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More Than Half of Americans Making Less Than $40,000 Annually Have No Retirement Savings

MoneyTipsIt should not come as a surprise that people with lower incomes have lower levels of retirement savings. However, many people with lower incomes have no retirement savings at all – and a recent Federal Reserve report suggests that far too many Americans across all age groups fall into that category. The Federal Reserve's Report on the Economic Well-Being of U.S. Households in 2016 found that 56.4% of Americans making less than $40,000 per year have no retirement savings. This includes defined benefit plans (traditional pensions), defined contribution plans such as 401(k) plans or IRAs, or liquid accounts (cash, CDs, etc.) that could be devoted to retirement. Younger respondents making less than $40,000 annually were more likely to have no retirement savings. Just over 60% of lower-income respondents below age forty reported having no retirement savings – an unfortunate statistic because saving for retirement at an early age allows you to benefit from the magic of compound interest. Lack of retirement savings is prevalent among all ages of low-income Americans, even those nearing retirement age. A shocking 42.7% of lower-income respondents age sixty or older have no retirement savings at all, making them completely dependent on Social Security. These respondents will likely need to put off retirement to maximize their benefits, which increase 8% annually for every year you delay benefits beyond your full retirement age until age seventy. Even respondents with retirement accounts are tempted to borrow from those accounts or cash them out entirely. The survey found that 13% of non-retired respondents with retirement accounts had either borrowed from their retirement funds or cashed them out completely within the last twelve months – likely incurring early withdrawal fees as well as not compounding on those withdrawn assets. Leisa Peterson, Certified Financial Planner® and Life Coach at WealthClinic®, points out that while it may be necessary to withdraw from retirement accounts for valid reasons such as paying off debt, she suggests that "you need to be very, very cautious...are you going to sleep better at night because you've done that? And at the same time, if you do it, then now you need to make a really high priority to restore that savings back into your retirement account." Peterson's advice is especially pertinent to lower-income Americans. Granted, retirement savings is very difficult at the lower end of the earnings spectrum, but it's even more important because of Social Security benefits. Your benefits are based on a formula that incorporates your top 35 years of earnings. The average monthly Social Security benefit is $1,342, and if you spend many years at $40,000 or below – well below the $48,098 that served as the national average wage index for 2015 according to the Social Security Administration – your benefits will be significantly below average. How do you start a retirement savings fund? Create a budget that sets aside a certain amount automatically for retirement, and then stick to that budget. If your employer offers a 401(k) with matching contributions, adjust your budget to take advantage of it to the extent you can afford – otherwise you are basically refusing free money. Even putting aside a small amount regularly helps, because you establish savings as a habit. After a while, you will have adjusted your spending to the point where you don't even think about your retirement savings as a burden cutting into your discretionary income. If you are among the 56.4% of lower-income Americans that do not have any retirement savings, we urge you to start today. Even if you are approaching retirement age, it is not too late. Every dollar that you save now lessens your burden in retirement – and you have better things to do in retirement than constantly worry about your income. Let the free Retirement Planner by MoneyTips help you calculate when you can retire without jeopardizing your lifestyle. Photo ©iStockphoto.com/goldfinch4ever Originally Posted at: https://www.moneytips.com/more-than-half-of-americans-making-less-than-40000-annually-have-no-retirement-savings/46810 Ways To Increase Your 401(k)80 is the New 605 Ways to Save More for Retirement

Value vs. Growth: 2 Investing Styles Explained

Investing is often categorized into two fundamental styles: value and growth. Value investors look for stocks they believe are undervalued by the market, while growth investors seek stocks that deliver better-than-average returns.

Often growth and value are pitted against each other as an either-or option. It’d be as if you walked into an (admittedly boring) ice cream shop that offered two flavors — chocolate and vanilla — and assumed you could only choose one. But like ice cream cones, portfolios have room for more than one flavor, and together value and growth investments can complement each other.

Before you scoop up a fund of the growth or value variety, here’s what you need to know.

Value and growth at work

Value- and growth-based strategies are among the many asset allocation tools you can use when deciding how to invest in stocks. Some people create their own criteria for picking stocks based on growth or value characteristics. Others let the professionals do the work and invest in mutual funds or exchange-traded funds (ETFs) that adhere to these styles.

