Last time I was at an auction with my son Felix it was 1994, and he was in my stomach. Fast-forward the videotape, and he has an advertising job, finance pre-approval and a kerbside spot in front of the bloke auctioning a 1930s flat on Inkerman Street, St Kilda East.
Before proceedings two Sundays ago, we had lunch at the Galleon in St Kilda. Felix, his gorgeous partner Pip, his dad and me. Nervous and pumped, the 28-year-olds mulled tactics. Bid boldly early or wait and suss out what others have in their hand? Just roll with it, the parents said.
Inevitably, we went down the days of yore path about our first home. Buying a place was just what you did then, farewelling rentals along with single life. A Californian bungalow with big backyard and Axminster floral carpet, ours for $122,000 in 1991. Our firstborn Jack came home from hospital there, then we upgraded when Felix – later joined by Sadie – was on the way.
Our winning bid of $172,500 on a fixer-upper in Williamstown was just under double our combined income. Yeah, interest rates were higher and the house needed two renos, but the value still seems miraculous compared to what my kids and yours need to spend versus what they earn if they want to buy a place now.
Now that our three are adults, there’s lots of talk about next steps. Relationships, careers, babies. Like they did as kids, our boys still share mates, a footy team, sense of humour. Both have six-figure salaries. But they’re divided on how to live in one of the most expensive property markets on the planet.
Felix is all about buying. “The Australian dream, Mum, haven’t you heard? Although it’s hard to know if it’s your dream or what society says you should want. But it is what I want.”
Two years ago, Lix got real after a determined spending frenzy that included a tattoo gun and multiple motorbikes. He and Pip created a spreadsheet to map projected and actual savings for a deposit that was more than the total price of our first home.
One night they hosted us and Pip’s parents for dinner at their Footscray rental. Lasagne plates cleared, the real main event was served up: a presentation of their current finances, their goal and what a small chop out from us – to be repaid – would mean.
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It was a pretty good investment pitch. The four parents shared a look: this could bring us closer to grandchildren. We were all in. Adam and Denise went further, offering a rent-free room at theirs while the wannabe home owners saved.
Two research findings have struck me in the last weeks. The first: more than two in five first-time buyers need to tap into the bank of mum and dad. The second: renters who don’t buy by their early 30s are less likely to achieve home ownership later in life than their parents’ generation.
That scenario is one of Felix’s drivers. “I see buying as an inevitability, and you may as well just get it out of the way. The alternative is horrible. If you rent forever, what happens when you retire and are renting on the pension, with no housing security?”
Jack works in banking, has an economics degree, understands money. At 30, he’s a renter who “long ago gave up” on owning a home in a capital city.
“Enslaving myself to a bank – yes, I get the irony – is highly unattractive. And housing is completely overvalued, so I don’t see paying a million dollars in interest on an average property as a rational investment.”
Parental financial lifelines are beside the point, says Jack, who asks what relying on generational wealth says about our economic system: “Plus that’s conditional on me then entering a massive debt, which means a worse economic position.”
I love they’re both doing what makes sense to them. Not so great: Pip and Felix missing out at the Inkerman Street auction. It’s like waiting for a bus, we tell them. Another one will be along soon. The hardest bit, the saving, is done.
Kate Halfpenny is the founder of Bad Mother Media.
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Fees on mortgages backed by Freddie Mac and Fannie Mae are set to change next month, in a plan designed to make homeownership more affordable for more people. Broadly, the fees will go down for many with lower credit scores and will increase for many with higher credit scores.
But that doesn’t mean people with lower credit scores will pay less than those with higher credit scores. The changes mean that people with higher credit scores will still pay less based on lower risk to the lenders, but having a lower credit score will now come with less of a penalty.
There are many variables that go into the cost of a home loan, including what kind of property you are buying, how much money you’re putting down and how high or low your credit score is.
These variables help lenders — and government-backed Freddie and Fannie, which buy the vast majority of loans from lenders — price loans for risk. After starting with the basic, or par, rate, additional price adjustments are added in order to account for how risky the loan is for lenders to make.
Pricing hits like this are called a loan level price adjustment, or LLPA, and have been around for a while and are occasionally updated. The price adjustments allow Freddie and Fannie to keep from being undercapitalized and over-exposed to risk. Fannie and Freddie, which guarantee roughly half of the country’s mortgages, do not directly issue mortgages to borrowers, but instead buy mortgages from lenders and repackage them for investors.
Changes to existing fee structure
Last year the Federal Housing Finance Agency, which oversees Freddie and Fannie, increased the fees on loans for which there is less reason for government support, including some high balance loans, vacation homes and investment properties.
In October, the FHFA announced it would eliminate upfront fees for certain borrowers and affordable mortgage products, who tend to be borrowers with limited wealth or income, while putting in place increases to other fees, specifically for most cash-out refinance loans.
Then, in January, the FHFA announced additional updates to the fee structure for single-family homes that made permanent the eliminated fees and spelled out how other fees would be increased.
“These changes to upfront fees will strengthen the safety and soundness of the enterprises by enhancing their ability to improve their capital position over time,” Sandra L. Thompson, director of FHFA said at the time. “By locking in the upfront fee eliminations announced last October, FHFA is taking another step to ensure that the enterprises advance their mission of facilitating equitable and sustainable access to homeownership.”
How the fee change works
For those with lower credit scores, the fee changes will reduce the penalty for having a low score. For those with higher credit scores, more price tiers have been put in place, which in some cases may increases fees.
For example, a buyer who made a 20% down payment with a credit score of 640 would see their fee drop 0.75% from 3% to 2.25% with the updates. Another buyer, also making a 20% down payment, who has a credit score of 740, would see their fee climb by 0.375%, from 0.5% to 0.875%.
The fee will still cost the home buyer with the lower credit score more.
A buyer with a 640 credit score and an 80% loan-to-value ratio will have a fee of 2.25%, while a buyer with a 740 score will have a fee of 0.875%. The difference in assessed fees is about $4,000 more for a buyer with a 640 credit score than for a buyer with a 740 credit score, based on a $300,000 mortgage.
The table outlining the fees based on loan to value ratio and credit score have been posted by Freddie Mac and Fannie Mae.
Some critics say well-qualified buyers are already struggling to enter the housing market.
“Between the lack of supply, interest rates more than doubling in the past year and pricing in most of the country remaining relatively flat, the barrier to entry has never been more difficult to pursue the American Dream,” said Pierre Debbas, managing partner at Romer Debbas, a real estate law firm.
“The intent of providing access to credit to lower-income borrowers with lower credit scores and down payments is an important initiative to help expand the demographic that can acquire a house and theoretically build wealth,” he said. “However, doing so at the expense of other consumers who are already struggling to enter the market is a mistake.”
But that criticism is misplaced, said Jim Parrott, a nonresident fellow at the Urban Institute and owner of Parrott Ryan Advisors, who added that it is “conflating two separate, largely unrelated moves on pricing for the government-sponsored enterprises.”
In a blog post, Parrott explains that the increase in fees for vacation homes and high-value loans allows Freddie and Fannie to reduce fees for some other buyers.
He also points out that the suggestion that fees are lower for those who make a smaller down payment misses a critical point. Any loan with less than a 20% down payment must have private mortgage insurance.
“So those who put down less than 20% pose less risk to the GSEs and should pay less in fees to the GSEs,” Parrott wrote.
Betterment and Betterment are not only two of the most popular robo advisors in the industry, but they may very well be the most innovative in the field. Though they represent two of the first robo advisors, both have built out their platforms and now offer robust portfolio options and other services to their clients.
Though they each have their own nuances–and specializations–you really can’t go wrong with either platform. Each will take complete control of your portfolio, managing every aspect of it for a very low annual fee. When you sign up with either service, your only responsibility will be to fund your account on a regular basis.
But what if you’re either new to robo advisors or you’re considering a switch from another one? If you’re researching robo advisors, the information will inevitably lead to Betterment and Wealthfront. So let’s take a look at the two heavyweights in the robo advisor space and see which might be a better fit for your portfolio. Listen to the Podcast of this Article
About Betterment
Betterment is not only the original robo advisor, but its also the largest independent robo (along with Wealthfront), with $21 billion in assets under management. The company is based in New York City and began operations in 2008.
As a robo advisor, Betterment is an automated, online investment platform that handles all aspects of investment management for you. When you sign up for the service, you complete a questionnaire that will help determine your investment goals, time horizon, and investment risk tolerance. From that information, Betterment creates a portfolio of stocks and bonds to meet your investor profile.
They dont actually invest your money in individual securities, but instead through exchange-traded funds (ETFs), each representing a specific asset class. They can build an entire portfolio for you through about a dozen funds that will give you exposure to the entire global financial markets.
All this is done for a low annual management fee. Your only responsibility will be to fund that your account on a regular basis and let Betterment handle all the management details for you.
Better Business Bureau rates Betterment as A+, which is the highest rating in a range from A+ to F. The company also scores 4.8 stars out of 5 by more than 20,000 users on the App Store, and 4.5 stars out of 5 by more than 4,500 users on Google Play.
About Wealthfront
Wealthfront is, with Betterment, the largest independent robo advisor, and Betterment’s primary competitor. In fact, with over $24 billion in assets under management, its now slightly larger than Betterment. The company is based in Redwood City, California, and launched operations in 2011.
As a robo advisor, it works much the same as Betterment, creating a portfolio for you based on your answers to a questionnaire when you open your account. Wealthfront will also manage your account using a small number of ETFs spread across various asset classes. But on larger accounts, they’ll also add individual stocks to get greater benefit from tax-loss harvesting.
Like Betterment and virtually all robo advisors, Wealthfronts basic investment strategy is based on Modern Portfolio Theory (MPT), which emphasizes asset allocation over individual security selection.
Similar to Betterment, and really all robo advisors, your account will receive full investment management for a very low annual fee. Your only responsibility will be to fund your account on a regular basis.
