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The Best Retirement Investment: A Stock Index Fund

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The Best Retirement Investment A Stock Index Fund

What is your retirement money invested in? The safest and smartest investment is a stock index fund.

There are a lot of misunderstandings about investing in the stock market. Most are afraid and wary of this subject.

Try bringing up the subject with your spouse, or family, or friends. You’re bound to get concerned looks and questions like, “Isn’t that risky?”

They imagine trading stocks is like gambling large amounts of money at a casino. You can’t play against the smart, savvy Wall Street men – they’ll outsmart you every time!

Of course, it’s not quite like that. A stock index fund is not day trading. There’s no big, electronic screen with red and green numbers. There’s no well-dressed men sweating, picking up phones, and slamming them down.

Others are convinced they can trade stocks better than an index fund. They attempt to do research, but are unsure which stocks are best. How do you know if a company will succeed or fail? Which stocks should you buy or sell?

The answer to these fears and doubts is a stock index fund. This clever invention all but guarantees return. They have low expenses and are easy to manage.

In fact, Warren Buffett advises investing in a stock index fund:

“Over the years, I’ve often been asked for investment advice, and in the process of answering I’ve learned a good deal about human behavior. My regular recommendation has been a low-cost S&P 500 index fund” – Warren Buffett

In this post you’ll learn what a stock index fund is, why you should invest in one, and how to get started.

Let’s dive in.

What is a Stock Index Fund?

Stock (sometimes called a share) is a piece of a company that you own. If you have stock, you have a right to a portion of future profits the company makes. You also have the right to attend shareholder meetings and vote on company decisions, though you’re not obligated to.

The profits you receive from stocks are called dividends. Theoretically, if you own stock you can make profit for the rest of your life. However, companies do poorly from time to time, and dividends fall.

Analysts and financial advisors try to predict which stocks will do well and which ones won’t. They watch the news, ready to buy Apple’s stock when they announce a new phone. They’re ready to sell when a CEO has a public scandal.

The truth is you can never tell if a stock will do well in the future or not. They are too many variables. Besides, it’s stressful and induces anxiety.

A stock index fund looks at the long term growth of the entire stock market. Instead of worrying about which stocks will do well, a stock index fund invests in all of the stocks.

This clever invention operates on the theory that the collective stock market always wins. Meaning, even if some stocks do poorly, the overall performance of the stock market nets worth.

A stock index fund mirrors market indices. Let’s explain the difference between a market index and an index fund.

A market index records data on many stocks. These indices (the plural of index) are not investing in stocks; they are recording the rise and fall of stocks.

There are many market indices, but let’s look at a famous example: The S&P 500 (Standard and Poor’s). This index tracks the top 500 companies in the United States.

Now let’s look at index funds.

Index funds base their decisions off of these market indices. A popular index fund called the Vanguard 500 Index Fund bases their decisions on the S&P 500.

The Vanguard 500 Index Fund therefore copies the S&P 500 market index.

The Vanguard 500 Index Fund automatically buy all of the stocks, in the appropriate ratios, of the companies listed in the S&P 500.

Whenever the S&P 500 adjusts their index, the Vanguard 500 Index Fund also adjusts its portfolio.

You can track the Vanguard 500 Index Fund here. Here’s a screenshot of the fund’s recent activity:

If a company drops below the top 500, the S&P 500 records that. Then the Vanguard fund sells all of that stock, and invests in the new company now in the top 500.

Obviously not every company succeeds, but the collective of companies will. So if you invest in the 500 best companies, you will eventually, always make profit.

Pretty clever right? Let’s explain some more benefits.

Why Choose a Stock Index Fund?

There’s a lot of ways to invest your money – bonds, properties, high interest savings accounts. What makes a stock index fund different from these other options?

Low costs

Stock index funds are passively managed. This means there’s less of a human component in buying and selling stocks.

