But AI technology is far from new, and chatbots are just one application of this advanced tech. Indeed, nearly every industry has been impacted by AI, from healthcare to freight, and this growth shows no signs of slowing down. Prominent tech industry experts like Bill Gates predict the growing influence of AI technology, and current projections estimate that the global AI market is on track to total half a trillion dollars by the end of the decade. Naturally, this growth is attracting attention from investors. If you’re interested in bringing AI companies into your portfolio, you may want to get to know the biggest players in the field. 

In this article, we’ll cover:

• Top AI companies
• What to consider when researching AI companies

Top AI companies 

Since AI impacts so many industries, the missions of the top AI companies are incredibly diverse, as are the ways they apply this technology, running the gamut from autonomous driving to cybersecurity to application development and more. AI companies also range widely in terms of longevity, with the list of largest companies including long-term tech sector players and newer enterprises alike. These 15 companies represent the largest market cap in the AI space as of winter 2024.

Largest AI companies by market cap as of February 2024:

• Microsoft
• Alphabet 
• NVIDIA 
• Meta Platforms (Facebook)
• Tesla
• IBM 
• Palantir
• Mobileye 
• Dynatrace 
• Uipath 
• SentinelOne
• Aurora Innovation
• Presight AI
• DarkTrace
• C3 AI 

1. Microsoft (MSFT)

Microsoft has remained a leader in end-user computer technology for nearly four decades and currently stands as the largest company in the world. Its popular Windows desktop operating system claims approximately 74% of market share worldwide. 

With a $10 billion investment in OpenAi in January 2023 and subsequent integration of its ChatGPT generative AI chatbot and Dall-E image generation into the Bing search engine and Edge web browsing software, Microsoft has claimed its position as the world’s leading artificial intelligence company. 

• Market cap: $3.00 trillion
• Headquarters: Redmond, WA, USA
• Founded: 1975
• AI focus: Web search, image generation

2. Alphabet (GOOG)

Google’s suite of products extends to a large number of categories in the tech industry, with products that touch on everything from education to advertising and fitness to streaming video. 25 years after the company’s founding, its flagship product remains its eponymous search engine, which reportedly accounts for more than 90% of worldwide searches, averaging 8.5 billion searches per day. Google and its parent company Alphabet expanded into AI and deep learning with the formation of its Google AI division in 2017. 

In February 2023, the company announced Bard, an AI chatbot designed to compete with Microsoft’s integration of ChatGPT into its Bing search engine, though the release was slightly marred by reported internal disapproval of the product’s rollout. 

• Market cap: $1.79 trillion
• Headquarters: Mountain View, CA, USA
• Founded: 1998
• AI focus: Web search

3. NVIDIA (NVDA)

Rounding out the top three AI companies, NVIDIA manufactures graphics processing units (GPUs), whose computing power has been foundational for several generative AI technologies. The company commands 87% of the GPU market and has had a hand in major AI technology advancements, including ChatGPT, which was trained using 10,000 NVIDIA GPUs. The NVIDIA NeMO LLM’s status as one of the most advanced large language models, along with a new partnership with Microsoft, further cement its place among prominent AI companies.

• Market cap: $1.67 trillion
• Headquarters: Santa Clara, CA, USA
• Founded: 1993
• AI focus: GPU manufacturing

4. Meta Platforms (META)

Recently celebrating twenty years, Meta (formerly known as Facebook). The company is known for its social media platforms, including Facebook, Instagram, WhatsApp, and Oculus. While the company has faced criticisms about privacy concerns since the Cambridge Analytica scandal, misinformation spread across platforms, and general antitrust concerns, Meta has made strides to increase transparency in the past year – especially in terms of its ad targeting to users. In 

In February 2024, Meta announced its efforts to draw the line between reality and AI generated imagery and videos on its platforms. The move will notify users when photorealistic content has been AI generated.

• Market cap: $1.17 trillion
• Headquarters: Menlo Park, CA, USA
• Founded: 2004
• AI focus: Social networking

5. Tesla (TSLA)

Twenty years after Tesla launched with a vision for reimagining the automotive industry through technology, the company’s Model 3 vehicle stands as the all-time bestselling plug-in electric car. Tesla has also expanded far beyond the automotive industry, becoming one of the largest global suppliers of battery energy storage systems and solar panels. Among its innovations are self-driving cars and bipedal robotic units, both of which utilize AI technology to sense conditions and events to pilot themselves with minimal human intervention. Musk has recently revealed plans for next-gen vehicles in the latter half of 2025.

• Market cap: $558.54 billion
• Headquarters: Austin, TX, USA
• Founded: 2003
• AI focus: Vehicular AI, robotics, clean energy

6. IBM (IBM)

While artificial intelligence may seem new to many people, one of the “big 5” AI companies has been innovating in this realm for decades. In the 110 years since its founding, IBM has consistently been a cornerstone of the tech industry, producing innovations that have become an ingrained part of everyday life, including the bar code, the hard disk drive, and the personal computer itself. Its Watson question-answering platform, initially developed from 2004-2011, could be seen as the first AI language model technology to attain global notoriety due to its 2011 victory on the quiz show Jeopardy! Since then, its deep learning capabilities have been applied to a wide range of industries, including healthcare, cuisine, hospitality, water conservation, and more. 

In the past 5 years alone, IBM has managed to file 1,591 AI-related US patent applications, showing their interest and push for artificial intelligence. In 2023, Watson earned IBM its second consecutive Gartner® Magic Quadrant for Enterprise Conversational AI Platforms.

• Market cap: $168.01 billion
• Headquarters: Armonk, NY, USA
• Founded: 1911
• AI focus: Conversational AI

7. Palantir (PLTR)

Palantir Technologies specializes in big data analytics through three major software platforms for the public and private sectors. Each of these uses artificial intelligence to access information and strengthen correlations between data points. Palantir Gotham is used by the United States Intelligence Community to aggregate data for national security purposes, including predictive policing systems. Palantir Metropolis learns and uncovers relationships between data points in private and public databases and is primarily used in the finance industry, perhaps most famously by JP Morgan Chase to monitor employees. Palantir Foundry is a flexible system that integrates data and can make decisions using generative processes. The company reported its first-ever profitable quarter in February 2023.

• Market cap: $36.31 billion
• Headquarters: Denver, CO, USA
• Founded: 2003
• AI focus: Data aggregation

8. Mobileye (MBLY)

Mobileye is another AI company focused on autonomous driving and advanced driver assistance systems. Through high-profile partnerships with Ford and Volkswagen, in addition to 25 other automobile manufacturers, the company’s technology is employed in vehicles across the world. Its products include lane assist, automatic emergency braking, and forward collision, all of which aim to increase the ease and safety of driving. 

Since its acquisition by Intel in 2017, the company has grown significantly and continued to expand its innovation in self-driving AI technology. In the summer of 2023, Porsche announced its partnership with Mobileye and its plan to integrate Mobileye’s ADAS into future models.

• Market cap: $21.50 billion
• Headquarters: Jerusalem, Israel
• Founded: 1999
• AI focus: Vehicular AI

9. Dynatrace (DT)

The Dynatrace Software Intelligence Platform, driven by the company’s proprietary AI technology, Davis, is used in products by large companies such as Amazon, Google, and Microsoft. The platform monitors software and uses artificial intelligence to detect issues, discover anomalies, and monitor performance. When problems are detected, the software is capable of generating and implementing its own solutions without human intervention. 

Their February 2023 announcement of the platform’s new ability to predict software issues before they occur is seen as a competitive differentiator by some industry analysts.

• Market cap: $17.44 billion
• Headquarters: Waltham, MA, USA
• Founded: 2005
• AI focus: Observability, application security, cloud computing

10. UiPath (PATH)

The defining function of UiPath’s robotic process automation software offerings is the automation of routine business tasks through AI and machine learning. Over the 18 years since the company’s founding, however, its capabilities have expanded significantly, and the software is now capable of executing customer relationship management (CRM) functions and more on a massive scale. UiPath’s financial picture has followed suit, claiming one of the largest US software IPOs in history. With its July 2022 acquisition of Re:infer, the company has added natural language processing to its artificial intelligence arsenal. 

In October 2023, UiPath announced its latest AI feature, Autopilot, which can transform paper documents into automation-powered apps with a single user click. The AI tool can benefit developers, automation testers, business analysts, and anyone looking to help automate data-intensive work and tedious tasks.

• Market cap: $12.63 billion
• Headquarters: New York, NY, USA
• Founded: 2005
• AI focus: Process automation

11. SentinelOne (S)

SentinelOne became an industry leader by leveraging the power of AI for its next-gen cybersecurity software. The company’s AI technology detects abnormal use in endpoint devices and shuts down processes before viruses or bad actors can spread across networks. Its roster of clients includes high-profile brands such as Samsung, Aston Martin, Politico, EA, and Sysco, embedding its products in a number of industries and sectors. 

The ten-year-old company continues to grow its market cap, recently reporting a 42% increase in revenue in the third quarter of 2023. In January 2024, SentinelOne announced its acquisition of PingSafe, a cloud native application protection platform (CNAPP). The acquisition is meant to further enhance the security offerings of SentinelOne.

• Market cap: $8.05 billion
• Headquarters: Mountain View, CA, USA
• Founded: 2013
• AI focus: Cybersecurity

12. Aurora Innovation (AUR)

Founded by executives from Google, Tesla, and Uber, Aurora Innovation is another of the top AI companies developing self-driving vehicle solutions, envisioning a fleet of autonomous vehicles to be used in applications including freight and ridesharing. Fiat Chrysler, Toyota, and Volvo, are just a few of the manufacturers using their Aurora Driver technology. 

In 2022, the company announced its new Aurora Beacon platform, which will assist users with maximizing uptime and other optimization concerns for these fleets, as well as an expanded pilot with FedEx to bring self-driving technology to the shipping industry. In 2023, the company revealed that it plans to begin a driverless truck route connecting Dallas and Houston by the end of 2024. Recently, Aurora has finalized its truck design, architecture, and hardware that’ll power its future lineup of driverless semi trucks in partnership with German auto supplier Continental starting in 2027.

• Market cap: $4.50 billion
• Headquarters: Pittsburgh, PA, USA
• Founded: 2017
• AI focus: Autonomous driving

13. Presight AI (PRESIGHT.AE)

Presight AI, a G42 company, is a data analytics company that uses artificial intelligence, big data, and analytics to find solutions and create value for businesses. They provide solutions for the public sector, finance, sport, climate, education, and more.

• Market cap: $3.05 billion
• Headquarters: Al Ain, Abu Dhabi, United Arab Emirates
• Founded: 2020
• AI focus: Big data analytics

14. Darktrace (DARK.L)

The Darktrace AI machine learning platform learns to detect normal behavior across a network and its users, forming a profile of typical use. When it detects behavior that diverges from this profile, the software intelligently determines whether a threat is present and calculates the most efficient way to attack and dismantle it. 

In 2023, the company positioned its product as a viable solution to new email security threats posed by generative AI technologies like ChatGPT, arguing that existing tools are not strong enough to address the concerns raised by such advanced chatbots. In October 2023, Darktrace announced a new AI solution that provides visibility of cloud architecture, detects and responds to real-time cloud-native threats, and sets recommendations and actions to help security teams and help further strengthen compliance.

• Market cap: $3.01 billion
• Headquarters: Cambridge, UK; London, UK; San Francisco, CA, USA; Singapore
• Founded: 2013
• AI focus: Cybersecurity

15. C3 AI (AI)

The aptly named C3 AI’s software-as-a-service (SaaS) platform utilizes AI’s ability to interpret and translate ideas to provide innovative solutions for businesses. Its machine learning algorithm allows users to envision and create software applications even without expertise in data analytics. Its software has been utilized by major companies such as Shell and Koch in business applications in energy, chemicals, investments, defense, healthcare, and more. The U.S. Air Force has also employed the platform to develop new technologies and improve upon existing ones.

• Market cap: $2.86 billion
• Headquarters: Redwood City, CA, USA
• Founded: 2009
• AI focus: Application development 

What to consider when researching AI stocks

If you’re enticed by this quick-moving aspect of the tech industry, you may be wondering if investing in the top AI companies is the right move for your portfolio. Before you make the leap, make sure to do your research. Like any competitive market, there are a number of factors you might consider before investing.

The company’s financial statements should give you a window into its revenue, profits, debt, and cash flow for a better understanding of its finances. Another factor you may consider is the company’s management: what previous organizations have company leaders worked for? What goals have they set? Have they shown success in achieving them? Investors often also investigate the potential risks associated with a stock, such as the company’s regulatory risks, legal risks, and macroeconomic risks, as well as the volatility of its share prices over time. 

Additionally, since AI technology is rapidly evolving, it may be helpful to follow the news on a company in which you’re planning to invest, as well as the performance of stocks in the tech industry overall.

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Several celebrities have given a public face to the cannabis industry with business ventures and branded cannabis products. As the use of cannabis is increasingly destigmatized and decriminalized, marijuana stocks are looking like a legitimate investment to many people. But they’re also subject to market volatility due to ongoing changes to the legal landscape.

Curious about what kind of companies are out there? Here’s the lowdown on twelve of the largest cannabis companies by market capitalization in North America.

In this article, we’ll cover:

• Top 6 U.S. cannabis companies
• Top 6 Canadian cannabis companies
• What to consider when researching cannabis companies

Top cannabis companies in the U.S.

Although cannabis consumption is not yet legal on a federal level in the U.S. the last few years have seen a rise in legalization at the state level. Recreational cannabis has been legalized in 24 states,  two territories, and the District of Columbia as of 2024. Several other states and territories allow the sale and consumption of medical cannabis as part of the healthcare sector. In August 2023, the Department of Health and Human Services recommended that the DEA reclassify marijuana from a Schedule I substance to a Schedule III substance, meaning that it would move to a lower-risk drug category. Currently classified as a Schedule I drug under the Controlled Substance Act, marijuana sits alongside high-risk substances such as heroin, LSD, and ecstasy. And while some senators are calling for the DEA to deschedule the drug entirely, the DEA does have the final say for reclassification. 

If approved, the move to a lower-risk substance classification would ease multiple restrictions that have been holding back the industry. Consumers have responded with enthusiasm to this growing industry. Market capitalization for the top cannabis companies in the U.S. currently ranges from $820 million to $4.04 billion dollars. 

 U.S. cannabis companies by market cap (as of February 2024):

1. Curaleaf 
2. Green Thumb Industries 
3. Innovative Industrial
4. Verano Holdings 
5. Trulieve Cannabis 
6. Cresco Labs

 1. Curaleaf (CURLF)

Curaleaf operates in 17 states, has 147 retail locations, and well over 900 wholesale partner accounts nationwide. The company prides itself on its deep commitment to bettering communities across the U.S. with initiatives that address the collateral consequences associated with marijuana-related offenses. 

In 2023, the company announced its plans to close operations in California, Colorado, and Oregon in an aggressive effort to cut costs. At the same time, Curaleaf spent $20 million dollars to acquire the largest medical marijuana dispensary in Utah, Deseret Wellness. And by December 2023, the company announced it would commence adult-use sales in New York by the end of January 2024.

• Market cap: $4.04 billion
• Headquarters: Wakefield, MA  
• Founded: 2010
• Cannabis products: Medical and recreational

2. Green Thumb Industries (GTIL.CN)

Green Thumb Industries owns and operates 91 dispensary locations under various names across 15 U.S. states, plus a suite of six cannabis brands. Each brand is designed to appeal to distinct types of cannabis consumers, from casual to sophisticated to supporters of nonprofits dedicated to creating real, sustained progress against the War on Drugs. 

In the Summer of 2023, Green Thumb was handed a lawsuit by Cresco Labs alleging they poached a top-level employee while being fully aware of an existing noncompete clause. Green Thumb has denied this allegation.

• Market cap: $3.27 billion
• Headquarters: Chicago, IL
• Founded: 2014
• Cannabis products: Medical and recreational

3. Innovative Industrial (IIPR)

Innovative Industrial is the first and only real estate investment trust (REIT) on the New York Stock Exchange focused on the legal cannabis industry. Operating in 19 states with 108 properties, the company owns, manages, and leases industrial facilities and some retail spaces to state licenced cannabis operators.

• Market cap: $2.63 billion
• Headquarters: San Diego, CA
• Founded: 2016
• Cannabis products: Medical and recreational

4. Verano Holdings (VRNOF)

Verano Holdings offers products under several brand names at 137 retail locations across 13 states. The company focuses on cultivating signature strains for both medical and recreational products. Like many others in the cannabis industry, the company dedicates resources to social justice causes like LGBTQ equity and financial aid for those serving prison time for cannabis-related offenses.

• Market cap: $2.28 billion
• Headquarters: Chicago, IL
• Founded: 2014
• Cannabis products: Medical and recreational

5. Trulieve Cannabis (TRUL.CN)

Founded in 1990 as Hackney Nursery, Trulieve emerged as a medically-focused low-THC/CBD cannabis company. The company owns and operates dispensaries and processing facilities in nine states. Trulieve and its CEO, Kim Rivers, have been under recent scrutiny following the death of an employee at a Massachusetts processing facility amidst worker efforts to unionize at the firm’s four locations there. In the summer of 2023, Trulieve announced the closing of Massachusetts locations a the end of June along with plans to end operations in the state entirely by the end of the year.

• Market cap: $2.12 billion
• Headquarters: Quincy, FL
• Founded: 2016
• Cannabis products: Medical

6. Cresco Labs (CRLBF)

Cresco Labs and its associated brands market themselves as a sophisticated choice for the everyday cannabis user. In the summer of 2023, Cresco Labs announced an expanded partnership with Wiz Khalifa’s brand Khalifa Kush to exclusively cultivate, manufacture and distribute the brand in Massachusetts. And for Super Bowl LVIII 2024,  the Chicago-based company has released a THC-infused hot wing sauce ahead of this year’s Superbowl parties.

• Market cap: $0.82 billion 
• Headquarters: Chicago, IL
• Founded: 2013
• Cannabis products: Medical and recreational

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H2: Top cannabis companies in Canada

Canada’s federal Cannabis Act of 2018 made medical and recreational marijuana usage legal across Canada for adults 18 and older. Since that time, the industry has grown rapidly nationwide. Market cap for the top cannabis companies in Canada ranges from $330 million to $1.99 billion. 

Canadian cannabis companies by market cap (as of February 2024):

1. Tilray
2. Cronos Group
3. TerrAscend
4. Canopy Growth
5. Sundial Growers
6. Aurora Cannabis

1. Tilray (TLRY)

Tilray supplies medical cannabis products to patients, physicians, hospitals, pharmacies, researchers, and governments in over 20 countries and across five continents under various brand names. The company recently launched a new platform to help destigmatize the use of medical marijuana in women’s healthcare.

In 2023, Tilray announced its purchase of eight beer and beverage brands from Anheuser-Busch. 

• Market cap: $1.40 billion
• Headquarters: Nanaimo, British Columbia
• Founded: 2013
• Cannabis products: Medical

2. Cronos Group (CRON)

Cronos Group offers a wide variety of THC and CBD products under five brand names. The company has adopted a marketing code of conduct, promising transparency and age-appropriate marketing of recreational cannabis products.

• Market cap: $0.78 billion
• Headquarters: Toronto, Ontario
• Founded: 2012
• Cannabis products: Recreational

3. TerrAscend (TRSSF)

Although the company’s headquarters are located in Canada, TerrAscend maintains several large cultivation facilities in five U.S. states. Their diverse brand and product portfolio includes oils, vapes, edibles, and high-quality dried flower. In 2023, the company announced a partnership with international cannabis brand, Cookies, to cultivate and manufacture their products and flavors in Maryland for in-state patients and future adult-use. 

• Market cap: $0.74 billion
• Headquarters: Mississauga, Ontario
• Founded: 2017
• Cannabis products: Medical and recreational

4. Canopy Growth (CGC)

Canopy Growth operates internationally under more than 20 brand names. Products range from vapes and prerolls to skin care products, edibles, infused beverages, Martha Stewart’s line of CBD products, and more.