Unfortunately, Wealthfront has a Better Business Bureau rating of F, due to unanswered complaints. However, the company gets 4.9 stars out of 5 from more than 9,000 users on the App Store, and 4.8 stars out of 5 by more than 2,700 users on Google Play.
Investment Strategies Betterment vs Wealthfront
Betterment Investment Strategy
Betterment offers two plan levels, Digital and Premium. Premium is available for minimum account balances of $100,000, while Digital is open to all account balances. Like many robo advisors, Betterment has evolved past building and managing a basic portfolio comprised of a mix of stocks and bonds.
For example, if you choose the Premium Plan, you’ll have access to live financial advisors. But there are many other services and plans to choose from.
Read More: Betterment Promotions
Basic portfolio mix
Your portfolio will be invested in as many as six stock asset classes/ETFs and eight bond asset classes/EFTs.
Stocks:
US Total Stock Market
US Value Stocks Large Cap
US Value Stocks Mid Cap
US Value Stocks Small Cap
International Developed Markets Stocks
International Emerging Markets Stocks
Bonds:
US High-quality Bonds
US Municipal Bonds
US Inflation-Protected Bonds
US High-Yield Corporate Bonds
US Short-term Treasury Bonds
US Short-term Investment-Grade Bonds
International Developed Markets Bonds
International Emerging Markets Bonds
Use of value stocks
Notice that three of the six stock asset classes involve value stocks. This is a specialization of Betterment and represents a time-honored stock market investment strategy. Value stocks are investments in companies with stock prices that are low in relation to their competitors by various standard measurements. But the companies are deemed to be fundamentally sound, and therefore likely to outperform the general market once the investment community realizes the true value of the stocks.
In this way, Betterment makes an attempt to outperform the general market, such as the S&P 500 or even some broader indices.
Smart Beta
This is another investment strategy Betterment uses with the potential to outperform the general market. This specific portfolio is managed by Goldman Sachs. Smart Beta is a form of active portfolio management, which seeks high-quality companies with low volatility, strong momentum, and good value.
Since its a higher risk/high reward type of investing, it requires a minimum portfolio of $100,000.
Socially responsible investing (SRI)
This is an investment option increasingly being offered by robo advisors. However, with Betterment only a portion of your portfolio will be invested in SRI. They replace the ETFs in the International Emerging Market Stocks and US Value Stocks Large Cap with ETFs that specialize in socially responsible investing in those sectors.
Learn More: The Pros and Cons of Socially Responsible Investing
Flexible Portfolios
If you want more control over your investment portfolio, you can choose this option. It allows you to adjust the individual asset class weights in your portfolio allocation. Its also designed for more advanced investors and gives you an opportunity to increase allocations in asset classes you believe are likely to outperform the market.
BlackRock Target Income
For investors looking for income and safety of principal, Betterment offers this portfolio, which consists of 100% of bonds. There is some risk of principal in this portfolio but it’s designed to be minimal. You can even choose the level of risk and return you want. It won’t provide the type of long-term gains you’ll get from a stock portfolio, but it will offer the kind of steady income that will work especially well for retirees.
Tax-loss Harvesting
Tax-loss harvesting is a year-end strategy in which asset classes with losses are sold (and later replaced with comparable ones) to offset gains in winning asset classes. The strategy helps to defer taxable capital gains on growing asset classes.
Betterment makes this strategy available on all account balances. However, it’s only offered on taxable accounts since it’s completely unnecessary for tax-sheltered retirement plans.
Betterment Everyday Cash Reserve
If you’re looking to add a cash option to your investment portfolio, you can do it through Betterment Cash Reserve. The account is eligible for FDIC insurance up to $1 million. The minimum deposit is $10, and offers unlimited transfers, both in and out of your account.
Betterment Checking
The Betterment Checking account gives you the flexibility to manage your money in a way that best fits your financial goals. You’ll get this account with a debit card and you can use it to pay in person or online. You’ll also get FDIC insurance on your money.
The Betterment Checking account is an innovative way to manage your money. It’s faster, more secure, and requires zero minimum balance requirements. You can now deposit checks using their streamlined mobile app. Just take a picture and deposit checks will be there for you on the other side.
Wealthfront Investment Strategy
Unlike Betterment, Wealthfront has a single plan for all investors, with an annual management fee of 0.25% on all account balances. And like Betterment, Wealthfront has expanded its investment options menu in many different directions.
Basic Portfolio Mix
Wealthfront uses 11 asset classes in the construction of its portfolios, including four stock funds, five bond funds, plus real estate and natural resources.
The allocation looks like this:
Stocks:
US Stocks
Foreign Stocks
Emerging Market Stocks
Dividend Stocks
Bonds:
Treasury Inflation-Protected Securities (TIPS)
Municipal Bonds (on taxable investment accounts only)
Corporate Bonds
U.S. Government Bonds
Emerging Market Bonds
Alternatives:
Real Estate
Natural Resources
Use of Alternative Investments
Wealthfront includes real estate and natural resources in its portfolio composition. The real estate sector invests in companies that provide exposure to commercial property, apartment complexes, and retail space. Natural resources are held in ETFs representing that sector.
The combination of the two offers a stronger diversification away from a portfolio comprised entirely of stocks and bonds, largely because they offer protection in an inflationary environment. It’s possible for these sectors to perform well when the general financial markets are not.
Smart Beta
The Smart Beta option attempts to outperform the general financial markets. The strategy deemphasizes market capitalization in the creation of a portfolio. For example, rather than using the capitalization allocations of certain companies within the S&P 500, the strategy might increase some allocations and decrease others. It’s more of an active investment strategy and requires a minimum investment portfolio of $500,000.
Wealthfront Risk Parity
This is another investment strategy for investors with larger accounts and a greater appetite for risk. Its been shown to provide higher long-term returns, but it may use leverage to increase those returns.
Stock-level Tax-loss Harvesting
Tax-loss harvesting is available on all taxable investment accounts. But Stock-level Tax-loss Harvesting is available to larger accounts to provide more aggressive tax deferral.
This is a fairly complex investment strategy, but it involves the use of individual stocks to take greater advantage of tax-loss harvesting. The use of individual stocks will make it easier to buy and sell securities to minimize capital gains taxes. Depending on the specific plan, the required minimum investment ranges between $100,000 and $500,000.
Wealthfront Path
This is a software-based financial advisory, providing you with financial planning tools. They can help you plan for retirement or saving for the down payment on a house or a college education for one or more of your children. The apps run what-if scenarios, that can make projections based on various savings levels for each of your specific goals.
Though it doesn’t offer live financial advice, the service is free to use.
Wealthfront Cash
You can open an interest-bearing cash account with Wealthfront Cash Account with just $1. There’s no market risk, no fees, unlimited free transfers, and your account is FDIC insured for up to $5 million. The account currently pays 4.30% APY and provides a safe, cash investment to go with your stock portfolios.
And now, Wealthfront Cash allows you to get your paycheck up to two days early when you set up a direct deposit. They’ve also implemented the ability for you to invest directly into the market within minutes, straight from your Wealthfront Cash account. That means you can get paid early and immediately invest – giving you about extra days of investing each year.
Read more: Wealthfront Cash Account review
Wealthfront Portfolio Line of Credit
Much like a home equity line of credit, the Wealthfront Portfolio Line of Credit is secured by your investment account. You can borrow up to 30% of the value of your account for any purpose. There’s no prequalification since the line of credit is completely secured by your investment account.
The line of credit is automatic if you have a non-retirement account balance of at least $25,000. You can request funds against the line on your smartphone and receive them in as little as one business day.
Current interest rates paid on the line range between 2.45% and 3.70% APR, depending on the size of your account.
Retirement Planning Betterment vs. Wealthfront
One of the most common uses of robo advisors is the management of retirement accounts. Both Betterment and Wealthfront can manage all types of IRA accounts, similar to the way they do with taxable accounts. But each also offers some level of retirement planning.
Read More: Best Robo Advisors Find out which one matches your investment needs.
Betterment Retirement Planning
Betterment is strong in this category because in addition to their regular portfolios, they also offer income-specific investment options, like their BlackRock Target Income and Everyday Cash Reserve. The Target Income option in particular focuses on maximizing interest income, which is exactly what most people are looking for in retirement.
One of the advantages Betterment offers is that you can connect your 401(k) with your investment account. Betterment cant manage the 401(k) (unless chosen to do so by your employer through their 401(k) management plan), but they can coordinate your Betterment retirement account(s) with the activity in your employer plan.
And of course, if you have at least $100,000 in your Betterment account, you can enroll in the Premium plan and have access to live financial advisors.
But Betterment also offers its Retirement Savings Calculator to help you know if you’re on track for your retirement. By answering just four questions, they’ll be able to determine if your current retirement plan will provide the income you’ll need in retirement, taking your projected Social Security income into consideration. If it isn’t, it’ll let you know how much more you need to invest on a regular basis.
Wealthfront Retirement Planning
You can take advantage of Wealthfront Path to help you with retirement planning. You’ll start by linking your financial accounts so the program can get a better understanding of your finances. Recommendations to help you reach your goals are made based on the amount of regular contributions you’re making and the income you will need in retirement.
Path will analyze your spending patterns, your average annual savings rate, the interest you’re earning on those savings, as well as your investment and retirement contributions. It will also analyze the fees you’re paying on your investment and retirement accounts. Loan accounts are analyzed as well.
The information is assembled, and future projections are made. You’ll be given advice on any needed increases in savings for retirement contributions, as well as asset allocations. And perhaps best of all, since all your financial accounts are linked to the service, it will provide continuous updates on your progress toward your retirement goals.
Betterment Pros & Cons
No minimum initial investment or account balance requirement.
Reduced fee structure on larger account balances.
Use of value stocks seeks to outperform the general market.
