Better Investing for Beginners

November 11, 2020 &• 10 min read by Credit.com Comments 0 Comments

div#contentdisclaimer background: #fff;padding: 1.5em;line-height: 1.25em;max-width: 500px;
Advertiser Disclosure

Disclaimer

Are you new to investing? Not sure where to start? Investing for beginners can be overwhelming. There are so many moving parts. With that said, we hope the process we’ll show you today will make it easier for you to get started.

What follows are ten steps you can take to become a successful investor. Let’s get started.

1. Work from a Budget

I put your budget first for a reason. It should be obvious. If you don’t know where your money is going, it will be challenging to save and invest consistently. I’m not suggesting you need to be inflexible with your budget—quite the contrary.

However, you need to know where your money is going every month to know to analyze areas where you might reduce expenses and increase the amount available to save and invest.

You’ll need to know how much you have left after paying all the bills, funding your emergency fund, and taking care of things like food, clothing, cars, school supplies, and any other expenses you might incur.

What’s left after taking care of all of these things is your discretionary income. That’s where you’ll get the money to invest. That’s where you can determine how much you can put toward funding your various investment objectives (See #2 below).

Tip: You can boost your discretionary income with money making apps and cash back sites like Swagbucks, Honey, and Rakuten.

2. Know Your Why

Before starting any investing, you must know why you’re investing. How will the money invested eventually be spent? When? Will it be withdrawn in a lump sum? Over a period of time?

If you are investing for retirement, what are the best accounts to use? 401(k)? Traditional  or Roth IRA?

If you’re a beginner, perhaps you’re saving to buy your first home. If that’s the case, you shouldn’t invest that money in the same way you’re investing your retirement dollars.

Maybe you’re saving for your kids’ college education. Once again, that money will be invested differently than money for a house or retirement.

Before you put any money to work in investments, know how and when the money will eventually be used.

3. Build Your Emergency Fund

Before you start investing, make sure you have built up an emergency fund. The money you put into your emergency fund should be a part of your budget until you get it to the desired amount.

Like many things in personal finances, how much one should keep in an emergency fund is subjective. At a minimum, you should have three to six months of your monthly expenses set aside in this fund.

If you’re a more conservative person, you might be more comfortable with a one-year cushion in your fund. I know others who have as much as three years set aside in their fund. Managing your monthly expenses by reducing or eliminating unnecessary expenses means you can have a smaller emergency fund.

The reason is simple: if your fund’s size is based on a multiple of your monthly expenses, the smaller your expenses, the smaller your fund. Another way to look at it—if you lower your monthly expenses, whatever amount you have in your emergency fund will last longer.

Either way, be sure to think about how many months you want to be covered and keep that amount or more in this fund.

One last thing on this. Do not invest your emergency fund money in anything that has a risk of loss. Look for an FDIC-insured interest-bearing savings or money market account.

4. Have a Plan

Once you’ve decided why you’re investing your money, it’s time to develop a plan to invest it.

For example, let’s say one of your goals is to invest for retirement. I brought up some questions above about what type of retirement accounts would be best. Here are some other basic questions to answer:

  • When do I want to retire?
  • How much income do I want in today’s dollars?
  • What will my expenses be?
  • What sources of income will I have (Social Security, pension, inheritance, etc.)?
  • How long will the money need to last, or how long do I expect to live?

Once you have that last number, you can work backward to calculate how much you need to save each year based on a given growth rate. If you have 30 years until retirement, need $1 million, and earn 5% on your investments each year, you’d need to save roughly $15,000 every year. Viewed monthly, you’d set aside $1,250. Use a compound interest calculator to figure out what you need for your plan.

If you have a company retirement plan, the bulk of that investment might go into that account. Remember, most employer plans have a matching contribution. Many companies will match your contributions 100% up to 3%, 5%, or more. That’s free money and reduces the amount you need to contribute to reach your $1 million goals.

Use this same calculation method for each goal you’re trying to achieve.

5. Follow Your Plan

I know it seems unnecessary to say this, but many people seem to get distracted, discouraged, or convinced that there is a better way.

If you’ve done the work to calculate how much money you need to fund your goals, how much you need to save, and the kind of return that will get you there, that’s really all that matters. Don’t worry about what others are doing. That’s not to say you shouldn’t listen to others. However, just because someone is doing well for themselves doesn’t mean how they’re doing it is good for you.

Stay focused on the plan you’ve created for yourself. If your circumstances change (job loss, income reduction, health issue, etc.), see how that affects your plan. If need be, make adjustments along the way.

Be sure to calculate how these changes affect your goals and adjust accordingly. Doing this will help keep you on track.

6. Invest Wisely

There are many differing opinions on how to invest your money. There will always be someone who tells you they’re getting a much better return on their investments than you are. Don’t be swayed. No one wants to appear to be stupid. Some need to toot their own horn to make themselves feel better.

It doesn’t matter what someone else is earning on their money at the end of the day. It has nothing to do with what you’re trying to do with your money.

You’ll also hear a lot of noise from the financial and mainstream media. Ignore it for the same reason.

Figure out how much you need to earn to have the amount of money you need when you plan to use it. Apply a conservative return percentage to calculate the annual investment needed. Keep in mind that investment returns are not fixed or linear. They will fluctuate, sometimes pretty dramatically.

Here’s an article that will introduce you to some of the investment options available in 2020 and beyond to help you choose.

7. Be Flexible

We covered this briefly in the section on following your plan. Being flexible means being open to adjusting your plans. Any change in life circumstances should be the reason for any changes you make.

Being flexible doesn’t mean popping in and out of investment funds to chase returns. Chasing returns or timing the market doesn’t work over the long term. Once in a while, people get lucky. But I know of no one, individual, professional, or otherwise, who has had long-term success trading or timing the market.

If your returns lag what you calculated, you can adjust by doing one of two things:

  1. Increase the amount of money you’re contributing to your investments.
  2. Move more of your money into riskier investments with higher expected returns.

There are some caveats to discuss with option #2. No one should take more investment risk than they are willing, able, and need to. Any increase in risk should be incremental. For example, if you have 50% of your money in stocks, adding another 5%­–10% more in stocks may offer the additional return needed without substantially increasing your risk.

That brings us to the next important step in the process.

8. Invest for the Long Term

When we say have a plan, follow a plan, and invest wisely, we are talking about doing that for the long term. Investment success comes over time. 

If you’ve made your plan, determined how much you need to save and invest, and determined how much you need to earn to get there, you’ve done the bulk of the work. Markets reward investors over the long term.

Develop your portfolio based on all of these things, be sure it’s diversified across many asset classes, and stay with it until you reach your goals. It really is that simple.

I said simple, not easy. There will be many distractions along the way that may make you think you need to change your plans or portfolio. Be very careful!

If you’ve done your homework and know what you need to get where you want to go, stick with the plan and tune out all the noise.

9. Monitor Your Investments

Monitoring your investments does not mean changing them all the time. Nor does it mean looking at them every day, week, or month and fretting over what the market is doing. Markets over the short term are very volatile.

Any changes you make should be incremental. Let’s say you want 50% in stocks and 50% in bonds. If you look at your portfolio at the end of the year and see you now have 60% in stocks and 40% in bonds, consider making some adjustments.

Called rebalancing, this means you would sell 10% of your stocks and invest that money into your bonds to keep your allocation at 50/50 stocks/bonds. After all, that’s how you determined you needed to invest your money to accomplish your goals.

