Welcome to our investing news roundup. Here we’ll bring you investing and retirement news from the past week or so. Bookmark this page to read the latest each week.
Lyft to go public this week
With many highly anticipated initial public offerings slated for the year, 2019 has been dubbed “the year of the IPO” by some folks on Wall Street. Lyft is expected to debut this week, while Pinterest has ramped up plans to go public in mid-April. Postmates, Uber and Slack are among other new listings expected in coming months. Last week, investors got to try Levi’s on for size — and the stock jumped 32% its first day of trading (this go-around, anyway — Levi’s was a publicly traded company back in the 1970s and 1980s). We’ve warned previously about some risks of investing in IPOs — they aren’t all runaway successes. But if you’re undeterred and hope to make a quick buck on these newly listed stocks, consider some tips we’ve compiled about active investing.
Yield curve inverts, making markets nervous
While hardly an earthquake, something significant rattled markets last week. For the first time since 2007, a closely watched measure of short- and long-term Treasury yields flashed a major warning sign on Friday. The so-called yield curve — in this case measuring the difference between 3-month and 10-year U.S. Treasurys — inverted, meaning the yield on long-term bonds was lower than short-term bonds. This is unusual, and this type of event has preceded every recession since 1975. According to one measure from the New York Federal Reserve, the probability of a U.S. recession by February 2020 is about 25%. Investors will get an updated read on how the U.S. economy grew in the fourth quarter this week, but there also are signs of a broader economic slowdown happening globally. While a recession isn’t likely imminent, we’ve compiled some tips about how to prepare for the next one now.
It’s hip to be socially responsible
What do NerdWallet and Leonardo DiCaprio have in common? Aside from our dashing good looks (thank you, by the way), we’re both keen on ways to match do-gooders with companies that will help them achieve their goals. In case you missed it, our own Arielle O’Shea was quoted in a CNBC story about how DiCaprio has signed on as an investor and advisor with Aspiration, an online bank that helps customers support socially responsible business practices. As O’Shea told CNBC: “Aspiration is really the only socially responsible bank on our list. We’d love to add more, but we haven’t found one that has that online-only, tech-forward approach.” Be it banking or investing, it’s easier than ever to align your dollars with your ideals. To get started, see our guide to socially responsible investing.
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March 18, 2019 ROUNDUP:
Tax time = tax scams
With less than a month until 2018 taxes are due, the IRS has been rolling out its annual list of the “dirty dozen” tax scams to watch out for this year. Making the list this year are some usual suspects, including internet phishing scams, phone scams and identity theft. But the IRS also has been highlighting some of “the-IRS-will-never-audit-me” scams that filers may perpetrate, either by themselves or at the hands of unscrupulous tax preparers. Such scams include improper claims for various business tax credits, inflating deductions or credits and falsifying income. Got questions about taxes this year? Check out our tax deductions guide and 20 popular breaks for 2019.
Investing in the opioid crisis ‘kingpin’
Johnson & Johnson stock has long been popular among investors thanks to a 56-year track record of delivering increasing annualized dividend payments. That steady income stream for investors, along with the company’s standing in the health care sector, means Johnson & Johnson is generally perceived to be less risky than some of the market’s other high flyers. So it may come as a surprise that an Oklahoma state official has dubbed the baby powder maker as the “kingpin” the fueled the U.S.’s opioid crisis by serving as a “top supplier, seller and lobbyist,” according to a report last week from Axios. Whether the focus on J&J is merited remains to be seen, but if this has you questioning what you’re invested in, you may want to brush up on socially responsible investing — or check out our roundup of 25 high-dividend stocks.
The future is micro
It’ll soon be easier to dive into the risky world of futures trading: CME Group plans to launch a small contract for placing bets on broad market indexes like the S&P 500. In May, the exchange is debuting a new “micro” contract that’s one-tenth the size of its existing “E-mini” stock-index contracts. Assuming 50% margin requirements, that means a trader only needs to put up about $700 to buy one micro E-mini contract, versus the $7,000 or so required for an E-mini contract (calculated as $50 multiplied by the current S&P level, or more than $140,000 currently). CME Group says futures trading has become more popular among active traders, with its non-institutional trading business jumping 27% in 2018 from the prior year. New to all this? Get the scoop on how to start trading futures.
