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Let’s say you want to build your own stock market index fund based on the S&P 500. Easy: download a list of all the companies in the index (from 3M to Zions Bancorp) and their market cap, and start investing. Every stock in the index will be easy to buy in whatever quantity you want.
Now, after the success of your first index fund, you decide to create an emerging market fund, concentrating on the world’s up-and-coming economies. Again, no problem. We have the internet, after all, and we can just print off a list of all the stocks in China, India, Chile, Hungary, and so on, pull out a pile of Benjamins, and go to town.
That won’t work, says Raman Subramanian, Executive Director of Index Research at MSCI. Subramanian oversees the index underlying the the two largest emerging markets: ETFs, from Vanguard (VWO) and iShares (EEM). “You can go to any of the emerging markets and download the listed stocks there,” says Subramian. “But there can be some potential issues.”
So how do you build an emerging markets index, anyway? And, can it shed any light on how you should invest your money?
Who’s emerging?
The first order of business for Subramanian, or any emerging markets indexer, is to decide which countries count as emerging markets. This is not as easy as it sounds: no two indexes agree on which countries are emerging.
MSCI uses three criteria to classify a country as developed, emerging, or frontier (“frontier” is an euphemism for “not really emerging yet”).
Wealth. A country has to have a GDP per capita above a certain threshold to be considered developed; below that, it’s emerging or frontier.
Market structure. In order to be included in the index, a country has to have an active stock market with many companies listed and few or no limits on foreign ownership.
Accessibility. How easy is it to participate in country’s market? “If you’re a US investor and want to invest in India, how do you go about setting up that account?” says Subramanian. “What are the regulations?” To determine market accessibility, MSCI surveys market participants about their experience.
A wealthy country with market structure or accessibility issues might be classified as “emerging.” MSCI puts Taiwan and South Korea in this category. (They redo the list annually.)
Pick of the list
Now that we have a list of economies to put on our index, we just go out and buy all the stocks, and…. Wait, that won’t work, either, because some stocks are hard to buy. They might be stocks of very small companies or companies closely held by a small number of shareholders, with few shares trading freely. If you include those stocks in your index, it makes it harder to invest in the entire index and drives up the cost of trying.
So MSCI excludes companies that it considers insufficiently “investable.” To be investable, your stock has to trade on at least 4 out of 5 days, and at least 15% of the stock has to trade freely, not be held by controlling interests or otherwise out of circulation.
How much are investors in VWO or EEM missing out on by not owning these companies? Not much. The MSCI index captures almost 98% of the total market cap of the listed countries. “What is excluded is basically very small companies, illiquid companies,” says Subramanian.
In short, emerging markets indexes aren’t easy to build, but they’re constructed on a simple principle: own the most liquid securities in the most accessible markets.
How to beat the index
I became interested in this question of how to build an emerging market index because (a) I am a huge nerd, and (b) recently I interviewed an investment guru who argued that there is great opportunity for active managers to outperform in emerging markets because the markets are inefficient.
That argument doesn’t hold up, because, as I explained, the record of active managers in emerging markets is the same as it is everywhere else: ludicrously bad. Most managers underperform the index; the ones who outperform are an annually rotating cast whose good fortune is mostly indistinguishable from luck.
But learning how the MSCI index is constructed gave me a new idea: couldn’t I start an active fund specializing in those unloved securities that MSCI and the other indexes won’t touch? Small companies, illiquid stocks, frontier markets. Sure, they’re risky. That’s the point: you have to take risks to get higher returns.
Bad idea, says Larry Swedroe, director of research at Buckingham Asset Management and author of the Wise Investing series. “The more inefficient the market is, the higher the trading costs are,” says Swedroe, who has written frequently about active management in emerging markets. “The round-trip in emerging markets is extremely expensive.”
In other words, to pull off my trick, I have to outperform by a margin big enough to cover my costs—the curse of every active manager. Vanguard’s ETF, VWO, charges an expense ratio of 0.2%. I don’t even want to think about what my expenses would be.
Subramanian agrees. “Sometimes active managers will try to capture that illiquidity premium by going into those stocks,” he says. “But then the question becomes, can they sell it?” The big problem is market impact: if my illiquid stocks do well and I try to sell them, I’ll depress the market price, causing a hefty chunk of my gains to vanish.
As for those frontier markets, Swedroe steers clear. “The reason they’re called frontier markets is because generally they don’t have the rule of law and international investors are not well protected,” he says. “If those things are not present, you shouldn’t invest no matter what the risk premium is.”
The bottom line
Costs matter in investing: they compound just as surely as gains, and for this reason, low cost is an excellent predictor of above-average mutual fund performance. If you want to invest in emerging markets, there is no way to do so at low cost other than by using an index fund (or, to be scrupulous, a passive index-like fund such as those from Dimensional Fund Advisors).
Vanguard’s ETF, remember, charges 0.2% annually. Its actively managed competitors tend to charge between 1.5% and 2%. This, more than any arcane argument about market efficiency, is why indexing works in emerging markets: it doesn’t involve throwing away 1.5% of your money every year in pursuit of elusive market-beating strategies.
Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.
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Most of us have heard it before — newly released data on the net worth of CEOs well into the millions, or even billions.
Take Jeff Bezos for example, whose net worth is estimated to be roughly $144 billion as of October 2022. As you may suspect, that’s certainly not representative of most Americans’ wealth. In fact, the average net worth by age in the United States is $746,820, though many argue that median net worth by age — which is $121,760 — paints a more useful picture.
So what is net worth? Net worth is a calculation used to gauge your overall financial health, but it’s a benchmark that tends to uncover more questions than answers. What does net worth mean, what factors determine its value, and what is a “good” net worth by age, anyway?
Here, we’ll unpack the average net worth by age in America, learn how to calculate your net worth, and reveal how to increase net worth so that you can set — and achieve — your personal finance goals.
Key Findings
The average net worth by age in America is $746,820.
The median net worth by age in America is $121,760.
Net worth is calculated by subtracting the total value of your debts from the total value of your assets.
