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Financial Advisors

Understand Your Investing Risk Tolerance

by sshrx_ns3li1
written by sshrx_ns3li1

Understanding your true investing risk tolerance goes much further than checking a few boxes on a risk tolerance quiz.Investment risk encompasses several broad concepts, with multiple iterations of each. Longevity risk encapsulates the possibility that you’ll outlive your money. Risk tolerance taps how much of an investment loss you can psychologically withstand. Jason Escamilla, CEO at Impact Labs in San Francisco, describes a two-step plan for tackling client risk: First, protect the client’s wealth and second, ensure they can meet their goals. When approaching risk, Escamilla incorporates both emotion and analytical risk analysis.Here are a few steps for protecting your mental health and financial wealth by understanding your risk tolerance:Define what you consider to be riskier assets.Access your risk tolerance.Categorize your risk level.Manage your risk. Defining RiskWhen discussing risk, it’s common for the investment community to focus on standard deviation or volatility of investment returns. The standard deviation of investment returns measures how far from the average annual investment returns plot on a graph. When applied to annual investment returns, past returns are used to calculate the current standard deviation.A standard deviation close to zero means that the returns are consistent and approximate the average. A certificate of deposit has a standard deviation close to zero. Invest $1,000 in a certificate of deposit, and as long as the investment is owned until maturity, the consumer receives the stated interest rate.For a riskier asset, the 10-year average standard deviation of the SPDR S&P 500 ETF (ticker: SPY) is 12.69. A higher standard deviation means that there’s a likelihood that returns will deviate from the mean, both up and down.Riskier assets, like stocks, have more dispersed returns and typically a higher standard deviation. For example, since 2008, the S&P 500’s greatest loss was in 2008, with a decline of 36.55%. While in 2013, the S&P 500 gained a 10-year record of 32.15%.An investor seeking higher returns must also accept the possibility of greater losses.Longevity risk is akin to risk capacity and relates to the possibility of an investor outliving her wealth. Wealthier individuals have a high-risk capacity or low-longevity risk. Those with more limited means have a greater chance of outliving their assets.A wealthy investor might have a low-longevity risk and still be uncomfortable with investment losses. This investor would be conservative, despite the portfolio’s ability to withstand losses.Assessing Risk“Risk tolerance is a concept that can be difficult to gauge with clients. A client's risk tolerance can change with the direction of the market. When the market is doing well, clients want to be very aggressive and when the market is experiencing some downward volatility, clients can be fearful and want to go to cash,” says Mario Hernandez, a certified financial planner at Gemmer Asset Management in the San Francisco area. Gemmer has a unique strategy to assess client risk. He educates clients with data, describing past stock market declines and then asks them how they'll sleep under those circumstances. That informs the level of risky equities to include within a client portfolio.Brandon Renfro, an assistant professor of finance at East Texas Baptist University, uses a similar approach. For older investors, he asks clients what they did during the onset of the Great Recession and then queries them about how they would react to a future stock market drop.Typical risk tolerance questionnaires ask investors about how they would respond to distinct levels of investment declines. Typical response choices include sell, hold, or buy more of the risky asset after a decline. Investors' responses attempt to describe individuals' risk aversions.But these risk quizzes are historically inaccurate and the more “in vivo” discussions of Renfro and Gemmer are likely to yield more accurate risk-tolerance levels.Categorizing Risk LevelsThe simplest way to categorize risk levels is by time. Short-term investors who will need their funds within one to four years should invest conservatively, with minimal exposure to equities and the greatest allocations to cash and short-term bonds. That’s due to the unpredictability of the stock market in the short term. Investors don’t want the $50,000 downpayment for their new home to be worth $40,000 in two years when they are ready to buy.In contrast, one might assume that long-term investors are aggressive, but that assumption is too simplistic.In the long term, over decades, stock prices trended upwards. But the positive stock market average returns over the long term mask short-term volatility. Realistically, the future is uncertain and there are no guarantees that the upward trend of stock prices will continue. That’s why assessing risk tolerance is tricky.For the mid- to the long-term investor, risk levels will vary from conservative to aggressive. The risk level is represented by the amount of loss an investor is willing to withstand. Even an investor with great wealth may not be willing to tolerate the loss potential of a stock-heavy investment portfolio.A conservative investment portfolio typically holds between 70% and 90% cash and fixed assets, with the remainder in stocks. While an aggressive investment portfolio ranges between 80% and 90% stock investments, with the remainder in bonds.The most common risk tolerance levels vary between conservative and aggressive, with conservative portfolios owning fewer stock assets and more aggressive ones owning greater amounts of riskier holdings.Managing Risk“To manage risk, we believe that it is essential to diversify your assets – whether your risk tolerance is conservative, moderate or aggressive. We recommend reviewing your investment goals, risk tolerance and time horizon with your financial professional on a regular basis to make sure they are aligned with your asset allocation,” says Chris Haverland, an asset allocation strategist at Wells Fargo in Greensboro/Winston-Salem, North Carolina. Diversification reduces portfolio volatility so that if one asset class loses value, others will offset the loss with investment gains. That’s why it’s important to own stocks, bonds and possibly other financial assets like real estate.Some investors prefer to manage risk with a passive portfolio. In this scenario, the investor maintains a constant mix of assets such as 60% stocks and 40% bonds. While others prefer to manage risk actively by adjusting investments according to market and economic conditions.Rick Lear, chief investment officer at Lear Investment Management in Dallas takes an active approach to risk management. Lear conducts in-depth research to determine which asset classes might go up. Then the firm heavily weights the asset classes projected to rise in the future, considering both the research and the economic cycle.Victor Haghani, chief investment officer at Elm Partners in Philadelphia, uses an active value and momentum-based asset allocation strategy. The unique Elm Partners algorithms manage risk by integrating value measures into their asset selection and overlaying those asset class picks with a momentum screen. All clients of Elm’s managed portfolio sign up for an asset allocation that adjusts according to an active assessment of fundamental and momentum factors.Understanding risk tolerance is an active process that incorporates personal, economic and market factors. It’s important to understand one’s time horizon, risk tolerance and risk capacity before constructing an investment portfolio. A comprehensive understanding of investment risk will minimize the likelihood of buying high and selling low.

