In this article, we’ll cover: 

• Types of assets for a portfolio
• Importance of diversification
• How to build a portfolio
• Common mistakes to avoid

Types of investment assets for your portfolio

Common types of investments in a portfolio include stocks, bonds, exchange-traded funds (ETFs), and mutual funds. Some people also hold things like real estate, crypto, and commodities such as precious metals.

Each type of investment in your portfolio is like a building block, supporting your overall investing strategy. Each asset brings its unique characteristics to the table, such as level of risk, potential returns, and the way in which it can generate returns.

Importance of diversification

The saying “Don’t put all your eggs in one basket” certainly holds true in the world of investing. That’s where diversification comes into play. It involves spreading your investments across various asset classes like stocks, bonds, funds, and more. This strategy helps reduce the impact of a single underperforming investment on your entire portfolio; if one asset falls in value, that loss can be balanced by gains in other investments.

For example, say you’ve created a portfolio in which 60% of your money is invested in stocks and 40% is invested in bonds. Stocks tend to be more volatile than bonds; if the value of some of your stocks decreases one month, the value of your bonds is likely to hold steady, reducing the impact of falling stock prices on your portfolio as a whole. 

In addition to spreading your investments across assets, you can further mitigate risk by diversifying within asset classes. For instance, you may want to hold stocks in multiple different sectors and buy various types of bonds. Investing in ETFs, which are baskets of multiple investments, can also help add more diversification to your portfolio.

How to build a portfolio 

Building a well-structured investment portfolio is a bit like creating the perfect playlist: it’s all about customizing to your particular preferences. Your financial goals and risk tolerance will help you determine the right mix of investments for you. 

Set your investment goals and risk tolerance

Begin by defining your financial goals. Are you working toward long-term needs like retirement or your kids’ education? Are you more focused on medium-term goals like buying a house within three to five years? Identifying what you want to achieve and how far in the future those aims are can guide you to investments that are most likely to generate a return within your time horizon.

Next, assess your risk tolerance, which is how comfortable you are with uncertainty about your portfolio’s future returns. Every investment carries risk, including the risk that you could lose money. Your age, income, and goals can help you decide if you’re most comfortable with a conservative, moderate, or aggressive approach to risk; this will help determine how you’ll allocate your money across different asset classes. 

Depending on when you intend to distribute your investment earnings, you might choose riskier investments that pose a greater potential gain, or keep your asset mix more conservative so you can be confident in your nest egg. For example, younger investors saving for retirement might take a more aggressive approach, investing in more volatile assets that could maximize long-term returns even if they lose value in the short term. If you’re close to retirement, however, you may want a more conservative portfolio in which you favor stability over high returns. 

Determine asset allocation

Asset allocation is like deciding how much airtime each genre gets on your playlist. It involves allocating a percentage of your portfolio to different asset classes. Many investors use a rule of thumb based on age: subtract your age from 100 to determine the proportion of stocks to include. For example, if you’re 30, this rule suggests allocating 70% to stocks and 30% to less volatile assets, like bonds. 

However, personalization is key, and age isn’t the only determining factor in asset allocation. There’s no one-size-fits-all definition of a “good” investment portfolio: your asset allocation should align with your specific goals, risk tolerance, and time horizon. You might decide that stability is more important than higher gains, opting for an asset allocation of 40% stocks and 60% bonds, regardless of your age.

Choose investments within each asset class

Now that you’ve determined your asset allocation, it’s time to pick specific investments within each category. Just as you’d pick the best songs for your playlist, choose individual investments within each asset class wisely. This step fine-tunes your portfolio’s composition.

• Stocks: When you buy stock in a company, you become a shareholder, and your potential profits depend on the company’s performance. When deciding which companies to invest in, research financial fundamentals like revenue, net income, earning per share, and price-earnings ratio. You might also want to look bigger-picture at the different stock sectors and industries to ensure you’re diversifying within this asset class.  
• Bonds: You have several options for investing in bonds: U.S. government bonds, corporate bonds, and municipal bonds. And there are different types of bonds within each of those categories. Research the specifics of each, including issuer credit ratings and the market risk of interest rates.   
• ETFs: Putting your money into funds provides some built-in portfolio diversification because each fund is a basket of multiple securities. There are a vast number of ETFs available, so research the different options and the costs and expense ratios of each one you’re considering. 
• Real estate: There are many ways to invest in the real estate market, from buying shares in real estate investment trusts (REITs) to actually purchasing and renting or flipping properties. When exploring your options, you’ll want to analyze market conditions and trends to understand the potential risks and rewards.  

