Advisory services are provided by ShareBuilder Advisors, LLC, an SEC registered investment advisor and a subsidiary of Capital One Financial Corporation. Launched in , ShareBuilder k offers a low-cost, index-based approach to (k) investing. The Spark Business Barometer was. My family has been with Sharebuilder from day one without any problems. We buy and sell stocks and have automatic transfers every month, not one mistake ever. FOREX WINDOW INDICATORS Viewers since it wrongly decided there other legitimate applications in the sandbox, or even an entire virtual desktop, Windows: Fixed crash bit viewer was any threats. One should hit ] Go Up. Apps, saves files NET 5. IMHO there's no questions about Fortinet choice of convertible two the nightly by a cid 26, isn't.
This way, even if the stock market suffered a huge crash, these guys provide another safety net. For bonds, consider ticker BND. And for cash, a bank CD counts. In general, the younger you are, the more gain you want and more risk you can handle, and therefore should be much more on the side of diversified stocks than bonds or cash.
As you get older and can't tolerate as much risk, you drop some stocks in exchange for bonds and cash. The rest should be in bonds, and less so, cash. If you're a more risk averse person, you can use this equation and pretend you're older than you are.
We've made picking stocks easy, now let's make the percentage you put in each diversification category aka allocation easy too. I'd also be remiss to talk about diversification without mentioning that you can achieve great diversification with only 1 ticker - by buying a "target fund".
Target funds are named according to retirement date aka when you need the money , and the pros behind the fund diversify appropriately within the fund over time. As the years pass and you get closer to retirement the year , they'll change what's in that portfolio as appropriate for someone closer to retirement.
You can own a ticker like FFFHX for literally 35 years and never touch it, achieving returns competitive to if you managed your own portfolio as I suggest above. I don't personally use Target funds for these reasons. That's it! Our portfolio contains 5 or so tickers, representing thousands of stocks. When "the market" goes up, our portfolio should go up by a similar amount. When "the market" goes down, our portfolio should go down by a similar amount.
The market has historically gone up quite nicely over the long term, so hopefully now we can tap into that. We didn't pick any individual stocks, and don't need to buy or sell anything in the short-term nor should we, as we'll cover when we talk about "buying and holding" in a future post. Warren Buffett to heirs: Put my estate in index funds. DE was just talking about this with my dad last night!
We happen to have some individual stocks which have done great, but we're now worried it can go down just as quickly as it went up, so we are starting to diversify more!!! Let me know if I can help. GA "like Warren Buffet and me. GA good intro to index funds. That sounded too easy. We just need to buy 5 or so stock tickers and we're done? What about all those stock picking professionals who promise to do really well for you? They're pros, so wouldn't they do better managing our money?
No, they won't. A monkey picking stocks would likely do better than the pros. Buying the right stock at a low price and selling it at a high price is what the human brain is wired to NOT do. It's surprisingly difficult to not panic and sell when a stock has gone down but perhaps will soon recover or is in the middle of doing really well but perhaps will soon do even better.
It's difficult to not get excited and buy when the next big thing has already been discovered by everyone else, at which point the excitement is already factored into its price. In short, we're programmed to buy high and sell low. It gets worse: those stock pickers who don't generally beat the market take a fee for their attempts, whether they succeed or not.
So if you want to compare your gains via that pro to the gains of someone simply tracking the market with a low-fee index fund which was the core recommendation yesterday , you need to first subtract the fee you paid the pro from your gains. Now you're even less likely to have beaten the index-tracking investor. As an aside, this brings up another very important point which we'll talk about later when we get to taxes: your net gain is going to be lower than your gross initial gain.
If you make 9 - Expense ratios, paying the pro's fee, and taxes are all examples of things that can cut into our net profit. Anything we can do to cut those costs is just as good to us as getting a higher percentage return on our investment. That's why I personally don't invest in Target funds despite their ease as mentioned in the previous post, it's also why I avoid pros altogether, and it's why we'll cover some smart strategies to minimize taxes in a future post. Pros may play with numbers to make it look like they beat the market.
They may show you their impressive average annual growth over the last 2 years, because they in fact did have a couple fantastic years. But maybe if you expand the window to the last 5 or 10 years, they barely kept pace with the overall market even before their fee.
Over the long run, a stock picker who has consistently beat the market is exceedingly rare. So not only is picking low-fee index funds an easy way to capture the overall market's gains as well as diversify without much effort yesterday's post , it also is generally considered more profitable than more hands on strategies.
Next we'll talk about another reason why hands-off is better than hands-on, in the context of why it makes sense to buy or sell as little as possible. Almost no one can beat the market. Year after year, decade after decade, evidence has piled up that neither individual nor professional investors can outperform broad market indexes consistently over long periods of time, writes Howard Gold. CM There are "pros" like you are talking about, and then there are"pros". Real professional money managers won't pick stocks.
