Here are the stock market holidays for 2024:

• New Years Day: Monday, Jan. 1st (observed)
• Martin Luther King Jr. Day: Monday, Jan. 15th
• President’s Day: Monday Feb. 19th
• Good Friday: Friday, March 29th
• Memorial Day: Monday, May 27th
• Juneteenth National Independence Day: Wednesday, June 19th
• Independence Day: Thursday, July 4th
• Labor Day: Monday, Sept. 2nd
• Thanksgiving Day: Thursday, Nov. 28th
• Christmas: Wednesday, Dec. 25th

Stock market holidays and early closings

In 2024, there are 10 days that the stock market closes and two days with early closings, limiting trading hours. During these holidays, traders and investors cannot buy or sell shares of companies listed on the stock exchange. The dates of these holidays are set far in advance.

Here are the U.S. stock market holidays and early closings recognized in 2024:

Bond market holidays and early closures

Similar to the stock market, the bond market observes several holidays throughout the year, during which the market is closed or has limited trading hours that affect your ability to purchase bonds. These holidays can impact trading activity, settlement dates, and other aspects of the bond market. In addition to observing the same holidays the NYSE and Nasdaq do, the bond market also closes on Columbus Day and Veterans day.

Here are the bond market holidays and early closings recognized in 2024:

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Stock market and bond market closing FAQ

What days is the stock market closed this year?

In 2024, the U.S. stock market is closed:

• Monday, Jan. 1st
• Monday, Jan. 15th
• Monday, Feb. 19th
• Friday, March 29th
• Monday, May 27th
• Wednesday, June 19th
• Thursday, July 4th
• Monday, Sept. 2nd
• Thursday, Nov. 28th
• Wednesday, Dec. 25th

Why is the stock market closed on Good Friday?

The stock market is closed on Good Friday due to both historical tradition and some practical considerations. While the initial reason for the closure was a religious observance, the lower trading volume and the desire for a long weekend break have made it a standard practice in modern times.

Is the stock market closed for Columbus Day?

No, the stock market is open on Columbus Day (Indigenous Peoples Day), which is on Oct. 14th, 2024. The bond market, however, is closed on Columbus Day.

The post Stock Market Holidays 2024 appeared first on Stash Learn.

You may ask questions like: How do bonds differ from stocks, and why might you consider them? What are the various types of bonds available, and how do they align with your investment goals? How do fluctuations in interest rates influence your bond investment, and what role does risk play in this equation?

In this article, we’ll answer all of your questions by covering the following: 

• What a bond is
• Different types of bonds
• Where to buy bonds
• How to buy bonds
• How interest rate can affect bonds
• Diversifying your portfolio
• Bond FAQs

What exactly is a bond?

Imagine you’re lending money to a friend, but instead of paying you back with a favor or just a ‘thank you,’ they agree to return your money with interest. Well, that’s, in simple terms, how a bond works, except your friend is now a company or even a government entity.

Key points about bonds:

• A bond is essentially a loan you provide to a company or government in exchange for interest payments.
• You, the investor, buy the bond and become a creditor to the issuer, the company, or the government.
• The bond’s interest rate is also known as a coupon rate, and it’s usually fixed when the bond is issued. However, as interest rates rise, the price of fixed-rate bonds can fall. (We’ll cover this more later!)
• Bonds are commonly safer than stocks because they offer more predictable returns.

What are the different types of bonds?

There are various types of bonds available for you to choose from. The bond world offers diversity to suit your preferences and cater to your personal risk tolerance. Some of the various types of bonds include:

• Government bonds: Issued by the government, these bonds are often considered very safe because governments have the power to tax and print money. Treasury bonds, EE bonds, I bonds, notes, and bills fall into this category.
• Corporate bonds: Companies issue these bonds to raise money for various projects. The risk associated with corporate bonds varies depending on the company’s financial health.
• Municipal bonds: Issued by local governments or municipalities, these bonds fund public projects like schools and roads and are perfect for risk-averse investors. They can offer tax advantages to investors.
• High-yield bonds: High-yield bonds are also known as junk bonds and come with higher risk but potentially higher returns. They’re usually issued at higher interest rates to entice investors.
• Zero-coupon bonds: These bonds don’t pay regular interest but are sold at a discount to their face value. When they mature, you get back the full face value.

Where to buy bonds

Bonds can be crucial in enhancing your financial stability when building a solid and diversified investment portfolio. So, where can you buy bonds? There are a few avenues to consider:

• Government agencies: One common option is to purchase bonds directly from government agencies. For example, you can buy U.S. Treasury bonds in the United States through the TreasuryDirect website. These bonds are typically among the safest investments because the full faith and credit of the government back them.
• Brokerage firms: Many brokerage firms offer a wide range of bonds for purchase. Here, you’ll find government bonds, corporate bonds, and municipal bonds. Corporations issue bonds to raise funds for various purposes, while municipalities issue bonds to finance local projects like schools and infrastructure.
• Bond funds and ETFs: If you’re seeking a more diversified approach, consider investing in bond funds or exchange-traded funds (ETFs). Bond ETFs track the performance of a specific bond index or a group of bonds, giving investors a convenient and efficient way to gain exposure to a diversified portfolio of bonds without directly owning the individual bonds.
• Online platforms: With the rise of online investing, there are platforms that allow you to buy bonds directly. Investment platforms, like Stash, often provide a user-friendly interface and access to a wide range of bond funds and ETFs, making it easier for investors to research and select bonds that align with their investment goals.

How to buy bonds: your step-by-step guide

1. Determine your goals

Why are you interested in buying bonds? Do you want a reliable income to support your goals, or are you aiming to increase your investment over the years? Your financial goals are your guide in this adventure. 

Whether it’s saving for education, purchasing a home, or creating a financial cushion, clearly state your aims. Your goals will influence the kind of bonds you pick and the approaches you use.

2. Choose your bonds

Research is your compass here. Start by exploring bonds offered by government agencies, banks, brokers, or online platforms. Delve into the specifics of each bond – its maturity date, coupon rate, and issuer’s reputation. 

Keep an eye on the credit rating, indicating the issuer’s ability to honor its obligations. Consider the yield – the interest you’ll receive – and weigh it against the risk you’re willing to take.

3. Consider bond funds

Bond funds are a collection of various bonds pooled together by professional fund managers, offering investors a diversified portfolio in a single investment vehicle. This diversification spreads risk across multiple bonds and can potentially yield more stable returns compared to a single bond.

Unlike individual bonds, which have a fixed maturity date and provide regular interest payments, bond funds do not have a fixed maturity date and typically distribute interest as dividends. This characteristic grants investors flexibility in terms of liquidity, as they can buy or sell shares of the fund at any time, unlike traditional bonds that mature on a set date. 

Consider your risk tolerance, investment horizon, and financial aspirations when picking a bond fund that aligns seamlessly with your goals.

4. Place your order

Once you’ve selected a bond, determine the appropriate purchase method. Bonds can be bought through brokerage accounts, financial institutions, or directly from issuers. Consider factors like transaction fees, available support, and ease of management.

Before making a purchase, carefully review the bond’s prospectus or offering statement. This document outlines key details such as interest rates, maturity date, and any associated risks. Calculate the potential yield and return on investment to ensure alignment with your financial objectives.

5. Monitor your investment

If you’ve chosen individual bonds, keep a watchful eye on their performance. Track interest payments, and stay attuned to any market fluctuations. Monitor the overall fund performance and ensure it remains aligned with your goals.

How do interest rates affect bonds?

Now, the interest rate on a bond plays a crucial role in your investment. It determines the income you’ll receive, usually paid semiannually. But here’s the twist: as interest rates change in the broader market, the value of your bond can fluctuate. If market rates rise, your fixed-rate bond might seem less attractive to new investors, potentially lowering its resale value.

Imagine you bought a bond at a fixed interest rate of 3%. Now, if newer bonds are being issued with a higher interest rate of 4%, your bond isn’t as attractive to investors anymore. So, to make your bond more appealing, its price drops. This way, your bond’s effective yield becomes competitive with the new bonds offering higher rates.

Interest rates on bonds are determined by various factors, primarily influenced by prevailing market conditions. When interest rates rise, newly issued bonds typically offer higher coupon rates to attract investors, making existing bonds with lower rates less attractive in comparison. 

Conversely, when interest rates decline, older bonds with higher coupon rates become more desirable, potentially driving up their market value.

Key takeaway:

• Interest rates can have an inverse relationship with bond prices.
• Rising rates can cause existing bond prices to fall, potentially affecting your investment value.

Bond funds and ETFs: building diversity into your portfolio

Bond funds and exchange-traded funds (ETFs) offer a convenient solution, pooling money from multiple investors to buy a diversified portfolio of bonds. It’s like a one-stop shop for bond investing. Managed by professionals, these funds provide instant diversification and come in various types, such as government bond funds, corporate bond funds, and more.

Like bond funds, ETFs offer diversification, trading on stock exchanges just like ordinary stocks. This means you can buy and sell them throughout the trading day at market prices. Stash can help you invest in corporate, government, or a mix of bonds to appropriately diversify your portfolio and cater to your ultimate financial goals.

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Bond FAQs

1. How much is a $10,000 savings bond worth?

The ultimate value of a savings bond depends on its type, interest rate, and the time it has been held. Savings bonds are typically issued at face value and earn interest over time. To find the current value of your $10,000 savings bond, you can use the U.S. Treasury’s online Savings Bond Calculator.

2. Can I buy bonds on my own?

You can purchase bonds through various channels, including banks, brokers, and online platforms. Many government bonds can be bought directly from the U.S. Treasury through their website. For corporate and municipal bonds, you’ll likely need a brokerage account.

3. How much do one-year Treasury bonds pay?

Interest rates on Treasury bonds vary based on market conditions. To find the current yield on a 1-year Treasury bond, you can visit the U.S. Treasury’s website or check financial news sources. Keep in mind that interest rates fluctuate, so the rate you see today might be different tomorrow.

4. What is a $500 savings bond worth today?

The value of a $500 savings bond depends on factors like its type, interest rate, and how long it has been held. To determine its current worth, you can use the Savings Bond Calculator provided by the U.S. Treasury. Remember, the longer you hold the bond, the more it can grow in value.

The post How to Buy Bonds in 5 Steps appeared first on Stash Learn.

Unlike stocks, which generate returns based on increases in share price, bonds earn money through interest. Thanks to their higher interest rates in periods of inflation and potential income tax benefits, I bonds can be an attractive investment. But they also come with limitations to consider before investing.

In this article, we’ll cover:

• How I bonds work
• How I bonds differ from EE bonds
• Pros & cons of investing in I bonds
• Their place in your portfolio

How do I bonds work

When buying an I bond, investors are essentially loaning the government money, which will be paid back with interest. As long as you hold the bond for at least five years, you can cash it out and receive your principal and all the interest you’ve earned. If you cash out sooner than that, you’ll lose out on some interest. 

