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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Learn how to utilize a tax advantaged 529 plan to help your or a friend’s children save for future education expenses.
This Week in Your Money: What are the risks of purchasing a home without an inspection? How can you plan for major expenses when healthcare providers can’t tell you how much their services will cost? Hosts Sean Pyles and Sara Rathner share their hot takes on unexpected financial challenges, with tips and tricks on handling surprise expenses, understanding the importance of home inspections, and dealing with healthcare industry inefficiencies.
Today’s Money Question: What are the benefits of a 529 college savings plan? Can you contribute to a friend’s 529 plan to support their child’s future? NerdWallet writer Elizabeth Ayoola joins Sean and Sara to discuss the essentials of 529 college savings plans. They discuss the types of educational expenses covered, the tax benefits associated with 529 plans, and the flexibility of choosing different state plans. They also answer a listener’s question about how to approach the sensitive topic of financial gifts for education with parents, sharing methods for contributing to a loved one’s 529 plan without overstepping boundaries. Then, they discuss the implications of the Secure Act 2.0 on 529 plans, methods for estimating necessary savings for a child’s education, and tactful ways to discuss educational contributions with parents.
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Episode transcript
This transcript was generated from podcast audio by an AI tool.
Sara Rathner:
Hey Sean, has money ever made you mad?
Sean Pyles:
Yeah, it has, especially when I get a bill that I don’t expect to pay but have to anyway. So yeah, why?
Sara Rathner:
Yeah. Yeah, those surprise major expenses are a huge pain. I just had to replace my washing machine because the fun never stops in my house.
In this episode, we are going to let off a little steam about what makes us mad in the world of money.
Sean Pyles:
Welcome to NerdWallet’s Smart Money Podcast. Our job today is to help you be smarter with your money, one money question at a time. I’m Sean Pyles.
Sara Rathner:
And I’m Sara Rathner.
So listener, this show is all about you and your money questions. So, whatever financial decision you’re pondering, whatever’s making you mad about your money, let us know.
Sean Pyles:
Leave a voicemail or text the Nerd hotline at 901-730-6373. That’s 901-730-NERD. Or you can email your questions to podcast@nerdwallet com.
Sara Rathner:
In this episode, Sean and I answer a listener’s question about contributing to 529 accounts for your loved ones. But first, we’re going to yell into the void in our semi-regular Money Hot Takes segment.
Sean Pyles:
So here’s how this works. Sara and I just rail against whatever we feel like in the world of money. And let’s put, say, 100 seconds on the clock. That’s what? A second for every penny in a dollar. I don’t know, it’s just an arbitrary number really.
Sara Rathner:
That works for me. It’s a nice round number.
Sean Pyles:
All right, Sara, are you ready?
Sara Rathner:
Sean Pyles:
I’m starting my timer. Go.
Sara Rathner:
All right. I hate the trend where home buyers feel pressure to completely waive getting a home inspection before buying a property. That’s different from the type of waiver where you’ll still do the inspection, but then you’re assuming the cost of anything you find. It’s when you just do without the inspection entirely.
I live in a block of houses that are like 107 years old, and two houses on my block sold with waived inspections where the buyers had to put tens of thousands of dollars unexpectedly into problems in their house that they didn’t know about. I just had a neighbor text me asking for a roofer because the first time it rained since she moved in her house, it started raining on the inside of her house, which means that the seller just lived with that for however long before selling the house and passing the problem onto somebody else.
So especially if you’re a first-time home buyer, if you are going to drain your savings to buy your house, and then you’re not going to have much money left for repairs, be really careful about this. And as a society, can we just make inspections mandatory? That’s more consumer-friendly, honestly. People need to know what they’re getting into, and frankly, people should feel pressure to keep their houses well maintained before sale. There I said it.
Sean Pyles:
You’ve got 40 more seconds if you want to keep on railing.
Sara Rathner:
Oh man, I do? Well, if you haven’t bought a home yet, what’s nice about getting an inspector involved is they’ll look at all the major systems of the house, the appliances, the roof, all sorts of stuff, the electrical, the plumbing, and they will tell you the lifespan of some of those major things like a furnace or a boiler, your roof, your HVAC system. And even if something is going to go in the next year or two, at least you have this laundry list of things and when they’ll probably need to be replaced, and you can begin to budget for those replacements.
Sean Pyles:
Okay, that’s 100 seconds.
