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Are you an investor who wants investing to be as easy and low-cost as possible? Here’s an ideal solution: low cost index funds.

An index fund is a passively-managed fund that tracks a particular index, such as the Standard and Poor’s 500 (S&P 500), which means they seek to track the performance of the underlying index rather than trying to outperform it.

Index funds have become progressively popular in recent years as investors have grown tired of paying high fees for managed funds that have failed to deliver superior returns. In addition, many index funds with low expense ratios are offered, making them an attractive option for cost-conscious investors.

10 Best Low-Cost Index Funds

Index funds offer several advantages over other investments, including lower expenses and greater diversification. And since they’re passively managed, they require less time and effort to maintain.

There are dozens of low-cost index funds available, but these are 10 of our favorites:

1. iShares Core S&P 500 ETF (IVV)

Investing in the S&P 500 is made easy with IVV, which has an expense ratio of just 0.03%, making it a low-cost option. The annual costs come to about $3 for a $10,000 investment, which is cost-effective compared to actively managed funds, which can charge up to 1%.

Due to its daily solid volume and assets under management (AUM), IVV can be easily bought and sold on most brokerage platforms.

When you’re currently invested with Vanguard, compare IVV to VOO – Vanguard’s S&P 500 fund, to see which fits your situation best.

2. iShares Core S&P Total US Stock Market ETF (ITOT)

More than 3,000 mid-and small-cap stocks outside the S&P 500 are worth investing in. Although these equities are more volatile, they might offer marginally better long-term returns.

You can purchase ITOT, which tracks the S&P Total US Stock Market Index, to invest in the whole stock market. ITOT holds a total of 3,617 equities, with almost 82% of them being large-cap names.

The ETF performs similarly to IVV, and the two work well together for tax-loss harvesting (deliberately taking a capital loss to offset taxes). The expense ratio for ITOT is 0.03%.

3. SPDR S&P 500 ETF Trust (SPY)

SPY is one of the biggest and most well-known S&P 500 funds. With over $370 billion assets under management and an average daily trading volume of over 50 million shares.

Because of its enormous volumes, SPY is a favorite among retail and institutional traders. Traders who desire the best order fills frequently choose SPY over IVV. Thus, SPY might be a better choice if you’re seeking a trading instrument.

The ETF’s higher expense ratio of 0.09% makes it less suited for long-term holding, although it is still inexpensive compared to several actively managed funds.

When you want to invest in the S&P 500 at a lower cost, consider analyzing SPY vs VOO to see which fits your situation best.

4. Invesco NASDAQ 100 ETF (QQQM)

QQQM is a market capitalization index with 101 of the largest non-financial sector stocks trading on the Nasdaq Stock Exchange. The Nasdaq 100 is more volatile than the S&P 500, meaning that it has higher risk and the potential for higher returns.

It is the best option if you want more exposure to companies like Meta Platforms, Apple, Amazon, Netflix, and Alphabet.

QQQM is the “mini” form of Invesco’s well-known QQQ fund. QQQM has a lesser volume and assets under management than QQQ but a lower expense ratio of 0.15%, compared to 0.2% for QQQ.

5. iShares Core US Aggregate Bond ETF (AGG)

AGG consists of investment-grade corporate bonds of all maturities and Treasury securities of the United States government. AGG represents the entire US bond market.

Passive investors frequently hold bond ETFs like AGG to limit volatility and drawdowns during periods when the market is volatile. It offers a balanced combination of protection, yield, and interest rate sensitivity as an intermediate-duration bond ETF. The expense ratio for the ETF is 0.03%.

6. iShares US Treasury Bond ETF (GOVT)

Corporate bonds’ increased default risk and stronger link with the stock market may turn off some investors. Also, they lose value in conjunction with stock market movements. As a result, some investors might prefer treasuries, which are government-issued bonds backed by the United States.

GOVT, which tracks the ICE (Intercontinental Exchange) US Treasury Core Bond Index, is a wonderful option for purchasing the treasury market. This index consists of a ladder of treasury bonds with AAA credit ratings and maturities ranging from one to 30 years.

While GOVT may offer more robust protection in a crash than AGG, it has a lower yield to maturity than AGG or the rate of return, assuming an investor retains it to its maturity date. In addition, the expense ratio for the ETF is 0.05%.

7. Vanguard FTSE Developed Markets ETF (VEA)

VEA is a fund that seeks to track the performance of the FTSE (Financial Times Stock Exchange) Developed Markets Index, a benchmark index for developed market stocks. The fund comprises large and mid-capitalization stocks from developed countries, including the United States, Canada, Japan, and Germany.

VEA has a low expense ratio of 0.05% and currently has over $62 billion in assets under management. The fund is well diversified across sectors and geography, making it a compelling option for investors looking for broad exposure to developed markets.

Additionally, VEA’s dividend yield of 2.72% is significantly higher than the yields on developed market bonds, making it an attractive income-generating investment.

8. Vanguard Total International Stock ETF (VXUS)

Combining VEA’s developed market fund and Vanguard FTSE Emerging Markets (VWO) fund in various ratios allows investors to index entire portfolios of international stocks. This method, however, necessitates manual balance and the inconvenience of determining how much of each to hold.

For a hands-off approach, investors can purchase VXUS, which tracks the FTSE Global All Cap ex-U.S. Index and holds 7,896 equities from developed and emerging markets.

Currently, VXUS is around 25% VWO and 75% VEA. Vanguard automatically rebalances assets at regular intervals and modifies the fund’s allocations depending on changes in the weightings of the world’s stock markets over time. The expense ratio for the fund is 0.07%.

9. Vanguard Total World Stock ETF (VT)

The FTSE Global All Cap Index is followed by VT. 9,435 large, mid, and small-cap stocks from established and emerging markets worldwide are included in this one-ticker solution.

The fund presently has a 60/40 US to non-U.S. split, but Vanguard will adjust this when the makeup of the global stock market changes. It is the most passive kind of stock investment with an expense ratio of 0.07%.

10. Schwab US Broad Market (SCHB)

Schwab U.S. Broad Market is a fund that seeks to track the Dow Jones US Total Stock Market Index. The fund invests in all the stocks in the index in proportion to their weightings.

The index includes 2,500 publicly traded companies in the United States, including small, mid, and large-cap companies. Schwab U.S. Broad Market is one of the largest ETFs by assets and is one of the most popular ETFs among investors.

SCHB charges an expense ratio of 0.03%, which is lower than many other funds.

What Are the Different Indexes?

Have you ever wondered how the different stock indexes are calculated? Whether you’re a seasoned investor or just starting, it’s essential to understand the difference between the various indexes. Here are a few of the most popular indexes:

Dow Jones Industrial Average (DJIA)

The Dow Jones is one of the world’s oldest and best-known stock indexes. It contains 30 large publicly traded companies, including household names like Coca-Cola and Boeing. The Dow Jones is a “price-weighted” index, meaning that stocks with higher prices have a greater impact on the index.

Standard & Poor’s 500 Index (S&P 500)

S&P 500 is a broader market index that contains 500 large publicly traded companies. The S&P 500 is a “market-weighted” index, meaning that each company’s weight is proportional to its market value. As a result, it makes the S&P 500 a more accurate representation of the overall stock market.

Nasdaq Composite Index (NASDAQ)

An index of over 3,000 publicly traded companies listed on the Nasdaq Stock Exchange, the NASDAQ is heavily weighted towards technology stocks, making it a good barometer for the tech sector’s health. Like the S&P 500, it is a market-weighted index.

How to Invest in Low-cost Index Funds?

Index fund investing is simple. Here’s a basic breakdown of the procedure:

Set Goals

Index fund investing is an excellent way to let your money grow slowly over time. By picking index funds that match the markets you want for yourself, such as stock or bond indexes, investors can invest in fewer but better investments without taking on too much risk and still get their return on investment quickly.

Research Your Potential Indexes

Many investment options are available to you, but you only need a few. Most investors should stick with the broad stock market index to not be too concentrated on any specific sector or country’s economy.

You could always add more exposure by investing in other markets like emerging ones if desired (or allocate fewer funds towards bonds).

Research Index Funds

After deciding whatever index you’re interested in, It’s time to choose which relevant index fund to purchase. Again, the cost is often the deciding factor here. Also, consider the returns, reviews, and other information while making your choice.

Decide on the Buying Platform

There are two main ways to purchase low-cost index funds: directly from a mutual fund company or through a brokerage. Buying directly from a mutual fund company is often the simplest option, as you can usually set up an account and make purchases online.

However, brokerages may offer more choices and lower fees. ETFs are similar to mutual funds, but they trade like stocks throughout the day, meaning you can buy and sell them at any time, although you will usually pay a commission.

Buy Index Funds

You’ll need to use an investment account to buy shares of an index fund. First, you can use an investment account, such as a Roth IRA or a conventional brokerage account. Then, choose a certain dollar amount to spend or a specific number of shares when buying the fund.

Essential in building your wealth over time is to make sure you make regular contributions. Even $25 per month can have an incredible impact over the long term. Many ask how to invest and make money daily; the answer is to start small and go from there.

Best Low-Cost Index Funds To Buy

One of the most successful investors of all time, Warren Buffet, recommends investing in index funds as long-term investments. And why not? A low-cost index fund offers many advantages, like higher diversification and keeping more money in your pocket instead of paying high management fees.

With this list of low-cost index funds, you can understand and explore your options for the best investment.This article originally appeared on Savoteur.

What kind of investment accounts do you need?

There are various investment accounts, depending on your lifecycle and financial goals. Choose investment accounts that advance your goals. Your goals may be to begin investing, saving for retirement and college, liquidity for emergencies, and tax optimization strategies. These accounts can help you build wealth.

Families may want to set up college savings or custodial accounts for young children, including a Roth IRA. Young investors may want to open a standard brokerage account, depositing some cash to get started buying index funds. Conversely, advanced investors may seek more risk and enjoy access to options like buying on margin and short selling.

4 Investment Accounts That Best Advance Your Financial Goals

1. Standard Brokerage Accounts

To open a brokerage account, you must be at least 18 years of age and have a social security number or tax ID. A standard brokerage account is a taxable investment account that will allow you to deposit and hold cash to buy various investments like stocks, bonds, money markets, mutual funds, index funds, or ETFs.

Taxable accounts require holders to pay taxes on any interest or dividends they earn on investments and any investment gains realized in the year made.

Cash and Margin Accounts

Typically, most brokerage accounts are cash accounts, but some investors want to open a margin account. You can build your brokerage by depositing enough cash to take advantage of a market downturn and pick up stocks at reduced valuations.

A margin account requires an investor to have cash for liquidity. When you buy securities on margin, you borrow money from your brokerage firm to purchase securities or short selling. These strategies carry high risks.

