Money Basics Archives - Hanover Mortgages

Apache is functioning normally

June 9, 2023 by Brett Tams

By Peter Anderson 15 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited February 10, 2020.

When people talk about their investment plans, one of the first topics that invariably comes up is how much they should be investing.

Should they be investing 5%?

15%?

50% of their income?

Today I thought I’d look at the number that comes up most often as being conventional wisdom for most people when it comes to how much to invest – 15% of yearly income.

Investing 15% Of Your Income Into Post-Tax And Pre-Tax Retirement

For many folks the discussion of how much to invest is a moot point as they’re still struggling to get rid of debt, and get to the point where they’re able to start saving for their future.

If you’re beyond that point, congratulations, you should be applauded.

For me getting to the point where you really start to save and build wealth for your future is so exciting! A variety of financial gurus suggest saving 15% of your household income in good solid long term investments in order to have enough for your future.

So why is that number brought up?

Why Should I Save 15%?

To give a visual demonstration of why some folks suggest that you save 15% for your retirement, I went to Dave Ramsey’s website and used his investment calculator. I put some numbers into the calculator based on these factors:

Making $100,000 a year
Saving 15%
Starting at age 30
Saving for 30 years
10% return on the investments

When you put in those numbers above, it comes up with a return of well over 2.8 million dollars by the age of 60.

If you were to keep it going even for 5 more years until the age of 65, the account would grow to over 4.8 million dollars. That’s not half bad!

So how much money would you really need in order to have a comfortable retirement? Assuming that you would want 80% of your pre-retirement income to live on as many suggest, and a withdrawal rate of 4% per year and a 30 year retirement, you would need to have about 2 million dollars.

If you invest 15% of your 100k income, that would allow you to withdraw $112,000 a year for 30 years. (which assumes the money would still continue growing at a rate of at least 8% while you are withdrawing) That is 12% more than your pre-retirement income! 4.8 million would allow for $192,000 per year!

Now if you were to invest 10% using the same assumptions you’d end up with substantially less money, 1.5 million over 30 years, and 2.4 million over 35 years. Still not bad, but maybe not as much as you might want to have that comfortable retirement. At the 30 year point you’d have enough to withdraw 60% of your income, and at 35 years you’d have 96% of your pre-retirement income.

All of these numbers are of course assuming that you don’t have money coming from social security. I have my doubts it will last until my own retirement. That is obviously up for debate, and hopefully the system will be fixed. But why depend on it if it might not be there?

The point of all this to me is that 15% is usually going to be more than adequate to get you to where you need to be. 10% may not be, depending upon how much of your previous income you want to live on, and how much time you have until retirement.

The longer you have until retirement, the bigger the gains you’ll see through compounding interest!

Play it safe and start saving 15%. You won’t be sorry!

Another caveat; if you’re older and have less time until retirement, or if you want to retire early, you may need to be investing a higher percentage than 15%. You started late or want to finish early, so you have some ground to make up!

Starting earlier? You might not need to invest all of the 10%. But why not do it anyway!

What Should I Invest In?

Once you’ve decided on how much you want to invest, the next step is to decide on what types of investments you should be holding. What to invest in will vary greatly on your situation, but here’s what we would do:

Company 401k or other plan up to the match
Roth IRA for you and your spouse (Where to open a Roth IRA)
Back to the 401k or other plan

When choosing what types of funds to invest in I would highly recommend doing your research first, however, for us we prefer investing in low cost index and retirement target funds through companies like Vanguard where the costs remain low (Try a 3 fund portfolio!).

If you want an option that costs a tiny bit more than DIY, but is less work, Betterment or Wealthfront may be good options (after maxing tax preferred investing).

What do you think? Will 15% be enough for your retirement? Do you think you should save more or less?

Source: biblemoneymatters.com

Apache is functioning normally

June 9, 2023 by Brett Tams

By Contributing Author 10 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited May 20, 2013.

The Roth IRA (and its cousin, the Roth 401k) are getting press lately and with good reason. There is a fear that taxes will need to rise over time and we will all find ourselves retiring in a higher tax bracket than we are in today.

Let’s first take a step back to understand what these account are and how they work.

What Is An IRA, And How Does It Work?

A traditional IRA account or 401(k) account allows you to deposit money into an account prior to having it taxed. If you are in the 25% bracket ($67,900 taxable for married filing joint or $33,950 filing single) you can put $5000 into the IRA ($6,000 if you’re over 50 this year) or you can pay $1,250 in taxes and clear $3,750.

With the introduction of Roth a number of years ago, you have a new choice, to pay the taxes now, clearing that $3,750 and after depositing into the Roth account (or Roth 401(k) where the limits are $16,500 or $22,000 if 50 or older) and not paying any taxes when you withdraw these funds at retirement.

At some level this is a simple choice, pay tax now or pay it later. Let’s think about this a moment. Do you know your current marginal rate? Do you know what “marginal rate” means? A simple way to look at this is that your marginal rate is the (federal) tax you’ll pay on the next $100 of taxable income. You may make over $80,000 and see that your taxes aren’t quite $10,000, but the next $100 is taxed at 25% or $25. An important distinction to understand. Fairmark offers a nicely presented chart to see marginal rates, it’s important that you understand this concept before making any decisions. Knowing your current marginal rate is easy, projecting what it will be at retirement, not so easy. It’s this ‘not knowing’ that may prompt you to go one way or the other, but there are steps you can take to improve your decision process.

When To Put Into A Roth IRA

At the beginning of your career (and younger, if you are working as a teen), there’s a good chance you are in the 15% bracket. Now is a good time to put some money away in Roth accounts.

