Money Management

Clueless about investing? Read on for an overview so you can begin putting your money to work. 

Investing your money is a great way to grow wealth. But the idea of investing might seem daunting if you’re totally new to it and don’t know much about it.

A recent survey by FinanceBuzz found that almost 30% of Americans have yet to start investing. And among those who haven’t gotten the ball rolling, 40% point to not knowing enough about investing as the reason.

If you feel fairly clueless as an investor, don’t sweat it. Here’s how you can get started as you work to grow your knowledge.

Start with S&P 500 ETFs

You may have heard of the S&P 500, but if you’re unsure exactly what it is, don’t sweat it. The S&P 500 is an index that consists of the 500 largest companies that trade publicly today. When news reporters say things like, “The stock market was down today,” they’re often referring to the S&P 500 index, since it’s generally used as a benchmark for the entire market.

Exchange-traded funds (ETFs), meanwhile, are funds you can buy and sell the same way you’d buy shares of different companies. The nice thing about ETFs, though, is that they allow you to own a collection of stocks without having to go out and research each and every one.

Now, there are different types of ETFs you can invest in. A tech ETF, for example, will be loaded with different tech stocks. A healthcare ETF will consist of healthcare stocks.

An S&P 500 ETF will basically invest in the companies included in that index. And that’s what makes this a good choice if you’re first starting out.

Over the past 50 years, the S&P 500 has rewarded investors with an average annual 10% return. That return accounts for years when the index did well, as well as years when the index lost value.

Let’s say you’re ready to start investing and you have $2,000 to work with. If you were to buy shares of an S&P 500 ETF and hold them for 40 years, you’d grow your $2,000 into about $90,500, assuming that ETF gives you a 10% average annual return, too.

Consider individual stocks as you gain more confidence

A big reason it’s a good idea to start investing with S&P 500 ETFs is that it’s essential to maintain a diversified portfolio at all times. And putting your money into 500 different companies achieves that goal.

However, there are individual stocks that have outperformed the S&P 500 index through the years and are likely to continue to do so. Once you have an established portfolio with S&P 500 ETFs, you can consider researching different stocks to see if there are specific ones it pays to put money into.

Now, there are certain things you’ll want to look out for when choosing stocks. Pay attention to a given company’s:

Cash flowAssetsDebtManagement

You’ll also want to consider what competitive advantage a given company has over similar businesses. Publicly traded companies are required to disclose certain financial information regularly. If you’re willing to read through that information, you can make decisions for your portfolio.

As you add stocks individually, though, remember to uphold the principle of diversification. You don’t, for example, want to simply keep buying tech stocks. Rather, you should aim to own stocks across a range of market sectors.

When you feel like you’re in the dark about investing, it can be tricky to get started. But the sooner you do get started, the more time you’ll give your money to grow. So if you have funds you don’t need for near-term savings or specific goals, open a brokerage account and put that money to work.

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Have medical bills you’re juggling? Read on to see if a personal loan is a good option. 

If you’re someone who’s grappling with medical debt, you should know that you’re not alone. An estimated 1 out of every 10 Americans has medical debt, says the Kaiser Family Foundation. And a good 3 million Americans owe more than $10,000.

If you’re struggling to keep up with your various medical bills, then you may be thinking of taking out a personal loan and using it as a means of consolidating those different payments. Doing so could make your life easier, so there’s value in that. But consolidating medical debt with a personal loan might also end up costing you more.

You might end up spending more on interest

Personal loans are commonly known as a cost-effective way to borrow money. You’ll generally pay a lot less interest on a personal loan, for example, than you will on a credit card balance.

Plus, personal loans are very flexible. You can sign one for pretty much any purpose, whether it’s to renovate your home, take a vacation, or pay off existing debt.

Now, if you have a string of medical bills you’re trying to keep tabs on, the idea of consolidating your debt into a personal loan might be appealing since it can allow you to make a single monthly payment instead of multiple payments. But even though personal loans are known for their competitive interest rates, right now, they’re expensive.

