Take the Financial Compatibility Test for Couples: How Do You Match Up?

You’ve heard time and again that money is the number one source of strain in romantic relationships, but just how problematic are finances for couples?

A 2013 study by TD Ameritrade found couples fight about money five times per year, on average.

Interestingly, 40 percent of survey respondents said they do not trust partners to manage their combined finances fully, yet only 5 percent stated money was an important factor when choosing a partner.

There’s an apparent disconnect between what couples expect from each other financially, and how those expectations are communicated.

Undoubtedly, much of this arguing and distrust could be eliminated if couples would test their financial compatibility during the early stages of their relationships, rather than ignoring the subject of money until it becomes a source of tension.

That’s why we put together this simple financial compatibility test for couples.

Find out if you and your partner are a financial match made in heaven — or a money mess waiting to happen.

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Money Quiz: Financial Compatibility Test for Couples

Answer the questions below and keep track of which numbers you select (1-5) for each. The answer key on the next page will explain what your choices say about your financial compatibility.

How often do the two of you talk about your finances?

1. Never – Only one of us is in charge of the household finances so we don’t need to talk about them.

2. Rarely – We only talk about money if there’s a problem — and so far, so good.

3. Regularly – We maintain a budget and check in to keep each other accountable for sticking to it.

4. Constantly – Money is either tight, or one of us is not sticking to our budget — either way, finances are a constant topic of conversation.

5. Not applicable – We maintain separate finances, so there’s nothing to discuss.

I’m comfortable with how much money my partner spends.

1. True, I think – He/she has ups and downs that can mess up our budget every now and then, but overall I think my partner’s spending is okay.

2. False – I’d like it if my partner spent less on non-essentials.

3. True – When reviewing our finances, it’s clear he/she is responsible with money.

4. False – He/she is a shopaholic and spends way too much!

5. Not applicable – It is his/her money to spend — I stay out of it.

Have you set financial goals for the future and are working as a team to reach them?

1. Yes, maybe – We have goals to save for and I’m on track; hopefully, my partner is, too.

2. Not really – We set a few goals together, the only problem is one of us is holding us back from reaching them due to overspending or excessive debt.

3. Yes, definitely – We decided as a couple what we want to work jointly toward accomplishing financially, and are contributing and tracking progress together.

4. No – We never have any money leftover to save, so we haven’t bothered setting any goals yet.

5. Not applicable – We spend and save our own money as we see fit — my partner and I don’t share any financial goals.

Do you have any financial secrets that you’re hiding from your partner?

1. No – I don’t have any secrets — it’s my partner I’m worried about.

2. Yes – Sometimes I hide receipts or lie about how much something cost, but nothing huge.

3. No – We talk openly and honestly about money, and consult each other before making any big decisions that could affect us both.

4. Yes – I have a load of debt I’m hoping my partner won’t find out about.

5. Yes – I have my own bank accounts that my partner doesn’t know about — and they don’t need to know.

Have you saved an emergency fund together?

1. I’m not really sure what an emergency fund is — I hope we have one though!

2. Yes – We’re working on saving up the first $1,000.

3. Yes – We have about three months’ worth of expenses saved in case of a financial emergency.

4. No –  Between overspending and debt payments, we haven’t come close to starting an emergency fund.

5. No – I have plenty of savings in case I need it, but it’s up to my partner to save for their own emergencies.

Overall, I trust my partner to make smart financial decisions.

1. Yes – As far as I know, he/she has been making good decisions so far.

2. Not Really – I don’t think I’d be comfortable handing over the finances 100 percent.

3. Yes, Definitely – We are on the same page when it comes to our money, so I trust my partner’s judgement.

4. No Way – My partner is a disaster when it comes to managing money.

5. No – We keep our finances separate so we don’t have to worry about these things in the first place.

And my partner trusts me, too.

1. I’m not sure – I’ve never asked.

2. For the most part – I’m pretty good with our money and we rarely argue, so I assume my partner trusts me.

3. Yes – Our open communication lets me know my partner trusts me as much as I trust him/her.

4. Probably not – Considering how much we argue about money, I doubt my partner would trust me with the finances.

5. Doesn’t matter – It’s not my partner’s concern what I do with my money.

Answer Key

Which number did you chose most often?

Mostly #1: Clueless

Are you financially compatible? Who knows!? You take the “ignorance is bliss” approach to your finances.

If you want to ensure you are a fit financially, it’s time to sit down and get on the same page about money. Discuss how you both approach money management, your strengths and weaknesses, your goals and concerns, then devise a budget and individual responsibilities.

Mostly #2: Room for Improvement

There aren’t any big, glaring money issues between the two of you, but there could be potential problems down the road.

Remember, conversations about money don’t have to happen only when something’s wrong; set aside time to review your financial situation with your partner on a regular basis.

This will ensure you are both happy with where the household finances stand, and give you the chance to talk about areas for improvement before they blow up into major issues.

Mostly #3: A Perfect Match

You two understand and share each other’s goals and values when it comes to money. Communication is open and you both take responsibility for your finances.

Mostly #4: Financial Disaster

Your financial situation is a mess, and you’re both responsible. Whether you’re the one with spending problems or simply don’t speak up when your partner’s actions upset you, things can only get worse from here.

Don’t let them — it may be a good idea to see a financial planner or marriage counselor who can help you two sort things out and get on the right track with your money.

Mostly #5: Financially Uncommitted

The two of you lead financially independent lives. That’s not necessarily a bad thing, especially for couples who are not married, though some married couples choose to keep separate finances as well.

However, it’s important to at least talk about money and understand each other’s financial habits and goals, just in case you someday choose get married or merge finances, or face a situation that requires a joint financial decision (such as a home purchase or medical emergency) and can handle it with ease.

“Take the Financial Compatibility Quiz for Couples: How Do You Match Up?” was provided by GoBankingRates.com. 

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Will 2021 Be the Year for Value Stocks?

Over the last decade, value stocks have underperformed when compared to growth stocks. However, several signs point to this long-term slump coming to an end.

Value investing has seen better days. The alluring returns of growth stocks, particularly concentrated in the tech sector, are far more enticing to institutional investors and retail investors alike. There’s no shortage of investors ready to call the time of death for value investing — but 2021 could be the year that proves them all wrong.

In fact, we might be looking at an extended period of time in which value investing will make a big return. And this isn’t just idle speculation: Well-established, respected names in the financial space share this sentiment, including Vanguard. 

But we don’t have to take their word for it. While the numbers clearly suggest that value stocks will make a strong comeback, a large part of that process will be driven by common-sense investing in the months to come.

Let’s jump into precisely what that means.

Why Value Stocks Have Underperformed

First, let’s deal with the performance of value stocks in recent years. Looking at data from the last decade, it is apparent that growth stocks have outperformed value stocks by quite a large margin. And although that fact has caused many to declare that growth stocks are intrinsically superior, this is a narrow and shortsighted approach.

Let’s take a look at the data. Vanguard’s Russell 1000 growth index (VRGWX) has seen returns of 16.36% when looking at a 10-year period, while the Russell 1000 value index (VRVIX) has netted investors returns of 10.32% in the same timeframe.

Although returns of 10.32% are below the 13.6% current 10-year average of the S&P 500, it is clear that value stocks are far from a thing of the past. In fact, this level of performance is encouraging, considering that market conditions have been very unfavorable toward value stocks in the past decade.

What market conditions, you may ask? It’s simple — portfolios that focus on value stocks frequently overweigh industries that haven’t fared so well in the past 10 years, such as energy, utilities and the financial sector. On top of that, it has been demonstrated that low interest rates have a negative effect on value stocks while bringing a positive effect to growth stocks at the same time. 

Growth and Value Cycles

We’ve established that growth stocks have outperformed value stocks in the last decade, but don’t let that fool you. Historically, value stocks have netted investors far greater returns over the long run.

Does this mean that value stocks are always the right call? Well, no. An individual investor’s own investment timeframe is much more important than long-reaching historical data. Up to this point, investing mostly in growth stocks was the better option, but only because we’ve been in a growth cycle.