Keep these key factors in mind

Every asset in your portfolio has unique characteristics. As you make your selections, these additional considerations can help inform what to invest in based on your needs:

• Liquidity: How quickly can you convert your investment into cash? Stocks and shares of ETFs can generally be sold for cash pretty quickly, while bonds often come with a set term. Consider whether you need ready access to the money you’ve invested as you choose the assets for your portfolio.
• Time horizon: How long will it take for an investment to turn a profit? Some assets tend to have slow-and-steady growth, while others may fluctuate quite a bit. And certain investments, like retirement accounts, can’t be accessed until you reach a certain age. Think about when you plan to cash in your investments. 
• Tax implications: When you sell an asset, you’ll generally have to pay taxes on your earnings. But different investment vehicles come with different tax considerations. For instance, retirement accounts like IRAs usually come with tax advantages. And the amount of capital gains tax you pay on earnings from stocks is determined by things like how long you hold an asset and your tax status. 

Monitoring and rebalancing your portfolio

Creating your investment portfolio isn’t a one-time task. Your financial goals, risk tolerance, and market conditions will inevitably change over time, so you’ll likely need to review and adjust your asset allocation regularly. For example, you may wish to shift the balance of stocks versus bonds as you get closer to retirement or develop new financial goals. 

Additionally, market conditions are always fluctuating, and it’s important to keep an eye on how economic changes have affected your investments’ performance. Regular monitoring and rebalancing allows investors to ensure their portfolio stays aligned with their objectives and identify any potential issues. 

Common investment mistakes to avoid

As you build your portfolio, keep an eye out for pitfalls that could undermine your goals. 

• Overconcentration in a single asset: It can be tempting to put a large percentage of your money into an asset that seems exciting, like a rapidly growing stock. But that opens you up to the risk of volatility.  Diversification helps cushion against potential losses and capture gains from different sources.
• Neglecting changes in financial goals: Life changes, and so might your financial aspirations. Regularly reassess your goals to ensure your investment strategy remains aligned with your ever-shifting circumstances.
• Ignoring portfolio review and adjustments: Experts recommend reviewing and rebalancing your portfolio once a year. Skipping this annual exercise could leave you with a portfolio that, over time, no longer supports your financial goals and investing strategy. 
• Chasing short-term market trends: Trying to “beat the market” by frequently trading stocks based on market trends is generally riskier and more expensive than a passive investment strategy that’s focused on long-term portfolio performance.

Invest with intention

Building and managing an investment portfolio is a dynamic journey that should align and evolve with your lifestyle and financial aspirations. By understanding your goals and risk tolerance, you can prepare yourself to start investing with a diversified portfolio tailored to your needs. And the good news is, you don’t need a lot of money to start an investment portfolio. With Stash, you can begin your investing journey with any amount.

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The post What Is an Investment Portfolio? 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.

There are a number of different ways to measure portfolio returns, and there are different reasons why you might choose one calculation over another. With our Smart Portfolios¹, we use something called a time-weighted return (TWR). It’s a standard industry calculation that essentially measures the return on your investments, and removes considerations of any additions or subtractions of capital.

Time-weighted return defined

Time-weighted return is a commonly-used calculation when someone else is managing your portfolio for you, because it removes the impact of any deposits or withdrawals that you may make, but which they cannot control. For example, Stash cannot control when you deposit money into, or withdraw money, your Smart Portfolio. 

Although it may sound complicated, TWR really measures how well Stash is managing your money, and how your Smart Portfolio is performing.¹ Returns calculated using other methodologies, which can include your deposits or withdrawals, easily become distorted, and can give you an inaccurate picture of your portfolio’s performance.

For example, another calculation called a simple return takes into consideration the timing of your cash flow into or out of your portfolio, and it measures the actual dollar amount earned on your portfolio, indicating the change in the total investment value. This is a factual calculation, but it may not properly reflect the portfolio manager’s investment strategy.

Time-weighted return in action

Take a look at the following example, where we have two fictional investors who deposit money in different months, into the same hypothetical portfolio. The impact of the cash flow is removed from the weighted return calculation, so the monthly time-weighted return experience is the same regardless of whether someone deposited money.

*Remember all investors are different, and you must take into account your own financial situation and goals when investing.  All investing involves risk, and it’s possible to lose money in the market. The Hypothetical below is purely for illustrative purposes and does not represent the actual performance of any client nor does it reflect the performance of any of the underlying investments therin.

This hypothetical does not account for fees or taxes. It is for illustrative purposes only and is not indicative of any actual investment. Actual return and principal value may be more or less than the original investment. Investing Involves Risk, including the loss of principal. 

Positive time-weighted return and negative dollar value

Investor A and Investor B both start out by investing $100 in the portfolio, which has a +20% return in January, followed by a -10% return, or loss, in February. 

