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FinCap Friday (3_29_24)_ Saying _OK_ to the 401(k)

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FinCap Friday (1_20_23)_ Don't Use It, Don't Lose It

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How much would I need to save monthly to have $1 million when I retire_

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Excerpt from Netflix  - The Stock Market Explained

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In a previous infographic, we showed you that the compound interest is the most powerful force in personal finance. But how does a young person harness this incredible potential?

The answer: investing at an early age.

In this infographic, we clarify the difference between saving and investing, and give some basic tips on how to get started in the market.

For many young people, the concepts of saving and investing blend together - after all, both are about accumulating more financial resources, right?

The terms can be used interchangeably in some cases, but they also have stark differences:

Saving
Saving is about safety and optionality over a short-term period (0-5 years). Cold hard cash can be saved to buy an important item, or to get through emergency situations.

Investing
Investing is about setting yourself up for long-term financial success. It's the process of putting money to work over a long period, such as 10-60 years, by buying and holding assets that will grow from compound interest.

Investing is About Risk

In the investing world, the returns you get are linked to the perceived level of risk.

For example, holding onto cash is extremely low risk - and as a result, it has a low rate of return. Maybe you can earn 1% or 2% in a savings account, or using other short term cashlike instruments.

Meanwhile, if you buy stocks, they come with a certain level of risk. It's possible the company you invest in may run into problems, or even go bankrupt - but for taking this extra risk, the market is willing to compensate you by paying a higher rate of return.

Investing is about taking advantage of higher rates of return and benefiting from the power of compound interest over long periods of time. It's also about finding the best ways to mitigate the risk (diversification, being patient, etc.)

Learn more

Get free lesson plans and resources on personal finance from our co-founder Next Gen Personal Finance.

Be the first to see all future personal finance infographics by getting on Visual Capitalist's free email list.

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Infographic: A Simple Introduction to Investing

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In a previous infographic, we showed you that the compound interest is the most powerful force in personal finance. But how does a young person harness this incredible potential? The answer: investing at an early age. In this infographic, we clarify the difference between saving and investing, and give some basic tips on how to get started in the market.

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To come up with our estimate of the total amount of savings you'll have for retirement ("What you'll have"), we start with your current age and how much you've saved. Using your income and savings contributions, we calculate how much more you'll save between now and your projected retirement date. We take salary increases, compound interest and rates of return into account when arriving at the total number.

To calculate your target retirement savings total ("What you'll need"), our default assumptions include:

Retirement age of 67 (when most people will receive full Social Security benefits).

A 6% rate of return before retirement and a 5% rate of return during retirement (assuming a more conservative portfolio).

You may change any of these default numbers by selecting "advanced details" to reveal them.

Annual pretax income: This is the total income you earn before taxes are deducted. Include your salary, business earnings and any other regular sources of income.

Retirement age: Enter the age you plan to retire. Age 67 is considered full retirement age (when you get your full Social Security benefits) for people born in 1960 or later. Life expectancy: This is how long you expect to live. You'll want your retirement savings and income to last throughout your life, so it's a good idea to aim high here. We are using 95 as our default life expectancy, which is a conservative estimate that assumes a longer life span.

Post-retirement rate of return: Your rate of return during retirement is typically lower than pre-retirement because most people shift at least some of their portfolio to lower-risk investments.

Inflation rate: We have assumed an inflation rate of 3%. You can adjust this to see how inflation could affect your retirement savings.

Annual income increase: We assume a 2% annual salary increase when averaged out over the rest of your working years. You can change this if you expect your income to increase more or less than that.

Saving for retirement is definitely a long game, but learning about the process doesn't have to be.

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Retirement Calculator: Free Estimate of How Much You Need - NerdWallet

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Our retirement calculator estimates your retirement savings based on your current contributions, and then calculates how your savings will stretch in today's dollars.

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How Do You Invest in Cryptocurrency?