As your salary increases, you are likely to take on a mortgage, and perhaps start a family. This gives you deductions for the mortgage as well as the additional exemption (and perhaps earnings) of your spouse. If despite that, you are in the 25% bracket or higher, I’d suggest using pretax savings, the traditional 401(k) and IRA accounts. Now is the time in your life to learn to project out what your retirement will look like. Are you on track to have $2 million dollars in pretax accounts? If not, continue to save pretax. Why $2 million? A conservative withdrawal rate is about 4%/yr. This results in $80,000/yr upon retiring, and right now that will put you toward the top of the 15% bracket. Also, keep in mind that few people work 40 years with no break or disruption to their income. Use these disruptions (times you will drop into a lower bracket) to convert funds from a traditional IRA to a Roth, in essence “filling up the bracket” just enough to top it off but not go into the next.

Last, toward the end of your working career, the decision becomes very simple. With retirement only a few years away, you should be able to calculate what your marginal rate will be after you retire. If the same or higher, go with Roth, if it will be lower, go with traditional.

Once retired, continue to take advantage of the Roth conversion option. In 2009 a married couple can have $86,600 in gross income and still be in the 15% bracket. If they are withdrawing say $40,000 per year from pretax accounts, they should consider converting right up to the $86,600 figure and pay the 15%. This money will never be subject to RMDs (required minimum distributions) and when you pass, your heirs will not have to pay income tax on the withdrawals as they would from a traditional account. This also will help you avoid that higher 25% bracket as the equation to calculate your RMD continues to force you to take a larger portion of your account out each year.

Are you currently taking advantage of a Roth IRA? Why or why not? What types of retirement accounts are you investing in and why? Let us know in the comments!

This is an article by Joe from JoeTaxpayer.com. Stop by his site and subscribe to his feed for more great articles!

Source: biblemoneymatters.com

Apache is functioning normally

June 8, 2023 by Brett Tams

By Peter Anderson 7 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited January 22, 2010.

A couple of months back the IRS released their 2010 Traditional and Roth IRA contribution limits. It’s important to keep an eye on those limits year to year if you’re contributing to one of these account types. As was expected the 2010 Traditional and Roth IRA contribution limits remain the same for the coming tax year.

2010 Traditional And Roth IRA Contribution Limits

The Traditional and Roth IRA contribution limits for the 2010 tax year are $5,000 for those under the age of 50. If you’re over 50 you have the option of making catch up contributions to your account, which brings your limit to $6,000.

It’s important to remember that you can contribute to both a Roth IRA and a traditional IRA in the same year, but you can’t go over your limit ($5,000-$6000) when you combine the two accounts. So if you were under 50, and contributed $2500 to a Roth IRA, you would only be able to contribute up to $2500 to your Traditional IRA.

Here’s a table showing the 2010 Traditional and Roth IRA contribution limits, along with the limits in years past.

Year	Age 49 and Below	Age 50 and Above
2002-2004	$3,000	$3,500
2005	$4,000	$4,500
2006-2007	$4,000	$5,000
2008-2012	$5,000	$6,000
2013-2018	$5,500	$6,500
2019-2022	$6,000	$7,000
2023	$6,500	$7,500

2010 Traditional And Roth IRA Phase Outs Based On AGI

Traditional and Roth IRAs have phase outs if you reach certain compensation limits. Single filers with an annual Modified Adjusted Gross Income (MAGI) over $105,000 begin to see their contribution limit drop until at $120,000 it goes away completely. The limits for Married Filing Jointly investors are $167,000-$176,000.

IRA Type	Single	Married Filing Jointly
Roth IRA	$105,000 – $120,000	$167,000 – $177,000
Traditional IRA	$55,000 – $65,000	$89,000 – $109,000

Contribute To Your Traditional Or Roth IRA Until April 15th

If you haven’t already contributed the full amount to your Traditional IRA or Roth IRA for the 2009 tax year, keep in mind that you can still open a Roth IRA and contribute to the accounts up until tax day, April 15th, 2010. If you do make a contribution in 2010 before tax day, be sure to specify which tax year the contribution is being made for.

Differences Between Roth IRA And Traditional IRA Accounts

The main difference between Traditional IRA and Roth IRA accounts is how they are looked at for tax purposes. Traditional IRA account contributions are made with pre-tax money. Because of that your distributions will be taxed in retirement. Roth IRA contributions, however, are made with dollars that have already been taxed. Because of that the money will grow and not be taxed at withdrawal. For a complete look at choosing between retirement accounts, check out this article: Choosing Between 401k, Traditional IRA, Roth IRA.

Do you currently have a Traditional IRA or Roth IRA? Are you contributing to the limit? Which account type do you prefer? Tell us your thoughts in the details.

Source: biblemoneymatters.com

Apache is functioning normally

June 8, 2023 by Brett Tams

By Contributing Author 5 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited August 28, 2017.

One day the stock market is down 300 points, the next it’s up 300; it’s a hard time to invest in the stock market isn’t?

It’s like seeing a swarm of sharks in the water and trying to convince yourself it’s OK to jump in.

I totally understand because I feel the exact same way. When you have the government threatening to change the rules of the game, it’s difficult to remain confident in the time tested approach of wealth accumulation through investing. That’s why, outside of my retirement investments, I haven’t invested a single dollar in the stock market. I’m not equipped to fight off sharks. 🙂

So what have I done with our savings? Well, our emergency fund is laddered into twelve year-long CDs. Outside of our emergency fund, we’ve been in lockdown mode, much to the chagrin of the economy, and have been putting into ultra-safe, principal-protected “investments.” If you’re looking for something that’s 100% safe, defined as being backed by the full faith and credit of the United States Government, here are a few options:

High Yield Savings Accounts

I’m sure you’re all familiar with online banks and their savings account offerings. The yields aren’t as good as they once were, most are in the 2-3% APY range, but they are all FDIC insured. Some may be in a more perilous financial situation than others but when you are FDIC insured, your assets are protected up to $250,000 or more, depending on your account type. 2-3% may not seem like a lot, but it’s greater than zero and you have no risk of losing your principal! How can these banks offer yields that are much higher than their brick and mortar counter parts? A leaner operation. They don’t run branches, they don’t hire tellers or branch managers, they don’t mail out statements, and they can outsource their call centers. All these cost cutting measures mean you get a higher interest rate.