If you have a 401(k) or individual retirement account (IRA), you probably have the option to invest in growth and value funds — so that’s one likely place you’ll encounter these strategies.

Value investing 101

Value investors are on the hunt for hidden gems in the market: stocks with low prices but promising prospects. The reasons these stocks may be undervalued can vary widely, including a short-term event like a public relations crisis or a longer-term phenomenon like depressed conditions within the industry.

Such investors buy stocks they believe are underpriced, either within a specific industry or the market more broadly, betting the price will rebound once others catch on. Generally speaking, these stocks have low price-to-earnings ratios (a metric for valuing a company) and high dividend yields (the ratio a company pays in dividends relative to its share price). The risk? The price may not appreciate as expected.

Benjamin Graham is known as the father of value investing, and his 1949 book “The Intelligent Investor: The Definitive Book on Value Investing” is still popular today. One of Graham’s disciples is the most famous contemporary investor: Warren Buffett.

Growth investing 101

By comparison, growth investors often chase the market’s highfliers. You’ve likely seen the disclaimer from financial companies that past performance isn’t indicative of future results. Well, this investing style is seemingly at odds with that idea.

It’s essentially doubling-down: Investors bet a stock that’s already demonstrated better-than-average growth (be it earnings, revenue or some other metric) will continue to do so, making it attractive for investment. These companies typically are leaders in their respective industries; their stocks have above-average price-to-earnings ratios and may pay low (or no) dividends. But by buying at an already-high price, the risk is that something unforeseen could cause the stock’s price to fall.

This style’s “father,” Thomas Rowe Price Jr., developed his philosophy in the 1930s and later went on to found the asset management firm that still bears his name: T. Rowe Price.

How growth and value overlap

Each school has devoted followers, but there’s a lot of overlap. Depending on the criteria used for selection, you’ll see stocks that are included in both value and growth funds. What gives?

In part, it’s much ado about a distinction that’s not set in stone. For example, a stock can evolve over its lifetime from value to growth, or vice versa, says Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management. In addition, investors in each camp have the same goal (buy low and sell high); they’re just going about it in different ways.

“Value investors tend to focus their attention on valuing the continuing operations of a firm, while a growth investor tends to look more at the growth opportunities of the companies they invest in,” Jacobsen says. “It’s important to remember no stock is purely value or purely growth.”

Not an either-or decision

The stock market goes through cycles of varying length that favor either growth or value strategies. The stocks in the Russell 1000 Growth index have outperformed those in the Russell 1000 Value index during the current bull market that began in 2009, but that’s not the case on a year-by-year basis. Value outpaced growth in 2016.

What’s an investor to do? Invest in both strategies equally, advises John Augustine, chief investment officer at Huntington Bank. Together, they add diversity to the equity side of a portfolio, offering potential for returns when either style is in favor. A 50-50 split also helps investors avoid the temptation to chase trends — “and that’s important because consistency is the key to 401(k) investing.”

Investing in growth and value funds adds a layer of complexity to an investment strategy, which is why Augustine recommends it as a secondary step — after diversifying across asset types (stocks and bonds) and classes within (size or region, for example).

Because the market goes in value-growth cycles, these strategies may require a more watchful eye, especially if your 401(k) doesn’t automatically rebalance. When market fluctuations shift your allocations, rebalancing brings it back to your original goal so you’re not unintentionally over- or underinvested in any asset. (Here’s more on rebalancing your 401(k).)

Augustine recommends investors rebalance at least twice a year — a good reminder: “when the clocks change” — or once allocations have gotten out of whack by 5% or more.

Common misconceptions

In addition to the myth that investors must be growth or value purists, Jacobsen says many people don’t realize these styles ultimately whittle down to an industry discussion. About one-third of “pure growth” stocks in a subset of the Standard & Poor’s 500 index are in the technology industry. Financial stocks have a similar weighting in the “pure value” index.

Finally, don’t get too caught up in the idea these distinctions are make-or-break — effective diversification matters more. Many investors who piece together a portfolio by stock picking stumble upon growth and value unintentionally, Augustine says.