These bonds are considered a relatively safe investment because they are fully backed by the U.S. government. As long as the government doesn’t default on its debt, which it has never done, I bonds are considered a safe option for earning inflation-adjusted, tax-deferred interest. 

How to buy I bonds

I bonds can only be purchased through the U.S. Department of the Treasury. Electronic I bonds can be purchased through a TreasuryDirect account, and paper I bonds can be purchased using your IRS tax refund. This type of bond is considered non-marketable, meaning they can’t be sold on secondary markets or held in a brokerage, IRA, or 401k account. 

I bond investment limits and penalties

Investors can directly purchase up to $10,000 worth of I bonds annually and an additional $5,000 using their tax refund, making the maximum annual investment $15,000 per person. This investment can take place all at once or in separate transactions. The minimum purchase amount is $25.

To receive interest, I bonds must be held for a minimum of 12 months. But if you want to get the most possible return, you have to hold the bond for five years; investors forfeit the last three months of interest payments if bonds are cashed out sooner. After five years, I bonds can be cashed out at any time with all accrued interest. Even though you won’t earn as much interest if you cash out early, your money is still quite liquid, as you can redeem your I bond any time without losing any of your principal investment. 

I bonds mature after 30 years, at which point they stop accruing interest. 

How I bond interest rates work

Once you understand what I bonds are, it’s important to understand how their interest rates work. 

I bonds earn interest monthly at a combined rate made up of the fixed and inflation rate. The interest rate is set twice a year (May 1 and November 1) based on the current inflation readings from the urban Consumer Price Index created by the U.S. Bureau of Labor Statistics. 

• The fixed rate: This rate is determined by the Secretary of the Treasury and is announced in May and November. The fixed rate is applied to all Series I bonds purchased during the next six months and does not change through the lifetime of the bond. The fixed rate when you buy your I bond is the fixed rate that will be used to calculate its interest rate the entire time you own it. 
• The inflation rate: The inflation rate is also announced in May and November and is determined by changes to the Consumer Price Index based on inflation. This rate is applied to the bond every six months from the bond’s issue date. The new inflation rate will be applied at the end of the six months. 

Together these two rates are used to calculate the composite or combined rate for I bonds. 

How to calculate the combined rate for I bonds

The formula for calculating the combined rate is:

[fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)] = combined rate  

For example, if the fixed rate is 0.90% and the semiannual inflation rate is 1.69%, the combined rate of the bond would be 4.30%. Here’s the equation with those numbers:

[0.90% + (2 X 1.69%) + (0.90% X 1.69%)] = 4.30%

Here’s how to do the math:

• Convert the percentages into decimals: [0.009 + (2 x 0.0169) + (0.009 x 0.0169)]
• Calculate the equations in the parentheses first: [0.009 + (0.0338) + (0.0001521)]
• Add the three numbers within the brackets: [0.0429521]
• Convert the decimal back into a percentage: 4.29521%
• Round to the nearest hundredth: 4.30%

Because interest rates change twice a year, how your I bond accrues interest over time can be confusing. Your rate is only guaranteed for six months, after which the bond’s interest rate is applied to a new principal value made up of the prior principal and the interest earned in the previous six months. 

The minimum level that the interest rate can fall to is zero. If the inflation rate is so negative that it would take away more than the fixed rate, the combined rate simply falls to zero until the next adjustment period.

When I bonds pay interest

I bonds earn interest monthly, and the interest compounds semiannually. That means the interest you earn is added to your principal every six months, and you then earn interest on both your initial investment and the interest it has accrued. 

Here’s an example of how that might play out when the interest rate changes during the year:

• Say you invest $100 in an I bond on May 1, and the combined interest rate is 4.30%.
• Six months later, on October 31, you will have earned $2.13 in interest. The interest is compounded, so your bond is now worth $102.13.
• On November 1, the I bond combined interest rate increases to 4.90%. For the next six months, you will earn that interest rate on your bond’s value of $102.13.
• Six months later, on April 30, you will have earned $2.47 in interest, and your bond will be worth $104.60.

The longer you hold your bond, the more your interest can compound. When you cash out your bond, you receive your principal plus all the interest you’ve earned, minus any penalties. 

With electronic bonds, investors are paid automatically when the bond matures at 30 years if they haven’t already cashed it out. For paper I bonds, investors must submit the paper bond to cash it. You can see the current worth of your Series I bonds in your TreasuryDirect account at any time. 

I bonds and inflation

I bonds are considered inflation-protected because the composite rate keeps up with inflation. When inflation goes up, your interest rate does too. Since the interest rate never falls below zero, your initial investment is always safe. 

I bonds could be a hedge against inflation during periods when rates for interest-bearing accounts like savings accounts and CDs aren’t keeping up with inflation or when high inflation may have negative effects on securities like stocks. For example, I bond interest rates were at 9.62% through October 2022 and 6.89% through April 2023, when inflation rates were especially high. And, because of their security, I bonds can be a reliable source of diversification to help reduce overall portfolio risk and volatility. 

I bonds and taxes

Interest earned on your I bonds is subject to federal income tax; any federal estate, gift, and excise taxes; and any state estate or inheritance taxes. They are not subject to state or local income taxes, which many people see as an advantage to this type of bond.

Investors can also earn tax-deferred interest by waiting to report their interest earnings until the year they cash out the bond and the interest is actually paid out. You also have the option to report interest every year, despite not having received the money yet. This flexibility allows you to choose when you think it will be most advantageous to pay taxes on the interest you earn. 

Another potential tax benefit of I bonds is an educational tax exclusion. Investors can exclude part or all of their I bond interest earnings when:

• They cash the I bond in the same tax year they claim the exclusion
• They paid for a qualified higher education expense the same tax year for themself, a spouse, or dependents
• They have a filing status that is not married filing separately
• They have a modified adjusted gross income below $100,800 if single or $158,650 if married and filing jointly (as of 2022)
• They were 24 or older before the bond issue date

If you want to take advantage of an educational tax exclusion, you might want to consult with a tax professional to understand how it might work for your particular situation. 

How I bonds are different than EE bonds

Both I bonds and Series EE bonds are issued by the U.S. Department of the Treasury. They share quite a few characteristics; the main difference is their interest rate. Where I bonds offer a fluctuating combined rate, EE bonds offer a fixed rate of interest that promises to double the value of the bond if held for 20 years. 

If you want to invest in more than one type of U.S. Treasury security, you can hold both I bonds and EE bonds. You can also invest in an ETF that includes various U.S. Treasury assets, such as the TFLO U.S. Treasury Income ETF.

I bonds pros & cons

I bonds have both advantages and drawbacks, and whether investors choose to utilize this inflation-protected instrument is largely determined by their goals, comfort with risk, portfolio makeup, and investment time horizon.

Risks of I bonds

Since they’re backed by the U.S. Department of the Treasury, which has never defaulted on its debt, I bonds are considered one of the lowest-risk investments out there. It is extremely unlikely that you’ll lose your initial investment. But no investment is entirely without risk. I bonds do pose two primary concerns for investors:

• Opportunity cost: Due to the variable rate, the interest rate on your I bond could fall, even as low as 0%. In that case, you lose the opportunity to earn a better return elsewhere while your money is tied up in the bond. 
• Early withdrawal: While you can cash out your bond at any time, you’ll lose out on some interest if you do so before five years, and you won’t earn any interest at all if you redeem your bond in less than a year. 

I bonds in your portfolio

I bonds might be worth considering for investors who:

• Are looking for an inflation-stable investment
• Want a very low-risk investment
• Won’t need access to the money for five or more years
• Are looking for a reliable investment to diversify their portfolio

I bonds might make less sense for investors who:

• Are looking for high-growth or income opportunities
• Are investing for retirement
• Are looking for very short-term investments
• Are hoping to make all their investments within a retirement vehicle (like a 401k or IRA) or in a brokerage account

What are I bonds’ place in your portfolio? 

I bonds can be a compelling choice for investors looking to fill the cash and fixed-income portion of a diversified portfolio. But, like all investments, it’s important to do your research before you buy to ensure you’re making the right choice for your investment goals and strategy. There are many high-yield investment opportunities to choose from, and I bonds may be just one of many options you pursue. Whether you move forward with I bonds or choose to pursue other bonds and stock combos, Stash can help you find the right balance for your portfolio so you can work towards your long-term financial goals.

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The post What are I Bonds? appeared first on Stash Learn.

In this article, we’ll cover:

• What bonds are
• What stocks are
• How stocks and bonds differ
• Their place in your portfolio

What is a bond?

Corporations and governments issue bonds to raise money. By buying a bond, you’re essentially loaning the issuer the sum of money you’re investing, and they’re agreeing to pay you interest periodically, as well as the face value of your loan when the bond reaches maturity. The maturity date, or length of time the issuer holds your principal, varies widely among different types of bonds; some even mature in less than a year, making them appealing to people looking for short-term investments.  

Investors can purchase bonds through a brokerage, investment bank, or, in the case of government bonds, directly from the U.S. government. They can be an attractive investment because of their relatively low risk and because they provide a predictable income stream. 

Types of Bonds

Different types of bonds come with varying levels of risk, expected returns, maturity, and tax considerations. Broadly, there are three types of bonds to consider: U.S. government, corporate, and municipal bonds. 

• U.S. government bonds: A government bond is issued by the federal government and is usually considered a low-risk investment because it is government backed. While these are generally the lowest-risk bond investments, they tend to offer lower rates of return, and the fixed interest rates may risk falling behind rising inflation. They are considered at low risk of default and are usually tax advantageous because they are typically exempt from state and local tax. The ten-year Treasury bond is one of the most common examples of this type of bond. 
• Municipal bonds: A state or other municipality issues a municipal bond. These are seen as having somewhat higher risk compared to government bonds but are considered safer than corporate bonds. While yields are often lower than corporate bonds, interest from these bonds is often free from federal income tax, as well as from state tax in the state where they’re issued 
• Corporate bonds: A corporate bond is issued by a corporation. These bonds typically offer higher yields, but the interest you earn is subject to taxes, and they are at higher risk of default than government bonds, as a company could declare bankruptcy. If the company defaults on the bond, you could lose both interest and your principal investment.

Pros and cons of investing in bonds

Bonds can be one element of a diversified investment portfolio, and like all investments, they come with distinct advantages and disadvantages. 

Pros:

• Fixed returns: Before investing, you can know exactly what your return will be based on the bond’s fixed interest rate. You’ll generally receive interest rates periodically, and your full principal is returned when the bond matures.
• Lower risk: The return you receive on your investment is in the form of interest, not directly tied to a company’s share price, so bonds are less subject to the risks of market volatility. In the event a company has to liquidate, bondholders are paid before shareholders. Of the three types of bonds, government-issued bonds are considered the lowest risk for default. 
• Less volatile: Bonds with a longer maturity are sensitive to changes in interest rates and inflation because they affect the real rate of return, or how much the face value and interest are actually worth. Despite this impact, bond values are still generally more stable than stock values.