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Financial Advisors

Why It Pays to Know Your Investing Fees

by sshrx_ns3li1
written by sshrx_ns3li1

If the tired old cliché applies and the best things in life are free, then surely its opposite does as well and the worst things in life are fee. ATM fees. Concert ticket surcharge fees. Airport tax fees. How shall we count the feeble paths to hair-tearing aggravation?But if you're an investor, perhaps no fee rankles the spirit and wrangles the portfolio quite like the ones investment managers and financial advisors might overcharge.And while it's possible to sweep such charges under the rug as the cost of doing business, investors do so at their portfolio's peril."I see it every week, when I ask investors questions," says Scott Krase, founder and president at CrossPoint Wealth in the Chicago area. "Whether in a meeting, video conference call or on the phone, I ask questions about their current investments. I ask if they know the risk they truly hold and what do these investments cost them. The answer is the same. They don't know."Yes, but they absolutely need to know."Fees take a percentage of a client's return over time," says Ryan Goldenhar, partner advisor at AdvicePeriod and based in San Diego. "The higher the fees, the lower the benefits of compound interest for a client."Albert Einstein supposedly called compound interest the eighth wonder of the world, adding: "He who understands it, earns it; he who doesn't pays it." Safe to say that if he weren't dabbling in the relativity thing, Einstein might well have made a splendid investment guru. For as money accrues in a portfolio, you can easily reinvest it – think of dividends – and create a mountain of money where none once existed.For example, let's take $5,000 with a monthly addition of $10, compounded 10 years over a return rate of 8%. You'll end up with $12,553. Now, let's do it again: You're now up to $28,840. One more time, and in 30 years you've got a whopping $64,000. And all it cost you was 33 cents a day and some patience.If you tried the same thing but did not contribute that $120 – which a financial advisor's commissions and hidden fees could far surpass – here's what happens: You'll have just $50,313 after those same 30 years, or close to $13,700 less. (You can run similar calculations at investor.gov, a website of the U.S. Securities and Exchange Commission.)The trouble is, many people invest greater sums and hence miss out on much more money than that."Fees can be silent killers in a portfolio," says Daniel Kern, chief investment officer at TFC Financial Management in Boston.TFC is independent and "fee only," but don't be confused by the term. It means they fulfill a fiduciary responsibility to always act in their clients' best interest. They do not accept any sales-related fees or compensation, which is where charges really begin to kill an investor."Managing costs and taxes is an important aspect of selecting an advisor or mutual fund," Kern says. "A 1% annual fee on a $500,000 investment at a 6% return over 20 years compounds to more than $180,000.""Over an investors' lifetime, excessive fees can take an astonishingly huge share of the investors nest egg," says Stefan Sharkansky, creator of the Personal Fund analyzer site for advisors and individual investors. "Although some managers do beat the market before fees, it's impossible to know in advance who the lucky managers are going to be."Investors should observe two types of fees, says Carlos Dias Jr., founder of Florida-Based MVP Wealth Management Group and Excel Tax & Wealth Group."With investment advisors, a portfolio manager – the person who's doing the actual investing – might charge 0.5% more or less, while the financial advisor – the person overseeing the account and providing financial advice – might charge 1%," Dias says.When fees pass those amounts, or commissions run high, it's time to take a closer look at your arrangement. Another danger sign: lack of transparency in how an advisor constructs a portfolio, says Mason Williams, chief investment officer at Coral Gables Trust in Florida."Minimal proactive contact from your advisor is a clue," Williams says. "It's important to ask for service expectations up front and what is to be expected as a relationship begins."That's the key word: relationship. Some people need the financial equivalent of a personal trainer to get themselves in ship shape, even if other people can start and follow their own fitness regimen."If advisors are only charging for investment advice, then arguably the fees might not be worth it to an investor," says Matthew Schulte, head of financial planning at eMoney Advisor.Indeed, one way around high fees is to work with a web-based, automated investing platform commonly known as a robo advisor."Depending on an investor's personal financial situation, it might make sense for them to work only with a robo advisor," Schulte says. "If their needs are simple, pursuing a low-cost, low-touch module is certainly one possible way to achieve their financial goals. However, as their needs become more complicated, an investor can greatly benefit from working with a planning-led advisor who can provide recommendations based on their holistic financial picture."And of course not all fees are alike, and an educated investor needs to learn the difference, says Brent Weiss, co-founder of Baltimore-based Facet Wealth."Start by educating yourself on the total fees that you are paying," Weiss says. "Ask your advisor or your service provider for a summary of all fees so you know the true cost."Because in the end, knowing and dealing with the total cost now is far preferable to and cheaper than dealing with it later.