“They’ll find some things that are out of favor and some that are in favor — that’s growth and value,” he says. “The key to value is when you buy. The key to growth is when you sell.”

Anna-Louise Jackson is a staff writer at NerdWallet, a personal finance website. Email: ajackson@nerdwallet.com. Twitter: @aljax7.

Are You Afraid to Look at Your Finances?

Credit counselor Linda Humburg understands why many of her debt-burdened clients don’t want to open their mail. What bothers her, though, is the sheer volume of untouched bills and collection notices that some bring to their first counseling appointments.

“The shoeboxes (full of bills) don’t make my heart drop as much as the grocery bags and garbage bags,” says Humburg, counselor manager for FamilyMeans Financial Solutions in Stillwater, Minnesota.

Not wanting to confront unpaid bills is a perfectly understandable, if unfortunate, reaction to a bad financial situation. And it’s not just people in extreme debt who might be afraid to look. Many people avoid checking their credit scores or using retirement calculators because they’re afraid of what they might find.

The problem is that delaying action usually makes matters worse.

“There is a price tag for denial,” Humburg says. “And it can be very costly depending on how long it’s allowed to happen.”

The cost of not looking

Retirement savings is a good example. People fear running out of money in retirement, so they don’t calculate what they need to save and procrastinate on saving, says Barbara O’Neill, a certified financial planner and distinguished professor at Rutgers University’s cooperative extension.

That means they lose out on company matches in retirement plans, tax breaks on contributions and the compounded gains they could be earning, she says. The longer it takes people to start saving for retirement, the harder it is for them to catch up — and the more likely it is they will run out of money.

Turning around credit also takes time, so putting it off usually means living with bad credit longer. That, in turn, can mean paying more through higher interest rates, pricier insurance premiums and larger utility deposits. Bad credit also can make it harder to rent apartments and get jobs.

Ignoring bills will, at best, cost people more in late fees. At worst, it can lead to eviction, foreclosure, lawsuits and wage garnishment. People who might have qualified for repayment plans or debt consolidation loans when their financial troubles started end up having to file for bankruptcy.

“The longer you put something off, the fewer the options for resolving the situation,” Humburg says.

When push comes to shove

Many of Humburg’s clients ignore their finances, hoping their financial situations will improve, but “that day never arrives,” she says. Others are crippled by anxiety and depression that’s exacerbated, or sometimes even caused, by unpaid bills. The shame her clients feel over their debts makes it even more difficult to get started, she says.

Breaking out of the tunnel of denial isn’t easy. Some people are propelled into action when they’re turned down for a loan or, in writer Beverly Harzog’s case, their last credit card is canceled.

“That was a rock-bottom moment for me,” says Harzog, a former CPA who in her 20s maxed out seven credit cards by racking up over $20,000 in charges.

Harzog started educating herself about personal finance and credit — and built a budget that allowed her to pay off the debt in two years. She wrote about her experience in a book, “Confessions of a Credit Junkie.”

You don’t have to do it alone

Breaking any task down into smaller pieces can help people get started, O’Neill says.

They can begin by making an appointment to get help, signing up for a class to educate themselves — or opening the latest bills to get a clearer picture of what they face.

People who want to learn more about money can find resources through public libraries and financial education programs run through counties, states and universities, O’Neill says. If you want advice on how to get out of debt, it’s available online.

Those who need a helping hand can turn to low-cost, nonprofit credit counseling agencies, she says, that provide budgeting help and debt management plans. Another option for those able to pay: financial coaches, with referrals available via the Association for Financial Counseling and Planning Education. The cost can vary from a few hundred to several thousand dollars, although many coaches offer a free or low-cost initial assessment.

Bankruptcy attorneys also offer free consultations.

Taking action — any action — makes people feel less powerless.

“Just do it, no matter how difficult the situation is,” O’Neill says.

Liz Weston is a certified financial planner and columnist at NerdWallet, a personal finance website, and author of “Your Credit Score.” Email: lweston@nerdwallet.com. Twitter: @lizweston.

This article was written by NerdWallet and was originally published by The Associated Press.

Don’t Let Divorce Ruin Your Finances

Divorce is an emotional trial — but it’s also a financial one.

According to a 2012 report by the U.S. Government Accountability Office, divorce or separation led to a 41% drop in income for women and a 23% drop for men.