Cons:

• Lower returns: Historically, bonds have seen lower returns than stocks. While investors see fixed returns, making earnings more predictable, the growth potential is usually more limited than investments in stocks. 
• Limited liquidity: Liquidity refers to how quickly you can get your hands on your cash. Some bonds are more liquid than others, but, unlike most stock investments, your investment can get locked in for a number of years without easy access to that money.
• Interest rate risk: Bonds are more directly impacted by changes in interest rates, which means their value and price can fluctuate as interest rates rise and fall. Interest rates and bonds generally have an inverse relationship, referred to as interest rate risk. When rates go up, bond prices go down, and when rates decline, bond prices typically rise. 

What is a stock?

A stock is an equity representing ownership, or shares, of a company, making the investor a shareholder and entitling them to a portion of that company’s profits. Public companies sell their stock through a stock market exchange to raise money for their business. Investors buy those stocks through a brokerage. They can make money when the stock price increases and they sell at a profit, or through dividends if a stock pays dividends. While stocks are considered riskier than bonds, they have a higher earning potential.

Types of stocks

Stocks are categorized in several ways. This includes the stock type, the company’s size, and specific stock characteristics. While these categories help group stocks by common characteristics, stocks in the same category don’t necessarily share any other significant characteristics, risks, or performance expectations.

• Common stock: Most stocks are common stocks. These represent partial ownership of a company and may or may not offer dividends. If a company fails without having assets left over, investors lose their investment.
• Preferred stock: Preferred stocks give shareholders a preference over investors who own common stock. While they don’t have voting rights in a company, these investors receive dividend payments before common shareholders do and get back a certain amount of money if the company dissolves. Not all companies offer preferred stocks. 
• Large-cap stock: These companies have a market capitalization value of more than $10 billion. Large-cap stocks are a significant portion of the U.S. equity market and are often core portfolio holdings. These tend to be more stable investments than mid-and small-cap companies but do not always offer the same growth opportunities.
• Mid-cap stock: Mid-cap stocks have a market capitalization value between $2 billion and $10 billion. These companies offer growth potential and are considered less risky than small-cap stocks. 
• Small-cap stock: A small-cap stock’s market capitalization value is generally between $250 million and $2 billion. These companies are usually growing fast but are seen as more volatile and risky than the more stable mid- and-large cap stocks.
• Growth stock: A growth stock is a share in a company that is expected to grow at a rate significantly above the market’s average growth. Because these companies are reinvesting in their growth, they generally do not pay dividends. Growth stocks are also considered more prone to volatility in share price.
• Value stock: An inverse of a growth stock, a value stock has the potential of selling at a higher price but is currently trading at a lower price than its actual worth based on its earnings, dividends, or sales. Value stocks are typically less volatile and more stable than growth stocks, making them relatively less risky.

Pros and cons of investing in stocks

Those investing in stocks are investing in a company’s potential, which comes with varying degrees of risk and possible returns. Whereas a bond generally has fixed returns, the stock market can be much harder to predict.

Pros:

• Potential for higher returns: Investors have the potential to get a much higher return with stocks than bonds in the form of both dividends and increases in stock values. 
• Liquidity: Investors can sell their stock anytime, meaning it’s easy to take money back out of the market if you need it. Note that if the timing isn’t ideal, you risk taking the money out of the market at a loss. 
• Staying ahead of inflation: Money held in the S&P 500 has had an annualized stock market return of around 10% over the long haul, which is historically a higher rate than inflation.

Cons:

• Time: Investing can be time-consuming, as it requires research, monitoring the market, and time-in-market to see returns. Compounding returns may take years or decades to see. Unlike bonds, you can’t predict at the outset when you will see a return on your investment.
• Risk: Returns are not guaranteed. It is always possible that a company does poorly and stock prices drop significantly. And there’s no guarantee stocks that drop in price will recover their value, so you may wind up selling them at a loss. stocks, you’ll experience a loss. If you can’t afford to lose your initial investment, purchasing bonds gives you a higher likelihood of hanging on to your principal compared to stocks. 
• Volatility: Stock prices can rise and fall dramatically. This volatility means that the value of your stocks could drop, sometimes dramatically and unexpectedly. Volatility can also be hard for investors who feel stressed when watching their investments rise and fall dramatically, and may cause them to make emotional selling decisions. 

Bonds vs. stocks

Stocks and bonds often form the building blocks of a diversified investment strategy. They perform differently under different market conditions, have distinct tax implications, and have different risks and returns. Where stocks can be riskier with higher returns, bonds are generally more stable with more predictable returns. 

Bonds and stocks in your investment portfolio

It doesn’t always come down to choosing between bonds vs. stocks in your portfolio. If you’re following a diversified investment strategy, you may wish to own both types of investments, in which case you’ll want to consider what percentage of bonds and stocks to hold. Owning both is considered part of a because it spreads the risk of poor performance across investments. 

Your age, time horizon, risk tolerance, investment objectives, and available money will impact how you diversify your portfolio. Often investors choose to invest in higher-risk investments with higher possible returns when they’re young, which could mean holding more stocks than bonds. On the other hand, many investors gradually reduce their risk as they approach retirement in order to focus on asset preservation more than growth, in which case having a more significant percentage of your portfolio dedicated to bonds may make sense. Your specific diversification strategy will depend on your unique situation and goals. 

Stocks vs. bonds in your investment strategy

Diversification is one of the pillars of the Stash Way, and both stocks and bonds are core components of this investment strategy. While it is not a guarantee of success, spreading your portfolio across diverse assets that behave differently in the market and have different volatility can reduce your vulnerability to the risks associated with any single asset. 

Stocks and bonds are core components of a diversified investment strategy that can help you achieve your long-term financial goals. Determining what percentage of that portfolio you want to invest in bonds vs. stocks is up to you. 

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Government bonds, municipal bonds, and corporate bonds are issued as a way for those entities to raise funds when they need to finance growth, projects, and operational costs, as well as make payments on previous bonds.

Investing in bonds can offer benefits like steady, fixed income, predictable returns, liquidity, and relatively less risk than stocks. Bonds may also be a useful way to diversify your portfolio. 

In this article, we’ll cover:

• How bonds work
• Pros and cons of bonds
• Types of bonds
• Considerations for choosing bonds

How do bonds work?

When you buy a bond, you’re giving the issuer a loan. In exchange, the issuer promises to pay you back the principal, aka the amount you loaned, plus interest over a predetermined period of time, known as the bond’s term to maturity. Investors generally receive interest payments twice a year until the bond matures, though interest payment schedules can vary. Upon maturity, the issuer must repay the principal in full. You can think of the lifecycle of a bond as having six key steps:

1. Issuance: The company, government, or municipality decides they need to borrow money by issuing bonds. At this point, they determine the amount they need to borrow and the terms of the bond, including the interest rate and the maturity date. 
2. Offering: Next, the bond is offered for sale to investors, either through a bond broker or an investment bank. These offerings can be made publicly or privately.
3. Purchase: Investors can purchase bonds that are up for offer, assuming the role of the lender. 
4. Interest: The issuer pays interest on the bond at a predetermined fixed rate, typically twice a year until the bond matures. Interest rates are based on a combination of factors, including the issuer’s credit rating and the inflation rate.
5. Maturity: A bond’s maturity date, or the date by which the issuer must repay the principal to the investor, can range from a few months to several decades. The maturity date is determined at the time of issuance.
6. Redemption: Finally, when the maturity date is reached, the issuer repays the initial loan to the investor. 

Bond prices are determined by the interaction of supply and demand in the market. When a bond is first issued, its price is typically set at the face value, which is the amount you will be repaid at maturity. However, after issuance, the bond’s price can fluctuate. One key factor that influences bond prices is changes in interest rates. When interest rates rise, newly issued bonds offer higher yields, making existing bonds with lower yields less attractive. As a result, the prices of existing bonds decrease to align with the new, higher-yielding bonds. Conversely, when interest rates decrease, existing bonds become more appealing, and their prices tend to rise.

Pros and cons of bonds

All types of investments, including bonds, come with potential risks, rewards, pros, and cons. In general, bonds can be less risky than other investments, but there are drawbacks as well.

Pros of investing in bonds

• Diversification: Bonds can be an important part of a diversified portfolio, as they may help balance out the volatility of other investments, like stocks. 
• Risk reduction: Bonds tend to be less risky than investing in stocks, because returns are not tied to fluctuations in a company’s share price, and investors receive their original capital back when the bond matures.
• Fixed income: Bond interest payments provide a steady income over time, and because the interest rate is fixed, you’ll know from the start what kind of return to expect on your investment. 

Cons of investing in bonds

• Lower returns: Bonds have historically produced lower returns than stocks, and the potential for growth is more limited. 
• Credit risk: Investing in bonds comes with credit risk, which is the risk that a bond issuer may default, failing to make interest payments or even pay back the principal. 
• Interest rate risk: Changes in interest rates may affect the value of a bond you hold. If interest rates rise above the fixed interest rate locked in when you bought a bond, the bond’s price falls. This risk is known as market risk, and it increases the longer you hold a bond.

It’s important to note that investing in bonds involves trade-offs between risk and return. Bonds offer stability and income but may have lower potential for growth. Evaluating your risk tolerance, investment objectives, and time horizon will help you determine how bonds fit into your overall investment strategy. Understanding the risks associated with bonds, such as credit risk and interest rate risk, allows you to make informed investment decisions. 

Types of Bonds

When it comes to purchasing bonds, investors have several options. Types of bonds include:

• U.S. government bonds
• Corporate bonds
• Municipal bonds

U.S. government bonds

These bonds are issued by the U.S. government to support spending like special projects, day-to-day operations, or other financial obligations. Government bonds are considered lower-risk investments because they are backed by the federal government. They tend to pay lower interest rates, but the return is usually steady. Investors can choose from five types of U.S. government bonds.

• Treasury Bills (T-Bills): T-bills are short-term investments that reach maturity in one year or less. They’re generally sold in denominations of $1,000, but some may max out at $5 million.
• Treasury Notes: These intermediate-term bonds mature in two, three, five, or ten years. They typically have a $1,000 face value, but notes that mature in two or three years generally have a $5,000 face value. 
• Treasury Bonds: Long-term treasury bonds mature in 10 to 30 years. These bonds help offset shortfalls in the federal budget and regulate the country’s money supply. Treasury bonds have $1,000 face values, and they pay out interest semi-annually.
• Treasury Inflation-Protected Securities (TIPS): These securities are indexed to inflation to protect investors from the adverse effects of rising prices. The principal increases with inflation and decreases with deflation.
• Floating Rate Notes (FRNs): Issued in electronic form only, FRNs are relatively short-term investments. They mature in two years, pay out interest four times per year, and have an interest rate that may change, or “float,” over time. They’re sold in increments of $100, with a maximum purchase amount of $10 million.

