Archives for February 2019

Cash for Apps Review: Make Money Downloading Apps or Scam?

Chances are you probably spend way too much time on your phone. Some of us don't care, while others feel guilty. Well, Cash for Apps ...

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How to Save Money: 25 Tips if Your Paycheck Is Stretched Thin

Do you ever wonder why it’s so hard to save money — even when you’ve cut the cable and the meals out, and you’ve never even had a latte habit?

One reason it’s so hard to save is that your fixed expenses — the ones that stay the same each month, like your rent or mortgage, car payments, property taxes and insurance premiums — tend to be your biggest bills. These aren’t exactly easy to reduce. Sure, you could lower your rent by moving to a smaller place, but moving itself is also expensive.

We don’t have a magic money-saving trick that will send your bank account balance soaring, but there are plenty of small ways you can scale back. And the little things do add up. Read on if you’re ready to start saving.

How to Start Saving: Set Your Goals First

We get that making a budget ranks right up there with a dentist appointment or trip to the DMV in terms of things you’d rather do. But it’s your essential first step when you want to start saving money.

Fortunately, the best budgeting apps make it easy to keep track of your spending and identify areas where you can cut back. Just be sure to comb through several months’ worth of expenses to get a true sense of where your money is going. Don’t forget about the expenses you don’t encounter every month, like holiday gifts and car registration.

If you don’t set goals, the only thing that budget will do is make you feel terrible about just how little money you’re saving. To get motivated to make saving a priority, spell out why you’re saving.

Think about the short-term goals you’re hoping to accomplish within the next year or two. Building an emergency fund for your family, making a down payment on a home or saving for a vacation may fit in here. Also consider your long-term goals, like putting more money in a 529 plan for your child or saving for retirement.

25 Tips for How to Save Money if Your Paycheck Is Stretched Thin

Here are 25 ideas for saving more money. The good news is that there’s no one thing you have to cut out. If it really matters to you, go ahead and keep spending on it. You can find other things to eliminate that won’t cause too much pain.

1. Time your purchases like a pro.

You may not be able to time a car repair or vet bill, but with discretionary purchases, knowing when to get the best deals can mean big savings. Need a TV? Wait until January, when last year’s models are discounted to make room for the new ones. Looking for new furniture? Retailers often clear out their stock around Independence Day, making July prime time for scoring cheap furniture.

A woman smiles as she holds up a drink and a sub she got for free from Jersey Mike's Subs.

2. Master the art of getting stuff for free.

Becoming a hermit isn’t the only way to save money. There are plenty of ways to get free stuff or have fun on the cheap. Some of our favorite ideas:

  • Use Facebook and Nextdoor. Before you shell out for things like furniture or baby gear, check out buy nothing groups on platforms like Facebook and Nextdoor to see if one of your neighbors is looking to get rid of something similar.
  • Score free food by downloading an app. Plenty of restaurant chains offer freebies or BOGO deals for downloading their apps. You can always delete them after you take advantage if you don’t want temptation at your fingertips.
  • Get free stuff just for being born. You can score tons of birthday freebies if your big day is coming up — often not just on your actual birthday, but any time during your birth month.
  • Check out your local library for free entertainment. Your library card isn’t just a pass to check out books made from dead trees. Plenty of free library apps allow you to access ebooks, movies, music and more without paying a cent.
  • Swap goods or services with someone else. Learning how to barter can help you get what you need without spending money.

3. Smash your credit card debt once and for all.

The average APR for people who carry credit card debt is well over 16%. Your bank jumps for joy when you don’t pay off your balance because it’s getting rich off all that interest. Quit padding your bank’s coffers and break up with your credit card debt forever. Some tactics to try:

  • The debt snowball method, where you attack the smallest balance first.
  • The debt avalanche method, where you focus on the card with the highest interest rate.
  • A debt consolidation loan, where you merge your debts into a single payment. This is only a good option if you’re lowering your interest rates.
  • A balance-transfer credit card, where you transfer your balances to a card with a 0% promotional interest rate. That zero-interest period typically only lasts 12 to 18 months, though, so this approach is best if you don’t have tons of debt.

