Nowadays, with the stock market going crazy and certain sectors down 50% or more, there’s a lot of renewed interest in investing. And with good reason – opportunities like this don’t come around often. But just because everything is “cheap” doesn’t mean you can throw all caution to the wind.

In this guide, I’ll walk you through the top 7 investing mistakes that beginners often make, based on my own personal experiences and observations from teaching thousands of others. By identifying and avoiding these common pitfalls, you’ll be well on your way to building long-term wealth, even in the midst of market turbulence.

Mistake #1: Not Investing at All

The most prevalent beginner investing mistake I see is not investing at all. I get it – keeping your money in a bank account just gives this sense of financial and emotional security that nothing else can. But this is a huge mistake that can severely compromise your long-term financial future.

The problem with holding all your savings in cash is that it steadily loses purchasing power over time due to inflation. According to the Federal Reserve, the dollar has already lost over 50% of its value just within my own lifetime. This means if you have the same amount of cash now as you did years ago, everything costs you twice as much.

While having an emergency fund is important, relying solely on a bank account is a recipe for falling behind. You have to save your money and then invest it in order to outpace inflation and build real wealth. The volatility of the stock market may be unsettling, but it’s the only way to earn returns that can keep up with the rising cost of living.

Mistake #2: Not Having an Emergency Fund

Another critical mistake is not having a separate emergency fund before you start investing. Life happens – your car breaks down, you get sick, or you lose your job. The last thing you want is to have to sell your investments at the worst possible time just to cover these unexpected expenses.

This is exactly what happened to my family when I was a kid. After 9/11, my dad’s company shut down and we went months without any income. Since we didn’t have an emergency fund, my parents had to dip into my sister’s and my college investment accounts. Not only did we lose money from selling during the market downturn, but we also depleted our future education savings.

The general recommendation is to build up an emergency fund that can cover 3-6 months’ worth of living expenses before you start seriously investing. This gives you a crucial cash cushion to weather any storms without disrupting your long-term investment strategy.

Mistake #3: Waiting Too Long to Get Started

Another all-too-common mistake is simply procrastinating and delaying the start of your investing journey. Even when the market was doing well, it was still scary to take that first step. And now, with all the recent volatility, the fear and uncertainty can feel even more paralyzing.

However, the truth is that there’s never a “perfect” time to start investing. Trying to time the market and wait for the absolute bottom is a losing battle – no one can predict market tops and bottoms with certainty. All you’ll end up doing is missing out on valuable time in the market.

The key is to make a plan, do your research, and just get started. Investing doesn’t have to be complicated. Even small, regular contributions can compound into substantial wealth over decades. The most important thing is to overcome your fears and take that first step today.

For a proven strategy to start generating consistent monthly income, even if you’re a total beginner, sign up for my Options Trading Masterclass.

Mistake #4: Investing Too Much at Once

If you’re brand new to investing, start small and get comfortable with the emotional ups and downs of the market. Watching a $100 investment fluctuate is very different from watching a $100,000 portfolio do the same.

Investing too much money all at once can lead to impulsive mistakes like panic selling during market declines. Begin with a small, comfortable amount and gradually increase your investments as you gain confidence. Avoid rash decisions that can damage your returns.

Mistake #5: Not Investing Enough for the Future

On the flip side, many beginners don’t invest enough to achieve their long-term financial goals. For example, to retire with a $50,000 annual lifestyle and account for inflation, you’ll need a $1.7 million nest egg.

To reach $1 million in 15 years, you’d need to invest around $2,700 per month. In 30 years, you could get there with just $500 per month. The key is to start contributing a significant amount consistently, rather than relying on small roundup investments.

Mistake #6: Not Considering Taxes

Taxes will be one of your biggest lifetime expenses, so it’s crucial to structure your investments in a tax-efficient manner. Utilize tax-advantaged retirement accounts like Roth IRAs.

With a Roth IRA, you contribute after-tax dollars, but then all of your investment gains grow and can be withdrawn tax-free in retirement. Starting out with a taxable account instead can result in paying way more in taxes over the long run.

Download my Ultimate Guide to Investment Accounts to learn about what they are, which ones you need, and where to open them!

Mistake #7: Not Being Honest About Your Investing Style

The final common pitfall is not being realistic about how much time and effort you’re willing to dedicate to your investments. There’s a wide spectrum, from completely hands-off index fund investing to intensively researching and trading individual stocks.

Be honest with yourself about your investing personality and lifestyle. Find a strategy you can consistently implement, whether that’s index funds, robo-advisors, or a hybrid approach.

Start Investing with Confidence

The world of investing can seem overwhelming, especially during volatile market conditions. However, by avoiding these 7 common beginner mistakes, you’ll be well on your way to building lasting wealth.

The most important thing is to just get started. Don’t let fear or procrastination hold you back—take action today and your future self will thank you. Sign up for my Options Trading Masterclass to learn a proven strategy for generating consistent monthly income, even if you’re a total beginner. It’s time to take control of your financial future!

The post Top 7 Beginner Investing Mistakes to Avoid at All Costs appeared first on Rose Han.

Retirement planning can be confusing, especially when you have to navigate the differences between various account types like the Roth 401(k) and Roth IRA.

In this comprehensive guide, I’ll break down how each of these accounts works and provide a recommendation on which one(s) you should prioritize for your unique financial situation.

Whether you have access to an employer-sponsored 401(k) plan or are self-employed, understanding the tax advantages and investment options within each account is crucial for building long-term, tax-efficient wealth. Let’s dive in.

Roth 401(k) Basics

A Roth 401(k) is a type of 401(k) plan that offers distinct tax advantages compared to a traditional 401(k):

• Contributions: Roth 401(k) contributions are made with after-tax dollars, whereas traditional 401(k) contributions are pre-tax.
• Withdrawals: Qualified Roth 401(k) withdrawals in retirement are 100% tax-free, unlike withdrawals from a traditional 401(k).
• Tax Benefits: While a Roth 401(k) doesn’t provide an upfront tax deduction, it allows your investments to grow completely tax-free over time.
• Contribution Limits: Both Roth and traditional 401(k) plans have the same annual contribution limit – $19,500 as of 2020, plus an additional $6,000 catch-up contribution for those over age 50.

The key difference comes down to when you pay taxes – upfront with a Roth 401(k) or in retirement with a traditional 401(k). This makes the Roth 401(k) an incredibly powerful tool for building long-term, tax-free wealth.

The Advantages of the Roth 401(k)

There are several key reasons why the Roth 401(k) is an incredibly powerful retirement savings tool:

1. Employer Matching: Any employer matching contributions to your 401(k) will be made to the traditional 401(k) portion, even if your own contributions are going to the Roth 401(k). This is essentially “free money” that can supercharge your tax-free growth.
2. Flexible Withdrawals: Unlike a Roth IRA, there are no income limits to contribute to a Roth 401(k). This makes it a valuable option for high-income earners who are ineligible for a Roth IRA.

Given these advantages, prioritizing contributions to a Roth 401(k) over a traditional 401(k) is often the optimal strategy, especially for younger investors with decades until retirement.

Roth 401(k) vs. Roth IRA

While the Roth 401(k) and Roth IRA share similar tax treatment, there are some key differences to consider:

1. Investment Options: Roth 401(k) plans typically offer a limited menu of mutual funds pre-selected by your employer. Roth IRAs, on the other hand, provide full investment flexibility – you can buy individual stocks, bonds, ETFs, and more.
2. Contribution Limits: Roth 401(k)s have a much higher annual contribution limit ($19,500 in 2020) compared to Roth IRAs ($6,000 in 2020). This makes the Roth 401(k) a superior option for maxing out tax-free retirement savings.
3. Income Limits: There are no income restrictions to contribute to a Roth 401(k), unlike a Roth IRA which phases out for higher-income earners.

