Just over half of Americans have difficulty passing a basic financial literacy test, according to industry data. What’s more, roughly 40% of respondents to a Stash survey¹ lacked an understanding of basic economic terms, like compounding and inflation.

While you can always bone up on your money-related vocabulary words, cultivating a deeper understanding of financial basics can help you reach your long-term goals. That can include buying a car or house, starting a family, or even retiring one day.

What does it mean to be financially literate?

Financial literacy, or a basic understanding of principles concerning money, is essential if you want the ability to honestly consider your financial situation, map out realistic goals, and develop a strategy to achieve them.

That can include making smart daily choices for spending, saving, and investing, as well as getting yourself out of debt, and avoiding unnecessary risks.

If you’re one of the millions of Americans wondering why financial basics weren’t covered during your high school years, it’s never too late to learn.

Here’s a quick rundown of some basic personal finance principles that can help you get caught up.

Learn to make a budget

Building a budget is step one on your path to understanding your own personal finances. A budget is a blueprint for your money, accounting for your income and spending, which should help you establish a plan going forward. 

Read How to Use a Budget to Stay on Track to get started. 

Get smarter about banking fees

You probably have a bank account, and you probably have a general idea of how a bank works. But not all banks are the same, and some will nickel and dime you with fees.

Are you paying too much in bank fees? Find out here: Bank Fees to Avoid

Be savvier about your saving

Saving is critical. If you’re in a tight spot, you’ll want to have a little extra cash you can use. And if you have goals such as buying a house, you can save for them over time. 

At Stash, we commend having a rainy day fund with $500 to $1,000 for surprise expenses, as well as an emergency fund with three to six months worth of expenses. Saving is part of our financial philosophy, the Stash Way. 

It can be difficult to start saving. But as of April 2020, Americans were saving a record amount as a result of the Covid-19 pandemic. If you have extra cash right now—maybe from a stimulus check or your tax return, if you got one—consider putting a chunk of that money into an emergency fund now before you spend it.

Good to know: Many people often conflate saving with investing. They can both be used for financial planning, but there are some differences. We won’t get all preachy and tell you that you need to save more, but more than half of Americans regret not saving more, according to a Bankrate survey. 

You may want to consider reviewing concepts like compounding and inflation while tackling your savings goals.

Read Saving vs. Investing: What’s the Difference?

Learn investing vocabulary

You can quickly go down a rabbit hole when you start digging into the world of investing. The basic premise, of course, is that you’re trading your money for a share in an asset such as a stock, bond, or ETF. The hope is that your investment may grow and benefit you in the future. Or, in other words, you’re putting your money to work. Keep in mind, however, that the market is not predictable and that your investment is subject to volatility, meaning that it can gain or lose value over time. 

Get your education started with Investing for Beginners: a How-to Guide. Our glossary of financial terms might also help you.

Overcome performance anxiety

A portfolio is an investing term that means your assets, including stocks, bonds, and cash. Your portfolio’s performance and return refers to how the assets in your portfolio gain or lose value over time.

Learn more about investment performance. Read: What is Investment Performance?

You may also want to consider Stash’s Smart Portfolios.² They are personalized portfolios, created by Stash’s investment team of financial experts³, that can help take some of the guesswork out of building a diversified portfolio.

It’s all in your hands

This checklist can help you start building your financial foundation by budgeting, saving, and investing. With Stash, you can do all of these things in one place.⁴ You can save for your goals with Goals⁵ pay your bills automatically with Bill Pay⁶, and invest in fractional shares of stocks, bonds, and ETFs. 

Also, remember to check out the Stash Way, our financial wellness guide for saving, investing, and planning.

The post Clip & Save: Your Financial Literacy Checklist appeared first on Stash Learn.

What’s a stock market index?

If the stock market is a giant jigsaw puzzle, you can think of an index as a magnifying glass. If you were using the Russell 3000 model, you could take a look at 3,000 of the biggest pieces, giving you an excellent idea of what the entire picture looks like.

