ETFs 101: Investing Made Easy

If you are new to investing and don’t know where to start, check out ETFs! 

What is an ETF? 

An ETF is an exchange traded fund that like a mutual fund holds a collection of assets such as stocks, bonds, or other securities. While both ETFs and mutual funds provide diversified exposure through pooled investments, ETFs offer several advantages that have made them increasingly popular among investors.

Source: https://www.westernsouthern.com/investments/types-of-etfs

What are the advantages of investing in ETFs? 

1. Instant Diversification 

ETFs can be designed to track: 

· Broad market indexes like the S&P 500, NASDAQ Composite, Dow Jones Industrial Average, or Russell 2000 

· Fixed Income, including U.S. Treasury, corporate, municipal, and international bonds 

· Specific industries such as technology, healthcare, energy, or financial services 

· Commodities like gold, oil, and timber 

· Investment styles for high growth or value stocks 

· Different company sizes, including small-cap, mid-cap, and large-cap stocks 

Because this collection or portfolio of securities can include a wide range of investments, one of the biggest advantages of ETFs is diversification. Imagine investing all of your money in a single company. If that company’s stock price declines, your investment could suffer significantly. An ETF spreads your investment across many companies or assets, helping reduce the impact of any one security performing poorly. With a single purchase, you can own a small piece of a broad section of the market instead of relying on the success of one company. 

2. Low-Cost Investment 

ETFs generally have lower expense ratios than many mutual funds. The expense ratio represents the annual cost of managing the fund. For example, SPYM has an expense ratio of approximately 0.02%, and QQQM has an expense ratio of approximately 0.15%. While these percentages seem small, investment costs can add up over time. Lower fees mean more of your money stays invested, which could mean more portfolio gains in the long run. 

3. Flexibility 

ETFs trade differently than mutual funds. Because they are actively traded on exchanges, many ETFs offer ample liquidity, making transactions straightforward and efficient for most investors. Buying and selling ETFs is often as simple as trading a stock through a brokerage account. Mutual funds, on the other hand, are priced only once at the end of each trading day. Regardless of when an order is placed, all investors receive the same end-of-day price. This flexibility from trading ETFs gives investors greater control over when they enter or exit positions. 

4. Passive Investment 

Instead of purchasing individual securities one at a time, an investor can buy a single ETF and gain exposure to dozens or hundreds of underlying holdings. Some ETFs achieve this exposure by tracking broad market indexes. Rather than trying to beat the market by picking the "perfect" combination of stocks, some passive ETFs aim to capture the entire market. This approach involves less trading of the underlying securities, lower fees, and more diversification than actively managed ETFs and mutual funds. Automating deposits to buy and hold passive ETFs can help investors build a strong portfolio with low costs and little to no effort. 

5. Tax Efficiency 

ETFs are often considered more tax-efficient than traditional mutual funds. Unlike mutual funds, you have more control on declaring capital gains. Unexpected capital gains may increase income for investors and cause them to pay additional taxes even if they never sold any shares of the mutual fund. While tax implications vary by individual circumstances, many investors appreciate the potential to reduce unexpected taxable income that ETFs offer. 

What should you consider when buying ETFs? 

Although ETFs provide convenient diversification, it is important to figure out what you want in your portfolio before purchasing one. Two ETFs may have similar names but very different investment objectives and risk levels. Some may focus on large, established companies, while others concentrate on emerging industries, small businesses, or international markets. Before investing, take time to review the fund's objective, top holdings, industries/sectors represented, expense ratio, and overall risk level. Morningstar.com is a great resource to use when researching ETFs. Once you’ve narrowed down the securities 

that align with your financial goals, risk tolerance, and investment timeline, look for the low-cost ETF alternative. 

Investing doesn't have to be complicated. For many people, ETFs offer a simple, affordable, and effective way to start building wealth while maintaining diversification. Successful investing is less about finding the perfect stock and more about consistently investing in a diversified portfolio over time. 