10-year anniversary of the bull market
The U.S. stock market just celebrated the start of the current bull market. It’s been 10 years since the S&P 500 hit a truly devilish intraday low of 666.79 in March 2009, and the index has more than quadrupled since then. But it hasn’t always been a smooth ride, including the nearly 20% slump in late 2018 that almost sent the S&P 500 into a bear market. It’s anyone’s guess when the bull ultimately will become a bear, though 65% of institutional investors predict it’ll happen in the next 12 months, according to a recent survey conducted by Natixis. In the meantime, my colleagues and I compiled 10 lessons learned from the bull market’s historic run.
Gender diversity pays off
It’s women’s history month, which offers an opportunity to be reminded of many frustrating stats about women and money — from the pay gap to the biggest financial mistake women make. And while women still are outnumbered in corporate America (just 5% of companies in the S&P 500 are led by women), a recent BofA Merrill Lynch Global Research report suggests companies should reconsider. Companies that focused on gender diversity (be it on their board, in leadership or companywide) have consistently achieved higher returns on equity in subsequent years. If gender diversity is important to you when investing, learn more about socially responsible investing — or check out our picks of the best brokers for socially minded investors.
Millennials really like pot … stocks
My colleague Arielle O’Shea cautioned everyone not to believe the hype about millennials and money a while back, but here’s something this generation does like: marijuana stocks. Data from TD Ameritrade shows that for the first time in four months, millennial investors were net buyers of stocks in February (versus the general population that was selling), and they were buying three popular marijuana stocks: Aurora Cannabis, Canopy Growth and Cronos. While all three stocks are rallying year-to-date, the industry still faces challenges. Wall Street analysts aren’t yet sold on all of these stocks, but millennials remain bullish. “As legalization has taken place in Canada and at the state level in the U.S., it appears that millennial investors believe the secular trend will eventually make its way to the federal level, and they may be seeing this as an opportunity to invest at an early stage,” says Shawn Cruz, manager of trader strategy at TD Ameritrade. We caution investors about some of the pitfalls of this industry in our guide on how to buy marijuana stocks.
Zero-fee ETFs are coming
The brokerage industry finally has gone as low as it can go: zero. SoFi filed regulatory paperwork last week to introduce the first exchange-traded funds that won’t carry management fees. This move was inevitable, but it was perhaps a bit surprising that SoFi made the first splash, as household-name brokers have been battling over fees — both trade commissions and expense ratios — in recent years. There’s a catch, however. For now, SoFi plans to waive management fees until at least March 2020; then they’ll be a not-so-cheap 0.19%. By comparison, Schwab and BlackRock currently have ETFs with management fees as low as 0.03%, which comes to $3 a year for every $10,000 invested. Low (or no) fees are great, but make sure any new fund deserves its spot in your portfolio. Consult our picks of the best brokers for ETF trading.
Auto-enrollment in a 401(k) goes only so far
Companies have increasingly instituted automatic enrollment policies for 401(k) plans, meaning they withhold a certain percentage of employees’ pay to put into their retirement plans unless they opt out. And guess what? In many cases, employees subject to these policies often end up with more retirement income, according to data released last week by the Employee Benefit Research Institute. But don’t bust out the confetti just yet. The folks at Schwab Retirement Services caution that you shouldn’t rely on such defaults to achieve your retirement goals. “Defaults are a great place to start, but there is a bias that leads people to believe that if they are defaulted into something that it’s the right thing for them. And that might not necessarily always be the case,” Nathan Voris, managing director of business strategy, said on a recent episode of Schwab’s Financial Decoder podcast. Want to check your retirement readiness? Spend some time with our retirement calculator.
Investors like options
The S&P 500 rose 11% in January and February, one of its best starts to the year. But the options market also has been heating up. Average daily trading volume in options contracts is the second heaviest ever, at 19 million-plus year-to-date, just behind 2018’s full-year average, according to figures from the Options Clearing Corporation. And people aren’t just trading stock options — bond ETF options are hot this year, too. BlackRock’s iShares High-Yield Corporate Bond ETF (ticker HYG) has seen open interest in both calls and puts jump a whopping 50% this year, compared to the same period in 2018, according to figures from the company. Intrigued? Learn more about how to trade options.