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Financial Advisors

8 Facts to Know About No-Commission Trades

by sshrx_ns3li1
written by sshrx_ns3li1

More firms are announcing free trade options.
Major brokerages such as Interactive Brokers, Charles Schwab and E-Trade, among others, recently announced that they would stop charging commissions to their clients who trade stocks and exchange-traded funds. Anytime people can pay less or nothing to invest, it helps them boost returns by keeping more money. Market watchers say brokerage houses' decision to drop certain trading fees is part of a trend of lower investment costs in general over the years such as falling expense ratios. But brokerages aren't offering free trading services because they're altruistic. These companies are fending off competition from newer online brokerages. Here are eight facts you should know about free trades.

Brokerage firms are looking to retain clients.
Scott Coyle, CEO of Click IPO, which allows investors to buy individual initial public offerings, says these bigger firms likely made the move to retain clients as they may have seen customers transfer to newer platforms like Robinhood, which has been offering free trades for about seven years. If the more established brokerage firms see less attrition in their customer base, they not only keep those customers but can now recruit newer customers with the added lure of free trading. "These broker dealers that have been around much longer have more robust platforms, they offer a lot more things than some of the newer free-trading firms do," he says.

Mutual funds are not included.
The brokerage firms touting their free stock and exchange-traded fund trades were silent about mutual funds. That’s because mutual funds aren’t part of the no-commission deal, says Kevin Dorwin, managing principal at wealth management firm Bingham, Osborn & Scarborough. “Mutual funds, for the most part, are still priced much higher because they're harder for the brokerages to administer. And I think a lot of people use mutual funds, so they're not really saving on that at this point,” he says. Fees vary widely by brokerages and the type of mutual fund but they can cost between $20 to $40 to trade. Many brokerage houses are also allowing people to trade options commission-free, although option traders may still need to pay a fee of 65 cents per contract.

The average investor may not save much money.
Trading fees and expense ratios for stocks, ETFs and options have dropped over the past several years, which benefits investors overall. The trend of lower expense ratios for ETFs and mutual funds has helped average investors. But this move by brokerage houses to eliminate trading commissions may not save the average person who doesn’t trade a lot, Dorwin says. “Most ordinary people don't trade so much for that to be a huge benefit. The people who do truly win are those who trade frequently, and that's not always a great strategy for individual investors,” he says.

Free stuff isn’t always a good thing.
Todd Rosenbluth, director of ETF research at CFRA Research, says if people don’t have to pay a commission to trade, it could entice more trading. “The key takeaway to me is just because something is unlimited, it doesn’t mean that investors should take full advantage of it,” he says. The downside to no-cost trading may mean people will trade more than they do now, which means they could be moving in and out of the market and trying to make short-term calls because there’s no cost to do so. “It’s a lot harder to time the market and you’re a lot better off having time in the market,” he says.

Brokerages make money in other ways.
Jim Besaw, principal and chief investment officer at GenTrust, says it was easy for brokerages to offer free trading since the money earned on commission by many of the custodians wasn’t a large portion of revenue. They make more money on other services, he says. Payment for order flow, which is the pay that firms receive for directing orders to different parties to execute trades, can generate revenue particularly in low-liquidity markets, he says. Firms also make money on securities lending programs, when investors loan stock to other traders who want to sell short the security. Investors and brokers are supposed to split the revenue earned, but the divide isn’t always clear. These money-generating activities are fine. But Besaw says it’s not easy for customers to easily figure out these costs as some brokerages are less transparent than others.

Watch cash sweep accounts.
Besaw says cash sweep accounts, which is where brokerages deposit investor cash until investors deploy it into another investment vehicle, are a top money-generator for firms. That’s because firms often pay low interest rates on these cash deposits or move these funds into a in-house money market mutual fund, with a high expense ratio. “In many cases, that’s a much higher number than the other fees,” he says. “If a client has 5% or 10% of their money in cash, in many cases, the custodian's paying them 1% less than they should. So the custodians really making 1% on that 10%, which is 10 basis points, which are pretty big numbers.” Investors can avoid this by not letting their money sit long in a cash sweep account.