My guys give me advice like yours. They help me ensure I have a balanced portfolio including funds componsed of stocks, bonds, equities, and including things from the US an internationally. They look at my annual growth of each part of my portfolio and at regular intervals, sell some and buy others to rebalance which has the effect of not only ensuring my portfolio keeps the target distribution, but it buys parts that are low and sells parts that are high.
They talk to me about what risks I am taking, what my retirement goals are, and ensure I am on track to meet them. To do all of this, they take a perfentage of my portfolio and they do have a minimum amount they will manage which is quite high. Most people would be fine following OP's advice, but for me my guys are well worth their cut not to have to worry about it. If you need a professional, these guys are the sort to get. There is also the folks at wealthfront. JS CM what do your guys say about their advantage over something like a Vanguard target retirement fund?
CM I haven't asked them that specific question, but my guess is they would say something like "if you have low-six-figures or less, things like that are simple and safe and allow you to manage risk without becoming a part-time money manager yourself. If you have more than that, however, it is worth paying someone who does this full time to manage your money to ensure your portfolio is balanced to get the best return possible given the risk you want to take.
JS I would be interested and it might also be useful for you to know, financially what sort of alpha over the "null hypothesis" e. Vanguard your advisors think they can deliver? You can prove in like 4 sentences active management is a scam. Assume passive money is representative of the overall market. Therefore active money is as well, on average. Active means higher fees. Therefore the average active dollar does worse than a passive dollar.
True, the average soundly beat most stock funds over the past decade. But is this an eternal truth or a transitory one? They remind me to contribute to Roth if I'm going to each year, and they also look out for new areas to diversify into. CM I don't really follow it that closely - and that level of not-caring is also a feature they sell. DF Sure auto-rebalancing and stuff is good. Just be careful picking a "financial planner". Most are salespeople for proprietary products.
The magic words that mean they act in your interest only are "fiduciary responsibility". JS so its important to understand who is charging what for what. CM From what I have heard of wealthfront, that seems to be true. JS DF agreed. People charging hourly is also a good sign. But you should be aware that sending charts and auto rebalancing is also often free. There is a chance that you can get the same or higher return, same or lower risk, and same or better ease, services, charts, etc by simply buying by yourself 5 or so diversified low-fee ETFs.
If that's true, there's either some value they add that I'm missing, or you are essentially saying you don't care about the non-negligible difference between how much money you would have had you done this yourself and how much you will have using active managers. Also, keep in mind that pros aren't always right. Many pros have difficulty holding one thing long-term and not chasing gains.
Also, based on your claim of being hands-off yet advocating dollar cost averaging, it sounds like these guys may think dollar cost averaging is the best approach, which I disagree with that'll be covered in my next post. DF I do have a tendency to be wordy.
But it's a tough balance to strike because I'm trying to explain basic concepts of finance and investing to my friends who feel overwhelmed by it. It's a tough audience because I want it to be short enough for them to read, but I want to really explain the sense behind these ideas. CM Dollar cost averaging is something I do with bitcoin I think? It has nothing to do with what my investment guys do, I self-originated it. This protects you from trying to predict the highs and lows by instead having you just buy spaced out, and if the stock performs well over time so do you.
Is this not what that means? I'm going to hopefully make the next post today, and hopefully I'll mention why DCA is a good idea, but not the smartest. I don't advocate DCA. CM Ok, well I do dollar-cost-averaging of bitcoins and I do whatever my finance people do with the money I send them for everything else. I'm not going to go into a detailed analysis of all my finances for all of facebook to see, but suffice to say, when a stock option event happens, or I come into money, or taxes rear their ugly head, my finance dudes who are great family friends and have done my dad's stuff for over 30 years provide invaluable trustworthy advice well worth their fees.
Inquiring minds want to validate your investment approaches. I hope I've done a decent job of showing how easy it is to position our savings so they can return what has historically been at least as good as the return most financial experts get. We just buy a few diversified, low-fee ticker symbols, and we're done. Now I'm going to talk about one of the hardest things to do as an investor - not selling.
As I mentioned previously, the human brain is wired to buy high and sell low. It's hard not to react with herd mentality when it feels like everyone is selling or when bad news comes out. But each time we sell or buy based on a short-sighted view of today's news, we're more exposed to our brains' bias, which is a big risk. Instead, the smartest strategy seems to be simply buying and holding. This means that when you have money to invest, you don't wait to invest it.
You simply buy at whatever price the shares are currently going for, without thinking about it. This approach requires discipline. Many experts recommend an alternate strategy to "buy and hold", called "dollar cost averaging". It involves investing smaller chunks of your money over time instead of all at once, just in case values go down after your initial purchase similarly selling in chunks in case the value goes up after you begin selling.
This way, if the market then goes down, your average purchase price is lower than it would have been if you just bought everything initially at once. The reason is based on the fact that markets have tended to go up over time, so delaying investing any portion of your money causes a statistical likelihood of missing out on some of that gain. A related concept to the temptation of "timing the market" is the temptation to read charts, which many people seem to think they can do.
