How This Family Lives Off $45K/Year While Raising a Special Needs Child

Travel Insurance: Security for the Journey

As experienced travelers already know, trips can take unexpected turns, leaving you to regroup or return home.

If you have a big trip coming up, or if you’re considering travel as a regular way of life, take a minute to consider how you’d pay for detours you didn’t put on the itinerary, such as: an evacuation because of a natural disaster, theft or another crime, an unexpected need for a rental car, changing connections at the last minute, or paying for medical care in a different country.

This list could go on and on because perils have unlimited potential in the wider world.

Many serious travelers wouldn’t want it any other way: After all, unexpected twists help make traveling worthwhile.

When those unexpected changes add to your trip’s cost or require you to return home immediately, travel insurance could help smooth things out and help reimburse you.

Travel Insurance Guide

1. Why You Should Buy Travel Insurance
2. What It Covers
3. What It Doesn’t Cover
4. How Travel Insurance Works
5. When You Don’t Need It
6. When You Do Need It
7. How to Get the Best Coverage

Do I Really Need Travel Insurance?

A lot of new travelers have the Best Buy approach to travel insurance. You know, when you’re in line at Best Buy, paying $40 for computer speakers, and the clerk asks if you’d like equipment protection for another $8?

I won’t go into the merits of equipment protection here, but my non-scientific observations show many people don’t think very highly of it.

They dismiss the offer with the wave of a hand or a grunt as they swipe their credit card and go on their way. A lot of us do the same thing when buying a new smartphone.

Protecting Much More than a Purchase

But not everyone who buys equipment protection or flight insurance regrets the decision or never successfully files a claim.

I’m not saying you should buy equipment protection on every purchase you make. But there’s nothing wrong with the desire to protect your purchase.

With travel insurance, you’re protecting much more than the tickets or hotel rooms you’ve purchased.

You’re also protecting:

• the time you’ve spent planning your trip.
• the vacation days from work you may be using to travel.
• your own sense of safety in an unfamiliar place.
• your ability to get back home as scheduled.
• your potential recovery from a health issue you experience while traveling.
• your personal belongings after a theft or baggage mishap.  

What Travel Insurance Covers

You can find travel insurance in a lot of different forms. With so much potential for an unplanned problem, though, no single travel insurance policy can cover everything.

This is not-so-good news if you’re into quick decision making, but it is good news if you like to know exactly what you’re buying and how it can help you.

The key will be to look for a policy to covers what concerns you most, and your destination may influence your choices. Here are a few of the coverages you can expect to find:

Medical Coverage   

There are countries in the world where hospitals will treat your injuries at no charge. Great Britain and many of the nations along the North Sea in northwestern Europe have nationalized medicine that will cover even visitors.

In other destinations, however, you may worry how you’d pay for a medical emergency, especially since many domestic insurance plans, including Medicare, wouldn’t help.

Trip Cancellation

While most domestic airlines and even Amtrak will let you buy optional trip cancellation insurance, some active travelers want more protection — including international protection — in case they need to change plans.

Insurance plans tend to spell out specific reasons which qualify for trip cancellation protection, so read your policy carefully if you plan to depend on this coverage.

You can find similar coverage for missed connections.

Theft Protection

Many of us, in unfamiliar surroundings, can become more likely targets for thieves. Whether we lose cash, luggage, medicine, or electronics these kinds of crimes can change our travel plans.

While insurance can’t scare off pickpockets and thieves, it can help you recover from these losses more quickly.

Evacuation Insurance

Some of the most frightening experiences for travelers happen when political instability, terrorism, or a natural disaster such as a tsunami or earthquake require an evacuation.

You may need to leave your vacation locale too quickly to worry with refunds or rescheduling. You also may need to spend a lot of money to reach safety.

Travel insurance can compensate you for these losses. It can also help if a sudden medical condition requires you to leave your destination immediately.

Baggage Insurance

Lost bags — or luggage that somehow lands on a different continent — can also steal valuable vacation time. You may have to pay to replace everything you packed.

Travel insurance can reimburse these losses.

Emergency Services

AAA won’t send help if you’re in Uzbekistan or Cameroon. Travel insurance companies have similar programs for international travelers, though. They can help smooth things out when you encounter a problem.

If your plane makes an unscheduled landing in a place where no one speaks your language, for example, your travel insurance company’s emergency helpline can intercede.

What Travel Insurance Won’t Cover

Travel insurance can be a valuable tool for frequent travelers, but it won’t cover every scenario you encounter. As you shop for travel insurance, and as you make travel plans, you should know when your policy would and wouldn’t help.

Take trip cancellation coverage, for example. A lot of people buy travel coverage precisely for this purpose. Yet most policies will specify situations that qualify for coverage and exclude all others.

