once a quarter. Here’s why you don’t want to check too often.

1. You may have to make rash choices

During periods of stock market volatility, brokerage account balances can drop significantly overnight. If you frequently check your balance and continue to see losses, this could prompt you to quickly offload inventory to avoid an additional financial hit. But it could create a scenario where you have blocked a loss.

When you see a lower brokerage account balance on screen than you started with, this loss is merely hypothetical. It represents the amount of money your wallet would be worth if you were to sell everything you own right away.

If you don’t sell any assets and instead wait for the value of your portfolio to recover, you could emerge from a period of volatility without losing a penny. But the more losses you record and see, the more you might be pressured into panic selling, worsening your financial situation.

2. You will stress yourself out unnecessarily.

You may know enough about investing to recognize that you shouldn’t sell stocks just because they’re falling. But even if you tell yourself to sit back and get things done, checking your brokerage account balance often can lead to added stress that you simply don’t need. And there’s really no reason to get into it.

3. If you’re investing for the long term, you’re just wasting your time

Many people create brokerage account portfolios with the goal of accessing that money in 10, 20, or 30 years. If you, too, take a long-term approach to investing, there is absolutely no need to check your account balance daily or weekly.

After all, market movements over 24 or 48 hours are unlikely to make much difference to the grand scheme of a 20-year investment window. And if you keep checking, you might just keep wasting your time.

Investing in a brokerage account is a great way to grow your money when you’re not using it and don’t need it in an emergency. But don’t make the mistake of checking your wallet too often, as this could lead to poor choices and an unnecessary amount of heartache and wasted hours.

The Best Ascent Stock Brokers for 2022

We looked at data and user reviews to find the select rare picks that landed a spot on our list of top stockbrokers. Some of these best-in-class picks offer valuable perks, including $0 stocks and ETF commissions. Get started and review The Ascent’s best stockbrokers for 2022.

]]>
Suze Orman says your brokerage account could be a source of income if you do this https://sarahlong.org/suze-orman-says-your-brokerage-account-could-be-a-source-of-income-if-you-do-this/ Wed, 10 Aug 2022 12:32:25 +0000 https://sarahlong.org/suze-orman-says-your-brokerage-account-could-be-a-source-of-income-if-you-do-this/ Image source: Getty Images Many people are seeing losses in their brokerage accounts these days. Although the stock market recovered slightly at the end of July, most major stock indices are still down substantially since the start of the year. But in a recent podcast, financial guru Suze Orman said long-term investors shouldn’t panic over […]]]>

Image source: Getty Images

Many people are seeing losses in their brokerage accounts these days. Although the stock market recovered slightly at the end of July, most major stock indices are still down substantially since the start of the year.

But in a recent podcast, financial guru Suze Orman said long-term investors shouldn’t panic over recent market events. Not only that, but she insists that if you’re heavily invested in dividend-paying stocks, you can worry even less about the current market downturn because you’re still making money in your portfolio. And this is a point that deserves to be taken to heart.

The flip side of dividend stocks

When a company pays dividends, it means that it is choosing to share some of its profits with its shareholders instead of just pouring all that money back into the business. It is important to note that there is no set dividend – companies can decide how much dividend they want to start paying, and they can choose to increase or decrease their dividends over the years.

In fact, it is possible for a company to start by paying dividends and then stop this practice altogether. Unlike bonds, which are required to pay interest to bondholders, companies that issue stocks do not have a formal obligation to pay dividends to shareholders.

But many companies have a long history of paying dividends. And so, if you like the idea of ​​your portfolio serving as an ongoing source of income, it might be beneficial to stock up on dividend-paying stocks.

What can dividends do for you?

There are several advantages to receiving dividends. First, if you don’t need these payments to cover your bills, you can reinvest them, so your portfolio grows even more. But if you do need cash, you can simply collect your dividends and use that money for whatever purpose, from paying your mortgage to putting food on the table.

In fact, Orman insists that investors with lots of dividend-paying stocks may not be in such bad shape right now. Of course, their portfolios may be down from where they were at the start of the year. But investors who specifically set up their portfolios to generate income should at least have access to those dividend payments, despite the market downturn.