As explained earlier, stock index funds simply copy market indices. There’s no guesswork, no research, and no magic formula to follow. All a stock index fund has to do to buy the stocks listed on a market index.

Software can do most of this work. Therefore managing a stock index fund is very easy, and doesn’t require a lot of overhead.

As of April 2019, the Vanguard 500 Index Fund has a 0.03% expense ratio. If you invest 10,000 dollars, 3 dollars will go to overhead cost every year.

Compare this to actively managed funds, which can be as high as 1.5%.

Stock index funds also have low turnover rates. Meaning they don’t constantly trade stocks, but rather do it sparingly and rarely.

In some cases, all an index fund needs to do is rebalance their portfolio every 6 months to match its market index.

This keeps costs down tremendously, since buying and selling stocks can incur capital gains taxes. By having lower turnovers, it’s cheaper to manage a stock index fund.

Ultimately, that means it saves you more money.

Simple strategy that never changes

There are no surprises with a stock index fund. Other investments may require a change of strategy. For example, if property value goes crazy, you may be forced to sell properties you own.

Actively managed funds may change their style or philosophy over the years. Perhaps they stop investing in tech companies and start investing in oil companies.

Or perhaps your old fund manager retires and a new manager takes over.

That comes with uncertainty about the future. But this doesn’t happen with stock index funds.

The strategy is always the same – follow the market index and always adjust stocks to match the index.

This tactic remains the same for any manager, any time period, and in any situation.

You don’t have to worry about overcoming new challenges or answering future questions.

The strategy is set in stone.

Low risk

I won’t pretend there aren’t safer options. Investing in government bonds is widely considered safer than what I’m recommending.

However, investing in a stock index fund is safer than a lot people imagine.

As explained earlier, certain companies may do poorly, but the collective nets profit over time.

The reason is that the top companies are always competing, adapting, and trying to succeed in their industries.

With a stock index fund such as the Vanguard 500, you’re not betting your money on a particular company, but the U.S. economy.

Experts have tested this method for forty years. As previously mentioned, this is Warren Buffett’s common suggestion when giving advice on investing.

How to Invest in a Stock Index Fund

Investing in a stock index fund begins with research. You may want to consult with your financial advisor.

Then you must choose a fund. Not everyone will select the same one.

Some index funds are based on the Dow Jones, which only tracks the 30 largest public companies.

On the other hand, you can invest in a fund that tracks the entire US stock market. An example is the Vanguard Total Stock Market Index Exchange Traded Fund (VTI).

Various funds offer different levels of exposure to risk, overhead costs, and returns. So start with research.

One option to consider is what Warren Buffett recommended – a fund that tracks the S&P 500. Earlier I mentioned one – The Vanguard 500 Index Fund.

You can learn more, and start investing, in this fund at Vanguard’s website. There is a minimum investment of 3,000 USD.

For several years, many have considered Vanguard a trusted institution.

Alternatively, you can invest in stock index funds for other countries.

Historically speaking, the United States has been one of the most business-friendly nations on the planet. So there’s wisdom to particularly investing in U.S. stock.

You can also use other companies to manage your index fund(s), such as Betterment.

Invest Well to Retire Well

Going into retirement with a chunk of money in a stock index helps tremendously.

They regularly pay dividends. You can additionally take out more money, and slowly deplete your funds.

If you calculate your money, and pace yourself, you can retire knowing you’ll have a steady supply of money.

And you won’t have to work ever again.

Start investing!

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Business

21 Stocks Everyone Should be Watching in 2020

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Best Stocks in 2019

Interested in what stocks to look out for this year? Then you’ll love this list of the best stocks in 2019.

But before we get started, remember the most important advice when it comes to investing in stocks: the wisest way to invest is to use a stock index fund.

These funds purchase multiple stocks and spread risk appropriately across the top companies. This is the advice of Warren Buffett, who once said,

“By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals.”

If you’re looking for a stock index fund, check out Vanguard’s 500 Index Fund.

