How will a surge in bond yields affect your mortgage, car loans and 401(k)? – USA TODAY

Big gains are likely for economy this year even as COVID-19 damage lingers

Fed meeting:Powell says economy is ‘a long way’ from Fed’s goals and central bank has no plans to raise interest rates or reduce bond purchases

Should you fear higher yields? 

Some investors worry that an increase in bond yields and longer-term interest rates will end the market’s runof steady gains. Remember, stocks have rebounded to record highs following a historic plunge last spring. These gains could be threatened because higher yields make it more expensive to borrow money, and that tends to slow down economic growth, which could be bad for stocks.

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The 25 Best Low-Fee Mutual Funds You Can Buy

The Kiplinger 25 list of our favorite no-load mutual funds dates back to 2004, and our coverage of mutual funds goes all the way back to the 1950s. We believe in holding funds rather than trading them, so we focus on promising mutual funds with solid long-term records – and managers with tenures to match.

Over the past 12 months, U.S. stocks hit new highs, and then a viral pandemic snuffed out a nearly 11-year bull market, wiping out gains in just days … and then stocks bounced back into a new bull market just a few months later. The major indices have been roaring ever since, and have been regularly setting all-time highs of late.

That has many (but not all) of our Kiplinger 25 picks looking like their old selves.

Over the past decade, for instance, the 11 U.S. diversified stock funds with 10-year records returned an average of 13.4% annualized, right on par with the S&P 500 Index. Our seven bond funds as a group beat the Bloomberg Barclays U.S. Aggregate Bond Index over the past five and 10 years on an annualized-return basis.

Here are our picks for the best 25 low-fee mutual funds: what makes them tick, and what kind of returns they’ve delivered.

Data is as of Jan. 28, unless otherwise noted. Three-, five- and 10-year returns are annualized. Yields on equity funds represent the trailing 12-month yield. Yields on balanced and bond funds are SEC yields, which reflect the interest earned after deducting fund expenses for the most recent 30-day period.
– Fund not in existence for the entire period.

1 of 25

Dodge & Cox Stock

Composite image representing Dodge & Cox's DODGX fundComposite image representing Dodge & Cox's DODGX fund
  • Symbol: DODGX
  • 1-year return: 10.1%
  • 3-year return: 4.9%
  • 5-year return: 14.7%
  • 10-year return: 11.5%
  • Yield: 1.7%
  • Expense ratio: 0.52%

The focus: Cheap shares in large firms.

The process: Ten managers home in on well-established companies with attractive prices and long-term prospects. Portfolio managers are patient and invest with a three- to five-year horizon in mind.

The track record: The fund is prone to streaky returns because the managers’ out-of-favor bets can take time to play out. Be patient. Over the past 10 years, the fund’s 11.5% annualized return beats 95% of its peers, which are funds that invest in bargain-priced large-company stocks. But, like many value-oriented funds, it lags Standard & Poor’s 500-stock index, which boasts a 13.5% annual total return (price plus dividends).

The upshot: Markets are cyclical, and this investing style will come back.

2 of 25

Mairs & Power Growth

MPGFXMPGFX
  • Symbol: MPGFX
  • 1-year return: 17.4%
  • 3-year return: 11.0%
  • 5-year return: 15.6%
  • 10-year return: 12.9%
  • Yield: 1.0%
  • Expense ratio: 0.65%

The focus: Upper Midwest firms of all sizes with durable competitive advantages, trading at bargain prices.

The process: Three managers spend months analyzing a company’s niche in its market and its management team before they buy. The fund tilts toward health care and industrial firms. While MPGFX does hold some tech and communications giants, such as Microsoft (MSFT), Google parent Alphabet (GOOGL) and chipmaker Nvidia (NVDA), the fund’s top 10 holdings aren’t as heavy on tech names as many large-cap U.S. stock funds.

The track record: The fund “struggles in strong markets and picks up ground in downturns,” says lead manager Andy Adams. Growth’s 15-year annualized return beats 70% of similar funds. But over the past 12 months, it beats about half.

The upshot: The pandemic may have roiled stocks last year, but the managers will “stick to their knitting,” says Adams.

3 of 25

Primecap Odyssey Growth

POGRXPOGRX
  • Symbol: POGRX
  • 1-year return: 25.6%
  • 3-year return: 10.6%
  • 5-year return: 19.4%
  • 10-year return: 15.0%
  • Yield: 0.4%
  • Expense ratio: 0.65%

The focus: Long-term bets on attractively priced, fast-growing firms.

The process: Five managers run a portion of assets independently. They all look for companies with better growth prospects than their share prices imply. And they buy for the long term: The typical holding period is 10 years.

The track record: This aggressive growth fund’s one-year return ranks behind 94% of its peers, in part because of big drops in Alkermes (ALKS) and Southwest Airlines (LUV). Smart investors will hold on. The fund’s 15-year record beats the S&P 500 by an average of 1.6 percentage points per year.

The upshot: These proven managers know how to block out the noise. We’re hanging in.