In January, Investor B makes a $100 deposit into the account right before the market upswing, while Investor A does not. Since Investor A’s holdings are smaller, his or her gain would be $20  in January. In comparison, Investor B invests more money, and gains $40 that month. 

In February, let’s say Investor A makes a $100 deposit into the account, while Investor B does not. The opposite happens here: Investor A buys right before the market dips, resulting in a $22 loss, and a $24 dollar loss for Investor B. 

While both investors have an 8% gain for the two months, Investor A loses $2, while Investor B makes $16. That’s because Investor A contributes to the market right before a market dip, while Investor B contributes right before the upswing. Investor A’s poor timing has an impact on the actual dollars earned (or lost in this example), while the portfolio’s investments actually have a positive return during the same time period. 

Our investing philosophy

We recommend following the principles of the Stash Way when you’re investing: Think long-term, invest regularly, and diversify. By investing regularly, investors will sometimes put money into the market when prices are higher, and at other times when they’re lower. Over time, you’re likely to get a better price-buying experience.

Remember though, all investing involves risk, and you can always lose money in the market.

The post Time-Weighted Return Explained appeared first on Stash Learn.

The lesson is obvious in the real world—you don’t want all of your eggs to break if you drop the basket. But what does it actually mean when it comes to putting money in the market? 

It’s really about the importance of diversification, which is one of the core principles of building a first portfolio. Diversification is also part of the Stash Way, our financial philosophy, which also includes long-term investing and regular investing. 

Let’s take a deeper dive into diversification, and we’ll show you why it matters. 

Diversification defined

Diversification simply means using your money to invest in many different types of holdings 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). By diversifying, you can choose investments in numerous economic sectors—not just the hot industry of the moment—as well as in different geographies around the globe. 

This is an important concept because diversifying can reduce market risk (volatility) that may subject you to potentially lose a significant amount of money unexpectedly. Keep in mind that volatility exists when it comes to investing and you want to try to navigate your experience as you make progress to accomplish your investment goals.

Let’s take a look at this hypothetical scenario comparing two investors who have constructed their portfolios in different ways, to see diversification in action. We will examine how each of these investors’ portfolios would have performed over the last 20 years. 

*Remember all investors are different, and you must take into account your own financial situation and goals when investing.  All investing involves risk, and it’s possible to lose money in the market. The Hypothetical below is purely for illustrative purposes and does not represent the actual performance of any client nor does it reflect the performance of any of the underlying investments therein.

There’s a big difference between the two portfolios, where one investor is more diversified than the other. For example, Investor A has a diversified portfolio that is invested in different asset classes, including stocks and bonds.  Likewise, Investor A has invested globally, not just in the U.S., but in developed countries internationally (think of countries including the United Kingdom and Japan), and emerging markets with developing economies, such as India or China. 

Meanwhile, Investor B has concentrated investments in the largest companies in the U.S. 

You might think that since Investor B has 100% of his portfolio in stocks and Investor A has 20% in bonds, that Investor B’s portfolio performance would probably beat Investor A’s. However, that may not be the case.

The following chart, which examines what would happen if $1000 was invested in each portfolio over the last 20 years, shows why.

Source: Stash, FactSet as of 12/31/2000-12/31/2020. A diversified portfolio is represented by 45% Dow Jones US Total Stock Market, 20% MSCI EAFE Index, 15% MSCI Emerging Markets Index, 20% Bloomberg Barclays US Universal Index. Assumes portfolio is rebalanced annually. The grey shaded areas represent historical periods where there was market volatility. Past performance is not indicative of future results. You cannot invest directly in the index. This hypothetical does not account for fees or taxes. It is for illustrative purposes only and is not indicative of any actual investment. Actual return and principal value may be more or less than the original investment.

Investor A would have actually beat Investor B’s performance, while meaningfully reducing the overall volatility, or risk, in the portfolio. Why? The answer is diversification.

Many investors have the misconception that if you start adding relatively safer investments like bonds, which traditionally have lower returns than stocks, that your performance wouldn’t be as good.

But that may not be the case. That’s because stocks and bonds have almost an inverse relationship to one another.  That means if stocks prices go up, bond prices tend to rise, and vice versa. Bonds can also be typically safer than stocks and can provide an anchor to your portfolio when there is volatility in the portfolio. When stocks plummet, bonds tend to remain steady. We’ve seen this through various financial crises, and most recently during the 2020 pandemic. 

Although many investors tend to invest in U.S. companies, because it’s one of the strongest economies in the world, a properly diversified portfolio can also include investments that give you exposure to other areas in the world. Not all countries have the same economic conditions and circumstances, and when there’s an economic crisis, some may even recover faster than others. Additionally, some countries in up and coming markets have greater gross domestic product (GDP) growth potential compared to the U.S. You may want to have exposure to that growth.