4. Flex low interest rates to your advantage.

Interest rates are historically low, which means the high-yield savings account that once upon a time — ahem, back in 2019 — spoiled you with 2% or 3% APY is probably paying well below 1%. The flip side is you can use those ridiculously low interest rates to save money by refinancing your mortgage. One good rule of thumb: Refinance when you can lower your interest rate by 1 percentage point or more, since you’ll have to pay closing costs.

5. Lower your student loan payments.

If you’re struggling to pay off student loans, talk to your servicers about whether an income-driven repayment plan is an option for your federal loans. These plans will stretch out your repayment over the standard 10-to-20 years — and if you still have a balance after 20 years, it will be forgiven, though you’ll still owe income taxes. If you have private student loans, check with your servicers about whether there’s a way to lower your debt payments.

A person meal preps at home.

6. Do meal prep. Don’t go overboard.

Grocery stores play all kinds of sneaky mind games with you, and you’re most vulnerable if you shop while you’re harried and hangry. A great way to combat their money-snatching tactics is to make a shopping list and devote a few hours to meal prep every week.

But don’t get too ambitious here. If you’re an UberEats addict whose pantry consists of three spices, you’re setting yourself up for failure if you plan to cook 21 meals a week. Start with a more reasonable goal, like making your own breakfast and lunch each day, plus dinner three nights a week.

Pro Tip

Only buy in bulk if you’re purchasing products that have a long shelf life or ingredients that you have enough freezer space to store for future recipes.

7. Squeeze every cent you can out of your employer.

We aren’t just talking about negotiating your salary and asking for a raise when you’ve earned it — though both are essential, albeit awkward. To build your long-term savings, make sure you’re not leaving free money on the table. Contribute enough to get your employer’s full retirement match if they offer a 401(k) plan. If you have a health savings account, take advantage of any matching contributions to that as well. You can use the money you save for your own expenses, your spouse’s or a dependent family member’s.

8. Got a raise? Congrats, but don’t spend it.

Do your tastes get fancier every time you get a raise? This phenomenon is called lifestyle inflation, and it’s a notorious savings killer. You don’t have to live like you’re on an entry-level salary forever, but make a plan for your future raises so your living expenses increase at a slower rate than your salary. For example, plan to save half of your next pay increase and sock the rest in savings.

9. Be skeptical when something seems like a deal.

Free shipping if you spend just another $11? Step away from the digital shopping cart. If you’re being coaxed into shelling out another few bucks for something that’s “free”… well, it really isn’t free.

Playing the credit card rewards game is another good example. Yes, you can score free airfare and cash back. But it’s only free if you don’t spend more to get those rewards, and if you pay your balance in full every month. Otherwise, you’ll shell out way more in interest than you’re getting in rewards.

A woman smiles as she looks at her laptop. She's sitting on a blue couch and she has pink in her hair.

10. Cancel automated purchases for non-necessities.

Curbing mindless spending isn’t just about cutting out late-night Amazon purchases and impulse grocery buys. You probably have monthly subscriptions and memberships that are draining your bank account each month for things you rarely, if ever, use.

One of the best ways to save money is to look carefully at gym memberships, streaming services, subscription boxes and anything else that you automatically pay for each month. If you haven’t used it in the past month, it probably belongs on the chopping block. Also be on the lookout for any free trials you forgot to cancel.

Pro Tip

Avoid storing your credit and debit card information on websites you frequently shop on. You’ll make it harder for yourself to spend mindlessly.

11. Find energy suckers that are driving up your electric bill.

No, we aren’t going to tell you to invest thousands of dollars on solar panels for your home as a way to save money on your electric bill. But there are a few inexpensive tricks that can help you save money on utilities. Simple things like regularly changing air filters and switching to more efficient light bulbs can make a big difference on energy costs.

