Let’s talk about investing. Today I’m covering 3 companies that I use and break down some of the lingos that you may not understand. All of these companies have options to invest in stocks like Apple or Exxon Mobile. Vanguard and Betterment are pretty much a set it and forget it type of investment. What I mean by that is once you choose the type of index funds (Vanguard) or investment ratio (Betterment), the company does all the work for you. The company will then invest your money in multiple companies. Also called passive investment, meaning you’re not out buying and selling individual stocks daily and doing trades weekly yourself. TSP on the other hand differentiates itself with Government securities fund that invest in short-term government securities.
Vanguard: I use Vanguard for basic investing and I love it. I’ve been with them for about 3 years and the results have been astounding. What’s great about Vanguard is that they are an established company that has been around for over 40 years and they don’t have stockholders or outside company holders to answer to. That means that they can run funds at cost and in return you keep more of your money. The expense ratio at Vanguard is 82% less than market average and in the long run makes a big impact on your overall nest egg. Lowest expense has been 0.05%. Minimum investment starts at $1000.00.
Betterment: A new and upcoming company that’s been around for several years. What I like about them is that you can invest as little as $1 and get on your way. You do have to auto deposit $100 a month if you decide to invest between $1-9,999 if you decide to go this route. They also have tax-loss harvesting which per betterment website breaks down the practice of selling a security that has experienced a loss. By realizing, or “harvesting” a loss, investors are able to offset taxes on both gains and income. The sold security is replaced by a similar one, maintaining the optimal asset allocation and expected returns. Everything is done for you with Betterment. Beginners can easily understand this site because of their easy to understand web layout and breakdown of where your money is being invested. Fees are a bit higher with Betterment compared to Vanguards lowest. The annual fee ranges from 0.15-0.35% depending on how much you invest.
Thrift Savings Plan: This is my retirement plan which is similar to a 401K. This investment account is only for the military and federal employees and it has huge benefits. Number one, it has the lowest expense fees out of any company I have seen. At 0.029%, it is by far the lowest cost. It really makes a big difference with how much money you keep when you’re ready to retire. I have had TSP since I have been in the military and since starting; my investment has shot up to 5x from where I began and have seen annual gains of 10%. Many younger Airmen don’t take advantage of this plan and I always try to educate them on how much money they are losing. Investing at a young age makes a huge difference!
Lingo Terms
- Expense ratio: Examples of how much the above company charges.
- 0.029 Expense ratio= 29 cents per $1000 invested.
- 0.35 Expense ratio= $ 3.50 per $1000 invested. Big difference right?
- Recurring deposit: Money automatically deposited into investment account from your bank account.
401K: In the United States, a 401(k) plan is the tax-qualified, defined-contribution pension account defined in subsection 401(k) of the Internal Revenue Code. - Index Funds: Instead of hiring fund managers to actively select which stocks or bonds the fund will hold, an index fund buys all (or a representative sample) of the securities in a specific index, like the S&P 500 Index which invest in 500 biggest companies in the United States.
Invest early and invest often. Have fun and make your money work for you. Cheers!
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