For most investors, the best strategy is to max out contributions to a Roth 401(k) first, up to the employer match, and then supplement with additional contributions to a Roth IRA. This allows you to take advantage of the higher limits of the Roth 401(k) while also benefiting from the greater investment flexibility of the Roth IRA.

The Best Investments for Your Roth 401(k)

When it comes to choosing investments within your Roth 401(k), your options will be limited to the specific funds offered by your employer’s plan. However, there are a few general guidelines:

• Target Date Funds: Many 401(k) plans, including Roth 401(k)s, utilize target date funds as the default investment option. These all-in-one funds hold a diversified mix of stocks and bonds that automatically adjust their asset allocation as you approach your target retirement year.
• Index Funds: In addition to target date funds, your Roth 401(k) may offer a selection of low-cost index funds tracking broad market indexes like the S&P 500 or total US bond market. These can be an excellent core holding.
• Minimum Fees: Regardless of the specific funds available, aim to keep investment fees as low as possible, ideally under 0.20%. High-cost funds can eat away at your long-term returns.

The key is to understand what your Roth 401(k) is currently invested in and ensure the funds align with your risk tolerance and retirement timeline. Don’t be afraid to call your HR department to get the details.

Putting It All Together: The Best Retirement Savings Strategy

When it comes to prioritizing your retirement contributions, here’s the optimal approach:

1. Contribute to Your Roth 401(k) Up to the Employer Match: This allows you to take full advantage of any “free money” provided by your employer’s matching contributions.
2. Max Out Your Roth IRA Contributions: After hitting the employer match, focus on maxing out your annual $6,000 Roth IRA contribution limit. This gives you more investment flexibility compared to the Roth 401(k).
3. Contribute the Rest to Your Roth 401(k): If you still have funds available to save for retirement, go back and max out your Roth 401(k) contributions up to the $19,500 annual limit.

By utilizing both the Roth 401(k) and Roth IRA in this manner, you can supercharge your tax-free retirement savings and set yourself up for long-term financial success.

Remember, the most important thing is to just get started. Don’t get bogged down trying to find the “perfect” approach – the best strategy is the one you’ll actually stick with consistently.

Check out my Ultimate Guide to Investment Accounts to get a comprehensive overview of all your retirement savings options and learn how to prioritize them based on your unique financial situation.

The post Roth 401(k) vs. Roth IRA: The Best Retirement Account for Tax-Free Wealth appeared first on Rose Han.

If you have a Roth IRA, congratulations – you have a powerful tool for building long-term wealth. But simply opening a Roth IRA is just the first step. To truly unlock its potential, you need to invest the money in the right way.

In this comprehensive guide, I’ll walk you through the 3 best Roth IRA investment strategies that can turn your account into a tax-free millionaire. I’ll also provide a recommendation on how to determine which option is the best fit for your specific financial goals and investing style.

Whether you’re a hands-off beginner or a self-directed stock picker, there’s a Roth IRA investment approach that can work for you. Let’s dive in.

The Advantages of Investing in a Roth IRA

The Roth IRA is an incredibly valuable tool for building wealth because it allows your investment gains to grow completely tax-free. Since you’ve already paid taxes on your Roth IRA contributions upfront, you can take advantage of the power of compounding without having to share those profits with the IRS.

This makes the Roth IRA an ideal account for growth-oriented investments, particularly stocks and stock-based funds. The long-term nature of the Roth IRA also means it’s not the best place for short-term, income-focused assets like bonds or cash.

The 3 Top Roth IRA Investment Strategies

1. Target Date Funds

One of the easiest Roth IRA investment options is to use target date funds. These “funds of funds” hold a diversified mix of index funds, including domestic stocks, international stocks, bonds, and cash.

The asset allocation within a target date fund automatically adjusts over time as you approach your target retirement year. Funds with a later target date (e.g. 2055) will be more heavily weighted towards stocks, while funds with a sooner target date (e.g. 2025) will shift towards a more conservative, bond-heavy allocation.

Target date funds provide instant diversification and professional management, making them an ideal hands-off solution for beginner investors. Personal finance expert Ramit Sethi even recommends target date funds as the “ultimate set it and forget it” Roth IRA investment.

2. Index Funds

The second Roth IRA investment strategy is to build your own diversified portfolio using index funds. This approach gives you more control over the specific asset allocation, but also requires a bit more ongoing management.

With index funds, you’ll need to decide on an appropriate mix of domestic stocks, international stocks, bonds, and other assets based on your age, risk tolerance, and financial goals. A popular model is the “Swensen Method” allocation recommended by investing legend David Swensen:

• 30% Domestic Stocks
• 15% International Stocks
• 10% Emerging Markets Stocks
• 15% US Treasury Bonds
• 15% Inflation-Protected Bonds
• 15% Real Estate

3. Individual Stocks

The most advanced Roth IRA investment strategy is to buy individual stocks. This approach has the highest potential upside, but also requires the greatest time and effort commitment.

When selecting individual stocks for your Roth IRA, you’ll want to ask yourself several key questions:

1. Do I understand this company and its industry? Make sure you can explain the business model and key drivers of success.
2. Do I trust the management team? Evaluating the leadership and corporate culture is crucial.
3. Does the company have strong financials? Look at metrics like debt levels, cash flow, and valuation.
4. Can I buy the stock at a reasonable price? Use the price-to-earnings (P/E) ratio to gauge valuation.

Investing in individual stocks within your Roth IRA is the fastest path to building wealth, but it also requires the greatest time and effort commitment. You’ll need to develop stock analysis skills and be willing to do ongoing research.

Download my Roth IRA Investing Starter Kit to get more detailed guidance on evaluating and selecting individual stocks for your Roth IRA.

Choosing the Best Roth IRA Investment Strategy for You

Now that you understand the 3 main Roth IRA investment options, the key is to select the approach that best aligns with your investing personality and available time:

• Target Date Funds: For the hands-off investor, target date funds are likely the simplest choice. They provide instant diversification and professional management with minimal effort on your part.
• Index Funds: If you’re willing to put in a bit more work, index funds can be an empowering option. Building your own custom portfolio allows you to tailor the asset allocation to your specific goals and risk tolerance.
• Individual Stocks: For the dedicated do-it-yourselfer, investing in individual stocks offers the highest potential upside. However, it also requires a significant time commitment to research companies, evaluate financials, and make informed buying and selling decisions.

Ultimately, the “best” Roth IRA strategy is the one you’ll actually stick with consistently. Don’t force yourself into an approach that doesn’t match your investing style and lifestyle.Check out my Roth IRA Investing Starter Kit to get step-by-step guidance on implementing any of these three strategies for your Roth IRA. It’s a comprehensive resource packed with tools and tips to help you build tax-free wealth.

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Investing can be confusing, especially when you start hearing all these different terms like “index funds,” “mutual funds,” and “ETFs.” 

What exactly are the differences, and which one is the right choice for you?

n this comprehensive guide, I’ll break down each of these investment options, explain their pros and cons, and help you determine the best fit for your portfolio.

By the time you finish reading, you’ll have a clear understanding of these key options and be equipped to start investing with confidence.

Mutual Funds

Mutual funds have been around the longest, with some of the earliest versions dating back to the 1800s. The premise behind mutual funds is simple – they allow a group of investors to pool their money together and invest in a diversified portfolio of securities, typically stocks and bonds.