Rebalancing keeps you on track. You needn’t rebalance more than once, maybe twice, a year. Market fluctuations often help rebalance the portfolio back to where you need it to be. In other words, the market swings both up and down pretty regularly. When people sell stocks, they often buy bonds. These fluctuations can bring your portfolio back into the balance you want.

10. Have Patience

Patience is one of the hardest principles to keep when investing. That is especially true in volatile times. We’ve had days in 2020 when the market dropped 9% in one day, only to bounce back over the next day or two to erase that one-day drop.

It can be unnerving and make you want to get out of the market. Resist the temptation. Investors who sold out of the market in the financial crises of 2000–2002 and 2008 damaged themselves badly. If they had stayed invested and, better yet, invested more in the market, they likely would have been way ahead.

Rebalance. These market drops are a great way to take advantage of lower prices in either stocks or bonds. If you are not comfortable with these kinds of price swings, you probably shouldn’t be invested in the markets.

The markets reward long-term investors and, more often than not, punish short-term investors. Hang in there. Be patient. Don’t listen to the advice of well-meaning friends, family, neighbors, or coworkers. Turn off the news.

Final Thoughts

I don’t know about you, but I tend to overcomplicate many things. It’s not a good idea when it comes to investing. Please keep it simple. Follow a process, whether it’s these ten steps or something else. Stick with it. Be patient, and do your best to ignore the noise.

People who appear smarter than you often aren’t. Don’t sell yourself short. The plan you set is yours, not anyone else’s. Remember that when other well-meaning people tell you how well they’re doing and how much better you should be doing.

Play the long game. Don’t follow the crowd. They are often wrong. Turn off the noise. That’s a recipe for both investment success and success in life.


Michael Dinich is a personal finance expert, podcaster, YouTuber, and journalist. Michael is the founder of Your Money Geek, a rapidly growing personal finance and pop culture website. Michael has appeared as a guest on numerous personal finance podcasts and blogs. He is passionate about helping others, side hustles, and all things geeky.  

#animation-wrapper max-width: 450px; margin: 0 auto; width: auto; height: 600px; font-family: ProximaNova-Regular, Arial, sans-serif; #animation-wrapper .box background: linear-gradient(#0095D8, #1D4BB6); color: #fff; text-align: center; font-family: ProximaNova-Regular, Arial, sans-serif; height: 130px; padding-top: 10px; .content .box p margin: 0 0; .box .btn-primary color: #fff; background-color: #ff7f00; margin: 10px 0; .chat ul margin: 0; padding: 0; list-style: none; .message-left .message-time display: block; font-size: 12px; text-align: left; padding-left: 30px; padding-top: 4px; color: #ccc; font-family: Courier; .message-right .message-time display: block; font-size: 12px; text-align: right; padding-right: 20px; padding-top: 4px; color: #ccc; font-family: Courier; .message-left text-align: left; margin-bottom: 7px; .message-left .message-text max-width: 80%; display: inline-block; background: #0095D8; padding: 13px; font-size: 14px; color: #fff; border-radius: 30px; font-weight: 100; line-height: 1.5em; .message-right text-align: right; margin-bottom: 7px; .message-right .message-text line-height: 1.5em; display: inline-block; background: #1D4BB6; padding: 13px; font-size: 14px; color: #fff; border-radius: 30px; line-height: 1.5em; font-weight: 100; text-align: left; .chat background: #fff; margin: 0; border-radius: 0; .chat-container height: 450px; padding: 5px 15px; overflow: hidden; .spinme-right display: inline-block; padding: 15px 20px; font-size: 14px; border-radius: 30px; line-height: 1.25em; font-weight: 100; opacity: .2; .spinme-left display: inline-block; padding: 15px 20px; font-size: 14px; color: #ccc; border-radius: 30px; line-height: 1.25em; font-weight: 100; opacity: .2; .spinner margin: 0; width: 30px; text-align: center; .spinner>div width: 10px; height: 10px; border-radius: 100%; display: inline-block; -webkit-animation: sk-bouncedelay 1.4s infinite ease-in-out both; animation: sk-bouncedelay 1.4s infinite ease-in-out both; background: #000; .spinner .bounce1 -webkit-animation-delay: -.32s; animation-delay: -.32s; .spinner .bounce2 -webkit-animation-delay: -.16s; animation-delay: -.16s; @-webkit-keyframes sk-bouncedelay 0%, 100%, 80% -webkit-transform: scale(0); 40% -webkit-transform: scale(1); @keyframes sk-bouncedelay 0%, 100%, 80% -webkit-transform: scale(0); transform: scale(0); 40% -webkit-transform: scale(1); transform: scale(1); .ad-container padding: 15px 30px; background-color: #fff; max-width: 690px; box-shadow: 1px 1px 4px #888; margin: 20px auto; .ad padding: 10px 6px; max-width: 630px; .ad-title font-size: 20px; color: #07b; line-height: 22px; margin-bottom: 6px; letter-spacing: -.32px; .ad-link line-height: 18px; padding-left: 26px; position: relative; .ad-link::before content: ‘Ad’; color: #006621; font-size: 10px; width: 21px; line-height: 12px; padding: 2px 0; text-align: center; border: 1px solid #006621; border-radius: 4px; box-sizing: border-box; display: inline-block; position: absolute; left: 0; .ad-link a color: #006621; text-decoration: none; font-size: 14px; line-height: 14px; .ad-copy color: #000; font-size: 14px; line-height: 18px; letter-spacing: -.34px; margin-top: 6px; display: inline-block; .ad .breaker font-size: 0; .box .box-desc font-family: ProximaNova-Bold, Arial, sans-serif; font-size: 17px; font-weight: 600; width: 225px; margin: 0 auto; .btn display: inline-block; margin-bottom: 0; font-weight: 400; text-align: center; vertical-align: middle; touch-action: manipulation; cursor: pointer; background-image: none; border: 1px solid transparent; white-space: nowrap; padding: 6px 12px; font-size: 14px; line-height: 1.428571429; border-radius: 4px; -webkit-user-select: none; -moz-user-select: none; -ms-user-select: none; user-select: none; font-family: ProximaNova-Semibold, Arial, sans-serif; text-decoration: none; .btn-group-lg>.btn, .btn-lg padding: 10px 16px; font-size: 18px; line-height: 1.3333333; border-radius: 6px; #ad-4 font-family: Arial, sans-serif; background-color: #fff; #ad-4 .ad-title color: #2130ab; #animation-wrapper .cta-ec background: #79af3e; color: #fff; width: 155px; height: 41px; font-family: ProximaNova-Semibold, Arial, sans-serif; font-size: 14px; margin: 10px auto 4px auto; #animation-wrapper .ec-logo display: block; margin: 0 auto; width: 140px; @media (max-width:500px) .ad padding: 20px 18px; max-width: 630px;

Get everything you need to master your credit today.

Get started

Sign up now.

Source: credit.com

5 Things to Consider When Changing Car Insurance

October 22, 2018 &• 5 min read by Josh Smith Comments 0 Comments

div#contentdisclaimer background: #fff;padding: 1.5em;line-height: 1.25em;max-width: 500px;
Advertiser Disclosure

Disclaimer

Insurance is defined as a form of protection against loss. But in today’s insurance industry, insurance can be purchased to mitigate against all forms of loss. It is a type of risk management used by people to protect against uncertain loss or the risk of failure. Insurance companies or carriers or underwriters sell premiums to those who wish to purchase premiums. Premiums can be defined as the number of money carriers charge to customers in exchange for the coverage set in the agreement also known as the insurance policy.

