Is Suze Orman a fan of bond funds?
Given the enormous increases in the US stock market over the past year, you may be taking too much risk if you have kept your retirement savings undisturbed for the past year.
That’s because the stock market in the United States has been on a tear. It is currently up more than 20% in 2021 as I write this. An index of all U.S. equities has doubled in value from the bear market low in March of last year. Yes, you read it correctly: US stocks are gained more than 100% in the last year.
That’s fantastic news. However, it’s likely that you’ll need to rebalance your stock and bond portfolio.
For long-term goals like retirement, I believe in buy-and-hold investing. But that doesn’t imply you can overlook your retirement accounts entirely.
It’s critical to review your investments on a regular basis to ensure that your intended mix of stock and bond funds is still in place.
Let’s imagine your asset allocation approach is to put 65 percent of your money in equities and 35 percent in bonds. If you haven’t looked at your whole asset allocation recently, your stock investments are likely to have grown to be much more than 65 percent of your overall allocation.
Due to the large increase in your stock funds, you will most likely need to sell some shares of your stock funds or ETFs and reinvest the proceeds in bond funds to get your mix back to where you want it.
When you trade fund shares to rebalance your investments in a corporate retirement plan or your own IRA, there is no tax bill (selling shares of one fund and reinvesting in another fund.) Even if you immediately reinvest the money in other funds, any shares sold at a profit in a standard taxable account will be subject to capital gains tax.
I understand that selling shares of ETFs that are performing well might be difficult. It’s human nature to prefer to be associated with winners. But keep in mind that you aren’t selling all of your stock. Just enough to rebalance your asset allocation mix.
Rebalancing is the process of buying low and selling high, which is one of the keys to successful investing. You’re currently selling some of your stock shares that have appreciated significantly over the last year and reinvesting the proceeds in short- to intermediate-term bond funds. (When equities fall, bonds do well.) As a result, they’re useful as a bulwark in bear markets. However, I do not propose bond funds or exchange-traded funds (ETFs) with a tenure of more than five years. Longer-term bond funds are currently excessively risky.)
Checking your asset allocation mix on a regular basisat least once a yearto determine if you need to rebalance is one way to keep your risk at a manageable level. You have taken on greater risk if you decided on a 65 percent stock/35 percent bond combination and now have it at 80 percent stock/20 percent bond.
Even though the markets have been steadily rising, we all know that this is not always the case. We don’t know when the next big stock market collapse will occur, but I wouldn’t be surprised if you told me we’d be in for a correction or even a bear market (a stock drop of at least 20%) in the near future. To reiterate, stocks have more than doubled in a year’s time. That’s a long run. Rebalance today, and you’ll be prepared to weather any market storm. And that is the secret to long-term investing success.
Suze Orman advises on which investments to make.
Orman favors Roth 401(k)s in particular. Some employers provide these accounts to their employees. Orman supports all sorts of Roth retirement accounts, including a Roth IRA, for those whose employers don’t offer them.
Traditional 401(k) and IRA accounts differ significantly from Roth IRA and Roth 401(k) accounts in the following ways:
- After-tax dollars are used to contribute to Roth accounts. You don’t get any immediate savings when you invest in them in the first year. Traditional 401(k) or IRA accounts allow you to save money on taxes in the year you invest because your contributions are tax deductible.
- Withdrawals from Roth accounts are tax-free if you’re 59 1/2 years old and meet additional criteria, such as not taking money out within five years of creating the account. When you remove money from a conventional account, you pay taxes at your regular income tax rate.
Orman feels that delaying your tax savings will benefit you. “Please don’t take the tax deduction now so that you have to pay taxes on a traditional retirement plan later in life. Consider a Roth IRA “According to Orman.
For example, although Roth 401(k)s have required minimum distributions (which force withdrawals after 72 years), Roth IRAs do not. You have the freedom to take your money out anytime you want, rather than when the government orders you to. Unlike traditional IRAs, a Roth IRA allows you to take your contributions before reaching the age of 59 1/2 without incurring a tax penalty (although you’ll still owe a penalty on withdrawn gains).
Orman favors the increased freedom that comes with this type of account, which is one of the main reasons she advocates for putting your retirement funds in a Roth. She also loves the fact that if you leave retirement funds to your children as an inheritance, they won’t lose nearly as much money to the IRS as if you gave them cash in a typical account.
Orman now admits that if you need to earn an employer match, you should contribute to a standard 401(k). Some persons who don’t have a Roth 401(k) at work may need to do so in order to take advantage of the free money provided by their employer for retirement savings. If that’s the case, she recommends contributing simply enough to obtain your employment match and then putting the remainder of your money into a Roth IRA.