Sara Rathner:
Boom. All right, Sean, you got any reaction?
Sean Pyles:
Well, I totally feel that, because buying a house without knowing what’s wrong with it is very risky financially. Buying a house can be financially risky in and of itself, depending on how expensive the home is. But imagine getting into the house, it’s your first day, you’re super happy to be a homeowner, and then you realize, oh, it’s raining inside the house, or the crawl space is infested with termites. You don’t know what you’re getting into if you don’t have an inspection. And even if it may make you a more competitive buyer, it isn’t worth it, in my opinion, to get yourself into something like that because you just don’t understand the risks you could be taking on. And I’m all about mitigating risks as much as possible.
Sara Rathner:
All right, Sean, I have had my turn, and now it is your turn. I have set my timer for 100 seconds. And go.
Sean Pyles:
Okay. Today I am mad about industries that are designed to extract money from us while making our lives miserable or at least really frustrating. And I have one, maybe two, examples depending on how far 100 seconds takes me.
First step is healthcare. Americans spend far more on healthcare than other wealthy nations. Nearly 18% of our GDP in 2021 went to healthcare. And what are we getting for it? An incompetent extractive industry that exploits nearly everyone that engages with it. Among wealthy nations, the US has the highest rates of infant and maternal mortality and excess deaths, not to mention the daily indignities that come with trying to access healthcare.
I have a recent example that is a microcosm of these larger issues. I recently got a bill in the mail for some regular lab work, and the thing is, I have these labs done every few months, and they’re always covered by my insurance. But this time I got a surprise bill for nearly $200, and I’d already had an expensive month with some car repairs, and I was not excited about the prospect of an additional $200 to cover. So I called my doctor, and they said, “Oh yeah, the company that does the lab work just messed up. Oops, just disregard the bill.”
So if I hadn’t called my doctor, I would have been on the hook for this bill. This was a relatively small bill as far as medical bills go, and it was fairly easy for me to clear up. I’m obviously very fortunate in this case, but for so many people, especially those with chronic illnesses or complex medical conditions, the onslaught of navigating insurance, verifying that you’re being billed correctly and then somehow coming up with the money to cover bill after bill is just totally exhausting and can make achieving financial goals nearly impossible.
So why am I going on and on about things that we already know too much about?
Sara Rathner:
Just so you know, you’re over time.
Sean Pyles:
Oh, God. I’m going to keep going. I’m almost done.
Sara Rathner:
Keep going, Sean. Let’s do this.
Sean Pyles:
All right. I am going on and on about this because I think it’s important to remind people that it does not have to be this way. We are in an election year, people, so I don’t know, let’s try to do something about it.
Okay, Sara, how many seconds was that?
Sara Rathner:
Oh, well I stopped timing it the second it hit the clock, so that might’ve been just an extra 10 seconds, honestly.
Sean Pyles:
Okay. It’s hard to fit so much into such a small amount of time.
Sara Rathner:
You know what? Your rage is such that it cannot be fit into a tiny container and that is valid. It’s okay to let the rage out and give it some more space.
I agree with you. What’s annoying is, for example, this past year I had a baby, and that is expensive to the tune for me of $7,000 out of pocket after insurance. Hi. $7,000 is a lot of money, people.
And what was annoying about that, and this is something for anybody who maybe is facing a planned medical procedure like a surgery or childbirth or anything like that, or who takes medication for chronic illnesses, I tried to call the billing department at the hospital to talk to my insurance company to say, “Can you at least give me an idea of how much money I will be out?” I knew going into it that I would be having a C-section. So I could say, “I’m having a C-section, that means I have to work with an anesthesiologist, which is an extra expense. Can you tell me ballpark, even if you’re off by a grand, how much should I budget for this?” And everyone’s like, “We don’t know.” Shrug emoji.
Then the bills just fly in for months and you think you’re done. So you’re like, “Okay, we’re done paying for the hospital bill. Now we can put our money into other stuff.” And then you get another bill for like, $1,100.
Sean Pyles:
And you have to question, was this billed correctly? Was it coded correctly? You don’t know. And it just flies in the face of all the things that we try to talk about in the personal finance space, which is around anticipating big expenses, budgeting for it, saving up for it if you can. It’s impossible when you don’t know what you’re going to be paying.
Sara Rathner:
Right, and if you’re facing surgery, what, are you just going to not have anesthesia to save money? Do not recommend.
