What are the pros and cons of each app, and which one makes the most sense for you? I’ve been using both of these apps for about 2 years now, so this article will expose a detailed and HONEST review.

Both of these apps make investing as easy as possible, and they’ll both help you invest your money safely whether you’re an experienced investor or you’re a total beginner. That being said, there are important differences for each app that I want to point out.

FUNDING OPTIONS

• The biggest difference by far is with funding options.
• Acorns offer roundups, which is a feature that lets you invest with your spare change by rounding up your debit card and even credit card purchases. If you have hard time-saving money, the Acorns roundup feature helps a lot. Just in the last X month, I’ve saved over X from roundups.
• Betterment doesn’t offer roundups. The only way to add money to your investments is by depositing money directly from your checking account. But if you’re pretty good about sticking to your monthly savings goals, you don’t really need roundups anyway.
• To be honest, you’re not going to get rich just from investing your spare change. That’s just ridiculous. So, while the roundups feature is what attracted me to Acorns in the first place, the fact that Betterment doesn’t offer it is not a dealbreaker for me.
• Both apps give you the option to make recurring deposits on your own schedule, whether it’s weekly, biweekly, monthly, on a chosen day of the month or day of the week. And Acorns even gives you the option of making daily recurring deposits.

INVESTMENT OPTIONS

• Now let’s compare the investment options at Betterment vs Acorns.
• Both of these roboadvisors invest your money in fractional shares of ETFs (exchange-traded funds) that give you diversified exposure to hundreds of different stocks and bonds. They both offer good investment portfolios that are designed to maximize your returns while minimizing your risk, so in that sense, they’re very similar.
• That being said, I do prefer Betterment’s approach to investing over Acorns. That’s because Betterment does what’s called goals-based investing, whereas Acorns has a more basic and traditional approach to investing.
• Goals-based investing is a relatively new approach to investing that emphasizes investing with the objective of achieving specific life goals. So rather than keeping all your money in one general investment portfolio, this approach separates your money into different buckets and has a different investment portfolio for each bucket.
• For example, this is my Betterment account – I have different life goals, and they each have a different timeline and target amount. I have a goal to have $5k to take my parents on vacation in 2 years. I also have a goal to have $100k of annual retirement income in 30 years. I also have a goal to build an emergency fund of $20k in 3 years. These are all numbers and timelines Betterment asks me about before they recommend how to invest my money. And for each goal, Betterment has a different investment portfolio for me. For my Take Parents on Vacation goal, Betterment has 32/68 split between stocks and bonds. But for my Retirement goal, Betterment invests my money in a 90/10 portfolio. The longer my time horizon, the more I should have in stocks. It’s ALL about your time horizon! How you should invest your money depends on how much money you need for your goal and when you need it, and Betterment really gets it.
• Now at Acorns, you only get 5 portfolio options, ranging from Conservative to Aggressive. They don’t ask you what you need the money for and when you need it by – all they care about is what risk tolerance level you’re comfortable with. But you know what? It doesn’t matter what your risk tolerance is!!! The real question is – are you going to have enough money to actually buy your dream house in 5 years, and are you actually going to be able to pay your child’s college tuition when they turn 18? So I think the Acorns one-size-fits-all approach to investing doesn’t really fit into how you actually live your life. The reality is that you have different financial goals with different timelines, and your money should be bucketed accordingly, not thrown into one investment portfolio with some vague unspecified timeline.
• So in summary, Betterment offers a goals-based approach to investing that I think makes a lot of sense, and Acorns offers a much more basic approach to investing that emphasizes your risk-tolerance level over your financial goals.
• I’m not knocking on Acorns at all. I LOVE Acorns and I have so much fun using it. But I think I’m starting to outgrow the app because I need a more advanced, customizable approach to investing. Acorns were designed to make investing as accessible as possible for the masses, so if you’re new to investing and you need some training wheels to get started, then you’ll absolutely appreciate how simple it is to use Acorns.

ACCOUNT TYPES

• Something else that Betterment offers that Acorns doesn’t have is a wider range of account types.
• For one, Betterment offers a savings account called the Smart Saver. I got really excited about the Smart Saver account because it pays a 2% yield with no minimum balance. This definitely beats what you get at any savings account at a bank. And because the interest comes from U.S. government bonds, you don’t get charged federal taxes on the 2%. Betterment also gives you the option to open Joint accounts, so if you have a significant other and you want to both be owners on the account, you won’t be able to do that at Acorns.
• I really like having all my investment accounts AND savings accounts all in one place. Not only can you add as many investing goals as you want to your Betterment account, but you can even link external accounts like your 401k so that you can see a nice holistic view of your finances.
• I also like that I can name each of my goals so I’m always reminded WHAT I am saving for. This not only keeps me motivated and on track, but I love it when things are organized and clearly labeled. It makes me happy when I know where everything is, what it’s for, and it’s no different when it comes to my money. Is that weird? I don’t care… I like being weird.