The good news is that you can open a Roth IRA with any brokerage firm, whether or not your employer offers a Roth 401(k). So, if you want to open the account that Suze Orman prefers, start looking into the top Roth IRA brokers today.
How do I go about purchasing municipal bonds directly?
- Use the services of a municipal securities dealer, such as a broker-dealer or a bank department. A private client broker is a broker who primarily deals with individual investors at a full-service broker-dealer, though they may also be referred to as “financial consultant” or “financial adviser.” The investor must make an explicit order to buy or sell securities in a brokerage account, and purchases and sells of municipal bonds through a broker-dealer must be preceded by a discussion with the investor.
When selling municipal securities, broker-dealers, like all other forms of investment alternatives, have particular responsibilities to investors. For example, when an investor buys or sells a municipal security, a broker-dealer must provide all material information about the investment to the investor and must give a fair and reasonable price. Full-service When broker-dealers buy or sell bonds for investors, they charge a fee. Broker-dealers that act “as principal” (that is, facilitate trades through their own inventory) charge a “mark-up” when selling bonds to investors and a “mark-down” when buying bonds from investors. The fee is called a “commission” when broker-dealers act “as agent” (that is, when they help identify a buyer or seller who deals directly with the investor). The MSRB pamphlet contains useful information on mark-ups and mark-downs, as well as other fees that brokers may charge.
- Engage the services of an investment adviser who can identify and trade bonds based on your specific or broad instructions. A registered investment adviser (RIA) manages accounts and acquires and sells securities in line with an investor’s agreed-upon plan without requiring individual consent for each transaction. When you engage an RIA, you should receive written paperwork that specifies both your account’s investment policy and the RIA’s investment procedure. To get a better price, RIAs frequently bundle purchases for multiple clients by trading in larger blocks. Account holders are frequently charged a management fee by RIAs. Some advisers price differently based on the interest rate environment and the interest profits that come with it.
- A self-managed account allows you to trade straight online. Another alternative for investors who wish to purchase and sell muni bonds on their own is to use a self-managed account, commonly known as “direct online trading,” which allows them to do so without the help of a private client broker or RIA. This is a broker-dealer account that charges commissions, mark-ups, and markdowns just like a full-service brokerage account. The firm has the same responsibilities to investors as any other broker-dealer, but it may perform them in a different way. For example, disclosure regarding a certain bond could be done only through electronic means, with no interaction with a private client broker. A self-managed account necessitates that the investor comprehend the benefits and drawbacks of each transaction.
- Purchase or sell municipal bond mutual fund shares. Another approach to engage in the municipal bond market is to purchase shares in a mutual fund that invests in muni bonds. Municipal bond mutual funds, which invest entirely or partially in municipal bonds, can be a good method to diversify your portfolio. While municipal bond funds can provide built-in diversification, you do not own the bonds directly. Instead, you hold a piece of the fund’s stock. This is significant because interest rate fluctuations have a different impact on municipal bond mutual fund owners than they do on direct municipal bond owners. Many investors who purchase individual municipal bonds aim to retain them until they mature, despite the fact that bond market values fluctuate between purchase and maturity. Mutual fund managers, on the other hand, are aiming for a stable or rising share price. If rising interest rates cause the market value of bonds in a mutual fund’s portfolio to drop, some of those bonds will be sold at a loss to avoid additional losses and pay for share withdrawals. You are subject to potential swings in the mutual fund’s value as a mutual fund stakeholder.
- Purchase or sell municipal bond exchange-traded funds (ETF). ETFs are a hybrid of mutual funds and traditional equities. The majority of municipal bond ETFs are structured to track an index. The share price of a municipal bond ETF can fluctuate from the ETF’s underlying net asset value (NAV) because it trades like a stock. This can add a layer of volatility to the price of a municipal bond ETF that a municipal bond mutual fund does not have. When an investor buys or sells shares of a municipal bond ETF, the transaction takes place over the exchange between investors (buyers and sellers). When an investor buys or sells shares in a municipal bond mutual fund, on the other hand, the transaction is handled directly by the mutual fund company. Municipal bond ETFs trade like stocks during market hours. A single purchase or sale of municipal bond mutual funds is permitted per day.
Expenses for mutual funds and ETFs include sales commissions, deferred sales commissions, and a variety of shareholder and running fees. FINRA’s Fund Analyzer allows you to compare fund fees and expenses.