In fact, to some extent, loading dividend stocks could prevent you from taking losses in your portfolio. Let’s say you need money and your savings account is empty. If you go to sell stocks in your brokerage account and all of your investments are down, you could end up losing money. But if you have several hundred dollars in dividend payments in your account, that might be enough to satisfy your need for cash and help you avoid incurring losses or getting into debt.

Now, that’s not to say your investment strategy should focus solely on dividend-paying stocks. But if you like the idea of ​​generating ongoing income in your brokerage account, then you better at least dig deeper and see if there are any dividend-paying stocks that are right for you.

Check out The Ascent’s Best Stock Brokers for 2022

We are firm believers in the Golden Rule, which is why editorial opinions are our own and have not been previously reviewed, approved or endorsed by the advertisers included. The Ascent does not cover all offers on the market. The editorial content of The Ascent is separate from the editorial content of The Motley Fool and is created by a different team of analysts. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

]]>
Market down: 3 smart things to do in your brokerage account https://sarahlong.org/market-down-3-smart-things-to-do-in-your-brokerage-account/ Wed, 03 Aug 2022 09:50:00 +0000 https://sarahlong.org/market-down-3-smart-things-to-do-in-your-brokerage-account/ The stock market has fallen from its all-time high in 2021, and investors are nervous about what might happen in the near term. In such a market environment, long-term investors have a few tricks up their sleeves that help them maintain a stable footing and ensure that their investments remain profitable in these volatile times. […]]]>

The stock market has fallen from its all-time high in 2021, and investors are nervous about what might happen in the near term.

In such a market environment, long-term investors have a few tricks up their sleeves that help them maintain a stable footing and ensure that their investments remain profitable in these volatile times.

Here are some smart things you can do in your brokerage account while the market is down.

let it pass

Sometimes the best thing to do is just to let the market storm pass and avoid frequent glances at your brokerage account.

For your security, it would be useful to keep you informed of the current state of the market and your investments. After all, checking your account once in a while helps you determine if you need to rebalance and can be a wise move if you’re nearing retirement.

However, many check their brokerage account more often than they should. Such a practice can affect them emotionally, especially when they see their account value drop, leading them to make poor investment decisions.

When markets are down, emotional influence is a significant hurdle that investors must overcome and learn to use to their advantage.

Seeing the value of your portfolio drop could tempt you to leave before the situation gets worse. But if you look at it from a long-term perspective, choosing to take flight is never a good idea. This is why you should avoid regularly checking your brokerage account.

Rebalance

Rebalancing is a process by which you aim to keep your portfolio’s asset allocation in line with your investment strategy by buying and selling specific holdings.

For example, if a stock in your portfolio has become overweight, you can invest fresh money in other stocks until you balance the risk and reward in the portfolio again.

Another option is to sell your performing investments and redirect the returns to certain asset classes in your portfolio that might need a boost to bring the allocation back to your preferred level.

Investors sometimes choose to participate in rebalancing, even if it’s automatic with target date funds or robo-advisors. If you take the manual approach, it is essential that you review your investments after the market has risen or fallen sharply.

Increase pension contributions

A market downturn can be a great time to increase your retirement contributions. Because not only are you saving more for your future, you’ll be doing so during a bear market, which has proven to be a great time to make new investments.

Financial professionals recommend people set aside 10% of their income for retirement contributions, which does not include employer matching contributions. While the average 401(k) contribution is around 7%, many typically contribute 3% to 5% to receive matching from their employer.

However, you don’t have to start saving 10% of your salary for pension contributions right away. Contributing just 1% of your income to a 401(k) or Individual Retirement Account (IRA) can also help in the long run.

]]>
Why We Chose a Brokerage Account Over a 529 or UTMA Plan https://sarahlong.org/why-we-chose-a-brokerage-account-over-a-529-or-utma-plan/ Wed, 03 Aug 2022 09:25:00 +0000 https://sarahlong.org/why-we-chose-a-brokerage-account-over-a-529-or-utma-plan/ We considered a 529 or UTMA plan to save money for our daughters future. However, we are not sure if they will pursue higher education, so we did not use a 529 plan. We also didn’t think a UTMA was the right fit, so we chose a brokerage account instead. Compare the best savings accounts […]]]>
  • We considered a 529 or UTMA plan to save money for our daughters future.
  • However, we are not sure if they will pursue higher education, so we did not use a 529 plan.
  • We also didn’t think a UTMA was the right fit, so we chose a brokerage account instead.
  • Compare the best savings accounts with Fiona.

