These Dividend Etfs Can Be Game
Retirees love dividend stocks because they produce cash flow, but yield isn’t the only thing you have to consider. It’s also important to understand the quality, risk, and growth potential of the stocks in your allocation. There are a few different valid approaches, depending on your investment needs and risk tolerance. No matter what you prioritize, there’s a great dividend ETF for that niche.
Avoid Choosing Funds With High Fees
It costs money to run a 401 plan. The fees generally come out of your investment returns. Consider the following example posted by the Department of Labor.
Say you start with a 401 balance of $25,000 that generates a 7% average annual return over the next 35 years. If you pay 0.5% in annual fees and expenses, your account will grow to $227,000. However, increase the fees and expenses to 1.5%, and you’ll end up with only $163,000effectively handing over an additional $64,000 to pay administrators and investment companies.
You can’t avoid all of the fees and costs associated with your 401 plan. They are determined by the deal your employer made with the financial services company that manages the plan. The Department of Labor has rules that require workers to be given information on fees and charges to make informed investment decisions.
The business of running your 401 generates two sets of billsplan expenses, which you cannot avoid, and fund fees, which hinge on the investments you choose. The former pays for the administrative work of tending to the retirement plan itself, including keeping track of contributions and participants. The latter includes everything from trading commissions to paying portfolio managers’ salaries to pull the levers and make decisions.
Money Market Mutual Funds
These mutual funds own safe securities such as cash and very short-term debt, making them generally safer than either stock- or bond-based mutual funds but also lower-return. That said, unlike FDIC-backed money market accounts at a bank, money market mutual funds can lose principal, meaning its possible, though not likely, that you wont get your whole investment back.
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A Key To Smart Retirement Saving: Spreading Your Portfolio Across A Few Of The Best Mutual Funds In Your 401 Plan Here Are The 30 Top Options Available As We Enter 2022
But it doesn’t have to be.
Every year, with the help of financial data firm BrightScope, a financial data firm that rates workplace retirement savings plans, we analyze the 100 mutual funds with the most assets in 401 and other defined-contribution plans, and rate them Buy, Hold or Sell. Our goal: to guide you toward the best mutual funds likely to be available in your workplace plan.
In the end, a cool 30 funds, which we’ll describe in detail below, won our seal of approval. But you’ll want to pay attention to the fine print. Some funds are appropriate for aggressive investors others are geared for moderate savers.
We’ll also point out that we didn’t weigh in on index funds. That’s because choosing a good index fund always rests on three simple questions: 1.) Which index do you want to emulate? 2.) How well has the fund done in matching that index? 3.) How much does the fund charge? Generally speaking, however, we have no issues with any of the index funds listed in the top 100.
Assessing actively managed mutual funds is a different beast. We look at each fund’s long-term returns and year-by-year performance, as well as its volatility and how it fares in difficult markets. We also consider manager tenure, fees and other factors.
1 of 30
- Rank among the top 401 funds: #97
- Best for: Value-oriented stock exposure
Consider yourself lucky.
The fund currently yields 1.6%.
DODIX yields 1.4%.
Vanguard High Dividend Yield Index Fund Admiral Shares
The Vanguard High Dividend Yield Index Fund has proven itself to be not only a reliable income generator, but a long-term growth engine. One of the great benefits of holding high-dividend investments in tax-deferred accounts is that each dividend payment is shielded from tax when it is paid. If a high-dividend fund is held in a taxable account, any time the fund distributes cash, you’ll need to add that amount to your taxable income for the year. In other words, this one checks all of the boxes for an ideal retirement fund — high income distribution, low expenses, and a robust portfolio of large-cap companies.
Many of Vanguard’s Admiral Shares are reserved for wealthier investors who are able to meet lofty investment minimums — typically $50,000. With this particular fund, the lower-cost shares are closed to new investors, while the Admiral Shares are now accessible with a minimum investment of only $3,000.
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Fidelity Series High Income Fund
For those investors looking to tax-optimize their overall asset allocation, it’s generally preferable to hold income-producing funds in your tax-deferred accounts. In the course of placing the right funds in the right accounts, you’ll most likely end up with your taxable bond funds in your 401 or traditional IRA. The Fidelity Series High Income Fund provides a high level of current income at low expense, and can act as a more aggressive income play as part of a broader bond allocation. It’s not recommended to invest in high-yield bond funds as a primary holding, but they can play a part for an investor with tax-advantaged space seeking higher income.
The fund yields roughly 5% to 6% and offers a zero expense ratio, but also employs debt instruments with higher risk than investment grade corporate bonds. This means that several underlying bonds are at risk of default, which is the price you’ll pay for higher cash payouts. Managed carefully, this fund can have a place in any well-diversified retirement portfolio, but it’s important to ensure you hold some share of safer bonds to reduce the risk to your total portfolio.