Individual and Joint Accounts

You can open an individual or joint brokerage account. An individual account means the holder retains ownership and has responsibility for paying taxes earned. A joint account includes two or more people, often spouses or partners, children, or other family members but can be a non-relative.

Self-Directed Account or Financial Advisor

Investors, especially young beginners, may want a self-directed brokerage account to take control over their investments, and make choices over the type of securities, individual stocks, ETFs, and mutual funds they buy for their portfolio.

They may prefer doing their research and can save money by not paying for a financial advisor, especially when managing a relatively small account. You can learn investment strategies like dollar-cost averaging and how to harvest tax-loss selling to reduce taxes.

Longer term, investors may want access to a financial advisor. A financial advisor can help investors build an investment portfolio for their short-term and long-term financial goals and tax optimization strategies.

Many options exist from traditional brokerage firms, Robo-advisors, online trading platforms, or wealth management firms.

2. Retirement Accounts for Everyone

Traditional 401K Plan

Saving for retirement at an early age usually begins with employer-sponsored 401K or Roth 401K retirement account plans. The traditional 401(K) is the best-known defined contribution plan for employees of private companies, offered by 67% of these firms. Most 401(k) plans provide at least three investment choices in your 401(k) plan, but some sponsor many more, like Vanguard, a popular choice.

Contribution Limits

The IRS recently raised limits on the maximum contributions of the 401 K per year to $22,500 in 2023, from $20,500 in 2022 that an employee may contribute to an employer-sponsored plan. Additionally, the 401K “catch-up” provision permits workers age 50 or older to contribute increases in 2023 to $7,500 (or $1,000 higher than in 2022) to help those getting a late start on retirement savings. These increases apply to 403 (b), most 457 plans, and the federal government’s Thrift Savings Plan.

Eligibility

The IRS imposes eligibility requirements based on compensation limits on retirement plans (e.g., 401K and IRA) subject to annual cost-of-living adjustments. The limits consider whether a workplace plan exists and whether a taxpayer is filing single or jointly. Check the IRS website for various limits for eligibility.

Match Contributions

Some employers will match a portion of your contribution to a percentage of your salary, like 5%.

For example, if you earned $60,000 per year, and they match 100% of your annual contribution (or $3,000) of your 401K, your employer would contribute 5% of your salary or $3,000 more to your account.

It would be best if you prioritized contributing a large enough amount to earn your employer’s full match, as it is part of your compensation, and you don’t want to lose it.

Required Minimum Distributions

Most retirement plans are subject to required minimum distributions (RMDs). Retirement holder owners who turn 72 must withdraw minimum amounts from their account annually starting in the year.

The RMDs apply to:

All employer-sponsored retirement plans, including:

• Profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.
•  Roth 401(k) accounts.
•  RMD rules do not apply to Roth IRAs while the owner is alive.

Roth 401K Plans

Increasingly, employers are offering Roth 401K retirement plans, with 70% of companies providing this option. Unlike the Roth 401K plans, your contributions for traditional 401K are pre-tax, and once you begin to withdraw from your account in retirement, you’ll have to pay your taxes at your current rate. Similar to the traditional 401K accounts, you are making after-tax contributions to your Roth 401K and will not have to pay taxes upon withdrawal in retirement.

In addition to 401K plans, there are:

403(b) plans are for employees of non-profit organizations (e.g., colleges, hospitals, religious and other not-for-profit organizations) and have the same contribution limits as the 401K plan.

457 plans are for state and local government employees and nonchurch-controlled tax-exempt organizations. They have the same contributions as the 401K, but no employer contributions are allowed for this plan.

SIMPLE 401K is for employers with 100 or fewer employees and is different than the other 400 plans. In the 401K plan, the employer must choose between matching contributions of up to 3% of each employee’s pay or non-elective contributions of 2% of the employee’s income.

The employee can elect to defer some compensation limits. SIMPLE 401K contributions rose to $15,500 in 2023 from $14,000 in 2022. For “catch-up” contributions for employees aged 50 and over, the additional contribution amount increased to $3,500 in 2023, up from $3,000 in 2022.

Traditional Individual Retirement Accounts (IRA)

If you don’t have access to an employer-sponsored 401K plan, or even if you do, you can personally set up your retirement account with a traditional IRA or a Roth IRA.

Traditional IRAs, typically used for retirement savings, would normally incur taxes and a 10% penalty for withdrawals before age 59.5.

However, there is an exception. You may withdraw money in an IRA account early to pay for qualified college expenses for yourself, your spouse, your children, or your grandchildren without being penalized. Frankly, consider withdrawals from retirement accounts as a last resort, as these accounts are for your financial future,

Contributions Limits And Withdrawals For IRAs

The limit on annual contributions to an IRA increased to $6,500 in 2023, up from $6,000. The IRA catch‑up contribution limit for individuals aged 50 and over is not subject to an annual cost‑of‑living adjustment and remains $1,000.

IRA withdrawals begin at age 72 as required minimum distributions or RMD. The retirement plan account owner of IRAs, including SEP IRAs and SIMPLE IRAs, is responsible for taking out RMDs.

Other IRAs have increased limits on contributions. SEP IRA contribution limits rose to $66,000 in 2023 from $61,000 in 2022. SIMPLE IRAs rose to $15,500 in 2023 from $14,000 in 2022.

Roth IRAs

With Roth IRAs, you contribute after-tax dollars, and your money grows tax-free. Your withdrawals are tax-free after 59.5 years.

Roth IRAs have no required minimum distributions like their older IRA counterpart. You may be able to withdraw your contributions, not your earnings, before age 59.5 years without penalty if your Roth IRA has existed for five years or more.

In many ways, Roth IRA has become the preferred vehicle for personal retirement accounts and is more tax-friendly.

3. Education Accounts

Investment accounts are excellent ways to save for qualified education expenses. The 529 Savings Plans and the Coverdell Education Savings Account are the most popular savings vehicles. You can do both plans for the same beneficiary if it suits your needs.

 529 College Savings Plans

A 529 plan is a college savings plan that offers tax-deferred savings and financial aid benefits. Originally begun to save for college, families may now use the plans to save and invest for K-12 tuition at private schools, retaining their tax-deferred nature.

Every state has a 529 plan; you do not have to live in that state to set up an account in each child’s name. Each state plan may vary, so check what works for you.

There are no maximum caps on how much money you can invest annually. State tax treatment of these withdrawals differs from state to state. So check with your state’s taxing authority or state 529 plan administrator.

Parents can typically choose various investment portfolio options, including Vanguard mutual funds, ETFs, allocation fund portfolios, and age-based portfolios. Which fund you choose depends on your appetite for control and risk. You can make changes between the funds based on your children’s age or the target date portfolios, which shift from more aggressive growth rates to more conservative rates as your child ages.

The 529 plans typically do not have income or age limits. An older person can use it for school later on.

 Coverdell Education Savings Accounts (ESAs)

These accounts are similar to 529 plans offering tax-free investment growth and tax-free withdrawals when you use the funds on qualified education expenses. Like 529 plans, the invested amounts are not limited to college and can be used not only for K-12 tuition but also expenses, including books.

Contributions to Coverdell ESAs are limited to $2000 annually per beneficiary, similar to limits set for IRAs. A Coverdell investment option is self-directed, so you have more options. Grandparents can each set up their account for the same beneficiary, with a $2,000 limit for each account.

Coverdell ESA’s have age and income limits. A beneficiary must use the funds by age 30 unless the beneficiary is a special needs person. If your adjusted gross income is over $220,000 as a married couple or $110,000 as a single taxpayer, you cannot contribute any longer.

4. Custodial Accounts: Roth IRA, UGMA, UTMA

Custodial Roth IRAs

Although you could set up a traditional IRA for your child, the contributions to a Roth IRA benefit from the likelihood that the child’s earned income will have a relatively low tax rate when you contribute to their account. The child’s income could come from performing personal services and receiving salaries, wages, tips, and net earnings from a parent’s self-employment if they helped in the business.

Creating a Roth IRA for your children provides more flexibility before they reach adulthood, as these funds can help pay for college, make a first home purchase, or retire.

A Roth IRA is preferable to a traditional IRA with after-tax contributions, tax-free growth, and withdrawals. Once your child becomes an adult, their custodial account needs to convert to a regular Roth IRA in their name.

Uniform Gifts to Minors Act (UGMA) or Uniform Transfers Minor Act (UTMA)

Parents can set up these custodial accounts for each child if they are under the age of 14 years and managed by the parent until the child turns the age of majority, typically age 18 years, unless stated otherwise.

Investments in these accounts are not limited.

For children below 18, the first $1,100 of unearned income from the investment is tax-free to the child, after which the next $1,050 is taxed at the child’s tax rate, then income above the $2,200 is taxed at the parents’ (usually higher) tax rate. When the child turns 18, they will pay taxes at their rate.

Couples filing jointly can contribute up to $30,000 annually for each child or $15,000 if an individual sets up an account. Anyone can set up a custodial account, including grandparents, aunts, and uncles.

Once the child has access to the account based on their age of majority, it becomes their asset.

Investment Accounts To Fulfill Your Goals

Besides having savings and checking accounts at the bank, it is essential to understand the various investment accounts to fulfill your short-term and long-term financial goals to invest, save for retirement and your children’s education, tax advantages, and build your wealth.

This article originally appeared on Savoteur.

Series I savings bonds have gone from a relatively unknown savings bond option to one of the most talked about in the personal finance community. The increase in series I savings bond sales is primarily due to one factor, an interest rate of nearly 10%, with minimal risk.

The interest rate of series I savings bonds is tied to inflation. Therefore, when inflation is high, so is the short-term interest rate on series I savings bonds.

According to data released by the Treasury Department, the Treasury sold $979 million of series I savings bonds before the deadline on Friday, October 28, 2022, which is almost as much as it sold in three years from 2018 to 2020, when buyers purchased just over $1 billion.

Though a nearly 10% return on savings bonds is appealing, there are also downsides. We’ll cover those below. By the end of this article, you should have a better understanding of the pros and cons of investing in series I savings bonds.

What Are Series I Savings Bonds

Series I savings bonds are a specific kind of U.S. savings bond created to shield your money’s value against inflation. With inflation at four-decade highs, investors increasingly seek higher-yielding, lower-risk investments, and I-Bonds fit the bill. The Treasury determines the inflation rate for the subsequent six months twice a year.

I-Bonds are currently at a 6.89% interest rate and will remain that way through April 2023. This is a decrease from the 9.62% interest rate in the six months leading up to October 2022.

I-Bonds expire after a 20-year initial holding term, but investors can extend the maturity by ten years. That implies that I-Bonds can continue to earn interest for 30 years or until you redeem the bond, whichever comes first. The Treasury automatically redeems after 30 years.