Unlimited access to certified financial planners on account balances over $100,000.
Comprehensive retirement planning package.
Limited investment diversification, excluding alternative asset classes, like real estate and natural resources.
The annual management fee rises from 0.25% to 0.40% if you select the Premium plan.
The reduced fee structure on large account balances doesn’t kick in until you reach a minimum of $2 million.
Wealthfront Pros & Cons
Your account includes alternative investments, like real estate and natural resources. This offers greater diversification than a portfolio invested only in stocks and bonds.
The minimum initial investment is just $500. That’s not zero, but it’s an amount most small investors can comfortably start with.
Flat-rate fee of 0.25% on all account balances.
Larger accounts get the benefit of more efficient tax-loss harvesting strategies through Wealthfront Risk Parity.
The Wealthfront Portfolio Line of Credit lets you borrow up to 30% of the value of your non-retirement accounts at very low interest and with no credit check.
There’s no reduced management fee for larger account balances.
The retirement planning tool (Path) is an automated system and does not provide advice from live financial advisors.
Poor rating from the Better Business Bureau.
Bottom Line
We’ve covered a lot of territory and details in this side-by-side comparison of Betterment vs Wealthfront. The summary table below should help you to be able to compare the various services each offers with a quick glance.
Category
Betterment
Wealthfront
Minimum initial investment
Digital: $0 Premium: $100,000
$500
Promotions
Up To 1 Year Free
First $5,000 Managed Free
Management fees
Digital: 0.25% up to $2 million, then 0.15% above Premium: 0.40% to $2 million, then 0.30%
0.25%
Available accounts
Individual and joint taxable accounts; traditional, Roth, rollover and SEP IRAs; trusts and nonprofit accounts
Individual and joint taxable accounts; traditional, Roth, rollover and SEP IRAs; trusts and 529 accounts
Rebalancing
Yes
Yes
Dividend reinvestment
Yes
Yes
Tax-loss harvesting – on taxable accounts only
Yes
Yes
Socially-responsible investing
Yes
Available through Smart Beta ($500,000 minimum) and Stock-level Tax-Loss Harvesting ($100,000 minimum)
Smart Beta investing
Yes
Yes, minimum $500,000
Interest bearing cash account
Yes
Yes
Line of credit
No
Yes
Financial advice
Yes, on Premium Plan only
Automated only
Mobile app
Yes
Yes
Customer service
Phone and email, Monday through Friday, 9:00 am to 6:00 pm Eastern time
Phone and email, Monday through Friday, 10:00 am to 8:00 pm Eastern time
You’ve probably already guessed were not declaring a winner between these two popular roboadvisors. Both are first rate and you can’t go wrong with either. More than anything, your decision will likely come down to specific details–what features and benefits one offers that better suits your own personal preferences and investment style.
But one advantage that’s undeniable with both Betterment and Wealthfront is that not only is each a first-rate service, but they provide enough investment options and related services that they can accommodate your growing financial capabilities and needs well into the future.
For example, while you may start out with a basic managed portfolio, you’ll eventually want to get into higher risk/higher reward options as your wealth grows. As well, you’ll like the flexibility of having high-interest cash investment options, as well as low-cost or free financial or retirement advice.
We like both these services and are certain you can’t go wrong with whichever one you choose.
Betterment Cash Reserve Disclosure – Betterment Cash Reserve (“Cash Reserve”) is offered by Betterment LLC. Clients of Betterment LLC participate in Cash Reserve through their brokerage account held at Betterment Securities. Neither Betterment LLC nor any of its affiliates is a bank. Through Cash Reserve, clients’ funds are deposited into one or more banks (“Program Banks“) where the funds earn a variable interest rate and are eligible for FDIC insurance. Cash Reserve provides Betterment clients with the opportunity to earn interest on cash intended to purchase securities through Betterment LLC and Betterment Securities. Cash Reserve should not be viewed as a long-term investment option.
Funds held in your brokerage accounts are not FDIC‐insured but are protected by SIPC. Funds in transit to or from Program Banks are generally not FDIC‐insured but are protected by SIPC, except when those funds are held in a sweep account following a deposit or prior to a withdrawal, at which time funds are eligible for FDIC insurance but are not protected by SIPC. See Betterment Client Agreements for further details. Funds deposited into Cash Reserve are eligible for up to $1,000,000.00 (or $2,000,000.00 for joint accounts) of FDIC insurance once the funds reach one or more Program Banks (up to $250,000 for each insurable capacity—e.g., individual or joint—at up to four Program Banks). Even if there are more than four Program Banks, clients will not necessarily have deposits allocated in a manner that will provide FDIC insurance above $1,000,000.00 (or $2,000,000.00 for joint accounts). The FDIC calculates the insurance limits based on all accounts held in the same insurable capacity at a bank, not just cash in Cash Reserve. If clients elect to exclude one or more Program Banks from receiving deposits the amount of FDIC insurance available through Cash Reserve may be lower. Clients are responsible for monitoring their total assets at each Program Bank, including existing deposits held at Program Banks outside of Cash Reserve, to ensure FDIC insurance limits are not exceeded, which could result in some funds being uninsured. For more information on FDIC insurance please visit www.FDIC.gov. Deposits held in Program Banks are not protected by SIPC. For more information see the full terms and conditions and Betterment LLC’s Form ADV Part II.
DoughRoller receives cash compensation from Wealthfront Advisers LLC (“Wealthfront Advisers”) for each new client that applies for a Wealthfront Automated Investing Account through our links. This creates an incentive that results in a material conflict of interest. DoughRoller is not a Wealthfront Advisers client, and this is a paid endorsement. More information is available via our links to Wealthfront Advisers.
If you’re new to investing, the idea of getting started can be daunting. After all, you probably don’t have tens of thousands of dollars lying around to build a portfolio and feel like you can’t make much of a difference with the disposable cash you do have.
Luckily, though, you can start your investment journey for a lot less–even if you only have $100 to begin.
The most important part of investing is getting started as early as possible. Rather than waiting until you have a large sum of money saved up, you can get started today and begin growing your savings. Before you know it, you’ll be well on your way to building a healthy portfolio that earns you interest and sets you up for financial success for as little as $100.
Let’s look at a few fun (and low-cost) ways that anyone can start building an investment portfolio today.
Overview: Where and How to Invest $100
Investment Type
Best For
High-yield savings accounts
Emergency funds and money that needs to be accessible
Certificates of deposit (CDs)
Those who don’t need to touch their funds right away
Company retirement accounts
Easy contributions, company matching, and investment diversification
Investment apps
On-the-go recommendations that are easy to access and often free
Robo-advisors
A hands-off approach with a diversified portfolio
Peer-to-peer lending
High risks but also high rewards
1. Start with High-Interest Savings Accounts
The easiest and most flexible way to begin your investment adventure is actually to start saving your money in a high-yield savings account. While your returns will be more limited than they would be on the stock market, it will also be a safer investment–and you can withdraw your funds at any time without penalty.
If you don’t already have a sufficient emergency savings account established (ideally, six months’ worth of expenses), this is a must. Even if you do have some money saved away, a savings account can be a great way to keep a smaller amount of funds safe and secure, yet accessible.
The savings accounts of today won’t earn you as much as they would have ten or twenty years ago. However, there are some online banks offering as much as 1.80% on high-yield savings accounts right now, and the interest rate climbs all the time. This makes them a great introduction to the world of interest-bearing funds.
Some of our favorite banks for high-yield savings accounts include CIT Bank, Ally Bank, and Capital One 360. All three are online banks, charge no fees for savings accounts, and offer some of the highest interest rates on the market today.
Want to see even more of the best interest rates and the banks offering them? Check out our list here.
2. Earn With A CD
If you want your money to grow a bit more than it would with a high-yield savings account but still need the funds to be secure against market drops, then you can look into a certificate of deposit, or CD. These savings vehicles offer a guaranteed rate of return on your investment in exchange for locking your money away for a specified period of time.
As long as you leave the funds alone until the end of the CD term, you will receive your full investment amount plus the agreed-upon interest. It’s a safe, easy way to earn extra cash on your savings!
CDs come in a number of different flavors. For instance, there are CDs ranging in term from as little as three months to as many as five or six years. The longer the term, the higher interest rate you’ll be offered. Plus, many of them have low minimum deposit requirements, meaning that you can get started even if you only have $100 to tuck away.
As long as you know for certain that you won’t need to withdraw your funds early (which usually involves a painful early-withdrawal penalty), putting cash into a CD is a safe and easy way to invest.
3. Invest in Your Retirement Through Work
Interested in tax-advantaged retirement funds that will help you invest in your future? Then look into starting (and fully funding) an IRA in addition to your 401(k), through your employer.
If your employer offers to match contributions toward your 401(k), you should always take advantage of this. Even if you only contribute enough to collect the full employer match, that’s fine; failing to do so is essentially leaving free money on the table, though. Plus, your 401(k) contributions are tax-deductible and will grow over time, providing you with a healthy retirement nest egg for your future.
IRAs are also excellent long-term investment vehicles, primarily for the tax benefits. If you open a traditional IRA, your contributions will be tax-deductible up to the annual maximum. If you qualify for a Roth IRA, your contributions won’t be tax-deductible now, but your withdrawals will be when the time comes to utilize those funds.
Saving for retirement is the second-most-important priority (behind establishing a healthy emergency savings account). Before worrying about building a stock market investment portfolio, be sure that you are setting your older self up for success.
4. Utilize an Investment App
Ready to dabble in the stock market, but don’t quite know where to start? Or maybe you don’t think that you have enough investable funds to warrant a stock brokerage? Well, then an investment app might be the perfect introduction for you and your money.
There are a number of intro-to-investing apps on the market today, but one of our favorites is called Stash. After answering a few questions to determine your investment style (do you want to be super conservative with your money or risk more in order to potentially make more?), Stash will curate the perfect recommendations for you.