Reward Checking Accounts

Reward checking accounts are a special type of checking account that give high yields as long as you satisfy certain conditions. Today, the best reward checking rates are around 5% if you satisfy the conditions, less than 1% if you fail to meet them. The conditions are usually not difficult to achieve. The first common requirement is to have 10+ debit transactions a month. The second requirement is to have at least one direct deposit, such as a paycheck. A third, less common, requirement is that the customer must log into their online account a specified number of times a month. They are able to pay such high yields because they earn transaction fees off the debit transactions.

Certificates of Deposit

If you want to do better, you’ll have to take a look at a certificates of deposit. They are less flexible than a savings account but require less work than a reward checking account. The best CD rates for 12- or 18- month CDs is just under 4% and the highest short-term CD rate is under 2.50% APY. They’re not incredible rates but they are guaranteed, unlike checking and savings accounts. When the CD matures, you get your funds back. The funds are locked in but if you need your money before maturity, you can get it after paying a small penalty.

Treasury Securities & Bonds

This is often called “public debt,” because the government borrows money through the sale of Treasury Securities and Bonds. The Treasury products come in two types, securities which you can buy and sell on the secondary market; and bonds, which you can only buy and sell to the Treasury through Treasury Direct. You’ll have to do some research yourself on the current rates, because they change from week to week, but this debt is backed by the full faith and Credit of the United States Government. In addition to that high level of safety, many have special tax considerations that may make them more appealing than a CD, depending on what your tax bracket is.

If you’re looking for safety, I think you cannot go wrong with one of these four options. They may not have the most attractive of yields but you’ll be hard pressed to find an alternative that is as safe and so easy to get in and out of.

This is an article from Jim over at WalletHacks.com. Jim runs a tight ship over there and if you’re looking for some good sound financial advice, his site is a great place to go.

Source: biblemoneymatters.com

Apache is functioning normally

June 8, 2023 by Brett Tams

Back in the day, if you wanted a loan to pay off your car or credit cards, you’d go to a bank or a credit union, sit down with a loan officer, and wait for them to tell you yes or no as they “crunched the numbers.”

But now peer-to-peer (P2P) lending has come onto the market, offering loans to borrowers directly from individuals — and usually carrying more favorable terms for those without a great credit profile. Borrowers can access up to $50,000 (or more) from lenders, with fixed term repayment scheduled and reasonable interest rates. Investors can also become lenders on P2P platforms, earning interest collected on loans as a passive form of investment income.

Let’s break down some of the best peer-to-peer lending sites for both borrowers and investors, so you can determine which option is best for you.

What’s Ahead:

Overview of the best peer-to-peer lending sites

Best for those with high credit scores: Prosper
Best for crypto-backed loans: BlockFi
Best for young people: Upstart
Best for a payday loan alternative: SoLo Funds
Best for small businesses: FundingCircle
Best for first-time borrowers: Kiva

Prosper: Best for those with high credit scores

Prosper 210

APR: 6.99% to 35.99%
Term: 2 to 5 years

Prosper is the OG peer-to-peer lender in the market. It was founded in 2005 as the very first peer-to-peer lending marketplace in the U.S. According to their website, they’ve coordinated over $22 billion in loans.

Borrowing with Prosper

If you’re a borrower, you can get personal loans up to $50,000 with a fixed rate and a fixed term from two to five years in length. Your monthly payment is fixed for the duration of the loan. There are no prepayment penalties, either, so if you can pay it off early, you won’t be penalized.

You can get an instant look at what your rate would be and, once approved, the money gets deposited directly into your bank account.

Investing with Prosper

As an investor, you have many options on loans to choose from. There are seven different “risk” categories that you can select from, each with their own estimated return and level of risk. Here’s a look at the risk levels and the estimated potential loss, according to Prosper:

AA – 0.00 – 1.99%
A – 2.00 – 3.99%
B – 4.00 – 5.99%
C – 6.00 – 8.99%
D – 9.00 – 11.99%
E – 12.00 – 14.99%
HR (High Risk) – ≥ 15.00%

As you can see, the lower the letter, the greater the risk of default, hence a higher estimated potential loss. With just a $25 minimum investment, you can spread your risk out across all seven categories to provide your portfolio some balance.

The borrowers that you’re lending to are also above U.S. averages regarding their FICO score and average annual income.

Learn more about Prosper or read our full review.

BlockFi: Best for crypto-backed loans

APR: 4.5% – 9.75%
Term: 12 months

BlockFi is a popular crypto lending platform that offers crypto-backed loans to borrowers and pays out interest to lenders. BlockFi offers instant loans and requires no credit checks for borrowers. All loans are collateralized, meaning borrowers will need to lock in their crypto to borrow against it.

Borrowing with BlockFi

If you’re a borrower, you can get a crypto loan for up to 50% of the value of your crypto, with rates ranging from 4.5% to 9.75% APR, depending on the amount of collateral. Payments are made monthly and are fixed for the duration of the loan.

Interest rates are determined by the amount of collateral deposited and the loan-to-value (LTV) of the overall loan. There is a 2% origination fee on all loans.

Loan rate – 9.75% (50% LTV)
Loan rate – 7.9% (35% LTV)
Loan rate – 4.5% (20% LTV)

Bitcoin (BTC), Ether (ETH), Paxos Gold (PAXG), or Litecoin (LTC) can be used as collateral for the loan, and can be liquidated if the LTV goes above the original LTV of the loan.