With that aside, here are the most promising stocks in 2019:

1. Chipotle Mexican Grill

Chipotle is an international chain of restaurants specializing in tacos, burritos, and other Mexican style cuisines. They have establishments all over the world from the United States to Germany and France.

This beloved food joint performed very well in the first two quarters of 2019 and are expected to continue to grow.

P/E ratio as of August 2019: 87.81

2. Constellation Brands, Inc.

Constellation is an international beer and wine producer. They are the largest importer of beer in the United States and command 7.4% of the market share.

P/E ratio as of August 2019: 17.00

3. Lululemon Athletica

Lululemon Athletica creates athletic apparel such as performance shirts, shorts, and pants, as well as yoga accessories. They’ve built a brand over the years that millions recognize and love.

P/E ratio as of August 2019: 47.51

4. Coty Inc.

Coty Incorporated is a multinational company that specializes in beauty products and services such as cosmetics, fragrances, skincare, and nail care.

Coty owns over 70 brands, such as CoverGirl, Clairol, and Bourjois. In 2018, the company’s revenue was over $9.4 billion.

As of August 2019, Coty Inc. stock is valued at 10.42 USD. Their P/E ratio is not yet available.

5. Anadarko Petroleum Corporation

Anadarko is in the natural gas and petroleum industry. This entails everything from gathering resources to treating and transporting gas. The company is also in the hard mineral business.

In early 2019, Anadarko had an estimated 1.47 billion barrels of oil in reserve, making it one of the biggest players in the industry.

As of August 2019, Anadarko’s stock is valued at 73.48 USD. Their P/E ratio is not available yet.

6. Brookfield Infrastructure Partners L.P.

Brookfield Infrastructure Partners acquires and manages infrastructure assets all over the world. They specialize in utilities, energy, and transportation infrastructure.

The company invests in ports, toll roads, pipelines, and telecommunication lines. In other words, things that people will always need and use.

P/E ratio as of August 2019: 75.27

7. ONEOK Inc.

ONEOK (pronounced “one – oak”) Incorporated is in the natural gas industry and is a key leader in the gathering, storing, processing, and transporting natural gas in the United States.

P/E ratio as of August 2019: 22.62
TerraForm Power Inc.
TerraForm Power specializes in renewable energy, particularly solar and wind power. There is an ever-growing trend that demands less damage to the environment.

As the world values green innovations, companies like TerraForm are expected to be favored in the coming years.

P/E ratio as of August 2019: 227.44

8. Netflix

Netflix is a service provider and production company with their main product being a subscription-based streaming service.

Streaming TV and movies have largely replaced traditional television. With no commercials and instant access to thousands of products, Netflix is suspected to continue to grow.

P/E ratio as of August 2019: 120.23

9. iRobot

iRobot is an advanced technology company that specializes in military and domestic robots. They designed the Roomba, which is an autonomous vacuum cleaner.

The U.S. military has purchased and uses thousands of robots from iRobot and are contracted to make more.

P/E ratio as of August 2019: 22.24

10. Amazon

Amazon is a multinational company that specializes in e-commerce and cloud computing. It’s considered one of the big four technology companies along with Apple, Google (Alphabet, Inc.), and Facebook.

Amazon is well known for distributing goods through technological innovation and on a massive scale. Some estimate that Amazon commands 50% of all goods sold online.

P/E ratio as of August 2019: 73.65

11. Apple Inc.

Apple is a multinational tech company that develops and sells computer software, electronics, and online services. They designed some of the world’s greatest tech products including the iPhone and Apple Watch.

Being a leader in tech devices, many analysts believe Apple is one of the most promising stocks to invest in.

P/E ratio as of August 2019: 16.61

12. Alphabet Inc.

Alphabet Inc. is a multinational conglomerate founded in 2015. It’s the parent company of Google, which is the dominating search engine on the internet.