Pros of Series I Savings Bonds

Inflation Protection

Compared to most other saving strategies, series I savings bonds offer far better protection against inflation. That is because the interest rate will continue to be adjusted every six months based on the expected inflation rate. Therefore, the return on I-Bonds will always be close to the current inflation rate.

A well-rounded investment portfolio typically includes a mix of stocks, bonds, and real estate. Bonds yield a lower return than stocks but have less risk. If inflation remains low, this would result in a lower interest rate over the long haul. If inflation skyrockets, it’s better to have some protection.

Safe Investment

The U.S. government backs series I savings bonds. Therefore, if the U.S. government keeps honoring its debt, there’s no chance of default. If I-Bonds were to default, we would have more pressing issues than our funds. The results appear when comparing I-Bonds’ risk and return to other bonds.

Exempt From State/Local Tax

I-Bonds are not subject to state income taxes but are liable to federal income tax when cashed in. Additionally, investors may occasionally be tax-free if they use I-Bonds for education. Therefore, I-Bonds are tax efficient.

However, federal tax is at the ordinary income rate, not the capital gains rate. So while there are excellent tax benefits for state and local taxes, federal taxes may be higher than other investments depending on your tax bracket. That said, you can still benefit from not having to pay state and local taxes on the interest from I-Bonds. Make sure you pay close attention to these details on your tax return.

Cons of Series I Savings Bonds

Early Withdrawal Penalties

You must own series I savings bonds for an entire year before you can use your money again. If you want to use this money as your emergency fund, this could be an issue because you usually want to access your emergency fund immediately. One method is to put more money in your emergency fund than you would need for the next year. This way, you do not rely on using I-Bonds as a portion of your emergency reserve.

There is also a penalty of three months’ interest for withdrawing funds within five years. An interest penalty of three months may sound harsh, but it’s not as bad as it sounds. As long as I-Bonds provide a higher return than other government securities, you’ll likely make more interest even with the early withdrawal penalty. Regardless, before investing in I-Bonds, you should be sure you will only need to use the money a year after purchasing.

Unpredictable Interest Rate

The variable interest rate on I-Bonds is both a pro and a con. When inflation is high, you can enjoy a much higher interest rate that keeps up with inflation. However, the rate can decrease significantly when the rate resets every six months. We’re already seeing this take place with the interest rate decrease of nearly three percent starting in November 2022. If inflation returns to two percent or lower, like in the past decade, the interest rate on I-Bonds will also continue to decrease.

While the interest rate on I-Bonds is more unpredictable than many other bonds, other securities, such as stocks, likely see even more variability in returns. With I-Bonds, at least you know that you won’t lose money on your investments unless there is a default situation. Individual stocks can even go to zero quickly if something happens to the company.

Maximum Annual Investment

There are limitations on the amount of I-Bonds you can purchase in a calendar year. Anyone with a social security number can buy up to $10,000 in I-Bonds annually. Additionally, you can purchase up to $5,000 in I-Bonds with your tax return for a total of $15,000. Some people might never dream of putting $10,000-$15,000 annually into an I-Bond, but for others with large portfolios, this limit may hinder them from wanting to invest in a new bond.

If your household has multiple members, you can open up separate accounts and invest the same for every individual. Therefore, a family of four could invest $40,000 to $60,000 (with tax returns) in I-Bonds in a calendar year if they take all the necessary steps. If you think this sounds like a hassle, you’re probably right. But some are motivated to jump through all these hoops for a higher return with low risk.

Limited Purchasing Options

Investors can’t purchase I-Bonds through brokerage accounts such as Vanguard or Fidelity. And long gone are the days when you could purchase paper bonds. Investors can only purchase Series I savings bonds directly from the Treasury Direct website. Therefore, you would need to keep your investments in a separate account from other investments. The Treasury Direct website is quick and does the job, but it is a pain to sign up for a separate account and then keep tabs on your investments in a different place.

Should You Purchase Series I Savings Bonds

The decision to purchase series I savings bonds is a personal decision. You should research or consult a financial professional before making any decisions. That said, there could be a place for series I savings bonds in your portfolio, especially while interest rates are high.

We are using I-Bonds to build up an emergency savings fund. As noted earlier, you need to be careful if you go this route because the funds will not be available during the first year after purchase. Then there is a minor penalty of losing three months of interest if you cash out before year five. However, if you have the runway to let your funds sit for a year, you could have emergency savings growing at a higher rate of return than a savings account.

There could be a benefit to putting a small amount of your net worth in I-Bonds. Investing in I-Bonds will allow you to hedge a part of your portfolio against inflation risk. The downsides are the unpredictable future interest rates, limitations on how much you can purchase, and you can only purchase through Treasury Direct. If you can live with these downsides, finding a near-guaranteed return on investment at the same interest rate will be challenging during times of high inflation.

This article originally appeared on Wealth of Geeks.

It is never too early to start saving to achieve your retirement dream. One of the best ways to do that is by opening an Individual Retirement Account (IRA). An IRA is a savings account with unique tax benefits, which can help you save more money for your retirement.

IRAs account for over 34% of retirement assets in the U.S. There are two main types of IRAs: Roth IRAs and Traditional IRAs.

We’ll review the key differences between Roth and Traditional IRAs to help you make an informed decision about your retirement savings.

Roth IRA vs. Traditional IRA – What’s the Difference?

What Is a Traditional IRA

Established in 1974, a Traditional IRA is an individual retirement account created to incentivize Americans to save for retirement. It offers tax-deferred growth and tax-deductible contributions, meaning you can deduct your contributions from your taxes in the year you make them. Contributions to a Traditional IRA lower your overall taxable income and, therefore, your tax bill.

IRAs are more than just a savings account, giving you the option to invest in mutual funds, individual stocks, and even precious metals and grow your money tax-deferred. You won’t have to pay taxes on the funds until you withdraw them in retirement.

Traditional IRAs are the most common type of retirement savings account. As of mid-2020, nearly 29% of U.S. households held a Traditional IRA.

What Is a Roth IRA

Introduced in 1997 as part of the Taxpayer Relief Act, a Roth IRA is an individual retirement account offering tax-free growth and retirement withdrawals. Contributions to a Roth IRA are made with after-tax dollars, meaning you have already paid taxes on the money you contribute.

Over 26 million households owned a Roth IRA in 2020, which represents about 20% of IRA holders in America.

Comparison of the Tax Consequences

For Example, if Jim Contributes Money at Age 30 and Retires at 65, Several Tax Scenarios Will Apply.

	Deposit At Age 30	At Age 34	At Age 50	At Age 65
Traditional IRA	Tax-free contribution (Jim subtracts the amount from income).	Jim will pay tax on withdrawals according to his income tax bracket plus pay a 10% additional tax penalty when the withdrawal is before age 59 and a half.	Jim will pay tax on withdrawals according to his income tax bracket plus pay a 10% additional tax penalty when the withdrawal is before age 59 and a half.	Jim will pay tax on withdrawals according to his income tax bracket.
Roth IRA	Jim contributes after-tax income (Tax paid per current income tax bracket).	Jim can withdraw his original contribution tax-free, but any earnings/growth amounts withdrawn before five tax years of the first contribution to a Roth IRA are taxed as per his income tax bracket.There may be a 10% additional tax penalty as well.	Jim can withdraw his original contribution and any growth amount tax-free.	Jim can withdraw his original contribution and any growth amount tax-free.

In general, Roth IRA gives you the flexibility to withdraw your savings at any time. Traditional IRAs allow you the benefit of a tax deduction in the current (contribution) year.

What Are the Contribution and Tax Deduction Limits

You can contribute to an IRA if you have taxable income. The Internal Revenue Service (IRS) has set some limits on the amount of money you can invest in IRAs. For 2022, this limit is $6,000 and has been unchanged since 2019. If you are over 50, you can contribute up to $7,000.

It is crucial to keep in mind that this limit is cumulative for all IRAs. While you can contribute to a Traditional and a Roth IRA in the same year, the total amount contributed to all your IRAs can not exceed the $6,000 limit in 2022.

Are There Any Required Minimum Distributions I Must Take From the IRA Accounts After Retirement

Let’s go back to Jim’s example once again. At age 72, Jim must start taking distributions from his Traditional IRA holdings as per amounts mandated by the IRS, based on Jim’s life expectancy and balance remaining.

Jim has no obligation to distribute his Roth IRA holdings. He can continue to choose the best investments to grow his money tax-free.

	At Age 72:
Traditional IRA	Must start taking a minimum amount of withdrawals and pay tax as per income.
Roth IRA	Tax-free withdrawal of original contribution and any growth amount.No mandatory withdrawals.

Can I Avoid Paying Tax Penalties for Early Withdrawal

The IRS has introduced exception scenarios to avoid paying the 10% penalty tax for early withdrawal from Traditional and Roth IRAs. Some of these qualifying scenarios are described below. Consult the IRS website for more details.

Source: IRS website.

Should I Invest in a Roth IRA or Traditional IRA

This decision comes down to personal preference, a fair guess of what your retirement income will look like, and IRS rules.

• If you believe you will be in a lower income tax bracket in retirement, it is a good idea to contribute pre-tax income to a Traditional IRA. You’ll pay income tax on withdrawals but will pay a lower tax rate versus your current rate.
• On the other hand, if you think you’ll start withdrawing funds at a higher income level at retirement than your current income, then contribute to a Roth IRA with after-tax income at your current low rate. This way, future withdrawals will not add to your income and boost your tax rate.
• Another approach is splitting your contributions between account types to hedge your risk.
• Do you need immediate tax relief? If you underestimated your income in the current year or expect a significant windfall, taking the immediate tax deduction with a Traditional IRA contribution may be beneficial.

Finally, IRS rules stipulate income levels over which you can not qualify to contribute to a Roth IRA. Income levels also govern whether you can deduct Traditional IRA contributions from your income. These rules laid out below may decide for you.

Traditional IRA Allowable Deduction Scenarios

1. If a retirement plan at work does not cover you (and your spouse), you can deduct the total amount of your contribution to a Traditional IRA.
2. Specific income levels do not qualify for a deduction if a retirement plan at work covers you or your spouse. For example, you cannot deduct any amount if married and make over $129,000 a year. On the other hand, if you make less than $109,000, you can take a full deduction. Refer to this page on the IRS website for a complete list of income level-related rules.

Roth IRA Allowable Contribution Limit Based on Income

Similar to income-based deduction limits for a Traditional IRA, your income determines whether you can contribute to a Roth IRA.

1. For example, if you are married and make more than $214,000 a year, you can not contribute to a Roth IRA. You can contribute up to the limit if you make less than $204,000.
2. If you are single and your income is less than $129,000, you can contribute up to the limit. On the other hand, if you make more than $144,000, you can not contribute to a Roth IRA.

