Money Management

I prefer to be a boring investor because I don’t have the time to actively manage my portfolio. Read on to learn why I believe I’ll be successful picking basic, simple investments. 

When it comes to my brokerage account, I have one simple, straightforward investing philosophy: I want my investments to be as boring as possible.

This may come as a surprise to some, as many people in the financial world are interested in picking individual stocks to buy or other assets to invest in that they’re excited about and love to discuss (like cryptocurrencies).

I, on the other hand, do not want to take advantage of new exciting investment opportunities, nor do I want to hear about the latest and greatest asset class that’s sure to make me a millionaire.

Here are the two primary reasons why being boring is my preferred option when it comes to my investments.

1. I believe being boring is the best path to success

The biggest reason why I am glad to be a boring investor is because I believe that sticking with a simple, basic, tried-and-true investing approach is the best way to actually make money over the long term.

See, my boring investment portfolio consists almost entirely of index funds that track the S&P 500, which is a financial index made up of 500 large U.S. companies. The S&P 500 has produced average annual returns of 10% for decades, and it’s often viewed as a barometer for how the U.S. stock market is doing as a whole.

While I might do better than 10% on some investments if I opted for a more exciting investment portfolio, there’s no guarantee that would happen. And I’d also be taking on a whole lot more risk. Even most professional investors and fund managers cannot consistently beat the S&P 500, so why should I try?

2. I don’t have the time or interest to explore exciting investment opportunities

Another big reason why I am very glad to be a boring investor is that I don’t really have a lot of time or interest in researching different investment options.

If I had a more exciting portfolio, I would have to spend a lot more time looking into different companies to buy, studying their earnings reports, and keeping tabs on how they are faring compared with their competitors. I would need to be aware of what’s going on with my investments so I could make changes if needed, such as if the competitive landscape was altered or the leadership team of the business departed.

With my investments, I don’t have to do anything. I just buy an S&P index fund on a regular basis using dollar-cost averaging (investing a set dollar amount at regular intervals so sometimes I buy low and sometimes I buy high). I never have to think about my investment again after that, and I don’t have to do any research to pick it in the first place.

Now, if you are interested in investing and enjoy trying to beat the market, then you may want to take a different approach. But, being a boring investor isn’t just OK — it’s a great strategy. So don’t assume you need to be a stock guru to start building wealth in your brokerage account. I’ve done pretty well with my simple approach, and you can too.

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A small tax refund isn’t such a bad thing at all. Read on to see why. 

Many people are used to filing their taxes and getting a refund as a result. And this year, as of mid-March, the average tax refund was $2,933.

Clearly, that’s not a small amount of money. And you may be really happy to see a sum that large hit your bank account. But here’s why you should actually want a smaller refund — not a larger one.

1. A smaller refund might help you avoid debt

A tax refund represents money you were eligible to collect the previous year but didn’t receive upfront. So the less money you get in refund form, the more you might get in each paycheck you collect. And that alone could spell the difference between landing in debt or not.

Let’s say you just failed to pay your credit card bill in full because your paycheck was a few hundred dollars short. That’s debt you’re now going to pay interest on. And it’s a situation you may have avoided had your paycheck just been a little larger.

2. You might have less financial stress

When your checking account starts getting dangerously close to $0, it can be extremely stressful. A recent SecureSave survey found that 74% of Americans are living paycheck to paycheck with no financial cushion. But a higher paycheck might work wonders for your peace of mind, not to mention make it easier to pay your bills as they come due.

3. You can earn interest on your money instead of giving the government a tax-free loan

These days, savings accounts are paying a fairly generous amount of interest. So the higher your paychecks are, the more opportunities you might have to pump some money into your savings.

On the other hand, when you set yourself up for a larger tax refund, you allow the government to hang onto your money for longer — and in an interest-free manner at that. Now, who needs that interest income more? You or the IRS?

How to arrange for a smaller tax refund

A smaller tax refund down the line could mean getting access to more of your earnings upfront. So if you want to see your paychecks increase, update your W-4 form so your employer starts to withhold less tax from your income.

Your W-4 is actually something you can change when you want to (though your payroll department may not appreciate frequent changes). It’s not one of those forms where you fill it out once at the start of the year and are stuck with your selections. So if you’re looking at a larger tax refund this year, you may want to make some immediate changes that increase your cash flow and give you more leeway to spend your money as you want and need to.

All told, one of the biggest myths about tax refunds is that they represent free money. They absolutely do not. A tax refund is your money that you collected later than necessary. And that’s why a smaller one may be more ideal.

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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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A personal loan can be a great way to borrow for certain purchases and expenses. Read on to learn what not to use one for, though. 

A personal loan is one of many options for borrowing, along with credit cards, mortgage loans, and car loans.

Personal loans can be great for some things. If you have essential expenses to pay that you don’t have the money for, like medical bills, a personal loan can provide an affordable option with a lower interest rate than many other kinds of debt. Personal loans can also be great for debt consolidation if you can borrow and reduce the rate you’re paying on your current debt.

But, while you absolutely should consider a personal loan under the right circumstances, there are also times when you definitely would not want to get a personal loan. Here are four things you shouldn’t buy with one.

1. A home

If you’re going to buy a house, you’re going to want a mortgage instead of a personal loan. The mortgage is secured by the home, so the interest rate you’ll pay is going to be lower and, if you itemize on your taxes, you will also be able to deduct interest charges from your taxes. A mortgage is also meant for home-buying so you pay over a long period (such as 15 or 30 years), making monthly payments more affordable.

Personal loans will typically cost you more than a mortgage would, and you may not be able to borrow enough. You also shouldn’t use a personal loan to make a down payment on a home, as many mortgage lenders won’t allow this and you could risk owing more than the house is worth. Instead of using a personal loan to put money down, wait to purchase a home until you’ve saved up enough for a reasonable down payment.

2. A car

Buying a car with a personal loan is also typically going to cost you more than if you got a car loan instead. Again, a car loan is a secured loan so the reduced risk for the lender means lower rates for you.

Opt for a car loan with the shortest repayment time you can find and try to put around 20% of the cost of the car down so you avoid ending up in a situation where you owe more than the car is worth. Don’t use a personal loan for any required down payment car lenders mandate either, as this can also leave you very vulnerable to owing much more than you could sell the car for (or that you could get from insurance if the car is totaled).

3. Investments

Investing with proceeds from a personal loan may seem smart if you can get a low rate loan and you believe you’re going to earn a higher return. The problem is, no investment comes with guaranteed returns, so you could risk losing the money and still having to pay back the personal loan.

The interest you pay on the personal loan is also going to eat away at returns, and there aren’t too many safe investments that are going to pay you a much higher rate of return than you’d pay for the money you borrow.

4. Unnecessary purchases you can put off

Finally, you should avoid making unnecessary purchases with a personal loan if you can wait until you’ve saved up to pay for them in cash instead. There’s little sense in paying interest if you don’t have to, so just wait until you can afford to pay outright for the items you want.

Avoiding a personal loan in these four situations will help you to ensure you’re using your money as wisely as you can and getting the best deals possible in situations where you must finance purchases.

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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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