Typical covered trip cancellations result from:

• Illness or injury: either to you or to people you planned to visit. Expect to provide documentation before being reimbursed.
• Evacuation: natural disaster, act of terror, or other kind of evacuation at your destination.
• Loss of job: or significant changes in employment.
• Loss of passport or visa: due to theft or natural disaster.
• Military redeployment
• Jury duty or school year extension

Your insurance company could include additional covered cancellations. But in most cases they will not cover cancellations not named on their list.

So if you buy tickets for the wrong month by mistake or simply change your mind about the trip, your policy probably won’t reimburse you.

Some companies do offer policies that cover all trip cancellations, but this coverage usually costs significantly more.

Other Times Travel Insurance May Not Help

Trip cancellation isn’t the only place in your policy where you should pay close attention. Other sticky areas include:

• Pre-Existing Conditions: If you know you could have a medical emergency that could derail your plans, your travel insurance policy may deny your claim. Travelers who have pre-existing conditions should pay close attention to this while shopping for coverage.
• Medical Tourism: Travel insurance companies tend to deny claims when you’re traveling specifically for medical reasons.  
• High-risk Activities: Traveling to a country for a skiing competition, a bungee jumping opportunity, or a similar dangerous activity may exclude you from medical coverage.
• Breaking the Law: Getting hurt or imprisoned after breaking the law in another state or country will not impress your travel insurance company, and they’ll likely deny your request for reimbursement.
• Being Under the Influence: Losses you incur while intoxicated likely won’t be covered.

These are generalities, of course. You can find exceptions by shopping around. Just be sure you’re paying attention to these details while comparing policies.

How Travel Insurance Works

With a few exceptions, such as the emergency assistance programs we discussed above, travel insurance will have a relatively passive role in your actual trip.

Instead, you’ll need to be prepared to pay your own way out of trouble if you have to evacuate, change flights, or make alternative arrangements for getting home.

Once you’ve resolved the situation and returned home, you can file a claim for reimbursement for the expenses you incurred because of the covered peril.

Be prepared to document the situation with receipts, diagnoses, or itineraries as directed by your insurance company.

Companies with emergency assistance programs can still help you find a rental car, a new plane ticket, or a safer area, but don’t expect them to pay for all those arrangements while you’re still abroad.

When You Don’t Need Travel Insurance

Travel insurance makes most sense when you’re leaving the country. International travel plans tend to be more expensive and usually more time consuming to arrange.

And you’re also more likely to encounter dangerous situations requiring an evacuation on another continent — and you’re less likely to have friends or family members who can help.

Traveling domestically doesn’t usually include the same risks. You could probably skip travel coverage if:

• It’s a short, domestic trip: Problems still arise when you’re driving a few hours from home or taking a domestic flight, but in most cases you can probably handle these without travel insurance, especially if you’re a member of AAA or you took advantage of your airline’s trip cancellation coverage. If you travel long distances regularly, though, you may benefit from a travelers insurance policy.
• Your fees are already refundable: Many hotel accommodations and flights already include refundable ticket options either built into the price or for an extra fee. When you already have this feature, you wouldn’t need travel insurance for its cancellation coverage.
• You’re flying ‘Discount Air’: When you’re lucky enough to get one of those $89 flights from your regional hub to Orlando or the Big Apple, your travel insurance premiums may rival the cost of simply buying another ticket if necessary.
• You can afford to re-purchase: If the cost of your trip wouldn’t affect you financially if you had to pay for it twice, you’re self-insured — that is, you can afford the risk you’re incurring.
• You already have other insurance: Your existing health or auto coverage may already offer the coverage you need for a domestic vacation, especially if you need rental car coverage or roadside assistance.

Best Candidates for Travel Insurance

Travelers in the following situations can often benefit most from buying travel insurance:

• Studying abroad: College students or professors on a semester-long trip will have more opportunities to experience an unexpected expense. As a result you’d have more opportunities for travel insurance to help.
• Lifestyle travelers: More people, including younger people, are making travel a way of life. Rather than investing in more possessions, people want to invest in experiences. Travel, of course, offers abundant opportunities to experience life. Travel insurance can give you a safety net. In this case, consider an annual instead of a trip-specific policy.  
• International business people: Global economic connections have more business people making regular trips out of the country with China and India as common destinations. Make sure your employer has a plan in place if things don’t go as planned.

How to Compare and Buy Travel Insurance

Travel insurance is widely available online, through a local insurance agent, through a travel agent, or even from the online service you use to buy airline tickets or rent hotel accommodations.

Give Your Decision Some Thought

A lot of people don’t think about travel insurance until they’re busy planning a trip and get the sales pitch. Typically, this is not a good time to consider travel insurance.