4 of 25

T. Rowe Price Blue Chip Growth

Composite image representing T. Rowe Price's TRBCX fundComposite image representing T. Rowe Price's TRBCX fund
  • Symbol: TRBCX
  • 1-year return: 30.5%
  • 3-year return: 17.1%
  • 5-year return: 22.5%
  • 10-year return: 17.6%
  • Yield: 0.0%
  • Expense ratio: 0.69%

The focus: Established companies with strong growth prospects.

The process: Manager Larry Puglia favors firms with sustainable competitive advantages over rivals, strong cash flow, healthy balance sheets and executives who spend in smart ways. The company’s top holding is Amazon.com (AMZN, 11.3% of assets), which has been one of the darlings of the COVID-period market, up 76% in 2020 versus 18% for the S&P 500. In April, Puglia took on an associate manager, Paul Greene, but says he has no plans to retire.

The track record: Puglia beats the S&P 500 index handily over the past three, five and 10 years – and, despite the recent market volatility, over the past 12 months as well.

The upshot: Blue Chip Growth was a prime beneficiary of the long bull market, but the fund has held up well since the market crashed. And over the long stretch of a full market cycle, Puglia has outpaced the S&P 500.

5 of 25

T. Rowe Price Dividend Growth

PRDGXPRDGX
  • Symbol: PRDGX
  • 1-year return: 11.3%
  • 3-year return: 11.3%
  • 5-year return: 15.8%
  • 10-year return: 13.1%
  • Yield: 1.0%
  • Expense ratio: 0.63%

The focus: Firms with a mindset to increase dividend payouts over time.

The process: Manager Tom Huber focuses on large, high-quality companies that generate strong free cash flow (cash profits after capital expenditures) and have the capacity and willingness to raise their payouts.

The track record: PRDGX lags the S&P 500 by more than 6 percentage points over the past year. But its 15-year annualized return slightly edges out the S&P 500 and beats 86% of its peers (funds that invest in stocks with value and growth traits).

The upshot: T. Rowe Price Dividend Growth, an all-weather portfolio, keeps pace in good markets and holds up well in down markets.

6 of 25

Vanguard Equity-Income

Composite image representing Vanguard's VEIPX fundComposite image representing Vanguard's VEIPX fund
  • Symbol: VEIPX
  • 1-year return: 3.5%
  • 3-year return: 4.5%
  • 5-year return: 11.9%
  • 10-year return: 11.3%
  • Yield: 2.6%
  • Expense ratio: 0.27%

The focus: Dividend-paying stocks.

The process: Wellington Management’s Michael Reckmeyer runs two-thirds of the assets; Vanguard’s in-house quantitative stock-picking group manages the rest. Together, they build a portfolio of about 180 large companies, including Johnson & Johnson (JNJ), Procter & Gamble (PG) and JPMorgan Chase (JPM).

The track record: Health care stocks were a boon to the fund in 2019, but it has struggled over the past year, with a mere 3.5% gain. Nonetheless, over the past decade, VEIPX has beaten 93% of its peers (funds focused on large, value-priced firms). 

The upshot: The fund offers above-average returns for below-average risk.

7 of 25

DF Dent Midcap Growth

DFDMXDFDMX
  • Symbol: DFDMX
  • 1-year return: 21.4%
  • 3-year return: 18.0%
  • 5-year return: 21.6%
  • 10-year return:
  • Yield: 0.0%
  • Expense ratio: 0.98%

The focus: Growing midsize companies.

The process: Four managers find solid businesses that dominate their industries, generate plenty of cash and are run by executives who spend wisely. The fund will hold on to shares as long as a firm is still growing fast. Shares in large-cap stock Ecolab (ECL) have been in the fund since 2011.

The track record: DFDMX has beaten the majority of its peers in seven of the past nine calendar years.

The upshot: Mid-cap stocks are often in the market’s sweet spot. Typically, these firms are growing faster than large companies and are less volatile than small businesses.

8 of 25

Parnassus Mid Cap

PARMXPARMX
  • Symbol: PARMX
  • 1-year return: 12.4%
  • 3-year return: 9.6%
  • 5-year return: 14.6%
  • 10-year return: 11.9%
  • Yield: 0.2%
  • Expense ratio: 0.99%

The focus: Growing midsize firms that pass environmental, social and governance (ESG) measures.

The process: Two longtime managers, 18 analysts and a dedicated ESG team pick 40 stocks, with sustainability in mind. Hologic (HOLX), a diagnostics and medical imaging company, and Republic Services (RSG), a waste-collection service, are among the top holdings.

The track record: PARMX’s one-year return has beaten 68% of its peers. Over 10 years, the fund’s 12.0% annualized return beat 87% of its peers.

The upshot: At the moment, technology is the largest sector allocation at more than a quarter of assets. The fund is also heavily invested in industrials (21%) and healthcare (14%).

9 of 25

T. Rowe Price Small-Cap Value

PRSVXPRSVX
  • Symbol: PRSVX
  • 1-year return: 15.5%
  • 3-year return: 7.5%
  • 5-year return: 15.3%
  • 10-year return: 10.8%
  • Yield: 0.4%
  • Expense ratio: 0.83%

The focus: Unloved, under-the-radar, bargain-priced small companies.