And in 2017, the U.S. insurance industry sold premiums reaching a total of $1.2 trillion with the health insurances accounting for a large chunk of that amount. Coming in at second place was P/C (property/casualty) premiums accounting for $558.2 billion in 2017.

Some may argue that the reason for this is due to the hike in prices of premiums over the years, but the truth is for the millions of people who have experienced softer blows because of the payouts from insurance companies, paying a premium is a small price to pay.

There are currently several types of insurance policies. From health insurance to life insurance, automobile insurance and so on.

These days, choosing a new car insurance policy that works for you is usually time-consuming, expensive or even both. And because policies are not usually permanent, you can easily switch insurance providers if you are not happy with your current provider.

And for those who think they can afford to drive around during the period they are in between a comprehensive insurance policy, the bad news is that in all but a few states, an insurance policy is needed alongside a license in order to drive.

But the good news is changing your policy provider should not be so difficult, this article outlines five of the most important things to consider when shopping for a new insurance carrier:

  1. Cost:

Like every other thing on the market, the cost of an insurance policy is not equal. It is almost impossible to get the same coverage from 10 different companies at the same price. Odds are you would get the same coverage you are getting at a fraction of the same price from another company. This is because various companies factor in different things when putting together the price for their insurance policies. Some of these costs could include the cost of running the company, the cost of offering more benefits and other hidden charges.

It is essential to factor in elements other than your out-of-pocket expenses before you decide to make the switch between car insurance companies. You can also try to take control of the factors you can control like improving your driving record or looking at additional types of auto protection plans. All these are considered by the insurance company and could eventually save you money.

  1. Your Choice:

Another important reason why several bare minimum automobile insurance policies are cheap is that they offer limited options regarding maintenance and repairs. Like a health maintenance organization (HMO), car insurance companies can ask you to take your car for approval at one of their approved dealerships for appraisals. Sticking with a top-shelf insurance company could possibly mean higher premiums but it also means better care should you need it.

The better the insurance company, the higher the premiums you would have to pay.

  1. The Benefits:

Odds are, if you cannot list the distinguishable advantages offered to you by your insurance policy, you are not gaining a lot in return. An amazing advantage you could watch out for is the reduction of rates if you go a few months without any accidents and accident forgiveness. Some companies also choose to pay for your rental car if you need to leave your car at the mechanic regardless of how long it might take.

Other companies offer reduced rates for purchases of bulk policies. i.e. The purchase of car insurance with possibly fire insurance and so on. Instead of you letting your insurance company ask what you can do for them, ask what they can do for you.

  1. The Circumstances:

Sometimes things that we do not plan for happen and when such things happen, the first thing to be done is to start searching for a new car insurance policy. For example, most new cars often need complete coverage until they are fully bought, and some local insurance companies do not offer continued coverage if you change cities.

Also, rates could also go up if a new driver is added to the policy. This is, of course, dependent on the driver’s age, gender, and driving history. Understanding your unique situation will allow you to properly assess what is needed and what is a mere frivolity.

  1. Your Company:

Because of the internet, finding out pertinent information about a prospective insurance company is very easy. You can figure out everything there is to know about them. What kind of customer service do they offer their clients? Do their representatives listen? Do they treat their customers with respect?

Find out how the claim adjusters and representatives of the company treat those who work with the cars. Knowing these things is essential because a company that treats its employees terribly will possibly skim around the edges when it comes to their customers.

Also, try doing a bit of research into the company’s ethics. It is advisable to do business with a company that believes in the same things you do and do not engage in behavior that you find personally distasteful. Your money will be used to pay for several things to ensure they are all used for things that you support.

It’s an added bonus for you if you know who your insurance agent is, and you have a great relationship with them. Usually, these people are the ones who will go the extra distance for you should you need to file a claim and they can also help with the filing of the claims or give you a recommendation on local companies that could be of help to you.

Finally, you’ll want to check your credit score. Credit.com offers a free credit score updated every 14 days. Usually when getting a new insurance quote, insurance companies will run your credit. A higher credit score usually means a lower monthly premium, although other factors like your driving record and marital impact how much you’ll be paying. Remember to consider these five factors when considering a new insurance company.

Get Started Now
Privacy Policy


Sign up now.

Source: credit.com

COVID-19 Scams

div#contentdisclaimer background: #fff;padding: 1.5em;line-height: 1.25em;max-width: 500px;
Advertiser Disclosure

Disclaimer

As if fearing the health-related consequences of the COVID-19 coronavirus wasn’t enough, there’s also a fair amount of financial uncertainty related to recession and an unstable economy. People all across the United States are wondering how they’ll pay their bills and make ends meet as they file for unemployment and wait for a one-time stimulus check that may not cover the bills.

Go to Guide
Privacy Policy

It’s unfortunate, but some bad actors will always take advantage of situations like coronavirus. In addition to everything else, individuals also need to be on the lookout for COVID-19 scams that are cropping up. In fact, there are so many coronavirus scams out there right now that the FTC created an FTC Scam Bingo game to try and spread the word.

Read up on what COVID-19 scams to look out for and how you can protect yourself and your finances.

COVID-19 Stimulus Check Scams

Some scammers are tricking people into thinking they need to provide personal information to obtain their government relief check. Consumers do not need to sign up for the federal stimulus checks. The government plans to distribute them based on consumers’ 2018 or 2019 federal tax returns starting April 2020. Keep in mind that the IRS does not initiate contact by email, text, or social media.

How to Protect Yourself

Do not respond to any correspondence claiming to be the IRS or other branch of the government requesting personal information in exchange for access to your stimulus check. For accurate information about the federal relief checks and when you can expect yours, visit the IRS’s coronavirus resource.

Student Loan Scams

Americans owe over $1.64 trillion in student loan debt, so it’s no wonder that scammers are preying on this financially vulnerable population. Watch out for offers to forgive your student loan debt in its entirety or change your repayment plan for a fee, or requests for other personal information in order to suspend your payments in response to coronavirus. There is no such thing as instant student loan relief, and you should not need to pay a fee for help from your loan servicer. All federally backed loans have automatically suspended payments and set interest to 0%.

How to Protect Yourself

Do not accept unsolicited offers to help you with your
student loan payments and never give out your personal information. If you are
having trouble making payments because you’ve lost your job, reach out to your
loan servicer for options.

Social Security Scams

Social Security scams are common, but coronavirus has put a new twist on the scam. Now, in addition to watching out for scammers claiming that your Social Security number is about to be suspended, you also need to watch out for calls or letters claiming that your benefits will be canceled due to coronavirus-related office closures. Social Security offices are closed, but officers are still working, and your benefits will not be suspended. And your Social Security number will never be suspended.

How to Protect Yourself

If you are unsure if a call or email is from the Social Security Administration, reach out to them yourself for confirmation before sharing any personal information. If you have already given you Social Security number to a scammer, visit IdentityTheft.gov/SSA for steps on how to protect your credit and identity.

Medicare Scams

Because older individuals are particularly susceptible to COVID-19, scammers have been targeting them with Medicare scams. Be on the lookout for fraudulent Medicare representatives asking you to verify personal information, like your bank account, Social Security, or Medicare numbers. Medicare representatives will never call you to verify your account number, offer you free equipment or services, or try to sell you anything.

How to Protect Yourself

If you’re
not sure if a phone call is legitimate, hang up and call Medicare yourself.
That way you can confirm that you are talking to an actual Medicare
representative. To reach the Medicare office, call 1-800-633-4227.