The key benefits of mutual funds include:

1. Convenience: Instead of having to research and buy individual stocks or bonds, you can access a diversified portfolio through a single investment.
2. Diversification: Mutual funds hold a basket of different securities, reducing your overall risk.
3. Professional Management: Mutual funds are overseen by investment professionals.

However, this professional management comes at a cost. Mutual funds charge annual fees, typically ranging from 1-2% of your account balance. Over time, these fees can significantly eat into your investment returns.

The Index Fund Revolution

Frustrated by the high fees and inconsistent performance of many actively managed mutual funds, a man named Jack Bogle decided to create a new type of investment fund – the index fund.

Index funds are a special category of mutual funds that simply track a specific market index, such as the S&P 500 or Nasdaq Composite. Instead of paying expensive fund managers to try and “beat the market,” index funds aim to match the performance of the underlying index.

The key advantages of index funds are:

1. Low Fees: Since index funds don’t require active management, their expense ratios are typically much lower than traditional mutual funds, often under 0.20%.
2. Consistent Performance: Index funds have been shown to outperform the majority of actively managed mutual funds over the long run.
3. Automatic Diversification: By tracking a broad market index, index funds provide instant diversification.

The Emergence of ETFs

Around 15 years after the first index fund was created, exchange-traded funds (ETFs) made their debut. ETFs are similar to index funds in that they also track a specific market index, but with one key difference – they trade like individual stocks on an exchange.

This means you can buy and sell ETF shares throughout the trading day, unlike mutual funds which only transact once per day. Some other notable features of ETFs include:

1. Intraday Trading: The ability to buy and sell ETF shares at any point during the market session.
2. Lower Fees: Many ETFs have expense ratios even lower than index mutual funds, often under 0.10%.
3. Lack of Automatic Reinvestment: ETFs do not typically offer automatic dividend or capital gains reinvestment.

Index Funds vs. ETFs: Which is Better?

The decision between index funds and ETFs largely comes down to your investing style and preferences:

• Automatic Investing: Index mutual funds make it easy to set up automatic monthly contributions, which can help build wealth over time. ETFs require manual purchases.
• Trading Flexibility: ETFs provide the ability to buy and sell throughout the trading day, which some investors prefer. However, this can also lead to more impulsive trading.
• Fees: Both index funds and ETFs generally have very low fees, but index mutual funds may have a slight edge.

For most beginner investors, the simplicity and automatic features of index mutual funds tend to be the better choice.

Start Investing with Confidence

Now that you understand the differences between index funds, mutual funds, and ETFs, you’re ready to start building a portfolio that aligns with your financial goals and risk tolerance.

Remember, the most important thing is to just get started. Don’t get bogged down trying to find the “perfect” investment – the best strategy is to begin investing consistently, whether through index funds, mutual funds, or a combination of both.

Recommended Resources to Enhance Your Investing Knowledge

For additional guidance on investing and building your financial knowledge, be sure to check out these helpful resources:

• What is a Stock Market Index (EXPLAINED!)
• 10 Easy Investment Ideas for Beginners
• Stock Market for Beginners

The key is to keep learning and don’t be afraid to start investing, even as a beginner. Every step you take will bring you closer to achieving your financial goals.

The post Index Funds vs. Mutual Funds vs. ETFs: The Ultimate Beginner’s Guide appeared first on Rose Han.

Investing in bonds can be an important part of building a well-rounded portfolio, especially if you’re new to this whole money and investing thing. 

In this comprehensive guide, we’re going to dive deep into the world of bonds – what they are, how they work, and the key factors to consider when adding them to your financial strategy.

By the time we’re done, you’ll have a solid understanding of this essential asset class and be ready to start investing in bonds with confidence. No financial jargon or complicated stuff, I promise. 

Bonds 101: What Are They, Anyway?

At their core, bonds are a type of loan that you, as an investor, provide to an entity like the government or a corporation. In exchange for your loan, the borrower agrees to pay you regular interest payments, known as the bond’s “yield,” as well as the return of your principal investment when the bond matures.

Sounds simple enough, right? The key thing to remember is that bonds are often considered a “safe haven” investment. As long as the borrower doesn’t default, you’re legally entitled to get your interest payments and principal back. 

This is different from stocks, where your returns are directly tied to the company’s profits, which can be way more unpredictable.

The Two Most Important Factors: Credit Worthiness and Yield

When you’re picking bonds for your portfolio, there are two main things you need to focus on: the credit quality of the borrower and the bond’s yield.

First, let’s talk about credit quality. This is determined by rating agencies like Moody’s and S&P. Bonds with higher credit ratings, like AAA, are considered super low-risk. Bonds with lower ratings have a higher chance the borrower might default and not pay you back.

As for yield, that’s the annual interest rate you’ll earn on the bond. Generally, the higher the yield, the riskier the bond. Government bonds tend to have lower yields, while corporate bonds offer higher yields to make up for the added risk.

Your goal is to find the right balance between credit quality and yield that fits your personal comfort level and investment goals. It’s all about that sweet spot!

Funds vs. Individual Bonds

Alright, let’s break down the two main types of bonds you can invest in:

1. Government Bonds: These are bonds issued by the government, like U.S. Treasuries. Government bonds are considered the safest type, but they also have the lowest yields.
2. Corporate Bonds: Bonds issued by corporations. Since companies are more likely to go belly-up than the government, corporate bonds offer higher yields but also carry more risk.

Investing in Bonds: The Easy Way and the Hard Way

Now, there are two main ways you can invest in bonds:

1. Bond Funds: These hold a diverse mix of bonds, like the iShares Core US Aggregate Bond ETF. Bond funds give you instant diversification and professional management – perfect for beginners.
2. Individual Bonds: You can also buy individual bonds directly. This gives you more control, but it also means more research and often higher minimum investments. Probably not the best option if you’re just starting out.

For most newbies, bond funds are the way to go. They make the whole process super simple and straightforward. Plus, you get that built-in diversification to help reduce your risk.

Build a Bond Portfolio You Can Feel Good About

When it comes to figuring out how much to put in bonds, a good rule of thumb is to subtract your age from 100. That’s the percentage you should aim to have in stocks. The rest? That’s where your bond investments come in.

For example, if you’re 30 years old, a 70/30 stock/bond split would be a solid starting point. This helps make sure your portfolio is balanced between growth-focused stocks and the more stable, conservative bond investments.

Bonds act as a shock absorber in your portfolio, providing steady income and protecting your assets when the market gets crazy. They’re an essential piece of the puzzle for building long-term wealth.

Start Investing in Bonds

Alright, listen up – bonds might not be the most exciting investment out there, but they can play a crucial role in your financial future, especially if you’re new to all this. By understanding the fundamentals and how to evaluate them, you’ll be well on your way to creating a more secure portfolio.

The key is to just get started. Don’t overthink it or wait for “perfect” market conditions. Every single day you delay is another day your money isn’t working hard for you. Download the Index Funds Cheatsheet to get a simple guide on choosing the best stock and bond index funds. Now let’s go make your money grow!

The post Bonds 101: A Beginner’s Guide to Investing in Bonds appeared first on Rose Han.

The Beginner’s Guide to Fidelity Index Funds: Grow Your Wealth the Easy Way

Are you new to investing and feeling a bit overwhelmed? No worries – Fidelity index funds are an excellent choice to get started on the path to growing your wealth. 

In this easy-to-follow guide, I’ll walk you through everything you need to know.