12. Repair what’s broken instead of buying a new one.

Just because something’s broken doesn’t mean it’s destroyed. By learning some basic DIY techniques, you can make your lightly damaged goods like new again without shelling out for repairs. For instance, learning a few basic sewing stitches will help you repair your clothing for you and your family, even if you don’t have a sewing machine. There are plenty of ways to learn home repair skills for free online.

But for major repairs, know when to call a pro. It’s worth the cost when you’re repairing a big-ticket item or doing anything that could jeopardize your safety.

13. Save money on prescription drugs.

Whether you have health insurance or not, it often pays to do some detective work before filling your prescriptions. If you’re an Amazon Prime member, you can save up to 80% on generic medications and 40% on name-brand drugs through Amazon Pharmacy if you don’t have insurance. Even if you have insurance, a prescription drug card could help you save money. You can ask your pharmacist to run the cost using your insurance and the card to find out which option is cheaper.

If a medication is expensive because you have to pay for it out of pocket or your insurance company puts it in a pricy tier, talk to your doctor or pharmacist. A lower-cost alternative may be available. For over-the-counter meds, always buy generic. The FDA requires generic drugs to be chemically identical to their more expensive name-brand counterparts.

14. Ditch your cell phone plan if you have a major carrier.

You don’t have to worry about spotty service when you switch to a discount cell phone plan. Most discount plans run on the network of one of the four major carriers, so the only thing you have to lose is your out-of-hand bill. Depending on the plan, you may have data restrictions. Some also require an unlocked device.

FROM THE SAVE MONEY FORUM

15. Find the money you’ve long forgotten about.

Some money-saving strategies require a ridiculous amount of discipline. So here’s a super easy trick that could give you a quick savings boost in just three minutes. Find out if someone owes you money by searching your state’s unclaimed property website.

At least 1 in 10 Americans has missing money waiting to be claimed. You could find money from old security deposits or bank accounts, or even a life insurance policy you didn’t realize a loved one left you. The key to making a one-time windfall work for you is to use it purposefully. That can mean saving or investing your money, or putting it toward debt.

16. Get cash for switching banks.

Another way to get a quick cash infusion: Switch bank accounts. Some of the best bank promotions will give you $500 or more just for opening a new account. Just be sure to read the fine print, since a bank account with ridiculous fees or minimum balance requirements could cost you big.

17. Be strategic about your tax refund.

Some personal finance types will shame you for getting a big tax refund because you’re giving Uncle Sam an interest-free loan. We say, do whatever works for you. Opt to have less money withheld from your paycheck if you’ll actually save it or apply it toward debt. But if the idea of a giant tax refund motivates you, it’s OK to make the IRS play piggy bank. Just make a plan for how to spend your tax refund that will pay off in the long run. Some of our favorite ideas:

  • Put it in your savings account for an emergency or upcoming expense.
  • Pay down your highest-interest credit card.
  • Make an extra mortgage or car payment.
  • Give your Roth IRA a boost.
  • Put it in your child’s college fund.
A person rides a bicycle in the park as the sun sets.

18. Travel by two wheels whenever possible.

Even if it’s not feasible to ditch your car, bike commuting a couple days a week can help you save money on obvious expenses, like gas and parking. But there’s a bonus here: When you’re on your bike, you can fit a lot less in your basket or backpack than you can in your car trunk. So if you have a habit of making extra trips to the grocery store or stopping for takeout on your way home, traveling by bike reduces the temptation.

19. Cancel the insurance you don’t need.

Insurance can seem like a money-sucker, because hopefully, you don’t need to use it very often. Having sufficient homeowner insurance or renters insurance, car insurance and medical insurance is one of the best ways to prevent an emergency from destroying your finances.

That said, some types of insurance are a waste of money. For example, you probably don’t need collision insurance or comprehensive insurance on a car that’s paid off if it’s older and one fender-bender away from scrapyard heaven. You may not want to shell out for accident insurance or critical illness insurance either, because the circumstances they’ll cover you for are so limited. Even life insurance may not be worth the cost if you’re single with no dependents.

Pro Tip

You can often get discounts on insurance by bundling your coverage. For example, you may save money by getting your car and renters insurance from the same company.

