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You are looking for the best investment app to help you save money, but all of them seem too complicated. You want something that is simple, easy to use, helpful, and even better if the app is free.
Empower is an online service for tracking your finances. Before a merger, the company began in 2009, and to this day it has been growing exponentially with a user base of over two million people.
Personal Capital is now Empower.
The app works on desktop as well as mobile devices, giving users the ability to track their spending easily wherever they go.
Empower also offers a suite of tools that help you get out more information about how you are using your money so that you can make better financial decisions.
On this Empower review, we will focus on what they do well, how it works for those who use it, and where Empower could improve.
Don’t forget… here is a list of all of the budgeting apps on the market.
If you are looking for an easier way to monitor your financials and see how healthy your finances really are, then you may want to check out what Empower has to offer.
What is Empower?
Empower is an online tool for tracking your finances.
It has been called the best financial app out there, and I agree with that statement. But, I personally use it as one of the money management tools to help guide our financial decisions.
I have used Empower to track my investments for over six years now, which probably makes me a bit of an expert on this topic because I use it on a regular basis.
Overall, Empower is a financial planning and wealth management tool that users can use to manage their net worth. The product offers tools for managing investments, retirement, debt payoff, and other personal finance goals.
How does it work?
First of all, Empower is a FREE app that helps you keep track of all your accounts. It can help you to invest better and did we mention… it is free to use!
To get the most out of this app, you’ll have to link each of your financial accounts one by one so that Empower can learn how you spend money.
It takes a couple of minutes to create an account and verify your identity.
The longest step is linking accounts to the Empower app. Just make sure you do this step within 7 days to get the most out of the app.
Features of Empower
The features of Empower include the ability to visualize your overall financial picture, keep track of your investments in a dashboard, and see which companies you are invested in.
Most people associate Empower as one of the best tools to help with investing, like a stock screener and an investment calculator.
But, there are many great features available for free including:
Net Worth Planner
Retirement Planner
Fee Analyzer
Cash Flow Management
Savings Planner
Budgeting
College Savings Planner
Investment Checkup
Pros and Cons of Empower
First of all, Empower is free to use. So, you might as well test drive the system and check out if the Empower app fits what you are looking for.
Just like any of the Empower reviews will tell you, there are positives and negatives with every type of money management app available.
You just have to decide the most important features for you. As well as what you are willing to pay.
Pros of Empower:
Free portfolio management tool.
Good for new investors who want a free-to-use tool with minimal features.
Easy to use and can be accessed on multiple platforms.
Can track investments across multiple accounts.
Tracks over 23,000 securities and over 1,000 mutual funds. – check
Offers a free app for on-the-go access.
Offers in-depth analysis and investment research on stocks, bonds, and ETFs.
Cloud-based platform
Free to use!
Cons of Empower:
Sales call from staff
Wealth management service is more expensive than a traditional advisor or simply investing in index funds.
High wealth management fee
Unable to reconcile your bank statements with Empower, but since they are coming from your bank directly, they should already be in sync.
No credit health information
Budgeting Tool needs improvement
Limited transaction management and budgeting
No import option for transactions from any platform including YNAB, Quicken or Mint
Cloud-based platform
Many people report that the Empower app requires $100,000 in investment assets to be eligible. That is untrue. In fact, it works best for those who have at least $100k in some form of investments – 401k, IRA, brokerage accounts, or even cash!
Empoweris incredibly easy to use and has helpful financial planning tools.
Overall, it is one of the many great tools to help further push you to financial freedom.
Empower Pricing
While Empower is free to access personal finance tools, it does come at a small price of annoyance.
Empower is free
Empower is a free online portfolio platform that helps people save and invest their money. It offers tools to track net worth, create investment plans, compare retirement accounts, view savings goals and cash flow, and more.
This is the great part of using this app!
The downside is to make these dashboards free is they are trying to entice you to move to their wealth management services.
You do not need to invest your money with Empower to use this platform.
It is best to keep everything invested where it currently is and use their free tools to analyze and make the necessary changes.
As such, once you sign up, you will receive calls on a reoccurring basis offering you a free analysis. There is no pressure to do this. Once you have said no enough times, they will stop calling you.
For those under $1 million in investable assets, their fee is 0.89%.
As you can read in this book, there are many ways to invest yourself without paying that fee.
In fact, this is my favorite book explaining how much harder and longer you have to work by paying someone a 1% wealth management fee.
However, for a small percentage of people, this may be a more cost-effective way of receiving professional advice, as it eliminates hidden costs from this type of service.
Empower Tools
Empower is a financial management platform that provides tools to help individuals manage their personal finances. The platform offers tools for portfolio tracking, performance analysis, and retirement planning. The company also provides its users with educational resources on financial topics.
Under their free dashboard, these are the tools you can use for free.
Net Worth Calculator
This simple tool will keep track of your net worth. Very simple and always available.
Know where you stand, by downloading the free app to see your true net worth in real-time.
Understanding your personal financial statement is important.
Savings Planner
One of the most asked questions is how much I need to save for:
Retirement
Emergency Fund
To Pay Down Debt
Calculate how much to save each year with a 70% chance of reaching your retirement goals. Learn how much you are currently savings and how much you need to start saving.
Cash Flow
Cash flow is the amount of cash available for expenses at a certain time. This term used in personal finance describes the rate at which one’s income and expenses change over time.
The Cash Flow tool is easy to use because Empower automatically tracks deposits and spending. The time saver feature allows users to see their cash flow, balance sheet, net worth, asset allocation over a period of time.
Cash flow is a budgeting tool that offers limited information on spending. It provides a second check when using another program that gives you more details like Quicken or Simplfi.
Retirement Planner
This is the #1 reason I recommend Empower especially if you are looking to stay away from a financial planner.
Trying to figure out how much you need for retirement by yourself seems like picking a random number from the sky.
The retirement planner is used by millions of people to figure out how on track they are for retirement. Plus get tips on what they can do to improve their chances of success.
Budgeting
Budgeting is a method of allocating financial resources by identifying and evaluating needs, prioritizing them in order to meet goals, and monitoring the achievement of those goals.
Empower includes a budgeting section to help you set monthly spending targets and track your spending. They automatically import the information from linked accounts such as checking, savings, and credit card statements.
Using their free online financial dashboard, allows you to track your spending and investments. There are interactive charts, graphs, pie-charts, and even widgets. All to make sure your budgeting is on track.
Investment Checkup
This portfolio analysis is the process of measuring performance and risk in order to develop a strategy for capital allocation. The goal of portfolio analysis is to improve return on investment, which can be achieved by increasing return on assets, decreasing the risk of losses, or reducing the variance.
The Empower app lets you explore your entire portfolio visually. It also provides asset allocation tools and tax optimization tools to help manage a person’s financial life.
Fee Analyzer
A fee analyzer helps people to determine the annual fees they are paying in their retirement plan.
401K Analyzer also calculates how much your retirement is costing you and provides a breakdown of any hidden fees that may be present within mutual funds with which it has been linked. This Retirement Planner tool uses assumptions about account holdings and investment behavior for calculating expenses against an estimated portfolio value.
Consequently, these fees add up over time and will drastically put a drag on your portfolio and reduce your retirement savings.
Empower Dashboard is Free
Just remember, you do not need to hire an advisor to use the platform.
Empower is a free tool for individual investors.
Empower provides users with access to all of the above-mentioned advanced tools for free. In addition, they offer free financial advice through their blog and social media pages.
It allows users to track their investments and get a personalized financial plan. The service also offers apps for iOS and Android devices, which makes it easy to manage finances on the go.
Empower Wealth Management Review of Services
In addition to offering free financial tools, Empower provides wealth management services.
You get to work one-on-one with an advisor who will give you personalized advice based on your situation.
They help you to invest, save money and track your financial goals.
Their advisors start by determining your risk tolerance and goals in order to construct the best personal financial plan for you.
If you are interested in getting a better understanding of your financial situation, Empower is an excellent option. It gives users the tools to understand their investments, budgets, and cash flow all with one app.
All it requires is that you sign up for free without any obligations or commitments from them whatsoever. You do not have to agree to use their wealth management program.
Personally, I cannot comment on an Empower advisor review as I have not used this service personally.
Empower Investment Strategy
The Empower investment strategy is a simple way to invest your money for the long-term.
This means that you will be able to retire and live a comfortable life without any concern about how you will be able to live.
They employ the tactic called Smart Weighting because they invest equally across all sectors and industries, which can provide diverse returns with minimal risk. The best part of this strategy is it’s easy to use as Empower has created an interface that makes portfolio management simple for users on any device or platform.
Empower’s software is able to identify tax-loss harvesting opportunities (opportunities where the investor sells an investment after it has fallen in value and pays fewer taxes than if the sale had occurred earlier) than investing on their own.
In addition, Empower invests passively for cost efficiency which means that they don’t take any active management into account.
The best part about Empower and one of the key areas I prefer, is they include socially responsible investments as well as an investment strategy to fit any budget.
They identify which companies are doing good work for society and invest in them accordingly. This feature makes personal finance much more interesting and easier than ever before!
Wealth Management Tiers
Many people invest in various financial services and products, such as mutual funds or stocks. They are promised that these investments will generate a good return, but they do not always make the best choice. Wealth management services are a way to help people manage their personal investments. They may charge fees for their service, but that is not always the case.
Depending on your level of assets, will determine the amount of services you will receive.
Investment Services:
This is the most basic level to receive financial and retirement planning guidance from their team of experts.
$100K in investment assets
Unlimited advice from any of the available financial advisors
Managed ETF portfolio
Wealth Management:
This is where you can receive more personalized services and dedicated support to manage your money as you move through new financial challenges.
$200K minimum in investment assets
Two dedicated financial advisors
Access to specialists in real estate, stock options, and more
Regular reviews on your customized portfolio
Tax optimization
Private Client :
This is the most exclusive level at Empower to help you receive comprehensive financial planning. They will help build a customized investment plan to reach your lifestyle goals.
over $1 million in investment assets
Two dedicated financial advisors
Priority access to specialists
In-depth retirement and wealth planning
Wealth Management Fee Structure
Empower charges only an all-inclusive annual management fee at a fraction of the cost of traditional financial institutions. In addition, they do not charge hidden fees, trailing fees, or trade commissions.
First $1 million = .89%
First $3 million = .79%
Next $2 million = .69%
Next $5 million = .59%
Over $10 million = .49%
Overall, if you want a financial advisor or a second opinion, using Empower wealth management services may be for you.
Even if you don’t join, you can still use the tools for free, no questions asked.
My Empower Review from Experience
I have had a lot of experience using Empower in the past. They provide snapshot financial pictures of your personal situation that are very informative.
Plus it is a free tool to use, which is always a bonus.
Empower is one of my favorite online tools to see all your finances in one place.
It is eye-opening to see the overall picture. Also, tracking investments across multiple accounts can be overwhelming, but they make the process seamless and help you stay on top of things.
Personally, my favorite tools are the net worth, fee analyzer, and retirement planner.
I use Empower in conjunction with Quicken. Read my Quicken review.
My Empower dashboard is my overall financial picture whereas Quicken tracks all of my day-to-day spending and helps me remember when we purchased something for a return.
The app has a convenient interface that makes managing your personal financial situation easy, even if you’re not familiar with finance jargon or investing terminology. With this tool at hand, keeping track of where everything stands financially becomes easier than ever before!
Just to note… to get the best financial picture, you must include all of your accounts. The more time you spend in the Empower dashboard, the more helpful analysis you will get from the tool.
Empower Alternatives
In addition to Empower, there are other financial apps that can help you allocate your portfolio.
These include Betterment with Wealthfront also being a viable option for those who want the best of both worlds by tracking their investments in stocks and bonds. However, these alternatives have much higher fees than what is charged by Empower which makes it an appealing alternative if the fee does not bother you.
Also, if you are looking for budgeting capabilities you may want to look at Quicken, Mint, YNAB, or Simplifi.
At the end of the day, you have to decide what your goals are and what you are looking for.
From all of the free and paid budgeting apps, here are our top budgeting apps to check out!
This section may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. Please read the full disclosure below.