The process: Financially sound firms with a competitive edge over rivals and a strong management team make it into the fund. PennyMac Financial Services (PFSI), a national mortgage lender, and Belden (BDC), a maker of networking and cable products, are among PRSVX’s top holdings.

The track record: Small-cap value stocks have been the worst-performing U.S. category in recent years. But this fund is only a little behind the Russell 2000 index over the trailing five-year period.

The upshot: Small-cap stocks have gained some wind in their sails of late, but they still have some catching up to do compared to their large-cap brethren. PRSVX provides exposure to the some of the best values among smaller companies.

10 of 25

T. Rowe Price QM U.S. Small-Cap Growth

PRDSXPRDSX
  • Symbol: PRDSX
  • 1-year return: 24.0%
  • 3-year return: 13.2%
  • 5-year return: 19.0%
  • 10-year return: 14.5%
  • Yield: 0.0%
  • Expense ratio: 0.79%

The focus: Small, growing companies.

The process: Using quantitative models (hence the “QM” in its name) developed initially while he was in academia, Sudhir Nanda and his team focus their sights on high-quality, highly profitable firms with reasonably priced shares. Samuel Adams beer crafter Boston Beer (SAM) and semiconductor-materials provider Entegris (ENTG) are among top holdings.

The track record: The fund has handily beaten the Russell 2000 small-cap stock index over the past three, five and 10 years.

The upshot: Since the end of 2019, shares in small companies are up less than 7%. But Nanda focuses more on an individual company’s business characteristics than on big-picture market or economic issues.

11 of 25

Wasatch Small Cap Value

WMCVXWMCVX
  • Symbol: WMCVX
  • 1-year return: 20.1%
  • 3-year return: 8.4%
  • 5-year return: 16.7%
  • 10-year return: 12.1%
  • Yield: 0.0%
  • Expense ratio: 1.20%

The focus: Temporarily underpriced shares in small, fast-growing firms.

The process: This is a growth-ier value fund. The portfolio’s 60-odd stocks fall into one of three buckets: undiscovered, little-known companies; firms suffering a temporary setback; and cheap stocks in steadier, slow-growth businesses.

The track record: The fund is back in a groove, with a 20% gain over the past 12 months. Its three-, five- and 10-year records rank among the top 68%, 77% and 85% of similar funds, respectively.

The upshot: Despite their recent poor performance, small-cap stocks offer higher growth potential than their large-company brethren. To cash in, you must have a long-term view and be willing to bear some turbulence.

12 of 25

Fidelity International Growth

FIGFXFIGFX
  • Symbol: FIGFX
  • 1-year return: 16.2%
  • 3-year return: 9.0%
  • 5-year return: 13.5%
  • 10-year return: 9.1%
  • Yield: 0.1%
  • Expense ratio: 1.01%

The focus: Growing foreign companies.

The process: Manager Jed Weiss homes in on firms with good growth prospects and strong niches in their businesses that give them pricing power – the ability to hold prices firm in bad times and raise them in good times.

The track record: Weiss outpaced the MSCI EAFE index in 10 of the past 12 calendar years. His fund’s average 10-year return beats 78% of all foreign large-company stock funds. FIGFX tends to hold up well in bad markets.

The upshot: Weiss picks stocks one at a time, but he says long-term growth theme are set to propel returns going forward. At the moment, top holdings include the likes of Japanese sensor firm Keyence and multinational chemicals firm Linde (LIN).

13 of 25

Janus Henderson Global Equity Income

HFQTX stock tickerHFQTX stock ticker
  • Symbol: HFQTX
  • 1-year return: 3.7%
  • 3-year return: 0.3%
  • 5-year return: –
  • 10-year return: –
  • Yield: 7.5%
  • Expense ratio: 0.97%

The focus: High income in international-company equities.

The process: The fund aims “to provide a consistently high level of income while investing in overseas markets with a value bias,” says Ben Lofthouse, one of the fund’s three comanagers. “We look for the dividend to be sustainable.” To that end, firms with strong balance sheets, steady profits and cash flow are ideal for the fund. “Profitable companies have downside protection when things don’t go as well,” says Lofthouse.

The track record: Relative to other large-company foreign value stock funds, Global Equity Income shines. Over the past three years, the fund ranks among the top 33% of its peers. It currently yields 7.9%, and the fund says the annualized distribution yield “has consistently been around 6%.”

The upshot: In recent years, the managers have put aside some value measures, such as share price in relation to book value (assets minus liabilities), in favor of other gauges, such as the price-to-cash-flow ratio, that they say are better predictors of future returns. That should help them better identify values going forward.

14 of 25

Baron Emerging Markets

BEXFXBEXFX
  • Symbol: BEXFX
  • 1-year return: 33.7%
  • 3-year return: 6.2%
  • 5-year return: 15.6%
  • 10-year return: 7.3%
  • Yield: 0.0%
  • Expense ratio: 1.35%

The focus: Emerging-markets firms of all sizes.

The process: Manager Michael Kass favors profitable, growing firms with steady competitive advantages. Asian tech giants Samsung, Tencent Holdings (TCEHY) and Taiwan Semiconductor (TSM) top the portfolio.