Investing with BlockFi

BlockFi offers interest accounts for users who deposit crypto. The funds are used for crypto lending, and interest is paid out in the native crypto deposited. Interest rates vary by cryptocurrency, and range from 0.10% APY up to 7.50% APY. Stablecoins (such as USDC) pay out the highest rates.

Crypto interest accounts are not available to U.S. investors, as BlockFi was sued by the SEC for violating securities laws.

Read our full review.

BlockFi Bankruptcy Notice -On November 10, 2022, BlockFi announced that it had to suspend withdrawals from its platform due to the FTX liquidity crisis. As a result, consumers should not be using the BlockFi platform. As of November 28, 2022, BlockFi officially declared bankruptcy.

Upstart: Best for young people

Upstart 210

APR: 5.6% – 35.99%
Term: 3 or 5 years

Upstart is an innovative peer-to-peer lending company that was founded by three ex-Google employees. In addition to being a P2P lending platform, they’ve also created intuitive software for banks and financial institutions.

What’s unique about Upstart is the way they determine risk. Where most creditors will look at a lender’s FICO score, Upstart has created a system that uses AI/ML (artificial intelligence/machine learning) to assess the risk of a borrower. This has led to significantly lower loss rates than some of its peer companies. Combine that with an excellent TrustPilot rating, and this company is certainly making waves in the P2P marketplace.

Borrowing with Upstart

Borrowers can get loans from $1,000 up to $50,000 with rates as low as 5.6%. Terms are either three or five years, but there’s no prepayment penalty.

Using their AI/ML technology, Upstart looks at not only your FICO score and years of credit history, but also factors in your education, area of study, and job history before determining your creditworthiness. Their site claims that their borrowers save an estimated 43% compared to other credit card rates.

Investing with Upstart

Investing with Upstart is also pretty intuitive. Unlike other P2P platforms, you can set up a self-directed IRA using the investments from peer-to-peer lending. This is a unique feature that many investors should be attracted to.

Like other platforms, you can set up automated investing by choosing a specific strategy and automatically depositing funds.

Upstart claims to have tripled their growth in the last three years due heavily to their proprietary underwriting model, so it might be worth a shot to consider this option.

Learn more about Upstart or read our Upstart review.

SoLo Funds: Best for a payday loan alternative

APR: 0% (tipping optional)
Term: Up to 35 days

SoLo Funds is a peer-to-peer platform that functions as a short-term lender, similar to payday loans. With term lengths only lasting for up to 35 days, loans must be paid back in a narrow timeframe. But instead of charging fees, borrowers can leave an optional tip instead.

SoLo Funds is an affordable option for clients who are in a pinch and need an advance on payday, but there are hefty fees if loans are not paid back within 35 days. Users will need to pay a 10% penalty plus a third-party transaction fee if late.

Borrowing with SoLo Funds

Borrowers can take out loans up to $575 for a maximum of 35 days. Loans do not charge fees, but allow borrowers to select an optional tip amount to lenders.

Loan applications only take a few minutes, and while most loans post within a few days, some may be instantly approved, offering same-day funding with money transferred to borrowers within a few hours.

Loans must be paid back in full within 35 days, or there is a 10% penalty plus other transaction fees. There is no option to roll the loan over.

Investing with SoLo Funds

Lending is fairly straightforward, with a simple sign-up process and no pre-qualifications needed. Since the loans are smaller amounts (up to $575), there are no minimums required for lending.

SoLo Funds has a marketplace of loan requests from borrowers, with details specified on each. Each loan request shows the amount needed plus the tip given by the borrower for the loan. Each borrower also has a SoLo Score, on a scale from 40 to 99, with higher scores showing more “worthiness” for paying back a loan. Loans can go into default, and if needed, to collections through a third party. There is a risk of total loss with SoLo Funds investing, though the platform does offer insurance against loss for a fee.

Learn more about SoLo Funds.

FundingCircle: Best for small businesses

Best Peer-To-Peer Lending Sites For Borrowers And Investors REWRITE - FundingCircle

APR: 11.29% to 30.12%
Term: 6 months to 7 years

FundingCircle is a small business peer-to-peer platform. The company was founded with the goal of helping small business owners reach their dreams by providing them the funds necessary to grow.

So far, they’ve helped 130,000 small businesses across the world through investment funds by 71,000 investors across the globe. FundingCircle is different in that it focuses on more substantial dollar amounts for companies that are ready for massive growth. They also have an excellent TrustPilot rating.

Borrowing with FundingCircle

As a borrower, the minimum loan is $25,000 and can go all the way up to $500,000. Rates come as low as 5.99%, and terms can be anywhere from six months to seven years. There are no prepayment penalties, and you can use the funds however you deem necessary — as long as they are for your business.

You will pay an origination fee, but unlike other small business loans, funding is much quicker (you can be fully funded as quickly as 1 business day).

Investing with FundingCircle

As an investor, you’ll need to shell out a minimum of $25,000. If that didn’t knock you out of the race, then read on.

According to FundingCircle, you’ll “Invest in American small businesses (not start-ups) that have established operating history, cash flow, and a strategic plan for growth.” While the risk is still there, you’re funding established businesses looking for extra growth.

You can manage your investments and pick individual loans or set up an automated strategy, similar to Betterment, where you’ll set your investment criteria and get a portfolio designed for you.

Learn more about FundingCircle.

Kiva: Best for first-time borrowers

Best Peer-To-Peer Lending Sites For Borrowers And Investors REWRITE - Kiva

APR: 0%
Term: Up to 3 years

If you want to do some good in the world, you’ll find an entirely different experience in P2P with Kiva. Kiva is a San Francisco-based non-profit that helps people across the world fund their businesses at no interest. They were founded in 2005 with a “mission to connect people through lending to alleviate poverty.”