Regardless of how you participate in the municipal bond market, the MSRB advises that you think about your investment needs and get written information from your financial professional regarding how fees are charged and which costs apply to your account before investing in a muni bond.
How do I go about purchasing municipal tax-free bonds?
How to Invest in Municipal Bond Funds That Are Tax-Free. An online brokerage account allows an investor to buy and sell bonds directly. They can also be purchased from a bank or a full-service brokerage. Another option is to buy municipal bonds through an exchange-traded fund (ETF) or mutual fund.
What is the procedure for purchasing an I bond?
When it comes to tax considerations, I bonds have the upper hand over CDs. State and local income taxes do not apply to I bond interest, and you can elect to postpone federal income taxes on your earnings until you cash the bonds in. (On the other hand, CD bank interest is taxed annually as it accrues, even if you reinvest it all.) Another tax benefit that parents and grandparents may be interested in is that if you cash in an I bond to pay for higher education, the interest may not be federally taxable at all. However, to qualify for this income exclusion, your modified adjusted gross income must be below a particular thresholdin 2021, the threshold will be $83,200 for singles and $124,800 for couples. This figure is updated for inflation every year.
Set up an account with TreasuryDirect and link it to your bank or money market account to purchase I bonds. You can also purchase I bonds by enrolling in the Treasury’s payroll savings program, which allows you to set up recurring purchases of electronic savings bonds with funds deducted directly from your salary.
Is buying paper I bonds the only option these days? Request that your tax refund be utilized to buy them. If you file your 2021 tax return by early April and are due a refund, consider investing it in I bonds to lock in that 7.12 percent interest rate for six months. (In addition to the $10,000 you can buy online through TreasuryDirect, you can buy up to $5,000 in I bonds with your refund.)
Is Suze Orman an ETF proponent?
Why ETFs Are the Best Investment Option For Your Retirement Funds I am a firm believer in the Roth Individual Retirement Account (IRA) as the most effective approach to save for retirement. And, in my opinion, Exchange Traded Funds (ETFs) are an excellent option to invest your IRA funds.
What does Dave Ramsey have to say about Bitcoin?
In an interview with Maria Bartiromo on Fox Business Tuesday, personal finance guru and Ramsey Solutions CEO Dave Ramsey discussed bitcoin and his new book “Baby Steps Millionaires.”
“I know you cautioned against crypto,” Bartiromo asked. It was dubbed a “get-rich-quick” investment by you. “Are you saying we don’t have any cryptocurrency exposure?” Ramsey responded, “
No, whatever you want to do with it as long as the exposure is money you can afford to lose.
“We’ve got individuals mortgaging their homes,” he said. People are withdrawing their retirement funds from their 401(k)s and investing them in cryptocurrency as if it were a tried-and-true method of accumulating wealth.”
“I think it’s sort of fun,” he added. I adore watching everything and everything. On the other hand, it’s an outlier. Building wealth should not be a large part of a personal financial plan. It may be a minor role just for fun.”
Ramsey’s perspective on bitcoin and cryptocurrency has evolved significantly. On the Dave Ramsey Show in December 2020, he stated his skepticism that $100,000 in BTC could be cashed out. “If you can truly pay it out, and you might find out that this is joke money,” he continued, “I hope you can.”
“I would cash it all out tomorrow,” he promised his listeners in April of last year. But I wouldn’t have been involved in the first place.” “We don’t tell people to invest in highly volatile, risky investments,” he said in May of last year. And any type of currency falls under this group. Bitcoin will be the most volatile of those, and cryptocurrency will be the most volatile.”
Should you put your retirement money into cryptocurrency?
Even if you are able to invest in cryptocurrency for retirement, this does not mean you should. Cryptocurrencies are notorious for their erratic performance, with even the most well-known cryptocurrencies seeing enormous swings in value. Many of them also have no real-world value as currencies, and their value is extremely speculative.
When it comes to investing for retirement, chances are you’re dealing with money you can’t afford to lose. You won’t be able to survive on Social Security alone because it won’t cover your basic needs, so you’ll need to supplement your income with money from your savings.
Is it possible to buy bonds without using a broker?
- Because bonds differ from stocks, most investors should include a percentage of their portfolio in bonds as a diversifier.
- Bonds are debt-like fixed-income securities that make bondholders creditors.
- Many brokers now allow clients to buy individual bonds online, while it may be quicker to buy a bond-focused mutual fund or exchange-traded fund (ETF).
- Without the use of a broker, government bonds can be acquired directly via government-sponsored websites.
- Residents of certain municipalities may be able to earn tax-free income through municipal bonds.