Active investing involves a hands-on approach where investors actively manage their portfolios by making frequent buying and selling decisions based on their analysis of market trends, company performance, and other relevant information

Passive investing, on the other hand, is a more hands-off approach where investors build a portfolio designed to mirror the performance of a market index or a specific sector.

The post Active Investing vs Passive Investing: A Comparative Analysis appeared first on New Century Investments.

Throughout your life you come to milestones where insurance is a given, while others are simply encouraged. How do we know which ones to purchase and when? Insurance is a financial contract between an individual and an insurance company that insures you are protected from financial loss in severe circumstances. Insurance is another ever-changing area of life. Throughout different stages of life will require different policies and different coverage.

Insurance In Your 20s

Health Insurance

Medical debt is one of the largest sources of debt among US consumers. Most people cannot afford healthcare on their own. This makes health insurance very important to consider as you roll off your parent’s plan and enter your adult life. Fortunately, many companies provide health insurance plans for their employees. Health insurance is one that you will most likely always have.

Auto Insurance

In most states, auto insurance is required. There are different amounts of coverage that you can purchase, like liability and full coverage. Rates for auto insurance are tied to age, car make and model, driving record, location, and sometimes gender. If you are driving a car, you will need auto insurance.

Renters Insurance

If you are renting a home or an apartment, you will need renter’s insurance. Most properties require their tenants to have renter’s insurance. Renter’s insurance protects you from natural disasters, theft, and more.

Disability Insurance

This provides income should you be disabled and unable to work a job. If you are reliant on a paycheck to support yourself or your family, disability insurance is worth the expense. Employers typically offer policies for traditional workers, while self employed people take out an individual policy. Disability insurance should be prioritized until you exit the workforce and rely on your savings to live through retirement.

Insurance In Your 30s

Life Insurance

The age at which someone becomes dependent on you, for most in their 30s, is the age encouraged to get a life insurance policy. This could be a spouse, aging parents, or children. There is term life insurance and permanent life insurance. Term is when the policy runs out after a certain period and is typically recommended because it is affordable and straightforward.

Homeowners Insurance

When you purchase a home, it is wise to consider homeowners insurance because it covers everything from liability to the structure itself. Most mortgage lenders require you to have homeowners’ insurance. If you live in wildfire, tornado, or hurricane prone area, there will always be a higher premium.

Pet Insurance

At the end of the day, you might be willing to spend $10,000 if it means your dog will get better. This is not a necessity but could be worth considering for some people. Some plans cover up to 90% of your routine visits and vaccinations.

Insurance in your 40s

Long-Term Care Insurance

This may be a good idea for those who are aging or disabled and need professional help with daily functioning. Keep in mind that as you age you are more expensive to insure. It may be a good idea to consider long-term care insurance well before you need it, even if you think you may never need it.

To be insured is to protect you as an individual and anyone dependent on you in the face of perils that no human could afford. It can be confusing as you enter adulthood to know what is vital and what is not. Having the knowledge of what insurance is most important in your stage of life will bring a sense of security and peace to you financial well-being.

Matt’s Corner

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The post Understanding Insurance appeared first on New Century Investments.