In other words, an index is a tool that helps you gauge the stock market.

But before we get too far into the weeds, let’s start with the stock market, which is where stocks, bonds, and other assets are bought and sold, like the New York Stock Exchange.

When talking about the stock market, you generally hear people using a stock market index in reference to the market’s performance.

A stock market index, then, is an index, or measurement, of a market. Specifically, an index is  a tool (like a magnifying glass) used to examine, express, or describe what’s happening in a stock market.

An index is simply a curated list of certain securities. A security is an investment product, including stocks, bonds, and mutual funds.

What is the Russell 3000?

The Russell 3000 is a stock market index that is maintained by FTSE Russell, a British company that provides stock market indices and data services.

According to FTSE Russell, the index is one of the leading market benchmarks for investors. Because the index covers a very broad range of U.S. stocks, it can “allow investors to track current and historical market performance by specific size, investment style and other market characteristics”.

In other words, the Russell 3000 is encompasses so many stocks, as an index, that it can be examined and dissected in a number of ways, making it a valuable tool for investors.

It also serves as the cornerstone index for FTSE Russell, which has other indices derived from the Russell 3000. The Russell 1000 and small cap Russell 2000 indices, for example, track a subset of stocks within the Russell 3000.

These indices are, in a way, like Russian nesting dolls in that they track indexes within indexes.

More about the Russell 3000

In a nutshell, the Russell 3000 is a list of the 1,000 of biggest publicly traded companies, and 2,000 smaller companies traded on the stock market.

If the Russell 3000 were a Spotify playlist, it would simply be a list of the 3,000 most-often played songs on the entire platform, regardless of genre.

It’s also a bellwether index, meaning that it’s one of the key indices followed by investors to get an idea of the market’s performance over a given period of time.

What’s in the Russell 3000

The Russell 3000 represents 98% of the U.S. equities market, with 3,000 companies that are among the most liquid and frequently traded on stock exchanges. The mix of stocks changes from year to year, so the index is reconstituted annually every June.

The largest companies in the index include Apple, Amazon, Exxonmobil, and JPMorgan Chase.

Because the index is so broad, it includes companies from any and all industries, but they’re mostly concentrated in the financial and tech sectors.

Other Important Indices

While not as popular or referenced in the mainstream media as the Dow Jones Industrial Average or the S&P 500, the Russell 3000 is still considered one of the more important market indices. Given its broad approach, the index can give you a good idea of how the market performed on a given day.

Other main indices include the S&P 500, the Dow Jones Industrial Average, and Nasdaq.

You can invest in many of the companies that are tracked on the Russell 3000 here.

The post What’s the Russell 3000? An Index That Tracks the Big Picture appeared first on Stash Learn.

What’s a stock market index?

If the stock market is a giant jigsaw puzzle, you can think of an index as a magnifying glass. In the case of the Nasdaq, your magnifying glass allows you to take a closer look at a particular part of the puzzle, giving you a clearer picture of the finished product.

But before we get too far into the weeds, let’s start with the stock market, which is where stocks, bonds, and other assets are bought and sold.

When talking about the stock market, you generally hear people using a stock market index in reference to the market’s performance.

A stock market index, then, is an index, or measurement, of a market. Specifically, an index is  a tool (like a magnifying glass) used to examine, express, or describe what’s happening in a stock market.

An index is simply a curated list of certain securities. A security is an investment product, including stocks, bonds, and mutual funds.

What is the Nasdaq?

The Nasdaq is an index with a high concentration of technology stocks. If it were a Spotify playlist, it would consist of the most popular electronic and EDM artists.

But wait, there’s more.

The Nasdaq can also refer to a stock exchange, the Nasdaq Stock Market. The Nasdaq market — which is an acronym for the National Association of Securities Dealers Automated Quotations exchange — is the second-largest exchange in the world behind the New York Stock Exchange.

Good to know: When people refer to how the Nasdaq “did” or “performed”, however, they’re talking about the index, not the exchange.