To start using Stash, you only need $5, making it one of the most flexible and affordable investment options around. Plus, if your account balance is below $5,000, your monthly service fee for using the app is a single dollar.
Yep, for only $3, you can get curated investment options as well as a wealth of advice and resources. This makes Stash truly ideal for beginner investors who don’t really know where to start or aren’t ready for a financial advisor just yet.
Sign up for Stash and get a $5 bonus after funding your account with $5.
To read our complete review of Stash and learn more about the app, see our write-up here.
Alternatively, Acorns uses your spare change to make thoughtful investments across a diverse portfolio. It starts the process by siphoning off the change from your spending. If you buy a drink for $4.75, the app pays the vendor the correct amount and puts the remaining $0.25 in an account ready for investing.
The app is essentially a robo-advisor that automatically invests money you wouldn’t otherwise miss. Your portfolio can easily be spread across thousands of individual securities using just a small amount of funds. Read more in our Acorns Review.
Related: The Best Investment Apps
Another app we love is Public. Public is unique because it makes the stock market social. You can follow your friends and other investors and have conversations about companies and trends to build your financial literacy over time. There are even a few famous faces on the app, like Girlboss founder Sophia Amoruso, Adobe Chief Product Officer Scott Belsky, and NBA legend, Shaq.
In addition to the social piece, Public offers fractional shares for thousands of public companies and even popular ETFs from Fidelity and BlackRock. This makes it possible to build a portfolio with just $100, because you can invest with dollar amounts (e.g. $1 worth of Amazon stock, if you like).
Public also has a fun Themes tab where you can discover and learn about companies based on your values and interests. The Growing Diversity theme spotlights companies with high marks for diversity and inclusion. Infinity and Beyond curates companies involved in space travel. Made in the USA spotlights companies who support job creation domestically.
You won’t pay any commissions for standard stock and ETF trades with Public. It’s also one of the first free trading apps to announce that it will no longer participate in payment for order flow (PFOF). This decision removes any conflict of interest from its business model. Public also added an optional Tipping feature on trades and hopes that community support will help to offset the revenue it will lose by forgoing the PFOF model.
Read our review of Public
Related: How to Invest in the Stock Market: A Guide
If you’re looking to diversify your portfolio, you could try Masterworks. Masterworks enables you to buy shares in blue-chip artwork pieces by household names like Van Gogh and Andy Warhol. While the value of art is inherently subjective and therefore a high-risk investment blue-chip works like these have historically outperformed the stock market by a significant margin.
Masterworks looks to buy a new work every 1-2 months, and pieces typically sell after 5-10 years, making it a long-term play. Works can only be sold when all owners agree to do so with no owner permitted a greater than 20 percent share, so as not to give them undue influence. As such, it is an illiquid asset, but long-term value investing is no bad strategy.
Aside from shared ownership of blue-chip art, Masterworks big innovation is using blockchain to both reliably value the art, and maintain accurate ownership records of all pieces. Plus, they’re planning to open a free-to-access gallery where you can visit your investment.
Read our full review of Masterworks or visit Masterworks.
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5. Robo-Advisors Might Be the Answer
There is a growing number of robo-advisors on the market today, most of which offer you automated investment options for an affordable price tag. This makes them a great option for beginners or hands-off investors who want their money to grow without constant oversight.
Companies like Betterment offer easy-to-use platforms that make investing as simple as using a savings account. Simply add the money you want to invest (as much or as little as you can afford each month) to your account and watch Betterment work its magic by investing your funds in ETFs (exchange traded funds).
Robo-advisors will help you rebalance your portfolio over time, can reinvest your dividends, and will even help you with tax-loss harvesting. The fees are a bit higher than you would find if you invested your funds directly with a company, but the added expense may be well worth it to you for the convenience of a hands-off approach.
You can also opt for a robo-advisor such as Ally Invest or M1. Ally’s trading platform is free for stocks and ETF’s, and charges less than $10 per trade for mutual funds. With M1, there are no fees to worry about as long as you meet low investment minimums on the platform.
6. Check Out Peer-to-Peer Lending
Looking for a quick return on your funds, whether you’re investing $25 or $2,500? Then look into peer-to-peer lending.
Platforms like Lending Club and Prosper allow approved investors to put up funds in denominations as low as $25. You’ll be able to choose the peer loans that you’re most interested in, lending money directly to borrowers and enjoying return rates ranging from 5% to as high as 33% in some cases.
Peer-to-peer (P2P) lending comes with additional risks, but with great risk comes great rewards namely in the form of interest rates higher than you’re guaranteed to find elsewhere.
FAQs
Curious how you can grow your investments if you’re starting out with only $100? Here are a few common questions from others who are just as curious.
How much interest will I earn on $100?
It’s impossible to say how much interest you can earn from $100 because there are a few key variables in play. First, it’ll depend on where you put that money — are you investing it in the stock market or letting it sit in a savings account? Then, it’ll depend on the timeframe — are you interested in how much that money will grow in a year or where it’ll stand come retirement? Just for perspective, though: if you had bought $100 worth of Amazon shares in 1997, you’d have enjoyed more than a $120,000 growth in value by 2018. On the other hand, if you put that $100 in a high-yield savings account today, you could earn a few extra bucks by year’s end.
How should I invest $100 to make $10k?
Again, where are you investing and how much risk are you willing to take on? The riskier the investment, the faster and more aggressive the growth. Short of perfectly timing a surprise stock or buying a winning lottery ticket, turning $100 into $10,000 will take some time. If you’re determined to grow a $100 investment to $10,000, though, you may want to consider high-risk stocks or something like peer-to-peer lending.
How can I invest $100 wisely?
The wisest investment is the one you can best live with. If you don’t really have $100 to spare in the first place, investing it in a mutual fund probably isn’t wise. If you can’t afford to lose that money, using a p2p platform to offer loans with it also isn’t wise. If you can comfortably take on that risk, though, go for it. Otherwise, wise investments include savings accounts and CDs, and you’ll want to be sure to calculate how long you realistically want to invest those funds.
What’s the best way to invest $100 short term?
If you need your money available sooner rather than later, you’ll be trading off growth for convenience. With that said, short-term investments may be the best choice for those who just want to earn a little extra money and then have their funds available when they need them. This means putting it away in a CD with a smaller time frame or letting it grow in a savings account.
Bottom Line
Investing doesn’t only mean spending tens of thousands of dollars on stocks and building a Wall Street portfolio. It simply means making your money work for you, and you can get started for as little as a few bucks.
There are plenty of options to begin building your first portfolio, letting your money earn interest and grow over time. Whether you choose a high-yield savings account or go the high-risk/high-return route of the stock market, the important thing is to start early.
Also read: What to Do with Your Money When Interest Rates Are Low
Be sure to also watch your progress over time, too, and revisit whether you are making efforts in the right places. No, you don’t need to watch your investments daily or obsess over normal market fluctuations. However, using a platform like Empower to track not only your investments and savings accounts but overall net worth can be invaluable along the way.
It may seem like you’ll never have $1 million to invest, but if you invest consistently over decades, you might build up that much wealth more quickly than you’d think. And if you manage to get a windfall with that many zeros behind it, it’s best to figure out ahead of time how you’ll invest it to keep it growing.
So let’s say you find yourself with a $1 million windfall tomorrow. What will you do with it? Well, hopefully, you’d consult with a professional who can give you advice on the best way to allocate your funds. But once you’ve decided to do that, your best bet is to choose low-cost, high-reward investment options. And, of course, you’ll want to diversify your investment portfolio. So to do that, here are the best options you can invest in if you have a million dollars.
What To Do Before You Begin Investing $1 Million
Before you start investing, there are a few things that you should do.
Think About Your Investing Goals
Before you start investing, you need to know why you’re investing. Your goals will play a significant role in determining how you invest.
For example, if you’re young and investing for retirement age, you can afford to own volatile stocks. You’ll probably want to build a portfolio that’s heavy on stocks and light on less risky investments like bonds. This can give your portfolio the highest potential returns.
If you’re investing for a more short-term goal, you’ll likely want to build a more conservative portfolio so that you don’t lose your savings right before you need them.
Your goals can also determine the account you use to invest. If you’re saving for retirement, you’ll want to use a 401(k) or IRA. If you want to help a child pay for college, you might use a 529.
Related: The 10 Best Investment Strategies for Short-Term Savings Goals
Think About Your Investing Style
Are you the type of person who enjoys managing their money, or do you want to take a hands-off approach to investing?
If you’re an active investor, look for a brokerage that offers low or no commissions on trades and has tools you can use to research stocks and other securities.
If you’re looking for more passive, buy-and-hold investments, consider working with a company with low-cost mutual funds, such as index funds.
Related: The 5 Best S&P 500 Index Funds (and the Worst Ones)
Think About What’s Important to You
Some people want to put their money where their mouth is when it comes to investing. Before you start investing, you might want to consider ESG investing, which focuses on Environmental, Social, and Governance factors in companies.
For example, you might want to focus on investing in companies that work to benefit the environment or take steps to ensure they treat their workers fairly and pay them well.
ESG investing has grown popular in recent years, and some argue that it can improve performance compared to investing without focusing on these factors. However, ESG investing is often more difficult or expensive because you have to do the work to assess companies’ commitment to ESG concepts or pay a mutual fund manager to do that for you.
Related: The Pros and Cons of Socially Responsible Investing
How to Invest $1 Million: Overview
Type of Investment
Best For
Robo-Advisors
Lowest Fee Structure
Stocks and Mutual Funds
Autonomy
Real Estate
Physical Asset Value
Bonds
Proper Risk Balance
P2P Lending
Higher Risk / Return
1. Pay Off All High-Interest Debt
First, if you have any major debts, you’ll want to pay those off. There’s some debate about whether or not you should pay off your house, so put some thought into that one. But, at a minimum, you should knock out all high-interest debt. Most of the investments below will not come anywhere near beating the 20%+ interest you’re paying for credit cards and personal loans. So get rid of those first so you have a great financial base to launch your investments from.