Much like the market has bullish and bearish cycles, it also has growth and value cycles. As we’ve discussed, the last 10 years have been part of an (admittedly long) growth cycle, driven primarily by tech stocks. However, the conditions that lead to this aren’t set in stone.

In fact, the current growth cycle might be at an end. Although tech stocks may continue to rise, it is uncertain if they can retain their current rate of growth. The largest cause of their meteoric rise, by far, is the monopolization of services. 

With Google, Amazon, Netflix and others like them having already carved up impenetrable economic moats, whether or not they will see a continued rise in share price is an entirely valid question. 

The possibility of higher interest rates and inflation also brings another element of uncertainty to the future of tech stocks.

Stimulus Payments, Reopening the Economy and Value Stocks

The single most important event that will accelerate the return of value stocks is the stimulus in the U.S. and the eventual reopening of the economy after the COVID-19 pandemic.

Although stimulus payments likely won’t cause as much inflation as the most pessimistic among us think, inflation will occur, thereby curbing the returns of growth stocks and increasing the returns of value stocks. 

As the economy reopens, sectors that have been hit hard by the pandemic will likely see a rapid recovery. Reopening the economy will lead to a much larger cash flow for currently undervalued businesses, which will allow them to invest in further growth. This, in turn, will lead to a renewal in investor confidence, culminating in a domino effect of rising stock prices.

If, in fact, the Biden administration passes the sweeping infrastructure bill that it has promised, you should also keep in mind that infrastructure stocks could be poised to see a large increase in price. Many see the industry as undervalued as of late, which can add to the appeal of Biden’s agenda.

What to Keep in Mind Amid Rising Tides

The old adage of rising tides lifting all boats hasn’t fared all too well when it comes to the economy. The expected recovery of the U.S. economy will certainly have a very positive effect on a lot of businesses — perhaps most businesses, even. However, this doesn’t mean that value investing will suddenly become a foolproof silver bullet.

Growth stocks certainly have a place in portfolios, and any warning with the tech sector doesn’t mean that growth should be avoided. In fact, the tech industry is a prime candidate for value investing. However, you should keep an eye out and avoid tech industry value traps — innovative companies that attract a lot of venture capital without actually bringing a product to market.

Look for companies that have intrinsic value, and that you truly believe in. While that may seem like generic advice, something tells me that this year, it could become a lot more profitable than it has shown to be in years past.

Founder, Lakeview Capital

Tim Fries is co-founder of Protective Technologies Capital, an investment firm focused on helping owners of industrial technology businesses manage succession planning and ownership transitions. He is also co-founder of the financial education site The Tokenist. Previously, Tim was a member of the Global Industrial Solutions investment team at Baird Capital, a Chicago-based lower-middle market private equity firm.

Source: kiplinger.com

How to Manage Financial Stress

For most of us, some level of financial stress is unavoidable. You’ll always have bills to pay, a job to keep, and the occasional emergency expense to deal with. What really matters is how you cope with that stress.

With a little forethought and a lot of soul searching, even the most anxious consumer can start to gain a sense of control over their financial – and mental – health. Following these tips can go a long way towards putting you back in the driver’s seat.

Face the Music

A recent survey by Cushion found that more than 50% of Americans don’t know their bank account balance. The reason? They’re too scared to look.

The first step to managing financial stress is taking an honest appraisal of your situation. Make a list of every aspect of your financial life that’s stressing you out. Are you scared of all the credit card debt you’ve racked up? Are you worried that your paltry emergency fund won’t keep you afloat if you lose your job? Do you feel ashamed of not having a budget in place?

Then, start by organizing your financial accounts. Make sure you have online accounts created for each bank, investment, and credit account. Set up alerts for due dates so you don’t miss a payment.

Check your credit report for free at AnnualCreditReport.com. Your credit report will show all your current and active credit accounts in case you forgot any.

Then, set up a time to go over each account. If you have multiple bank accounts, consider consolidating them to simplify the process. Look for any recurring fees, subscriptions you no longer use, or fraudulent charges.

By shining a light on all the financial problems you’re scared to face, you’ll probably realize something important – none of these issues are as scary as they seem, and you’re more than capable of dealing with each and every one of them.

Create a Budget

Once you’ve gone over every account, take some time to track your expenses and create a budget. Using a budget will help you identify leaks in your spending where you could cut back.

The act of budgeting and tracking your expenses might seem like a punishment for your past spending mistakes but think of it as the road to salvation. If your main goal is to manage your financial stress, knowing where your dollars are going matters. Being able to direct your money toward savings or debt payoff with a budget will ultimately lead you to a healthier financial – and emotional – place.

If you’ve never budgeted before, don’t get discouraged if you overspend in a few categories at first. Budgeting is like cooking. Just because you don’t follow the recipe perfectly doesn’t mean the meal won’t taste good. Keep tweaking your budget until you find a happy medium.

Break Down Your Tasks

When you’re financially drowning, it can seem impossible to find a life raft. Instead of floundering aimlessly, it’s time to pick a direction and start swimming.

Get a notebook or computer and write down all the tasks that will help you feel better. Try to break them down into manageable assignments. For example, instead of writing down, “Consider taking out a personal loan,” write down, “Complete a personal loan application with three companies.”

The goal is to make the tasks less overwhelming, helping you feel more motivated to tackle them. Once you have everything written down, assign each task for a certain day. Allocate more time per task than you think it will take, in case you run into any problems.

If you do hit a snag, take a breath and brainstorm some possible solutions. Try to finish each task before starting a new one so you don’t get distracted.

Feel Your Feelings

When you’re feeling stressed, it’s easy to soothe yourself with food, alcohol, or binge-watching. While it’s important to relax, make sure you’re not using an unhealthy coping strategy to avoid processing your emotions.

Take some time to sit with your feelings, as hard as that may be. Go for a walk, sit on the porch or write in your journal. Feeling your feelings doesn’t mean wallowing in despair or sadness. It just means acknowledging what you’re feeling in an honest way.

Recognizing your feelings will also help you avoid using retail therapy, which is crucial if you’re on a budget, trying to pay off debt or living paycheck-to-paycheck.

Ask for Help

If debt is your main source of stress, the first step should be to contact your lenders and bill providers and ask how to reduce your monthly payments.

Start by calling your cell phone, car insurance, internet, and cable service providers to ask if there are any special discounts or rates you qualify for.

Make a list of all your lenders and contact each of them to see if there is a deferment or forbearance program. Since the Covid-19 pandemic, many lenders have been more understanding toward borrowers experiencing financial distress. Before signing up for a forbearance program, make sure you understand how interest will accrue during that time and if there are any special fees.

For example, most mortgage lenders will let you defer payments for a few months, but you’ll owe the full amount once the deferment period is over. This could come as a huge shock if you don’t plan ahead.

If you’re carrying a balance on any credit cards, contact each company and ask them for a lower interest rate. Remind them that you’ve been a reliable and loyal cardholder. If a company says no, set a reminder in your phone to ask them again in a few months.

Take Care of Your Mental Health

In a 2019 survey from the Money and Mental Health Policy Institute, 72% of respondents said their mental health problems worsened their financial situation. If this describes you, consider talking to a licensed mental health expert as a first step to developing a healthier relationship with your finances.

Use resources like the Open Path Collective, where therapists only charge between $30 and $60 for each session. The Substance Abuse and Mental Health Services Administration also has a list of community clinics that provide low-cost services. If you already have a therapist in mind, ask them if they offer a sliding scale payment system.

Many universities also offer therapy on a discounted or sliding scale. Contact the local psychology department and ask if they accept outside clients. Psychology Today has a therapist finder tool that lets you filter by price.

Depending on your particular healthcare policy, your insurance provider may also cover some sessions. Ask your HR department if your company has an employer assistance program that includes mental health counseling.

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PODCAST: Investing Green in a White-Hot Market

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David Muhlbaum: Stock and fund investing meant to also help the environment is nothing new, but boy, has it been a hot sector this past year. In a market full of huge gains, how should you go green now? Executive editor Anne Kates Smith joins us with some stock and fund picks. Also, in a topsy-turvy 2021, Earth Day comes before Tax Day. We’ll explain. That’s all coming up on this episode of Your Money’s Worth. Stick around.