Personal Capital Advisors Corporation (“PCAC”) compensates Money Bliss (“Company”) for new leads. (“Company”) is not an investment client of PCAC.
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Personal Capital is wealth management for the Internet Age. The online platform combines digital technology with highly personalized service to provide a holistic view of a unique financial picture (AKA your net worth).
Make sure to connect all of your accounts within 7 days to set up your Personal Financial dashboard.
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Is Empower right for you?
Empower is a company that offers tools for personal finance management. This app has more than one hundred different tools to help you with your finances, including monthly budgeting and investing tracking.
Empower also helps people manage their credit card debt, establish emergency funds, track retirement savings progressions, calculate their net worth, and much more!
The smartphone app integrates locations, bank accounts, and credit scores which allows users to access current information on their financial situation.
The online portal allows for comparing available investment options.
This tool allows people to plan out the future of their money as well as provides them with valuable financial information in an easy-to-read format so they can make informed decisions.
As stated before, Empower is a financial app that can help you manage your investment assets. It has many features and it’s not perfect, but it’s the best out there in terms of value for money.
You can always test drive it and see what you learn about your personal finance situation.
Now you can try it free (no credit card required!)
Know someone else that needs this, too? Then, please share!!
Are you interested in early retirement? Today, I have a great interview with Kristy Shen, who retired with $1,000,000 at the age of 31.
You probably know Kristy from the blog Millennial Revolution. Millennial Revolution is a popular early retirement resource, so I’m excited to share this interview with you on how she reached early retirement.
In this interview, you’ll learn:
How they calculated how much money to save
What made them want to retire early
Whether they live comfortably or not
How much time they spend traveling
The careers they had before early retirement
The sacrifices they had to make
And more!
This interview is packed full of valuable information on reaching early retirement.
Enjoy!
Related content:
1. Tell me your story. Who are you and what do you do? Can you go into detail on how much you saved for early retirement, how you chose that amount, etc.?
We are Kristy and Bryce, and we are world-travelling early retirees, having left the rat race in our early 30s back in 2015.
We were both working as computer engineers, but after almost a decade of trying to follow the “traditional career path” of buying a house and working until we’re 65 to pay it off, we realized that those old rules didn’t really work for our generation and we tried something different.
So we saved and invested our money instead, and when our portfolio hit $1,000,000, we retired and never looked back.
2. Can you explain how early retirement works? What is the 4% rule?
The 4% rule states that if you retire and start withdrawing your 4% of your portfolio, each year adjusting for inflation, you will statistically never run out of money.
It was based on something called the Trinity study that looked at historical stock market data and tried to figure out the safe amount to withdraw in retirement that won’t deplete your savings. 4% is the answer they come up with, and we used that as a target for how much we needed to have in order to retire early.
We knew that our annual spending was $40,000, so that means our Financial Independence target was $1,000,000, because $1,000,000 x 4% = $40,000.
3. When did you begin saving for early retirement?
We were saving the moment we started to work, but it wasn’t initially for early retirement.
As I mentioned before, we spent the first half of our careers trying to save up to buy a house, but because we live in a high cost-of-living city (Toronto), real estate just kept getting more and more expensive even as we tried to save up for a down payment.
Eventually, we got sick of playing what we thought was a rigged game and started looking for something else to do with our money.
When we stumbled across the FIRE movement, that was our “aha” moment, because we realized that at our current trajectory we could either spend our money on a house and then spend decades trying to pay it off, or hit our FI target and retire in just 3 years.
It was a no brainer.
4. What made you want to retire early?
Besides the frustration of the real estate market, something happened at my work that really crystallized my decision to retire.
Out of the blue, one of my co-workers collapsed and nearly died at his desk. The ambulance had to be called and he needed to be rushed to the ER. He had been working 12 hour days continuously for months, and the doctors told him that his health was so bad that it was equivalent to him smoking 2 packs of cigarettes a day, despite the fact that he’d never smoked.
And the most eye-opening thing about that whole experience was that rather than making any changes to his lifestyle, he was back at work just 2 weeks later because he couldn’t afford to stop working and paying his mortgage.
That’s when I realized how messed up my priorities were.
5. Would you say that you live comfortably?
Absolutely.
FIRE isn’t about sacrificing your happiness for money. If it were, it wouldn’t be sustainable. Instead, it’s more about being strategic and making conscious decisions in how you spend. For example, when we were working, we would still spend money taking 2 vacations a year because travel was (and still is) important to us.
On the other hand, owning a car wasn’t important, so we relied on public transportation instead. Now that we’re retired, we travel the world teaching other people how to pull off FIRE themselves.
We also discovered that travelling the world is less expensive than living in a North American major metropolitan city.
6. How much do you spend traveling each year? What do you spend your money on these days?
Before the pandemic, we basically lived nomadically and hopped from country to country every month, so for us travel is not so much an expense as it is just part of how we live. Since we left, we were surprised to find that travelling isn’t nearly as expensive as when we were working.
By using AirBnbs and HomeExchanges to live like a local and spending time in lower cost-of-living areas like Southeast Asia and Eastern Europe, we were able to make living nomadically cost less than living in a high cost-of-living city all year, which is about $40,000 a year for the two of us for the 6 years since retiring. Once the pandemic happened, we had to come back to Toronto for a family emergency.
We thought our living expenses would skyrocket (especially given the rise in inflation) but surprisingly, our expenses plummeted in the last 2 years to $34,000 (2020) and $39,000 (2021) due to lockdowns. This year we’re projected to spend $42,000.
We love spending money on travel, eating out, massages, and walking tours.
7. What career did you have before you retired? Do you think you have to have a high income in order to retire early?
We’re both computer engineers. I worked in finance and Bryce worked in a semiconductor company.
Having a high income definitely helps, but it’s still possible even if you don’t make that high a salary, and we’ve featured readers on our blog that are on their way to achieving financial independence as teachers, nurses, plumbers, and all sorts of other professions.
One reader even went from homeless and unemployed to $100K net worth in just 1 year by following our strategy.
With the recent popularity of remote work, more options are opening up for people to super-charge their savings by moving to a lower-cost city and baking the difference, so if anything early retirement is becoming more accessible to more people as time goes on.
8. Do you still earn an income in early retirement?
I’ve always wanted to be a writer since I was a kid, but I had to put my dreams on hold to pursue a practical career that makes money, but once we left we could focus on actually making my dream a reality.
So we created our blog Millennial-Revolution.com, and we wrote a book Quit Like a Millionaire. To our complete surprise, both projects now make money, but we continue relying on our initial $1M portfolio to fund our day-to-day living expenses and treat any extra income we earn in retirement as fun money.
9. What sacrifices or hard decisions did you have to make to reach early retirement?
It was really hard bucking what I like to call the “cult of home ownership,” not just because we lived in Toronto where everyone is obsessed with owning real estate, but also because I’m Chinese, where owning a home is such an important part of my culture that it’s considered unthinkable not to buy a house.
I fought with my parents about that so much that we basically stopped talking for the first year of my retirement.
Our relationship has improved since then, but it was really difficult for me at the time to basically be the only one doing this in my group of friends and family, but now that I did it, I now know it was the best decision I’ve ever made.
10. What do you do for health insurance in early retirement?
When you travel, medical care is not nearly as expensive as back home, so a monthly travel insurance policy really isn’t that expensive.
For example, we’re currently using a company called Safetywing and insurance costs $42 USD a month.
If you have to live in the US, you would be eligible for federal government subsidies to pay for your insurance from the Affordable Care Act (ACA) since your earned income would drop to $0 after retirement.
11. What are your long-term plans now that you are retired?
More writing, travelling and teaching people about FIRE.
We also have the time and space to help out with family members whenever health issues come up.
12. If you were starting back at ground zero, what would you do differently?
I wouldn’t have wasted so much time chasing after a house like everyone else, but all things considered I think we actually avoided many of the mistakes that trip a lot of people up, like getting into a ton of student debt or picking the wrong career, so I can’t complain too much.
I would say, we probably should’ve started investing earlier and not sat on the sidelines after 2008, trying to save up money to buy a house.
This made us miss out on years of investment gains.
13. Lastly, what is your very best tip (or two) that you have for someone who wants to reach the same success as you?
If you want to retire early, surround yourself with people who are also on a similar life path because those people will sustain you on your journey.
When I was doing this, the FIRE community wasn’t as big (or well organized) as it is today. Now, there are FIRE meetups all over the world, so find your local group and introduce yourself. It’s also a good idea to start learning how to invest as soon as possible.
You can learn via our free, step-by-step investment workshop and our book Quit Like a Millionaire.
Are you interested in early retirement? Why or why not?
For the past six weeks, I’ve been hard at work writing my “introduction to financial independence and early retirement” project for Audible and The Great Courses. It’s been challenging — and fun — to rework my past material for a new audience in a new format.
Naturally, I’m emphasizing two important points in this project: profit and purpose.
I believe strongly that you need a clear personal mission statement in order to find success with money (and life).
I also believe that the most important number on your path to financial freedom is your personal profit, the difference between your income and your spending. (Most people refer to this number as saving rate. I prefer the term “personal profit” because it’s, well, sexier.)
That last point is important.
Too many people want magic bullets. They want quick and easy ways to get out of debt and build wealth. They believe (or hope) that there’s some sort of secret they can uncover, that somehow they’ve missed. Well, there aren’t any secrets. Money mastery is a combination of psychology and math. And the math part is so simple a third-grader could understand it. Wealth is the accumulation of what you earn minus what you spend.
There are only two sides to this wealth equation — earning and spending — but a disproportionate amount of financial advice focuses on the one factor, on spending, and that’s too bad. Sure, frugality is an important part of personal finance. And if you’re in a tight spot and/or have a high income and still struggle, then cutting expenses is an excellent choice. But the reality is, you won’t get rich — slowly or otherwise — by pinching pennies alone.
The Biggest Lie in Personal Finance
Recently at his excellent blog, Of Dollars and Data, Nick Maggiulli wrote about the biggest lie in personal finance. What is that lie? He writes:
While there are lots of people who are in financial trouble because of their own actions, there are also lots of people with good financial habits who just don’t have sufficient income to improve their finances.
That’s why the biggest lie in personal finance is that you can be rich if you just cut your spending. And the financial media feeds this lie by telling you to stop spending $5 a day on coffee so that you can become a millionaire.
With charts and graphs and data, Maggiuli demonstrates that the problem facing people with low incomes isn’t their spending — it’s their earning. If you’re living at the poverty line — currently $26,200 per year for an American family of four — you’re not going to escape through thrift. Thrift is an emergency measure, a stopgap. It’s a bandage on a major wound.
Here’s the bottom line:
If you’re poor and hope to be not poor, your attention should be focused on increasing income, not on cutting costs. Your expenses are likely already very low.
If you have an average household income — currently $63,179 according to the U.S. Census Bureau — your path to building wealth will probably include both frugality and income enhancement.
If you have a high income but still struggle to make ends meet, your attention should absolutely turn to cutting costs. You need to rein in your lifestyle. But you won’t accomplish this with frugality; you’ll do this by optimizing the big stuff.
Maggiuli is fed up with the Biggest Lie. It “triggers” him.
“This is the same financial media who write stories about how people save money by living in a trailer, making their own dish soap, or reusing their dental floss,” he writes. “Yes, it’s that ridiculous. But what really gets me is how these examples are provided as ‘proof’ of how cutting spending can make you rich.”
From my experience, this sort of stuff is perennially popular because it’s easy. It’s easy to write and it’s easy to read, even if it doesn’t offer any real solutions. It’s more difficult to write about boosting your income. And, it’s more difficult to act on that information because it takes time, effort, and actual sacrifice.
Real-Life Examples of the Biggest Lie in Action
Just this morning, Trent at The Simple Dollar published an article about optimizing dishwashing for money and time. Trent writes:
If I can invest some time and thought and effort into optimizing a routine I do three times a week, and that optimization trims off five minutes of effort and $0.50 in cost, I’m literally saving 13 hours per year and $78 per year for the rest of my life.