1. Educate yourself: Before diving into any investment, it’s crucial to educate yourself about the basics of capital gains and losses. Understand what factors determine whether you will have a gain or a loss, such as purchase price, sale price, holding period, and any applicable tax regulations. Knowledge is power, and understanding the fundamentals will give you a solid foundation for planning ahead.
2. Set clear investment goals: Start by defining your investment goals and time horizon. Are you looking for short-term gains or long-term investment growth? Depending on your goals, you can tailor your investment strategy accordingly. For short-term gains, you might consider more aggressive investments that could yield higher returns but also carry more risk. On the other hand, long-term investment growth may require a more conservative approach with a focus on stability and consistent returns.
3. Diversify your portfolio: Building a well-diversified portfolio is one of the most effective ways to manage capital gains and losses. By spreading your investments across different asset classes, industries, and geographical regions, you can reduce the impact of any single investment’s performance. Diversification helps cushion the blow of potential losses while providing opportunities for gains in other areas.
4. Consider tax implications: Capital gains and losses are subject to taxation, so it’s important to consider the tax implications when planning your investment strategy. Depending on your country of residence, tax laws may vary, so consult with a tax professional to fully understand how capital gains or losses will affect your tax liabilities. Utilize tax-efficient strategies such as tax-loss harvesting to offset gains with losses and minimize your tax burden.
5. Stay disciplined and avoid emotional decisions: Emotional investing can lead to poor decision-making and impulsive actions. Instead, develop a disciplined approach to investing and stick to your plan. Avoid making decisions based on short-term market fluctuations or panic selling during a downturn. Take a long-term perspective and focus on your investment objectives and overall portfolio performance.
6. Regularly review and rebalance your portfolio: Markets are dynamic, and it’s essential to periodically review and rebalance your portfolio. Reassess your investment holdings, consider selling underperforming assets, and reinvest the proceeds in other opportunities. Rebalancing helps maintain your desired asset allocation and can also help offset potential capital gains or losses.
7. Seek professional advice if needed: If you are unsure about how to plan for capital gains or losses or if you have a complex financial situation, consider seeking advice from a financial advisor or investment professional. They can provide guidance tailored to your specific needs, help you navigate tax regulations, and provide valuable insights based on expertise.

Planning for capital gains or losses is an integral part of any investment strategy. By educating yourself, setting clear goals, diversifying your portfolio, considering tax implications, staying disciplined, regularly reviewing your holdings, and seeking professional advice, you can better manage your investments and make informed decisions to achieve your financial objectives. Remember, investing involves risk, and it’s important to carefully assess your risk tolerance and consult with professionals before making any investment decisions.

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Introduction

Entropy – a scientific term used to describe the ever-growing disorder in the universe. This manifests not only in space, but in the structures and systems of the world. People’s homes are full of stuff, their minds are filled with instant access to news and media, and their finances are filled with never-ending credit card payments and messiness. Minimalism is a growing idea in our culture, because the world is tired of unorganized and complex living. As humans, we desire structure and order to our days, calling us to delve into our financial life and bring some calm to the chaos.

1. Consolidate Bank Accounts and Retirement Accounts

First, having multiple different accounts to manage can be overwhelming and only creates extra stress when checking accounts. It is recommended to have one account for spending purposes and one savings account. It is also recommended to rollover any previous job 401ks to a self-employed retirement account. When consolidating your retirement accounts, make sure to double check for any tax implications.

2. Get Rid of Paperwork That Isn’t Necessary

Take some time to sort through your filing cabinet and purge paperwork that is not necessary. It is especially therapeutic to categorize and label each section of your files to relieve additional stress. It can be helpful to only keep what you need a hard copy of in a file. For extra measures you can also create a folder on your computer and store documents electronically.

3. Choose One Credit Card

Credit cards can also build up quickly, because that is the goal of the businesses marketing them to you. It can simplify your wallet and budgeting if you focus on using just one credit card. Choose the card that will serve you the most and forget about the rest.

4. Review Your Subscriptions

It is important to review your subscriptions now and again and consider the ones you are not using. This simplifies your life and creates one less bill you must worry about. If you are a budgeter, it will make tracking your expenses so much easier if you can simplify how many you have.

5.  Automate

Technology is always working to create a more efficient way to do things.  For monthly bills, like insurance, rent, and utilities, check into setting up auto-pay that will automatically charge your account on the day that it is due. This simplifies your finances and clears space in your mind, because you know your bills are taken care of. You can also automate a certain amount of money to transfer into your savings account, completely customizable to your preferences. There is even budgeting software that you can invest in to link your bank accounts and budget for you, just to make your life a little simpler.

Conclusion

Simplification brings quiet to a loud mind and peace to your financial life. I hope these recommendations can add value to how you manage your assets and create more intentionality in calming the chaos around us.