David Muhlbaum: Welcome to Your Money’s Worth. I’m kiplinger.com senior editor David Muhlbaum, joined by my co-host, senior editor Sandy Block. How are you doing, Sandy?

Sandy Block: I’m doing good, David.

David Muhlbaum: Good. This podcast is going to drop just a few days before April 15th. And you know what that is, right?

Sandy Block: I know what it’s not. It’s not Tax Day.

David Muhlbaum: That’s right, Sandy. It’s not Tax Day. Yeah, of course, April 15th is traditionally the day when we’re all supposed to have filed our prior year’s taxes or filed for an extension, and traditionally we’d be telling you all sorts of smart moves to make if you’re a tax procrastinator, but this year, we’re not, not because we don’t want to be helpful, but because this year, April 15th is not Tax Day.

Sandy Block: No, this year, basically because of the COVID-19 pandemic, the deadline has been extended to May 17, 2020. So you get an extra month. And that’s not just to file your taxes, but also important things like contributing to an individual retirement account or collecting a refund from three years back.

David Muhlbaum: Enjoy your month, I guess. Maybe you knew, maybe you didn’t. We got a study across the transom from NORC at the University of Chicago, a research outfit, about what Americans do know about their taxes and it was, well, not reassuring. We got some work to do, you and me, Sandy.

Sandy Block: Well, yeah. But our audience, they know stuff.

David Muhlbaum: Well, let us hope so. But they might know some people who don’t know as much.

Sandy Block: Right. So go ahead, tell me the bad news, I’ll try not to be smug.

David Muhlbaum: Okay. So the survey was framed as a pop quiz. Five questions about tax myths. Can’t do all five for reasons of time, but I’ll ask you one. No, I’ll do two. I’m going to do the one most people got wrong, and the one most people got right. The first question: People don’t have to pay taxes if they didn’t earn any income?

Sandy Block: If they didn’t earn any income? That’s wrong. There are plenty of forms of unearned income, interest, dividends, alimony, lottery winnings. But I only have to change one word to change the answer. If you didn’t have any income, you don’t have to pay any taxes.

David Muhlbaum: If you didn’t have any income.

Sandy Block: If you didn’t have any income, you don’t have to pay taxes. And this is skipping right over the earned income tax credit, which is really complicated.

David Muhlbaum: Which is a credit, so it comes after your tax obligation, but well, we’re getting in the weeds.

Sandy Block: As we do. So that was the question most people got right or wrong?

David Muhlbaum: That was the question most people got wrong. Fewer than a third of people got that one right.

Sandy Block: I’d say that’s a reflection of the fact that not a lot of Americans have unearned income. You work a job, you get a W-2 or a 1099 form, there’s your earnings. Okay, but what was the question that most people did well on?

David Muhlbaum: That question was: There are no taxes on side-hustle income?

Sandy Block: Oh, we just did side hustles on this podcast. Taxable, of course.

David Muhlbaum: Yeah. Right. And the respondents got that too. In fact, over 3/4 of respondents got it right. But overall, on the five questions in total, just one in 20 U.S. taxpayers, 5%, answered all five questions correctly. On average, respondents answered fewer than three questions correctly. The precise score was 2.89 out of five.

Sandy Block: Well, search kiplinger.com/taxes with your extra month of time. Not for you, of course, but for your friend who really needs help.

David Muhlbaum: Of course.

David Muhlbaum: When we return: Green investing, it’s hot. What’s really green and what’s someone who wants to get into this sector, with such nosebleed prices, supposed to do now?

David Muhlbaum: Welcome back to Your Money’s Worth. Executive editor Anne Smith is joining us today to discuss the cover story, stories actually, from Kiplinger’s personal finance on green investing. Because, you know, Earth Day.

Sandy Block: Earth Day is every day.

David Muhlbaum: And every day is Earth Day, true, but it’s also April 22nd this year and every year and that’s just around the corner. So, welcome Anne, as we enjoy a beautiful spring day here, one of those days that makes you think, Hey, maybe everything really is okay in the world and the climate, et cetera, when it isn’t. Just read another grim headline from The Washington Post on a new record for carbon dioxide levels, as measured at the Mauna Loa Observatory in Hawaii. Last year’s global temperature tied for the hottest on record with 2016. But speaking of heat, we appreciate that climate change is a hot-button issue that not everyone agrees on, we’re not here to debate that today. Rather, as Anne can tell us in more detail, investors are very eager to invest in stocks, funds, and bonds that claim to combat climate change, improve sustainability and other environmental goals. You know, follow the money. We are hoping that in our Kiplinger way, to give you guidance on doing that in a way that’s most profitable. Wow. Okay Anne, hi, thanks for joining us. Please excuse my lengthy preamble.

Anne Kates Smith: Happy to be here. It used to be, we’ve been writing about green investing for as long as I’ve been working at Kiplinger, which I’m not even going to go into it. It used to be that if you wanted to put your money where your beliefs were, when it came to investing in ESG stocks, and ESG stands for Environmental, Social, Corporate Governance values, then you had very few choices and you probably were going to sacrifice some returns. And so the investing philosophy back in the day was, make as much money as you can in the stock market and use those profits to support whatever causes you feel like supporting.

David Muhlbaum: Like write a check, make a charitable donation?

Anne Kates Smith: Exactly. With the money that you make. But these days the choices are more than plentiful, and you definitely don’t have to sacrifice returns. ESG investing has not just gone mainstream, it’s pretty much taken over. Even in 2020 when people were fleeing the stock market and more money flowed out of U.S. stock funds than went into them, that was not the case with sustainable funds. And those are not just climate funds, sustainable is another word for ESG. So it includes those social and corporate aspects as well, but they are popular investments and some of them are up, two, three, four, six fold. So, no more sacrifice.

Sandy Block: So Anne, thanks for explaining the acronym ESG. And as you pointed out, it covers a variety of investing goals. But the focus of this round of Kiplinger’s coverage was on the E, the environment. How come?

Anne Kates Smith: Well, because of Earth Day. We have done a lot of stories in the past year on other aspects of ESG, companies that are great to work for, for instance, and other stories. But this time we wanted to focus on the environmental aspect. Again, this is where the money is flowing. BlackRock, the huge investing giant recently did a survey and they found out that climate related risks are at the top of mind for investors who are investing in ESG funds. In other words, the E is top of mind in the ESG world. And the funds are, like I said, are just raking in money, $50 billion in 2020 into sustainable funds. There have been records set for three or four of the past years and that’s double the record set in 2019. And it’s 24% of inflows into all U.S. stock and bond funds last year. So, it’s just raining money on these ESG funds.

David Muhlbaum: So it’s white-hot. I imagine that presents hazards of its own, particularly for people who want to get in now. Like the market broadly speaking has been hitting new highs this year and a lot of those gains are concentrated in green stocks.

Anne Kates Smith: They have been. So, for instance, when we wrote about green stocks in 2020, our theme was that these stocks are going mainstream, that they’re being picked up widely by investors. And, in fact, the six stocks that we recommended in that 2020 story are up about 80% on average, just looking at my list here. We had one stock, TPI Composites, that makes the blades for wind turbines. So it was up 176%. Our worst performer was Waste Management. And even that was up more than 8%. And just for comparison, the S&P over that time period was up about 27%. So, the stocks have done very well.

David Muhlbaum: So if you listened to us last year, you could have done well too?

Anne Kates Smith: Definitely. Yes.

David Muhlbaum: Let’s gloat a little! It’s nice to be right. It doesn’t always happen.

Anne Kates Smith: It was easy to be right in that sector, but that made it a little bit more difficult this time around in 2021, when we wanted to write about green stocks with such a big run-up. We’ve gone well past mainstream with this investing, we had to examine whether or not the stocks were in a bubble and overvalued and ready for a pullback. For instance, I mentioned TPI Composites, that’s a great company with a great future, but it’s trading at nearly 70 times earnings still. So we’re not recommending it for new investors. This year you have to balance your green exposure while also managing risk. This year we focused on, as much as we can say, value-priced plays. They may not be value price plays in the conventional sense, but they’re not as high flying as some of the other green stocks. We looked at green chips for the long haul, companies that you can buy and hold, and some indirect plays to the climate and the whole green sector.