When my husband and I started saving for our two daughters, we knew we wanted the money invested in the stock market. We also knew that we wanted to be able to provide them with funds, whether they choose to go to university, for example to buy a house or start a business.

When we started looking at the options, we realized that some of the more popular options, such as a 529 plan and the UTMA (Uniform Transfers to Minors Act), weren’t necessarily the best choices for us.

Why We Didn’t Choose a 529 Plan to Save for College

Although a 529 plan is an extremely popular choice for caregivers looking to save for a child’s college education, the funds can only be used for educational expenses. If the child chooses not to attend college, the funds can be passed on to another child or family member, or to the child’s own children thereafter.

Investing in a 529 plan also allows for tax-deferred savings and tax-free withdrawals if the funds are used for eligible educational expenses. If the child chooses not to attend college and the funds are not transferred to another family member, the account may be closed and the funds withdrawn, but an additional 10% tax and fee will be applied. billed.

While we expect there’s a good chance our daughters will be in college, it’s hard to say for sure. The education landscape is changing rapidly and we know that the next 15 years will bring even more changes. While I have no doubt that further education and training will be paramount, I am not certain that our children will follow the same four-year college journey as us, which is why we have decided not to start a 529 for the moment.

Why we didn’t choose a UTMA to save for the future

We also considered opening a UTMA account, which would allow us to invest funds and avoid tax consequences on donations.

However, funds in a UTMA account are automatically transferred to the minor when they reach the legal age, which is 21 where we live. While 21 seems like an old enough age to hand over the funds, we also know there’s a chance our child won’t be responsible enough to handle a financial windfall. Of course, we hope for the best, but we also know that life happens, and we don’t want the added pressure or poor decision-making that might come with a substantial monetary gift.

If we want to transfer the shares to a UTMA account later, we can do so as our children approach legal age and we feel they have a good plan for the funds.

Why we chose a brokerage account to save money for our children

Investing our children’s money in a brokerage account right now allows us to diversify investments as we see fit, including changing risk tolerance as they get older and the purpose of the funds becomes clearer.

“The No. 1 determining factor when it comes to choosing an investment is the time horizon,” says Taylor Sohns, CFP and co-founder of LifeGoal Investments and Home Down Payment Fund (HOM). “Parents of younger children have the ability to take more risks, while those of older children need to be more concerned about protecting against risk of loss.”

For most people, a 529 or UTMA plan makes perfect sense. And while we loved the tax benefits of both types of accounts, we knew neither was right for us right now. Between the funds usage limits for a 529 and the young age at which funds are automatically transferred to the beneficiary in a UTMA, we decided to take a different route.

Since most of our investments are with Fidelity, we opened another brokerage account and earmarked it for our daughter’s future, knowing that we can change the vehicle for those funds along the way if necessary. Whether it’s to further their education, buy real estate or start a business, the funds will be there for them.

]]>
3 smart moves to make in your brokerage account while stocks are falling https://sarahlong.org/3-smart-moves-to-make-in-your-brokerage-account-while-stocks-are-falling/ Tue, 26 Jul 2022 18:56:53 +0000 https://sarahlong.org/3-smart-moves-to-make-in-your-brokerage-account-while-stocks-are-falling/ Image source: Getty Images Take advantage of these tips now. Key points In today’s market environment, there are steps long-term investors can take to set themselves up for success. Doing these things well in a bear market can help you build long-term wealth, avoid rash decisions, and ensure your investment strategy stays on track. The […]]]>

Image source: Getty Images

Take advantage of these tips now.


Key points

  • In today’s market environment, there are steps long-term investors can take to set themselves up for success.
  • Doing these things well in a bear market can help you build long-term wealth, avoid rash decisions, and ensure your investment strategy stays on track.

The stock market is down significantly from its 2021 highs, and it can certainly be a scary time for investors. However, there are some steps you can take in today’s turbulent stock market environment to help prepare you for future success. Here are three examples.