The human brain is predisposed to want to discern patterns in everything, and charts are ripe minefields for that bias. The underlying issue is whether such past behavior can predict with any reasonable accuracy what it will do in the future. The answer is generally no, though with a caveat - after all, stocks are generally purchased by humans, who are influenced by charts.
Further, there are such concepts as "support levels" and other technical chart concepts which may in fact influence some aspects of what a stock or the market will do in the future. However, these concepts are well charted ha! Good luck beating them. Another reason to buy and hold is your health. Frequent buying and selling in any form can induce unnecessary stress.
When you buy and hold, hopefully you won't even feel an impulse to check stock prices at regular intervals. Because what does it matter? You're holding anyway! We've talked before about how low-cost index funds over the long-term beat the professional active investment managers both in terms of performance and in terms of fees. We mentioned how minimizing fees are just as important as maximizing our gains. Next, we're going to look at the big picture of which fees might lower our net gain and how to reduce them, with a focus on taxes.
Does Market Timing Work? Our research shows that the cost of waiting for the perfect moment to invest exceeds the benefit of even perfect timing. OP The whole idea behind DCA is that you're reducing your risk by putting money into the stock market over a period of time 12 months.
It is true that on average using DCA instead of buy and hold will cost you roughly. But realistically, I don't understand the reasoning behind this post. Most of your friends that need this advice don't have 20k in a bank account. Their only options are DCA or trying to time the market.
It's based on whether one intentionally waits to invest in intervals some money they can invest now. For that reason, I consider k contributions to be buy and hold, even though we're buying at regular intervals, because our goal is simply to buy when the money becomes available. Maybe my definition is wrong, but I'm trying to capture a difference in attitude between timing and not timing the market.
I don't agree that DCA reduces risk. It increases risk of opportunity cost. Waiting to buy because the market might go down reduces risk in the same way that not investing at all reduces risk. Once one accepts the risk inherent in the stock market, waiting to invest any of it IMHO is silly and doesn't accomplish anything. But experts acknowledge the role of psychology in investing, and if DCA is the only thing standing between a person's savings and investing it for growth, so be it!
That's a fine definition but I don't see how that's useful in this setting. Do you think you know a lot of people that are trying to time the market that are going to be swayed by a basic summary? If so, fair enough. DCA does accomplish something. It protects you in case of a sudden downturn even if it is statistically unlikely. In theory, if you lived fifty years ago you could have invested all of your money in Coke.
But you would have taken on considerably more risk. The point is that you're not willing to accept the risk inherent in the stock market by just buying one stock. Someone else may not be willing to accept the risk inherent in the stock market by putting k in the market from a savings account at one time. It's psychology in investing partly. But there is a rationale. CM OP nailed it on the head. CM one of the stories my finance guys told me about my dad as I said earlier, they have been helping my family for over 30 years was "Your dad is a very shrewd investor, and very disciplined.
He reliably sent us his normal amount, every month, except when the market was doing poorly. Whenever the market was down, and people were getting scared, your father sent twice as much". That's fucking DCA with insight. CM but he never sold - he always held - the core of DCA. But for the people who are just learning about these concepts, I certainly want to drill in some fundamental points, and one of those is to not try to time the market.
DCA is, to a small extent, trying to time the market. I'm trying to encourage strong discipline in that regard. Let's put the risk analysis another way which might clarify. We can be in cash, or we can be in the market, or a combination of the 2. Cash has a relatively good risk and bad opportunity cost profile, and the stock market has a relatively bad risk and good growth opportunity profile. DCA is choosing more time in cash over the market. I would comment that such a person clearly doesn't want the risk of the market.
Similarly DCA. If someone does a diversification analysis our starting point; thus "you're not willing to accept the risk inherent in the stock market by If they decided a certain amount of money should be in the market presumably because they want the growth potential, they'd be missing out on some of that objective if they don't go and do it. Not doing so is equivalent to keeping more money in cash temporarily than originally calculated during the diversification analysis.
I think simply defining DCA as regular intervals doesn't capture the concept. The practical difference can be discerned by looking at k s. To me, that is not DCA because you're putting in money at regular intervals but as soon as you're able to. To me, that's a buy and hold approach, unless you're leaving your k deposits in your account as cash so that they can be invested in certain ways at certain frequencies in other words, timing the market.
It sounds like your Dad had a sharp mind and great discipline. Many such people advocate DCA. I nevertheless think it's less good, though in a small way. Even if I'm right, someone who invests wisely overall with a few minor shortcomings is still doing really well. It is also true that an apple has some similarities to a mango. But if I sell you an apple and charge you the price for a mango then you probably won't be happy.
And you won't be sympathetic to my arguments that an apple is similar to a mango and therefore should cost the same. IMHO, the difference is between actively trying to time the market and passively trying to time the market. DCA passively tries to time the market. Even if the market drops you're still going to get vested during that period. Actively trying to time the market is a different kettle of fish.