Though data from the Centers for Disease Control and Prevention show that the divorce rate has been trending down, most people need only look around their social circle to see that splits are still a common fate. It’s a life-changing event, but it doesn’t have to ruin your finances — or your retirement. Here’s how to protect your financial future if your knot comes untied.

Take stock of your cash flows

Having some idea of how money comes into and goes out of your bank account is always a good idea, whether a divorce is on the horizon or not. But this kind of information is especially important when you’re about to split up. You need to know not just where your money comes from — how much you partner earns and how much you earn — but also what your expenses are.

Once you have a current picture, you can go down the line and estimate how each expense will change with the divorce. Some items, like housing, may fall. Others, such as auto insurance, can rise when you’re a single buyer rather than part of a married couple.

Get creative about income

Now that you’ve taken stock of your expenses, you’ll have good insight into how much income you’ll need post-split and whether you’re looking at a shortfall. If statistics prove true, there’s likely to be a gap, so the next step is to consider how you can fill it.

People are often loath to downsize — there are so many emotional ties to your home — but it may be the best way to lower costs. Also, consider ways to earn more income in a pinch: Rent out a room, open extra space to a service like Airbnb or moonlight at the local coffee shop.

If your divorce happens when you’re on the brink of retirement age — the rate of such so-called “gray divorces” has doubled since 1990, according to the National Center for Family and Marriage Research — you may have more leeway. “You may have delayed applying for Social Security, but maybe you need to do so when you’re divorced,” says Lili Vasileff, a certified financial planner and president of Divorce and Money Matters, a financial planning company based in Connecticut. “Or maybe your investments are positioned for growth, and now they need to be positioned to generate yield.”

If possible, bide your time

There are plenty of situations in which this wouldn’t be an option, but in the case of a friendly separation, you might consider putting off the full legal split if you’re bordering on a financial milestone. Two examples Vasileff offers: Medicare eligibility at age 65 and the 10 years of marriage needed to be eligible for Social Security benefits on your ex-spouse’s record.

If you’ll lose health insurance coverage by dropping off your spouse’s insurance and you’re bumping up against Medicare eligibility, waiting can save you significant money. Medicare can be considerably cheaper than COBRA or an individual health plan.

Younger partners who aren’t close to qualifying for Medicare may still benefit from some extra time on a spouse’s health insurance, perhaps until landing a job with their own coverage.

Examine your shared retirement benefits

Marital property — a term that includes retirement assets — is divided up equally in community property states. In other states, the law may require equitable distribution, which means what it sounds like: fair, but not necessarily equal.

In either case, you may be granted a portion of your spouse’s 401(k) under a qualified domestic relations order. You’ll typically want to roll that balance into an individual retirement account to preserve its tax-deferred status. (Here’s more on how to roll a 401(k) into an IRA.)

Be sure to weigh the tax treatment of assets as you divvy them up. While $100,000 in a brokerage account sounds equal to $100,000 in a traditional IRA, the tax treatment of those accounts changes the value significantly. Because a traditional IRA holds pretax contributions, distributions will be taxed as ordinary income in retirement. A $100,000 balance could quickly turn into $80,000 or less after taxes. Money in a brokerage account, on the other hand, will carry a much lower tax burden on capital gains, interest and dividends.

Revisit your beneficiary designations

It makes the news when a big-shot mogul accidentally leaves all of his assets to a previous wife, leaving his current one in the lurch. But it happens to lower-net-worth folks, too, and it can be just as damaging to your heirs.

The beneficiaries you designate on retirement accounts and life insurance policies trump any wishes you’ve outlined in your will, which means keeping them up to date should be a top priority. Everyone should do an audit once a year or so, but it’s crucial to give everything a deeper look after a major milestone like divorce.

Arielle O’Shea is a staff writer at NerdWallet, a personal finance website. Email: aoshea@nerdwallet.com. Twitter: @arioshea.

Updated June 22, 2017.

Don't Let Anyone Cancel Your Credit Card!

