But how, exactly, investing pays is something of a mystery to many investors. For some people, the idea that you can stash money away in an account or security and that it could grow into more money seems at best, like magic and at worst, suspicious.

We all know people that have made money “investing”. But what they actually did (and where they figured out how to do it) can seem like a Mulder and Scully-level mystery.

So how does your money actually make money?

While almost everyone invests their money with the goal of turning a profit, investing involves risk.

Markets can be volatile and investors need a sound strategy to weather the ups and downs over the long term.

That said, over the long run, though, markets (and returns) trend up:

Disclosure: This is not a prediction or projection of performance of an investment or investment strategy. Past performance is no guarantee of future results. Any historical returns, expected returns or probability projections are hypothetical in nature and may not reflect actual future performance. The rate of return on investments can vary widely over time, especially for long term investments including the potential loss of principal. For example, the S&P 500® for the 10 years ending 1/1/2014, had an annual compounded rate of return of 8.06%, including reinvestment of dividends (source: www.standardandpoors.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). The S&P 500® is an index of 500 stocks seen as a leading indicator of U.S. equities and a reflection of the performance of the large cap universe, made up of companies selected by economists. The S&P 500 is a market value weighted index and one of the common benchmarks for the U.S. stock market. Source: Yahoo Finance. Source: Yahoo Finance.

The Dow Jones Industrial Average, for example, saw big gains over the past two or three decades. After the market bottomed-out during the financial crisis in 2009, the Dow more than doubled, briefly topping out above 29,000 points in early 2020.

Here are the three primary ways that companies pay back their shareholders, or, by which investments can earn you money.

1. An increase in share value

Perhaps the most obvious way in which an investment can make you money is that it gains value. As stock prices rise, shares become more valuable. And if you’re a shareholder, you can sell your stocks, earning you a profit, or return, on your initial investment.

The same applies to bonds, exchange-traded funds (ETFs), and other investments. When a company’s shares are worth more, shareholders reap the benefits.

2. Dividends

A dividend is your cut of a company’s earnings. If you own shares in a company, you own a part of the company — and therefore, you get a cut of the profits.

Typically, dividends are cash payouts to shareholders which can be reinvested, or sent to your accounts t through a dividend reinvestment plan (DRIP). With Stash, you can turn on DRIP and have dividends automatically reinvested. They can, however, be issued in the form of additional shares.

3. Interest payments

Interest payments are generally associated with fixed-income securities, like bonds. Bonds are a form of debt, meaning that you’ve loaned a company your money. In exchange, a bondholder is due interest payments and the bond’s full amount upon maturity.

If you’re a bondholder, then, you can expect periodic interest payments.

A quick note about stock buybacks

Sometimes, companies will engage in stock buybacks, which is when a company buys its own stock on the market. There are a few reasons why a company might do this, but one of the most common is to consolidate stakeholder value, and to increase share prices.

While somewhat controversial, a stock buyback is another way that companies can effectively “pay back” their shareholders.

The post How Your Investments Earn You Money appeared first on Stash Learn.

Let’s break it down.

Stocks vs. shares

A public company issues stock, which it offers for sale on an exchange. As an investor, you can buy and sell shares of that stock.

Think of shares as the individual units of a company’s stock. So when you purchase a company’s stock, you’re actually buying some of its shares.

Shares are assigned a monetary value (in the U.S., shares are in dollars), and that value fluctuates throughout the course of the day. That means the value of your shares will move up and down, depending on what’s happening with the company.

What are fractional shares?

A fractional share, as its name implies, is a fraction of a share, or less than a whole share of a company’s stock. And some trading platforms, including Stash, let you buy fractional shares. (With Stash, you can invest in single stocks or exchange-traded funds (ETFs), which are bundles of different securities.)

Why would someone want to invest in fractional shares, instead of buying a whole share? The price of even a single share of stock for some companies can be hundreds, or even thousands of dollars.

Purchasing fractional shares can help you start investing with just a little bit of money, rather than paying the full price for whole shares.

Preferred vs. common shares

Shares can be either preferred or common. Common stock is what most people buy.

