Investing in individual stocks* is an option for your portfolio. However, investing in stocks involves a lot of diligence, research, and discipline. Many of us don’t have the time, money, or fortitude to carry through with an investment plan that includes individual stocks. Additionally, stock picking can lead to additional stress if you find yourself constantly (daily) looking at your stocks and worrying if you should buy, sell, or hold. If you think you’re the type of person who could unemotionally buy and sell stocks for your portfolio and remain consistent in doing so, then you may be the rare investor where this could be a viable option. Building a portfolio of stocks also means you must purchase enough stocks – and enough different types of stocks – to have adequate diversification to reduce your risk compared to owning just one or a few companies. This can be difficult to […]
diversification
Why Inactivity Can Be Your Best Friend
When most of us think about the word inactive, we may think negatively – such as lounging around on the couch, being lazy, or apathetic to a given situation. Most of us feel the need to be active to promote a healthy lifestyle through exercise, perform optimally at our job, or being involved with our family. In many cases, this is valid. There is one area where inactivity can be beneficial. When it comes to investing, doing less can help us achieve the expected return we need on our portfolios, while keeping expenses as low as possible. For many of us, this seems counterintuitive. Many of us can’t help but to do something, anything. Some of us may feel that if we are in control of our investments, we can impact their performance. But the truth is for most us, we are not in control. We cannot control the markets. […]
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Asset Location
Diversification and asset allocation are important components to any investment plan. Additionally, where assets such as stocks and bonds are held, also called asset location, should also be considered. Asset location refers to the type of account that asset classes are held. Such accounts are generally traditional and Roth IRAs, employer-sponsored plans such as 401ks, etc., and after-tax, non-qualified investment accounts. The reason asset location becomes important is to help make use of tax efficiency in an investment portfolio. For example, stocks held in after-tax, non-qualified accounts for longer than one year as well as qualified dividends are taxed at much more favorable rates. These favorable rates can range from as little as zero to 20%. Bond interest, however, is taxed as ordinary income, leaving an investor being taxed at potentially higher amount. As many readers know, amounts contributed to qualified, pre-tax accounts such as deductible IRAs, 401ks, etc., are […]
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