Financial trends change over time, and as that happens, so do the products that are in vogue. New financial products come along that weren’t available before, and products fall in and out of favor depending on their assumed benefits in the current financial environment. Currently, there are some products that have become popular. Here’s everything you need to know about these trending financial products.
Exchange-traded funds –
Exchange-traded funds, also referred to as ETFs, aren’t a new product. Vanguard came up with the idea more than 40 years ago. Fidelity Investments describes an EFT as “a basket of securities that you can buy or sell through a brokerage firm on a stock exchange.”
An ETF is basically a mutual fund that, rather than being actively managed, is linked to a stock index and attempts to mimic that index’s performance. These funds have become extremely popular over the past decade or so for two main reasons. One, they have lower costs because they are not actively managed. Two, they have matched and in many cases exceeded the performance of active funds. ETFs are especially popular when the market is doing well.
Target-date funds –
Trying to keep track of your retirement investments is hard, and paying someone to do it can cost a lot. That’s why target-date funds have become very popular. Investopedia explains that target-date funds are “an investment product derived from traditional portfolio management theory. They offer investors an investment vehicle that is professionally managed using an asset allocation strategy that takes into consideration risk tolerance over time.”
Target-date funds are managed based on your expected retirement date. They have more aggressive investments early on and then progressively get more conservative as your target retirement date approaches. Target-date funds are essentially “smart” retirement funds because they automatically rebalance their investment mix based on a formula that’s pegged to when you want to retire.
Reverse mortgages –
According to Trinity Mutual, “A reverse mortgage put simply, is a mortgage loan, just like the current mortgage you may have or have had in the past. With your conventional loan you may have now, it is a lien against your property, correct? A reverse mortgage is just like a refinance.”
In other words, reverse mortgages are similar to home equity loans, with one big difference: You don’t have to pay the loan back in monthly installments.
Reverse mortgages allow you to tap the equity in your home without having to sell or pay it back right away. These loans are meant as a retirement vehicle, and they are only available to people 62 and older. The home you use must be your principal residence. The way the loans work is you get a lump sum payment for a portion of the equity in your home. You can continue to live in the home and must pay taxes and other expenses. When you either pass away or move out of the home, your lender takes title to your home and sells it to recoup its expenses.
These are some of the trending financial products out there today. Make sure you do your research before investing in any of these products.