Preferred stock typically carries a specified dividend, and in situations such as bankruptcy has some priority over common stock. In cases where the company stock is increasing, the value of preferred stock will not increase as much as the value of common stock.

Voting rights

When you own common shares of a company’s stock, that also gives you some voting rights.

You can vote on the selection of board members, on whether a stock splits, as well as on mergers and acquisitions, among other things. Preferred shares usually have no voting rights.

Good to know: You need to own a whole share of a company’s stock to have voting rights. So if you own a less than a full share—for example a fractional share—you won’t have voting rights.

How to start investing 

It’s simple to start investing, and Stash can help you get started while offering you financial education. You can also follow the Stash Way, which encourages new investors to invest regularly, invest for the long term, and to diversify.

Once you learn some basic terms, you can start  investing with Stash with any dollar amount*. 

Keep on Stashing

Investing isn’t as complicated as it sounds. Once you learn some basic terms, you can start on your journey with confidence.

The post Stocks vs. Shares: Everything You Need to Know appeared first on Stash Learn.

One of the questions I get asked when the market goes down is, “Should I sell?”

My answer, which I’ve formed over the past 20 years, is not necessarily.

Selling is often the wrong thing to do. We encourage you to follow the Stash Way.

The U.S. has a strong economy, but occasionally interest rates rise, which the markets sometimes don’t like. Recently rising bond yields and tech stocks triggered a sell-off.

Think of an angry three-year-old child. He or she eventually gets over it. Markets do too. I have seen this movie play out time and time again. (I also have three kids!)

History shows us

Over the past 15 years, there have been turbulent periods in the market. Check out the graph below.

You’ll see gains and declines through the dot-com bust, 9/11, the Great Recession, wars in Iraq and Afghanistan, and four separate presidential administrations. You’ll see how staying the course is oftentimes the way to go.

The key to “investing” through market volatility, is to invest small amounts on a regular basis. Auto-Stash allows you to do just that. If you have it on, keep it on. If you’ve never tried it, now is the time. It’s an automated way to buy investments while they’re going up and when they’re going down. (This is known as dollar-cost averaging, and it’s really important.)

Long-term investors (that’s you) shouldn’t be concerned with timing the market. I’ve said this before and I’ll keep saying it—no one can predict exactly what will happen tomorrow or next week.

Stash is your investment adviser, and our goal is to look out for you and your interests by helping you continue to save and invest for your future. Although we can’t predict the future, try not to sweat the ups and downs.

It’s all about the time you are in the market that counts, not how you time it.

Brandon Krieg
CEO – Stash

The post Markets Go Down, Don’t Panic appeared first on Stash Learn.

But if you do sell, you’ll be locking in your losses. Here’s an explanation of what that means:

• You initially buy stocks, bonds, and exchange-traded funds (ETFs) at a predetermined share price.
• That price fluctuates on a daily basis, based on what’s going on in the market. That means the price can increase or decrease in value.
• If it increases, you have a gain. If it decreases, that means you have a loss.

What are losses?

Here’s a simple example:

Let’s say you bought $10 worth of shares in an Investment*  on Stash. If the value of those shares increase to $15, you have an unrealized gain of $5. If that same value decreases to $3, you have an unrealized loss of $7.

By buying and holding onto your position, and even adding to it as stock prices go down, you have the potential for more gains over time

Understand, you have a loss on paper, in your account,  but it is not realized until you sell it.

There’s a temptation to sell when the markets go down because you’ve lost money in the short run. That temptation may be particularly strong if lots of other people are selling, and there seems to be a stampede for the exits on a particular stock or fund.

If you follow their example and sell, there is no chance you’ll ever make back the money you lost by selling.

Keep this in mind: When you invest in the market, you should establish a long-term horizon, generally for many years. If you’re investing for retirement, that time frame could easily be 30 years or more.

Buying, holding and investing for the long-term

By buying and holding onto your position, and even adding to it as stock prices go down, you have the potential for more gains over time.

Although it’s impossible to predict the future, if the past is any indication, an investment in a fund that tracks the S&P 500, an index made up of hundreds of the largest companies in the U.S., would have made an average 9.7% return per year* over the period 1928 through 2017 last eight decades.