The track record: After a decade of sluggish returns, peppered with a few good years (such as 2019), emerging-markets stocks got socked again, this time by the coronavirus. But they have roared back. Over the past year, the fund has beaten the MSCI Emerging Markets index by more than 6 percentage points.

The upshot: There’s still uncertainty about the impact of the coronavirus on emerging-markets economies, but BEXFX should continue benefiting as EMs recover.

15 of 25

AMG TimesSquare International Small Cap Fund

TCMPXTCMPX
  • Symbol: TCMPX
  • 1-year return: 15.3%
  • 3-year return: 0.6%
  • 5-year return: 10.7%
  • 10-year return:
  • Yield: 1.4%
  • Expense ratio: 1.23%

The focus: Small firms in developed foreign countries.

The process: Four managers circle the globe to find best-in-class companies. Japan, the U.K. and Italy are the fund’s biggest country exposures.

The track record: Small-cap foreign stocks have not fared well compared with shares in larger companies in recent years, but TCMPX has beaten its benchmark, the MSCI EAFE Small Cap Index, since inception in 2013.

The upshot: Volatility doesn’t faze these managers. “We can’t guess what the market will do tomorrow, but we can invest in outstanding companies we think can continue to grow,” says lead manager Magnus Larsson.

16 of 25

Fidelity Select Health Care

FSPHXFSPHX
  • Symbol: FSPHX
  • 1-year return: 25.9%
  • 3-year return: 17.5%
  • 5-year return: 18.1%
  • 10-year return: 18.9%
  • Yield: 0.5%
  • Expense ratio: 0.70%

The focus: Healthcare stocks.

The process: Eddie Yoon, manager since 2008, divides the portfolio into three parts: steady, growing firms, which make up the biggest chunk of the fund; fast-growing, proven companies with focused niches; and emerging biotech businesses.

The track record: Yoon’s 10-year annualized record beats 80% of all healthcare-focused funds.

The upshot: Yoon is getting defensive, piling into stable growers, while keeping an eye on innovative firms in areas such as gene and cell therapy.

17 of 25

Vanguard Wellington

Composite image representing Vanguard's VWELX fundComposite image representing Vanguard's VWELX fund
  • Symbol: VWELX
  • 1-year return: 9.1%
  • 3-year return: 7.6%
  • 5-year return: 11.7%
  • 10-year return: 9.5%
  • Yield: 1.5%
  • Expense ratio: 0.25%

The focus: A balanced portfolio of roughly 65% stocks and 35% bonds at the moment. Buy shares through Vanguard if you’re new to the fund; otherwise, it’s closed.

The process: Managers focus on large-company, dividend-paying stocks, high-quality government bonds and investment-grade corporate debt. The fund yields 1.5%.

The track record: Despite the corona­virus, the fund has beaten 82% of its peers over the past five years.

The upshot: The managers like a bargain. Before the pandemic, they were waiting for discounts in large banks and consumer names. Defensive moves on the bond side, such as focusing on the highest-quality corporate debt and setting aside cash for a correction, were well timed.

18 of 25

DoubleLine Total Return Bond

DLTNXDLTNX
  • Symbol: DLTNX
  • 1-year return: 2.9%
  • 3-year return: 4.0%
  • 5-year return: 3.1%
  • 10-year return: 4.1%
  • Yield: 2.8%
  • Expense ratio: 0.73%

The focus: Mortgage-backed securities.

The process: Three managers balance government-guaranteed mortgage-backed bonds – which are sensitive to interest-rate moves (when interest rates rise, bond prices fall, and vice versa) but have no default risk – with non-agency mortgage bonds, which have some risk of default, but little interest-rate sensitivity.

The track record: The fund holds no corporate debt, which has hurt relative returns in recent years. Over the past five years, the fund’s 3.1% annualized return lags the Bloomberg Barclays U.S. Aggregate Bond index.

The upshot: Mortgage rates continue to sit near all-time lows. And the primary risk for most mortgage-backed bonds is the potential that mortgage holders will prepay their principal. We’re watching DLTNX closely. Meanwhile, it yields 2.8%.

19 of 25

Fidelity Intermediate Municipal Income

FLTMXFLTMX
  • Symbol: FLTMX
  • 1-year return: 3.7%
  • 3-year return: 4.4%
  • 5-year return: 3.3%
  • 10-year return: 3.8%
  • Yield: 0.8%
  • Expense ratio: 0.35%

The focus: Debt that is exempt from federal income taxes, issued by states and counties to fund expenses such as schools and transportation.

The process: Four managers choose high-quality, attractively priced muni bonds. Managing risk is a priority, too.

The track record: This fund consistently posts above-average returns in its category. It rarely tops the charts, but it tends to hold up better in downturns.

The upshot: Muni bonds were richly priced until COVID-19 events fueled a selloff. But low rates and steady demand has propped prices back up. The fund yields 0.8%, or 1.4% for investors in the highest tax bracket.