MoneyTipsWhy should you hang on to a credit card that you don't use very often? MoneyTips will give you two very good reasons: it serves a suitable source of emergency credit if needed, and it raises your credit score by keeping your credit utilization low. Your credit utilization is the total amount of your credit in use to your overall available credit (the sum of all your credit limits). As you get closer to using all of your available credit, lenders and credit-scoring systems consider you to be at higher risk for non-payment and eventual default — and as a result, your credit score will drop. Unfortunately, the potential consequences of not using your credit card can be worse than that. If you don't make charges on the card periodically and carry no balance, the credit card issuer may think that you no longer plan to use the card and can declare the card inactive, cancelling your account. The credit card company incurs some costs to keep your account open and it recoups those costs through your use of the card. If you don't use the card enough to cover those costs, the card issuer may make a simple business decision to cancel your account and free up that available credit for a customer who is more inclined to use it. Card issuers vary on their policies for declaring an account inactive, and those policies are not always public. A good rule of thumb is that somewhere between six and twelve months with no signs of credit activity can result in a cancellation. A cancelled account may not only drop your credit score through raising your credit utilization, it may also impact another factor. Adam Carroll, Founder and Chief Education Officer of National Financial Educators, explains: "What most people don't understand is that when you have a long-standing trade line, which is what a credit card is considered on your credit report, and you cancel that card for whatever reason, your score will actually go down as a result, because one of the main impacts on your credit score is the length of your credit history." If the cancelled card is relatively new compared to your other accounts, there will be no significant impact on your average age of credit accounts ­– but if you have used a card for many years and decided to shift it to an emergency backup card, it's especially important to keep that account active. How do you prevent cancellation of your card? Obviously, you have to pay your bills and avoid default on that card, but you should also keep your credit score as high as you can. For example, if your credit score plummets because of a student loan default or maxing out a separate credit card, the card issuer may consider you too risky even if your record on that particular card is spotless. If your card is cancelled, follow up with the issuer to find out the reason why. The reason could be something beyond your control, such as the card issuer discontinuing that particular card or no longer offering the same terms. There could also be an error in your credit report, or fraudulent use of your account, that is giving the card issuer an incorrect view of your risk. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips. Aside from those steps, the best way to maintain a card is to make a small charge – perhaps $10 every few months – and then pay the bill off promptly each month. Follow the old axiom "Use it or lose it" – just don't use it very much. If you want more credit, check out MoneyTips' list of credit card offers. Photo ©iStockphoto.com/fotumOriginally Posted at: https://www.moneytips.com/do-not-let-anyone-cancel-your-credit-cardCanceling Credit CardsVideo: Should You Cancel Your Old Credit Card?Higher Credit Limits Help Improve Credit Scores

Recall issued for hummus sold at Walmart

Multiple brands of hummus sold at Walmart and other stores have been recalled because of potential contamination.

>> Read more trending news

An announcement from the Knoxville, Tennessee, based company House of Thaller says it is recalling packages of Hummus with Pine Nut Topping “because an ingredient supplier notified us that their ingredient has the potential to be contaminated with Listeria monocytogenes.”

The announcement has been posted on the FDA website since June 19 as a public service. 

According to the Centers for Disease Control and Prevention, symptoms of listeria infection include headache, stiff neck, confusion, loss of balance, fever and muscle aches. 

The affected products were sent to multiple grocery stories, such as Target, Kroger, Walmart, Fred Meyer and others, from April 18, 2017 to June 13, 2017. Products include Fresh Foods Market’s Artisan Hummus - Pine Nuts; Lantana brand White Bean Hummus with Pine Nut & Herb Topping; and Marketside Classic Hummus with Pine Nuts.

Each product comes in clear, round plastic 10-ounce cups. 

No illnesses have been reported in relation to the recall.

Customers who have the products listed should not eat them and contact the House of Thaller Customer Service Center Monday through Friday at 855-215-5142.

The full list of products, including photos of the affected products and expiration dates and lot codes for each, are at the FDA website.

How to Responsibly Handle an Inheritance

There are plenty of horror stories about sizable inheritances squandered on fast cars and glittering parties. But careful planning and good advice can help people use their good fortune in a way that creates lasting value.

Consider these steps to make sure the money you receive after a loved one dies is used to best advantage.