Sean Pyles:
That is not a money-saving tip that we would recommend. No.
Sara Rathner:
No, that’s a place where you should spend good money, get good and numb.
But really it is an extra expense. And that’s so, so frustrating because you are not only out a lot of money, but you’re feeling kind of vulnerable because you’ve just gone through some medical stuff, even if it’s just blood work or something, and you want to take good care of your health, and it’s sometimes financially impossible to do that.
Sean Pyles:
Yeah. Not to mention completely demoralizing.
Sara Rathner:
Yeah, and some people just don’t go to the doctor because of the cost, or the dentist. And then years later, they’re faced with really serious health issues because they’ve been neglecting their health because of the cost.
Sean Pyles:
Yeah. I don’t know, it’s really tough in this space to talk about medical expenses because at NerdWallet and in the personal finance realm, we try to give actionable advice, and a lot of the time the advice is reactive. If you get a medical bill, you do have to ensure that it’s coded correctly. Maybe try to work out a payment plan with your medical office if you can’t cover the bill in one go. But it’s so hard to be proactive like you were just describing and understand what you’re going to have to pay if you want a routine procedure like blood work or something more significant like having a baby, makes me want to yell into the void all day every day.
Sara Rathner:
Yeah. Well, we took more than 100 seconds about this. If you have a body, then this is something that affects you, and it is really hard to deal with those extra unexpected costs.
Sean Pyles:
All right, so that is what we are mad about this week, listener. I know there’s a lot to be mad about in the world of money, so do not keep it in. Let us hear what you’re mad about, and we might just share it on a future episode.
You can text your Money Hot Take to us or leave a voicemail on the Nerd hotline at 901-730-6373. That’s 901-730-NERD. Or you can email it to podcast@nerdwallet com.
Sara Rathner:
All right, I don’t know about you, but my heart rate is starting to come down from all of that. Ooh, deep breaths, everyone. This episode’s money question is up next. So calm down too and stay with us.
Sean Pyles:
This episode’s money question comes from Lauren, who wrote us an email. Here it is.
“Hi nerdy Nerds. I’m not a parent. I’m never going to be a parent. Because of that, I have made it part of my financial plan to contribute to the 529 plans of kids around me. Because I don’t have nieces and nephews, I’m contributing toward the savings of my friend’s three-year-old. How much needs to go into a 529 starting at age two or three to cover a four-year private college?”
“I got the details on this kid’s 529 plan from his dad and started contributing about $100 a month. We didn’t talk about it. I intend to keep chipping in until the kid is done getting formal education 20 to 25 years from now. How do I talk to the parents? I want to understand if I’m helping enough without becoming privy to their private financial details. I also don’t want to make it seem like I have any vote whatsoever in how the kid charts an educational path. How do I broach this with the parents?”
Sara Rathner:
To help us answer this listener’s question, on this episode of the podcast, we are joined by NerdWallet writer Elizabeth Ayoola. Welcome.
Elizabeth Ayoola:
Hello, and hi.
Sean Pyles:
Elizabeth, so good to have you on.
So let’s start by setting some groundwork. Can you please describe what a 529 college savings plan is, how they work, and why they’re such a big deal?
Elizabeth Ayoola:
A 529 plan is a huge deal indeed to me anyway. I wish I had one when I went to college because I was left with a huge bill. But anyways.
529s are tax advantaged college savings plans, and they allow people to save and invest money for education expenses. So, with that said, the money gets to grow, and it gets to compound, which can mean beneficiaries have a nice education pot to pull from when they need the money. And for those who don’t know what compounding is, it’s essentially when your interest earns interest.
Sara Rathner:
It’s the eighth wonder of the world.
Elizabeth Ayoola:
Sara Rathner:
So you mentioned education expenses and that’s what the purpose of this account is, but what kinds of education expenses can you use a 529 to fund?
Elizabeth Ayoola:
Funds in a 529 account can be used to cover a vast range of qualified expenses, and that can range from tuition to computers and education related equipment. The expenses can also be used to pay for education needs of your beneficiaries. And the good thing that I like is that the beneficiaries can be in anywhere from kindergarten through grade 12. So that said, it’s not only for college students.
Sean Pyles:
Right, that is a really good point because people hear about 529 accounts, and they think they may be specifically for people going through a traditional four-year education, but people can also use the funds in the 529 college savings plan to cover things like trade schools too. So it really isn’t only for that traditional four-year higher education route.