20 of 25

Fidelity New Markets Income

FNMIXFNMIX
  • Symbol: FNMIX
  • 1-year return: 2.5%
  • 3-year return: 1.5%
  • 5-year return: 6.3%
  • 10-year return: 5.5%
  • Yield: 4.1%
  • Expense ratio: 0.82%

The focus: Emerging-markets debt.

The process: Longtime manager John Carlson has retired, but his replacements, Jonathan Kelly and Timothy Gill, are longtime analysts for the fund. Not much will change. The fund will still focus on dollar-denominated government bonds, but Kelly says he will likely hold a more consistent position in corporate debt, now 15% of assets. Mexico, Turkey and Ukraine are its top country exposures.

The track record: Carlson’s 15-year return was in the top 23% of emerging-markets debt funds. We’re watching closely to see how Kelly and Gill do.

The upshot: Yields on emerging-markets debt are still near historic lows. But the exit path from the coronavirus is still uncertain, so while a recovery is expected at some point, a shadow remains over near-term economic growth projections in emerging countries. Even so, the fund’s yield, 4.1%, is attractive.

21 of 25

Metropolitan West Total Return

Composite image representing Metropolitan West's MWTRX fundComposite image representing Metropolitan West's MWTRX fund
  • Symbol: MWTRX
  • 1-year return: 6.8%
  • 3-year return: 6.0%
  • 5-year return: 4.3%
  • 10-year return: 4.4%
  • Yield: 0.9%
  • Expense ratio: 0.68%

The focus: High-quality intermediate-maturity bonds.

The process: Four bargain-minded managers make the big-picture calls on the economy and invest accordingly in investment-grade bonds (those rated triple-B or better).

The track record: The fund got defensive early, nipping returns in 2016 and 2017. But its conservative position – it’s currently loaded up on Treasuries, government mortgage-backed bonds and investment-grade corporates – has been a boon over the past year, especially since the start of 2020. Total Return’s one-year return beats 63% of its peers, and its 10-year annualized return beats 65% of its peers. Both returns beat the Bloomberg Barclays U.S. Aggregate Bond index.

The upshot: The managers are “patient and disciplined,” says Morningstar analyst Brian Moriarty, and that should continue to set this fund’s performance apart over the long term.

22 of 25

Fidelity Advisor Strategic Income

FADMXFADMX
  • Symbol: FADMX
  • 1-year return: 6.9%
  • 3-year return: 5.1%
  • 5-year return: 6.3%
  • 10-year return: 4.8%
  • Yield: 2.4%
  • Expense ratio: 0.68%

The focus: The fund seeks to deliver more yield than the Bloomberg Barclays Aggregate U.S. Bond index by investing in a blend of government debt and junkier, higher-yielding bonds. The fund yields 2.4%.

The process: Comanagers Ford O’Neil and Adam Kramer make broad calls on which bond sectors to emphasize while specialists do the individual bond picking.

The track record: The fund has returned 6.3% annualized over the past five years, which has handily beaten the Agg index.

The upshot: These days, the fund holds mostly high-yield debt (roughly 46% of assets), government securities (20%) and emerging-markets bonds (15%).

23 of 25

Vanguard High-Yield Corporate

VWEHXVWEHX
  • Symbol: VWEHX
  • 1-year return: 5.0%
  • 3-year return: 5.6%
  • 5-year return: 7.4%
  • 10-year return: 6.2%
  • Yield: 3.0%
  • Expense ratio: 0.23%

The focus: Corporate debt rated below investment grade.

The process: Manager Michael Hong keeps risk at bay by focusing on debt rated double-B, the highest quality of junk bonds.

The track record: The fund struggles to top the charts in go-go years, but it leads in so-so years. All told, its 10-year annualized return beats 86% of its peers. It yields 3.0%.

The upshot: High-yield rates, on average, were near historic lows until the pandemic bumped them above 6% in early March, though they’ve since come back down to record lows from there. (When rates rise, bond prices fall, and vice versa.) We’re watching VWEHX carefully.

24 of 25

Vanguard Short-Term Investment Grade

VFSTXVFSTX
  • Symbol: VFSTX
  • 1-year return: 4.5%
  • 3-year return: 4.0%
  • 5-year return: 3.2%
  • 10-year return: 2.6%
  • Yield: 0.7%
  • Expense ratio: 0.20%

The focus: To deliver a higher yield than cash and short-term government bonds. VFSTX currently yields 0.7%.

The process: Three managers, who took over in April 2018, invest in high-quality corporate debt, pooled consumer loans and Treasuries, with maturities that range between one and five years.

The track record: The fund has returned 3.5% annualized over the past three years, which outpaces 87% of its peers.

The upshot: Low rates mean low yields for now. But pressing uncertainties, such as the unknown recovery time from coronavirus, negative rates in other parts of the world and geopolitical risks, make this fund a welcome haven.

25 of 25

TIAA-CREF Core Impact Bond

TSBRXTSBRX
  • Symbol: TSBRX
  • 1-year return: 5.1%
  • 3-year return: 5.3%
  • 5-year return: 4.2%
  • 10-year return:
  • Yield: 1.0%
  • Expense ratio: 0.64%

The focus: Bonds issued by companies that meet high ESG standards, as well as projects that deliver a measurable environmental or social impact.

