Daily Press (Sunday)

Active vs. passive

- Motley Fool

Q. What’s an “actively managed” mutual fund? — B.G., Rockville, Maryland


There are two strategies for managing a mutual fund: active and passive management. An actively managed fund is run by financial profession­als who study and select various investment­s for the fund. A passively managed fund, in contrast, needs little management: It simply tries to mirror an index

(or a specific part of the market), aiming to hold the same securities and deliver roughly the same return, before fees. An S&P 500 index fund, for example, will typically hold the 500 stocks in that index.

Most actively managed stock funds actually underperfo­rm the benchmarks they’re trying to beat. That’s partly because index funds are far less costly to operate and also tend to charge much lower fees. It’s generally a good move to have some, or much, of your long-term money in index funds.

Q. Is it a smart strategy to buy stocks when they’re near their 52-week lows and sell them when they’re near their highs? — L.T., Clayton, Missouri


Panning for gold among stocks that have fallen sharply can be rewarding, as great companies’ stocks can occasional­ly be punished due to various temporary issues or because the overall market drops. Just research them enough to make sure there are no lasting problems.

Think twice about selling a stock near its high, though. There’s a good chance the company is performing well, and it might still have a lot of growth ahead; you don’t want to miss out on future gains.

It’s best not to focus too much on highs and lows — just compare a stock’s current price to where you expect it to go.

Millions unprepared for retirement

You’re not alone if you’re behind in saving and investing for retirement. Fortunatel­y, it’s probably not too late to improve your situation.

According to the EBRI’s 2023 Retirement Confidence Survey, almost 1 in 5 workers has less than $1,000 saved or invested, and a third of workers have less than $25,000. Meanwhile, per a Motley Fool Ascent study using Federal Reserve data, 28% of nonretired Americans have no retirement savings at all. Yikes!

That’s bad news, because while most of us can look forward to Social Security income in retirement, it may not provide as much as we’re hoping for. The average retirement benefit recently totaled only about $22,000 per year. Those who earned more than average over their working lives will receive more than that, but it will still fall far short of preretirem­ent incomes.

Most of us need to be actively saving and investing for retirement — and it’s hard to beat the stock market for long-term wealth building. If you want simplicity and effectiven­ess, dollars that you won’t need for at least five to 10 years can be parked in low-fee, broad-market index funds.

Make good use of tax-advantaged retirement accounts such as IRAs and 401(k)s, too, if you can.

The traditiona­l versions of each will give you upfront tax breaks for each year that you contribute; the Roth versions offer tax-free withdrawal­s in retirement instead.

You can contribute up to $6,500 to IRAs in 2023, plus an additional $1,000 if you’re 50 or older. The contributi­on limits for 401(k)s are more generous: $22,500 for 2023, plus $7,500 for those 50 and up.

Many employers will match part of your contributi­on to a 401(k) account, so aim to max out any matching funds available to you — that’s free money.

Self-employed folks can look into funding Simplified Employee Pension IRAs, Savings Incentive Match Plan for Employees IRAs, Solo 401(k)s and regular IRAs.

 ?? ??

Newspapers in English

Newspapers from United States