5. Economic reality?

Individual investors gain most of the benefits of diversification when they own between 20 and 60 stocks that are collectively owned by their employer. According to companies like SoFi, investors who hold a greater percentage of their portfolios in mutual funds tend to have more diversified portfolios and thus benefit from the tax benefit of combining their individual and employer accounts.

Tax Benefits for Individual Investors

Individual investors in a 401(k) retirement plan get the greatest tax benefits from diversification. With an account balance greater than $17,500, you qualify for a maximum federal tax deduction equal to 30% of your account balance. The higher the balance, the bigger the benefit, but lower-wealth individual investors will also receive a deduction.

The government tax break for an individual investor in a 401(k) is equal to 30% of the account balance. This includes contributions, earnings and retirement account benefits, along with capital gains. For example, if your 401(k) balance was $10,000, you would get a $2,000 deduction if your contributions were 50% of the balance and you earned a 5% return.

While these benefits can be substantial, the fact remains that these accounts may not be for you if you’re new to the investing game. While the benefits can be useful and powerful, you still have to understand that they are not the sole reason to invest in the stock market.

3) Beware of low fees. The “low fee” label is very important in the stock market. What does that mean exactly? In essence, when a broker pays you a percentage of profits, that fee represents an opportunity to get more money out of your portfolio every year. The more you pay the broker for commissions, the less interest you’ll pay on your money each year.

One of the best things that you can do to avoid fees is to trade only stocks that pay competitive, low commissions. A quick look at the financial statements of companies will tell you that low fees have a big impact on the bottom line.

Another factor that helps brokerages attract more clients is how long they keep their doors open for new business. If your broker does not have a consistent, good track record of growing businesses or maintaining their door and phone lines, it will lose you as a customer.

The Best Online Brokerages for a Low Fee Return on Investment

There are a few online brokers that have stellar returns on investment, but they aren’t the cheapest. Here’s a breakdown of some of the cheapest brokerages to work with and the returns that they provide. Best Online Brokerages for Low Fees The top online brokers on this list all offer great pricing for their services. And because these brokerage companies focus on their customers, they offer some very generous deals. For example, TD Ameritrade has the best online discount on the site. It offers a 2.75% discount on all trades, including stock, ETFs, mutual funds and more. You get this discount when you open an account, which is very helpful if you don’t have much

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5 Responses to 5. Economic reality?

  1. Jonathan says:

    Student loans are a great way to achieve an education, but our education on students loans is far from reality.

    If we painted the portrait of what $80k in student debt means for a graduate then maybe the number one option for getting through school wouldn’t be to get a loan. People might resort to getting a job to pay their way through school and take 9 credits instead of 15. Or find a school that values providing an education at a reasonable price. This kind of market pressure would ultimately reduce the price of college in every State.

    Unfortunately there are a number of reasons why this doesn’t take place. 1) College in our society is as much about “finding yourself” as it is getting an education. It is hard to put a price on living away from your parents for the first time, making mistakes that grow you stronger, or attending a football game in the student section. Who wants to miss out on that! Debt be damned! 2) Parents don’t want to tell their children that the dream of an education is not possible given there financial situation. The thought that a degree will pay for itself, and using loans to get there, is still a part of our society. One that, post-2007 is fading fast, but I’d bet is still ingrained in a lot of families. 3) Graduating High School students that have a 4 year, post high school plan, are glorified. Anyone who decides to take a different approach are looked at as outcasts. Your going to community college? Your going to a technical school? You need to stay home and work a year to save money for college? Each of those are a tough sell in our society. What kid wants to tell there friends that they can’t be a part of the glorified club of college because they don’t have enough money?!

    It is a tough bullet to bite. But I do think education will help. Putting $80k into real terms that an 18 year old can understand. Providing them alternative options. Help them make the right decision.