Refer to the IRS website for a complete list of qualifying income levels for a Roth IRA.

Convert a Traditional IRA to a Roth IRA

You may be able to convert your Traditional IRA to a Roth IRA. Converting to a Roth IRA can be a good option if you expect to be in a higher tax bracket when you retire or if you want the flexibility of having both taxable and tax-free income in retirement.

To convert your Traditional IRA to a Roth IRA, you must pay taxes on the money you convert. The converted amount gets added to your taxable income for the year, and you will owe taxes at your marginal tax rate.

Before converting your Traditional IRA to a Roth IRA, you must speak with a financial advisor to see if this is the right move. They can help you weigh the pros and cons of conversion and help you decide if it’s right for your financial situation.

Start Your Annual Contributions Today

Deciding between a Roth IRA and Traditional IRA ultimately depends on your financial situation and retirement goals. Both types of accounts have their benefits, so weighing the pros and cons before deciding which one is right for you is essential.

If you’re still unsure which type of account is right for you, speak with a financial advisor who can help you make an informed decision about your retirement savings.

This article originally appeared on Wealth of Geeks.

Want excellent investment advice? Buy low, sell high.

This desirable but overly simplified strategy means you should buy shares at a low price and sell them when they are at a higher price, resulting in a profit on the transaction. The problem with such advice is that you’ll have to know when to call a bottom in down markets so you can make purchases or when the market is peaking to make a profit.

Therein lies the rub for most investors, which is challenging to achieve.

Why? Because we are busy human beings with emotional biases that react to volatile markets. When the market is in a downturn, people often fear more declines and sell their shares. And when stocks rise, people get FOMO (fear of missing out) and may rush in to invest. For many of us, emotions and stress levels play a role in constructing our investment portfolio, making dollar-cost-averaging a legitimate strategy.

What is Dollar-Cost-Averaging?

To succeed financially, you must establish long-term investment strategies. Avoid making common mistakes when there is substantial market volatility like trying to time the market, chasing the hottest trends, being overconfident, or setting unrealistic goals.

Our emotions get the best of us, especially when making investments. To counter our tendencies to get into trouble, we can adopt a safe and effective strategy for the long term: dollar-cost-averaging.

Dollar-cost-averaging (DCA) is a systematic program of investing equal sums of money at regular intervals regardless of the investment’s price. It’s a simple approach requiring you to determine two parameters: the fixed amount for each period and how often.

In this approach, you’ll automate investing the same fixed dollar amount in the same stock, ETF, or mutual fund at regular intervals over a long time.

As investments tend to increase in price more than they fall, the “cost averaging” means that you purchase more when the price is down and fewer shares when the price is high. Essentially, you are buying most of the shares at below-average costs.

You’re Probably Already Using the DCA Approach

This strategy provides a disciplined approach, taking the guesswork out of investment timing and avoiding the outside events that may cause short-term gyration in the market. DCA is similar to the buy-and-hold investment strategies that look past short-term noise in the market.

You’re probably already using dollar-cost-averaging for your 401K plans, individual retirement savings accounts (Roth IRAs or traditional IRAs), and employee stock ownership plans.

Suppose you use Acorns, the micro-investing app, Greenlight app, or other fintech companies that use a Round-ups feature or recurring investments. When making purchases using a linked debit card, the spare change from the transaction rounds up to the nearest dollar and goes into your investment account. Users will benefit from using the dollar-cost-average strategy.

Besides these plans, a dividend reinvestment plan (DRIP) can carry out dollar cost averaging. Many well-known companies, such as Coca-Cola, allow investors to purchase shares of stock on a dollar-cost basis directly from them through a DRIP program managed by the Direct Stock Purchase Plan Clearinghouse. This allows you to avoid going through a brokerage firm. DRIP strategies help investors reinvest their dividends.

Although dollar-cost-averaging is not an exciting way to invest, it tends to enable investors to buy at “below-average” prices. For example, you may want to invest $100 into shares of a specific company each month, whether the market is fluctuating, declining, or rising.

At the end of six months, you invested $600 into shares for an average dollar cost of $3.87 per share. Had you invested $600 all at once as a lump sum, your average price would be $5 per share, above the average price of $3.87. We’ll discuss investing in lump sum payments below.

MONTH $ AMOUNT SHARE PRICE SHARES PURCHASED

MONTH	$ AMOUNT	SHARE PRICE	SHARES PURCHASED
JANUARY	$100	$5	20
FEBRUARY	$100	$5	20
MARCH	$100	$4	25
APRIL	$100	$5	20
MAY	$100	$2	50
JUNE	$100	$4	20
TOTAL	$600		155

Benefits of Dollar-Cost-Averages

Reduces Risk

The DCA approach minimizes risk and is desirable for investors with low-risk tolerance. It automatically buys more shares through downturns and lower prices, decreasing the average share price. Essentially, it provides short-term downside protection by taking advantage of gyrations.

Investor Discipline

This simple strategy enhances investor discipline.

Investors are making purchases at regular intervals and fixed amounts instead of poorly timed lump sum investments. Investors aren’t timing the market, a challenge for most sophisticated investors. They can set up automated contributions based on preferred parameters like they do for their retirement accounts.

Warren Buffett is a fan of the low-cost-average approach. Whether he is buying shares for his own portfolio or recommending that investors buy low-cost index funds of the S&P 500, he often says investors should not make their purchases all at once.

Help You Lower Your Cost Basis

Dollar-Cost-Averages reduce the average cost of shares purchased over a relatively long term. Investors will buy more shares at a fixed amount when the market goes down. While it doesn’t eliminate losses, this strategy limits them during times of declining prices.

Reduce Emotional Biases

DCA counters investor psychology sometimes called behavioral finance. We often buy at the “wrong” time and second-guess our moves in the market. Investors experience loss aversion, a cognitive bias that describes individuals who feel the pain of losses significantly more than the pleasure gains in the stock they own.

Similarly, anchoring bias causes us to rely on the first piece of information we know rather than new information. For example, an investor may refuse to sell a stock at a lower price than their purchase. They may cling to the higher price they paid, even though new information reveals an unfavorable direction for the company.

Dollar-Cost-Averages provide a mechanism that eliminates emotional biases that may undermine our portfolio strategy.

Less Focus on Short-Term Market Volatility

Market volatility can be stressful. DCA smooths out the volatility by regularly making lower-priced share purchases. Investors can better ignore the daily noise affecting the market.

Contributing money to your portfolio during a sharp market downturn is often the best time to purchase stocks.

The DCA approach allows investors to remain in the market rather than staying out and missing the bottom. You can’t wait for “the dust to settle” as there are no bright lights that tell you when to wade back into the market.

Disadvantages of Dollar-Cost-Averaging

A More Conservative Approach

DCA’s lack of glamour may bore some investors who prefer actively trading stocks for shorter timeframes. The Dollar-Cost-Averages strategy tends to be a more conservative way to invest than making lump sum investments.

Investors May Forfeit Higher Returns

Lower risks tend to generate lower returns. Therefore DCA investors may forfeit higher returns associated with the riskier lump sum investment strategy.

Investors will generate higher returns if the asset price rises by investing a lump sum at once at a lower price rather than over regular intervals. In the DCA strategy, you may buy fewer shares than if you make a more significant investment upfront.

There May be Opportunity Costs

When implementing the DCA approach, you may hold the funds in cash or money markets (cash-equivalents) at meager returns, causing opportunity costs. You can avoid this scenario by contributing to your portfolio from your paycheck as you do for your retirement accounts.

Comparing Performances of DCA to Lump Sum Investing

An alternative to DCA is lump sum investing. This is when you invest a lump sum immediately, unlike DCA, which invests equal amounts at intervals.

A Northwestern team analyzed rolling, 10-year returns of $1 million invested immediately in the U.S. markets versus dollar-cost averaging. In the dollar-cost averaging scenario, the money was invested evenly over 12 months and then held for the remaining nine years. They varied the portfolio composition from 100% equities or 100% fixed income, including money markets, and a 60/40 split between equities and fixed income.

They found that lump sum investing a $1 million windfall all at once generated better cumulative total returns at the end of 10 years than dollar-cost-averaging almost 75 percent of the time. This was regardless of asset allocation.

However, another study pointed out that the length of time for DCA made a difference. Over 36-month intervals, the lump sum beat the dollar cost, averaging more than 90 percent of the time. However, the results were much closer over six-month time frames.

DCA works better for six to twelve months, whereas lump sum investing works better with large windfalls such as an inheritance or insurance and more extended periods.

Who Should Consider a Dollar-Cost-Averaging Strategy

• The DCA approach works best for beginning and risk-averse investors who want to participate in the market and can’t stomach accumulating losses.
• They are comfortable with lower returns as a trade-off for higher risk and stress.
• Investors don’t need to time their purchases.
• They prefer automating contributions to build their portfolio and doing the same for their retirement accounts.

Although DCA works with individual stocks, buying ETFs or mutual funds is desirable for diversification purposes.

Final Thoughts

Dollar-cost-averaging is a conservative approach to investing in the market, reducing risk, stress, and emotional biases. It is desirable for investors who are less tolerant of market volatility but want to participate in the market.

This post originally appeared on Savoteur.

Are you thinking about investing in index funds? You may have heard about the popularity of this type of investment. Now you want to know about the best index funds in the market.

An index fund is a type of investment that tracks a specific index, allowing people to pool their money and then invest it in various securities, such as the S&P 500 or the Dow Jones Industrial Average. 

Index funds are passive investments, which means they aim to track the performance of the underlying index. 

Many investors go for index funds since they offer lower risk and greater diversification at a low cost. This article provides a short overview and a list of the top index funds you could add to your portfolio.

Why Invest in Index Funds?

Index funds offer several advantages to investors:

• They provide broad exposure to a wide range of stocks, which can help to diversify a portfolio and reduce risk. 
• They tend to be lower-cost than actively managed funds, which can save investors money over time. 
• They produce lower tax outcomes than other types of investments, which can save investors money on their taxes. That’s because, with index funds, you will buy and sell less, which means fewer taxable capital gains. 
• Index funds offer the utmost convenience in understanding and managing, which can be a good move when you’re just starting investing. 

These advantages make index funds an attractive option for investors looking to keep things simple or want to avoid high fees.

Index Funds vs. Managed Funds

Both have pros and cons, so evaluating the difference is critical before making a final decision. 

Index funds track a specific index; the S&P 500, for instance. Therefore, they require less time and effort to maintain than actively managed funds. 

With an actively managed fund, the fund manager constantly buys and sells to try and outperform the market. As a result, index funds tend to contain lower fees than actively managed funds. 