Trent isn’t wrong. If his math is correct (and his discipline too), he will literally save 13 hours and $78 each year by optimizing how he does dishes. This isn’t a lie. In this case, the lie comes from what is implied: Do this and you’ll grow rich. You’ll reach financial freedom by becoming a smarter dishwasher.
Here’s the truth: You don’t reap the thirteen hours and $78 annual benefit as a one-time win. You’re saving five minutes and fifty cents per day. This may seem like a niggling point, but it’s important. If you gain thirteen hours or $78 at once, that’s something real and tangible, something you can work with. But an extra five minutes and fifty cents per day? Not so much.
I’m not saying that you shouldn’t optimize your dishwashing routine. Do it! But don’t expect it to make you rich. Because it won’t.
Here’s a bigger example of the lie in action.
Elizabeth Willard Thames writes at Frugalwoods, which is one of my favorite money blogs. Recently, especially, Liz has been publishing lots of amazing stuff. I look forward to each new article. (Those of you who make use of the Spare Change list of links on the GRS front page have probably noticed that I bookmark Frugalwoods frequently.)
As you might guess from the name of her blog, Liz focuses (almost?) exclusively on thrift. She and her husband practice extreme frugality. She wrote a book, Meet the Frugalwoods [my review], that documented their journey from poor college students to achieving financial independence on a 66-acre farm in central Vermont.
Now, there’s no doubt that Liz and Nate are thrifty. They practice what they preach. But their frugality is not the reason for their wealth, the reason they were able to retire early. You can’t buy a 66-acre farm in Vermont simply by optimizing your dishwashing routine. Or clipping coupons. Or hosting potlucks. To do this, you also need a high income. And that’s a part of the story that Liz doesn’t share with her readers. She and her husband made a lot of money, and that’s how they got rich — not through frugality.
I’m sure Liz doesn’t mean to obfuscate the truth, but that’s the net effect. She’s complicit in “the biggest lie in personal finance”.
To her credit, Liz seems to be incorporating more of the truth in her writing. Today, for instance, the About page at Frugalwoods acknowledges their high incomes. This didn’t used to be the case.
Now, I don’t mean to dog on Liz and Trent. They’re both good people and fine writers. But I think they do their readers a huge disservice by covering just one aspect of the wealth equation, by rarely (if ever) mentioning income. They’re active participants in Maggiuli’s “biggest lie”.
And I’ll confess: For a long time, I was guilty of the same thing. Sometimes, I still am. Hell, I’ve spilled a lot of words lately about my quest to optimize my food spending, haven’t I? I’m not claiming to be any better than Liz or Trent. But I want to at least acknowledge the lie — and the reciprocal truth.
The Biggest Truth in Personal Finance
If frugality isn’t the path to riches, what is? The answer is simple: Big Wins. Big Wins are the quickest way to wealth.
You can scrape your dishes and rinse them in cold water every day for the rest of your life, and you still wouldn’t match the benefits you’d obtain by purchasing a cheaper home. Or choosing a more fuel-efficient car. Or negotiating your salary.
The best way to spend less is to cut back on the big stuff.
If the average American family were to trim their housing costs by 10%, they’d save roughly $150 per housing payment — more than twenty times the benefit of optimizing your dishwashing routine. Transportation offers similar opportunities. According to the American Automobile Association, the average driver spends just over $9000 per year on her vehicle. Reduce this spending by less than one percent and you’ve accomplished the same thing as a year of diligent dishwashing.
But, as Maggiuli notes in his article, income is the elephant in the room, the subject that too many writers ignore.
You can only cut costs so far. There’s no way to reduce your spending below zero, and most of us can’t come close to that. As I mentioned earlier, the U.S. poverty line for a family of four is currently $26,200. (For two people, it’s $17,240.) Not counting his business, Mr. Money Mustache (a famously frugal fellow) spent $13,068 in 2019.
If you’re living like this and want to escape, you shouldn’t look for ways to cut costs. That stuff is useless to you. If somebody tells you otherwise, they’re lying. In these circumstances, you should be trying to increase your income. And even if you have a standard middle-class salary, boosting income is usually the best way to meet your goals.
There are three primary ways to earn more money.
First, become better educated. Despite the dire details in the gloomy mass media, one fact is undeniable: The more you learn, the more you earn. In the U.S., education has a greater impact on lifetime earnings than any other demographic factor. It’s more important than your race, your religion, your gender, your location. (In fact, the Census Bureau says education has five times the impact of gender on annual earnings.) That’s great news because while you can’t control your age or race, you have total control over your education.
Second, become a better employee. I read a lot on Reddit (and other places) where people piss on their employers, complaining about how their boss (or company) is out to screw them. This stuff is counter-productive. Sure, there are some shitty employers out there, but most are happy to promote and reward their best workers. If you want to earn more, work longer and harder than others will. If you’re in a situation where hard work goes unrewarded, switch jobs.
Finally — and most importantly — learn to negotiate your salary. Study after study shows the same thing: Failing to negotiate your salary can cost you over half a million dollars during the course of a typical career. Half a million dollars! For over a decade, I’ve been pushing Jack Chapman’s book, Negotiating Your Salary: How to Make $1000 a Minute. Let me do so again.
“You can’t frugalize income you don’t earn,” Liz writes in Meet the Frugalwoods. She speaks the truth! The biggest truth.
I’m no enemy of thrift. Yes, absolutely, pinch your pennies, if that makes you happy. Frugality is an excellent way to build good habits. Over the long run, many frugal habits combined can make a big difference to your financial situation.
But if you have a low income, do not focus on thrift. It’s a red herring. Instead, turn your attention to Big Wins. And, especially, to increasing your income. Because this is the biggest truth in personal finance: You can’t get rich through frugality alone.
Bank banks don’t want your deposits. At least, that’s the conclusion I’ve drawn over the last year as savings account yields at Citibank, Wells Fargo, Bank of America, and other big banks have scarcely budged despite the most aggressive Federal Reserve rate-hiking cycle in memory.
Good thing big banks aren’t the only game in town for savers. You can earn a far better return — like 125 times better, based on average savings account yields tracked by the FDIC — with Compound Real Estate Bonds, a financial technology company that offers high-yield bonds backed by real estate assets and loans.
Compound Real Estate Bonds is a potentially powerful source of passive income for everyday savers and an easy way to diversify your investment portfolio away from highly correlated stocks and ETFs. Find out what to expect from it and decide whether it’s right for you.
What Is Compound Real Estate Bonds?
Compound Real Estate Bonds is a financial technology company offering fixed-income real estate savings bonds.
Known as Compound Bonds, these bonds are available for purchase by accredited and non-accredited investors in $10 increments. They pay fixed interest (currently 7.00% APY) that’s credited and compounded daily. They’re highly liquid and have no fixed maturity date, meaning you can withdraw your funds at any time or remain invested indefinitely and keep compounding your money.
Compound Bonds are backed by real assets — mostly direct real estate investments and real estate debt investments, with some cash and cash equivalents in the mix. The real estate portfolio spans multifamily (55%), commercial (30%), and industrial (15%), broken down regionally as follows:
U.S. South
40%
Canada
40%
U.S. West
10%
U.S. Northeast
10%
What Sets Compound Real Estate Bonds Apart?
If you’re familiar with banking and investing at all, you can probably tell already that Compound Real Estate Bonds is different. We’ll dive deeper into its features and selling points in a moment, but these distinctions are worth calling out right away:
Daily Interest Crediting and Compounding. Unlike most bond issuers, fund managers, and banks, Compound Real Estate Bonds credits and compounds interest daily. It sounds like a technicality, but it’s not — it gives your money more opportunities to grow and can make a significant difference over time.
Withdraw Principal at Any Time. Most bonds have fixed maturity dates, meaning you have to wait years to get back what you put in. (Sure, you can sell some types of bonds on the secondary market, but that may involve loss of principal.) Compound Real Estate Bonds allows you to cash out of your Compound Bond investments at any time, though you’ll of course earn more the longer you stay invested.
Low Correlation With Market-Traded Investments. Compound Bonds are backed by real estate assets and debt investments, not market-traded securities (or vaporware like NFTs and crypto). So when the stock market takes a dive, your Compound Bonds won’t necessarily follow — though the real estate market does have its own ups and downs.
Open to Non-Accredited Investors. The Compound Bond is the sort of investment that until quite recently would only be open to accredited investors: individuals who consistently earn more than $200,000 per year and/or have at least $1 million in total net worth. Needless to say, that’s not most people. Good thing non-accredited investors — ordinary folks — can buy Compound Bonds too.
Is Compound Real Estate Bonds Legit?
Yes, Compound Real Estate Bonds is legit.
Compound Real Estate Bonds is a financial technology company that offers SEC-qualified bonds backed by real estate investments and real estate debt investments.
That said, Compound Real Estate Bonds is not a bank, and Compound Bonds are not FDIC-insured bank accounts. They’re alternative investments that, like all other investment instruments, carry some risks and aren’t suitable for all investors.
Compound Real Estate Bonds is not a licensed financial advisor or investment advisor. So before you make a decision to invest, read Compound Real Estate Bonds’s offering circular in full, and consult your financial advisor if you’re not sure how to evaluate the information you find there.
Key Features
Let’s take a closer look at how Compound Bonds work and what else you can expect from Compound Real Estate Bonds.
Investment Approach
Compound Real Estate Bonds’s website and real estate bonds fact sheet do a great job of describing its investment philosophy and approach in detail. I’m not going to repeat everything here — definitely check them out before you sign up — but I do want to call out some highlights here:
Focus on high-quality, income-producing real estate with growth potential
Value investing strategy (acquiring assets for less than what Compound Real Estate Bonds believes they’re worth)
Comprehensive asset diversification across geographic regions, real estate sectors, risk level, and time horizon
Applying proprietary technology and data insights to spot opportunities and manage risk effectively
Minimum Investment
Individual Compound Bonds have a face value of $10. That’s also the minimum investment amount. In other words, you can buy just one Compound Bond at a time if you wish.
Automatic Investments
Compound Real Estate Bonds makes it easy to set up automatic investments — as often as daily and as little as one bond at a time — from your linked bank account. You can also opt into round-up investments to round up each purchase in your linked external bank account to the nearest dollar, set aside the difference, and purchase a new Compound Bond when your saved balance hits $10.
Withdrawal Timing and Process
You can withdraw your bonds’ principal and accrued interest (which is added to the principal daily) at any time with no fees or restrictions. Simply initiate a withdrawal in the app and Compound Real Estate Bonds sends it to your linked external bank account.
Tax-Advantaged Investing Options
Compound Real Estate Bonds offers tax-advantaged investment options (Individual Retirement Accounts). You can open a fresh IRA with Compound Real Estate Bonds or roll over your balance from an existing IRA, depending on where you’re at in your retirement investing journey.
Advantages
Compound Real Estate Bonds and its core product, the Compound Bond, have some impressive advantages. These are definitely worth calling out.
No Fees, Period. Compound Real Estate Bonds has no user fees. You don’t have to worry about hidden charges eating into your returns or eroding your principal over time.
Yields Far Better Than Traditional Savings Accounts. Compound Bonds’ 7% annual yield is much better than traditional big-bank savings accounts, whose yields have been stuck near zero for years. It’s better than higher-yield online savings accounts too and should remain so for the foreseeable future.
Interest Credited and Compounded Daily. Compound Bonds credit and compound interest every day, giving your money more chances to grow. This is a big advantage over other passive investments, which typically pay interest or dividends annually, quarterly, or at most monthly.
Highly Liquid (Withdraw Funds at Any Time). Compound Real Estate Bonds offers real estate exposure without its Achilles heels: low liquidity and high selling costs. If you need your money back, no problem. You can cash out your Compound Bonds at any time.
Not Correlated With the Stock Market. Compound Bonds are backed by real estate, not stocks or government bonds. They’re not guaranteed never to lose value, of course, but they won’t decline just because the stock market has a bad day.
Backed by Real Assets (No NFTs or Crypto). Compound Bonds are backed by real assets — literally, real estate assets — rather than sketchy NFTs or cryptocurrencies. This is a big advantage over other financial technology companies promising better returns than banks. Real estate isn’t risk-free, but it’s a lot more legit than digital assets.