The process: Veteran bond picker and lead manager Stephen Liberatore invests just under two-thirds of the fund in attractively priced, high-quality debt issued by firms that pass his own carefully honed ESG measures. He devotes about 40% of the fund’s assets to fund projects related to alternative energy, affordable housing or community development. The fund was formerly called Social Choice Bond.

The track record: The fund’s 4.2% an­nualized return over the past five years is just slightly below similar bond funds and the Agg index.

The upshot: Investors don’t sacrifice much performance or yield with these ESG- and impact-focused bonds.

Source: kiplinger.com

Ally’s diversification efforts starting to pay off

Ally Financial, which was spun off from General Motors in 2006, has long wanted to reduce its heavy reliance on the auto finance business.

The Detroit-based company hit some bumps along the way. In 2019, Ally ended a credit card partnership with TD Bank. Last summer, its $2.7 billion deal to buy a subprime card issuer was terminated amid the economic impacts of the COVID-19 pandemic.

But Ally, which operates a digital-only bank with deposits of $137 billion, is starting to gain some traction in two fledgling lending segments — mortgages and unsecured consumer loans.

Last year, Ally originated $4.7 billion in home loans, which was up 74% from 2019. The mortgage unit, which seeks to appeal to home buyers who want an online borrowing experience, reported pretax income of $53 million in 2020, up from $40 million the previous year.

Meanwhile, the unsecured lending segment had full-year loan origination volume of $503 million, which was up 75% from 2019. While the business is not yet profitable, Chief Financial Officer Jennifer LaClair said that is largely because new accounting rules require lenders to reserve for losses over the life of a loan, which makes it harder to achieve profitability during a period of rapid growth.

Ally’s digital brokerage platform, a third prong of the firm’s diversification strategy, has also shown strong customer growth, though its bottom line has been hurt by the rise of free online trading.

In an interview Friday, LaClair attributed the rapid growth of new consumer products largely to Ally’s 11-year-old digital bank, which she said offers depositors a gateway to additional offerings. Existing depositors account for more than half of Ally’s new mortgage volumes, and the same pattern holds for its new brokerage account holders.

“Our new businesses are scaling because of existing customers,” LaClair said in remarks that followed the company’s fourth-quarter earnings report. “We’ve been able to do that very efficiently through the digital deposit platform, and to the extent we can leverage that as a gateway, we have an incredibly low cost of acquisition for these other products.”

To be sure, Ally remains heavily dependent on auto loans, which account for around 60% of the company’s $176 billion of assets. Last year, residential mortgages and unsecured consumer loans made up about 9% of the balance sheet.

LaClair said Friday that she sees a clear path for Ally to quadruple its unsecured consumer loans, to $2 billion a year. The business segment, known as Ally Lending, grew out of the company’s $190 million acquisition of Health Credit Services in 2019. It offers point-of-sale loans in partnership with health care providers, home improvement contractors and retailers. Loans for home improvement projects have gotten a boost from changes in consumer spending patterns during the pandemic.

The home loan business, known as Ally Home, grew out of a partnership with the digital mortgage firm Better.com. Ally’s return to the mortgage business came several years after the demise of Residential Capital, a subprime mortgage unit of GMAC, as Ally was formerly known, which lost $9.2 billion between 2007 and 2009 and was later liquidated.

Still, it was the traditional auto lending business that drove profits in the fourth quarter of 2020.

Ally reported net income of $687 million, up 82% from a year earlier, thanks both to a smaller provision for credit losses and higher revenue. Ally has benefited from strong consumer demand for cars during the pandemic, which has propelled loan volumes and bolstered used-car prices, reducing the size of losses when loans go bad.

Source: nationalmortgagenews.com

Charged Off as Bad Debt: An Explainer

July 21, 2020 &• 5 min read by Lacey Langford Comments 73 Comments

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Making payments late or missing payments completely spells bad news for your credit rating. When you miss too many payments, your creditor may charge off the debt. When your debt is charged off as a bad debt, don’t fool yourself into thinking it goes away.

A charged off debt can lead to harassing phone calls, garnished wages, and a major drop in your credit score. According to the Federal Reserve, consumer loans had a charge-off rate of around 2.3% in the final quarter of 2019. Credit card debt was more likely to be charged off than other forms of debt. But what is a charge-off, and how much does it impact your credit if your balance is charged off as bad debt? Find out more below, including what you can do about charge-offs on your credit report.

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What Is a Charge-Off?

A charge-off occurs when you don’t pay the full minimum payment on a debt for several months and your creditor writes it off as a bad debt. Basically, it means the company has given up hope that you’ll pay back the money you borrowed and considers the debt a loss on their profit-and-loss statement. The creditor closes your account, which could be a personal loan, credit card, revolving charge account or another debt you’ve failed to pay as promised, and it’s charged off as a bad debt.

If you make payments that are less than the monthly minimum amount due, your account can still be charged off as bad debt. You must bring your account current to avoid it being charged off. Once your debt is charged off, your creditor will send a negative report to one or more of the credit reporting agencies. It may also attempt to collect on the debt through its own collection department, by sending your account to a third-party debt collector, or by selling the debt to a debt buyer.