Fraudulent Charities

Whether it’s a natural disaster or worldwide pandemic
like the coronavirus, legitimate charities work hard to aid people in need.
This can include providing food, funds, housing or other forms of assistance. Unfortunately,
fake charities can crop up too. They might use names that sound similar to real
charities and may even have emails, websites and phone numbers that seem
legitimate but aren’t.

How to Protect Yourself

Donate to charities that you are already familiar with. If you’re questioning the legitimacy of a charity, you can use third-party websites to check credentials. Options include Charity Navigator and Give.org, which is maintained by the Better Business Bureau.

Protect Yourself from COVID-19 Scams

As you continue to navigate the uncharted waters of a
worldwide pandemic, be on the lookout for COVID-19 scams. If you’re ever unsure
about something, you can consult trustworthy government resources or well-known
news outlets to verify information. Share this information about scams with
others so they know what to be on the lookout for as well.

More resources on scams:

#animation-wrapper max-width: 450px; margin: 0 auto; width: auto; height: 600px; font-family: ProximaNova-Regular, Arial, sans-serif; #animation-wrapper .box background: linear-gradient(#0095D8, #1D4BB6); color: #fff; text-align: center; font-family: ProximaNova-Regular, Arial, sans-serif; height: 130px; padding-top: 10px; .content .box p margin: 0 0; .box .btn-primary color: #fff; background-color: #ff7f00; margin: 10px 0; .chat ul margin: 0; padding: 0; list-style: none; .message-left .message-time display: block; font-size: 12px; text-align: left; padding-left: 30px; padding-top: 4px; color: #ccc; font-family: Courier; .message-right .message-time display: block; font-size: 12px; text-align: right; padding-right: 20px; padding-top: 4px; color: #ccc; font-family: Courier; .message-left text-align: left; margin-bottom: 7px; .message-left .message-text max-width: 80%; display: inline-block; background: #0095D8; padding: 13px; font-size: 14px; color: #fff; border-radius: 30px; font-weight: 100; line-height: 1.5em; .message-right text-align: right; margin-bottom: 7px; .message-right .message-text line-height: 1.5em; display: inline-block; background: #1D4BB6; padding: 13px; font-size: 14px; color: #fff; border-radius: 30px; line-height: 1.5em; font-weight: 100; text-align: left; .chat background: #fff; margin: 0; border-radius: 0; .chat-container height: 450px; padding: 5px 15px; overflow: hidden; .spinme-right display: inline-block; padding: 15px 20px; font-size: 14px; border-radius: 30px; line-height: 1.25em; font-weight: 100; opacity: .2; .spinme-left display: inline-block; padding: 15px 20px; font-size: 14px; color: #ccc; border-radius: 30px; line-height: 1.25em; font-weight: 100; opacity: .2; .spinner margin: 0; width: 30px; text-align: center; .spinner>div width: 10px; height: 10px; border-radius: 100%; display: inline-block; -webkit-animation: sk-bouncedelay 1.4s infinite ease-in-out both; animation: sk-bouncedelay 1.4s infinite ease-in-out both; background: #000; .spinner .bounce1 -webkit-animation-delay: -.32s; animation-delay: -.32s; .spinner .bounce2 -webkit-animation-delay: -.16s; animation-delay: -.16s; @-webkit-keyframes sk-bouncedelay 0%, 100%, 80% -webkit-transform: scale(0); 40% -webkit-transform: scale(1); @keyframes sk-bouncedelay 0%, 100%, 80% -webkit-transform: scale(0); transform: scale(0); 40% -webkit-transform: scale(1); transform: scale(1); .ad-container padding: 15px 30px; background-color: #fff; max-width: 690px; box-shadow: 1px 1px 4px #888; margin: 20px auto; .ad padding: 10px 6px; max-width: 630px; .ad-title font-size: 20px; color: #07b; line-height: 22px; margin-bottom: 6px; letter-spacing: -.32px; .ad-link line-height: 18px; padding-left: 26px; position: relative; .ad-link::before content: ‘Ad’; color: #006621; font-size: 10px; width: 21px; line-height: 12px; padding: 2px 0; text-align: center; border: 1px solid #006621; border-radius: 4px; box-sizing: border-box; display: inline-block; position: absolute; left: 0; .ad-link a color: #006621; text-decoration: none; font-size: 14px; line-height: 14px; .ad-copy color: #000; font-size: 14px; line-height: 18px; letter-spacing: -.34px; margin-top: 6px; display: inline-block; .ad .breaker font-size: 0; .box .box-desc font-family: ProximaNova-Bold, Arial, sans-serif; font-size: 17px; font-weight: 600; width: 225px; margin: 0 auto; .btn display: inline-block; margin-bottom: 0; font-weight: 400; text-align: center; vertical-align: middle; touch-action: manipulation; cursor: pointer; background-image: none; border: 1px solid transparent; white-space: nowrap; padding: 6px 12px; font-size: 14px; line-height: 1.428571429; border-radius: 4px; -webkit-user-select: none; -moz-user-select: none; -ms-user-select: none; user-select: none; font-family: ProximaNova-Semibold, Arial, sans-serif; text-decoration: none; .btn-group-lg>.btn, .btn-lg padding: 10px 16px; font-size: 18px; line-height: 1.3333333; border-radius: 6px; #ad-4 font-family: Arial, sans-serif; background-color: #fff; #ad-4 .ad-title color: #2130ab; #animation-wrapper .cta-ec background: #79af3e; color: #fff; width: 155px; height: 41px; font-family: ProximaNova-Semibold, Arial, sans-serif; font-size: 14px; margin: 10px auto 4px auto; #animation-wrapper .ec-logo display: block; margin: 0 auto; width: 140px; @media (max-width:500px) .ad padding: 20px 18px; max-width: 630px;

Get everything you need to master your credit today.

Get started

Sign up now.

Source: credit.com

Rates are rising, how can you secure the cheapest mortgage for your customer?

Mortgage rates moved higher last week. Freddie Mac reported last Thursday that the 30-year fixed rate mortgage has moved up by 14 basis points to 2.79%. Whether due to the economic recovery, or the likely spending spike we’re going to see from a Democratic president, Congress and Senate, those rates are slowly trickling upwards and making headlines in the process.

Seeing those headlines, customers are calling their loan officers. Driven by a fear of missing out (FOMO) on historically low rates, homeowners who haven’t yet refinanced are trying to get in before the window of opportunity closes. For originators, this could be a serious chance to generate some big volumes early in the year. Originators have an added advantage, too, if they can stay ahead of the information curve.

“The data that that’s actually getting reported, a lot of time, is about a week off,” said Brian Grubbs (pictured), president MLO at the Raleigh Mortgage Group. “It works to our benefit when they’ve heard that rates jumped up when, often by the time they call, rates have leveled back out and we’re able to give a better rate than what the Freddie Mac average is.”

Grubbs explained that news of market-driven rate spikes, as well as moments of political or economic uncertainty, can spark some panic shopping on the part of consumers. While these forces might make rates rise temporarily, he emphasized that dovish policy from the Fed and an explicit commitment to keeping rates low will keep things stable for at least the medium-term. He added that shifts in a few basis points shouldn’t be the sole difference-maker for a customer.

Read more: Guaranteed rate originator takes the extra time to educate

When rising rates hit the headlines, Grubbs doesn’t try to pile on his marketing efforts. Thanks to consistently high volumes, he can let the headlines bring customers to him. His focus, instead, is on delivering a good experience and high-quality service.

Grubbs focuses on educating, explaining, and offering his customers the right deal for their needs. Grubbs said that often his prospects might come to him during rate-anxious times citing a neighbour’s mortgage, secured at a 1.99% rate. It’s up to him to explain that the neighbour secured that rate because they borrowed 50% of their home value on a 10-year fixed, rather than taking cash out on a 30-year term.