Investing In Your 401
The variety of investments available in your 401 will depend on who your plan provider is and the choices your plan sponsor makes. Getting to know the different types of investments will help you create a portfolio that best suits your long-term financial needs.
Among the most importantand perhaps intimidatingdecisions you must make when you participate in a 401 plan is how to invest the money you’re contributing to your account. The investment portfolio you choose determines the rate at which your account has the potential to grow, and the income that you’ll be able to withdraw after you retire.
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Vanguard Dividend Growth Fund
While the previous fund focuses on high-yield companies with strong balance sheets, this fund is concentrated with companies that have demonstrated the “ability and commitment” to grow their dividends over time. Vanguard Dividend Growth Fund is sensible for 401 investors with a long-term investment plan. Any income derived from portfolio companies is received in a tax-deferred manner — this treatment won’t change even as dividend payouts increase over time.
Generally speaking, the companies that have the ability and willingness to continuously pay out increasing amounts of cash to their shareholders are also those that tend to be financially healthy. The top three holdings of this fund — McDonald’s, UnitedHealthcare Group, and Coca-Cola— are well suited not only to increasing their dividends, but also experiencing significant share price appreciation over time. As far as 401 funds go, Vanguard’s Dividend Growth Fund stands out as an unusually efficient, convenient, and practical choice.
Personal Capital Best For Professional Management Or Self
Personal Capital doesnt actually manage your 401. But the service does offer a wealth of tools that help you better manage your plan. Whats more, the 401 management tools are available free of charge.
Personal Capital comes with two plans. The free plan provides budgeting as well as an entire portfolio of investment management tools. The wealth management plan is the paid version, that provides direct management of taxable accounts and IRAs. But for 401 purposes, you can take full advantage of the free version.
The free version offers the following tools:
- Retirement Planner. This tool helps you determine if you are on target with your retirement plan.
- 401 Fee Analizer. Much like blooom, this tool analyzes your investment funds, and tells you exactly how much youre paying for each. You can then make adjustments in your portfolio to minimize your investment fees.
- Asset Allocation Target. This tool analyzes your asset allocation, and determines if you are either overweight or underweight in any of the major asset categories. It will help you to achieve better balance in your retirement portfolio.
Reasons to use Personal Capital
The main reason to not go with Personal Capital
Personal Capital is not a comprehensive 401 plan investment management system. Its more of an assistant in helping you to manage your own plan.
Who is Personal Capital best for?
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The Allocator’s Edge: A Modern Guide To Alternative Investments And The Future Of Diversification By Phil Huber
Im not at all convinced that most investors need alternative investments. Perhaps a small exposure to REITs will suffice the vast majority of us. I am, however, always interested in other perspectives, and The Allocators Edge gives us that in spades.
Phil Huber walks through his case for the need of alternatives, resting in large part on his view that the 60/40 portfolio is dead. He then covers a wide spectrum of alternatives ranging from insurance-linked assets to private equity to digital assets. He also provides suggested portfolios, and he even describes his own investment strategy into alternatives.
In the end Ive not bought into the need for alternatives, but I continue to research the subject with an open mind. The Allocators Edge was a good resource to explore this area of investing.
Work With An Investment Professional
Theres a reason why most millionaires we talked to for the National Study of Millionaires said they worked with a financial advisor or investment professional to achieve their net worth.
A good investment professional can do two very important things. First, they can help you pick and choose what mutual funds to include in your retirement portfolio. Be clear about your goals up front so that you and your pro are on the same page before you make any decisions!
And second, they can help you sort through all the lingo and jargon of the investing world. If we’ve said it once, we’ve said it a hundred times: Never invest in anything you dont understand. No one cares about your future as much as you do, so its in your best interest to take charge of your own mutual fund education.
Remember to take your time and interview several SmartVestor Pros before you make the decision. Hiring the right financial advisor can make all the difference!
What if you know a lot about investing, and enjoy researching your options on your own? Do you still need an advisor? Yes! Think of your advisor as a coach, but youre the owner. Ultimately, youre the one who calls the shots in the end.
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How To Invest In Mutual Funds
10 Minute Read | December 22, 2021
If youve been following us for any amount of time, you know we’re always talking about investing in mutual funds to save for retirement.
Theres a lot to love about them! But maybe after researching mutual funds on your own, youre a little overwhelmed by all the details and feeling lost in the lingo. Front-loaded, end-loaded, over-loaded . . . its no wonder you feel confused! How are you supposed to build a solid nest egg if you cant make sense of your options?
Listen, the best place to go for a complete explanation of your investing options is a financial advisor or investment professional. But while your advisor can give you some good advice, youre ultimately the one who calls the shots when it comes to your retirement and understanding what youre investing in. Its time for you to take charge!