Sandy Block: So, Anne, you mentioned green chips, and maybe we could start by explaining what those are. Sort of the, I guess, environmental version of blue chip stocks?

Anne Kates Smith: Exactly. They’re the cream of the crop, they’re well-managed companies with sizable market shares. They’re considered market leaders in their industries. And the two green stocks on our list this year are NextEra Energy, a big utility and Xylem, which is a water treatment company. NextEra is based in Florida, traces its roots back to Florida Power and Light. So it’s still part stodgy electric utility. It’s got a secure dividend, yielding about 2%, but it also has a clean energy arm with a sizable and growing portfolio, wind, solar, and battery storage projects. NextEra, says it believes it can construct 23 to 30 gigawatts of new renewable energy projects through 2024. To give you an idea of the growth rate here, that’s one and a half times the size of its entire portfolio at the end of 2019.

David Muhlbaum: Okay. That’s growth.

Anne Kates Smith: That’s growth. Xylem is about water, not energy per se, but that’s got an obvious green connection. It uses innovative methods to upgrade water infrastructure, delivering clean water to people in about 150 companies, so it’s got a global reach. Xylem has digital data-driven approaches to water usage. You think about smart meters and sensors that detect pipe leaks, for example, and it serves industrial firms, utilities, municipalities, and homeowners, helping them to conserve and manage water. Xylem technology also helps to reduce the amount of, and excuse this corporate speak here, non-revenue water. That’s a term for the 30 to 40% of water worldwide that’s lost due to leaks, unauthorized use and just basic inefficiencies.

David Muhlbaum: Yeah. It’s like the water that gets wasted before we have the chance to waste it.

Anne Kates Smith: Correct.

Sandy Block: It’s like the water in my basement, right? It’s non-revenue water.

Anne Kates Smith: No.

David Muhlbaum: That’s expensive water. That’s going to cost you, Sandy.

Anne Kates Smith: Yeah. That’s very expensive water. Xylem also has treatment technologies to remove harmful pollutants from water and wastewater. So it pretty much spans the gamut in a water treatment technology.

David Muhlbaum: Water is life. I think that’s someone else’s tagline. Jeopardy question, who knows why it’s called Xylem?

Sandy Block: No idea.

David Muhlbaum: Xylem is the part in plant tissue that moves water through the plant. Up or down kind of depending on the season.

Anne Kates Smith: Wow, back to my botany 101 days.

David Muhlbaum: Yeah. So, well, it’s green. Back to the stocks. I noticed that your 2021 list has a major electric car maker on it, but its name does not start with T.

Anne Kates Smith: That’s right. I told you we were taking a value approach. The car maker in question is General Motors, not Tesla. I don’t want to get sidetracked into a discussion of Tesla’s value or it’s ever moving price targets or any of that, but I don’t think I’d get a ton of argument if I were to call it a high flyer. I think the P/E ratio for Tesla doesn’t even measure on our scale. GM isn’t as sexy as Tesla, maybe, but it’s a big player with a huge commitment to the EV market. It’s up nearly 50% so far this year, that includes dividends. Tesla’s down about two over the same period, and for context, the S&P is up about nine. Over the past 12 months, full year. GM is up nearly 220% counting dividends.

Sandy Block: Oh wow.

Anne Kates Smith: Yeah, not shabby, not as much as Tesla, up about six fold, but not shabby. And I can tell you, the chart is a lot smoother. And GM sells for about 12 times expected earnings.

David Muhlbaum: I know we’re talking stocks, not cars, but I just have to interject that I saw some video of GM’s new electric truck, the Hummer EV SUV, and that thing is just nuts. It’s not just that it’s electric, it’s how being electric enhances its off-roading capabilities. The thing can crab sideways. I can’t tell you that the production Hummer, which is expected to be out next year will be any good, but I can tell you that GM certainly seems capable of generating buzz. Anyway Anne, I’d like to pivot from stocks in part because people can see the other ones we’re recommending for 2021 in the story, Profit From Planet Friendly Companies, which we will link to in the show notes, and in part because a whole lot of the activity in ESG investing is in funds. In fact, that’s kind of where the whole concept got its start. And in the April forecast, the cover stories, you’ve got a bunch of ETFs, a handful of bond funds, and one mutual fund that invests in stocks. And all of these are green.?

Anne Kates Smith: Yeah, there are very few pure green plays in the fund world. Most of these funds pay attention to other so-called sustainable investing principles as well. And we’re talking about the social values and corporate governance practices that make up the second two letters in ESG. But we chose these funds for their focus on the E or the environmental component of ESG.

Sandy Block: Okay. Can I ask for an explainer then? Because, when we talk about individual companies and stocks, we can make our own assessment of whether a company is doing something green, significant. Some are self-evident, like a company that makes wind turbine blades. Others you got to think about, like General Motors and see what the long-term objectives are. But for funds, who says, “Yeah, this fund is green.”?

Anne Kates Smith: And that’s a whole other can of worms. There are a host of raters, more coming in every day, each with their own metrics. And one of them that we refer to a lot is the ginormous investment research firm Morningstar. With Morningstar, a low ESG score is better. It’s a dynamic area. There are some controversies. Some companies can be accused of greenwashing, for instance, making some of their practices look greener than they actually are. But with funds, here’s the deal, you can look at how a fund identifies itself and read the prospectus, see what they consider green and see what they demand as part of their investment criteria before they invest in a stock.

David Muhlbaum: Yeah. I just read an article we posted in our Building Wealth Channel by a financial advisor named Peter Krull, about the distinctions between socially responsible investing — SRI — and ESG — environmental, social, and governance investing, the term we’ve been using. In short, he says, don’t use those interchangeably. We could probably do a whole podcast on that alone, maybe. But I bring that up kind of to say that, we’re aware of these issues and there are differing opinions on what’s green or green enough, but… Anne, to put us back on track, give us a high level look at how ESG funds are faring. We did talk about inflows.

Anne Kates Smith: Yeah. And I’ll just say one more thing about the labels. And this is particularly true in the green bond investing area. There are many, many labels, each with its own set of metrics and criteria. If you limit yourself to the investments that fall within those labels, then you are limiting your universe of investments. So it is a subjective area, and it helps if you do your own homework and keep an open mind. But back to the funds, they are very hot, funds that you invest with environmental concerns in mind have just sizzled. Some have posted triple-digit returns over the past 12 months. And like we’ve mentioned, investors have just poured money into these funds. The $50 billion that went in in 2020 is more than double the record set in 2019. And it’s about 24% of overall inflows into U.S. stock funds for the year.

Sandy Block: Wow. I mean, that’s incredible.

Anne Kates Smith: Yeah. Sustainable investing hasn’t just arrived, it’s taken over. And you can particularly see that in 2020, because U.S. stock investors pulled money out of funds or, investors pulled money out of U.S. stock funds, let me put it that way. But inflows into sustainable funds, ESG funds were positive. So I think that says a lot about how people are consistent investors when they’re putting their money where their values are. Also, one other fact, four of the top 10 sustainable funds with the biggest inflows in 2020 were focused on renewable energy. So, particularly hot there. When we talked to Jon Hale, who’s the head of sustainability research at Morningstar, he characterized some of the excitement in this area as performance chasing. But you have to put that in perspective, the commitment to green energy from the Biden administration and the future there over the long haul means that the potential is still there.

Sandy Block: And speaking of performance chasing, maybe one of your fund choices, Invesco WilderHill Clean Energy, certainly looks like it’s doing very, very well. You could argue that investing in that was going after performance.

