When to Save Your Money vs. When to Invest

When to Save Your Money vs. When to Invest

Stephanie Colestock |Aug 8, 2019

Should You Focus More on Saving or Investing?

At their core, the practices of saving and investing are essentially the same. Both are methods of tucking away funds for your future, ideally after allowing that money to sit and grow in whichever account it’s held.

If you look below the surface, though, you see that there are some very key differences between saving and investing.

What Is Saving?

To save money is to store is somewhere safe, to prevent it from being spent or wasted over time.

There are many intended purposes for your savings. In fact, it’s actually recommended that you have more than one form of savings and even multiple account types.

Savings accounts can be both short-term and long-term. For instance, you might be saving for the down payment on your next new car, which you don’t plan to buy for a couple of years. At the same time, you may also have an emergency fund that is easily accessible, in case something comes up next week, next month or next year.

There are many ways to save your money, too, which don’t fall into the realm of “investing.” The most common is probably your everyday savings account. Offered by brick-and-mortar and online banks alike, savings accounts provide you with a safe place to store funds until they are needed. Plus, by keeping this money out of your checking account, you remove some of the temptation to spend it.

You could also choose savings vehicles such as certificates of deposit (CDs), money market accounts, treasury bills and bonds.

Growth

The level of growth that you’ll recognize from your savings depends on the account type and establishment that you choose.

Typically, you’ll find much higher interest rates offered by online banks than by brick-and-mortar institutions. Some banks will offer both traditional savings accounts and high-yield savings; as you’d probably expect, the latter will result in a higher return. Some may additionally offer money market accounts (MMAs), which typically have rates that compare to — or exceed — those offered by high-yield savings.

If you’re alright with locking your money away for a longer period of time, CDs can be a great option. In exchange for agreeing not to touch your money for a specified timeframe, banks will give you an even higher return on the funds.

While CDs are usually your best bet for maximizing interest earned, there is one important thing to remember: the liquidity of your funds.

Liquidity

Savings accounts are excellent for funds that you may need to pull from at a moment’s notice. If your car breaks down unexpectedly tomorrow, you’ll want to be able to access the cash required for a repair; being able to immediately withdraw from savings is important.

This makes savings accounts and MMAs the right choice for your liquid funds — or easily accessible savings that can be quickly converted to cash.

What Is Investing?

By definition, investing is the practice of saving in growth-optimized vehicles with the expectation of growth from your savings. Essentially, you expect that money to be profitable (or generate an income) over time.

Investments can be anything from stocks and bonds to mutual funds, index funds, ETFs, options, cryptocurrency and more. You can also invest in tangible items, such as real estate or gold.

You can utilize investments as a way of saving for the future (such as retirement or education savings) or generate a profit to increase cash flow.

Growth

On average, investments will see greater growth than your typical savings vehicles. The actual level of growth, however, depends on many factors: the economy, time, the nature of the investment and even your risk tolerance.

There is a direct correlation between risk and growth: the higher the risk you’re willing to take on with your investments, the higher the return is, typically. For instance, bonds and mutual funds are safer bets and usually offer modest returns, while playing the stock market has the potential to skyrocket your growth. Of course, you also run the risk of losing it all.

Compound interest will play a large role in the growth of your investment(s). The longer you hold your investment, the more it will grow exponentially.

Saving vs. Investing: What’s the Difference?

As you can see, savings and investments are very similar in many ways. The key difference, however, lies in the point of each.

Savings are funds earmarked for specific purposes down the line or as a safety net. To maximize these, you should choose savings vehicles that result in a modest return while still ensuring liquidity of your funds.

Investments, on the other hand, are intended to generate income. Yes, they are “savings” by virtue of definition. However, their purpose is to grow exponentially over time.

The other key difference between the two is regarding risk.

Savings typically involve little or no risk to the safety of your funds. Your bank is likely FDIC insured, and regardless of what happens to the economy and/or stock market, you will never watch your account balance decrease. (Unless, of course, you withdraw funds or incur fees.) Your funds are guaranteed, plus whatever interest the account balance can generate.

Investments involve their fair share of risk, though. Certain products are less risky than others, but there is a direct correlation between the returns you’ll see from your investments and the danger involved.