20. Do a no-spend challenge

Duh. It sounds so easy: To save money, just don’t spend it. But doing a no-spend challenge, where you commit to not spending any money over a certain period — be it a month, a week or even a single day — can help you reign in your spending.

Or you could try a modified version. Do a pantry challenge, where you avoid the grocery store and use the ingredients you have on hand to feed your family. Or build a capsule wardrobe, where you select a certain number of clothing items and make those your only wardrobe for the time frame of your choosing.

Dental Hygienist students work on people's teeth at a clinic.

21. Find discounted services at vocational schools

If you’re looking for ways to save money on expensive services, sometimes it pays to let a student practice on you. You can get services like beauty treatments, sonograms and massage therapy at steep discounts from local vocational schools. If you live near a university and you’re truly brave, you could even get low-cost dental work from a student dentist.

22. Get free or low-cost financial help

If you’re struggling to stick to your budget or keep your spending in check, it’s OK to ask for help. You don’t need to spend big bucks to work with a financial pro. Unlike financial planners and advisers, who often cater to people with a higher net worth, a financial counselor is trained to help regular people manage their money from day to day. Many offer their services at little to no cost through a bank, school or nonprofit, or they practice on their own and use a sliding scale based on your income.

23. Find ways to earn extra money.

There’s no way around this one: Even when you have a bare bones budget, sometimes saving money just isn’t possible. One reason is that your fixed costs, like your rent or mortgage, medical insurance and car payments are often your biggest expenses — and those are the hardest to lower.

If you’ve cut everything you can and still can’t save, it’s time to find ways to make extra money. Switching to a higher-paying job isn’t always realistic, but you can still take on a side hustle, find a work-from-home job you can do part time or make extra cash selling stuff online.

24. Find cheap ways to treat yourself.

Any successful savings plan has a little built-in flexibility so you can treat yourself from time to time. Rather than downing drinks at happy hour, buy yourself a good but cheap bottle of wine to enjoy at home. Have a DIY spa day using simple ingredients you probably have on hand. If you’ve been stuck at home for too long, you can refresh your home’s look without spending a dime.

25. Talk about your struggles and your successes.

One of the best ways to save money is to tell other people that you’re trying to save money. Doing so can help you prepare your friends and family for when they hear you say no to joining them when they suggest expensive plans.

But that’s not the only advantage. It’s easy to feel like you’re the only one who’s struggling to save money, especially when you scroll through Instagram. But you’re far from alone. Find other people who are trying to save money, either within your social circle or by connecting with a like-minded online community. You can swap tips for saving money and find encouragement when times are rough.

And when you reach your savings goals, no matter how big or small? Pay it forward. Talk about it. Let others know exactly how you managed to save money — and that they can do it, too.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. Send your tricky money questions to DearPenny@thepennyhoarder.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Teespring Review: Make Money Selling Custom T Shirts or Scam?

Are you a fan of those cool t-shirts with funny sayings and expressions written on them? Have you ever bought them? Chances are you own ...

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MooCash Review: Legit Lock Screen Rewards App or Scam?

As we speak you probably have tens of apps running on your smartphone right now. What if I told you companies like MooCash claims it ...

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Investing for Beginners: Start Here if You Don’t Know Anything

You’ve probably heard that investing is one of the best ways to put your money to work.

But if you’ve never put money in the stock market, the prospect can be overwhelming.

What investments should you choose? How much money does it take to get started? And what kind of account is right for you?

Investing may seem intimidating, so it’s important to learn the basics.

We’ll explore different types of investments, including stocks, bonds, mutual funds, certificates of deposit and retirement savings plans like 401(k)s.

We’ll also discuss where to actually invest your money, such as tax-advantaged investment accounts, robo-advisors and online brokers.

Finally, we’ll detail some key concepts and strategies to guide you on your investing journey.

Investing for beginners doesn’t have to be complicated. Here’s how to get started.

What Should I Invest in? 5 Types of Investments for Beginners

Investing is a way to build wealth by purchasing assets that you anticipate will grow in value over time.

There are many different investment vehicles. Each carries its own potential risk and reward.