“Just let people know what you can do, not what you wish you could do,” Grubbs said when asked how he approaches these FOMO-driven conversations. If he can get a better rate than the Freddie Mac average, it’s a slam dunk. If he can’t, he’s forthright about getting the customer the best deal he can for them.

While customer FOMO is an opportunity for loan officers, Grubbs emphasized that ethics and prudence are needed in these situations. Matching the customer’s anxiety and getting them locked in to something ASAP isn’t the right move to build a sustainable partnership. Rather, it’s up to the loan officer to be the voice of reason, securing that customer exactly what they need, confident they can still get a low rate.

“I think a lot of people want to just lock somebody right up front… they’re so scared that pricing is going to change,” Grubbs said. “But I know that it’s going to be an amazing year, and the Feds are going to do what they need to do to make sure that rates remain low until 2022.  Sure, on Wall Street somebody sneezes and the rates go up, but I know that, you know, soon enough, there’ll be some kind of news that pushes them right back down.”

Source: mpamag.com

6 Mortgage Modification Options: What You Need To Know To Stay In Your Home – Forbes

A home loan or mortgage modification is a relief plan for homeowners who are having difficulty affording their mortgage payments. Borrowers who qualify for loan modifications often have missed monthly mortgage payments or are at risk of missing a payment.

Here’s what you need to know to get a mortgage loan modification and stay in your home.

What Is a Mortgage Modification?

Modifying your mortgage can help you avoid foreclosure by—either temporarily or permanently—adjusting the length of your loan, switching from an adjustable-rate to a fixed-rate mortgage, lowering the interest rate or all of the above. Unlike mortgage refinancing, loan modifications don’t replace your existing mortgage with a new one. Instead, they change the original loan.

Borrowers with Fannie Mae- or Freddie Mac-owned mortgages might be eligible for a Flex Modification, which allows lenders to reduce the interest rate or extend the length of your loan (which shrinks the monthly payment amount but doesn’t change the amount owed  ).

For homeowners facing hardship due to the coronavirus pandemic, a loan modification can help you reduce your monthly payments so that they fit your current budget. Those who are already in mortgage forbearance can request a modification after the forbearance expires if they still need mortgage assistance.

Under the CARES Act, borrowers with federally-backed loans are entitled to up to one year of forbearance. Although most home loans are eligible for this type of forbearance, approximately 14.5 million home loans are not covered because they are privately owned.

However, not all lenders offer loan modifications, even those home loans covered under forbearance provisions in the CARES Act. So be sure to contact your lender to come up with a doable plan (whether it’s a forbearance, modification or something else) that will prevent you from defaulting on your loan.

Who Qualifies for a Loan Modification?

Borrowers facing financial hardship—for any number of reasons—might qualify for a loan modification; however, eligibility requirements are different for each lender.

Some lenders require a minimum of one late or missed mortgage payment or imminent risk of missing a payment in order to qualify. Lenders also will want to assess what caused the hardship and whether a modification is a viable path to affordability.

In other words, if you lose your job and no longer have any income, a modification might not be enough to get you back on track. However, if you start earning less (due to a job change or other factors), you might still be able to make regular payments, but only if you can reduce the monthly cost.

There are several reasons why people might no longer be able to afford their current mortgage payments, which might qualify them for a modification. Lenders will likely ask for proof of hardship. These reasons include:

  • Loss of income (due to a drop in wages or death of a family member)
  • Divorce or separation
  • An increase in housing costs
  • Natural disaster
  • Health pandemic
  • Illness or disability

If you’re suffering from financial hardship, be sure to talk to your lender right away. Find out whether you qualify for a loan modification, per their rules, and if that solution makes sense for you.

How to Modify Your Home Loan

There are several ways your mortgage lender can modify your home loan, from reducing your interest rate to making your mortgage longer in order to lower your monthly payments.

Reduce the Interest Rate

Shaving your interest rate can reduce your monthly mortgage payments by hundreds of dollars. A $200,000 mortgage payment with an interest rate of 4% on a 30-year fixed-rate loan is about $955 per month, compared to the same loan with an interest rate of 3%, which comes out to $843 per month.

This is similar to refinancing your loan, but the difference is that you don’t have to pay closing costs or fees.

Lengthen the Term

Extending the length of your loan is another strategy lenders use to make the monthly payments more affordable. For example, if you have a $100,000 mortgage at an interest rate of 4% with 15 years left, you would pay $740 per month. If you extend that loan by 10 years, you end up paying $528 per month. Keep in mind, you’ll pay more interest over the life of the loan if you extend it.

Switch from an Adjustable-Rate-Mortgage to a Fixed-Rate Mortgage

Switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage might not lower your existing payments, but it could help protect you from rising interest rates down the road.

Since ARMs are set up to have floating rates, they change with the market. For example, if your interest rate is 3.5% and the average rate rises to 4%, so will your rate. This can be a bad scenario if you’re in a rising-rate environment. By locking in your interest rate, you’re guaranteed to pay the same interest rate over the life of your loan, regardless of what the market does.

Roll Late Fees Into the Principal

If you have accrued past-due charges on things like interest, late fees or escrow, some lenders will add that to your principal balance and reamortize the loan. That means the amount you owe will be spread out over time with the new balance. If you extend the length of your loan, you might end up paying less in monthly payments even though you owe more toward your principal.

Reduce the Principal Balance

In rare circumstances, lenders will actually lower the amount you owe, also known as a principal modification. These were more common during the housing crisis when loose lending standards prevailed and home values tanked, leaving many borrowers underwater with their mortgage.

Whether a lender decides to reduce the principal likely depends on the current local housing market, how much you owe and what their loss would be if they went this route versus a foreclosure.

All or Some of the Above

Some borrowers might need a combination of actions in order to make the monthly mortgage bill manageable. Depending on your need, a lender might reduce the interest rate and extend your loan so that your monthly mortgage payment is reduced in two ways, without touching the principal balance.

The lender likely will go through a cost-benefit analysis when assessing the type of modification that makes sense for both parties.

How Can I Apply for a Loan Modification?

Homeowners who are facing financial hardship that makes it impossible to fulfill the mortgage contract should get in touch with their lender or servicer immediately, as they might be eligible for a loan modification.

Typically, lenders will ask you to complete a loss mitigation form. Because foreclosures are so costly for investors, a loss mitigation form helps them look at alternatives, such as loan modifications, to figure out what makes the most financial sense.

Be prepared to submit a hardship statement; mortgage and property information; recent bank statements and tax returns; profit and loss statements (for those who are self-employed) and a financial worksheet that demonstrates how much you’re earning versus spending.

If your loan modification application is denied, usually, you have the right to appeal it. Because rules vary by lender, find out when the appeal deadline is. Next, you’ll want to get precise information on why your loan was denied, as this will help you prepare a better case in your appeals.

There are many reasons why you might not qualify, from not providing sufficient proof of hardship to having a high debt-to-income ratio (DTI). A high DTI means that you have a lot of debt relative to your income, which might signal that you can’t afford your mortgage, even at a modified amount.

Working with a housing counselor or attorney who specializes in mortgage modifications can improve your chances of getting approved for a loan modification.

Will Modifying My Mortgage Hurt My Credit?

If the modification is federally backed (i.e. owned by Freddie Mac, Fannie Mae, VA, FHA or USDA) and is a result of the coronavirus, then it will not be reported to the credit bureaus per the CARES Act.