The reason is that pretty much all borrowing is expensive these days following a series of interest rate hikes from the Federal Reserve. The Fed started raising interest rates last year in an attempt to slow the pace of inflation. But now, borrowers are looking at higher costs across the board, which means that even if you have a fantastic credit score, you might end up with a personal loan rate that’s not so appealing.

But that’s not the only reason to think twice before consolidating medical debt with a personal loan. Often, medical providers who let patients pay off their bills over time offer no-interest payment plans, or really low-interest plans. So you’ll need to take a close look at the interest you’re paying now, if any, to see if a personal loan really makes sense.

Perhaps you’re paying a maximum of 3% interest on your medical bills now. A personal loan might easily charge you three times that much interest, especially given where borrowing rates are sitting today. And there’s no sense in raising the interest rate on your debt so it costs you more.

You may just want to get yourself organized

Consolidating medical debt into a personal loan might offer more administrative benefits, so to speak, than savings-related benefits. So if your goal there is really to make it easier to keep tabs on your payments, a spreadsheet can help.

List all of your bills and their various due dates on a spreadsheet and set calendar reminders so you don’t fall behind on your bills. You may also be able to set those bills (or at least some) to pay automatically out of your checking account so you don’t have to worry about missing one.

There are plenty of good reasons to turn to a personal loan when you have a need to borrow money. But in the case of medical debt, it’s important to look closely at the interest you’re paying versus the interest a personal loan will charge when making that choice.

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Homeowners insurance is an essential expense, but some property owners are skimping on it. Read on to see why. 

When you buy a home, you have to factor in certain costs outside of your mortgage. These include property taxes, maintenance, repairs, and homeowners insurance.

Homeowners insurance is a necessary expense because without it, you could end up facing exorbitant costs in the event of property damage. You could also find yourself on the wrong end of a lawsuit if someone gets injured on your property.

If you’re applying for a mortgage, having homeowners insurance is a requirement. Once you have your mortgage in place, you may be able to get away with dropping your coverage from a technical standpoint. But just because you can forgo that coverage doesn’t mean you should.

Of course, a lot of homeowners aren’t willing to take the risk of having no coverage at all. But some homeowners may be opting for minimal homeowners insurance these days. Here’s why.

Homeowners insurance costs keep rising

Between May 2022 and May 2023, homeowners insurance premiums rose 21% on average, according to data from Policygenius. And among homeowners whose premiums went up, the average increase during that time frame was $244. For this reason alone, it’s easy to see why homeowners may be leaning toward minimal coverage plans.

Why are homeowners insurance companies charging more? A big reason is that they’re increasingly having to pay out on claims due to extreme weather fueled by climate change.

In fact, some insurers have pulled out of states like Florida and California due to the extreme weather events experienced there, leaving homeowners with fewer options to obtain coverage. As such, more homeowners are simply opting to not insure their homes. In Florida, for example, 15% of property owners do not have a homeowners policy.

What does minimal homeowners insurance even look like?

If you can’t afford to insure your home to the fullest extent possible, you may decide to purchase minimal coverage for protection against many types of damage. This is known as HO-1 coverage.

HO-1 policies will generally not pay out for damage caused by the weight of snow and ice, accidental water or stream discharge, frozen or cracked/bulging pipes, falling objects, and damage caused by an artificially generated electrical current. But most higher-level policies will pay for these events.

Also, HO-1 policies generally do not include liability coverage in case someone gets hurt on your property. It also usually won’t cover your possessions within your home or the cost of temporary housing if your home is not habitable following damage.

You may technically be able to get away with having HO-1 coverage rather than a more robust policy. But whether that’s a wise move is another story.

You might save money on your homeowners insurance premiums with HO-1 coverage. But if your property sustains major damage, you’re running the risk of, for example, having all of your furniture, electronics, and appliances completely destroyed without being in line for any sort of payday to replace them.

In fact, you should know that HO-1 coverage is not available in most states. And if you’re first applying for a mortgage, your lender may not accept it. Rather, it might require you to have a higher level of coverage.