In other words, the higher the risk, the greater the chance of reward when it comes to investing. Your returns are never guaranteed and, in fact, you could very well lose your investment thanks to shifts in the stock market.

Lastly, there is a notable difference in liquidity between the two. If you need your funds to be accessible in case of emergency, savings vehicles are your best bet. This will ensure quick access to cash when you need it most.

Your Saving and Investing Timeline

So, which financial goal should you choose to focus your efforts on, between saving and investing? For many households, doing both can feel like too much of a strain on the monthly cash flow, so one has to take precedence… right?

The truth is that saving and investing are both incredibly important. Without adequate savings, you could wind up in a bind if sudden expenses pop up, or find yourself unable to reach certain goals down the line (such as making a down payment on a home).

On the flip side, the key to successful investing really lies largely in compound interest. The earlier you start investing, the more your money will grow over time. This is true even if you “catch up” and contribute the same amount to the account later on.

But if your financial situation simply won’t allow you to focus on both investing and saving right now, there are some times where one is more important than the other.

As mentioned above, one of the most important factors in the investment game is time. Without time, you can’t allow compound interest to do its work with your money… which means losing out on growth (read: free cash) in the long run. Let’s look at an example.

In the first scenario, you begin saving at age 25. You make an initial deposit of $5,000 into an investment account, which has an average annual return of 8%. You then continue adding $200 a month into this account for the next 30 years, until you retire at age 55.

When retirement rolls around, you will have contributed a total of $77,000 into that account, spread out over 30 years. However, with an annual growth of 8%, you will have approximately $322,193 waiting for you… all thanks to compound interest and time.

However, let’s say that you decide to put off investing for a few years. You start at 35 (instead of 25) and save $300 a month (instead of $200), still planning to retire at 55.

While playing catch-up is still better than not investing, you’ll be losing quite a bit in the process:

In the end, you will have contributed the same amount ($77,000) and retire at the same time. However, your money won’t have had as long to compound and grow, resulting in a total balance of only $188,048. That’s $134,145 lost!

Setting Your Priorities

If possible, work toward both your savings and investment goals at the same time. Even if you can’t dedicate as much to either as you’d like, the power of compound interest is important for your money’s growth.

The ratio of savings to investments is up to you and dependent on your needs at any given time. If you don’t have a comfortable nest egg saved, you may want to focus on savings for a while and let investing take the back seat.

If your savings accounts are sitting pretty and you aren’t worried about unexpected expenses, you can focus on investing instead. Once a year, take some time to reevaluate your situation and adjust contributions as needed.

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Everything You Need to Know About Filing Your Own Taxes