1. Contribute enough to your retirement account

Experts generally suggest that Americans should aim to put about 10% of their salary into retirement accounts, and that’s not including any employer matching contributions. Most people don’t even come close to that — the average 401(k) contribution is about 7% of salary, according to Vanguard. And many people simply contribute enough to take advantage of their employer’s match (usually around 3% to 5%).

If you’re not saving enough, it may be time to increase your retirement contributions. Not only will you be putting more money aside for your future, but you’ll be doing it at a time when the market is down, which has always been a good time to invest.

If 10% seems like too much, you don’t need to go for it right away. Even setting aside an extra 1% of your income in your 401(k) or IRA can make a big difference in the long run.

2. Perform a balance exercise

If you invest through a robo-advisor or your own target date retirement funds, rebalancing is something that happens automatically. But most people need to do this manually from time to time, and it’s especially important to check after the market has risen or fallen sharply.

If you’re unfamiliar, rebalancing involves the strategic buying and selling of assets to ensure your investment strategy is still in place.

Here is a simplified example. Let’s say you determine that an asset mix of 70% stocks and 30% bonds is the right mix of assets for you. Now suppose you have set up your portfolio this way and your stocks have fallen 50% in total since then, while the value of your bonds has remained the same. To use round numbers, let’s say you started with $70,000 in stocks and $30,000 in bonds. You now have $35,000 in stocks and $30,000 in bonds. Your 70/30 split suddenly became about 54% stocks and 46% bonds. In this case, rebalancing would involve selling some of your bonds and redeploying that capital into stocks to bring your allocation back to the desired level of 70/30.

3. Sometimes doing nothing

Finally, as a Certified Financial Planner, I can tell you from experience that the smartest decision many people can make in turbulent market environments is to stop looking at your brokerage account.

To be sure, it’s a good idea to have a general idea of ​​what’s going on with the stock market and your investments. After all, checking once in a while can let you know if you need to rebalance, as mentioned earlier, and can be especially good if you’re approaching retirement age.

However, far too many people check their brokerage accounts, 401(k), and other investments too often. And watching your account value plummet triggers an emotional reaction that can lead to rash decisions. Dalbar’s quantitative analysis of investor behavior found that the average equity fund investor has significantly underperformed the market over the past 30 years, and one of the main reasons is over-trading.

It’s common knowledge that the primary goal of investing is to buy low and sell high, but our emotions drive us to want to do the exact opposite, especially when stocks are falling. We see the value of our portfolio dropping and our gut tells us to “get out before it gets any worse”. From a long-term perspective, this is never a good idea, and the best way to avoid knee-jerk reactions is to stop checking your accounts every day.

The Best Ascent Stock Brokers for 2022

We looked at data and user reviews to find the select rare picks that landed a spot on our list of top stockbrokers. Some of these best-in-class picks offer valuable perks, including $0 stocks and ETF commissions. Get started and review The Ascent’s best stockbrokers for 2022.

]]>
Dave Ramsey recommends opening a brokerage account in these 4 situations https://sarahlong.org/dave-ramsey-recommends-opening-a-brokerage-account-in-these-4-situations/ Mon, 18 Jul 2022 07:00:00 +0000 https://sarahlong.org/dave-ramsey-recommends-opening-a-brokerage-account-in-these-4-situations/ Image source: Getty Images Sometimes it makes sense to open a brokerage account. You can open one with many different discount online brokers. Most have low or no fees, no commissions for buying assets, and an almost unlimited range of assets you can invest in. Unlike retirement accounts, taxable brokerage accounts also offer great flexibility […]]]>

Image source: Getty Images

Sometimes it makes sense to open a brokerage account. You can open one with many different discount online brokers. Most have low or no fees, no commissions for buying assets, and an almost unlimited range of assets you can invest in.

Unlike retirement accounts, taxable brokerage accounts also offer great flexibility in when and how you can withdraw and deposit money, although they do not offer tax advantages unlike IRA.

However, not everyone should rush to open a brokerage account. To help you decide if this is the right choice for you, you might want to consider some advice from financial expert Dave Ramsey.