Average Net Worth by Age
Age
Average Net Worth (Mean)
Younger than 35
$76,340
35–44
$437,770
45–54
$833,790
55–64
$1,176,520
65–74
$1,215,920
75 or Older
$958,450
Source: Federal Reserve
The average net worth by age in America is $746,820, according to the Federal Reserve’s 2020 Survey of Consumer Finances, which includes data from 2016 to 2019.
It may come as no surprise to learn that older Americans tend to have a greater average net worth than younger Americans. After all, their financial assets have had years — if not decades — to appreciate in value. Average net worth by age peaks somewhere between 65 and 74 years. This is also roughly the age when most Americans retire. At age 75 and older, when sources of income tend to be fixed, average net worth begins to decrease.
Median Net Worth By Age
Age
Median Net Worth
Younger than 35
$14,000
35–44
$91,110
45–54
$168,800
55–64
$213,150
65–74
$266,070
75 or Older
$254,900
Source: Federal Reserve
The median net worth by age in America is $121,760, approximately a 17 percent increase from the previous survey conducted in 2016. The median — or middle number in a set of data — is the halfway point between the largest and smallest net worth.
Median values tend to be less affected by outlier data points — like the net worth of billionaires — than averages. For that reason, some argue that median net worth offers a clearer picture of and benchmark for wealth in America.
What Does Net Worth Mean?
What is net worth, and what does it mean? Your net worth is your total assets minus your liabilities. In simple terms, it’s the cost of everything you own after subtracting your debts.
It can be dangerous to measure your financial health solely by what you earn, especially since you might not save or use your income towards investments. Your net worth will keep you in check, allowing you to be cognizant of your worth and how much you should be saving until you reach retirement.
What Net Worth is Considered “Rich?”
You may wonder what net worth qualifies as “wealthy” in America — and how far off you are. According to a 2022 survey, Americans consider an average net worth of $2.2 million to be “wealthy.” However, perception of wealth may look very different at the state and city levels, as average household income and cost of living tend to fluctuate dramatically based on geographic location.
For example, people who live in Denver say that an average net worth of $2.2 million is enough to be considered wealthy, whereas people in San Francisco say that you’d need more than double that amount —- an average net worth of $5.1 million.
How to Calculate Net Worth
1. Add Up Your Assets
The first step to calculating your net worth is adding up the total value of your assets. This includes the current market value of your investment accounts, retirement savings, home(s), vehicle(s), items of significant value (art, jewelry, furniture, etc.), and the cash value of your checking, savings accounts, and insurance policies.
2. Add Up Your Debts
Next, you’ll want to add up the total value of any debts you owe. This includes your mortgage(s), car loan(s), student loans, personal loans, credit card debt, and any other form of debt.
3. Subtract Your Debts From Your Assets
Once you subtract your debts from your assets, the resulting value is considered your personal net worth. Your total could result in a positive net worth or a negative net worth.
Don’t panic if you find yourself in the negative net worth category. It’s normal for young professionals fresh out of high school or college to have low or negative net worth, especially if they’re still paying down student loans, recently purchased a home, or are just starting a plan to build their savings.
What is a “Good” Net Worth By Age?
Your age plays a significant role in calculating your net worth, especially as you get closer to retirement age. To help you understand how you stack up, we took a look at the average and median net worth of every age group to reveal what you should aim for at each milestone.
Average Net Worth by Age 35
Your 30s should be mostly devoted to laying your financial foundation so that you can achieve your desired net worth by retirement. At this age, it’s important to set a budget for you and your family, and stick to it.
The Benchmark
The average net worth for families in the U.S. under the age of 35 is $76,340, where the median net worth is $14,000; a helpful reminder that the average can be easily distorted by a small percentage of the wealthiest Americans. With the average student loan debt at about $35,000 per person, it’s no wonder why people might have a lower net worth in their 30s.
How to Increase Net Worth
Your 30s are a perfect time to set yourself up for a bright financial future — even if your net worth is still relatively low. If you haven’t started already, consider contributing to your retirement at this point, especially if your employer offers a company match to your 401(k) or 403(b).
A goal to aim for is to have the equivalent of half your annual salary saved in your retirement account by the time you’re 30, but don’t worry if you’re not there yet. At this time in your life, it’s most common to focus on making progress on paying back your debt, which can lead you towards financial security.
Average Net Worth by Age 45
The Benchmark
The average net worth for American families ages 35 to 44 is $437,770, and the median net worth is $91,110. This demonstrates a natural progression as Americans begin to spend time in their careers, making higher salaries than those they earned fresh out of high school or college. They’ve had ten years at that point to pay down some debt, and perhaps save for the purchase of a first home.
How to Increase Net Worth
By the time that you’re in your 40s, your goal is to have a net worth of two times your annual salary. For example, if your salary is $75,000 in your 30s, you should aim to have a net worth of $150,000 by the time you’re 40 years old.
It’s common for people in their 40s to increase their net worth by investing in real estate and continuing to grow their retirement savings. Owning a home is an asset that could greatly increase your net worth since it can appreciate over time.
Average Net Worth by Age 55
By your 50s, you should begin to see significant progress made toward your net worth based on real estate investments, contributions to your retirement plan, and other investments. By the time you’re 50, your goal should be a net worth of four times your annual salary. For example, if you’re currently making $90,000 per year, your net worth should be at $360,000.
The Benchmark
The average net worth for Americans between the ages of 45 and 54 is $833,790, while the median net worth is $168,800.
How to Increase Net Worth
At this point, consider becoming more aggressive when it comes to building your net worth. To do this, consider maxing out your 401(k), meaning that you contribute as much as is legally allowed. And, if you haven’t already, this may be a good time to contribute to an IRA, an account that allows you to save for retirement with tax-free growth or on a tax-deferred basis.
If you have children, you may also want to consider contributing to a 529 college savings plan, a tax-advantaged savings plan for education costs, but make sure to prioritize your retirement first.
Average Net Worth by Age 65
In your 60s, your goal is to have a net worth of roughly six times your salary. For example, if your salary is $120,000, you should aim to have a net worth of $720,000. At this point in your life, your net worth will help you understand how much wealth you’ll have once it’s time to retire — and how early you can.