Investors may make better fund choices.
Before eliminating trading fees, some brokerages had a list of ETFs they offered for no-commission trading and Rosenbluth says fee-conscious investors often gravitated to those without considering other investing aspects. “Now the whole universe is open,” he says. Investors can now sort through ETFs based on expense ratios, liquidity, performance and other factors without being influenced by trading fees associated with the funds. It may also encourage better portfolio maintenance. Investors who use a broadly diversified strategy with five or six ETFs might be more likely to rebalance that portfolio regularly because there isn't a cost to buy and sell those positions, he says.

Investors may be less likely to liquidate accounts.
Rosenbluth says he’s heard discussions that axing trading fees may increase demand for highly liquid, ultra-short-term bond ETFs during volatile times. These ETFs have maturity and duration of less than one year, such as iShares Short Treasury Bond ETF (ticker: SHV), which has a yield of 2% and an expense ratio of 0.15%, a cost of $15 for every $10,000 invested. With no trading fees, investors could move to these safer ETFs, rather than liquidate all their holdings and stuff it in a low-interest bank savings account. Investors may return to the stock market quicker when they feel like taking more risks since there’s no cost to trade, he says.

Facts about no-commission trading:
Brokerage firms are looking to retain clients.Mutual funds are not included.The average investor may not save much money.Free stuff isn’t always a good thing.Brokerages make money in other ways.Watch cash sweep accounts.Investors may make better fund choices.Investors may be less likely to liquidate accounts.

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Financial Advisors

5 Best Robo Advisors for Managing ESG Funds

by sshrx_ns3li1
written by sshrx_ns3li1

Environmental, social and governance funds, or ESG, belong to the family of sustainable, responsible and impact investing, sometimes referred to as SRI. This alphabet soup of investment strategies is a newer investment approach that strives to generate high long-term returns and positive societal results.ESG investing can be accomplished by investing in individual stocks and bonds, specifically targeted SRI funds, and employing a digital or a robo investment manager who specializes in this approach.From minimal ESG investing opportunities in the 1990s to about $12 trillion in assets under management in 2017, socially responsible investing is growing in popularity. The US SIF Foundation's most recent biennial report found that one in four dollars of professionally managed funds is directed toward ESG investing. (https://www.ussif.org/sribasics)Not only individual investors but credit unions, community banks hospitals, foundations, religious institutions, venture capitalists and public pensions invest in ESG investing companies.Answering to public demand, robo advisory digital investment managers, a type of nonhuman advisor, are now in the movement.The best ESG robo advisor will incorporate SRI investing criteria that matter to you, the opportunity to customize the investment options and low fees. Here are five of the best ESG robo-advisor services:M1 Finance.Betterment.EarthFolio.Wealthsimple.Motif Impact Portfolios.M1 FinanceThis unique platform offers both managed robo advisors and do-it-yourself investing under one roof. Investopedia's editor in chief, Caleb Silver, (https://www.linkedin.com/in/caleb-silver-9639585/) OK on this source this time. But Investopedia is one of our direct competitors so please avoid in the future.ranks M1 as a top ESG platform. "They have two socially responsible portfolios made up of Nuveen ETFs, listed under Expert Pies or you can construct a collection of stocks that meet your criteria." The account minimum is $100 and there are no trading fees, provided an account has at least a $20 balance. Experts say M1 Finance is unique among the SRI robo advisors in that it doesn't charge any management fee to use the platform.BettermentBetterment customers can choose to invest in their SRI portfolios with low fees and strong socially responsible metrics. This investment choice adheres to Betterment's low-cost and diversified approach while increasing exposure to companies that meet delineated SRI criteria. The Betterment socially responsible investing avoids companies with unsavory corporate governance and unfair labor practices."We'll prioritize excluding inappropriate stocks from the SRI portfolio and replace them with companies deemed to have strong social responsibility practices such as Microsoft (ticker: MSFT), Google (GOOG, GOOGL), Procter & Gamble (PG), Merck (MRK), Coca-Cola (KO), Intel (INTC), Cisco (CSCO), Disney (DIS) and IBM (IBM)," says Adam Grealish, Betterment's director of investing(https://www.linkedin.com/in/adamgrealish/) thank you. For example, in the U.S. large-cap stock allocation, selections include the iShares MSCI KLD 400 Social ETF (DSI). Betterment's low 0.25% management fee is reasonable when compared to other robo advisors and financial planners.EarthFolioEarthFolio is one of a handful of SRI investing robo advisors. This robo advisor invests exclusively in funds classified as sustainable or responsible. To make the cut, the fund's prospectus must delineate the specific ESG criteria used in the stock or bond selection. Unlike some ESG robo advisory competitors, EarthFolio offers bond funds in addition to other ESG funds.Earthfolio requires a $25,000 minimum investment amount and thus may be out of reach for new investors. EarthFolio offers a wider range of ESG investments and also provides a free head-to-head comparison of an investor's current portfolio with the EarthFolio recommendation. With a 0.5% management fee, it is one of the more expensive SRI investment robo advisors, although it compares favorably with traditional financial advisory fees.https://www.earthfolio.net/FAQ/WealthsimpleThere are a few fund names in this graph that don't match up with the tickers that you've given. Take a look. I've provided a few links, too.Launched in 2017, this Canadian robo advisor also operates in the U.S. and the U.K. The SRI options include ETFs representing iShares MSCI ACWI Low Carbon Target ETF (CRBN), Invesco Cleantech ETF (PZD), iShares MSCI KLD 400 Social ETF Is this what you mean?YES, SPDR SSGA Gender Diversity Index ETFIs this what you mean?yes (SHE), Invesco Taxable Municipal Bond ETF (BAB For BAB I'm getting this fund: https://money.usnews.com/funds/etfs/long-term-bond/invesco-taxable-municipal-bond-etf/bab. So do you mean BAB?yes-Investco Taxable Municipal Bond ETF) and iShares GNMA Bond ETF (GNMA) For GNMA, do you mean https://money.usnews.com/funds/etfs/intermediate-government/ishares-gnma-bond-etf/gnma YES iShares GNMA Bond Fund . Around 25% of Wealthsimple's clients have socially responsible portfolios.Wealthsimple offers three investment levels with management fees ranging from 0.4% to 0.5% of assets under management. All Wealthsimple clients have access to financial advisors, and halal portfolios are available for those who want to align their portfolios with Islamic religious beliefs.Motif Impact PortfoliosMotif Impact Portfolios encompasses both robo advisory services, investing in theme-driven portfolios, and more. One of the earlier platforms to use data and analytics to find unique investment opportunities, there are managed portfolios and DIY investing options.Silver recommends the Motif Investing Impact Portfolios which are populated with individual ESG stocks not exchange-traded funds. The ESG offerings fall into one of the categories: sustainable planet, fair labor and good corporation behavior.Motif requires a $1,000 minimum investment amount and charges 0.25% in management fees. The Motif Impact Portfolios offer stocks from five distinct asset classes that adhere to tax-aware rebalancing and minimize asset sales. In addition to the preselected ESG offerings, investors may create their own collections of ESG stocks.More Socially Responsible ESG Robo-AdvisorsThe following list includes other ESG investing companies in alphabetical order: Axos Invest.Ellevest.OpenInvest.Personal Capital.SustainFolio.TIAA Personal Portfolio.More socially responsible robo advisors will likely be added as the socially responsible investing field expands. For those who are seeking a set it and forget it socially responsible platform, there are many SRI robo advisor options from which to choose. It's likely that even if a current robo advisor lacks socially responsible investing choices today, it will offer it in the future. Ultimately, as younger investors more frequently seek to match their money with their hearts, the robo advisory market will continue to meet their needs.

