Long-Term Financial Planning
EXAMPLES

Examples of mid-term financial goals include saving enough for a down payment on a house, paying off a hefty student loan, starting a business (or starting a second career), paying for a wedding, stocking your youngster’s prepaid college fund, taking a dream vacation, or even a sabbatical. A key mid-term goal would be developing multiple-income streams. This doesn’t mean working every weekend at the neighborhood big-box retailer. Instead, it might mean figuring out how to monetize a hobby or starting a side business with an underutilized skill. Your financial counselor or investment adviser can play a valuable role in guiding your mid-term strategy.

For example if you are planning to buy a home, planning for a wedding or some type of major family vacation, Etc. you want to create a slightly more conservative portfolio, given that these are a short- to medium-term goals. Brokerage accounts, active money management accounts (wealth management), mutual funds or ETFs, Various Bonds with maturity dates between 3 and 10 years can be considered as a mid-term investment options.

Passive vs. Active portfolio management

How they work and their Pros & Cons. Investors have two main investment strategies that can be used to generate a return on their investment accounts: active portfolio management and passive portfolio management. These approaches differ in how the account manager utilizes investments held in the portfolio over time. Active portfolio management focuses on outperforming the market compared to a specific benchmark, while passive portfolio management aims to mimic the investment holdings of a particular index.

Active Portfolio Management

Investors who implement an active management approach use fund managers or brokers to buy and sell stocks in an attempt to outperform a specific index, such as the Standard & Poor's 500 Index, Dow Jones Industrial , the Russell 2000 Index or some other index. An actively managed investment fund has an individual portfolio manager, co-managers, or a team of managers actively making investment decisions for the fund. The success of an actively managed fund depends on combining in-depth research, market forecasting, and the experience and expertise of the portfolio manager or management team. Portfolio managers engaged in active investing pay close attention to market trends, shifts in the economy, changes to the political landscape, and factors that may affect specific companies. This data is used to time the purchase or sale of investments in an effort to take advantage of irregularities. Active managers claim that these processes will boost the potential for returns higher than those achieved by simply mimicking the stocks or other securities listed on a particular index.

IMPORTANT: Active management traditionally charges high fees, and recent research has cast doubts on managers' ability to consistently outperform the market.

Passive Portfolio Management

Passive portfolio management is also referred to as index fund management, involves the creation of a portfolio intended to track the returns of a particular market index or benchmark as closely as possible. Managers select stocks and other securities listed on an index and apply the same weighting.

The purpose of passive portfolio management is to generate a return that is the same as the chosen index instead of outperforming it. A passive strategy does not have a management team making investment decisions and can be structured as an exchange-traded fund (ETF), a mutual fund, or a unit investment trust. Index funds are branded as passively managed because each has a portfolio manager replicating the index, rather than trading securities based on his or her knowledge of the risk and reward characteristics of various securities. Because this investment strategy is not proactive, the management fees assessed on passive portfolios or funds are often far lower than active management strategies. Index mutual funds or ETFs are easy to understand and offer a relatively safe approach to investing in broad segments of the market. Perfect example of passive portfolio management could be a managed brokerage account.

What’s a brokerage account?

A brokerage account is what most investors use to buy and sell securities like stocks, bonds and mutual funds. You can transfer money into and out of a brokerage account much like a bank account, but unlike banks, brokerage accounts give you access to the stock market and other investments. You’ll also see brokerage accounts referred to as taxable accounts, because investment income within a brokerage account is taxed as a capital gain. This is compared with retirement accounts (like IRAs) that have a different set of tax and withdrawal rules, and may be better for retirement savings and investing.

How do brokerage accounts work?

There are a range of licensed brokerage firms — from pricier full-service stockbrokers to low-fee online discount brokers — where you can set up a brokerage account.

Many brokers allow you to open a brokerage account quickly online, and you generally do not need a lot of money to do so — in fact, many brokerage firms allow you to open an account with no initial deposit. However, you will need to fund the account before you purchase investments. You can do that by transferring money from your checking or savings account, or from another brokerage account. You may also be able to mail in a check.

You own the money and investments in your brokerage account, and you can sell investments at any time. The broker holds your account and acts as an intermediary between you and the investments you want to purchase.

There is no limit on the number of brokerage accounts you can have, or the amount of money you can deposit into a taxable brokerage account each year. There should be no fee to open a brokerage account.

How to choose a brokerage account provider?

Once you’ve decided whether you want a retirement account or a taxable brokerage account, you’ll want to choose an account provider. There are two main options that meet the needs of most investors: online brokers and robo-advisors.

Online brokerage account

If you want to purchase and manage your own investments, a brokerage account at an online broker is for you.

An investment account with an online brokerage company enables you to buy and sell investments through the broker’s website. Discount brokers offer a range of investments, including stocks, mutual funds and bonds.

Managed brokerage account

A managed brokerage account comes with investment management, either from a human investment advisor or a robo-advisor. A robo-advisor provides a low-cost alternative to hiring a human investment manager: These companies use sophisticated computer algorithms to choose and manage your investments for you, based on your goals, risk tolerance and investing timeline.

Robo-advisors are likely a good fit for you if you’d like to be largely hands-off when it comes to your investments. List of the best robo-advisors .

Perfect Example of Passive Portfolio Management could be the Betterment account where you can create the passively managed portfolio and it's comprised of a combination of globally-diversified stock and bond ETFs that aim to efficiently capture the broad U.S. stock market, as well as international developed and emerging markets and have the lowest annual fee of 0.25% (Compare to actively managed accounts fees somewhere from 0.5% to 2.5%). To see our top picks for Mid-Term investment options (Brokers for managed brokerage accounts with investment management from a Robo-advisors) go to Mid-Term “Solution”.

Note: We don’t recommend investing money you need within the next five years. If you’re saving for a short-term goal, skip the brokerage or investment accounts and go to short-term financial planning to see short-term investment (Savings) options.

Long-Term Financial PlanningEXAMPLES

Long-Term Financial Planning

EXAMPLES

Long-Term Financial Planning
EXAMPLES