Your goal should be two guarantees: high yield to maturity and full recovery of principal. Neither is assured using index-based exchange-traded funds. An actively managed, go-anywhere fund from an ace manager such as Baird, Fidelity or Pimco will out-return the indexes over the years, but there is near-term price risk if managers mistime bets or if hostile reports on jobs or inflation or another trading signal rips into bond values. 

If your choices are limited within a 401(k) or other retirement plan, choose a short or ultra-short bond fund option, if possible. If not, stay with cash for now. The inverted yield curve, with short-term yields the highest, remains your friend and makes cash profitable and safe.

Looking ahead at bonds

But if you suspect cash yields will drift down and want to lock in the current rates without near-term price risk, my preference would be to infuse some dollars into individual bonds or into target-maturity funds or ETFs, such as Invesco BulletShares or iShares iBonds ETFs. If you have an account with Schwab, Fidelity or E*Trade, it is neither difficult nor costly to research, compare and buy single bonds. Then you, and not a fund manager or the Federal Reserve, control how much and when you get paid and the timing of repayment of the principal.

Normally the best method is to ladder maturities, arranging for parts (rungs) to mature in succeeding quarters or years so you both cement the best yields along the curve and know you will have money to roll over at specific times. You can use Treasuries, high-quality corporate, bank or utility bonds, municipals, high-yield bonds, or a mix of all of them. You can even request a brokerage’s bond platform to set it up for you.

I went to Schwab’s tool to ladder either Treasuries or certificates of deposit. Given the rate-curve inversion, one-year ladders have higher average yields than longer ones. A step stool of T-bills of three, six, nine and 12 months pays an average 5.25% to maturity; use CDs and you get 5.45% (as of May 31). A five-year ladder works out to 4.76% for Treasuries or 4.98% for CDs.

To beat that, of course, you can buy corporate bonds at a spread of one to two percentage points above Treasuries. If you navigate the bond listings, you can ladder one- through five-year BBB-rated bonds for an average 6% yield to maturity; I could recently order a five-step triple-B assembly from Synchrony Bank, Boeing, Ares Capital, Blue Owl and Boston Properties with an average yield to maturity of 5.98%, with none below 5.82%. It’s possible those bonds might flop around in value, but if your plan is to keep them to the end, that doesn’t matter — even if, say, Boeing were to be downgraded to junk status.

Or, you could use a mélange of BulletShares investment-grade, target-maturity corporate ETFs dated 2025 through 2029 for an average 5.3% — less than a BBB ladder due to its A and AA holdings. BulletShares charge just 0.1% and pay monthly, as oppsed to the semiannual interest payments from individual bonds. What matters either way is that you can roll over the principal on your own terms.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here. 

Related Content

• What To Know About CD Ladders: A Flexible Way To Save
• What Are Bonds And How Do They Work?
• Best Bond ETFs To Buy Now

The asset the most American retail investors hold onto is cash, according to a survey of 10,000 retail investors released recently by eToro. About 76% of American retail investors hold cash assets, well ahead of the 49% of respondents holding domestically listed stocks and nearly double the 40% of respondents holding domestic bonds.

More investors may be "leaning into cash assets for a solid risk-free return" because interest rates have been so high for so long, eToro U.S. investment analyst Bret Kenwell said in a statement. High interest rates present opportunities in safe investments like high-yield savings accounts, certificate of deposit (CD) accounts or Treasury bills, which have been offering yields above 5%. But, depending on a person's needs, investors holding onto more cash could be missing out.

Even the high rates you can currently earn in the various types of savings accounts or fixed income investments cannot compare to the more than 16% gain on the S&P 500 index year-to-date in 2024, not including dividends, which investors can gain access to through low-cost exchange-traded funds (ETFs). This has been an especially strong year so far, but even historically, the stock market has an average annual return of about 10%. 

Many people may have been scared off of investing in the stock market in recent years due to volatility during the pandemic era and fears of a recession. However, thus far, that fear has not been realized, and signs indicate there is still room for optimism. 

So while people have been playing it safe and getting decent returns in cash in recent times (hopefully, if they're using tools like CDs and high-yield savings accounts, rather than just parking it in a checking account), they could have been getting even bigger returns in the stock market. Plus, it doesn't take active day trading or smart stock picks to succeed: You could easily use ETFs to see big returns, and you don't need a lot of extra money to begin investing. 

How much of your investments should be in cash?

Keeping savings or investments in cash is wise for a few reasons, but it should be done thoughtfully. 

If you're trying to figure out how much cash you need, you should consider your more immediate needs as well as your emergency fund. Emergency funds should generally be kept in cash for ease of access; it can be held in a high-yield savings account, for example, where you can withdraw any amount at any time, so you can use it penalty-free when an emergency comes up. Experts generally recommend keeping three to six months' of basic living expenses in an emergency fund. 

Cash is also king if you have expected expenses coming up in the next 12 months. Say, for example, you're planning to take a big vacation in eight months. In that case, much like with an emergency fund, you want to have your money in an accessible place. In this example, you could invest in a three-month Treasury bill or CD, so it can make a good return before you need it for that trip. 

If, instead, you put that money into the stock market and needed to use it within a year, you would be subject to higher capital gains taxes. Because the stock market has more volatility than cash investments, you could also risk having to sell a position at a lower point if you are in need of cash to pay for something. 

Get started investing with ETFs

As mentioned, ETFs are an easy way to garner stock market returns. 

ETFs "hold a collection of stocks and bonds in a single fund," Kiplinger contributing writer Will Ashworth explains in a piece about how to invest in ETFs. “Unlike mutual funds, they are bought and sold on stock exchanges, can be traded anytime the exchange is open, and you can start your ETF investing even if all you have to invest is $50.”

ETFs also generally carry lower expense ratios than mutual funds. All of these reasons make ETFs a great option for beginner investors just getting started or those looking to move out of cash and into equities.