Corporate bonds

Corporate bonds are issued by companies to raise money for ongoing operations, mergers and acquisitions, business expansion, or other financial needs. These bonds generally earn higher yields than their government counterparts, but they are subject to credit and market risks as well. Investors can choose from two different types of corporate bonds.

• Investment-grade bonds: These bonds typically have a lower risk of default and receive higher scores from credit rating agencies. Investment-grade bonds tend to be issued at lower yields than other less creditworthy bonds.
• Non-investment grade bonds: Also known as a high-yield bond or a junk bond, non-investment grade bonds are deemed more likely to default. Non-investment-grade bonds tend to offer higher yields than investment-grade bonds to compensate for the greater risk.

Municipal bonds

Municipal bonds, “munis” for short, are issued by states, cities, counties, and other governmental entities to fund day-to-day obligations. They’re also used to finance capital projects like building schools, highways, and sewer systems. Generally, these investments are considered low risk; however, municipal bonds are subject to credit, inflation, and interest rate risks just like their corporate and government counterparts. The two most common types of municipal bonds are general obligation bonds and revenue bonds.

• General obligation bonds: Issued by states, cities, or counties, general obligation bonds aren’t secured by any assets. Instead, they’re backed by the “full faith and credit” of the issuer, which has the power to tax residents to pay bondholders.
• Revenue bonds: Instead of relying on taxes, revenue bonds are backed by revenue from specific municipal sources like lease fees or highway tolls. 

Considerations for choosing bonds

When it comes to buying bonds, it’s important to consider a few factors to make informed investment decisions that align with your financial goals and risk tolerance. Here are some key considerations simplified for easy understanding:

1. Evaluate Your Portfolio and Goals: Before buying bonds, assess your overall investment portfolio and determine how bonds will fit into it. Consider your investment goals, such as income generation or capital preservation. Think about your time horizon, whether you’re investing for the short term or long term, and your risk tolerance, which reflects how comfortable you are with potential fluctuations in your investment’s value.
2. Research Issuer Credit Ratings: One crucial aspect is the issuer’s financial health. Research the credit ratings assigned to bonds by rating agencies like Standard & Poor’s, Moody’s, or Fitch. These ratings indicate the issuer’s ability to repay its debt obligations. Higher-rated bonds generally have lower default risk but may offer lower yields, while lower-rated bonds may provide higher yields but carry higher credit risk.
3. Understand Maturity Dates and Coupon Rates: Maturity date refers to the length of time until the bond reaches its full repayment. Consider your investment timeline and when you’ll need access to your funds. Short-term bonds have a maturity of a few months to a few years, while long-term bonds can have maturities of 10, 20, or even 30 years.
4. Align Investments with Goals, Risk Tolerance, and Time Horizon: It’s essential to align your bond investments with your financial goals, risk tolerance, and time horizon. If you’re seeking stable income and capital preservation, you may opt for high-quality bonds with lower yields but lower risk. If you have a longer time horizon and can tolerate more risk, you might consider higher-yielding bonds, which may have lower credit ratings.

How to buy bonds

Unlike stocks, bonds are not traded on a public exchange. Once you determine the types of bonds you’d like to invest in and the amount you’d like to commit, you can purchase them from a brokerage firm, a bank, directly from the U.S. government, or by investing in an exchange-traded fund (ETF) that holds bonds. Purchasing bonds through ETFs can help further diversify your portfolio and minimize your risks because the fund holds a basket of multiple bonds.

Bonds and your diversified portfolio

Bonds can be a smart addition when diversifying your portfolio with The Stash Way, providing steady fixed income and relatively lower risk than stocks. But they don’t come without risk. As with all investments, do your homework before you dive in. 

Whether you’re interested in government, municipal, or corporate bonds, or a combo, Stash can help you find the right balance for your portfolio and work toward your long-term financial goals. 

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The post What Is a Bond? appeared first on Stash Learn.

In this article, we’ll cover:

• Fractional shares vs. whole shares
• How fractional shares work
• The benefits of fractional share investing
• The disadvantages of fractional shares
• Things to know about fractional share investing

The difference between fractional shares and whole shares

A whole share is a single share of a company’s stock, an ETF, or some other investment. Shareholders might sell for a profit, receive dividends, and vote on important company issues. But whole shares can cost hundreds or even thousands of dollars, putting them far out of reach for many investors.

If you imagine a whole share is a pie, fractional shares are slices of that pie. The pie can be divided into a few slices or a great many. Fractional shares offer many of the benefits of whole shares at a lower purchase price. 

Here’s an example: 

• Alex wants to invest $100 in Company B, but a single share costs $1,000. 
• Alex’s brokerage offers fractional shares of Company B’s stock. 
• Alex invests $100 and receives a 0.1 share of Company B. ($100 / $1,000 = 0.1)
• When Company B’s stock price rises or falls, the value of Alex’s investment rises or falls proportionate to the fractional share. 

While fractional shares allow you to invest with less money compared to whole shares, they aren’t available at every brokerage, and they may come with certain fees and limitations.

How fractional shares work

If you invest with a brokerage firm that offers fractional shares, you can purchase them like you would any other investment, like whole shares of stocks, ETFs, or mutual funds.

Until 2019, it was virtually impossible to purchase fractional shares directly from a brokerage. Many retail investors, however, were priced out of higher-value securities in the stock market. So brokers created fractional shares of popular investments, some priced at only a few dollars, to woo younger, middle-income investors. Nowadays, many brokerage firms offer fractional shares of both stocks and funds. 

To create fractional shares, brokerages purchase full shares, slice them into fractions, and parcel out the slices to multiple investors. That’s why fractional shares typically can’t be transferred to a different broker if you switch investment firms; instead, your broker will usually buy back your fractional shares. In that case, you’ll owe taxes on any profit you make from selling your shares back to the broker. 

Fractional shares created through DRIPs, stock splits, and mergers

Fractional shares are sometimes created as a consequence of dividend reinvestment programs (DRIPs), stock splits, and mergers and acquisitions. In some cases, whole shares you own may become fractional shares.

DRIPs, which repurpose dividend payments to purchase additional shares of the same investment, result in fractional shares whenever share prices exceed dividend payments.

A type of stock split may also produce fractional shares. There are two types of stock splits: a forward stock split, in which more shares are created, and a reverse stock split, in which shares are consolidated to create fewer whole shares. The value of your overall investment doesn’t change; the only alteration is the number of shares you own. 

A reverse stock split might result in whole shares you own becoming fractional shares. Here’s a hypothetical example of it might work: 

• Imagine Jaylen owned two shares of stock in Company X, each worth $100. The total investment is worth $200. ($100 * 2 = $200) 
• Company X conducts a 1:4 reverse stock split. In a reverse split, shares are consolidated to create fewer overall shares. Thus, after a 1:4 reverse split, every $100 share is a 0.25 fractional share worth $100. A full share costs $400.
• The reverse split converts Jaylen’s two whole shares, worth $100 each, to two 0.25 fractional shares worth $100 each. 

When a company merges with another company or is acquired, fractional shares may also be created, depending on how the merger or acquisition is structured.

Benefits of buying fractional shares

The availability of fractional shares has opened new doors for many investors. It takes less money to invest in stocks, giving you access to a wider pool of investments, especially stocks with high share prices. As a result, you might be able to start investing sooner and find it simpler to diversify your portfolio. 

Key fractional share investing benefits include:

• Start investing with an amount that fits your budget
• Invest in stocks that match your interests and strategy
• Get access to investing in more expensive stocks
• Explore investments in more types of securities
• Find more options for portfolio diversification

Fractional shares allow you to start out small, but you can still potentially earn a return on your money. That’s especially true if you have a long time horizon for your investment. Even small beginnings can earn you money, and with the power of compounding, they can grow significantly given enough time.

Disadvantages of fractional shares

So what are the drawbacks of purchasing a fraction of a share? They vary significantly among brokerages; you may find differences in trading rules, costs, fees, and more. It’s always critical to do your research before investing, and fractional shares are no exception.

Potential disadvantages to consider include:

• Limits on when, how, and what you can sell
• Fees for trading fractional shares
• Lower dividend income and profits
• Lack of stock voting rights
• Risk of illiquid shares that are difficult to sell
• Tax consequences when changing brokerages

Fractions or full shares: multiple paths for your portfolio

Fractional shares may be worthy of careful consideration, especially for new investors. They can open opportunities to investing that align with your budget, allowing you to start investing and diversifying your portfolio more easily. At the same time, they can come with restrictions that could surprise an unwary investor. 

If you’re interested in fractional share investing, you’ll find options at many brokerages, like Stash. Take the time to do your research, and you may find yourself investing in the stock market with more confidence.

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Fractional shares FAQ

1. Do fractional shares add up to whole shares?

Yes, although not in your portfolio. The brokerage buys a full share, divides it into slices, and sells the slices to different investors. It is possible to buy enough fractional shares of one stock to equal a whole share. For example, if a stock was available to purchase as 0.25 fractional shares, buying four of those fractional shares would equal a whole share. (0.25 x 4 = 1)

2. Do fractional shares pay dividends?

If an investment pays dividends, fractional shareholders receive a proportional share. For example, if Stock D paid a dividend of $10 per share and you owned a 0.5 share, the dividend payment would be $5. ($10 * 0.5 = $5)

3. Is it better to buy fractional shares or whole stocks?

Ultimately, that’s a question every investor must answer for themselves. But fractional shares might be a good fit for your portfolio if you’re new to investing, or want more diversification in your portfolio without investing a lot more money. It’s also important to understand your brokerage’s rules and costs. In some cases, you might face limitations or fees that tip the scales away from fractional share investing.

4. Is it worth buying fractional shares?

The answer depends on your financial situation, your investment strategy, and the brokerage you’ve chosen. For example, you might discover fees that make fractional shares seem less worthwhile. Or you might want the freedom to transfer your portfolio; fractional shares are typically not transferable between brokerage firms, and liquidating them can have tax consequences.

That said, fractional shares offer a great deal of flexibility. To decide whether fractional shares are right for you, consider your long-term goals, brokerage fees and costs, and how closely its rules align with your financial strategy. And remember that all investments involve risk, including the risk that you could lose money.

5. Are ETFs available as fractional shares?

Sometimes. Each brokerage chooses the securities it will sell as fractional shares; some offer fractional shares in ETFs.

6. Can you sell fractional shares?

As a general rule, brokerages allow you to trade your fractional shares, although each has different rules and costs. But your brokerage may not guarantee liquidity. Liquidity measures how quickly and easily you can sell an investment without taking a loss. Lack of liquidity, or illiquid shares, can take longer to sell, and you might lose money. 

7. Are fractional shares included in DRIPs?

A DRIP uses dividends you earn to purchase more shares of the same security. DRIPs frequently result in fractional share ownership, because any given dividend payment might not be enough to buy a full share of stock.