COST

• Ok now let’s talk about cost. Ever since fintech came on the scene it’s completely taken the wealth management industry by storm. Betterment and Acorns are both roboadvisors, which means that rather than having an actual human managing your money and making investment decisions, you have algorithms doing it for you.
• Robots and algorithms can crunch numbers faster and more accurately than any human ever could, AND they can do it at a fraction of the cost. So both Betterment and Acorns are gonna be way cheaper than hiring a real-life financial advisor.
• Betterment has NO minimum and charges an annual fee of 0.25%, so if you have $1k invested at Betterment, you’ll pay $2.50 annually.
• Acorns have NO minimum and charges a flat $1 fee per month, so if you have $1k invested at Acorns, you’ll pay $12 annually. That works out to 1.2% annually – almost 5x more than Betterment!
• So this is the downside to Acorns fee structure – if you don’t have a lot of money invested, then that flat $1 monthly fee works out to be a big percentage of your assets. Once you have $5k or more, that’s when a flat fee vs a percentage fee starts to be a better deal for you, because Acorns is still only going to charge you $1/month or $12 for the year, while Betterment would cost you slightly more at $12.50

SUMMARY

• So in summary,
• Funding: roundups, recurring deposits
• Investing: goals-based and geared towards the more sophisticated investor, simplified and geared towards the novice investor
• Account types: Smart Saver and joint accounts and multiple accounts all in one place
• Cost: flat fee vs percentage fee, where flat fee doesn’t make sense if you have less than $5k

If you need a lot of handholding, then go with Acorns. Even though the flat fee isn’t great, the app was DESIGNED specifically for novice investors, so the interface and the features are totally free of financial jargon and as dumbed down as possible.

If you need an app with robust features to help you with multiple financial goals and needs, then go with Betterment.

Think of Acorns as the training wheels. It’s good for getting started, but as your life gets more complex and you need a better way to organize your finances, you’ll probably outgrow Acorns and move your money to a place like Betterment.

At the end of the day, which app you choose isn’t going to make or break your financial future. Just go with your gut and give one of these apps a try. The sooner you start, the sooner you can start putting your money to work.

The post Betterment vs Acorns (SIDE-BY-SIDE DETAILED REVIEW) appeared first on Rose Han.

I’ve been investing with both of these apps for about 2 years now, and they are very very different! So if you’re looking for guidance on which one to go with, you’re in the right place. Keep reading for a detailed HONEST review.

Both of these apps make investing super easy for novice investors, but they are very very different. In this article, I’ll compare each app in terms of:

• Investment approach, or how your money gets invested
• Safety and a discussion of the risks involved
• Cost
• And finally, of funding options and account types offered

Investment approach

Before signing up for any investing app, it’s important to understand how is your money going to get invested. Stash and Betterment have very different approaches to investing, so let’s talk about that.

Stash

A platform that simplifies investing for the everyday person. Rather than listing your investment options using typical financial jargon, they put everything in everyday language. With any other brokerage, you’ll see everything labeled under financial jargon, but Stash takes out all the intimidating technical language to make choosing investments as easy as possible for you.

The thing with Stash is that it’s totally up to you to do your own research and pick what stocks you want to buy. The app doesn’t  DO any investing for you.

As an investor, your goal is to create a portfolio (or a collection of stocks and bonds) that grows your money over time. At Stash, you have to create your own portfolio, and no one’s going to tell you what to put in it. On the other hand, Betterment creates portfolios for you. They’re basically saying, look – we know how to build investment portfolios, so just tell us what your goals are and we’ll do it all for you. You don’t get to pick and choose what goes in there, we know what’s best.

For example, here’s my Betterment portfolio. They created this for me based on basic inputs: time, target amount, etc. My money is invested in all these ETFs, and I’m not the one who picked them vs at Stash, my money is invested in Women who lead and Do the right thing, which is ETFs I’ve picked myself.

Here’s the detailed explanation

Investing at Stash is like having someone hand you an empty grocery basket and telling you, “Here, put whatever you want in it.” Whereas investing at Betterment is like having someone who’s very knowledgeable and qualified, hand you a ready-made basket that has a bunch of goodies already in it.

Now, what do I think is better? It depends – do you want to pick your own investments, or do you want someone to do it all for you? It’s definitely empowering and more fun to choose your own stocks, but that means you also have to do your own research and know what you’re doing. I could easily see someone who doesn’t know what they’re doing put all their money into stocks and hoping they have enough to buy a house in 5 years. But if you need to cash out on your investments in 5 years, you should have most of your money invested in bonds, not stocks. There needs to be a lot of intentionality behind how you invest your money, but the average person doesn’t know this!

And that’s where Betterment wins over Stash. For beginners, you don’t know what factors to consider when choosing your own investments. So letting Betterment create the portfolio for you is better than shooting in the dark and trying to figure it out on your own. And I’m talking specifically if you’re a beginner.

tax loss harvesting – show my portfolio spreadsheet!

short term vs long term capital gains

a big part of how I became a “smart investor” was by watching what Betterment is doing

most people aren’t OCD like me, so if you don’t want to make yourself go crazy with spreadsheets to track your tax stuff, then go with Betterment

Safety

Now let’s talk about safety and some of the risks involved with each app.

They’re both registered with the SEC, which means that they’re legit and they can’t lie and cheat you. They’re also insured by the SIPC, which means that even if the company goes bankrupt, you’ll get your money back because they have insurance. These are basic requirements for any investing app. Any app that didn’t have these things would have been shut down by now because it’s 100% illegal for any company to hold investments for people without it!!! So rest assured your money is safe with either of these apps.

