“At the end of October 2018, there were 7,866 U.S. mutual funds spread across the following broad categories: Domestic equity (3,144) World equity (1,499) Hybrid (709) Taxable bond (1,573) Municipal bond (560) Taxable money market (297) Tax-exempt money market (84) Source: Investment Company Institute, 2018 Almost 100 … [Read more...]
Hybrid Funds: Balanced, Lifestyle, or Target?
“Although the goal of hybrid funds is simplicity, they are not as simple as they may appear, and different types of hybrid funds have very different objectives.” Holding a mix of stocks and bonds is fundamental to building a portfolio that can pursue growth while potentially remaining more stable than a stock-only portfolio during market downturns. Many investors approach this goal by owning a mix of individual securities, a mix of funds, or both. However, some hybrid funds try to follow the … [Read more...]
What is the federal funds rate?
The federal funds rate is the interest rate at which banks lend funds to each other from their deposits at the Federal Reserve (the Fed), usually overnight, in order to meet federally mandated reserve requirements. Basically, if a bank is unable to meet its reserve requirements at the end of the day, it borrows money from a bank with extra reserves. The federal funds rate is what banks charge each other for overnight loans. This rate is referred to as the federal funds effective rate and is … [Read more...]
Going Public: An IPO’s Market Debut May Not Live Up to the Hype
The IPO process is important to the financial markets because it helps fuel the growth of young companies and adds new stocks to the pool of potential investment opportunities. An initial public offering (IPO) is the first public sale of stock by a private company. Companies tend to schedule IPOs when investors are feeling good about their financial prospects and are more inclined to take on the risk associated with a new venture. Thus, IPOs tend to reflect broader economic and market … [Read more...]
Investing to Save Time Boosts Happiness Returns
"Time famine" is the feeling of being overwhelmed by the demands of work and life. Also known as time scarcity and time stress, this pressure is a "critical factor" in the rising rates of obesity. Source: "Buying Time Promotes Happiness," PNAS, July 24, 2017 The more money you make, the more valuable you perceive your time to be — and the more time-strapped you may feel, according to University of British Columbia psychology professor Elizabeth Dunn.1 So wouldn't it stand to … [Read more...]
What is gross domestic product, and why is it important to investors?
GDP, or gross domestic product, measures the value of goods and services produced by a nation's economy less the value of goods and services used in production. In essence, GDP is a broad measure of the nation's overall economic activity and serves as a gauge of the country's economic health. Countries with the largest GDP are the United States, China, Japan, Germany, and the United Kingdom. GDP generally provides economic information on a quarterly basis and is calculated for most of the … [Read more...]
What is the employment situation report, and why is it important to investors?
Each month, the Bureau of Labor Statistics publishes the Employment Situation Summary report based on information from the prior month. The data for the report is derived primarily from two sources: a survey of approximately 60,000 households, or about 110,000 individuals (household survey), and an establishment survey of over 651,000 worksites. Results from each survey provide information about the labor sector, including the: Total number of employed and unemployed people … [Read more...]
Marriage and Money: Taking a Team Approach to Retirement
Open communication and teamwork are especially important when it comes to saving and investing for retirement. Now that it's fairly common for families to have two wage earners, many husbands and wives are accumulating assets in separate employer-sponsored retirement accounts. In 2018, the maximum employee contribution to a 401(k) or 403(b) plan is $18,500 ($24,500 for those age 50 and older), and employers often match contributions up to a set percentage of salary. But even when most of a … [Read more...]
Dividend Investing: Small Payments Can Boost Returns
Owning shares of stock or stock funds might increase the value of your portfolio in one of two fundamental ways: capital appreciation (i.e., price increases) and dividend payments. Of the two, capital appreciation carries the greatest potential for return, but it also carries the greatest potential for loss. And any gains or losses are only reaped when you sell your shares. By contrast, dividends typically offer more consistent modest returns that are paid while you hold your shares. For this … [Read more...]
College Saving: How Does a 529 Plan Compare to a Roth IRA?
529 plans were created 22 years ago, in 1996, to give people a tax-advantaged way to save for college. Roth IRAs were created a year later, in 1997, to give people a tax-advantaged way to save for retirement. But a funny thing happened along the way — some parents adapted the Roth IRA as a college savings tool. Tax benefits and use of funds Roth IRAs and 529 plans have a similar tax modus operandi. Both are funded with after-tax dollars, contributions accumulate tax deferred, and qualified … [Read more...]