Understanding Index Funds vs. Actively Managed Funds

An index fund is a pooled investment vehicle that gives you an instant slice of ownership in hundreds of different companies with a single purchase. The stocks in the fund are chosen by an index, rather than by an expensive fund manager.

This passive approach has been proven to outperform most actively managed funds over the long run. With an index fund, you’re simply aiming to match the performance of a market index like the S&P 500, rather than trying to “beat the market.”

The key advantages of index funds are their low fees and instant diversification. You don’t need to be a stock-picking expert to benefit from the growth of the overall market.

The 3 Key Criteria for Choosing Fidelity Index Funds

When selecting Fidelity index funds, there are three important factors to look for:

1. Expense Ratio: This is the annual fee charged to manage the fund. You want to keep this as low as possible, ideally under 0.20%. The lower the expense ratio, the more of your investment returns you get to keep.
2. Automatic Dividend Reinvestment: Make sure to choose mutual fund index options, not ETFs. Mutual funds will automatically reinvest your dividends, which is crucial for compounded growth over time.
3. No Transaction Fees: When investing through a Fidelity account, you won’t pay any commissions to buy or sell their index funds. This is a huge advantage.

The Best Fidelity Index Funds for Beginners

With those criteria in mind, here are some of the top Fidelity index funds to consider:

Domestic Stocks:

• Fidelity Total Market Index Fund (FSKAX) – Expense Ratio: 0.015%

International Stocks:

• Fidelity International Index Fund (FSPSX) – Expense Ratio: 0.045%

Emerging Markets Stocks:

• Fidelity Emerging Markets Index Fund (FPADX) – Expense Ratio: 0.075%

US Government Bonds:

• Fidelity Intermediate Treasury Bond Index Fund – Expense Ratio: 0.030%

Inflation-Protected Bonds:

• Fidelity Inflation-Protected Bond Index Fund (FIPDX) – Expense Ratio: 0.070%

Real Estate:

• Fidelity Real Estate Index Fund – Expense Ratio: 0.070%

I’ve created a handy Index Funds Cheatsheet you can download with all these fund details in one place.

How to Buy Fidelity Index Funds

Purchasing Fidelity index funds is super simple. Just log into your Fidelity account, search for the fund by its ticker symbol, and click “Buy.”

In the trade window, you’ll need to specify the dollar amount you want to invest. The great thing is that these funds have no minimum investment, so you can start with as little as $1.

Determining Your Asset Allocation

The next step is to decide how much to invest in each fund. This comes down to your overall asset allocation – the specific mix of stocks, bonds, and other assets in your portfolio.

A good rule of thumb is to subtract your age from 100 and invest that percentage in stocks. So if you’re 30 years old, a 70/30 stock/bond split would be appropriate.

For a more sophisticated approach, consider this asset allocation recommended by investing legend David Swensen:

• 30% Domestic Stocks
• 15% International Stocks
• 10% Emerging Markets Stocks
• 15% US Treasury Bonds
• 15% Inflation-Protected Bonds
• 15% Real Estate

This six-fund portfolio provides excellent diversification across different asset classes to weather any market conditions.

Monitor and Adjust Your Portfolio

As you continue investing, it’s important to periodically review your portfolio and make adjustments as needed. Keep an eye on the performance of your funds and rebalance your allocation if the percentages get too far out of whack.

You may also want to gradually shift more of your portfolio to bonds as you get older and your time horizon shortens.

Start Building Wealth with Confidence

Index funds make investing simple and approachable, even for total beginners. By focusing on low-cost, diversified funds that automatically reinvest your dividends, you can grow your money over time without the complexity of individual stock picking.

The key is to start now, not wait for “perfect” conditions. Every day you delay is another day your money isn’t working for you.

Download the Index Funds Cheatsheet to have all the fund details at your fingertips, and begin your journey to financial freedom with Fidelity index funds today.

Recommended Reading to Enhance Your Investing Knowledge

• InvestED: Step-by-step, millennial-friendly advice on how to pick stocks like Warren Buffett.
• Rich Dad Poor Dad: The #1 selling personal finance book of all time.

The post The Beginner’s Guide to Fidelity Index Funds appeared first on Rose Han.

Welcome to the exciting world of investing! If you’re new to this and feeling a bit intimidated, don’t worry. This guide is designed to walk you through the process of investing your first $1,000, explaining the basics of investment and guiding you through each step towards making your money grow.

Understanding the Basics of Investing

Investing means putting your money into assets like stocks or real estate with the hope of earning more money over time.

This is crucial to protect your money from inflation, which tends to decrease the dollar’s purchasing power by about 2% annually. Investing is not just a smart financial move—it’s necessary to maintain your purchasing power and grow your wealth.

For example, a prime rib steak that cost $3.85 decades ago now costs $80 at the same restaurant. Investing helps your money maintain its value despite inflation.

Step 1: Check Your 401(k)

The first step is to check your 401(k) – a retirement account provided by your employer.

Make sure a percentage of your paycheck is going into the 401(k) to start investing. Also see if your employer offers a matching contribution, which is free money you won’t want to miss out on.

Your 401(k) provider will manage the investments, often in low-cost index funds, making it an easy way to get started investing.

If you don’t have a 401(k), or your employer doesn’t offer a match, consider other retirement accounts that offer tax advantages. Explore more about these options in our detailed video on retirement accounts, which covers Roth IRAs, Traditional IRAs, and 401ks.

Step 2: Open an Investment Account

The next step is to open an investment account. For most beginners, the best option is a Roth IRA. With a Roth IRA, you contribute post-tax money, but then all your investment gains are tax-free when you withdraw the funds in retirement.

Some popular brokerages to consider are Fidelity and Vanguard. Both offer a wide range of investment options and low-cost index funds.

Understand the Different Investment Accounts

There are two main types of investment accounts:

• Retirement accounts like 401(k)s and Roth IRAs are tax-advantaged, meaning your investment gains aren’t taxed.
• Taxable brokerage accounts don’t have tax advantages, so your investment profits will be subject to capital gains tax.

The key difference is when you pay taxes – retirement accounts are tax-deferred, while taxable accounts are taxed in the present.

Another type of tax-advantaged account to be aware of is the Health Savings Account (HSA). HSAs allow you to contribute pre-tax dollars and then withdraw the money tax-free for qualifying medical expenses.

This makes HSAs a powerful tool for long-term healthcare savings and investing.

So in summary, when you’re just starting out, it’s best to focus on the retirement accounts like 401(k)s and Roth IRAs to take advantage of the tax benefits.

Step 3: Transfer Money into It

Once you’ve opened your investment account, the next step is to transfer money into it. This will allow you to start investing.

Step 4: Invest

Now that you have money in your investment account, it’s time to start investing! You have two main options: stocks and bonds.

Stocks and Bonds

• Stocks represent ownership in a company, so when the company makes money, you get a share of the profits.
• Bonds are essentially loans you make to companies or governments, and you earn interest on that loan.

Stocks tend to have higher potential upside but also more risk, while bonds are less risky but have lower potential returns. Combining both in your portfolio provides a balance of growth potential and stability.

Invest in Index Funds

For most beginners, I recommend starting with index funds. An index fund is a type of investment fund that replicates the performance of a market index, like the S&P 500, by holding the same stocks or bonds found in that index. These are funds that simply track the performance of a market index like the S&P 500. Index funds have very low fees and tend to outperform actively managed funds over the long run.

1. Log into your investment account, such as at Fidelity or Vanguard.
2. Purchase $700 worth of an S&P 500 index fund to get exposure to the 500 largest U.S. companies.
3. Also buy $300 worth of a bond index fund, like the Fidelity US Bond Index Fund (FUAMX), to add stability to your portfolio.