I also want to make a comment about risk. As with any type of investing, there are obviously no guarantees that you’ll make money. All investing involves a risk of loss. The question is, do you know what you’re doing? So Stash and Betterment are no different in that regard. Whether you make or lose money will depend on how good of an investor you are. If you make an investment just because you feel like it and then you sell it if you get scared, you’re probably going to lose money. But if you have good logical reasons for making an investment and you stick to your plan, you’ll be fine. Regardless of whether you go with Stash or Betterment, what’s risky or not depends ultimately on you and how YOU use the app.

Costs

Now for a quick comparison of costs. First of all, no matter how you look at it, using either of these apps is going to cost you A LOT less than it would cost you to hire a human financial advisor. That being said, there are some fees involved.

Betterment charges an annual percentage fee of 0.25%, while Stash charges a monthly flat fee of $1.

So if you had $1k to invest, at Betterment you’d pay an annual fee of $2.50. And at Stash, you’d pay $1 a month or an annual fee of $12. A $12 fee for your $1k is 1.2% annually – almost 5x more than Betterment! On small amounts of money, that flat $1 monthly fee works out to be a big percentage of your assets.

Now if you had $5k or more, then a flat fee starts to be a better deal. With $5k, your Betterment fee would be $12.50, vs $12 at Stash. So if you have $5k or more, Stash is gonna be cheaper for you. And if you have less than $5k, then Betterment is the cheaper option for you.

You also gotta keep in mind the level of service that you’re paying for. Given that Stash isn’t doing anything other than presenting investments to you in an easy-to-understand way, I think Stash charges a lot for what it is. Whereas with Betterment, you’re getting full-service advice and 24/7 portfolio management.

Don’t get me wrong, I’m all for cutting out all the financial jargon to make investing accessible for beginners, but Stash is charging you a lot for what it is. You definitely get a much higher level of service at Betterment.

FUNDING OPTIONS & ACCOUNT TYPES

And finally, let’s talk about funding options and account types offered by each app. Stash offers roundups, which is a feature that lets you invest with your spare change by rounding up your debit card and even credit card purchases. Betterment, on the other hand, doesn’t offer the roundups feature. I really don’t mind this about Betterment, because it’s not like investing my spare change is gonna make me a millionaire. That’s just ridiculous. What’s gonna make you a millionaire is committing to making regular deposits weekly, biweekly, or monthly and automating it. So, while the roundups feature is nice and every cent counts, I still don’t think Stash is worth the fees, especially if you’re investing tiny amounts of money.

Betterment also offers more account types that Stash doesn’t offer, such as Joint accounts and SEP IRAs. SEP IRAs are meant for anyone who’s self-employed and doesn’t have a 401k, so if you’re self-employed make sure to check out this video here to find out more about that.

SUMMARY

So what’s the verdict? Which one are you leaning towards – Stash or Betterment? Let me know in the comments and let’s discuss!

• So in summary, Betterment creates a fully diversified investment portfolio for you, while Stash gives you the tools and support to create an investment portfolio on your own.
• While both apps are registered with the SEC and SIPC-insured, the level of risk involved ultimately depends on how thoughtful you are about choosing your investments.
• As for costs, you get a lot more for your money at Betterment since they do full portfolio management for you, and Stash’s flat fee structure is especially not worth it if you have $1k or less because the $1 monthly fee works out to be a big percentage of your account balance.
• And while Stash offers a cool way to fund your account with the spare change roundups feature, it’s not a dealbreaker because it’s much more critical and impactful for your wealth to make recurring weekly or monthly deposits, which both apps let you do.
• Lastly, Betterment offers more account types than Stash does, including Joint accounts and SEP IRAs, so if you have a significant other that you share assets with or you’re self-employed, Betterment will be a better fit for your needs.

The post Stash vs Betterment (PROS & CONS OF EACH) appeared first on Rose Han.

In this blog, I’m going to tell you my TOP 10 Do’s and Don’ts for the investing app Ellevest. Like most things in life, in order to be successful at investing, you need to start by UNDERSTANDING what the hell you’re doing.

Depending on whether you do it right or not, investing your hard-earned money with Ellevest could be the BEST decision you ever made or the WORST decision you ever made. It’s time to get smart with your money, so if you’re interested in trying out Ellevest, or if you’re already using it, then keep reading!

What I love about Ellevest is that it’s 100% women-run and women-backed. It’s founder & CEO Sallie Krawcheck is female, and the company is also backed by badass female investors like Venus Williams. 

All jokes aside, I fully support Ellevest and I invest money with them myself. That being said, these are my TOP 10 do’s and don’ts when using this app. Money is 90% behavioral, and even the best tool or strategy isn’t going to work if you don’t use it properly.

Top 10 DO’S and DONT’S

1 – I’m going to jump in with the first DO:

DO UNDERSTAND WHAT YOU’RE INVESTING IN

When you don’t understand what the hell your money is invested in, you’re never going to feel completely secure. There are people with millions of dollars who still don’t feel financially secure. They have all these advisors and outside people managing their money, and because they don’t understand what’s going on with their money, they never feel totally in control. Financial security is a mindset – a mindset of financial CONFIDENCE. And that confidence only comes from understanding your money, and from knowing that no matter what the economy is doing, you’ll know what to do and how to rise above it.