Open to Non-Accredited Investors. Compound Real Estate Bonds allows non-accredited investors to purchase Compound Bonds, subject to income- or net worth-based restrictions.
Disadvantages
Compound Bonds do have some downsides worth noting. Consider them before you sign up.
Not FDIC-Insured. Compound Bonds are not bank accounts, so they don’t come with FDIC deposit insurance. This means that if Compound Real Estate Bonds goes out of business — which seems unlikely right now, but you never know — you could lose your entire investment.
Purchase Limits for Non-Accredited Investors. It’s great that Compound Real Estate Bonds allows non-accredited investors to buy Compound Bonds, but there’s a limit that could put enthusiastic investors at a disadvantage: no more than 10% of your annual income or net worth if you don’t qualify as an accredited investor.
Tied to North American Real Estate. Compound Bonds are backed by U.S. and Canadian real estate assets and debt investments. This has some upsides, like low correlation with stocks and inflation resistance (based on historical performance), but we know that real estate investments can lose as well as gain value.
Final Word
Compound Real Estate Bonds’s Compound Bond is one of the most exciting alternative investments I’ve come across since 2020.
Perhaps it’s a low bar after years of crypto hype, but it’s refreshing to find a high-yield instrument backed by real assets — literally, real estate.
And with such low barriers to entry, it’s no stretch to say that Compound Bonds are within financial reach for ordinary savers and investors, from folks just starting out down the road to financial independence to people who’ve been doing this for decades.
Our rating
Editorial Note:
The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
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Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.
A cash management account (CMA) combines many of the best aspects of checking and savings accounts. It lets you earn strong interest rates while keeping it easy to access and spend your cash. While CMAs can’t do everything a dedicated checking or savings account can do, many people find CMAs sufficient for their financial needs.
Financial companies target CMAs at consumers who have large cash balances they need to insure. People who want the easy access a checking account provides – without sacrificing the interest rate savings accounts offer – also use them.
But so many companies offer CMAs it can be hard to choose the best one. Which one is right for you depends on how much money you plan to deposit and whether your primary goal is earning interest or easy access to your money.
Best Cash Management Accounts
There are plenty of top options for CMAs to choose from, no matter your financial goals. Many are associated with investment brokerages or robo-advisor platforms, which automatically allocate and manage your funds based on your personal risk tolerance and objectives.
Betterment
Our Rating
Earn up to 4.35% APY and pay no monthly fees on your cash. Plus, get access to Betterment’s low-cost robo-advisor platform with instant transfers between accounts.
Monthly Fee
$0, but Betterment may charge investing fees
Deposit Insurance
Up to $4 million
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Betterment is an automated investing platform with a built-in cash management account (Cash Reserve) that has one of the best yields and highest deposit insurance limits in the space.
Betterment’s yield is comparable to the top high-yield savings accounts, and its FDIC insurance limit is at least eight times the industry standard. Open a joint account with your spouse or domestic partner to double your FDIC insurance coverage.
And if you’re looking for a day-to-day spending account, open a Betterment Checking account. It has a debit card, no monthly maintenance fees or minimum balance requirements, and a direct link to your other Betterment accounts.
Annual percentage yield (variable) is as of 05/08/2023. Cash Reserve is only available to clients of Betterment LLC, which is not a bank, and cash transfers to program banks are conducted through the clients’ brokerage accounts at Betterment Securities.
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Wealthfront
Our Rating
Earn 4.55% APY on all balances with no minimums or fees. Plus, enjoy category-leading FDIC deposit insurance coverage up to $5 million.
Monthly Fee
$0, but Wealthfront may charge investment fees
Deposit Insurance
Up to $5 million
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Wealthfront is an automated investing platform that charges a low asset-based fee on all balances (0.25% AUM). Its cash management account, the aptly named Wealthfront Cash Account, charges no fees at all.
The Wealthfront Cash Account has more in common with a checking account than a savings account. Notable features include unlimited withdrawals, a debit card that works at nearly 20,000 ATMs, direct deposit, and integrations with popular peer-to-peer transfer apps like Venmo and PayPal.
The Wealthfront Cash Account’s Self-Driving Money™, feature is even more useful than a standard checking account. It’s a money management automation tool that automatically allocates incoming deposits to cover near-term bills and expenses, add to your emergency savings, fund other savings goals as per your personalized savings plan, and divide the remainder between your investment accounts — all with minimal input from you.
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Empower
Our Rating
Earn 4.25% Interest; No Minimum Balance; No Monthly Fees; Up to $1.5 Million in FDIC Insurance
Monthly Fee
Deposit Insurance
Up to $2 million
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Formerly known as Personal Capital, Empower is a digital financial advisor and wealth manager geared toward affluent younger folks. You don’t need a ton of money to use its Empower Cash cash management solution though — it’s totally free and doesn’t require a separate minimum balance.
Empower Cash stands out for the same reasons many other great cash management accounts do: a high yield, generous FDIC coverage, and no minimums. It adds some more unique benefits too, including direct access to human wealth managers and a sophisticated budgeting tool that securely syncs with your external financial accounts and provides a comprehensive all-in-one view of your finances.
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Aspiration
Our Rating
Earn up to 3.00% APY on the first $10,000 in your Save account. Plus, your deposits never fund fossil fuels.
Up to 3.00% APY
Monthly Fee
$0 to $7.99
Deposit Insurance
Up to $2.25 million
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Aspiration is a socially conscious financial firm that offers retirement, investing, and charitable giving services. Aspiration doesn’t invest customer funds in businesses that pollute the environment. It has a growing lineup of Conscience Coalition partners where purchases earn up to 10% cash back. And it helps you gauge your own social responsibility, giving you a spending-habits report card showing how much you’ve supported green companies.
Aspiration’s cash management solution isn’t as generous as some others, with a lower yield that applies only to the first $10,000 in the account and requires a monthly fee to attain. But if you’re drawn to Aspiration’s mission, you can probably live with the financial drawbacks.
Fidelity
Our Rating
Earn 2.47% APY on all balances with no minimums, no fees, and variable deposit insurance up to multiples of the statutory limit.
Monthly Fee
Deposit Insurance
Variable, but at least $250,000
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Fidelity is a full-service financial firm that offers banking, financial advising, and investment services. It’s fully capable of being your only financial institution, and the Fidelity Cash Management Account is a big reason why.
The Fidelity Cash Management Account is a checking-like platform (complete with a debit card and unlimited ATM fee reimbursements) that offers savings-like yields. It offers a nice blend of old and new too, with free paper checks alongside mobile check deposit and fast person-to-person transfers. And if you’re not ready to branch out into stocks and bonds and all the rest, you don’t have to use Fidelity’s investing platform just because you have a Fidelity Cash Management Account.
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Methodology: How We Select the Best Cash Management Accounts
Our most important considerations when evaluating cash management accounts are:
How much they earn (interest rate)
How much they protect (deposit insurance coverage)
How easy they make it to access your money (linked accounts, debit cards, and so on)
How much they cost (fees and expenses)
How they fit into a larger financial ecosystem (connection to other accounts offered by the same company)
Interest on Balances
“What’s the interest rate?” is the first question most people ask when shopping for cash management accounts. The best accounts pay interest on par with the top high-yield savings accounts, which as of mid-2023 typically yield between 4% and 5% APY.
Deposit Insurance Coverage & Limits
Generous deposit insurance coverage is a defining feature of cash management accounts. The best accounts protect multiples of the standard FDIC deposit insurance limit of $250,000, which is what you get with most ordinary checking, savings, and money market accounts.
Some go up to $5 million or even higher. The higher, the better.
Access to Balances
Cash management accounts are sort of like checking-savings hybrids, but in terms of access to your cash, many are more like savings accounts. They don’t have debit cards, peer-to-peer transfer capabilities, or instant transfers to external accounts.
Good cash management accounts tend to be more liberal on this front. Some even have debit cards that you can use at any merchants that accept Visa or Mastercard.
Fees
The best cash management accounts have no monthly maintenance fees and low (or no) fees otherwise. However, most are associated with investment accounts that do charge management or trading fees. We look for accounts with reasonable fee schedules in any case.
Connection to Investment & Other Account Types
Cash management accounts usually don’t exist by themselves. They’re often associated with investment or wealth management accounts that offer a much broader range of services than standard deposit accounts can. We prefer these types of accounts because they’re more suitable as one-stop shops for banking and investments.
Cash Management Account FAQs
If you understand how checking and savings accounts work, you have a basic understanding of cash management accounts too. But they have a few differences and oddities worth drilling down into.
What Is a Cash Management Account?
A cash management account is a deposit account that blends features of checking and savings accounts.
Like a checking account, a cash management account usually has no limit on withdrawals. Some come with debit cards and other checking-like features, such as instant person-to-person transfers.
Like a savings account, a cash management account typically has a high interest rate on balances. It often has a higher deposit insurance limit as well, a feature it shares with some certificates of deposit.
Is a Cash Management Account a Brokerage Account?
A cash management account is not a brokerage account, but many cash management accounts are associated with brokerage accounts. Either the account is housed within the brokerage account itself and receives proceeds from securities sales through a process known as cash sweeping, or it’s a separate account linked to the brokerage account for speedy transfers.
Are Cash Management Accounts Better Than Savings Accounts?
It depends on your financial situation and what you hope to get out of the account.
If your personal cash reserve is well under the standard FDIC deposit insurance limit, your best bet is to look for the highest possible yield, which you may or may not find in a cash management account. If you have more cash, it might be worth it to use a cash management account with a higher deposit insurance limit, even if its yield isn’t quite on par with the top savings accounts.
If you plan to use your cash (or some of it) to buy stocks or other securities, keeping it in a cash management account is more convenient than a standard savings account not associated with a brokerage account.
What’s the Difference Between a Cash Management Account and a Money Market Account?
Cash management accounts have a lot in common with money market accounts, which are also often described as checking-savings hybrids.
The biggest differences: a money market account is more likely to come with core checking features like a debit card and paper checks, and less likely to be directly associated with a brokerage account. Also, money market accounts often (but not always) have lower yields than savings accounts and cash management accounts.
Do You Have to Buy Stocks If You Have a Cash Management Account?
No, you can keep all your money as cash in a cash management account even if the cash management account is directly associated with a brokerage account. If you worry you’ll be tempted to purchase risky securities out of a brokerage-linked cash management account, consider holding your funds in a separate external bank account.
Final Word
Cash management accounts provide a useful mix of savings and checking accounts with the extra perk of huge FDIC insurance limits. If you’re in the market for a CMA, look for the account that offers the level of accessibility you need and the best interest rate possible.
If you don’t need debit card access to your money, you can choose an account with other features that benefit you, like high interest rates or additional FDIC insurance.
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TJ is a Boston-based writer who focuses on credit cards, credit, and bank accounts. When he’s not writing about all things personal finance, he enjoys cooking, esports, soccer, hockey, and games of the video and board varieties.
DRIP is an acronym for Dividend Reinvestment Plan, and in this guide, we are going to break down and take a look at what it means, why you should consider it, and what some of the pros and cons of DRIP investing are.
If you’re already familiar with investing, you’ll know that dividends are paid out on the shares you own in a publicly-traded company. This is your slice of the pie or your share of the profits in the company you hold stock in.
While some people take their dividends every quarter and spend them, reinvesting them can be extremely profitable over the long run.
According to the DRIP model of investing you will reinvest those quarterly dividend payments into the company, provided it offers a share purchase plan (SPP), rather than taking them. These are usually automatic in nature, meaning once you set them up they run themselves.
There are pros and cons to DRIP Investing, of course. Let’s take a look at some of those now.
Note: There are two kinds of DRIPs, synthetic and traditional. A synthetic plan is set up and run by your broker, while a traditional plan is run by the company itself. Naturally, synthetic plans will almost always be more expensive in terms of fees and charges.
Pros of DRIP Investing
You Can Start Small & Invest Long Term – DRIPs are definitely better for long-term investment plans like college savings funds or retirement funds. They utilize the power compounding and allow you to acquire more shares of a company through small investment amounts over time. You won’t need much to get started, either. One share will usually be enough.