When Will a Charge-Off Happen?

Charge-offs typically don’t happen until your payments are severely late. When you start missing payments, creditors will first send letters reminding you of your past-due bill. If that fails, they move on to the collections process. The standard time for creditors to perform a charge-off is after 120 to 180 days of nonpayment.

Does Charged Off Mean Your Debt Is Paid Off?

Charged off doesn’t mean your debt is forgiven. Don’t be misled into believing that because the creditor wrote off your balance that you no longer need to pay the debt.

Even when a company writes off your debt as a loss for its own accounting purposes, it still has the right to pursue collection. This could include suing you in court for what you owe and requesting a garnishment of your wages. Unless you settle or file for certain types of bankruptcy—or the statute of limitations in your state has been reached—you’re still responsible for paying back the debt.

How Does Charged Off Debt Affect Your Credit Score

Charge-offs affect your credit report because they’re caused by missed payments. FICO research indicates that a single late payment negatively impacts your credit score. Missing a payment by 90 days can drop your score over 100 points—but missing it by just 30 days can also have a significant negative affect on your score.

Because a charge-off results from missing payments, you have both the late payments and a charge-off listed on your credit report. Even with good credit, a single charge-off lowers your credit score substantially. Late and delinquent payments have the largest impact on your credit score because up to 35% of your score is determined by your payment history. A lower credit score can cause higher insurance rates, larger housing and utility deposits, increased interest rates and denials for new loans and credit cards.

How Long Does Charged-Off Debt Stay on Your Credit Report?

Just like late payments, a charged-off debt stays on your credit report for seven years. The seven-year clock starts on the date of the last scheduled payment you didn’t make and doesn’t restart if the debt is sold to a collection agency or debt buyer. Paying the charged-off amount won’t remove it from your credit report. The account’s status is simply changed to “charged-off paid” or “charged-off settled,” which remains on your credit report until the end of the seven-year period, when it automatically falls off your report.

How to Remove a Legitimate Charge-Off from Your Credit Report

The only way to have a legitimate charge-off removed from your credit report before the seven-year period expires is to convince the original reporting entity to do so. That’s typically the creditor that wrote the debt off.

While this tactic is hit or miss, success can mean a major positive for your credit report. And even if you’re not successful, you can still get a bit of a bump in your credit history by paying off charged-off debt. Here’s how it works.

  • You need to have enough money to negotiate with. Before you start negotiating, determine how much you can realistically pay and how soon you can pay it. If you can pay in full right away, you have more leverage to have the charge-off removed you’re your credit report, but you can also ask if they’re willing to make payment arrangements Consider saving up money or taking out a debt consolidation loan.
  • Once you have enough money to negotiate, contact the original creditor. Make sure you’re speaking to someone who has the authority to negotiate with you and make agreements about actions on your credit report.
  • Let the creditor know how much you can pay and that you’re able to make the payment today in exchange for calling the debt paid off and removing the charge-off from your credit report.
  • Get any agreement in writing from the creditor before you make a payment.

If the creditor won’t delete the charge-off from your credit report but does agree to settle your debt for less than you owe, consider the offer. Make sure they agree to mark the charge-off as paid-in-full on your credit report. That shows future creditors that you did make an effort to pay your debts and can be a critical requirement if you ever apply for a mortgage.

How to Dispute a Charge-Off on Your Credit Report

Sometimes, the charge-off on your credit report isn’t accurate. Perhaps you never owed the debt to begin with or you did pay it, and the profit-and-loss write off is a clerical error. You can work to get such items removed from your credit report by disputing them and asking the creditor to verify what they reported. Write a dispute letter yourself or work with a credit repair company to help clear up your report.

When you sign up for ExtraCredit, you get exclusive discounts to reputable credit repair services—plus access to 28 of your FICO scores from all three credit reports and additional features.

How to Avoid Balances Being Charged Off as Bad Debt

Even better than working to settle a debt and potentially get a charge-off removed is avoiding the issue in the first place. The ideal time to act is as soon as you see you’re struggling to make regular payments. Waiting until items are charged off as bad debt means your credit score will take numerous hits as you miss payments.

But if you can’t pay your debts, what choice do you have? Turns out you have many options, including some of the ones summarized below.

  • Consolidate your debt. Apply for a debt consolidation loan that lets you bring several debt items under a single account. You may be able to qualify for more favorable terms that reduce the amount you pay each month to make it easier to manage your debt. But this is more likely before your credit score drops due to missed payments and charge-offs.
  • Get a balance transfer card. If the debt you’re struggling with is credit card related, apply for a balance transfer card. If you can get approved for a card with a 0% APR offer, you may reduce how much you have to pay each month and make it easier to pay down your debts.

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  • Reach out to the creditor for help. Most creditors have programs designed to help account holders who are experiencing emergency financial situations. As soon as you know you can’t pay your bills, call the customer service line for your account and ask if there are programs you can apply for to modify your loans or seek other assistance. Just make sure the new agreement you make is possible with your budget.