Because Ellevest is a roboadvisor, you’re basically outsourcing investing services. You don’t HAVE to understand what they’re doing with your money, but it’s not a good feeling to blindly deposit your hard-earned money with some app, and hope that it turns out well.

In this article, I go into depth about how Ellevest invests your money. I don’t want to repeat myself in this blog, but basically, when you invest with Ellevest, their algorithm creates a portfolio for you of stock funds and bond funds. The percentage of stock funds vs bonds funds, as well as which specific funds go into the portfolio, are all statistically proven to help you achieve your financial goals. For example, I have a goal to buy a house for my parents in 6 years. Ellevest crunched a lot of numbers and decided on a portfolio with 36% stock exposure and 64% bond exposure. And these are the specific funds they used.

Based on historical data, this gives me a 70% chance of having $119,783 or MORE to buy the house in 6 years. Those are pretty good odds! Worst case scenario, I have a little bit less than the cash I deposited. Best case scenario, I have way more money than I could have ever saved on my own because stock market gains did most of the heavy lifting for me. So Ellevest invests your money so that the downside of your investment risk is not terrible, but the upside can be very powerful. Again, in this video, I take you on a tour of my account and I explain how all of this works, so make sure to check it out.

2 – Next is one of my DON’Ts:

DON’T INVEST EMOTIONALLY

Let’s be really clear about this one fact: A stock market is a wealth-creating machine. The only reason people get burned is that they invest with their emotions vs with their logic.

Here’s what I mean: when the market is going up like this, the average uninformed person gets excited about the prospect of making money, so they buy here. They think because it’s been going up a lot, it will go up more. The problem is, they’re late to the train, because most things after going up for a while, go back down, even if it’s just temporarily. So when the market drops, they get scared and so they sell at a loss. Buying on greed, selling on fear. This is how MOST people do it.

When you invest with Ellevest, your money immediately gets invested into a portfolio that looks like this. Some of that portfolio is going to be in some pretty volatile markets: emerging markets like Brazil, India, China, and South Africa. These markets are high-growth, high volatility. So there might be a day when you log into your account and see that your portfolio is down 10%, 20% – during the 2008 recession it was even more than that. Naturally, you’ll feel scared. But you have to stay the course. DON’T act on your emotions. Ellevest invests your money in portfolios that are statistically proven to get you results. So stick with the plan and don’t flipflop when the market is going through a rough time. I always like to say, investing is like marriage: you can’t just come and go to avoid the bad times and only be around for the good times. You need to stay in it for the whole ride.

Over the long-term, the stock market goes up, but meanwhile, there’s going to be A LOT of ups and downs. Take a look at this chart: over shorter 5-year periods, it can be a pretty rough ride, but in the long run, the U.S. stock market is a wealth-creating machine. So if you ever feel scared, I suggest you wait at least 24 hours before you sell or withdraw your investments. This forces you to think through your decision before you do it, so you’re less likely to do anything that you’ll regret later.

3 – This is a perfect segway into my next DO:

DO HAVE CASH RESERVES

It’s much easier to stay rational about your investments when you have cash reserves. Cash reserves to pay rent next month, cash reserves to cover emergencies, cash reserves that enable you to be a little more detached from the day-to-day movements of your Ellevest account balance.

Not only that, but if something horrible happens like you get laid off from your job, you get injured, or whatever, you won’t have to sell your investments to cover your living expenses. Because if your timing is unlucky, it could be a really bad time to sell in the market – say right after a big downturn – and if you sell then, you won’t be invested anymore when the market recovers.

A good rule of thumb is to start with a $1000 emergency fund, and then work up to an emergency fund that could cover 3-6 months of living expenses. Depending on your situation, it varies, but just make sure you have enough cash on hand so that you won’t have to dip into your investments when there’s an emergency.

4 – And now, for tip #4:

DON’T SAVE FOR OTHER THINGS UNTIL YOU HAVE SOMETHING FOR RETIREMENT

I know you have all kinds of things you want to save for. You want to get out of debt, you want to buy a house, you want to splurge on a big trip, and you also want to save for retirement. It’s hard to know what to prioritize!

When you open an account at Ellevest, the first thing they ask you is what goals you’re investing for. They have options like Buying a house, saving up for a Big Splurge, Start your own business, Retirement, etc. etc. You can add up to 5 goals, and it’s tempting to just add all the things.

But if you have limited cashflow, keep in mind that you should always prioritize retirement. Why? Because you won’t be working in your old age, so you NEED to have investments to live off of. All the other non-retirement goals like buying a house, or starting your own business – you have your best earning years ahead of you in your 40s and 50s, so you’re gonna find a way to pay for those things eventually.

But retirement isn’t something you can find a way to pay for, because you won’t be bringing in a salary after you retire. Plus, there’s nothing cute about being a bag lady, ok? It just ain’t cute.

5 – Moving right along to my next DO:

DO CHOOSE THE IMPACT PORTFOLIO

As a women-focused company, Ellevest knows that women like you want to invest into things that you believe in. You want to use your money to support meaningful causes in the world. They totally get this, which is why they give you the option to invest in the IMPACT PORTFOLIO.