Types of Investments:

  • Stocks
  • Bonds
  • Mutual funds, index funds and exchange traded funds (ETFs)
  • Certificates of deposit (CDs)
  • Annuities
  • Options and futures
  • Cryptocurrencies

For beginning investors, it’s wise to start with simple investments such as mutual funds, index funds and ETFs, before moving on to more complex investments like real estate.

Stocks

When you invest in stocks, you’re essentially buying a small ownership share of a company — and its profits.

The earning power of a company drives its long-term stock price — for better or worse. Stock prices can be impacted by factors inside the company, like strong quarterly profits or poor revenue, and by events outside the company’s control, like political turmoil or a broad economic recovery.

You can make money from stocks in two ways:

  • Your shares increase in value. If the company’s outlook is good, other investors will be willing to pay more money for your shares than you originally paid.
  • The company pays you a dividend. This means the company distributes part of its profit back to shareholders. (That’s you.) Smaller companies issue dividends less frequently than larger ones.

Shareholders are vulnerable to loss if things don’t go as well as hoped. If the company loses money, your shares may lose value. Thus, when you buy stocks, you’re making a relatively high-risk investment.

Despite that risk, one of the most common beginning investor mistakes is selling shares in reaction to the daily news cycle. Constantly checking stock prices or tweaking your investments can lead to impulsive — and costly — decisions to sell.

For the average investor, you’re better off investing in stocks long-term. Historically, the average annual stock market return is 10%, or an average of 7% to 8% after inflation. Keeping your money invested allows you to weather the stock market’s unpredictable ups and downs. As long as you don’t sell when stocks are low, you won’t actually lose money.

Pro Tip

Diversification is a strategy used to manage risk. It works by spreading your money across different types of investments so that if one loses money, the others will hopefully make up for the loss.

You can also offset the risk of owning individual stocks by purchasing multiple shares of different publicly traded companies, and of companies across different sectors. For example, don’t invest in only tech companies. Diversify with investments in energy, pharmaceutical and transportation companies.

Investing in other assets like bonds is another way to help mitigate the risky nature of stocks while still profiting from their high returns.

Bonds

Bonds are debts issued by corporations or, more commonly, governments.

When you invest in bonds, you’re lending money to the bond issuer.

Investing in the bond market provides a reliable return because bonds pay fixed interest payments at fixed intervals, often twice a year. That’s why they’re known as fixed income investments.

Because bond issuers are legally obligated to repay their debts, bonds are considered safer than stocks. However, bonds don’t have the exponential growth potential that stocks do. In fact, bond yields have been declining since the 1980s.

The lowest-risk bonds are issued by the U.S. Treasury. Municipal bonds, which are issued by state and local governments, are slightly riskier.

Investing in Treasurys and municipal bonds also comes with tax breaks: You don’t pay federal income tax on the interest you earn from municipal bonds, and the interest you earn on Treasurys isn’t taxed by states.

Lower risk and tax advantages are two reasons people often shift their asset allocation toward bonds as they near retirement. Bonds are a safe choice if you don’t have much time to bounce back from market losses.

Investing in corporate bonds is riskier than investing in government bonds. The safest corporate bonds are called investment-grade bonds and the riskiest bonds are called junk bonds.

Because investors assume a high level of risk when they buy junk bonds, they earn higher interest rates.

Still unsure about the difference between stocks and bonds? We'll explain.
In this illustration, a woman waters a tree that is growing money.

Mutual Funds

A mutual fund is a prebuilt collection of stocks and sometimes bonds. You are essentially buying small pieces of many different assets with a single share purchase — without all the footwork to research and buy individual stocks and bonds yourself.

Typically, a mutual fund is designed and managed by financial professionals. However, some mutual funds are index funds, which means their makeup and performance is tied to a market index, like the S&P 500 or the Dow Jones Industrial Average. We’ll talk more about index funds when we discuss ETFs.

A minimum investment can range from $500 to $3,000, though some offer a minimum investment of $100 or less.