Borrowing with Kiva

If you’d like to borrow money to grow your business, you can get up to $15,000 with no interest. That’s right, no interest. After making an application and getting pre-qualified, you’ll have the option to invite friends and family to lend to you.

During that same time, you can take your loan public by making your loan visible to over 1.6 million people across the world. Like Kickstarter, you’ll tell a story about yourself and your business, and why you need the money. People can then contribute to your cause until your loan is 100% funded. After that, you can use the funds for business purposes and work on repaying your loan with terms up to three years.

Investing with Kiva

As a lender, you can choose to lend money to people in a variety of categories, including loans for single parents, people in conflict zones, or businesses that focus on food or health. Kiva has various filters set up so you can narrow down exactly the type of person and business you want to lend your money to. You can lend as little as $25, and remember, you won’t get anything but satisfaction in return — there’s no interest.

You can pick from a variety of loans and add them to your “basket,” then check out with one simple process. You’ll then receive payments over time, based on the repayment schedule chosen by the borrower and their ability to repay. The money will go right back into your Kiva account so you can use it again or withdraw it. There are risks to lending, of course, but Kiva claims to have a 96% repayment rate for their loans. Just remember, you’re not doing this as an investment, you’re doing it to help out another person.

Learn more about Kiva.

What is peer-to-peer lending?

As the name suggests, peer-to-peer lending involves private individuals making loans to other individuals. The system runs contrary to the traditional model of banks and credit unions providing financial services because it cuts out the middleman.

While peer-to-peer lending had a surge in users over the past decade, in the past few years, some P2P lending companies have shuttered their services, including StreetShares, Peerform, and LendingClub.

How does peer-to-peer lending work?

Peer-to-peer lending shares many similarities with traditional lending:

You fill out an application with your financial and personal information, including the loan’s size, tax returns, and government-issued identification.
The lender will review your application before posting it on the site for investors.
Investors get to play the part of a loan officer, reviewing a list of applications and deciding where they might want to contribute.
The platform will indicate how risky the loan is and the potential return on investment.
Funding takes anywhere from one day up to two weeks.

Is peer-to-peer lending safe?

No one would say that peer-to-peer lending is 100% safe. No form of investing is. Many of the best peer-to-peer lending sites vet borrowers and investors to mitigate risk. The review process helps eliminate untrustworthy candidates, so borrowers can receive their loan and investors can earn interest.

Read more: Should you invest in peer-to-peer loans?

Pros & cons of P2P lending for investors

Pros

An attractive alternative to more traditional investments — You can round out your portfolio that might exclusively include stocks, bonds, and mutual funds. Some platforms merge private and public equities, so you can make all your investments in one place.
Most lending platforms let you select multiple loans at once — The variation enables you to reduce your risk exposure while potentially earning higher yields than a CD or savings account.
Feel good about your contribution — With sites like Kiva, you know that your money is going toward a humanitarian purpose.

Cons

Risk of default — When you lend money to individuals, you risk them defaulting. Peer-to-peer lending sites don’t come with FDIC insurance like a CD or savings account.
P2P loans lack the liquidity of stocks or bonds — Most loans are for three to five years, so you would have to wait until then to withdraw money.
Inequality — Some platforms, such as Funding Circle, only give access to accredited investors, so not everyone has equal access to lending opportunities.

Pros & cons of P2P lending for borrowers

Pros

You can circumvent the traditional bureaucracy of brick-and-mortar banks — Instead of waiting in line and negotiating with a loan officer, you have access to a fast, online experience. Because online platforms don’t have to worry about physical overhead, many can give borrowers competitive interest rates.
P2P loans typically aren’t as strict as banks or credit unions — The lax approach makes it easier to secure a loan if you have fair or poor credit history.
Often no prepayment penalties — You don’t have to worry about prepayment penalties in many cases.

Cons

Borrowers face more hurdles if they have a low credit score — Interest rates can go as high as 36% for those with lower scores, while some platforms don’t offer financial services to anyone with a credit score below 630.
Possibly high fees — Some sites have origination fees of 6%.
Impersonal — If you want the old-fashioned face-to-face borrowing experience, peer-to-peer lending isn’t for you. You don’t have a chance to sit down with your lender and hash out terms.
Loan caps around $50,000 — If you need more money, you’ll likely have to go to a bank or credit union.

Summary

Peer-to-peer lending is a great option for borrowers with less-than-stellar credit who want access to capital with reasonable terms and rates. P2P lending is ideal for small businesses and individuals who are looking for a personal loan that does not require mountains of paperwork, and that is funded quickly (usually within a few days).

But not all P2P lending platforms operate the same, and some can charge high origination fees and interest rates. Others require high minimum loan amounts to borrow as well, making them less accessible to some borrowers.

Investors can earn decent returns with P2P lending, but there is also the risk of default and the mess of going through collections agencies occasionally. Finding a solid platform with detailed risk mitigation strategies (such as borrower scores), and insurance against default can help alleviate these concerns, but it may eat into your profits.

While peer-to-peer lending is not seeing the massive growth of a few years ago, it is still a solid option for borrowers and investors alike.

Apache is functioning normally

June 7, 2023 by Brett Tams

By Peter Anderson 3 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited February 28, 2013.

Assuming you are investing for future retirement, you should seriously consider the Roth IRA (Individual Retirement Account). I am already a huge fan of the Roth, but as the national debt increases with each federal bailout, the Roth is looking better all of the time. Let me explain why.

Save Taxes on Down The Road With The Roth IRA

With the traditional IRA, you get to deduct the contribution for the tax year it was made, but you will pay taxes when you start drawing the money out for retirement. So whatever your tax rate is in retirement, that’s what you’ll be paying.

The Roth, on the other hand, is purchased after you have paid your taxes and is therefore tax free when withdrawn. Nothing like getting tax free withdrawals in retirement and not having to worry about paying taxes, right?