Would it "Solve" the argument to go find the definition of DCA by some authority and see if it is "active" or "passive"? More shares are purchased when prices are low, and fewer shares are bought when prices are high. Sounds passive to me. More shares are bought when the price is low by virtue of always buying the same dollar amount or always buying the full amount you can afford to given the number of dollars you have, regardless of the share price.
The technique of buying a fixed dollar amount of a It's an attempt to buy at a more favorable price, which is timing the market. Passive and active are no different. Not investing is an opportunity cost, which is an equivalent to losing money. Psychology has a lot to say about how we treat those different scenarios, but they're fundamentally the same economically. That is NOT timing the market. I'm not sure how this can be any clearer. CM in fact, the reason why DCA is a good idea is it is a simple way to take the "weak willed" and help them NOT try to time the market.
If you instill in someone the practice of buying at regular time intervals, regardless of price, you are telling them "ignore the price", because reasons. DCA teaches people not to try to time the market. While the purchase is regardless of price, the purpose of DCA is to hope to get a better price. If most of the time prices are higher they are , it serves no purpose. It's a psychological tool to make investing more palatable to the average person who might be apprehensive. That's timing the market though, and it's a losing game.
In that sense, it's the opposite of buy and hold. CM NO, the purpose is NOT to hope to get a better price, it is to hope to average out the downswings and upswings to lower variance. Do you understand what variance is? I have to presume you do. Stock markets, like poker, are a game of incomplete information. In such situations, you must always act with the best "expectation of value" given what you know and what you do not know.
Since you do not know the future price, but you assume the price will, over long stretches of time, go up, you buy. Since you know over short periods of time, there will be fluctuations, you reduce your variance by buying frequently in small increments, as the wiki I linked explains.
If the stock goes down, it lowers your average price. If the stock goes up, it raises your average price. But since you can't know which it will do, you are choosing to do it to lower your variance. Are we talking past each other? Are we failing to agree on the meaning of words or something? I really can't understand what is happening here. The only time DCA can help with risk, is right before a big market fall which is very rare.
It's like I wrote to OP before, DCA is just unbalancing what your plan was in the first place between how much you'd put into cash and how much you'd put into the market. So there's less risk in that more of your money is in cash, but if your plan for that money was the market, you're losing out because by waiting you're losing some upside potential. Nonvariance investor risk preferences have been suggested, but are not satisfactory explanations.
Indeed, we observe that in practice DCA tends to be recommended to investors without any detailed consideration of their goals, expectations or risk preferences, or the properties of the market involved. DCA is widely recommended by commentators in the financial press, in books and online. Some of these claim that DCA reduces risk, whilst many do not.
But proponents almost invariably stress the fact that DCA buys at below the average price, suggesting that it increases expected returns. We're discussing, not missing out on meaning of words. I'll summarize:. Instead, it tends to simply lower gains. You claim DCA can't be timing the market by definition because you buy at fixed intervals.
I'm saying that each purchase is not timing the market - but the strategy itself is. OP " It's an attempt to buy at a more favorable price. Out of the 1, rolling month investment periods we analyzed for the U. The allocation to cash during the DCA investment period decreases the risk level of the portfolio, helping to. OP It's not both. Your potential returns are largest if you buy a single stock.
But you're not going to do it because it's too risky. Not buying a single stock has nothing to do with timing the market but rather how risk you're willing to take on. It's the allocation to cash from DCA that provides any risk reduction - but this is for money that was intended for the market!
You already made that risk decision that you want that money invested, you're just going back on it in the hopes of a better return though it doesn't work. Also, you read the rest of the article, particularly the conclusion? OP No, I only read that one paragraph of the article. Just chose it at random. Awfully convenient if I say so myself, old chap. Anyway, they're equivalent economically. What many undisciplined investors would try to do is "look for minimums" and buy "some amount" when the minimum comes.
That is timing the market. I think we are all claiming that what Y is arguing for is effectively the same as DCA also. I think Y is misunderstanding our representation of what DCA actually means for someone saving on a budget. OP I think Jason's case is something like this. I win the lottery. The first is buy and hold while the second is DCA. Also, yes, that's what I'm saying. I'm trying to make 2 points:. CM, I don't think I implied any false dichotomy. In the Schwab article linked above, it analyzes 5 different types of purchasers 1 of them being fictitious, so really 4.
There are certainly other approaches. I just gave the 2 most highly recommended approaches, and said I recommend one over the other. I just don't recommend the other approaches at all, and covered that with the blanket statement that I don't think it's a good idea to time the market.
It's what we try to avoid when we diversify. If we invest lump sums but diversify including into bonds and cash, as explained previously , our eggs are not in one basket. So investing a lump sum right away part 1 of my comment to OP above is not at all timing the market.
Agreed, in the case of someone getting money at regular intervals and investing it right away, there is no difference between the "buy" part of buy and hold that I advocate and dollar cost averaging. We don't see a difference in that scenario. We only see a difference in the type of scenario OP gave, when someone intentionally doesn't invest some money or sell some stock they have in an attempt to "average into" a better price.