• Market cap: $0.42 billion
• Headquarters: Smith Falls, Ontario
• Founded: 2014
• Cannabis products: Recreational

5. Sundial Growers (SNDL)

In addition to its cannabis retail banners and brands, Sundial operates three popular liquor retail banners with more than 160 locations across Alberta and British Columbia. The company is committed to “driving regulated product excellence” and offers an extensive array of recreational cannabis products.

• Market cap: $0.48 billion
• Headquarters: Calgary, Alberta
• Founded: 2006
• Cannabis products: Recreational

6. Aurora Cannabis (ACB)

Between its four medical and six recreational cannabis brands, Aurora’s global footprint covers 25 countries across five continents. Aurora’s recreational Greybeard brand won KIND Magazine’s “Best Diamonds of the Year” Award in December 2022, and its medical offerings are expanding rapidly.

• Market cap: $0.18 billion
• Headquarters: Edmonton, Alberta
• Founded: 2006
• Cannabis products: Medical and recreational

What to consider when researching cannabis stocks

Investing in marijuana stocks isn’t for everyone. The legal cannabis industry can present a higher potential for risk due to its volatility and the ever-changing regulatory landscape. But if, like many investors, you’re interested in cannabis investing, do your research just as you would when considering an investment in any other sector. First, gain an understanding of the different types of companies and cannabis products they offer. Investigate each company’s management team, growth history, and financial statements. Make yourself aware of the risks, both legally and financially, and ensure that you’re ready and willing to take those risks.

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It’s called an “individual” retirement account (IRA) because you, as an individual, set up and manage it on your own. It’s not something your employer handles for you, like a work-related retirement plan. 

But what exactly is a traditional IRA, and how does it work? Let’s find out.

In this article, we’ll cover:

• What a traditional IRA is
• How traditional IRAs work
• Traditional IRAs vs other IRAs
• Pros and cons of traditional IRAs
• How to open a traditional IRA account

What is a traditional IRA?

A traditional IRA is a type of retirement account that offers tax advantages. When you contribute money, you’re often able to deduct that amount from your income taxes. This helps to lower your taxable income for the year.

For example, if you earn $50,000 a year and contribute $7,000 to a traditional IRA, your taxable income would be $43,000. This can potentially save you money on your tax bill.

A traditional IRA is best if:

• You want to lower your taxable income now
• You expect to be in a lower tax bracket in retirement

How traditional IRAs work

Anyone with earned income can contribute to a traditional IRA—there are no income restrictions. You can open a traditional IRA with Stash, your bank, or any other brokerage firm. 

When you put money into a traditional IRA, it’s not just sitting there idly. You get to decide how to invest it. You can invest IRA funds in various ways, like stocks, bonds, exchange-traded funds (ETFs), and other securities. 

The money inside a traditional IRA grows tax-deferred. This means you won’t pay taxes on it until you withdraw the money in retirement. Over the long term, this tax-deferred growth can help you build wealth.

Contribution limits

The annual contribution limit to a traditional IRA is $7,000 as of 2024. If you’re 50 or older, you may make an additional $1,000 catch-up contribution, for a total of $8,000 annually.

There are two caveats, though:

1. If you earn less than the current year contribution limit, you can only contribute up to the total of your earned income for the year. So if your earned income is $3,000, your cap is $3,000.
2. This limit applies to traditional and Roth IRAs combined. So if you have both accounts, your total contribution cannot go over this limit.

Tax deduction

Traditional IRA contributions are typically made with pre-tax dollars, so you can get an immediate tax benefit by deducting them from your taxable income for the year. Doing so might put you in a lower tax bracket or make you eligible for certain tax incentives.

If you don’t have an employer-sponsored retirement plan, like a 401(k) or 403(b), you can deduct the entire amount you’ve contributed for the year. However, if you or your spouse participate in an employer plan, you might not be able to deduct the full amount. 

The IRS sets deduction limits based on your filing status and modified adjusted gross income (MAGI). If you’re single and have a workplace plan, your MAGI must be below $87,000 to receive at least a partial deduction. If you’re married and filing jointly, you must earn less than $143,000. This income limit applies even if your spouse has a workplace plan, but you don’t.

Age limits

Before 2020, you couldn’t contribute to a traditional IRA past age 70½. But now, there is no age limit. Anyone with earned income can contribute to a traditional IRA. This change was due to the SECURE Act, which went into effect on January 1, 2020. 

Early withdrawal rules

Generally, you can start taking funds out of your traditional IRA when you turn 59½, and you’ll pay regular income tax when you make withdrawals. 

If you take out money early, however, you’ll usually have to pay a 10% penalty on top of income tax. There are a few exceptions to the IRA early withdrawal rule, including:

• Becoming totally and permanently disabled
• Paying for certain higher education expenses
• Buying your first home, up to $10,000
• Paying health insurance premiums while unemployed
• Taking substantially equal periodic payments (SEPPs) for at least five years or until you turn 59½, whichever comes later

Check out IRS Publication 590-B for important information on these and other exceptions.

Required minimum distributions (RMDs)

Once you reach a certain age, you’re required to start taking withdrawals from your traditional IRA each year. This age has gradually increased through various legislation over the past four years. Currently, if you reach age 72 after Dec. 31, 2022, then you must start making withdrawals at age 73.  These withdrawals are called required minimum distributions (RMDs), and they’re based on your life expectancy and IRA account balance.

If you don’t take RMDs, you could pay a hefty excise tax of up to 50% of the amount you were supposed to withdraw. So make sure you plan ahead and take your RMDs on time.

Pros and cons of contributing to a traditional IRA

Traditional IRA benefits

An IRA of any kind can help you put away money for retirement and possibly enjoy tax advantages. The particular benefits of the traditional IRA include:

• Your tax-deductible contributions can lower your taxable income for the year, and may even drop you into a lower tax bracket. 
• You pay no taxes on funds while they’re invested, meaning there’s more money in the account to compound over time.
• If you’re in a lower tax bracket when you make withdrawals than when you made contributions, you may pay less tax on your money overall.  
• You can invest in the stock market through a wide variety of securities, including stocks, mutual funds, and ETFs.
• There’s no income limit; you can put money into a traditional IRA no matter how much you make. 
• Some exceptions allow you to avoid the early distribution penalty. 

Disadvantages of traditional IRAs

Depending on your circumstances, there may be some downsides to a traditional IRA compared to other types of IRAs, including:

• Withdrawing before you reach 59½ years of age may result in a 10% penalty
• There are yearly limits on how much you can contribute
• You must take required minimum distributions after age 73
• Possible limits on tax deductions if you or your spouse have an employer-sponsored retirement plan

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How traditional IRAs differ from other IRAs

There are several different types of IRAs, both for individuals and employees. The terms of each differ based on eligibility, contribution limit, income limit, tax treatment, and a few other factors. The comparison chart below reflects information as of 2024 for four common types of IRAs.

Roth IRA

A Roth IRA is similar to a traditional IRA in many ways: it’s an individual retirement account that offers tax advantages as long as you leave your money in it until you turn 59½. The main difference between a traditional and a Roth IRA is when the money is taxed. When you start a Roth IRA, you pay income tax on money before you invest it. Then, when you make qualified withdrawals, you don’t pay any income tax at all, including on the money your account has earned. You’re also allowed to withdraw funds you’ve contributed at any time without penalty, though you’ll be subject to a 10% penalty if you withdraw earnings early.

A Roth IRA is best if:

• You want tax-free income in retirement
• You believe your tax rate will be higher in the future

SIMPLE IRA

The Savings Incentive Match Plan for Employees, or SIMPLE IRA, allows an employer to set up traditional IRAs for their employees; both the employer and employee can make contributions. It’s generally available for small businesses with fewer than 100 employees that don’t have another retirement savings plan, like a 401(k). If your employer offers a SIMPLE IRA, they’re required to contribute a certain amount each year, but you don’t have to put in any money. 

A SIMPLE IRA is best if:

• You’re a small business owner or work for a small business and want an uncomplicated way to save for retirement.

SEP IRA

The Simplified Employee Pension Plan, or SEP IRA, is a retirement account that can be established by either an employer or a self-employed person. Unlike the SIMPLE IRA, only an employer can contribute to a SEP IRA. The employer is allowed to take a tax deduction for contributions made, and they must contribute equally to all eligible employees. Note: if you’re self-employed, you are considered the employer, so you can make contributions and take tax deductions.  

A SEP IRA is best if:

• You’re self-employed or own a small business and want a simplified way to save for retirement while potentially contributing more than traditional IRA limits.

Rollover IRAs

If you have an employer-sponsored retirement plan and leave your job, you can usually do what’s called a rollover, in which you transfer the funds from your retirement plan into an IRA. Most people are eligible to roll over funds into either a traditional or Roth IRA, but there can be tax implications if you’re rolling over pre-tax (traditional) money into a Roth IRA. If you’re trying to decide what to do with your 401(k) or 403(b), you may want to brush up on the IRS rules for rollovers. 

A rollover IRA is best if:

• You’re leaving a job and want to consolidate your retirement savings from an employer-sponsored plan.

How to open a traditional IRA account

To get started with your very own IRA, follow these key steps:

Pick the right IRA provider

The first step to opening a traditional IRA is to pick a reliable provider. Research different options, like banks, online brokers, or Stash IRAs. Choose a provider that suits your investment needs and preferences.

Open your account

Once you’ve chosen a provider, complete the online application process to open the account. This usually takes 15 to 20 minutes, during which, you’ll be asked to give your name, address, and Social Security number to verify your identity.

Choose your contribution amount

Decide how much money you want to put into your IRA each year. The maximum contribution limit for 2024 is $7,000 or $8,000 if you’re at least 50. Remember, you’ll also be limited by your amount of earned income.

Select your investments

In a traditional IRA, you can invest in a variety of assets like stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Research and choose investments that suit your risk tolerance and financial goals. Stash has automatic investing tools to help you build wealth regularly. 

Monitor and adjust

Review your account’s performance and make adjustments as needed. This might mean rebalancing your investments or changing your contribution amounts. 

Use a retirement calculator to determine how much you’ll need to save for retirement based on your age and desired retirement income. This will help you set a realistic savings goal and plan for a comfortable retirement.

Is a traditional IRA right for you? 

The sooner you start investing for the future, the more time your money has to grow. When you’re deciding whether a traditional IRA is the right choice for you, you might consider things like:

• Flexibility: Are you able to leave your funds in your account until retirement age to avoid incurring penalties? 
• Tax deductions: Do you want to lower your tax bill now or pay less tax in the future?
• Income limits: Do you have a higher income level that might disqualify you from opening a Roth IRA?

When it comes to tax-advantaged individual retirement accounts, people are often weighing the pros and cons of a traditional IRA vs. a Roth IRA. Good news: you can have both.

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Frequently asked questions

1. What are the annual contribution limits for a traditional IRA?

In 2024, the maximum you can contribute is $7,000 or $8,000 if you’re 50 years or older. It’s essential to stick to these limits; there may be penalties if you go over them.

2. What happens if I contribute more than the annual limit to a traditional IRA?

If you contribute more than the annual limit to a traditional IRA, you might face a penalty of 6% on the excess amount every year until it’s corrected. This penalty can add up quickly, so if you accidentally over-contribute, correct it as soon as possible.

3. Can I have both a traditional IRA and a 401(k) plan?

Yes, you can contribute to both a traditional IRA and a 401(k) in the same year. However, your ability to deduct your traditional IRA contributions from your taxable income may be limited if you or your spouse is covered by a workplace retirement plan.

4. Should you contribute to a traditional IRA if it’s not tax-deductible?

Even if you can’t deduct your IRA contributions from your tax return, it might still be worth it to contribute. The primary reason is that you can still grow potential earnings tax deferred. But if you’re looking for alternatives, consider opening a Roth IRA or increasing contributions to your 401(k), especially if you have access to an employer match. 

5. What happens to a traditional IRA when you die?

Your traditional IRA will pass to your designated beneficiaries when you die. They will have the option to take account distributions over their lifetime or as a lump sum. If you don’t designate a beneficiary, your traditional IRA will go through probate, which can be a lengthy and expensive process.

6. Who cannot open a traditional IRA?

Individuals who don’t have earned income, like wages, salaries, or self-employment income, cannot open a traditional IRA. One exception is if you’re married and your spouse works. In this case, your spouse can contribute to a traditional IRA on your behalf when you file a joint tax return. This is known as a spousal IRA contribution.

The post What Is a Traditional IRA? appeared first on Stash Learn.

In this article, we’ll cover:

• Key differences between saving and investing
• When to save and when to invest

The key differences between saving and investing

Saving and investing are distinct financial concepts. While they both involve putting money toward the goal of increasing your assets in the future, they have very different functions and results when it comes to time horizon, potential for returns, liquidity, risk, and inflation. Once you understand the differences, you can determine how each fits into your financial plan. 

Your future goals

Some of your future financial goals are achievable sooner than others. If you’re looking at the short term, think of savings. If your goal is further into the future, consider investing. 

• Short-term goals: Saving can be a good choice for achieving short-term financial goals like taking a vacation, buying a car, getting a new computer, or putting a down payment on a home. Opening a savings account is also ideal for building up an emergency fund to cover large, unexpected expenses or get you by if you lose your job. 
• Long-term goals: In contrast, investing is more appropriate for achieving large goals far in the future, like paying for your kid’s college education or setting yourself up for retirement. Investments have the potential to grow your money more over time by earning higher returns than you’d get from earning interest in a savings account, but you may need to keep your money invested over the long haul to realize those gains. 

Potential returns

The return on investment (ROI) differs quite a bit between saving vs. investing. The entire point of investing is to earn returns. Saving is more about setting aside money over time, but earning interest in a savings account certainly does grow your money more than hiding it in your mattress. Most traditional savings accounts pay some interest, and you can often earn an even better rate with high-yield savings accounts, money market accounts, and certificates of deposit (CDs). Interest rates are variable, and often rise and fall in relation to inflation. The longer you keep your savings in an interest-bearing account, the more you can take advantage of compound interest, which is when the interest you’ve earned also earns interest. 

The ROI on different types of investments can vary greatly, but over the long term they usually outpace both inflation and what you could earn through interest in a bank account. The historical average return for stocks is around 10%, while bonds have historically produced 5% to 6% in returns on average. Other investment vehicles like mutual funds, index funds, and ETFs vary quite a bit in their average returns, since each fund contains a different mix of multiple assets. But because they usually hold stocks and bonds, funds tend to offer more lucrative long-term returns than a simple savings account. 

Impact of inflation

Inflation measures how much the cost of products and services rise over a given period of time. When inflation goes up, your purchasing power goes down; your dollars don’t go as far as they used to. This is an important consideration for your savings. If the interest rate on your savings account is lower than the inflation rate, it erodes the value of your savings over time.  

The money you earn today will have less purchasing power in a couple decades, so you want your investments to generate enough returns to compensate. Investing is often used as a hedge against inflation because the returns are generally higher than inflation over the long term. That’s why investing is typically advised for financial goals far into the future, like retirement. In fact, some investors pursue strategies intended specifically to profit from inflation. 

Liquidity (how accessible your money is to you)

Liquidity describes how quickly you can get your hands on your money. Cash is your most liquid asset; actual dollar bills in your wallet can be spent any time. Money in your savings account is also incredibly liquid because you can easily withdraw it at the bank or ATM. The only drawback is that some savings accounts charge a fee if you make more than six withdrawals a month. Liquidity gives you the flexibility you need to spend your savings, such as tapping your emergency fund for a big car repair or buying that TV you’ve saved up for when it goes on sale. 

Investments are typically less liquid than savings; the amount of rigidity varies among asset and account types. Certain types of investment vehicles, like bonds, may have a fixed term that requires you to stay invested for a certain amount of time. Stocks and shares of many funds are more liquid in that they can be sold any time, though it usually takes three business days to get your money. And if you’re selling stock because you need the money for an emergency, you run the risk of having to sell at a loss. Tax-advantaged retirement accounts, which are types of investment accounts, are extremely inflexible; you usually can’t withdraw money before age 59 1/2 without incurring steep penalties. Finally, if you invest in things like collectibles or real estate, your money is locked up in those assets until you can find a buyer, which could take a lot of time and effort.  

Risks involved

People usually think about risk when it comes to investing, but not savings. It’s true that putting money into savings is generally quite low-risk. As long as you keep savings in an FDIC-insured bank account, you’re protected even if the bank were to go under. That said, saving money comes with certain risks, too. For example, if you only keep money in a traditional savings account without investing some of it, you run the risk that it won’t grow enough to keep up with inflation, leaving you with a lot less spending power in retirement. There’s also the risk associated with variable interest rates. If your bank drops interest rates, the return you’re earning on your savings will drop as well. 

With investing, there’s always the risk that you could lose money if the value of your assets drops below what you paid for them. Business risk is the potential for a stock to lose value due to financial or management issues with the company. Geopolitical risk comes into play when things like war, terrorism, and trade relations impact the economy. And overall market volatility can cause the value of your portfolio to fluctuate. One way investors can manage these investment risks is by diversifying their portfolios. Diversification reduces risk by spreading the holdings in your investment portfolio across different asset classes like stocks, bonds, and funds. If one of your investments loses value, others may hold steady or even grow.

When to save your money

How do you decide when you should be saving vs. investing? Consider what you’re trying to achieve. Saving is well-suited to funding things you want within a few years and protecting your financial well-being when life throws you a curveball.  

• Financial goals: If there’s a large purchase you want to make in five years or less, saving for it makes sense. That’s too short a time to be confident that investments will grow, but not so long a timeframe that inflation is likely to seriously erode your purchasing power. 
• Emergency funds: If your dog needed emergency surgery tomorrow, could you pay for it without going into credit card debt? What about if you were laid off; how long could you cover your basic living expenses before your bank account was empty? These kinds of scenarios are exactly what an emergency fund is for. Putting aside money to cover unexpected expenses is one of the primary uses for a savings account.  

If you want to save up more, look for ways to spend less. From sticking to a budget to reducing discretionary spending to lowering your bills, reducing how much money you spend increases how much money you can put into your savings. 

Places you can park your cash and save

When you’re stashing money aside for an emergency fund or savings goal, you can put it to work earning interest so your savings grow faster. There are several different kinds of deposit accounts where you can store your savings, and they vary in the details of potential interest rates, liquidity, minimum balances, and fees.  

• Traditional savings account: A basic savings account usually offers a pretty low interest rate; the average APY (annual percentage yield) was 0.46% as of December 2023. But there are often low or no minimum balances or fees, making them accessible if you’re just getting started with saving.  
• High-yield savings account: This type of account functions just like a traditional savings account, but offers much higher interest rates. At the same time, many require you to maintain a minimum balance and might charge account maintenance fees, which can eat into your returns. There’s often a minimum opening balance, too, so you’ll need to already have some funds accumulated before you can open an account. 
• Money market account: If you want higher rates and more liquidity, money market accounts can be a good place to keep your savings. Their interest rates are usually close to high-yield savings accounts, and, unlike savings accounts, they come with a limited number of checks and debit transactions a month. That makes it even easier to spend your money when you want to. Be aware that minimum balances and fees are common with these accounts. 
• Certificate of deposit (CD): Savings and money market accounts offer variable interest rates, so they could go up or down at any time. CDs, on the other hand, give you a fixed interest rate for a set term, usually between six months and six years. CDs often have interest rates as good as or better than high-yield savings accounts, but the trade-off is a lack of liquidity. If you withdraw your money before the term is over, you’ll generally lose some of the interest you’ve earned. 

When to invest your money

Are you many years, or even decades, away from retirement, sending your kids to college, or putting a down payment on the house of your dreams? Do you have an emergency fund and enough money in savings for your short-term needs? Have you paid down any high interest debt? If so, it may be time to start investing your money. Investing is most likely to help you reach longer-term goals: things for which you need to build up a large amount of money, but you won’t need it any time soon. Consider investing when:

• You don’t need the money within the next five years: Keeping your money in investments for at least five or ten years may lead to better returns in the end. Long-term investing, also known as a buy-and-hold strategy, is the idea that you hang onto assets long enough to ride out the inevitable ups and downs of the stock market.
• Your employer offers 401(k) matching: Many employers will match your contributions dollar for dollar up to a certain percentage of your salary. It’s like free money for your retirement account. If your financial situation allows, invest at least as much as your employer will match so your retirement account grows more quickly. 
• You want tax advantages for retirement investments: The money you put into 401(k)s and traditional IRAs is pre-tax, meaning you don’t pay income tax until you withdraw it in retirement. Your contributions now are subtracted from your taxable income when you file your return, reducing your current tax burden. 