Mutual funds can be a good option for new investors because they offer convenience, instant diversification and access to professional money managers.

It’s important to keep in mind that actively managed mutual funds carry fees. After all, you’re paying someone else to do the work for you.

Pro Tip

The Financial Industry Regulatory Authority offers a Fund Analyzer tool with analysis of over 18,000 mutual funds and ETFs, including how fees and expenses may impact your bottom line.

While some mutual fund managers achieve impressive short-term gains, research shows that mutual funds struggle to consistently outperform the broader market over time.

Exchange-Traded Funds (ETFs) and Index Funds

Exchange-traded funds and index funds are similar to mutual funds in that each is a basket of different investment assets.

One key difference: ETFs and index funds aren’t actively managed by a live human being. Instead, these investments are passively managed.

Index funds and ETFs are often used interchangeably. That’s because many ETFs track a market index.

The only big difference between the two is how they’re traded. You can buy and sell an ETF throughout the day, while you can only trade an index fund at the price point set at the end of the trading day.

Because they are passively managed, ETFs carry low fees. The average expense ratio for a managed mutual fund in 2019 was 0.66%, according to Morningstar, compared with an average blended fee of 0.09% for ETFs.

Many ETFs seek to replicate the performance of the overall stock market or a major stock index. Others aim to represent a smaller segment of the market.

Some ETFs are collections of companies in the same industry or geographic area. For example, Vanguard’s International Equity Index ETF (VSS) tracks major non-U.S. companies while the Health Care Select Sector SPDR Fund ETF (XLV) tracks U.S. health care companies like Johnson & Johnson and Pfizer.

ETFs can also focus on companies of a similar size and market share. Vanguard’s Small Cap Value ETF (VBR), for example, includes companies with a market capitalization between $300 million and $2 billion.

Certificates of Deposit (CDs)

CDs, or certificates of deposit, are among the lowest-risk investments. You agree to let a bank or financial institution hold onto your money in exchange for a guaranteed interest rate.

CDs have a fixed term length and a maturity date. You lock funds in a CD for a certain time, usually three months to five years. You’ll face a penalty for withdrawing funds early. After the term ends, you’ll get your initial investment back, plus a little interest.

Because the risk is low, so is the reward. CD rates may earn only slightly more interest than high-yield savings accounts.

CDs aren’t a good option for growth, but they are a good way to earn interest safely if you can’t afford to take a risk on the stock market.

How Much Money Should a Beginner Investor Start With?

One of the biggest misconceptions about investing is that you need thousands of dollars to get started.

That simply isn’t true. Some investing apps let you begin investing in the market with as little as $1.

For new investors, it’s more important to start as early as possible. Starting small is always better than not starting at all.

If you’re right out of college or working a low-paying job, you may not have much money left over to invest. Over time, you can invest more money, diversify your holdings and build a strong portfolio. For example, you can step up your 401(k) contributions at work after every raise.

It’s also important to build an emergency cash savings fund before you start investing. You don’t want to use money you’re saving for your future in order to cover unexpected costs like a sudden job loss or car repairs.

Where Do I Start Investing?

The best place to start investing depends on your financial goals, as well as how much money you can afford to invest.

But if you don’t have a few thousand dollars lying around, don’t worry. There are plenty of avenues to get into the market, including online brokers, robo-advisors and retirement savings plans.

Two cubicle workers push each other on a chair down the hallway at their office.

Your Employer’s Retirement Plan

If your employer offers a 401(k), contributing part of your wages should be step one. If it includes an employer match, be sure to contribute the level needed to qualify. It’s essentially free money for your future.

It’s smart to start contributing to a retirement investment account as soon as possible. The longer you wait, the more you’ll have to play catch-up later.

Traditional 401(k) plans offer favorable tax treatment from the federal government. Your money is invested pre-tax, and grows tax-deferred until you withdraw funds.

Your 401(k) plan will likely offer a handful of investment choices based on your target retirement date, mostly mutual funds and ETFs. You typically can’t use your 401(k) to invest in individual stocks and bonds.