Sources:

https://www.ici.org/faqs/faqs_etfs

https://www.fidelity.com/learning-center/smart-money/what-are-etfs

https://investor.vanguard.com/investor-resources-education/taxes/tax-saving-investments

Trump Accounts – What Are They?

Starting July 5^th, 2026, any American child born between 2025 and 2028 qualifies for a free $1,000 from the US government to kick start their financial future. This is the base of the new Trump accounts. What you may not know is that ANY child under the age of 18 can also open a Trump account with funds contributed by parents, grandparents and others. The free money for those new children makes this a no-brainer for parents, but the question is whether they should they be used for older children. And should parents continue to fund the Trump accounts annually? Are there better alternatives? 

At a high level, Trump Accounts were established by the One Big Beautiful Bill[1] as a way for children to begin building wealth. The best way to think about a Trump Account is as an Individual Retirement Accounts (IRA) that parents can open for their children to secure their financial future. They’re “baby bonds,” accounts that are funded early in a child’s life with the goal of compounding over decades, not years, to support financial security and help build generational wealth.

But is this what families want and need? Most savings for children are focused on education, and these accounts can be used for that purpose, but that is not the main goal. Although the accounts are intended to be easy to open (you can fill out IRS Form 4547 to create one), there are still significant unknowns. Currently, Trump Accounts appear to be limited in scope, with only one custodian and one brokerage involved. 

Like all tax-advantaged accounts, there are limits and provisions that must be followed. First, there is an annual limit of $5,000 that can be contributed[2].That can come from anyone. There’s also a provision that allows employers to contribute up to $2,500 of the $5,000 annual limit in a child’s Trump Account annually (so check those employer benefits). Contributions may also be given philanthropically, much like Michael and Susan Dell who are giving $250 for the first 25 million children under the age of 10 that do not qualify for the $1,000 from the federal government.

Investment options for Trump Accounts are limited. Funds must be invested in low-cost mutual funds or exchange-traded funds (ETFs) that are invested in primarily U.S. stock indices such as the S&P 500[3].  While this may keep things simple in investment selection, it might not give you the most diverse options that you may be looking for. 

From a tax perspective, the treatment is mixed. Contributions will generally be made with after-tax dollars, while contributions from your employer, a charity, or the government are made with pre-tax dollars. Withdrawals depend on what part of the account is being withdrawn. Withdrawing the after-tax amounts will be tax free, while any pre-tax amounts will be taxed at the child’s income tax rate. Much like the growth of a Traditional IRA, the growth is tax-deferred, being taxed as income when withdrawn.

Looking ahead, these accounts are clearly designed with retirement in mind. Once the child turns 18, they can fully access their Trump Account. At that time, it will be considered like a Traditional IRA. Meaning that there’s a withdrawal penalty of 10% if taken out before the age of 59 ½ and would be taxed as ordinary income rates. While your child’s retirement allows for many years of compounding, it limits the flexibility and practicality for more immediate financial goals. 

As with a Traditional IRA, there are exceptions to the 10% withdrawal penalty such as with purchasing a first home ($10,000 limit), educational expenses (tuition and fees, not room and board), or the birth of a child ($5,000 limit per child), but the withdrawal amount will still be taxed as income.

As a result, the real-world use case for Trump Accounts is likely smaller than it initially seems. For many families, priorities such as emergency savings, retirement planning for parents, and education funding will be the priority. In that context, placing funds to a long-term, relatively inflexible account would likely not be the most efficient choice. While educational expenses can be used from the Trump Accounts once they change to a Traditional IRA at 18 years old, the 529 plan is more tax friendly with tax-free earnings for qualified educational expenses and the ability to be used for room and board.

For those new babies in the family, you certainly want to take advantage of the initial $1,000 government contribution, but they are probably not the best option for older children or for continuing contributions. In fact, if the overall goal is to cover educational expenses, we prefer the state-sponsored 529 plans.  