The most popular ETFs include S&P 500 ETFs, such as the ultra-popular SPDR S&P 500 ETF Trust (SPY) – the largest exchange-traded fund in the market. It tracks the Standard & Poor's 500 Index, which consists of 500 large, predominantly U.S-domiciled companies that trade on the major American exchanges. By owning this ETF, you effectively own the S&P 500's performance, so if it rises, your investment will also rise. 

SPY is currently trading around $550, but with plenty of brokerages selling commission-free fractional shares, you don't necessarily need that much to get started. Besides, there are plenty of ETFs on the market, including many at much lower costs. You can see Kiplinger's best ETFs to buy for some more options. 

If you're looking for the best returns, especially over a longer timeframe, historically, stocks should be in your portfolio. Keep in mind, though, that there are some times when you should avoid putting too many eggs in that basket, like if you will need money within a short timeframe for a large purpose or for retirement purposes and can't risk potential short-term volatility. 

Related Content

• Many Mutual Funds Are Converting To ETFs: What To Know
• Kip ETF 20: The Best Cheap ETFs You Can Buy
• How to Buy Stocks

That’s a lot of money on hot dogs and potato salad. But don’t worry, you actually don’t have to spend a fortune to keep your guests happy and full. Many grocery chains across the country are offering deals and discounts on cookout staples — like hot dogs and potato chips — to make July Fourth grocery shopping a bit easier on your wallet. 

One deal in particular that stands out is Walmart’s Summer Cookout Basket. With it, you can feed a party of eight for under $50. The basket, which includes 18 classic cookout items, costs just $45.43 before tax, a little under $6 per person. 

But is it a good deal? Or just a well-designed marketing tactic? We compared similar products from both Publix and Kroger to see if Walmart's Fourth of July cookout basket gets you more bang for your buck, as well as to identify items that you can get cheaper from somewhere else. Here's what we found. 

Fourth of July cookout basics

After comparing prices per item, Walmart came out as the cheapest option for Fourth of July cookout essentials, costing just $45.43 (pre-tax). If you shopped at Kroger you'd pay almost $10 more ($55.10) and if you filled up your cart at Publix, you could expect to pay almost $25 more ($69.54) than you would at Walmart. And that includes any additional coupons, sales or BOGO promotions both Kroger and Publix offered. Keep in mind that for all stores, additional pick-up, shipping or delivery fees may apply.

Another plus side to Walmart's deal? You don't have to search for each item individually (like we did sourcing these prices). Just follow the link, hit "add all to cart" and checkout. On the other hand, if you have some extra time, you could strategically shop at all three stores to get the cheapest option for each individual item. For example, you could forgo the watermelon and hot dogs from Walmart and buy them at Kroger, which will save you a couple of dollars.

Related Content

• Are Banks Open on July 4th?
• Costco vs. Sam's Club: Which Warehouse Club Is Best for Your Wallet?
• Amazon Prime Grocery Outlet: A Secret to Saving on Groceries
  

If you’re saving for a specific goal (in other words, something more concrete than just a bigger portfolio), you’ve already taken a crucial step toward success, says Daniel Crosby, author of several books on behavioral finance, including the forth- coming The Soul of Wealth. Research shows that “investors who tie their financial lives to a why — to a purpose other than just investment performance — save more and are dramatically less likely to sell in bear markets,” he says. “They report greater life satisfaction. They have more fun.” 

Crosby is serious about the fun part. Successful investors must be disciplined and patient, he says. One way to motivate yourself to stay on your long-term track is to “take a moment to really celebrate your investing victories” along the way.

To help you make it to your own celebrations, we asked investors who recently achieved one of their investing goals to share their stories. As you’ll see, they used different investing strategies, and they made some mistakes. But with learning, perseverance and sometimes a little luck, they are now enjoying their investing wins. 

Patricia: Invest stocks for kids' homes

When she was in her early forties, Patricia Savu decided to start saving up so that she could eventually help her daughters buy homes. That was a challenge for Savu, who worked as a chemist for 3M. She had a PhD in chemistry but didn’t know much about finance. “My father didn’t think that was the kind of thing girls should know about,” explains the 71-year-old retiree. 

Early in her working life, she stinted on contributions to her workplace 401(k) plan. But more than 10 years into her career, she started reading copies of the Wall Street Journal that a colleague had been leaving in the break room. As she read about the benefits of portfolio diversification, she began to worry that the outsize stake in 3M stock she had accumulated, thanks to annual option grants, made her family’s finances too dependent on the fate of one company. 

By that time, she was vested in the company pension, and she had upped her 401(k) contributions (invested in broad market funds) to the maximum. So for her house fund she started a habit of regularly cashing in her stock options to diversify into technology companies that her husband, an electrical engineer, admired, such as Apple, Amazon.com and Google (now Alphabet). 

Those stocks did so well that Savu became a fan of tech and growth-oriented stocks in general, although she’s a little leery of current valuations. Over time, she broadened her tech portfolio by adding low-cost exchange-traded funds such as Fidelity Nasdaq Composite Index and Technology Select Sector SPDR. (Those funds have both returned an annual average of more than 16% over the past 15 years.) 

Last year, when her younger daughter got married and started looking for houses near Savu and her husband in St. Paul, the parents realized they could afford more than a down payment. The tech-heavy house fund had done so well they could cash out $420,000 and buy outright the home her daughter’s family chose — and still leave at least an equal amount for their other daughter. Savu owns the property, and her daughter and son-in-law pay a well-below-market rent into a dedicated account to cover taxes, insurance and maintenance. 

Savu’s daughter will inherit the home, as well as whatever is left in the rent account, when Savu has passed on. Meanwhile, the house is much bigger and nicer than one her daughter would have been able to afford on her own. 

“It makes me feel good to be able to do this for her,” Savu says. “You always hear about people buying and holding. But you have to have an exit strategy if you want your investments to have an impact,” she says. 

STRATEGY: Diversify beyond company stock. 