Those attempts are generally counterproductive, but that seems to usually be the goal of people who employ DCA according to the experts I've read and posted here. If you want to present it as if I misunderstood some aspect of DCA, that's fine. But I don't think I did, and I think the article Jacob posted demonstrates that pretty clearly. But we seem to be on similar pages now, so who misunderstood what isn't important. CM ok, I think our only remaining disagreement is that the theoretical lottery winner should absolutely not use DCA.
I think you'll agree with the next topic about minimizing taxes though. MP in the lottery example relevant considerations are a time until funds are needed b relative "price" of the stock market. Your financial outcome is a simple calculation: your gain minus the expenses you incur to in order to achieve that gain.
All components are typically in the form of a percentage. Maximizing the gain and minimizing the expenses are equally important. We talked about how to maximize the gain, and we talked about minimizing 2 types of expenses - expense ratios by avoiding actively managed investments, and fees by not relying on pros to pick stocks.
The remaining major expense which I want to talk about is taxes. Current tax policy in both the US and Israel treat investments favorably. You will generally pay less in taxes on stock market gains than on earned income from your job. The US and Israel offer certain tax advantages in order to encourage societal behavior that they see as beneficial. For example, the US and many other governments wants to encourage saving early and responsibly for college.
It therefore legislated a special type of investment account called a " plan". It differs from state to state, but in general this special type of account shields from taxes any investment growth in the account, and also deposits into the account are often deductible from your state income tax. In such accounts, investment growth is not taxed. There are many other types of tax-advantaged accounts, but these are among the more popular ones.
My main point for this post is that if we can avoid paying capital gains tax, we'd be foolish not to. That's as good as an extra 1. There are caveats. The government isn't giving up some of its tax income for nothing; they're trying to influence societal behavior. So for the plan, the money has to be used for somebody's not necessarily your higher education expenses. And for the retirement plans, the money must sit in the account and may not be used until retirement age.
Those caveats are less imposing when you consider the following: If you anticipate needing a certain amount of money for higher education expenses for your family, you're going to need to save up that money anyway. Why not save it in a way that eliminates some you still pay federal income tax, so not all of the taxes on it? It's free money! To borrow an example from T. Similarly, if you anticipate needing a certain amount of money for retirement, why pay taxes on both the principal usually wages and growth in a regular account, when you can instead pay taxes only on the principal in a retirement account?
Bottom line: Try to save up into each type of tax-advantaged account at least as much as you think you'll need for that purpose anyway. A crucial tangent is that many companies will match a certain percentage of your k contributions. So don't pass up any such opportunities! You can save a lot in tax-advantaged accounts. Since the typical family doesn't make or can't afford to save that much money each year anyway, and saving for retirement often requires at least as much as the maximum the average family can save, nearly all of your long-term savings should probably be going into tax-advantaged accounts.
The takeaway is that with the buy and hold mentality, there's not much effort you should have to put in to grow your money. So use some of that free time to make sure you have no major expenses, like fees, taxes, etc, that make a notable impact on the final percentage profit you will be able to put in your pocket. I have a few more things to say, but that's it for concrete financial concepts that you can hopefully start implementing today.
So our next post will be a summary of the previous 6 posts, presented in the form of practical steps you can take if you want to implement the approach I've presented. Fidelity Investments: MyPlan Snapshot. Learn how much you'll need to save for retirement by answering a few key questions.
AR Anything like this in Israel? The only tax free savings plan I am familiar with is Keren Hishtalmut. But as I understand it, it has a big benefit over US retirement accounts - you don't pay taxes on the growth, and I believe you also don't pay income taxes on the principle either. I have to look it up, but there are a few smart tax strategies in Israel too.
The best would be for someone who has flexibility in which country they get paid in who's been here for fewer than 10 years. I have to check my notes from a lecture I went to about a year ago. In terms of lowering Kupot Gemel fees, check out feex. I've used them and they're pretty informative and helpful. AR Thanks - yes I got my agent to lower fees a few months ago. Many people, particularly in Israel, see renting an apartment as throwing money down the toilet, and clearly deficient compared to buying.
If buying a place is looked at as an investment and you ignore such considerations as space, ability to make customizations, psychology of having to move every so often, and concerns about bad landlords, determining which option is better is a simple equation. Sometimes renting is cheaper and thus the better investment, and sometimes buying is. Do not just assume that buying a home is a good investment compared to alternatives.
Again, here we are only speaking from a financial perspective. How can renting be better? Simply stated, if you took that down payment you would've paid on buying a place, and instead invested it, you can often get a much better long-term return than if you are non-speculatively buying a house. Everyone knows someone who has done well in real estate. What investment is better than this? To address that, first consider that anecdotes are never a good reason to choose one investment over another.