When deciding which one is best for you, conventional wisdom is that if you believe you will be in a lower tax bracket when you retire, you are better off with the traditional IRA. Why? Because you were able to claim a tax deduction at a higher percentage, but pay those taxes later at a lower percentage.

Will Tax Rates Get Cheaper?

But I ask you: do you seriously believe that the tax structure when you retire will be essentially the same as it is today? Is it possible that even if your retirement income is less than your working income, your tax rate could be higher than it is today?

I just don’t see how we can ever pay down our $10 trillion national debt without hiking taxes. My longhand math (calculators don’t have that many zeroes) indicates that we owe $30,000 for every man, woman and child in America.

To compound the problem, the Social Security Trust Fund is scheduled for depletion in about 30 years unless “something” is done. That ”something” will have to be higher taxes or less benefits.

Our future tax structure is very uncertain because of our national crash course with debt. Pay your taxes today with a Roth instead of gambling your retirement on the uncertainty of future tax rates.

Tax rates aren’t the only reason to be checking out the Roth IRA. Check out this list of 10 Reasons To Own A Roth IRA. Among the reasons that you’ll find include the flexibility of being able to withdraw your contributions (but not earnings) at any time, being able to save for college or home costs in the account and being able to diversify your tax treatment on your retirement accounts if you continue to have a traditional IRA as well.

More Roth IRA Details

Want some more infomation on the Roth IRA, who is eligible, how much you can contribute and more? Check out these articles on 2013 Roth IRA rule changes, phaseout limits on the Roth, who is eligible for the Roth IRA and everything you need to know about the Roth Conversion Event.

Joe Plemon of Plemon Financial Coaching is the Money Columnist for The Southern Illinoisan.

Source: biblemoneymatters.com

Apache is functioning normally

June 7, 2023 by Brett Tams

By Jason Price 4 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited April 18, 2014.

If you’ve read about mutual fund investing, or perhaps discussed it with someone knowledgeable on the subject, the topic of fees and expenses most likely came up in the conversation. For someone who isn’t a financial advisor or broker, mutual fund fees and expenses can be quite a confusing subject. How do you know when you’re paying them and how can you (or should you) avoid them?

Obviously, the more you can minimize fees and expenses when investing in mutual funds, the more you can maximize your returns. That seems like a good thing, right? So, let’s explore what these fees and expense are and how they can sneak up on you if you don’t have some knowledge of the subject.

Mutual Fund Operating Costs

These expenses are required to operate or manage the mutual fund. The management of a mutual fund requires certain costs such as brokerage fees, marketing, legal, accounting, etc. They are typically paid out of fund assets, so investors indirectly pay them.

Within the operating expenses you may find 12b-1 fees. These fees are used for advertising and selling the funds. According to the Sound Mind Investing handbook, more than two-thirds of all stock funds charge some marketing related expenses to shareholders.

Sales Charges or Loads

There are funds with loads and without loads. No-load funds don’t charge you any fees when you buy or sell the fund. You typically buy the funds yourself versus working with someone who sells them to you. A load fund includes a sales charge when you work with a financial planner, insurance agent or with a stock broker. The load is a sales commission for their services to help you find a fund.

There are different types of loads, so you have to be knowledgeable to understand what you may be charged.

Class A Funds

Class A funds are the easiest to understand. The front-end sales commissions are charged up front when you purchase the fund. They tend to have lower 12b-1 and operating expenses.

Class B Funds

A back end load, or class B fund is handled differently and can be the trickiest to understand. Back-end commissions are charged on your earnings when you sell a fund within the first years of owning it. It’s usually 5% the first year and decreases a 1% per year for 4 or 5 years. Brokers are paid through 12-b1 marketing fees included as a line item in the operating expenses of the fund. These expenses are usually the highest, so keep in mind you’re still paying even thought there isn’t any front-end sales charge.

Class C Funds

Finally, a class C fund doesn’t charge any front end or back end sales load. The fund charges the 12-b1 marketing fees for every year you own the fund. Brokers are usually paid on a quarterly basis from these fees.

Don’t Think You’re Not Paying

I started working with a financial advisor a few years ago who was referred to me by my employer. It was one of those situations were the financial institution was asked to help employees with retirement planning. I decided to roll – over a previous 401(k) into an IRA and also asked for some retirement planning advice.

I was foolish to think the services were free. I said I wanted to avoid funds with sales loads, but I really didn’t know what I was talking about. The mutual funds which I was advised to purchase were Class C funds. I suppose this is fine given I didn’t want to take the time to pick funds myself, but I do know now I’m paying for the services I requested.

As I become more informed, I’ll transfer my IRA to a discount brokerage account to manage myself, or consider fee based financial planning where I pay the broker a fee for his services versus by the commissions or 12-b1 marketing fees from my investments.

I suppose loads or the marketing fees are fine if you want someone else to make the investing for you. But, studies say these funds don’t produce any better results than no load funds.

Final Thoughts

To wrap up, I’d like to remind you (and me) that we are financial stewards. Not only is it our responsibility to plan a budget each month and spend responsibly; we are to manage investments wisely and know the conditions of our flocks.

Be sure you know the condition of your flocks, give careful attention to your herds; for riches do not endure forever, and a crown is not secure for all generations (Proverbs 27:23-24).

I don’t think I knew the conditions of my flocks very well by not considering the costs associated with my investments. To increase your knowledge I recommend The Sound Mind Investing Handbook by Austin Pryor. The book is a step-by-step guide to managing money and investments from a Biblical perspective. It has helped me get a better understanding of investing in general and the expenses and fees associated with some mutual funds.