Ultimately, Trump Accounts are an interesting addition to the financial field, but as they currently stand, are unlikely to be the first solution for most families. They work best as a supplemental tool, especially when taking advantage of initial funding opportunities, rather than a replacement for more established and flexible strategies.

Savings Plan for Children

Attribute	Trump Accounts	529 Plan	UGMA/UTMA
Tax Treatment	Tax-Deferred Growth	Tax-Free Growth; Tax-Free Withdrawals for Qualified Education Costs	Taxable
Non-Qualified Withdrawal	Taxed at Ordinary Income Rate and 10% Early Withdrawal Penalty	Taxed at Ordinary Income Rate and 10% Early Withdrawal Penalty	Capital gains tax
Investment Options	Low-cost US Equity Index Funds/ETFs	Plan selected mutual funds and index funds	Any investment
Qualified Uses	Retirement; Exceptions for higher education, first home	Higher Education, K-12 Tuition	No restrictions
Account Owner	Owned by Child	Owned by Account Owner	Child takes full control at age 18-21
Best Used For	Long-term retirement wealth building with possible Roth conversion	Tax-Free growth for college and education costs	Maximum Flexibility

 

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[1] https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions

[2] https://trumpaccounts.gov/

[3] https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions

#TBT Going for the Gold

#TBT "Going for the Gold", Mississippi Business Journal, August 5, 1996

http://www.piggyplanit.com/#!TBT-Going-for-the-Gold/b6954/57a361790cf2a7b92a3235ed

Using Your Money For Good

"Money is the root of all evil" is the first suggestion Google makes when searching about money. This is reflected in a lot of people's attitudes about money. While money is indispensable in the modern economy, we often feel a bit of disgust or shame about accumulating it and spending it on ourselves. It does not have to be this way! Beyond just living off of the profits from your hard work, there are plenty of ways to use your money as a force for good in this world. Here, we will briefly look at three ways, and hopefully I will expand those into longer posts later.

You can just give it away:

• If your money really disgusts you, or if you just know of someone who needs the money more than you, you can always just give it away. Each U.S. taxpayer can give $14,000 to each other without running into any gift tax issues. (If you're interested in going overboard, the giver has to pay the taxes.) There are a lot of uses in estate planning here. If you are thinking of giving to your children or grandchildren, just giving cash is the most advantageous way to do it with no strings attached.

You can give it away and collect some great benefits for yourself:

• If you don't just want to give unrestricted cash to a child or grandchild, consider a college savings account. Each state runs a 529 plan with possible tax benefits within that state.

• Give to charity - with more control. A Donor Advised Fund is an account you can set up which acts like your own personal charitable foundation. You can donate cash, appreciated stock or other assets for an immediate tax deduction. From there, you can grant money to a regular charity at any time. This is useful for taking advantage of the tax break before actually planning who and when to donate it. If you have a stock with a large capital gain, you can transfer it to the account, get the full amount as a tax deduction and not have to recognize the gain either. This could be a huge tax benefit!

You can invest it in responsible companies or projects who will provide you with a return while they make a positive impact in the world:

• Sustainable and Responsible Investing is attracting a lot more attention and money these days. Sustainability and Responsibility may form part of the core thesis of your investments, and you can generally expect similar returns investing this way as you can expect conventionally. You can either pick stocks and bonds yourself or you can invest through a fund. My main caution with investing through a fund is making sure that your actual beliefs and desires are accurately reflected in the fund management and portfolio. With a lot of investors and views to please, not everyone will be perfectly satisfied. That being said, there are now some really good options out there from both an investment standpoint and a sustainability standpoint.

• Some bonds are designed to finance noble causes. There are bonds that directly finance solar panel installation, microfinance, women and minority business support and many other socially responsible projects. These often have fixed terms and lower risk than an equity investment. You get to support the project and still earn a return on your money!

• Some credit unions also focus on financial education and anti-poverty practices that you can support just by opening a savings account!

