“Improve finances” is the second most common New Year’s resolution right behind “lose weight.”
For many Americans, “improve finances” is code for “I should save and invest more.”
But, investing (and, specifically, knowing where to start) can be intimidating. So, I’ve compiled the best investment resources to help you get started.
#1 Inflation Calculator
Link: US Inflation Calculator
Technology and innovation reduce the cost of some things that we buy, like flat-screen TVs. But, historically, most goods and services get more expensive every year. Candy bars that used to be a nickle are now $2. Houses that used to sell for $100,000 are now selling for $500,000. A college education that used to cost $10,000 is now $80,000.
While most economists agree that a little inflation represents a “healthy” economy, the steady increase of prices can be a strain on your wallet. If your income and your savings aren’t growing more than the pace of inflation, then you’re actually getting poorer. This is one of the main reasons everyone should invest.
To keep this frustrating phenomenon top of mind, I’ll occasionally play around with the US Inflation Calculator (kinky, I know) to see just how drastically some things change. A steady 2-3% may not be noticeable year after year, but it’s eye-opening and makes you want to invest as much as possible when viewed cumulatively over a decade.
#2 Asset Class Returns by Year
Link: Portfolio Visualizer
The S&P 500 returned around 19% as companies increased earnings and investors factored in the passing of business-friendly policies.
While it’s easy to justify these double-digit returns in hindsight, it’s impossible to predict in the future. If you recall, many people were concerned over the election results and felt like the market would respond negatively in 2017.
What will 2018 bring? No one knows.
What we do know, however, is that last year’s winners may be next year’s loser and vice versa.
To illustrate this, I often check out the Asset Returns by Year on Portfolio Visualizer.
The largest returns over the last few years:
- 2017: Emerging Markets, US Large Cap Growth (+26%)
- 2016: Precious Metals (+50%)
- 2015: Intermediate Term Bonds (+1.5%)
- 2014: REITs (+30%)
This is why it’s important to diversify across uncorrelated assets.
Vanguard has gotten the reputation of being the most investor-friendly brokerage by reducing the cost investors have to pay to invest. John Bogle, who started Vanguard, has a earned a dedicated following of investors who are dedicated to helping people begin or improve their investing by applying Bogle-like investing principles.
Here’s the Boglehead Philosophy:
- Develop a workable plan
- Invest early and often
- Never bear too much or too little risk
- Never try to time the market
- Use index funds when possible
- Keep costs low
- Minimize taxes
- Keep it simple
- Stay the course
The site is setup as a wiki and forum that allows investors to ask questions, compare strategies and learn from one another. With it being difficult to talk about money with friends and families, this is a great resource for open dialogue with folks facing similar situations.
#4 Portfolio Charts
Link: Portfolio Charts
One of the most difficult and important decisions to make as an investor is selecting an asset allocation.
How much should I put into stocks?
Should I focus on US stocks or include international?
Do I need to invest in bonds?
What about real estate, gold or even bitcoin?
All good questions to ask and I usually turn to Portfolio Charts to think through the various portfolios.
Portfolio Charts will not only show you the historical performance of several portfolios, but it will also tell you the exact funds at Vanguard, Fidelity or Shwab (etc.) to select in order to create each portfolio.
As an example, David Swensen is a well-respected investor as he manages Yale’s endowment. His preferred asset allocation is:
- 30% Domestic Stocks (VTSAX)
- 15% International Stocks (VTWSX)
- 5% Emerging Market Stocks (VEIEX)
- 30% Intermediate Term Bonds (VFITX)
- 20% REITs (VGSIX)
This portfolio has averaged 6.1% over the last 46 years, earned the average 32% of the time and lost money 23% of the time.
The same information (and more) is available for 17 different portfolios.
While selecting investments can be very complex, choosing a bank account that pays the most interest is pretty straight-forward. And while the interest earned on bank accounts trails inflation, it’s important to keep a cash reserve and avoid a liquidity crunch. With online banks and credit unions paying 10x more than the big retail banks, you might as well be making the most of your money that’s just sitting there.
DepositAccounts.com tracks over 10,000 banks and credit unions and lists the banks with the highest rates to the lowest rates in descending order so you can easily find the best savings account, CD, reward checking accounts, etc.
Did you know some reward checking accounts pay a risk-free 4.5%?
Not bad in our low-rate environment.