It’s the index provides a statistical measurement of the market’s behavior.

What’s in the Nasdaq?

The Nasdaq consists of the stocks of more than 3,200 companies. In addition to Amazon, Apple, and Facebook, other tech names include Google’s parent company Alphabet, computer network router maker Cisco Systems, and computer software and services giant IBM.

While the Nasdaq is known as a technology index–it became extremely popular in the Dotcom era of the 1990s–the number of tech companies in it has decreased over time, and now only make up 45% of the index, according to the Wall Street Journal.

The index also holds the stock of biotech and pharmaceutical companies, as well as business services, insurance, and telecommunications companies, among others.

Other important indexes

The Nasdaq is among the most important stock indexes in the U.S., along with the Dow Jones Industrial Average, S&P 500, and the Russell 3000, which measures the stocks of both large and smaller companies.

Something to keep in mind: Sometimes big companies can appear in multiple indexes simultaneously.

For example, Apple and Microsoft are both in the Dow, the S&P 500 and the Nasdaq.

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What is investment performance?

Performance, as it relates to your investment portfolio, usually refers to the returns you’re seeing on your investments.

What’s a return? A return is either the monetary gain or loss on your portfolio Naturally, investors want positive performance, results from a positive return. A negative return, in which your portfolio actually loses money, would signal negative performance.

In other words, “performance” describes how your investment portfolio is doing.

Simple, right?

What determines my portfolio’s performance?

Your portfolio’s overall performance will hinge on a number of variables. But mostly, the holdings — or assets — contained in your portfolio will determine whether you see positive or negative returns.

Your holdings are subject to market conditions. That means that sometimes you’ll be in the red, other times you’ll be in the black. Markets tend to move in cycles, and downturns often swing around into gains — and vice versa. Your portfolio’s performance will probably mirror what’s going on in the market.

Measuring performance

How can you measure your performance? The two key metrics for gauging performance are called yield and total return. Both measure your portfolio’s performance, but do so with differing degrees of exactness.

Yield is essentially the income generated by an investment–whether that’s a coupon from a bond, or a dividend payout from a stock.

Total return, which is generally considered a more precise measure of performance, is the yield plus the percent change in price for a bond, stock, or a fund.

Both yield and total return can help you gauged performance.

Can I improve my investment performance?

There’s, unfortunately, no magic formula to ensure that your portfolio always performs well.

But that’s not to say that there aren’t things you can do to try and improve your portfolio’s performance. In fact, there are numerous strategies and tactics you can engage in to boost your returns or buffer yourself from the volatility of the markets:

• Diversify your portfolio with a mix of stocks, bonds, ETFs, and other assets
• Buy and hold: Engage in a ‘set it and forget it’ investment strategy
• Automate your savings and investing with features like Auto-Invest

The post What is Investment Performance? appeared first on Stash Learn.

One of the best ways to learn about a fund is by reading its prospectus. All stocks, bonds, mutual funds, and ETFs are required by law to file a prospectus with the Securities and Exchange Commission (SEC).

When you read a prospectus, you may see a lot of jargon. Fear not! We’ve broken it down and decoded it so you can be a smarter and more confident investor.

What’s a prospectus?

A prospectus is essentially the  financial blueprint of a stock, bond, or fund. (In this article, we’re talking about funds.) The prospectus can help you familiarize yourself with its holdings and objectives, and provide you with information about its performance, managers and fees.

In the old days, a paper version of the prospectus would have been sent to you in the mail. Today, a fund’s prospectus is easily and readily available online. Most times you can find it by simply typing the fund’s ticker and “prospectus” into a search engine.

But the SEC also maintains a database called EDGAR that includes prospectuses, and that’s fully accessible to the public. The SEC keeps all investment prospectuses updated if you want to explore investments or to keep tabs on changes to a fund.

Generally, there are two kinds of prospectus–the summary, and the long-form. It’s advisable to look at the long-form version, as it contains more information.