Mind the Gap
Breaking up is hard to do, but Gap announced last week it will split into two companies: Old Navy and a yet-to-be-named company made up of Gap, Athleta, Banana Republic, Intermix and Hill City. If you’re a shareholder, what does that mean for you? According to the company, you’ll receive equal shares of Old Navy and the new company. But don’t get your slim-fit jeans in a bunch just yet — the spinoff is targeted for completion sometime in 2020. What’s more, investors already seem keen on this news, as Gap shares spiked 16% on Friday following the news. Ready to take your profits? Ask these seven questions before selling the stock.
Lyft prepares for liftoff
Lyft is the first of several much-hyped initial public offerings expected in 2019; the rideshare company could list its shares as soon as late March. Don’t be surprised if rival Uber isn’t far behind. Fierce competition between these companies, for years battled out on streets across the world, could make for a good show when they head to Wall Street. After IPO activity stalled in January as a result of the government shutdown, there’s likely to be a lot of buzz about investing in IPOs as they’re announced. (Pinterest filed paperwork last week to list its shares in late June, according to reports.) If you’re considering making an investment, don’t get stung. Our guide on how to research stocks can help you decide whether an IPO deserves a spot in your portfolio.
Stocks soar, muni bonds grow
Not so long ago (ahem, late December), the S&P 500 was on the brink of entering a bear market, defined as a decline of at least 20% from a high. Fast forward a couple months and U.S. stocks were off to the best start of the year since 1991, with the S&P 500 up more than 10% as of mid-February. Even so, one of the historically safest assets is attracting investors this year. A measure of the U.S. municipal bond market is up more than 1% year-to-date. Meanwhile, figures from ETF.com suggest strong demand for this year for many municipal bonds ETFs (exchange-traded funds), as evidenced by an increase in assets and heavier trade activity. Why? Many investors are experiencing surprises come tax time (see last week’s roundup), and taxpayers don’t have to pay federal tax on interest income from municipal bonds and may also be exempt from state taxes. Read more about how to invest in bonds.
SoFi swings into brokerage business
As we noted in last week’s roundup (see below), several brokers are beefing up their suite of services to include savings accounts. Then there was news this past week that SoFi, which started out refinancing student loans, is headed into the brokerage business. The company now offers products for various stages of life — including mortgages, personal loans, life insurance, high-yield savings and investing for both do-it-yourself (brokerage) and automated (robo-advisor) customers. Full details on the brokerage accounts aren’t available yet; in the meantime, take a look at our review of SoFi Wealth or see how the field stacks up with our online broker comparison tool.
Tax surprises, but not the good kind
If you already filed your 2018 taxes, you may have been surprised by the amount of refund (or lack thereof) that you’ll be receiving this year. The IRS recently released data showing that the average refund is down 8.4% — $1,865 versus $2,035 — compared with the same reporting period last year. That said, the number of refunds processed year-to-date was down more than 25% compared with 2018. The reason many Americans are experiencing sticker shock at tax time? It all boils down to how much money you withhold from your paycheck — and a recent NerdWallet study showed that only 16% of respondents changed their federal tax withholding as a result of the 2017 Tax Cuts and Jobs Act. On the Today show, NerdWallet’s Arielle O’Shea offered tips for surprised tax filers, and we’ve rounded up four ways you might still cut your tax bill by April 15.
All your wealth under one roof?
Robo-advisors, the hip automated investing services that have flourished in recent years, are increasingly adding a very old-school offering: savings accounts. Last week, Wealthfront announced a new cash savings account for members that will pay 2.24% interest, with FDIC insurance up to $1 million. (Surely it’s a coincidence that rival Betterment’s equivalent offering currently pays 2.23%.) And not to be outdone, SoFi also has a checking/savings account paying 2.25% interest. The common goal? These companies (and others) want to be a one-stop shop for many of your financial needs. Whether their goal aligns with yours is another matter, but of note: These rates aren’t any higher than what many banks currently offer for money market accounts. If you’re looking for other ideas about where to put money, check out our tips for how to invest savings for short- or long-term goals.
Broker battle over fees heats up
The battle raging on Wall Street for your investing dollars saw some action again last week. Schwab fired the first shot, announcing plans to double the number of ETFs (exchange-traded funds) customers can buy and sell commission-free, to 500-plus effective March 1. Within an hour, Fidelity announced it, too, would beef up commission-free ETF offerings to — whaddya know — 500-plus, but effective one day earlier (Feb. 28). While this makes for an entertaining show, what does it mean to you? It’s good news, with an asterisk. Zero trading fees help keep your overall investing costs down, but you also need to keep an eye on ETF expense ratios, or annual administrative fees. The average expense ratio is 0.5%, or $5 a year for every $1,000 invested, according to the Investment Company Institute. Bottom line: Commission-free is great, but not the only factor when selecting an ETF. See how NerdWallet’s picks for the best brokers for ETF investing compare.
