Why do you want money?! To most people that sounds like a pretty silly question: we want money to buy things! The truth is people want money for different reasons and for different times of their lives. Some want to save for a wedding, buy a house, get a degree, save for children, go on
Carrying debt while investing is known as “leverage.” Leverage can increase your net worth if you’re investing borrowed money at a higher return than the interest rate you pay to borrow the funds. However, high return assets such as stocks come with high volatility. Rather than using bonds to decrease your risk exposure, consider paying down debt.
You invest for the long-term. Long-term, stocks outperform bonds. Why do you care about short-term volatility? Shouldn’t you invest 100% in stocks and wait out any market underperformance? Yes, and no. It depends on how much you need to protect it from “retirement date risk” and “sequence of returns risk.”
All four are retirement plans classified as “defined contribution” plans. All four are offered by employers through a third party financial institution called an “administrator” as a tax-deferred investment vehicle to encourage you to save for retirement. So what’re the differences?
Abstract A common misconception is that 401(k)s and IRAs save you from income tax. They don’t, but they do save you from capital gains tax. With compounding, the additional earnings from tax-advantaged accounts over taxable accounts can be large.
Abstract: Treasury bonds correlate less with stocks than do corporate bonds, making treasuries an ideal portfolio ballast. Specifically, intermediate-term treasuries provide the highest yield for the least volatility. The Vanguard Intermediate-Term Treasury Fund is the best bond fund for most portfolios.
Abstract: After saving 1 month’s income in a checking account to automate your finances, you should save 3 months’ expenses as an emergency fund requirement. To maximize your net worth, invest that emergency fund in a Roth IRA or taxable account and pad it to ensure no market crash jeopardizes your emergency fund requirement.