Instead, give the decision your full attention by looking at the big picture and asking yourself questions like these:

• Could the trip you’re planning put you in danger of losing a lot of money?
• Will travel be a regular part of your life for the next year or longer?

Match a Policy to Your Needs

Answering yes to one or both of these questions makes you a pretty good candidate for travel insurance coverage. You should start your search by determining which part of your trip makes you most concerned:

• Trip Cancellation? If you’re worried about losing money because you have to cancel a trip, take a close look at trip cancellation coverage to make sure it meets your needs. Remember, coverage won’t help unless your reason for canceling the trip is listed in the policy, or unless you buy a policy that covers all reasons for canceling.
• Medical Expenses? If you’re worried about medical expenses on your trip, pay close attention to a policy’s rules about pre-existing conditions.
• An Evacuation? If you’re worried about having to leave your destination because of political unrest or a natural disaster, check out a policy’s evacuation coverage details.
• Emergency Help? If the idea of being stranded overseas with no way to communicate has you concerned, look into emergency assistance programs insurance companies can offer.

Not all policies address all these concerns equally. Matching your coverage to your concerns can help make your investment in travel insurance more likely to pay off.

As always, an independent insurance agent can help you compare policies to make this happen.

Travel insurance is a financial decision. Like all financial decisions, the choice comes down to whether the product will be worth the cost for you.

For some, the premium will be worthwhile because travel coverage offers a tangible sense of security. Others prefer a more calculated dollars-and-cents approach as they decide whether travel coverage would pay off.

Either way you look at it, make sure your coverage will actually fit your needs.

The post Travel Insurance: Security for the Journey appeared first on Good Financial Cents®.

Source Good Financial Cents® http://bit.ly/2GsEEs0

4 Financial Steps to Take if You’re Raising a Child With Special Needs

Feeling Overwhelmed By Big Financial Goals

Big financial goals can feel completely overwhelming.

You want to buy a house but the mortgage will be more than you make in three years.

You want to save for retirement but you need… a million dollars for the kind of retirement you want?

You want to pay off your student loan debts, but you’re making $28,000 a year and you owe well into the six figures.

It can feel completely overwhelming. I should know – I’ve been there. When I first sat down and seriously looked at our debt situation, which consisted of two car loans, a big pile of student loans, big credit card bills, and some other debts to boot, I felt just completely overwhelmed by it at first. The total debt was more than our combined annual income at the time and it just seemed like an impossible hole to climb out of.

Within just a couple of years, we were debt free.

When our second child was on the way, we decided to move out of our apartment and into a family home. When we started looking at houses, we were struck by the fact that even a modest starter home had a mortgage that added up to a multiple of our family income. It was really intimidating.

Four years later, we completely owned a 2,000 square foot family home with no mortgage.

Sometimes, I look ahead at our goal of financial independence and feel similarly, though less intense. We’re already a good way along the path to that goal, but we’ve got a long way to go.

In all of those situations, I feel overwhelmed by the huge number we’re aiming for and the amount of time it’s going to take to get there. I sometimes feel like we’ll never get there. I feel like even if we do get there, our life will have changed so much that it will have felt like a waste of time. I sometimes feel like I’m giving up things I don’t want to give up in the here and now just to chase that big goal.

Those aren’t positive feelings. Those are feelings that will lead me to give up on the goal before I ever get there. Feeling overwhelmed, feeling hopeless… it’s not a road to success.

I was only able to achieve big financial goals by overcoming that feeling of being overwhelmed by the size of the goal. I used a number of strategies to do this, strategies I continue to use to this day. Let’s look at them.

Strategy #1 – Focus on the Molehill, Not the Mountain

The most profound tool I’ve discovered in figuring out how not to be overwhelmed by giant goals is to simply focus on today rather than the big goal. Look at the mountain, not the molehill.

This is essentially the core of a strategy I wrote about earlier this week (Strategies for Translating Long Term Financial Goals Into Immediate Actions and Habits). The crux of that article is that most big financial goals can best be achieved by breaking them down into what actions you can take today to succeed and focusing solely on those. If you make those actions and new habits simple and just keep at it, day after day, you’ll get there eventually.

The problem is that, on its own, that strategy isn’t quite enough to undo the sense that the goal is overwhelming. You might have a specific goal for today, but it doesn’t take that goal out of the looming shadow of the giant goal.

For me, what really made the difference is truly believing and understanding that if I succeed in this little goal today, then the big goal is an inevitable conclusion. It will happen. It’s not a matter of if. If I achieve this little thing today, then the big result I want will occur.

All I need to do is chain together these little activities, and the key link in that chain is today, because without today, that chain doesn’t work.