IPOs set to rebound after shutdown slowdown
January was the leanest month for U.S. initial public offerings in three years — and the 35-day federal government shutdown was largely to blame, because the Securities and Exchange Commission is integral to this process. But the threat of another shutdown hasn’t deterred many companies from announcing IPOs recently. Postmates, a food delivery company, filed paperwork for an IPO this past week, while workplace messaging platform Slack is planning a direct listing similar to Spotify’s IPO. Other companies expected to go public this year include Uber, Lyft, Airbnb, Pinterest and Levi-Strauss. Buying shares of companies you use may seem like a no-brainer, but there are reasons to be cautious when investing in IPOs.
Ready or not, the tax man cometh
You have about two months until tax day. While you may be tempted to file an extension to get some more time, NerdWallet’s Andrea Coombes cautioned against doing so in a piece for MarketWatch. “Filing an extension sounds like a great way to push off the work until later in the year, but you do need to pay your bill, and that means basically doing your taxes,” she told the website. “It’s not an easy out.” Our annual tax study found that nearly half of Americans surveyed don’t understand how the 2017 Tax Cuts and Jobs Act affects their tax bracket.
» Confused about taxes? NerdWallet’s experts answer some of the most common questions
Robots have firm foothold in investing
During the Super Bowl, various ads depicted a not-so-distant future in which robots have a starring role. But robots already are here and flourishing, at least in investing. Robo-advisors, or automated portfolio management services, use computer algorithms to manage your money. Collectively, five companies (Vanguard, Schwab, Betterment, Wealthfront and Personal Capital) managed more than $150 billion in assets with their robo-advisory units in mid-2018, according to figures from Morningstar. And Personal Capital announced this past week it raised $50 million in funding that it said will help drive further growth and platform enhancements for its 2 million registered users. Intrigued? Check out our picks of the best robo-advisors.
January historically has been one of the strongest months for the U.S. stock market — and this year didn’t disappoint. The S&P 500 jumped 7.9%, for its strongest January since 1987. It didn’t crawl back entirely from December’s bruising 9.2% slump, but the S&P 500 is a more comfortable distance from a much-feared bear market now. That said, professional investors caution in our February stock market outlook that volatility — those wild daily swings that seem to be the norm lately — will likely continue.
You get free trades! You get free trades!
Paying commissions on stocks and exchange-traded fund trades is starting to feel passe, with a variety of brokers (including Vanguard, Robinhood, E-Trade, TD Ameritrade and Charles Schwab) offering commission-free trades to select customers. In late January, Merrill Edge announced plans to expand eligibility for commission-free online stock and ETF trades to all Bank of America Preferred Rewards members (customers with combined balances of $20,000 or more). This benefit was previously offered only to the highest-tier members and will take effect in the second quarter. If you’re still paying high commissions, check our picks for the best discount brokers.
How does your 401(k) stack up?
If saving more for retirement is on your 2019 to-do list, you’re probably not alone. NerdWallet’s Arielle O’Shea recently broke down the median and average 401(k) balances for employees of various age cohorts with plans held at Fidelity Investments — and 401(k) millionaire-wannabes may have some work to do. Of possible help? The IRS increased 401(k) contribution limits for 2019 — now $19,000 (up from $18,500), with an additional $6,000 catch-up for employees 50 and over. Separate figures from Fidelity showed that the average 401(k) balance fell 10% in the fourth quarter of 2018 amid all the market volatility, but that a majority of investors continued contributing to their accounts and didn’t make significant changes to their investments. Want to see how your savings add up over time? Consult our 401(k) calculator.
Remembering Vanguard’s vanguard
Even outside of investing, Warren Buffett is a household name. John “Jack” Bogle? Not so much. But tributes from the investment community poured in after Bogle, founder of Vanguard, died in mid-January. Bogle was the visionary behind index funds, which have made it easy for investors to diversify their portfolios on the cheap. As Buffett put it: “Jack did more for American investors as a whole than any individual I’ve known.” My colleagues and I also recalled some of our favorite Bogle investing wisdom and his enduring legacy.