Whether you’re a hands-on DIY investor, prefer working with a financial advisor, or enjoy the ease of an automated robo advisor, opening a brokerage account is the first step in your investment journey.  

Saving vs. investing: strike the balance you need for financial security

Saving and investing aren’t mutually exclusive. Understanding how to use both strategies empowers you to work toward your goals in the short term and far-off future using the right types of accounts for what you want to achieve. Something saving and investing have in common: the sooner you start, the more time your money has to grow. Start finding your balance today.

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The post Saving vs. Investing: 2 Ways to Reach Your Financial Goals appeared first on Stash Learn.

The S&P 500 is an index that tracks the 500 leading companies by market capitalization in the U.S. While you can’t directly invest in the index itself, there are two broad options for investing in the S&P 500: through individual stocks or through an index fund, such as a mutual fund or exchange-traded fund (ETF). 

In this article, we’ll cover the following: 

• What is the S&P 500?
• How to invest in the S&P 500: index ETFs vs. index mutual funds
• Investing in the S&P 500 with an index fund
• Investing in the S&P 500 with an ETF
• Pros and cons of investing in the S&P 500
• How to invest in the S&P 500: FAQs

Read on to learn how to invest in the S&P 500. 

What is the S&P 500?

If the stock market is a giant jigsaw puzzle, you can think of an index as a magnifying glass. In the case of the S&P, the magnifying glass offers a closer look at the 500 biggest, most prominent pieces of the puzzle, giving you a clearer picture of the stock market as a whole. 

A stock market index, then, is a measurement of a market. Specifically, an index is a tool (like a magnifying glass) used to examine what’s happening in a stock market. The S&P 500 is one of the most widely used proxies for the overall health of the stock market—the stocks forming the S&P 500 represent roughly 80% of the market’s available market capitalization.

The S&P 500 includes companies across the spectrum, from energy to health care. Here are the top 10 companies in the S&P 500 by index weight as of January 2023: 

1. Microsoft
2. Apple
3. NVIDIA Corporation
4. Amazon
5. Alphabet (class A)
6. Meta Platforms Inc (class A)
7. Alphabet (class C)
8. Berkshire Hathaway Inc. (class B)
9. Tesla
10. Broadcom Inc.

Most of these companies fall into three main sectors: information technology (28.9% of the S&P), financials (13%), and health care (12.6%). These three sectors account for almost half of the S&P 500.

So, how do you invest in the S&P 500? For new investors, the best way is through an ETF or mutual fund. While there are some differences between the two that we’ll explain below, funds are a low-cost way to gain exposure to the S&P 500 and provide instant diversification to your portfolio. 

How to invest in the S&P 500 index fund: mutual funds vs. ETFs 

Since the S&P 500 is simply a measure of its underlying stocks’ performance, you can’t invest in it directly—instead, you can buy S&P 500 index funds through either a mutual fund or ETF that strives to match the performance of the S&P 500 market index.

A mutual fund is a basket of hundreds of stocks, securities, and other assets within a single fund. Instead of purchasing a single stock, funds give you exposure to all the different shares it contains, providing instant diversification for your portfolio. 

ETFs and mutual funds both aim to mimic the performance of an index like the S&P 500, but there are a few differences between the two. 

Investing in the S&P 500 with a mutual fund

Mutual funds that track the S&P 500 usually include most (if not all) of the stocks from the 500 companies comprising the S&P. This is so they can match the performance of the index as closely as possible. 

There are many S&P 500 index-based mutual funds to choose from, but the following criteria can help guide your selection: 

• Minimum investment: index funds will have varying minimum investments, so be sure to check that the minimum amount aligns with how much you have to invest. 
• Expense ratio: since index funds are passively managed, the expense ratio (the ongoing cost of holding the investment) tends to be low. Look for a fund with the lowest expense ratio. 
• Dividend yield: if your index fund comes with dividends, which many do, be sure to compare the dividend yield (the amount investors are paid in dividends) of different funds you’re considering. Some may be higher than others, and capitalizing on dividends is a great way to boost returns. 

Purchasing an S&P 500 index-based mutual fund is a fairly simple process. Here’s how to do it:  

1. Open an investment account: you can sign up with a traditional brokerage or through a robo-advisor.  At Stash, we offer both DIY investing and automated investing.
2. Add funds: decide how much capital you’re able to invest and add the funds to your account. 
3. Choose and buy your index fund: once you’ve decided on an index fund, purchase it through your brokerage account. 

If you don’t have a lot of capital to invest upfront, be sure to shop around for brokerage accounts that meet your needs and align with your budget—there are many available that offer low-fee trading options. 

Investing in the S&P 500 with an ETF

Like index funds, ETFs allow investors to pool their money in a fund made up of stocks, bonds, and other assets. Unlike index funds, however, which can only be traded once a day at the end of each trading day, ETFs can be traded like a stock—meaning their share prices can fluctuate throughout the trading day. 

There are different types of ETFs, and not all of them track a particular index. Some ETFs correspond to a particular sector, industry, or market. To invest in the S&P 500 with an ETF, you’d want to purchase an index-based ETF. The key factors of investing in an ETF aren’t much different from that of an index fund:

• Minimum investment: in many cases, ETFs will have a lower minimum investment than index funds—sometimes, you might only need to pay the amount of a single share to get started. 
• Expense ratio: always compare expense ratios for ETFs you’re considering, and look for one with the lowest expense ratio possible. 
• Dividend yield: compare the dividend yields of ETFs you’re considering, and ensure it’s as high as possible to boost your returns. 

Follow these steps to buy an ETF: 

1. Open an investment account: you can sign up with a traditional brokerage or through a robo-advisor like Stash, where you’ll find many ETFs to choose from. 
2. Add funds: decide how much money you’re able to invest and add the funds to your account. 
3. Choose and buy your ETF: once you’ve decided on an ETF, purchase it through your brokerage account. Be sure to use the key criteria listed earlier to compare expense ratios and dividend yields.

Pros and cons of investing in the S&P 500

Investing in the S&P 500 is a popular way to build wealth for new and seasoned investors alike, and for good reason—in the case of an S&P 500 index fund or ETF, you gain exposure to the world’s leading companies without spending hours researching individual stocks. If you’re still on the fence, here’s a look at the main pros and cons of investing in the S&P 500.

Pros

In general, the benefits of investing in the S&P 500 outweigh the disadvantages. 

• Consistent long-term returns: the S&P 500 has historically provided consistent annual returns over the long term—from 1950 to 2023, it has yielded an annualized average return of 11.28%.
• Instant diversification: if you invest with an index fund, you gain exposure to an array of companies, industries, and sectors that instantly diversify your portfolio. 
• No research or prior investment knowledge required: investing in the S&P 500 through an index fund or ETF means no intensive stock-picking research is required. 

Cons

While the benefits of investing in the S&P 500 outshine the drawbacks, there are still a few to be aware of. 

• Dominated by large-cap companies: since mainly large-cap companies dominate the S&P 500, it won’t provide exposure to many small-cap or mid-cap stocks, even when investing in S&P index funds.
• Short-term volatility: while the S&P 500 historically provides strong annual returns over the long term, it’s not immune to market volatility. Investors must be able to stomach short-term price swings and even sustained periods of market downturn like a bear market.
• No exposure to international companies: since the S&P 500 only includes U.S.-based companies, it won’t provide stock exposure to companies in other parts of the world. This is less of a concern for new investors, but spreading your portfolio across different regions is another diversification strategy. 

When held for the long term, an S&P 500 investment can be a core holding of any portfolio—particularly for new investors looking to build wealth for the future. With exposure to some of the most dynamic companies in the U.S. and a history of strong returns over time, there’s no reason to put off investing in the S&P 500.

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FAQs about how to invest in the S&P 500

Still have questions about how to invest in the S&P 500 index? Find answers below. 

Should I invest in the S&P 500 index through an ETF or mutual fund? 

One of the main differences between index-based ETFs and mutual funds is that ETFs tend to require a lower minimum investment to get started. For new investors without much capital to invest upfront, an S&P 500 ETF is a low-cost option. 

What is the minimum investment for the S&P 500?

For an S&P 500 index fund, many come with no minimum investment. For an S&P 500 ETF, you might need to pay the full price of a single share, which is generally upwards of $100—but some robo-advisors like Stash offer fractional shares for as little as $5. 

If you’re investing in individual stocks, you’ll just need to pay the cost of the share, which varies by company—you’ll find some for under $100 and others for $350+. 

Can you invest in the S&P 500 with individual stocks?

Yes. If you don’t want a mutual fund or ETF, you can hand-select individual stocks of companies you want to invest in. Keep in mind that investing in a single company increases the risk and volatility of your investment, and will require thoughtful research and stock performance analysis. 

Can you invest in the S&P 500 as a non-U.S. investor? 

Yes. While the S&P 500 is an index of U.S. companies only, there are no restrictions as to who can invest in it. 

The post How To Invest in the S&P 500: A Beginner’s Guide for 2024 appeared first on Stash Learn.

Here are the stock market holidays for 2024:

• New Years Day: Monday, Jan. 1st (observed)
• Martin Luther King Jr. Day: Monday, Jan. 15th
• President’s Day: Monday Feb. 19th
• Good Friday: Friday, March 29th
• Memorial Day: Monday, May 27th
• Juneteenth National Independence Day: Wednesday, June 19th
• Independence Day: Thursday, July 4th
• Labor Day: Monday, Sept. 2nd
• Thanksgiving Day: Thursday, Nov. 28th
• Christmas: Wednesday, Dec. 25th

Stock market holidays and early closings

In 2024, there are 10 days that the stock market closes and two days with early closings, limiting trading hours. During these holidays, traders and investors cannot buy or sell shares of companies listed on the stock exchange. The dates of these holidays are set far in advance.

Here are the U.S. stock market holidays and early closings recognized in 2024:

Bond market holidays and early closures

Similar to the stock market, the bond market observes several holidays throughout the year, during which the market is closed or has limited trading hours that affect your ability to purchase bonds. These holidays can impact trading activity, settlement dates, and other aspects of the bond market. In addition to observing the same holidays the NYSE and Nasdaq do, the bond market also closes on Columbus Day and Veterans day.

Here are the bond market holidays and early closings recognized in 2024:

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Stock market and bond market closing FAQ

What days is the stock market closed this year?

In 2024, the U.S. stock market is closed:

• Monday, Jan. 1st
• Monday, Jan. 15th
• Monday, Feb. 19th
• Friday, March 29th
• Monday, May 27th
• Wednesday, June 19th
• Thursday, July 4th
• Monday, Sept. 2nd
• Thursday, Nov. 28th
• Wednesday, Dec. 25th

Why is the stock market closed on Good Friday?

The stock market is closed on Good Friday due to both historical tradition and some practical considerations. While the initial reason for the closure was a religious observance, the lower trading volume and the desire for a long weekend break have made it a standard practice in modern times.

Is the stock market closed for Columbus Day?

No, the stock market is open on Columbus Day (Indigenous Peoples Day), which is on Oct. 14th, 2024. The bond market, however, is closed on Columbus Day.

The post Stock Market Holidays 2024 appeared first on Stash Learn.

There are many components of personal finance, and the specific areas of financial planning that matter to you depend on your unique circumstances. Whether you want to focus on five, seven, or ten elements of a financial plan for 2024, taking a look at your entire financial picture can give you the knowledge and resources you need to tackle your priorities. Read on for a comprehensive financial planning checklist to organize and streamline your approach to a prosperous 2024.

Elements of your financial planning checklist:

1. A financial check-up
2. Emergency fund
3. Debt
4. Insurance
5. Investments
6. Credit score
7. Tax preparation
8. Retirement plans
9. Family and estate planning
10. Financial goals
11. Your 2024 budget

1. Take stock of your personal finances

Start the new year off on the right foot with a thorough assessment of your current financial status. Think of it as a financial health check-up to get a clear picture of where you stand. Review the components of your financial planning, including your income, expenses, assets, and liabilities to understand your financial strengths and potential areas for improvement. This baseline assessment will help you set realistic and achievable financial goals for the year ahead.

Last year’s expenses

How did you spend your money over the last year? Examine your bank statements and credit card bills, group your expenses into categories, and note areas where you spent more than planned. Identify any unexpected costs and consider how you could plan for similar situations in the future. This detailed assessment will provide you with clarity about how much money you actually need to sustain your lifestyle and help you make more informed spending decisions in 2024.

Last year’s budget

Evaluate the effectiveness of last year’s budget. Did you regularly overspend in certain categories? Were there areas where you consistently spent less than planned? Understanding these patterns will help you adjust your budget for the new year and align it with your actual spending habits and financial goals. And if you didn’t use a budget last year, don’t worry: completing this financial planning checklist will set you up to make one for 2024. 

Current assets and liabilities

List all your assets, including cash in bank accounts, investments, retirement savings, and any real estate equity. Then, detail your liabilities, such as credit card debt, a mortgage, student loans, and any other debt like auto or personal loans. Calculate your net worth by subtracting liabilities from assets to get a snapshot of your overall financial health.

Anticipated income

Estimate your expected income for the coming year. Start with your earnings from the previous year and adjust for any known changes, such as salary changes, bonuses, or changes in tax bracket. If you’re planning to pick up a side hustle, try to project how much it will bring in, being sure to account for additional taxes you’ll have to pay. This projection will be the foundation for your budgeting and financial plan for 2024.

Financial plan

Revisit your existing financial plan, if you have one, to see if it still reflects your current financial situation, lifestyle, and aspirations. Make adjustments as needed, considering both the coming year and your long-term financial goals. If you don’t have a financial plan, you’ll have everything you need to create one using the insights you develop as you move through your financial checklist. 

2. Check in on your emergency fund

An emergency fund is a dedicated savings account to cover unexpected expenses or financial emergencies, such as sudden medical bills or job loss. Regularly evaluating your emergency fund is important for ensuring you’ve saved enough to provide financial security in times of need and sustain you through unforeseen events without going into debt. 

Target savings

Make sure the target goal you’ve set for your emergency fund target still makes sense for your lifestyle. Have your income or expenses changed over the last year? If so, adjust your savings goal to reflect your current circumstances. While the whole point of an emergency fund is to cover unexpected costs, you can anticipate potential sources of emergencies and tuck money away from them. For instance, did you adopt a new pet, have a child, purchase a house, or buy a used car? Those are all potential sources of large expenses you can’t predict, so you might want to pad your emergency savings goal accordingly.

Current balance

How much money is in your emergency fund now? Is it enough to cover at least six months of living expenses if you were to lose your income? Did you spend money out of your emergency savings in 2023? Determine how much you’ll need to put aside each month in 2024 to build your fund up to your target goal. 

Account type

Where you store your savings can make a big impact on its growth. Take a look at the type of account where your emergency fund is kept. Is it in a regular savings account, a high-yield savings account, or a money market account? Review the interest rate you’re earning and explore options for better returns in 2024 so your emergency fund continues to grow effectively.

3. Assess your debt situation

Effectively managing your debt is a key step in your financial checklist. Paying off debt as soon as possible, and specifically prioritizing your high-interest debt first, can significantly reduce the total interest paid over time and free up financial resources for other goals. Focusing on debts with the highest interest rates not only lessens your overall financial burden but can also positively impact your credit score and overall financial wellness.

Credit card debt

List all your credit card balances, along with the interest rates and minimum monthly payments for each. This will help you understand the total debt and prioritize which balances to pay off first. If you have multiple cards with high-interest rates, you might research options for consolidating it all onto a card with a lower interest rate. However, be aware that there’s usually a fee to transfer balances, and you might not qualify for the lowest rates if your credit score isn’t excellent. And even if you can get a very low-interest rate, there are pitfalls: those introductory offers usually expire after a certain amount of time, and if you’re late on even one payment, you’ll likely lose the great rate.  

Auto and personal loans

Detail your auto and personal loans, including their interest rates and terms, and calculate the total interest you’ll pay over the life of these loans. Consider whether you could afford to pay more than the minimum each month to reduce your overall interest expense and help you become debt-free sooner. 

Student loan debt

Document all your student loans, noting their interest rates and repayment timelines. Look into any potential student loan relief programs or refinancing options that could help you pay them off faster. If your loans have been in forbearance or deferment during 2023, make sure you know when those relief plans end and your payments will resume.  

Mortgage

If you have a mortgage, review your current loan balance, equity, and interest rate. You might want to shop around for current refinancing interest rates to see if you could get a lower rate than what you’re paying now, but be aware that refinancing comes with costs that can add to your debt. You could also consider if there’s room in your budget to make extra principal payments in 2024. One simple way to do so is to pay your mortgage biweekly instead of monthly. With this approach, you pay half your mortgage payment every two weeks; because there are 52 weeks in a year, you wind up making the equivalent of one extra full monthly payment per year. 

Other debt

List out all your other debts, such as buy-now, pay-later plans or things you’re paying for in installments, like if the cost of your most recent cell phone is wrapped into your monthly bill. If you owe money to friends or family, make a note of it too. These debts, while they might be smaller, can add up and should be part of your overall debt management plan.

Debt payoff plans

Create a strategy for paying off high-interest debt. Consider methods like the debt avalanche or snowball approach. Focus on balances with high or variable interest rates first, like credit cards and personal loans. While it may be enticing to tackle larger debts like student loans and mortgages, they usually have lower rates than things like credit cards. Plus, remember that your mortgage interest can be a tax deduction. Paying off high-interest debts first can be more effective in reducing how much money you spend on interest overall. 

4. Inspect your insurance

Yes, insurance belongs on your financial planning checklist. Take time to examine your various insurance policies to see if they still align with your current and anticipated future needs. This ensures that you’re adequately protected while also identifying areas where you might be able to optimize coverage or reduce costs. 

Flexible spending account (FSA)

A flexible spending account (FSA) is a tax-advantaged account offered by some employers, which you can use to pay for specific healthcare expenses. It’s funded with pre-tax money, thereby reducing your taxable income. Typically, you have to use the funds in your FSA within the plan year, often by December 31, but some employers offer a grace period extending this deadline. If you have the option to contribute to an FSA through your employer, plan your 2024 contributions based on anticipated medical expenses so you can make sure to use this benefit effectively.

Health savings account (HSA)

A health savings account (HSA) is another tax-advantaged account offered by employers designed to help you save on medical expenses. Unlike an FSA, funds in an HSA roll over from year to year, so there’s no pressure to spend the balance within a specific timeframe. If you have any outstanding medical expenses from 2023, now is the time to submit them to your HSA for reimbursement. Looking ahead, consider your expected healthcare costs for 2024 to determine how much to contribute to your HSA and maximize its benefits.

Health insurance deductible

Be aware that health insurance deductibles typically reset at the beginning of the year. Know your deductible amount and budget for medical expenses you’ll need to cover until the deductible is met. Now’s also a good time to look over your health insurance plan so you know which costs are and aren’t subject to the deductible; for example, many plans don’t count preventative care or visits to your primary provider toward the deductible, so you just have to cover the copay.  

Disability and life insurance

Take a moment to review your disability and life insurance policies. Be sure you know the coverage details, who your beneficiary is, and the cost of premiums and deductibles. You might want to adjust your coverage based on how your life has changed since you took out the policy, such as the addition of a new family member or a change in income. Even if you’re not directly paying for a plan, your employer might provide one as part of your benefits package, and you’ll want to be aware of what it entails. 

Homeowners/renters insurance

Evaluate your homeowners or renters insurance coverage and verify that it’s sufficient to cover your current living situation and possessions. If you’ve made home improvements or purchased expensive items in the last year, you might need more coverage; conversely, if you’ve downsized you may want a less expensive plan. As 2024 approaches, it might be time to shop around for better rates or inquire about loyalty discounts and bundling options with your current provider.

Car insurance

Similarly, review your car insurance coverage and compare it to your current needs. For instance, if you were carrying full coverage because you’d financed your car and have now paid it off, you have the freedom to consider a lower tier of coverage if you want to save money. Look for opportunities to reduce rates or secure discounts; many insurance companies offer multi-policy discounts if you also buy your homeowners, renters, and/or life insurance policies from them.

