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What is an ETF Investing?  06.07.2020

An ETF investing (exchange-traded fund) was first introduced in the late 1980s. After 30 years, ETFs transformed into almost every stock class: bonds, ETF for gold, real estate, and even currencies. Since then, it has been considered to be the ideal tool for beginners. The number of ETFs worldwide reached 6478 with a 6.18tr  dollar value of assets.

So, is an ETF a stock? An ETF is a fund that consists of different assets. Because it is not focused on only one share, an ETF is considered to be a popular tool for diversification portfolios.

An ETF can be focused on a hundred different industries or be based on one type. For a better understanding, we will cover different type of ETFs:

  • Currency ETFs: invest in Canadian dollars, British pounds, or any other currency 
  • Bonds ETFs: might include any government bond or corporate bond
  • Commodity ETFs: ETFs that invest for gold or oil
  • Industry ETF: focus on a particular industry like technology or gas
  • Inverse ETF: trying to gain on the stock declines.

ETF vs. Index Fund: What Is the Difference? 

The main difference between ETFs and index funds is that the latter can be bought or sold only by the price set by the end of the trading day, while an ETF can be traded throughout the day. ETFs are considered more flexible and convenient as they are similar to common stocks on the stock exchange.

Secondly, the index fund or mutual fund usually has higher fees as it is managed by professionals. ETFs do not require much paperwork, nor do they have such large fees. Furthermore, ETFs don’t require special accounts.  

ETFs are easier to manage when compared to index funds. That is why it is so popular among beginners.

How Can ETFs Pay a High Dividend?

Most ETFs pay proportional dividends quarterly. It is also called paying on a “pro-rata” basis. Typically, dividends are paid in cash, but additional shares can be offered. There are two main types of ETFs with dividends:

Qualified dividends: the stock must be held for more than 60 days prior to the ex-dividend date (the date when the stock starts trading without the value of the next dividend payment). Qualified dividends are listed in the Form 1099-DIV form.

Non-qualified dividends: all dividends that fail to qualify for lower-tax-rate. So, if an investor could not find the dividend in the 1099-DIV form, he uses the following formula to calculate the dividend:

Total of Ordinary Dividend = Qualified dividend – Non-qualified dividend.

Example: If a fund reports $300$ of the ordinary dividend and $250 of a qualified dividend, you get $50 off a non-qualified dividend. 

Usually, for investors, there are no issues as to whether or not the dividend is qualified for the U.S. market. For investors who prefer to invest in international companies, the difference can be more significant due to the tax calculation. 

On the other hand, dividends can also be paid monthly in ETF. One of the most popular ways is the real estate investment trust stock. Indeed, the reason for its monthly payment is simple: REIT is considered as non-qualified dividend ETF.

That is why it is important to check not only the list of the best-paid ETFs but also the qualification of its dividends.

What Opportunities Does an ETF Bring in Stocks?

There are several reasons why ETFs are so popular:

Variety

An ETF provides a variety of choices due to its differentiation in classes. Let’s say a man has $2500. He wants to invest in Euro (currency), gold, and the tech industry.

Usually, $2500 would not be enough to invest in stocks, but an ETF gives such opportunities. He can invest $1500 in gold, $500 in Euro, and the rest in tech industries.

For people who are limited in assets but willing to try more, an ETF provides such an opportunity.

Low Fees

Really high fees can push newbies away from investing. An ETF usually has a lower ratio than mutual funds. Many online brokers provide fee-free for ETFs. If you are looking for an investing platform and want to try an ETF, check Einvestment. You can manage your portfolio based on already prepared plans.

Keeping Up with the Trend

ETFs are known for their fast response to new trends and technology. It is the best instrument in case of new, in-demand innovations. 

Liquidity

Most of the ETFs are very liquid. They can be sold or bought throughout the day. This gives investors the opportunity to exit the market as soon as they see a recession. An ETF helps them lose much less than mutual funds.

Invest According to Your Style

Active, passive, or in between. Investors can choose passive management or approach actively in the market for sales and deals.

Three Easy Steps to Invest in ETFs

First, ask yourself: should I buy an ETF or not?

  • If you do not have a minimum of 2000 USD to invest in the mutual fund, yes, you should invest in an ETF.
  • If you have a couple of thousand you want to invest from your 401(k), yes, you should invest in an ETF.

Second, you should think about how to get a good deal.

If you are going to invest in an ETF, you have to check it in the same way as mutual funds.

Check the index track and how long it is constructed. Consider additional costs, such as the total annual expense and broker fees.

Third, know the names of the players.

All providers of ETF call themselves differently. Some of the most popular are:

  • Spiders: also known as SPDR S&P 500 ETF (SPY) with the track of the S&P 500 Index
  • NASDAQ 100 Index in ETF. NASDAQ is mainly composed of tech stocks. 

There are many more “big names” that we suggest you study before investing.