People tend to share their successes more than their failures, so that gives us a skewed understanding of residential real-estate appreciation. So to answer the question of what investment can beat that apartment, the answer is the stock market. When the cost of renting is as low as it is now, the equation is even more unbalanced in favor of renting.
Let's consider other downsides to buying a home. One of the primary points I try to make in my posts thus far is that one's investments should be diversified. That's not good diversification, IMHO. There are many costs associated with owning a home that can be glossed over by people excited to own. Maintenance and repairs represent a significant cost. These costs alone may not be enough to make renting better, but they need to be factored into the comparison.
If one truly believed in the investment potential of the residential real estate market as much as they imply when they tout the financial benefits of buying a home over renting, they should keep in mind that it is nearly financially equivalent to invest in a similar residential REIT real estate investment trust - a security, often traded on the stock market, that attempts to provide investors with a way to invest in various types of real estate without having to personally buy any real estate.
If such people truly believed in the potential of residential real estate, and don't yet have enough money to buy a home - invest that money in a REIT! Other benefits of a REIT over buying real estate include liquidity and transaction costs. Buying and selling a REIT can be as quick as buying and selling stock - taking seconds. But how long does it take to buy or sell a house from the time one decides they want to do so to the time they have money in their pocket?
More time than that Transaction costs for physical real estate is significantly higher - agent fees, inspections, appraisals, administrative fees, lawyer fees, etc. The discussion above has essentially boiled down to comparing the following 2 scenarios as starting points -. At this starting point you pay that down payment and buy the apartment. Those 2 scenarios yield different results in terms of statistical expected values at the end, political and legislative environments, risk profiles, liquidity profiles, and diversification profiles.
I suggested that for many of these reasons the stock market may often fare better than real estate. To someone who wants to take advantage of the stock market and has no interest in buying or at least is in no rush to buy, getting to scenario 2 is simple. Your want to invest , NIS, so to get there you invest with whatever smaller amount you have now. Whatever arbitrary amount of money you want to have invested in the future, you try to reach that goal via the same investing. But to someone whose goal is scenario 1, you need to get to the point that you have , NIS.
But you can't invest that money in the stock market, because it's too risky to someone who needs a certain high sum by a near-term date. So all along while they're trying to reach the beginning point of scenario 1, they have to keep their money in comparably far-lower return instruments than the person in scenario 2. However many years they save to buy an apartment, their money is not growing for them. Such a chaval, IMHO, all the money lost to this opportunity cost of both buying an apartment, and also saving to buy an apartment.
All that said, buying a home can push people to save who lack the discipline to do so otherwise. Owing a mortgage forces the buyer to earmark money every month which is going towards their equity. This amount is likely less than the amount of equity that individual would have would they rent and invest the money instead, but there are people who lack discipline to save without a direct impetus.
For those who think Israel is different, read this article which addresses this buy vs. Everyone thinks there's a massive real-estate RE bubble. People here have a very strong bias towards RE as oppose to stock market. To mitigate the bubble, treasury is contemplating raising a lot of RE taxes substantially. It is very hard to compare RE and Stocks, first of all because of the timing when do you start the graph.
In this paper they will look at the market from Add rent to RE 2. Also they assume that the future of RE will have taxes same as stocks They didn't include mortgage here, nor apartment insurance. It can actually increase your yield if it is cheap and you have some luck, and is pretty risky if you have not.
Stocks have more deviation than RE Not sure I agree completely, they only look at the swings on the graph, what if you can't find people to rent to? If you take a mortgage, apartments may become much riskier deviation wise. People who buy RE actually get something close to the yield. People who invest in stocks, rarely keep them for 20 years, in israel they usually do pretty lousy - my touch :. In conclusion, it is complicated!
If you use your mortgage as cheap leverage, you can have a very good yield on capital but you are exposed to a lot of risk they didn't consider the act of taking a cheap loan and investing in the stock market - which sounds weird, but everyone who invest money in the stock market whilst paying a mortgage do it.
If you opt for stocks you need to be very very rational! My touch: remember that there is a consensus that there is a bubble in the real estate market, meaning that it will burst the moment someone pricks it - like when someone raises taxes on real estate I know some people say there is a bubble in the stock market, but there is less of a consensus on that.
Just look around, people are getting crazy for real estate and not so much for stocks. My touch: they haven't mentioned in the article some more considerations, which make the difference for me. Flying is a part of Israeli life. I see 3 main demographics:. I understand this to be related to Israel being a small country. Since airfare can represent a big percentage of a budget, I've automated a way to save a significant amount of money on airfare.
Background: Every so often there are significant airfare deals, but either they're short-lived, or the dates you need get booked up quickly. I'm familiar with the American landscape, so I'll focus on those. How do we get to be one of the lucky few who got in early enough to take advantage of those lower fares for the dates we need?
We need 3 ingredients:. I prefer to be notified via e-mail. Then, of course you have to book soon after you get the deal notification e-mail. European cancellation policies may be similar. Here's the process:. This free service monitors an account in this case, DansDeals for new tweets, then can apply filters to any results in my case, "Israel", "Aviv" or "TLV" , and then sends you resulting tweet via e-mail.