Of course, that stretch of time contains some very bad years, including the Great Depression, and the more recent financial crisis of 2008. But if investors sell their stocks on the dips, they have no chance of earning back those losses over time.

Should you ever sell?

This is not to say you should never sell. When you own stocks in individual companies that lose money, you may want to consider selling, for example, if that company starts to have serious trouble meeting its earnings forecasts, or if the industry it’s in starts to deteriorate. Then it may make sense to get out.

There can be similar situations with funds, but they are different investments vehicles that tend to spread out risk by owning shares of numerous companies at once.

Some funds focus on specific sectors, for example, technology or retail, and those can tend to be more volatile, meaning their share price can be subject to wide and sudden swings in value. That’s because they focus on one area of the economy.

Others have a broader focus, and may, for instance, follow an index such as the S&P 500, with a large number of companies in numerous sectors.

In the end, you need to research any fund you’re thinking of buying and buy numerous kinds of funds that give you broad diversification in the market. That means you should aim for a variety of assets and asset classes, including stocks and bonds, in developed as well as developing countries. Remember that if you are uncomfortable with the volatility of your portfolio at any given point in time, there’s no need to panic and you have an easy way to reduce risk. You can buy more bonds to smooth out the ups and downs in your returns over time.

Finally, establish a long-term investment strategy that keeps you in the market.

The post Look Before You Sell, Don’t Lock in Your Losses appeared first on Stash Learn.

Risk profiles: the tl:dr

Risk profile vocabulary

Let’s start with some definitions:

• Investment risk is the degree of uncertainty of your investment’s future returns
• Risk tolerance is how much risk you’re willing to tolerate, and it’s usually grouped into three levels: conservative, moderate, and aggressive

Risk tolerance factors

So, what determines whether your risk tolerance is conservative, moderate, or aggressive? There can be a lot of factors; here are a few common ones:

• Your age
• Your income
•  Your saving goals

For example, if you’re young, you may be thinking about your financial future over the long term. That might mean you may have more tolerance for the risk of losing money in the short term if you think long-term gains are possible. On the other hand, if you’re approaching retirement, more short-term risk could be outside your comfort zone.

If your budget is tight, or you don’t have much income left over after your expenses, you might feel more comfortable avoiding investments that have a higher degree of uncertainty regarding their future returns—or you might prefer to invest a small amount of money in an investment that you believe will pay off in the long run. On the flip side, if you feel like you have plenty of money over and above your living expenses, you may feel like you can tolerate a higher risk investment.

Your savings goals might also affect your risk tolerance. Depending on how much money you want to save up and how long you plan to work toward that goal, you might optimize your portfolio for short-term returns, long-term gains, or another outcome you hope to achieve.

It’s likely that you won’t determine your risk profile by looking at any one factor in isolation. Ultimately, risk tolerance is usually determined by an investor’s assessment of their financial big picture, including individual characteristics and financial goals. By looking at multiple factors and reflecting on the level of risk you feel you can tolerate, you can get a sense of your own individual risk profile—and that can help you decide on the investing strategy that feels right to you.

Risk profiles: conservative, moderate, and aggressive

If your risk profile is conservative, you probably prefer stability, even if it means smaller gains—but you want to see some growth potential too. Here’s a typical conservative risk portfolio:

• About 40% stocks
• About 60% bonds

If your risk profile is moderate, you’re likely looking for long-term growth potential (which may include slightly more risk of losses in the short term), but you still want some amount of stability. A moderate risk portfolio commonly contains:

• About 60% stocks
• About 40% bonds

If your risk profile is aggressive, chances are you want to maximize your portfolio growth in the long run, even if it means sacrificing stability in the near term. Your aggressive portfolio might look like this:

• About 80% stocks
• About 20% bonds

Investment mix and risk profile

You can see that the more aggressive the risk profile, the higher the percentage of stocks in our example portfolios. Conversely, the percentage of bonds increases when a risk profile grows more conservative. But why?