2. Be Sure You Have a Fully-Funded Emergency Fund
Again, before we talk about investments, let’s be sure you’ve got your financial base in place. A fully-funded emergency fund of six months or more worth of expenses is your next step. For this, you’ll want to put the money somewhere liquid and insured, so look for an FDIC-insured savings account with a high yield.
One of the best options today comes from the CIT Bank Savings Connect Account. You’ll earn a cool 4.65% APY on your money which should keep you in line (or ahead) of inflation. The money is always liquid so if there’s an emergency, you’ll have full access to the account.
Also Read: Best Online Savings Accounts with High Interest
3. Max Out Your Retirement Savings
With a million dollars to invest, you can max out your retirement savings vehicles first, and using these tax-advantaged accounts should be your priority each year that you possibly can. If you already have money going into a company 401(k), consider a service that can analyze the fee structure of your account to make sure you’re maximizing your return.
And if you don’t already have an IRA, open one to use with some of the following investing options. Then max out those accounts before you direct money to your taxable accounts.
4. Use a Robo Advisor
Any time you’re looking to make a big investment, big fees will have an amplified effect. So you’ll want to look for the lowest-fee options with a good yield when you’re looking to invest this much money. One option for that is to invest with a robo advisor. Using algorithms instead of individuals, these services make historically solid investing decisions but cost far less than traditional investment advisors.
Wealthfront is one of the best robo advisors out there and they’ll give you $50 on the house for creating an account with a $500 deposit. Wealthfront has dozens of features that will allow you to set a personal risk tolerance and create a portfolio that suits you. After you’ve created your profile, it’s largely hands-off from there.
The advisory fee to use Wealthfront is 0.25%. So for example, if you invested $500,000 with them, you would pay an annual fee of $1,250. That may sound pretty steep, but if you’re generating returns of 7%+, it represents a very small fraction of what you’ll gain. In this example, a 7% return means your end of year balance after one year would be ~$533,750 after the fee was taken.
5. Invest $1 Million In Your Values
If you’re interested in using that million dollars to spread some good in the world, you can do that while earning money through a company like Stash. Investing in socially responsible companies is easier than ever now. You can invest in these types of stocks (or any other stock) with as little as $5 from the palm of your hand with Stash. It’s an app that simplifies and democratizes investing so everyone, from first-time investors to pros, can reach their financial goals regardless of income or experience level.
With detailed stock market data and educational materials, personalized portfolio tracking, easy-to-read reports, and personalized notifications on your personal moments of success, this app not only lets you invest without any brokerage fees but also equips you with the tools to make more informed decisions about when it’s time to sell up or down.
Read our Stash Review
6. Consider Adding Real Estate
Even with a million dollars to invest, you may not be able to buy a property outright in some areas of the country. And if you do own property on your own, you’re stuck with the headache of managing it. If you want to avoid that but still want to add real estate to your portfolio, Fundrise is a company that can get you invested.
Through crowdfunding, your investment is pooled with others to purchase property. There are different investment strategies and goals within every Fundrise account so you can play it safe, or take on more risk for a higher return. Fundrise even offers a self-directed IRA option so your contributions can reduce your annual tax burden.
If you’d rather not invest directly in a single property, CrowdStreet also offers real estate funds that let you diversify your investment. You can also sign up for the site’s advisory service, which lets you work with a professional to build a real estate portfolio that can help you achieve your investing goals.
In order to become a CrowdStreet investor, you will need to have an income that exceeds more than $200,000 annually and a total net worth of at least $1 million (not a problem if you’re reading this post). And unlike Fundrise, you won’t be able to invest in single family units. CrowdStreet is for retial and commercial real estate only.
7. P2P Lending for Higher Risk & Return
Another way to be choosy and to get a potentially hefty return on your investment is with a peer-to-peer lending platform. Prosper is great for lending your money to individuals who need to consolidate debt, fix up their homes, or need a cash infusion to start a business.
When you invest in this platforms, you can create a portfolio of loans that you partially help fund so that you can spread your risk across multiple loans quite easily. The historical returns are generally well above that of savings and CD’s but the more risk you take, the greater the chance that the customer you lend to could default, which will offer negative returns.
P2P lending was a very hot idea 15 years ago and has cooled considerably since. Still, when you choose a blended loan portfolio, the returns through Prosper can be quite generous. And perhaps the greatest upside to Prosper is that your investment helps others achieve their financial futures.
8. Consider Balancing with CDs and Securities
Of course, even millionaires have to worry about keeping a balanced portfolio and ensuring that not all of their capital is in riskier investments. That’s where options like CDs and securities come in. These have traditionally been a way to out-earn inflation, so you aren’t losing money with it sitting around.
But they’re also much safer than any other type of investment. So be sure you talk to your financial advisor about the best way to utilize tools like these to bring balance to your portfolio.
Creating a CD ladder is a great way to lock in guaranteed returns and diversify. Short-term CD interest rates are the highest they’ve been in decades and you can lock in a 4-month no penalty CD with Ponce Bank right now and earn 5.15% APY.
A no-penalty CD means you can withdraw the funds at anytime and even thought it’s a CD, there won’t be an interest penalty for early withdrawal. Your investment is always protected and always available.
How Did We Come Up With This List?
When creating a list of ways to invest $1 million responsibly, we looked for investment strategies available to most people that will help them build a diverse portfolio and earn solid returns. We also considered the cost of the investment strategy, as costs play a direct role in your returns. Every penny you pay in fees can have a compounding effect on your future returns.
We also tried to come up with a list of investment strategies that meet different risk tolerances and investing goals. People who are less risk-tolerant may not want to invest in real estate because real estate investing often involves high risk and leverage. Instead, they might want to focus on safer investments like mutual funds or even CDs.
When looking for financial help online, it’s hard to know whether you can trust the information you find. Anyone can publish on the internet, and they may have an ulterior motive.
Diversify Your Investments
One essential thing, no matter how you choose to invest, is to make sure you diversify your investment portfolio.
Diversifying your investments, in essence, means not putting all of your eggs in one basket. If you decide to invest in stocks, don’t put all your money into a single company. If you’re purchasing real estate, try to buy more than one property.
Think about what would happen if the company you invested in goes bankrupt or the property you buy burns down. You’d lose all of your money. If you diversify your portfolio, even the worst-case scenario for one of your investments wouldn’t completely doom your portfolio.
Mutual funds, real estate investment trusts (REITs) that own multiple properties, and robo advisors that build balanced portfolios are all great ways to easily diversify your investment portfolio.
Strongly Consider Working with a Professional
If you have $1 million to invest, you have to be incredibly smart about managing that money. As we’ve written before, $1 million isn’t as much as it used to be. In fact, the argument can be made that you need at least $2 million to retire. So this would only get you halfway home.
So, it’s important that you not only preserve the $1 million the best you can but also help it grow. Investing is one thing you have to do, but only if you are comfortable managing that large of a portfolio. If you’re not (and even if you are), I would STRONGLY consider looking at working with a professional.
I get that you’d want to manage $1 million on your own (heck, even getting to this point is an accomplishment), but don’t be silly and mismanage it.
Track Your Investments
As you begin pulling together your various investments, it’s important to figure out how you will keep track of them. Sure, you could pay someone to do it all for you. But that would just eat into your returns and your ability to grow your money. If you’d prefer to keep an eye on your investments yourself, check out services like Empower, which help you pull together all the various threads of your financial life, from your budget to your investments on different platforms.
Empower can help you track your investment performance, spot potential problems, and keep an eye on your overall portfolio balance. It can also run your day-to-day budget, so it’s a very flexible platform worth using once you’re ready to start keeping track of all this money.
The most important thing to remember is once you hit that million-dollar goal mark you’ve been saving for, the work isn’t over. You could easily lose it with celebratory spending. Have a plan in place for how you want to make this money work for you. With the right investment vehicle, you’ll be cruising down the road toward financial freedom.
Frequently Asked Questions (FAQ)
How much interest will I earn on $1 million?
To use a basic example, say you had an account with $1 million that paid 4% annually–in such a case, you’d earn $40,000 per year. What’s great about compounding interest, though, is by leaving your money in the account, interest would accumulate on the new balance. So after the second year, assuming no other changes, you’d have $41,600.
Can I retire with $1 million?
You can retire with $1 million dollars if you manage your withdrawals appropriately (it’s pretty tight, but do-able). The Rule of 4 says that you should withdraw no more than 4% of your total portfolio each year. Assuming you’re earning at least 4% in returns, you can effectively live off of interest earned without touching your principal balance. With a $1 million portfolio, this is $40,000 per year.
What’s the best way to invest $1 million short-term?
The best short-term investment for $1 million is a low-cost index fund that broadly diversifies your investments in stocks across a variety of industries. Alternatively, you can invest your $1 million in a robo advisor which will pick low-cost investments across different areas for you.
Read More: Best Investments for Passive Income
Bottom Line
As you can see, there are many ways you can invest $1 million. The first thing to recognize is that you’ve amassed this much money, which is more than many people can say for themselves. Next, though, you need to determine a strategy and focus on executing that strategy (and stick to the plan!), so you can make that $1 million last and grow even more.
In February 2020, Tenisha Tate-Austin and Paul Austin decided to erase all traces of their existence in the Northern California home the Black couple had created for themselves and their children.
They “whitewashed” their home by removing their family photographs and African art displayed around the house. They had a white friend place some of her own family photographs around the home and greet the appraiser as if she were the homeowner.
The couple wanted to see if they’d get a better home appraisal than the one they had received three weeks earlier.
