Displaying items by tag: index fund
What is an Emergency Fund? As the name implies, an emergency fund is specifically saved for an emergency. This could be due to many unforeseen circumstances, such as medical bills, a car malfunctioning, a pipe burst at home, etc. These can be very expensive bills that need to be paid in a relatively short time. Thus, your emergency fund needs to be (close to) immediately accessible. Another way to say this is that it needs to be liquid.
I will be creating a free educational series to teach YOU about the basics of investing your money and how to get started no matter if you have an initial investment of $1,000, $10,000, or more. The topics will be relevant to everybody who has just started working or is in the prime of their working lives. I may give specific examples that may be more relevant to Delayed Earners such as physicians.
Cash Drag is the nemesis of any long term portfolio, as it reduces returns and also has a large opportunity cost when not invested in something with better potential growth. Learn what cash drag is and four strategies to minimize it.
Dollar cost averaging (DCA) is a type of investment strategy where an investor will make constant dollar amount contributions to an investment at regular intervals. This theoretically reduces the risk and smooths out your purchase price over the course of time that you are contributing. The idea is that you are buying more shares of an investment when the price is low, and less shares when the price is high. I will show you that Lump Sum investing is superior to DCA investing using historical data of the S&P 500.
I have talked before about diversifying your portfolio by targeting an asset allocation that is right for you. I also recommended a way to balance it across multiple accounts, with the goal of keeping as few funds in each account as you can. When you do this, each account by itself is NOT very diversified, and subject to a relatively large amount of volatility. However, if you take ALL of the accounts together, the overall volatility decreases without much sacrifice in the performance.
Trying to achieve your target asset allocation across multiple accounts can be quite difficult. It can feel even more so when you consider that each investment vehicle has its own tax consequences. For instance, you may own pre-tax investment accounts, which can include your 401(k), 403(b), individual 401(k), and traditional IRA. You might also own post-tax investment accounts, so called 'Roth' accounts which include the Roth IRA and Roth 401(k) or 403(b) accounts. If all of these are maximized, you may also start placing investments in a taxable brokerage account, like I do. You start accumulating a lot of investment vehicles and it can feel impossible to achieve your target asset allocation. I will show you how to overcome this!
When it comes to choosing asset classes in your investment portfolio, most of us know that diversification leads to a better return vs risk profile by reducing volatility without sacrificing returns. That is the premise of investing in index funds instead of picking individual stocks. However, even among different index funds, depending on the asset class they represent, there can be high volatility as well (think emerging market or small cap funds). Thus, it is also important to diversify across different asset classes. I will show you my own personal asset allocation and how I decided on it.