A risk you don’t want to take

All told, homeowners insurance is an expense you shouldn’t skimp on. It’s easy to see why homeowners may be moving toward minimal insurance policies, but that doesn’t make it a sound choice.

If you’re struggling to afford homeowners insurance, a better bet may be to find ways to maintain a higher level of coverage while saving some money. That could mean shopping around with different insurers or putting added safety measures in place at home, such as having an alarm system installed. Bundling your homeowners and auto insurance policies might also result in some savings.

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There are different steps you can take to save money on taxes. Read on for some mistakes that might only increase your IRA burden. 

Paying taxes is a part of life. And yet most of us would probably rather do everything in our power to get out of them.

Many people can’t avoid paying taxes completely. But there are definitely steps you can take to pay the IRS less money. That, however, could hinge on avoiding these big mistakes.

1. Holding investments for a year or less before selling them

The goal of investing money is to see the value of your assets increase. Now, you should know that if you’re selling stocks at a profit in a regular brokerage account, you’ll have to pay capital gains taxes on that profit. But you can spend less on capital gains taxes if you time the sale of your assets strategically.

Profits on assets held for a year or less are considered short-term gains, whereas holding assets for at least a year and a day before selling, bumps you into the long-term capital gains category. Long-term capital gains are taxed at a more favorable rate than short-term gains. So selling investments before you’ve held them for a year and a day can be a mistake if there’s no compelling reason to do so.

It’s one thing to quickly sell shares of a stock that’s expected to release an unfavorable earnings report. In that case, waiting to sell could mean losing out on your profit. But if you’re not in a situation like that, don’t rush to sell off your assets to take your profits and run. Waiting a bit of time could save you a bundle of money.

2. Sticking to a regular brokerage account instead of an IRA

The money you put into an IRA is supposed to be earmarked for retirement. As such, there can be penalties for taking an IRA withdrawal before you reach age 59 1/2. So you may not want to keep all of your investments in an IRA. Keeping some in an IRA, however, is a smart move.

IRAs give you a tax break on the money that goes in. And gains on your investments are tax-deferred until you take withdrawals.

We just talked about ways to lower capital gains taxes. With an IRA, you won’t even have to worry about paying those taxes year after year, since you aren’t taxed on gains until you tap your account.

3. Forgoing the opportunity to fund an HSA

Healthcare is an expense people generally can’t avoid. So you might as well lower your taxes when spending money on it. That’s why passing up an HSA, or health savings account, if you’re eligible for one is a huge mistake.

To qualify for an HSA, your health plan needs to meet certain requirements. In 2024, for example, your plan will need a minimum deductible of $1,600 for single coverage or $3,200 for family coverage to be HSA-eligible.

But if your plan qualifies, you should know that HSA contributions go in tax-free like IRA contributions. HSAs also let you invest funds you don’t need to withdraw right away. Meanwhile, investment gains in an HSA are tax-free, as are withdrawals used for qualifying medical expenses.

Taxes may be unavoidable to a large degree, but that doesn’t mean you can’t get away with legally paying less. The key to doing so, though, is to know what strategies and accounts to take advantage of.

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When you pay home insurance out of an escrow account, it’s still possible to change insurers, but it can be a little more complicated. Here’s how. 

Homeowners must have a home insurance policy for their property. A mortgage lender will require property owners to buy a policy to protect the collateral. In many cases, homeowners are required to include their insurance costs in their monthly mortgage payments.

See, lenders want to be sure that property owners have the funds to pay their insurance bill when it comes. So mortgage lenders may divide up the annual cost of insurance, tack this onto required monthly mortgage payments, and then put the money into an escrow account. The insurance bill then goes to the lender who pays the premiums from escrowed funds.

People who escrow their homeowners insurance payments may wonder if it’s possible to change insurance companies even though the current provider is billing the mortgage lender. Here’s what property owners need to know about switching coverage when escrowing insurance costs.

