A recent TD Ameritrade survey showed that most investors have some homework to do
To kick off Financial Literacy Month, TD Ameritrade is releasing an “Investor’s Manual” to help readers understand financial topics
The manual includes something for everybody—from beginning investors and retirement savers to active traders and risk-takers
April is National Financial Literacy Month, which means it’s a good time to ask: do you consider yourself financially “literate?” It’s an important consideration for investors, because markets are constantly changing, and everyone’s financial plans can use a thorough spring cleaning and review to see what’s working and what isn’t.
Investor education never really ends. So for Financial Literacy Month 2019, TD Ameritrade is launching an Investor’s Manual to help readers better understand financial topics. Whether you’re just getting started with investing or want to explore it all, the TD Ameritrade Investor’s Manual is your guide.
According to a recent TD Ameritrade survey, investors have some homework to do. For example, among survey respondents, only one in five Americans knew the 401(k) contribution limit for 2019 (it’s $19,000). Only a third of those surveyed knew how much they were paying in fees for their 401(k) accounts, and just 35% knew this year’s contribution limit for traditional IRAs ($6,000).
To be sure, money managers and other market professionals
with decades of experience might tell you that they’re still learning about
markets and investing, and that nobody really has all the answers. Like we
said, investor education never really ends.
Knowledge is power
With that in mind, here are a few key questions to jump-start
our financial literacy exploration:
More from the TD Ameritrade Financial Literacy Survey
Here are a few more figures worth noting from our survey of about 1,000 U.S. adults with at least $10,000 in investable assets (conducted by the Harris Poll in mid-February 2019):
52% were aware they can contribute to both 401(k) and traditional IRA accounts (11% said didn’t think this was possible; 21% said they didn’t know).
57% understood that “maxing out” their 401(k)s for the year means meeting the annual IRS contribution limit.
57% considered a company match for their 401(k) accounts as “free money.”
40% mistakenly believed that you need to be in a certain tax bracket to qualify for contributing to a traditional IRA.
Only 38% were aware of the required minimum distributions for IRAs, while just 22% knew the correct contribution deadline period for their IRAs (for 2018, it’s January 1 to April 15).
- Are you on the right track with your savings, investing, and retirement planning?What kinds of investments can you make, and are those investments properly diversified?How do you create a “well-balanced” portfolio?What’s your tolerance for risk, and do your investments reflect that risk tolerance?Are there gaps in your investment knowledge, and if so, do you know where to turn to fill those gaps in your education?If you have children, are you teaching them the importance of financial literacy and encouraging them to spend and save wisely?
By devoting time to sit down, thoroughly discuss these questions with your loved ones, and seek guidance, you can make progress toward finding answers and pursuing your targets.
Here are brief summaries of topics we cover in our Investor’s Manual:
For beginning investors: Stocks, bonds, ETFs, and mutual funds
- Buying a share of stock confers a piece of ownership in a company, meaning an investor holds a claim on any future earnings of the company (and would also be subject to any company losses).Bonds tend to be viewed as a more stable and predictable form of investing compared to stocks. U.S. Treasuries, for example, may help ride out the greater volatility sometimes seen in individual stocks or the broader stock market.Exchange-traded funds (ETFs), which are listed on exchanges and can be traded like a stock, allow investors to buy or sell shares in the collective performance of an entire stock or bond portfolio or index as a single security. Risks of trading ETFs are similar to those of stocks.With mutual funds, investors pool assets under the purview of professional money managers who, depending on the type of fund, purchase stocks, bonds, and other securities. Mutual fund investors often include individuals’ 401(k) plans and Individual Retirement Accounts (IRAs).
For advanced investors: Options, futures, and forex
- Options are contracts that grant the owner (or holder) the right to buy or sell an underlying asset. Options can be used to speculate on the direction of the price of a stock or other security, or to bet against the direction of a market.Futures contracts are often based on commodities such as crude oil, gold, or soybeans. Futures can offer insights on supply and demand in certain markets or signs of economic strength or weakness.Like futures, foreign exchange (forex) or currency markets tend to carry more risk and volatility and should be approached with caution. Forex rates fluctuate frequently based on global interest rates, geopolitical events, and other factors.
For the risk-takers: Cryptocurrencies
- High-risk cryptocurrencies or crypto “tokens” may not be the right addition for a well-balanced or diversified portfolio. But this relatively new asset could be worth keeping an eye on. Bitcoin and many other cryptocurrencies are based on blockchain technology, a decentralized and distributed transactions ledger that (under most circumstances) can’t be tampered with.
Saving for retirement: IRAs, 401(k)
- A 401(k) is a defined-contribution plan that allows employees to make contributions from their paychecks before tax. The contributions go into a 401(k) account for each employee; the employee is often able to choose investments based on options provided under the plan. Employers may offer a matching contribution, usually as a percentage of the contribution the employee makes.The IRA is a popular retirement savings vehicle for investors who lack an employer-sponsored 401(k). IRAs allow tax-deferred growth on funds invested and, depending on personal circumstances, contributions may be tax deductible. Withdrawals from traditional IRAs are taxed at current rates.
Financial knowledge is indeed powerful stuff, and although there are bound to be a few gaps in anyone’s financial literacy, the good news is that TD Ameritrade has a wide range of investing resources to help.
- Immersive curriculum. Our industry professionals have designed and developed free online courses to help our clients become more informed investors. These in-depth courses are accessible to TD Ameritrade clients via tdameritrade.com and the thinkorswim® trading platform. They feature lesson plans, quizzes, and even final exams.Articles and videos. Clients can search our catalog of more than 200 instructional videos, publications, and tutorials, covering investing basics to advanced strategies and pretty much everything in between.Webcasts. TD Ameritrade offers weekly online webcasts for investors of all experience levels. Webcasts allow attendees to interact via live chat with Education Coaches and fellow investors. Can’t make the live events? Most webcasts are available to watch on demand.In-person events. An online curriculum can be perfect for those who want to self-learn and self-pace, but some people prefer the live experience. In-person events offer the opportunity to learn, interact, and network with industry pros and Education Coaches as well as fellow investors. Check our schedule and join us in a city near you.Streaming video. TD Ameritrade Network, features live programming throughout the trading day, plus a selection of on-demand content. This programming doesn’t just bring you the news—the knowledgeable professionals help interpret it in an effort to help you understand how to apply what’s going on in the markets to your strategies.
TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc. are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Media Productions Company is not a financial adviser, registered investment advisor, or broker-dealer.
April 3, 2019
Financial Literacy Month Series: What Does Financial Literacy Mean to You?
How much do you know about the world of finances? If your answer leaves you wanting more, then join us for a discussion about the importance of financial literacy and what it means for you and your family.
Instructor – Ben Watson
April 10, 2019
Financial Literacy Month Series: How to Get Younger Generations Involved
Time is the greatest gift you can give younger investors. Learn how to get them involved with finances at an early age, and take away some ideas for starting those important conversations about financial topics.
Instructor – Ben Watson
April 17, 2019
Financial Literacy Month Series: Turning Goals into Action
Planning and having goals is all well and good, but if you just stop at the planning stage, you’re only halfway there. Learn how to take your investing from goals to action.
Instructor – Ben Watson