Myles: Invest in interests to fund entrepreneurial goals

Myles Gage, 30, says he was a “sneakerhead” during his later years as a student at the Ariel Community Academy, a K–8 public school on the south side of Chicago. He loved learning about finance at the school, which was cofounded by the mutual fund company Ariel Investments. He joined the junior board of directors of the school’s investment club, which manages a portfolio of $20,000 for each class year. At year-end, the graduating students divide half of the fund’s profits among them. 

When Gage was 12, to get him thinking about his future and build a college tuition fund, his mother made him combine his two passions: Whenever he spent money saved up from birthdays to buy a new pair of Nikes, he had to buy a share of the company’s stock, too. 

He was soon buying Apple shares because he loved his iPod. And he bought a few shares in other firms he admired, such as Tesla, and companies he thought served crucial functions, such as healthcare company Johnson & Johnson. Gage, who got to meet Warren Buffett as a kid, says, “I was following Warren Buffett’s advice: Own businesses of quality, that you spend your own money with, that you would want to own forever.” 

Scholarships and loans paid for his finance degree from the University of Illinois, so Gage rededicated his investment fund to support an entrepreneurial dream. He and a friend wanted to start a company that would help youngsters learn about finance. 

In early 2019, just before his 25th birthday, Gage quit his day job as a banker and started using his investment fund to pay his living expenses while he helped build the business. He liquidated almost all of his portfolio, by then worth $45,000. He figures he put in about $8,000 into the portfolio, and he says it benefited from especially strong returns from Nike, Apple, Tesla and Johnson & Johnson. 

Cashing in the stocks (and even selling some of his beloved collector Nikes) to invest in his business “was totally worth it,” he says. His company, Rapunzl, which sells personal finance curricula to schools and offers a free stock trading game app, is growing. 

When he’s presenting an investing lesson to students, Gage likes to point to students wearing Nike shoes and say, “Thank you. You are paying me, because I own Nike stock.” That often makes an impact. “Once they understand they could be putting that money in their own pockets, a light goes on,” and they get enthusiastic about investing, he says — just like he did. 

STRATEGY: Buy what you know. 

Michael: Save for children's tuition

When his older daughter was six years old, Michael Hirsch, now 51, decided it was time to start saving for her and her sister’s college expenses. Though he was living in Southern California at the time, his fee-only financial adviser, Delia Fernandez, recommended that Hirsch start a tax-advantaged 529 college-savings account with Nebraska’s NEST program because it offers low-fee options managed by respected fund managers such as Vanguard. (Parents can use the money from any state’s 529 to pay for any accredited college.) 

To make sure they reached their goal, Hirsch and his wife automated their investing as much as possible. They set up twice-monthly automatic withdrawals from their checking account. And they chose age-based funds that would automatically rebalance and transition to safer investments as each child’s college enrollment date neared. 

As that time approached for their elder daughter, Fernandez pointed out that Hirsch had built up enough in other liquid savings that he could afford to take more risks with his college fund, in hopes of realizing a little extra growth. The Hirsches increased the 529’s stock allocation, shifting money into Vanguard stock index funds. With the regular contributions and extra deposits from bonuses or other windfalls, Hirsch says he has contributed about $80,000 for each girl. The accounts’ combined total peaked at about $215,000 before withdrawals began. 

With scholarships, his daughters’ summer jobs and the 529s, Hirsch figures they can now fully fund both daughters’ college expenses — especially since his youngest daughter expects to attend an in-state public school in their new home state of Washington. Setting aside that money early on “did hurt at first,” Hirsch says. “But when you don’t have that money in your account, you don’t even think about it after a while.” 

And it has been worth it. “My university experience was so important to shaping who I am today, and the same was true for my wife,” Hirsch says. “Knowing that we are able to provide that foundational and impactful experience for our kids means everything to us.” 

STRATEGY: Make saving automatic. 

Mike: Build a portfolio for retirement

For the first 35 years of his working life as an attorney and Washington, D.C., lobbyist Mike House, 78, funneled his retirement savings into what he thought were safe bond funds in a Fidelity account. “I am very conservative in my investing outlook,” he says. “I thought the money was really safe in bonds.” 

But as he and his wife, Gina Rigby-House, started to plan for retirement, House began to realize how paltry the returns on the bonds were. He feared he might not be on track to do the kind of traveling and charitable activities he had hoped to do in retirement. So House sought the help of a financial adviser. “I know how to do my job and make money. I don’t know how to invest money,” he says. 

A business associate recommended Ted Shanahan, founder of Blueprint Financial Group in Reston, Va. Shanahan explained that House was so focused on ensuring the return of his principal that his investments had exposed him to other risks, especially the loss of buying power due to inflation. 

It took some persuading, but eventually Shanahan maneuvered House’s portfolio into a well-diversified basket of investments that has ranged between 60% and 70% stocks. The new portfolio averages an annual return of more than 6% — more than double the return on House’s original bond portfolio. 

House, semiretired for five years, now has an eight-figure net worth that enables him and his wife to follow their passions. He still does some consulting, but the couple are preparing to move back to their home state of Alabama. 

Their investments give them the time to do volunteer work for their alma mater, the University of Alabama law school, and enable them to afford frequent trips to see family across the country as well as some bucket-list European vacations. Says House, “It’s a lot of fun.” 

STRATEGY: Consult a pro.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here. 

Related content

• How to Start Investing In the Stock Market: A Beginner's Guide
• The 6 Best Books on Investing
• What Is Value Investing and Is It Right for You?

Here's a comparison of two popular self-employed retirement savings plans: the solo 401(k) and the SEP IRA. See which option is right for your business and retirement planning needs. 

SEP IRAs: What is a SEP IRA and how much can you contribute?

A Simplified Employee Pension IRA (SEP IRA) is a retirement account for anyone who is self-employed, owns a business or earns freelance income. A big advantage for small businesses is the low overhead; SEP IRAs do not have the same start-up and operating costs as a conventional retirement plan.