If I want to achieve my giant financial goal, all I have to do today is one little frugal activity and stick to my monthly budget, particularly in the non-essential spending areas. That’s it. That’s all I have to do. I can prove it to myself by simply doing the math – if I do that today (and each subsequent day), I will achieve my big financial goal.

For me, I found that if I reiterate that sentiment to myself every day, my focus gradually shifts to today’s molehill rather than tomorrow’s mountain. What really matters is overcoming that little thing I need to do today, not the seemingly insurmountable mountain, because I know that if I nail that thing I need to do today, the giant mountain will take care of itself.

Focus on the molehill and the mountain will take care of itself.

Strategy #2 – Automate As Much As You Can

As I noted in the previous strategy, one big part of being able to grind down a large goal is to make sure that you’re taking daily steps that move you toward that goal. However, one of the big challenges of taking daily steps is that they require action every single day, and that can be hard due to the unpredictability of everyday life.

There are days when I don’t exercise much because other things come up, regardless of how important I view long term health goals to be. There are days when I end up spending more on food than I expected to because an old friend showed up. You can certainly strive to make a step forward each day, but sometimes things don’t go as you want them to.

One effective way around that is to automate your positive financial moves. One of the big advantages of making financial progress is that moving money from one account to another can be fully automated. You don’t actually have to take action to move money into your emergency fund or into your retirement account. You don’t actually have to take action to make an extra payment on your credit card. You can just automate all of it.

What automation does is that it sets a financial goal on a path of inevitability. If you’re automatically contributing $500 a month to your Roth IRA and another $1,000 a month to your 401(k), your early retirement plans are inevitable. You can simply sit back and just hold onto your job and you will get there. If you’re automatically making an extra student loan payment of $300 a month, paying off that debt early is inevitable. You just have to sit back and take care of the rest of your life.

For me, the part that really clicks about the automated approach is that it turns day-to-day activities and choices into an accelerant rather than a requirement, and that actually motivates me quite a lot. I know that Sarah and I will reach financial independence at roughly the time our youngest son graduates… but we could get there even sooner if I do a little more. Knowing that takes the pressure off of a daily choice – I don’t have to do X to make this happen – but instead it turns that daily choice into an accelerant – if I do X, my progress toward that inevitable goal speeds up.

Knowing that a goal is on autopilot, that I’m going to achieve it just by twiddling my thumbs, is incredibly empowering. It makes a goal feel much more real and much more within reach, even if the automatic process will take years. Then, knowing that my daily choices can actually speed it up makes those daily choices more interesting. It’s like making the choice to go on a long car trip – once you’ve made that choice, it doesn’t feel overwhelming any more and you find that stepping on the gas a little brings you to that destination a little faster.

Strategy #3 – Aim to Establish Good Habits and Normal Routines

A big goal requires sustained effort over a long time. You can’t just wake up one day and decide, “Today, I’m going to pay off all of my debts that I’ve accumulated over the last ten years.” Even if you were somehow able to do this, without some sort of lasting change, you’d eventually find yourself right back where you started with a bunch of accumulated debts.

That’s why any major financial goal – or goal of any kind – rests on the back of new habits and normal routines that are meant to be lifelong changes. Automation is a powerful tool, but it still means you have to learn how to live by spending less. Individual actions are powerful, too, but if they’re not sustained, you’re going to roll right back to the situation you were in to begin with.

If you’re currently spending everything you make and want to adopt a financial goal that’s going to require $300 a month, you have to figure out changes in your way of living that free up $300 a month going forward.

Some of that money can be found through singular actions – the so-called “big wins.” Cutting your cable. Renegotiating your cell phone bill. Shopping around for cheaper insurance. Moving to a smaller residence. Those big actions can certainly cut your regular bills substantially and can make up a large portion of what you need to achieve your goal.

At the same time, there is also much value to be found in the small steps, the minor tweaks to one’s routine that result in small savings but are repeated so often that they become routine and those little savings add up over time to big ones. Making cold brew coffee instead of stopping at Starbucks. Keeping your thermostat a little lower. Walking or taking mass transit to work. Buying store brands at the store. Using the library instead of the bookstore. Eating at home more often instead of eating out.

Those little tweaks seem like a challenge at first, but when you take them on each day, they eventually turn into habit and become your new normal. Making cold brew coffee at home might seem like a new task on your shoulders every day, but give it a few months and it seems completely normal and you wonder why you ever went to a coffee shop every day. Taking the train to work might seem like a huge alteration of the routine, but do it for a few months and it seems like the sensible and normal way to do things. Buying store brands might feel weird the first time you load your cart up with them, but in a few months, they’ll seem like the normal way to shop.

