Mutual funds buy securities equities, bonds or could be hybrid. Fund of funds buy other mutual funds famous fund of fund is Vanguard lifestrategy funds. Annuities combine insurance with investment, mixing the two is a bad idea, therefore, people are better of considering things like K , IRA etc rather than annuities. ETFs are like mutual funds but they are traded continuously in the market which means they can be valued at higher or lower than the value of underlying securities.
Protecting against inflation Inflation erodes the real value of money over time. Series I bonds have an inflation component, they are bought and sold directly from US treasury. TIPS rates are controlled by market the only way to guarantee no loss of principal is to buy them in treasury auctions , holding them in taxable account is bad since it inflation adjustment produces taxable phantom income. Since TIPS are market traded, they must be held to maturity to guarantee no loss of principal unlike I bonds which have to held only for a period of one year.
How much do you need to save This chapter references some calculators which take numbers like future inflation rate, future returns rate after a person turns 65 , I think those numbers are just too varied to have any certainty on deciding how much to save.
Keep investments simple In rest of our life, we try to be better than the average, go with guts and take an action when crisis happens — all of these are bad for investing. A lot of actively managed funds have good pre-tax but bad after-tax returns since they trade heavily high turnover and pass the realized gains to investors. Asset allocation Time and again various studies have shown that experts cannot predict market.
A study showed that among four factors asset allocation of stocks, bonds and cash, individual security selection, market timing and costs , High yield bonds junk bonds are speculative and not worth the risk given that yields are tax-inefficient — people should buy safer bonds instead.
Costs matter From front-end sales commission , deferred sales charge back end loads , purchase fee , exchange fee , 12b-1 fee and several other such fees are charged irrespective of how the fund performs. Funds with higher turnover produce bad after tax returns. Always try to invest in lower cost funds. Taxes Stock dividends are taxed at a lower rate than regular income. Bond dividends are taxed as regular income. Long term capital gains are taxed at a lower rate. Tax-loss harvesting uses short term losses to reduce tax liabilities.
Retirement accounts Always buy mutual funds after their distribution date. Sell profitable shares after year end to delay tax payments for a year. Diversification Diversification reduces the risk of being over-exposed to certain sectors, the best diversification is to hold the entire market. Performance chasing and market timing Best performers of the past had no correlation with best performers of the future, worst performance in the past though have some correlation with bad performance in the future.
Predicting interest rates to time the bond market is equally harder. Saving Bond I or EE are good since their earnings are tax free if used for educational purposes. Managing a windfall Inheritance, real estate sale, lottery are difficult to manage, the first step one should take is to deposit it somewhere and leave it for 6 months, then make a wish list of short, intermediate and long term goals and get professional help to manage it. One time fee or hourly rate is another good arrangement.
With warnings and principles both precisely accurate and grandly counterintuitive, the Boglehead authors show how beating the market is a zero-sum game. Over the course of twenty years, the followers of John C. Bogle have evolved from a loose association of investors to a major force with the largest and most active non-commercial financial forum on the Internet. The Boglehead team of investment experts—Mel Lindauer, Taylor Larimore, and Michael LeBoeuf—provide the answers for gaining a foothold in the market and keeping it there.
Over the course of nearly twenty years, the followers of John C.
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