It’s Automatic – Once a DRIP is set up it will be run by either the company or your broker, depending on what you have chosen. This means you don’t have to think about it, and even if you are an undisciplined investor, a DRIP will take care of itself and grow automatically.
Low/Zero Fees – DRIPs are usually either fee-free or very low-cost. This can only be a good thing since fees are enemy number one of an investor’s profits. There will usually be a one-time setup fee with most DRIPs, which could be as low as $10 or as high as $400.
Discounts – It isn’t the case with every plan, but loyalty to a company can be rewarded in the form of buying discounts. This gives you a chance to score extra value below market price.
Cons of DRIP Investing
Lots of Mail – Once you buy shares in a company, you will get monthly, quarterly, and annual earnings reports, as well as alerts and news from the company, as well as annual reports, etc. If you have more than one DRIP on the go, this can be a lot to keep up with.
Complex Setup – Buying a single share in a company is enough to get started on a DRIP plan, but usually when you buy through a broker that share will be held in their name. You will need to get a share certificate in your name to be able to get started on a DRIP.
Not Diversified – We’ve all heard the old phrase ‘Don’t put all your eggs in one basket’. With a DRIP, you are increasingly exposed to the fortunes of the company you hold the stock in. You could, of course, have more than one DRIP set up to help counter this.
Temporarily Reduces Income – If you look forward to and enjoy your quarterly dividend payments then you will have to accept that a DRIP will reduce those until the plan has reached its conclusion and you’re ready to take profits.
Summary
DRIPs aren’t for everyone, but if you have time and patience, and are willing to let compound interest work its magic, you can make DRIPs work for you and they can lead to substantial returns long-term.
So, now you know what they are, and what some of the advantages and disadvantages are. The only question left to answer is – are DRIPs right for you?
Brian is a Dad, husband, and an IT professional by trade. A Personal Finance Blogger since 2013. Who, with his family, has successfully paid off over $100K worth of consumer debt. Now that Brian is debt-free, his mission is to help his three children prepare for their financial lives and educate others to achieved financial success. Brian is involved in his local community. As a Financial Committee Chair with the Board of Education of his local school district, he has helped successfully launch a K-12 financial literacy program in a six thousand student district.
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Retiring at 40 may sound like a pipe dream. But it’s entirely within reach if you save $1 million while working. The key elements for achieving this feat are sticking to a budget and implementing a comprehensive retirement strategy. But with rising expenses, is $1 million enough? To answer this question, you must identify your expenses, including taxes and monthly debt obligations and compare them to your sources of income. Here’s how investing and budgeting can set you on the path to early retirement.
A financial advisor can also work with you to get a realistic estimate of when you may be prepared to retire.
Can I Retire at 40 With $1 Million?
Retiring a quarter-century before the standard retirement age requires careful planning. However, one rule persists for retirement no matter what age it begins: Your savings must generate enough income to cover your living expenses for the rest of your life.
With this principle in mind, retiring at 40 means you can’t rely on traditional retirement vehicles such as individual retirement accounts (IRAs) or 401(k) accounts.
These accounts are not accessible until you reach the age of 59.5. Therefore, you must research alternative retirement savings instruments to create the income you can use once you stop working.
Smartasset’s retirement calculator helps you assess how your financial situation matches your retirement objectives. You’ll enter information such as your rate of return, Social Security benefit and location to evaluate your ability to retire at 40.
How to Determine How Much You Need to Retire
Retirement always requires evaluating how taxes, expenses and income work together for you. Retiring young means having all your ducks in a row to avoid surprises or financial hardships later on. Here’s how to assess how much you need to retire:
Calculate Your Costs in Retirement
Your expenses are an essential piece of information in a retirement plan. In other words, your cost of living provides the necessary context for how you’ll retire. For example, a yacht club membership can significantly alter your budget.
Likewise, your state of residence impacts how far your dollars go each year. For example, a recent study from the U.S. Department of Commerce shows that in Nevada, a popular retirement state, the overall cost of living is 95.5% of the national average.
As a result, retirees will get a discount on living expenses (plus zero state income taxes!) for living in the state. On the other hand, Hawaii’s costs are 113.2% of the national average, meaning that retirement there will cost more.
Determine Your Income
Your tax rate decides how much income stays in your pocket. Retirees often prefer living in a tax-friendly state like Georgia or Florida because of the absence of state income taxes.
That said, your forms of income will also influence your tax status. For example, rental income from real estate incurs regular income taxes, while selling stocks for a profit incurs capital gains taxes.
In addition, healthcare expenses are a growing cost for retirees. Specifically, HealthView Services data reporting shows that a couple retiring at 65 in good health will spend about $662,00 on healthcare throughout their lives.
As a result, it’s best to plan for several hundred thousand dollars of medical expenses during retirement. Furthermore, retiring at 40 means addressing an additional 25 years of medical costs.
To do so, experts advise designating 15% of your annual income for healthcare costs. However, this amount may be higher if you have a chronic health condition.
And having children at home is expensive, whether you’re retired or not. For instance, The Washington Post states the average annual cost of child-rearing is about $17,000 per child. Therefore, it’s crucial to add this item to your budget for an accurate idea of your finances.
Identify Retirement Income Streams
With expenses accurately laid out, you can turn to your income streams. For retirement to be feasible, the $1 million nest egg must return enough income to cover your expenses. So, if you invest $1 million for a 5% return, your annual income is $50,000.
Remember, stocks are riskier than other assets, such as certificates of deposits (CDs), so diversifying your investments is critical. Otherwise, a stock portfolio that is successful this year might tank the next year, leaving you without income. In addition, you have little margin for error with $1 million; every dollar needs to provide a return.
Next, Social Security is a form of income that you’ll encounter a few decades into retirement. Because you won’t collect Social Security benefits until 62 or older, retiring at 40 means waiting 22 years to receive your first check.
So, while Social Security will be a boon in the second half of your retirement, you’ll have to get yourself there with the income you create independently.
Look at the Numbers
So, let’s look at an example combining costs and income streams. Let’s say you want to retire at 40 with one child in the house. Your life expectancy is 80, so you plan a 40-year retirement. In addition, you’ll retire in Nevada, which has no state income taxes. Here are your annual expenses:
$22,000 for housing
$15,000 for healthcare
$5,000 for utilities and property taxes
$7,000 for food
$6,000 for entertainment, phone and internet
$3,000 for auto upkeep and insurance
Your total annual expenses are $58,000, or $4,833 monthly.
To meet these expenses, you collect income from multiple sources: First, you purchase two rental properties for $500,000 total, which generate $4,000 of monthly income ($48,000 per year).
You also have a $250,000 savings account with a 4% interest rate ($10,000 per year) and a $500,000 brokerage account with an average return of 5% ($25,000 per year). So, your investments provide $83,000 of annual income.
Next, your income and single filing status place you in the 12% tax bracket, leaving you with about $51,040 of your real estate and savings account income after taxes. In addition, you’ll pay 15% for long-term capital gains taxes on your brokerage account.
So, your total monthly income after taxes is $72,290 annually. Fortunately, this figure is about $14,300 above your expenses, leaving a margin for when investments underperform or surprise expenses crop up.
That said, your income and expenses won’t remain static throughout retirement. Instead, inflation will drive up your cost of living each year at an average rate of 3%.
The expenses of $58,000 this year will grow by thousands of dollars after five years because of economic trends. Overall, it’s best to sock away surplus income to prepare for higher expenses in the future.
Remember, you’ll age into Social Security at 62 and receive an income bump at that time. For example, the Social Security Administration’s 2022 Statistical Supplement estimates the average 62-year-old’s monthly check to be $2,364.
Depending on your circumstances, you can decide when you reach 62 whether to start collecting this benefit or delay it for higher future income.
How to Boost Your Retirement Income
The example above demonstrates a path for retirement at 40 with $1 million. However, you must adhere to a tight budget to do so. On the other hand, you can give yourself more financial flexibility by increasing your income with these tactics:
Delay Social Security Benefits
Social Security isn’t automatic. Instead, you apply for it when you want to start collecting it. As a result, you can choose any age starting at 62 to begin collecting this benefit.
Increase Your Interest Rate
The interest rates of savings accounts and certificates of deposit (CDs) are constantly shifting to attract customers. For example, the typical high-yield savings account has an interest rate of between 0.5% to 4.15%.
So, moving money out of a conventional savings or checking account can provide more annual income. Plus, your deposits have FDIC insurance up to $250,000, meaning they have shelter from market downturns.
Understand Your Income Tax Implications
Your tax situation is unique to you, and failing to grasp the details can incur additional fees. For instance, say you want to sell some stock through your brokerage account after holding it for 364 days.
Doing so will incur short-term capital gains taxes, which are identical to regular income taxes. On the other hand, waiting a few days will put you in the long-term capital gains timeframe, increasing your taxes by 3%. So, staying on top of these transactions can help lower your tax burden.
How to Make Your Savings Go Further in Retirement
Likewise, you can maximize your savings potential to make early retirement easier. Here’s how to make your savings work for you:
Use a Budget
Although the word ‘budget’ might make your stomach churn, it’s one of your most powerful financial tools. Budgeting helps you gain control of your finances by providing a clear overview of your income and expenses.
Budgeting lets you track where your money is coming from and where it is going, enabling you to make informed decisions about your spending and saving habits.
Additionally, a budget also helps you set financial goals and work towards them. In this case, it’s your roadmap to retiring at 40. So, you can allocate resources wisely and prioritize what matters most.
Choose Low-Fee Investments
Management fees can be the death of otherwise successful portfolios. This characteristic applies to brokerage accounts, which can invest in mutual funds, exchange-traded funds, real estate investment trusts (REITs) and other funds that can have exorbitant administrative fees.
Evaluating an account’s fee structure before investing money is crucial to keeping more of your money.
Care for Your Health
Healthcare is paramount for retirement planning. It’s undeniable that every retiree will require healthcare services at some point in their journey. However, by taking proactive measures, you can determine the timing and way you receive such care.
In particular, regular check-ups and engaging in physical exercise serve as preventive measures that can substantially diminish the frequency of hospital visits, fostering physical well-being and financial stability.
Work Part-Time
Additionally, embracing part-time employment can bolster your finances upon early retirement. Pursuing this option can augment your income and counteract rising inflation. Moreover, this approach possesses the added advantage of enabling a prolonged deferral of Social Security, which ultimately translates into higher benefits later on.
Pay Off Debt
Lastly, it’s critical to recognize the dangerous grip that debt can exert upon your financial liberty. For instance, the burdensome nature of credit card balances and personal loans comes from their exponential interest rates. This predicament imposes sizable obstacles on the path toward retiring at 40.
Remember, the gains from investments seldom surpass the annual percentage yield (APY) that debts impose. Therefore, prioritizing the repayment of high-interest debts promotes financial health, whether during the prime of your career or your golden years.
Bottom Line
Retiring at 40 with $1 million requires a strategic investment approach. Specifically, you must create a well-thought-out plan that includes various types of assets, such as brokerage accounts, savings accounts and real estate.
In addition, calculating your expenses meticulously and ensuring that your income covers them effectively is crucial. In this scenario, $1 million must last for several decades until you become eligible for Social Security. So, thinking creatively about generating income during that time is essential.
Tips for Retiring at 40 with $1 Million
Investing $1 million for retirement means maximizing the return of every dollar during your career. Working for two decades or less means you can’t afford a mistake when investing. Fortunately, a financial advisor can help you find assets with low fees and substantial returns. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Ideally, retiring at 40 means starting off your golden years while you’re relatively young and healthy. However, your future health is unknown, especially after you become a senior citizen. So, you can prepare for this possibility by budgeting for the cost of independent living.
Ashley Kilroy
Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
One day you’ll likely want to close the book on your career and start a new chapter of your life, but do you know how to plan for retirement?
The majority of working Americans say they are behind on their retirement savings goals, according to a Bankrate survey. If you don’t know how to plan for retirement, you could find yourself in the same position.
A financially secure retirement might feel like a lofty goal, but it’s totally within reach if you educate yourself on a few fundamental retirement savings concepts.