The Benchmark
The average net worth for Americans between the ages of 55 and 64 is $1,176,520, while the median net worth is $213,150, according to the most recent data from the Federal Reserve.
How to Increase Net Worth
To help you reach your goals, you may want to begin thinking about how you can lower your cost of living and capitalize on your investments. If you live in a house, but no longer need all of the space, could you consider downsizing? No need to make any immediate decisions, but with retirement only a few years away, you’ll want to begin looking at how you are going to benefit from your investments.
You’ll also want to consider purchasing disability insurance dependent on your health and genetics. If you’re unable to work during these final years leading up to retirement, disability insurance can help replace the income that you lost without decreasing your net worth.
Average Net Worth by Retirement
By the time you’re ready to retire, you should aim to have a net worth of roughly six times your annual salary.
While it’s impossible to know exactly how many years following retirement you’ll need to plan for, it’s one of the many reasons it’s so important to start saving as early as possible. It can even lead to some deferring retirement and working beyond the normal retirement age.
The Benchmark
The average net worth for Americans between the ages of 65 and 74 is $1,215,920, however, the median net worth is $266,070.
Use the resources that you built throughout your life to fund retirement. You’ll also want to consider what age you want to start receiving your Social Security since the longer you delay it, the more your monthly income will be.
How to Increase Net Worth
From investments to saving, there are many ways to increase your net worth. Once you calculate your current net worth, use these general tips to help set you up for success by the time you retire:
Cut Expenses: The less that you’re spending, the more that you’re growing your net worth. See if there are bills or spending habits that you can reduce. Even if it’s only a few dollars, you’d be surprised by how much that can add to your net worth over the years.
Reduce Debt: Your debt is what could be holding you back from growing your wealth, and with high interest rates, it could be taking longer than expected. Making higher monthly payments or consolidating payments could help reduce your debt faster.
Pay Off Your Mortgage: Owning a home can become your biggest asset, so paying it off will help increase your net worth.
Make Investments. It may not be ideal to just let your money sit in savings. Consider investing part of your paycheck with a goal to reap the benefits when you reach retirement age.
Max Out Retirement Contributions: Make the most of tax-advantaged retirement plans even in your lower-earning years. If you start investing now, your net worth may increase at a much faster pace.
Set Goals: It may sound simple, but it’s easy to become passive about investing in the future if you don’t have hard goals set in place. Create a plan as to how you’re going to grow your net worth over the next 10, 20, or even 30 years — and stick to it.
Once you make a plan to build your net worth, check in with yourself and calculate how you’re pacing against your goals on a regular basis. And, before making a big purchase or an investment, keep this number in mind to make sure you’re making the right financial move.
Ready to start achieving your financial goals? Sign up for a free account today and let us help you get there.
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Even as interest rates approach lows last seen in, oh, 50,000 BC, U.S. savings bonds are still a great deal.
I’m an obsessive fan of savings bonds, particularly Series I, or I-bonds, for short. Since I wrote about them last year, a few aspects of buying and giving them have changed, but the basic message hasn’t: if you aren’t buying savings bonds, you’re missing out on a safe, simple, and relatively high-yielding investment available to anyone with a social security number.
Let’s recap briefly what is so great about I-bonds:
– They pay an interest rate tied to the rate of inflation. You won’t lose purchasing power, and if you’re concerned about high inflation in the future, I-bonds will protect your savings. Most savings accounts, CDs, and other Treasury bonds pay less than the prevailing inflation rate. Right now, for example, I-bonds are paying 2.2% APY, which is more than almost any 5-year CD.
– Each person can buy up to $10,000 per year.
– You can set up an account in minutes and start buying I-bonds online at TreasuryDirect.gov.
– You can cash them in after one year or hold them for up to 30 years. (There’s a small penalty for redeeming I-bonds before 5 years.)
– I-bonds are tax-deferred and can be used for a child’s college education tax-free.
The way I always sum it up is: nobody regrets buying I-bonds.
The gift of aaaargh
The big change in bonds since last year: they got rid of paper savings bonds. If you’re buying bonds for yourself, no big deal. Buying online is easy — all you miss out on is the cool pictures of Einstein and Chief Joseph and Helen Keller.
If you want to give a savings bond as a gift, however, the process is about to get a little awkward, because the recipient of the gift has to have their own Treasury Direct (TD) account. For example, say I want to give my niece a $25 I-bond. I can buy the bond right away and keep it in the “Gift Box” section of my TD account. To transfer it to my niece, however, I have to:
– Call or email my brother and tell him to open a TD account for himself, then a subaccount for his daughter (oh, and another subaccount for his son, if I want to give him a bond, too).
– Have him give me the kid’s TD account number. Yes, it is safe to share your TD account number. No, this is not intuitive.
The Treasury has produced a YouTube video, complete with that reassuring “Welcome to your first day at work”-style voiceover, to explain how to give electronic savings bonds as gifts. Honestly, I would rather call my grandmother and ask her if she has any tech support questions for me.
Instead, I called Jerry Kelly, director of the Treasury’s Ready.Save.Grow campaign. His response, in short: Believe me, we know. “There are a lot of things we’re looking at to simplify the process,” said Kelly. “One of the things we keep in mind for simplicity is PayPal, or, for example, or iTunes. We want to get there eventually. It’s going to take us time.”
I asked Kelly whether anyone is using the gifting feature. “It’s certainly not as robust as paper was, and we knew that that would happen,” he replied.
This isn’t good enough for Mel Lindauer, a Forbes columnist, coauthor of The Bogleheads’ Guide to Investing, and a man even more into savings bonds than I am. “The answer is simple,” said Lindauer by email. “Bring back paper I-Bonds and give investors an option. Prior to the elimination of paper I-Bonds, investors overwhelmingly chose paper I-Bonds over TD.”
Stay safe out there
Lindauer ticked off a variety of objections to Treasury Direct, most damningly the fact that, unlike your bank’s website, TD doesn’t promise you’re off the hook in the event someone fraudulently cleans out your account.