Matt’s Corner

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Introduction

Tax planning is the art of tax and finance nerds. The goal of tax planning is to minimize the amount of taxes you pay by examining tax laws and strategizing.

Retirement Contribution

To begin, one of the most strategic ways to reduce your taxable income is to max out your retirement accounts. In 2024, the contribution limit is $7,000. Consider that someone made $50,000 a year and contributed $7,000 to a traditional IRA. Their adjusted gross income would become $43,000 on which they would be taxed. The money they contributed would then grow tax-deferred until withdrawn.

Tax Loss Harvesting

Tax loss harvesting is another tax planning strategy that involves investments. The goal is to use your portfolio’s losses to offset capital gains. Imagine an individual who had $10,000 in long-term capital gains. There would be a tax liability according to what tax bracket they fall into. If they decided to sell underperforming assets carrying $10,000 in long-term capital losses, the losses would offset the gains, and the tax liability would be 0.

Maximizing Deductions

Deductions include certain categories of outflowing money that can be subtracted from your gross income to lower the amount of your income that is taxed. This could be student loan interest, mortgage interest, contributions to retirement or health savings accounts, medical expenses, or charitable contributions. It is important to pay attention to tax brackets and the standard deduction, especially in years when the standard deduction is higher, or years that the tax brackets have widened. The more you can deduct from your income and the lower tax bracket you can fall into, the more tax relief you will find.

Roth Conversions

Converting the pre-tax savings in a Traditional IRA to a Roth IRA will allow you to reap tax-free withdrawals in retirement. This strategy is helpful for entrepreneurs, or anyone who has uneven income streams. During years of lower income there is a tax advantage, because more shares can be converted for the same amount and same potential tax bill.

Charitable Contributions

These contributions are great for lowering your adjusted gross income. For anyone over the age of 72 who is taking a Required Minimum Distribution, you can direct these funds to pay to a qualified charity. This is helpful if you do not need the additional income but want to lower your tax bill.

Conclusion

Taking the time to learn these strategies yourself or consulting a professional to help you is worth the time and investment. You never know how much money you can save with a little bit more knowledge about tax laws and planning strategies.

Matt’s Corner

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The post Tax Planning: Minimizing Your Tax Burden appeared first on New Century Investments.

Introduction

Nobody wants to have a loved one pass away and not be able to access their belongings with ease during a time of grief. Unfortunately, this is the case for many. Not having beneficiaries on your account and policies can be detrimental to your family members and loved ones who are grieving your loss. Taking the time now to review and update your beneficiaries will leave a lasting impact on those you care for.

Why?

Designating a beneficiary is important because it ensures that your assets will be transferred to the place you desire. You can name beneficiaries on life insurance policies and investment or retirement accounts. Typically, with a life insurance policy, the chosen beneficiary will receive some benefit that the policy pays. With investment or retirement accounts, the balance of your assets will transfer smoothly to your beneficiaries.

Naming a beneficiary is not required, meaning we need to take the responsibility to ensure our beneficiaries are updated across our holdings. Once you pass away, and you have no beneficiaries, the financial products you own will not be governed by your will anymore. Without beneficiaries, there is no clear answer to who is entitled to your assets. This creates a lengthy and grueling legal process to determine how your assets are distributed. Probate is one of those processes that gives power to the court to decide where your assets are distributed.

How?

With any financial service, you should be able to designate beneficiaries through the website or filling out a form. When setting up accounts through your employer, you can also have them keep your beneficiaries on file. If you work with a financial professional, they will also keep up to date with your beneficiaries.

A beneficiary can be a person, charity, trust, or your estate. Typically when choosing your beneficiaries, the immediate people who will suffer financially, will prioritized as beneficiaries. When naming beneficiaries, you can also split the benefits across multiple names. For example, say you have 3 children, and you want to split equally across them. They would each receive 33.33% of the assets in that account. It is important to research state laws before naming your beneficiaries on your accounts. Beneficiary laws vary by each state, and some states make it a requirement to list your spouse as your primary beneficiary. Updating beneficiaries happens in specific circumstances, such as divorce, remarriage, or the death of a loved one who was one of your beneficiaries.