The trick is to keep at those new routines until they feel completely normal or until you discover something fundamentally wrong with them and discard them. My strategy is to do a lot of “thirty day challenges.” Each month, I’m usually doing three or four such challenges, where the goal is to either (a) give a thirty day trial run to something new and then evaluate whether it works for me at the end of the month or (b) keep up with a previous thirty day challenge until it feels completely routine and thus a normal part of my life (and so a thirty day challenge is redundant).

I find that reviewing those routines and habits I’m working on each day is really, really useful. I just spend a couple of minutes before bed looking at a list of routines and habits I’m working on and asking myself seriously if I did my best today to move forward on that thing. I give myself a score of 1 to 10 based on effort. I find that I really want to give myself a lot of 10s each day and that becomes a subtle motivation to put forth more effort.

Strategy #4 – Surround Yourself with Support

Often, people think of this idea as meaning that you have a bunch of friends who are actively cheering you on as you try to achieve something. That can be useful at times when you need to exert a ton of effort in a short time, like running a marathon. However, such support really can’t be sustained over the long time period that a major goal requires.

Rather, I find that friendships and relationships that offer indirect support for the direction you’re heading in are what you truly need to succeed over the long term.

If your friends seem to need to spend money every time you see them, they’re not going to provide long term support for your financial goals. If your friends seem to struggle to keep their bills paid and aren’t saving for retirement and aren’t making progress toward their big goals in life, they’re not going to provide long term support for your financial goals. Rather, they’re going to distract you from those goals. They’re going to tempt you to spend money for things – social occasions, companionship – that you shouldn’t have to spend money for. They’re going to nudge you to spend money on more and more stuff just to keep up with them.

Rather, seek out friends who do the opposite and accentuate those friendships. Look for friends that don’t struggle to keep their bills paid and seem to be making progress toward financial goals. Look for friends that don’t encourage you to spend money, that don’t engage in “retail therapy,” that don’t suggest expensive things to do together constantly, that do suggest free or super-cheap things to do together. Look for friends that talk about long term goals rather than the latest thing they just bought. Look for them throughout your life and intentionally cultivate those relationships.

What you’ll find is that the more people you have in your life that are dedicated to that kind of financial progress and the fewer people you have in your life that are focused on living paycheck to paycheck and not working on financial goals, the easier it’ll be to make financial progress. You’re surrounded by people who aren’t encouraging you to spend and are likely to talk about their own progress, offer suggestions to you, and subtly encourage your own financial goals.

It’s the same with any area of life where you have big goals. If you want to lose weight, spending time with fit people who pay attention to their diet will help. If you want to succeed in your studies, surrounding yourself with people who study and focus on academic performance will help.

Strategy #5 – Love What You Do Each Day

People often view a life of financial restraint as being miserable on a day to day basis. Their first visions of that life almost always centering around cutting out their absolute favorite things that they spend money on, whatever that might be. If people like eating out, they imagine sitting at home and eating dry cereal or something. If people like indulging in a particular hobby, they imagine themselves watching paint dry instead of “having fun.” We tend to make the most awful substitutions imaginable when thinking about altering our daily routine.

The thing is, most financially sensible changes are largely transparent. You’re not really going to notice things like buying store brands or switching to a more economical insurance provider or cutting out a subscription that you rarely use. Most of the moves that you make are going to have little impact on your daily life.

What about the ones that do have an impact? For me, the rule is simple: if a change actually makes me feel worse about my daily life (after considering the financial benefit), I undo that change. I don’t stick with it. Rather, I’m constantly trying new things that are free and/or low cost while also retaining the things that I enjoy doing. What I wind up with is a life with more things that I want to do that have very little cost than I have time for. In that scenario, why would I choose things that cost a lot of money when I already have things I’m itching to do that don’t cost money?

My suggestion is this: if you’re afraid of a boring life, don’t just cut the things you enjoy doing from your life. Rather, decide to spend just some of the time you would otherwise devote to expensive things on free or low cost things you’ve never tried before but been a little curious about. Don’t worry about what other people think. Try hiking. Try geocaching. Try cooking at home. Try making sauerkraut. Try running for political office. Try checking out an interesting book from the library. Just try lots of things, everything that sounds remotely interesting, and then stick with the things that are enjoyable.

If you take that approach, walking away from a costly thing you enjoy feels less like a punishment and more like a benefit. Furthermore, you begin to naturally put your life on track for financial success because you’re spending less along the way.

Your life should never consist of boredom and misery. If living a financially responsible life feels like that to you, you’re doing it wrong. Rather, you should be trying lots of low cost things all the time and keeping what sticks, and you’ll find that along the way the best of those new low cost things end up replacing expensive things in your life that you thought you couldn’t live without. This is the single best strategy I’ve found for beating the financial doldrums.