These managed funds can offer the potential for higher returns if the fund manager is successful. But there’s also a higher probability of losses associated with it, and fees are typically higher. 

If you’re looking for the potential for high returns with a higher risk, then an actively managed fund may be a good choice. But if you’re more focused on preserving capital and building wealth, then an index fund may be a better option.

How Do Index Funds Work?

Index funds are typically structured as mutual or exchange-traded funds (ETFs). Both index funds aim to track the performance of a specific index, but they differ in a few key ways.

Typically, mutual funds are administered by fund managers who buy and sell stocks to track the underlying index. ETFs, on the contrary, are passively managed and targeted to replicate the index’s performance.

Both types of index funds have their benefits and drawbacks. For example, mutual funds relatively impose higher fees than ETFs. But ETFs can be more difficult to trade and may be subject to greater market volatility.

15 Best Index Funds

These index funds offer exposure to different segments of the US stock market and can be used to construct a diversified portfolio. Choose one or more of these funds to include in your portfolio, depending on your investment objectives and risk tolerance.

1. Vanguard S&P 500 Index Fund 

VOO tracks the S&P 500 index and has an expense ratio of 0.03%, and it has returned an average of 11.8% per year over the past ten years.

2. SPDR S&P 500 ETF 

SPY tracks the S&P 500 index with an expense ratio of 0.09%. It is the largest US ETF, with over $300 billion in assets.

When you’re looking for a similar fund with another investment company, FXAIX is a Fidelity fund that may be the right choice for you. SPY and FXAIX are funds that track the same index and offer low fees.

3. Vanguard Total Stock Market Index Fund 

VTSAX tracks the MSCI US Broad Market Index, which includes all US stocks. The fund has an expense ratio of 0.04% and has returned an average of 13.4% per year over the past ten years.

4. Vanguard Russell 2000 ETF

VTWO tracks stocks in the Russell 2000 Index, mainly made up of stocks of small US companies. It has a 0.01% expense ratio. 

5. Fidelity Total Market Index Fund

FSKAX currently has the lowest index funds expense ratio at 0.015%. It tracks the Dow Jones US Total Stock Market Index. 

FSKAX is similar to FZROX, another Fidelity total stock market fund. FSKAX and FZROX are diversified funds with extremely low costs; FZROX even offers zero fees.

6. Vanguard 500 Index Fund 

The VFIAX tracks the S&P 500, a general benchmark for the stock market. It’s a good option for investors who want to diversify their portfolios and get exposure to various companies. It has an expense ratio of 0.04%.

7. Schwab S&P 500 Index Fund 

The SWPPX fund tracks the S&P 500 and has a low fee of 0.02%. That makes it a good choice for investors who want to keep their costs down.

8. iShares Core S&P 500 ETF 

IVV is an iShares fund that tracks the S&P 500 and is one of the most popular index funds in the market. It’s a good choice for investors who want a simple, low-cost way to invest in the stock market.

If you want a similar fund with another company, VOO is a fund by Vanguard that may be the right choice. IVV and VOO are funds that track the same index and offer low fees.

9. Vanguard Total Stock Market Index Fund 

The VTSMX tracks the performance of the entire stock market, which can provide more diversification than a fund that only tracks the S&P 500. At a 0.14% expense rate, it’s a popular option to have exposure to the total stock market.

10. Schwab Total Stock Market Index Fund 

SWTSX tracks the performance of the entire stock market, but it has lower fees than most at 0.03% expense ratio.

11. iShares Core Total US Stock Market ETF 

ITOT tracks the MSCI US Broad Market Index and has an expense ratio of 0.03%. It is one of the cheapest and biggest US ETFs, with over $20 billion in assets. This ETF tracks the performance of the entire US stock market and can be a good choice for investors who want broad diversification.

When you want a fund similar to ITOT but with another investment company, VTI is a fund with Vanguard that may be something to look into. ITOT and VTI are total market ETFs that focus on the US market and have very low costs. 

12. Vanguard S&P 500 Growth Index Fund 

The VOOG tracks the S&P 500 Growth Index, which includes companies expected to grow faster than the overall market. It’s a good choice for investors who want to focus on growth stocks.

13. Schwab US Large-Cap Growth Index Fund 

SWLGX tracks the Russell 1000® Growth Index, which includes more companies than the S&P 500. With a fee of 0.035%, your total investment costs will be on the lower side.

14. iShares S&P 500 Growth ETF 

IVW tracks the S&P 500 Growth Index and is an excellent choice for investors who gravitate more toward growth stocks.

15. Vanguard Dividend Appreciation Index Fund 

VDAIX tracks the Dividend Achievers Index, which includes companies with a history of paying dividends. As a result, it’s an ideal choice for investors who are more inclined toward income-producing stocks.

Frequently Asked Questions (FAQs) – Best Index Funds 

What Index Fund Has the Highest Return? 

When picking the index fund with the highest return, there is no easy answer. However, there are a couple of things investors should consider when making this decision. 

First, it is imperative to remember that past performance is not necessarily indicative of future results. Second, fees and expenses can significantly impact returns, so it is important to compare these factors before making a final decision. Finally, it is also important to consider your individual investment goals and risk tolerance when choosing an index fund. 

What Is the Rate of Return on Index Funds?

The rate of return on index funds is how much your money grows annually. 

The rate of return on index funds will vary depending on the specific fund and the market conditions at the time. However, over the long term, index funds have tended to outperform actively managed funds. 

Additionally, index funds typically have lower fees than actively managed funds, contributing to higher returns.

Are S&P 500 Index Funds a Good Investment?

S&P 500 index funds are a type of mutual fund with a portfolio constructed to match or track the components of the S&P 500 Index, an American stock market index. The advantage of investing in an S&P 500 index fund is that it offers investors broad exposure to large-cap US stocks in a single investment. 

Additionally, because the S&P 500 index is highly diversified, it can help to reduce risk. However, it is important to remember that index funds do not offer guaranteed returns, and their performance will depend on the performance of the underlying index. 

For these reasons, S&P 500 index funds can be a good investment for long-term investors seeking diversification and potential capital appreciation.

Conclusion – Best Index Funds 

The list of options can be considered the best index funds currently available in the market. These funds are good choices, especially for passive investors looking for a long-term investment. 

Investing in one (or more) of these will allow you to spend less time choosing stocks and diversify your portfolio while spreading the risk, generally at a lower cost.

Before investing your hard-earned money, do more thorough research on the companies and funds, picking the best one that suits your investment goals and preferences.

This post originally appeared on Hello Sensible. 

Learning how to start investing can feel confusing to new investors. Failed attempts to translate investment jargon and seeing ticker symbols run across your screen as you watch the morning news is enough to keep potential investors out of the investing game for good.

How to Start Investing

There is no one right way to start investing. But, after listening to your co-worker, uncle, and neighbor swear by their investment strategies, you’re likely ready for some actionable tips. 

This guide walks you through nine simple steps to overcome the overwhelm and teaches you how to start investing.

1. Set Financial Goals

Setting goals should always be the first step in any significant financial changes you’re looking to make. Whether investing, buying a house, or working to increase your income, think of your goals as a roadmap to take you from Point A (where you are now) to Point B (where you want to go).

Ideally, if you are married or combine finances with a partner, they should be part of the goal-setting process. Any good goal-setting sesh begins with a dream. Taking the time to dream about your future is crucial. You weren’t born simply to work and pay bills. Investing is about taking care of your future self and finding financial freedom to live the life you truly want.

So, when you sit down to set financial goals, it’s crucial to envision the life you truly want to live. If you don’t know how you want to live in the future, it’s difficult to know how much money you’ll need to support that life.

Set financial goals for varying time frames. Long-term goals are critical as they will reflect the quality of life you want when you retire. But short-term goals are necessary, too, as they serve to keep you motivated along the journey.

Get specific with your goals. Outline the amount of money you want to have in your investment accounts by a particular date. Determine how much you want to grow your nest egg by the time you reach retirement age.

The more detailed you can make your “road map,” the better it will guide you to make the best investment decisions for you and your future self.

2. Live on a Budget

If your financial goals are your road map, then consider your budget the vehicle that’s transporting you along your journey.

Often overlooked, your budget is your foundation to financial success. Having a solid grasp of how you spend and save is essential to the beginning investor. 

Whether you prefer to jot down a quick budget on a notepad or create a detailed spending plan for each paycheck, consistent budgeting gives you a better understanding of the money that flows in and out of your bank accounts.

Your budget tells you if you’re able to invest a little money or a lot of money, and it executes the plans you put in place to manage your money, pay your bills, and get out of debt.

Common Misconceptions

Many believe budgeting to be complicated and restrictive; however, once you’re regularly budgeting, you’ll find it’s neither. Instead, budgeting offers you the freedom to spend and save in a way that supports your values and priorities.

Contrary to popular belief, budgeting does not have to be complicated. The level of complication is solely up to you. You can set up an over-complicated budget that takes you hours to maintain each week or opt for a simple system like zero-based budgeting to create a plan for every dollar you earn.

3. Build an Emergency Fund

And if your budget is the vehicle to take you where you want to go, financially speaking, then an emergency fund is like your AAA membership (American Automobile Association). When you own a car, you expect it to have issues or need maintenance at some point. Sure, if you buy a brand new vehicle, it’ll come with a fancy warranty that will likely cover your butt for a long time.

However, eventually, something will happen: you’ll get a flat tire, get in an accident, or need a tow. If you have a AAA membership, call them, and they’ll send a tow truck to your location and haul your car to the shop. By planning ahead and anticipating the need for these types of services in the future, “past you” saved “future you” a bunch of money and frustration.

That’s an emergency fund’s exact purpose – but for your life overall, not just your vehicle.

Before you begin investing, it’s in your best interest to establish an emergency fund. Essentially, you want to avoid investing all your extra money and then taking it back out when you experience an emergency.

Emergencies will happen; there’s no way around it. But unfortunately, we rarely know the details of how they will happen, when they will happen, and how much they will cost. 

Therefore, beginning to invest without having an emergency fund puts your finances in a volatile position, especially if you’re on a tight budget.

Review your budget to determine how much money you need to live on a monthly basis. Then, multiply that number first by three, then by six. This will tell you how much you will need to save to sustain your lifestyle for three months (the lower number) up to six months (the higher number). 

Ideally, you’ll maintain a savings account balance of at least three full months of living expenses in your emergency fund. However, six months would offer you and your finances much more protection.

4. Get Out of Debt

Once you have built an emergency fund, look at your debt profile. Are you in debt? If your answer is “yes,” what types of debt do you owe? Since debts carry different interest rates, accounts like mortgages and student loans often have lower interest rates. In comparison, credit cards and personal loans are typically considered high-interest debt.

