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Pros and cons of some of the best retirement investments

Pros and cons of some of the best retirement investments

Investment of any nature and for any goal is always a good idea, apart from saving for your retirement. The rising rate of inflation coupled with reduced pension plans demonstrate the need for retirement-focused investments, which will not just deliver value over an extended period of time.

That being said, not all assets are capable of delivering high returns at low risk and have their own set of importance to investor portfolios. To help you make an informed investment decision, here are some best retirement investments and their pros and cons.

  • Cash-balance plans

Similar to pensions, a cash-balance plan offers a fixed amount of return at the time of retirement. However, unlike pensions, every employee has a cash-balance account where the lump sum amount is mentioned. Employers credit this account with a set percentage of the employee’s yearly compensation plus interest charges.

Pros: A defined-benefit is a major attraction of cash-balance plans. Additionally, you don’t have to pay a single penny for it and yet it offers a tremendous certainty of retirement funds. In case of a job switch, these accounts can be transferred to your new job.

Cons: Should you choose to retire early, the plan wouldn’t benefit much. Moreover, older employees stand to lose if the employer switches from pensions to cash-balance plans.

  • Retirement annuities

Retirement annuities are contractual insurance-like agreements between you and the insurance company. Similar to various types of insurance, you pay a specified premium monthly or a lump-sum amount to the insurer for a specified period of time. In return, you get monthly, semi-annual, or annual income from the insurance company after retirement.

Pros: The biggest advantage of annuities is the promise of a guaranteed stream of income until you live. Annuities are also tax-deferred, which gives you control over when you pay your taxes. Fixed retirement annuity, meanwhile, even promises a certain rate of return.

Cons: Annuities demand hefty fees, which are mostly paid to agents. A way to get around it is to buy it directly from the insurer. Lack of liquidity, higher tax rates, and its complexity are some of the other drawbacks of this asset.

  • Balanced funds

Balanced funds are a good choice for investors nearing retirement. Here, your money is invested across a range of stocks and bonds. Primarily, 60% of your money is invested in stocks, and the remaining 40% in bonds. These funds are different from target-date funds, which are designed for individuals looking to retire at a specific time.

Pros: The biggest advantage of balanced funds is its diversification. Money is allocated in both stocks and bonds simultaneously, unlike investing individually in both which can prove challenging. Also, a mutual fund management team provides continued assistance and guidance, which is highly important for maximizing returns.

Cons: Fees can sometimes be higher in balanced funds and investors themselves have little say in the allocation of funds in different assets.

Roth gold IRA
Another option worth considering is Roth gold IRAs, which can be used to invest in tangible assets such as art, antiques, collectibles, and real estate. Contributions to this account are made post-tax and are considered non-deductible. For those up to the age of 49, the contribution limit is capped at $6,000 per year. Those who are 50 and older can contribute up to $7,000 to this account.

Pros: These contributions can provide a safety net against inflation, as they retain their value well. They are also a great option for those who are looking to diversify their investments.

Cons: Roth gold IRAs are associated with high maintenance fees, volatility, and lack of liquidity. Additionally, physical assets may be associated with a risk of loss or theft.

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Top automated investing services that make investment easy for all