Are you considering investing in cryptocurrency? Although Bitcoin is likely the best-known virtual money, thousands of cryptocurrencies already exist. Cryptocurrency investing can take many forms, ranging from buying cryptocurrency directly to investing in crypto funds and companies. For direct investing in crypto coins, you can buy cryptocurrency using crypto exchanges or apps or through certain broker-dealers. Find out more about how you can invest in one of the newest and most inventive asset classes available.

Key Takeaways

Different Types of Cryptocurrency Investing

When you think of investing in cryptocurrency, you might think about buying and holding one or more crypto coins. Buying cryptocurrency directly is probably the most common way to add crypto exposure to your portfolio, but when it comes to investing in cryptocurrency, you have a few different options:

Buy cryptocurrency directly:You can choose to directly purchase and store one or more cryptocurrencies. Your options range from the most established digital currencies like Ethereum and Bitcoin to virtually unknown coins that are newly released.

Invest in cryptocurrency companies:You can invest in companies with a partial or total focus on cryptocurrency. Your options include cryptocurrency mining companies, mining hardware makers, companies like Robinhood Markets Inc. (HOOD) and PayPal Holdings Inc. (PYPL) that support cryptocurrency, and many others with varying levels of crypto exposure. You also can invest in companies like MicroStrategy Inc. (MSTR), which holds large amounts of cryptocurrency on its balance sheets.

Invest in cryptocurrency-focused funds: If you don't want to choose among individual cryptocurrency companies, then you can decide to invest in a cryptocurrency-focused fund instead. You have a choice of exchange-traded funds (ETFs), such as index funds and futures funds, in addition to a range of cryptocurrency investment trusts. In January 2024, the Securities and Exchange Commission approved the first Bitcoin Spot ETFs. These funds hold bitcoin and offer shares to investors based on bitcoin spot prices.

Invest in a cryptocurrency Roth IRA: If you want to invest in cryptocurrency and also garner the tax advantages afforded by an individual retirement account (IRA), then you can consider investing in a cryptocurrency Roth IRA. Using the services of a crypto IRA provider can also facilitate more secure storage for your cryptocurrency holdings.

Become a crypto miner or validator:Perhaps the most direct way to invest in cryptocurrency is to mine it or act as a validator in a crypto network. Cryptocurrency miners and validators can earn rewards in crypto, which they can either hold as investments or exchange for another currency.

How to Buy Cryptocurrency From an Exchange

If you want to invest in cryptocurrency directly, then you can use a cryptocurrency exchange. Here's how to buy cryptocurrency through an exchange:

1. Choose which cryptocurrency exchange you want to use: Your best bet is a reputable, well-known exchange with a large selection of currencies.

2. Establish an account with the cryptocurrency exchange:You will need to provide your personal information and verify your identity to complete the registration process.

3. Fund your account with fiat money:Before you can buy any crypto, you need to fund your exchange account with another currency, such as U.S. dollars.

4. Decide which cryptocurrency you want to buy:You can choose to invest in one or many cryptocurrencies. Research your options to help you decide.

5. Place a buy order for your chosen cryptocurrency:Follow the steps required by the exchange to submit and complete a buy order for one or more cryptocurrencies.

6. Store your cryptocurrency in a digital wallet:After your purchase is complete, the information you need to access your cryptocurrency is held in a digital wallet. That crypto wallet can be hosted either by the cryptocurrency exchange or an independent wallet provider.

A best practice among investors is to periodically review your entire portfolio to assess the need to rebalance your holdings. That might mean increasing or scaling back your crypto exposure, depending on your investment goals and other financial needs.

What to Know Before Investing in Cryptocurrency

Investing in cryptocurrency is risky. The prices of cryptocurrencies, even the most established ones, are much more volatile than the prices of other assets like stocks. The prices of cryptocurrencies in the future could also be affected by regulatory changes, with the worst-case possibility that cryptocurrency becomes illegal and therefore worthless.