SEP IRAs are available for a variety of small-business types, including sole proprietorships, partnerships, limited liability companies, S corporations and C corporations.  You don’t even technically need to have an established business to open a SEP IRA. Anyone who has self-employed income can open a SEP IRA, including freelancers and gig workers who aren’t considered employees.

Who can contribute:  An eligible employee, including a self-employed person, is an individual who meets all the following requirements: has reached age 21, has worked for the employer in at least three of the last five years and received at least $750 in compensation for 2024. 

Maximum Contribution: The maximum amount an employer or self-employed person can contribute to a SEP IRA for 2024 is the lesser of $69,000 in 2024, or up to 25% of compensation or net self-employment earnings, with a $345,000 limit on compensation that can be used to factor the contribution. 

Contribution deadline: Contributions must be made by the tax filing deadline or extension of the employer's return.

How to open a SEP IRA: A SEP IRA can be opened at many online brokers. You can set up a SEP for a year as late as the due date (including extensions) of your business income tax return for the year you want to establish the plan. You can establish and fund a plan for tax year 2024 up until your income tax filing deadline in 2025. 

Tax treatment. Contributions are tax-deductible, including those made to employee accounts. You can deduct the lesser of your contributions or 25% of compensation, subject to the compensation cap ($345,000 in 2024). If you’re self-employed, your deduction is capped at 25% of your net self-employment income.

Calculating contribution limits for a SEP IRA plan

If the IRS considers the employees eligible to participate in the plan, an employer must contribute on their behalf, and those contributions must be an equal percentage of compensation to their own. This rule requiring equal contributions as a percentage of compensation is why a SEP IRA is generally best for self-employed people or small-business owners with few or no employees.  

For 2024, employer contributions to an employee's SEP-IRA cannot exceed the lesser of $69,000 or 25% of the employee's compensation or net self-employment earnings, with a $345,000 limit on compensation that can be used to factor in the contribution. In this context, net self-employment income is net profit less half of your self-employment taxes paid and your SEP contribution.

Elective salary deferrals and catch-up contributions are not permitted in SEP plans.

Solo 401(k): What is a solo 401(k) and how much can you contribute? 

One may be the loneliest number, but it can pay off with a solo 401(k); it is similar to a standard 401(k) except that you are the only person in the plan, with some exceptions.

A one-participant 401(k) plan is sometimes called a solo 401(k), solo-k, uni-k or a one-participant k. This plan isn't new and it has the same rules and requirements as any other 401(k) plan. What is different is that this 401(k) plan covers a business owner with no employees, or that person and his/her spouse. 

Who can contribute: A self-employed business owner with no employees or a gig worker participating in an employer’s 401(k) who also has a side business. 

Maximum Contribution: The maximum amount a self-employed individual can contribute to a solo 401(k) for 2024 not counting catch-up contributions for those age 50 and over, cannot exceed $69,000 for 2024. Individuals 50 and older can add an extra $6,500 per year in "catch-up" contributions, bringing the total to $75,500. Whether you're permitted to contribute the maximum, though, will be determined by your self-employment income.

Contribution deadline: Contributions must be made by the tax filing deadline or extension of the employer's return.

How to open a solo 401(k): A solo 401(k) can be opened through most online brokers and requires a valid Employer Identification Number (EIN). Once the plan balance is $250,000 or more, you must file an annual report on Form 5500-SF with the IRS at the end of a given year. 

Calculating contribution limits in a one-participant 401(k) plan

Business owners can legally 'double-dip' and make contributions as an employee and employer to a solo 401(k) plan. The owner can contribute both elective deferrals and the employee nonelective contribution to their solo 401(k).

• Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit of $23,000 in 2024. 
• Employer nonelective contributions up to 25% of compensation as defined by the plan, or for self-employed individuals up to 25% of net earnings. 

Computing the limit for nonelective contributions is simple. When figuring the contribution limit, compensation is your “earned income,” which is defined as net earnings from self-employment after deducting both one-half of your self-employment tax and contributions for yourself. 

The limit on compensation that can be used to factor your contribution is $345,000 in 2024.

SEP IRA vs. solo 401(k) — which is better?

At first glance, these plans may seem similar. But dig down into the weeds, and you'll find differences that could add up over the years. The solo 401(k) plan might be a better fit for side hustlers or part-time gig workers since you can borrow from the plan if you get in a jam, you can save at a faster rate, and you can invest in a company's 401(k) plan if you also have a regular job. On the other hand, if there's any possibility you might hire an employee, a SEP IRA is a better bet.

Why a SEP IRA may be the better choice:

Easier to administer: SEP IRAs have the same contribution limits but no annual reporting to the IRS. 

Flexibility: You don't have to commit to contributing every year. You can reduce contributions in lean years and increase contributions when profits are up. 

Optional Roth feature is allowed. The Secure Act 2.0 allows employers to offer a Roth feature but is not required to do so. You are now able to designate Roth treatment to SEP contributions. This change is recent and there are still many issues that need clarification. 

Why a solo 401(k) may be the better choice:

Self-employed people may be able to save more in a solo 401(k) than they can in a SEP IRA. Solo 401(k)s let you make both employee and employer contributions, meaning you can contribute up to $23,000 for 2024 (or $30,500 if you're 50 or older) as an employee, even if that is 100% of your self-employed earnings for the year, and you can also contribute 20% of your net self-employment income. Your total contributions can't exceed your self-employment income for the year, up to a total of $69,000 for both types of contributions (or $75,500 if age 50 or older).

Maximize your savings opportunities: If you work for a company with a retirement plan and have a freelance income, contribute to both. But keep in mind that if you’re side-gigging, employee 401(k) limits apply by person, rather than by plan. That means if you’re also participating in a 401(k) at your day job, the limit applies to contributions across all plans, not each individual plan.

