Divvy Investments, LLC
Nick Bradfield is a Marine veteran and graduate of Northwestern University with a Masters in Predictive Analytics. He started his career in financial services as a financial advisor with a large brokerage firm. Through this experience, he found an interest in helping people minimize fees via index funds/ETFs - and soon, the idea for Divvy Investments was born. After a few years Nick decided it was time to move on. He spent awhile in a financial services consulting firm followed by a brief stint at a publicly traded technology company. Nick was not the right fit for the corporate world. Upon being told he needed to care less about customers, he decided it was time to go into business for himself. When not working, Nick can be found playing superheroes with his son, gazing deeply into his wife's eyes (of which she just rolled), and talking about baseball. Nick passed the Series 65 exam which allows him to operate as an Investment Advisor Representative.
MS, Predictive Analytics, Northwestern University
ABSOLUTELY! Good for you for trying to maximize what you can invest.
Say, for example, your employer sponsored plan is a 401(k). The contribution limits for 2016 are $18,000 if you're under 50 (not including the company match if there is one) and $24,000 if you are 50+. It is recommended to invest at least up to the company match, if there is one, if you have the means to do so. There are very few opportunities for free money and a company match is one of them.
From there, one can contribute up to $5,500/year (or $6,500 if 50+) total combined into IRAs (traditional and/or ROTH). There are some income limits on ROTHs. See here for more details. https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2016.
In a perfect world, one would participate in the company match, fully fund their IRA, and contribute the max allowable by the IRS into the employer plan. Then whatever is left for investing goes into a brokerage account. If you are able prioritize saving like that (especially if you start young), it could make a big impact down the road.
An IRA is a type of account that people save money in and provides tax advantages (various depending on type of IRA, ROTH, Traditional). Some people confuse it for a type of investment. It is actually more of a vehicle that allows you to hold the investments with the various tax advantages. People commonly invest in stocks, bonds, and mutual funds inside the IRAs. Other options are sometimes available but can get complicated and messy. The IRS places some income limits on tax benefits of IRAs as well as contribution limits. See here for more info on that... https://www.irs.gov/retirement-plans/individual-retirement-arrangements-iras-1
Annuities are contracts with insurance companies. They often come with some level of guarantee, but typically at a much higher fee. A fixed annuity will pay out a predetermined amount based on the contract. A variable annuity allows you to invest money in the market (stocks, bonds, funds...). Annuities don't have income/contribution limits. They do have similar tax advantages as an IRA (tax deferred growth until you withdraw the money). Here is some info about taxation and annuities. https://www.irs.gov/publications/p575/
Both provide potential tax advantages/deferred growth. Both have penalties for withdrawing money prior to 59 1/2. Things to consider when debating between the two: age, income levels (current and future), FEES, credit worthiness of insurance provider, your risk tolerance, your level of involvement you desire...
At the end of the day, you should understand what you're buying, the fees, and the risks before taking any action.
The short answer is mutual funds are a bad investment when they don't align with your investing philosophy and/or risk tolerance.
There are thousands of mutual funds out there. There is a mutual fund for just about every investing style, philosophy, and risk tolerance that is out there. They are a great way to get diversification compared to having to purchase 20+ different stocks/bonds in a variety of industries.
Things to keep in mind when investing in mutual funds...
1. Fees- Pay close attention to the internal fees (known as the expense ratio) as well as if there are any sort of loads (commissions) paid on the front end or back end of the fund. Many mutual funds are a lot more expensive than their index fund counter parts (mutual funds compare themselves to benchmarks known as indexes... in many cases you can purchase an index fund for significantly less fees).
2. Investing style of the fund- Is the fund actively managed? Passive? What does the fund invest in? Is it from a reputable company? Where do they invest? Growth? Value? Bonds? US? Intl? How often do they change it? Is it something you understand?
3. Risk tolerance- All investments carry some sort of risk. Are you comfortable with the level of risk that this particular fund is taking? Does it align with your overall philosophy to help you achieve your goals?
At the end, it is important to understand what you're buying, the risks, and the fees you're paying for any investment you make. If you are not comfortable with those things then you should either ask more questions or walk away.
There are a few ways to go about investing in stocks. These theories are applicable whether looking at dividend, growth, value...
The "safest" way to invest is to make sure you're properly diversified for your risk tolerance.
If you are purchasing individual stocks, it is important to make sure you have at least 20 different stocks across a variety of industries to be diversified. For the dividend portion of your portfolio you'll want to look for stocks that have a long history of paying dividends (and ideally raising dividends). Look around your house (including the bills you get in the mail) for consumer facing products that you use every day. Many of those companies pay dividends. There are a few lists out there comprised of stocks from the S&P 500 and the Dow Jones that have raised dividends for 25+ years in a row. They are, at a minimum, a good place to start (S&P High Yield Dividend Aristocrats and Dow Jones US Select Dividend Index).
Be careful chasing yields. The dividend payment is a flat amount per share (ie... $1/share). The yield will fluctuate with the price of the stock. Chasing high yields can cause a lot of stress. Many people are better served by focusing on the quality of stock vs the yield.
If you aren't in a position to diversify with individual stocks, there are many dividend focused mutual funds out there (diversified baskets full of a bunch of stocks). Be mindful of fees (expense ratios) with the mutual funds as they can eat away at your overall returns.
Remember mutual funds compare themselves to a benchmark/index. There are several options out there to purchase low cost diversified dividend index funds and/or ETFs (exchange traded funds).
There is not a right answer. It depends which is the best fit for you.
Debt instruments are basically loans to organizations that are used to raise money with an agreement to repay the loans at an agreed upon interest rate. The most common types of debt instruments are CDs, notes, bonds, and mortgages. Simply put, many agreements between lender and borrower could be considered debt instruments.