Over the long term, stocks may offer relatively higher returns. Since 1926, stocks for major corporations have had average return rates of 10% annually. However, that’s just an average over time; stock prices can rise—and fall—very quickly. As result, they are perceived as more volatile (that is, more likely to change) in the short term. Hence, a higher proportion of stocks can make sense for an aggressive risk profile. 

Bonds, on the other hand, tend to be less volatile. Unless the bond issuer defaults, investors receive a fixed return on their investment. That said, the long-term returns may be lower for bonds than for stocks. Government bonds, for example, have returned 5-6% annually since 1926. So more bonds in the portfolio could offer more stability, which might be what those with a more conservative risk profile are seeking.  This article offers a more comprehensive discussion of the types of investments listed in the risk profiles above. You can also learn how stock and bond prices relate to one another in this article.

What’s your risk profile?

Thinking about your situation and your financial goals may help you build a portfolio that more accurately reflects your risk tolerance—which could ease some of the worry about investing. When you reflect on your own tolerance for risk and your personal financial circumstances, you can get a sense of your risk profile. While there’s no way to eliminate risk in investing, it is possible to learn about how much risk a given investment may carry—and use that knowledge, combined with your risk profile, to make more confident and empowered investment decisions.

The post How Knowing Your Investment Risk Profile Can Ease Investment Anxiety appeared first on Stash Learn.

It’s a great question, and I wanted to take a moment to describe how we make our decisions.

How we choose funds

When it comes to selecting the funds we offer on Stash, we have a very deliberate and purposeful investment strategy. In fact, all of our decisions begin with an internal investment committee that carefully screens every fund and stock that you can purchase, with a goal of giving you the broadest exposure to the market possible.

We primarily offer exchange-traded funds (ETFs), which are baskets of securities that trade on an exchange, and either follow an index or some other specific set of investing guidelines. Our objective is to offer ETFs that are straightforward and follow a transparent process for security selection, based on concrete rules.

By holding these types of funds, we think investors can reduce risks that the performance of their holdings will deviate significantly from the indexes that the ETFs track, or the investment approaches that the funds have chosen.

In short, you as investors will have an idea how your investment can perform over time, based on market conditions.

Investing in what matters to you

That goes equally for a fund that may follow an index of companies that have social goals to promote worker equality, or one that might follow the stock picking strategy of large hedge funds.

Stash also chooses ETFs from the leading fund providers. Blackrock’s iShares, Charles Schwab, PIMCO, State Street Global Advisors, and Vanguard, are a few of our fund companies, and they are among the most recognized names in the investment world. These companies have long track records creating some of the most successful funds in the industry.

Additionally, our ETFs represent important economic sectors, which will can give  you the broadest possible exposure to markets. These include equity funds that focus on consumer staples, energy, financial services, healthcare and technology, to name a few. The funds also allow you to invest in both corporate and government bonds.

We want the mission of each fund to be clear, so our investors know what they’re buying.

All of our funds must also follow easily recognizable themes. For example, our funds might follow companies innovating in sustainable energy, or pushing the envelope on robotics, or companies actively seeking to conserve and supply water globally.

Finally, while accounting for all the considerations above, we try to minimize the costs associated with owning and trading an ETF, to help you maximize your returns.

You can buy fractional amounts of those funds, starting with just $5, making it simple to invest in a lot of things that interest you without spending a lot of money.

Explore all the funds we offer on Stash here.

How we choose single stocks

But Stash also lets you purchase single stocks of several dozen prominent U.S. companies. (More specifically, we let you buy fractional amounts of those stocks, as the individual price per share of some stocks might be quite high.)

And many of the same principles we apply to picking our ETFs, we also apply to the stocks we offer for sale. We choose primarily “blue chip” stocks, from some of the largest and most easily recognizable companies in the world. These companies typically have a long record of trading, with strong revenue, and profits.

The individual stocks we offer must also be from companies that have a market cap of at least $10 billion, and they must be liquid stocks.

That means there’s typically a high market demand for the shares, and they can be easily bought and sold by investors. The individual stocks we choose also can’t be thinly traded, which means the volume of shares traded on a daily basis must exceed $50 million.

Most important, we try to offer stocks that you’ll be interested in. These include a broad range of selections, from innovative technology companies to classic U.S. consumer products companies.