Another good resource to consider using is a handy mutual fund cost calculator from the US Securities and Exchange Commission website. The SEC Cost Calculator estimates the cost of investing in any mutual fund. You just need to have the mutual fund prospectus and your investment information to get the inputs.

What about you? I’m interested in getting your thoughts on paying mutual fund loads. Good or bad? Or, is it okay for someone to own load funds and rely on someone else to help pick your investments for you as long as you know the condition of your flocks?

Resources

Source: biblemoneymatters.com

Apache is functioning normally

June 6, 2023 by Brett Tams

Table of Contents
show

Highlights

Trading to get rich is fundamentally different than investing to build wealth
Not knowing the difference sets you down “an extraordinarily dangerous path…”

Aswath Damodaran recently appeared on The Long View podcast…

Damodaran is a well-known professor of corporate finance and valuation at the Stern School of Business at NYU. In other words, he studies companies, stocks, and how they’re valued. The investing world greatly respects him.

Morningstar’s podcast hosts ended their episode on a light note by prompting ChatGPT to create a question that would “annoy” Damodaran. ChatGPT asked:

Can you give me a hot stock tip that will make me rich quickly, without any research or understanding of the company’s fundamentals?

Damodaran – a man whose life and career are built on a calculated understanding of investing fundamentals – was amused, but admitted he hears similar questions frequently. He responded to such investors:

They miss the essence of investing. You don’t invest to get rich. You invest to preserve and grow wealth. I think the minute you think of investing as a pathway to getting rich, you set yourself up for all kinds of mistakes. You overreach. You overbet. Because that’s the way you get rich. You gamble.

I think we need to redefine investing. Investing is about preserving and growing wealth, which means if you’re a doctor, go back and do your job. Earn your income. That’s going to be at the heart of your investing. If you’re spending most of your time as a doctor looking through the stock pages trying to pick stocks, your wealth is not growing. Your investing can be great, but it does not pay off.

So I think that it’s much more common than we accept. They’re traders. They’re not investors. They want to trade their way to riches.

And they look at success stories. There’s a selection bias. Now you have YouTube videos of people who got rich in 5 years by trading. And you use those as role models. It’s an extraordinarily dangerous pathway you’re on because history suggests sooner or later you’re going to leave that casino with nothing in your pocket.

In Other Words…

Damodaran’s advice blends perfectly with what we espouse on The Best Interest.

Be an investor. Preserve and grow your wealth. Ignore the noise.

Thank you for reading! If you enjoyed this article, join 6000+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.

-Jesse

Want to learn more about The Best Interest’s back story? Read here.

If you prefer to listen, check out The Best Interest Podcast.

Source: bestinterest.blog

Apache is functioning normally

June 6, 2023 by Brett Tams

By Jason Topp 24 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited May 14, 2012.

Oh what a great year for debate on Roth IRA’s and Roth IRA Conversions! Roth IRAs are a great tool for building up retirement savings, but some things have changed for conversions.

2010 has ushered in some new Roth IRA rules -here’s what you need to know about the 2010 Roth conversions.

I recently received a comment from a reader that I thought garnered a little more attention. Here’s what the reader asked:

My wife and I had traditional non-deductible IRAs and converted at the beginning of this year. We assume that the Roth conversions wouldn’t cause us any tax liability since our contributions to the traditional IRAs exceeded their values at the time of the conversion. Have you heard anything about the tax implications of Roth conversions from traditional non-deductible IRAs?

So what we know from the statement above is that they converted to Roth IRAs from Traditional, non-deductible IRAs. We also know that there were no gains in the account, meaning it was strictly contributions – and they’re wondering what their tax implications will be on this move.

This is a GREAT question!

What is a Traditional Non-Deductible IRA

Let’s define what a traditional, non-deductible IRA is so that we are all on the same page.

Generally speaking a traditional IRA allows money to be contributed pre-tax, which means that you get to take a deduction for it. It’s deductible off of your gross income. This also means that when you withdraw from your IRAs this money becomes taxable at that time!

So, for example, you put in $5,000 to a traditional IRA, you are allowed to subtract $5,000 from your income, which in turn gives you less reportable income to pay taxes on.

Of course the IRS has some funky little rules to spoil how much you can stash into traditional IRAs.

Basically, if you already participate in an employer-sponsored retirement plan – meaning you have a 401k, 403b or SEP IRA etc. – AND you make too much money then you get phased out of your “deductibility” of the IRA and the contributions then turn into non-deductible IRA contributions!

It’s as if you put after-tax money into the IRA.

What are the Income Limitations for Deductible IRAs

Let’s take a look at the rules for tax year 2009:

If you are a single filer and are covered by an employer-sponsored retirement plan you begin getting phased out of your deductible IRA contributions if you have an adjusted gross income (AGI) between $55,000 and $65,000.
If you’re married filing jointly, covered under an employer-sponsored retirement plan then you begin getting phased out between $89,000 and $109,000 AGI.

If you’re making more than this then your entire contribution to the Traditional IRA is non-deductible!

What are the Tax Implications of a Non-Deductible IRA to Roth IRA Conversion

Back to the question at hand – how will this affect me on my taxes?

So here’s a couple things to consider:

What is your basis (contributions to the IRA) and what is the earnings amount? In the reader’s case they didn’t have any gains to worry about. But if they did, they’d have to pay tax on the earnings portion.
If you had no other IRAs in place (including SEP, SIMPLE and Traditional) then you’re good to go – no taxes due!
If you did have other IRAs in place, then you may not be in as great a shape as you thought – you may owe Uncle Sam!

Here’s what I mean on the last two:

The rule with a Non-deductible IRA is that you MUST aggregate all your non-Roth IRAs together as one big account when doing a Roth conversion in order to determine the tax liability.

Here’s an example:

Let’s say you have two IRAs with a total value of $30,000. One is a traditional IRA that has a $15,000 balance and all of that is pre-tax.