Anne Kates Smith: Well, to put it in context, that fund is up about 273% over the past 12 months. So a lot of performance to chase there, but we had already added that fund to the Kiplinger ETF 20, which is the list of our favorite ETFs last year. So, that tracks an index of companies that focuses on green and renewable energy sources like wind, solar, hydro, geothermal, biofuel. It also looks at companies involved in energy storage, clean energy, conversion. Some of these stocks are up over a 1000% in the past year, but we have to warn our readers and listeners that volatility works both ways. The ride in this fund can be a little bit bumpy, and to be honest, it’s down about 4% so far this year. Still has that 272.97% gain for the past 12 months. But you have to be prepared for a little bit of volatility.

Sandy Block: Okay. So I’m green, but I don’t like volatility. Can you recommend something that maybe is a little calmer for my portfolio?

Anne Kates Smith: Well, there are different things you can do to ameliorate some of those concerns. Like we mentioned, the ETF that’s equal weighted, that means that some of the highest-priced stocks, that can be the most volatile and risky, don’t dominate the returns. But there’s another one, the one mutual fund that we recommended, Fidelity Select Environment and Alternative Energy Portfolio. That’s a mouthful. The symbol there is FSLEX. The fund is a diversified approach to companies tackling climate change. It holds stocks in every sector, for instance.

Anne Kates Smith: Mostly companies that get about one quarter of their revenue tied to a smorgasbord of environmentally friendly pursuits. And that means fuel efficiency, generating renewable energy, building water infrastructure, recycling, stuff like that. That means that it holds a handful of big, traditional blue chips. One of them is Honeywell, the giant industrial conglomerate. And it’s got Honeywell because that company works with building owners to install more energy efficient systems. 3M is another big conglomerate that’s in there. 3M is a huge supplier to solar and wind companies. The fund has lagged the S&P over the past three years, but it’s beaten the S&P year-to-date and over the past 12 months and it’s neck and neck over the past five years.

David Muhlbaum: Okay. So here I go, talking about my family again, but my younger daughter wants to invest some of the money she saved up from babysitting, gifts and the like, in a green fund. She’s off at school in Vermont right now where they go to class and run an organic farm, so it’s all very on-brand, if you know what I mean. So I started looking at some of these funds and my God… I keep seeing Tesla as a holding! Like, for that one we were just talking about, Fidelity Select Environment and Alternative Energy Portfolio, it’s number one. They literally have twice as much Tesla as Honeywell. I mean, I imagine a part of this is with the way Tesla shares have been rising, it’s going to get up there in fund holdings. But it’s not exactly reassuring to see this hot potato of a stock keep popping up. To me that is, I don’t think my daughter cares. Her concern is finding a fund that has a manageable minimum investment.

Anne Kates Smith: Well, I’ll tell you, it’s not uncommon to find Tesla in a green fund, but I just have to say, it’s by far and away not the only overvalued green stock out there. Tesla has its supporters. It’s a company for the long haul, they say. But here’s the thing about mutual funds, David, if you hire a pro to manage your green investments, part of the privilege and the benefit of that is leaving those decisions to the fund manager. Now, if you’re uncomfortable with that kind of volatility and that kind of risk, you can check the holdings. Mutual funds disclose their holdings periodically, most ETFs do so daily, but you also use some other criteria to choose a fund. You compare expenses, you try to buy a low-expense fund for instance, that’s extremely important, and you buy a track record. You don’t have to second guess the manager, that’s the beauty of buying a fund until such time as that fund no longer suits your needs or the track record crumbles.

David Muhlbaum: It’s interesting you mentioned those important parameters in choosing a fund. In the process of trying to advise my daughter, I found myself very much going through those parameters and reminding myself again, why those matter and how we go about picking mutual funds, and it was an interesting opportunity to riff on what I hope I’ve learned over the years, and that you helped teach us all. There are four other funds in Earth-First Funds Are Soaring that we didn’t get to today. I’m going to put a link into that article as well. And as long as we’re talking about things that we didn’t have time for, we briefly mentioned bond funds, but we don’t have time to really dig into that today, but there are green bond funds as well. And again, I’ll put a link to that article as well so you can just keep on digging into all the green content that we have put together for Earth Day. Anne, thank you very much for joining us today. We appreciate your insights.

Anne Kates Smith: Oh, it’s my pleasure. Happy Earth Day.

Sandy Block: You too.

David Muhlbaum: And that will just about do it for this episode of Your Money’s Worth. If you like what you heard, please sign up for more at Apple Podcasts or wherever you get your content. When you do, please give us a rating and a review. If you’ve already subscribed, thanks. Please go back and add a rating or a review if you haven’t already, it matters. To see the links we’ve mentioned in our show, along with other great Kiplinger content on the topics we’ve discussed, go to kiplinger.com/podcast. The episodes, transcripts, and links are all in there by date. And if you’re still here because you wanted to give us a piece of your mind, you can stay connected with us on Twitter, Facebook, Instagram, or by emailing us directly at podcast@kiplinger.com. Thanks for listening.

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The 7 Most Common Questions About IRAs

An individual retirement account (IRA) can be an important part of retirement investing. But before investors save money in this type of plan, it makes sense to know the basics about who it’s for, how it can help, and which type of IRA is right for you.

This article will cover the seven most common questions people have about IRAs to help you decide whether it’s a good retirement investment vehicle for you.

1. How is an IRA different from a 401(k)?

Both IRAs and 401(k)s are tax-advantaged ways to grow money for retirement, but whereas a 401(k) is an employer-sponsored plan that is offered through a person’s job, an IRA is an account you can open on your own.

Benefits of 401(k)

On the one hand, a 401(k) can be beneficial to people who want to “set it and forget it”—and have money deducted automatically from their paycheck into their retirement account, without worrying about making payments.

Additionally, the maximum allowed yearly contributions to a 401(k) are larger than that of an IRA. For 2021, employees can contribute up to $19,500 to their 401(k), with an additional $6,500 in catch-up contributions if they’re over age 50. Employers can also contribute “matching” funds to your account, for a total of $58,000 (or $64,500 including catch-up contributions) per year.

Benefits of an IRA

For people who may have money that’s currently sitting in a checking, savings, or investment account, an IRA might be a good place for it to grow and help prepare you for your future.

An IRA can also be good for people who are not offered a 401(k) plan through their employer. IRA contribution limits are less—$6,000 per year as of 2021, with an additional $1000 in catch-up contributions for people over age 50.

The bottom line, however, is that you don’t need to choose between these two different retirement plans. If you have access to an employer-sponsored 401(k), it’s often a good idea to contribute as much as possible, then supplement with an IRA if desired.

Recommended: How to save for retirement if you don’t have an employer-sponsored 401(k)

2. Traditional vs. Roth: How do they work?

The two most common types of IRAs are traditional and Roth. (There are other kinds, like SEP and SIMPLE IRAs, but those are geared toward people who are self-employed or running small businesses. If that applies to you, read more about SEP IRAs.)

The biggest difference in a traditional vs. Roth IRA is when your money is taxed. With a traditional IRA, you get a tax deduction when you contribute money—so the money going into your account is tax free, and when you withdraw it in retirement, it will be taxed.

With a Roth IRA, you don’t get a tax deduction when you contribute but your money grows tax-free—meaning that when you withdraw it in retirement, you won’t pay taxes on the withdrawals. While that may be appealing to some people, it’s worth noting that Roth IRAs have restrictions around income when it comes to opening an account. In 2021 individuals must make below $125,000 (people earning more than $125,000 but less than $140,000 can contribute a reduced amount); for married people who file taxes jointly, the limit is $198,000 (or up to $208,000 to contribute a reduced amount).

Recommended: Rolling over your 401(k) is a pain—here’s why it’s still worth doing

3. Which IRA type is best for me?

While everyone’s situation is different, and only you can determine which kind of IRA is best for you, there are a few things to consider. If you have money sitting in a 401(k) from an old job, you might choose to roll that money over into an IRA (some employers will also let you roll over an old 401(k) into your current plan). Even if your employer previously paid the 401(k) fees, many stop doing that and pass them on to you when you leave. Plus, companies can merge or go out of business, and if that happens it may be more difficult to roll over your money.

Since the contribution limits are the same for both a traditional and Roth IRA, neither offers an advantage in that regard. So if you do qualify for both, one way to figure out whether a traditional or a Roth IRA is best for you is to think about your current tax bracket and what tax bracket you’re likely to be in when you retire.