How to change insurers when escrowing premiums

When escrowing insurance premiums, it is still entirely possible to change insurance companies. However, some additional steps must be taken to avoid problems:

Homeowners must find out how their mortgage lender should be listed on the insurance policy and what address should be used. Policies include a mortgagee clause and the correct lender name must be included on those policy documents. The name to list may be different from what the lender is commonly called, and the address may not be the same one mortgage payments are sent to as many lenders use a different address for insurance documents.Homeowners should notify the mortgage lender of their intent to change insurance carriers. While the lender should be notified that the old policy has been canceled and a new one has been put into effect, this may not always happen seamlessly if insurers don’t send the updated documents quickly. It’s best to let the lender know so premiums aren’t sent to the wrong place or so the lender doesn’t think there’s been a lapse in insurance coverage.Homeowners are responsible for calling their existing insurer and canceling the policy — and it’s important to avoid a lapse in coverage while doing so.Any premium refunds the insurer sends directly to the homeowner should be sent to the mortgage company to be put back into the escrow account. Otherwise, this could cause an escrow shortfall and necessitate additional payments later. It’s best to call the mortgage lender to find out exactly how to send this money.

By taking these additional steps, homeowners can make sure their switch to a new insurer goes off without a hitch.

Don’t hesitate to switch insurers when necessary

It can seem daunting to change insurers when making premium payments out of an escrow account. But if the existing policy has become too expensive and another carrier is offering a better deal, or the insurer isn’t providing good customer service and there are concerns about claims handling, it’s worth the effort. Just follow these simple steps to make the change to an insurance company that is a better fit.

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Losses in your IRA can be disheartening. But read on to see why they may not be a big deal at all. 

There’s a saying that saving for retirement is a marathon, not a sprint. And there’s a lot of truth to that.

Retirement is something you might save for over a 20-, 30-, or 40-year period — or longer. And if you do so steadily, all the while investing your savings in a savvy manner, you might end up with a really large nest egg by the time your career wraps up.

Now, you’ll generally hear that it’s a good idea to invest your retirement savings in stocks, since they have the potential to deliver strong returns over time that allow you to build up a lot of wealth. In fact, over the past 50 years, the stock market has delivered an average annual return of 10%, as per the S&P 500 index’s performance.

But stocks can also be risky. And while it’s a good idea to load up your individual retirement account (IRA) with different stocks, there may come a point (or many points) when your IRA loses money temporarily.

That can be tough to cope with. But it’s also not necessarily so terrible.

There will be bumps along the way

When you invest in stocks over a lengthy time frame, you’re apt to have periods when your IRA loses value. The key, however, is to stay cool when that happens and not rush to sell off investments in that account when they’re down.

If you do that, you’ll lock in your losses. If you sit tight, you can give your IRA a chance to recover, which it’s likely to do.

Remember, the 10% average annual return that the stock market has delivered over the past five decades accounts for both good years and bad ones. But all in, the market has rewarded investors who have stuck with it for that long.

So let’s say your IRA is worth $100,000 today, only following a few weeks of market volatility, its value declines to $95,000. If you were to sell your losing investments in your IRA, you’d make that $5,000 loss official. If you were to do nothing, you might find that in a few months from now, your IRA is back up to $100,000. And a few months after that, it may be up to $105,000 — even without additional contributions on your part.

Don’t make rash decisions with your IRA

Rushing to dump investments in your IRA could leave you short on money later in life. So it’s in your best interest to keep calm and leave your portfolio alone when its value declines.

In fact, one way to potentially avoid taking needless losses in your IRA is to not check your balance too frequently. It’s smart to keep tabs on your portfolio, but a check-in once every three months is generally appropriate. You definitely do not want to be checking your IRA every day, or even every week, because that might make it more likely that you’ll see a loss and want to take action on it.

Remember, when you look at your IRA balance at any given point in time, you’re seeing a temporary number. If that number happens to be lower than what it was the last time you looked, the best thing may be to just walk away and pretend you didn’t see it. Otherwise, you could end up locking in losses that truly hurt you in the long run.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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