Keep your own counsel

“Don’t tell anybody,” says Johanna Fox Turner, a certified financial planner with Milestone Financial Planning in Mayfield, Kentucky. “People would just come out of the woodwork wanting you to invest in their good ideas.”

Turner advises talking to a trusted family member or friend who has no expectation of receiving a share of the money. She also favors fee-only financial planners who are paid a straight hourly rate for giving you advice instead of making commissions on the investments they sell you, which can lead to conflicts of interest.

Take your time

“Take a deep breath,” Turner says. “Talk to advisors. Get some perspective.”

She has seen many people who are anxious about letting a significant sum of money sit in a savings account earning very little interest then rush to make investment decisions and make mistakes as a result. She says the potential gains from quick moves are outweighed by the risks of poor choices.

When Jamie Schweser (who later changed his surname to Schwesnedl, after marrying) received $1 million at the age of 26 because his parents sold their business, he spent a lot of time talking to other young people who had been in similar situations. Schweser found them through Resource Generation, a nonprofit organization that helps younger heirs learn about charitable giving. His parents encouraged him to think carefully about how he used the money, but didn’t discourage him from making his own decisions.

“We trust your judgment, but think about it before you do anything,” Schweser remembers his parents telling him.

Make a financial plan

Before you decide whether to use part of the money to pay off debt, to invest for your future or to donate to charity, it’s best to create a long-range financial plan. Then it can become easier to put the money to work.

For many, an inheritance doesn’t top five figures. Yet others may be more fortunate. Among families in the top 5% by wealth, the average inheritance was $1.1 million, according to 2014 information from the Federal Reserve.

No matter how much you inherit, however, having a plan for what to do with it is a good idea.

“People think financial planners are for rich people,” Turner says. “They’re really more suited to middle-income people.”

She estimates that a comprehensive financial road map takes around 5 hours for a qualified planner to help you develop, and the result is a clear set of priorities that enables you to allocate resources efficiently to achieve your goals.

Consider taxes

In most cases, inheritances aren’t taxed unless you live in a state that has an estate tax. At the federal level, an estate tax kicks in when the total value tops $5,490,000 for one person this year. When it comes to gifts to family members, taxes are levied after you receive $14,000 in one year from the same person.

Ultimately, Schweser says, he ended up giving away 75%  — $750,000 — of his parents’ gift. He kept enough to buy a house and top up a rainy day fund to serve as a cushion against emergencies. Later he went to work for Resource Generation for a time. Now 44, he owns a bookstore with his wife in Minneapolis and receives income from a couple of rental properties.

But even if extreme giving isn’t your priority, modest charitable contributions can be a win-win, both emotionally and from a tax standpoint. Turner says some of her clients feel guilty about taking tax deductions for charitable contributions, but she disagrees.

“Once you have the motivation to give, why not take advantage of what the law allows?” she says.

Enjoy it

Depending on the size of an inheritance, it’s not a bad thing to have a little fun. Once you’ve made a financial plan and allocated the money accordingly, there’s something to be said for treating yourself.

For smaller inheritances, Turner recommends using 10% as fun money. If it’s a larger amount, she thinks $10,000 is a nice round number that could be spent on something enjoyable. But she emphasizes that a financial plan is crucial before this decision is made. Otherwise, it’s too easy to buy a nice car. And then another one three years later. And then another.

“If you envision yourself five years from now or 10 years from now and looking back,” Turner says, “do you want to have a lot of used cars?”

No matter how you use the money, you have to live with your decision.

“Do something that will be a story that you like telling,” says Schweser, who still feels good about his decision to give the bulk of his windfall away. “Whatever you do, you’re going to end up telling that story to yourself over and over again, or to other people, so make a good story.”

Turner recommends thinking about the person who left you some of their wealth.

“This is their hard-earned money,” she says. “This is in their memory. You want to honor that memory and be a good steward.”

What does good stewardship look like? That part is up to you.

Virginia C. McGuire is a staff writer at NerdWallet, a personal finance website. Email: virginia@nerdwallet.com. Twitter: @vcmcguire.

Image via iStock.

Denver restaurant charging customers 'livable wage' surcharge

Customers at Duo Restaurant in Denver have mainly been supportive of the new surcharge appearing on their bills.