Now when you start investing at Ellevest, you have a choice between two portfolios, the CORE portfolio and the IMPACT portfolio. One of the funds in the IMPACT portfolio is the Pax Ellevate Global Women’s Leadership Fund (PXWIX). This fund invests in women-led companies, and it’s mission is “to help close the gender gap by investing in companies that value women’s leadership”. You know how I feel about women-run companies. We need more of that in the world, so investing in Ellevest’s IMPACT portfolio is a great way to vote with your dollars to support female empowerment and gender equality.

Another fund in the IMPACT portfolio is ESGD, which contains only companies that meet high environmental and social standards. So the Ellevest IMPACT portfolio helps me build wealth while also making sure that my investment dollars are supporting companies that make the world a better place.

Next time you add a goal to your Ellevest account, you can simply toggle over to the IMPACT portfolio option. So this means you’re invested in the CORE portfolio, and this means you’re invested in the IMPACT portfolio. As you can see, the estimated gains are pretty similar for both options, so socially responsible investing does not mean you have to give up good investment returns.

6 – Now for my next DONT:

DON’T TRY TO INVEST FOR TOO MANY GOALS AT ONCE

Especially if you’re just getting started, you don’t want to dilute your efforts by working towards a million different goals at once. Ellevest lets you add up to 5 goals, but that doesn’t mean you have to have 5 goals! Start with one or two of the MOST important, and put ALL your extra money towards those goals.

For example, if you have $200 extra every month to save & invest, then either put all of that towards your retirement investing goal, or put $100 into retirement, and the other $100 into a different goal. But if you have 5 different goals, and you put $40 towards each, it’s gonna take you AGES to achieve any of those 5 goals.

Wouldn’t you rather reach one goal faster, rather than waiting until you’re 100 years old to reach 5 goals? It’s much more motivating to see that you’re making meaningful progress towards one big thing, rather than really slow progress at multiple things.

So when you use Ellevest to help you reach your financial goals, remember to prioritize with one or two goals. Because if everything is important, nothing is important.

7 – This next one is a DO, and it’s a big one!:

DO GET YOUR FRIENDS INVOLVED

Ellevest offers a super sweet referral bonus when you refer a friend. When they join through your referral link, you get a $20 credit to your investment account, and they get $20 as well!

Everything is more fun when you’re doing it with your friends. It’s also not as scary, because you know you’re not in it alone. This is something I really internalized from running a women-only investing club in my city, which I founded about 2 years ago. We meet once a month to discuss investments, and when someone found a good stock idea, a group of us would buy it together. It gave us so much courage to know that we were in this together, and having a support network of like-minded female investor friends has been HUGE for me. So I really recommend getting your friends in on this.

Our society has such a hush-hush attitude around money talk, so telling your friends about how you’re investing for your future and getting them to join you will help heal the social taboos around money. Not to mention it will help your friends secure a better financial future for themselves too!

8 – Moving right along to the next tip:

DON’T PUT IN ALL YOUR MONEY AT ONCE

You know how when you’re about to go swimming in a really cold pool, it’s easier to dip your toes into the water, and then ease yourself into it as your body gets used to the cold? Well it’s the same thing with investing. Investing all your lifesavings into your Ellevest account at once would be like jumping into an ice cold pool. Some people are into the excitement or whatever, but I prefer to ease into it.

It’s a very different feeling to have money in the stock market vs money in a bank account. Money in the stock market is prone to short-term fluctuations, whereas money in a bank account doesn’t change at all. But money in the stock market grows, whereas money in a bank account only loses value to inflation. So it’s a different feeling, but you get used to it. I used to be scared too, but now I have tens of thousands of dollars in the stock market, and even if it’s going up and down thousands of dollars on any given day, I don’t worry because I know that in the long run, it’s headed in the right direction.

So if you have, let’s say, $5k to invest, start by putting in $100. Get used to the feeling, and then gradually add more every week until the full $5k is invested. Don’t go in with the whole $5k right away. I don’t want you to lie awake at night because you jumped in with too much money too soon.

9 – And now for the next DO:

DO AUTOMATE YOUR CONTRIBUTIONS

Make sure to set up a recurring deposit, so that a portion of your salary goes towards your Ellevest account with every paycheck. Ellevest lets you set up recurring deposits quarterly, monthly, and bi-weekly. So set it up so that a fixed dollar amount comes out of every paycheck, and schedule it for 1-2 business days after your paycheck gets deposited.

With every recurring deposit, Ellevest automatically invests the money into more stocks and bonds, so that there’s no downtime with your cash and your money is always working for you. What’s even cooler is that even if all you can manage is a recurring contribution of $10 a month, Ellevest can buy fractional shares of the ETFs so that you can still maintain a well-balanced investment portfolio with every new deposit.

Personal finance can get so complicated, but it’s actually really simple. If you just spend less than you earn, and you save & invest a portion of every dollar you make, you’ll be financially secure, and you might even become wealthy. The key is to automate it, so that the money leaves your checking account without you even noticing it, and then only spend what’s left. So if you haven’t already, go login to Ellevest now and set up that recurring deposit!

10 – Last but not least, here’s my final tip:

DON’T WAIT TO INVEST!!!

The longer you want, the more investment gains you’re missing out on. Time is money, LITERALLY.