“There is an element of truth to that,” said Kelly, but in over ten years and hundred of thousands of TD accounts, no customer has lost a dime to fraud. “We have had people who’ve had problems, but we have not held them accountable for it, because we haven’t deemed them to be negligent with their access information.” He mentioned the guy who put his Social Security number on the side of his truck. If someone did that with their TD password, “we probably would not have a whole lot of sympathy for them.”
And a TD account is not like a checking account: it’s designed to be easier to put money in than take it out. In order to steal my I-bonds, you’d not only need access to my password and my email account (TD sends a one-time passcode via email when you log in on a new computer), you’d then have to link my account to new bank account, which would leave an obvious trail.
In short, it would be even more work than convincing my brother to open a TD account for my niece. Please do not take this as a challenge.
To sum it up
– I-bonds are still an awesome, flexible, safe investment.
– The process for gifting them is too complicated, and no one blames you if you wait until they fix it.
– Buying them for yourself is a snap.
– I’m probably about to get a call from my grandmother asking if she can treat computer viruses with ibuprofen.
Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.
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Our semi-regular series on motherhood is back today and I’m particularly excited about this post. While we’ve tackled weighty motherhood-related topics in past posts (breast feeding, co-parenting, self-care, the election) this post is touch different – because we’re talking about books!
Now some moms might be sharing their favorite parenting books, but since I’m always on the hunt for good children’s books (and haven’t found the time to actually read any parenting ones yet – whoops) I’m focusing on books for the littles. Because they really are books for us too. We’re the ones reading them after all!
Surely, the world of children’s books is nearly endless but some books really do stand out from the crowd. And my definition of good is not as straightforward as it sounds. To classify a kid’s book as worthy it has to be visually appealing with lovely illustrations, have a truly good story, be well written (for the most part) and not drive me absolutely bat-sh** to read it for the 1,000th time. I’m tellin’ ya, it’s a tough bar. Pete the Cat does not make the cut. But I’ve managed to begin building a collection of kids books that both I and my kiddo equally adore. To the point where he has half of them nearly memorized. And wants to read each a minimum of three times in a row, stretching evening storytime into a freaking hour, but I digress. Because these books don’t suck, I’m ready and willing to do it.
To remind, I now have a toddler one my hands, so these are not board books. He’s just trustworthy enough to flip through the pages on his own. While I’ve found some good board books I love, classics like Go Dogs Go and Brown Bear, Brown Bear, I haven’t found as many board books that I also find truly compelling. If anyone has any recs, I’d love to see them!
1. Almost an Animal Alphabet by Katie Viggers. This alphabet book takes the ABCs to another level. Charming illustrations, actually interesting information about animals and a hidden joke or two make me smile every time we read this book.
2. Ish by Peter H. Reynolds. Ish might just be my favorite children’s book I’ve read thus far. A truly sweet story about a little boy who loves to draw, but his joy is stymied when he’s teased. But through a lesson, from a younger sister no less, little Ramon finds his love of art again. Delightful illustrations and great life lessons make this book a true treasures.
3. Home by Carson Ellis Home is a wonderful visual story about the definition of just that, home. Be it a nest, an apartment, a pasture or wigwams or boats, this book celebrates how and where all beings live. The illustrations soar above my bar and the diversity of places keep you guessing and the little delighted. It’s a winner.
4. I Want My Hat Back by Jon Klassen. If you’re looking for a book that will crack you up virtually every time you read it, I Want My Hat Back is certainly one. The humor is most definitely adult, but the illustrations keep the kiddos engaged. They might not get the joke in the end, but that almost makes it more fun. This one is also short. Always a bonus when wine is calling. (am I bad mom??)
5. Iggy Peck Architect by Andrea Beaty and David Roberts. If books that rhyme start to make you crazy after a while, Iggy Peck will save you. While written in verse, the story of a little boy who falls in love with architecture is witty, entertaining, and truly fun to read. You’ll love the pictures, you’ll love the message. There are also sister books, Ada Twist Scientist, and Rosie Revere Engineer are equally great.
6. I’d Know You Anywhere My Love by Nancy Tillman. This story is about a mother’s love for her children, but told through eyes of a child playing make believe. If your little loves animals this is a perfect book. It communicates a monther’s devotion while also empowering the child to use their imagination. It also introduces uncommon animals like the Blue Footed Booby. I just adore it.
7. We Found a Hat by Jon Klassen. This is the only book on my list from the same author that I mentioned before. The language in these books is so simple (would be good for early readers). The illustrations are a crack up. And there’s another wonderfully adult joke at the end. It’s a gem.
8. The Wonderful Things You Will Be by Emily Winfeld Martin. This is another uplifting little tale about parents’ love for their children. I love the modern, dare I say hipster-esque illustrations. There are great messages for littles about caring, empathy, creativity and joy. There’s a fun little flip out section that makes my little guy say wow. It’s got all the pieces you need for a book both they and you’ll love.
I’m so excited to be raising a little reader. There is nothing more satisfying then seeing my little plop down and pick up a book all on his own. Or recite snippets of the books we read frequently. Books truly do open a child’s mind, inspire, teach and entertain.
I can’t wait to add even more to my little guy’s library with all the other Mamas’ recommendations! Check them out below.
The Refined Woman / Ave Styles / Sacramento Street / The Life Styled / The Effortless Chic / Freutcake / Sarah Sherman Samuel
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Should You Become an Authorized User? – MintLife Blog
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establish credit history, consider becoming an authorized user and building your credit in other ways, like getting a secured credit card.
What Is an Authorized User?
An authorized user is someone who can make purchases on your credit card but isn’t legally obligated to pay the balance. It’s easy to sign someone up as an authorized user online or over the phone with a few pieces of information like their address, name, and birth date. You can order a separate card or have them use your credit card. You can have several authorized users on a single credit card, usually up to five. If the person is under 18, they can still usually be an authorized user on a parent or guardian’s account.