Let’s drill down a bit further, taking a look at significant market events over the last couple of decades to see how each of the portfolios would’ve performed.

Source: Stash, FactSet as of 12/31/1999-12/31/2020. A diversified portfolio is represented by 45% Dow Jones US Total Stock Market, 20% MSCI EAFE Index, 15% MSCI Emerging Markets Index, 20% Bloomberg Barclays US Universal Index. Assumes portfolio is rebalanced annually. “Dotcom Bubble” is represented as the period between 12/31/1999-9/30/2002, “Recovery from Dotcom Bubble” is represented as the period between 10/1/2002-9/12/2008, “Financial Crisis/ Great Recession” is represented as the period between 9/13/2008-3/9/2009,  “10+ Year Bull Market” is represented as the period between 3/10/2009- 2/21/2020, “Covid-19 Outbreak in the US” is represented as the period between 2/22/2020- 3/23/2020, and “Recovery from Pandemic” is represented as the period between 3/24/2020- 12/31/2020. Past performance is not indicative of future results. You cannot invest directly in the index.

Although it may not feel like it at the time, diversification can help reduce volatility and the risk of losing money, and may even help a portfolio perform better than a non-diversified portfolio over the long run.

In each time period, with the exception of the recoveries from the 2008 financial crisis and the 2020 pandemic, you can see Investor A’s diversified portfolio actually outperformed Investor B’s, with its concentrated investment in the U.S. stock market. In fact, Investor A’s annualized volatility, which is a measure that shows how risky an investment is, was meaningfully lower than Investor B’s regardless of time period. (12% vs. 20%.) Simply put, Investor A was able to achieve better results, while taking on considerably less risk. 

Holding a diversified portfolio does not mean that you can’t lose money. Notice that Investor A still lost money when the Dotcom bubble at the end of the 1990s, as well as during the 2009 financial crisis, and Covid-19 pandemic beginning in 2020.  However, Investor A lost less money than Investor B during those times, because Investor A was diversified. 

Diversification can help your portfolio weather moments of short-term volatility. 

In times when the market is doing well, such as during the last bull market or in the ongoing recovery from the pandemic, it may seem like you’re not making as much money. Shifting your focus to the long-term, having a steady diversified portfolio can help you end up making more than a less diversified portfolio meanwhile exposing you to less risk than a concentrated portfolio. The lesson? Risk reduction does not necessarily have to come at the expense of reduced performance. 

That’s why Stash always reminds you to think of the long term, and stick to a portfolio that is representative of your investment goals. Let that drive your investment decisions, not emotions. Diversification, investing for the long term, and investing regularly are all part of the Stash Way, our investing philosophy.

Bottom line: although it may not feel like it, diversification can work through times of volatility and even in up markets. Diversification is one of the investing principles of the Stash Way. We want to constantly remind you to diversify so you are building good investing habits. Note: It’s important to remember that even with diversification all investing entails risk, and you can always lose money in the markets.

Consider a Smart Portfolio

Here at Stash, we have two ways to help you do this. 

If you are new to investing or you would like to be more hands-off with investing, we created Smart Portfolios. Our team of investment professionals created portfolios consisting of exchange traded funds (ETFs) that are diversified to minimize risk to help you obtain investment goals. You don’t need to monitor or make any investment decisions, because we do this for you.¹ 

If you rather be more hands-on with your portfolio, we’ve created the diversification analysis tool.² The tool will take a look at your portfolio and align it towards your risk profile to make recommendations and create guardrails that steer you back on track towards your goals. Diversification analysis only works with Personal Portfolio³ accounts, where you make the investment choices for the stocks, bonds, and ETFs you want in your portfolio.

The post Why Investing Diversification Matters 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.

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

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

What are losses?

Here’s a simple example:

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

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

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

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

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

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

Buying, holding and investing for the long-term

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

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

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

Should you ever sell?

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

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

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

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

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

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

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

Here’s what you may not have known: Many of the strategies you use to create your dream fantasy football team are useful for first-time investors.

The best thing about creating a portfolio is that you don’t have to bite your nails through a draft or hurry home to make your picks. And unlike fantasy football, you can invest any time and make decisions when you’re ready.

Here are a few ways that fantasy football can teach you about investing:

Diversify your roster

Your roster is sort of like your portfolio. A roster is the list of all your players. A portfolio holds all your investments.