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Financial Advisors

8 Facts to Know About No-Commission Trades

by sshrx_ns3li1
written by sshrx_ns3li1

More firms are announcing free trade options.
Major brokerages such as Interactive Brokers, Charles Schwab and E-Trade, among others, recently announced that they would stop charging commissions to their clients who trade stocks and exchange-traded funds. Anytime people can pay less or nothing to invest, it helps them boost returns by keeping more money. Market watchers say brokerage houses' decision to drop certain trading fees is part of a trend of lower investment costs in general over the years such as falling expense ratios. But brokerages aren't offering free trading services because they're altruistic. These companies are fending off competition from newer online brokerages. Here are eight facts you should know about free trades.

Brokerage firms are looking to retain clients.
Scott Coyle, CEO of Click IPO, which allows investors to buy individual initial public offerings, says these bigger firms likely made the move to retain clients as they may have seen customers transfer to newer platforms like Robinhood, which has been offering free trades for about seven years. If the more established brokerage firms see less attrition in their customer base, they not only keep those customers but can now recruit newer customers with the added lure of free trading. "These broker dealers that have been around much longer have more robust platforms, they offer a lot more things than some of the newer free-trading firms do," he says.

Mutual funds are not included.
The brokerage firms touting their free stock and exchange-traded fund trades were silent about mutual funds. That’s because mutual funds aren’t part of the no-commission deal, says Kevin Dorwin, managing principal at wealth management firm Bingham, Osborn & Scarborough. “Mutual funds, for the most part, are still priced much higher because they're harder for the brokerages to administer. And I think a lot of people use mutual funds, so they're not really saving on that at this point,” he says. Fees vary widely by brokerages and the type of mutual fund but they can cost between $20 to $40 to trade. Many brokerage houses are also allowing people to trade options commission-free, although option traders may still need to pay a fee of 65 cents per contract.