As with all personal finance decisions, deciding whether to get out of debt before investing is personal. However, many people don’t want to wait to begin investing for fear that they will miss out on potential growth as they work to pay off their debt. 

Others realize that their debt consumes a large portion of their monthly income, leaving them with less money to invest.

You may decide to pay off your credit cards quickly and start investing while you continue to work to pay off your student loan debt. There are many different methods to get out of debt. Determine which will work best for your current financial situation, create a plan, and get to work.

5. Educate Yourself

It’s perfectly normal to feel scared of something you don’t understand. Investing-related terms such as real estate investment trusts (REITs), exchange commission, and market conditions can sound like a foreign language to would-be investors. 

Although it’s normal to shy away from topics that make you feel you need a finance degree to join the conversation, the longer you avoid investing, the more potential gains you’ll miss.

Lucky for you, investing isn’t quite as complicated as some financial advisors and institutions would have you believe. According to Merriam-Webster, the word “invest” means:

1: to commit (money) in order to earn a financial return

2: to make use of for future benefits or advantages

Yes, investing can be as simple as “making use of your money for future benefits or advantages,” and yes, when investing, you are committing your money in the hopes of earning a return.

Investing is not inherently complicated, yet, as with most things, it can become more complex the more nuanced you get. This is precisely why educating yourself on basic investing concepts and terminology is such an important step.

Here’s the good news – we live in a world where we hold infinite information in our hands.

Everything you’ve ever wanted to know about how to start investing is only a Google search away. Amazon readily displays page after page of books on investing for beginners up to advanced. Even social media constantly serves up 30-60 second lessons on “how the stock market works” via your various For You pages, though exercise caution when taking investment advice from TikTok.

If you want to learn what to invest your money in stock market, you can pick successful people’s investment portfolio just like Bills Gates Portfolio and study individual companies. You’d want to learn about the companies track record before investing money.

A call to your financial advisor can be helpful as they are equipped to provide specific investment advice and guidance as you’re preparing to make investment decisions. In addition, your accountant has access to your financial information and can advise you on your potential tax liability and the tax benefits of an individual retirement account (IRA).

6. Check With Your Employer

When you’re ready to start investing, a good first step is to check with your place of employment. Many employers offer a retirement investment plan as part of your employee benefits package. Yet surprisingly, 17% of Americans with access to workplace retirement plans don’t currently participate. 

Individual companies offer various types of plans, such as a pension plan, 401(k), and 403(b). Different types of investments are available but will vary from company to company. Most employer-sponsored retirement plans require you to contribute a percentage of your earnings. In many cases, your employer will also match a portion of your contribution. 

A significant benefit of these plans is that your contribution comes directly from your paycheck, making it an easy way to invest consistently without transferring money from your bank account each time. 

And while many refer to an employer match as “free money,” remember that your employer-sponsored retirement plan (including the employer match) is part of your benefits package. This means your employer considers the amount of money they will contribute as a match to be part of your compensation.

Your company’s human resource (HR) department or employee benefits coordinator can offer you additional information on the retirement benefit packages available to you.

A good practice is to invest up to whatever amount your employer requires to receive the maximum allowable match. For example, if your employer offers a 5% match, they may require you to contribute 5% of your paycheck to qualify for the 5% match. 

However, should you elect to only contribute 3% of your paycheck, in many cases, the employer will only match 3%, leaving the additional 2% of the allowable match on the table. Therefore, a great way to start investing is to contribute enough to reap the benefits of your full employer match.

7. Make a Plan

Once you have a basic understanding of investing, it’s time to decide how you want to invest your money. For example, suppose you have enough money to invest beyond your employer-sponsored retirement plan. In that case, you may open either a Roth IRA or a Traditional IRA to maximize your tax-sheltered retirement savings. 

Perhaps you want to invest your money with a specific financial institution such as Fidelity, Vanguard, or Charles Schwab. On the other hand, would you prefer individual stocks, mutual funds, or real estate investments? Would you be more comfortable working with an investment advisor or taking the DIY route and using an online platform such as Robinhood or M1 Finance?

Determine Your Risk Tolerance

Typically the younger you are, the riskier you can be – though this is just a rule of thumb, not a hard and fast investment strategy. Still, determining the level of risk you’re comfortable with is an integral part of investing. It’s often true that a greater risk can yield a greater reward; however, you still risk losing real money.

Adjust Your Expectations

According to investing expert Jeremy Schneider, founder of the investing education platform Personal Finance Club, “We’re currently in the midst of high inflation, market volatility, a war, rising rates, and plenty of other scary stuff in the headlines. But it’s important to remember that individual investors are best served by focusing on their own finances.”  

Schneider often reminds his 400,000+ Instagram followers that building wealth is nothing more than a simple equation, “Spend less than you make. Invest the difference. That’s what will make you rich. Trying to make tricky moves in response to the macroeconomic landscape is more likely to hurt you than help you.” 

Successful investors have to be comfortable with being uncomfortable. So build a diversified investment portfolio that will allow you to stay the course.

8. Stay Consistent

When trying to build wealth by investing, there is no escaping the ups and downs you’ll experience over time. However, the most important thing to remember is that “time in the market” will always trump “timing the market.” 

Even the most accomplished investors and fund managers are rarely successful in predicting how the market will perform over any given period. You should prepare to experience substantial gains and extreme losses as a long-term investor.

Your best defense against the peaks and valleys of investing is to remain consistent through it all. Even as we find ourselves in a bear market, history has shown the market always rebounds. The investors who remain steadfast, refuse to withdraw their money, and continue to invest consistently will be rewarded.

9. Start Today

One of the worst choices you can make regarding investing is to procrastinate. So instead, choose one small action and start today. Sit down to prepare your budget for the upcoming month, grab a book about famous investors like Warren Buffet, or take an online class about building wealth with index funds.

Just as the interest in your investments compounds over time, so will the small, consistent actions you take daily.

The Long Haul

Investing is essential to planning for your future and creating the life of your dreams. Still, it’s important to remember that investing is a marathon, not a sprint. 

As cliché as that may sound, keeping the big picture in mind will reinforce your expectations throughout your investing journey. 

This post originally appeared on Hello Sensible. 

Investing in dividend stocks is a highly recommended way to build wealth in the long run. Not only can the price of the stock increase, but you also can receive small, regular payments, called dividends while owning these stocks.

While many stocks offer a dividend, only so many will become successful, and some might lose a majority of their value. This is why investing your money in only the best dividend stocks is essential.

What Are Dividend Stocks?

Before diving into some of the best dividend stocks to invest in, it’s crucial to understand what they are.

A dividend is payment companies make to their shareholders, who own stock in their corporation. The dividend stock label refers to those that historically have paid out reasonable dividends and maintained (or even increased) their payments yearly. The best dividend stocks or dividend ETFs are companies or group of companies with an excellent track record with dividend payments, will likely not be changing course any time soon, and can serve as a source of passive income.

“However, dividends are not guaranteed,” points out Danielle Miura, CFP, founder and owner of Spark Financials, a fee-only firm in Ripon, CA. “The board of directors decides whether or not to lower the dividend amount or not have a dividend at all.”

What to Look for in Dividend Stocks

It’s not good enough to list the best dividend stocks and never revisit them because the markets constantly shift. So what works well one year may not work another. That’s why knowing what to look for in dividend stocks is important.

The first important thing to understand is that dividend stocks have a yield representing what percent of your investment you can receive as a regular payment. So, for example, if you buy a $100 dividend stock with a 5% yield and the stock price stays the same, you’ll receive $5 total in dividends for every year you own the stock. It may be an annual payment or split up into separate ones throughout the year.

The higher the dividend yield, the higher the percentage of the money you should theoretically earn back from dividends. However, it’s essential to watch out for company trends as a growing company with a 3% yield will often give you far more appreciation of the stock price and total return in the long run than a shrinking company with a 5% yield.

Therefore, the best dividend stocks aren’t necessarily the ones with the highest yield percentages but ones that will provide you with the most stability and total returns in the long run.

Danielle Miura suggests that “if you plan to invest in dividend stocks, look for a happy medium between growth in the value of the stock and growth in the income you receive. Look for dividend stock companies with low debt to equity ratios, strong cash flow, and consistent dividend growth.”

Dividend Stocks Are Long-Term Investments

An important thing to remember about investing is that no matter what vehicle you choose, investing almost always works better with extended holding periods. Even the best dividend stocks can experience volatility when looking at 12 months.

Though dividends provide you with some extra safety in the form of cash distributions, it’s necessary to remember that there is a chance you could lose money; selling at a low will cost you in profit.

Miura emphasizes this point: “Even the most financially stable dividend stocks can have high fluctuations over short periods. Like any other individual stock investment, investors should be concerned about long-term growth, not short-term growth.”

Picking from the Best Dividend Stocks: Common Mistakes

Making mistakes is how people learn. However, when it comes to your finances, you’ll likely want to minimize the amount of “learning” you do with real stocks by educating yourself ahead of time. This will help prevent potential damage to your portfolio.

Tunnel Vision Regarding Yield

The first common mistake people make when investing in dividend stocks is tunnel vision regarding yield. Of course, a higher dividend yield means potentially higher dividends, but there are many other important factors to consider.

Certified financial planner Jonathan P. Bednar states, “Many people search for yield and buy the companies with the highest dividend yield. Sometimes the high dividend can be a red flag because they may use leverage or have a high debt to support the dividend. The long-term risk is that it may be cut to be sustainable.”

Failing to Consider Tax Implications of Dividends

Another common mistake investors make is not considering the tax implications of dividends. For example, Ayad Amary from Wealth Care says, “most dividend income is taxed as ordinary income. It will add to your annual revenue, and the dividends will also get taxed at your regular income tax rate.

If you are a high-income earner, you may want to consider buying dividend-paying stocks or funds in an IRA or similar retirement vehicle if possible.”

Letting Emotions Win

The final most prominent mistake investors make when purchasing even the best dividend stocks is letting their emotions get the best of them. Like investing in any other vehicle, it’s crucial to keep a level head and make decisions based on facts, not feelings.

20 of the Best Dividend Stocks to Consider Adding to Your Portfolio

While you may have heard that Johnson & Johnson is one of the best dividend stocks to own, what others exist? The list is constantly changing, but here are 20 standout candidates to consider adding to your portfolio.

1. Realty Income (O)

• Date of creation: 1969
• Dividend yield: 4.04%
• Payout ratio: 307.8%
• Market cap: $44.24B
• 1-year total return: 8.16%
• Price: $73.61

Realty Income Corporation is a real estate investment trust that acquires single-tenant commercial buildings. They specialize in triple net lease investments and consistently offer a solid dividend and high appreciation.