Tax advantages: You can opt for the traditional 401(k), and take a deduction for contributions and reduce your income. The alternative is the Roth solo 401(k), which offers no initial tax break but allows you to take distributions in retirement tax-free.

Choosing between a traditional or Roth solo 401(k) is part guess work. In general, a Roth is a better option if you expect your income to be higher in retirement and/or you expect tax liability to be higher in the future. You should take the deduction now if you think your income will go down in retirement, or you expect tax liabilities to remain the same or lower.

Don't forget to factor in how your income in retirement will impact if you are subject to the income related monthly adjustment amount (IRMAA) for Medicare Parts B and D. Distributions from Roth accounts are generally not considered taxable income and don't affect your IRMAA liability. 

Spousal exception to the no employee rule: A spouse can be added to the solo 401k plan whether they act as a W-2 employee, or an owner in the business. This effectively doubles your solo 401k contribution limits for your household. Your spouse can either open their own solo 401k plan separate from yours, or get added to your existing plan with separate bank and brokerage accounts.

Bottom line

You can't go wrong investing in a SEP IRA or solo 401(k). They both offer tax-deferred growth and an opportunity to make Roth contributions. Contribution limits for both types of accounts are generous and neither creates a large administrative burden. 

The solo 401(k) would be my choice if I had no employees. The ability to make catch-up contributions gives this account a slightly higher contribution limit and you can add your spouse, if their participation meets IRS requirements, and double your maximum contributions. 

A SEP IRA has many of the great features of a solo 401(k) and allows employees to participate making it a great option for small business owners. The ability to lower or forgo contributions when profits are down gives an employer more flexibility to respond to market conditions. 

Related Content

• The Average 401(k) Balance by Age
• SEP IRA Contribution Limits for 2024
• Higher IRA and 401(k) Contribution Limits for 2024
• The Problem With 401(k) Catch-Up Contributions for 2024

A break-in, a flood or a house fire can cause you to lose things that can’t be easily replaced: private/personal data, documents, electronics, heirlooms and keepsakes. With hurricane and wildfire season in play, this is a great time to move these nine things into a home safe and out of your safety deposit box, wallet and drawers.

Why a home safe and not a safe deposit box at a bank?

There are many reasons why a fireproof safe at home is preferable to a bank box. It's not a good idea to store original copies of documents you may require immediate access to, such as passports, in a safe deposit box. Bank safe deposit boxes are only accessible during branch operating hours and are typically sealed when the bank receives a death notice. To open a sealed safe deposit box, estate representatives must provide court papers to the bank.

FDIC insurance does not cover cash in a safe deposit box. The FDIC only insures the deposits in bank accounts, but not the contents of their safe deposit boxes.

Tip: Items in your home are typically covered by your renter or homeowners insurance policy, and the contents of a bank safe deposit box are rarely covered. 

Buying a fireproof safe

Some safes are meant only to protect from fire, while others are built specifically for burglary and theft protection. When people think of safes, they usually think of burglary protection, but you're statistically more likely to experience a damaging fire than theft. 

A burglary safe offers little protection against fire and fire safes pose fewer challenges to a safecracker. If you require protection against both fire and theft, you need a composite safe designed to meet both threats. To ensure a home safe meets both demands, it must undergo rigorous testing. Look for UL and ETL certifications when shopping for a safe. UL stands for Underwriters Laboratories and they test for level of fire protection and ETL verification for specific claims, like water testing. 

Different levels of protection with fire-resistant safes. A typical house fire can reach temperatures of 1100 to 1600 degrees; However, temperatures vary significantly depending on the room of origin and whether flashover conditions have been reached. The different levels of protection of a safe are determined by how long the temperature inside the safe stays below 350° F. Because paper and money begin to char at approximately 387 degrees and auto-ignite at 451 degrees (thanks Ray Bradbury), so ideally a fire safe should maintain a temperature at or under 350 degrees.

Live in an area prone to wildfires? You should take extra precautions. After the 2017 Santa Rosa, California fires, residents discovered that so-called "fireproof" safes did not withstand such high temperatures. One option is to purchase a mobile fireproof safe that you can take with you, particularly as you may need your documents and related items after you evacuate your home. Keep digital documents and backups in the cloud whenever possible.

Locks. The three most common locks on safes are digital, key locks, and combination dials. If your family decides to buy a safe with a key lock, be very careful about where you decide to hide the key. Make sure everyone in the family knows where the key is, or make copies for each family member. If your home safe relies on digital or combination locks, you should change the combination on the lock occasionally for added security.

Placement. If you are most concerned about the risk of theft, a bolt-down safe may be a cost-effective choice, especially if you are pouring a new cement floor or building your home. The .92 cubic feet safe by Honeywell is fire resistant and waterproof with a bolt-down system built directly into the bottom, listing for under $200. 

Floor safes are installed in concrete floors. When properly installed, it takes great effort to lift out, pry out, or otherwise tamper with the safe. When installing your safe, carefully follow instructions for your model to ensure you don’t damage it or invalidate important protective features of your safe.

Floor safes are great for burglar protection but offer limited protection against fire and water. Five sides of the safe are surrounded by concrete, preventing much of the heat from getting inside. However, the safe's door is exposed and has no fire material to protect it. And some reports show that water may condense in these safes. One way to improve your floor safe's performance is to use fire- and water-resistant bags to store important items you want to keep protected from a fire or flood. 

Tip: A Waterproof fire safe should be opened and aired out for at least 30 minutes every week to prevent any build-up of moisture inside. It is also recommended to occasionally let the safe breathe for longer periods. This will balance the humidity difference inside and outside and allow any excess moisture trapped inside to escape.

What should you store in a fireproof safe?

This is just a selection of the precious objects and important documents that most people have lying around the house but could cost a lot of time and money to replace. Installing a fireproof, waterproof safe now might prove more cost-effective than replacing all these items (and dealing with the hassle of insurance companies).