The average investor may not save much money.
Trading fees and expense ratios for stocks, ETFs and options have dropped over the past several years, which benefits investors overall. The trend of lower expense ratios for ETFs and mutual funds has helped average investors. But this move by brokerage houses to eliminate trading commissions may not save the average person who doesn’t trade a lot, Dorwin says. “Most ordinary people don't trade so much for that to be a huge benefit. The people who do truly win are those who trade frequently, and that's not always a great strategy for individual investors,” he says.

Free stuff isn’t always a good thing.
Todd Rosenbluth, director of ETF research at CFRA Research, says if people don’t have to pay a commission to trade, it could entice more trading. “The key takeaway to me is just because something is unlimited, it doesn’t mean that investors should take full advantage of it,” he says. The downside to no-cost trading may mean people will trade more than they do now, which means they could be moving in and out of the market and trying to make short-term calls because there’s no cost to do so. “It’s a lot harder to time the market and you’re a lot better off having time in the market,” he says.

Brokerages make money in other ways.
Jim Besaw, principal and chief investment officer at GenTrust, says it was easy for brokerages to offer free trading since the money earned on commission by many of the custodians wasn’t a large portion of revenue. They make more money on other services, he says. Payment for order flow, which is the pay that firms receive for directing orders to different parties to execute trades, can generate revenue particularly in low-liquidity markets, he says. Firms also make money on securities lending programs, when investors loan stock to other traders who want to sell short the security. Investors and brokers are supposed to split the revenue earned, but the divide isn’t always clear. These money-generating activities are fine. But Besaw says it’s not easy for customers to easily figure out these costs as some brokerages are less transparent than others.

Watch cash sweep accounts.
Besaw says cash sweep accounts, which is where brokerages deposit investor cash until investors deploy it into another investment vehicle, are a top money-generator for firms. That’s because firms often pay low interest rates on these cash deposits or move these funds into a in-house money market mutual fund, with a high expense ratio. “In many cases, that’s a much higher number than the other fees,” he says. “If a client has 5% or 10% of their money in cash, in many cases, the custodian's paying them 1% less than they should. So the custodians really making 1% on that 10%, which is 10 basis points, which are pretty big numbers.” Investors can avoid this by not letting their money sit long in a cash sweep account.

Investors may make better fund choices.
Before eliminating trading fees, some brokerages had a list of ETFs they offered for no-commission trading and Rosenbluth says fee-conscious investors often gravitated to those without considering other investing aspects. “Now the whole universe is open,” he says. Investors can now sort through ETFs based on expense ratios, liquidity, performance and other factors without being influenced by trading fees associated with the funds. It may also encourage better portfolio maintenance. Investors who use a broadly diversified strategy with five or six ETFs might be more likely to rebalance that portfolio regularly because there isn't a cost to buy and sell those positions, he says.

Investors may be less likely to liquidate accounts.
Rosenbluth says he’s heard discussions that axing trading fees may increase demand for highly liquid, ultra-short-term bond ETFs during volatile times. These ETFs have maturity and duration of less than one year, such as iShares Short Treasury Bond ETF (ticker: SHV), which has a yield of 2% and an expense ratio of 0.15%, a cost of $15 for every $10,000 invested. With no trading fees, investors could move to these safer ETFs, rather than liquidate all their holdings and stuff it in a low-interest bank savings account. Investors may return to the stock market quicker when they feel like taking more risks since there’s no cost to trade, he says.

Facts about no-commission trading:
Brokerage firms are looking to retain clients.Mutual funds are not included.The average investor may not save much money.Free stuff isn’t always a good thing.Brokerages make money in other ways.Watch cash sweep accounts.Investors may make better fund choices.Investors may be less likely to liquidate accounts.