Discover how to choose the right funds with my Index Fund Cheatsheet.

Final Tips

Pay Off Credit Card Debt First

If you have credit card debt, focus on paying that off first before investing. The interest rates on credit cards are typically much higher than the returns you can expect from investing.

The Importance of an Emergency Fund

Make sure you have 3-6 months’ worth of living expenses saved in a separate emergency fund before investing. This ensures you don’t have to withdraw from your investments prematurely if unexpected costs come up.

Keep Investing Regularly

Continue contributing to your investment accounts as much as possible on a regular basis. The more you invest over time, the faster your money will compound and grow.

Ready to Dive In?

Investing doesn’t have to be complicated or intimidating. By following these simple steps, you can get started investing your first $1,000 and take an important step towards building long-term wealth.

Don’t forget to grab the free Index Fund Cheatsheet to help guide your investment choices. Start investing today and your future self will thank you!

Recommended Reading to Enhance Your Investing Knowledge

• I Will Teach You to Be Rich: A straightforward guide on personal finance for millennials.
• The Little Book of Common Sense Investing: Classic advice on the power of index funds from Jack Bogle.

The post How to Start Investing for Beginners (Step-by-Step Guide) appeared first on Rose Han.

There’s a reason why Americans have 20% of their retirement assets in target-date funds. That’s because target-date funds are an easy and effective way to invest.

Fidelity target-date funds

What is up everyone? In this blog post, I will be sharing with you the number one place for financial education, empowerment, and inspiration. I’m going to be talking about Fidelity’s target-date funds, also known as Fidelity’s Freedom Funds. You’ll learn the answers to common questions like how does a target date fund work? Are Fidelity target-date funds a good investment? And I’ll also wrap up with some recommendations on whether target-date funds are a good fit for you or not.

In this day and age, nobody is responsible for your retirement but you. Your country, your company, ain’t nobody looking out for you as much as you look out for yourself. And in case you’re not aware, many of you actually already have target-date funds in your 401k by default. So I think it’s important for everyone to understand how target-date funds work.

How do target date funds work?

Target date funds are mutual funds that target a specific date for retirement. Whenever you look up a target-date fund, you’ll see that it has a target retirement year as part of its name. I’m 30 years old right now, so I’m assuming I’m planning to retire around age 65 so I’d go for the 2055 target-date fund, like this one here.

Okay, on a side note, I actually never plan on retiring because I love to work. I love what I do and I’m pretty sure I’ll be making YouTube videos for you until I’m at least 90 years old.

Anyway, so why are target-date funds age-specific? Let’s take a look at an example. The Fidelity Freedom Index 2055 Fund. So here it is. I’ve pulled up the fund summary page for the Fidelity Freedom Index 2055 Fund. Just a couple of things to note here. It has a very low expense ratio of 0.12%, so that’s low and that’s good. The general rule of thumb is anything under 0.2% is considered cheap.

The fidelity freedom index 2055 fund

And now let’s just take a look at what’s inside this fund. So as I said, target-date funds are mutual funds, and you’ll see here that there’s going to be a number of different funds, usually, anywhere from three to five funds inside this mutual fund and they’re going to each give you exposure to a different portion of the market. So this is domestic equities and they also have international equities. Equities are jargon for stocks. They also have exposure to bonds and then exposure to short term debt and net other assets, which essentially means cash.

And what’s interesting here is, so I just want to point out that target-date funds are actually a fund of funds because they are a mutual fund that contains other funds inside it. So that’s something interesting to note. And because it’s a 2055 fund, it’s going to have a pretty aggressive stock allocation. So if you add up the domestic and international stock allocation, that is about, what is that? About 90%. And then bonds and cash make up the other 10% roughly, just rounding up here.

What’s the difference between 2025 funds and 2055 funds?

And if we go over to the 2025 fund, which is for someone who would be retiring in the next couple of years, so they would probably be in their sixties then they would be looking at something more like this, the Fidelity Freedom Index, 2025 Fund. And it has a lot of the same characteristics. The expense ratio is the same, it’s just the target retirement year is different. And what’s interesting is that of course, their allocation is slightly different. Again, it’s going to be a fund of funds, it has multiple different funds in it, but the percentage allocations between stocks and bonds is very different.

So domestic and international stocks add up to about 60% and then the rest of the 40% is in bonds and cash. So as you can see, the 2025 fund has a 60 to 40 stock-bond allocation, whereas the 2055 fund, remember, has a 90 stock, 10 bond allocations. So 90% stocks, 10% bonds.

The 2055 fund for the 30-year-old has a bigger chunk allocated to stocks, whereas the 2025 fund, in other words, the fund for the 60-year-old, has a lot less in stocks and more in bonds and cash. That’s because stocks are more volatile. Stocks are pieces of ownership in companies. If the company can sell its products, keep expenses down and make a good profit, the stock price is going to go up to reflect that success, but that is all based on a very uncertain future and all kinds of assumptions and expectations, so there’s really no guarantees.

However, on the other hand, uncertainty is exactly what causes the huge potential for growth in stocks. If you didn’t have uncertainty, you wouldn’t have growth either. So stocks have more volatility, uncertainty, and more growth. However, a 90-year-old granny doesn’t want uncertainty. She can’t afford that. She needs stability and that’s why the older you are, the less your target-date fund will be allocated to stocks and the more it’ll have in bonds instead. Bonds are more stable than stocks because bonds are essentially loans. They’re contractual and when you own a bond, somebody actually has a legal obligation to pay you back. So compared to stocks, they’re a lot more reliable, but you’re also not going to get very high returns. You already know what your return is going to be when you go in, in other words, what interest rate you’re going to get, and that’s that. There’s no growth beyond that. Of course, that’s assuming you’re going to hold the bond to maturity, but that’s a conversation for another day.

I’m covering a lot of information here, so I want to just check in with you really quick with a fun challenge. Now, if you were to invest in a target-date fund, what would be your target retirement year? In other words, what would the number at the end of the target date fund that you buy, what would that number be? So do the calculation just really quick, figure out your year and just type it in the comments below. For me, it’s 2055, for some of you it might be 2065 and everything in between. So whatever your year is, just drop it below in the comments.

Okay, in addition to automatically adjusting your portfolio as you get older, the target date fund also rebalances it. What this means is that as the market value of your investment shifts, the target date fund is going to buy and sell the stocks and bonds in your portfolio in order to maintain those initial percentage allocations. So for example, when the stock prices go up a lot relative to bond prices, then the target date fund is going to sell some stocks and buy more bonds in order to stay at the 90% stock, 10% bond allocation or whichever allocation you’ve started with.

Because the markets are always moving, the pie chart that I showed you earlier, that’s always going to shift depending on how the market is moving and so the fund needs to proactively buy and sell constantly in order to maintain that pie chart. What rebalancing forces you to do is to sell something after the price has gone up and to buy more of something after it’s gone down. And this results in automatically selling high and buying low and that juices your returns even more. So rebalancing is a big part of longterm investing success. And with target-date funds, they do rebalancing for you automatically.

The thing about investing is that unless you pay someone to do it for you, you’ve got to really roll up your sleeves and do some work. Not only do you have to pick the asset allocation, but you also have to choose the index funds and you have to rebalance it regularly and of course remember to adjust the allocations to get more and more conservative as the years go by. But with a target-date fund, all of this gets done for you. The way I see it, if you want everything to be done for you, you only have three options.

Which option is best for you?