It’s time to take the first step toward confident retirement planning. Ryan Inman, a financial planner for physicians at Financial Residency, and Andy Wang, managing partner at Runnymede Capital Management, are here to help. Below, they share the concepts that you need to master if you’re wondering how to learn about retirement planning.
But first: Test your knowledge with our retirement quiz. When you’re done, the experts’ guidance on how to plan for retirement can help you fill in any gaps to ace the quiz—and your retirement.
Retirement quiz: What do you know about retirement?
Harnessing the power of compound interest
Compound interest has been called the eighth wonder of the world. Its surprising ability to grow wealth can feel like a miracle, but it’s actually just good old-fashioned math.
“Compounding is the key to most great investors’ success,” Wang says. That’s because as you earn interest on your money, your money grows. He points out that over time, you earn interest not just on your initial deposit but also on the interest that accumulates.
This same principle applies to stock investing where constant reinvestment of capital gains produces a compounding effect so you earn gains on your gains, he adds.
Because the interest you earn is based on an ever-growing amount of money, your rate of wealth accumulation accelerates as the years go by.
How compound interest works: An example
An example can help when you’re learning about retirement planning, especially when math is involved.
Let’s say you put $10,000 into a diversified 60/40 mix of equities and fixed income that has an average annual return of 6% within your IRA. This is how compound interest would fuel your money’s growth over the years:
Year 1: You would make 6% on the $10,000, which is $600.
Year 2: You would make 6% on your money again, but this time it would be on a balance of $10,600. As a result, you’d add $636 to your account.
Year 3: You would make 6% on $11,236, or $674.16.
Year 10: You would have $17,908.48 in your account thanks to the power of compounding.
You can play with the numbers in a compound interest calculator to see the phenomenon yourself.
Compound interest is fundamental to how you plan for retirement because it yields bigger results over longer periods of time—and saving for retirement is all about the long term.
“The longer your money is invested, the more compound interest grows,” Inman says.
As a result, he says one of the biggest retirement savings mistakes you can make is to put off saving for retirement—because it prevents you from harnessing the impressive power of compound interest.
Understanding your tax-advantaged retirement options
When saving for retirement, Inman and Wang recommend that you make use of any available tax-advantaged accounts (in other words, accounts that save you money on taxes).
Some savers have access to a 401(k) or other employer-sponsored retirement accounts through their jobs. Every American who earns income can contribute to an individual retirement account, or IRA.
Let’s take a closer look at each of these tax-advantaged retirement options to help you understand how to plan for retirement.
The 401(k) retirement plan
The most common employer-sponsored plan is the 401(k), which allows employees to put a certain amount of each paycheck toward retirement. “The 401(k) is one of the best options you have to save for retirement,” Wang says.
One of the reasons it’s such a great option, he says, is that contributing to a 401(k) can ease your tax bill each year.
“The money you contribute doesn’t count toward your gross income for the year, and that lowers your taxable income as a result,” he explains. “For example, let’s say you make $25,000 per year and you contribute $2,000 into your 401(k). As far as the IRS is concerned, you made $23,000 and you’ll be taxed on the $23,000.”
In addition to lowering your tax bill, your 401(k) is growing your retirement savings thanks to the power of compound interest.
401(k) match
Sometimes, employers will also offer what’s known as a 401(k) match, which means they’ll match whatever you contribute to your retirement savings up to a certain amount.
For example, Inman says that if your employer offers a 3% match and you’re contributing at least 3% of your salary to your 401(k), then your employer will contribute an additional amount equal to 3% of your salary.
If your employer offers a 401(k) match and you’re not enrolled, “You’re not only missing out on the tax benefits of a 401(k), but you’re leaving free money on the table,” Inman says.
Vesting periods
How to learn about retirement planning means understanding your vesting period. Inman notes that some companies have vesting periods, which means you won’t receive the full 401(k) match until you satisfy a particular length of employment.
Maximum contributions
The maximum contribution is the total amount you’re allowed to contribute to your 401(k) each year. This limit can change year to year according to the latest tax laws. In the 2023 tax year, for example, you can contribute a maximum of $22,500 to your 401(k) account, the IRS says. If you’re over 50, you can take advantage of catch-up contributions—up to an additional $7,500 per year.
The individual retirement account (IRA)
Another popular retirement account is the IRA. According to Inman, there are two main types of IRAs, each with a different tax advantage.
Traditional IRA
Generally speaking, Inman says, a Traditional IRA allows you to deduct your contributions from your taxes now, but you’ll need to pay taxes on the money you withdraw in retirement. You can withdraw your contributions and earnings without IRS penalty at age 59½.
Roth IRA
The other type of IRA is the Roth IRA. Inman notes that contributions to a Roth IRA can’t be deducted from your taxes now, but when you withdraw your earnings in retirement (at age 59½ or later, to avoid a penalty), you do so tax-free. Because you pay taxes on your contributions, you can withdraw those from your Roth IRA anytime.
“Some earners’ income is too high to qualify for a Roth IRA,” Inman says. (In 2023, the income limit is $153,000 for individuals and $228,000 for married couples filing jointly, according to the IRS.)
Unsure of which type of IRA to choose? Dive into all the differences between a Roth IRA and a Traditional IRA. Check the latest IRS guidance on income and contribution limits before selecting the best option for you.
Automating your retirement savings
If you find yourself thinking about how to plan for retirement but not actually doing the regular saving that you need to, then automating your retirement savings might be for you.
Inman and Wang note that most 401(k) plans have automation features: Once you opt in and configure your preferences, your plan will deduct a certain dollar amount or percentage out of every paycheck and invest it in the funds you pre-selected.
There are even mobile apps that have emerged to make it easier for people to automate their retirement savings than ever before. They allow savers to set up automatic deposits from their checking or savings accounts into a retirement savings fund according to their risk tolerance and goals.
“Technology’s come a long way in helping us automate our retirement savings,” Inman says.
When considering how to plan for retirement, automating your retirement savings has two key benefits:
1. Automation removes emotion from investing
The fact is, it’s not always a pleasant experience to move money from your checking account into your retirement savings. Wang notes that when you’re automating your savings, “you won’t even miss that money, but it can grow to a significant amount over time.”
Because of this out-of-sight-out-of-mind phenomenon, Inman suggests increasing your 401(k) contribution amounts whenever you get a raise at work.
2. Automation helps you take advantage of dollar-cost averaging
You might have noticed that the stock market can be up one day and down the next. These unpredictable swings pose the risk that you could “buy high” right before the prices swing lower.
Inman points out that when you’re automating your savings, you’re investing the same amount of money at regular intervals. So if the market is up, your retirement savings go up, but you’re buying at higher prices. If the market goes down, your savings go down, but you’re also buying at lower prices.
Over time, your costs average out, and this is what is known as dollar-cost averaging. “Automation is allowing us to dollar-cost average without us even knowing that we’re doing it,” Inman says.
Estimating how much money you’ll need in retirement
You could use every savvy retirement strategy in the book, but how do you know how much you should save before you can retire?
“Conventional wisdom says that you should expect to need 70% to 90% of your annual pre-retirement income in retirement,” Wang says. For example, he says that a person who earns an average of $100,000 per year before retirement should expect to need $70,000 to $90,000 per year in retirement.
The 4% rule
Another frequently used rule of thumb when learning about retirement planning is known as the 4% rule, Wang says. The idea is that if you can withdraw no more than 4% each year from your savings in retirement (adjusting for inflation and taxes along the way), then “you should have a very high probability of not outliving your money during a 30-year retirement,” he says.
If our eventual retiree will need to withdraw $80,000 a year, that annual pre-tax income needs to represent no more than 4% of their retirement savings. Because 4% is the same as 1/25, they would need to multiply $80,000 by 25 to arrive at a target retirement savings goal of $2,000,000.
Put your knowledge to work toward your retirement
By taking this retirement quiz and studying new retirement concepts, you’ve taken the first steps toward how to learn about retirement planning.
Now, it’s time to make the moves that your future self will thank you for. See how Discover can empower you to confidently follow your retirement plan.
Articles may contain information from third-parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.
*The article and information provided herein are for informational purposes only and are not intended as a substitute for professional advice. Please consult your tax advisor with respect to information contained in this article and how it relates to you.
Faith-based investing! What does it mean? Is it a worthy investing route to follow?
In this article, we’ll take an in-depth look at this type of investing and explore how you can make it work for you. Read on to learn about how this way of investing strategy allows you to reinforce your values.
Nowadays, investors are not putting their money just anywhere. Investors have realized the benefit of investing in things that matter. These include things like caring for the environment, wildlife, society, and minority groups. They want to make a difference with their investments.
Investors are now looking for investment options, which offer good returns and align with their beliefs and values. This way, even as they make more money, they do it with a clean conscience.
Faith-based investing is an investment philosophy that many investors are now embracing. And, like impact investing or socially responsible investing, it promises to do more than multiply your money.
So, what exactly is faith-based investing, and how does it work? Is it worth your money and time? And, how do you get started with faith-based investing?
Let’s dive in and find out.
What is Faith-Based Investing?
When we see the term faith-based, most of us instantly think of “religious investments.” Well, while it’s connected to religion, it’s definitely not in the way most of us might think.
Firstly, faith-based investing has nothing to do with religious organizations’ stocks. In fact, as you might already know, religious organizations are non-profits, thus, don’t issue public shares.
For instance, you’ll never see churches, mosques, or temples, offering shares to the public.
So, if not investing in religious organizations, what does faith-based investing mean?
Your next guess might be correct.
Faith-based investing is not too different from other investment philosophies. All aim at maximizing investors’ returns.
But, investors here don’t choose just any investment. They focus on investments whose strategies align with their religious values.
This way, the investor’s faith, values, and beliefs determine where they invest their money. As you can notice, while this type of investing doesn’t mean investing in shares from places of worship, it’s still tied to religion and values. And that’s why faith-based investing can also be referred to as values-based investing.
Interestingly, every faith has its opinions and perspectives on how to invest money to support certain causes. Also, the same applies to causes that contradict the faith’s beliefs and values.
For this reason, we will dissect faith-based investing based on some of the main religions around the globe. This will help us understand the concept better.
Top Faith-Based Investing Options
If you want to start your faith-based investing journey, here are some of the main options you can choose from.
Christian Investors
Christianity is the world’s largest religion, with around 2.5 billion followers. And, all these people lead their lives based on certain beliefs and values – investing is part of this life.
If you are Christian or wish to invest based on Christianity values, there are two main investment styles you can opt for:
Catholic Faith-Based Investing
The Catholic faith has its own framework on how believers should lead their economic life. The framework outlines ten faith-based principles and guidelines. This outlines how Catholic Christians should engage in finances and the economy.
Generally, they emphasize investing in companies or funds that support various positive issues. For instance, environmental conservation, human rights, fair employment practices, etc.
Also, Catholic investors will avoid investments that support certain things. These include abortion, weapons, adult entertainment, embryonic stem-cells research, etc.
Their investing principles revolve around moral law and human dignity.
Currently, we have many companies, investment firms, and funds you can pick from. These are companies where such values form part of their investing philosophy.
This means that as a Catholic value investor, you can invest freely in these companies or entities. And, you won’t have to worry about contradicting your faith.
Some excellent examples of Catholic faith-based investment entities include:
Catholic Investment Services
This is a not-for-profit investment management firm designed to deliver high returns on investment. And, it keeps Catholic faith principles at heart. It aims at pursuing investment excellence based on Catholic faith values.
Currently, the firm manages assets worth over $1 billion and serves around 45 Catholic institutions. Also, its restricted companies’ list stands at 700.
Catholic Investment Strategies
This is another great way to invest in Catholic faith-based investments. Here, the platform allows you to invest your money in a way that aligns with your faith and church values.
And as they put it on their website, they will never invest your money in companies whose values contradict the Catholic faith.
Generally, the platform invests in institutions like hospitals, universities, etc.
Also, they offer a portfolio that fits your needs. The portfolio excludes investments that support abortion, contraception, racial and gender discrimination, etc.