5. Review your investment portfolio

Regularly examining your investment portfolio is an essential part of your annual financial planning checklist. This allows you to monitor the performance of your investments, ensuring they align with your financial goals and risk tolerance. Periodic check-ins also provide an opportunity to adjust your strategy in response to market changes or personal life events, so you can maintain a balanced investment strategy that supports your long-term financial plan.

Investment performance

Evaluate the performance of your various investments over the past year, comparing them against historical trends to identify any assets that are either underperforming or exceeding expectations. Remember to take the long view on your investment strategy. Avoid making hasty decisions based on short-term market dips; instead, consider the benefits of a buy-and-hold approach, which often yields better results over time. 

Asset allocation

Asset allocation refers to the way your investments are distributed across different asset classes, such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Assess whether your portfolio’s allocation aligns with your goals, risk tolerance, and investment timeline. Different risk profiles require different balances of stocks, bonds, and other assets. For instance, a more aggressive profile might have a higher proportion of stocks for potential growth, while a conservative profile might lean more toward bonds for stability. As you get closer to retirement, it’s common to shift toward a more conservative approach. Regularly reviewing and adjusting your asset allocation helps keep your investment strategy on track with your evolving financial plan.

Rebalancing

If your portfolio’s asset allocation has shifted away from your target, it may be time to rebalance. This process involves moving funds among different investments to maintain the right mix for your strategy across various asset types, sectors, and industries. Rebalancing your portfolio can also help make sure your portfolio remains diversified to reduce risk.  

6. Check your credit score

Your credit score is vital to your financial health because it influences the interest rates you receive on mortgages, car loans, and credit cards. Even if taking out loans or lines of credit isn’t in your 2024 financial plan, checking your score still belongs on your financial checklist; your credit score can affect your insurance rates, ability to rent an apartment, and how much of a deposit is required when you sign up for utilities. In some cases, it may even be considered by employers when you apply for a job. Regularly checking your credit reports is essential to ensure accuracy and to safeguard against identity theft or errors. 

Credit reports

The three major credit reporting agencies (Equifax, Experian, and TransUnion) each provide a free credit report annually; all you have to do is request it. A credit report details your credit history, while your credit score is a numerical representation of your creditworthiness based on that history. Note that your credit reports won’t necessarily tell you your credit score, but your bank or credit card issuer might provide that information free of charge.

Credit report accuracy 

Your reports will show activity like the loans and credit cards you have, the times when creditors have checked your credit, any late payments or accounts that have been sent to collections, and legal activity like whether you’ve been sued, arrested, or filed for bankruptcy. Make sure everything on your report from each agency is accurate. If you see activity that’s incorrect, it may be a sign of fraud or identity theft, and you’ll want to contact the credit reporting agency right away to get errors rectified so they don’t undermine your credit score.

Credit score improvement plans

Credit scores are categorized as follows: poor (300-579), fair (580-669), good (670-739), very good (740-799), and excellent (800-850). If your score falls into one of the three lower tiers, you might want to put raising your credit score on your 2024 financial plan. There are a number of steps you can take, like being sure to pay all bills on time, reducing debt levels, avoiding new credit inquiries, and correcting any inaccuracies on your credit reports. By setting up payment reminders, budgeting to pay down existing debts, and regularly reviewing your credit reports for errors, you can gradually improve your credit score, which may lead to better loan terms and interest rates in the future.

7. Get ready for tax time

April will be here before you know it; prepping for tax season early reduces the stress of a last-minute rush and ensures a smooth filing process. Get started now by making a list of all the income documents you expect to receive. Look over your 2023 spending to identify any potential deductions or credits. If you anticipate owing taxes, early preparation gives you time to budget for the payment. Being proactive with your tax planning can also help identify opportunities for tax savings and ensure compliance with tax laws.

Charitable contributions

Reflect on any charitable donations you made in 2023, as these can potentially be deducted from your taxes if you choose to itemize deductions. It’s important to note that for these contributions to be eligible for tax deductions, they must be made to qualified 501(c)(3) organizations. You may need documentation for each donation when filing your taxes and claiming the deductions, so track down your receipts. 

Student loan interest

If you’ve been paying interest on student loans, you might be eligible to deduct this expense on your taxes. To take advantage of this deduction, gather all relevant documentation, such as statements or 1098-E forms from your loan servicer, which detail the amount of interest paid over the year. Unlike many other tax deductions, you don’t have to itemize deductions to claim this deduction. 

Mortgage interest

The interest you pay as part of your mortgage payments may also be tax deductible if you itemize deductions. Your mortgage servicer should furnish you with a 1098 form detailing how much you spent on interest last year. This deduction can reduce your taxable income, potentially leading to significant tax savings.

W2s and 1099s

W2s and 1099s are both tax forms, but they have a few key differences. W2 forms are issued by employers, and detail wages and taxes withheld for employees. 1099 forms, on the other hand, are given to independent contractors or freelancers and report income without tax withholdings. These forms, which you should receive by the end of January, are essential for determining your total income and taxes paid in 2023. If you have both employment and contract income, you’ll want to combine the information from W2s and 1099s to accurately assess your total tax liability. Remember, since taxes aren’t typically withheld from 1099 income, you may need to account for additional taxes owed.

Interest and capital gains earnings

Money you earn from investments is taxable, though different rates may apply for interest, dividends, and capital gains. You should expect to receive forms such as 1099-INT for interest earned from accounts like savings or CDs, and 1099-DIV or 1099-B for capital gains from investments. These forms, typically sent by banks and brokerage firms, detail the amount of taxable interest and capital gains earned in the year. Inspect these documents closely, possibly with your financial advisor, to accurately estimate your tax liability.

8. Revisit your retirement plans

A lot can change in a year, so be sure to reassess whether your retirement plan still aligns with any life changes you’ve experienced or anticipate, such as starting a family, shifts in income, or adjustments in your target retirement age. These changes can significantly impact how much you need to save and the strategies you use to reach your retirement goals.

Retirement accounts

Reviewing your retirement accounts is a core component of your financial planning checklist. Be sure to check on all of your accounts if you have more than one, including 401(k)s, 403(b)s, and individual retirement accounts (IRAs), across different employers or financial institutions. This will give you a clear understanding of where your money is invested and how each account is performing. You might also consider rolling over old 401(k)s or 403(b)s into an IRA, which can simplify your retirement savings and potentially offer more investment choices. 

Employer plans

Now is the ideal time to take a look at your employer-sponsored retirement plans, such as 401(k)s or 403(b)s, to ensure you’re maximizing their benefits. If possible aim to contribute at least enough to receive the full company match, as this is essentially free money that enhances your retirement savings. When deciding how much to contribute, be aware of the contribution limits for 2024, as the caps usually change annually. Contributing as much as you can within these limits not only boosts your retirement fund but also offers tax advantages. If your financial situation allows, consider increasing your contributions in 2024 to further build your retirement savings.

Additional IRA contributions

If you have a traditional or Roth IRA and have not met the contribution limit yet, you can make contributions for the 2023 tax year until April 15, 2024. For the 2023 tax year, the IRA contribution limits are $6,500 for those under the age of 50 and $7,500 for those above. For 2024 contributions, the IRS increased these limits to $7,000 for those under the age of 50 and $8,000 for those above. Unlike traditional IRAs, Roth IRAs have reduced contribution limits based on filing status and income, so do your research to be sure you don’t exceed them. Maxing out your traditional IRA contributions can not only enhance your retirement savings, but may also provide tax benefits if you can deduct your contributions from your taxable income. 

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Target timeline and goal

Completing your financial planning checklist involves reflecting on more than just money; how you want to live your life long-term is part and parcel of the process. Reflect on when you’re hoping to retire, whether that’s in the far-flung future or around the corner, and how much money you’ll need to make it happen. Take a look at your current retirement savings and planned contributions, then calculate if you’ll have enough to retire at your target age. You might also want to estimate how much social security income you’ll receive. This is where financial planning and life planning come together. Are you on track to have the funds to retire at your desired age? If not, you’ll need to either increase your retirement savings or extend the time you’ll remain in the workforce. Doing this exercise annually is an important part of maintaining a realistic financial plan, as your target retirement timeline and savings goals can change due to shifts in your career, family circumstances, and many other factors. 

9. Consider family and estate planning

Changes in your family and estate throughout the year can affect your financial needs and goals. Whether it’s the arrival of new family members, a marriage or divorce, or adjustments in your long-term plans, each of these factors can influence your financial strategy. Annual reviews help to align your financial planning with your current life situation and future aspirations.

Family size and dependents

Consider any changes in your family’s size and your dependents. Your family may be growing, whether you’re welcoming a new child, planning for one, or anticipating the need to support relatives. Or perhaps your household has gotten smaller due to a change in marital status or children moving out. These changes can significantly impact your personal finances and tax filing status, so they necessitate shifts in both your day-to-day budget and long-term financial goals. 

Education costs for children

Now is an opportune moment to think about whether you want to start saving for your children’s future education costs, whether you already have kids or are planning to have them, or if you want to support young relatives with their college costs. Even with the help of financial aid, tuition costs can be a big burden. Investment vehicles like 529 plans or Coverdell Education Savings Accounts offer tax advantages and are specifically designed for education savings. These accounts allow your contributions to grow tax-free, provided the funds are used for qualified educational expenses. Starting early on these savings can greatly ease the financial burden of higher education in the future.

Insurance beneficiaries

This is a heavy but important part of personal finance planning: do you know who will receive insurance benefits in the case of your death? If you haven’t checked your policy in a while, or if you haven’t paid attention to the policy offered by your employer, now’s the time to check. Be sure to review your life insurance as well as any other policies that come with survivor benefits, such as annuities or pensions. Keeping this information up to date ensures that your insurance benefits will be directed according to your current wishes and provides peace of mind that your loved ones will be taken care of.

Your estate

Estate planning may sound like a grandiose endeavor for wealthy people, but it’s actually a valuable part of anyone’s financial planning checklist. Regardless of your age or net worth, making a plan for your estate ensures that your loved ones are informed and prepared to handle your assets in the event of your passing. This involves documenting all pertinent information about your assets, including bank and investment accounts, insurance policies, real estate holdings, as well as any debts like a mortgage, loans, and credit cards. It may be helpful to work with a financial planner to organize this information and store it in a single, accessible location. This can significantly ease the process for your family or executors. Additionally, consider legal instruments like an advance medical directive or a durable power of attorney. Bonus: having this information in one place also comes in handy when you update your financial plan in the future.  

10. Set financial goals

The whole point of your financial planning checklist is to help you attain the things you really want in life. As you look ahead to next year and beyond, define your financial goals and strategize how to save for them. Revisit goals you’ve set in the past and make adjustments as needed. A career shift, a change in family dynamics, or evolving personal ambitions can all influence your financial priorities, so update or set new goals that reflect what matters most to you now. This is your chance to dream big and make a plan to turn those aspirations into reality. 

Short-term financial goals

Short-term financial goals are objectives you aim to reach within a relatively brief period, typically about a year. You might want to save up for a vacation, a major purchase like a new appliance, or a big event like a wedding. Consider setting up a sinking fund in a dedicated savings account to stash money so you don’t accidentally spend it. In addition to tangible savings targets, consider setting short-term goals for financial health habits too, like sticking to a budget, reducing impulse spending, or implementing money-saving tips.  

Mid-term financial goals

Mid-term financial goals typically take up to five years to achieve. These might include saving for a down payment on a home, funding a big home renovation, or accumulating capital to start a small business. For these types of goals, you might want to put your savings to work earning returns with low-risk investments. For example, you might put some money into an FDIC-insured high-yield savings account or certificate of deposit, and invest some of your funds in Treasury bills or notes.

Long-term financial goals

Long-term financial goals are those you aim to achieve more than five years into the future. These often include saving for retirement, funding your children’s college education, or paying off a mortgage. Achieving these goals usually requires a combination of disciplined saving and strategic investing. For instance, contributing regularly to a retirement account and investing in a diversified portfolio can help build wealth over time and outpace inflation. Consider working with a financial advisor to help you clarify and align your current strategy with your future goals; the more specific you can make your goals, the easier it can be to stick to your saving and investing strategy over the long haul.  

11. Prepare your 2024 budget

With the comprehensive components of your personal finances you’ve gathered in the previous steps of your financial checklist, you’re well-equipped to lay out a detailed budget for 2024. Whether you’re new to budgeting or have it down pat, you might want to explore different budgeting methods, like the 50/30/20 rule, envelope budgeting, or a zero-based budget. Whichever approach you take, you’ll need to determine your take-home income, plan out your expenses, and incorporate your saving and investing plans.  

Income

Start by getting a handle on how much money you’ll have to live on each month. This includes not only your regular salary or wages after taxes and other deductions, but also any additional sources of income you might have. These could be earnings from part-time work or freelance projects, rental income, spousal or child support, benefits from government programs, or dividend payments from stocks. If you anticipate any windfalls, like a tax return, bonus, or large financial gift, incorporate this into your budget too; you might want to use it to fund a financial goal or knock out some debt. 

Expenses

Next, categorize your expected expenses based on your spending patterns from 2023 and any anticipated changes for the upcoming year. Break your expenses into fixed, variable, and infrequent categories. Fixed expenses include regular payments such as rent or mortgage, utilities, insurance premiums, and loan repayments. Variable expenses, which can fluctuate, might consist of groceries, entertainment, dining out, and gas. Don’t forget to account for infrequent expenses, like annual subscriptions, car maintenance, or holiday spending, which can upend your budget if not planned for. 

Savings and investing

Integrating regular saving and investing into your monthly budget is key to achieving the financial goals you’ve identified. You might start by determining a specific percentage or amount of your monthly income to allocate towards savings and investments. This could be guided by goals such as building an emergency fund, saving for a down payment, or contributing to a retirement account. For savings, consider setting up automatic transfers to a dedicated savings account right after you receive your paycheck. For investing, consider making regular contributions to a diversified investment portfolio or retirement accounts; you may be able to automate those contributions too. 

Ongoing tracking

The best budget is one you can stick to. That calls for flexibility to accommodate life’s inevitable curveballs and ongoing tracking to adjust as needed. Set yourself up with the tools you need to stay on top of your budget, whether that’s a budgeting app to track your spending, automated budgeting tools in your online bank account, or just a good old-fashioned spreadsheet. And put a recurring appointment on your calendar to balance your budget every week or two. Your financial checklist is about setting yourself up for big-picture success, but ongoing attention to your personal finances is what will keep you on track with your plans. 

Your financial planning checklist: an empowering start to the new year

It can feel refreshing, and even exciting, to kick off the new year with a solid plan for your personal finances. From managing debt and spending to optimizing your saving and investment strategies, each step is an opportunity to enhance your financial well-being and enjoy the feeling of confidence that comes with managing your money. Completing your financial checklist empowers you with the insights you need to navigate both the coming year and your long-term financial journey. And if investing is part of your 2024 financial plan, Stash makes it easy to get started, helping you achieve your financial goals and paving the path to a better future.

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According to the Federal Reserve’s 2022 Report on the Economic Well-Being of U.S. Households, only 31% of non-retirees reported thinking their retirement savings were on track. And 28% reported having no retirement savings at all. 

Luckily, how you plan for retirement is a process that can be adapted to fit your lifestyle, age, and goals. And it’s never too late to get started. 

In this article, we’ll cover: 

• Considerations for retirement planning
• 5 steps for retirement planning

Retirement planning considerations

How you plan for retirement will be heavily impacted by several factors in your current lifestyle, as well as the needs you anticipate when you retire. Consequently, your retirement planning isn’t going to look the same as your friends, parents, or neighbors. You’ll want to consider factors like: 

• Your age and how far you are from retirement
• The age at which you want to retire
• Your current income and savings 
• Your projected future income
• Whether you plan to get married or have dependents
• Your health and the health of those in your immediate family
• Where you expect to live
• Your existing debt
• Your lifestyle and goals

Of course, you don’t have a crystal ball that allows you to see the future, so you can’t predict everything. But you can adjust your retirement planning as these factors change.

It’s worth noting that the federal government’s definition of retirement age is 62 for social security benefits and 59½ for most retirement-specific accounts like IRAs. That means that at 59½, you can withdraw money from your retirement accounts penalty-free, and at 62, you can start to receive social security benefits. You’ll want to factor these ages into your retirement planning, especially if you hope to retire early. 

How to plan for retirement in 5 steps

This five-step process will help you define what retirement planning looks like for you. You’ll want to tailor your investment plan to your specific lifestyle and goals and revisit your plan when major life changes occur.

Step 1. Figure out how much money you need to retire

A 2023 survey reported that Americans with 401(k)s estimate they’ll need, on average, $1.7 million to retire comfortably, but that figure will vary quite a bit per individual. Many experts suggest that retirees will need about 80% of their annual pre-retirement income to maintain their lifestyle in retirement. 

You can use the Stash retirement calculator to zero in on how much money you need to save before you retire. Gather the following info to make your calculations:

• The age at which you want to retire
• Your annual pre-tax income
• Your current retirement savings
• How much you can contribute to a retirement account each month

You may also want to think through what you want your future to look like. The amount of money you realistically need to retire depends on the lifestyle you hope to live in the future. For instance, many retirees downsize from a house to a condo, which lowers their living expenses. A good monthly retirement income is based on the expenses you’ll need to cover once you leave the workforce.

Step 2. Take stock of your assets, debts, and income sources

If you’re starting your retirement planning now, you’ll want to start by looking at your overall networth. How much money do you have in savings? How much debt do you have? You can position yourself for long-term success by paying down any high-interest debt and building an emergency fund now. That way, you aren’t passing financial hurdles on to your future self.

You’ll also want to think about the assets and debts you expect to have at retirement age. Consider whether your home will be paid off, if you’ll own a business, and if you’ll have any extra sources of income (like a rental property or other investments). You may also want to estimate your income from social security benefits using the Social Security Administration’s calculator. 

The age at which you plan to retire is an important consideration here, as it can affect the income sources you’ll have available. For instance, if you want to retire early, keep in mind that accessing your retirement accounts before you reach age 59½ may incur penalties, and you can’t receive social security benefits until you turn 62.

Step 3. Build retirement savings into your budget 

Saving enough for retirement might sound daunting, but you can get there by consistently putting aside money every month over the course of many years. That’s where your budget comes in: plan to save a portion of every single paycheck for retirement.

How much do you need to save every month? The rule of thumb is to save at least 15% of your pre-tax salary for retirement. The 15% rule is based on the assumption that you’ll start saving for retirement at age 25 in order to retire by 62 or age 35 to retire by 65. Investors who start retirement planning later in life might want to accelerate their savings by putting 20% or even 30% of their income into retirement accounts.

The amount you can save will depend on your current income and expenses. This chart can help you determine the dollar amount you should invest for retirement based on your income. If you can’t put aside at least 15% of your income at the moment, that’s okay; any amount of savings is better than none. Budget for what you can afford now, and increase that amount as your income grows or you find opportunities to reduce your expenses.  

Step 4. Set up retirement accounts

While you could technically store your retirement savings in a savings account or under your mattress, that would be an inefficient way to grow your money. Many investors store their retirement savings in tax-advantaged retirement accounts where their money can go to work earning returns. 

• 401(k) or 403(b): These are employer-sponsored retirement accounts that allow you to set aside a portion of your paycheck before taxes are taken out. Contributions are capped at $23,000 per year for 2024, and employers may match a portion of your contributions. 
• Solo 401(k): A Solo 401(k) is designed for self-employed workers and mimics many of the features of an employer-sponsored plan. The 2024 contribution limit is higher at $69,000, but you don’t get employer-matching benefits. 
• Roth or traditional IRA: IRAs are among the most common types of investment accounts. Investors can only contribute to a Roth IRA if they have an income limit below $161,000 (single filers) or $240,000 (joint filers), and contributions are made post-tax. You don’t pay any taxes on qualified withdrawals after the retirement age of 59½. Traditional IRAs, on the other hand, have no income limits, and contributions may be tax deductible, in which case you can delay paying income tax until you withdraw your money from a traditional IRA in retirement. The two accounts have a total contribution limit of $7,000 annually (those over age 50 can make an additional catch-up contribution of $1,000 per year).
• Self-directed IRA: This account type functions like other IRAs, but allows you to invest in more types of assets, such as precious metals, commodities, private placements, real estate, and more.
• Simple IRA: A Simple IRA is a savings incentive match plan for employees that allows you and your employer to contribute to a traditional IRA. Generally, these are used by small employers that don’t offer a 401(k) or 403(b). The most an employee can contribute to a SIMPLE IRA is $16,000 (those over age 50 can make an additional catch-up contribution of $3,500. 
• SEP IRA: A SEP IRA is a simplified employee pension where employers can make tax-deductible contributions for eligible employees. Employees cannot contribute to these accounts, but you can open your own IRA even if you have a SEP IRA from your employer. Annual contributions are limited to the lesser of a) 25% of the employees compensation or b) $69,000.