The first option, buy a target-date fund and pay the fund’s management fee. The second option is you can pay a financial advisor and pay their 2% annual fee. Or the third option is you can pay a Robo-advisor and Robo-advisors have a 0.25% fee, usually. Even Fidelity, they have their own in house Robo-advisor platform, I think it’s called Fidelity Go and they charge I believe 0.3%. So anyway Robo-advisors they all charge similar fees across the board.

So of all three options, target-date funds are the cheapest way to go and compared to target-date funds of other companies, Fidelity target-date funds offer the lowest expense ratios that I’ve seen anywhere. That’s compared to Vanguard and Schwab and some of the other big names.

Fidelity’s lowest-cost target date fund charges 0.12%, which is less than half the fee of the typical Robo-advisor. So that means that for a $10,000 investment, you’ll only pay $12 in fees. Compare that to $25 for a Robo-advisor, which is almost double. And something else you need to keep in mind is that Robo-advisors invest your money in ETFs or exchange-traded funds, and those exchange-traded funds also have a fee. So you’re paying the Robo-advisor fee as well as the underlying fees of the ETFs that you’re invested in. So this usually results in a total fee of about 0.4%, which is 0.28% more than a Fidelity target-date fund. That doesn’t sound like a huge difference, but compounded over time, a small difference like that in fees adds up to tens of thousands of dollars. Don’t believe me, check this out.

So here’s what happens when you invest $10,000 back in 1970, so this is over almost a 40 year period. And the red line represents if you invested with a theoretical Robo-advisor that charges 0.4% all-in costs, including the underlying ETF fees. And then the blue line represents the fees or the returns of if you’d invested in a target-date fund that returns 0.12%. And of course, we’re assuming that they both returned the same amounts, they’ve invested in the same indexes. But at the end of that period, the Robo-advisor you’ll have $10,000 will have turned into $280,000 and with the target date fund, your $10,000 would have turned into $320,000. So that’s a $40,000 difference just from a tiny 0.28% difference in fees. So the bottom line is fees matter, every percentage point counts.

Moving right along. By now, you’re probably wondering, “Are Fidelity target-date funds a good investment? Am I going to make money?” Well, let’s see.

So here’s a chart comparing the performance of the Fidelity Freedom Index 2055 Fund, so the target date fund for someone who’s about 30 years old right now. I’m comparing that to two things. So this is the blue line here, the target date fund, and the yellow line here is the international stock market. And the purple line here is the US stock market.

So as you can see, ever since about 2011, which is how far I could get the data to go back, the target date fund has definitely lagged the US stock market, in other words, the S&P 500. But it’s outperformed the international stock market. So it’s been somewhere in the middle. So you’re probably thinking, “Well, why would I invest in a target-date fund when I could have invested in the S&P 500, just 100% stocks, and made that much more versus just 67%?” So that is kind of the tricky part here. You actually never know when US stock markets will outperform the international stock markets. It just so happened that over the last decade, the US stock market has been on a really, really, really hot streak compared to the rest of the world. But there have been periods when it’s been the other way around where this yellow line would be way up there and this purple line would be way down here, such as in the 1970s the 1980s or in the early 2000s right after the dot-com bubble. Then anyone who was in international stocks was a happy camper.

The benefit of target-date funds

So that is sort of the benefit of target-date funds that even though it doesn’t look so good over the last decade, in the future, you might be glad that you’re here in the middle versus somewhere down here. And remember that the target date fund has a 90% stock allocation and about a third of that stock allocation is in international stocks. So that I would say is the first benefit of being in a target-date fund. Even though it doesn’t look so good, you actually just never know when domestic stocks will be doing better than international. So that is the first benefit.

The second benefit of investing in target-date funds is that during a really crazy time in the market, like the 2008 financial crisis, you wouldn’t lose as much as someone who had invested in a 100% stock portfolio.

So this chart here compares 2008, that crazy time, for someone who had a 100% stock portfolio in the S&P 500 index fund, so that’s this yellow line here. And the blue line represents what would have happened in 2008 for someone who had their money in a target-date fund. I actually put in the target date of a Vanguard 2015 fund because Fidelity doesn’t have data going that far back. And this is someone who was probably getting ready to retire soon and really cannot afford big losses in the stock market.

So someone who was in the target date fund would have lost 39% just from the high to the low, and anyone who was invested in a 100% stock portfolio in the S&P 500 would have gone down 56% from high to low. So that’s a pretty tough psychological hit to overcome. 56% loss compared to a 39% loss. I mean 39% still sucks, but it’s a lot better than losing 56%. Obviously, all of these numbers recovered later on and we’re way up here now, but still, I mean if you’re getting ready to retire in seven years if it was back in 2008, would you be able to sleep at night if your portfolio took a drawdown of 56%? I think 39% would have been a lot easier to stomach.

So that is the second benefit of target-date funds, which is that because it’s diversified into bonds and they automatically move you to a more conservative allocation as you approach retirement age, any sort of market crash, which let’s be honest, could happen at any time, is not going to affect you as much.

If you owned a target date fund during the 2008 financial crisis versus an S&P 500 index fund, it would have been much easier to survive that recession psychologically, emotionally, and financially. So although the potential returns of investing in a fidelity target date fund probably won’t be as high as if you put 100% of your money in a super aggressive 100% stock fund, at least you’ll be able to sleep at night and you’ll experience a smoother ride during recessions. And with target-date funds, you’ll still collect a respectable seven to 8% return.

If you’re considering investing in Fidelity target-date funds, then definitely sign up for my free crash course, Get Started Investing: How To Build a Starter Stock Portfolio in Just Three Days. You can take action on this course with just $100 and I know the Fidelity website can be a little hard to navigate, so I’ve also included step-by-step tutorials so you can just have two tabs open and follow along with me on the screen to set up your very first target-date fund investment.

There’s also a bonus cheat sheet in that course with links to all of Fidelity’s best target-date funds. So I’ve made it super easy for you and it’s specially made for beginners who need a lot of handholding. So click here to sign up. It’s free!

IN SUMMARY

In my opinion, the number one hurdle to getting invested is getting over that analysis paralysis. I know there’s an overwhelming amount of decisions to make just to get started, so most people end up not making a decision at all. What platform do I use? What account do I open? And then once you even get past all of that, it’s like how much money do I invest and then what do I invest in? So the thing about target-date funds is that it completely eliminates this analysis paralysis. They make most of the decisions for you. All you have to do is open your account at Fidelity and pick the year that you are retiring. Everything else will be taken care of for you.

So if you’ve been wanting to put your money to work but for one reason or another you’ve just never gotten around to it, then I do think in a Fidelity target-date fund is a great place to start. So that’s it for this video. I hope it’s been really helpful for you.

Always remember to go after your dreams unapologetically, and to live life on your terms – cheers!

The post Fidelity Target Date Funds (PERFECT FOR BEGINNERS!) appeared first on Rose Han.

In the U.S. there’s more than $7.7 billion in unclaimed retirement savings floating out there (*in 2015, according to the National Association of Unclaimed Property Administrators). That’s why rolling over your old 401k to a Fidelity Rollover IRA is a very good idea.

Having old 401ks lying around everywhere is like leaving your stuff at your exes houses after you’ve broken up with them. Like why would you do that… why?

9 times out of 10, there’s really no reason NOT to rollover your 401k after you’ve left a job. Many 401k plans charge high admin fees, they offer very limited investment options, and if for whatever reason your old employer goes bankrupt, it would be a nightmare to track down your money.