How to invest in fractional shares with Stash

Learning how to invest in fractional shares can be simple with Stash. Just open an account, choose the investments that interest you, and Stash does the rest. Stash offers fractional shares of ETFs and single stocks, starting at any dollar amount. If you’re not sure where to start, you might try the Smart Portfolio, which creates a portfolio aligned with your risk profile. 

If you’ve ever wished you could get in on an exciting stock but found the share price too steep, you might want to consider fractional shares. Investing can be accessible when you take it one slice at a time.

The post What Are Fractional Shares? appeared first on Stash Learn.

Short-term investments are a great way to prepare your pockets for these life-changing events or simply help you dip your toes into investing to earn passive income.

Short-term investments are ideal if you want to see returns one to three years later. For anything over three years, you’re looking at a long-term investment. Short-term investments have minimal risks, positive income-generation capabilities, and are less likely to be hit by inflation over time.

Short-term investments make investing easy for beginners because they are liquid, low-risk, stable, and have low transaction fees. Some of the best short-term investments are high-yield savings accounts, money market accounts, and government bonds. Read on for more!

So instead of storing your money in a checking account, which may cost you in fees, try investing it to earn more money than you started with.

Try one of these 11 best short-term investments to get started:

• High-yield savings accounts
• Certificates of deposit
• Money market accounts
• Money market mutual funds
• Cash management accounts
• Short-term corporate bond funds
• Short-term government bonds
• Municipal bonds
• Treasury bills
• Arbitrage funds
• Real estate investment trusts

1. High-yield savings accounts

Best for: super short-term savings, such as saving for a trip or building an emergency fund

High-yield savings accounts work similarly to standard savings accounts where deposited money earns interest. However, the two differ in benefits and requirements. High-yield accounts often have higher minimum balance requirements as well as higher interest rates—anywhere from 10 to 25 times higher—compared to traditional savings accounts.

The best part about high-yield savings accounts is you can withdraw money when you need it. There’s no need to wait until you meet a time requirement.

2. Certificates of deposit (CDs)

Best for: saving for near-future spending

Certificates of deposit (CDs) are bank-issued savings investments that earn interest over a fixed length of time. They can be short- or long-term investments, depending on the CD’s maturity date. Term lengths range from just a few months to five or 10 years. You can face a financial penalty for withdrawing early.

Interest rates for CDs are locked in when you open the account. They’re similar to high-yield savings accounts but with more interest earned over time. You can earn more interest with CDs because they pay higher interest rates in exchange for an agreement to store away your money for a specific amount of time.

After a CD matures, the funds can be withdrawn or rolled into a new CD. If you do nothing, the funds will be rolled into a new CD and continue earning interest.

3. Money market accounts (MMA)

Best for: large but very short-term savings goals, such as a car down payment or loan payoff

Money market accounts are very similar to high-yield savings accounts and CDs, but offer more flexibility on withdrawals. Account holders can access funds in an MMA at any time and through an ATM or by writing a check. However, similar to traditional savings accounts, banks may place a limit of six monthly withdrawals.

Minimum balance requirements are typically higher than standard savings accounts. Some may vary from $100 to several thousand dollars.

4. Money market mutual funds

Best for: the adventurous investor with a hands-off approach

A money market mutual fund is a collective investment where several investors contribute funds for the fund manager to distribute into various short-term securities. Brokers and other financial firms manage these mutual funds. They invest the mutual funds into other short-term investment types within this list.

Money market mutual funds often have balance requirements and incur transaction fees and expense ratios. Though account holders are hands-off, they can make quick withdrawals and investment changes.

5. Cash management accounts

Best for: novice investors wanting a hands-off experience

Cash management accounts are another alternative to traditional savings and checking bank accounts. They often have the flexibility of traditional checking accounts but with the added benefit of earning interest.

Rather than being held by a singular bank, cash management accounts are operated by brokers or robo-advisors. Your broker or advisor disperses your investments into different accounts at partnering banks for you. Depending on the firm you work with, you may receive a debit card or checkbook to make withdrawals easily.

6. Short-term corporate bonds

Best for: conservative investors looking to diversify their portfolio risk

Companies sell short-term corporate bonds to fund new ventures, expand into new markets, pay off debt, and so on. Similar to other short-term investments, short-term corporate bonds have maturity dates and earn interest.

Corporate bonds are subject to default risk. A business can go under and default on its bonds. If this occurs, bondholders don’t receive their principal and interest returns. You should be wary of the companies you purchase bonds from—the newer the business, the higher the risk.

Corporate bonds should not be confused with buying stock in a company. Publicly-traded companies sell ownership shares (stock) to investors. If the company grows, investors can sell their shares for more than they paid for. Buying stock is a much riskier, long-term option.

7. Short-term government bonds

Best for: conservative investors looking for wealth preservation

Short-term government bonds work similarly to corporate bonds but are backed by the federal government rather than a company. Citizens who buy bonds are essentially loaning money to the government for things like infrastructure improvements and debt payoff.

The federal government’s bonds are less risky than corporate bonds since the government is more financially reliable. However, the returns aren’t quite as high, which makes this short-term investment better for wealth preservation rather than growth.

8. Municipal bonds

Best for: investors looking for tax advantages

Municipal bonds are funded by state and local governments. Again, bond sales pay for the state, county, or city to pave roads, build schools, and so on.

The bonds earn interest, and bondholders can cash in once the bond matures. Often, investors don’t pay taxes on federal, state, or local municipal bond interest.

The smaller the government, the higher the risk of default. However, the risk for municipal bonds is fairly low and actually comes from inflation rather than defaults. But, even though municipal bonds hold the highest risk of government bonds, they also come with higher return potential.

9. Treasury bills (T-bills)

Best for: safe investors looking to invest for less than a year

The U.S. Treasury sells short-term bonds called treasury bills (T-bills). The Treasury offers two other types of bonds—T-bonds and T-notes—but T-bills are best for short-term investors. T-bills are typically sold in $100 increments and sometimes at a slightly discounted rate. Term lengths can be as short as a few weeks up to one year.

10. Arbitrage funds

Best for: conservative investors looking to profit from a volatile market

Arbitrage funds are a type of mutual fund that is fairly diverse but low-risk. With an arbitrage fund, a group of investors purchases bonds, stock, or other securities in the cash market and sells the investments in a different market for a higher selling price.

Like other mutual funds, one manager handles an arbitrage fund. They purchase and sell various investments simultaneously.

This type of investment is generally safe due to the constant movement of securities, though the returns aren’t guaranteed to be significant. Arbitrage funds rely on capitalizing on price differences in varying markets, which might not always exist or be as steep.

Arbitrage funds are treated as equity funds for tax purposes, meaning the tax rate depends on the holding period. Holding periods longer than a year are taxed like long-term capital gains, whereas holding periods of less than a year are taxed like short-term capital gains.

11. Real estate investment trusts (REITs)

Best for: investors looking for real estate sector exposure

Real estate investment trusts (REITs) are companies that finance or own income-producing real estate properties of various types. The five main types of REITs are:

• Retail
• Residential
• Health care
• Office
• Mortgage

Investing in REITs is not the same as owning real estate, which would be a long-term investment. Instead, REITs allow individuals to help fund a real estate development project by buying shares.

It’s much more affordable than purchasing property, and shareholders earn passive income through the company’s profits.

What to look for in a short-term investment

Many short-term investment types share several commonalities, including the four characteristics that make a good short-term investment—high in liquidity and stability and low in risk and transaction cost.

Liquidity

A defining characteristic of a short-term investment is liquidity, meaning investors can easily cash in or access their funds. Short-term investments typically last no more than three years, with many maturing in less than a year.

Low risk

Short-term investments are notoriously known for being safe, low-risk investments. This is because of their guaranteed returns from interest, low chances of loss, and the FDIC insurance that most banks offer.

Stability

The short-term investing market is not as volatile as the stock market. The value of short-term investments doesn’t typically fluctuate much.

Low transaction cost

Short-term investments often require a short stack of cash to get started in comparison to other investments, like a house. Some offer options for investing with as little money as possible. Though, some money market accounts have minimum balances of $1,000 or more.

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FAQ about short-term investments

Still have questions about short-term investments? Here are your answers.

What is considered a short-term investment?

To be considered a short-term investment, the investment should last no longer than three years (possibly much shorter). Short-term investments are low-risk, liquid, and predictable, but generally lower reward.

Are short-term investments risky?

Typically, short-term investments aren’t risky, which is why they’re great for conservative or novice investors. However, some short-term investments are riskier than others, like corporate bonds and real estate investment trusts.

What is the safest short-term investment?

While nothing is guaranteed, most short-term investments are safe. High-yield savings accounts, certificates of deposit, and government bonds are some of the safest short-term investments available today.

What is the best short-term investment?

The best short-term investment really comes down to your individual goals and lifestyle. When selecting which is best for you, take note of your priorities and ask yourself the following questions:

• Am I investing to build wealth or to protect my savings?
• Am I okay with a potential loss in principal?
• Do I want the safest short-term investment?
• Do I want the short-term investment with the highest return?
• When do I need to access my investments?
• Do I want to handle my investments myself, or do I want someone else to?

Investing doesn’t have to be intimidating. Download Stash today and start investing like a pro.

The post 11 Best Short-Term Investments for Beginners in 2023 appeared first on Stash Learn.

Instead of keeping your disposable income in a savings account that earns very little, Stash recommends that you safely invest in an exchange-traded fund (ETF) that we call “U.S. Treasury Income,” more often known as iShares Treasury Floating Rate Bond ETF (ticker TFLO). As of February 10, 2023, U.S. Treasury Income pays a monthly distribution that equals 4.56% a year.

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TFLO frequently asked questions:

How does TFLO compare to rates paid by banks on savings accounts?  

As of January 17, 2023, the national average interest rate being paid on savings accounts is 0.33%. That means if you put $100 in a savings account, you would have $100.33 a year later (and possibly less if your bank charged you a monthly fee.) Many Americans have become accustomed to earning nothing on their hard-earned money. It has been commonplace for consumers to keep their cash at a bank and be paid little to nothing from their bank. But this hasn’t always been the case. 

During the 1990s, it was common for banks to pay 4-5% per year on savings accounts. In the 1980s, rates being paid on savings accounts were as high as 8%. During the Financial Crisis of 2007-2008, however,  the Federal Reserve (the “Fed”) cut interest rates to zero in order to stabilize the banking and financial system. The Fed uses interest rates to fuel or slow down the economy,similar to how you use  your gas pedal and brakes on your car. The Fed cuts rates to speed up the economy and raises rates to slow the economy and reign in spending. 

Last year, you may have heard people talking about inflation or you may have experienced it first hand when the prices of most everything went up. At the start of the pandemic, governments around the world, including the U.S., “printed” trillions of dollars in order to support the global economy. This decision led to excess spending by people and companies, which drove up demand (and thus prices) of many goods and services. In addition, pandemic-related shutdowns, coupled with Russia’s invasion of Ukraine, led to supply chain issues which further exacerbated the inflation issue. In order to address inflation and reign in spending, the Fed began the process of raising interest rates.