Google performs 90% of all searches on the internet. Alphabet has additional subsidiaries such as Calico, Capital G, and Deep Mind.

These subsidiaries have their hands in industries such as autonomous cars, biotechnology, video game software, and internet tech.

P/E ratio as of August 2019: 23.87

13. Facebook Inc.

Facebook is the popular American social media site founded by Mark Zuckerberg. In 2018, Facebook had a net income of $22.11 billion and its total assets were $97.33 billion.

Facebook has subsidiaries such as Instagram and WhatsApp, which are also very popular social media outlets.

P/E ratio as of August 2019: 31.00

14. MarketAxess Holdings Inc.

MarketAxess is an international company that specializes in financial technology, also known as fintech.

They operate an electronic trading platform for various credit markets such as corporate bonds and income products.

P/E ratio as of August 2019: 70.82

15. AT&T Inc.

AT&T is a multinational conglomerate holding company and is the world’s largest company in telecommunications.

AT&T is the parent company of Warren Media, which makes it the largest entertainment company in the world in terms of revenue.

P/E ratio as of August 2019: 14.17

16. Verizon Communications Inc.

Verizon is a multinational telecommunications conglomerate. They are well known for their subsidiary Verizon Wireless, which is its mobile network.

Together with AT&T, these two companies dominate the mobile and landline market. Since our needs for communications will develop, these two stocks are poised to grow.

P/E ratio as of August 2019: 14.49

17. Axon Enterprise Inc.

Axon Enterprise Inc. is a U.S.-based company that develops weapon products and technology for civilians and law enforcement. This company developed the Taser, a line of electric shock weapons.

Since then, Axon developed other technologies including body cameras and a cloud-based management system that empowers police departments to manage and review evidence.

P/E ratio as of August 2019: 129.55

18. Intuitive Surgical Inc.

Intuitive Surgical Inc. develops and manufactures surgical equipment to make surgeries less invasive. As of 2017, they had 4,271 bases worldwide.

P/E ratio as of August 2019: 48.51

19. Ford Motor Company

Despite the localized recession in Detroit, the automotive giant is doing very well.

The market continues to demand their SUVs and commercial vehicles, not to mention their luxury vehicles, which are usually created under their Lincoln brand.

P/E ratio as of August 2019: 16.90

20. General Motors Company

General Motors is a multinational manufacturer of vehicles and own automotive brands like Buick, GMC, Cadillac, and Chevrolet. They have nearly 400 facilities on six different continents.

P/E ratio as of August 2019: 6.19

Conclusion

Let’s point out two trends from this list:

  • Tech and software companies are dominating
  • Utility-related companies are tried and true

About half of the world still doesn’t have internet access. And a large portion still doesn’t have access to common devices like cell phones and laptops. That means these industries are set up to grow significantly for years to come.

Of course, that doesn’t mean other industries will simply disappear. As you’ve seen in the list, there are still key industries that our society relies on, such as energy and infrastructure companies.

Some of the most promising stocks are in tech and software, such as Apple, Facebook, Google, and Amazon.

Nevertheless, the wisest investment is still a stock index fund, which bets on the collective market rather than individual companies.

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Netflix Releases Third-Quarter 2019 Financial Results

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Netflix, Inc. (NASDAQ: NFLX) has released its third-quarter 2019 financial results today.

You can visit the company’s investor relations website at http://netflixinvestor.com to view the Q3’19 financial results and letter to shareholders.

A video interview with Netflix Chief Executive Officer Reed Hastings, Chief Financial Officer Spence Neumann, Chief Content Officer Ted Sarandos, Chief Product Officer Greg Peters and VP, IR & Corporate Development Spencer Wang will be available at 3:00 p.m. Pacific Time at youtube.com/netflixir.

The interview will be conducted by Michael Morris, Guggenheim Securities. Questions that investors would like to see asked should be sent to [email protected].