You get some privileges as an authorized user, but not the same ones as the cardholder. You can make purchases, find the available balance, and make payments. You can also report a missing card and dispute a fraudulent charge. Authorized users aren’t able to make changes to the account, though. For instance, they can’t close the account, add another user, or change the address.
Authorized Users and Credit
Becoming an authorized user could improve your credit score, but not always, and typically not in a drastic way. Check to see if the creditor sends authorized users’ activity to the major credit bureaus. Most do, but not all. If you’re trying to build your credit, you want to make sure being an authorized user will count toward your history.
When you’re a user on someone’s account who has a solid history of on-time payments and low credit utilization, it can help your credit. On the flip side, if you’re connected to someone with a lower credit score or a spotty payment history, your credit might suffer. For instance, if the cardholder misses a payment, your score could be affected, because it will also be reported on your history. That’s why it’s important to select someone you trust. Choose someone who you know will pay on time and not let their balance lapse. You can even have an upfront conversation about credit history and payments before being added as an authorized user to their credit card.
Just because you won’t be legally responsible for your charges, you may have a different arrangement with family. For example, Asher is an authorized user on his mom’s credit card. She pays for his groceries and utilities, but he is responsible for discretionary spending like going to the movies. Still, if the authorized user like Asher refuses to pay their portion, the cardholder remains responsible for covering it. If the cardholder doesn’t pay or can’t pay the balance, it could harm you more than help you.
Ways to Build Credit
Besides becoming an authorized user, there are other ways to build your credit. Try a combination of different approaches to build your history and show that you’re a responsible borrower.
Try a rent reporting service: Put your monthly payments toward your credit history by signing up for a rent reporting service. Proof of your payments is sent to the major credit bureaus. You’ll have to pay a small fee for the service, but it’s a low-risk way to create a credit history for payments you already make.
Apply for a secured credit card: Most credit cards are unsecured but require an established credit history. Secured credit cards allow you to put down collateral, such as a $500 cash deposit, in case you don’t pay your bills. These cards are for those without much credit history because the deposit guarantees payment to the lender if you don’t make payments. In most cases, secured credit cards carry higher fees and interest rates than normal unsecured cards.
Have someone cosign on a loan: Whether you’re purchasing a vehicle or need more funds for college, having someone cosign on a loan can help build your credit. Banks and lenders will often give out small loans to those without much credit history, as long as they have a solid cosigner backing them.
Choose a student credit card: If you’re in college, build credit with a student card. You may be approved even with no credit history. You might have a lower credit limit, such as $500 or $1,000, but the card allows you to spend on credit and build trust with creditors.
Practicing smart financial habits, like building your credit or having a personal budget, reaps rewards both now and in the future. Being an authorized user is one practical way to go about improving your overall financial health when done correctly. With a higher credit score and stronger finances, you can achieve bigger goals, like buying a home or saving for early retirement.
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When it comes to the active vs. passive investing debate, to me, it’s a no-brainer: I’m a passive guy.
My entire portfolio consists of a couple of broad-market stock index funds and a bond fund. I don’t own any individual stocks and zero funds that try to beat the market. I stay invested in good times and bad and I ignore my portfolio as much as possible, except for annual rebalancing. (In practice, this means I look at it once a week. Thanks a lot, Mint.)
I invest this way not (just) because I’m lazy, but because I believe the evidence is overwhelming that a passive approach will outperform the vast majority of active investing strategies over time. Yes, over any given period, some active funds will outperform by a little and a select few will outperform by a lot — they’ll sail through a bear market smelling like honey.
Unfortunately, it’s impossible to know ahead of time which will be the winning funds and you might end up selecting one of the big losers. Oh, and index funds cost less. That means more money for me and less for a money manager.
As Rick Ferri puts it in his book The Power of Passive Investing, “There’s only a low probability that any fund will achieve superior returns. While it’s possible, it’s not probable.”
Or take it from author Bill Bernstein: “The debate between active and passive management is like the debate between astrology and astronomy,” he said in a recent interview.
As you can tell, I’m convinced of the superiority of index funds and passive investing to the point of smugness, so I thought it would be good for me to talk with someone who fundamentally disagrees. Jerry Webman is the chief economist at OppenheimerFunds and author of the new investing guide MoneyShift: How to Prosper from What You Can’t Control. He dedicates an entire chapter of his new book to building an intelligent argument against my style of investing, and the book is witty and engaging.
Webman and I didn’t have time to hash out the entire classic active/passive investing debate, so I wanted to focus on one of his favorite topics: emerging markets. These markets now account for about one-quarter of the stock market wealth outside the U.S., and we both agree that it’s important for a portfolio to own stocks from emerging economies like Brazil, India, and China. We disagree about the best way to do it, though.
An emerging discussion
MoneyShift argues that most investors, including index fund investors, are missing out on buying opportunities in emerging markets. “Emerging markets is one of the places where it’s easiest to make the case for bottom-up active management,” Webman told me. “You really do have many companies that are not carefully followed, maybe not well-understood, and a careful manager takes the time to figure out what the real market for the company is, and how they fit with the regulatory environment in which they have to work, which might not be fully evolved.”
“It would be foolish to surrender the emerging markets portion of your portfolio to a dumb index fund,” Webman argued. “I want somebody who’s taking a really careful look at it,” he said. “There’s a lot more value to be added by someone who’ll go and do the research in less-understood and less-invested markets.”
To put it another way, it’s hard to learn anything new about an S&P 500 company. Those are the 500 biggest U.S. companies — everyone has heard of them and thousands of analysts scrutinize them all day long.
But who’s keeping an eye on, say, the Peruvian stock market? One manager who takes the time to understand Peru and how to read annual reports from its companies might be able to make a ton of money from insights that would be totally lost on a U.S. stock analyst.
This argument seems intuitively correct. However, I remembered the same argument being made about investing in small companies (aka: “small-caps”) in the United States: the market was less efficient, there was less public information about the companies and the stocks traded less heavily, which meant more opportunities for active managers to make money.
