Summary: The optimal asset allocation for an individual relies on many factors, but a 50-50 ratio of stocks to bonds works just fine.
Asset Allocation: What to buy, and how much of it.
Let's start off slow. The broadest level of asset allocation is how much stocks vs how much bonds you should have.
Your risk tolerance will be the main deciding factor for ratio of stocks to bonds optimal for you. Technically, you decide what your risk tolerance is, but here are some factors that generally decrease your capacity for risk:
Cash, Savings, and Certificate of Deposits
This is the slowest-growing investment, and is not risky or volatile. Your principal can only grow steadily. In this class of investment, you are rewarded for sacrificing liquidity rather than certainty and stability.
Liquidity: How accessible your money is- how easily can this money be made available for use?
Let's see some examples of cash investments with different liquidities.
The minimum purchase for the funds we’ll be looking at is $3,000 each. I recommend having $20,000 before investing like this, otherwise my beginner investing article might be more appropriate.
Novice Stock Investing
To invest at a slightly more advanced level means we’ll have many more options, which really means more crap we have to filter out. With a larger bankroll, we’ll also get lower expense ratios. Simplicity is still a virtue, but with more confidence and understanding, we can put a higher emphasis on value and precision.
Vanguard is the brokerage that specializes in long-term investing, as reflected by their philosophy, advice, and superior fund selection.* Vanguard's expense ratios are rock bottom and they won't hesitate to tell you that every chance they get. Their customer service is excellent too. Most Vanguard funds have a $3,000 minimum, and can be converted to Admiral shares at $10,000, which are the same funds at a significantly lower expense ratio.
To begin, let's define Passive and Active Investing, using the S&P500 as our stock index.
Active investing is the managing of a portfolio to perform better than the S&P500. This is achieved by investing in high growth stocks while avoiding declining stocks.
Examples of active investing include trading individual stocks, day trading, options, hiring a portfolio manager, or buying an actively managed fund, as the manager of that fund is doing some combination of the above.
Passive investing is the managing of a portfolio to match the performance of the S&P500. This is done by buying a fund that is tracked to the index, meaning it mimics the performance of the S&P500.
An example of this would be buying shares of an an S&P-tracked index fund like this one.
Primary: To help you keep more of your money
Secondary: To help you grow your money
Tertiary: To help you save time
Summary: If you do a lot of international travel, apply for an account online.
I've mentioned Ally Bank twice already for having the best savings/money market and checking accounts, but that is not quite true. If you use their savings account, then it doesn't make sense not to get their checking account out of convenience, seeing that it's free and almost certainly comes with less fees than your current one. But what about when you're outside the US?
Ally’s checking account charges much less than most banks for foreign ATM and transaction fees,
$1.50 +1% for ATM withdrawals and 1% for foreign purchases to be exact. But when you're somewhere like the Philippines where ATMs can charge $5-$10 per withdrawal, the last thing you want is more stinky fees.
The Basic Principles
I see four categories of credit card habits:
Making late payments (failing to pay the monthly minimum). Big fees and damage to your credit score.
I will begin to give regular updates on the progress of my past and current investments to:
Today I will talk about a pretty tame cash investment denominated in foreign currency.
On March 14th 2012, I deposited 10,000,000 Korean Won (KRW) in a NH Bank 1 year CD at an interest rate of 3.057%. Due to language barriers, I did not insist on important information such as early-withdrawal fees, taxes, etc.All I knew was on March 14th, 2013, I would receive 305,700W in interest, minus taxes. Also, they gifted me ten packs of Korean ramyeon, which I gave to my co-workers since I don't eat dehydrated filth.
Today I found out that I would not be able to transfer the money from this CD remotely. Because of Korea's woefully inept banking system*, I would have to collect the money in person on the maturity date, and my plans to depart from Korea before then were final. And so, with a furrowed brow, on November 25th 2013, 4 months before the maturity date, I withdrew my money.
Ask yourself: “Why is my bank better than the other banks?” If you don’t really know, you are missing out on free money, plain and simple. So what should you look for in a better savings account?
A good savings account will have (ranked loosely in order of importance):
No Fees- particularly monthly maintenance, incoming wire, other ATM fees etc.
A good checking account will have (ranked in order of subjective importance):
No fees, particularly monthly maintenance, incoming wire, etc
ATM Fee Reimbursement: ATM fees from other banks are reimbursed