If you don’t expect to earn any passive income in retirement (for example, from investments or rental income) and will thus be in a low tax bracket, you may want to take the tax deduction today and open a traditional IRA. If, on the other hand, you’re currently in a low tax bracket and expect to make more during retirement, you might opt for a Roth IRA.

Recommended: Traditional IRA or Roth IRA: Which one works for you?

4. How much should I put into an IRA?

Your goal generally should be to try to hit that maximum of $6,000 per year—or as close to that as your budget will allow. The important part is to make contributing a habit, and let the power of compound interest take over.

5. When should I make IRA contributions?

One simple way to fund your IRA is to set up an automatic contribution once a month that takes money from your checking or savings account and puts it directly into your IRA. Then, you never have to worry about forgetting to contribute, and you won’t miss (or spend) money that you never see. Use our IRA calculator to help determine which contributions you can make.

You don’t have to contribute monthly—the frequency is totally up to you, and many people contribute once annually, after they receive a year-end bonus, for example, or before the annual deadline of when taxes are due in April of the following year. (For tax year 2020, however, the deadline for contributions and filing has been extended to May 17, 2021.)

But consider this: the sooner you put money into the IRA, the more time it has in the market. Of course, investing isn’t without risk, but more time in the market means more time to (hopefully) grow.

6. Does everyone benefit from an IRA?

There are some potential drawbacks of an IRA for high earners. Here’s what to consider for each type of plan.

Traditional IRAs

Anyone earning an income can open a traditional IRA and contribute to it, but in some cases, traditional IRA contributions may not be considered tax-deductible. For instance, if you’re single and you’re covered by a workplace retirement plan like a 401(k), your traditional IRA tax deduction starts to become reduced when your modified adjusted gross income (MAGI)—your gross income minus what you put into your 401(k) and medical premiums—is $66,000 for 2021.

For married couples filing jointly, where the spouse who makes the traditional IRA contribution is covered by a workplace retirement plan, the deduction starts to go away when that person’s MAGI is $105,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction starts to phase out if the couple’s MAGI is $198,000.

Roth IRAs

As mentioned above, you can open a Roth IRA and contribute the maximum to it only if your income is below a certain level. For individuals who make more than $140,000 and married people who file taxes jointly and make more than $208,000, the Roth IRA is not an option.

If you fall into one of these categories, what should you do? If you or your spouse has a 401(k), one option is to start by maxing out that contribution each year.

7. How do I open an IRA?

An IRA can be an important part of an individual’s retirement investment strategy. Between traditional IRAs and Roth IRAs, it’s likely that you will find a plan that works with your timeline and goals.

Like so much else these days, opening an IRA can be done online. Though all the IRA rules are complicated, the process of opening one up with SoFi Invest® takes just a few minutes.

Find out how to get started with your retirement planning, with SoFi Invest.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


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What You Should Do, Financially, Before Quitting Your Job

At some point or another, quitting your job can seem like the best option. You might not be getting much out of your current position and want to explore other career options.

Or, you might want to devote more time at home to raising your kids. No matter what your reasons are for leaving your current position, you want to be sure that you are financially secure and that you’ll be able to maintain your standard of living.

Talk it Over

If you’re single and don’t have kids, you have more leeway when it comes to quitting your job. You don’t have to worry about how your decision will impact others.

But, if you are in a relationship or married, you need to discuss your plan with your partner before you quit. If you have kids, you need to remember their needs before you do anything, too.

Ideally, the two of you will hash out the different options you have and develop a plan that covers a number of financial bases:

  • Income
  • Insurance
  • Retirement

Another thing to discuss is how long you plan on not working.

Are you going to look for a new job or go back to school to train for a different career? If you are leaving your job to become a full-time stay-at-home parent, when do you plan on returning to work (if at all)?

Money In

One of the most immediate concerns when quitting your job is finding a way to cope with the loss of income. If you have savings, do you plan on dipping into that to support yourself while you look for new work?

Figure out how long your savings can sustain you if you have no other source of income. It’s imperative that you are financially secure before you quit, which might mean you need to postpone your quit date for some time.

If you are looking for a new job after you quit, allow enough time to find your next one. The standard recommendation is to allow one month of searching for a job for every $10,000 you earn.

That means if you pull in $60,000 a year, you can expect to look for an average of six months, in a good job market. Remember that in a tougher market, it can take longer.

If your partner works, the big question becomes, can you both live on one source of income? Some couples find that is possible to do so, as long as the one partner earns significantly more than the other.

Switching to a single source of income can mean you need to adjust your spending habits, though, and pay more attention to your budget.

The B-Word

Review your budget before quitting your job so that you know how the switch to one income or to living on your savings will work. Although the goal is to maintain your standard of living, you might have to make some sacrifices when you quit your job.

But, if you find eventually find a career that you love, those sacrifices will pay off in the end and you’ll be back to your old standard of living soon enough.

Get Properly Insured

Insurance is a big issue when you quit work. Don’t leave your current job until you have a plan for replacing your health insurance, if offered by your employer.

Changing your health insurance plan might be as easy as joining the plan offered by your partner’s work. But if you don’t have a partner or your partner doesn’t have health insurance through his or her employer, you’ll need to weigh your options carefully.

Review several private insurance policies so that you end up with one that meets your needs without busting your budget.

Retirement Replacement

Depending on your situation, you might need to find a new home for your retirement savings. Figure out the best solution for your 401(k) before you leave your job and be proactive about any rollovers.

You don’t want to have to deal with the hassle and penalties of having your 401(k) automatically cashed out by your former employer.

Do you plan on contributing to your retirement plan while not working? If you are married, you can contribute to an IRA in your own name, as long as your spouse has earned income. If you aren’t married, you don’t have that option.

But, if you planned in advance and saved sufficiently, you may have enough in your retirement account to make up for any time you aren’t contributing.

Voluntarily leaving a job should never be a snap decision. Even if you are very unhappy at work, take the time to carefully plan your finances before your exit. You don’t want to quit your job only to end up finding a new job you like even less.

Kelly Anderson is a financial planner who blogs about financial advice you can use in your everyday life. Connect with her on Twitter, Facebook and Google+.

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Financial Resources for American Veterans

It’s nearing Memorial Day weekend and as we prepare to remember the men and women who died serving in the United States Armed Forces, we also want to take a bit of time to give back to the veterans that are still with us.

One powerful thing that any person can have on their side is financial solvency and there are a number of financial services out there to help veterans keep their financial lives on track.

Here are some options and resources for veterans of all states of financial fitness.

National Association of American Veterans

The National Association of American Veterans is a nonprofit designed to assist veterans in just about any way that you can imagine.

Emergency assistance is available to veterans experiencing financial hardships.

If you need a little breathing room, you can get it from NAAV. They will also help with family counseling and individual counseling to help you and your family adjust after your return back from abroad.

U.S. Soldiers Foundation

Are you looking to buy a house after your discharge?

The U.S. Soldiers Foundation is a nonprofit designed specifically to help you find and buy the house of your dreams in the form of a low-cost mortgage.

USSF will also help you with life insurance, medical care, dental care, miscellaneous financial assistance, psychological counseling, job placement and education and training.

Disabled American Veterans

Disabled American Veterans is the place for veterans who have suffered disabling injuries and debilitating illnesses to go and get the assistance that they need.

There are over 100 DAV offices located throughout the United States and Puerto Rico where veterans can obtain assistance, which includes everything from a lift to treatment to help finding a job.

USA Cares

Seeing a need for younger veterans returning home from recent wars in Afghanistan and Iraq, USA Cares sought to fill those needs.

The nonprofit seeks to assist those who have recently returned from these aforementioned conflicts.

Specifically, it aims to help keep veterans in their homes and has been quite successful at doing so; It has provided assistance to over 13,000 military families and prevented foreclosure on 435 properties.

The organization provides grants, not loans, helping insolvent military families to get a second chance and get their heads above water again.

Reserve Aid

Reservists can go to Reserve Aid for the assistance that they seek.