But it didn’t actually work out that way. As Standard & Poor’s put it, “over the last decade, SPIVA has consistently shown that indexing works as well for U.S. small-caps as it does for U.S. large-caps.” SPIVA is Standard & Poor’s Indices vs Active Funds scorecard, which twice a year compares the performance of passive index funds with actively managed funds.
More on that in a moment…
Webman said there are important differences between U.S. small-caps and emerging market companies: In the US, “you do have financial reporting that’s well-established. You have good protection for minority shareholders and you have all of the things that you might not have in an emerging market company.”
I wondered whether SPIVA could help answer this question: in emerging markets, is it better to own a dumb passive index fund that buys all the companies it can, good and bad, or to turn your money over to an expert manager who carefully researches and selects the best companies from each country?
The answer
Well, it’s not even close. Over the five-year period ending in December 2011, only 17% of actively managed emerging markets funds outperformed their benchmark index. Since an index fund hugs the benchmark index as closely as possible, buying the index fund would have put you near the top of the heap. This is typical: it’s difficult to find any five-year period in any investment category where the index fund didn’t trounce most of the competition.
Webman is skeptical of this kind of raw statistical analysis. “I worry about looking at averages,” he said. “It turns out a lot of so-called active managers aren’t so active. And it does look like results are better for active managers who really actively manage their portfolios.” He added that just looking at the number of funds that outperformed doesn’t tell you how much money outperformed. Maybe those few winning funds are actually the biggest funds, which means the average active investor is doing just fine.
Again, this argument sounds reasonable: who cares if most funds don’t beat the index? As long as I can identify a fund that will, I’m golden.
Unfortunately, there’s no evidence that there’s any way to identify the best performers ahead of time, aside from sheer luck. SPIVA also measures performance persistence and the results are appalling. “Very few funds manage to repeat top-half or top-quartile performance consistently,” says the report, which some consider an understatement. For example, in U.S. small-cap funds, less than 4% of funds stayed in the top category five years in a row. They didn’t look at emerging markets funds, but there’s no reason to expect a different result.
High bias
Let’s stipulate that everyone involved in this conversation is biased. Jerry Webman is an executive at a Wall Street firm that sells actively managed mutual funds, S&P is in the business of selling indexes, and I have my life savings in passively managed index funds and am unlikely to go out dragging the river for convincing evidence that I’m investing like an idiot.
If you think Webman is right and I’m wrong, however, I’d like to hear about it.
And let me give Webman the last word: “I think what makes markets is, we’re all going to look at several different kinds of conflicting evidence and come to different conclusions.” I couldn’t agree more.
Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.
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You’re finally ready to get out of the rental market and buy a home of your own. But how do you know how much house you can afford?
Before you head out on your house-hunting adventure, you can easily do those affordability calculations yourself before you officially begin shopping for a mortgage.
Here are the top factors lenders typically consider when determining how much house you can afford.
Debt-to-income ratio
One of the first factors a lender will analyze is your debt-to-income ratio, or DTI.
Lenders use this measurement to ensure that you’ll have enough income to cover both your new mortgage payment and any existing monthly debts such as credit card, auto loan and student loan payments.
What is a good debt-to-income ratio? Generally most lenders want your debt-to-income ratio, including your anticipated new monthly mortgage payment, not to exceed 36 percent.
The ratio is calculated by taking your total monthly debt load and dividing it by your monthly gross income.
What does that mean in dollars and cents? Someone who earns $5,000 per month and carries $500 in monthly debt would have a DTI of 10 percent.
This borrower generally could be approved for a maximum monthly mortgage payment of $1,300, including property taxes, homeowners insurance and private mortgage insurance.
Someone making the same salary but carrying zero debt generally could be approved for a maximum monthly mortgage payment of $1,800.
Credit considerations
There are several key factors in securing a mortgage loan, and your credit is one of the most important elements.
Your credit scores is based on your payment history, overall level of debt, length of credit history, types of credit and applications for new credit.
If a traditional lender finds that your credit score falls within an undesirable range or includes unfavorable marks when they check your credit report, they might be leery of approving you for a loan.
You may be able to obtain a loan, but you’ll likely pay a higher mortgage rate, which will ultimately result in a higher mortgage payment.
Well before you apply for a home mortgage loan, pull your credit report to review where you stand, and research the requirements you need to meet with your desired lender.
Understanding your personal credit profile and the lender’s expectations will help you understand the interest rates you likely qualify for and the terms your loan will likely be.
Down payment requirements
With the exception of Veterans Affairs (VA) loans and some special programs for first-time buyers, a home purchase requires that you have some cash on hand.
How much? Anywhere from 3.5 percent of the sales price for a Federal Housing Administration (FHA) loan to as much as 20 percent for a conventional loan.
Expect to get a better interest rate if you’re able to make a down payment of at least 20 percent.
Keep in mind that the down payment amount doesn’t include closing costs, which are fees related to the purchase of the home.
Typically, buyers pay between 2 percent and 5 percent of the purchase price of the home in closing costs.
The big picture
If you have less-than-amazing credit, then you may want to consider waiting to purchase a home and making changes in your spending habits to improve your credit score.
Many experts suggest before you even consider buying a home, you should be debt-free and have three to six months of expenses saved — in addition to your down payment and closing costs.
“Being debt-free or close to it with some money in the bank is optimal,” said Tiffany Kjellander, owner and operations manager of Augusta, NJ-based EXIT Towne & Country Realty.
She adds, “It can be tough to hear that it’s not the right time for you to look for a house, but the truth is that getting your financials in order and putting some money in the bank could keep you from losing your home if you get sick or lose your job down the road.”
Further, Kjellander advises that potential homeowners think long term.
The cost of homeownership extends beyond the monthly payment and includes routine maintenance and repairs, homeowners association dues and additional utilities that you might not have paid while renting.
“Just because you’re approved to spend $3,000 per month on a house doesn’t mean you have to go that high,” she said. “Buying a home is a huge financial decision. No one should enter into it blindly.”
“How Lenders Determine How Much House You Can Afford” was provided by Zillow.
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By John Frainee7 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 July 15, 2010.