The LKCM Aquinas Funds
With the LKCM Aquinas Funds, the main investment strategy is guided by social responsibility (SRI). This Equity Fund offers Catholic faith investors an investment option that promises high ROI.
Its choice of securities and companies to invest in depends on the principles and guidelines formulated by the US Conference of Catholic Bishops. The fund has been operational since 2005 and continues to grow with a 9.83% growth rate since it began.
Protestant Investing
Unlike the Catholic faith that shares common beliefs across the entire faith, Protestants are somewhat different. While some denominations are quite liberal in their beliefs, others are more conservative. But, their principles tend to be similar.
Generally, the Protestant faith encourages work ethics and hard work. It urges its followers to invest in entities that support general Christian values. This mainly involves social consciousness. This means that this type of faith-based investing might not be as strict and specific as its Catholic counterpart.
Also, even as they promote social consciousness, they exclude some investments. These include stocks that support:
Adult entertainment
Weaponry
Embryonic cloning
Addictive behavior (drugs, gambling, etc.)
High-interest loans (shylocks and payday loans)
Some excellent examples of companies and funds that support Protestant faith-based investing include:
GuideStone Funds
For over 20 years, GuideStone has faithfully served faith-based investors and advisors. The platform seeks to offer strong-performance investments guided by various Christian values.
GuideStone provides Protestant faith-based investors an excellent opportunity to invest in mutual funds. And, it offers a diversified portfolio across various asset classes. It does all this with Christian values in mind.
The platform seeks to offer socially screened investments that are well managed. These ones guarantee great returns for the investors.
In essence, they use biblical teachings and values to ensure that investors get good returns. Also, their money is also invested in investments that make the world a better place.
The fund’s main values revolve around family, health, stewardship, life, and safety. So, if this sounds like you, you certainly need to start your investing journey here.
New Covenant Funds
This is a faith-based investment fund by the Presbyterian Church. It seeks to offer Protestants the best investing style based on their values.
Basically, the fund’s investment strategies depend on socially responsible investing. Here, the slogan, “you can do well while doing good,” guides them. It gives diversity in investment options, as well as charitable giving.
The platform makes investment decisions based on social consciousness principles. It supports doing good to help nature and society.
Additionally, it avoids investments that promote negative issues. This includes things like gambling, alcohol and other addictive drugs, pornography, etc.
As a Christian, New Covenant Funds offers something for everyone. Whatever your investment mission is they have something for you.
Jewish Faith-Based Investing
Giving and diversification are the key principles that guide Jewish faith-based investing. Jews follow investment strategies that adhere to these two principles, among other values in their faith.
In the Jewish religion, there are many teachings about giving and diversification, as seen in the Talmud. These teachings subsequently act as guidelines when it comes to investing.
Jewish investing doctrines and beliefs resemble socially responsible investing. Here, society and the environment are major pillars in investment decisions.
Different faith-based investments embrace socially responsible investing. This is because it fits into the guidelines and principles of different religions.
Some of the main issues addressed in this type of investing option include:
Social justice
Climate change
Region’s specific issues
Various mutual funds offering Jewish faith-based investments focus on various crucial issues. Some of the best investment platforms here include:
Jewish Values Investment Funds
Investing in Jewish faith-based mutual funds has been made easier. JVIF, LLC, offers an excellent way for Jews to invest in companies and funds that align with the Jewish faith and beliefs.
This investment advisor recognizes the importance of tzedakah (charitable giving). It allows the Jewish community to invest in things that matter to them.
The Bend the Arc
This is another great fund, offering Jewish investors a chance to grow their money. An, it allows them to take part in charitable giving.
The fund aims to encourage community development by supporting initiatives as follows.
Small businesses,
Affordable housing, etc.
With as little as $20, anyone can invest and make a change. The fund’s Community Investment Note finances various organizations. These are organizations that bring positive change to various communities globally.
If you want to invest in something that makes the world a better place, this might be the way to go.
Islamic Investing
Just like Christianity and Jewish faiths, the Islamic religion has values and beliefs. These guide its followers on the way to lead their lives, including financial matters. This way, when it comes to investing, Muslims have specific guidelines or principles to follow.
Generally, Muslim investors will adhere to halal or permitted values while investing. This set of rules allows investors to undertake a disciplined type of investing. They make investments that are ethically, socially, and environmentally responsible.
Islamic investing principles discourage investing in areas such as:
Pork related businesses
Companies that invest in gambling, drugs, and adult entertainment
Short-term speculation (the faith considers this as gambling).
Companies with huge debts since they are paying interest for the loans.
Any investment that pays interest (money markets, savings account, etc.)
In other words, any company or fund that wants to qualify for Islamic investing must adhere to Sharia law. It must follow the teaching from the Quran, Qiyas, Ijma, and the Sunnah.
If you’ve been looking for a way to make Islamic faith-based investments, here are some excellent options for you.
Amana Mutual Funds
These are Islam faith-based mutual funds offered by Saturna Capital. The funds’ investment strategies are guided by the Islamic faith. And, they embrace social, ethical, and environmentally-friendly practices.
However, they prohibit investing in interest-bearing securities and bonds. They’ll usually try to guard their investments against inflation through long-term equity investments.
Saturna follows investment principles that avoid interest or companies engaging in prohibited issues. These include the sale of alcohol, pornography materials, gambling activities, etc.
Allied Asset Advisors, Inc.
Allied Asset Advisors operates like any other investment management company. It offers portfolio management, financial planning, mutual funds, and retirement plans for investors.
The company is Islam faith-based and offers investment opportunities supporting the Islamic faith.
It introduced the Iman Fund, which is tailored to fit the needs of Muslim investors. It adheres to Sharia law and principles.
Is Faith-Based Investing Worth It?
Absolutely yes! If you find the right investing platforms, you can easily make money. Also, you’ll feel proud of how your money is being invested.
But, you should note that faith-based investing faces the same risks as other investments. So, ensure that you’ve not settled for just any company or fund.
Choose companies that can prove strong financial standings, charge reasonable fees, and that show growth potential. This way, you don’t end up investing your money in companies that will never offer value for your investment.
Generally, faith-based mutual funds and ETFs offer better long-term returns.
This is according to research published by John C. Adams and Parvez Ahmed from the University of Texas and the University of North Florida.
So, if you feel that faith-based investing ought to be your next investment move, it can certainly be a good move. But as mentioned, do thorough research on the best faith-based investments depending on your values and beliefs.
Author Bio:Kyle is the founder of The Impact Investor, a website focused on helping others invest sustainably without sacrificing financial returns. We all want products sourced by sustainable and ethical means, why should investing be any different? Follow my investing journey on my Facebook, YouTube, or Twitter accounts.
In a world where virtual investments like crypto increasingly receive media attention for their volatility and uncertain futures, people desire to put their money into something stable and tangible.
Real estate has historically been one of those investments, but the barriers to entry have always been steep—until the emergence of real estate crowdfunding platforms.
What is Real Estate Crowdfunding?
With real estate crowdfunding, individuals can pool their money to fund a property investment. Crowdfunding platforms benefit investors by allowing individuals to combine a relatively small amount of money with others so they can collectively fund a real estate investment they otherwise wouldn’t be able to.
The entity owning the property benefits from crowdfunding by receiving funds they otherwise wouldn’t through traditional investing.
Real estate crowdfunding gives all investors exclusive access to investments typically reserved for the ultra-wealthy.
Real estate crowdfunding can include debt or equity investments. Equity investing occurs when an investor owns a property and receives income through things like rent and profits from selling the property for more than what they paid.
Debt investing involves loaning money to real estate buyers. Those who loaned their money receive their investment in fixed increments, depending on the loan terms.
What Type of Investors is Real Estate Crowdfunding Best For?
Real estate investing was historically reserved for accredited investors, who, according to the SEC, must fulfill one of the following requirements to be considered accredited.
You have an individual income of more than $200,000 per year in the last two years and expect to maintain the same income level in the current year.
You and your spouse jointly have an income of $300,000 per year in the last two years and expect to maintain the same income level in the current year.
You have a net worth exceeding $1 million, excluding your primary residence, either individually or jointly with your spouse.
You invest on behalf of an entity with at least $5 million in assets or a business in which all the equity owners are accredited investors.
In addition to being accredited, investors need the time, effort, and knowledge available to find a property, conduct all activities related to property management, and take on all the risks of a single property.
While some real estate crowdfunding platforms do require individuals to be accredited investors, several do not. With these platforms, all investors, accredited or not, can invest in the relatively stable real estate market without the time, effort, and patience previously required.
You might be interested in investing in real estate via crowdfunding, but where do you begin? We’ve rounded up the top seven best real estate crowdfunding platforms in 2023, with some extra honorable mentions. We’ve found something for everyone’s specific financial needs, so read on to get started with your real estate investing journey.
Table of Contents
Best Real Estate Crowdfunding Platforms for 2023
Fundrise is an ideal platform for those just getting started in the real estate crowdfunding space. It’s also ideal for people who want a platform to provide increasingly larger investment opportunities as they grow as investors.
What You Need to Know:
Minimum investment: Depends on the chosen account level
Property types: Check out their assets page to learn about available property types, including apartment buildings, residential and commercial properties.
Pros
Variety of account levels offers something for everyone.
Relatively stable investing options through private real estate, as opposed to REITs or stocks
Diversified portfolio strategy via the soon-to-be-released Innovation Fund
Cons
Minimum iPO investment is $1,000
Limited customer support services
Lack of complete fee transparency
Fundrise prides itself on being an easy-to-use and low-cost option for those looking to break into real estate crowdfunding. Fundrise uses its commercial software to find and advertise properties to its investors. Utilizing its own software enables Fundrise to charge lower fees, leading to more money in investors’ pockets.
Fundrise currently has 330,000 investors using its site, a total asset transaction value of $7 billion, and $194 million in net dividends already earned by its investors. The company’s investments are all tangible, private real estate investments, typically more stable than REITs and stocks tied to the stock market’s performance. Also, because the company is investor-owned, Fundrise allows its users to invest in its iPO, or internet public offering.
While the platform offers something for the beginner up to the seasoned investor, it leaves much of the troubleshooting up to users, as Fundrise has limited customer service assistance. There’s no way to directly speak with a representative if you have an issue—only an email address and troubleshooting articles are on the website. Fundrise’s total fees for individual investments aren’t clearly stated on its website either.
If you’re a green investor looking to break into the real estate crowdfunding space, Fundrise may be an excellent option. Check out our Good Financial Cents Fundrise Review for more information.
RealtyMogul: Best for Single Property
If you’re an accredited investor looking to focus on finding and investing in the best single piece of property, RealtyMogul may be for you.
What You Need to Know:
Minimum investment:
$5,000 for individual property investments
$5,000 for REITs
Recurring management fee: Usually 1.0%–1.25% annual fees
Accredited investors only?: Yes for single properties, no for REITS
Property types: Office, residential, single-family, and others
Pros
Two REIT options to invest in focused on income and growth
Options for accredited and non-accredited investors
Trustworthy platform, evident by its A+ ranking with the BBB
Cons
Requires a high minimum investment.
High management fees and limited fee transparency
No secondary market for investments, making them illiquid
RealtyMogul’s beginning was inspired by a realization from its founder, Jilliene Helman. While working in wealth management, Jilliene’s experience with her clients showed her three things:
Real estate investors were her wealthiest clients.
There was no connection between her clients’ level of income and the amount of time they worked.
Her clients prioritized real estate investing for its ability to earn them passive income.
Thus, RealtyMogul was created to allow investors access to the real estate market and gain wealth through passive income strategies.
RealtyMogul currently has over 245,000 investors, over $950 million in investments, and $5.5 billion worth of potential deals currently listed on its site.
RealityMogul offers various investment options, including several property types and REITs available to accredited and non-accredited investors. Additionally, the platform’s Better Business Bureau’s A+ ranking provides the assurance investors need to know they are utilizing a trustworthy site.
RealtyMogul’s initial investment costs are steep—investors will need $5,000 to join the platform. Additionally, the company’s fee structure isn’t easy to navigate and depends widely on the investment. RealityMogul’s investments are also relatively illiquid, meaning investors won’t see a return on their investments until maturity, which could take upwards of three to five years.