The experiment worked. This time, the appraisal (by a different appraiser from the same appraisal management firm) was almost 50% higher. In three weeks, the value of their Marin City home, 11 miles north of San Francisco, had gone from $995,000 to $1,482,500.
In March, the Austins settled a fair housing lawsuit alleging race discrimination against the licensed real estate appraiser; they’d reached a settlement in October with the appraisal management company.
Sixty years after Martin Luther King Jr. delivered his most iconic speech calling for civil and economic rights and an end to racism, one of the biggest roadblocks to building wealth for Black Americans is still in place: The housing gap has widened from the time it was legal to discriminate based on race.
In 1960, eight years before the Fair Housing Act, which prohibits property owners, financial institutions and landlords from discriminating based on race, the homeownership gap between white (65%) and Black (38%) stood at 27 percentage points. In 2021, or 60 years later, that gap had grown: 73% of white households owned a home compared with Black homeownership at 44%, a difference of 29 percentage points, according to the Urban Institute.
“We missed out on a better interest rate because of the unfair appraisal we received,” Tenisha Tate-Austin said in statement through her lawyer. “Having to erase our identity to get a better appraisal was a wrenching experience. We know of other Black families who either couldn’t get a loan because of a discriminatory appraisal and therefore either lost the opportunity to buy or sell a home, or they had to sell their home because they had an unaffordable loan.”
Explore the series:MLK’s ‘I have a dream’ speech looms large 60 years later
Housing gap:‘We are a broken people’: The importance of Black homeownership and why the wealth gap is widening
King fought racist housing practices in ChicagoThough King knew housing was an important topic when he made his 1963 speech (it included the line “We cannot be satisfied as long as the Negro’s basic mobility is from a smaller ghetto to a larger one,” his focus was ending segregation in the South, said Beryl Satter, professor of history at Rutgers University in New Jersey and author of “Family Properties: Race, Real Estate, and the Exploitation of Black Urban America.”“The speech was about jobs and ending segregation of drinking fountains and restaurants, buses, trains, movie theaters and swimming pools to help pass the Civil Rights Act,” she said. Once that was accomplished, King trained his sights on housing in the North, particularly Chicago, where he focused on enforcing a pre-existing law on open housing, Satter said.The open housing laws in Chicago already forbade real estate agents from steering Black families into Black neighborhoods and dictated that housing should be made available regardless of race.“But like many such open housing laws, it was not enforced,” Satter said.In January 1966, King moved with his family into an apartment in North Lawndale on the West Side of Chicago to bring attention to the poor living conditions of Black families living without water, electricity and heat. He marched with Black and white supporters into segregated white neighborhoods to call for open housing.“And there he was met with the most violence he had ever been met with in any of his civil rights struggles. He said that the violence in Chicago made the whites in Mississippi look good,” Satter said. “He was hit with a stone while marching in Chicago, and he kept going.”Fair Housing Act became law after King’s deathFrom 1966 to 1967, Congress regularly considered a fair-housing bill, but it was ultimately defeated.“It was the first time that a Civil Rights Act had been defeated since the ’50s,” Satter said. “There was massive white resistance to any law or direct action that threatened racial segregation and housing. It was something that whites in the North fought to the death to keep.”After King was assassinated in 1968, President Lyndon Johnson pushed through the national Fair Housing Act as a memorial to King, whose name had become closely associated with the fair housing legislation.The undervaluation of homes in Black neighborhoods, decadeslong housing segregation, a systemic denial of loans or insurance in predominantly minority areas, a persistent income gap, and a historically limited ability of Black parents to leave their families an inheritance have contributed to the nation’s financial disparity, experts say.
During the housing boom of the early 2000s, Black Americans ages 45 to 75 disproportionately held subprime mortgages, loans offered at higher interest rates to borrowers characterized as having tarnished credit histories. Many of these mortgage holders lost their homes and have been unable to return to homeownership.
These trends will affect retirement prospects for Black Americans and their ability to pass down wealth to the next generation, making it not just one generation’s problems but an intergeneration disparity, experts say.
White wealth surpasses Black wealth
In 2016, white families posted the highest median family wealth at $171,000. Black families, in contrast, had a median family wealth of $17,600, according to the Federal Reserve. Homeownership has long been considered the best path to build long-term wealth, so increasing the rate of homeownership can play an important role in closing the wealth gap, experts say.
Over the past decade, the median-priced home in the United States gained $190,000 in value, making the typical homeowner 40 times wealthier than if they had remained a renter, according to a report released in April by the National Association of Realtors.
Some signs of hope emerged during the coronavirus pandemic, when mortgage rates were at historic lows.
During that time, Black homeownership rates increased by 2 percentage points, surpassing the white homeownership rate, which increased just 1 percentage point.
The historically low mortgage rates enabled high-earning, highly educated Black households to boost homeownership rates. Most high-income white households already were homeowners, which explains the smaller magnitude of growth, according to the analysis.
Black homeownership rate saw small improvements
From 2019 to 2021, the homeownership rate for Black households went from 42% to 44%; for white households it went from 72% to 73%.
After experiencing a continuous decline since the Great Recession, the Black homeownership rate finally made gains between 2019 and 2021. The reason was pent-up demand, said Jung Choi, a researcher at the Urban Institute.
“This suggests that affordability really matters,” Choi said. “Now, with the surge in interest rates, we are already seeing a sharp decline in Black homebuyers as well as younger homebuyers.”
Satter said King’s final book, 1967’s “Where Do We Go From Here: Chaos or Community?” cautions against complacency simply because there are laws on the books.
“He really understood that having a law in books was the beginning, not the end. Today we have the Fair Housing Act of 1968, and there are ongoing local, state and national laws that are supposed to stop housing discrimination,” Satter said. “I think King would have predicted that they would not be effective if there wasn’t a larger public will to enforce it and a strong political organization pushing to enforce it.”
Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.
Some companies make regular payments, called dividends, to investors who own shares of its stock. For investors, this may be considered an advantage of investing in a company — though they may wonder, when are dividends paid?
Not all companies pay dividends, so if steady dividend income is the goal, an investor would need to look specifically for dividend-paying investments.
How often do dividends pay? Dividends are typically paid quarterly, though there are cases where they are paid more or less frequently. But there’s more to it than simply investing in a stock and waiting for one’s dividend to roll in.
What Are Dividends?
Companies will sometimes share a portion of their profits with shareholders, and this is called a dividend. Dividends are typically distributed as cash, although it’s also possible to receive a dividend in the form of stock.
Typically, dividends work on a per-share basis. For example, if Company A pays a cash dividend of 50 cents per share, and an investor owns 50 shares, they would receive $25 in cash.
If a company pays a stock dividend, it’s usually a percentage increase in the number of shares an investor owns. So if Company A awards a 5% stock dividend and an investor owns 100 shares of Company A, they would have 105 shares after the dividend payout. 💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.
How Often Are Dividends Paid Out?
In most cases in the U.S., dividends are paid quarterly, or four times a year, on the same schedule as they must report earnings (quarterly). If you’re wondering why companies generally pay quarterly vs. monthly dividends, logically, it makes sense that dividends would come only after a company has finalized its income statement and its board of directors has reviewed (and approved) the numbers.
Some investments pay dividends on other schedules, such as twice a year, once a year, or as monthly dividend stocks, or on no schedule at all (called “irregular” dividends), but this isn’t typical in the United States. Ultimately, the dividend payout schedule is up to a company’s board of directors.
It’s also possible for a company to pay a special one-time dividend. Usually a special dividend is paid out when a company has had a stronger-than-usual earnings period or has excess cash on hand — from the sale of a business, perhaps, or the liquidation of an investment, or a major litigation win. These special one-time dividends may be paid as cash, stock, or property dividends.
When it comes to mutual funds that invest in dividend-paying companies, they may pay dividends on a more frequent basis, such as monthly or even weekly.
Recommended: Do IPOs Offer Dividends?
When Are Dividends Paid?
Although the answer to the question “How often are dividends paid out?” may vary, there are four essential dates involved in the payment of dividends:
1. Declaration date: This is the day that a company’s board of directors states their intention to pay a dividend.
2. Date of record: This is the date on which a company will review its records to establish who its shareholders are. In order to receive a dividend, an investor must be a “holder of record,” which means they owned shares on or before the ex-dividend date.
3. Ex-dividend date: This is the date by which an investor must have purchased shares of a stock in order to receive an upcoming dividend. If an investor bought shares of Company A on or after the ex-dividend date, the dividend would go to the investor from whom they purchased the shares — they themselves would not receive a dividend.
4. Payment date: This is the date a dividend is paid to company shareholders.
Here’s an example of how these dates work:
The Coca-Cola Company (NYSE: KO) announced a dividend of $0.46 per share on February 16, 2023. The payment date for the dividend was April 3, 2023 to shareholders of record on March 17, and the ex-dividend date was March 16. That means, to receive the dividend that was paid on April 3, you would have had to buy or have already owned Coca-Cola shares before March 16. (The Coca-Cola Company was chosen as an example only; this is not a recommendation to buy, sell, or hold KO.)
When are dividends paid?
IMPORTANT DIVIDEND DATES
for 5 Companies in the S&P 500 Dividend Aristocrats Index
Company
Dividend Payout
Declaration Date
Ex-Dividend Date
Date of Record
Payment Date
AbbVie Inc. (ABBV)
$1.48
June 22, 2023
July 13, 2023
July 14, 2023
August 15, 2023
Atmos Energy Corp (ATO)
$0.74
May 3, 2023
May 19, 2023
May 22, 2023
June 5, 2023
Chevron Corp (CVX)
$1.51
July 28, 2023
August 17, 2023
August 18, 2023
September 11, 2023
General Dynamics (GD)
$1.32
August 1, 2023
October 5, 2023
October 6, 2023
November 10, 2023
Nucor Corp (NUE)
$0.51
June 8, 2023
June 29, 2023
June 30, 2023
August 11, 2023
Typically, investors wondering, when are dividends paid?, can get information about a company’s dividend dates by visiting its investor relations page. To find this, search for the company’s name and “investor relations” online. Or check a company’s dividend history online. Many investment websites, including Nasdaq.com, track this information.