Take Charge of Your Debt

The worst thing you can do is ignore debt you owe. It won’t go away, and things get progressively worse for your credit history and score when you let them fester. So, check out your free Credit Report Card today to see where your credit is falling short and start looking for ways you can realistically handle debts that you owe to improve your credit in the future.


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Source: credit.com

What Is A Consumer Loan?

A consumer loan is a loan or line of credit that you receive from a lender.

Consumer loans can be auto loans, home mortgages, student loans, credit cards, equity loans, refinance loans, and personal loans.

This article will address each type of consumer loans.

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Types of consumer loans:

Consumer loans are divided into several kinds of categories. They include auto loans, student loans, home loans, personal loans and credit cards. Regardless of type, consumer loans have one thing in common: you have to repay the loan at some period of time. 

Auto loans

Most people who are thinking of buying a car will apply for an auto loan. That is because buying a car is expensive.

In fact, it is the second largest expense you will ever make besides buying a house. And unless you intend to buy it with all cash, you will need a car loan.

So, car loans allow consumers to purchase a vehicle where they may not have the money upfront. With an auto loan, your payment is broken into smaller repayments that you will make over time every month.

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You can choose between a fixed or variable interest rate loan. But the most important thing is, whether you’re buying a new or used car, it’s important to compare loans to help you find the right auto loan for your needs.

Start comparing auto loans now!

Home loans

Another, and most common, type of consumer loans are home loans. A home loan or mortgage is a loan a consumer receives for the purpose of buying a house.

Buying a house is, undoubtedly, the biggest expense you’ll ever make in your life. So, for the majority of consumers who want to purchase a house, they will need to borrow the money from a lender.

Home loans are paid back over a period of time. Those mortgages term are typically 15 to 30 years. They can be variable rate or fixed rate. A fixed rate means that your repayments are locked in for a fixed term.

Whereas a variable rate means that your repayments depend on the interest rate going up or down when the Federal Reserve changes the rate.

Over the loan’s term, you will pay back the principle amount of the loan plus interest. This makes it very important to compare home loans. Doing so allows you to save thousands of dollars on interest and fees.

Personal Loans

The most common types of consumer loans are personal loans. That is because a personal loan can be used for a lot of things.

A personal loan allows a consumer to borrow a sum of money. The borrower agrees to repay the loan (plus interest) in installments over a period of time.

A personal loan is usually for a lower amount than a home loan or even an auto loan. People usually ask for $500 to $20,000 or more.

A personal loan can be secured (the consumer backs it with his or her personal assets) or unsecured (the consumer does not have to use his or her personal asset).

But most of them are unsecured, so getting approved for one will depend on your credit score, income and other factors.

But consumers use personal loans for different purposes. People take out personal loans to consolidate debts, such as credit card debts. You can use personal loans for a wedding, a holiday, to renovate your home, to buy a flt screen TV, etc…

Student Loans

Consumers use these types of loans to finance their education. There are two types of student loans: federal and private. The federal government funds a federal student loan.

Whereas, a private entity funds a private student loan. Generally, federal student loans are better because they come at a lower interest rate.

Credit Cards

Believe it or not credit cards is a type of consumer loans and they are very common. Consumers use this type of loan to finance every day expenses with the promise of paying back the money with interest.

Unlike other loans, however, every time your pay with your credit card, you take a personal loan.

Credit cards usually carry a higher interest rate than the other loans. But you can avoid these interests if you pay your balance in full immediately.

Small Business Loans

Another type of consumer loans are small business loans. These loans are used specifically to create a business or to expand an already established business.

Banks and the Small Business Administration (SBA) usually provide these loans. Small Business Loans are different than personal loans, because you usually have to provide a collateral to get the loan.

The collateral serves as a way to protect the lender in case you default on the loan. In addition, you will also need to provide a business plan for the lenders to review.

Home Equity Loans

If you have your own home, you can borrow money against it. These types of consumer loans are called home equity loans. If you’ve paid off the mortgage on the home, you can borrow up to the full value of the home.

Vice versa, if you’ve paid half of the mortgage on the home, you can borrow half of the value of the house. You can use a home equity loan for several purposes like you would with a personal loan.

But most consumers use this type of loan to renovate their house.  One disadvantage of this type of loan, however, is that you can lose your house in case of a default, because your house is used as a collateral for the loan.

Refinance loan

Loan refinancing is a basically taking a new loan to replace an existing one. But you get this loan specifically either to refinance your existing mortgage or to refinance your student loans or a personal loan.

Consumers usually refinance in order to receive a lower interest rate or to reduce the amount of monthly payments they are making on their existing loans.

However, reducing to a lower payment will lengthen the time to pay off the loan and you will accrue interest as a result.

Consumers also use this type of loan to pay their existing loans off faster. However, some mortgage refinancing loans come with prepayment penalties. So do you research in order to avoid that extra charge.

The bottom line is consumer loans can help you with your goals. However, understanding different loan types is important so that you can choose the best one that fits your particular situation.

So do you need a consumer loan?

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Speak with the Right Financial Advisor

If you have questions about your finances, you can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

Source: growthrapidly.com