Restaurant owner Keith Arnold told Denver7 that the surcharge is designed to address the wage gap between the servers and the kitchen staff. Servers can make 50 to 100 percent more than kitchen staff, Arnold said.

>> Read more trending news

The 2 percent surcharge is applied to all bills, and 100 percent of the proceeds go to the kitchen staff, Denver7 reported.

Customers have mainly given positive feedback about the surcharge, Arnold said. 

Duo's chef hopes the surcharge catches on nationwide.

5 Questions When Shopping for a Brokerage Account

A price war has broken out among online brokerage firms in recent months. In an effort to lure investors, industry leaders such as Charles Schwab, Fidelity Investments, TD Ameritrade and E-Trade have slashed trading commissions.

The price war has driven the greatest decrease in trading costs in seven years, says Richard Repetto, an analyst at investment banking firm Sandler O’Neill and Partners. “It’s a good time for investors as the costs to trade decline and advancements in the online trading space make it cheaper and more efficient to invest,” Repetto says.

Price cuts at online brokerage firms Provider Previous per-trade commission Current per-trade commission* Charles Schwab $8.95 $4.95 Fidelity Investments $7.95 $4.95 TD Ameritrade $9.99 $6.95 E-Trade $9.99 $6.95; $4.95 for frequent traders defined as 30+ trades per quarter *As of June 16, 2017

 

Why would you want a brokerage account? If you want to buy and sell stocks, bonds and mutual funds, among other investment vehicles, you need one. But which one? As competition grows, so do your choices.

“Evaluate what type of investor you are, how often you trade and what services you want,” Repetto says. “It’s gotten so cheap now, and the range of choices has widened … some provide little cost to trade but little in the way of recommendations. If you want more advice services — not just call-center help — that is also a big consideration.”

Here are some key questions to ask when choosing a broker.

1. How much cash do you need to start?

Different brokers have different account minimums depending on the types of services you want. Some allow a $0 minimum to open a retirement account such as a traditional individual retirement account or a Roth IRA; others can require anywhere from $500 to $10,000 to begin trading. And some brokers will waive the initial deposit if you set up automatic monthly deposits.

A common rule of thumb: Don’t invest cash you’ll need in the next five years so your investments have the opportunity to grow and ride out market contractions.

2. What are the costs?

People shopping for their first brokerage may simply look for providers with the lowest trading fees. That could be a good strategy if you plan to make a lot of trades. But trading commissions are only part of the picture. Other costs may include annual fees, inactivity fees and additional charges for access to different trading platforms and research, so factor those into your evaluation as well.

3. What types of assets can you trade?

As an investor, what kind of assets do you want to buy? The ability to trade individual company stocks, exchange-traded funds and mutual funds is standard for most brokerage accounts, but the selection of funds can widely vary. If you plan to trade currency, futures or options contracts, check that the broker offers those products. Also, note whether the associated fees and account minimums differ from what you’d pay to trade equities.

4. How much help does the brokerage offer?

How much hand-holding will you need? If you’re a first-time investor, probably a lot. Some brokerages offer online or in-person consultations with financial advisors, which may be attractive to newbies. If you’re a DIY investor, the depth and usability of the brokerage’s research tools also will be a factor.

Select a broker whose educational tools and advice services match your investing comfort level.

5. Is the platform right for you?

Like test-driving a car, get behind the wheel of any brokerages you are considering and ask yourself: Do I like how this feels? One of the best ways to do this is through a broker’s demonstration account or virtual trading, also known as “paper trading.” Many brokers also have videos showing how the platform works, which are worth watching before you commit.

This is a bigger factor than you might think: An April 2016 survey by NerdWallet and E-Trade found that site usability and tools were a top reason traders said they’d switch platforms, behind fees and commissions.

If you get buyer’s remorse down the line — for example, you’re trading more than you anticipated or are paying for advisory services you aren’t using — you can always switch. You’ll want to watch for any broker-change fees from your current provider, but any promotional deals from your new broker could remove their sting. After all, if there’s one thing the price war has revealed, it’s that you have plenty of options.

Kevin Voigt is a staff writer at NerdWallet, a personal finance website. Email: kevin@nerdwallet.com. Twitter: @kevinvoigt.

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