You Might Also Like: 

21 Stocks Everyone Should be Watching in 2019

Top Investment Strategies Following Brexit: Where’s Your Money?

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auto

How to Buy a Car With Low Insurance

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How to Buy a Car with Low Insurance

If you’re car shopping, you need to factor in auto insurance.

Before buying a car, always call your insurance company for a quote. You don’t want to get stuck with an insurance bill as high as your car payment.

If you’re a money-saver, you may be wondering how to pick a car with a low insurance quote.

A lot of factors affect your insurance premium:

• Age
• Accident history
• Credit score
• Where you live
• Who’s on your policy

This post will look at one factor in particular: the kind of car you’re buying.

If you’re trying to pick out a car with cheap insurance, you’re looking for three things. You want to buy a safe, inexpensive, and old car.

1. Buy a safe car

The chief concern of insurance is managing risk.

What are the odds a driver will be in an accident? Do they have a history of accidents and traffic violations?

They analyze the driver. They also analyze the car.

Insurance companies collect data on makes and models. Do certain cars have bad track records?

Let’s say a particular sports car is in a lot of high-speed crashes per year. Insurance companies note this and they raise insurance costs on that specific make and model.

Let’s say a 4-door car with safety features is in significantly fewer accidents a year. The insurance company will see that as a safer vehicle and lower the insurance costs.

Airbags and seatbelts are givens. But here are other common safety features:

• Shatter-resistant glass.
• Anti-lock braking systems.
• Four-wheel steering for better control.
• Good bumpers to protect the body from minor bumps.
• Mirrors to see blind spots.
• Excellent headlights for driving at night or in the rain.

Also, 4-door vehicles typically have lower insurance rates than 2-door vehicles.

2. Buy an inexpensive car

The more a car costs, the higher the insurance costs.

For one, expensive cars are statistically more likely to be stolen.

Another factor insurance companies consider when insuring your car is the repair cost. If the car is damaged, how much would it cost to replace the parts?

If the car parts are expensive then the vehicle will have a higher premium. If it’s cheap to repair the car then the vehicle will have a lower premium.

In some cases, you don’t even have to guess which car will cost more to repair. Let’s say there’s a Honda Civic on your left and a Mercedes-Benz on your right.

Which do you think costs more to insure?

However, it’s not always obvious which car costs more to repair. There are cars that are cheap, but their parts are expensive to get.

For example, some foreign cars need parts from far away countries. That might raise the repair costs. In turn, that jacks up the insurance premium.

Always call your insurance company before purchasing a vehicle to get an insurance quote.

But generally speaking, you want to look at less expensive cars. They normally have lower insurance rates.

3. Buy an older car

Older cars usually have lower insurance rates than newer cars.

There are exceptions. If it’s a classic car or rare model, it may be more expensive than a new make and model.

There are a few reasons why older cars are cheaper to insure.

As mentioned in the previous section, car price matters. Newer cars cost more and have a higher market value.

That means it’ll be expensive to repair them if they’re damaged.

Newer cars also tend to have more add-ons:

• GPS
• Built-in computer screens
• Roadside assistance

The more bells and whistles a car has, the more the insurance company needs to cover.

Also, older cars have been around for a while. Therefore insurance companies have more data on these makes and models.

Let’s say an older model has a below-average accident rate. The insurance knows this from years of collecting data.

So the company gives the model a lower premium.

When a new model hits the market, an insurance company isn’t sure how safe it is. It may perform poorly in years to come.

The uncertainty may force the company to aim higher on premiums.

Always get an insurance quote

Those are the three things to keep in mind when shopping for a car with cheap insurance. You’re looking for a safe, inexpensive, and older car.

Keep in mind that there are exceptions to the rules. Don’t skip the step of calling your insurance company and asking for a quote.

But these three factors are a good place to start. Keep them in mind to narrow your search for a car.

They’ll give you a general direction when choosing a car. And they’ll save you money in the future.

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