Many investors will have multiple retirement investment accounts, pairing an employer-sponsored plan like a 401(k) with an individual retirement account like a Roth IRA to take advantage of the different benefits offered by each. 

Take control of your tomorrow with an IRA.

Set aside money for retirement-and save on taxes-with a traditional or Roth IRA.

Learn more

Step 5. Put together an investment plan

Once you have your retirement account(s) and start making contributions, it’s time to choose your actual investments. Think of an account as your investing vehicle, not an investment in and of itself. You still need to determine the right mix of investments for you and build your portfolio. There are many retirement investing options and the rules about which assets you can hold vary among types of retirement accounts. 

So what kinds of investments belong in your retirement portfolio? Many people invest more aggressively when they’re young and slowly shift to a more conservative approach as they get closer to retirement. When you have decades before you retire, your investments still have a lot of time to bounce back from market turbulence, so you might go for higher-risk options with potentially higher rewards, such as stocks. But when you’re close to retirement, a bad year could have a much bigger impact on your plan, so less volatile securities like bonds might be more appealing.

Diversification is a strategy you might consider to spread your investments around. Diversification involves investing in both stocks and bonds, allowing exposure to the growth potential in stocks while balancing risk with the stability of bonds.

Revisit your plan as things change

 Investing would be much easier if we could see the future. Since we can’t, we have to work with our current knowledge and update our plans along the way. As you go through major life changes like getting married, having kids, owning or selling businesses, buying or selling homes, etc., you may want to revisit your retirement plan and make adjustments. 

Similarly, you’ll want to check in on your portfolio periodically (semi-annually or annually) to rebalance or adjust your mix of investments to accommodate changes in the market, if necessary. If you’re confident in your investing knowledge, you might manage your portfolio yourself. But you can also seek investing advice from several sources, including a robo-advisor or a human financial advisor.

It’s never too late or early to get started

The best time to start investing is yesterday; the second best is today. The longer your money is invested, the more it can grow through the power of compounding.  

Regardless of your age, you can start investing for your future now. Stash Retire gives you access to automated, zero-commission Roth and traditional IRA accounts so you can start taking control of your tomorrow, today. 

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Stocks are units of ownership of a company. By buying back shares owned by investors, companies are, essentially, re-purchasing themselves. A stock buyback is often called a share buyback, share purchase authorization, or share repurchase. Stock buybacks have been on the rise in recent years: in 2022, stock buyback announcements reached a record $1.22 trillion. 

In this article, we’ll cover:

• How stock buybacks work
• Why companies buy back stock
• Implications of stock buybacks 

How do stock buybacks work?

Most of the time, companies repurchase stock from shareholders on the open market, at market value. A company performing a stock buyback will generally announce a “repurchase authorization” alongside how much money they’re allocating to buying shares or the percentage of total shares they’re looking to purchase. 

Investors are under no obligation to sell back their stock. The company buys from those who want to sell, just like any other investor would. These shares are then purchased and “removed” from the market, and that ownership is reabsorbed into the company. 

A company will generally use its own money to repurchase stock, but it could also borrow cash for a stock buyback, though it’s a higher risk. And, despite having an authorization in place, there’s always a chance that the company doesn’t go through with the buyback should other priorities arise. 

Why do companies buy back their stock?

Companies issue a stock buyback for several reasons, but the primary goal is to create value for shareholders by raising share prices and increasing the company’s value on paper. 

Stock prices are driven by supply and demand. By reducing the number of available shares (supply), companies increase demand. More demand can drive higher stock prices, boosting value for shareholders.

Stock buybacks also impact a company’s balance sheet. The shares the company buys back are either canceled or held in treasury, not counted as outstanding stock. Having fewer shares on the market increases the earnings per share (EPS) and the price-to-earnings ratio (P/E ratio). Both are data points that help investors understand a company’s value and performance. 

Beyond simple valuation, stock buybacks offer companies several additional benefits.

• Consolidate ownership: A stock represents partial ownership in a company and usually comes with voting rights and claims to capital. By issuing a stock buyback, a company reduces the total number of owners with these rights. 
• Boost share prices: If a company feels that its shares are undervalued, it may repurchase stock to increase demand and boost investor confidence. If a company is worth the same amount as before but split into fewer pieces, each remaining shareholder now has a bigger piece of the pie. 
• Attract more investors: Stock buybacks can be seen as a sign of management confidence in future performance. After all, why would a company buy back stock they expect to decrease in value? This display of optimism can attract future investors.
• Increase flexibility: Stock buybacks are a more flexible way to return cash to shareholders than paying dividends. Dividends are paid on an ongoing basis,  and they’re a long-term strategy for providing shareholder value. Stock buybacks, on the other hand, are one-offs, so they’re easier for companies to control.

Is a stock buyback a good thing?

Stock buybacks can be a good thing, but they can also come with drawbacks for companies, employees, and investors if mismanaged. 

Is a stock buyback good for companies?

Stock buybacks allow companies to consolidate ownership, increase a stock’s demand, and possibly improve their valuation. By buying back shares, the company is paying off investors and reducing the overall cost of capital, especially if they offer dividends. On paper, a buyback often looks like a good idea. 

When mismanaged, a stock buyback can backfire for the company. By spending money on a buyback, a company isn’t investing in other ways that could improve the business or increase efficiency. The improved EPS and P/E ratio is just on paper, and the increase is often temporary or inflated. It can make a company’s earning potential appear better than it actually is. And if a company borrows money for a stock buyback, there’s always the risk that the debt could negatively affect their finances down the road. 

Is a stock buyback good for employees?

Stock buybacks could be good or bad for employees depending on the company, its financial situation, and how they provide benefits to their employees. When stock is a part of total compensation, employees of public companies often own a fair amount of their company’s stock. Because they are both investors and employees, they can benefit when a company buys back their stock at a good value, whether they sell or hold onto their stock at a higher price.

But stock buybacks mean that companies are investing money in the buyback that they could theoretically use elsewhere in their budget, like for employee compensation or reinvestment in the business. If the company is using a stock buyback to artificially bump up a company’s earnings, it could negatively impact employees. 

Is a stock buyback good for investors?

Just like employees and companies, stock buybacks can be good or bad for investors. It all comes down to whether the increased stock value is meaningful or artificial and temporary. 

In the short term, investors will see an increase in stock prices because the total number of available stocks has decreased. But that doesn’t necessarily mean that the company is performing any better than before. The money companies are reinvesting in their stock could be used to grow or increase efficiencies. There’s also a chance that the increase in share value could be temporary if the buyback is artificially inflating prices.  

Additionally, many companies provide stock to executives as part of their compensation. In some cases, company leaders might use a buyback to temporarily boost share prices in order to secure a bigger gain on their stock options. This may not necessarily be in the best interests of other shareholders. 

Investors should look at the company’s performance, any available plans, and the results of past buybacks when deciding whether to sell or hold onto their stock. If the company is buying at a premium price and you believe the company is continuing to work toward improving shareholder value, it may make sense to stay invested. If you believe the share price is overvalued or you don’t have confidence in the company’s future growth, a stock buyback may be an opportunity to sell.

Start participating in the stock market

A stock buyback only affects investors who already own shares in the company. You may or may not encounter a buyback as an investor, but it’s good to be prepared by understanding how stock buybacks work. In fact, getting to know key investing terminology can come in handy no matter where you are in your investing journey. With a focus on investing for the long term and keeping yourself educated, you can pursue a strategy that makes sense for your financial goals. 

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Understanding stock market fundamentals is key to making smart investing decisions, keeping a pulse on the market, and eventually taking on more complex trading strategies. Use the terms below to get a jump start on learning basic stock market vocabulary and create a strong foundation for your long-term wealth goals.

In this article, we’ll cover:

• Arbitrage
• Ask
• Asset allocation
• Asset classes
• Averaging down
• Bear market
• Beta
• Bid
• Bid-ask spread
• Blockchain
• Blue-chip stocks
• Bond
• Bull market
• Buyback
• Capitalization
• Capital gains
• Common stock
• Current ratio
• Day trading
• Debt-to-equity ratio
• Diversification
• Dividend
• Dividend yield
• Dollar-cost averaging
• Dow Jones Industrial Average (DJIA)
• Earnings per share (EPS)
• Economic bubble
• Equal weight rating
• Equity income
• Exchange
• Exchange-traded funds (ETFs)
• Expense ratio
• Futures
• Going long
• Going short
• Growth and income funds
• Growth stocks
• Head and shoulders pattern
• Index funds
• Inflation
• Initial public offering (IPO)
• Limit order
• Liquidity 
• Margin
• Market index
• Market volatility 
• Moving average 
• Mutual funds
• NASDAQ
• Non-fungible token (NFT)
• Order imbalance
• OTC stocks
• Outstanding shares
• P/E ratio
• Preferred stock
• Price quote
• Profit margin
• Recession
• Risk tolerance
• Roth IRA
• Sector
• Shares
• Stock market holidays
• Stock option
• Stock portfolio 
• Stock split
• Time horizon
• Value stocks
• Volume
• Volume-weighted average price (VWAP)
• Yield
• 52-week range

What is the stock market?

The stock market is a collection of markets where people buy and sell shares of publicly traded companies. When someone invests in a stock, their investment is represented by a share, or partial ownership, of that company. 

The stock market operates by potential buyers naming the highest price they’ll pay for an asset (the “bid”) and potential sellers naming the lowest price they’re willing to sell for (the “ask”). Trades are typically executed by stockbrokers on behalf of individual investors.

72 stock market terms for new investors  

The stock market terms below are a great starting point if you’re new to trading stocks. Study these terms to familiarize yourself with common stock lingo that any new investor should understand. 

1. Arbitrage 

Arbitrage refers to purchasing an asset from one market and selling it to another market where the selling price is higher than what you paid for it, resulting in profit. 

2. Ask

An ask is the selling price that a trader offers for their shares. 

3. Asset Allocation

Asset allocation is an investment strategy that aims to balance risk and reward by dividing a certain percentage of investments—like stocks, bonds, real estate, cash, etc.—across different assets in an investment portfolio. 

4. Asset Classes

Asset classes are categories of assets, such as stocks, bonds, real estate, or cash. 

5. Averaging Down

Averaging down is an investing strategy that involves buying additional shares of an asset or stock after its price has fallen, resulting in a lower average purchase price. 

6. Bear Market

A bear market is a market condition in which prices are expected to fall. Typically, this entails major indexes or stocks decreasing by 20% or more compared to previous highs. 

7. Beta

Beta is the measure of an asset’s risk in relation to the market. A stock with a beta of 1.5 means that the stock typically moves 50% more than the market in the same direction. Generally, a higher beta indicates a riskier investment—if the market rises 10%, the stock will rise by 15%, but if the market falls by 10%, the stock will fall by 15%. 

8. Bid

The price a trader is willing to pay for shares of a stock or other asset. 

9. Bid-Ask Spread

Bid-ask spread is the difference between what buyers are willing to pay and the price sellers are asking for a stock. 

10. Blockchain

A blockchain is a record-keeping database in which transactions made in Bitcoin or other cryptocurrencies are recorded across multiple computers and distributed across the entire network of those computers.

11. Blue-Chip Stocks

Blue-chip stocks are common stocks of well-known companies known for their quality and history of growth. 

12. Bond

A bond is a type of security loaned by an investor to a borrower like a company or government used to fund its operations. 

13. Bull Market

A bull market is a market condition in which prices are expected to rise.

14. Buyback

A buyback is when a company repurchases outstanding shares to reduce the number of shares on the market and return profits to their investors, resulting in an increased value of the remaining shares. 

15. Capitalization

Also known as market cap, capitalization is the total market value of all a company’s outstanding shares. It’s calculated by multiplying the total number of shares by the current share price. 

16. Capital Gains 

Capital gains refers to the profit earned after selling an asset or investment for a higher price than you paid for it. 

17. Common Stock

This is one of the most basic stock market terms to know. Common stock is a type of security that represents ownership in a company. Holders of common stock are able to vote on matters like corporate policies and elect directors within that company. 

18. Current Ratio

The current ratio is a measure of a company’s ability to pay short-term debt. It’s determined by dividing current assets by current liabilities. 

19. Day Trading

Day trading is the practice of buying and selling shares of stock within a single day.   

20. Debt-to-Equity Ratio

Debt-to-equity ratio represents a function of a company’s debt relative to its equity, or the value of its assets minus its liabilities. The ratio is found by dividing total liabilities by total shareholder equity. 

21. Diversification

Diversification is an investment strategy that divides investment funds across a variety of assets in order to minimize overall risk. 

 22. Dividend

“Dividend” is one of the most basic terms for the stock market. It’s simply a portion of a company’s earnings paid out to its shareholders. 

23. Dividend Yield

A dividend yield is a dividend expressed as a percentage of its stock price. 

24. Dollar-Cost Averaging

Dollar-cost averaging is an investment strategy in which you invest a fixed amount on a regular basis regardless of the price of the asset. 

25. Dow Jones Industrial Average (DJIA)

Also known as Dow 30, the Dow Jones Industrial Average is a stock market index consisting of the 30 most-traded blue-chip stocks on the New York Stock Exchange. It’s used to measure the performance of shares among the largest U.S. companies and gauge the overall direction of stock prices. 

26. Earnings per Share (EPS)

Earnings per share is a company’s profit divided by its number of outstanding shares, and is used to measure corporate profitability.

27. Economic Bubble

An economic bubble is a situation where asset prices surge to significantly higher levels than the fundamental value of that asset. 

28. Equal Weight Rating

An equal weight rating is a measure used by equity analysts to signify how well a stock is performing relative to other stocks. An equal weight rating suggests that a stock will perform similarly with the average of all the stocks being used for comparison.

29. Equity Income

Equity income is used to describe any income received from stock dividends. 

30. Exchange

An exchange, or stock exchange, is a marketplace where investors and traders buy and sell stocks. You’ve probably heard of the most well-known exchanges in the U.S.: the New York Stock Exchange (NYSE) and Nasdaq. 

31. Exchange-Traded Funds (ETFs)

Commonly known as ETFs, exchange-traded funds are a collection of stocks or bonds combined in a single fund that can be purchased and traded on major stock exchanges. Similar to mutual funds, they’re a pooled investment fund, meaning a “pool” of money is aggregated from multiple investors. 

32. Expense Ratio

An expense ratio measures the cost of owning a mutual fund, including expenses like the management of the fund, overhead fees, and any other costs associated with running the fund. It’s essentially an administrative fee paid to the company in return for owning the fund. The ratio is measured as a percentage of your total investment—for example, if you invest $10,000 in a fund with an expense ratio of .20%, you’ll pay $20 on top of your investment. 

33. Futures

A future is a contract that requires a buyer to purchase a specific asset, and the seller to sell that asset at a certain future date at an agreed-upon price. Futures are a way for investors to hedge current investments—a risk management strategy intended to offset potential losses in other investments.

34. Going Long

Going long refers to the act of buying stock shares with the expectation that the asset’s price will rise, resulting in a profit. 

35. Going Short

Going short—the opposite of going long—refers to the act of selling stock shares with the expectation that the asset’s price will fall. When an investor goes short on an asset, they borrow that asset, sell it, and hopefully purchase it later at a lower price if the price does decline, resulting in profit. 

36. Growth and Income Funds

This is a type of mutual fund or ETF that has both a history of capital gains (growth) and income generated from dividends (income). Growth and income funds have a two-sided strategy of both long-term growth and short-term income. 

37. Growth Stocks

A growth stock is a common stock of a company whose revenues are expected to grow at a significantly higher rate than what’s average for that industry. 

38. Head and Shoulders Pattern

The head and shoulders pattern refers to a specific chart formation seen on a technical analysis chart. It appears when a stock price reaches three peaks: when the price peaks then declines; rises above that peak and declines again; and rises a third time (but not as high as the second peak) and then declines again. The second peak represents the formation’s “head,” and the first and third peaks represent the “shoulders.” It’s generally considered to be an indicator of an impending bear market. 

 39. Index Funds

Index funds are investment funds that follow the performance of a specific benchmark or stock market index, like the S&P 500. When you invest in an index fund, your money is used to invest in every company in that index. This results in a more diverse portfolio than if you were hand-selecting individual stocks, for example. 

40. Inflation

Inflation is the rate of increase in prices for goods and services in the economy. 

41. Initial Public Offering (IPO)

An IPO refers to a previously private company that becomes public by selling stock 

shares on the stock market. 

42. Limit Order

A limit order is an order to buy or sell a stock at or below a specific price. Limit orders give traders control over how much they pay. 

43. Liquidity 

Liquidity measures how quickly and easily a stock can be bought or sold without impacting its price. Cash, for example, is the most liquid asset—no exchange is necessary to gain value from it, and it’s already in its most liquid form. On the other hand, a car is less liquid—regardless of its value, you might have to wait to sell it at its best price. 

44. Margin

Sometimes referred to as “buying on margin,” margin is when investors borrow money from a broker to purchase a stock, similar to a loan. 

45. Market Index

A market index tracks the performance of a certain collection of stocks, often grouped to represent a certain industry. They’re a tool for investors to gauge the health of the stock market by comparing current and past stock prices.

46. Market Volatility

Market volatility is a measure of how much and how often the value of the stock market fluctuates. 

47. Moving Average

A moving average is the average price of stocks or other assets over a specific period of time. Generally used in technical analysis charts, it’s calculated by averaging data from the previous time periods to help investors identify the current direction of price trends.

48. Mutual Funds

Mutual funds are pools of investments from shareholders used to “mutually” buy securities like stocks, bonds, and other assets. 

49. Nasdaq

Nasdaq, or National Association of Securities Dealers Automated Quotations, is an electronic exchange where investors can buy and sell stocks through an automated network of computers. It’s the second-largest stock exchange in the world, following the NYSE.  

More broadly, Nasdaq can also refer to the Nasdaq Composite Index, a stock market index of over 3,300 companies listed on the Nasdaq exchange. In this context, it can be thought of similarly to other indexes like the DJIA or the S&P 500.

50. Non-Fungible Token (NFT)

A non-fungible token, more commonly known as an NFT, is a blockchain-based financial security. Each NFT represents a unique digital asset. “Non-fungible” indicates that it can’t be replicated or replaced with something else. 

51. Order Imbalance

An order imbalance occurs when orders of one type of stock aren’t offset by opposite orders, resulting in an excess of orders for that specific stock and sometimes volatile price changes. 

52. OTC Stocks

OTC stocks, or over-the-counter stocks, are securities that are traded on a broker-dealer network instead of on a major U.S. stock exchange. They’re often used by smaller companies who don’t meet the requirements to be listed on a formal stock exchange.

53. Outstanding Shares

Outstanding shares refers to the total number of a company’s shares that have been issued to shareholders, including restricted shares. 

54. P/E Ratio

Used to value a company, the P/E ratio, or price-earnings ratio, is the ratio of a company’s share price to the company’s earnings per share. 

55. Preferred Stock

Preferred stock is a type of stock that combines characteristics of both common stock and bonds. Owners of preferred stock receive different rights than common stockholders, like receiving dividends before common stockholders, but they generally don’t come with corporate voting rights like common stocks do. 

56. Price Quote

A price quote is the price of a stock or other security as quoted on an exchange. Price quotes usually come with important supplemental information to help traders make more informed investment decisions. 

57. Profit Margin

Profit margins are used to gauge the profitability of a company. It’s expressed as a percentage and is calculated by dividing the company’s net profit (total revenue minus total expenses) by total revenue. 