Otherwise, some loan modifications might be reported as settlements or judgments, which could result in a ding to your credit. Be sure to talk to your lender about if their policy is to report modifications. However, a loan modification is not as damaging as a foreclosure.

Source: forbes.com

Tarek El Moussa and Christina Anstead’s Top Tips on Flipping Amid a Pandemic—and Beyond

Tarek El Moussa and Christina Anstead are expert house flippers and real estate pros, but even these two ran into hard times in 2020.

Last year, fans who tuned in to their hit series “Flip or Flop” or El Moussa’s solo show, “Flipping 101 With Tarek El Moussa,” heard plenty about how COVID-19 had thrown a wrench into their plans. Some renovations were delayed, while others abruptly changed course to accommodate new realities like working from home. The pandemic also put the pressure on to flip homes faster and with more safety precautions than ever.

It was a steep learning curve, but these house flippers learned a lot last year—and have tons to teach the rest of us on how to buy, sell, or renovate a house during a pandemic and beyond. Here we highlight some of their hard-won lessons and the pearls of wisdom within these stories for your own abode, too.

Have extra space? A guest suite is a great idea

This guest room is perfect for quarantining away from the rest of the household.
This guest room is perfect for quarantining away from the rest of the household.

HGTV

COVID-19 curveball: In the “Flip or Flop” episode “Stiff Competition,” El Moussa and Anstead bought a house with an oddly large second living area. So what did they do with all that extra space?

Since the pandemic had placed a premium on “close yet separate” living quarters where families could quarantine apart from one another if necessary (say, if someone got sick), they converted this bonus space into a guest suite with a bedroom, living space, full bathroom, and even a separate entrance.

Take-home lesson: Guesthouses, in-law suites, and other living arrangements that allow some separate-but-togetherness for extended family and friends have always been a smart idea. However, the pandemic has further prioritized this feature, since it’s not just about giving people privacy; it’s also about keeping people safe in a pandemic. This upgrade is sure to remain a hot commodity well into 2021, so if you’ve got the space, consider this a great investment in your property.

A home office is a must, and doesn’t need its own room

This office space is a simple, casual place to work.
This office space is a simple, casual place to work.

HGTV

COVID-19 curveball: In an episode of “Flipping 101” titled “Bad Energy BoHo,” El Moussa helped a couple renovate a house. Yet once COVID-19 hit midrenovation, they were forced to finish up in record time.

And with people suddenly working from home, El Moussa knew a home office was a must—yet with no time or space to build a separate room, they did the next best thing: They plunked down a desk in a far corner of the living room. It wasn’t as private as a dedicated workspace, but buyers were nonetheless drawn to this feature, proving that any office is better than none.

Take-home lesson: Not all households have room for a dedicated office, but don’t give up! A workspace can be carved out in some surprising places, from living rooms to garages and beyond.

For a fast upgrade, never underestimate the power of paint

This painted fireplace looks just as good as tile.
This painted fireplace looks just as good as tile.

HGTV

COVID-19 curveball: In the “Flip or Flop” episode “Busy Flip,” El Moussa and Anstead pondered how to upgrade a fireplace. While they typically loved covering this feature in bold, patterned tile, they also knew this upgrade would take a lot of time. Plus, since the pandemic had buyers flooding this suburban market, they’d have to flip fast to fetch a high offer.

That’s when El Moussa came up with a shortcut: They decided to simply paint the fireplace instead.

“This fireplace is actually in really good condition,” El Moussa told Anstead. “What if we just blasted the entire thing a bright white, see how it comes out?”

This solution not only saved time, but also $2,000 in tiling costs.

Take-home lesson: Sometimes it pays to take your sweet time renovating a house. But in a pandemic, if buyer demand is high, it may pay instead to just slap on a coat of paint and get your listing up, pronto!

While house flippers, owners, and sellers should never cut corners in terms of renovating safely, quick cosmetic shortcuts (like paint rather than intricate tilework) can save time and money and help you sell a house when the market is hot.

Fruit trees provide food and beauty in a backyard

Tarek El Moussa and Christina Anstead weren't sure what to do with this yard.
Tarek El Moussa and Christina Anstead weren’t sure what to do with this yard.

HGTV

COVID-19 curveball: In the “Flip or Flop” episode “Better Be Quick,” Anstead and El Moussa wanted to give their latest flip a great quarantine yard. With so many people stuck at home, flashy outdoor amenities had become all the rage. They knew that a pool, outdoor kitchen, or fire pit could make the next owner’s quarantine seem a little easier.

Still, Anstead also saw value in something that wouldn’t take them any time to renovate at all: the yard’s orange and avocado trees.

“We have a full, really awesome avocado tree out there. This is actually a big selling feature,” Anstead pointed out.

In the end, El Moussa and Anstead decided to keep the trees. After a simple pruning, the backyard looked like the perfect oasis, even without a pool or other posh features.

Sometimes, a simple backyard is best.
Sometimes, a simple backyard is best.

HGTV

Take-home lesson: With so many people spending more time at home, backyards with pools and outdoor kitchens have become more popular than ever. But never forget that trees—particularly trees that bear fruit you can eat—have their own special allure for anyone who wants to grow their own food. (Victory garden, anyone?)

Building shade for outdoor seating is a worthy investment

This patio would look even better with a pergola.
This patio would look even better with a pergola.

HGTV

COVID-19 curveball: While green space was a must-have in 2020, outdoor sitting areas were also in high demand. And so, in the “Flip or Flop” episode “Back House Flip,” El Moussa and Anstead tried to create a comfy back patio, and pondered adding a pergola to create some shade.

While they worked hard to make the yard and patio look beautiful, they decided that adding a pergola was too expensive. This was a big mistake. Without a pergola, the patio was too hot under the California sun.

“The tile looks really nice,” Anstead said when she walked out to the backyard, but “it would definitely be nicer if I was in the shade right now.”

Take-home lesson: Whether it be a front porch or a bench on the back deck, homeowners like having somewhere to hang out and enjoy some fresh air, in COVID-19 times or not. Still, sitting spaces need to be comfortable and well-designed if people are going to spend their time there. Spending a little extra money on a backyard covering can be a great investment—a lesson El Moussa and Anstead are sure to apply to future flips.

Source: realtor.com

Festive home d̩cor ideas to get you in the holiday spirit РThe Loop

This holiday season, the saying ‘there’s no place like home’ is taking on a whole new meaning. With many of us stuck indoors, the best way to get in the spirit of the season is – you guessed it- some cheery holiday décor! That’s why interior stylist Kasia Waloszcyk revealed some merry decorating options from Walmart that will make your house feel like a winter wonderland. Not only are they easy to set up, they’re also affordable, which is always welcome at this time of the year!

Without further ado, check out some of Kasia’s tips below, and watch the video above for even more info!

CHOOSING A THEME

When you’re decorating your home, Kasia recommends picking a theme. It helps keep you on track when purchasing and compiling items, plus it makes your overall décor look cohesive. Everything coordinates – from wrapping paper to tree and mantel décor – so once you choose your theme, you know it’s going to look great!

CHRISTMAS TREE

The first thing is finding a tree that works for your space. The best way to do this is by figuring out where the tree is going. Move furniture pieces to allow for the tree opening to be clear. Then, grab some painters tape and tape off the floor in an X shape that mimics that actual diameter of the tree. Once you have that, measure it and it will determine the max width you can introduce for a tree.

Regarding height, measure your ceiling height, ideally you want to go 6” less (8ft ceiling, ideal tree height 7’-6”) – to allow for a tree topper.