What you won’t find Stash selling are lesser-known stocks that are traded on unknown exchanges, or stocks from foreign companies that haven’t established a significant U.S. presence.

Explore all the individual stocks we offer on Stash here.

We’re always working for you

Here’s something else to keep in mind: Every quarter we carefully monitor the individual stocks we offer. If they fall below our criteria, we remove them from our list.

At Stash, our goal is to help you build a diversified and successful portfolio that will allow you meet all of your financial goals, whether that’s purchasing a home, saving for retirement, or some other objective with your money. We want to be here for you now, and in the long-term.

The post How Stash Chooses Investments To Help You Build Your Portfolio appeared first on Stash Learn.

It’s pretty different from the prospectus an ETF or mutual fund files, because it’s likely to contain many more details. The average investor might find much of this information confusing.

That said, it’s still important to be able to read a stock’s prospectus, especially if you’re considering investing in a company. The prospectus can give you an important snapshot of what’s going on inside the company.

What is a prospectus?

In the case of a U.S. stock, the prospectus is called an S-1 filing. (If a non-U.S. company files for an IPO on a U.S. exchange, it files something called an F-1).

Companies are legally required to file this document, and just like a fund prospectus, you can find the S-1 of any public company at the SEC website, called EDGAR.

What will you find in the S-1? ou You’ll get a sense of the company’s performance and other details that relate to how it operates.

For example, you’ll find out how much money the company actually makes, how much debt it has, and whether the company is profitable. You’ll also find out who runs the company, and how well they’re compensated.

Here are some of the most important things to look for in a stock prospectus:

The prospectus can give you an important snapshot of what’s going on inside the company.

Investment bank: The investment bank, or the underwriter, helps the company go public by purchasing the shares and reselling them to investors. It also makes a market for the stock. That means it ensures there are enough buyers and sellers of stock on the first day the stock trades. By knowing which investment bank the company used to go public, you can get a sense of the reputation of the financial backers behind the company.

Number of shares to be sold to the public: Near the top of the S-1, the document will also tell you how many shares the company is selling, and how much money it hopes to raise through the sale. For example, the prospectus may say that the company plans to sell 1 million shares at a price between $14 and $16 per share. That means it’s hoping to make between $14 and $16 million by selling shares. (A lot goes into whether or not the company can actually sell the shares for that much money, and at the end of the day, it may not be able to do so if there is too little demand for the shares.)

Balance sheet: This portion of the prospectus lays out the company’s assets, as well as any liabilities, or debts, it may have. It will tell you how much cash a company has on hand, as well as the value of its assets, which could include property, machinery, or office space. It will also tell you the dollar value of its debts, which is a critical number to know if you’re considering investing in any company. The balance sheet can help you determine the actual value of a company.

Income statement: This will tell you lots of things about a company’s operations. Two of the most important things are revenues, sometimes referred to as sales. The other is net income, or profit. The income statement will tell you about the cash flow from operations of a company, usually over a period of two to three years.

Management: The company’s executives are also named in the S-1, as well as the members of the board of directors. They’re important to know about  because they lead the company, and will have a big impact on the performance of the business. In the section about executives, you’ll also find information about their salary and other compensation, not to mention how much of the company they own.

Risks: Companies that are just listing on an exchange are likely to have more risks than mature companies, and those risks are detailed in the S-1. These can include market risks, due to competitors in the same space, the general ability to get loans to fund operations, regulations that can tamp down on earnings, or risks from having an executive who defines the company, and without whom the company could experience difficulties. The risk section might also tell you if the company has any ongoing litigation that could impact earnings and performance.

Good to know: The prospectus, or S-1, is just the start. Public companies are required to file quarterly financial documents with the SEC, called earnings reports. They must also file annual documents detailing executive compensation, and any important changes or developments that affect the company and its potential performance.

The post How Do You Read a Stock Prospectus? appeared first on Stash Learn.

How is it, then, that the industry has been allowed to take root? And how, as an investor, are you allowed to well, invest in it?

How can I legally invest in the business of cannabis?