1. Safety deposit box keys

If you store valuables in a bank safe deposit box, you'll want to make sure you keep the keys to it in a secure place. 

Tip: Keep copies of car and house keys. They aren’t expensive to replace (unless you lose your last copy, of course) but in the wrong hands, they provide easy access to your home, car, garage and shed. 

2. Cash and credit cards

The most obvious item to keep in a safe, after safe deposit box keys, is cash. Even if you only keep small amounts around the house for emergencies, it’s better off somewhere protected instead of in a sock drawer.

Infrequently used debit cards, credit cards and key cards — these little bits of plastic melt easily. Carry only the cards you use; you can't lose what you don't have in your purse or wallet. 

3. Social Security cards, passports and original birth certificates

Covid shutdowns keep many people from accessing important identifying documents, such as passports and birth certificates. While they certainly need to be secured, they shouldn't be anywhere you can't access them readily. After all, these documents can be a hassle and time-consuming to replace.

Passports and original birth certificates are essential to proving your identity, birth date and citizenship and can also stand in for all ID purposes if your wallet or purse is stolen or lost. Your Social Security card is vital to establish eligibility for benefits.  

Tip: When traveling abroad, experts advise to carry a photocopy of your passport and leave the original in a hotel safe.

4. Everyday jewelry

Jewelry you wear regularly doesn’t belong in a safe deposit box, which can only be accessed during a bank’s business hours. Keep everyday jewelry secure at home in a safe. 

However, the expensive heirloom jewelry that you were gifted or inherited but rarely wear should stay in your safe deposit box until a special occasion arises and you can pick it up, wear it for the big event, and put it back safely.

Tip: Don't store pearls in a safe or safety deposit box for long periods. Safety deposit boxes are humidity-controlled to protect paper. Pearls need to draw moisture from the air to maintain their beauty. The arid conditions may dry out your pearls and cause them to develop small fractures in the surface. 

5. Copies of your important legal documents

It's critical to have access to key legal documents since safe deposit boxes are typically sealed upon notification of the box owner's death. Access to these important documents can help ensure the protection they were created to provide. Remember to include documents related to you and your family, as well as any documents where you may be designated a health care proxy or attorney-in-fact. Keep original records in a safe deposit box or at some other secure location.

Some of the copies of important documents you store in your home safe should include powers of attorney, wills, living wills and health care proxies.

Tip: Many states have a system that allows you to file your will with the probate court for safekeeping

6. Financial documents

If there were ever a time when you needed to access your funds, immediately after a home destruction would be it. Papers related to investments, retirement plans, bank accounts, and associated contact information can help you access the funds you need, when you need them.  

It's important to keep tabs on your finances and protect your credit. Keep information about your outstanding debts, due dates and contact information in the event you're displaced or evacuated by a weather event. 

Tip: Create a financial plan for natural disasters. You'll have your important financial documents safeguarded and ready to go in case you need to leave your home in a hurry. 

7. Property insurance policies and agent contact information

When your home is damaged by a fire, tornado, flood, or hurricane, one of the very first things you’ll have to deal with is insurance. You'll also need to know how to file a claim. 

If you live in an area commonly hit by tornadoes, hurricanes or floods, your local bank could be destroyed or severely damaged by the same elements that impacted your home. That's why it's important to have copies of this documentation handy. 

Hopefully, the day will never come when you have to meet with an insurance adjuster. But have these documents in hand just in case.

• Property deeds and mortgage documents.
• Homeowners insurance with policy number.
• Receipts from when you bought the damaged or destroyed items, if you have them. Search your purchase history of items purchased online and print out invoices.
• Gather any photos or videos of your home and property before they were damaged or destroyed.
• Vehicle titles, registration and loan paperwork.

Tip: After a disaster strikes, it’s important to get a good replacement cost estimate ASAP. Plan and get an estimate from a contractor in advance — before any potential loss may occur and you will be ahead. You can also use the estimate to ensure you have adequate insurance coverage.

8. CDs, flash drive, or an external hard drive containing digital copies of important documents

In the event of a storm warning or evacuation notice, documents should be securely stored in a fireproof home safe or in a safe deposit box. Consider a device that will withstand extreme weather such as the Corsair 256GB Survivor Stealth flash drive. It is made of anodized, aircraft-grade aluminum housing, is waterproof to 200 meters, vibration-resistant and shock-resistant. 

But what happens if your documents become damaged during an emergency or you don’t have enough time to recover them before evacuation? Consider document digitization as your answer to rebuilding your life and home after the worst occurs.

Having copies of important documents, such as property deeds, vehicle titles, car insurance, home insurance and an inventory of the contents of your home, can help you expedite filing insurance and disaster assistance claims.

Tip: Regularly update your inventory, especially after making major purchases or receiving expensive gifts.

9. Medical information

Prepare a list of family doctors, prescription medications with dosages and contact information for all pharmacies you use. You may need these to get new medication supplies you use regularly or in emergencies.

Tip: Prescription drugs like painkillers can be valuable and a target for thieves. Lock those drugs up!

Related Content

• How to Keep Your Savings Safe
• Safety Tips for Kids and Investing
• How to Protect Your Identity, Finances If You Lose Your Phone

529 plans

A 529 plan is a tax-advantaged savings account designed to be used for a beneficiary's education expenses. These plans allow a contributor to prepay a beneficiary's qualified higher education expenses at an eligible educational institution or to contribute to an account for paying those expenses. And while 529 contributions have to be made with after-federal-tax money, the contributions grow free from federal or state tax.

Andy Esser, an Edward Jones Financial Advisor in Durham, NC said in a statement: “As a financial advisor and parent, I see first-hand the varying benefits of 529 funds – no matter what path a child may choose. Educating families on those benefits leads to more impactful results.”

But many are missing out on the benefits of a 529 plan, including tax-free growth, gift tax benefits, the opportunity to rollover unused funds into a Roth IRA and the ability to use the 529 Grandparent Loophole to fund a grandchild’s education without impacting their financial aid eligibility. 