When designating beneficiaries, you will likely provide the full legal name as well as their relationship to you. When providing beneficiary information, be as detailed and thorough as possible. This will ensure that the benefits entitled to your beneficiaries will be expedited to them as efficiently as possible.

Conclusion

To secure the financial stability of those important to you, consider naming, reviewing, or updating your beneficiaries. The whole purpose of this system is to be able to honor your desires once you are no longer here, making it advantageous to put thought into the futures of your loved ones today.

Matt’s Corner

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The post Secure & Honor: The Importance of Beneficiaries appeared first on New Century Investments.

Financial Planning has only been around since the 1970s, preceded by banks and insurance agents whose aim was not to provide holistic financial advice. Financial planning services have become sophisticated and technology-driven to meet complex and individual needs of people and businesses. Certified financial planners today are founded on a fee-based, personalized relationship with their clients to help them achieve true financial success.

In the beginning, financial advice was reserved for the wealthy with little focus on long-term planning. Services can find roots back in the 20^th century from banks and insurance companies focused on selling their products.

The 60s and 70s was the birth of financial planning as we know it today. Modern financial planning was first established in 1969 with the International Association for Financial Planning. This was where the groundwork was laid for CFP’s today. The College for Financial Planning was founded in 1971 bringing to the world the first Certified Financial Planners in 1973 providing comprehensive financial planning. The standardized credential of CFP was significant, because those practicing financial planning must meet rigorous education, examination, experience, and ethical standards.

The 80s and 90s were a turning point for the growth of this industry. Mutual funds, 401k plans, other investments, and the need for regulation and standardization demanded more professionals in the industry. The Certified Financial Planner Board (CFP Board) was established in 1985 to mange the certification process and provide an ethical code and standard for Certified Financial Planners.

There has been a shift in the industry from selling products to selling advice. Advisory, fee-based relationships became increasingly in demand, as personal finances are close to the personal lives of the clients. The fee structure effectively integrates the reward system of the client and investor to be aligned. The advisor became incentivized by the client’s portfolio performing well rather than by trades and transactions. This allowed advisors to begin making decisions that had the client’s best interest in mind.

The 21^st century brought incredible advancements in technology that transformed financial planning services. Financial Planning has been integrated with artificial intelligence and data analytics, equipping financial planners to offer more personalized and precise advice. Comprehensive financial plans today offer clients plans that consider many factors, including risk tolerance, life goals, and market conditions.

Financial planning is likely to continue evolving and providing more detailed and in-depth projections for clients. Holistic financial planning considers retirement planning, investment management, estate planning, tax planning, and more.

The history of financial planning has grown over many years to meet the diverse needs of clients. The foundation of financial planning is adhering to ethical standards and professional excellence. The financial planning model today emphasizes a genuine relationship that offers personalized guidance for that client’s needs, challenges, and goals.

Matt’s Corner

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The post How Financial Planning Has Evolved appeared first on New Century Investments.

Introduction

Some choose to rent for the extent of their life while others are sold on homeownership. Is there truly one that wins? This decision is a gray area of life, beckoning us to weigh the costs and come to a decision that aligns with our finances, values, and lifestyle.

Renters POV

• Renters typically have more financial flexibility in the short term, due to the lower upfront cost compared to a down payment for a home. The average rental rate in the US is $1,536 a month compared to a median down payment of $34,248 or average of 14.4%.
• Renters have zero property taxes and maintenance expenses. This is convenient to have a landlord or maintenance staff prepared at your beck and call to replace your refrigerator or fix the garbage disposal – a luxury homeowners’ do not typically have without a much higher cost.
• Renting also has the advantage of lease terms. Renters typically do not feel as tied down to a geographic location compared to homeowners. This is beneficial for people who have travel goals or a lifestyle that requires you to move frequently.
• Renting typically lends itself to predictable monthly expenses. Homeowners have more unexpected costs that surface because they are responsible for the upkeep of their home.
• Renters have less responsibility regarding their place of residence, when compared to homeowners. The rental property is responsible for the upkeep, requiring renters to merely maintain and notify of any issues with their apartment. Homeowners carry this extra burden of responsibility to manage their homes.