That’s why I’m a big fan of rolling over your 401k to a Fidelity Rollover IRAs. In this article, I’m going to talk about:

• How to do a Fidelity 401K Rollover, step-by-step
• And for those of you who have a Roth 401k, I’ll also explain how to rollover that as well
• And finally, I’m going to talk about how to invest your Fidelity Rollover IRA once the 401k money has transferred over

We have a lot to cover in this blog, so let’s get right into it.

How to do a Fidelity Rollover IRA

For those of you that haven’t already done the rollover, I’m going to walk you through how to do it, step by step.

But for those of you who’ve already done this step, you can skip ahead, where I talk about how (and why) to convert it to a Roth IRA, or where I talk about 3 ways to invest your Fidelity Rollover IRA.

1. The first step is to find out where all your money is. If you think you may have 401ks floating around somewhere but you’re not sure, then I want you to contact the HR department at your old job and find out what’s going on. Or if you know who the 401k provider was, you can just call them. For example, my old 401k was serviced by Vanguard, so I knew exactly where to find it.
2. The next step is to open a Fidelity Rollover IRA. This is easy to do – you just go to the Fidelity website, click “Open An Account”, and select Rollover IRA. This is if you’re rolling over a regular 401k. Now, if you’re rolling over a Roth 401k, you would need to open a Roth IRA, not Rollover IRA. If you’re rolling over regular 401k money AND Roth 401k money, then you would need to open BOTH. Basically, what we’re doing here is we’re opening the destination accounts – the new home for your 401k money. And the destination account has to match the type of 401k. So a traditional 401k gets rolled over to a Traditional IRA, and a Roth 401k gets rolled over to a Roth IRA. Got it?
3. Once you finish the IRA account opening process, Fidelity will take you to a confirmation page with the account number of your new IRA. Write down this account number, because you’re going to need it for the next step.
4. The next step is to contact your 401k provider and tell them to send your 401k money to your new Fidelity IRA. You need to tell your 401k provider 3 things: Who to make the check payable to, the account number of your new Fidelity IRA, and What mailing address to send the check to. I know it’s super antiquated, but the only way Fidelity accepts rollover money is via a paper check. Just Google “fidelity rollover 401k deposit”, go to the top search result, and you’ll find everything your 401k provider needs to know. Make sure they make the check payable to Fidelity Management Trust Company, FBO [Your Name] and tell them to include your IRA account number on the memo line. And just to be clear, if you have both 401k and Roth 401k money to roll over, you need to do this whole process twice. Two different IRAs, two different checks.
5. The final step is to make sure you report the rollover correctly when you file your taxes. Your 401k provider will send you a Form 1099 showing that you took money out of the 401k. And Fidelity will send you Form 5498 showing that you contributed money into an IRA. The end result is that they cancel each other so that you don’t owe any taxes. Make sure you file both of these forms the year that you do the rollover so that you don’t run into any problems with the IRS.

If you get stuck anywhere during this process, just pick up the phone and call Fidelity. Believe me… they are very happy to have you transfer your 401k money to them, so they’ll spend as much time on the phone with you as you need.

Also, if you could use a helpful guide on how all these different retirement accounts work, download my “Ultimate Guide to IRAs, 401k, and HSAs”. It’s a neat little cheat sheet that summarizes the pros and cons of each account, what you can and can’t do with each, and which ones to prioritize and why. It has literally everything you need to know about tax-advantaged accounts, so click this link to download it!

And finally, for some ideas on how to invest your Fidelity Rollover IRA

Once everything is rolled over and your Rollover IRA is good to go, it’s time to think about how you want to invest it.

Your IRA is not an investment – it’s just an account with money in it. Even if your 401k had investments in it, they liquidate everything when you roll it over. So until you pull the trigger on some new investments, your rollover IRA is just sitting in cash!

That’s why I want to suggest 3 ways to invest your Rollover IRA.

Idea #1: Target Date Funds

The first and easiest way to invest is by buying a Target Date Fund. Target Date Funds, also known as Lifecycle funds, are mutual funds that target a specific date for retirement. They are actually a fund of funds, in that they are funds that usually contain anywhere from 3-5 index funds inside it.

Every TDF has a year at the end of its name – like the Fidelity Freedom Index 2055, or the Vanguard Target Retirement 2055 Fund, or the Schwab Target 2055 Index Fund. And depending on your target retirement year, the fund will choose the appropriate mix of stocks and bonds for you. I actually made a video about Target Date Funds a few weeks ago, so definitely check that out if you want to go more in-depth.

Target Date Funds are nice because you don’t have to think too much. All you have to do is figure out what year you’re planning to retire, buy a Target Date Fund for that year, and you can sit back and relax. A lot of people retire millionaires by putting their money into Target Date Funds every month, so it’s a pretty decent option for busy people.

In fact, your 401k was probably invested in a Target Date Fund before you rolled it over to Fidelity because TDFs is the default investment option for most 401ks. TDFs are the bread and butter of the vast majority of American’s retirement savings for a reason.

Idea #2: Index Funds

The second option is to invest your Rollover IRA into index funds. This is much more DIY than buying a Target Date Fund because you are the one making all the decisions for your portfolio.

To invest in Target Date Funds, all you have to do is buy one fund. You find a low-cost fund with your target retirement year, you buy it, and you let the fund do all the rest of the work. It’s a one-and-done investment product.

But investing in index funds is a slightly more involved process. First, you have to decide what asset allocation you want – in other words, what percentage of stocks vs bonds vs cash you should have in your portfolio. Then, you have to research which index funds to buy. Not only this, but you’d also have to do some ongoing maintenance, such as rebalancing your portfolio when the market moves, and also adjusting your allocation as you approach retirement age. There are thousands of index funds out there, and there’s a lot of nuances to take into consideration, so it definitely takes a good amount of knowledge and effort to invest this way.

Luckily for you, I do have another article about how to set up an index fund investment portfolio, so you can check it out right here for detailed, step-by-step guidance.

I actually like investing this way, because even though it’s a little more work than Target Date Funds, I get to be more hands-on with my money and I like that. Besides, the hardest part about investing in index funds is setting it all up. Once it’s set up, it only takes about an hour of your time every couple of months, if that.

Idea #3: Individual Stocks

And the third way to invest your Fidelity Rollover IRA is to buy individual stocks. Buying individual stocks is very different from the first two options I talked about. When you invest in a TDF or index fund, you own a lot of different stocks. Most index funds contain hundreds, if not thousands of different stocks.

When you invest in an index fund, you’re betting that the stock market as a whole will go up.

But when you’re investing in individual stocks – or stocks of specific companies – then you’re betting that the company is going to do well.

That’s a very different game to play because then you have to know all the details about the company. You’d have to look at their financial statements, assess the management team, and study the industry and business model of that company. You are really zooming in on the prospects of one company, vs owning the entire stock market. It’s investing on a micro level, vs on a macro level.

There’s a lot that goes into finding good stocks, so it’s definitely not something you can learn how to do overnight. But if you’re interested in learning more about it, I’ll link to two really awesome books on the topic in the description box below.

To be perfectly honest, most people would be better off with the first two options – investing in Target Date Funds or in Index Funds. They’re easy enough that you can wrap your head around it and get your Rollover IRA invested TODAY. Buying index funds is just so much easier than picking stocks.

In closing

So that wraps up this blog – I hope that it’s helped you feel super confident about your Fidelity Rollover IRA. Thank you so much for spending this time with me. I appreciate you.

The post Fidelity Rollover IRA (STEP-BY-STEP) appeared first on Rose Han.

Two Ways to Invest

The way I see it, you have two ways to invest: try to time the market, or just invest consistently and automatically using a dollar-cost averaging strategy.