Pro Tip

In 2021, you can contribute up to $19,500 a year to a 401(k), or $26,000 a year if you’re age 50 or older.

Roth or Traditional IRA

If you don’t have access to a 401(k) at work — and even if you do — you can open an individual retirement account (IRA) with a financial institution or online broker to work toward building an even bigger nest .

IRAs come with more investment choices than 401(k)s, including individual stocks and even alternative investments.

Most people can choose between a Roth or traditional IRA.

With a traditional IRA, all your dollars go into the account tax-free but you pay taxes on the backend when you withdraw funds.

Meanwhile, a Roth IRA withholds taxes when you deposit money at the beginning but offers you tax-free withdrawals on the backend.

Contributions to a traditional IRA qualify as a deduction on your yearly tax bill. Contributions to a Roth retirement account do not.

While you can open an IRA through either a bank or a brokerage firm, we suggest going with a brokerage. Bank IRAs are usually limited to super-conservative investment options, like CDs, which have low potential growth. Opening an IRA with a brokerage firm will give you access to a full array of investments.

Pro Tip

In 2021, you can contribute up to $6,000 a year to an IRA, or $7,000 a year if you’re age 50 or older.

Taxable Brokerage Account

With a few exceptions, money in your retirement accounts is off limits until you turn 59 1/2. You’ll face a 10% tax penalty from the Internal Revenue Service if you withdraw funds earlier.

If you plan to tap your investments prior to retirement, opening a taxable brokerage account may be a good option. You don’t get the tax benefits of a retirement plan, but you get a lot more flexibility with this type of investment account. Capital gains tax is assessed differently, depending on how long you own a stock.

If you sell a stock you’ve owned for less than a year, the profit will be subject to the short-term capital gains tax rate. Stocks owned for a year or more are taxed at a typically lower long-term capital gains rate.

It’s also important to keep in mind that some brokerage services aren’t free. If you want a professional to manage your account, for example, you’ll pay for this service.

Here are some brokerage fees to be aware of.

Trade Commission 

Also known as trading costs, this fee is applied when you buy or sell stocks. Trading costs are becoming rare, and many discount brokers offer commission-free trading, including TD Ameritrade, Charles Schwab and Robinhood.

Mutual Fund Transaction Fee 

This fee applies when you buy and/or sell a mutual fund.

Expense Ratio  

This annual fee is charged by mutual funds, index funds and ETFs as a percentage of your investment in the fund.

Management or Advisory Fee 

This fee is usually a percentage of assets under management and is paid to financial advisors or robo-advisors.

If you’re a new investor, look for discount brokers with low minimum investment requirements and access to tailored investment advice.

Robo-Advisors

A robo-advisor is a type of online investment account that automates stock investing for you. It can be a great option for new investors because robo-advisors charge low fees and take the guesswork out of building a diverse portfolio.

Robo-advisors  —  such as Betterment and Wealthfront — are online brokers that use computer algorithms and advanced software to build and manage your investments. There are typically five to 10 pre-made portfolio choices, ranging from conservative to aggressive.

After you create an account, you’ll be prompted to complete a questionnaire designed to evaluate your income, age, goals and risk tolerance.

From there, the robo-advisor picks the right portfolio for you. You can choose a different one if you disagree with the algorithm but you typically can’t select the individual investments inside your portfolio.

Robo-advisor portfolios are mostly made of low-cost index fund ETFs and sometimes other investments, like mutual funds.

Robo-advisors let you choose between a taxable brokerage account or an IRA — and they’ll help you choose the right account type for you.

Most robo-advising companies charge annual management fees that range between 0.25% and 0.50%. Some require an initial investment of $5,000 or more, but most robos accept account minimums of $500 or less.

Investment Apps

Only have a few bucks to spare? A micro-investing app may be a good option.

Apps like Stash and Acorns make investing for beginners easier than ever.

Investment apps are robo-advisors that let you start investing with as little as $5. Both Acorns and Stash invest your money into a custom ETF portfolio based on your age and personal risk tolerance.

You can also set up regular, automatic contributions, which will fuel your portfolio’s growth over time.