STATS:

A 30-year old who starts investing today, can be a millionaire at age 70 by investing just $200 a month.

But if the same person waits until they’re 40 to start investing, they’ll have to invest $525 a month in order to be a millionaire at age 70.

The person who waited 10 years has to contribute 2x as much of their own money to achieve the same financial result. Whereas the person who starts investing sooner can contribute less of their own money to achieve the same result, because most of their wealth comes from stock market gains. When it comes to investing, the power of compounding returns over time is truly one of the most amazing things you can give yourself.

MY FINAL THOUGHTS

I get it, investing can be intimidating. But Ellevest is a great app, and if you use it intentionally and you stay mindful of the do’s and dont’s that I covered in this video, you’ll get great results. The key is to set your goals, invest regularly, and keep your eye on the prize. Don’t invest with your emotions, get your friends involved, automate your deposits, and get yo’ money!

The post Ellevest Investing Tips (TOP 10 DO’S & DONT’S) appeared first on Rose Han.

Boohoo…. I know… first world problems. But just because you make a lot of money, doesn’t mean you enjoy paying taxes any more than the next person.

Luckily, there’s a workaround! And it’s called the backdoor Roth IRA. The backdoor Roth IRA is 100% legal, and it takes advantage of a little-known tax loophole. With a backdoor Roth IRA, it doesn’t matter how much money you make – anyone at any income level can qualify!

In this blog post:

• I’ll explain how the backdoor Roth IRA works
• Show you how to do it, step by step
• And finally, I’ll talk about some of the common pitfalls that a lot of people miss when doing a backdoor Roth IRA

If all this sounds good to you, watch the video below or keep reading!

How the backdoor Roth IRA works

Although high-income earners can’t directly contribute to a Roth IRA, the IRS tax law has a quirky exception, that allows high-income earners to INDIRECTLY contribute to a Roth IRA.

In other words, high-income earners can contribute to a Traditional IRA, and then convert that Traditional IRA into a Roth IRA. This is perfectly legal, because while Roth IRA contributions are subject to income limits, Roth IRA conversions are not! It’s a weird little quirk in the tax law, and many high-income earners take advantage of this loophole every single year.

Step-by-step tutorial

1. Open a Traditional IRA and a Roth IRA. These should be at the same company. My preferred brokerage is Fidelity. So for this backdoor Roth IRA tutorial, I’ll use Fidelity to show you the steps.
2. Make a contribution to your Traditional IRA. (This is going to be a non-deductible contribution, which you’d later report on IRS Form 8606). When the money lands – this takes about 4 business days – transfer the money from your Traditional IRA to your Roth IRA. This can be done online, or just call Fidelity and have them walk you through the process.
3. When it’s time to file your taxes for the year, the final step to the backdoor Roth IRA process is to fill out Form 8606. This is a special tax form that lets the IRS know that you made a non-deductible contribution to your Traditional IRA and that you’re converting it to a Roth IRA.

You can repeat this process every year. Except next year, you can skip the step where you open a new Traditional IRA and Roth IRA account. You can just use the same accounts every year, and the Traditional IRA would just spend most of the time with $0 in it, since it’s essentially just a pass-through account.

So that’s really it! The actual process is quite simple, especially if you use a platform like Fidelity. They make it really easy. However, please please please be sure to fill out Form 8606 correctly! If you make a mistake filling it out or worse, you don’t fill it out at all – you could end up paying way more in taxes than you were trying to save in the first place. Have an accountant look over it if you need to, but whatever you do, don’t mess up Form 8606.

Common pitfalls

And now for some common pitfalls to look out for:

• The first one to look out for is not remembering the pro-rata rule, which basically means you must NOT have any money sitting in a traditional IRA, rollover IRA, SIMPLE IRA, or SEP IRA when you do the backdoor Roth conversion. If you do, you’ll trigger a “pro-rata” tax calculation that basically defeats the purpose of the backdoor Roth. I don’t understand the intricate details – and you don’t need to either. Just make sure you don’t have money in the aforementioned accounts! Close them down, convert them, withdraw from them – whatever you do, get rid of them if you the backdoor Roth is your top priority.
• The second pitfall is making things more complicated than it needs to be by leaving a lot of time between the date of your initial non deductible Traditional IRA contribution and the date you do the conversion. The more time passes, the higher the chance that: 1) you forget to do the Roth conversion at all, or 2) the money accrues some interest so that you have additional (i.e. more complicated) things to report on your tax return
• The third pitfall is filling out Form 8606 incorrectly. I know it’s not exactly the funnest thing to learn how to fill out an IRS tax form correctly, but many of you will be doing the backdoor Roth IRA every year for many years here on out, and your form is going to look pretty much exactly the same every year. So it’s worth the effort upfront! There are many great tutorials on YouTube about how to do this. You can run it by your accountant as well.

Final thoughts

Sure, the backdoor Roth involves some additional steps and can be a pain to learn how to do (at first). But it’s worth it!

To put it into perspective, if you invested $10k in Apple stock over 30 years ago, you’d have $13 MILLION today. If you had it in a backdoor Roth IRA, ALL $13 million would be for you! But in a regular IRA or any other type of account, you’d owe about $4 MILLION in taxes! Ouch.