Katie Macomb | August 8, 2019

It's Not Fun, but It Has to be Done Benjamin Franklin wrote a 1789 letter that states, “But in this world nothing can be said to be certain, except death and taxes.” Even at the United States’ early beginnings, federal taxes were a necessary evil to fund various public projects and administrative costs. Today, federal taxes serve much of the same purpose. While virtually no one likes to prepare and file their taxes, it is a necessity if you want to avoid fines and further hassle. It is no secret that preparing and filing your taxes is notoriously complicated. Many people lament that it should not be so difficult to pay the government. However, some of the complications allow people to save money if they discover specific tax benefits. Knowing how to file your own taxes may be a good option if your tax situation is relatively straightforward, or if you are willing to learn the process. Why Do You Need to File Your Taxes Every Year? The short answer is that federal law requires that most individuals file taxes annually. Income taxes are assessed every year based on your income earned during that period. You then pay a percentage of that income to the government, less any deductions, adjustments, or credits that you qualify to receive. If you do not file (and pay) your taxes, then you may be assessed penalties and interest. The Internal Revenue Service (IRS) can even go as far as garnishing your wages and repossessing your property if you do not file and pay as required. The Benefits of Filing Your Own Taxes If you are one of the 43% of Americans that are doing your own taxes, you are certainly not alone. Roughly 53 million people prepared and filed their own taxes in 2018. There are many benefits to filing your own taxes, including: Saving money: Hiring a tax professional is expensive, and many people can prepare and file their returns on their own, completely free of charge. Control: Some people like knowing the exact information that is included in their return and being able to control the data, and for some, knowing precisely how the numbers work out, is comforting. Gain helpful information: When you prepare your taxes, you can see what items saved you money this year or which issues you should address so you can save money next year. While filing your own taxes is complicated, it can be beneficial under the right circumstances. There are several programs online that walk you through the process to help ensure you are taking advantage of all of your available deductions and credits. The Drawbacks of Filing Your Own Taxes In addition to the benefits, there are also some disadvantages to filing your own taxes. These include: Time and effort: Preparing and filing your taxes takes time and work You have to sift through financial information and deal with concepts that you may not understand well. The process can be frustrating and take a considerable amount of time. Error risk: If you do not completely understand how your taxes work, you run the risk of making a mistake because of misconceptions. If that happens, it could lead to underpayment and audits down the road. Questions: Even if you use a tax preparation software, you may still have questions that will remain unanswered unless you do significant research or reach out to a tax professional. For some people, the risk of having a substantial error that triggers the IRS’s attention is enough to scare them away from preparing their own taxes. Preparing for Filing Your Taxes When you begin work on your taxes, you should have information gathered throughout the year. Some of the most common items that you will need include: Social Security numbers for you, your spouse, and any dependents Information about wages, such as W2s or 1099s Investment income information Documents that represent any other source of income Information regarding adjustments to income, such as student loan interest paid, IRA contributions, and health savings account contributions, just to name a few Information regarding potential credits, including, for example, child care expenses, education expenses, or retirement savings contributions Data about any tax payments that you may have made throughout the year Keeping good records will help make tax preparation easier at the beginning of the year. [youmaylike] The Basics About What You Can Claim When Filing You must pay income taxes on all your income earned throughout the year. However, that income is reduced by a few things. The further you can reduce your taxable income, the less you tax you will pay. There are three general categories of tax reduction methods: Standard or Itemized Deductions Everyone can claim either the standard or itemized deductions. Standard deductions are a set amount that is based on your filing status. Itemized deductions are based on actual expenses that you incurred throughout the year. You can choose to use the higher deduction. The higher the deduction, the less tax you will have to pay on your income because your income decreases on paper. Itemized deductions include things like medical expenses, state and local tax payments, and home mortgage interest deductions. Itemized deductions will only decrease your income by a certain percentage, or up to a specific point. Adjustments Some adjustments to your income may also be available. These include things like paying student loan interest or alimony. Adjustments are more valuable compared to deductions because they decrease your income dollar for dollar. Credits A credit decreases your taxable income as well. Some credits are refundable while others are not. For example, you get a child tax credit simply for having children that qualify for that credit, but that credit will not be paid out to you if you do not have any tax obligations. On the other hand, the Earned Income Credit, which is available for low-income filers, will be refunded to you even if you do not owe any taxes. There are a wide variety of deductions and credits available. Take a look at the federal forms and related schedules to determine whether you might qualify for any of these. How to File Your Own Taxes If You Live Overseas If you earned income in the United States as a U.S. citizen or resident alien, you likely need to pay taxes on that income. This is true even if you live overseas. You can still choose to e-file or mail your tax return to the IRS once you have it prepared, just as if you physically lived in the United States. In some cases, you will be taxed on the income that you earned throughout the world. However, you may be able to deduct a portion or all of the revenue that was not made in the United States in some circumstances. Filing Online The IRS offers an online filing option that is free for individuals that have an adjusted gross income below a specific threshold. Generally, your income must be below $66,000 to qualify for this service. You can also file online by using a commercial tax preparation software. Examples of this type of software include: H&R Block TurboTax TaxCut TaxSlayer There are many programs available that will file your taxes for you, often for a fee. Knowing how to file your own taxes can be a great way to save money, but it can be tricky as well. If you want to file your taxes yourself, be sure to read the form instructions thoroughly and get familiar with various tax saving opportunities before you begin preparing your return.