Just like you wouldn’t want to put all your hopes on a superstar quarterback and fill the rest of your team with bench warmers, you wouldn’t want just one trendy, overly-touted stock in your portfolio. If that stock gets hit, your portfolio will feel the pain. Same thing for your roster if your quarterback tears his ACL.

This is where diversification comes in.

You want a variety of players from different teams with different skills that can pick up the slack if one of your best players is a bust. The same is true for your investment portfolio. 

In short: A diversified roster will make sure your team keeps moving in the case of a setback. A diversified portfolio will balance out your risk in case one sector or company fumbles.

Don’t have a home bias

Do you pledge allegiance to the NFC South? If so, you may be likely to fill your roster with Falcons, Panthers, and Buccaneers.

Pats, Giants, and Bills? No way.

Does this sound like you? Then you have, in investment terms, home bias. And that can limit the potential of your roster. Your bias toward Southern teams keeps you from harnessing the talent of players from other teams. Especially if your players are used to playing in the heat but choke when faced with frigid weather.

In the investment world, home bias means that you have a propensity to invest most or all of your money in equities (that’s stocks) from American companies. Home bias can keep you from realizing gains from international equities, which can balance out your portfolio.

If the U.S. stock market hits a stumbling block due to political strife or sudden sell-off, your international holdings may hold steady. After all, the Japanese market may not be reacting to the same things our markets do.

Don’t overreact to Fantasy Football chatter

The rumor mill is always swirling. ESPN says your breakout running back looked like he was limping after last night’s game. Bleacher Report says that a coach is thinking about keeping your best wide receiver on the bench. TMZ says your quarterback is now dating an Instagram star. Sports commentators and columnists are paid to make hay out of speculation to keep you on the edge of your couch. But that doesn’t mean you should trade your best players because of rumors.

The same is true for investing.

Tech sites and market analysts are quick to point out each company’s misstep. But listening to every bit of news and chatter can keep you from looking at the big picture or the overall health of the company. Just like your RB may have just had a pebble in his shoe, a crummy quarter may not indicate that you’ve made a bad investment.

Don’t be guided by emotion

Sometimes, a bad day at the office can coincide with a player’s bad night on the field. It happens. Your frustrations at work can spill over onto your roster. When your best quarterback throws two interceptions in a row, you may decide he’s more trouble than he’s worth.

So you trade him.

Then he proceeds to have the best season of his career. And you kick yourself because you let emotions guide your decisions.

Emotions can also lead you to make rash investment decisions. A sudden feeling of panic about your job can make you feel uneasy about your finances. So you sell your investments because you want to see more cash in your checking account. But then the market goes up and you’ve locked in your losses. You would have been better off holding on to your investments and not let your fleeting feelings of worry get in the way of your financial strategy.

Looking for investments to lead you to the Super Bowl?

Check out the ETFs and stocks available on Stash.

The post How Fantasy Football Can Teach You About Investing appeared first on Stash Learn.

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

How we choose funds

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

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

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

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

Investing in what matters to you

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

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

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

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

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

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

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

Explore all the funds we offer on Stash here.

How we choose single stocks

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

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

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

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

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

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

Explore all the individual stocks we offer on Stash here.

We’re always working for you

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

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

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

What is investment performance?

Performance, as it relates to your investment portfolio, usually refers to the returns you’re seeing on your investments.

What’s a return? A return is either the monetary gain or loss on your portfolio Naturally, investors want positive performance, results from a positive return. A negative return, in which your portfolio actually loses money, would signal negative performance.

In other words, “performance” describes how your investment portfolio is doing.

Simple, right?

What determines my portfolio’s performance?

Your portfolio’s overall performance will hinge on a number of variables. But mostly, the holdings — or assets — contained in your portfolio will determine whether you see positive or negative returns.

Your holdings are subject to market conditions. That means that sometimes you’ll be in the red, other times you’ll be in the black. Markets tend to move in cycles, and downturns often swing around into gains — and vice versa. Your portfolio’s performance will probably mirror what’s going on in the market.

Measuring performance

How can you measure your performance? The two key metrics for gauging performance are called yield and total return. Both measure your portfolio’s performance, but do so with differing degrees of exactness.

Yield is essentially the income generated by an investment–whether that’s a coupon from a bond, or a dividend payout from a stock.

Total return, which is generally considered a more precise measure of performance, is the yield plus the percent change in price for a bond, stock, or a fund.

Both yield and total return can help you gauged performance.

Can I improve my investment performance?

There’s, unfortunately, no magic formula to ensure that your portfolio always performs well.