• Some municipal bonds may be funding projects or government entities in your community you want to support. The interest payments are often tax exempt as well. Participating in a new offering directly lowers the cost of borrowing for the issuer. Be very careful here as these bonds can fund anything from bridges and schools to prisons and factories. Any broker or investment advisor should be able to tell you not only the terms and risk of the investment but the issuer and use of the proceeds to help you make a decision.

Keep in mind with each of these options there are a LOT of considerations to make. Consult your financial advisor as to what the implications here are. There are a variety of ways you can use your money for good and it may be refreshing to learn that you can do good with your money AND earn a decent return as well!

Not all of the investments are appropriate for all investors. This is only meant to give you some insight into the different ways you can use your money for good. As always, consult a trusted financial advisor before making any decisions on gifting, taxes or investing.

blue chips

"Is there still such a thing as a Blue Chip stock anymore?"

It used to be considered a fairly sound investment strategy to just put your money in a couple of "Blue Chip" stocks and call it a day. Stocks have always been rightly viewed as risky, but the term Blue Chip lent comfort to investors. The designation differentiated large, well known, stable companies from smaller, risky companies that had not established themselves in the market. These were large companies with wide moats that could fend off competition and continue profitable growth into the foreseeable future. The term Blue Chip conveyed a sense of safety, a protection against permanent loss.

Picking a few Blue Chip companies is not a strategy that makes sense anymore. Blue Chips do not exist anymore, not because competition is too fierce and risk is too high, but because they are simply not needed.

The arc of human history is towards a growing population with growing wealth. Businesses are levered to this growth. Economic growth is ultimately growth in sales, masking the tumultuous fight for profits at the companies that make up the economy. No matter how steady a company appears, or now large their moat is, with individual companies there is always the risk of permanent loss. If you selected a small list of individual companies right now, you may find that they do not all exist in a one, ten, or forty years. If you happened to have selected the wrong ones, your investment might be worthless. If instead, you just bought everything, there would be some losers, but you would expect the winners to make up for that and still provide growth on your investment. Individual companies may fail, but it is exceedingly unlikely that the entire market fails.

The equivalent today of investing in Blue Chip stocks is being a passive index.

Now you can capture the market return effectively with index funds. There is less need for the stalwart individual stocks when you can capture a similar expected return with lower expected volatility in an index fund. Company management in a reasonably free economy have demonstrated time and time again a fantastic propensity for making money. Ride the wave of human history and just buy everything out there.

Blue Chip companies may be dead, but investing in stocks is still the best way to grow your investments over the long term.

How To Buy A Stock Directly

The other day, a friend asked me how to buy a stock. I do this for a living, and I am always excited to help someone else get started! There are a few ways to buy stocks, this is how to buy them directly from the company. Beware, though, this is the least advisable way to buy stock, which just happens to have most novelty value.

Many companies offer direct purchase plan or a dividend reinvestment plan through a transfer agent. The transfer agent, such as Computershare, AST or Broadridge, maintains records relating to ownership of the stock. To find your favorite company’s transfer agent, check the investor relations section of the company website. For this example, let’s look at Disney.

Disney’s transfer agent is Broadridge. To buy shares, you will have to open an account on stockplans.broadridge.com. The application will need your personal information and bank information to transfer funds to purchase the stock.

The exact process will depend on the company you are trying to invest in, but many large companies typically allow you to invest any day. Some companies restrict it to once a month, but the transfer agent will handle the trade.

Fees are unique to the company as well. In our Disney example, there will be a $20 account opening fee, plus $20 for each purchase order. Besides the tedium of opening accounts for each investment, fees are the biggest drawback of buying stock this way.

Once your money is invested, you may have the option to order a paper certificate. This is the ultimate novelty in investing and is actually a lot of trouble to handle. If you really want to be able to hold a piece of a company in your hands, this is the only way to do it!

