Consumer Union Certificates
Learn How to Invest Well

Just keeping money in a straightforward savings account often does not give much of a return on your investment, and some savings accounts at traditional banks don’t pay any interest unless the account has a high minimum balance.

How do certificates of deposit work? It’s simple really. You choose the amount of time you want to lock in, let’s say six-months in this example. You have an extra $1,000.00. You agree to keep that money in the NLRB Financial Consumer Union for six months, and in return, the NLRB Financial Consumer Union offers you a higher interest rate.

Certificates are often referred to as CDs (certificate of deposits), non-liquid accounts (NLA), or time deposits. Certificates are completely safe, they are insured, and if you do need the money if you are in a pinch, you always get your principle investment back. Always.

They Are Flexible - Did you know you can choose a maturity date for your certificate from 3 months to 5 years? The longer the period, the higher the return.

BIG CDs - Also called “Jumbo Certificates” these pay the best when you invest $25,000 or more.

For more information, review what SEC has to say about High Yield CDs, see our Regular Certificates or IRA options, and also check out what the University of Oklahoma researched and reported.

Managed Investments

What do you do if you don't have the ability or capital to create a portfolio of your own? Just because you don't have extra money to invest right now, it is wise to learn the basics of smart investing so you can make better choices as a consumer. It is also a myth to believe that you need a lot of money to begin investing. Realize that any amount of money you gain is money you did not have before.

Learning about investments and finance is a good idea, but if you know what you want from doing so, the effort will result in a better outcome. Sure, everyone wants to be rich. However, no one wants to wait for it or take the necessary measures to ensure they are on the path to wealth. How do you get on that path? First, you have a rough idea of where you want to be in five years. Second, you dedicate some time to finding out how to get there and then prioritize those goals.

How much time do you want to spend on investing? Depending on your goals, this will vary. Do you even have the time? Are you investing for retirement? Your child's college tuition? So you can buy a house? These goals have a longer time frame to achieve and could require different financial tools. Maybe your time frame is much smaller, and you just want to save up some money for a nice vacation? All of these are viable options, but each requires different financial tools.

Any investor can buy stocks or bonds through a broker. There are two types of brokers: "full service" and "discount." With discount brokers, you won't get any advice or recommendations. Online brokers like Ameritrade or E*TRADE are perfect examples of this. Full-service brokers offer advice, but typically only deal with higher net worth clients, and sometimes even have a minimum deposit. Maybe you will need a full-service broker someday, but a discount broker is often sufficient for most investors.

You can also purchase stock directly from companies, which is called a direct stock purchase plan (DSPP). Most often, new investors will buy stocks through a mutual fund that has a bunch of managers. There are plenty of great things about a mutual fund. However, always be aware of the fees. Even a 2% fee over the span of 10 years can eat up some of your expected returns. With that said, selecting the right managed fund for your needs makes things much easier than managing a portfolio yourself.

Unfortunately, nearly every kind of investment product has some fee or commission attached to it. In fact, every trade (buy and sell) will have a fee. No matter what you do, you will always pay some commission, so get used to it. Even if you choose to have your money managed, a "management expense ratio" (MER) will be an annual fee based on the size of the investment.

Mutual funds are firms that buy and manage a giant portfolio of stocks in different sectors, then sell units/shares to the public. There are also "load" and "no-load" funds. If a fund has a "back-end" load, it means there is a fee charge when you redeem. A "front-end" is the opposite and is charged up front. If it is a "no-load" fund, then you can buy or redeem the units/shares at any time without paying a commission. This necessary information should help you research and select the fund management company for your needs.

The two most traditional ways that individual investors have used for passive investing are mutual funds and index funds. Both have fees, stipulations, and fixed requirements. Based on the prioritization of your goals and personal objectives you will need to figure out what works best for your situation.