  2. Sam Adams says:

    Although many jobs today require higher education beyond secondary school, I would venture to guess that the ratio of the number of jobs that require higher education to the number of students with a higher education diploma has decreased (# jobs that require diploma/# students with diploma). Two of my siblings did not use their undergraduate education (majors = economics for one and sociology for the other), and the third doesn’t even use his secondary education (major = history). One is in the “1%,” another is slightly better off than the national average, and the third is slightly below the national average. They are where they are in life because of their own decisions post-college. Two of my three siblings did, however, pick up some nice addictions to narcotics while in college (everybody has to live the Greek life to have lived!), a habit which has affected both of them, one especially. Not everybody is like this, sure, but there are multitudes of people, who had their educations subsidized to no end.

    Why do I bring this up? Sure, it’s anecdotal, but I think it’s indicative of a larger trend. Am I arguing whether somebody should or shouldn’t go to college? Absolutely not. I will have spent more time pursuing higher level degrees than probably 99% of people out there. I am really making an argument about supply and demand of college-educated workers: the latter has increased some, but the former has increased immensely, thus “cheapening” the value of a diploma. The decrease in the perceived value of diplomas is not only a function of the quantity supplied and demanded but their quality as well. Although I argue that the quality of a generic four-year college diploma has decreased, I admit that I base that assertion off intuition only.

    Why are there so many people going to college now in purely economic terms? Could it have something to do with the fact that we (I am a student) are given outrageously low interest loans on our federally subsidized debt? What about the “grace period,” when not a penny needs to be paid until the student has been out of school for six months? And if we stay in school pursuing more degrees? Then the government keeps paying our interest payments. Everybody (even in this economy) is going to college, because it is underpriced. Were it not so, then private loans wouldn’t offer higher interest rates (substantially higher) than government loans. Nor would students be able to put all payments aside for as long as they were considered enrolled for the government’s minimum number of credit hours.

    There are many problems in higher education, and (as a former student of economics) I believe that a major one is the subsidization of it. If a portion of the cost is rendered free by subsidization, then perhaps we will value it less, for we ourselves will not have to pay for it. Even an immature 17/18-year-old can show some of the same maturity as a grown adult, if he or she “owns” his or her education by paying for it his or herself. Lastly, let me just say that I am not arguing against any subsidization of higher education whatsoever (I am no expert on the subject, so I am not comfortable making such a grandiose argument), but in its current bloated form, subsidization is making the problem worse: limitless demand for college, much of which is paid for by the government, little of which is valued by its students: its customers.

  3. Matt says:

    Unfortunately American culture regards debt as a tool for all aspects of life, there are many ways to get through college without using debt. When I first started college I paid for the first 2 years in cash that I had saved working hard in the summer time, in addition I was awarded some small scholarships as well to help me get through. When I attended the private college was when the tone changed and debt was sold in the admissions office over and over again. I was never talked to about what marketable skills I hoped to gain or what career I was looking for, rather the end result was always the piece of paper after senior year. The 1 in 2 new graduates being unemployed statistic does not surprise me because in the business of college the diploma is the goal not the career. I didn’t even start thinking about what I wanted to do with my life until 6 months before graduation because I thought people would be lining up to hire me, at least this was what I was being lead to belive. I’ll tell you, it was a 2-3 year tough lesson to learn that no one really cared about how much I had to pay back for college, what I thought I knew, or how much education I had, they wanted someone to show up and work hard. I am still paying my dues but fortunately have moved up and have been able to at least pay my loans and start to save money. One of the best things I ever did was unlearn all of the leveraging debt crap they tought in business school and refocus on a better way of managing money. I am now a huge believer in the cash system as tought by Dave Ramsey, it has helped me and my family get out of debt and is beginning to get us out from under about 60K total between my wife and I in student loan debt. I feel lucky, I am certain there are many of my generation who owe much more and are having a tough time with employment in this economy. This much is for certain, if we all continue to use debt as a “tool” to over finance college and continue the course through life I fear we are in for a rude awakening in the not too distant future.