One of the best ways to learn about a fund is by reading its prospectus.

Here are the main things to look for:

General information

Fund objective: The name of the fund will almost always tell you what the fund’s goals are. But near the top of any prospectus, you’ll also find a general statement about the fund’s objective: Does it track in an index? Is it going after growth or value? Perhaps it focuses on a particular sector or industry, such as technology, energy, or healthcare. As you build your portfolio of stocks and funds, you want to diversify. This section will help orient you as you develop your own strategy.

Fund managers: The names of the people who established the fund, and who runs it, are typically listed. Many times, funds are passively managed because they follow an index. That means there is no active manager picking stocks. Nevertheless, the prospectus will list either an individual or an investment group that established the fund, or oversees it. This can be valuable information for you to conduct more research, or to get in touch if you want to.

Fees and expenses

It’s critical to pay attention to the fees portion of a prospectus, because it will tell you how much it will cost you each year to own the fund. Say a fund has an annual return of 5%, and the total annual fees are 2%, your actual gain would be 3%. Over time, that can really eat into what the investment returns. Generally speaking, you want to keep your fees as low as possible, and industry guidance will tell you that means less than 1%.

Management fees: The managers of the fund may charge for running it.  Management fees are typically deducted as a fixed percentage annually.

12b-1 fees: These are charged for costs associated with the marketing and promotion of the fund, including the sale of a fund through brokers.

Total annual operating expenses, or expense ratio: This is the most important number to keep track of, because it will tell you what it costs to own the fund each year. Generally speaking you want a fund with an expense ratio less than 1%, and as low as 0.25% for index funds with no active manager.

Load: You may be charged a sales fee when you purchase the fund, which is known as a load. You might also be charged a load for selling the fund. Many funds are known as no-load, meaning you can purchase shares–and sell them–without this fee. You might want to seek these out, because they will save you some money.

Redemption fee: If you sell the fund within a short time frame, you may get hit with this charge. For example, if you sell the fund before six months, you might be charged a redemption fee. It’s to discourage market timing–or buying and selling the fund quickly.

You can find out more about fees here.

Holdings

This section is critical, as it will tell you how many companies the fund invests in, and exactly which ones. If the fund is quite large, the prospectus may not tell you each company the fund holds–although that information is public, and widely available on the fund company’s website, other investment sites, or at SEC.gov–it will often tell you the top ten companies in the portfolio, and the percentage of assets it invests in each of these companies. Different companies are assigned different weights in a fund, and this information can help you figure out whether the fund’s investment strategy aligns with your objectives.

Risks

Just as you want to know how your car will perform in bad weather, at high speeds, or in traffic, you also want to know what possibile liabilities your fund might have. The risks section will help inform you about all of that. If the fund invests in only large companies, for example, it will have different risks than if it only follows much smaller companies. The same thing goes for sector-focused funds, which are a subset of the stock market. Each sector is subject to individual economic factors, events, or possible shocks. For example, new taxes or tariffs could negatively affect some industries. Shortages of raw materials might affect others, or new legislation might have consequences for yet other businesses.

Performance

This segment will tell you about the returns of the fund over a period of years. It will tell you things like the total annual return–which will be expressed as a percentage that the fund’s value either increased or decreased during a particular year. (The numbers in the performance section can be quite detailed, and may involve the return after taxes on distributions, which are a part of the fund’s profits.)

The performance portion will also compare the fund’s returns to a category, such as similar funds, typically called peers, or an index such as the S&P 500 or Russell 5000. If the fund you’ve invested in is performing better or worse, compared to a peer or index, that can be useful information about whether you want to invest in or–if you already have–hold on to the fund.

Good to know: In addition to the prospectus, fund companies produce something called a Statement of Additional Information, or SAI. It will provide you with more detailed financial information about the fund, including performance, taxes and debts, as well as details about fund managers and directors. It’s free, but you must write directly to the fund company in order to get it. The address of the fund company is typically included in the prospectus.

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