Ramsey suggests four situations when opening a brokerage account makes sense. Here is what they are.

1. You’ve already maxed out your retirement accounts

Ramsey suggests maximizing tax-advantaged retirement accounts before you consider opening a brokerage account, because you don’t want to pass up government subsidies for retirement savings.

“Make sure you focus on investing as much as possible in these accounts before turning to a brokerage account,” Ramsey said of 401(k) and IRA accounts. “You don’t want to miss these tax benefits!” »

That’s good advice, because when you’re saving for retirement, there’s no reason not to claim initial tax relief in the year you contribute (if you’re using a traditional IRA) or to claim tax relief. deferred tax if you opt for a Roth account. .

2. You invest more than 15% of your income

Ramsey urges people to put 15% of their income into retirement accounts. Once you’re ready to save more than that amount, however, it indicates that it’s often appropriate to put that extra money into retirement savings. However, he suggests that you should accomplish other priorities such as paying off your mortgage before investing your spare money in a brokerage account.

“Having a paying house opens up a lot of possibilities for you, like investing beyond 15% of your gross income so you can really up the score and save a huge stack of savings for retirement. A brokerage account could be a option, especially if you want to increase your pension by a few years”, Ramsey Solutions blog reads.

While most of Ramsey’s suggestions are right on when you should open a brokerage account, paying off a home loan before investing is probably not the best approach, as you can generally get better returns. by putting your money on the market rather than paying off your mortgage sooner.

3. You are planning an early retirement

Ramsey suggests that using a brokerage account is an ideal choice for anyone looking to retire early because the money you invest in these accounts can be withdrawn tax-free whenever you need it. what you can’t do if you opt for a retirement account. In place.

You see, while retirement accounts come with tax breaks, there are also restrictions, including a 10% early withdrawal penalty for money withdrawn before age 59.5.

“To avoid giving Uncle Sam a huge chunk of your nest egg, you might want to set up a brokerage account as a ‘bridge account’ which will give you an income stream to tap into until you can pull from your 401(k) and IRAs,” Ramsey suggests. “Since you can withdraw money from a brokerage account at any time and for any reason, they’re great for bridging that gap!”

This is also good advice, because you don’t want to have to wait until 59 ½ to withdraw money from your accounts just because you can’t make withdrawals earlier without losing a ton of money. silver.

4. You’re saving for long-term goals

Finally, Ramsey says you can use a brokerage account for other long-term savings goals, not just putting money aside for retirement. However, the caveat is that you should only place savings in a brokerage account if you don’t plan to use the money for a while.

“For savings goals that will take less than five years, you may want to use a regular savings account or a money market account. You won’t earn much on these accounts, but you won’t be vulnerable to fluctuations. short-term market swings,” Ramsey advised.

This too makes sense, because when investing for a short period of time, you may have to sell during a downturn before you’ve made much profit. It could mean that you end up with less than you started with.

So when deciding whether or not to open a brokerage account, following Ramsey’s advice largely makes sense. If any of these sounds like your situation, going with a brokerage account is probably your best bet.

Check out The Ascent’s Best Stock Brokers for 2022

We are firm believers in the Golden Rule, which is why editorial opinions are our own and have not been previously reviewed, approved or endorsed by the advertisers included. The Ascent does not cover all offers on the market. The editorial content of The Ascent is separate from the editorial content of The Motley Fool and is created by a different team of analysts. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

]]>
Should the average American ignore their brokerage account? https://sarahlong.org/should-the-average-american-ignore-their-brokerage-account/ Sat, 16 Jul 2022 11:32:22 +0000 https://sarahlong.org/should-the-average-american-ignore-their-brokerage-account/ Image source: Getty Images With the market having its worst start to a year in decades, does it make sense to stop paying attention? Key points The S&P 500 just had its worst first half since 1970, and investors are understandably worried. However, there are good reasons to ignore short-term volatility in your brokerage account. […]]]>

Image source: Getty Images

With the market having its worst start to a year in decades, does it make sense to stop paying attention?


Key points

  • The S&P 500 just had its worst first half since 1970, and investors are understandably worried.
  • However, there are good reasons to ignore short-term volatility in your brokerage account.
  • Taking a step back can help you avoid rash decisions, but you still need to check in to keep your account balanced.