Final Thoughts

The five strategies here really boil down to one thing: for a big financial goal to feel easily attainable, you need to chart a daily course in the direction of that goal. Your natural day to day life needs to be leading toward that goal. If you can make that happen, then the biggest of financial goals will eventually be achieved. If you refuse to change your direction, you’ll never reach that new destination.

The thing is, that new direction doesn’t have to be miserable. It can be enjoyable and interesting, with new people and new things in your life. You don’t have to drop the things you really care about, either. You just have to be willing to try new things with an open mind and explore new social connections with an open heart.

Good luck!

The post Feeling Overwhelmed By Big Financial Goals appeared first on The Simple Dollar.

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ETFs 101 | How to Trade Like a Pro

Exchange traded funds, better known as ETFs, have become a staple of stock market investing in recent years. 

If you’re an investor, chances are you’re holding one or more ETFs in your portfolio.

In this guide, we’re going to look at exactly what ETFs are, how they work, the benefits and risks, where to trade them, and how much you should have invested in them.

What are ETFs?

As of the middle of 2018, there were 2,143 ETFs in the US alone. That’s an increase of nearly 50% in just five years.

There’s a good reason for that expansion.Since ETFs are primarily index-based, it’s a perfect way for both individual and institutional investors to invest in markets, without needing to concern themselves with individual stock selection.

ETFs are often confused with mutual funds. And they are quite similar, at least in the most general sense. Each is a fund that holds a portfolio of stocks, bonds, or other securities.

While mutual funds selected specific stocks, with the hope of outperforming the general market, an ETF is built to match a specific market index.

It’ll match the index, but it will never either outperform it, or underperform it. For this reason, ETFs are often referred to as passive investing.

How ETFs Work

With ETFs, the fund will invest in a portfolio of stocks designed to match the corresponding index. But since an index will change only infrequently, ETFs rarely trade stocks. A mutual fund on the other hand, will trade individual stocks much more frequently.

A particularly aggressive mutual fund may have a portfolio turnover of greater than 100%. That means the entire portfolio is being traded at least once a year.

However, it’s precisely because of the lack of frequent trading that ETFs are less expensive to invest in than mutual funds. Because they don’t have a lot of trading activity, expense ratios are generally some small fraction of 1%.

Unlike mutual funds, they don’t charge load fees, which are sales or redemption charges that can be between 1% and 3% of the value of the fund.

Another advantage ETFs have is that they trade on major financial markets, with trading commissions comparable to stocks.

For example, you may be able to purchase $100, $1,000, or $10,000 worth of a particular ETF for as little as $4.95. This means you will be purchasing an entire portfolio of stocks or other securities, for just a few dollars.

Types of ETFs

At least part of the popularity of ETFs has to do with their versatility. They can be adapted to just about any investment purpose.

Various general types of ETFs include:

Index funds

These are ETFs that invest in broad markets, like the S&P 500 or the Russell 2000. Examples include Vanguard 500 Index Fund Investor Shares (VFINX) and Schwab S&P 500 Index Fund (SWPPX).

When you buy into one of these funds, you own a small piece of every company stock in that index.

Sector ETFs

 ETFs can be used to purchase stock indexes based on sectors, such as energy or healthcare. Examples include the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and Vanguard Health Care Index Fund (VHT) ETFs.

You can also invest in ETFs tied to emerging markets, specific countries, or even industry specializations, like pharmaceuticals.

Exchange Traded Notes (ETNs)

These are ETF cousins that invest in debt securities, typically issued by banks.

They’re mainly for income generation, and they’re used to create portfolios of high interest securities that might not be available to small investors.

Commodity ETFs

 These are funds that can invest in specific natural resources, such as gold, oil, or grain.

An example is the SPDR Gold Shares (GLD), which is the largest gold ETF in the world. This is a way to invest in gold, without needing to take physical possession of the metal.

These are just a few examples of the types of ETFs that are available. There are also ETFs for bonds, or specific investment styles or market capitalizations (large, medium, or small cap stocks).

There are even what are known as inverse ETFs, which enable investors to profit from declines in the underlying market.

The Benefits of ETFs

ETFs have a long list of benefits, including:

• Trading fees: Inexpensive to buy and sell.
• Cost: ETFs have very low expense ratios.
• Easy trading: They can be bought and sold like stocks.
• Minimums: There are generally no fund minimums; they can be purchased in any denomination.
• Accessibility: They enable a small investor to invest in an entire portfolio of stocks with just a few dollars.
• Diversification: You can create a balanced portfolio by investing in a small number of ETFs. For example, you can create a portfolio with ETFs in the S&P 500, foreign developed stocks, emerging market stocks, bonds, US Treasury securities, commodities, and even real estate.
• Low taxability: Since they don’t trade components stocks often, they don’t generate taxable capital gains the way mutual funds do.
• Quick trading: When bought or sold, they settle on the same day. This is unlike mutual funds which settle after the close of the market.
• Versatility: ETFs can be used to invest in even exotic asset classes, like specific countries or upstart industries.