Those who wish to legally invest in the business of cannabis have options. They can invest in legal cannabis companies that are registered in other countries (such as Canada), or invest in companies that don’t directly interact cannabis plants — they don’t grow, process, or distribute marijuana.

I’m confused. I thought marijuana was an illegal drug.

Marijuana is illegal at the federal level, as it’s a Schedule 1 controlled substance. But for many years, it’s existed in a sort of legal gray area in many states.

Using marijuana for medicinal purposes, for example, is legal in 29 states. In eight states (and Washington D.C.) it’s been legalized for recreational consumption. These state laws are at odds, however, with federal law.

Whether or not the federal government takes action against industries operating within and complying with these states laws has changed from administration to administration. Under President Obama, for example, federal law enforcement agencies were instructed not to interfere with the industry, given that state laws were being followed.

The Trump administration, on the other hand, reversed that policy.

So, companies in the U.S. working in the cannabis space are at risk of being fined or shut down as working with cannabis breaks federal law.

Why are many cannabis companies listed on Canadian exchanges?

While some publicly-traded cannabis firms are based in the U.S., they’ll list shares on international exchanges as a response to concerns about federal crackdowns or legal intervention. Many cannabis and cannabis-related companies list their shares on Canadian exchanges, for example, because Canada has announced plans to fully legalize marijuana.

As for publicly-traded domestic companies operating in the marijuana industry, many play a supporting role in the marijuana industry. Kush Bottles (ticker: KSHB), for example, is a U.S.-based company that makes storage containers for marijuana, but doesn’t produce or process it.

All of the above is very different from investing in the farming, growing, or distribution of marijuana. And that difference decreases the risk that the company could be shut down or fined by the federal government.

Can Americans legally invest in publicly-traded stocks and funds related to the business of cannabis?

Yes. There are companies both here and abroad that engage in the lawful creation, marketing or distribution of products that utilize cannabinoids as an active ingredient. This can include tobacco, fertilizers, plant foods, pesticides, as well as real estate and personal health products. It’s always a good idea to do your due diligence and check a stock or fund’s prospectus before purchasing an investment.

Learn more about investing in the business of cannabis.

The post If Cannabis is Illegal Under Federal Law, How Is It Legal to Invest In It? appeared first on Stash Learn.

One of the best ways to learn about a fund is by reading its prospectus. All stocks, bonds, mutual funds, and ETFs are required by law to file a prospectus with the Securities and Exchange Commission (SEC).

When you read a prospectus, you may see a lot of jargon. Fear not! We’ve broken it down and decoded it so you can be a smarter and more confident investor.

What’s a prospectus?

A prospectus is essentially the  financial blueprint of a stock, bond, or fund. (In this article, we’re talking about funds.) The prospectus can help you familiarize yourself with its holdings and objectives, and provide you with information about its performance, managers and fees.

In the old days, a paper version of the prospectus would have been sent to you in the mail. Today, a fund’s prospectus is easily and readily available online. Most times you can find it by simply typing the fund’s ticker and “prospectus” into a search engine.

But the SEC also maintains a database called EDGAR that includes prospectuses, and that’s fully accessible to the public. The SEC keeps all investment prospectuses updated if you want to explore investments or to keep tabs on changes to a fund.

Generally, there are two kinds of prospectus–the summary, and the long-form. It’s advisable to look at the long-form version, as it contains more information.

One of the best ways to learn about a fund is by reading its prospectus.

Here are the main things to look for:

General information

Fund objective: The name of the fund will almost always tell you what the fund’s goals are. But near the top of any prospectus, you’ll also find a general statement about the fund’s objective: Does it track in an index? Is it going after growth or value? Perhaps it focuses on a particular sector or industry, such as technology, energy, or healthcare. As you build your portfolio of stocks and funds, you want to diversify. This section will help orient you as you develop your own strategy.

Fund managers: The names of the people who established the fund, and who runs it, are typically listed. Many times, funds are passively managed because they follow an index. That means there is no active manager picking stocks. Nevertheless, the prospectus will list either an individual or an investment group that established the fund, or oversees it. This can be valuable information for you to conduct more research, or to get in touch if you want to.