Common financial assistance received from Reserve Aid includes rent and mortgage payments, utility bills, car payments and insurance and even Wal-Mart gift cards to help out with the gas and groceries.

With so many services available for regular military veterans, reservists might have trouble finding the resources they need to make ends meet. Look no further than Reserve Aid.

Operation Second Chance

Operation Second Chance exists for wounded, injured and sick veterans.

The organization helps people while they recover by finding out what services and support they need, then connecting them with it.

For Operation Second Chance, it’s not just about helping to pay the bills; They’re also known to put together care packages to lift the spirits of veterans while they recover.

They’ve even gone so far as to bring milkshakes to recovering vets.

National Resource Directory

The National Resource Directory is a one-stop clearinghouse for veteran’s assistance.

No matter what you need to get your life back on track or keep it there, you’re going to find through the National Resource Directory.

Everything from employment assistance to healthcare is available through the NRD.

Coalition to Salute America’s Heroes

The Coalition to Salute America’s Heroes is involved in a wide array of initiatives to provide assistance to our nation’s veterans.

This includes everything from welcome home parties and checks to help buy Christmas gifts for the kids to job training and emergency financial aid.

Making Veteran’s Day Count

Even if you’re not a veteran, the above list acts as a great checklist for places where you can volunteer your time and donate your finances.

What better way to give back to the nation’s armed forces?

“Financial Resources for American Veterans” was written by Nicholas Pell, a freelance writer based out of Los Angeles, CA. 

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Financial Planning Investing

The Basics of a 401(k) Retirement Plan

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Since its inception in 1978, the 401(k) plan has grown to be the most popular type of employer sponsored retirement plan in America.

Millions of workers depend on the money that they have saved in this plan to provide for their retirement years, and many employers use their 401(k) plans as a means of distributing company stock to employees.

Few other plans can match the relative flexibility that 401(k)s offer. In recent years, several variations of this plan have emerged, such as the SIMPLE 401(k) and the safe-harbor 401(k).

Here, we’ll go over 401(k)s and show you how they are helping millions of people prepare for retirement.

What Is a 401(k) Plan?

By definition, a 401(k) plan is an arrangement that allows an employee to choose between taking compensation in cash or deferring a percentage of it to an account under the plan.

The amount deferred is usually not taxable to the employee until it is withdrawn or distributed from the plan.

However, if the plan permits, an employee can make 401(k) contributions on an after-tax basis, and these amounts are tax-free when withdrawn.

401(k) plans are a type of retirement plan known as a qualified plan, which means that this plan is governed by the regulations stipulated in the Employee Retirement Income Security Act of 1974 and the tax code.

Qualified plans can be divided two different ways: they can be either defined-contribution or defined-benefit plans.

401(k) plans are a type of defined-contribution plan, which means that a participant’s balance is determined by contributions made to the plan and the performance of plan investments.

The employer is usually not required to make contributions to the plan as is usually the case with a pension plan.

However, many employers choose to match their employees’ contributions up to a certain percentage, and/or make contributions under a profit-sharing feature.

Contribution Limits

For 2013, the maximum amount of compensation that an employee can defer to a 401(k) plan is $17,500.

Employees age 50 by the end of the year and older can also make additional catch-up contributions of up to $5,500.

The maximum allowable employer/employee joint contribution limit remains at $51,000 for 2013 (or $56,500 for those aged 50 and older).

The employer component includes matching contributions, nonelective contributions and/or profit-sharing contributions.


Typically, plan contributions are invested in a portfolio of mutual funds, but can include stocks, bonds and other investment vehicles as permitted under the provisions of the governing plan document.

Distribution Rules

The distribution rules for 401(k) plans differ from those that apply to IRAs.

The money inside the plan does grow tax-deferred as with IRAs, but whereas IRA distributions can be made at any time, a triggering event must be satisfied in order for distributions to occur from a 401(k) plan.

As a result, 401(k) assets can usually be withdrawn only under the following conditions:

Required minimum distributions (RMDs) must also begin at age 70.5, unless the participant is still employed and the plan allows RMDs to be deferred until retirement.

Distributions will be counted as ordinary income and assessed a 10% early distribution penalty if the distribution occurs before age 59.5 unless an exceptions applies.

Exceptions include the following:

The exceptions for higher education expenses and first-time home purchases only apply to IRAs.

Of course, the majority of retirees who draw income from their 401(k)s choose to roll over the amounts to a Traditional IRA or Roth IRA.

A rollover allows them to escape the limited investment choices that are often presented in 401(k) accounts.

Employees who have employer stock in their plans are also eligible to take advantage of the “net unrealized appreciation” rule (NUA) and receive capital gains treatment on the earnings.


Plan loans are another way that employees can access their plan balances, but several restrictions apply.

First, the loan option is available at the employer’s discretion; therefore, if the employer chooses not to allow plan loans, then no loans will be available.

If this option is allowed, then up to 50% of the employee’s vested balance can be accessed, providing the amount does not exceed $50,000, and it must usually be repaid within five years.

However, loans used for primary home purchases can be repaid over longer periods. The interest rate must be comparable to the rate charged by lending institutions for similar loans.

Any unpaid balance left at the end of the term may be considered a distribution and will be taxed and penalized accordingly.

Limits for High-Income Earners

For most rank-and-file employees, the dollar contribution limits are sufficiently high enough to allow for adequate levels of income deferral.

But the dollar contribution limits imposed on 401(k) plans can be a handicap for employees who earn several hundred thousand dollars a year.

For instance, an employee who earns $750,000 in 2013 can only include the first $255,000 of income can be considered when computing the maximum possible contributions to a 401(k) plan.

Employers have the option of providing nonqualified plans, such as deferred compensation or executive bonus plans for these employees in order to allow them to save additional income for retirement.

The Bottom Line

401(k) plans will continue to play a major role in the retirement planning industry for years to come.

In this article, we have only touched on the major provisions of 401(k) plans.

For more specific information on the options available to you, check with your employer and plan provider.

“The Basics of a 401(k) Plan” was provided by Investopedia.com. 

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Financial Advisor Growing Wealth Investing

What Are Altcoins? Guide to Bitcoin Alternatives

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There are many alternative investments available for people who hope to grow their money—from age-old collectibles like baseball cards, to new and somewhat confusing assets, like NFTs. Another alternative investment is cryptocurrency—and within that category falls another “alt”: alt coins, better known as altcoins.

Altcoins are crypto coins that are an alternative to Bitcoin, the original cryptocurrency and reigning crypto leader. There are many different altcoins—different types, and within those categories, different specific products.

This article covers everything you need to know about altcoins, including what they are, where to buy them, and examples of the more popular coins on the market. Familiarize yourself with altcoins here, then check out the top things you should know before investing in any cryptocurrency.

What Are Altcoins?

Bitcoin is just one of the myriad coins and tokens that comprise the cryptocurrency space. You’ve likely heard some of their names—such as Ethereum, Ripple, and Litecoin. These coins and cryptos are, in effect, alternatives to bitcoin.

“Altcoin” is a catch-all term for alternative cryptocurrencies to bitcoin. They’re altcoins. It’s that simple. Currently, there are more than 9,000 cryptocurrencies in existence. That’s a lot of altcoins.

How do Altcoins Work?

Like Bitcoin, altcoins rely on blockchain technology, which allows for secure, peer-to-peer transactions. But each altcoin operates independently from the rest, and each has its own sets of rules and uses. For example, cryptocurrencies like Bitcoin and Ethereum are mineable, whereas Ripple and Stellar are not.

That said, in general, most altcoins operate in much the same way: They’re traded among investors, with transactions recorded via blockchain in a distributed ledger.

Different Types of Altcoins

Most altcoins can be slotted into a few different categories, which can help potential crypto investors get a better grasp of the field. This is not an exhaustive list, as categories and subtypes are always changing. But here are some of the most prevalent types of altcoins:

Digital currencies

The digital currency category comprises most of the cryptocurrencies that investors are familiar with, including Bitcoin. They’re exactly what they sound like: currency in digital form. They can be acquired as a form of payment, through trading on an exchange, or through mining (when applicable), and are generally used to conduct transactions.


