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Our Strategies Explained
| Strategy | Description | How AI Can Help | Type of Investor |
|---|---|---|---|
| Dividend Investing | Focus on stocks that pay regular dividends | Identify stable companies with sustainable dividend yields | Income-focused investors |
| Factor Investing | Target specific factors like size, value, or quality | Automatically analyzes factors to rank stocks by factor values | Seeks targeted exposure to specific market characteristics |
| Growth Investing | Focusing on companies with high growth potential | Estimates stocks most likely to have high returns based on historical performance | Willing to take on more risk for higher returns |
| Momentum Investing | Buying rising stocks and selling falling ones | Identify trends and optimal entry/exit points | Active investor comfortable with frequent trading |
| Options Strategies | Using options derivatives for income or hedging | Designs and executes complex options strategies | Sophisticated investors seeking income or downside protection |
| Passive Index Investing | Invest in mutual and exchange-traded funds that follow specific indexes | AI is no value for passing investing | Passive investors seeking market-level returns |
| Value Investing | Seeking undervalued stocks | Analyzes financial data to identify undervalued companies | Patient investors seeking long-term growth |
| Strategy | Description | How AI Can Help | Type of Investor |
|---|---|---|---|
| Dividend Investing | Focus on stocks that pay regular dividends | Identify stable companies with sustainable dividend yields | Income-focused investors |
| Factor Investing | Target specific factors like size, value, or quality | Automatically analyzes factors to rank stocks by factor values | Seeks targeted exposure to specific market characteristics |
| Growth Investing | Focusing on companies with high growth potential | Estimates stocks most likely to have high returns based on historical performance | Willing to take on more risk for higher returns |
| Momentum Investing | Buying rising stocks and selling falling ones | Identify trends and optimal entry/exit points | Active investor comfortable with frequent trading |
| Options Strategies | Using options derivatives for income or hedging | Designs and executes complex options strategies | Sophisticated investors seeking income or downside protection |
| Passive Index Investing | Invest in mutual and exchange-traded funds that follow specific indexes | AI is no value for passing investing | Passive investors seeking market-level returns |
| Value Investing | Seeking undervalued stocks | Analyzes financial data to identify undervalued companies | Patient investors seeking long-term growth |
- Broker: This is the entity that lets you buy and sell investments for you. Usually, you pay a fee for this service. There are also plenty of online discount brokers, where you often pay a flat commission per trade. Fidelity, Charles Schwab, Vanguard, J.P. Morgan, and Merrill Lynch are some of the largest brokerage firms. In my personal opinion, I believe Fidelity offers regular investors the most sophisticated tools for setting up and managing your own custom portfolios.
- Brokerage Account: A brokerage account is created by a licensed brokerage firm, that allows an investor to add funds and then the investor can place investment orders. The investor owns the assets contained in the brokerage account but will usually have to claim any taxable income from capital gains,
- Money Market: A money market account is an interest-bearing account that will typically pay a higher interest rate than a bank savings account would. I actually store a significant portion of my savings in this for a much better monthly return, than the 0.001% interest of my bank.
- 401k: A type of retirement plan offered by employers to their employees, which usually allows investors to put their money to work in mutual funds or index funds. An investor usually gets a tax deduction at the time the account is funded, there are annual limits, employers often match contributions, and there are no taxes owed until you begin withdrawing the money. Basically, take advantage if your company offers one.
- Traditional IRA: A traditional IRA is an individual retirement account that offers tax advantages to savers. You won’t pay taxes upfront, but you will when you withdraw during retirement. Traditional IRAs offer tax deductions of up to $5,500 a year ($6,500 for those 50 and older).
- Roth IRA: An individual retirement account allowing a person to set aside after-tax income. Similar to the Traditional IRA. You can contribute the maximum of $5,500 to a Roth IRA ($6,500 if you are age 50 or older by the end of the year). The difference is, you are not taxed when you take your retirement payments. However, there are limitations pending your salary.
- Rollover IRA: When an employee leaves his or her employer, he or she can opt to roll over the 401(k) balance and have it deposited into a Rollover IRA, which basically is exactly like the Traditional IRA.
- Simple IRA: A type of IRA for small business owners with fewer than 100 employees who want to offer some sort of retirement benefits to their employees but don’t want to deal with larger challenges that come with a 401k company.
- SEP-IRA: This form of IRA can be used by self-employed people and small business owners under certain circumstances. The contribution limits are much higher than a Traditional IRA or Roth IRA.
- 403b: A retirement plan that is pretty much like a 401(k) but is only offered for non-profit organizations.
- 529 Plan: This tax-advantage plan is designed to save for future education costs. This can be for K-12 tuition or for future college costs. There are two types of 529 plans.
- Bond: A bond is a fixed income investment in which an investor loans money, typically corporate or governmental which borrows the funds for a defined period of time at a variable or fixed interest rate. There are many types of bonds out there.
- Stocks: A stock (also known as “shares” and “equity) is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings. There are two main types of stock: common and preferred. Feel free to Google those if interested.
- Penny Stocks: Penny stocks used to be those that traded for less than a dollar per share, but over time, the term now refers o stocks that trade below $5 per share. There are a number of risks associated with penny stocks that make many investors want to steer clear, as they are extremely volatile (a word defined further down). There are people who do quite well with penny stocks, but not nearly as many who fail.
- Real Estate: Real estate is property, such as land, houses, buildings, or garages that the owner can use or allow others to use in exchange for payment in rent. These properties can also be flipped for profit as well.