58. Recession

A recession is defined as a period of decline in economic performance throughout the economy, generally lasting for at least several months. 

59. Risk Tolerance

Risk tolerance is a measure of the level of risk you’re willing to accept on your investments. Someone with a lower risk tolerance typically sees lower returns on their investments in exchange for lower overall risk in periods of market decline. 

60. Roth IRA

A Roth IRA is an individual retirement account that allows you to contribute after-tax dollars, allowing your earnings to grow and be withdrawn tax-free. 

61. Sector

The stock market includes shares from thousands of different companies, which are broken into 11 different sectors. A sector is a group of companies with similar business products, services, or characteristics. 

62. Shares

Shares are units of ownership in part of a company’s total stock. 

63. Stock Market Holidays

While this isn’t necessarily a term or definition, it’s important to know what days you can and can’t buy or sell on the U.S. stock exchange. The U.S. stock market observes 10 holidays a year, closing on those days. In 2023, the observed holidays are New Years Day, Martin Luther King Jr. Day, President’s Day, Good Friday, Memorial Day, Juneteenth National Independence Day, Independence Day, Labor Day, Thanksgiving, and Christmas.

64. Stock Option

A stock option is a contract that gives an investor the right to purchase or sell a specific number of stock shares at a predetermined price within a specified time period. 

65. Stock Portfolio

A stock portfolio is an individual’s collection of investments, including stocks, bonds, mutual funds, and other financial assets. While a portfolio refers to all of your investments, they might not be contained in one single account. 

66. Stock Split

A stock split occurs when a corporation increases the number of its outstanding shares by distributing more shares to current stockholders. By splitting existing shares into multiple new shares, the stock becomes more affordable. 

67. Time Horizon

Time horizon refers to the period of time an investor expects to hold an investment, which will vary based on personal investment goals and strategies. For example, investing in a retirement account like a 401(k) has a longer time horizon, since the funds won’t be withdrawn until you reach retirement age. Generally speaking, longer time horizons correlate to more risk potential in a portfolio, and shorter time horizons correlate to a more conservative (less risky) portfolio. 

68. Value Stocks

Value stocks are shares of companies selling at bargain prices that investors expect to rise because the company’s financial fundamentals suggest the shares are actually worth more than the current value.

69. Volume

Volume is a measure of how much a certain stock or other investment has been traded over a certain period of time. Volume is a critical component of strategically analyzing stock market trends, and is often used to determine market strength.  

70. Volume-Weighted Average Price (VWAP)

Volume-weighted average price (VWAP) is a measure of the average trading price of a stock or other asset, adjusted for volume. It’s calculated by dividing the total dollar value of trading in that asset by the volume of trades. 

71. Yield 

Yield refers to the income earned on an investment over a set period of time, expressed as a percentage of your original investment. 

72. 52-week Range

The 52-week range is a technical indicator that measures the lowest and highest price of a stock traded during a 52-week period. Traders use this measure to analyze current stock prices and predict its future movements. 

Learning to navigate the stock market and stock trade terms for the first time might feel daunting, but consider this your official first step on the path to developing your investing muscles. When you come across a term you’re unfamiliar with in your own research, refer back to this post until you’ve mastered them. You’ll find that learning these stock terms for beginners is more doable than you think. 

The more time you invest in learning stock market terms and fundamentals, the more confident you’ll become as an investor. And if you’re looking for a little more support, consider turning to a platform like Stash. We make it easy to invest what you can afford on a set schedule, all the while providing unlimited financial education and personalized advice based on your risk level—so you can start building long-term wealth, even if you’ve never invested before. 

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FAQs About Stock Market Terms 

Have more questions about stock market terms? We have answers.

Why Should You Know Stock Market Terms? 

Establishing a working knowledge of stock market terms forms the foundation for the rest of your investment journey. It’s the gateway to crafting a strategic market approach, understanding different trading strategies, and making sense of market fluctuations that will inform your future trading decisions. 

How Do You Buy Stocks? 

Before investing a dollar, get clear on your investment goals—this informs everything from your investment timeline to the specific investments you’ll choose. From there, the process of buying your first shares of stock is surprisingly easy:

1. Open a brokerage account
2. Research what stocks you want to buy
3. Determine how much you can afford to invest 
4. Purchase your first share
5. Maximize returns with a buy and hold strategy

What Are the Most Used Stock Market Terms?

The most used stock market terms include bear market, bull market, dividend, ask, bid, and blue-chip stocks. 

The post 72 Stock Market Terms Every Beginner Trader Should Know appeared first on Stash Learn.

In this article, you’ll learn:

• Decoding investing: What you need to know first
• How to get started investing
• Why investing is important
• When you should start investing
• The difference between active vs. passive investing
• Common questions about investing

Decoding investing: What you need to know first

Investing – it’s a word that might conjure images of high-flying stock traders, complex charts, and confusing terminology. But at its core, investing is simply about putting your money to work for you in a way that earns more money over time.

Why Invest? The primary reason is to grow your wealth. Essentially, it involves looking out for your future self. Whether saving for retirement, a down payment on a house, or your child’s education, investing is one of the best ways to reach these financial goals. Unlike putting your money in a savings account, investing offers the potential for higher returns, albeit with some level of risk.

How to get started investing

Investing means buying securities (which is an investment), like stocks, bonds, mutual funds, and exchange-traded funds (ETFs), to make money as they grow in value over time. 

Investors generally create a portfolio made up of these various investments and often hold them for years or even decades. Traders, on the other hand, generally buy and sell investments rapidly to generate many small profits as prices rise and fall. 

If the idea of day trading makes you sweat, rest assured: investing is generally much simpler and less stressful. Remember that investing should be a marathon, not a sprint. Here’s how to get started.

1. Define your investment goals

Learning how to invest starts with a crucial step: defining your investment goals. It’s about understanding why you want to invest and what you hope to achieve. Are you saving for a comfortable retirement, a down payment on a house, or your child’s education? 

Defined goals help new investors stay focused and motivated, especially during market fluctuations. They act as a compass, guiding your investment decisions and helping you measure progress. Each goal will have a different time frame and risk profile. 

At Stash, we believe in the power of goal-oriented investing. It’s not just about growing your wealth but aligning your investments with your life’s objectives. When you have clear goals that matter to you, you can tailor your investment strategy to match them. 

2. Make sure you’re ready to invest

Before you start investing, you may want to first determine if you’re ready. Here are some indicators that the time may be right:

• Disposable income. If you can pay all your bills with a bit left over, it might be time to put your dollars to work. If you’re not currently budgeting, now is the perfect time to get started.
  >>Learn more: How to make a budget
• No high-interest debt. Let’s say you earn 5% on your investment, but you owe 18% interest on a credit card balance. That cancels out your return and then some, so paying down high-interest debt before you invest may be a good option.
  >>Learn more: How to get out of debt
• An emergency fund. Do you have three to six months of expenses in savings? If not, tying up all your extra cash in investments might force you to liquidate fast in case of an emergency, which may cause you to lose money on your investments.
  >>Learn more: How to start emergency and rainy-day funds
• Clear financial goals. Both investing and saving can be good ways to set aside money for the future; they each serve different functions. Setting goals and determining the right financial tools for meeting them lay a solid foundation.
  >>Learn more: How to create your financial plan

Even if you have $1,000 to invest, it may be better to put that money toward things like high-interest debt and an emergency fund if those aren’t in place yet. 

3. Set up your investment budget

If you’re ready to invest, the next step is to decide how much you can afford to invest. It doesn’t have to be a large sum; even small, regular contributions can grow significantly over time, thanks to compound interest. 

In fact, with many online brokers, you can often get started investing with as little money as a dollar. While shares of stock and other securities can be costly, many brokerages sell them by the slice via fractional shares. 

Once you start investing, you’ll likely want to keep adding money to your accounts, especially if you have long-term goals like retirement. Many experts recommend investing 10-20% of your income on an ongoing basis. But these are guidelines, not hard rules. 

The 50/30/20 budgeting method, for example, allocates around 20% of your budget to savings and investments. 

But for many people, investing 10-20% of your income might not be immediately practical. What matters most is starting early and investing consistently within your means. Even using a strategy like micro-investing can lead to significant growth. Use a compound interest calculator to see how your money could grow over time. 

>>Learn more: How much you should be investing

4. Choose the right investment account

The next pivotal step in your investing journey is opening an investment account, but it’s not just about picking any account. Your choice should be guided by the goals you’ve set. 

For instance, if you’re saving for retirement, you might choose a tax-advantaged individual retirement account (IRA). If you’re saving up for your future dream house, you might consider a standard brokerage account. 

There are several types of investment accounts to choose from. 

• Taxable brokerage accounts. A brokerage account allows you to buy and sell virtually any investment. Adults can also create custodial accounts for children.
  >>Learn more: How to open a brokerage account
• Employer-sponsored retirement plans. This category includes 401(k), 403(b), SEP Individual Retirement Accounts (IRAs), and SIMPLE IRAs. Many workplaces offer an employer match, which is essentially free money for your retirement.
  >>Learn more: Roth IRAs vs. 401(k)s
• Individual retirement accounts (IRAs). If you don’t have an employer-sponsored plan, or if you want to invest more, a traditional or Roth IRA can help you save for retirement and reap tax advantages.
  >>Learn more: Traditional vs. Roth IRAs
• 529 education savings plan. Saving for your child’s education? A 529 savings plan may offer flexibility and tax advantages.
  >>Learn more: Custodial accounts vs. 529 savings plans 

5. Think about your risk tolerance

All investment involves risk, including the risk that you could lose money. But how much risk each person is comfortable with is very personal. Your age, income, financial goals, and other factors play a role. Investors typically sort risk tolerance into three categories:

• Conservative. A conservative investor values stability over the potential for higher investment returns. Asset allocation is likely to be 40% stocks and 60% bonds.
• Moderate. Moderate investors aim to balance stability with higher reward potential. Typically, they allocate 60% to stocks and 40% to bonds.
• Aggressive. Aggressive investors feel comfortable taking big risks and hope to earn big rewards. They usually allocate 80% to stocks and 20% to bonds.

It’s vital to know your comfort level. Are you okay with high-risk, high-reward options, or do you prefer a safer, steady growth approach? Are you getting closer to retirement age, or do you have decades to go? Your risk tolerance will influence the types of investments you choose, balancing potential gains with the possibility of losses.

>>Learn more: Determine your risk profile  

6. Choose your investments

In this next step, you’ll choose investments based on your goals and risk tolerance. There are many types of stock market investments available; most everyday investors put their money in stocks, bonds, mutual funds, or ETFs. Cryptocurrency is also becoming a popular investment option, although it is a very risky investment. Additionally, you can even invest in real estate through a real estate investment trust (REIT).

For beginners, index funds and mutual funds can be a great way to start as they can offer built-in diversification and lower risk. Stash can guide you in choosing investments that match your financial objectives and risk profile.

The table above reflects general information on volatility and performance profiles. But there is tremendous variation within each investment type. Value stocks, for example, tend to be relatively stable, while “junk bonds” can be quite risky. That’s why it’s important to research stocks, funds, and any other investment options before investing.

>>Learn more: Different types of investments 

7. Decide your investment approach – DIY or robo-advisors

As you learn how to start investing, another critical decision you’ll make is whether to manage your investments yourself (DIY) or use a robo-advisor. Each approach has its benefits and considerations.

DIY investing allows you full control over your investment choices. You can select individual stocks, bonds, ETFs, and other assets based on your research and preferences.

It requires a commitment to learning about financial markets, investment strategies, and how to monitor your portfolio. It’s ideal for those who have a keen interest in financial markets and want to be actively involved in managing their investments.

Robo-advisors use algorithms to manage your investments based on your goals and risk tolerance. They automatically allocate your funds across various assets and rebalance your portfolio as needed.

Automated investing is great for beginners or those who prefer a hands-off approach. It eliminates the need for extensive market knowledge and ongoing portfolio management, saving you time and effort.

8. Monitor and adjust your investments

Once you’ve laid the groundwork and made your investment choices, you’re officially investing. You no longer have to figure out how to start because you’re doing the thing. 

But remember — investing isn’t a set-it-and-forget-it activity. Regularly review your investments to ensure they align with your goals and make adjustments as needed. Market conditions change, and so might your financial situation or goals. Consult a Certified Financial Planner for personalized advice on how to use investment funds to reach your financial goals.

When you first start investing, it can feel overwhelming. But it doesn’t have to be complicated to begin putting your money to work. The Stash Way® can help: it’s all about investing what you can afford on a regular basis, building a diversified portfolio, and investing for long-term growth. 

>>Learn more: How you can diversify your portfolio in 2024

Why is investing important? 

Many experts agree that investing is a critical component of a brighter financial future. About 61% of Americans own stock (Gallup, 2023), and many invest in other types of investments as well. Here are some of the most common reasons people invest:

• Retirement. In 2022, 72% of non-retired Americans had some retirement savings, and many put those dollars into investment accounts. Investing could help your nest egg grow faster than saving alone (Federal Reserve, 2023).
  >>Learn more: Calculate how much you’ll need to retire
• Combating inflation. Money loses buying power over time: an item that cost $100 in 1950 would cost over $1,276.64 today in 2023. Investing can be particularly important during inflationary times to preserve and grow the purchasing power of your money.
  >>Learn more: How to combat inflation
• Lowering tax burden. Retirement and college savings accounts offer tax advantages that could lower your taxable income, and some investment profits are taxed at the lower capital gains rate of 0-15%.
  >>Learn more: How taxes on stocks work
• Growing wealth through passive income. Investing puts your dollars to work for you. You might earn passive income through dividends, as well as returns when you sell securities that have increased in value.
  >>Learn more: Passive income streams 

How early should you start investing?

As a general rule, the sooner you start investing, the greater your earning potential. How? The power of compounding. 

Imagine you invest $100 and earn a 5% return annually. In the first year, you’d earn $5. When you re-invest those earnings, you’d earn interest on $105 the next year, for a return of $5.25. Every time your money makes money that you re-invest, it increases your balance, as well as the return on that balance. 

The longer your money compounds, the greater the effect. Let’s say you start with $100 and contribute $25 a month for 20 years, earning an average rate of 5%. After 20 years, you’d have deposited $6,100 and your balance would be over $10,000. And after 50 years, you’d have contributed $15,100 and your balance would be almost $64,000. 

The moral of the story is clear: there is no right age to start investing. But the earlier you begin, the more time your money has to grow. Think long-term and harness the power of compounding to build wealth.

>>Learn more: Calculate compounding over time

What’s the difference between active vs. passive investing?

In the world of investing, there’s a place for every kind of investor. Are you a hands-on or hands-off investor? Each approach comes with risks and benefits.

Hands-on, active investors tend to focus on short-term gains; they usually spend substantial time maintaining their portfolios and trade more frequently. Active investors may also try to beat the stock market by choosing specific stocks that may outperform leading indexes like the S&P 500. 

But even professional fund managers don’t beat the market reliably. Active investing can be a higher risk and involve more account fees due to the frequency of trading. 

Passive, hands-off investors usually practice a buy-and-hold investing strategy: they hold their investments for long periods of time, seeking a long-term return. They frequently invest in index funds that aim to mimic the performance of the market overall and keep them for a long time. 

Passive investing is often recommended for long-term goals like building wealth for retirement. Even Warren Buffett, one of the most successful investors, emphasizes the importance of long-term, value-driven investing strategies.

>>Learn more: How passive investing works  

Common Questions About Investing

Is investing in the stock market risky?

Investing in stocks always involves risk. While you can make money by investing in stocks, bonds, funds, and other securities, you can also lose money, especially if your investments lose value. It’s a good idea to diversify and do careful research before you purchase securities, so you can reduce your risk.

How do I invest money in the stock market?

You can invest in the stock market by purchasing stocks, bonds, mutual funds, and exchange-traded funds (ETFs), as well as other securities. You can make these purchases by setting up an investment account with a brokerage, either online or through an investment app. Use the steps in this article to learn how to start investing.

How much money do you need to invest in stocks?

You may think you need a large sum of money to start investing in order to buy pricey stocks or other investments. But you can crack into the investing world with as little as $1 thanks to fractional shares. As their name implies, these are fractions of full shares that can help you start investing, sometimes with just a few dollars.

Is $100 enough to start investing?

Absolutely, $100 is enough to start investing. Many online brokers and robo-advisors offer low or no minimum investment requirements, making it accessible for beginners. Also, options like fractional shares allow you to invest in high-value stocks with smaller amounts of money. Starting with what you have, even if it’s $100, is a great step towards building your investment portfolio.

What is the difference between trading and investing?

Trading is the process of buying and selling individual stocks, which usually takes place over the short term. Investing generally implies buying stocks or bonds and holding onto them over a longer period of time. 

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The post How to Start Investing: A Comprehensive Guide for Beginners appeared first on Stash Learn.

As a new investor, you might be weighing the difference between mutual funds and stocks. While both can help you earn solid returns, mutual funds are generally considered a safer investment than individual stocks.

A mutual fund is a pooled investment containing many stocks and other assets within a single fund, while a stock is an investment in a single company. By divvying up your investment across hundreds of companies instead of just one, mutual funds spread out your risk and add more diversification to your portfolio than a single stock would. 

Ultimately, choosing between stocks vs. mutual funds depends on your investment goals. Both can be a smart addition to your portfolio, but the right choice for you depends on factors like your risk tolerance and time horizon. 

Ready to learn the difference between mutual funds and stocks? Here’s a breakdown of the key differences and pros and cons to know.   

Mutual funds vs. stocks: key differences 

What’s the difference between mutual funds and stocks? Purchasing a stock means buying a small piece of ownership, or a share, in a company. When you buy a stock, your returns are based on the performance of that company. When the company does well, the stock price typically goes up, and stockholders who own shares reap the benefit. 

A mutual fund is a basket of hundreds of stocks, securities, and other assets within a single fund. With a mutual fund, you’re investing in the many different shares that make up the single fund, giving you broader market exposure compared to a single stock. 

Since an investment fund manager actively manages mutual funds—the individual responsible for implementing a fund’s investment strategy and making the behind-the-scenes trading decisions—they make a convenient investment avenue for beginners who would rather leave the research and stock-picking decisions to an expert.  

Here’s a quick overview of the difference between stocks and mutual funds, based on key investment characteristics: 

For a more in-depth comparison of individual stocks vs. mutual funds, we break down the pros and cons of each below. 

Pros and cons of mutual funds

For new investors, mutual funds are ideal thanks to their low barrier to entry and instant diversification. 

Pros

Mutual funds are an ideal investment because they offer instant diversification and carry less risk than a single stock. 

• Instant diversification: Because you get exposure to an array of companies, industries, and sectors, mutual funds instantly diversify your portfolio which can help to reduce the impact of a single investment on your overall portfolio.
• Minimizes risk: It’s unlikely that every company within a mutual fund will go down at the same time, protecting your portfolio from volatility. 
• Convenient: Mutual funds allow new investors to leave the complex research and stock-picking decisions to an expert. 
• Can be affordable: While actively managed mutual funds may have higher fees, passively managed mutual funds like index funds or ETFs typically have lower fees. 

In comparing stocks vs. mutual funds, here’s why mutual funds are often the better investment: rather than betting on the ups and downs of a single company or industry, your holdings are spread across an array of companies, industries, and sectors. If one company in the fund has a bad quarter, its performance can be balanced out by other companies that are doing well. In short, they’re less risky overall. 

Cons

While mutual funds are a convenient way for investors to get broad market exposure, they still come with a few drawbacks.

• Less control for investors: Since a fund manager decides which stocks and other assets make up the fund on your behalf, you have no say in what’s included. 
• Can have higher costs: Mutual funds often charge management fees, which can eat into investment returns over time. Actively managed funds typically have higher fees compared to passively managed funds like index funds.
• Less tax efficient: Due to the activity and active involvement of a fund manager, mutual funds can generate more taxable events and higher capital gains. 
• Trades only allowed once per day: Mutual funds can only be bought or sold at the end of a trading day, limiting the ability to respond quickly to market changes for active traders.

While mutual funds only allow trades once per day, there are other types of funds like ETFs or index funds that offer many of the same advantages. With an ETF, investors can buy and sell shares throughout the day, based on the fund’s real-time share price. They also tend to have lower fees than mutual funds.