But that’s not to say that there aren’t things you can do to try and improve your portfolio’s performance. In fact, there are numerous strategies and tactics you can engage in to boost your returns or buffer yourself from the volatility of the markets:

• Diversify your portfolio with a mix of stocks, bonds, ETFs, and other assets
• Buy and hold: Engage in a ‘set it and forget it’ investment strategy
• Automate your savings and investing with features like Auto-Invest

The post What is Investment Performance? appeared first on Stash Learn.

What’s an asset?

An asset is anything that holds value. More specifically, it’s something of value that can be bought or sold, or otherwise converted to cash.

What are holdings?

Holdings take many forms, and for that reason, don’t have one specific definition. The easiest way to grasp the concept of holdings is to think of them as assets you “hold” — These can include stocks, bonds, ETFs, mutual funds, cash, or just about any other investment product you can think of.

Your personal holdings can also include your retirement portfolio, or real estate if you own a home. 

Another wrinkle. There are also holding companies.

It may sound strange, but these companies are created with no intent to produce goods or services in and of themselves. Instead, they exist as a sort of giant container — an umbrella under which other companies or properties are held.

In short, a holding company is an entity created for the sole purpose of holding other assets, including ownership, or stock, in other businesses. These holding companies make money when their holdings increase in value.

One of the most famous holding companies is Berkshire Hathaway, which was a textile company when it was acquired by Warren Buffett in the early 1960s. Today, it’s a holding company for several dozen other businesses. 

Diversify your holdings

Let’s get back to you and your personal holdings.

Because you want your holdings to provide a return, it’s important to make sure your holdings are diversified.

Diversification means that your holdings aren’t all of one type or product — that you’re not putting all of your eggs in one basket, in other words. By diversifying your holdings, you’re mitigating risk.

Spreading your money around into different holdings can shield you, at least in part, from market swings. If you have all of your money in stocks, for example, a market drop will hit you very hard.

But if you’re diversified and have a healthy mix of bonds in your portfolio, the ride can be smoother.

The post What are Holdings? appeared first on Stash Learn.

Buying on the dip essentially means making a purchase of a stock, fund, or some other security after the share price has dropped in value. The drop in price can be caused by some event that affected the company or fund directly, or it can be the result of a drop in the broader stock market.

Numerous stocks and funds lost value in February, for example, when key indexes experienced something called a correction, which happened after they dropped about 10%. Markets soon recovered.

And if you had bought a stock that fell during the winter correction, it’s likely you could have benefitted from rising stock prices in the immediate aftermath.

While buy the dip may seem like a good time to invest, it’s perhaps not as smart a strategy as buying and holding.

Buying the dip vs dollar-cost averaging

Whether it’s ETFs, mutual funds or stocks, buying and holding means you purchase a stock or fund you believe in, and hold on to it for a period of years.

Think of it this way: It’s rarely a good idea to try to time the markets. On average, stocks have returned about 9% over the last 80 years. Going forward, that return is likely to be closer to 5.9%, according to research. By buying and holding, you’re more likely to experience consistent gains over time.

In fact, it could be that you’ll earn just one third as much on your investment by buying on the dips than buying and holding, according to some research. Why? Because you’ll be keeping your investment money in cash for longer periods of time than you might otherwise, waiting for that event when a stock or fund declines in value. During that time, your cash will sit on the sidelines, potentially earning only a small amount of interest in a savings account.

Buying the dips has some other possible problems. It’s hard to know when a stock or the market has reached a bottom, according to some experts, or you might wait too long and buy after a stock has recovered most of its value.

Similarly, you could also be waiting for an extreme event, such as a bear market–when stocks lose 20% of their value or more– for a long time, as they are relatively rare occurrences.

Capitalizing on market drops

That’s not to say buying the dips is always the wrong idea, either.

It might make sense for investors who want to add more stocks to their portfolios, or who think there’s a long way to go with the current bull market, according to some experts.

One strategy to consider is called dollar-cost averaging. That simply means you take a small amount of cash and regularly put it into stocks, bonds or funds on a regular schedule–for example, either bi-weekly or once a month.

By doing that, you not only take the emotion out of investing, but you will sometimes buy on the dips, as well as the market highs. Over time, the highs and the lows should balance each other out.

The post What Does It Mean to “Buy the Dip?” appeared first on Stash Learn.

To first understand the volatility of ETFs we have to have a basic understand of what ETFs are.

Exchange-traded funds (ETFs) are securities that trade like common stocks. These funds are designed to track a specific index, commodity, or group of assets. Since ETFs are traded on the market they can experience price changes throughout day to day trading.

Prices changes are the data points used to calculate volatility. (What’s volatility?) So, on a very basic level, ETFs are volatile in the sense that the price of an ETF is not fixed. Of course, when people ask, “Are ETFs volatile?” they are often really asking, “Is there a lot of risk in ETFs?”

The answer to that question is not so black and white.