Many investors are nonetheless attracted to the potential upside of investing in crypto. If you decide to invest, it's important to carefully research any digital coin before buying it. Pay attention to transaction fees when making crypto purchases because these fees can vary widely among currencies.

The cryptocurrency space is evolving rapidly, so it's also important to pay attention to new developments that may affect your crypto holdings. Cryptocurrency investors need to understand the tax consequences of using crypto, especially if they purchase something or sell their crypto investments.

Given the riskiness of cryptocurrency as an asset class, it's especially important not to invest more money in crypto than you can afford to lose.

Is Cryptocurrency Actually a Good Investment?

Investing in cryptocurrency is not for everyone. The prices of cryptocurrencies can be volatile, which makes this type of investing a poor choice for conservative investors. If you are willing to assume greater risk as an investor, then investing in one or more cryptocurrencies may be right for you.

How to Invest in Crypto For Beginners?

You can invest in Bitcoin directly by using one of the major cryptocurrency exchanges, such as Coinbase or Binance. Another way to gain investment exposure to Bitcoin is to buy shares in a company with significant Bitcoin exposure, such as a Bitcoin mining company. A third option is to invest in a Bitcoin-focused fund such as an exchange-traded fund (ETF).

Which Crypto Is Best to Invest?

There are thousands of cryptocurrencies to choose from. Some experience wild price swings between trading days and volatile drops or increases, and others make small incremental changes. Your strategy, goals, risk tolerance, and preferences will dictate which is best for your portfolio, if any.

The Bottom Line

The are several ways to invest in cryptocurrency. If you're interested and can accept the risks involved, you have many choices. However, it cannot be stressed enough how volatile crypto prices are because other cryptocurrency investors are afraid of missing out on the next big price movements.

These movements cause large, unpredictable price swings that can take out your investments in a matter of minutes or hours. Conversely, you may be able to double or triple your investment-but there are no guarantees.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read ourwarranty and liability disclaimer for more info. As of the date this article was written, the author does not own cryptocurrency.

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If you are interested in investing in cryptocurrency, then you need to know how to get started. Learn about the risks and potential upside.

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How Do You Calculate the Percentage Gain or Loss on an Investment?

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Calculating the percentage gain of an investment is quite easy. Here is what you need to know to determine the gain or loss.

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The investment landscape can be extremely dynamic and ever-evolving. But those who take the time to understand the basic principles and the different asset classes stand to gain significantly over the long haul. The first step is learning to distinguish different types of investments and what rung each occupies on the "risk ladder."

Understanding the Investment Risk Ladder

Here are the major asset classes, in ascending order of risk, on the investment risk ladder.

A cash bank deposit is the simplest, most easily understandable investment asset-and the safest. Not only does it give investors precise knowledge of the interest they'll earn, but it also guarantees they'll get their capital back.

On the downside, the interest earned from cash socked away in a savings account seldom beats inflation. Certificates of deposit (CDs) are highly liquid instruments, very similar to cash that are instruments that typically provide higher interest rates than those in savings accounts. However, money is locked up for a period of time and there are potential early withdrawal penalties involved.﻿﻿

A bond is a debt instrument representing a loan made by an investor to a borrower. A typical bond will involve either a corporation or a government agency, where the borrower will issue a fixed interest rate to the lender in exchange for using their capital. Bonds are commonplace in organizations that use them in order to finance operations, purchases, or other projects.﻿﻿

Bond rates are essentially determined by the interest rates. Due to this, they are heavily traded during periods of quantitative easing or when the Federal Reserve-or other central banks-raise interest rates.﻿﻿

Mutual Funds

A mutual fund is a type of investment where more than one investor pools their money together in order to purchase securities. Mutual funds are not necessarily passive, as they are managed by portfolio managers who allocate and distribute the pooled investment into stocks, bonds, and other securities. Individuals may invest in mutual funds for as little as $1,000 per share, letting them diversify into as many as 100 different stocks contained within a given portfolio.