In general, Stash is a good option for beginner investors who want a more DIY, hands-on approach because the app allows you to select your own stocks and ETFs.

Acorns tends to be a better fit for people looking for a more passive, automated experience because the app doesn’t allow you to invest in specific securities.

A woman with tattoos sits at a skate park.

Investing for Beginners: 4 Basic Strategies to Know

Now that you’ve got the lowdown on your investment options, here are a few more things you need to know before you start investing.

Since all investments involve some risk, it’s imperative to be prepared and informed about how to mitigate those risks.

1. Maximize the Magic of Compounding Interest

The power of compounding can turn even modest savings into a sizable nest egg over time.

If you saved $100 a month and tucked it under your mattress, you’d have $36,000 in 30 years.

But if you invested that same $100 a month and averaged an 8% return per year, you would end up with more than $140,000 after 30 years.

Compounding occurs when the interest you earn on your money builds on itself like a snowball effect.

To maximize this compounding magic, you need to invest early and consistently. Making smaller contributions at an earlier age gives you a leg-up over someone who gets a late start — even if that person invests a lot of money at once.

Pro Tip

Use this interactive calculator from the U.S. Securities and Exchange Commission to see just how much your money can grow with compounding interest.  

If you start investing in your 30s or 40s, you can still benefit from compounding interest by simply letting your money grow. Avoid cashing out early so that your snowball of interest can gain momentum.

2. Diversification

Perhaps the most important investment strategy is diversification. A diversified portfolio means you have a wide range of assets, including different asset classes, companies, locations and industries.

Why is diversification so important? Well, it’s just like that old saying about not putting all your eggs in one basket.

If one of the companies you own stock in goes under, for instance, you won’t be as adversely affected if your money is spread across other companies and industries.

It’s also wise to diversify across asset classes by owning a mix of stocks, bonds and even alternative investments like real estate.

Mutual funds and index funds are popular among new investors because they offer immediate diversification.

3. Understand Your Time Horizon

Your time horizon is how long you plan to hold an asset. Time horizons can range from a few months to several decades, depending on your goals.

Understanding your own time horizon — and investing goals — can help you pick the right investments.

If you’re young and investing for retirement, your time horizon is long. You can be more aggressive with your portfolio by investing in riskier securities, like stocks, because you have more time to recover from volatility and loss.

While stocks can be volatile in the short term, over time, they historically outperform other investments. If you don’t need access to your money anytime soon, consider stocks, ETFs and index funds for long-term growth.

However, if you need to tap your money within the next three years, you shouldn’t invest it in stocks. You’re better off putting your money in a CD, money market account or high-yield savings account.

That’s because shorter time horizons give you less wiggle room to bounce back from market losses. If you need money for a down payment in two years, you don’t want a sudden crash to derail your plans.

Likewise, many financial experts recommend shifting your portfolio to less risky investments as you near retirement because your time horizon is shorter.

Pro Tip

You might consider hiring an investment advisor to ensure your investing decisions are appropriate for your goals and time horizon.

4. Risk Tolerance

Risk tolerance is the amount of volatility an investor is willing to stomach. It’s sometimes referred to as your “sleep at night factor.”

In other words, how much risk are you willing to take within your portfolio before the thought of losing money keeps you up at night?

The answer is different for everyone. There’s no right or wrong risk tolerance level.

Generally, younger investors are encouraged to take more risk and create aggressive portfolios. Investors nearing retirement, on the other hand, are encouraged to switch to safer securities like bonds to preserve their money.

However, it’s important to consider how market changes impact you on an emotional level. You can be in your 20s and still stress out when the market drops. Or you might be near retirement but still comfortable day trading.

You can score your personal investment risk tolerance using this empirically tested risk tolerance assessment tool developed by two university financial planning professors.

Speaking with a financial advisor is one way to offset some of the anxiety many new investors face. Trained professionals can provide valuable insight on how to make investment decisions that match your personal comfort level.

Rachel Christian is a senior writer for The Penny Hoarder. Jamie Cattanach contributed reporting.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

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