Kasia recommends a gorgeous Kennedy tree from Walmart that’s already pre-lit, which saves on so much time. The lights can change from colourful to all white, which is great because it really allows you to customize it.

DECORATING YOUR TREE

Variety is key when decorating your tree. You want to be able to add a variety of different décor pieces like classic ball ornaments mixed with 3D ornaments, holiday picks etc. All of these introduce texture and depth to the tree and add a different feel, but at the same time coordinate and embrace the same theme.

The best way to hang ornaments is by creating groupings of the same ornaments on the floor. Create small groups of all deer statutes in silver, all deer statutes in wood, all gold ball ornaments etc. Once you have done that, start with one ornament grouping and begin to hang them on the tree.

When placing them, be sure to cover both the top, middle, bottom and sides – this way you’ll be sure to have that specific ornament hanging on all parts of the tree and you’ll avoid clustering them all together in one spot!

MANTEL DECORATIONS

Height is key when decorating a mantel! You want to place tall items on the ends (especially if your mantel is below a TV). Once your taller items are placed on the ends, layer them with smaller items to add a variance in height.

Another great way to play around with height is by simply wrapping objects in coordinating holiday wrapping paper. You can use these to elevate different décor pieces and create different heights!

For demonstrations and more great tips from Kasia, be sure to watch the video above! Happy decorating!

Source: theloop.ca

8 Surprising Things No One Tells You About Retirement

Surprised retiree
cheapbooks / Shutterstock.com

Most of us spend decades working and dreaming of a day when we can retire. But when we finally arrive at our post-work destination, it’s not unusual to find ourselves in a world of surprises.

Knowing what to expect in advance can help you prepare for — and adjust to — life in your golden years. The following are some key things no one tells you about before you retire.

Housing will remain your biggest expense

Senior couple at home
Monkey Business Images / Shutterstock.com

Many retirees dream of paying off their mortgage so they will be free to spend money on travel and other activities. But the reality is that housing likely will remain the biggest expense in your budget for as long as you live.

U.S. households led by someone age 65 or older spent an average of $17,472 on housing in 2019, as we detail in “Here’s How Much Retiree Households Spend in a Year.” That is easily more than these households spent in any other expense category.

Work will not end — it will simply change

older worker
michaeljung / Shutterstock.com

You will probably work in retirement — and not just because you have to. More than 70% of people say they want to work during retirement, according to the findings of “Work in Retirement: Myths and Motivations,” a joint study by Merrill Lynch and Age Wave.

As you age, chances are good that the nature of work will change, though. The study found that 3 in 5 retirees plan to launch a new line of work that differs from what they have done in the past. Working retirees also are three times more likely than pre-retirees to own their own business.

If you’ve never volunteered before, you won’t start in retirement

Senior volunteer
Rawpixel.com / Shutterstock.com

About 90% of Americans say they would like to do volunteer service for someone or some cause that needs their help, but just 25% actually do so, according to the Stanford Center on Longevity.

When asked why they don’t follow through on the wish to help, Americans most commonly cite a lack of free time. Yet, retirees — with plenty of time on their hands — do not volunteer at rates that are any higher than those of workers.

And among people who did not volunteer during their working years, just one-third finally begin volunteering during retirement.

Retirement can be especially lonely for single men

Sad senior man
YAKOBCHUK VIACHESLAV / Shutterstock.com

In some ways, retirement is more challenging for women. Because they live longer than men, they will have to stretch the funds from their nest eggs over a longer period. To make matters worse, women generally start with less in retirement savings than men do.

But women who are single have one big advantage over their male counterparts: They are less likely to be lonely.

Just 48% of retired men who live alone say they are very satisfied with the number of friends they have, according to an analysis of Pew Research Center survey findings.

However, a robust 71% of women who live alone are satisfied with the number of friends they have.

Health issues likely will catch you by surprise

Lisa F. Young / Shutterstock.com

Slightly more than one-third of retirees say health problems have put a damper on their retirement years, according to a survey from the Nationwide Retirement Institute. And 75% of those folks say their health problems emerged sooner in life than they expected.

To make matters worse, about one-quarter say health-related expenses keep them from living the retirement of their dreams. Such sobering numbers underscore why many people planning for retirement would benefit from opening a health savings account and stashing as much cash as possible into that HSA.

As you grow older, you will feel younger

Pressmaster / Shutterstock.com

Everyone has heard the cliche: “You’re only as old as you feel.”

If that is true, here is some good news for retirees: Paradoxically, the older people get, the younger they are likely to feel, according to “Growing Old in America: Expectations vs. Reality,” a paper from the Pew Research Center.

For example, among people ages 18-29, about half say they feel their age, one-quarter feel older than their age and another one-quarter feel younger.

However, among those 65 and older, 60% say they feel younger than their age and 32% say they feel exactly their age. Just a scant 3% say they feel older than their age.

Your early golden years might not gleam as you had hoped

Unhappy senior woman
Asier Romero / Shutterstock.com

Nearly one-third of recent retirees — 28% — say life is worse in retirement than it was during their working years, according to the Nationwide Retirement Institute survey.

What is the source of this gloom and doom? Money — or lack thereof.

Among those who lament post-work life, 78% cite a lack of income and 76% cite a high cost of living as the top factors in giving them the blues during their golden years.

The message to future retirees is obvious: Save early, save often and keep saving. For more tips, check out “9 Ways to Rescue Your Retirement in 2020.”

Initial disappointment will give way to later satisfaction

Happy senior couple
David Tadevosian / Shutterstock.com

If you are among those disappointed with retirement, take heart: As with so many things, retirement is what you make it. You can take steps to boost your overall satisfaction with life during your golden years.

For example, researchers at the University of Exeter in the United Kingdom found that people who volunteer are less likely to be depressed and more likely to be satisfied with life. There is even evidence that volunteers live longer.

So, if retirement has got you down, stop gazing at your navel and start looking outward at ways to help others.

A lot of other research has found that a happy marriage and spending time with close family and friends can greatly boost retirement satisfaction.

Even if you don’t take steps to make yourself happy, you might just end up feeling joyous anyway. The Pew Research Center found that 45% of adults 75 and older believe life has turned out better than they expected.

Just 5% say it has turned out worse.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

The Pros and Cons of Dividend Stocks for Retirement Savings

Businessman looking at cash with a magnifying glass
pathdoc / Shutterstock.com

This story originally appeared on NewRetirement.com.

There are many guidelines around how to draw down your savings in retirement (the 4% rule, the multiply-by-25 rule), but what if you don’t have to spend your savings?

You can generate retirement income with dividend stocks, and in a world where savings accounts produce less than a 1% return, dividends can provide a steady stream of cash without having to dip into your principal.

Most retirement savings strategies tell you to invest in stocks when you’re young and bonds when you get close to retirement. For example, the “rule of 100” says you should subtract your age from 100 and the answer is how much you should invest in stocks. So if you’re 25, 75% of your money should go into stocks and 25% should go into bonds. And when you’re 55, 45% of your money should go to stocks and just over half should go to bonds.

But these rules make a lot of assumptions, most of them based on investing wisdom from the 1980s. One assumption is that stocks are a lot riskier than bonds and that bonds offer steady income rather than just gaining in value.

In reality, over the last 30 years, stocks have become a lot less risky for retail investors who are able to invest in funds that own stocks in a diversified portfolio. And because governments all over the world have been printing money to contain the 2008 Great Recession and the COVID-19 crisis in 2020, the yield on bonds — the cash income you get for holding them — has dropped to nearly nothing.

What is a dividend stock?