2. MPLX LP (MPLX)

• Date of creation: 2012
• Dividend yield: 8.67%
• Payout ratio: 66.71%
• Market cap: $32.91B
• 1-year total return: 15.90%
• Price: $32.51

MPLX LP is a network of energy companies focusing on infrastructure and logistics assets. They own many oil and gas collection systems and offer an extremely high yield on their stock.

3. Magellan Midstream Partners LP (MMP)

• Date of creation: 2000
• Dividend yield: 8.06%
• Payout ratio: 92.86%
• Market cap: $10.90B
• 1-year total return: 9.81%
• Price: $51.50

Based in Tulsa, Oklahoma, Magellan Midstream Partners LP is a partnership that owns ammonia and petroleum pipelines. They primarily transport, distribute, and store petroleum products and have offered over 20 years of impressive returns.

4. Hanesbrands Inc. (HBI)

• Date of creation: 1901
• Dividend yield: 5.37%
• Payout ratio: 45.8%
• Market cap: $3.90B
• 1-year total return: -39.60%
• Price: $11.18

Hanesbrands is a multinational clothing company based in North Carolina that employs over 60,000 people worldwide. They are known for their comfortable, high-quality, and affordable clothing.

5. Walmart

• Date of creation: 1962
• Dividend yield: 1.70%
• Payout ratio: 47.84%
• Market cap: $361.97B
• 1-year total return: -7.15%
• Price: $132.05

Walmart is an international company that operates thousands of retail stores across the globe. Though its dividend yield is lower than other dividend stocks, Walmart has offered consistent returns through capital gains throughout the year and has a solid payout ratio.

6. Federal Realty Investment Trust

• Date of creation: 1962
• Dividend yield: 4.05%
• Payout ratio: 129.8%
• Market cap: $8.39B
• 1-year total return: -9.40%
• Price: $105.61

Federal Realty Investment Trust is a real estate investment company that invests in shopping centers and mixed-use neighborhoods in the Northeastern US, the Mid-Atlantic states, California, and South Florida.

7. Church & Dwight

• Date of creation: 1846
• Dividend yield: 1.19%
• Payout ratio: 30.7%
• Market cap: $21.36B
• 1-year total return: 2.77%
• Price: $87.97

Church and Dwight is a large manufacturing and consumer product goods company headquartered in Ewing, New Jersey. Church and Dwight are best known for their Arm & Hammer products, including baking soda, laundry detergent, and toothpaste.

8. West Pharmaceutical Services

• Date of creation: 1923
• Dividend yield: 0.21%
• Payout ratio: 7.7%
• Market cap: $25.45B
• 1-year total return: -17.26%
• Price: $343.56

West Pharmaceutical Services is a leading manufacturer of pharmaceutical packaging services and delivery systems with over 10,000 employees worldwide. The company helps to ensure the safety of life-saving and life-enhancing medicines for patients.

9. Walker & Dunlop, Inc.

• Date of creation: 1937
• Dividend yield: 2.13%
• Payout ratio: 25.6%
• Market cap: $3.73B
• 1-year total return: 10.39%
• Price: $112.64

Walker and Dunlop provide financing services for individuals and corporations who invest in commercial real estate. They are based in Bethesda, Maryland, and provide loans out of 38 offices in the United States.

10. Brookfield Renewable Partners

• Date of creation: 2011
• Dividend yield: 3.37%
• Payout ratio: -201.8%
• Market cap: $13.31B
• 1-year total return: -0.68%
• Price: $48.34

Being majority owned by Brookfield Asset Management, Brookfield Renewable Partners owns and operates renewable power and energy assets. Their portfolio consists of hydroelectric, solar, wind, and storage facilities all over the world.

11. Enbridge Inc.

• Date of creation: 1949
• Dividend yield: 5.98%
• Payout ratio: 121.66%
• Market cap: $116.21B
• 1-year total return: 16.30%
• Price: $57.51

Enbridge is a major energy infrastructure company in Calgary, Alberta, Canada. They own pipelines across North America that transport crude oil, natural gas, and natural gas liquids. They have some of the most effective pipeline systems in North America.

12. STAG Industrial (STAG)

• Date of creation: 2010
• Dividend yield: 4.45%
• Payout ratio: 88%
• Market cap: $5.87B
• 1-year total return: -19.89%
• Price: $32.78

STAG Industrial is a real estate investment trust focusing on acquiring and operating industrial properties in the United States.

13. AGNC Investment (AGNC)

• Date of creation: 2008
• Dividend yield: 11.42%
• Payout ratio: -77.4%
• Market cap: $6.59B
• 1-year total return:
• Price: $12.61

Founded in the financial crisis, AGNC Investment Corp is a REIT that invests in agency residential mortgage-backed securities on a leveraged basis.

14. Altria Group (MO)

• Date of creation: 1985
• Dividend yield: 8.21%
• Payout ratio: 80%
• Market cap: 79.41B
• 1-year total return: -8.11%
• Price: $43.86

Altria Group is one of the largest tobacco companies in the world, producing and marketing cigarettes and related products.

15. Big Lots (BIG)

• Date of creation: 1967
• Dividend yield: 5.94%
• Payout ratio: 66%
• Market cap: $583.84M
• 1-year total return: -63.70%
• Price: $20.19

Big Lots is a retail company offering consumers savings on household essentials, storage units, and snack items.

16. General Dynamics (GD)

• Date of creation: 1952
• Dividend yield: 2.22%
• Payout ratio: 41.2%
• Market cap: $62.95B
• 1-year total return: 15.75%
• Price: $226.67

General Dynamics is an American aerospace and defense company noted as the sixth-largest defense contractor in the world.

17. Franklin Resources

• Date of creation: 1947
• Dividend yield: 4.23%
• Payout ratio: 66.01%
• Market cap: $13.72B
• 1-year total return: -7.79%
• Price: $27.45

Better known as Franklin Templeton, Franklin Resources is one of the largest investment managers in the world.

18. Automatic Data Processing

• Date of creation: 1949
• Dividend yield: $1.73%
• Payout ratio: 57.9%
• Market cap: $100.73B
• 1-year total return: 15.12%
• Price: $241.12

Also known as ADP, Automatic Data Processing is a leading provider of online payroll and HR solutions, plus tax, compliance, and benefits administration.

19. PepsiCo

• Date of creation: 1965
• Dividend yield: 2.63%
• Payout ratio: 94.19%
• Market cap: $241.46B
• 1-year total return: 11.92%
• Price: $174.96

PepsiCo is a multinational food, beverage, and snack corporation that oversees all its products’ manufacturing, distribution, and marketing.

20. Abbott Laboratories

• Date of creation: 1888
• Dividend yield: 1.73%
• Payout ratio: 42.3%
• Market cap: $190.57B
• 1-year total return: -9.99%
• Price: $108.84

Abbott Laboratories is one of the largest healthcare companies in the world. They specialize in creating technologies to extend lives and offer comprehensive information and medicines in the healthcare space.

The Best Dividend Stocks to Consider

Remember, it’s essential to do your research to find companies that consistently offer growing dividend payouts and have strong business fundamentals so that they will be a money-making vehicle year after year.This post originally appeared on Savoteur.

World-wide threats from global warming, the COVID pandemic, and social inequality call for change. However, the conversation extends beyond recycling, clean air, and electric cars. People from all backgrounds work to make the world a better place.

The priority shift has led investors to evaluate their portfolios. The desire to outperform the market while making a positive change is enticing and possible. Impact investing makes a difference.

Experts say that impact investing offers competitive portfolio performance. Sustainable investment funds with assets of more than $260 billion have tripled over the past decade, and the growth continues. Bloomberg predicts that ESG assets alone will exceed $53 trillion by 2025. So while the future is unknown and investing risky, change is coming. Impact investing is a trend worth knowing.

What is Impact Investing?

Impact investing was first coined in 2007. As an investment strategy that focuses on corporate social responsibility, it’s considered an extension of philanthropy. However, its desire to promote the welfare of others doesn’t negate the return on investment.

Impact companies are not necessarily non-profit organizations. Therefore, a company’s financial performance is vital.

Impact investments generate positive, measurable impacts to address the most challenging problems, such as energy, poverty, climate change, sustainable agriculture, waste, healthcare, real estate, etc. An impact investor invests in investment opportunities that make an impact on the world.

Most impact investments center around institutional investors, fund managers, hedge funds, private institutions, and foundations. However, individual investors also buy individual stocks that make social impacts with the help of financial advisors and fiduciary experience with impact investments.

What’s The Difference Between ESG Investing, Socially Responsible Investing, and Impact Investing?

Impact investing can be confused with socially responsible and ESG investing. However, they’re easy to distinguish by their priorities.

The ESG investor wants to see companies that are addressing all three factors. While the socially responsible investor centers on social factors and the impact, investors pick any one cause.

Impact investors measure social and environmental performance. However, the investor’s portfolio builds upon the investor’s goals and intentions. Some impact investments may not make an environmental impact, while others do. Some may focus on equitable work environments and diversity, while others do not.

Impact investors evaluate a company’s social and environmental performance in addition to its return on investment. The investor’s portfolio draws upon the investor’s financial goals and long-term intentions to improve the world.

Some impact investments may not make an environmental impact, while others do. Some may focus on equitable work environments and diversity, while others do not. Impact investing comes down to what is the intended outcome of the investment.

Types of Impact Investments

Investors will find impact investments across asset classes and sectors, including healthcare, education, agriculture, technology, energy, microfinance, housing, etc. Here are different types of investments that investors may consider:

• Stocks. Stocks are a type of security representing ownership of a fraction of a company. Stocks are bought and sold on the stock market and private exchanges.
• Exchange-Traded Funds (ETFs). ETFs are cost-effective publicly traded funds. They minimize risk by pooling multiple stocks across sectors and asset classes.
• Mutual funds. These funds are similar to ETFs. However, they use fund managers. As a result, they may have higher fees, but they trade for different prices.
• Venture Investments. Private investors finance companies and small businesses with no investment capital to start through private equity and venture investments. This type of investment is risky.
• Entrepreneurship. Impact entrepreneurs look for business opportunities to start socially responsible companies focused on a better world, accountability, community development, and social problems.

How Are Impact Investments Measures?

ESG (Environmental-Social-Governance) scores are calculated to measure how a company performs. Impact investors may focus on the part of the score as they may be interested in a specific impact the company makes in a particular area.

Standardized scoring measures don’t exist, and several methodologies exist to calculate ESG scores.

Some companies hire ESG rating agencies to analyze their performance. These agencies report corporate sustainability measures, compensation details, board structure, annual reports, and environmental criteria.