Automated investing services or Robo advisors are becoming popular by the day, and financial experts around the world only expect to see a surge in their usage. This is because these intelligent services offer one crucial advantage that many investors benefit from: low-cost financial advice. With many top financial services companies jumping in the race to provide customers with the best automated investing services, there are plenty of great options available for every kind of investor.What is a Robo advisor and how much does it cost?A Robo advisor is a digital platform that provides algorithmic-driven money management services that require virtually no human supervision. It does this by collecting client data like financial situation, future goals, and other details through an online survey. This data is then used to automatically manage clients' assets and provide them with the most suitable financial advice. Robo advisors are immensely cheaper than human financial advisors. Most services only charge an annual management fee that is anywhere between 0.25% and 0.5% of the account balance. Depending on your need, you can even find good Robo advisors that offer services free of charge and low minimum balance value. Top Robo advisors in the marketThere are several low-cost Robo advisors that you can choose based on your needs and preferences. Here are some of the best automated investing services or Robo advisors available in the market today.BettermentBetterment is one of the oldest and the most popular players in the industry. It allows clients to invest in a range of funds chosen for you to improve returns. It offers automatic rebalancing, tax-loss harvesting, a personalized retirement plan, and can even sync your outside holdings like bank accounts and any other investments. At extra cost, you can up your investing game by talking to a certified financial advisor on the phone.Management fee: 0.25%Account minimum: $0https://www.betterment.com/investing/SoFI InvestA go-to choice for student loan refinancing, SoFi has now expanded its services into automated investing with its user-friendly investment management system. The company provides goal-based planning, automatic rebalancing, and diversifies your money to help reach your financial goals. Plus, you’ll receive member benefits like career services, discounts on SoFi products, and the opportunity to speak to a human advisor—everything at zero cost. Management fee: noneAccount minimum: $1https://www.sofi.com/invest/automated/WealthfrontWealthfront is one of the largest automated investing companies that offer both short and long-term financial goal planning. Its software builds a diversified portfolio of low-cost index funds to improve your returns and offers time-tested investment strategies that automatically look for profitable opportunities. Management fee: 0.25 percentAccount minimum: $500https://www.wealthfront.com/Charles Schwab Intelligent PortfoliosCharles Schwab is one of the most trusted financial services companies that launched its own Robo advisor that helps build, monitors, rebalances a diversified portfolio based on your goals, and provides 24/7 customer support from US-based service professionals. With Schwab, you are not charged any advisory fee or commission and can invest in a portfolio of low-cost exchange-traded funds (ETFs).Management fee: noneAccount minimum: $5,000https://intelligent.schwab.com/

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5 tips to choose the best ETF funds

ETF or Exchange-Traded Funds are a type of mutual funds that trade in stocks, securities and track various indexes. Exchange-traded funds often invest in a broad range of industry sectors and use various strategies to yield maximum returns. One of the biggest advantages of investing in high dividend ETFs is they have lesser fees than other indexed funds, thereby costing you less in taxes.Although ETFs help in diversifying your portfolio, it is important to choose the right funds that compliment your current investments. Here is how you can choose the right high dividend ETF funds.Consider tracking differenceOne of the factors that set high dividend ETF funds from other market investments is tracking differences; that is, the difference between ETF performance and index performance. The lower the tracking difference, the better the ETF fund. This ensures that the ETF fund is reasonably priced and trackable.Define your investment goalsIdentify your investment objectives to pick the best ETFs. Ask yourself if you want to invest in companies with specific characteristics, diversify your portfolio, or find a lower-cost alternative to mutual funds. Furthermore, consider how long you plan to invest. Financial experts suggest not investing if you will need the money within the next five years. It is also not recommended to invest at the expense of other financial goals such as saving for retirement or paying off high-interest debt.Liquidity of ETF fundsThis is one of the most important factors that can help in choosing the best high-dividend ETF funds. The liquidity of ETF funds depends on two factors: liquidity of the ETF and liquidity of its corresponding underlying shares. Market experts suggest that funds with higher trading volume and more underlying liquid assets tend to be less volatile, making them safe to invest. Level of transparencyWhile focussing on expense ratio is important, it is also important to be aware of the stock holding of your preferred high-dividend ETF funds. This helps you decide if it is wise to invest in that particular ETF fund in the long run. One of the biggest advantages of investing in ETF funds is that they maintain a level of transparency with respect to their holdings and underlying investments. So, research their holdings and evaluate if they are a perfect fit for your portfolio.Calculate risksThis is an important factor irrespective of the type of investments. Ensure that the risks associated with your high dividend ETF fund will let you sell easily and earn maximum profit. Being aware of its potential closing will also help you decide the right time to liquidate your funds. Closing can happen if a fund has not yielded enough assets to offer profitable returns, including administrative costs. It is necessary to review each fund’s assets, average daily trading volume, and trading tenure to evaluate the risks of investing in a particular high dividend ETF fund.

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