A mutual fund is an investment company that pools money from several investors. The mutual fund uses the combined capital to invest in a diverse portfolio of stocks, bonds, or other assets and then sells shares to investors. Each share represents ownership in the portfolio and the investment gains generated. Each mutual fund manager has a different style and strategy. Minus the fund fees, each investor gets their share of the profits made.

There are thousands of mutual funds. An investor can create their portfolio by selecting a bond fund and a separate stock fund. Each fund will have its mix of bonds, stocks, and assets. There are short term, long term, target date, and even funds that invest in other funds. There is no shortage of available mutual fund managers and places that you can invest in. Plus, there are no rules that prevent you from investing in more than one.

An index fund is focused on a particular index. The most popular and widely referenced indexes are the S&P 500 and the Dow Jones. The S&P is a collection of 500 stocks selected by Standard and Poor's, and the Dow Jones index is essentially the same concept. Investing in an index fund is just mirroring the gains from the particular index.
Thus, if you buy an S&P index fund, it will contain the stocks in the S&P Index in the same proportions as they exist in the market. With that said, an index fund can also be constructed from a particular sector, like industrials, technology, health care, or even green initiatives. Now that you understand how technical and fundamental analysis works, you can learn more about those tools to make decisions about when to invest.
Of course, you may be thinking that index funds and mutual funds seem like the same thing. The difference is mutual funds are actively managed, but index funds are not. An active manager will be buying and selling stocks to capture gains and beat their established benchmark. An index fund will just match the index proportions. If you are an active investor, you can buy ETFs that match indexes as well.
An ETF is just a variety of stocks combined and given a ticker of its own. DIA is just one example of an ETF that has equal proportions of the Dow Jones Industrial Average. The "Standard and Poor's Depository Receipts" (SDPR) has plenty of ETF "bundles" that track specific sectors or indexes. ETFs are not great long-term investments but do serve as temporary hedges and extra juice.
There are debates if a mutual fund or an index fund is "better." Each person has individual goals and different amounts of capital, so there is no "right" way. Some say that index funds can outperform an actively managed fund over the long run because of dividends and lower fees. Many people criticize "expense ratio" mutual funds for taking a share of the profits as compensation. Thus, the more money you have invested, the bigger that small percentage is.

Advocates of index funds tout the fact that there are no expertise fees, so there is no need for any sales commission. The money you invest is the money you invest. Since there is less trading involved, and there is almost no maintenance, the expense ratio is tiny. Plus, every time you sell a stock and capture gains, you must pay a "capital gains tax." If a mutual fund is constantly trading, then you might pay more capital gains taxes than you would with an index fund.

Bonuses depend on the manager beating their benchmark, and pundits claim that managed funds will usually be more concerned with short-term than long-term performance. Fund managers will often "paint the tape" meaning they will do "window dressing" at the end of each quarter by dumping the losers and buying the winners that their fund benchmarks against. If there is a particular "hot stock" and they missed the rally, they will often buy it to make it appear that they are more successful than they are.

Filling the portfolio with a bunch of new positions each quarter might seem insignificant at first glance. The buying and selling of stocks in a portfolio are called a churn, and there are trading fees and capital gains involved with the activity. A high "churn rate" can have a detrimental impact on your overall returns. Remember the compounding calculator in the beginning? Trading too much does not allow compounding to work, which will kill your expected long-term returns.

Active investing is not for everyone and requires a considerable amount of time and knowledge. Passive investing through managed funds is a great alternative for the average person who wants to create long-term wealth without much effort. However, before committing to a fund, research the "gotchas" that I mentioned. Depending on your preferences and personal goals some resources will work better than others. With full knowledge of what you expect, it will be quite easy to ask the right questions before committing your capital.

If you are someone who has discretionary income to invest and does not want to manage your money, this should give you some ideas about how to get started. Active management is not easy; it requires diligence, experience, and knowledge to do. There is no shame in using a managed fund until you gain some knowledge and expertise. Just make sure to do the necessary research before committing to anything.

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