Again, I do not actually advise buying stock in this manner except for the novelty value.  Additionally, do not buy a stock unless you have done your own research into the risks and potential rewards that it offers. I will follow up with more practical and effective ways to buy stock.

realized political risk

MSCI classifies Ukraine as a frontier market, that is, an underdeveloped, underinvested, 'more emerging than emerging' market economy. This keeps it out of most indices and funds and off of most investors' radar. Lately, however, Ukraine has been in the news over large anti-government protests that reached a dramatic crescendo as the olympics died down.

Since the collapse of the USSR, Ukraine's economy has struggled. It used to have a large and diverse manufacturing base, but failure to invest since 1991 has led to declining output. Poverty and corruption are also a big problem in Ukraine, leading to a large underground economy. Bribery and onerous regulations make it hard for legitimate businesses to emerge. In the capital, Kyiv, this underground economy is in plain view in markets right alongside the high-end shopping and restaurants that dominate the center of the city. Enterprising individuals offer their cars as taxis or open up stalls to sell clothes straight from factories or simply sell food on the curb. 

While the economy has declined, it's underpinnings are still valuable. Current economic problems stem largely from underinvestment and the drag of corruption. The potential for growth and investible business is immense here.

This corruption also highlights the great political risks of investing in a country like Ukraine. The former president Viktor Yanukovych strenghened ties with Russia by borrowing money and getting subsidized fuel in order to try and prop up the struggling state. This took an explicit turn away from trade agreements with the EU. Protests erupted over this and other aspects of his government, resulting in Yanukovych fleeing Kyiv to Crimea - a semi-autonomous region with much deeper ties to Russia than the rest of Ukraine. Crimea is home to a Russian naval base, and Russia has moved troops on the ground, ostensibly to protect Russian citizens there. It appears that the region is on the brink of actual war -  Russia has a history of inserting troops into former SSRs, and Ukraine is clearly no exception.

Political risk be realized in dramatic instances like this, but it's true cost is much more insidious. Political risk leads to economies being underproductive and investments being undervalued. For countries that are moving towards a more open, fair economy, the opportunity can be great.  As the drag of corruption eases, these economies can grow closer towards their full potential. Generally optimistic, I see frontier markets as an overwhelmingly positive long term investment opportunity.

the long term

Investment Advisors like to talk about returns in the long term. By long term I generally mean somewhere between "more than 10 years" and "pretty much forever." We talk about the long term for good reason. In the short term, stock investments can swing in any direction - from the dark days of 2008 (S&P 500 down 37%) to the bounce the next year (up 28%) to a boring 2011 (barely up 2%) to the puzzlingly exhuberant 2013 (roaring up over 32%!). It just doesn't make sense to talk about what might happen in the next year or two. Looking back further the S&P 500 is generally cited to have average returns of about 7% a year (that happens to be bang at where returns have been for the past 10 years). But again, we don't know what will happen in any given year, only that the long term has been good.

We also talk about the long term because your biggest financial decision is a long term decision - retirement. The decision to end your income and rely on what you have saved is a huge decision that you can look forward to from your first paycheck.

It is also the long term that is your greatest helper when trying to reach that goal.

Returns can vary year to year, but thanks to compounding, having a positive return for a longer period is always better than that same return over a shorter period.

For example, at the oft-cited 7% return, $1 saved up for 20 years would turn into $3.87. If that is short of your savings goal, you need to adjust one of two things - the return or the time. To double this in the same time period, you would need a return near 11%. While the stock market has had plenty of 11%+ years, the long term average is still only 7% and you are unlikely to find 4% of outperformance that persists for 20 years.

The easiest way to double your money is just to wait. At the same average return on 7%, waiting another 10 years - or better yet - starting 10 years earlier, would turn your original $1 into $7.61. Chasing higher returns not only improbable, but is probably risky as well - but fortunately, time is on your side.

So there you go - the easiest way to double your money is just to wait. The more time you give yourself to save, the more you will have. Get started saving and investing as soon as possible!