The Risks of ETFs

The benefits of ETFs are far more numerous than the risks. But that doesn’t mean ETFs are risk-free. There may be fewer risks, but they’re substantial.

You’ll never outperform the market

This is actually an advantage for many investors who are content to simply match the performance of the market.

But if you’re hoping to do the Warren Buffett thing and outperform the market over the long term, you’ll never do it with ETFs. They’re simply not designed to do that.

You can lose money in ETFs

Simply put, when the financial markets fall, so do ETF values. Since ETFs are tied to the underlying market, they’re virtually guaranteed to decline when the market does.

There may be a widespread perception that ETFs are risk-free 

It’s often implied that ETFs are relatively risk-free. That’s certainly true compared to individual stocks and mutual funds.

Either of those investments could easily underperform the market, causing you to lose a lot of money. But since ETFs track the market, they’ll seldom fall more than the general market does.

So from a purely market standpoint, ETFs are less risky than stocks and mutual funds.

But there may also be an unjustified public perception that ETFs are risk-free. The first ETF was launched in 1993, so they’ve barely been around for 25 years.

But they’ve really exploded in popularity since the last stock market crash in 2008-2009. Given that the market has risen almost steadily over the past 10 years, there may be a perception that ETFs can only go up.

They may decline less than individual stocks and mutual funds, but yes, they can and will decline if the underlying market falls. But that’s a situation a lot of investors haven’t experienced up to this point, at least not to any significant degree.

How and Where to Trade ETFs

ETFs have become so common that you can invest in them through nearly every investment platform or vehicle. Here are just some of the examples:

Brokerage firms

Virtually all brokerage firms enable you to buy and sell ETFs. For example, investment giants Fidelity and Charles Schwab offer ETFs at $4.95 per trade, and they’re the largest brokers in the industry.

And super discounter Robinhood, which only deals in individual stocks and ETFs, allows you to buy and sell ETFs free.

Get started with Robinhood>>

ETF families

There are firms that specialize in offering multiple ETFs. Two prominent examples are Black Rock iShares and Charles Schwab.

Robo-advisors

This class of investment platforms is practically built on ETFs. Investments are managed based on modern portfolio theory (MPT), which stresses the importance of asset allocation over individual securities selection. The emphasis is on proper portfolio allocation.

Betterment is one of our top picks for ETFs, as you can see in our Betterment Review.

ETFs are tailor-made for this type of investment model. Using just a few ETFs, a robo-advisor can create a portfolio of stocks, bonds, real estate, and even commodities. They can invest in each asset class using a single dedicated index-based ETF for each class.

Invest in ETFs with Betterment>>

Even Traditional Human Investment Advisors Have Gotten into the ETF Act

If your money is invested with an investment advisory service, using traditional human investment management, it’s certain that at least some of your money is invested in ETFs.

With investment management becoming increasingly automated, ETFs are now taking the place of mutual funds and stocks in portfolios of all kinds.

Entire market segments can be covered using ETFs, and they can be traded just as easily and inexpensively as individual stocks.

How Much Should You Invest in ETFs?

If you’re a small- to medium-size investor, you should have most of your portfolio invested in ETFs. That will certainly be the situation if you invest through a robo-advisor.

But even if you have a self-directed investment account, your portfolio should be built on a foundation of exchange traded funds.

You might build what is sometimes known as a core portfolio. That’s a basic portfolio that incorporates all the typical major asset classes.

You may want to have at least 50% of your portfolio invested in ETFs covering the following broad asset categories:

1. US stocks
2. International developed countries stocks
3. International emerging market stocks
4. US bonds
5. Foreign bonds
6. Real estate

This is a typical robo-advisor portfolio allocation. You can cover all six asset classes with just six ETFs, one for each asset class.

Depending on your investment preferences, you may also want to diversify into specific sectors. You can add ETFs for commodities, specific industry sectors, high-yield bonds, and even emerging industries.

With your core of ETFs covering the major asset allocations, you can dedicate the balance of your portfolio to true self-directed investing. That can include individual stocks, mutual funds, options, or real estate investment trusts.

Bottom Line

ETFs not only provide the broadest possible market exposure, but they’ll do so in a way that’s lower risk than the other asset types.

ETFs may have come out in the 1990s, but they’re clearly one of the biggest investment trends of the 21st century.

If you haven’t invested in any up to this point, you need to give them a very serious look.