Fees and expenses

It’s critical to pay attention to the fees portion of a prospectus, because it will tell you how much it will cost you each year to own the fund. Say a fund has an annual return of 5%, and the total annual fees are 2%, your actual gain would be 3%. Over time, that can really eat into what the investment returns. Generally speaking, you want to keep your fees as low as possible, and industry guidance will tell you that means less than 1%.

Management fees: The managers of the fund may charge for running it.  Management fees are typically deducted as a fixed percentage annually.

12b-1 fees: These are charged for costs associated with the marketing and promotion of the fund, including the sale of a fund through brokers.

Total annual operating expenses, or expense ratio: This is the most important number to keep track of, because it will tell you what it costs to own the fund each year. Generally speaking you want a fund with an expense ratio less than 1%, and as low as 0.25% for index funds with no active manager.

Load: You may be charged a sales fee when you purchase the fund, which is known as a load. You might also be charged a load for selling the fund. Many funds are known as no-load, meaning you can purchase shares–and sell them–without this fee. You might want to seek these out, because they will save you some money.

Redemption fee: If you sell the fund within a short time frame, you may get hit with this charge. For example, if you sell the fund before six months, you might be charged a redemption fee. It’s to discourage market timing–or buying and selling the fund quickly.

You can find out more about fees here.

Holdings

This section is critical, as it will tell you how many companies the fund invests in, and exactly which ones. If the fund is quite large, the prospectus may not tell you each company the fund holds–although that information is public, and widely available on the fund company’s website, other investment sites, or at SEC.gov–it will often tell you the top ten companies in the portfolio, and the percentage of assets it invests in each of these companies. Different companies are assigned different weights in a fund, and this information can help you figure out whether the fund’s investment strategy aligns with your objectives.

Risks

Just as you want to know how your car will perform in bad weather, at high speeds, or in traffic, you also want to know what possibile liabilities your fund might have. The risks section will help inform you about all of that. If the fund invests in only large companies, for example, it will have different risks than if it only follows much smaller companies. The same thing goes for sector-focused funds, which are a subset of the stock market. Each sector is subject to individual economic factors, events, or possible shocks. For example, new taxes or tariffs could negatively affect some industries. Shortages of raw materials might affect others, or new legislation might have consequences for yet other businesses.

Performance

This segment will tell you about the returns of the fund over a period of years. It will tell you things like the total annual return–which will be expressed as a percentage that the fund’s value either increased or decreased during a particular year. (The numbers in the performance section can be quite detailed, and may involve the return after taxes on distributions, which are a part of the fund’s profits.)

The performance portion will also compare the fund’s returns to a category, such as similar funds, typically called peers, or an index such as the S&P 500 or Russell 5000. If the fund you’ve invested in is performing better or worse, compared to a peer or index, that can be useful information about whether you want to invest in or–if you already have–hold on to the fund.

Good to know: In addition to the prospectus, fund companies produce something called a Statement of Additional Information, or SAI. It will provide you with more detailed financial information about the fund, including performance, taxes and debts, as well as details about fund managers and directors. It’s free, but you must write directly to the fund company in order to get it. The address of the fund company is typically included in the prospectus.

The post How to Read a Fund Prospectus appeared first on Stash Learn.

Do you want your investments to support companies with an eye on the greater good as well as their bottom lines? You might want to consider them in your investment portfolio.

Buzzwords: ESG, SRI, and screens

Investing strategies and investments that consider factors like sustainability, workplace equality, and political impact are often called ESG (environmental, social, and governance) or SRI (sustainable, responsible, and impact).

Both of these categories focus on similar factors. The main distinction is that ESG investing is often based on inclusionary screens, while SRI investing is based on exclusionary screens.

Survey: 71% of all investors surveyed were interested in some form of sustainable investing

Screens are how an investment is included or excluded from a portfolio or fund. If a company is creating an index, they can chose to include and exclude certain investments based on a number of factors.

If an investment or index wants to focus on sustainability? That’s an inclusionary screen. If it wants to avoid companies that have a bad track record with workplace equality? That’s an exclusionary screen.