Typically the rates that you earn on your cash at a bank are determined by the interest rates set by the Fed.  However, despite higher interest rates, banks have not yet increased the amount they are paying to hold your cash. The good news is that there are investment products that offer high monthly distributions with limited investment risk. 

What is an Exchange-Traded Fund? 

An exchange-traded fund (ETF) is an investment that trades like a stock. However, ETFs are funds that hold a combination of stocks, bonds and/or other securities. Generally, by holding a bucket of different investments, ETFs balance risk and are safer than investing in one asset. Some ETFs track a market sector like energy or technology, while others mirror an index like the S&P 500. U.S. Treasury Income is an ETF that invests in U.S. Treasury obligations, which are considered the safest investments available as they are backed by the U.S. Government.  

Similar to a stock, an investor generally can earn money from an ETF in two ways: an ETF price increases or pays dividends. For example (purely for illustrative purposes),  if an investor named Gabby purchases an ETF that costs $50 and then next year, the purchase price increases to $60, Gabby has made $10, if she chooses to sell her position. If the ETF price drops, then Gabby would lose money. Gabby could also make money through an ETF’s dividends. These are part of the fund’s earnings and capital gains. Not all ETFs pay dividends, but many do. To see if an ETF pays dividends, Gabby would want to look at the potential dividend yield, which is the amount the fund pays out compared to the current market price of the share. At Stash, we recommend looking at the 30 Day SEC yield for all ETFs, as this is a standardized number that all ETFs publish. You can find this in the dividend yield section of all ETFs on Stash.

Now, here’s what’s different about U.S. Treasury Income. Unlike the example above, because of the underlying Treasurys that this ETF holds (more on this below), the price typically does not change that much. In fact, during all of 2022, the daily price change (adjusted for monthly distributions) stayed in a range of -0.10% and +0.15%. In full disclosure, Stash can’t guarantee this level of stability going forward, but based on the ETF’s underlying holdings, it would be reasonable to assume this pattern in the future. 

Instead of making money through price changes, U.S. Treasury Income pays a monthly distribution each month that is based on the most current interest rate. As of February 10, 2023, these monthly distributions add up to over 4.56% per year.  As long as the Fed keeps interest rates at these levels, U.S. Treasury Income should pay a similar monthly distribution. The current expectation is that the Fed will continue to raise rates in 2023, so this distribution may increase. If the Fed were to cut rates, then the distribution would decrease.

What are Treasurys? 

The U.S. Treasury, established in 1789, is most well-known for its job of raising money for the government’s expenses. The Treasury primarily raises this money through taxes and borrowing money from investors in the form of various Treasury obligations such as Treasury Bills, Notes, and Bonds (“Treasurys”). Treasurys are loans to the U.S. government for a set period of time, in exchange for a set rate of return or yield. When an investor chooses to purchase a Treasury with cash, they loan their money to the government. In exchange, the U.S. government promises to pay back the full loan amount (principal) plus interest over the life (maturity) of the loan. These Treasurys make regularly scheduled payments throughout the loan term. Treasurys are considered to be low-risk because they are backed by the U.S. government. In fact, unlike many other borrowers, the U.S. government can just raise taxes or print more money in order to pay its obligations. Many investors purchase Treasurys to diversify their investments, especially if they want to put their idle cash to work. As cash sits in a low to-no-interest bank account, inflation chips away at its value, so many investors put their money in a Treasury as a more productive alternative. 

What is the actual ETF?

At Stash, we know that the actual names of ETFs are sometimes long and confusing which is why we put shorter names that aim to simply describe what the ETF is. In the case of U.S. Treasury Income, the actual ETF is the iShares Treasury Floating Rate Bond ETF (ticker TFLO). Learn more about the ETF here. iShares, which is owned by Blackrock, is the largest provider of ETFs based on assets under management. Stash does not have any economic relationship with iShares.  

What does U.S. Treasury Income hold?

U.S. Treasury Income holds a combination of U.S. Treasurys that have a fluctuating interest rate. These Treasurys are called floating rate notes (“FRN”) and are short-term loans to the U.S. government that pay investors an income based on current market interest rates.

The U.S. government began issuing these FRNs in 2014. The interest rate on these FRNs resets weekly to the rate paid on the most current 3-month U.S. Treasury Bills. Since the interest rate resets every week, the value of the FRNs does not change. Typically the price of a debt security moves in the opposite direction of interest rates, so when interest rates rise, the price of the debt security goes down. That is not the case with these US Treasury FRNs. Since the TFLO ETF holds these Treasury FRNs, the price of the ETF tends to be very stable. As interest rates move higher, these FRNs pay out more, thus the ETF has more income to distribute and investors can benefit from the higher yields sooner.

As an added bonus, since TFLO holds U.S. Treasurys, virtually all of the income earned from distributions is state and local tax-exempt. 

How much should I invest in U.S. Treasury Income?

While Stash always recommends investing for the long term in a diversified portfolio, we know that many people may have short-term cash needs (for example, a large planned purchase within the next year) which may have some short-term risk associated with it. In these cases, we recommend investing this idle cash in U.S. Treasury Income as it offers a nice monthly distribution, is extremely safe relative to most investments, and offers daily liquidity or access while the stock market is open.  

What are the major risks? 

No investment comes without risks; however, Treasurys are considered to be extremely low-risk. This is because an investor in Treasurys is getting a guarantee from the U.S. government that the loan will be repaid. While there is talk in the news about the U.S. hitting its debt ceiling in the coming months, investors still consider U.S. Treasurys to be the safest investment. The talk over the debt ceiling is the result of the U.S. running a budget deficit (e.g., spending more than it is raising from taxes) for many years. While the government will need to figure out how to resolve this, which will result in a lot of saber rattling by both political parties, Stash does not believe that an actual default by the U.S. government is a realistic risk. Ultimately, the U.S. government has many options, including cutting spending, raising taxes, or just agreeing to raise the debt ceiling. 

Another risk to be aware of is that U.S. Treasury Income is not an investment in actual U.S. Treasurys, rather it is an investment in an ETF that owns U.S. Treasurys. While there is some small risk of tracking error or trading errors (for example, the ETF does not perform inline with its underlying holdings), Stash believes that TFLO is one of the safer ETF investments available. Therefore, TFLO isn’t technically a risk-free investment (no investment is 100% void of risk), but it is considered by many investors as close to it. 

Start investing now.

Invest in TFLO and make your idle cash work for you.

Start now

The post How Investing in TFLO Could Earn You Passive Income appeared first on Stash Learn.

• Stocks
• Bonds
• Funds

Stocks and bonds frequently form the building blocks of portfolio and investment strategy. Because they tend to perform differently under different market conditions, investors can use this variance to help meet their investment goals. 

Forms of investment

Here’s an overview of these different types of investments, where and how to invest in them, and the part they can play in your portfolio.

Stocks

Purchasing a stock means buying a small piece of ownership, or a share, in a company. Stocks are bought and sold on stock exchanges. Generally speaking, stock prices rise and fall based on investor demand. Most of the time, the more people want to purchase a particular stock, the higher the price is likely to be. When fewer people want that stock, the price may drop.

You can potentially make money on stocks by selling your shares at a higher price than you paid for them. But stock prices can be volatile, meaning they may rise and fall quickly. Investor demand and stock prices fluctuate for any number of reasons. For example, good news, such as strong sales numbers or the unveiling of a popular new product, could cause stock prices to rise. Bad news, like product safety issues or poor revenue numbers, could cause stock prices to fall.  After prices fall, it can take a while for them to recover. That’s one of the reasons stocks are often held as a long-term form of investment.

Not all successful investment strategies involve holding stocks for long periods, however. More sophisticated investors, such as hedge funds, might use different types of investment strategies designed to generate returns over the short term, such as shorting a stock. Investors using this strategy start by borrowing stocks, then selling them quickly in the hope they can buy them back later at a lower price. If they can, they return the stocks to their original owner and keep the difference in price as profit.

Other sophisticated strategies include using stock options, which are contracts that allow investors to buy or sell a given stock at a set price and time. Options allow investors to bet markets will rise and offer some downside protection. For example, if you buy an option for $20 a share and prices go up to $30, you can use your option to buy shares at the lower price before selling at the higher price. If you buy the same option for $20 per share and stock prices fall, you’re under no obligation to use the option to buy.

You may also get a return on your investment through dividends, which are a share of the company’s profits. Companies typically face a choice between spending their earnings to research and develop new products or distributing them to shareholders as dividends. Many established companies with predictable revenues and expenses choose to divide a portion of their earnings among investors as a regular cash dividend during the year.

Dividends can also make stocks more attractive to investors, as consistent dividend payments are a sign of consistent profits. Since share prices generally rise when stocks become more attractive, dividends can amplify returns in two ways: by paying investors in cash and by increasing stock prices and returns over time.

Bonds

Bonds are interest-bearing securities issued by companies or governments. Investors can purchase them for a set amount of time, known as a bond term. Bonds are a form of debt that the issuer takes out, similar to a loan; in this case, you are “loaning” the issuer money when you purchase the bond. In exchange for this loan, the company or government promises to pay you interest and repay the original amount of the loan when the term is up. Generally speaking, interest is paid regularly in the form of a “coupon.”

Bonds have three basic components: 

• The price at which you buy them
• The interest rate that’s used to calculate your coupon 
• The yield, or return an investor receives between the time they purchase the bond and the end of the loan term 

The interest rate stays the same throughout the life of the bond, while the bond’s price will usually change based on the movement of interest rates in the economy.

Those price changes happen because bonds become more or less attractive to other investors based on a combination of current interest rates and the return another investor could get buying a new bond. When interest rates go down, older bonds that pay higher coupons may become more appealing, which can drive their price up.

The opposite happens when interest rates go up: The price of older bonds that pay lower coupons generally goes down. It’s important to remember that in either case, the interest rate you get paid for holding the bond remains the same.

Stocks vs. bonds: risks and returns 

Over the long term, stocks may offer higher returns than bonds. Since 1926, stocks from large companies have returned an average of 10% per year. For 2020 and going forward, however, the projected compound return for large U.S stocks is forecast to be about 4%. But because stock prices can be volatile, they are usually considered a more risky form of investment than bonds. Unless the bond issuer defaults, you’ll receive a fixed return over the life of the bond, in addition to having your principal repaid. That’s one reason bonds are also called fixed-income investments.

The lower risk associated with bonds often translates into lower long-term returns compared to stocks. Government bonds, which are backed by the United States Treasury, have returned between 5% and 6% since 1926. Bonds issued by private companies, or corporate bonds, range in quality based on the likelihood that their issuer will be able to make timely payments. In most cases, the highest-quality corporate bonds pay more interest than government bonds, even though large, established blue-chip companies are unlikely to default on their payments.

On the other end of the spectrum, companies with a shakier track record and a higher risk of default tend to issue bonds with much higher interest rates. While these so-called junk or high-yield bonds offer investors a better return, the chances that investors actually receive all their payments are substantially lower.

