Tax Benefits of Qualified Dividends

Qualified DividendsDividends tend to get lumped as one single form of investment income. But the IRS doesn’t see it that way, dividing the tax on dividends into two types: ordinary and qualified dividends. This is good to know around tax time. But it’s just as important when choosing investments for a taxable account, since taxes are another cost that eat into your returns.

Ordinary Dividends

First, all dividends are considered ordinary dividends. The problem, of course, is how we loosely use the term dividends to describe any type of payout from stocks, mutual funds, savings accounts, or other investments. Sometimes that “dividend” is actually interest income or a capital gains distribution. Continue Reading…

Low Volatility ETF: Is There A Better Alternative?

low volatility ETFA couple of years ago a new kind of fund, the low volatility ETF, was first offered by fund companies. It fits in a new fund category known as smart beta, which offers a different way to weight index funds outside of the typical market cap weighting used by most indexes.

It didn’t take long for these new funds to become popular. Much of that popularity is due to its initial performance. The funds did more than advertised and investors started chasing returns. But are low volatility ETFs actually worth it? Or is there a better option? Continue Reading…

The Beginner’s Guide To Tax Efficient Investing

Tax Efficient InvestingTaxes are an unfortunate side effect of successful investing, but there are ways to avoid it. You can build a tax efficient investing strategy to help lower those taxes over time. More importantly, it will leave more money in your pocket to reinvest, compound, and grow.

A tax efficient investment strategy is nothing new. It’s been used by the wealthy since tax codes were enacted. It’s legal and you don’t need a high-priced CPA to put an effective strategy together. If you know the current tax rates, you are half way there. After that you just need to know how to use the tax code in your favor. In order to do that we need to start with the basics.

What Is Tax Efficient Investing?

Taxes eat into your investment gains like any other costs. This puts a limit on how your money grows. But thanks to our overly complex tax system, you have ways to reduce, suspend, or eliminate them.

The basic tax efficient investing strategy should lower your tax liability based on your financial goals both now and in the future. When done right, it should maximize your after tax dollars, which is the ultimate goal. Continue Reading…

Does A Target Maturity Bond ETF Fit Your Portfolio?

target maturity bond etfThe writing has been on the wall for a while about rising interest rates. This year, we saw exactly what this move does to bond funds, as rates rise, the price of bonds fall and the value of bond funds fall with it. One way around this is to own individual bonds (I’ve highlighted others like floating rate bond funds). A target maturity bond ETF might be another option.

One of the benefits of owning an individual bond is the fact it has a maturity date. It’s an end date. The bond matures and you get your money back. That doesn’t exist with a bond fund. Of course, when you own individual bonds you lose the diversification a bond fund offers. But what if you could combine the two? Well, a target maturity bond ETF brings a maturity date to a diversified bond fund.

What Is It

A target maturity bond ETF holds a basket of bonds that mature in the same year. Once the bonds in the fund mature, the fund is closed, and you are paid out. Continue Reading…

Best Investment Tools You Can Use Free

Investment ToolsIt’s not hard to find decent investment tools online these days. The internet has made it cheaper and easier to get financial information. It wasn’t too long ago, you had to subscribe to the major financial news services like the Wall Street Journal and Standard & Poor’s (which were costly) or hope your local library had a subscription.

Trust me, spending hours or days digging through the S&P annual volumes was not fun. Now, you’re a mouse click away with the tools online. These free investing tools make it easier to get the information that matters so you can spend the rest of your free time doing what you want. Below are the investment tools I use to simplify things.

Investment Tools

Yahoo Finance

There are a number of great sites out there but none of them can unseat this old school favorite for quotes, charts, information, and news. Why? Because Yahoo has always been a great news aggregator. On top of that, it offers watch lists, screeners, calculators, and has built a stable of original video programs that cover the gamut of financial topics. Continue Reading…