Some factors that are considered in order for something to qualify as an ESG investment:

Environmental: Resource utilization, sustainability office, environmental impact
Social: Corporate philanthropy, working conditions, progressive and inclusive HR policies
Governance: Reporting and disclosure, product recalls, balance of powers

Who is ESG investing for?

In 2015, Forbes partnered with the news site Elite Daily to conduct a Millennial Consumer Study. The data revealed that 75% of Millennials think that “it’s either fairly or very important that a company gives back to society instead of just making a profit.”

A 2015 TIAA Survey found that 90% of Millennials agreed that “I’d like my investments to deliver competitive returns while promoting positive social and environmental outcomes.”

The survey also indicated that 76% of Millennials care more about having a positive impact on society than doing well financially. (Only 42% of non-Millennials felt similarly.)

A recent Morgan Stanley survey found that 84% of millennial investors are interested in sustainable investing. It also stated that, “female investors are more likely to factor sustainability into their investment decisions and are more likely to see the advantages of doing so.”

But it’s not only Millennials that seem to prioritize these factors.

While the aforementioned survey made it clear that almost all Millennials are down with ESG, it also found that 71% of all investors surveyed were interested in some form of sustainable investing.

Interestingly, Europe is leading the charge when it comes to ESG investing. In 2014, “58.8% of European invested assets already are invested in a sustainable way, compared to 31.3% in Canada and 17.9% in the United States*.”

Do I have to sacrifice returns?

While every fund is different and has risks that must be weighed on a case-by-case basis, many leaders in the investment field are optimistic about ESG investing.

“Over time, high ESG scores tend to result in positive effects on investment performance,” Sharon French, head of Beta Solutions of OppenheimerFunds, wrote on the company’s blog last month  “It’s not only about changing the world, it’s about understanding how the world is changing.”

Morningstar, a provider of independent investment research, dedicated their entire December/January issue to sustainable investing: “Sustainable Investing Takes Off.”

“I believe that investing itself is a socially conscious act. It means deferring gratification today for greater security and opportunity for yourself and your loved ones tomorrow,” says Don Phillips, managing director for Morningstar.

ESG investing on Stash

Excited about investments that focus on sustainability and social responsibility? There are options available to you on Stash. Explore more here. 

The post Do You Know About ESG Investments? Investing as Social Activism appeared first on Stash Learn.

If you’re willing to take the risk of asking for a higher salary, you’re probably weighing the risk of your request with the potential reward. (That’s called risk management.) You might be familiar with risk in your personal or professional life – but what does risk mean for your investments?  

What is investment risk?

Investment risk is the uncertainty of your investment’s future returns. This includes the possibility that your future return may not match the expected return. And this mis-matching of expectation and reality could negatively affect your financial welfare.

In other words, the performance of your investment may not be as successful as you hope. If you invest $100 every month, with the goal of a $7 (7%) return, you run the risk that the return on investment may be lower (or even a negative). But remember! A low expected return in the short term shouldn’t stop you from thinking long term.

Risk and investing in ETFs

Stash investments are categorized by risk level. And when it comes to foundational investments, Stash offers diversified mixes.

Each mix has a certain ratio of stocks to bonds. A greater allocation to stocks generally makes an investment more aggressive, just as a greater allocation to bonds generally makes an investment more conservative. What’s your mix? It’s all about figuring out your own taste for risk.

Risk management: How does it relate to your Stash?

Remember those personal questions we ask you in sign-up about your age and income? We’re not just asking you because we are curious. All of this information helps us diagnose your risk profile. This is based on your financial situation and investing goals.

A risk profile combines the amount of risk you are willing to take and the amount of risk you are able to take, based on those inquisitive sign-up questions. We place investors into a conservative, moderate, or aggressive risk level, and we make available suitable investments to match. 

If you’re risk averse (aka you’re not down for that risky investing business), you may be sorted into a conservative or moderate risk level. It’s also important to note that Stash won’t show you investments that don’t match your risk level.

We take our fiduciary responsibility seriously and want you to invest according to not only your beliefs and goals, but also in a responsible way that keeps the long term in mind.

The post Investment Risk: What It Is and How to Manage It appeared first on Stash Learn.