Building a portfolio of stocks and bonds

While you can buy a single stock or bond, many investors choose different types of investment vehicles that help them build a more varied portfolio. This strategy is called diversification: a form of investment that helps investors spread the risk of poor performance among multiple securities. That way, if a particular business or industry runs into trouble, other more successful businesses or industries can help balance out your returns. Investment products such as mutual funds, exchange-traded funds (ETFs), and index funds offer investors opportunities to buy a range of stocks, bonds, or a mix of both. 

Different types of investment vehicles 

Mutual funds

A mutual fund consists of a basket of investments chosen by fund managers. When you buy a share in a mutual fund, you buy a share of the portfolio. Buying a share of the portfolio means you’re buying a fraction of a share from each of the stocks and/or bonds the fund holds. 

Mutual fund prices are determined at the end of the trading day and depend on the total price of all the assets in the fund’s portfolio. At the end of each day, mutual funds calculate their per-share price, or net asset value. The total value of the portfolio is divided by the number of outstanding shares held by investors. That calculation provides the price at which shareholders can buy or sell.

Exchange-traded funds (ETFs)

ETFs are a form of investment similar to mutual funds. Both hold a basket of investments, and owning a share equates to owning a fraction of a share of each of the stocks and/or bonds the fund holds. However, shares of ETFs trade on exchanges all day long, just like individual stocks. As a result, the price of a share in an ETF can fluctuate throughout the day based on stock market demand.

Index funds

The investment professionals who build mutual funds and ETFs usually have a strategy in mind. Often, that means investing in a variety of stocks or bonds with similar traits, such as large companies, small companies, or companies from a certain industry or a particular part of the world. Index funds are a type of mutual fund or ETF that matches the companies making up a major stock or bond index, such as the S&P 500, the Dow Jones Industrial Average, or the Bloomberg Barclays Aggregate Bond Index. These funds aren’t actively managed by investment professionals. Consequently, buying shares of these funds tends to have lower costs than actively managed mutual funds or ETFs.

How to get started with different types of investments

Whether you’re looking to invest in stocks, bonds, or funds, you generally need to open a brokerage account or another specialized account like a 401(k) or an IRA. You can also purchase government bonds online directly from the U.S. Treasury.

Your goals will help you determine the different types of investment options you choose. Brokerage accounts can be good for short-term investment goals, since they provide relatively easy access to your money. Retirement accounts may be advantageous for long-term goals, since they don’t allow easy withdrawals. 

Stash has boiled down its investing philosophy into the Stash Way, which includes leveraging various forms of investment for a diverse portfolio, investing regularly, and investing for the long term.

The post What are the different types of investments? appeared first on Stash Learn.

But sometimes, businesses can encounter difficulties, or may even declare bankruptcy. In such cases, they may also be removed from exchanges, in a process known as delisting. 

Here’s what can happen:

• Different exchanges have different rules, but generally speaking, when a company’s shares fall below a threshold of $1 for an extended period of time, the stock may get delisted.
• When a company is delisted, it gets kicked off the exchange, and its shares stop trading there.
• The company may then go on to trade on a smaller exchange, called an “over the counter” (OTC) exchange, such as the Over the Counter Bulletin Board (OTCBB), sometimes called the Pink Sheets. (In times past, the listings of over-the-counter stocks were actually printed on pink sheets of paper.)
• Typically, before a stock is delisted, the company has about six months to get its share price back up. To boost the value of its shares, a company may do something called a reverse stock split.  With a reverse stock split, a company reduces the number of shares it has for sale, which can drive up the value of the shares. It’s the opposite of a stock split, where a company increases the number of shares it has outstanding, to make the shares more affordable. The total market value of the company, which is the total value of all of the shares outstanding, would not change. However, the share price would.
• A company may also be delisted if its market cap, or total dollar value on the market, falls below a certain amount over a 30-day period. In the case of the NYSE, that dollar value is $15 million.
• When a company is delisted, it is not subject to as many requirements from regulatory bodies, such as the Securities and Exchange Commission. The company may not file quarterly financial statements, or provide as much information about its operations.The lack of information can make it difficult to evaluate how the business is performing, and can add more risk to owning the shares.
• Good to know: If you own stock that is delisted, you still own the shares.

All investing involves risk, and you can always lose money on your investments. Stash does not recommend purchasing the shares of companies that are traded OTC. If you do, however, choose to buy them, you should exercise extreme caution as they may be hard to sell for liquidity reasons, or a lack of buyers.

The post What Happens When a Company Gets Delisted? appeared first on Stash Learn.

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.

Take Warren Buffet as an example. He’s the third-richest man in the U.S.  But he didn’t start out wealthy. In fact, he was born during the Great Depression, bought his first stock when he was 11 years old, and continued to invest earnings from his paper route. From these small beginnings, Buffet became  a millionaire by age 30 and now, as the head of Berkshire Hathaway, he has a net worth of $89 billion.

Buffet’s story is a powerful lesson about starting small—and early—when it comes to investing. You don’t need a large sum to get started. In fact, you can often open a brokerage account with just a few dollars, adding to your savings as you go. Exactly how much money you need to start investing depends on your investment goals and the types of investments that interest you.

What to consider before investing

Investing can be an important tool to help you build wealth, potentially earning you more money than you would earn in a bank account.  The average interest rate for a savings account is 0.09%,  according to the Federal Deposit Insurance Corporation (FDIC), while investors might see an average return of 5.6% on their investments. Returns will vary for each investor. 

But stock markets can be volatile, and you can potentially lose money. That’s why you should consider making investing a part of a long-term financial plan, which can give you a chance to ride out volatility and give you a greater opportunity to experience growth. 

Before you start investing, consider your goals and time horizon. Do you have long-term objectives like paying for your child’s education in the next 18 years to 20 years, or funding your retirement savings over the next three or four decades? If you are looking to save for a shorter-term goal, like buying a new car, it might make sense to save in a high-yield savings account that gives you quick access to your cash without the risk that you’ll lose a large amount of money.

Before you start investing, you may also consider establishing an emergency fund, equal to three to six months worth of your monthly expenses that you keep liquid in a savings account. Emergency funds help cover you in the case of unexpected expenses or events, such as losing your job, helping prevent you from going into debt.  

To find the money to invest, it helps to have a budget. To begin, calculate your monthly income. Then add up all of your necessary expenses, such as rent, utilities, car payments, insurance and food. Subtract this figure from your total income and what you have left is money for discretionary spending. This is where you can find the cash to add to your savings and investment accounts.  

Finally, if your employer offers a retirement plan, such as a 401(k), with matching funds the question of how much to save may be an easy one. Try to save up to the match, since your employer contributions are essentially free money. 

Keep in mind that investing comes with risk. You could lose your initial investment if a company goes bankrupt or a bond issuer defaults, for example. You can mitigate risk by diversifying your portfolio with a mix of many different kinds of stocks and bonds.

Why start investing small

When you make your first forays into investing, you may be constrained by your budget, and you may only have a few dollars to spare. Even so, investing can be worth it due to the power of compounding—the returns you earn on your returns, that can help your money grow over time. 

How much money do you need to start investing?

The cost to start investing will vary by investment type. Here’s a look:

Stocks

When you buy a stock, you’re buying shares of ownership in a company. The price per share can range from a few cents for penny stocks to thousands of dollars. You can buy individual shares, and some institutions allow you to buy fractional shares, pieces of a whole share of stock you might otherwise be unable to afford otherwise. For example, if you can’t afford the more than $2,000 it costs to buy a share of Amazon, you might be able to buy a fraction of a share for $25 or less. 

You typically invest in stocks through a brokerage account. Many online brokers have no minimum investment, and charge low or no fees to trade. 

Bonds

When you buy a bond, you are loaning a company or government money. Bonds function much like an I.O.U. The issuer agrees to repay your principal at a later date, and meanwhile they pay you interest. Like stocks, bonds come in a range of prices. U.S. Treasuries, considered some of the safest bonds, are sold in $100 increments. The price of corporate bonds varies, but you can often buy them for about $100 as well. You can also gain access to the bond market through bond funds, which can give you access to many different bonds through one investment vehicle, which you can buy for as low as a few dollars per share. 

Mutual funds

If you’re not interested in making single investments in stocks and bonds, you may consider mutual funds, which pool investor money and buy a diverse basket of many investments. Shares of mutual funds can range in price from tens to hundreds of dollars. Be aware that while some mutual funds require no minimum to begin investing, some can require investment minimums of $3,000 or more. 

Exchange-traded funds (ETFs)

ETFs are also collections of securities. They act a bit more like stocks than mutual funds do. Unlike mutual funds, which trade only once per day, ETFs trade throughout the day the way stocks do. The cost to buy an ETF depends on its share price, which varies and can range from less than $25 to nearly $400 a share. 

Ready to start investing?

If you’ve got a few dollars in hand and you’re ready to start investing, you can open a brokerage account to start buying and selling securities. Consider automating your investing with apps, that allow you to regularly move money into your investment account.

Recurring Transactions is an easy-to-use tool on Stash, and we consider it to be one of the most important financial tools. Recurring Transactions features can help you save or invest small amounts of money consistently over time, regardless of market conditions. You won’t have to worry about trying to pick the right time to invest or “timing the market” which we don’t recommend.

The post How Much Do You Need to Start Investing? appeared first on Stash Learn.

The yield on 10-year Treasury bonds fell to a record low of 0.318% on Monday, March 9, 2020, as the outbreak of the coronavirus known as Covid-19 continues to affect global markets. This is the first time that the entire U.S. yield curve has fallen below 1%. The 10-year bond is typically a safe haven for investors, who are reportedly buying up bonds as stocks seem less certain. The Dow Jones Industrial Average and the S&P 500 both fell by more than 7% on Monday, causing a halt to trading for 15 minutes.

How does the bond market work?

The 10-year Treasury bond is a type of bond issued by the U.S.federal government that matures over the course of ten years. (It is one of the best-known U.S. bonds, and it’s considered a benchmark for interest rates, as well as a safe haven for investors.) When investors purchase Treasury bonds, they lend money to the government, with the idea that the government will pay them back with interest over a certain time period. 

Bonds have three key components—a maturity date, a price, and an interest rate. The interest rate, sometimes referred to as the coupon, stays the same, while the price of a bond typically fluctuates. Together the price and the interest rate combine to give you the yield of the bond. While the interest rate of the bond is fixed, the yield will fluctuate, based on market conditions. Generally speaking, the further away a bond’s maturity is, the higher its interest rate is likely to be, to compensate the investor for the risk of longer repayment.

Bond prices and interest rates have an inverse relationship. Prices of bonds increase when demand increases, demonstrating a basic market principle of supply and demand.  As the price increases, however, the interest rate falls. By contrast, when interest rates rise, the price of bonds falls.