5 of the Best Investment Apps for Beginners

Stephanie Colestock | August 8, 2019

Make Investing Simple Whether you’re putting away your first $1,000 or have been saving for the future for years, you’re going to want to consider investing your funds at some point. Doing so will allow you to maximize returns and exponentially grow your savings. Unfortunately, the investment process can be pretty intimidating, especially if you are starting out on your own. It’s hard to know how to begin, where to invest, how to balance your portfolio and even what sort of fees you should expect to pay along the way. That’s where the convenience and ease of today’s best investment apps can come into play. What Are Investment Apps? Once upon a time, your only choice for investing was to pick up the phone and call your stock broker to initiate a trade. You were charged for the service, either based on commission or as a flat fee per transaction. While stock brokers are still an option, you can take investing into your own hands these days, without ever needing to talk to another human. And it’s all thanks to investment apps and platforms. Today’s apps offer a range of services and features. With them, users can: Research funds and individual stocks View fees and expenses related to investment choices Invest funds on-the-go, and even automate regular contributions Automatically reinvest earnings on current investments Adjust portfolio for personal risk tolerance View performance projections Choose funds or individual stocks that align with personal beliefs, through portfolios based on socially-responsible missions The best part? Investing through trusted apps is usually cheaper, faster and you’ll have instant access to your portfolio/reports at any time of day. Not only that, but you’ll also be able to set your investment risk tolerance, rebalance your portfolio and even reinvest earnings automatically. Who Are Investment Apps Designed For? Whether you’ve been playing the market for ages or are ready to invest your first $100, the right investment app is worth considering. For those new to the stock market, apps will simplify the process and put the power of investing at your fingertips… literally. From your phone or computer, you can easily see portfolio recommendations based on your own goals, savings plans and even risk tolerances. The right app will tell you up front how much you can expect to spend in fees throughout the year, and can even allow you to automate many of the more confusing aspects, such as picking well-performing stocks or even rebalancing. While investment apps are ideal for beginners, newbies aren’t the only ones who will see the benefits. Even seasoned investors will find the process easy to use, and may even learn that these platforms can maximize returns (and save them money in fees) along the way. Not to mention, many investment apps offer additional insight into specific funds, so you can choose to invest in companies that align with your own passions and beliefs. Now that you know why you should consider using an investment app for your own savings, let’s take a look at some of the best ones available today. Best Investment Apps Great for Beginners: Acorns Fees and Expenses: For investors with less than $1 million invested, fees are between $1-3 per month depending on the account option you choose. Acorns is also free for college students. Beginning Investment Requirement: At least $5 to start Types of Investments Available: ETFs (exchange-traded funds) Portfolio Options: Conservative, Moderately Conservative, Moderate, Moderately Aggressive, Aggressive Automatic Investing?: Yes Automatic Reinvesting?: Yes Automatic Rebalancing?: Yes If you want an easy, hands-off approach to investing that won’t leave your head spinning, Acorns is a great first choice. This app not only simplifies investing for beginners, but allows investors to completely automate the process from start to finish. After connecting the app to your debit card, the app will “round up” each of your daily purchases, putting the savings into an investment holding account. Once you reach the minimum required, Acorns will invest this money on your behalf, based on your account preferences. The app will also reinvest your earnings, as well as rebalance your portfolio when necessary. [youmaylike] Great for Truly Free Investing: Robinhood Fees and Expenses: Robinhood is a free investment platform in every sense of the word, pledging to never charge company fees or commissions to customers. Beginning Investment Requirement: You’ll need $2,000 to get started Types of Investments Available: ETFs, stocks, cryptocurrency and options Portfolio Options: Interest-based options such as Fashion ETF, Tech ETF and Energy ETF, as well as a standard S&P 500 ETF, all with personal risk tolerance settings. You’ll also find “collections,” which are individual stocks grouped according to specific interests — such as companies with female CEOs or that are in the social