Pros and cons of stocks

Stocks are an attractive investment namely due to the potential for outsized returns, but there are some drawbacks to be aware of. 

Pros

When quarterly revenue and profits are high and the stock price increases, stocks can provide higher-than-average returns compared to the overall market. 

• Potential for outsized gains: Depending on the company’s performance, you could see higher-than-average returns. 
• Full control over which companies you invest in: Buying individual stocks means there’s no fund manager involved, so you’re in control of every trading decision. 
• No management fees: By self-managing your own stock picks, you avoid the management fees you’d have to pay for an actively managed fund.  

While the potential gains of individual stocks are higher, so are the potential losses, as explained below. 

Cons

Even though it’s possible to see substantial returns from individual stocks, stock prices can be volatile, meaning they may rise and fall quickly. Stocks are also a more ambitious and time-intensive undertaking since you’ll have to research the stocks of individual companies yourself. 

• Higher risk and volatility: Betting on a single company increases the risk and volatility of your investment. 
• Potential for outsized losses: With stocks, the potential for higher returns comes with the potential for bigger losses if the company underperforms. 
• Requires time-intensive research and investment knowledge: Knowing what company to invest in requires intensive research—investors must analyze earnings reports and market performance, and make predictions about future price movements. 
• Low diversification: Allocating your portfolio toward one or two companies doesn’t provide diversification. 

In short, when you buy a single stock, you’re putting all your eggs in one basket. Your fortunes rise and fall with the company’s performance. This makes for a more volatile investment, meaning that it’s more likely to have big gains or losses—sometimes even in the course of a single day. This makes investing in an individual stock riskier than investing in a mutual fund.

Mutual funds vs. stocks: which is the better investment?

For long-term investors looking to build wealth over time, mutual funds are a dependable investment, as they aim to reduce overall risk—an important factor in a successful retirement portfolio. They’re also well suited for beginner investors who want to reap the benefits of the stock market without any prior investment knowledge. 

For investors who want to capture the potential growth of a particular company, individual stocks offer the potential for larger returns. Investors who go this route must be able to stomach more risk and be confident in their ability to analyze individual stocks. 

Investing in mutual funds vs. stocks comes down to your investment goals and risk tolerance. The main difference between stocks and mutual funds is the number of eggs in your basket—and diversification is usually considered a solid investment strategy. 

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FAQs about mutual funds vs. stocks

Still have lingering questions about stocks vs. mutual funds? Find the answers below.

Are mutual funds safer than stocks? 

Generally, yes. Since diversification is a risk-management strategy, the instant diversification that mutual funds provide lowers their overall risk compared to individual stocks.

Why would someone choose a mutual fund over a stock? 

The most common reason someone would choose a mutual fund over a stock is that it’s a convenient, hands-off way to profit from the stock market without any active management on their part. It’s also an easy way to diversify your holdings, which isn’t the case when you purchase a single stock.

Is it better to invest in stocks or mutual funds?

Whether it’s better to invest in stocks or mutual funds depends on your individual preferences and circumstances, as stocks offer potentially higher returns but come with higher risk and require more active management, while mutual funds provide instant diversification, convenience, and professional management at the cost of potentially lower returns.

Do mutual funds outperform the stock market?

The performance of mutual funds compared to the stock market can vary widely, as some mutual funds may outperform the market over certain periods, while others may underperform. It ultimately depends on factors such as the fund’s investment strategy, the skill of the fund manager, and market conditions.

The post Mutual Funds vs. Stocks: Which Is Better for Beginner Investors? appeared first on Stash Learn.

All that to say: Improving the bottom line has never been harder for hardworking Americans.

So in service of helping you get on track, Stash collected 100 of the best financial tips you’ll want to implement going into 2024—advice that will lessen the burden on your wallet and make it possible for you to get closer to your money goals.

Our Stash 100 tips are simple, jargon-free, and easy to follow. Bookmark them, share with your friends, and scrawl them on your mirror. It’s advice that will lessen the burden on your wallet and, even more importantly, put your mind at ease as you tackle the world ahead.

Investing 

1. Invest now. The sooner you start investing, the greater your earning potential.

2. Invest for the long-term with a buy-and-hold approach, and put your money to work. 

3. Invest regularly, and it becomes a powerful new habit that compounds your success. 

4. Diversify. Choose a variety of investments with different risks to reduce your risk of loss and reduce swings in your account value.

5. Choose low-fee ETFs. It’s safer to invest in ETFs, or baskets of assets, than in any one asset. 

6. Take advantage of dollar-cost averaging, which is periodically buying certain stocks or other assets using a set amount of money on a schedule. You’ll buy assets when the price is low and when it’s high without being driven by emotion. 

7. Combat inflation by investing your cash. Keeping too much money on-hand allows inflation to erode its value over time.

8. Don’t be afraid to invest. Having some cash is important, but keeping all your money on the sidelines can put you at risk for missing out on tens of thousands, or even millions of dollars over the course of your lifetime.

9. Keep your emotions in check. Avoid impulsive decisions based on fear or greed, and instead focus on your long-term goals and intentions. 

10. Don’t panic sell just because an investment is down. Knee-jerk reactions can derail your investing success.

11. Leave day-trading behind. You can be a great investor without being a frequent trader. In fact, trading less often can often be a better investment strategy. 

12. Focus on goals. Understand your objectives and time horizon to help you determine what combination of investments is right for you.

13. Park your cash in short-term Treasurys if you think you will use it within a year. 

14. Learn the value of compound interest, or when interest earns interest because it remains invested. It allows your money to grow exponentially over time. 

15. Avoid concentration risk. Buying individual stocks can be fun, but you shouldn’t invest more than 2% of your portfolio in any one stock.  

16. Automate your investments. Then check in at least once a year or when you have a major life change to make sure your investing strategy still makes sense for you. 

17. Understand and minimize what fees you are paying on your investments. Compare similar funds’ expense ratios and look out for commissions and other hidden fees. 

18. Don’t trust anyone that tells you they know how the market or a stock will perform in the future. No one has a crystal ball. 

19. Remember that investing is a marathon, not a sprint. Get-rich-quick schemes often end up in losses.

Retirement Planning 

20. Save for retirement. The years pass faster than you expect.

21. Start by saving 1% of your salary if that’s all you can afford now, and work your way up in 1% increments. Saving for retirement may feel like a luxury or impossibility, but any amount of savings is better than none. 

22. Use standard guidelines for retirement planning: Consider setting aside 15% of your pre-tax salary for retirement if you want to retire in your 60s and maintain your lifestyle. 

23. Calculate a personal retirement goal. If you aren’t sure, retirees typically spend between 70-80% of their pre-retirement income to maintain a similar lifestyle. You can also multiply how much you think you’ll spend every year of retirement by 25, and start there. 

24. Does your employer offer a retirement plan? Evaluate the investment options because every plan is different. Then choose one that’s appropriate for you, and never let your contributions sit idle. 

25. Don’t leave money on the table. Prioritize taking advantage of any employer match offered in your retirement plan. 

26. Consider multiple accounts. If you’re eligible for an employer-sponsored plan like a 401(k) and an individual retirement account like a traditional or Roth IRA, you may want to take advantage of both simultaneously—they each have their own pros and cons. 

27. Add social security benefits into your calculations by checking your Social Security Statement at SSA.gov. Guaranteed monthly income in retirement can help you maintain your retirement nest egg much longer.   

28. Healthcare related costs are retirees’ largest annual expense. Consider investing in a Health Savings Account (HSA) if you have access to a high deductible health plan. They have great tax benefits and will help offset those large expenses in your golden years. 

29. Try to avoid touching your retirement accounts, and learn about the tax implications and penalties associated with different retirement account withdrawals. Retirement funds are generally only accessible without penalty after you turn 59.5. 

30. Plan to retire early? Understand the tax rules and penalties of accessing your investments, and consider having alternate investment accounts that you can withdraw from first if need be.   

31. Avoid cashing out your retirement plan when changing jobs (it’s called an early distribution), which can tack on taxes and fees. Roll that money into an IRA or your new company’s 401(k) plan and allow the money to continue to grow. 

Financial Wellness 

32. Honor the principles of saving and investing. It’s not about how much you make—you can make a million dollars a year and still be flat broke if you spend it all. 

33. Set SMART savings goals. Make goals Specific, Measurable, Achievable, Realistic & Timely. This will help keep you motivated and aware of your progress.  

34. Establish an emergency fund as priority one. A good rule of thumb is to save between 3-6 months worth of your essential expenses. 

35. Eliminate stress over your bills by setting up automatic payments. 

36. Avoid the pitfalls of the U.S. post office by opting for direct electronic payments.  

37. Save money by changing banks. You may reduce expenses like monthly fees by switching banks or using an online financial institution for your checking and savings accounts.

38. Earn money on your cash. Set aside what you need for regular spending, then maximize the interest you earn on excess cash by comparing high yield savings accounts, money market funds, and U.S. Treasurys. 

39. Pay yourself first. Sometimes an employer can deposit a percentage of your paycheck directly into your savings or investment account, or set up an automatic transfer for when your paycheck hits. 

40. Check your pay stub regularly. Ensure that deductions are accurate and tax withholding seems appropriate. Consult HR right away if something seems off.

41. Protect what you have. Insurance is an often overlooked part of financial health. Whether it’s adequate health insurance, car insurance, homeowners, life or disability, set yourself up for unexpected life events.

42. Jumpstart your child’s long-term savings with a custodial account.

43. Talk to your kids about money. Teaching financial skills such as budgeting at a young age can help lead to strong financial habits as they grow. Celebrate milestones together to model diligence. 

44. Acknowledge your hard work when you hit a savings balance or come in under budget. It’ll keep you motivated for future success.  

45. Take security seriously. Use strong passwords, two-factor verification, and secure internet connections when managing your finances online. 

46. Be vigilant about phishing scams, especially approaching the holiday season when fraud activity tends to increase. It can be very hard, if not impossible, to get stolen money back.

Budgeting

47. Create a budget to help you understand where your money goes every month. One way to do it: Take the money that hits your bank account, minus your expenses, equals what’s available for your goals. 

48. Keep budgeting simple with the 80/20 approach: Save 20% of what you make so you limit the rest of your spending to 80% of your income. You can also get even more detailed with the 50/30/20 rule.

49. Keep a money journal and track all of your expenses—but don’t let it overwhelm you. The goal is to build awareness of your spending habits.

50. Create funds for large and irregular expenses like the holidays, travel, camp, or car maintenance. Set aside money each paycheck or month so that the money is available when you want it.

51. If taxes aren’t automatically deducted from your paycheck, set aside part of your paycheck so you don’t find yourself in trouble come filing season. 25-35% is a good starting point (refer to last year’s taxes or speak with your accountant for a more precise estimate).

52. Make a shopping list in advance—and stick to it! Studies show you can save yourself from unplanned purchases when you have it in-hand. 

53. Overspending? Try the 30-day rule. If you want to make an unplanned purchase, set the money aside for 30 days, then revisit. Often you’ll find the impulse to spend has gone away and you’re able to avoid unnecessary purchases. If waiting 30-days feels unrealistic, start with 48 hours. 

54. Delete your online payment info. The more effort it takes to shop online, the more likely you’ll be to pause and think about whether you truly want to buy it.

55. Sometimes it’s the right time for a “cash diet.” Commit to only making purchases in cash. You’ll likely spend less even on planned purchases like groceries, and it guarantees you won’t spend more than you’ve budgeted.

56. Swap your credit card for a debit card: Research shows that consumers spend less when they see real money immediately leaving their bank account. Pay down your credit card more frequently for a similar effect. 

57. Buy store brands instead of name-brand products with the same ingredients. Tiny savings add up on frequent purchases. 

58. Beware of BOGO “deals.” Slow down and consider the price of one item; often they are marked up to cover the cost of the discount. 

59. The best rates on hotels sometimes come 15 days before you travel. Make a refundable reservation far in advance, and then check the rates again leading up to your trip. If rates have dropped, cancel the original booking for free and lock in the lower rate. 

Debt

60. Take inventory. Make a list of your debts, such as credit card bills, student and auto loans, and mortgages, and include the lender, balance, interest rate, payment date, and monthly payment amount. Then take action.

61. Consider using the debt snowball or avalanche methods to prioritize which debt to pay down first. Each approach targets focusing on one debt at a time, rather than making extra payments on multiple obligations each month. 

62. Try to avoid paying more in interest and fees. While consolidating debt can be a smart solution, doing so in a high interest rate environment might mean more dollars out of pocket now. Beware of committing to a higher minimum monthly payment if cash flow is tight.

63. Pay off your high interest rate debt—such as credit card debt—first. You’ll save more by paying off credit card balances than you can realistically expect by investing those dollars in the stock market instead. A credit card balance can also bring down your credit score.

64. Take advantage of debt that works in your favor. Low-interest, installment loans like mortgages (especially those that are fixed and below 5%) and auto loans can help you build credit. 

65. Don’t pay more than the minimum required for low-interest, fixed-rate loans. If your fixed rate loan is low enough, invest the extra dollars for a higher return. 

66. Pay extra attention to variable interest rates to avoid fluctuating payments that are out of your control. 

67. Considering a new debt? Practice paying for it. Set aside a monthly payment for a few months for insight into how a new financial expense will impact your finances. 

68. A car payment doesn’t have to be an indefinite expense. Try to keep a 60 month loan or less, and continue to drive the car once it’s paid off. 

69. Zero-percent interest car loans may mean the car price itself is marked up or there’s some other catch. 

70. Beware of credit card rewards. Avoid spending more than you would typically spend just for the rewards. Buy the perk with cash—save your bottom line.

71. Refinance. When your credit score goes up or your cash flow improves, you may be eligible for a better rate on your existing loans. Run the numbers to see if it makes sense—this strategy may have upfront costs but could lower your monthly payments.

Credit

72. Not sure how to build good credit? You’re not alone. Consider using a secured credit card, which requires payment upfront. Make sure to understand the fees.

73. Lean on family or friends to build your credit. Asking someone with strong credit to cosign for you can help you obtain a better rate, or faster approval, than what you may be able to secure on your own. 

74. Build better credit in a short amount of time when you are added as an authorized user on someone else’s account. Note: Credit scores become intertwined, and both can be negatively impacted if someone doesn’t pay the bill on time. 

75. Take good care of your credit to be eligible for loans with more favorable rates. Pay bills on time and keep your outstanding balances low compared with your limits (this metric is called credit utilization). 

76. Remember that your credit score isn’t private. Think of it as a financial report card that can be shared with future employers, landlords, and lenders. 

77. When you open a credit card, use it responsibly. Charge at least one expense per month, like gas, and pay it off in full if possible. Then continue to pay it off in full every month. 

78. Carrying debt does not benefit your credit. Credit card interest compounds daily, working against you because the debt adds up rapidly. 

79.Set a reminder to check your credit report for free once a year with these three credit bureaus: Experian, Equifax, and Transunion. Or check annualcreditreport.com, which is a one-stop-shop. 

80. Dispute credit report errors. If there’s any incorrect information, contact the credit bureau directly.

81. Ask for a credit line increase. A good repayment history, higher income and/or higher credit score can warrant an increase. A higher limit can help your credit too, as long as you don’t spend more and raise your average balance. 

Homebuying/Home ownership 

82. Renting may be smarter—most homebuyers don’t break even for five years. If you expect to move sooner, consider renting instead.

83. When thinking about home-buying, cap your housing costs. Target a total monthly payment of no more than 28% of your gross monthly income towards a home. This should include principal, interest, taxes and insurance (PITI). 

84. Know what you have available for a down payment, and what you can afford monthly for your mortgage. Keep both in mind when trying to determine your price range. 

85. Negotiate your interest rate, and shop around. The process can be tedious, but every point negotiated down on your mortgage can be a huge cost savings. 

86. Do your research before making an offer. One tried and true way to value a home is looking at “comps,” which are comparable homes in the area that recently sold.

87. Understand PMI. Private mortgage insurance is an additional monthly cost assessed by a lender in the event you put less than 20% down. It may not be a reason to wait until you can afford more, but you’ll want to budget for the extra monthly cost, which is usually 0.5–1.5% of the cost of the mortgage each year.

88. Don’t overlook closing costs, which usually range between 3-5% of the purchase price. Example: if you want to make a 10% down payment, you’ll need between 13-15% of the purchase price in cash to complete the transaction. For a more exact estimate use a closing cost calculator specific to your state. Don’t forget moving costs.

89. Get pre-qualified and include it in your offer. Obtaining pre-qualification (not to be confused with pre-approval) can start the process of determining what you can afford, and it should not impact your credit or require underwriting. 

90. Build a home emergency fund for the things you need to repair and replace, ongoing costs, and one-time costs, too. Plan for overages when setting a budget for home renovations. 

Taxes

91. Keep track of deductible expenses throughout the year to maximize your tax deductions, especially if you’re self-employed. A standard deduction is applicable to everyone; other deductions—like large medical expenses and charitable donations—are relevant only if you decide to itemize your deductions. 

92. Know the tax implications of different retirement accounts. Investing into a traditional 401k or IRA can reduce your current taxes, which saves you money now, but in retirement, you’ll have to pay taxes on your withdrawals. Compare that to a Roth 401k or IRA, which won’t reduce your current taxes, but investments will grow tax free and you’ll save on taxes in the future.

93. Consider investing into a 529 plan for your children’s education. In some states, 529 plan contributions are tax-deductible and your investments grow tax-free.

94. Save on childcare. If you have kids and pay for daycare or camps, save on your taxes by contributing to a Dependent Care Flexible Spending Account (DCFSA.) Money is added directly through your paycheck pre-tax and can be used to reimburse you for your childcare related costs.

95. Self employed and/or experience a major life event? Tax professionals are a worthy investment. Not only can they make sure you file your taxes accurately, they can also help you make strategic money decisions throughout the year. Make sure their expertise is relevant to your situation. 

96. A large tax refund isn’t necessarily something to celebrate, as it typically means you overpaid the government during the year. Think of it as an interest-free loan to the government—not the prize you’re hoping for. 

97. Getting a tax refund year after year after year? Adjust your tax withholdings with your employer to keep more of it each paycheck. 

98. Use tax software to simplify the filing process. Depending on your income, you may be able to use some services at no cost. Find more information at irs.gov.

99. Keep copies of your tax returns for reference (digital is okay!). Up to seven years is suggested if you worry about being audited. Lenders typically only ask for a two-year history when applying for a loan.   

100. Make tax filing easier. Create a physical or digital folder and collect all tax related documents over the course of the year and you’ll stress less in spring. 

BONUS: Holiday

101. Set and stick to a holiday season budget. In addition to gifts, include travel and transportation, new clothes, holiday bonuses, decorations, and fun activities (like ice-skating). Be specific. 

102. Make a list of gift recipients and a spending limit per person.

103. Shop early. You’ll avoid rush delivery costs and needing to search for last-minute, expensive alternatives.

104. Book travel as soon as you can and be flexible with your schedule for better deals. 

105. Hosting doesn’t have to be expensive. Price shop and avoid recipes with too many new ingredients. Consider a pot-luck option instead of trying to do it all yourself.

106. Shop online. You’ll avoid impulse purchases, and it’s easier to search for discounts and price comparisons. Many online retailers offer free shipping during the season. 

107. Get creative. Thoughtful gift giving doesn’t have to cost you a lot of money. You can make gifts, like art, a note or baked goods, or you can gift time by offering to babysit/pet sit or help someone with other household chores. 

108. Suggest a gift exchange. Suggest a white elephant or secret santa so everyone only needs to buy one gift that will likely be more thoughtful and exciting to receive. 

109. Avoid (or limit) self-gifting. Retailers will be bombarding you with “deals.” Resist sales and unneeded purchases. Unsubscribing works wonders.

110. Celebrate late. Consider doing your holiday gatherings a few weeks later, allowing you to book less expensive travel and buy up gifts at post-holiday sales. 

111. Be selective. You don’t have to say ‘yes’ to every invitation, or include everyone on your guest list. Keep gatherings intimate, and choose only the events you want to attend most when choosing how to allocate your dollars.  

112.  Reflect and evaluate what worked this holiday season, then eye January as an amazing time to commit to new financial goals. 