When new bonds are issued with higher interest rates, the price of your bond will decrease. If new bonds are issued with lower interest rates than when your bond was issued, the price of your bond will increase. (While the price of your bond might fluctuate, the par value of the bond, or the amount of money you’ll receive once the bond is mature, will stay the same.)  

What’s going on with the 10-year Treasury now?

Interest rates have fluctuated over the years. Following inflation in the 1970s, the 10-year Treasury hit nearly 16% in the early 1980s. Since then, interest rates have been on a downward trend. During the 2008 financial crisis, the Federal Reserve took drastic measures and cut interest rates dramatically. Since then, the 10-year Treasury has offered a yield between 1.5 and 4%. The rate for 10-year bonds was reportedly around 1.5% in mid-February, but it has continued dropping as the coronavirus has spread globally, affecting markets. The virus has been reported in 115 countries, and it has infected more than 116,000 people, killing more than 4,000. 

In the United States, where more than 700 cases of the virus have been reported and more than 25 people have died, markets have tumbled since the end of February. In response to the volatility, the Federal Reserve (the Fed) made the biggest cut in its benchmark rate since the financial crisis in 2008, reducing the rate by 0.5 percentage points on March 3, 2020. The move to cut the rate was intended to encourage growth despite the panic. 

However, the yield on 10-Year bonds fell below 1% for the first time ever as investors sought to move their money to more long-term, low-risk investments, such as 10-year bonds. The 10-year bond is typically thought of as a secure investment that provides reliable returns.

As bond prices go up, yield falls. This movement could mean that investors are expecting a long-term impact from the coronavirus. The yield on 30-year Treasury bonds also fell below 1% for the first time ever.  The 30-year Treasury bond is another type of government bond with a longer maturity rate. 

A war over oil prices is also affecting the yield on bonds. On Friday, March 6, 2020, the Organization of Petroleum Exporting Countries (OPEC), a group of 14 of the biggest oil producers met with Russia, also a big oil exporter, to discuss oil production in the time of coronavirus. After the group failed to reach an agreement, Saudi Arabia announced that it would not decrease production of oil and that it would reduce the price. 

As a result, oil prices experienced the biggest drop since the Gulf War in 1991. Falling oil prices have caused further turmoil in bond yields and the markets.

Investing during times of volatility

During times of volatility, it is important to remember to diversify. A diversified portfolio is one that includes a variety of investments that are not all subject to the same market risks, including stocks, bonds, and cash, as well as mutual funds and exchange-traded funds (ETFs). 

Diversification is an important part of the Stash Way which also includes investing for the long-term and investing small amounts regularly. The Stash Way can help you navigate uncertain market conditions, and headline risks such as the conditions caused by the coronavirus outbreak.

The post Why the 10-Year Treasury Bond Yield Matters appeared first on Stash Learn.

Hey Stashers!

I always like to reach out to you during times of market volatility. And this week started off with a wild ride. Major indices from the S&P 500 to the Dow and Nasdaq reacted to the news that a novel coronavirus, dubbed Covid-19, appears to be spreading more quickly than people had expected. As an investor, it is important to understand how to invest right through market events and think long term.

Coronaviruses are among the most widespread on the planet, related to the common cold and the flu. Covid-19 results in a pneumonia-like illness that, sadly, can be life-threatening.

And while it’s understandable that people are concerned, it’s important not to overreact. Just to keep things in perspective, millions more people catch the flu each year than have contracted the new coronavirus. 

And we’ve been here before. In 2003 there was Severe Acute Respiratory Syndrome (SARS), and a few years later something called Middle East Respiratory Syndrome (MERS), and then Swine Flu–all of which are coronaviruses. Just a few years ago people panicked about the Ebola virus.

So why are markets reacting to a virus? Covid-19 has interrupted global supply chains stretching from China to the U.S., as tens of millions of people stay home due to a regional quarantine. That, in turn, has caused factories to shut down because of worker shortages. 

Already, some prominent companies, including iPhone and iPad maker Apple, have said the virus will cut into their expected earnings for the year.  Car manufacturer Tesla also temporarily closed its factory in China. Meanwhile, coffee chain Starbucks and Scandinavian furniture design store Ikea both temporarily closed more than half of their Chinese stores. (You can read more about that here.)

And this week, it appears as if the virus is spreading to more countries including South Korea, Italy, Iran, and—yes—the U.S.

Market volatility is normal

Okay, so now that you know what’s going on, here’s what you can do. Take a breath and zoom out. Markets can go up just as easily as they can go down. The most important thing I want to say is that volatility is a normal part of investing. Don’t get caught up in short-term market news. Over time, staying in the market and long-term investing is the way to go. 

What I recommend is setting your sights on long-term investing, and making regular investments regardless of whether markets are moving up or down. We built Stash so you can add small amounts of money on a regular basis, and for long-term investing. 

I’ve been investing for decades, and here’s what I know. 

When the market moves sharply down, it’s understandable for people to get spooked. It can be tough to see the value of your portfolio go down. That’s especially the case if you’re investing for the first time during one of these periods. I was once a novice investor too.

But I lived through a bear market in the early 2000s, right after the dot-com bust  and in 2008, I lived through another big market correction. Despite the hard times, I focused on a long-term investment plan and maintained my focus. 

No matter what the market does, continue to buy small amounts of your investments on a regular basis.

Turn on Auto-Stash

Auto-Stash, Auto-Stash, Auto-Stash—I’ve said it before, and I’ll keep on saying it.

Putting your investment plan on auto-pilot is an easy way to add small amounts of money on a regular basis into your portfolio. This way, you can avoid the emotional aspect of investing and won’t get fooled into trying to time the market, which means trying to make guesses about which way the market is heading. 

The key to long-term investing is to build wealth over time.

That means some weeks you’ll be buying shares when they’re high, other weeks when they’re low, and over time, the highs and the lows can balance themselves out. 

Here’s why Auto-Stash can be a great tool. By putting small amounts of money into your investments on a regular basis, you can feel good about ignoring market volatility and focus on investing for the long term. Even just a few dollars a week can make a difference.

Auto-Stash is an incredibly powerful tool, and an essential part of the Stash Way.

Remember the Stash Way

Investing can be confusing, and maybe even scary, when markets become volatile.

That’s why we’ve boiled down our investing philosophy into three basic principles that we hope can guide you as you make your first investing decisions. We call our approach the Stash Way. Here are its three pillars:

• Invest for the long-term. (Don’t time the market.)
• Invest regularly. (Turn on Auto-Stash.)
• Diversify. (Don’t just buy stocks.)

When in doubt, follow the Stash Way, which you can learn more about here.

Work hard, and then make your money work hard for you. By taking a long-term view and consistently investing small amounts of money, you can build wealth over time, and put yourself on a path toward a more secure financial future.

Stash is your financial partner, and we’ll get through this together!

The post Stash’s CEO: Now’s The Time to Think Long Term appeared first on Stash Learn.

Instead of not-so-patiently waiting for the days to cool off so you can dive into the fall smorgasbord of sweaters, fire pits, and pumpkin everything, we recommend using the waning days of summer to get your financial house in order before the hustle and bustle starts back up again.

Think of it as a DIY financial audit: examine your spending and savings habits, your financial goals, your investments and your budget, and figure out what you can tweak to stay on track or even get ahead in the final months of the year.

We’ve broken things down into a five-step DIY financial audit, with the help of Jennifer E. Meyers, a certified financial planner and president of SageVest Wealth Management in McLean, Virginia. Together, we’ll help put your finances in order before the leaves start falling.

1. Make a financial plan

The only way to work toward financial goals and know if you are on target to meet them, is to make a plan, Myers says. What are your long-term goals? What about your short-term goals? What is important to you? What will you need in the bank in five, ten, or 40 years?

“Without a plan, you’re basing your financial future on best guesses,” Myers says. “Most people don’t succeed by chance. They succeed through smart decisions, hard work, and perseverance.”

2. Evaluate your savings progress

Remember those New Year’s resolutions you set way back when 2019 was full of possibilities?  “Now’s the time to evaluate if you’re on target,” Myers says, “fast-pacing your goals or falling behind.”

The start of a new year is a great time to set savings objectives so you have a timeline as a measure of success. If you don’t have a savings goal already in place for this year, now is the time to set one and meet it by Dec. 31. Whether that means saving $50 per week for the rest of the year or transferring some cash into a higher-yield savings account, you still have time to make this year financially successful.

3. Check your investment portfolio

The slow, lazy days of August are a great time to delve into your portfolio and see if its keeping up. “Every portfolio requires monitoring relative to benchmarks and objectives to ensure you’re keeping up relative to your goals and the risks you’re assuming,” Myers says.

What should you be looking for? Myers says you need to invest according to your financial situation: Are you set up for long-term investment; are you comfortable with your level of risk after the summer’s volatile market; what short-term cash will you need?

“Beyond performance, it’s essential to know if you’re appropriately positioned in stocks versus bonds relative to your investment horizon, liquidity needs, risk tolerance and more,” she says.

4. Consider rebalancing

If you’ve been closely watching your investments, checking your statements, and reading the news, you’ve likely noticed that the markets had a great first half of the year.

It could be a smart move, Myers says, to set aside some time each year to rebalance your portfolio to ensure that it hasn’t become too risky for the second half of the year.

For example, she added, if your target investment mix is 70 percent stocks and 30 percent bonds, you might find that your stocks have grown in weighting due to stock performance earlier this year.

“It might be time to…trim stocks back to 70 percent, reallocating the excess to bonds,” she says. “Conversely, if the markets fall, and your stocks drop to a 67 percent portfolio weighting, it might be time to sell 3 percent from bonds and move into stocks.”

5. Account for personal changes

Take stock of anything new that’s happened since January, or anything that will change in the next few months. Are you getting married or divorced? Are you expecting a new baby? Have you gotten a promotion or a new job? Is your employer considering layoffs?

Any life event, big or small, could impact your financial decisions and savings goals. Moving in with a significant other, for example, could save you money in the long run if you are splitting household expenses and that could free up more money for savings or investment. Buying a house, on the other hand, will likely end up costing you more between closing costs, home improvements and moving expenses, meaning you may want to make changes to your short-term financial plan to account for those significant extras. That could be anything from putting money into a short-term CD or adding a couple hundred bucks each month to a savings account.

Myers is taking her own advice to heart. She cut back on spending this summer to afford a Disney vacation this fall, foregoing expensive summer camps for the kids and opting for low-cost activities like playdates at the park. (She and her family also skipped a vacation last summer to pad their savings for the Disney trip this year.) She said one of the best things to remember as you are doing your DIY audit is that savings is akin to a long-distance run that requires commitment and endurance versus a sprint.

“Setting monthly, seasonal and annual goals is the path to success,” she says.

Before the air cools down and the fleece gets hauled out of the closet, take one of these last few dog days of summer and see how you can improve your financial plan in the next few months.

The post 5 Tips for a Personal Finance Audit Before Summer Ends appeared first on Stash Learn.