media sector. Automatic Investing?: No Automatic Reinvesting?: No Automatic Rebalancing?: Yes A great option for beginners and experienced investors alike, Robinhood makes the process both easy and affordable. How affordable? Well, it’s entirely free. By offering a truly free experience, Robinhood saves investors some serious cash over time. Additionally, the platform makes it easy to choose individual stocks or ETFs based on personal interests. If you want to invest in cryptocurrency or options, you can also do so through Robinhood. One of the biggest limitations of the platform, though, is its automation. While you can set up automatic deposits into your account, you will need to manually invest those funds and then reinvest (or withdraw) your dividends. Stash Fees and Expenses: $1 per month fee for those with less than $5,000 invested, or $2 per month for retirement accounts with less than $5,000. For users under 25, fees on retirement accounts are waived. If you have more than $5,000 invested, your fee will be 0.25% annually. Beginning Investment Requirement: You’ll need at least $5 to begin investing (fractional shares are available) Types of Investments Available: ETFs (exchange-traded funds) and fractional stock shares Portfolio Options: Too many to name, ranging from things you Want (portfolios that are conservative to aggressive mixes), things you Believe (such as groups of companies that believe in clean energy, LGBT rights, etc.), and things you Like (tech, retail and social media companies). Automatic Investing?: Yes Automatic Reinvesting?: No Automatic Rebalancing?: No The closest competitor to Acorns, Stash seeks to make investing easy for everyone, regardless of your goals and passions. They have three account options to choose from, allowing you to manage your investment and retirement accounts, or even a child’s education savings through custodial accounts. With Auto-Stash, you can set any number of automatic investment options and transfers. However, Stash will not rebalance your portfolio for you, nor will they reinvest dividends on your behalf. Wealthfront Fees and Expenses: 0.25% annually Beginning Investment Requirement: $500 minimum initial investment Types of Investments Available: ETFs (exchange-traded funds), individual stocks, retirement accounts (401k, IRA), 529 savings plans, trusts Portfolio Options: 11 asset classes to choose from, including natural resources and real estate Automatic Investing?: Yes Automatic Reinvesting?: Yes Automatic Rebalancing?: Yes Wealthfront’s investment platform is designed to be friendly for users of all experience levels. If you’re a seasoned investor, you’ll enjoy all of the options available to you, including the ability to manage your retirement accounts, education savings, and even non-profits or trusts. If you’re a newbie, their free financial expertise center is the perfect place to learn all about investing and your future. TD Ameritrade Fees and Expenses: The managed, automatic portfolio investment option (called Essential Portfolios) is available with a 0.30% advisory fee Beginning Investment Requirement: $5,000 minimum for managed portfolios (no minimum requirement for traditional trading) Types of Investments Available: Stocks, ETFs, options, mutual funds, futures, bonds/CDs, Forex, cryptocurrency Portfolio Options: Essential Portfolios (EP) offer investors a range of options from Conservative to Aggressive, based on your individual passions, preferences and tolerances Automatic Investing?: Yes, with EP Automatic Reinvesting?: Yes Automatic Rebalancing?: Yes A more traditional brokerage app, TD Ameritrade is one of the most recognizable names in the industry. You can easily educate yourself on all things financial, thanks to their free videos and posts. If you want a traditional experience, you can choose your trades and pay per transaction. Prefer a more streamlined, automated approach? Opt for their Essential Portfolios, a hands-off investment option (robo-advisor) that charges a flat monthly fee and requires little-to-no oversight from you. Plus, their app makes the investing process easier than ever with a user-friendly interface, price alerts and no minimum to get started. If you prefer a desktop experience, this is also available to you through TD Ameritrade. Bottom Line Getting started with investing can be intimidating. With all of the terminology and account options out there, it’s easy to want to run and hide. Thanks to some of today’s best investment apps, though, you can not only get started with your first portfolio but also watch your money quickly grow… no matter how much of a beginner you may be! It’s important to choose an app that offers you the portfolio options and features you want most, with fees and deposit minimums that match your financial needs. The five apps above are our favorites for beginners, making that first foray into investing easier than ever before. The hardest part will be choosing the one you love most!