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Financial Advisors

5 Best Robo Advisors for Managing ESG Funds

by sshrx_ns3li1
written by sshrx_ns3li1

Environmental, social and governance funds, or ESG, belong to the family of sustainable, responsible and impact investing, sometimes referred to as SRI. This alphabet soup of investment strategies is a newer investment approach that strives to generate high long-term returns and positive societal results.ESG investing can be accomplished by investing in individual stocks and bonds, specifically targeted SRI funds, and employing a digital or a robo investment manager who specializes in this approach.From minimal ESG investing opportunities in the 1990s to about $12 trillion in assets under management in 2017, socially responsible investing is growing in popularity. The US SIF Foundation's most recent biennial report found that one in four dollars of professionally managed funds is directed toward ESG investing. (https://www.ussif.org/sribasics)Not only individual investors but credit unions, community banks hospitals, foundations, religious institutions, venture capitalists and public pensions invest in ESG investing companies.Answering to public demand, robo advisory digital investment managers, a type of nonhuman advisor, are now in the movement.The best ESG robo advisor will incorporate SRI investing criteria that matter to you, the opportunity to customize the investment options and low fees. Here are five of the best ESG robo-advisor services:M1 Finance.Betterment.EarthFolio.Wealthsimple.Motif Impact Portfolios.M1 FinanceThis unique platform offers both managed robo advisors and do-it-yourself investing under one roof. Investopedia's editor in chief, Caleb Silver, (https://www.linkedin.com/in/caleb-silver-9639585/) OK on this source this time. But Investopedia is one of our direct competitors so please avoid in the future.ranks M1 as a top ESG platform. "They have two socially responsible portfolios made up of Nuveen ETFs, listed under Expert Pies or you can construct a collection of stocks that meet your criteria." The account minimum is $100 and there are no trading fees, provided an account has at least a $20 balance. Experts say M1 Finance is unique among the SRI robo advisors in that it doesn't charge any management fee to use the platform.BettermentBetterment customers can choose to invest in their SRI portfolios with low fees and strong socially responsible metrics. This investment choice adheres to Betterment's low-cost and diversified approach while increasing exposure to companies that meet delineated SRI criteria. The Betterment socially responsible investing avoids companies with unsavory corporate governance and unfair labor practices."We'll prioritize excluding inappropriate stocks from the SRI portfolio and replace them with companies deemed to have strong social responsibility practices such as Microsoft (ticker: MSFT), Google (GOOG, GOOGL), Procter & Gamble (PG), Merck (MRK), Coca-Cola (KO), Intel (INTC), Cisco (CSCO), Disney (DIS) and IBM (IBM)," says Adam Grealish, Betterment's director of investing(https://www.linkedin.com/in/adamgrealish/) thank you. For example, in the U.S. large-cap stock allocation, selections include the iShares MSCI KLD 400 Social ETF (DSI). Betterment's low 0.25% management fee is reasonable when compared to other robo advisors and financial planners.EarthFolioEarthFolio is one of a handful of SRI investing robo advisors. This robo advisor invests exclusively in funds classified as sustainable or responsible. To make the cut, the fund's prospectus must delineate the specific ESG criteria used in the stock or bond selection. Unlike some ESG robo advisory competitors, EarthFolio offers bond funds in addition to other ESG funds.Earthfolio requires a $25,000 minimum investment amount and thus may be out of reach for new investors. EarthFolio offers a wider range of ESG investments and also provides a free head-to-head comparison of an investor's current portfolio with the EarthFolio recommendation. With a 0.5% management fee, it is one of the more expensive SRI investment robo advisors, although it compares favorably with traditional financial advisory fees.https://www.earthfolio.net/FAQ/WealthsimpleThere are a few fund names in this graph that don't match up with the tickers that you've given. Take a look. I've provided a few links, too.Launched in 2017, this Canadian robo advisor also operates in the U.S. and the U.K. The SRI options include ETFs representing iShares MSCI ACWI Low Carbon Target ETF (CRBN), Invesco Cleantech ETF (PZD), iShares MSCI KLD 400 Social ETF Is this what you mean?YES, SPDR SSGA Gender Diversity Index ETFIs this what you mean?yes (SHE), Invesco Taxable Municipal Bond ETF (BAB For BAB I'm getting this fund: https://money.usnews.com/funds/etfs/long-term-bond/invesco-taxable-municipal-bond-etf/bab. So do you mean BAB?yes-Investco Taxable Municipal Bond ETF) and iShares GNMA Bond ETF (GNMA) For GNMA, do you mean https://money.usnews.com/funds/etfs/intermediate-government/ishares-gnma-bond-etf/gnma YES iShares GNMA Bond Fund . Around 25% of Wealthsimple's clients have socially responsible portfolios.Wealthsimple offers three investment levels with management fees ranging from 0.4% to 0.5% of assets under management. All Wealthsimple clients have access to financial advisors, and halal portfolios are available for those who want to align their portfolios with Islamic religious beliefs.Motif Impact PortfoliosMotif Impact Portfolios encompasses both robo advisory services, investing in theme-driven portfolios, and more. One of the earlier platforms to use data and analytics to find unique investment opportunities, there are managed portfolios and DIY investing options.Silver recommends the Motif Investing Impact Portfolios which are populated with individual ESG stocks not exchange-traded funds. The ESG offerings fall into one of the categories: sustainable planet, fair labor and good corporation behavior.Motif requires a $1,000 minimum investment amount and charges 0.25% in management fees. The Motif Impact Portfolios offer stocks from five distinct asset classes that adhere to tax-aware rebalancing and minimize asset sales. In addition to the preselected ESG offerings, investors may create their own collections of ESG stocks.More Socially Responsible ESG Robo-AdvisorsThe following list includes other ESG investing companies in alphabetical order: Axos Invest.Ellevest.OpenInvest.Personal Capital.SustainFolio.TIAA Personal Portfolio.More socially responsible robo advisors will likely be added as the socially responsible investing field expands. For those who are seeking a set it and forget it socially responsible platform, there are many SRI robo advisor options from which to choose. It's likely that even if a current robo advisor lacks socially responsible investing choices today, it will offer it in the future. Ultimately, as younger investors more frequently seek to match their money with their hearts, the robo advisory market will continue to meet their needs.