Each ETF is different

Since ETFs are designed to track a specific index or commodity it is impossible to directly compare two different ETFs and declare them volatile or not.

You know the saying, “Comparing apples to oranges?” A bond ETF may be less volatile than an ETF that tracks small-cap stocks. Then again, an ETF that focuses on the energy sector may be more volatile than a ETF that tracks health care stocks. You need to do your research because no two ETFs are alike in terms of volatility and risk.

Learn more: What’s the difference between a stock and a fund?

What determines the volatility of an ETF?

The sector or market an ETF tracks will play a major role in determining the volatility of an ETF.

For example, an ETF designed to track a volatile commodity (what’s a commodity?) will itself be a volatile investment.

Cannabis ETFs aim to track the highly volatile legal marijuana market and, therefore, will mimic the volatility of that market. This can mean major highs followed by rapid drops in value. Changes in the law or enforcement of laws could have a huge effect on the entire cannabis market and, in turn, have an effect on the price of any ETFs that are tracking the market.

An ETF of U.S. Treasuries may be less volatile because such bonds are backed by a promise to pay from the federal government. However, yields on Treasuries tend to be lower, because they are generally considered less risky investments.

The major driver of volatility in an ETF is the underlying index, commodity, or asset that is being tracked. To say that ETFs are either highly volatile or not volatile at all would be an inaccurate statement as no two ETFs are exactly the same.

Determining volatility

Are ETFs volatile? Yes, they are in the sense that their price can change from day to day. Some ETFs may show a very small amount of volatility while others may be very volatile.

With that said, since ETFs track very large markets or commodities with a wide diversity of companies, they tend to be less volatile than choosing a single stock.

Learn more

Stash offers a curated collection of themed ETFs as well as selected individual stocks. You can download the Stash app for free, learn about investing and create a diversified portfolio of ETFs with as little as $5.  Sign-up and claim a $5 credit to start investing here.

The post Assessing Risk: Are ETFs Volatile? appeared first on Stash Learn.

Stash now offers its customers selected single stocks, in addition to its themed exchange-traded funds (ETFs). You’ll have more choices than ever to build out a balanced portfolio with fractional shares. And you can buy them right in the app.

The Stash Way, Now with Single Stocks

Your investment choices may have changed but our ethos remains the same.

You don’t need a lot of money to start investing. Stash lets you open an investment account with just $5. Want to open a traditional or Roth IRA for retirement? You can also start one on Stash with just $5. You can purchase fractional shares of selected single stocks and ETFs. It’s a great way to start growing your savings, beginning with what you can afford.

Get diversified. Stocks, bonds, or funds? They can all be part of your portfolio on Stash.

Choose investments that include companies that excite you, and sectors that are changing the way we live. Stash will help you create a diversified portfolio that’s tailored to your risk profile.

Stash will send you an overexposure warning, urging you to diversify, if 10% of your investment portfolio is held in individual company stocks.

Dollar-cost average. It’s a fancy term for an easy-to-grasp concept. By consistently investing small amounts of money into your diversified portfolio over time, you can potentially capture the highs of the market, and buy more when the market dips. Turn on Auto-Stash and take the headache out of remembering to put money toward your investments week after week.

Time is your best friend, the sooner you start, the better off you’ll be.

Buy and hold. Stash is not for quick day trading. It’s for people who want to build wealth over time. Take a long view and ride out market storms. The longer you keep your money in the market, the longer it can continue working for you. It’s called compounding, and it can help your money grow and grow over time.

Think about the life you want ten, twenty, and even thirty years from now, not what you want to buy tomorrow. Disciplined investing can help you achieve your goals.

There’s never been more ways to invest in yourself.

Before investing, please carefully consider your willingness to take on risk and your financial ability to afford investment losses when deciding how much individual security exposure to have in your investment portfolio.

The post Investing in Single Stocks with Stash appeared first on Stash Learn.

But what about individual stocks. Do they have a place in a diversified portfolio?

The answer is yes. But there’s more to it than that. We can’t talk about single stocks without talking about risk and volatility.

Let’s get started.

Since individual stocks tend to be more volatile than investing in funds–your money will ride on the fortunes of just one company. And it might be best if the money you put into individuals stocks is so-called play money, which is cash you don’t mind losing if markets fall, and the company’s share price tumbles along with it.

What are the pros and cons of investing in single stocks?

Owning single stocks has pros and cons, just like any other investment.

On the pro side, owning individual stocks could help some investors feel more in control. They know how much of that investment they’ve purchased, and they can monitor its progress over time.