In my previous blogs, I talked about the pros and cons of trying to time the market. Using actual historical data for the S&P 500, I made a spreadsheet that tells you how much money you would’ve ended up with if you had timed the market perfectly, vs if you hadn’t tried to time the market at all.

The results are super interesting, and I’ll give you a little summary in this article, but definitely check out this article for a deep dive into the numbers!

In that spreadsheet, I projected what would have happened if you had invested $500 a month into the S&P 500 over a 31 year period, using a dollar-cost averaging strategy.

Then, I compared that strategy to a market timing strategy, where an imaginary investor with psychic abilities timed his or her purchases with 100% accuracy, saving up money in cash, and waiting to buy stocks until after every market crash, right at the very lows of the market.

What’s super interesting is that the investor who invested using a dollar-cost averaging strategy ended up with $1,235,760.10, whereas the investor who timed the market perfectly ended up with $1,183,224.46. Not a huge difference!

So given that timing, the market isn’t possible, I would say dollar-cost averaging is the way to go. Unless of course, you actually do have the ability to see the future. In which case… we need to talk… I have some questions to ask you about what to invest in, and also about …what I’m going to eat for lunch later today.

But for now, I’m just gonna assume that you aren’t able to see that future and that you actually want to learn about dollar-cost averaging. So in this blog, I’m going to explain:

What is dollar-cost averaging?

DCA is a strategy where you invest the same dollar amount into the same stock or fund at regular intervals. This interval can be weekly, bi-weekly, monthly, quarterly – it can be whatever interval you choose. So let’s say you decide to invest $500 into the S&P 500 on the 1st of every month.

Every time you buy, you’re getting in at varying levels of the market. So the number of shares you get for $500 also varies. When the S&P 500 is high, your $500 buys fewer shares. When the S&P 500 is low, your $500 buys more shares. Over time, this reduces your average entry price per share.

For example, on Jan 2, 2019, the S&P 500 was at 2510. Then on Jul 1, 2019, the S&P 500 was at 2964.

So with the market at 2964 in July, your $500 bought fewer shares than it bought you when the market was lower back in January

Do you see what’s happening there? When the market is high, you end up buying fewer shares, and when the market is low, you end up buying more shares.

If you think about it, that’s smart right? It’s kinda like when you’re at the grocery store, and you see that something is on sale, you want to load up on it. But if something is more expensive, you tend to buy less of it.

Ironically, when it comes to the stock market, most people do the exact opposite. Right after a big drop in the market, that’s actually the cheapest time to buy stocks, but most people don’t buy anything then because it’s too scary.

We are ALL guilty of this. As much as we like to think that we’re rational beings, we’re mostly driven by our emotions. Especially when it comes to our money.

So the #1 reason why dollar-cost averaging is such an effective strategy, is because it protects us from our own emotions. This is a perfect segway into what I want to talk about next… does dollar-cost averaging work?

Does dollar-cost averaging work?

The short answer is YES, dollar cost averaging works. Starting in 1988, if you had invested $500 in the S&P 500 every month with dollar-cost averaging until 2019, you would have $1,183,224.46 today. Out of that  $1,183,224.46, only $192k of that was the actual money that YOU put in. The rest was all stock market growth. Pretty crazy right?

You end up with WAY more money than you put in, so yes, dollar-cost averaging obviously “works”!

But let’s go even deeper, shall we? Let’s try to understand WHY it works.

Dollar-cost averaging is effective for 3 reasons:

• The first is that it takes emotions out of the equation. When it comes to investing, your emotions are your worst enemy. The best time to buy in the market is when it’s also the scariest time to buy. So if you invest according to your emotions, you end up chasing the market and getting nowhere. But with dollar-cost averaging, you invest like a robot, no matter what the market is doing, and that results in your average entry price improving automatically over time.
• The second reason why dollar-cost averaging is so effective is that your money has no downtime. In other words, all your money is invested at all times. Instead of parking your money in a bank account that pays nothing, your money is working for you in the stock market day in and day out. When your money is working for you in the stock market, you’re participating in all the dividends and all the growth that gets compounded over time.
• Last but not least, dollar-cost averaging works, because it’s actually doable. Unlike a strategy that requires you to time the market perfectly, dollar cost averaging is REALISTIC. Anyone with any amount of time or knowledge has what it takes to implement a dollar-cost averaging investing plan. Your 6-year old cousin can do it, your grandmother who doesn’t know how to turn on a computer can do it, heck… even my dog can do it! Besides, we’re all busy, and nobody has time to stare at stock charts all day to try to time the market. In your free time, I’m sure you’d much rather be doing things like watching my YouTube videos.

If you’re still not convinced about dollar-cost averaging, check out this extreme example:

Back in 1989, there was a huge bubble in the Japanese stock market. It peaked at almost 40,000 in December of 1989, and when the bubble burst, it crashed HARD.

If you were unlucky enough to buy right at the peak of the market, well you’re still in the red, because 30 years later the Japanese stock market STILL has yet to recover back to those levels. Scary, I know!

But, if you had followed a dollar-cost averaging strategy, just like we talked about, you would have made money. Even if you had started investing right before the crash.

Pretty cool right?

As of the recording of this video in Dec 2019, in the U.S. the stock market has been hitting all-time new highs and it’s been on the longest bull run in history.

The U.S. and Japan economies are VERY different, so I definitely don’t think the next crash is going to be like the bursting of the Japanese stock market bubble of the 1990s. But still, in market conditions like these, I think the safest way to invest is dollar-cost averaging. I wouldn’t go all-in with my money, but I wouldn’t be sitting out completely either. Instead, I would take the middle ground of dollar-cost averaging.

How to implement dollar-cost averaging?

So how do you actually do dollar-cost averaging?

This is obvious, but you first need to have a brokerage account. I always recommend either Fidelity or Vanguard, and you can check out this video right here for more info on the pros and cons of each brokerage. Once you pick a brokerage, you want to open the right type of account. For most of you, the best one to start with is a Roth IRA.

Once you have your account set up, the next step is to buy an index fund. In my example earlier, I talked about investing in the S&P 500 index. But the thing, you can’t actually invest in an index. An index is just a calculated number that people track, so to invest in the S&P 500 companies, you need to invest in an S&P 500 index fund.

I talk a lot about S&P 500 index funds, but you have a lot of different options – there’s also international stock funds, U.S. stock funds, small-cap stock funds, large-cap stock funds – the choices are endless. For more ideas on how to pick index funds, make sure to check out this video right here.

When you’re picking an index fund, you also want to make sure it’s a mutual fund vs an ETF, because ETFs don’t allow you to make automatic recurring purchases. But with mutual funds, once you buy into it, you can set up your account to automatically buy more shares of that mutual fund every month, for whatever dollar amount you decide.

So that’s pretty much it! To implement dollar-cost averaging in your portfolio, you open a brokerage account, set up a recurring monthly transfer from your checking account on the 1st of every month (or whatever makes sense for your pay schedule), and then have it buy a fixed dollar amount of your index fund. Sit back, let it run on autopilot, and sit back and collect those Benjamins.

Look, dollar-cost averaging is boring. It doesn’t make for exciting cocktail party talk, and you’re never going to be featured on the news for being a stock market genius. But it works.

Dollar-cost averaging is the best way to slowly but surely build wealth. If you choose to go that route, you’ll never find yourself obsessing about when to invest, whether to invest, how much to invest, none of this decision fatigue. Instead, you can just have your investments running on autopilot, and put your energy towards all the other things in your life that you want to pursue.

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