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A Guide to Investing in Mutual Funds for Beginners

by sshrx_ns3li1
written by sshrx_ns3li1

Mutual funds can be a smart place to start investing. They’re easy to access and don’t require you to read any balance sheets or even know what a balance sheet is. They’re also less likely to leave you high and dry than an individual company, which is more likely to go out of business.

“A mutual fund is an investment vehicle that pools many individual investors’ money together and is managed by professional investment managers,” says Dennis Baish, senior investment analyst and portfolio manager at Fort Pitt Capital Group in Pittsburgh, Pennsylvania.

They allow you to turn the selection of individual stocks, bonds and other investments over to professionals. This makes mutual funds “ideal for those who do not have the time or ability to select individual securities, but still want to participate in the market,” Baish says.

If you have a 401(k) or another employer-sponsored plan, you’re probably already investing in a mutual fund or two. Typically these plans default you into a target-date retirement fund (more on those later), but there are many, many mutual funds to choose from.

How to Start Investing in Mutual Funds

Pick an area of the stock market and there’s bound to be a mutual fund to help you invest in it. Whether you want to own only the biggest U.S. stocks or the smallest; if you want to invest in China or South America; if you want the security of bonds or the income from real estate without needing to own either directly, there are mutual funds to provide that exposure.

“Typically, a mutual fund will specialize in certain segments of the market whether just stocks, just bonds, just real estate,” Baish says. He recommends that beginning investors select a few different funds to start.

“By selecting a number of different mutual funds, individual investors can usually get diverse exposure to the overall investment landscape,” he says. “Since not all areas of the market or investment managers perform well at the same time, broad diversification among different mutual funds can be an important component of mutual fund investing.”

[ 

See:

16 Investing Questions That Intimidate You, But Shouldn't. ]

Choosing Mutual Funds for Your Portfolio

When it comes to choosing which mutual funds to invest in, start with your investment goal and time frame. These two elements will help determine what type of mutual fund you should use.

For instance, if you’re investing for retirement 30 years in the future, you can choose a more aggressive (read: stock-heavy) mutual fund than someone investing to buy a yacht in five years. The shorter your time horizon, the more conservative your mutual fund should be, generally speaking. Longer-term investors can afford to take on more risk as they’ll have time to wait out any stock market declines.

“In many cases, an allocation fund is a good place to start,” says Will Lofland, director, head of intermediary distribution at GuideStone Capital Management in Dallas. “This is a fund with a specific risk target that will provide the investor [with] broad diversification.”

An investor with a 30-year retirement goal who isn’t afraid of seeing her investments fluctuate in value between now and then could use a 90/10 or 80/20 asset allocation fund. These will invest 90% or 80% of their assets in stocks, respectively.

Less aggressive investors may opt for a 70/30 or 60/40 allocation.

“Another option would be a target-date fund,” Lofland says. “These funds are something that you select that have a year in the future that corresponds to some type of goal.”

The retirement saver who plans to retire in 30 years could use a 2050 target-date fund. This would start at a more aggressive, stock-heavy allocation but gradually become more conservative as the target date nears.

It’s worth noting that while target-date funds are designed for retirement investing, you can use them for any investment goal. Simply choose the fund associated with your end-goal date.

“More savvy beginners can build allocations themselves, but need to carefully study each fund they are considering, and to make sure that they are building a properly diversified allocation,” Lofland says.

[ 

See:

8 Free Investment Classes for Adults and Teens ]

How to Evaluate Mutual Funds

“Choosing which mutual funds to invest in can be intimidating for a new investor with little investment knowledge,” Baish says. “As you start your mutual fund investing journey, there are some things that are important to think about as you select mutual funds.”

He says to look for a mutual fund with a good long-term performance that compares well against other mutual funds investing in the same area of the market.

“Comparing a bond fund against a stock fund isn’t a fair comparison because both funds invest in different areas of the market,” he says. Instead, “look to compare a U.S. large-cap mutual fund with another U.S. large-cap mutual fund. This will give you a better idea of performance.”

And when evaluating performance, focus on the long term. “Short-term performance is less relevant than long-term performance,” Baish says.

The same holds for the investment professionals managing your fund. “Look for investment managers that have a long history of investing,” he says.

Simon Calton, CEO of the Carlton James Group, says his biggest tip for anyone investing in mutual funds is to look at how the fund manager did during the last economic downturn.

It’s been easy for mutual funds and their managers to do well in the extended bull market; what will differentiate the best managers is how they performed during stock market declines.

“You need to see that they have seen the ups and downs because it’s all well and good understanding how to make money when the going is good; it’s about how you buckle down and work through when things” aren’t going so well, he says.

You can find information on a given mutual fund’s past performance and manager experience on sites like U.S. News & World Report’s mutual fund pages or the fund company’s own website.

[ 

See:

7 Things to Know About Money Market Mutual Funds. ]

“Fund company websites are a great tool that offer information such as fees, commentaries, investment outlook, performance reports and much more,” Baish says. “Becoming knowledgeable about mutual fund investing will help you select the mutual funds that you are most comfortable with.”

8 Great Benefits of Mutual Funds

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