How To Get Started With Impact Investing

1. Evaluate your financial goals, risk profile, and investment strategies. Do you understand how to invest? Are you able to manage your investments, or do you need to work with a financial advisor or broker? Consider investment brokers with ETFs or Robo-Advisors if you have a specific area you want to invest in but need to keep your portfolio diversified across an asset class. If you’re investing in individual stocks, do your homework and read independent analyses and sustainability reports for impact companies.
2. Determine where you want to make an impact. Where do you want to make an impact, and how does it align with your financial goals. Once you’ve identified your passions, establish a financial plan to invest in those assets. Responsible investing offers shareholders an opportunity to invest in companies that prioritize making a positive social impact.
3. Increase your impact through regular investments. Set up an account with an online brokerage that allows you to make automatic contributions. Focus on dollar-cost averaging to build wealth over time and hold onto your investment plan for at least five years.
4. Get your finances in order. Pay off bad debt and prioritize investing. Establish good money habits that include budgeting and avoiding debt. Minimize unnecessary spending. Write your goals down and make a plan to achieve them.
5. Learn more about investing and impact investing. The best way to make solid investment decisions is to stay engaged in the markets and financial news. Learn how to invest as a shareholder. Challenge yourself to read one book about investing a month. Read quarterly company reports and checkout podcasts to hear a variety of opinions. Knowledge is power. To understand your investment portfolio and see the best financial return, you want to know about world economies, current events, and trends.

Are Risks Lower With Impact Investments?

Investing is risky. However, investing in solid companies minimizes risk with and without responsible business practices. A sustainable business designed with innovation and focused on the long haul is ideal–it’s a bonus when they embrace change for a better future.

Some impact investors expect below-average returns that align with their beliefs. In contrast, others can’t afford to lose money and pursue competitive market returns. Therefore, developing a diversified portfolio according to risk tolerance is essential.

Is Impact Investing Making a Difference?

The Global Impact Investing Network (GIIN) reported that more than 1700 organizations have approximately $715 billion in impact assets. Impact investors are taking a position to better society and the planet. Yet, its value is considered subjective. What appears to be meaningful for one person may not be significant to another.

Several institutions provide ESG ratings. However, evaluation criteria vary across organizations and reporting organizations.

Cons to Impact Investing

Impact investing is limited in its scope. For example, a shareholder may focus on a few companies changing the world rather than their bottom line return and profits.

Investors aren’t philanthropists or social entrepreneurs. Investors are seeking a return on their investments. They need to keep in mind that impact investing is not the same as donating to charities. Be sure to do your due diligence in supporting companies for the right reasons and keep your financial goals in mind. You can invest in a socially responsible business without losing everything.

The Bottom Line

Capitalism isn’t going anywhere, and financial returns matter. However, rising interests in climate change, the COVID pandemic, and social movements for equality and human rights have led consumers to question who they use for business. As a result, firms and corporations face real-time scrutiny from societal demands for corporate responsibility in work environments, community engagement, and care for the planet.

The old adage that the customer is always correct rings true regarding how we treat people and the planet. The best companies will attempt to maximize their impact on both social and environmental causes. Impact investors want to address social and environmental issues while receiving solid financial returns. In addition, they want to see philanthropic organizations invested in social change and charitable activities.

As global concerns for economic uncertainty, food and water security, and natural disasters rise, shareholders will prioritize activism, ethical investing, social well-being, and environmental sustainability. Developing a portfolio with impact investments is an option. The choice is yours. Do your homework, learn how to invest, and make the best decision for you and your family.

This post originally appeared on Savoteur.

Imagine a world where there was a recipe you could follow to get rich. What ingredients do you think would feature in it? A high-paying job? A diversified investment portfolio? Disciplined saving?

No arguments there! Each of those elements can undoubtedly play a role in the bid for financial success. But something else is even more fundamental: something you might not expect to be as pivotal as it is – your mindset.

Or, to be more specific, having what the psychologist Dr. Carol Dweck calls a growth mindset.

While you’ll never be able to think your way to a million bucks, your beliefs about what it takes to succeed, combined with the way you approach problems and make sense of the world, can profoundly impact your bank balance.

We’re going to break down how these two things are related by defining what a growth mindset is, outlining its importance in personal finance, and offering some advice on leveraging its money-making potential. Let’s dive in!

Introduction to Growth Mindset

Why are some of us crippled by failure when others take it in their stride? Why do so many people struggle with minor setbacks when others rebound quickly from the direst of straits? And why do some people settle for mediocrity when others can’t accept anything less than perfection?

A few decades ago, Dr. Dweck and her colleagues answered those questions. This research led her to a conclusion that’s now seeped into the popular consciousness, public school curriculum and came to inform societal understanding of success. Dweck found that people fall into 1 of 2 camps regarding our underlying beliefs about learning and knowledge.

We either have a fixed mindset or a growth mindset.

What Is the Difference Between Growth and Fixed Mindsets?

With a fixed mindset, you believe your talents, skills, abilities, intelligence, and character are fixed. You think they don’t change throughout your life and thus perceive talent (i.e., what you’re born with) as the key to achievement. As a result, if you can’t do something, there’s little point in trying. In essence, you’re resigned to your fate.

A growth mindset is the opposite. You believe everything from your intelligence and capabilities to your overall lot in life is subject to change. With time and effort, anything’s possible; it’s up to you to make it happen. Furthermore, failure’s an opportunity to learn and grow rather than a sure-fire sign you aren’t cut out for the task.

Why Is Mindset Important in Developing Positive Habits? One Tale

On May 6th, 1954, Roger Bannister ran a mile in 3 minutes and 59.4 seconds.

He broke a record that had stood since the dawn of time and achieved a feat contemporary experts said was impossible. It was thought the human body couldn’t move fast enough to run a mile in under 4 minutes until Bannister came along and proved everyone wrong.

But that’s not the most remarkable part of this story. It is even more noteworthy that 1000+ runners have broken the 4-minute mile since then (one of them did it just 46 days after Bannister). Nowadays, even high school students do it.

The lesson? Firstly, everything’s impossible until somebody does it. And second, you have to believe something’s possible to make it happen. As Shiv Khera once said, “If you can see the invisible, you can achieve the impossible.”

Bannister saw the invisible. And, as soon as other people realized a sub-4-minute mile was an option, they could see (and do) it too. Think about this concerning having a fixed versus growth mindset. Would Bannister have been able to break that record without believing it was doable?

Probably not.

The same is true for any positive habit, whether you want to quit smoking, eat a healthier diet, or get better with money. To see any point in trying, you must first believe the outcome is attainable. You have to think your effort will yield results, that the sacrifices will be worth it, and that dedication and hard work will take you where you want to go. In other words, you need a growth mindset.

Embracing the Growth Mindset in 4 Steps

That begs the question: how do you develop a growth mindset around money if you’ve spent forever thinking your skills and abilities stay fixed throughout life? When you shy away from challenges because a) you’re afraid of failure and b) making an attempt seems pointless in the first place? Here are four strategies to get started.

1. The Power of Yet

“I can’t invest; I don’t know how.” “I don’t know how to get out of debt.” “Budgeting doesn’t make sense to me.” “I don’t understand how to save money each month.”

Do any of those thoughts sound familiar? A simple and powerful way to shift your perspective is to put “yet” at the end of each sentence. For example, if you’ve thrown in the money towel because you’re “just not good with money,” tell yourself you’re “just not good with money yet.” Likewise, it’s not that you don’t know how to invest; you don’t know how to invest yet.

Suddenly, there’s hope! The power of yet leaves open the door to positive change and reframes feelings around money.

2. Replace the Word Failing With Learning

Failure’s a dirty word when you have a fixed mindset. However, not only is failure a natural part of life, but it’s also (from the perspective of a growth mindset) a cornerstone of progress. As Dweck says, “In one world, effort is a bad thing. It, like a failure, means you’re not smart or talented. If you were, you wouldn’t need effort. In the other world, the effort is what makes you smart or talented.”

Nobody who succeeds in life does so without their share of failure. Why? Because it teaches you what you need to do differently next time! No failure, no lesson. So, don’t say, “I’m failing at this.” Instead, say, “I’m learning.” It’ll shift your perspective on making mistakes and motivate you to keep trying.

3. Acknowledge and Embrace Your Weaknesses

It’s always tempting to hide from our failings and imperfections. However, no good ever comes from burying our heads in the sand. Instead, acknowledging, confronting, and embracing our issues and weaknesses is key to overcoming them.

Remember, nobody’s perfect! If your current financial situation leaves something to be desired, then you’re certainly not alone. Just like a recovering addict, though, the first step to turning it around is acknowledging there’s a problem. If you recognize that you need a tool that invests your money on auto-pilot instead of remembering to do it, that’s pretty easy to set up and get started.

4. Remember Your Brain Is Plastic

Never forget that our brains can change throughout life too. A rapidly growing body of research shows they’re amazingly malleable- a trait allows us to recover from brain injuries, grow new brain cells, forge and strengthen neurological pathways, and learn new skills.

That is called neuroplasticity, and it’s a compelling argument against the idea that our skills and abilities are fixed! On the contrary, your brain can and will change for the better (which lends extra credence to the power of yet).

5 Ways to Use the Growth Mindset to Grow Your Money

That’s all well and good. But how can you harness a growth mindset to bolster your bank balance? Here are five suggestions to get you started.

1. Action over Avoidance

Conduct an audit of your current finances and consider what you could be doing differently. Whether you’ve been struggling to pay off your credit card debt, save for retirement, or are unable to summon the courage to ask for a raise, a growth mindset should make it easier to acknowledge the problem and take the first steps to address it.

2. Celebrate the Struggle

Building wealth doesn’t happen overnight. You have to be committed, resilient, and patient while working toward the goal! Use your growth mindset to reframe matters. Remember: you don’t have financial freedom yet. Not only is the potential for success exciting, but you’re also happy to embrace the challenge, build the necessary skills, and tackle whatever obstacles arise along the way.

3. Continue Learning

A growth mindset goes hand in hand with the willingness to learn. So, let those thoughts of failure fall away and set your mind to learning, adapting, and mastering better financial habits instead. Whether that’s how to budget effectively, streamline your savings process, use debt wisely, or invest in real estate, you’ll soon have the skills required to elevate your net worth.

4. Seek Support

People with a growth mindset are always looking for new tools and tactics to help them reach their ambitions more efficiently. That’s why you shouldn’t hesitate to hire professionals for help. With support from accountants, tax advisors, and financial advisors, you’ll access essential information to lever yourself into a stronger financial position and avoid expensive mistakes.

5. Take Risks

All failures are learning opportunities for people with a growth mindset, so taking financial risks becomes less daunting. Whether you ditch your 9 to 5 to pursue a business idea or implement a riskier investment strategy, you’ll pave the way to greater monetary rewards in the process. This post originally appeared on Savoteur.