Just goes to show… there are definitely some things in life that are worth making an effort for. A tax-free retirement is one of those things!

The post Backdoor Roth IRA (HOW TO DO IT IN 3 STEPS) appeared first on Rose Han.

HSAs are an amazing way to reduce your healthcare costs AND save for retirement, so if you want to learn how they work and how to open one for yourself, then keep reading or watch the video below!

What is an HSA?

HSA stands for Health Savings Account, and it’s a type of investment account that goes hand in hand with your health insurance. Anyone who has an HSA-qualified health insurance plan can open an HSA.

HSA-qualified plans are generally the ones with high deductibles. Since health insurance can be quite expensive, many people get High-Deductible Health Plans, which have really affordable monthly premiums but also higher out-of-pocket expenses. So HSAs are meant to help you with the out-of-pocket expenses.

Benefits of the HSA

HSAs offer some major tax benefits: all your contributions are tax-free, any growth on your investments are tax-free, and withdrawals are tax-free. You actually get more tax benefits with an HSA than you get with IRAs, because you don’t pay taxes on the money you contribute, and you don’t pay taxes on the money you withdraw either. With IRAs, it’s one or the other.

You use your HSA just like a checking account to pay for health-related expenses. I have an HSA card… it looks just like a debit card, and any time I have to pay a copay for a doctor’s visit, or get new contacts, glasses, or pay for a tooth cleaning, I just swipe my HSA card.

I use my HSA a lot, especially for things that aren’t actually covered by my health insurance. Like my health insurance doesn’t cover acupuncture or chiropractor adjustments, which I get pretty often and I have to pay for those things out-of-pocket. So using my HSA to pay for it helps a lot since at least it’s with tax-free money. I hear that you can even use your HSA for massages, as long as you have a doctor’s note. I’ll have to try that sometime…

HSAs are also a great way to save for retirement because when you turn 65, you can start using the money for whatever you want, not just medical expenses. I mean come on… really?! It’s almost too good to be true, and whenever there’s a chance for tax-free ANYTHING, I’m all over it.

Depending on where you open your HSA, you can also invest your HSA in the stock market. That way, the money in your HSA can work for you and keep growing until you need to spend it.

My HSA is at Fidelity, and I invest half of it into high-growth index funds, and the other half into a money market fund that pays about 2% interest.

And then whenever I’m anticipating a health-related expense, I’ll sell some shares in the money market fund so that I have the cash to pay for the expense. If you’re self-employed like me, getting health insurance on your own can be super expensive, so I think an HDHP (High Deductible Health Plan) with an HSA is a really good workaround to avoid expensive monthly premiums while also having a cost-effective way to pay for any out-of-pocket expenses.

The post HSA Explained (THE ULTIMATE TAX LOOPHOLE!) appeared first on Rose Han.

In this blog post, I’ll explain each of the 5 asset classes in detail. I’ll also give you some tips on how you can start investing in them, even if you don’t have a ton of money to invest right now.

Watch the video below or keep reading!

Asset classes are groups of investments that behave similarly. Investments in the same asset class usually respond to market conditions and economic events in the same way. They also share similar laws and regulations.

#1 – Stocks

The first asset class is equity, a.k.a. stocks or shares.

When you buy equity, you become a co-owner (or shareholder) of the issuing company. If the company has 10k shares outstanding, and you own 1k shares, then you own 10% of the company.

As an equity investor, you get returns in 2 ways:

1. When the stock price increases, the market value of your equity stake goes up which you can sell at a profit.
2. Equity investors also make a return via dividends. Since you’re a part owner in the company, you’re entitled to a piece of the profits, which you receive in the form of dividends. Dividends are typically paid quarterly. Back in the day, every shareholder would receive their quarterly dividend as a paper check in the mail, but nowadays you’ll most likely get an electronic deposit in your account.

You can buy stocks via a fund – a pooled investment vehicle – or you can buy individual stocks of companies that you’ve researched.

You should only buy individual stocks if you know how to pick stocks and you’re knowledgeable about the company you’re investing in. I explain how to assess companies in this blog post, so if you’re interested in picking stocks, then definitely check it out.

The other option is to invest in a fund that packages a whole bunch of stocks into a nice, diversified portfolio. This is the best way to benefit from the wealth-building upward trend of the stock market without having to go down the rabbit hole of analyzing individual companies. If you want to learn more about investing in funds, then you might want to check out this post right here for an in-depth explanation.

Before you can invest in stocks, you first need to open a brokerage account. A brokerage account is kinda like a bank account, but it’s a place to hold your investments instead of holding your cash. Brokerages that you can look into are Fidelity, Vanguard, TD Ameritrade, and Robinhood.

#2 – Bonds

The second asset class is debt, or bonds. When you buy a bond, you become a lender. So bonds are very different from stocks, because unlike equity investors, bondholders don’t own anything. You’re just lending money to the borrower, in return for periodic interest payments (which are typically semiannual). Then at the end of the loan, you get the original principal amount back.

You can invest in either government bonds or corporate bonds. Government bonds are issued by …governments in order to fund infrastructure projects, education, and pay for all the other things that governments do. Corporate bonds are issued by firms that need funding for projects and initiatives to grow the company.