The other is a non-deductible IRA that includes $15,000 of nondeductible, or after-tax, contributions and no earnings as in the reader’s case.

If you decide to convert all $30,000 of your IRA money, then $15,000 (the amount you contributed to the non-deductible IRA on an after-tax basis) would not be taxable since you’ve already paid the tax on that money.

But the remaining $15,000 would be taxable because Uncle Sam hasn’t got his piece of that pie yet (it’s pre-tax contributions plus earnings that have not been taxed yet)

Let’s say you only want to convert your non-deductible IRA funds since there are no gains and you’ve already paid tax on the contributions – what happens?

In theory, this is a great strategy, but as mentioned, you have to consider all non-Roth IRAs as one big pie.

The Uh-Oh

In the example above, your already-taxed nondeductible contributions of $15,000 account for 50% of your total, while the $15,000 of pre-tax deductible contributions and investment earnings represent the other 50% of your $30,000 IRA pie.

Whether you convert the entire $30,000 or just a slice of it, 50% is considered taxable income.

It doesn’t matter where you take that slice from (non-deductible or pre-tax) – each has the same ingredients of taxable and nontaxable money as the whole!

What You Need to Do

If you find yourself in this situation, you’ll need to fill out IRS form 8606 and wade through the instructions and the mire!

Source: biblemoneymatters.com

Apache is functioning normally

June 6, 2023 by Brett Tams

By Peter Anderson 3 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited March 11, 2010.

If you’re a self employed person or are looking at taking the plunge and becoming an entrepreneur, one thing you have to consider is how you will save for retirement. Since you won’t have the option of a 401k, there are several other retirement account type options that you will want to think about using. Among them are:

SEP IRA
SIMPLE Plan
Solo 401(k)
Keogh Plan

Today I want to look at what many consider one of the better options for tax deferred investing for self employed individuals, the SEP IRA

What Is A SEP IRA?

First of all, let’s get the definitions out the the way. What does SEP IRA stand for? When I first started researching the topic I was reading lots of articles talking about how self employed individuals were taking advantage of the accounts, so I assumed it meant “Self Employed IRA”. After reading up on it a bit more I realized that my assumption was wrong. SEP IRA actually stands for Simplified Employee Pension Individual Retirement Arrangement. It is basically an easy way for small businesses to set up a retirement account option for their employees with minimal administrative costs or paperwork.

The SEP IRA is pretty much like a traditional IRA account, although it does have some differences, especially as it relates to the contribution limits. The contribution limits for a SEP IRA are higher.

SEP IRA Rules

As an employer there are rules and regulations you need to follow when you open a SEP IRA. Most of the rules that apply to Traditional IRAs also apply to SEP IRAs. Among the SEP provisions:

All eligible employees must be provided with plan benefits, and a separate IRA account. If you are self employed with no employees besides yourself, it isn’t an issue. If you have employees, it is something to consider.
Part time employees who are 21 years of age who have worked 3 out of the preceding 5 years, earning $500 or more annually will be eligible.
Only the employer can contribute to the SEP IRA. If you work for a company that provides one, only your employer can contribute to the account.
You have until the tax filing deadline of April 15th to establish and fund your SEP IRA.
Withdrawals from a SEP IRA are treated the same as withdrawals from an IRA account – with a 10% early withdrawal penalty, and taxes charged at your current rate.
Only income from the business can be contributed – you can’t contribute money from your day job if you have one.

SEP IRA Contribution Limits

Contributions to the SEP IRA are subject to yearly limits, however, they are higher than many other similar account types. For example, for tax years 2009 and 2010 you can contribute up to 25% of an eligible employee’s compensation, up to a limit of $49,000. Extrapolated from the 25% rule the income threshold for a SEP IRA is then $196,000.

Example: Let’s say you make $100,000 a year and you’re self employed. Under a SEP IRA you would be able to contribute 25%, or $25,000 to your plan.

No catch-up contributions are permitted for older employees.

Benefits Of The SEP IRA

There are several benefits to having a SEP IRA account. Among them:

If you are an employee at a small business that has a SEP IRA plan, you are 100% vested in the contributions your employer makes, right away. The money is yours!
Tax deferred investing!
High contribution limits for self employed individuals.
Easy to setup. Usually can be done simply by filling out IRS Model Form 5305-SEP
Less paperwork and administrative costs after the plan is setup.
Flexible annual contribution obligations – a good plan if cash flow is an issue. You can contribute 10% one year, and then 5% the next if you want.

Do you contribute to a SEP IRA as a self employed individual, or do you have one through an employer? How has it worked out for you? Have we missed any important details about the SEP IRA? Tell us about it in the comments.

Source: biblemoneymatters.com

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What is peer-to-peer lending?

How does peer-to-peer lending work?

Is peer-to-peer lending safe?

Pros & cons of P2P lending for investors

Pros

Cons

Pros & cons of P2P lending for borrowers

Pros

Cons

Summary

Read more:

Save Taxes on Down The Road With The Roth IRA

Will Tax Rates Get Cheaper?

More Roth IRA Details

Related Posts

Mutual Fund Operating Costs

Sales Charges or Loads

Class A Funds

Class B Funds

Class C Funds

Don’t Think You’re Not Paying

Final Thoughts

Related Posts

Highlights

In Other Words…

What is a Traditional Non-Deductible IRA

What are the Income Limitations for Deductible IRAs

If you’re making more than this then your entire contribution to the Traditional IRA is non-deductible!

What are the Tax Implications of a Non-Deductible IRA to Roth IRA Conversion

The Uh-Oh

Whether you convert the entire $30,000 or just a slice of it, 50% is considered taxable income.

What You Need to Do

Related Posts

What Is A SEP IRA?

SEP IRA Rules

SEP IRA Contribution Limits

Benefits Of The SEP IRA

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