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Having a brokerage account is the first step to building your investment portfolio. If you want to save up for college, retirement, or large purchases, a brokerage account is a good way to work toward these goals.

In this article, we’ll cover the following:

• Types of brokerage accounts
• The pros of brokerage accounts
• The cons of brokerage accounts
• How to choose a brokerage firm
• How to open a brokerage account
• The difference between a brokerage account and other investment accounts

Types of brokerage accounts

There are two main types of brokerage accounts: cash brokerage accounts and margin accounts. The primary difference between the two is how they are funded and the risk associated with each type of account.

• Cash accounts: A cash account is funded by the cash you have in your account. Investment purchases are based on and limited to the money in the account, so if you have $2,500 in cash, investments are limited to that amount. The upside of this type of account is that it presents less risk to the investor, but the downside is that borrowing funds is not permitted, and returns are smaller.
• Margin accounts: A margin account allows you to borrow funds from the brokerage firm you opened your account with to purchase investments—the investments you purchase become collateral for the loaned money. The upside of this type of account is that you can utilize more complex trading strategies, purchase more investments, and have the potential for greater returns. The downside to this account is that it presents a higher risk; you’re responsible for paying interest on the loan, and the brokerage firm can sell any of your investments to cover an account deficit.

Within the category of cash or margin accounts, you have subcategory options to consider. These subcategories may determine what type of financial guidance you will receive for your brokerage account investments or where you will ultimately open your account.

• Online brokerage accounts: An online brokerage account is opened and managed from a website or mobile app. These accounts are best for those comfortable with financial planning, strategizing, selecting investments, and executing trades independently. However, most online brokerages have research and analysis tools to help inform decision-making. One of the benefits of online brokerage accounts is that fees may be less, with many charging a small per-transaction commission or no commission at all.
• Discount brokerage accounts: A discount brokerage account is a less hands-on investment approach. These firms tend to charge lower fees because they don’t provide as many services as a full-service firm. The benefit of a discount brokerage account is that you still have access to real-life brokers who may provide services that are helpful to investment decision-making.
• Robo-advisor accounts: a robo-advisor account has an algorithm, not the investor, select the investments without any human participation. However, investments with robo-advisors are typically restricted to ETFs or mutual funds. Costs for asset management are lower compared to full-service brokerage firms, and minimum balance requirements can sometimes be as low as $0.

The pros of brokerage accounts

Easy to open

Brokerage accounts can be opened in just a few simple steps, taking only minutes of your time. Depending on the brokerage firm and type of account you select, you may not even have to leave the comfort of your own home or have a minimum balance to start. All you need to provide is some personal information, and you’re on your way to building your investment portfolio.

Diversification

Brokerage accounts allow you to diversify your portfolio by investing in a mix of securities and buying in various industries and locations. Diversification can reduce risk and even mitigate the negative impact of market highs and lows.

Many brokerage firms are registered with the Securities and Exchange Commission (SEC) through the Securities Investor Protection Corporation (SIPC), which means their accounts are typically insured for up to $500,000 should the brokerage fail. Half the insured amount can cover cash, but insurance does not cover investment losses.

Nearly liquid

While funds in a brokerage account aren’t as easy to access as a checking account, you can withdraw cash at any time without penalty. However, keep in mind that cashing out investments does trigger capital gains taxes. Brokerage account funds are more accessible than other investment accounts, like 403(b)s, 401(k)s, or IRAs, which can trigger income taxes plus incur a 10% penalty if withdrawn before age 59.5.

No contribution limits or required minimum distributions

Unlike retirement accounts, brokerage accounts don’t have contribution limits, so you can put as much funds as you want in the account. Brokerage accounts don’t require minimum distributions, which would cause the investor to pay income tax on the money or be taxed 50% for failing to withdraw.

The cons of brokerage accounts

Risk

While many brokerage firms insure their accounts for up to $500,000, that insurance does not cover investment losses. Purchasing any investment involves some level of risk. Some are higher than others, so you will need to balance between safer investments that provide lower returns and riskier investments that have the potential to produce bigger gains.

Taxes

Brokerage accounts typically tax on earnings when realized, so usually when a dividend is paid, or an asset is sold. There are other types of investment accounts, like retirement accounts, that don’t tax deposits. However, those accounts do require distributions to be taken in retirement, which are taxed.

Fees 

Depending on the brokerage firm, you will likely incur fees for their services, including managing your investments. Fees can include account maintenance, advisory, annual, and purchasing/selling investment fees. The cost of the fees varies from provider to provider. Typically, full-service firms have higher fees, and online brokerages have lower fees.

Minimum deposit and balance requirements

Most brokerage firms will require a certain amount when opening a brokerage account, referred to as a minimum deposit. You may be able to avoid the minimum deposit if you go with a robo-advisor account; some don’t have this requirement. In addition to minimum deposits, many accounts require a certain balance to avoid penalties. Balance requirements affect how much money you can withdraw from the account at any given time.

How to choose a brokerage firm

Many types of brokerage account providers exist, from traditional brokerage firms to app-based or online brokerages. Your financial needs will help determine where to open your brokerage account.

To make an informed decision on a brokerage firm, here are four factors to consider:

• Financial advice: The level of guidance you need or desire will play an integral part in deciding where to open a brokerage account. Full-service firms actively manage brokerage accounts, providing expert advice on financial planning, investment strategy, and more. Online brokerages are a little less hands-on but offer Robo-advisors who can match you with investment options based on your goals and risk profile.
• Investment options: What you would like to invest in can help narrow the list of brokerage firms based on what they offer. While most will provide stocks, bonds, and varied funds, some offer cryptocurrency, real estate, currency, and commodities.
• Fees: All brokerage firms charge fees to open an account, but the amount of the fees varies from provider to provider. Typically, the more involved they are in managing your account, the higher the fees will be. Therefore, online or app-based brokerages with robo-advisors charge comparatively less.
• Minimum balance: Brokerage firms may require a minimum amount of funds to open an account, and some may require the account to be maintained with a certain balance. What those minimum balances are will vary from provider to provider.

Key points about brokerage firms:

• Financial and investment needs will help determine what brokerage firm suits those needs.
• Full-service firms may charge through commissions on trades or with a flat fee
• Full-service brokerage firms may charge higher fees, but they provide advisory services.
• Online brokerages offer lower fees if you prefer to do your own research, trades, and account transactions.
• Online brokerages offer the convenience of 24/7 access to your account.
• Robo-advisors provide services using algorithms, such as planning, investing, and portfolio management.

How to open a brokerage account

After you’ve selected a brokerage provider, the process of opening a brokerage account is completed in a few easy steps. Whether opening an account in person or online, you’ll need to provide the type of account you want to open, some personal information, and answer questions about your financial needs and investment preferences.

Brokerage firms require specific personal information from investors to comply with federal and state laws and regulations.

If you’re unsure what you need to provide, here is the information to have ready when opening your brokerage account:

• Your legal name
• Social security number (SSN) or tax identification number (TIN)
• Driver’s license, passport, or government-issued photo ID
• Physical address/phone number/email address
• Employment information
• Financial data (annual income, net worth, investment objectives, risk tolerance)

Once your account is open and your profile created, you must fund your account with at least the minimum deposit required. 

The difference between a brokerage account and other investment accounts

There are quite a few differences between a brokerage account and other investment accounts, including investment type, income limits, contribution limits, investment options, and tax advantages.

Brokerage accounts vs. savings accounts

While savings accounts can accrue interest the longer funds stay in the account untouched, they differ in three key ways from brokerage accounts.

• Risk: Savings accounts are Federal Deposit Insurance Corporation (FDIC) insured, and no investments with potential losses are made through the account, so they present less risk.
• Returns: Savings accounts accrue interest at whatever rate the financial institution offers. Brokerage accounts use funds to purchase securities that have the potential to increase value and earn dividends, allowing for bigger gains.
• Purpose: Savings accounts are typically used for short-term financial goals, while brokerage accounts are for mid-to-long-term goals.

Brokerage accounts vs. retirement accounts

Retirement accounts include Roth accounts, individual retirement accounts (IRAs), and 401(K)s are different types of investment accounts with different criteria and functions than brokerage accounts.

• Access: Retirement accounts have strict mandates on how to invest your money and when you have access to those funds. Brokerage accounts allow for total control over the amount you invest, the securities you invest in, and the withdrawal of funds.
• Purpose: Retirement accounts are long-term only, requiring the account holder to be at least 59.5 to access their funds without penalty. Brokerage accounts allow you access whenever without penalty, making it more suitable for mid- and long-term financial goals.
• Contributions: Certain retirement accounts, like 401(k)s and IRAs, allow your employer to match contributions to the account. The investor entirely funds brokerage accounts.
• Tax advantages: If account holders stick to the rules for accessing retirement accounts, they have the potential to pay less taxes. Brokerage accounts don’t provide any tax advantages, but they do have the potential to help pay a lower capital gains rate when selling securities.

Ready to invest in your future?

If you want to invest in stocks, bonds, and other securities, a brokerage account is essential. Licensed brokerage firms like Stash can help you open and maintain a brokerage account that serves your mid- to-long-term financial plans. Whether you’re working toward goals six, fifteen, or thirty years down the road, establishing a brokerage account is the first step toward building a healthy, diversified portfolio.

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The post What is a Brokerage Account, and How Do I Open One? appeared first on Stash Learn.

What is cryptocurrency?

Cryptocurrency is a virtual currency that, like cash, is a source of purchasing power. It’s also an avenue for investment and, like other investment assets, can be bought with the objective of financial return. That being said, cryptocurrency is one of the most volatile (meaning it has large price swings) asset classes.

Unlike most forms of currency, cryptocurrencies are decentralized, meaning they are not issued, backed, or regulated by a central authority like the U.S. government. Units of cryptocurrency, known as coins or tokens, are created digitally through a validation process that relies on blockchain, a powerful technology that can be used in a vast array of processes, not just for crypto. Also known as distributed ledger technology, blockchain produces a secure encrypted record of the value of each virtual coin and its associated transactions. Those records are distributed and linked across the network of parties, or computers, accessing the blockchain; in theory, the blockchain can be accessed by anyone with an internet connection. This system was designed with security, transparency, speed, and accuracy in mind.

Types of cryptocurrencies

While the word cryptocurrency itself is a generic term for virtual currencies using blockchain technology, there are many different types: over 26,000 as of July 2023, according to CoinMarketCap.com. Bitcoin was one of the earliest cryptocurrencies created and remains the best known. Collectively, all other coin-based cryptocurrencies are called “altcoin,” or alternative to bitcoin. 

Several cryptocurrencies have gained high profiles, amassed large market value, and developed broad bases of users and investors in recent years. 

Top 10 cryptocurrencies by USD market cap

As of November 2023: 

• Bitcoin 
• Ethereum
• Tether
• XRP
• BNB
• USDC (US Dollar Coin)
• Dogecoin
• Cardano
• Solana
• TRON

It’s difficult to say which coins will be the most successful as the crypto ecosystem is new and many cryptocurrencies are young. Even though these coins are among the largest ones, they still have risk. The possibility of investment loss is real and substantial. For example, following strong gains in 2021, the value of most cryptocurrencies fell dramatically in 2022. That’s why it is critically important to learn about each crypto before investing and determine if the investment makes sense to you.

What to consider before investing in cryptocurrency

Cryptocurrency can be volatile, with large swings in value over short periods of time, which may give you pause if you’re risk averse. Keep in mind that anyone can launch a cryptocurrency, and how it’s regulated is in flux, so it’s vital to thoroughly vet any possible investments to avoid scams.  

You may also find it helpful to consider why you want to invest in crypto. Are you looking to follow and cash in on a trend, or do you have a thought-out strategy in mind? Remember, there is no such thing as an easy way to make a lot of money without risk so it’s important to never invest in anything with the belief that you can’t lose. Use caution and be clear about your intentions and expectations beforehand. You should only consider cryptocurrency as an investment if you believe in its long-term prospects and are willing to ride out large price swings.

When you invest, it’s critically important to take a long-term perspective. This is especially true for things like cryptocurrencies, which can quickly go up or down in value. When investing in highly volatile assets, it’s easy to make the mistake of letting emotions drive your decisions, such as buying when the price is rising in fear of missing out or selling out when prices go down. These emotional decisions usually aren’t good for your investments.

Looking for a deep dive into the crypto market? Read about 100+ cryptocurrency statistics here.

Is cryptocurrency a good investment?

Whether crypto will be a good investment for you depends on many factors. As with all investing, the answer comes down to things like your tolerance for risk, both in financial terms and in psychological terms, and your time horizon, as well as how diversified your portfolio is. The volatility of crypto means that the value of your coins can go up or down quickly, and sometimes dramatically. 

Simply because an asset is available to trade does not necessarily mean that it’s the right investment for your situation. And as discussed above, all investing carries the risk that you could lose money. 

How much should you invest in cryptocurrency?

Some experts recommend investing no more than 1% to 5% of your net worth. When looking at how much of your portfolio to invest in crypto, limiting your overall exposure to crypto is crucial. It’s important to never invest more than you can afford to lose. While having a small exposure to crypto may improve the risk adjusted return profile of a diversified portfolio, the overall amount that one should invest in crypto should be dictated by your overall investment portfolio and your risk tolerance.

With that in mind, diversification within crypto is another aspect to consider. The specific cryptocurrencies you choose to invest in matter as some coins have better long-term potential and are less likely to be manipulated in price.

While the entire cryptocurrency market tends to be very unpredictable and volatile, there may be less risk with the bigger, more commonly traded cryptocurrencies compared to the smaller-cap, more speculative cryptocurrencies. However, even the biggest and most well-known cryptocurrencies can have big price swings up and down. So, it’s a good idea to think about the variety of cryptocurrencies you have in your portfolio, as well as the total amount you invest in them.

Pros of investing in cryptocurrency

• Prior to 2022, the price of cryptocurrencies were not highly correlated to other investment classes, like stocks and bonds, so having a small exposure to this potentially high growth space may improve risk adjusted returns. While correlations between cryptocurrencies and other asset classes were high in 2022, it’s unclear if this is a new trend.
• Some experts compare certain cryptos, such as Bitcoin, to gold: both are fungible and durable because they’re hard to destroy, scarce due to finite supply, and their purchasing power is not defined by any central authority.  
• Thanks to the decentralization and transparency of the distributed ledger, it’s difficult to compromise the network integrity behind cryptocurrencies.  

Cons of investing in cryptocurrency

• The cryptocurrency market is highly volatile; it can be difficult to predict when values will rise or fall, and the drivers of large swings in value may not always be clear. 
• Though crypto blockchains are very difficult to hack, individuals can be susceptible to hacking, due to the same risks inherent in any online activity.
• Cryptocurrencies are not currently subject to much government regulation, so transactions don’t come with legal protection (unlike traditional investments like stocks).

How to keep your cryptocurrency secure

Taking precautions to keep your crypto investment secure is one of the unique concerns that come with this type of investing. Some tips that may help: 

• Deal only with reputable exchanges and digital wallet providers.
• Protect access with strong passwords, two-factor verification, and secure internet connections. 
• Be vigilant about phishing scams that target crypto users. 
• Don’t share your password or key with anyone.

How to invest in cryptocurrency in 2024

Looking to invest in cryptocurrency? It’s essential to know where to buy and store it. Crypto investing is becoming more accessible every day with a number of exchanges, similar to those used for traditional investments, available. You can set up an account in minutes. But, just like investing in any asset, doing your research on a particular currency prior to investing may be wise. If you’re wondering how to invest in cryptocurrency for the first time, the following five steps can get you started:

1. Choose what cryptocurrency to invest in
2. Select a cryptocurrency exchange
3. Explore storage and digital wallet options
4. Decide how much to invest
5. Manage your investments

Step 1: Choose what cryptocurrency to invest in

In the same way that you’d evaluate the potential risks and financial health of a company before buying its stock, you’ll want to understand and carefully evaluate the different, unique characteristics of each cryptocurrency you’re considering for investment. You may choose to invest in one or several different cryptocurrencies.

Vetting cryptocurrencies can be more difficult because they have become a popular vehicle for fraud, such as pump-and-dump schemes. Those risks might leave you wondering how to invest in cryptocurrency without falling victim to a scam. In order to avoid pump-and-dump schemes, avoid smaller/newer cryptos that are being heavily promoted on social media platforms. It’s critical to analyze the investment risk of a given cryptocurrency and social media experts may not have your best interests in mind. 

Although you may be able to minimize your exposure to fraud and cybersecurity risk by investing through a large, reputable platform, because the whole industry isn’t regulated, it’s impossible to eliminate this risk. For example, in 2022, we learned FTX, which was formerly considered a reputable platform, was being run by bad actors who misappropriated clients’ funds. And on November 2, 2023, its founder, Sam Bankman-Fried was found guilty of fraud and money laundering.

Step 2: Select a cryptocurrency exchange

Cryptocurrency must be bought through an exchange or investment platform, such as Coinbase, Gemini, or Kraken. Some factors you may wish to consider when selecting an exchange are security, fees, the volume of trading, minimum investment requirements, and the types of cryptocurrency available for purchase on a given exchange.

Step 3: Consider storage and digital wallet options

Cryptocurrency is completely digital, which means you should have a digital place to keep your coins safe. One choice is to keep them on the same platform where you’re investing. Nowadays, many new cryptocurrency investors prefer this method. Just make sure you pick a platform that will be responsible for custody and safekeeping of your assets. Such platforms are regulated, have strong protection against hackers and online threats, and carry financial insurance.

If you choose not to hold your cryptocurrency on the more popular platforms, you’ll need a crypto wallet; these hold the private keys that allow you to access your crypto by unlocking the digital identity that is associated with your ownership, recorded on the blockchain. You can opt for either a “hot” or “cold” digital wallet. A hot wallet is accessible via the internet and generally more convenient. A cold wallet is a physical storage device, much like a USB drive, that keeps your cryptocurrency keys completely offline and generally more secure. Holding your cryptocurrency in a wallet provides an extra layer of protection.

Step 4: Decide how much to invest

Just like any investment, the amount you choose to put into crypto will depend on many factors, such as your budget, risk tolerance, and investing strategy. You’ll also want to consider any minimum investment requirements and transaction costs, which vary across crypto exchanges. 

If you want to invest in a cryptocurrency with a high value per coin, most exchanges allow you to invest on a dollar basis, rather than buying a whole coin. This means you don’t need a huge amount of money to invest in something like Bitcoin. Focus on the total amount of money you want to invest, rather than the number of coins you want to buy. And always remember, don’t invest more than you can afford to lose. At Stash, we recommend holding no more than 2% of your overall portfolio in any one crypto in order to limit crypto specific risks.

Step 5: Manage your investments

Cryptocurrency is a unique investment because it can be used to buy things and can also be held as a long-term investment; how you manage your crypto holdings depends on your investing strategy and goals. You may wish to consider applying the Stash Way, a philosophy focused on regular investing, diversification, and investing for the long term.

Related investments to explore

If you’re not quite ready to dive into cryptocurrency, there are some related investments to consider. For example, some Exchange Traded Funds (ETFs) offer “ways to play” in the crypto market, but do not directly hold cryptocurrency or its derivatives. In general, these ETFs hold stock in companies with exposure to or involvement in processes that interact with or support crypto markets by participating in mining or simply by holding large balance-sheet positions in cryptocurrency. These investments allow you to dabble in this emerging landscape without taking the cryptocurrency plunge.

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Cryptocurrency investing FAQ

What do I need to know before buying cryptocurrency?

Cryptocurrency is a risky investment, so approach it with your eyes open to potential pitfalls. Digital currency is volatile, it’s largely unregulated, and there are many unknowns about how this new form of currency will develop in the future. 

What to look for in a cryptocurrency to investment

Every cryptocurrency is different, so the best option depends on your individual circumstances. That said, beginning investors may wish to explore more established currencies, as there is plenty of information about how they work and their performance over time.

How much should I invest in cryptocurrency as a beginner?

Never invest more than you can afford to lose. At Stash, we recommend holding no more than 2% of your overall portfolio in any one crypto in order to limit crypto-specific risks.

The post How to Invest in Cryptocurrency: A Beginner’s Guide appeared first on Stash Learn.