5 of the Best Auto Insurance Companies

Eric Bank | August 8, 2019

Protect Against Collisions and More If you drive a car in the United States, liability insurance must cover it. This type of policy pays for medical and property damage resulting from a vehicular accident. You can also purchase comprehensive and collision insurance to cover other costs. These additional coverages help protect the value of your car should it be damaged. If you are calculating how much it will cost to buy a car, you need to take into consideration the cost of insurance as well. In this article, we’ll review the basics of car insurance and the best auto insurance companies in America, including costs, pros and cons. This is a brief introduction to automobile coverage. Liability Coverage When an accident occurs, liability insurance covers you, household members and authorized drivers for the costs associated with property damage and bodily injury. It covers the cost to repair or replace property damage that you caused. You are also covered if you cause the bodily harm or death of someone else while you are driving the car. This includes medical expenses, loss of income and specified legal defense costs. Collision Insurance If you are involved in a collision, this type of insurance will help pay for repairing or replacing your vehicle. If the collision is your fault, the coverage may extend to other damaged vehicles involved in the accident. States do not mandate that you buy collision insurance, but your lender or car dealer will if you finance or lease the car. Policies offer a range of deductibles, which is how much you’ll have to pay for repairs before the insurance kicks in. Larger deductibles lower the policy premiums but expose you to more out-of-pocket expenses if a collision occurs. Comprehensive Insurance Comprehensive insurance covers damage to your car that occurs for reasons other than a collision, including theft, fire, vandalism, weather and natural disasters. This coverage is often required if you finance your automobile. You can add riders to this insurance to provide coverage of additional costs, including auto towing, glass repair, daily rental while your car is in the shop and emergency roadside service. As with collision insurance, you can set the deductible on your comprehensive insurance policy to cut your premium costs. Gap Insurance If your car is severely damaged in an accident or other incident, you might find that your comprehensive and collision damage won’t provide enough coverage to pay off the amount you owe on the vehicle. Many policies pay only the fair market value of a totaled car, which might be only 80% of the amount you owe. You can buy additional insurance to plug this gap and ensure you can pay off the car loan in full if the vehicle is destroyed or stolen. Normally, car leases require you to buy gap insurance. If you pay cash or pay off your loan, you can save money by avoiding or dropping gap insurance when no longer needed. Top Five Auto Insurers These five insurers all offer full coverage policies and many additional services. Amica Amica is a superstar among car insurers, winning accolades from Consumer Reports and J.D. Powers. It’s known for handling the claims process smoothly. Average annual cost for full coverage: $1,360. Pros You can have your car repaired at any body shop, without restrictions. Offers a premium package which, for additional cost, provides full glass coverage, rental coverage, good driving rewards and identity fraud monitoring. Superior financial stability rating from A.M. Best. Cons Missing some discounts, such as military, low-mileage and prepay discounts. Must speak on phone to get a quote. Sparse website when it comes to customer education. [youmaylike] State Farm State Farm is the country’s largest multi-line insurance company. It excels in customer service and regularly garners high marks from customers. Average annual cost for full coverage: $1,337. Pros Superior financial stability rating from A.M. Best. Excellent online quote tool, getting customers a quote in as little as five minutes. Easy claim handling and top service from its more than 18,000 agents and its easy-to-use mobile app. Cons Doesn’t offer coverage for new car replacement or uninsured motorists. Missing prepayment and automatic payment discounts. The Hartford While only 11th in size, the Hartford is big when it comes to policy options. It offers rates based on your actual driving as well as full-replacement of new cars when destroyed shortly after purchase. Average annual cost for full coverage: N/A. Pros Solid benefits, including superior roadside assistance and towing programs. High marks from customers for their purchase experiences. One of the few insurers with mechanical breakdown coverage for out-of-warranty repairs. Cons Mediocre service interaction according to J.D. Power surveys. Sparse online learning materials. Geico Geico is the second-largest U.S. car insurer. It is a favorite among tech-savvy geeks who appreciate the insurer’s mobile app and excellent online service. Average annual cost for full coverage: $1,627. Pros Geico offers plenty of ways to save, such as multi-vehicle, driving history and vehicle safety equipment discounts. Special savings for active and retired military members and federal employees. Full-featured mobile app for getting quotes, buying insurance, managing your policy, submitting claims, summoning roadside assistance and making payments. Cons Human help may be in short supply, as just about everything is handled online. No gap insurance offered. USAA No insurer matches USAA for service to military members. Unfortunately, it's only available to active service members, their families and retired veterans. Average annual cost for full coverage: $896. Pros Superior financial stability rating from A.M. Best. Top-ranked purchase experience score from J.D. Power. Cons Missing gap coverage. Doesn’t offer interior vehicle coverage or new car replacement coverage. Limited availability. The Right One for You Competition in the insurance industry helps drive down prices and prompts insurers to offer money-saving features. For example, your carrier might reward you for a safe driving record and for having a long-term relationship with the insurer. The right insurer for you is one that is highly rated for service, offers the exact coverage you want and does so at an unbeatable price. You should always gather multiple quotes before selecting an insurer, and make sure you get credit for all applicable discounts.

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