What Can You Trade With T Rowe Price
Wealth management and mutual funds are T. Rowe Prices main focus. That being the case, the brokerage offers an abundant selection of no-transaction-fee mutual funds and ETFs.
Customers also have the ability to trade bonds, including corporate and municipal bonds. Even though T. Rowe Price users can trade stocks, options, and ETFs, there are no futures, Forex, or crypto trading offers.
You can also trade foreign stock, but only if you have an available equivalent on US OTC exchanges. T. Rowe Prices retirement funds are its most popular brokerage account type, and where theyll excel.
With T Rowe Price, you can trade:
- Bonds
- ETFs
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How Do You Make Money From Mutual Funds
When mutual funds increase in value, the profit is shared with the investors. That distribution can then be reinvested to buy more shares of the stock. Those shares make more profit, which can be reinvested and on and on. Everybody wins!
We want you to hear us loud and clearthe most important factor in making money from mutual funds is investing consistently for a long period of time. Thats right, how long you keep your money invested is even more important than what funds you choose to invest in!
Will there be ups and downs investing in the stock market? Of course! But historically, most people make money in the long run if theyre patient. Just look at the S& P 500, for example. The S& P 500 tracks the performance of stocks from the 500 largest, most stable companies in the U.S., and it has an average annual return between 1112% from 1928 to 2020.1
Thats why you want to use a buy-and-hold strategy when investing in mutual funds. Dont try to time the market by buying and selling based on trends. Choose investments with a long history of above-average returns, and stick with them for the long haul. Remember, saving for retirement is a marathonnot a sprint!
Advanced Order Routing Not Available
Advanced order routing is not available for users at T. Rowe. BNY Mellon-owned Pershing LLC is used to carry the accounts, but there is a problem. Pershing LLC receives payments for order flow of options and stock orders.
In other words, all kinds of institutional traders can pay to have Pershing LLC send all orders straight to THEM. What does this mean? Pershing should present you with the optimal price available, but they also profit from institutional investors who pay to have the orders sent their way. There is a significant conflict of interest here which may damage your trades.
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Futurepath Retirement Planning Simulator
FuturePath planning simulator is a sophisticated and highly-customizable, yet user-friendly piece of software. FuturePath has all the basic inputs like salary, desired retirement age, current savings, and contributions.
It then runs a thousand market simulations to estimate the probability of you achieving your financial objectives. The special property of FuturePath is that users can input important plan-changing events, like selling or buying a house, into the calculation.
Also, you can add all sorts of major expenses that could happen in the future. This feature sets FuturePath apart from similar retirement calculators.
The 10 Best Mutual Funds For Your 401k
A 401k can be a wonderful saving plan … if you focus on the best mutual funds
If youre like many Americans, retirement is arguably the biggest expense youre saving for. To that end, theres a good chance that your biggest pool of assets is your 401k account at work.
According to industry group Investment Company Institute, at the end of 2019 there are more than 55 million Americans actively participating in their 401k accounts. Moreover, they have just over $5.7 trillion dollars in those accounts, and its easy to see why. For most people, 401ks do provide plenty of benefits. From tax-deferred savings to employer matching, the accounts can be a real cornerstone to meeting retirement goals.
The problem is that many 401k accounts are plagued with lousy mutual funds. Thanks to loose fiduciary standards, many plan providers arent doing their part to help investors find the best mutual funds for their portfolios. Truth be told, the average 401k plan is a minefield.
But luckily, here at InvestorPlace, we care about your returns and reaching your retirement goals. To that end, weve combed through the hundreds of portfolio options to bring you the best mutual funds to buy in your 401k.
These 10 funds appear in plenty of plans and represent some of the best mutual funds to buy for long-term savings.
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Options For Picking A 401 Investment Menu
- 401 Investments
- Options for Picking a 401 Investment Menu
Believe it or not, ERISA imposes few fiduciary responsibilities on business owners when selecting investments for their 401 plan. They boil down to picking and maintaining – enough prudent investments to allow plan participants to diversify their account so as to minimize the risk of large losses. Prudent 401 investments are simply funds that meet their investment objective for reasonable fees.
The problem? Most 401 providers have little if any incentive to help business owners to pick prudent investments. In fact, the opposite is true. They can grow their profits by steering business owners towards imprudent investments with excessive fees and/or inferior returns in short, give conflicted investment advice. The worst part? Its perfectly legal for them to do so.
If youre a business owner, we want to help you avoid this trap. we have two recommendations for making prudent 401 investment selection a snap – 1) model your investment menu after the Federal Thrift Savings Plan, or 2) hire a fiduciary-grade financial advisor for professional investment advice.