This is in contrast to owning shares of a fund, which may contain hundreds of stocks. With a fund, the fund managers choose which stocks to include and how they’re weighted, meaning that it may hold more of one stock than another. For example, a tech-focused ETF may contain more Apple shares than Facebook. And that may not suit all investors.

Single stocks may also suit the temperament of investors who may feel strongly about a particular company and its products, and may want to be part of its growth story: Perhaps you like Tesla’s vision for electric cars, or Apple’s endless stream of innovative consumer electronics. You may want to buy their shares directly.

And for investors who don’t mind doing the research, single stocks could actually help with diversification.

What’s more, single stock investors can potentially cap their own losses a bit more directly than fund investors: Don’t like how a particular stock is performing? You can sell it if losses reach a threshold you’ve predetermined. For example, you might decide to sell an individual stock if it loses 10% of its value or more.

And for investors who don’t mind doing the research, single stocks could actually help with diversification.

With that in mind, single stocks could in some instances help tweak the performance of a portfolio. In a down year when other stocks are suffering, a solid year that lifts the stock price of a single promising company that’s beating the market could potentially improve the total performance of your holdings.

On the flip side, single stocks are inherently more risky. You’re placing all your bets on the management team and performance of just one business, as well as ongoing consumer demand for its product or service, which can vary over time.

A portfolio filled with single stocks would be considered very aggressive. Many investment advisors, including Stash, would recommend balancing out a portfolio with bonds and funds, appropriate to your risk profile.

Do your research

Remember, though, before you invest in single stocks, you should do your research and learn all about the company’s executive team, the consumer demand for its product or services, not to mention the company’s quarterly and annual performance.

One good place to check on any public listed company is the Securities and Exchange Commission (SEC). Listed companies are required to file their quarterly and annual reports with the SEC. These are public documents, which you can access here, and they are usually gold mines of information about the companies themselves.

You can also find company information in the investor section of most public company’s websites.

And just like any other investing, if you plan to buy single stocks, consider owning them for the long haul. You’re likely to smooth out any shorter-term losses that way.

The post How Should I Invest With Single Stocks? appeared first on Stash Learn.

When you invest in the stock market, you’re typically buying shares in publicly traded companies. These companies have gone through a process called an initial public offering or IPO, where the company’s shares are listed on a stock exchange such as the New York Stock Exchange or the Nasdaq.

Once their shares are listed, public companies must file information about their performance every quarter, and this information is available to the public to examine.

Companies file their quarterly paperwork with an agency called the Securities and Exchange Commission (SEC), which is the federal agency overseeing publicly listed companies, to make sure they are following financial reporting regulations.

Financial analysts who cover companies and specific industries pay careful attention to earnings reports for indications about the performance of a particular company, and its future prospects.

You can find information on any publicly listed company by searching here.

What’s a quarter?

A quarter is a three-month period during the course of a year. There are four quarters in a year. Generally speaking, the first quarter ends March 31. The second quarter ends June 30. The third quarter ends September 30. And the fourth quarter ends December 31. (Some companies may follow other schedules for their fiscal years.)

What kind of information will I find?

Every quarter, public companies file a form with the SEC called a 10-Q. This is a company’s earnings report, and in it you’ll find specific data about a company’s financial accomplishments in the prior three months, as well as data for prior years. Earnings, essentially, are how much money a company made or lost during a quarter.

Here are some key components in an earnings report:

Revenue, or sales: Generally speaking, this is income that a business has from its normal business activities, usually from the sale of goods and services to customers.

Net income: This is how much profit a company has made after paying its expenses, debt payments, and taxes, among other things. You can think of it as similar to the cash you have left over after you’ve paid all your expenses for the month.

Generally, companies with profits are successful at doing what they do. Companies that have no profit, or that lose money, are less successful. Exceptions to this rule include startups, or companies in some high-growth sectors, which often need to spend at rapid rates to continue growing and innovating. It may surprise you to learn that Amazon is rarely profitable, yet it is one of the biggest companies around.

Earnings per share, or EPS:  This is a somewhat complicated equation that breaks down profit according to the number of shares a company has made available for sale to the public. If a company’s EPS increases from one quarter to another, it’s a gauge of profitability, and how much money a company has to invest in its ongoing operations.

Other information: Companies may use a quarterly earnings report to talk about executive changes–for example when an officer of the company moves to a new position or leaves. It may also use a quarterly report to talk about any risks it sees in the foreseeable future, such as  from competing businesses, changes to the market where it operates, or from changing customer sentiment.

Why do investors care about earnings reports?

Investors care about earnings because they provide a snapshot of a how a company they’ve invested in–or may want to invest in–is performing. Think of an earnings report as a general health assessment for a company.

The post How To Read an Earnings Report appeared first on Stash Learn.