The #1 factor to consider when investing in bonds is creditworthiness. As long as the borrower is in good financial shape, you’re pretty much guaranteed the interest payments and the return of your principal. But if the borrower goes bankrupt, then you’re out of luck.

Moody’s, Standard & Poor’s, and Fitch are agencies that publish bond ratings that show the borrower’s creditworthiness. AAA bonds are about the safest you can get, with basically zero chance of default. And the further you go down the ratings table, you’ll see bonds offering higher interest rates.

Obviously as a lender, you want to get as high of an interest rate as possible, but the key is to balance that with the risk of not getting your money back. When you see a bond offering really high interest, that’s because the borrower is in shaky financial condition and there’s a high chance of you not getting your money back.

For example, Argentina’s government bond is paying around 12%, vs U.S. Treasuries which are paying around 2%. Argentina has defaulted 8 times on its debt, whereas the U.S. has never defaulted – so that’s kind of how it works.

Bonds are considered to be safer than stocks, because when a borrower goes bankrupt, bondholders are usually first in line to get their money back, whereas stockholders are the very last to get paid in a default situation. You get a lot less upside with bonds than with stocks. If your goal is to grow your money, then you’d want to invest MOST of your money in stocks, not in bonds.

You can invest in bonds using the same brokerage account that you use for stocks. However, the minimum investment is usually $1000, so unless you have tens of thousands of dollars to invest in bonds, it probably makes more sense for you to invest via bond funds, which are pooled investment vehicles that give you access to a wide range of bonds, with no minimum investment.

Some example of bond funds you can look up to jump start your research is the Fidelity Long-Term Treasury Bond Index Fund (or FNBGX), and iShares Treasury Bond Exchange-traded Fund (or IEF).

#3 – Cash

The 3rd asset class is cash and cash equivalents. So anything that’s sitting in your checking or savings account, or in your wallet – that’s cash. And cash equivalents – also known as the money market – are securities that earn a little bit of interest and can easily be converted to cash. Any form of debt that has a loan term of 1 year or less is considered a cash equivalent.

So that’s CDs, 1-month Treasury bills, 3-month Treasury bills, 6-month Treasury bills, repurchase agreements, and commercial paper.

Have you ever seen those news articles talking about how some companies are sitting on tons of cash? Like Apple always has hundreds of billions of dollars of cash on hand. And that’s obviously not sitting in a bank account somewhere, because banks pay hardly any interest. When companies have extra cash, they put it into the money market, which currently yields about 2%.

One way you can invest in cash is by purchasing shares in a money market fund like FDLXX and VMFXX. You could also purchase CDs (certificates of deposit) either through your bank or in your brokerage account, or you could just find a savings account that earns decent interest and park your money there.

Cash and cash equivalents are NOT good long-term investments. Even though they pay a little interest, cash loses its purchasing power over time due to inflation. So it’s a very very very bad idea to keep all your money in cash or cash equivalents. It’s really just meant to be a place to park your savings, but it’s not going to provide you the kind of growth you get from stocks and real estate.

Which leads me to the next asset class on the list!

#4 – Real estate

Real estate is property – it can be residential, office, commercial, industrial. There’s 2 ways to make money investing in real estate. When property values go up, you can sell it at a profit. You can also collect rental income as long as you own the property.

Real estate is a lot like stocks in that sense – it gives you a combination of growth AND income. People who like real estate like that it’s something tangible that you can touch and see, and it’s a pretty simple asset class to understand. Paper assets like stocks and bonds are a bit harder to wrap your head around.

Another benefit of real estate is that it’s the only asset class where banks will LEND you money to buy it. You can always get a mortgage to buy a property, but very few banks will lend you money to invest in stocks. As long as the cash flow from the property pays the monthly mortgage, you can use less of your own money and still enjoy the benefits of owning the property. This is called leverage and if used wisely, can generate a high return on your money.

Of course, the catch is that real estate is the most capital-intensive of all the asset classes. Buying any piece of real estate is usually going to require tens of thousands of dollars, if not hundreds of thousands.

A less capital-intensive way to invest in real estate is by investing in REITs (real estate investment trusts). REITs are basically shares of ownership in companies that own huge portfolios of real estate. REITs are basically stocks – they trade like stocks and you have to buy them in a brokerage account, just like stocks. They generally pay nice dividends and you’ll never have to fix a toilet or deal with property management like if you owned real estate directly.

You can also try crowdfunding platforms like Fundrise, RealtyMogul, and Crowdstreet. Investing in real estate crowdfunding deals is a lot like investing in REITs, but both of these options generally come with less control and a lot of really high fees.

#5 – Alternatives

So we’ve covered the 4 MAIN asset classes – stocks, bonds, cash, and real estate. I also wanted to quickly mention some alternative asset classes. There’s precious metals – so gold, silver, platinum, palladium. Also fine art, collectibles like fine wine and exotic cars, these are all alternative assets. Some other ones are hedge funds, commodities, and derivatives, These are mostly meant for high net worth investors and it’s generally not recommended for anyone who’s just starting out.

Stocks, bonds, cash and cash equivalents, and real estate are the basic building blocks of a bulletproof financial portfolio. Most of the growth in your investments are going to come from stocks and real estate, and you can use bonds and cash for income and stability and to make a small return on your savings.

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