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One of our most serious enemies is Complexity. It saps your time by overwhelming you to the point of atrophy, and can lead us to believe there is nothing we can do about our chaotic lives. Whether you are struggling with your finances or simply needing to breathe easier, here are three things you can do in 24 hours to be more productive.
You’re going to need a whole day for this simplification process. Schedule it in on your calendar. This is going to be a massive overhaul of the way you work. The night before, go to sleep early. The morning of, eat a hearty breakfast. You’ll need to be alert and willing to work hard so you can work less later.
1. Unload your mind with pen and pad.
This is one of the most effective strategies for de-stressing and allowing your mind to take a break. Grab your pen and jot down everything that you have to do in the short and long term. Don’t worry about the order of things, just write for a solid block of time. What you’ll find is that this process will get your mental wheels turning. You’ll come up with new ideas, dig up old things you almost forgot about, and feel the burdens start to be lifted.
This unloading process is part of the GTD (Getting Things Done) methodology. The idea is that you spew all your ideas and concerns out on paper and look at the big picture. This is the first step to helping you organize your life is to get everything out in the open. You can also accomplish this using programs such as Things for Mac.
2. De-clutter all your stuff.
After you have spent a good portion of your day getting every to-do out in the open, it’s time to create a de-cluttered work environment. There’s nothing like a clean, uncluttered work space to melt away stress.
While I personally enjoy an uncluttered work environment, it isn’t always easy for me to maintain. To blast through the large piles on your desk, try throwing everything into one big pile. Then, organize everything into three separate and smaller piles: Inbox, Archive, and Trash. The Inbox pile should be items that are of immediate concern. Keep this pile small and process these items (ex: bills) as soon as possible. The Archive pile can be scanned into your computer for future reference or stored securely in a locked filing system. Try to archive as little as you can. Don’t keep everything! The Trash pile needs to be shredded and thrown in a dumpster. Throw away as much as is reasonable.
What you’ll be left with is a serene work environment where your productivity will shoot through the roof. But don’t stop here. It’s time to organize your to-dos and daily activities.
3. Design your day-to-day living.
This is the fun part. Take a look at your average day and ask yourself this question: is there anything I can do to simplify my lifestyle and enjoy every moment? As you architect your new day, pull out that list you made in Step 1 and ask yourself how you can accomplish these goals over time. Create a game-plan worth pursuing. Maybe one of your items is to get out of debt – study Dave Ramsey’s Baby Steps! Perhaps you need help keeping your home organized while on the go – read blogs focused on un-cluttering!
Whatever goals you have, taking 24 hours to reorganize your life and finances will create a healthier you. I challenge you to start from the ground up and redesign everything to better suit your needs. What do you have to lose?
What are some things you’ve done to simplify your life and finances? What do you suggest to others?
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With all of today’s home-based tech gadgets and virtual personal assistants, smart homes are quickly becoming ubiquitous. And with high demand for connected products, so too comes ease of use, accessibility and affordability.
But as with all expenses, it’s important to budget for smart tech upgrades to your abode. Luckily, it’s easier (and more affordable) than it’s ever been. Here, we explore some of the more common smart home tech investments, along with a few things to consider when deciding whether they’re worth the cash.
Virtual Voice Assistants
These devices use natural language processing (NLP) to match a user’s voice commands and execute an action, like “Turn off the lights.” Many of these voice assistants use a “wake word,” like the name of the device (“Hey Google,” for example) in order to alert the assistant so that it’s ready to listen to you.
From online shopping to reading your email for you, virtual voice assistants have the potential to do a myriad of helpful things around your home.
Major Brands: The top players in the virtual voice assistant arena are Amazon’s Alexa, Apple’s Homepod, Microsoft’s Cortana and Google’s Home — but the list is growing. It’s been reported that Facebook may be working with Amazon’s Alexa and Apple’s Siri to create its own smart speaker in this burgeoning market.
Average Price Range: The most basic versions, like Amazon’s Echo Dot, can start at as little as about $50, while more mid-range devices go for about $130 (Google’s Home) and high-range assistants like Apple’s Homepod go for $349.
Life Expectancy: While it’s hard to predict how long these up-and-coming tech devices will last, it’s safe to say that there will be plenty of similar products for a long time to come. Not only that, but virtual assistants will likely continue to improve significantly when it comes to their capabilities, connectivity and affordability. To put things into perspective, it took 13 years for the television to reach 50 million Americans but only two for smart speakers to do the same thing.
Is it Worth It? It depends on how (and how much) you’ll be using the device. If you call on your virtual voice assistant at every whim, the upfront cost may be well worth the convenience. On the other hand, a 2017 Ovum survey of both U.S. and U.K. residents said that about 50 percent of users don’t find virtual assistants useful. Though it’s difficult to narrow down the reasons why, it’s a clear message to manufacturers that they need to up their game to stay competitive.
Smart Thermostats
Intelligent heating and cooling systems have taken the tech world by storm, particularly due to their affordability and savings potential. These smart thermostats learn users’ habits — when they leave for and come home — to optimize in-home temperatures in a way that traditional thermostats can’t. After all, if you’re going away on vacation, there’s no need to leave your AC on the whole time, but you might want to turn it up an hour or two before you return. Cue smart thermostats.
Major Brands: There’s a lot to choose from when it comes to intelligent thermostat needs. Popular brands include Ecobee4, Nest Learning Thermostat, Lux/Geo Wi-Fi Thermostat, Lux Kono Smart Thermostat, Bosch Connected Control BCC100 Thermostat and Honeywell Lyric T5 Wi-Fi Thermostat.
Average Price Range: While you can find some smart thermostats for under $100, most range from about $170 to $260, depending on their uses and features. Some cost as much as $500.
Life Expectancy: Intelligent thermostats have the potential to last just as long as traditional thermostats, as long as you maintain them correctly and don’t misuse them. However, it’s important to note that some smart thermostats are hardwired into your home while others aren’t. If yours operate on battery power, it could last a full two years before needing new batteries — but always pay attention when your thermostat alerts that its batteries are low.