A man studies financial data at his computer
NicoElNino / Shutterstock.com

Dividend stocks are shares of companies that pay dividends. Not all companies pay dividends on their stock, so not all stocks are dividend stocks.

Dividend income definition: Owning a share of stock is like owning a piece of a company. Companies that make a profit sometimes pay their owners part of that profit — their income — which is a dividend.

Pro: Dividend stocks are usually also value stocks

Old fashioned CocaCola pickup truck on a city street
Massimo Vernicesole / Shutterstock.com

Stocks that pay dividends are shares of companies that make money. That means they have a steady profit they share with shareholders and they’re probably not going out of business any time soon. This makes them a somewhat safer, less risky option for retirees.

Value stock definition: A value stock has a low price relative to the company’s income and the dividends it pays. (The opposite of a value stock is a growth stock — like Facebook, Amazon or Google — that pays no dividends but the company is growing fast — and the stock price is zooming.)

Benjamin Graham, the “father” of value investing, said way back in 1949 that investors should buy stocks of profitable companies that have at least 20 years of reliable dividends. These companies have been paying a steady dividend for at least 50 years, and most of them you’ve known since you were born:

  • The Coca-Cola Co. (dividends since 1920)
  • Colgate-Palmolive Co. (dividends since 1895)
  • Hormel Foods Corp. (dividends since 1928)
  • Johnson & Johnson (dividends since 1963)
  • Lowe’s Companies (dividends since 1961)
  • Stanley Black & Decker (dividends since 1876!)

Value stocks that pay dividends are sometimes called “dividend heroes” because they are reliable providers of value in markets that can sometimes be rollercoasters, riding high and sinking fast.

Con: Individual stocks can be risky, even if they’re value stocks

JPstock / Shutterstock.com

For decades General Electric was a “blue chip” stock, meaning it was reliable and paid a consistent dividend. If you bought $100 of General Electric stock in 1970 and sold it in 2016, it would have returned more than 21% per year, and your final net worth (assuming dividend reinvestment) would be $784,703.30.

Blue-chip stock definition: Blue-chip stocks are shares of industry leaders in mature industries that produce consistent profits and dividends.

On the other hand …

The Great Recession forced General Electric to sell its lucrative financial services division and exposed the company as an unnecessarily big, complicated organization with a lot of hidden debts.

Its CEO from 2001 to 2016 stepped down, and his replacement served less than two years before another replacement was brought on board to right the ship. Then the COVID-19 crisis hit, demolishing one of GE’s last profitable businesses: airline engines.

Today GE stock is worth only a fraction of what it was worth 10 years ago, and its dividend has been slashed.

Con: Dividend stocks are usually in utilities, banks and old-line industry

pan denim / Shutterstock.com

Many dividend stocks are in sectors that make a lot of money on products that people need, like energy, financial services and consumer goods. This can produce a lot of cash income, but it can also mean your companies are in some pretty narrow buckets.

When the oil industry crashed at the beginning of 2020, a formerly reliable dividend stock like Exxon-Mobile slashed its dividend in half. If all your dividend stocks were shares of oil companies, you’d have lost a significant chunk of your income.

Pro: You can get great dividend diversification with mutual funds and ETFs

Mutual funds
JohnKwan / Shutterstock.com

There are many dividend and income-focused mutual funds and exchange-traded funds (ETFs). Vanguard, Charles Schwab and Blackrock all offer high-dividend ETFs and mutual funds that either have a broad focus, like the highest dividend stocks in the S&P 500 index, or a narrow focus, like real estate companies.

The dividend yields on these funds average 3% and can be as high as 9%. And the risk that an individual company falls on hard times is mitigated by the other companies in the fund.

You can also diversify sector risk by owning several sector ETFs or mutual funds, or by owning an index fund that focuses on dividends but owns hundreds of companies in every sector.

Con: Stocks are generally more risky than bonds and other fixed-income assets

designelements / Shutterstock.com

The fates of individual companies depend on a lot of factors, and no one except a professional stock analyst can do enough research to pick the long-run winners from the losers. And maybe not even then!

On the other hand, the most reliable bonds — U.S. Treasuries — are considered “risk-free” because no one in the world expects the U.S. government to default on its debt obligations, which is exactly what a U.S. Treasury bond is.

Pro: Dividend stocks produce more cash flow than bonds (by a lot)

Wealthy businessman with cash
jesterpop / Shutterstock.com

The yields on bonds around the world have been terrible since the Great Recession over 10 years ago. In the United States, the nominal yield on 10-year bonds is 0.77% as of October 2020, and the real yield as reported by the U.S. Treasury is -0.95%.

Bond yield definition: Bond yield is the income you get from a bond. The yield on bonds is higher the riskier they are and the higher interest rates are.

Nominal interest rate definition: The nominal rate of interest on a bond is the advertised rate, so if the bond issuer — in this case the U.S. government — says they will pay you 1% per year to borrow your money, that’s the nominal rate.

Real interest rate definition: The real interest rate of a bond is the nominal rate minus inflation. If the nominal interest rate is 3% and inflation is 2%, your real interest rate is 1%.

When the real interest rate is negative, you are paying the government to keep your money safe. Needless to say, this is not a great long-term strategy.

Though you can buy inflation-protected bonds (called TIPS for “treasury inflation-protected securities”), the yield on these bonds is negative. So even with TIPS you are paying the government a fee to keep your money safe.

Pro: Dividend stocks perform better during times of inflation

Inflation
Bartolomiej Pietrzyk / Shutterstock.com

We are currently in a period of very low inflation, and you might wonder what will happen to dividend-producing stocks if inflation increases. Many companies that pay dividends — the old-line industrial and consumer goods companies, utilities and banks — also make bigger profits during inflationary periods.

Banks do better when money is changing hands often, and if the government raises interest rates to cool down inflation, banks make more money then too.

Inflation is also good for energy, materials and industrial companies because their pricing power — and the price of what they sell — goes up.

Con: Asset allocation can be tough to figure out

gcpics / Shutterstock.com

What’s the right mix of dividend producing investments and hedges against market volatility? Unfortunately, that depends on your risk tolerance.

The best way to model out the right amount of income you need versus the amount of money you want to invest to grow your nest egg is to use a bucket strategy. As part of the NewRetirement Planner, you can create a very detailed budget and set different levels of spending for needs and wants. This can be an incredibly useful planning exercise in helping you decide how much to invest when and where.

Pro: Dividends can have tax advantages

Jim Barber / Shutterstock.com

Dividends paid by companies can either be classified as income or capital gains. According to the IRS, “Whereas ordinary dividends are taxable as ordinary income, qualified dividends that meet certain requirements are taxed at lower capital gain rates.”

The difference between the two rates can be a lot. If your regular income puts you in the top U.S. tax bracket, you pay 37% — more than a third — to Uncle Sam. On the other hand, if you own companies that pay qualified dividends your top tax rate on that money is only 20%. Especially if you are reinvesting that money into buying more stock, the difference in returns over 10 years can be enormous.

You can do research to see what companies pay qualified dividends and which don’t. The rules according to the IRS are:

  • The dividend must have been paid by a U.S. company or a qualifying foreign company.
  • The dividends are not listed with the IRS as those that do not qualify.
  • The required dividend holding period has been met.

As with most stock investing, the easy way to guarantee your dividend stocks pay qualified dividends is to buy them in bulk in an ETF or mutual fund. (Vanguard has a list of its qualified dividend ETFs here.)

Even if you don’t own companies that pay qualified dividends, if you own those companies in a Roth IRA or Roth 401(k), the dividends income grows tax-free.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com