The S&P 500 is down more than 20% in the first half of 2022, which is the worst start to a year for the benchmark since 1970. And it can certainly feel overwhelming to watch your brokerage account lose value every day.

As a Certified Financial Planner®, the most common question I’ve received lately has been, “Should I just ignore my brokerage account?” And for most Americans, the short answer is probably. Here are some good reasons to ignore your brokerage account while the market remains volatile, as well as some reasons why you might want to check it out.

Ignoring your brokerage account can avoid rash decisions

According to Dalbar’s 2022 Quantitative Analysis of Investor Behavior Study, the average equity fund investor has earned annualized returns of 7.13% over the past 30 years. That may not sound too bad, except that the S&P 500 rose at an annualized rate of 10.65% during this period.

This means that the average investor would have grown a $100,000 portfolio to around $789,000 over the past 30 years. On the other hand, by simply investing in a low-cost S&P 500 index fund and forgetting about it, they would have grown it to over $2 million.

One of the main reasons for the average investor’s underperformance is over-trading. It is common knowledge that the purpose of investing is to buy low and sell high. However, our instinct tells us to do the opposite. When our investments dip, we feel the urge to sell “before things get worse”. Panic selling can be devastating to your long-term performance, and ignoring your brokerage account can be a smart way to avoid it.

Stocks are still a great place for long-term investors

Of course, nobody likes to see the value of their portfolio go down. It can be extremely stressful to see your nest egg shrink by 20%, 30% or more in just a few months. But it can help put things into perspective by looking at other times this has happened.

The Ascent’s Picks for the Best Online Stock Brokers

Find the best stockbroker for you from these top picks. Whether you’re looking for a special sign-up offer, exceptional customer support, $0 commissions, intuitive mobile apps or more, you’ll find a stockbroker to meet your trading needs.

See selections

Consider the March 2020 stock market crash when the COVID-19 pandemic began. If you had invested in the S&P 500 when it first fell 20%, your investment would have produced total returns of 46% in just over two years since then, and that’s after the recent fall.

Let’s go back in time a little further to the bear market of the financial crisis of 2007-2009. Although the market ended up falling much further, investing after the initial 20% drop (in July 2008) would have generated total returns of 320% to date. And if we go back even further to the dot.com crash of 2000-2001, investing after the initial 20% drop would result in total returns of 386% over the ensuing roughly two decades.

The thing is, while it might sound scary right now, and there’s definitely a chance stocks will fall even further, holding stocks when the market is already down 20% has always been a smart move. Bear markets are scary, but they are an integral part of long-term investing.

There are good reasons not ignore your brokerage account

In most cases, periods of market volatility are good times to simply step back and let the economic turbulence play out. However, there are good reasons why checking your brokerage account can be a good idea.

An example is if you have extra money to invest while your favorite stocks and funds are lower. As mentioned, investing when the stock market is already down 20% is a great long-term decision from a historical perspective. In fact, most of the times I logged into my brokerage account in 2022, it was for the specific purpose of looking for bargains.

It may also be a good idea to check your brokerage account to make sure your portfolio is well balanced and your short-term needs are being met. You can read a guide to portfolio rebalancing if you want to learn more, but the general idea is that rebalancing is a smart thing to do once in a while, especially after the market moves sharply in one direction or another. .

The thing is, like most financial decisions, there’s no perfect answer for everyone. If you’re a long-term investor and don’t have an immediate need to make some portfolio moves, it can certainly be a good idea to ignore your brokerage account for a while. But there’s also nothing wrong with seeking profitable investments or maintaining a necessary portfolio in this time of market downturn.

Buying your first shares: do it smartly

Once you have chosen one of our top rated brokers, you need to make sure that you buy the good actions. We believe there is no better place to start than with Equity Advisor, the flagship stock selection service of our company, The Motley Fool. You’ll get two new stock picks every month, along with 10 starter stocks and current best buys. Over the past 17 years, Stock Advisor’s average stock selection has returned 330%, more than 2.5 times that of the S&P 500! (as of 7/11/2022). Learn more and get started today with a special discount for new members.

Start investing

]]>