Military’s New Hybrid Retirement Plan a Mixed Bag

The military, which currently has a traditional defined benefit plan, will adopt a new hybrid program next year that blends an existing defined benefit for career personnel with a matching contribution to a 401(k)-style account aimed at covering those who don’t make a lifelong career of the military. It’s the biggest overhaul in retirement benefits in years–and it’s a mix of good and bad news for military personnel.  
     Unlike the private sector, the legacy defined benefit actually is called a retirement pay system. That’s because retired military personnel are classified as inactive ready reserve who can be recalled in case of national emergency. And, retirement pay can be suspended under certain circumstances–for example, if a recipient begins to receive a disability benefit or is convicted of certain crimes.
     Retirement pay essentially is a generous defined benefit pension with cost-of-living adjustments, but it has been available only to military personnel who serve at least 20 years. That means it has been available to a relatively small percentage of Americans who serve: 30% of commissioned officers and 8.5% of enlisted personnel, according to Lt. Col. Steven G. Hanson, who oversees compensation and benefit matters for the U.S. Army. Bottom line: just 20% of the entire armed forces have been getting any kind of retirement benefit at all.
     Under the new blended system, the value of defined benefit retirement pay will be cut by 20% to make way for matching contributions to service members’ defined contribution accounts.

     ”We feel the change will have a very positive net effect,” Hanson says. “The new system preserves a defined benefit system even though so many private sector companies are ditching it–and we’re adding a competitive […]

Trading penny stocks can be a big risk

Who wouldn’t want to have bought in at ground-floor prices of big, successful companies? That’s the hope of many penny stock investors. But trading penny stocks can be extremely risky, particularly as some upstart penny stock companies hire prominent spokespeople to entice investors that may not be knowledgeable enough or prepared to accept those risks.

If you’ve never heard of penny stocks or are considering investing in them, here are some of the key features.
What are penny stocks?
A penny stock is loosely categorized by the Securities and Exchange Commission as one that trades for less than $5 per share and usually has a relatively small market capitalization (i.e., company value).

In practice, you might come across several definitions of a penny stock. Some investors consider penny stocks to be those that trade for less than $1 and/or over the counter on the OTC Bulletin Board. You may see penny stocks referred to as micro-cap stocks at Fidelity.
Prime penny stock risks
It’s important to know the risks of penny stocks because of the greater potential for loss associated with these types of investments, compared with established companies that trade on larger exchanges.

A major risk of trading penny stocks can be their low liquidity. Many penny stocks are thinly traded, with far less than a million shares traded each day. When buying or selling a stock that has low trading volume, investors may not be able to do so at their desired price or time, and that can be costly.

Low liquidity is a contributing factor to potentially high bid-ask spreads for penny stocks. This means that, relative to most stocks traded on the NASDAQ or the New York Stock Exchange (NYSE), the cost of trading these stocks is typically […]

The odds of day trading yourself to a profit are lower than you expect

Short-horizon retail investors may like to think they can beat Wall Street at its own game and make a killing in the stock market, but the odds of making a profit, let alone earning enough to retire early, may be far longer than they’d like to hear.

Day traders—who buy and sell securities in extremely small time frames, holding them for less than a day in order to profit off short-term momentum—have a nearly 80% chance of losing “real money” over the course of a year. That figure comes from the blog CuriousGnu, which also calculated a median 12-month loss on investment of 36.3%.

The study was derived from eToro, a self-described “social trading network.” The service isn’t available in the U.S., so the fortunes of stateside traders weren’t taken into account—the two biggest markets for eToro are the U.K. and Germany, according to the blog.

When users sign up for eToro, a default setting allows other users to view and even copy their trades; the analysis was based on this data, and looked at roughly 83,300 traders who had made at least three trades over the previous 12 months.

It wasn’t clear what the analyzed traders invested in or the size of the individual trades. The author of the CuriousGnu blog post, who declined to give his real name, couldn’t say for sure whether the performance of the traders was impacted by platform fees, although he believed that was the case. He also admitted to “a liberal definition” of the term “day trader,” adding that in some cases, investors could have held positions for longer than a single session.

“Nevertheless, the high leverages (and overnight fees), which eToro offers, encourage short-term trading,” he wrote in an email.

London-based eToro […]

Fear Keeps Millennials on Investing Sidelines

Millennials are nervous about investing. Recent surveys have shown that 70% of millennials keep their savings in cash rather than invest it in the stock market.

But by not investing early on, these people in their 20s and early 30s miss out on the key advantage they have at a young age: time. Because your investment returns are compounded, the earlier you start investing the more — and longer — will the returns add up, ultimately leaving you with more money in the bank.

So what are millennials waiting for? Many of the concerns holding them back from the market boil down to a lack of information about investing. Some of the most common fears are:
‘I have no idea where to start’
Many potential young investors have no idea where to start even if they wanted to buy just one stock. And then they don’t know how to choose which stock or fund to invest in. Since most people don’t get personal finance education as part of their schooling, investing can seem enormously daunting and precarious.

A little online research can demystify many of the basic investing concepts, such as how compounded interest works, how patience can be beneficial, and how to not overreact to temporary dips in the market. Working with a financial advisor to develop a plan and ease into an investing strategy also can help reduce your stress and anxiety about entering the stock market.
‘I haven’t even paid off my loans — I can’t start saving’
Concern about debt, particularly student loans, is understandable and widespread among millennials. Student loan borrowers have an average debt of almost $30,000 for undergraduate loans. The question of whether to pay off student loan debt more aggressively or use the extra money to start saving is a tough one because people don’t have the same financial situations. […]

What Would You Do if You Stopped Watching the Market?

Think of the hours spent watching the ticker symbols swim across the screen. Consider the time devoted to listening and reacting to the pundits and “experts” who predict what will happen next.

Calculate the attention given to reading the columns of advice aimed at convincing you what stock or fund to buy or sell. Imagine all that time freely given in an effort to be “in the know,” have an economic advantage, be better informed and have an edge on everyone else (except for those who are watching the same noise, of course).  Needless to say, it’s a lot of time, attention and human resource—all of which are actually devoted to nothing.

Why nothing? Simple.  Investing, not speculating, is a long-term strategy—and by long, we’re talking seven or more years. “Long-term” doesn’t mean a day, a week, a month or even a year! The shorter the time period, the greater the risk and the more it becomes gambling. You might be a winner, but the odds are certainly not in your favor.  So why spend all this precious time watching something that is of little or no value? For some, it is the thrill of the game, just like political junkies crave their fix of “information” and can’t turn off Fox News or MSNBC.  For others, it’s just a habit, something they’ve always done or something their parents did.  But honestly, it’s mostly all useless noise wrapped in Wall Street’s self-promoted allure of wealth and success.

Research has clearly shown that stock picking and market timing are rarely successful strategies with any level of consistency. Yes, there are those who are lucky enough to pick a really good stock and those who are lucky enough to buy or sell […]