Investors wanting to utilize a trustworthy platform to find their ideal single piece of real estate should look to RealtyMogul for assistance. Check out our review of RealityMogul to learn more.
DiversyFund: Best for Building a Portfolio Over Time
If you’re a non-accredited investor looking to grow your real estate investment portfolio gradually, DiversyFund may be right for you.
What You Need to Know:
Minimum investment: $500
Recurring management fee: Not available on website
Accredited investors only?: No
Property types: REITs (multi-family properties)
Pros
Relatively low minimum investment compared to other crowdfunding platforms.
Good option for non-accredited investors
Completely automated, making investing simpler
Cons
Few investment choices
Long investment timeline of at least five years
Lack of information on its website
DiversyFund offers a wealth-building, diverse portfolio to average investors. With DiversyFund, you don’t have to be an accredited investor or have thousands of dollars to invest in real estate. With a minimum of $500, you can invest in a multi-family REIT using DiversyFund.
The platform is completely automated, taking the guesswork out of investing in real estate. DiversyFund is great for everyday investors, especially those who aren’t accredited or don’t want to spend a lot of time learning the ins and outs of real estate investing.
DiversyFund does have a limited amount of investment options—it only offers multi-family property REITs. Additionally, investments take at least five years to see returns, which means those investing with DiversyFund should anticipate sitting tight for a while before realizing any gains from their investments. DiversyFund’s website also doesn’t include much information about how the company works.
If you’re a non-accredited investor looking for a simpler way to access the real estate market and gradually grow your portfolio, DiversyFund may be for you.
Roofstock: Best for Single Family Homes
Roofstock is an ideal investment platform for accredited investors who want to invest in single-family properties.
What You Need to Know:
Minimum investment: $5,000
Recurring management fee: Marketplace fee to buyers ($500 or 0.5% of the purchase price, whichever is greater)
Accredited investors only?: Yes
Property types: Single-family rentals
Pros
Variety of ownership structures to invest in
Investments monitored by property managers
IRA investment option
Cons
Minimum investment timeline of five years
Only accredited investors
No mobile app
Roofstock was founded to simplify single-family rental investing by making it as easy as possible for investors to enter the market.
Roofstock offers its accredited investors a variety of ownership structures to invest in, including individual accounts, joint accounts, limited liability companies, corporations, revocable trusts, irrevocable trusts, and limited partnerships. All Roofstock’s assets are managed by an asset manager and a property manager, taking these burdens off the investor and saving time. Roofstock boasts its ability to allow investors the benefits of passively investing in real estate without the headache of property management.
Roofstock enables investors to use an IRA as the title holder to their investment, a unique retirement investing strategy not offered by many other crowdfunding platforms. It also supports a 1031 exchange program, enabling investors to substitute one property for another while putting off paying capital gains taxes on the investment.
Some downsides of Roofstock include the patience required to see any returns, which may take at least five years. The platform is also limited to accredited investors and doesn’t currently offer a mobile app.
If you’re an accredited investor looking to break into the single-family home market, but you don’t want the headache of actually managing the property yourself, Roofstock can be a great option for you.
Cadre: Best for Multiple Investment Styles
Cadre seeks to be a one-stop shop for all things real estate investing.
What You Need to Know:
Minimum investment: $25,000
Recurring management fee: Yes, but the amount varies by investment
Accredited investors only?: Yes
Property types: Apartment, hotel, industrial, and other properties
Pros
Data-driven approach to finding investments
Wide variety of properties to invest in
Greater liquidity than other platforms
Cons
High minimum investment
No 1031 exchanges
Three to eight-year waiting period for investments
Founded by Ryan Williams to offer investors greater access to commercial real estate investing, Cadre’s data-driven approach enables its platform to source the most attractive real estate investment options in the most sought-after markets in the United States.
Cadre allows its investors to realize returns through a wide variety of investments. These include property deals, Cadre Funds (a portfolio diversification strategy), and the Cadre Secondary Market (which enables participants to buy and sell real estate shares).
Cadre currently has over $5 billion in total transactions, a rate of return of over 27%, and over $338 million in gross distributions to investors.
Cadre’s downsides include its high barrier to entry—accredited investors will need at least $25,000 to get started. There are also no 1031 exchange options, and property deals can take anywhere from three to eight years to see returns.
If you’re an accredited investor with a lot of money to invest and want to see quicker returns than traditional real estate investing, Cadre may be the best option.
AcreTrader: Best for Farmland
Folks looking to invest in farmland should check out AcreTrader.
AcreTrader’s mission is to provide direct access to farmland investments. AcreTrader chooses its farmland through an extensive underwriting process, enabling users to invest in the most sought-after farmland possible.
Historically, farmland was a problematic asset to invest in due to extensive research, administrative tasks, and property management. AcreTrader’s tool eliminates those burdens, enabling investors to yield passive income returns with farmland.
Using AcreTrader, investors purchase shares equal to 1/10 of an acre in the enterprise that owns the farm. That piece of land is chosen in a highly selective process to ensure that the investment will realize the 7.0%–9.0% returns AcreTrader boasts. AcreTrader also has self-directed IRA investment options for accredited investors looking to utilize AcreTrader’s platform.
AcreTrader’s downsides include the inherent risks associated with investing in farmland, including the land’s subjectivity to adverse weather conditions, the seasonable nature of crops, and government policies that could affect land’s market value.
Additionally, farmland investments may take anywhere from five to 10 years to see returns, so investors in AcreTrader need to ensure they are committed to this platform for the long haul. Farmland is also a highly illiquid investment, so AcreTrader’s platform users won’t be able to opt for an early return.
If you’re an accredited investor looking to invest in farmland but need someone to research which farmland to choose, AcreTrader may be a great platform for you.
Fund That Flip: Best for Fix-and-Flip Investments
Fund That Flip is a unique platform for individuals looking to invest in residential house flipping.
What You Need to Know:
Minimum investment: $5,000
Recurring management fee: 1.0%–3.0%
Accredited investors only?: Accredited investors only
Property types: Single or multi-family residential real estate
Pros
Up to 11% investment returns
Very rigorous underwriting process
Offer bridge loans, allowing borrowers to get funding as quickly as five to seven days
Cons
House flipping is inherently risky
Minimum investment is a bit high
Must be accredited
Fund That Flip utilizes extremely highly selective underwriting, only accepted 6.0%–8.0% of all potential real estate investments. The chosen projects are managed by a seasoned team of redevelopers, so investors know that their projects have the highest chance of seeing a return. Fund That Flip boasts up to 11% returns for its investors.
Additionally, Fund That Flip offers bridge loans to its borrowers to help further fund redevelopment efforts.
House flipping is inherently risky, but Fund that Flip reduces some of that risk by doing the underwriting and sourcing work itself. All investors must be accredited, and only 8.0% of loan applicants to this platform are approved, making it difficult for just anyone to join.
If you’re a real estate investor looking to break into the house flipping market but don’t want to deal with the headaches of finding a redeveloper and a property to flip yourself, Fund That Flip may be a great option.
Other Real Estate Crowdfunding Platforms to Consider
While we’ve mentioned our favorite real estate crowdfunding platforms, there are many other worthy sites to choose from. Here are a few of our honorable mentions:
HappyNest
HappyNest prides itself on enabling everyone who wants to join the real estate market to do so. HappyNest’s investments are unique because they involve investing in net lease (triple-net) agreements. With these agreements, renters pay some or all expenses associated with using the property, including maintenance, insurance, and taxes.
HappyNest can keep costs down and provide access to all investors. All it takes is $10 and a 0.04% monthly asset management fee—plus a willingness to wait at least three years—to see investment returns.
CrowdStreet
Crowdstreet offers a variety of debt and equity investments in various property types, including multifamily, retail, office, industrial, and land. The minimum investment is a steep $25,000, and fees may be required depending on the opportunity. However, Crowdstreet prides itself on the ability to grant investors access to previously inaccessible real estate markets.
PeerStreet
PeerStreet is a crowdfunding platform for real estate debt investing. Investors provide capital to borrowers in real estate, who pay interest every month on their loans. PeerStreet investors then receive a part of the monthly interest on the loan payments. There is a $100 minimum investment, with management fees around 1.0% of loan fees, but you must be accredited to participate with the platform.
EquityMultiple
EquityMultiple’s unique value proposition lies in its team of experts, who have over $75 billion in transactions under their belt and provide asset management through the entire investment process. Their technology is also easy to use.
This platform, reserved for accredited investing in commercial real estate, requires a minimum investment of $5,000. Fees for common equity investing are 0.5%–1.5%, and debt and preferred equity fees are 1.0%.
Jamestown Invest
Jamestown Invest has over 80,000 investors and $13.2 billion in assets under management. A platform for accredited and nonaccredited investors, Jamestown Invest requires a minimum of $2,500 to begin investing in its commercial real estate offerings, including office, retail, and mixed-use spaces in the United States.
Bottom Line – Choosing the Best Real Estate Crowdfunding Site
There are a host of real estate crowdfunding options for all investors, investment types, investment amounts, and accreditation statuses. Your personal investor profile and desired real estate investing outcomes determine the best real estate crowdfunding option.
While each platform is different, they all create a more accessible real estate market. While investing always comes with a certain amount of risk, real estate investing has traditionally been considered more stable.
Historically, its barriers to entry were high due to relatively high property costs and the time and effort needed to find and manage a property. With crowdfunding platforms, those barriers are reduced, making the real estate market more accessible for investors.
Best Real Estate Crowdfunding Companies
Company
Property Types
Minimum Investment
Annual Management Fees
Accredited Investors Only
AcreTrader
Farmland
$15,000
0.75%
Yes
Cadre
Apartments, hotels, industrial properties
$25,000
Varies
Yes
CrowdStreet
Multifamily, retail, office, industrial, and land
$25,000
Varies
Yes
DiversyFund
REITs
$500
Not available
No
EquityMultiple
Commercial
$5,000
0.5%–1.5%
Yes
Fundrise
Apartment, residential, commercial
$10
1.0%
No
FundThatFlip
Single or multi-family residential
$5,000
1.0%–3.0%
Yes
HappyNest
Pandemic and internet resistant businesses
$10
0.04% (monthly)
No
Jamestown Invest
Office, retail, and mixed-use spaces
$2,500
Varies
No
PeerStreet
Real estate debt
$100
1.0%
Yes
RealtyMogul
Office, residential, single-family
$5,000
Varies
Yes for single properties; No for REITs
Roofstock
Single-family rental
$5,000
$500 or 0.5% of purchase price
Yes
Have you invested in any real estate crowdfunding platforms? If so, what has been your experience?
Best Real Estate Crowdfunding Platforms FAQ
How should I pick a real estate crowdfunding platform?
First, determine if you are an accredited or nonaccredited investor. Next, decide how much money you’re willing to invest and how long you’d like it tied up. Using the above chart as a guide, choose a platform based on your specific criteria.
What are the common costs and fees for real estate crowdfunding?
Real estate crowdfunding has several associated costs, including but not limited to the initial investment cost, account-opening fees, and asset management fees. Initial investments can range from $10 to tens of thousands or more.
Account opening fees usually fall within 0.25%–1.0%, and management fees can have a fixed rate of anywhere from 0.5% to 2.0%.
What are the risks of real estate crowdfunding platforms?
Ultimately, crowdfunding platforms are tied to real estate assets with inherent risks. While platforms make it easier to search through properties, good investments are still challenging to find. Like anything online, there is a necessary amount of due diligence on the investor’s part to ensure that the platform is legitimate.
What is the minimum amount needed to invest in real estate?
With crowdfunding platforms, individuals can invest in real estate for as little as $10, although most of these platforms require at least $500–$1,000 to get started. Check out our resource for ideas on investing in real estate with any budget.
How can I invest in real estate with less than $5,000?
Some crowdfunding platforms allow you to invest less than $5,000 in real estate, including Fundrise, DiversyFund, and Jamestown Invests. In addition, you can use self-directed IRA funds or REITs to invest. Both options often enable you to invest less than $5,000.