  4. Justin says:

    Perhaps the declining “economic value” of a college diploma is leading us towards an educational structure that was more prevalent in the early and middle part of the 20th century; when a much smaller percentage of high school students went directly into college, and instead adopted a trade or took more focused “technical” training. Speaking from personal experience and the experiences of many friends of mine, many students are leaving college with a mediocre education, average GPA, little or no work experience, and have no chance of competing in the present day market place. In my opinion, the college education has been commoditized in that everyone gets one, regardless of the quality. In the end, this results in most employers having their pick of only the best and brightest students, while the rest get pushed into unemployment, living with their parents, and suffering through mountains of undergraduate debt.

    In a strange twist of fate, I know many people that I went to high school with who decided not to pursue college. Those individuals are actually doing much better professionally and financially than other friends that took the college route and traded four years and thousands of dollars of debt for an education that no employer seems interested in.

    Maybe all this means that expectations for high school students should be adjusted so that pursuit of a college education is no longer a given. Especially when a potential college student has a very unclear picture of what they want to accomplish over the next four years (much less the next ten).

    I’m not saying that everyone shouldn’t have the right to give college and the subsequent job market a shot. I was once one of those average high school students that past generations would have likely not seen as “college material”. Instead, I’m suggesting that more thought needs to go into the pursuit of a college education so time and money aren’t wasted when there is no guarantee that a better job and a better life waits on the other side of undergraduate study.

  5. Michael says:

    I graduated High School in 2008 with a sub-3 GPA. I hated just about every minute of it and I succumb to almost every distraction in the book. Like many others my age I was (and still am) lost and plan-less in regards to my future. I got a decent paying job at a grocery store the fall after graduation. I started attending community college. A couple months in I found myself testing out of one course, and dropping the remaining four. $3000 down the drain. I’ve been working random retail related jobs ever since.
    When I dwell on the current situation, I tend to make comparisons among my High School friends- three in particular. One is a fifth year senior attending Virginia Tech. He is in pursuit of a degree in mechanical engineering degree, but purportedly hates it and wants to work in the finance field after graduation. The second friend, who is naturally gifted in AutoCad, won a national drafting competition and began studying Nuclear engineering at VCU. He has since been strongly influenced by the world of drugs, and is, or was, heading steeply downhill. We have been out of contact for over a year. The third of these three friends has, like me, not truly attended college. He is an excellent guitarist and has for years had an obvious passion for music. He has released several albums since our 08 graduation to no wild avail. Last month he drove cross-country to live in LA in the hopes of making a name for himself.
    These examples are not meant to say college is a total waste. There are days when I look at my situation and say “Well, shit. I have no money, no plan, and four years of experience that would barely get me a minimum wage job. Why didn’t/don’t I just go to college? So what if I’m in debt, I’d at least have a piece of paper stating my worth to people who don’t know any better. Not to mention, a plethora of crazy friends and memories.”
    It’s when I put that thought on paper that I realize, that’s the problem! College has simply been, in recent generations, grossly misused. It’s become disenfranchised by marketing, government subsidies, and a steadily shrinking workforce and economy. It’s become a tool that society claims you must have in order to succeed (a degree will earn you x amount more $ than your “uneducated” classmates). Since when did it all become about money? When did it become about security? “Buy this degree and you’ll at least have something to fall back on” I get sick to my stomach when adults (people my parents age) come up to me and say “You should go to school, just go to community college. Just get a business degree.” A polite “Ok, yes ma’am” is about all I can muster without my brain exploding all over her freshly crafted Pumpkin Spice Latte. Though, it doesn’t take long for me to refocus on the problem at hand “Why am I still working at Starbucks?”
    Thus begs the question, what can I/we do? Well luckily I’ve formulated a 5-point plan… ba-dum-TSH!!
    1. Have patience- In a culture of instant gratification, it’s about the only thing you can truly fall back on.
    2. Stay informed (VOTE)- Not just for President, keep informed locally, it’s where the change really happens.
    3. Challenge yourself- break bad habits, start good ones
    4. Donate- don’t let the installment of class warfare stop us from being great.
    5. Stay calm- there will always be stubborn people, people will always dupe you once in a while, don’t get angry and enable them.

    Talk to Drew would be on this list, but I assume most of you have already done so. Thanks for the read!

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