How Are Dividends Paid Out?
Once a company’s board of directors approves a plan to pay out dividends, the company announces the dividend payment information, including: the amount to be paid out, the date it will be paid, the date of record, and the ex-dividend date.
On the payment date, the dividend is paid to investors who owned the stock before the ex-dividend date.
Different Dividend Payout Methods
These are some of the ways dividends may be paid to investors.
Cash Dividends
Dividends are often paid in cash. Companies typically send cash dividends directly to an investor’s brokerage, where the money is deposited into their account. The company might also mail a check to stockholders.
Company Stock Dividends
In other cases, investors will be paid in company stocks. Some companies and mutual funds offer the option of a dividend reinvestment plan (DRIP) that will automatically buy additional shares for an investor with their dividends. This provides the advantages of both simplifying the process (since investors won’t have to receive the cash and buy more shares themselves) and potentially being more cost effective, since many DRIP programs don’t charge commissions.
Additionally, some DRIP programs discount the purchase of additional shares. For this and other reasons, some investors may specifically look to find dividend reinvestment stocks.
Property Dividends
More rarely, a company might award a property dividend instead of cash or stock payouts. This could include company products, shares of a subsidiary company, or physical assets the company owns.
What Is a Dividend Yield?
Calculating the dividend yield of an investment is useful for investors who want to compare companies and the dividends they pay. A dividend yield is essentially a measurement of the cash flow an investor will get back for each dollar they invest in a company. For investors looking for investments to help supplement their cash flow, or even to possibly live off dividend income, a higher dividend yield on a stock would be more attractive than a lower one.
Historically, high dividend yields tend to come from companies in the following fields: banks and financial, healthcare and pharmaceuticals, basic materials, oil and gas, utilities, and REITs. But it’s important to remember that high yields can also come from any company whose stock price is falling—and in those cases, it’s a sign of trouble.
To calculate dividend yield, divide the total dollar value of dividends paid per share in a year by the dollar value of one share of stock. For example, if a company paid out $3 in dividends per share and its stock currently costs $100, the dividend yield would be 3%.
There are generally two ways to find a company’s dividend payout:
• Most recent dividend payout: If a company pays a quarterly dividend, multiply the most recent payment by four to get an annual dividend amount.
• Annual report: A company’s annual report typically contains the annual dividend per share.
Investors can also check online for the dividend yield. For instance, the NASDAQ’s dividend history page on individual stocks also lists a company’s dividend yield.
Dividend amounts tend to be consistent from quarter to quarter, though they may vary slightly from payment to payment. Special one-time dividends may be of varying amounts, however, and typically aren’t included in dividend yield calculations. 💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.
Are Dividends Taxable?
Dividend income is always taxable, but tax treatment will depend on how long an investor has held the investment and what kind of account they’re holding it in.
For instance, if an investor is holding the investment in a retirement account such as a 401(k) or IRA, the dividend isn’t taxable at the time of distribution. (Though depending on the account, the income may be taxed upon withdrawal during retirement.)
If the investment is held in a taxable account, then a dividend is considered income, and the tax rate will depend on whether it’s a qualified dividend or nonqualified (ordinary) dividend.
Tax Rate for Qualified Dividends
These are dividends paid by a U.S. corporation or a qualified foreign corporation on stock that an investor has held for a certain period of time—generally more than 60 days during the 121-day period that starts 60 days before the ex-dividend date.
For some preferred stock, the investor must have held it for 91 days out of the 181-day period starting 90 days before the ex-dividend date. Taxes on qualified dividends are paid at long-term capital gains rates, which range from 0% to 20% based on an individual’s modified adjusted gross income.
In other words, the taxes investors pay on qualified dividends are based on their overall income tax bracket, and they could pay 0%, depending on their income. Because the long-term capital gains tax rate is lower than ordinary income tax rate, qualified dividends are preferable to nonqualified dividends.
Tax Rates for Long-Term Capital Gains
Tax Rates for Long-Term Capital Gains
Filing Status
0% Rate
15% Rate
20% Rate
Single
Up to $44,675
$44,676 to $492,300
Over $492,300
Head of household
Up to $59,750
$59,751 to $523,050
Over $523,050
Married filing jointly
Up to $89,250
$89,251 to $553,850
Over $553,850
Married filing separately
Up to $44,675
$44,676 to $276,900
Over $276,900
Tax Rate for Nonqualified Dividends
The more common type of dividend is a nonqualified — or ordinary — dividend. When companies pay ordinary dividends, they’re considered ordinary income, so an investor will be taxed at ordinary income tax rates.
In general, investors should assume that any dividend they receive is an ordinary dividend unless told otherwise. (The payer of the dividend is required to identify the type of dividend when they report them on Form 1099-DIV at tax time.)
Can You Live on Dividends?
In general, retirees should plan to live off a combination of Social Security, interest income from bonds, and selling a small portion of their investments each year. The 4% retirement rule maintains that if one withdraws no more than 4% of their portfolio each year, they’ll be able to make their nest egg last — although some financial professionals believe this formula is too conservative.
Investments that pay regular dividends may shift an individual’s retirement equation by providing steady income over time that may allow them to sell fewer investments — or no investments at all. The amount of dividends a stock pays often grows over time as companies get larger and continue to increase their profits.
Investing with an eye toward dividend income may allow an investor to create an income stream that could successfully supplement their Social Security and other income in retirement.
Investing With SoFi
Dividends — cash or stock rewards from a company to its shareholders—are typically paid quarterly to qualifying shareholders. These financial “bonuses” can be attractive to investors, who may seek out dividend-paying companies specifically in hopes of boosting their bottom line. Some investors look specifically for investments that pay dividends as a way to generate income and savings for retirement.
Dividends may provide a source of consistent and predictable income, which may be a helpful addition to an individual’s portfolio, depending on their investing goals. Investors may choose to use dividend income to supplement other income or to reinvest in their portfolio.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
Invest with as little as $5 with a SoFi Active Investing account.
FAQ
How long do you have to hold a stock to get a dividend?
In order to get a dividend, an investor needs to be a “holder of record.” That means they need to buy, or already own, shares of the stock before what’s known as the ex-dividend date, which is the business day before the date of record. The date of record is when the company reviews its records to determine who its shareholders are. The date of record is generally announced when the dividend is announced.
Are dividends taxed if they are reinvested?
Yes. Dividends that are reinvested are considered income, just like cash dividends, and must be reported on your tax return. The way you are taxed on dividends depends on whether your dividends are qualified or nonqualified. The more common type of dividend is nonqualified, and these dividends are taxed at ordinary income tax rates. Qualified dividends are taxed at long-term capital gains rates.
What happens if you take more dividends than profit?
Typically, a portion of a company’s earnings should go to paying out dividends. This is known as the dividend payout ratio. Investors typically look for payout ratios that are 80% or less — meaning that the company is not paying all of its earnings in dividends.
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If you live in Chicago, IL, you’re familiar with the dynamic and multifaceted art scene. The city offers an unparalleled journey through human creativity, like world-renowned museums that house timeless masterpieces to cutting-edge galleries. But Chicago’s artistic landscape doesn’t stop at visual arts – it resonates with the music and dancing, spanning genres from blues to jazz, contemporary, and hip-hop.
Whether you’re touring apartments in Chicago, looking for homes for sale, or needing new recommendations, this Redfin article has you covered. Join us as we explore what makes Chicago a haven for art enthusiasts and cultural explorers alike. We’ll make recommendations on the top spots to visit and places to explore. Let’s get started.
Chicago museums to explore
Chicago’s museums offer a captivating journey through history, culture, and creativity, showcasing diverse art, science, and innovation. Here are a few of the top museums in the city.
The Art Institute of Chicago
The Art Institute of Chicago is a cornerstone of the city’s vibrant art scene, holding a revered status among locals and visitors. Its extensive collection spans centuries and continents, offering a rich artistic expression from ancient to contemporary times. With masterpieces by renowned artists such as Grant Wood’s “American Gothic” and Georges Seurat’s “A Sunday on La Grande Jatte,” the museum is an invaluable educational and cultural resource. Its commitment to showcasing diverse cultures and artistic genres solidifies the Art Institute’s pivotal role in shaping Chicago as a hub of creative inspiration and exploration.
Museum of Contemporary Art Chicago
This museum catalyzes conversations around contemporary issues and artistic evolution by showcasing works from established and emerging artists across various mediums. Its role in fostering artistic experimentation and encouraging dialogue makes the Museum of Contemporary Art Chicago a vital and transformative force within the Chicago art scene.
Lively Chicago art festivals to check out
Known for hosting exceptional art festivals, Chicago showcases diverse artistic expressions and fosters a vibrant atmosphere of cultural celebration. Here are a few of the top art festivals in the city.
Millennium Art Festival
“The Millennium Art Festival provides a wonderful opportunity for people to interact with the artists and see spectacular, unique, hand-made pieces from artists all over the country,” shares Amy Amdur, CEO of Amdur Productions. “When attending these fests, we suggest planning ahead by visiting our website to get acquainted with the various artists and their work and the surrounding neighborhood. We encourage attendees to make a full day of it by enjoying a variety of activities at the fest, as well as exploring the unique shops and restaurants that are just steps away.”
Printer’s Row Art Fest
Nestled in the historic Printer’s Row neighborhood, the Printer’s Row Art Festival transforms the streets into a dynamic gallery where skilled artisans proudly display their handcrafted treasures. From intricate hand-bound books to mesmerizing woodblock prints, visitors can immerse themselves in the tactile beauty of the creative process.