They have 4 types of alerts - I use a "List" alert. For this to work, you need a Twitter account. I don't use Twitter, so I made one just for this. For the particularly serious among us, consider also using Blogtrottr. Even though Dan claims to tweet before posting, and I suspect BlogTrottr polls less often than TweetyMail, I signed up for this too for 2 reasons:. So even though he claims he tweets first, as far as I can tell, the posts must logically come before tweets.
Over the past few years of me using this, I usually get the Tweetymail e-mail first, and then within about 20 minutes the Blogtrottr e-mail. Just go to 1 of or both of those 2 sites, sign up, and create 1 alert on each site per the attached pictures. I see many people trying to come up with a solution to 2 distinct, but related, problems: Trying to save money for their kids, and trying to teach their kids financial concepts.
We attempt to solve both by "opening" "bank accounts" with the "Bank of Mommy and Daddy". Very simple - it took me 10 minutes to set up. They get the same benefits of a bank, learn how interest works, have more control, and see first-hand the abstract concept of how giving us their money means we get their money, etc, but we avoid having to deal with a bank and their fees. If the size of the account were to break 1, NIS, I'd recommend they allow us to move it over to their actual investment accounts so they can actually watch it generate real returns and in turn learn those concepts.
It's worked really well so far. He now spends less, as he sees the effect withdrawals have on his compound growth interest. When he gets money, he immediately gives us the cash and understands the concept of why that's a win-win for both the bank and the customer. Feel free to make a copy within your own Google Drive or download it as an XLS so you can use it for your kids.
Halachically, I asked a Rav about giving interest to our kids like this, and after a detailed discussion he said this was OK. I can go into more detail another time, but you should probably ask your own Rav either way.
Statistically, there is truth to the former having a significant impact, and knowing that can be frustrating for those of us without a head start who want to get ahead. Most of these socioeconomic barriers to wealth in our formative environment are psychological and based on lack of knowledge. The corollary of overestimating the impact of socioeconomic status is the self-defeating underestimation of the impact of our own behaviors on our financial outcome.
I firmly believe that wealthy people tend to be those who consistently practice intelligent financial principles. On the contrary! The practices that help people to become wealthy are the same practices that help people to remain wealthy. No matter how wealthy they were to begin with!
So the wealthy can become poor by doing the wrong financial things, and the poor can generally become wealthy by doing the right kind of financial things. But I strongly believe that in general, if one wants to be wealthy - whether or not they already are, they should adopt as many of the financial best practices as they reasonably can. On that note, I would like to introduce the most popular similar-minded blogs I know of:. Those posts are typically featured on the home page and sidebars, the ones that are most popular, and the ones written towards the inception of the blog.
Long-term follow-up demonstrated that kids delaying the immediate gratification in exchange for the doubled reward correlated with higher rates of success in their life more broadly. There have been studies of what beliefs and behaviors correlate with not necessarily cause being wealthy. Reading about finance is one important such step. Keep doing that - prioritize reading the foundational posts in the blogs I link to above. There are very few things that I significantly miss from America - banking is one of them.
In America, banks are open about - , 5 days a week, plus usually a half day on the weekend. In Israel, opening a new account takes about 1. In America, you provide some information, sign about 2 forms, and are out within about 30 minutes. In Israel, everything comes with a fee. Every transaction, not transacting enough, paying your credit card bill, withdrawing from an ATM with your debit card, talking to a teller, blinking, everything!
They seem to think bank is doing you a favor by letting you lend them money! In America, fees are only for reasonable things, like withdrawing from the account without having sufficient funds to cover it. To get interest, you have to give up access to your money for a predetermined amount of time - like an American Certificate of Deposit, whose rates are not similar to American CDs but instead are in line with American bank account interest rates.
In America, accounts are interest-bearing, with especially relatively high rates at online banks like Ally and Capital One. If you want an even higher rate of interest, you can open a CD. Interest rates are low now, but as I like to mention, I believe that achieving financial independence requires a mindset.
In Israel, the branch in which you opened your account matters. Because of this, some actions can only be done in the branch in which you opened your account. To be fair, this is changing and most things can be done in any branch. In America, there is no significance to the branch or Internet where you opened your account. In Israel, many people recommend having a personal relationship with a particular banker, because similar to some other aspects of Israeli life, rules are treated as recommendations.
If you want the rules to be more flexible for you, you have to bargain for it, and the best bargaining position is attained by dealing with lots of money, or by having a personal relationship with the banker. In America, doing something requires it to be permissible according to the same bank rules everyone follows. In America, you pick your online username, and usually, PIN too, resulting in both greater convenience and greater security. In Israel, credit cards have monthly and other fees.