Mutual funds are sometimes designed to mimic underlying indexes such as the S&P 500 or DOW Industrial Index. There are also many mutual funds that are actively managed, meaning they are updated by portfolio managers who carefully track and adjust their allocations within the fund. However, these funds generally have greater costs-such as yearly management fees and front-end charges-which can cut into an investor's returns.

Mutual funds are valued at the end of the trading day, and all buy and sell transactions are likewise executed after the market closes.﻿﻿

Exchange Traded Funds (ETFs)

Exchange traded funds (ETFs) have become quite popular since their introduction back in the mid-1990s. ETFs are similar to mutual funds, but they trade throughout the day, on a stock exchange. In this way, they mirror the buy-and-sell behavior of stocks. This also means their value can change drastically during the course of a trading day.

ETFs can track an underlying index such as the S&P 500 or any other "basket" of stocks the issuer of the ETF wants to underline a specific ETF with. This can include anything from emerging markets, commodities, individual business sectors such as biotechnology or agriculture, and more. Due to the ease of trading and broad coverage, ETFs are extremely popular with investors.﻿﻿

Shares of stock let investors participate in the company's success via increases in the stock's price and through dividends. Shareholders have a claim on the company's assets in the event of liquidation (that is, the company going bankrupt) but do not own the assets.

Holders of common stock enjoy voting rights at shareholders' meetings. Holders of preferred stock don't have voting rights but do receive preference over common shareholders in terms of the dividend payments.﻿﻿

Alternative Investments

There is a vast universe of alternative investments, including the following sectors:

Real estate: Investors can acquire real estate by directly buying commercial or residential properties. Alternatively, they can purchase shares in real estate investment trusts (REITs). REITs act like mutual funds wherein a group of investors pool their money together to purchase properties. They trade like stocks on the same exchange.﻿﻿

Hedge funds and private equity funds: Hedge funds, which may invest in a spectrum of assets designed to deliver beyond market returns, called "alpha." However, performance is not guaranteed, and hedge funds can see incredible shifts in returns, sometimes underperforming the market by a significant margin. Typically only available to accredited investors, these vehicles often require high initial investments of $1 million or more. They also tend to impose net worth requirements. Both investment types may tie up an investor's money for substantial time periods.﻿﻿

Commodities: Commodities refer to tangible resources such as gold, silver, crude oil, as well as agricultural products.﻿﻿

How to Invest Sensibly, Suitably, and Simply

Many veteran investors diversify their portfolios using the asset classes listed above, with the mix reflecting their tolerance for risk. A good piece of advice to investors is to start with simple investments, then incrementally expand their portfolios. Specifically, mutual funds or ETFs are a good first step, before moving on to individual stocks, real estate, and other alternative investments.

However, most people are too busy to worry about monitoring their portfolios on a daily basis. Therefore, sticking with index funds that mirror the market is a viable solution. Steven Goldberg, a principal at the firm Tweddell Goldberg Investment Management and longtime mutual funds columnist at Kiplinger.com further argues that most individuals only need three index funds: one covering the U.S. equity market, another with international equities and the third tracking a bond index.

The Bottom Line

Investment education is essential-as is avoiding investments you don't fully understand. Rely on sound recommendations from experienced investors, while dismissing "hot tips" from untrustworthy sources. When consulting professionals, look to independent financial advisors who get paid only for their time, instead of those who collect commissions. And above all, diversify your holdings across a wide swath of assets.

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Investing for Beginners: A Guide to Assets

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The investment landscape can be extremely dynamic and ever-evolving. But those who take the time to understand the basic principles and the different asset classes stand to gain significantly over the long haul. The first step is learning to distinguish different types of investments and what rung each occupies on the "risk ladder."

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Brown Family Budget (Your Name here) Draft

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Inspiring America: LeBron James gives at-risk youths opportunities through I Promise School

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Philanthropy QoD #5: How much money do Black Americans give in charitable donations annually?

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PROJECT: Let's Have a Philanthropy Meet Up!

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ANALYZE: Trends in American Philanthropy