Conclusion

An ETF can be an easy way to start investing for beginners or those who are scared of mutual funds. Once you start, check the dividend returns of the fund. 

Interesting fact- the Daily Technology Bull 3x (TECL) was up by 1452% even during the current economic crisis. If someone invests only $10,000 in it, they could gain almost $150,000. You can check more interesting facts about ETFs here.

The previous example just proves that ETFs are safe and a low-risk way to enhance your personal investments.

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How Much Money do You Have to Save to Live Happily Ever After? 18.06.2020

According to one recent survey, half of Americans are dipping into their money for retirement. Yes, it is a matter of survival for today, but what will be left for tomorrow? 

During the 2020 financial crisis, we can look back at what happened in 2008. The global recession left a gloomy shadow on the financial market and increased the popularity of financial advisers for retirement plans. 

Let’s look at real numbers: based on the average spending and life expectancy of American seniors, the average person will spend around 987,000 USD from retirement age on. Those who plan to live a bit more comfortably should prepare more money. 

If you don’t have a cash cushion or a savings fund, it is high time to do it. 34% of recent retirees already regret not saving money in advance, and they wish they had been better prepared for retirement. 

Two Easy Strategies to Invest Money Safely

Today we will discuss some strategies that will show you how to save money for retirement even in times of crisis.

Take Advantage of Compound Interest

If each year, two people (one 22 years old and another 32 years old) put the same amount of money (around 5,000 USD) into a savings account, earn the same percentage of interest (for this example, let’s say 6%), and stop saving at the age of 67, one person will be ended up with nearly twice as much money just because they started saving at age 22. 

The investor who started saving money ten years earlier would have around 500,000 USD more by the time they reach retirement. 

If you already started saving at 22, you’ll have your cash for hospital bills by the time you retire. The total amount saved for the investor who started at 22, will be around 1 million dollars. It is the easiest way to start saving for retirement, even during crises. 

Make a Habit of Saving Money

If you save money constantly, it will soon become instinctual. Try to save money online by using an online saving account or another platform. This will allow you to see how your money grows in real-time. Starting even from a deposit of 25 USD will help you to analyze and learn about the market. Also, it doesn’t hurt that your savings will increase, rather than your debts.

How to Invest Money for Retirement Under the Crisis

We have prepared the basic tips for you to follow:

Maximize Liquid Savings

Your saving, checking, and money market accounts, as well as certificates of deposit, will help you the most in a crisis. The value of these resources doesn’t fluctuate with the economic and marketing conditions, unlike ETFs, stocks, and index funds. In the short-term, it is the safest strategy. However, don’t use this strategy in the long run, as your funds may suffer from inflation. 

Invest Money in Stocks Even during the Economic Recession of 2020

Study the stock market, open an account with a broker or investment company, and buy shares that will show growth in the long term. Leave them alone for approximately two years, and then adjust your strategy if necessary.

Besides this, you need to understand that investing in stocks is a long-distance race, during which the initial conditions will change significantly. To illustrate this point, let’s imagine that you retired 20 years ago in May 1998. 

You would have faced a crisis in the same year and severe trials in 2008. Each time the stock market would fall by 40-50%, banks would collapse, companies would go bankrupt, and currencies would depreciate. Your retirement fund would be affected by this, but it would still be better than if you hadn’t invested any money. After all, a bird in the hand is worth two in the bush.

Invest Money in Mutual Funds

Investing money in mutual funds is an easy way to build a professional portfolio. Mutual funds have a diversity of investments. It makes it much more comfortable for the investor to go through ownership of individual stocks or bonds. Moreover, it allows you to pool your money with other investors and leave the final decisions to professionals. Portfolio managers decide whether to sell or buy. During a crisis, using diversification should always be an option for you. It is extremely hard to rely only on one stock or fund, as even banks can collapse under a crisis. Try to use a trustworthy platform for your investment. eInvestment can be one of them. It is a multi-portfolio investment platform with a suite of differentiated investment options for each of your individual needs. It is the best place for investing money if you are looking for retirement plans. 

Some experts believe that mutual funds are not the best way of investing money for retirement. However, during a recession, it is a better option than relying on savings.

Life Dilemma: IRA or Saving Accounts?

Keep your money and assets in both. Saving accounts are useful for withdrawing money during emergencies (such as COVID-19, unemployment, hospital bills, etc.). On the other hand, withdrawing money from your IRA before the age of 59 is accompanied by a 10% tax penalty. Thus, an IRA is not for emergencies. It has tax advantages and pension savings plans, but during a crisis, it does not work to your benefit. 

Conclusion

A crisis does not have to impede your retirement plans. Keep your funds and stock diverse and your emotions under control. If you are not sure how to invest, try to use the help of financial platforms. Professional, licensed platforms have investing strategies for retirees. Just keeping a safety cushion will not save you from inflation. Stay positive and constantly save money. Remember, even 1 million USD is not enough for a cushy post-retirement life. 

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