Homeowners POV

• Owning a home can create more room to save for retirement, home improvements, travel, and other goals you may have. Once you own your home you have more margin in your budget for other things you want to prioritize.
• Owning a home creates more opportunity to build community because neighborhoods tend to have the same people who live there for extended periods of time. This is shown to benefit children as well, because their home is a place of consistency and stability.
• Rental rates have increased dramatically and are typically more volatile than mortgage rates. This is something to consider in determining if homeownership is right for you.
• Decreased tax burdens are prevalent in homeownership, because you will not receive tax breaks for renting. The IRS offers tax breaks to homeowners specifically, creating a window of opportunity to experience tax relief.
• Owning a home means that you may build equity. Every mortgage payment adds to your home’s value, creating the opportunity to tap into that equity if you need cash. Owned properties can also be rented out later, becoming a greater investment. Homes also increase in value over time, meaning you may be able to profit from selling your home.
• Homeownership also allows for creative freedom. There is a sense of pride in making all the decisions regarding your home. It is truly yours. You get to decide the paint on the walls, the décor, the landscaping, additions, and all the little details in between.
• Homes can be more affordable when purchased outside of populated cities. We have more freedom than ever to work remotely or hybrid, allowing workers to extend their place of dwelling beyond city limits.

There are so many factors to consider when making this decision. Keeping up to date with the renters and housing markets, and being aware of the advantages and disadvantages, can help your home truly be sweet.

Matt’s Corner

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Budgeting is a tool created to improve how you manage your finances, and to be a guide leading you closer to reaching your financial goals. Budgeting consists of having a system to measure your income and expenses, setting goals, considering what are your needs and wants, and knowing the difference between fixed and variable expenses. The process of budgeting is not black and white, but completely individualized. Depending on your unique circumstance, each budgeting strategy could be tweaked and customized to what serves you best. Many philosophies and strategies have been developed over time that all strive to bring peace and knowledge to the state of your finances.

To start out, the 50/20/30 budget is a very common budgeting strategy that consists of allocating a specific amount of your income to your needs, savings, and wants. The strategy goes with specific numbers, but according to your situation, these numbers can always be adjusted. It is recommended to spend 50% of your income toward your needs, including items such as housing, food, and insurance. Then, 20% of your income should go towards a savings account, whether that is for a future home, emergency fund, retirement, or a college savings account. 30% of your income is recommended to go towards your wants, such as dining out, art or cooking classes, and traveling. This budget is quite simple, but still requires that you know on average how much money you are bringing in every month, and how much is going out, to adjust in terms of the budget.

The next method is called the “Pay Yourself First” strategy. This budgeting strategy might be helpful if you feel very overwhelmed by your financial situation and do not want to get too wrapped up in nitty gritty details. This method follows the principle that the first “bill” you pay every month should go towards your savings account. After you have paid yourself, then you should pay your bills, and whatever is left over is free to be spent as you please. It can be so easy to feel guilty for every purchase you make that is not going towards a need or savings, especially in the early stages of building your portfolio. It is important to save and pay your bills, but it is also important to live your life and do things or have things that you love. Budgeting can be a tool to help you enjoy those things even more when you know you are taking care of your future self.

The Zero-Based Budget is the most involved and detail oriented of all the budgeting strategies. This strategy consists of meticulously tracking every dollar coming in and assigning it to a specific expense, leaving you with a balance of $0. This plan can be helpful in developing a sense of intention in how you spend your money. Every dollar means something and has a specific purpose in your life. This method also requires that you plan out every expense for that upcoming month, creating strong boundaries around impulse purchases.