According to a study from Edward Jones, 50% of Americans don’t know what a 529 plan is. More specifically, out of all Americans who are actively saving for a child’s education, 32% are unaware of what a 529 plan is, and 60% do not feel they’re saving enough to reach their goals for future education expenses. 

The study also found that in order to reach education savings goals, Americans have turned to several other strategies, including using a personal savings account (35%), scholarships (18%), federal or state financial aid (18%) and getting a job at a school or university for tuition benefits (9%). The rising cost of tuition, rulings about college admissions criteria and the increase in applicants at numerous colleges are all factors driving individuals to save for their children’s education. 

Surprisingly, however, 84% have not or do not plan to invest in a 529 plan as part of their education savings strategy.

Rising cost of college

College tuition has indeed skyrocketed. According to Best Colleges, using data from the NCES, the average cost of college tuition in the U.S. for undergraduate students has more than tripled over the last 58 years, rising from $4,648 in 1963 to $14,307 in 2021, after accounting for inflation. And from 2010 to 2021, tuition and fees rose by 17%, jumping from $12,214 to $14,307.

Furthermore, the College Board reports that in 2022-23, the average cost of tuition and fees for a full-time undergraduate student at a public four-year in-state college was $10,940, while the average cost for a student at a public four-year out-of-state school was $28,240. 

Over 43 million Americans carry federal student loan debt, with an average balance of almost $40,000. By starting early and saving for your child's or grandchild's college in a 529 account, you can help them avoid the heavy burden of student loans later on in life. The sooner you start, the better.

Related Content

• You Should Be Investing in a 529 Now for Your Kids' or Grandkids' Tuition
• Use the 529 Grandparent Loophole to Maximize College Savings
• Have Leftover 529 Funds? Expert Strategies for Unused Balances

As is the case with employer-provided 401(k) plans, 403(b) plans are tax-advantaged. Contributions are typically deducted from your paycheck and invested, providing an important source of income in retirement. Pretax contributions will reduce your taxable income, and your investments will grow tax-deferred until you retire. If your plan offers a Roth option, contributions are after-tax, but withdrawals will be tax-free as long as you’re 59.5 or older and have owned the account for at least five years. 

And as with 401(k)s, employers may offer a matching contribution to a 403(b) up to a certain threshold (a maximum 3% of your salary, for example). Most public schools don’t offer a match, but if your employer provides one, consider contributing at least enough to earn it. 

Most pensions for teachers who work 30 years or more replace 50% to 70% of their salary, so a 403(b) can fill the gap, says Dan Otter, cofounder of 403bwise, a nonprofit that advocates for better retirement plans for K–12 teachers. But 403(b)s have some key characteristics that make them unique — and sometimes less than desirable.

Perks and pitfalls of 403(b) plans

Certain benefits that 403(b)s offer aren’t available with other types of employer-provided plans. The regular contribution limit is the same as with 401(k) plans — $23,000 in 2024 for workers younger than 50. And employees age 50 or older can make $7,500 in catch-up contributions to a 403(b) this year, just as those who have a 401(k) can. 

But some employers permit longtime employees to make additional catch-up contributions to a 403(b). If you’ve been with an employer for at least 15 years and you’ve made an annual average contribution of less than $5,000 per year, you can contribute an additional $3,000 per year, up to a lifetime maximum catch-up contribution of $15,000. 

You can take advantage of the 15-year rule even if you’re younger than 50. For those who are 50 or older, the IRS will apply contributions above the regular limit first to the 15-year rule, then to the standard catch-up contribution limit. If your employer allows these extra catch-up contributions, “they can be a great way to boost your tax-smart retirement savings plan,” says Noah Damsky, a certified financial planner based in Los Angeles.

On the downside, 403(b) plans aren’t subject to the Employee Retirement Income Security Act (ERISA), which means employers don’t have the same fiduciary obligations as companies that offer 401(k) plans, Otter says. As a result, many teachers are offered anywhere from 20 to 100 different plans, often provided by insurance agents promoting high-cost variable annuities, says Nicholas Bunio, a CFP based in Philadelphia. 

Though many 403(b) plans have lackluster offerings, the problem really lies with plans for employees in K–12 public schools, he says. In 2022, the Securities and Exchange Commission fined Equitable Financial $50 million for providing misleading statements and omitting information about fees for variable annuities it sold to investors, most of whom were teachers and other school staff. 

You can find out which school districts are doing right by their employees with 403(b) plans by using the search tool at www.403bwise.org/education/vendor-search-tool. If your only option is a plan filled with high-cost products, consider investing in a Roth IRA instead.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here. 

Related Content

• Roth IRAs: What They Are and How They Work
• Pension vs 401(k) Plans: Which is Better?
• Roth 401(k) Contribution Limits for 2024

Where are electric bills rising the most?

The Mid-Atlantic, Pacific and Eastern South will see the greatest monthly increases in electric bills, according to a recent report from the U.S. Energy Information Administration (EIA). Although New England and West South Central states will see declines in their monthly electric bills, they will still pay over the national average.

Why are energy prices rising?

Increased costs are due to several factors, including increased demand, especially among energy-intensive data centers. Electricity consumption is expected to grow 4.7% in the next five years, up from the 2022 forecast of 2.6%. “Data centers whose chips run artificial intelligence are especially energy-intensive, and more are coming,” Jim Patterson writes in the Kiplinger Letter. “Data centers in general account for 4.6% of demand. By 2026, that figure stands to rise to 6%.” 

He also shares that increased construction of high-tech manufacturing facilities, appliances switching from natural gas to electricity and more electric vehicles are also driving up electricity consumption. But along with this increased demand comes supply constraints. And this all results in higher rates on electric bills. 

“How much higher depends on a lot of factors, such as your region, the price of natural gas (the leading fuel source for generation) and how quickly government officials try to ramp up renewable power,” Patterson writes.