The post ETFs 101 | How to Trade Like a Pro appeared first on Good Financial Cents®.

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Why Credit Monitoring Won’t Protect Your Identity from Being Stolen

Keeping your personal information out of the hands of people with bad intentions is, unfortunately, not possible in the current digital age. Large scale data breaches have occurred with regularity, and likely will continue. It’s the reality of the world in which we now live.

We don’t do ourselves any favors in this regard, considering how much of our own personal information we choose to give away or post online. How many of us have our date of birth on our Facebook profiles just to get all of those “likes” and “happy birthday” comments?

Over 11.5 billion (yes, that’s billion, with a “b”) records have been exposed as a result of data breaches since 2005, according to PrivacyRights.org. Unless you’ve lived off the grid for your entire adult life, your information has already been exposed, maybe multiple times.

The news gets worse before it gets better. Not only is there nothing you can do to completely protect your personal information, there’s no service you can buy to keep your data 100% safe either, a fact which is confirmed by the Federal Trade Commission.

While these facts are unsettling, that doesn’t mean you should throw up your hands and say, “Oh well. What happens, happens.” You can still take smart steps to protect yourself and limit the potential for damage if your personal information ever becomes compromised.

Credit Monitoring

Credit monitoring services passively track the information on your credit reports and notify you of changes that might be indicative of fraud, like the opening of a new account. Credit monitoring is a solution often marketed as “identity theft protection.” That’s not really 100% accurate, as credit monitoring won’t prevent identity theft, and certainly won’t protect you from it.

Credit monitoring is a reactive strategy. It’s designed to alert you, as quickly as possible, that a problem has already occurred. But credit monitoring won’t do anything to protect your identity or your credit information on the front end of the identity theft curve.

It’s also worth noting that credit monitoring doesn’t track every type of identity theft. For example, credit monitoring can’t detect:

• Unauthorized withdrawals or charges on current accounts.
• Fraudulent tax returns filed in your name.
• Government benefits fraudulently claimed in your name.
• Fraudulent use of your personal information to open utility accounts.
• Fraudulent use of your personal information on employment records.
• Fraudulent use of your personal information on arrest or court records.
• Fraudulent payday loan or cash advance applications.
• Illegal access of your information on any third-party database not owned by the credit bureaus.

Even though credit monitoring has limitations, it is not without value. You need to regularly keep an eye on all three of your three credit reports. A free or fee-based credit monitoring service can help you to do so.

But keep in mind that monitoring services simply let you know something may have already happened. Then, it’s up to you to fix it.

Credit Freezes or Security Freezes

A credit freeze, often called a security freeze, offers a more proactive approach to preventing some types of identity theft. For example, if a thief manages to get his hands on your Social Security number, a credit freeze could severely limit what can be done with your stolen information.

When you freeze your three credit reports, they are essentially taken out of circulation. This means lenders with whom you do not already have a relationship cannot access your credit information if a thief submits a fraudulent application in your name. The result will be a denial of any unauthorized applications.

After freezing your credit, should you want to apply for credit yourself, you simply “thaw” your reports beforehand. This puts them back into circulation and allows for legitimate access. Once your application has been approved, you simply re-freeze them. There is no cost for any of this.

Keep in mind, even a credit freeze cannot protect you from all types of identity theft, nor can it prevent your data from being stolen. A freeze, however, is a wise move to protect yourself and your credit reports from true name credit fraud.

Do Something… Anything

The fact that you have an identity will always make you a target. There’s simply nothing you can do about it. And even after you die, your information still has value to a thief. On top of that, fraudsters will in some cases actually create a person out of thin air and defraud that fake entity. This is the so-called synthetic identity theft.

Just because there’s no way to fully protect yourself from identity theft doesn’t mean you shouldn’t do what you can to protect yourself. Being vigilant when it comes to your credit is a great start.

Make a habit of checking your three credit reports frequently for errors, either on your own or through a credit monitoring service. A credit freeze can offer an added layer of protection, but it shouldn’t be an excuse to get lazy about watching your reports for fraud and errors.

More by John Ulzheimer:

• Use a Credit Freeze to Stop Identity Thieves Cold
• Six Warning Signs That Your Child’s Identity Has Been Stolen
• Beyond Equifax: The Other Big Data Hacks Nobody’s Talking About

John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. The author of four books on the subject, Ulzheimer has been featured thousands of times over the past decade in media outlets including the Wall Street Journal, NBC Nightly News, The Los Angeles Times, CNBC, and countless others. With professional experience at both Equifax and FICO, Ulzheimer is the only credit expert who actually comes from the credit industry. He has been an expert witness in over 230 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.

The post Why Credit Monitoring Won’t Protect Your Identity from Being Stolen appeared first on The Simple Dollar.

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