The envelope budget is where you place specific amounts of cash into envelopes that each represent a category. Once the envelope is empty, you can no longer spend any more in that category for the month. This method is originally done with cash but can also be done electronically in different budgeting apps or a spreadsheet that you created. It is important to know how much money that you spend in each category to ensure that the envelope is sufficient for the month. There is research that reveals spending with physical cash is often more challenging than swiping a card or paying online. This budgeting strategy creates that effect, leading to thoughtful purchases.

Modern budgeting strategies are typically automated through budgeting apps, auto-pay, and financial planning software that are linked to bank accounts. These services simplify budgeting and could be super helpful if you are looking to reduce the amount of work you must do to keep an accurate report of your finances.

You might be a finance nerd and create a complicated spreadsheet meticulously tracking all your accounts. Maybe you are a new parent just trying to make it through the day, and you use an automated budgeting app to keep track of your finances. Maybe you’re a college student just learning how to create spreadsheets in Excel. The art of budgeting is crafting it to your specific needs, serving anyone in their season of life, and helping all reach their financial goals.

Matt’s Corner

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Research from 2023 concluded that 36% of Americans earning $200k or more and 48% earning $100k or more are living paycheck to paycheck. This begs the question of why the supposed “rich” are experiencing this level of financial strain as well as the general population? A paycheck-to-paycheck lifestyle means that you only have enough income to cover your essential costs, such as housing, utilities, groceries, insurance, healthcare, taxes, and clothing. This lifestyle makes it impossible for a family to save or invest, leaving many feeling a constant strain on their finances and ultimately on their livelihoods.

Lifestyle inflation, also known as lifestyle creep, is a phenomenon explaining that as your income increases over time, so does your spending. When you get a raise, instead of putting that money into a savings account or emergency fund, you spend it on a vacation or a high-end wardrobe. Lifestyle inflation seems to happen unconsciously based on the assumption that increased income always translates to a higher standard of living. This experience is natural, but if not managed can lead you far away from where you want to be and what your financial goals are. A sign that lifestyle creep may be present in your life is a stagnant savings account, due to limited ability to save. You may notice decreased financial flexibility when emergency expenses, such as auto maintenance or medical expenses, inevitably arise. When you are constantly funneling your finances towards maintaining a higher lifestyle, you lose vision of your financial goals, because you are trapped trying to make ends meet. If lifestyle creep is prevalent, you probably do not keep a budget and you have a general sense that you are out of control of your finances. The majority believe that the reasons for living paycheck to paycheck include high monthly bills, lack of budgeting and planning, unexpected emergencies, and increased cost of living. Genuine growth is possible if we begin to see these factors as not something that is happening to us, but as something we can change.

What could it look like to combat and prevent lifestyle inflation? I think a great first step is creating a simple budget. Visualizing your financial situation through a budget can be very powerful in seeing what needs to change, what you value, and how you can move forward to financial stability. Budgeting is effective in managing debt accumulation, saving for future goals, and building a cushion for unexpected events of life. Another step towards living within your means is automating savings. Technology allows you to set up automatic transfers into your savings or investment accounts. This is a proactive step you can take that makes your life easier. Another step you can take is living below your means. We must actively choose to not upgrade our lifestyle with every pay increase. Setting financial goals is another proactive step to take, helping you to align your long-term dreams with your current spending and saving patterns. These goals will serve as a reminder for why you are living within your means, saving money, and integrating financial disciplines into your life. Lastly, mindful spending is a great practice to learn for financial peace. Mindful spending consists of intentionally considering every purchase and comparing them to your financial goals.

Lifestyle creep does not only happen to those making six figures, but it can happen to anyone. Financial health requires sacrifice, whether that looks like cutting back on your coffee budget or moving to a less expensive neighborhood. But no matter who you are or what you do, it is not about how much money you make that deems you successful, but how you manage what you are entrusted with.

Matt’s Corner

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