2024 to be one of the hottest summers ever

This summer's heat waves will surely cause you to crank up your air conditioning and, in turn, your power bill. The more energy you use to combat those roasting temperatures, the more money you’ll inevitably spend.  

From June through August, temperatures are expected to reach 2 degrees above historical averages across more than half of the country, Accuweather notes. Experts believe that there’s a good chance this summer could be one of the hottest on record in the U.S., especially from the Rockies to the East Coast.

“We expect electricity consumption will grow in all major consuming sectors this year, but especially in the residential sector, which we expect will increase by 4%” reports the U.S. Energy Information Administration in the March edition of its Short Term Energy Outlook. “Much of the forecast year-over-year growth in residential electricity occurs during the summer months of 2024.”

How to cut your electric bill summer 2024

While you can't directly control how much your electricity costs, you can control how much you use. One of the best ways to save on energy bills, and also one of the easiest, is to keep your thermostat at the right temperature. According to the U.S. Department of Energy (DOE), the smaller the difference between indoor and outdoor temperatures, the lower your overall cooling bill will be. 

They recommend keeping your thermostat set to 78 degrees in the summer months while you're at home, and even higher while you're away. You can easily control the temperature in your home by opting for a smart thermostat. "Programmable thermostats will avoid any discomfort by returning temperatures to normal before you wake or return home," states the DOE. 

This is also a great time to invest in more efficient heating and cooling systems, like a heat pump. There's solid evidence that a heat pump will help most people save money over standard air conditioning.

There are a few other ways to stay cool this summer. Check out our 12 tips to stay cool without air conditioning, which include maximizing shade in your home, prioritizing good insulation and properly using fans to beat the heat. Did you know your fan should rotate in a different direction depending on the season? Particularly, counterclockwise in the summer months? By reading the article, you'll find more information on how to save money — and not sweat to death in those record-setting temperatures.

Related Content

• Home Energy Improvements to Save Money and Go Green
• Heat Pump vs Air Conditioner: Which Is Cheaper to Keep Your Home Cool?
• 10 Energy-Efficient Moves to Do in a Weekend
• Heat Pumps Can Help You Save on Home Cooling and Heating — and There's a Tax Credit for Installation

The national average interest rate paid on savings is 0.46% (as of April 15, 2024), according to the Federal Deposit Insurance Corporation (FDIC). Considering the Effective Federal Funds Rate is 5.33% (as of May 2024), if you have money in a savings account, there’s a good chance you could be earning a lot more interest somewhere else.

There’s good news: If you’re among those receiving lower interest on your savings, it’s a problem that’s easy to remedy. In most instances, it only takes a few clicks online or a few taps on your phone. It’s easy to secure an interest rate of around 5% these days. Money market funds, certificates of deposit (CDs) and U.S. Treasuries are all low-risk ways of generating a nice return.

How much you stand to gain by switching

In most instances, your financial institution isn’t going to do it for you. The time invested to move your cash around is well worth it. If you’re earning the national average on $100,000 of savings, you’re being paid $460 a year. By switching to one of the many investments that offer a 5% yield, you could put an extra $4,540 in your pocket this year.

So which instrument should you use? That depends on you and your situation.

Option No. 1: Money market funds

Money market mutual funds (not to be confused with a bank money market account, which is different) are great for providing liquidity, as they should be easy to get in and out of. However, there are new rules that create liquidity fees and redemption gates in place when investors want to cash out during “times of uncertainty.” That’s a vague description to be sure, but you can imagine an instance where we’re in a deep financial crisis and everyone is trying to liquidate their money market funds. Fees and gates mean you could either be charged to access your own money or limited in how much you can withdraw. It’s at the discretion of the fund’s board of directors.

The chances this ever applies to you are slim, but most people aren’t aware of this risk, and you should be if you own a money market fund.

Option No. 2: CDs

CDs don’t have the immediate liquidity of money market funds. In fact, there’s typically a penalty to access your money early. So you’ll want to be thoughtful about how much money you need for expenses and when you’ll need it before buying a CD. However, they come with a wonderful feature that money market funds don’t. CDs (like other deposit accounts) are insured by the FDIC up to $250,000. That means in the event of a bank failure, you’re still covered.

Option No. 3: Treasury bills and notes

Short-term U.S. Treasury bills (issued for terms of four weeks to one year) and notes (issued for terms of two, three, five, seven and 10 years) are also attractive. The U.S. Treasury securities market is the largest and most liquid government securities market in the world. You shouldn’t have any trouble buying or selling your Treasuries whenever you want. And the U.S. government is generally considered an ultra-low-risk debtor. However, the recurring threats of government shutdowns and general political divisiveness do make these a shade riskier than they may have been in the past.

Outlier risks aside, Treasuries, money market funds and CDs are all conservative options to potentially increase what you’re earning on your cash. Cash and cash-like instruments are an essential part of your retirement portfolio. They can be used to cover your expenses and as an emergency fund. But having too much cash on hand comes with its own price. Cash typically lags behind the returns of riskier assets. And the purchasing power of the dollar has steadily eroded over time thanks to inflation.

Cash is an important part of an overall investment allocation. But for many investors, it should be a small part. At SAM, we generate income using a variety of different securities. Short-term Treasuries are our favorite cash proxy. But we’re finding higher cash yields in real estate investment trusts (REITs), closed-end funds, and merger arbitrage opportunities, just to name a few. We also use cash tactically — we like to keep dry powder on hand to deploy opportunistically.

If you haven’t already, you may want to work with a professional to figure out exactly how much cash you should be holding. Then make sure you’re getting paid fairly for the cash you’re sitting on!

Related Content

• CD vs. High-Yield Savings Account: Which is Better?
• Protect Your Wealth Against Inflation in Three Easy Steps
• 10 Things You Should Know About REITS
• Soon-to-Be Retirees, Beware: Small-Caps Are Cheap for a Reason
• How to Buy Treasury Bills