Unlike crypto like Bitcoin or Ethereum, which can be used on any platform, tokens are tied to their parent platform. For example, Tether and Golem are tokens used only on the Ethereum platform.

A utility token provides holders with some sort of service. BAT (Basic Attention Token) is an example of a utility token, meant to be used specifically as a method of payment on the Brave open-source browser.


Stablecoins are built to be stable—they are pegged to an existing asset like the Euro or the U.S. dollar. The logic is that by pegging the asset to an existing one, it should help stabilize value and reduce volatility.

In contrast, consider Bitcoin: while its value has risen substantially in recent years, its price is highly volatile. Values have dropped to less than $6,000 per coin to more than $60,000—all within a couple of years. Stablecoins are designed to reduce those wild fluctuations, and allow holders to sleep at night.

An example of a stablecoin is Libra (aka Diem), which is being developed by Facebook, and pegged to the dollar.

Common Altcoins

There are seemingly more and more altcoins hitting the market every day. Here are a few of the more common altcoins:

Ripple: Also known as “XRP,” this altcoin is used primarily on its namesake, the Ripple currency exchange system. It was designed for use by businesses and organizations, rather than individuals, as it’s most often used to move large amounts of money around the world.

Ethereum: Ethereum is a programmable internet platform used to build decentralized programs and applications, and its native currency, Ether (ETH), is the altcoin in question that can be traded by investors.

Litecoin: Litecoin is another popular altcoin, which is often referred to as “Bitcoin lite,” hence the moniker. It’s one of the largest and most popular cryptocurrencies on the market, and operates in a very similar way to Bitcoin.

Dogecoin: There are a bunch of “joke” altcoins that are on the market, and Dogecoin is perhaps the most recognizable right now. Dogecoin started as a joke (its genesis is actually an internet meme), although it has gained value in recent months.

Cardano: Cardano (ADA) allows developers to use the Cardano blockchain to write smart contracts and decentralized applications (dApps). ADA crypto is required to run programs like dApps. Cardano is also used as a medium of exchange.

Where to Buy Altcoins?

Looking to buy altcoins? They’re available on most any cryptocurrency exchange, like Coinbase or Binance. You can even trade cryptocurrencies with SoFi Invest® (if you live in an eligible state). Not all altcoins may be available on every platform, so interested investors should do their research before choosing an exchange.

In terms of actually trading for coins, the process can be as simple as depositing money into an account on your preferred exchange, and then trading either dollars or crypto for a targeted altcoin.

The Takeaway

Altcoin is a catchall term for cryptocurrency other than Bitcoin, the original crypto. There are a variety of different altcoins—from tokens to stablecoins—but many are available for interested investors.

If you want to get your feet wet, you can get started trading certain cryptocurrencies and altcoins using SoFi Invest. You can get started with just $10, manage your transactions in the SoFi app, and rest assured that your holdings are securely protected against fraud and theft.

Find out how to get started with SoFi Invest.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Financial Planning Investing

Is It Time to Incorporate?

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Except during bouts of insomnia, I’ve never given much thought to the issue of business structure.

Sure, I know in theory that a business can incorporate, and that incorporation provides the business with benefits such as tax flexibility, protecting the owners from personal liability, and raising money by selling stock.

Every time I’ve looked into whether I should incorporate my own business, however, it has never made sense.

It would require a stack of paperwork. I’d have to pay a registration fee and annual renewal fee to the state of Washington. It would make my taxes more complicated without saving me more than a few dollars, if that.

And because my business consists of one person writing columns, incorporating would be unlikely to provide me legal protection if I were to commit libel or otherwise get sued.

So I’ve stuck with the most common business type in the US: a sole proprietorship. According to the Census Bureau, about 71.5% of US businesses are sole props.

Tax-wise, being a sole prop is relatively simple.

You have to file quarterly estimated taxes with the IRS, and then file a Schedule C and Schedule SE with your 1040 in April, but TurboTax and other tax software makes it easy. The state business license cost me $15, and renewal is free.

Recently, however, one of my hobbies has turned into a business, and a sole proprietorship isn’t going to cut it. I’m going to have to learn about business structure, whether I like it or not.

Two heads are better than one, except for tax purposes

My friend Molly and I co-host a comedy podcast. I’m not going to mention the name because lord knows I’ve promoted my own stuff in this column enough lately.

We’ve been doing the podcast for over three years and, except for one advertisement from a local company in the early days, have never made any money at it.

But we’ve slowly built up a loyal audience of listeners around the world. (The fact that you can crack a joke in Seattle and make people laugh in Singapore is one of my favorite things about the modern world.)

A couple of months ago, perhaps inspired by that Amanda Palmer TED Talk, we realized, hey, we could ask our listeners for money.

For $5/month, we offered listeners a handwritten postcard and access to a growing library of premium content.

To our surprise, people actually signed up. Not a huge number, but enough that suddenly our dumb hobby was paying for itself.

Great for us, but we’d need to share the news of our minor success with our friends at the IRS, the Washington Department of Revenue, and the city of Seattle.

Easy, I said: I’ll just consider the podcast part of my sole proprietorship, pay Molly as a contractor, and issue her a 1099.

This is perfectly legal, but (a) it’s a pain to disentangle the podcast income and expenses from those of my writing business, and (b) it’s not especially fair, since the podcast isn’t really my business, it’s a joint effort.

Furthermore, if we wanted to hire a tax preparer to handle our business taxes (which we might want to do), it would be impossible to do so without also turning over responsibility for preparing my own tax return (which I don’t want to do).

So we need to look at a business structure that reflects Molly’s and my joint ownership of the enterprise (trust me, describing our show as an “enterprise” is droll) and separates the potentially hairy parts of the business taxes from my own taxes.

As the personal finance columnist in this business relationship, it falls to me to investigate the possibilities, and I’m looking at three.

A general partnership

A partnership is essentially the group version of a sole proprietorship. It requires no special paperwork to form one, just a business license.

Partnerships file a tax return with the IRS and pass all profit or loss on to the partners via the K-1 form. Partners are personally liable for all of the partnership’s debts.

A limited liability company (LLC)

An LLC, in most cases, works the same way as a partnership, but as the name implies, the legal liability of the owners is limited. If our company goes bankrupt, creditors can’t come after my personal funds unless I act negligently.

We don’t have any creditors at this point, but that could change when we decide to construct a theme park.

LLCs require more paperwork and fees than partnerships. In Washington State, the initial fee is about $200 and there’s an annual renewal fee of $69. The federal and state tax filing is similar to a partnership.

An S Corporation

The “S” actually stands for subchapter S of the Internal Revenue Code, but you can think of it as a “Small” corporation.

An S Corporation is limited to 100 or fewer stockholders and is restricted in other ways compared to (usually larger) C Corporations.

In exchange for meeting the restrictions, S Corporations can save their owners on taxes in various ways and are generally more flexible in structure than a partnership or LLC.

The fees for an S Corporation in Washington are the same as for an LLC, but the paperwork is much more heavy-duty.

You have to hold an annual board of directors meeting and take minutes (adult beverages may be served), and the corporation would have to file its own tax return and pay Molly and me as employees.

I’ve tentatively decided that an LLC makes the most sense.

It keeps the paperwork to a minimum while providing us some legal protection in the event that, well, I can’t actually think of how we could end up in debt since our business consists of sitting around and talking. But it couldn’t hurt.

Plus, we get to put “LLC” at the end of our business name, which sounds totally legit.

There are a lot of other nuances to the decision of when and how to incorporate. These are just the very basics.

(It’s possible, for example, to be an LLC but be taxed as an S Corporation and zzzz….)

For a more detailed but still gentle overview, I recommend Mike Piper’s book LLC vs. S-Corp vs. C-Corp Explained in 100 Pages or Less.

If you own a small business, how did you decide on a business structure, and have you been satisfied with the decision?

Matthew Amster-Burton is a personal finance columnist at Mint.com. His new book, Pretty Good Number One: An American Family Eats Tokyo, is available now. Find him on Twitter @Mint_Mamster.

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