- Mutual Fund: A mutual fund is a pooled portfolio. The fund itself holds the individual stocks, in the case of equity funds, or bonds, in the case of bond funds. Mutual funds are a great way to get exposure to groups of stocks or bonds, but be careful. Many have high fees that can eat away your returns.
- Index Fund: An index fund is a mutual fund, that allows an individual to “invest” in an index, such as the S&P 500. Index funds are very similar to how mutual funds work, but typically have very low fees and are the better choice.
- Hedge Fund: A hedge fund is a type of investment partnership. It’s where partners will pool money from investors and engage in a wide range of investing activity. Basically, managing where investors money goes. It can be a bit riskier for investors.
- Custom Portfolio: A portfolio that contains a specific mix of stocks that are engineered to achieve specific goals resulting from an investment strategy (here at AI Investor 360, we build custom portfolios). Modern brokerage platforms such as Fidelity now offer customers the tools to easily setup and manage custom portfolios.
- REITs: Instead of dealing with actual buying and renting of properties, you can invest through real estate investment trusts (REITs). They trade as if they were stocks and have special tax treatment. There are all different types of REITs specializing in all different types of real estate. REITs often trade on major exchanges like other stocks, so they move with the market.
- Bear Market: A bear market is a period where stock prices are falling. In a bear market, investor confidence is extremely low, and many investors start to sell off their stocks during a bear market for fear of further losses, thus fueling the negative market more. Typically, bear markets are marked by a 20% downturn or more in stock prices over a given time period. It also can be a great buying time, as stocks go on sale.
- Bull Market: A bull market when the market is moving in a positive direction and is expected to continue. Basically, optimism is high, and investor confidence expects that strong results should continue, either for months or years.
- New York Stock Exchange: The New York Stock Exchange (NYSE) is a stock exchange located in New York City that is considered the largest equities-based exchange in the world.
- Dow Jones: The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the Nasdaq.
- NASDAQ: This is the marketplace for buying and selling securities. There are thousands of stocks listed on the Nasdaq exchange that include giant companies like Apple, Google, Microsoft, Oracle, Amazon, and Intel.
- Balance Sheet: A balance sheet reports the company’s assets and liabilities. It’s just a complete financial statement that provides a snapshot of what a company owns and what they owe, as well as the amount invested by shareholders.
- Blue Chip: A company that has a history of solid earnings, increasing dividends, and a great balance sheet.
- Dividends: A portion of a company’s profits that is paid out to shareholders on a quarterly or annual basis. It is not mandatory for companies to pay dividends on stock, but many do to their shareholders.
- Capital Gain (or Loss): This is the difference between what you bought an investment for and what you sell it for. A gain is when you buy a stock at say $20/share and later sell it for $28/share (a 40% return). A loss is the reverse of that.
- Market Capitalization: The market cap is calculated by multiplying the current price per share with the number of shares outstanding (number of shares owned by investors).
- Stockbroker: A stockbroker is an institution or individual that executes buy or sell orders on behalf of a customer. Stockbrokers help settle the trades that are requested by brokers.
- Volume: Volume is the number of shares being traded in the entire market during a given period. Each transaction during stock trading hours contributes to the count of total volume.
- Dollar-Cost Averaging: This is an investment technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. This is considered a best practice for investors to adopt.
- Volatility: This is when there are big swings in either direction of the stock market or individual stocks. If the stock market rises and falls more than 1% over a consistent period of time, it would probably be considered a ‘volatile’ market.
Tax Considerations
Overview of Tax Considerations
Investors should be careful to manage costs arising from commissions, fees, and taxes from their investing activities. The main consideration for taxes on investment accounts is the type of investment account. There are two main types of accounts:
Taxable Accounts: Taxable accounts offer fewer restrictions and more flexibility than tax-advantaged accounts such as individual retirement accounts (IRAs) and 401(k)s. The returns are taxed depending on how long the asset was held and sold. Investments held longer than one year plus one day are subject to long-term capital gains rates of 0%, 15%, or 20%, depending on an investor's tax bracket. Investments held for a year or less are subject to short-term capital gains, whereas realized gains for investments held 1 year or less are taxed according to an individual's ordinary income tax bracket.
Tax-Advantaged Accounts: These can be tax-deferred or tax-exempt. Tax-deferred accounts, such as traditional IRAs and 401(k) plans, provide an upfront tax break. Investors pay taxes when they withdraw their money in retirement, which means the tax is deferred. Tax-exempt accounts, including Roth IRAs and Roth 401(k)s, work differently. Contributions to these plans are made with after-tax dollars. However, investments grow tax-free, and qualified withdrawals in retirement are tax-free. These accounts have restrictions and penalties if individuals are below retirement age when they withdraw.
What Does Tax Efficient Investing Mean?
Tax-efficient investing is a strategy that helps maximize returns by limiting any losses to taxes. Investors should review the tax obligations associated with different accounts before they invest in them. A financial or investment professional can help.
AI Investor 360 Recommendations
For portfolios in a taxable account, investors should minimize rebalancing within a year of launching the portfolio, since any gains resulting from selling stocks within a year of the launch are taxed at your income tax rates. AI Investor 360 will usually make small updates to our portfolios on a quarterly basis, as new data becomes available. Whether or not to rebalance, and how much to rebalance, your portfolio according to our latest updates is your responsibility. Our recommendation is to make small adjustments that will not impact your taxes much but avoid large adjustments. Our portfolios are designed to be robust over the course of a year, so could choose to only rebalance after holding the specific portfolio launched for one year plus one day.
For tax-advantaged accounts, you can choose to rebalance your portfolios as we provide you with updates. This assumes that you are using a brokerage platform, such as Fidelity, that charges little to no commissions/fees for executing trades.
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