Must-see Chicago galleries
From contemporary innovation to classical mastery, Chicago galleries showcase an array of artworks that mirror the city’s dynamic spirit and cultural diversity. Here are a few of the best.
Bridgeport Art Center
“There are two expansive art galleries situated on the third and fourth floors of the Bridgeport Art Center,” reveals Karen I. Hirsch, a local photographer. “Moreover, individual artists within the building graciously unveil their studios to the public. Adding to the building’s allure is the Chicago Maritime Museum, nestled on the lower level.”
Blue Moon Gallery
Lynne, a publisher of the Fox Valley Art BEAT, an art news site, suggests visiting the Blue Moon Gallery. “The owner of Blue Moon Gallery, Kendra Kett, curates beautifully, choosing local artists who know what sells well and prices it right. Although the gallery looks deceptively small from the street, once inside, it is open, airy, and bright with soothing colors, a salon approach to display, tabletop art, high ceilings, and even clerestory windows filling the length with natural light.”
Local Chicago artists to Look into
Chicago boasts a wealth of exceptionally talented local artists, whose creativity and innovation contribute to the city’s thriving artistic landscape. Check out a local favorite below.
Plein Air Painters Chicago
“Did you know you can see art depicting Chicago being made by professional artists every Saturday morning from April through October,” says Mary Longe, a local artist. “Each weekend, 10-30 members of the renowned Plein Air Painters Chicago paint a neighborhood. You can watch, bring your own easel, or purchase art as it’s being completed by some of Chicago’s most talented artists. Iconic and compelling scenes are painted in oils, watercolors, pastels, gouache, casein, and acrylics.”
Chicago architecture that can’t be missed
Chicago’s architecture is integral to the city’s art scene, blending aesthetics and functionality to create a dynamic urban canvas. A great way to see the iconic Chicago landscape is through tours like the Chicago River Boat Architecture Tours. There you’ll be surrounded by historic and modern day buildings. Here are a few spots to keep in mind.
Chicago Riverwalk
“Immerse yourself in Chicago’s artistic scene by strolling down the Chicago Riverwalk,” suggests Christiane Sola, the Chicago School of Musical Arts co-founder. Enjoy the breathtaking architecture and local musicians performing along the route, creating an unforgettable urban gallery. An array of restaurants and bars and stunning waterfront views invite locals and tourists to savor Chicago’s boundless expression of art and vibrancy.”
Willis Tower
The Willis Tower is a monumental piece of architecture that significantly enriches the Chicago art scene. Once the world’s tallest building, its soaring silhouette seamlessly merges form and function, becoming an iconic representation of the city’s artistic spirit. The tower’s distinctive design, with its bundled-tube structure and imposing presence, has inspired countless artists to capture its essence through various mediums, from paintings to photographs.
Diverse Chicago dance communities to discover
The dance scene in Chicago resonates with performances, fusing jazz, ballet, and diverse movements that showcase the city’s artistic energy. Here are a few great spots to enjoy.
The South Side Jazz Coalition
The South Side Jazz Coalition hosts jazz jams, pop-up concerts, and the popular Jazz’n On The Steps in the beautiful Woodlawn neighborhood. Festivals will be happening in Bronzeville and Englewood through October, as live music is “the happening” on the south side of town.
Scottish Country Dancing
Feel like venturing further afield? Head to Naperville. Participate in a lively class with Chicago Scottish Country Dance, a group that meets every Tuesday evening to learn and enjoy this social set dancing from Scotland.
Other ways to dive into Chicago’s art scene
Chicago is teeming with many shops showcasing vintage items, art, and records that further add to the diverse art scene. One way to learn about the city is taking a trip through the shops.
Explore some of Chicago’s popular shops
Mady from Renegade Craft, the leading showcase of independent craft and design, encourages you to “Kick the day off by sifting through records at Reckless Records, then head to Renegade vendor Demolition Collective’s storefront for a different kind of vintage sifting. Get your aura photographed by the loveliest Aura/Iris, then check out Gucha Gucha’s creative studio and shop. End the day with a visit to Co-Prosperity, an “experimental cultural center” that will inspire you to apply to Renegade yourself.”
Sales of existing homes slipped in July even as median prices sustained their record-high levels. The National Association of Realtors® (NAR) said the month’s sales of single-family homes, townhomes, condominiums, and cooperative apartments were at a seasonally adjusted annual rate of 4.07 million units, down 2.2 percent compared to June and 16.6 percent lower than in in the same month in 2022.
Single-family home sales slid to a seasonally adjusted annual rate of 3.65 million, a 1.9 percent month-over-month decline and down 16.3 percent from the previous year. Condo and co-op sales slipped 4.5 percent to 420,000 annual units: 19.2 percent fewer than a year earlier.
The median existing-home price for all housing types in July was $406,700, a 1.9 percent annual increase. NAR said It was the fourth time the monthly median sales price had exceeded $400,000 since it started keeping records. Previous such prices were logged in June 2023 ($410,000), and in both May and June of last year at $408,600 and $413,800, respectively. The median existing single-family home price was $412,300 in July, up 1.6 percent year-over-year, while condo prices rose 4.5 percent to a median of $357,600.
There were 1.11 million housing units available for sale at the end of July, an estimated 3.3-month supply at the current sales pace. This is an increase of 3.7 percent from the end of June when there was a 3.1-month supply but 14.6 percent below total inventory in July 2022.
NAR Chief Economist Lawrence Yun said, “Two factors are driving current sales activity – inventory availability and mortgage rates. Unfortunately, both have been unfavorable to buyers.”
“Most homeowners continue to enjoy large wealth gains from recent years with little concern about home price declines,” Yun said. “However, many renters are concerned as they’re facing growing affordability challenges because of high interest rates.”
Properties typically remained on the market for 20 days in July, up from 18 days in June and 14 days in July 2022. Seventy-four percent of homes sold in July were on the market for less than a month.
Thirty percent of homes sold during the month were purchased by first-time buyers, up from 27 percent in June and 29 percent a year earlier. Individual investors or second-home buyers accounted for 16 percent of sales and 26 percent of all transactions were all cash. Only 1 percent of sales were considered distressed, i.e., foreclosures or short sales.
Existing-home sales in the Northeast fell 5.9 percent from June and 23.8 percent on an annual basis to an annual rate of 480,000 units. The median price rose 5.5 percent on an annual basis to $467,500. The Midwest saw sales slip 3.0 percent to an annual rate of 960,000, a 20.0 percent deficit compared to the previous year. The median price in the Midwest was $304,600, up 3.9 percent compared to the prior July.
Sales in the South decreased by 2.6 percent and 14.3 percent from the two earlier periods to an annual rate of 1.86 million. Prices increased 1.7 percent to a median of $366,200. In the West, sales rose 2.7 percent to an annual rate of 770,000, down 12.5 percent from a year earlier. The median price was flat at $610,500.
The agencies intend to tackle two challenges evident during the Covid-years refi boom: higher costs due to appraiser shortages and concerns regarding bias in home valuations.
In their letter, MBA and CBA said that AVMs and technologies like them can alleviate appraiser shortages, reduce transaction costs, and safeguard against individual appraisal bias. Ultimately, a robust regulatory framework continues to be a critical imperative to achieve these outcomes.
However, any regulation should consider the practicalities of model risk management and its potential unintended consequences.
For example, the associations said the proposed rule includes Fannie Mae and Freddie Mac to the new standards, which creates a level playing field in the market. But the trade groups are worried about the impact of quality control standards on the GSEs’ alternative valuation methods, such as desktop appraisal, since these tools are essential in times of high demand.
“MBA and CBA suggest that the agencies consult with the GSEs to ensure that application of the quality control standards would not create adverse effects on the availability of alternative valuation methods,” the letter states.
In addition, regulators should be aware of any unbalanced market effects of AVMs regulations, conflicting interpretations of the legal framework, and the lack of established methodologies in examining systemic bias in the U.S., the trade groups state.
The agencies involved include the Federal Housing Finance Agency; the Consumer Financial Protection Bureau; the National Credit Union Administration; the Federal Deposit Insurance Corporation; the U.S. Department of the Treasury; and the Federal Reserve System.
Per the proposed rules, each institution using AVMs will adopt and maintain its practices, procedures, and control systems, reducing the burden on smaller institutions. But the trade groups request the agencies to include a small lender/servicer exemption from the standards, as these companies are likely to rely on larger outside service providers subject to a thorough review by regulators or larger clients.
Regarding third-party providers, the associations suggest that the CFPB expand its Compliance Bulletin 2016-02, Service Providers to outline expectations and potential recourse “for quality control and fair lending oversight” of third-parties providing AVMs services. In addition, MBA and CBA said that creditors should not be liable for violating nondiscrimination law when relying on third-party AVMs, disagreeing with the agencies’ interpretation of the Fair Housing Act.
The MBA and the CBA requested an adequate implementation timeline of at least 12 months.
The White House supports a new rule for AVMs, which follows goals set out by the president in addressing issues of racial bias that have exacerbated homeownership and wealth gaps. When announcing the proposed rule, Vice President Kamala Harris weighed in.
“Today, I’m proud to announce we are developing a rule that will require that financial institutions ensure that their appraisal algorithms are not biased, for example, that they do not produce lower valuations for homes owned by people of color,” Harris said. “We are also releasing the guidance to make it easier for consumers to appeal what they suspect to be unbiased valuation.”
Another trade group weighed in on the newly proposed rule.
The National Association of Mortgage Brokers (NAMB) said it supports new federal regulatory proposals governing the use of AVMs.
“The reality is the systems and structures are themselves, in some cases, problematic,” said NAMB President Ernest Jones in a statement. “Even when appraisers follow the intended approach, it may result in an outcome that disenfranchises people. They could be doing everything in a way they feel is consistent with the approaches they’ve learned and for which they’re certified, but there are some underlying issues that need to be addressed.”