Is it Worth It? Not only are smart thermostats extremely convenient, they also have massive potential for saving you some cash on utilities. While the upfront cost may be a bit hefty, smart thermostats often pay for themselves in the long run. The Energy Star program states that homes equipped with smart thermostats can save up to $180 per year on heating and cooling. What’s more, intelligent thermostats can provide you with reports that show you how to optimize your heating and cooling settings to save even more money.
Smart Lighting
Yep, even light bulbs are getting smarter these days — and not just in the “clap on, clap off!” way, either. With smart LEDs, you can connect all the light fixtures in your home to your virtual voice assistant or smartphone to control individual lights in every room. Not only is this super handy, but it can also provide an extra layer of security if, say, you’re out of town and want to randomly turn lights on and off so it appears that someone’s home. Plus, color-changing bulbs make for great mood lighting and can even sync up to music and movies for extra effect.
Major Brands: Though brand doesn’t matter as much when it comes to intelligent light bulbs, popular bulbs include the Philips Hue White, Philips Hue White and Color Ambience A19 Star, C by GE Starter Pack, Cree Connected Light Bulb, Eufy Lumos Smart Bulb White, LIFX Color 1000, Ikea Tradfri Gateway Kit and MiPow Playbulb Rainbow.
Average Price Range: While you can find affordable options under $20, some intelligent light bulb kits cost upward of $200, depending on the number of bulbs and features included.
Life Expectancy: Regardless of price, the vast majority of smart LEDs have a lifespan greater than 20 years. That’s anywhere from 20,000 to 50,000 hours — or up to five times longer than any other light bulb in stores today. Compare that to the measly 1,200 hours of an average incandescent light bulb, or a CFL’s 8,000 hours.
Is it Worth It? Even if you do decide to outfit your home with a $200 smart light bulb kit, it’s arguably still worth it. They last practically forever, they can help keep your home safer, you can control them from your smart device from anywhere you have internet access, and they’re better for the environment than traditional bulbs.
Even though the upfront cost of smart LEDs can be a little off-putting, you might consider this an investment purchase. Yes, they’re more expensive at first, but take a look at this calculation from Simple Family Finance, which added up the total costs of all three types of bulbs, plus 25,000 hours of electricity usage — this is how the expenses broke down:
Incandescent: $218.50
CFLs: $64.63
LEDs: $53.75
That’s a lot less money over the long term, which means a lot more money in your wallet for making other awesome smart upgrades to your home. Smart garage door, anyone? (Yep, they have those, too.)
Mark Simmonds brings 20 years of insurance industry experience to his role as managing director and chief product officer at Esurance. His diverse expertise in many areas of the business, including product, underwriting, finance, operations, and more, help shape his writing. Visit Esurance’s website to find out more about how certain smart home products can reduce your homeowners insurance.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or view of Intuit Inc, Mint or any affiliated organization.
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Mark Simmonds brings 20 years of insurance industry experience to his role as managing director and chief product officer at Esurance. His diverse expertise in many areas of the business, including product, underwriting, finance, operations, and more, help shape his writing. Visit Esurance’s website to find out more about how certain smart home products can reduce your homeowners insurance. More from Mark Simmonds
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They don’t call it a global economic slowdown for nothing: Evidence is mounting that the BRICs –the world’s big, fast-growing developing economies — are slowing down. Growth in Brazil, Russia, India, and China is expected to slow considerably in 2012, dampening an already weak global economy.
Since the 2008 financial crisis, it’s been powerhouses like China that have helped keep the global economy from total collapse. But if the BRIC economies sputter, what will help sustain the world’s growth engine?
What does BRIC Mean?
The term “BRIC” was first coined about a decade ago by Goldman Sachs, as a way to describe the large, emerging economies which were believed to represent the economic wave of the future. These rapidly growing economies would lift millions out of poverty and provide new markets and growth for developed-world businesses.
For several years, that premise has been mostly right – countries like China and Brazil have grown rapidly, seeing their middle class expand and providing American businesses and investors with greater returns. And they’ve weathered the global financial crisis much better than the US or Europe, continuing to post impressive growth and maintaining budget deficits lower than the developed world’s.
American investors have the BRICs to thank for the relatively buoyant stock market performance of the past year or two, as American businesses’ overseas profits have translated into higher corporate earnings and stock prices at home.
The Future of BRIC Economies
But all that may be coming to an end, suggest some analysts. Not only is growth slowing markedly in some of these economies, but increasing inflation in places like Brazil and India, for example, means that their central banks have a lower margin for reducing interest rates and boosting growth. That means it’s unlikely the large stimulus programs enacted in some BRICs during the 2008 crisis are likely to be repeated soon.
And with the developed world still struggling, these countries may, indeed, need such a stimulus for continued growth. After all, if American and European pocketbooks are still in a fragile state, who will buy all of the products produced in China or Russian commodities?
There’s another, darker view on the BRICs, too, that goes beyond thinking this is a mere slowdown. One line of thought suggests that the rapid growth these countries have experienced in the past 15 years was a one-time phenomenon unlikely to repeat itself. China, for example, benefitted largely from its low wages to lure production facilities and create an export-oriented economy. But wages are now rising in China, and production is moving to even lower-wage countries (and in some cases, even back to the US).
In Brazil and Russia, corruption and commodity dependency continues to plague many sectors of the economy and may stunt growth; already, Brazil’s Q1 2012 GDP growth rate was a mere 0.8%. China’s GDP, which had been growing at or above 10%, is projected to increase only 7.5% this year.
The Bottom Line
Sure, a 7.5% growth rate is still great by US standards, but for a country like China, it may be insufficient to keep reducing poverty at a rapid clip or encourage a transition from an export to a consumption-based economy. And if fears of a housing bubble popping come true, China will need to clean up its own economy, let alone help boost the ailing West.
In such a world, “BRIC” may just be another one of those fashionable terms from a more optimistic era. Just like “globalization” and “Internet”, it may no longer hold the promise of a brighter economic tomorrow.
“Is the Show Over for the BRIC Economies?” was written by Janet Al-Saad, MintLife Managing Editor.
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