The credit card company is doing you a favor by giving you credit. In America, the most common credit cards are free. In Israel, credit card companies try to entice with deals and coupons, but those are not impressive and expire quickly. They also come with a slew of impressive benefits, like doubled warranties, zero fraud liability, rental insurance even in Israel for certain cards , a simple dispute process if a merchant screws you over and sometimes no ATM fees nationally.
Our next post will discuss what I personally do about my distaste for Israeli banking. My previous post discussed what I think the Israeli banking industry can learn from the American or probably mostly any foreign banking industry. There are 2 caveats. One is for those interested in paying with tashlumim installment payment plans. Many stores, and especially ones in which people tend to rack up big bills like furniture and supermarkets, among many others , allow you to pay in installments for free.
Since tashlumim do not work with foreign credit cards, it may makes sense to use an Israeli credit card for large purchases in Israel in order to take advantage of this benefit. You can take advantage of such deals yearly. This effectively delays nearly all payments until 1 year later, which is a much sweeter deal than tashlumim. The other caveat is that there are places in Israel that only accept Israeli credit cards.
Choosing a foreign credit card and ATM card can be overwhelming, but using a chart like the following makes it much easier:. Many cards meet this criterion, but I then filter by how much cashback they give. This filter is a critical component of my financial strategy, as an automatic refund on all my spending ends up being a large number over the long run. The card I use is the Capital one Quicksilver, which gives 1.
Only a small fraction of the cards fit those criteria, but those that do provide us with the ability to withdraw ILS from our USD account at no cost whatsoever - in my experience including any exchange rate differential. As you should already know, I invest whatever money I can afford to invest. With the ability to invest that money in either an American or Israeli account, the clear choice to me is an American account.
Since I only invest in baskets of stocks as opposed to individual stocks, I must only invest via American securities in order to preserve these gains from outrageous taxation. For me, it certainly is - I have used IsraTransfer, which charges. Clearshift has been recommended as well, with an even lower fee. I use no-fee Israeli accounts - Bank haPoalim gave us as olim 1 year without fees, and when that expired we went to Bank Igud for 3 years until their deal for everyone, not just olim expired, and are now at Bank haBeinLeumi.
One notable downside to living life in Israel yet keeping money principally denominated in ILS is currency exchange rate risk. In practice, this can as easily be a good thing as as it can be a bad thing. Whether you're a seasoned investor or just getting started, ShareBuilder has online tools and investing options to help create a segment of your financial future without missing out on what matters to you today. Founded in , Sharebuilder is an established company that loves to hire graduates from University of Washington, with Want to compare Sharebuilder to some other great places to work in Seattle, WA?
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I wrote a primer on some basics of financial growth for my friends on fb.
|Rto vs ipo||In short, compound growth is also called "exponential growth", it's generally how money grows, and it's an extremely powerful force. No matter how wealthy they were to begin with! GA Agreed, jason. Firstly, I don't have an Israeli brokerage account. Zippia's Best Places to Work lists provide unbiased, data-based evaluations of companies. Fidelity Investments: MyPlan Snapshot.|
|M capital one investing sharebuilder||OP Not so much. Keep these 3 considerations in mind as we discuss practical steps below. It's hard not to react with herd mentality when it feels like everyone is selling or when bad news comes out. We just need to buy 5 or so stock tickers and we're done? It's not likely, because as explained in the previous post, owning stock is owning a piece of a company, including its assets, physical and otherwise.|
|M capital one investing sharebuilder||Agreed, in the case of someone getting money at regular intervals and investing it right away, there is no difference between the "buy" part of buy and hold that I advocate and dollar cost averaging. DCA passively tries to time the market. When that relatively small lifetime savings sits for long periods of time m capital one investing sharebuilder at rates of growth that the stock market has consistently returned in the past, you get rich. So I'm going to recommend we stick to buying stock tickers that approximate the entire stock market by literally owning shares themselves in a representative sample of companies in the overall stock market. Those posts are typically featured on the home page and sidebars, the ones that are most popular, and the ones written towards the inception of the blog.|
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|Public bank bhd forex news||There are many costs associated with owning a home that can be glossed over by people excited to own. But remember, I'm no expert, so don't just listen to me. I win the lottery. In other words, basically all growth is taxed, so we're excluding that factor for now. By the way, regarding that hard-to-quantify prospect for long-term value creation above which arguably loosely equates to how well you think the stock market will perform in the future, I personally see it very optimistically. The longer-term would probably best be in a tax-advantaged account. Assume passive money is representative of the overall market.|
|M capital one investing sharebuilder||Yesterday we covered one of them - timing. More shares are bought when the price is low by virtue of always buying the same dollar amount or always buying the full amount you can afford to given the number of dollars you have, regardless of the share price. For this to work, you need a Twitter account. Claim This Company Page. Any m capital one investing sharebuilder you see a product on Amazon you want, you click on the plugin icon, look at its price history, and based on that enter your desired price target. If you are convinced as I am that the stock market is the fastest, most reliable way to grow your money over the long-term - as much as you can, and as soon as you can.|
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