Sara Rathner:
So earlier you mentioned that 529s are tax advantaged accounts. Can you talk a little bit about the tax treatment of them, and what should people know when they’re considering opening a 529?
Elizabeth Ayoola:
Well, one thing that I personally like about these accounts that some people don’t know also is that some states offer a tax deduction if you contribute to their plan. And when I say their plan, I mean the state that you live in. But there is no federal tax deduction for a 529 contribution. So it’s only at a state level. The tax deduction is usually capped. So no, you can’t just deduct your entire contribution. The deduction amount varies from state to state. So it’s best that you check in your state what the amount may be, if they offer it.
And a little bit off-topic, but I also like that the IRS doesn’t set a cap on your contributions to a 529 account, although some states do set a limit.
Sean Pyles:
And I’ll call out two other tax benefits of 529 college savings plans. The first is that investment growth in this account is tax-free, and second, distribution for qualified expenses like tuition or books are also tax-free.
Elizabeth, another important thing to know about 529 college savings plans is that each state has their own, and you don’t have to choose the 529 plan from the state that you live in. And this can all get a little bit confusing because there are so many states to choose from. So, at a high level, can you outline the main differences between a 529 from one state to the next, and how would someone go about choosing which state’s 529 plan to use?
Elizabeth Ayoola:
One of the major differences that people should know and a reason that people may cheat on their state’s 529 plan is lower fees. I personally have a 529 from a different state than my current home state for that very reason. So people should consider shopping around and comparing fees before opening an account. Ultimately, the goal should be to do some math and see whether the deductions and the credits that you’re going to get in the state that you live in are worth more than the lower fees that you could get in another state in the long term.
Also, note that you can open multiple 529 accounts. I have multiple 529 accounts. I recently opened a second one in my home state, Florida, because my son was awarded a grant and it could be transferred to a 529 account, but the catch was it had to be a Florida 529 plan.
Sara Rathner:
So 529s have some flexibility, which we talked about before, not just for four-year educations, but also for trade schools and for K to 12 expenses as well. And interestingly enough, 529s were just made even more flexible. Can you talk about recent changes around the ability to roll 529 funds into a Roth IRA, and what that means for folks who maybe aren’t considering going to college?
Elizabeth Ayoola:
The Secure Act 2.0 was recently passed, and if I can be honest, that’s what motivated me to open up my first 529 account, and I just opened it last year. I was always on the fence and only saved money in a brokerage account because I was afraid of what would happen if my son decided not to go to college in 15 years. He’s six, by the way.
I decided to get off the fence when the Secure Act 2.0 made it possible for people to roll at least a portion of the unused funds into a Roth account. However, you do have to wait until 15 years after you’ve opened the 529 account before you can roll those funds over. And you can also only roll up to a certain limit starting in 2024. It may be ideal to read the IRS’s rules, they have a lot of fine print around the conversion or speak to a finance professional about it.
I think Roths are also awesome because they aren’t subject to required minimum distributions and withdrawals. They’re also tax-free when you meet certain requirements like waiting until 59-1/2, amongst other rules.
Sara Rathner:
All right, well thank you for that great summary of the tax rules surrounding this new change. We just want to let you all know that we are not investing or tax professionals, and if you have any specific questions to your own situation, definitely consult a professional who can give you guidance.
Now let’s turn to the fun stuff. The math, Sean. I know that you are in the midst of your certified financial planner coursework. I have slogged through that myself. It is a lot. It is a lot of math.
Sean Pyles:
Sara Rathner:
And now that you know how to do it, I’m sure you’re eager to show off your chops. So are there any insights you can share that will help our listener figure out how much they need to save every month or every year to help their friends reach their savings goals?
Sean Pyles:
As a matter of fact, yes. And you’re right, I have been waiting for an opportunity to show off what I’ve been learning about because often I’m just doing calculations in silence and this is a time for me to be loud and proud about hitting buttons on a calculator. So let’s do it.
I’ll spare you and our listeners the specifics of the calculation, but I plugged the listener’s situation into a time value of money calculation and got a rough estimate for how much they will need to save.
Sara Rathner:
All right, drum roll. What’s the number?
Sean Pyles:
For our listener to meet the savings goal that they outlined in their question, remember, they want to save for four years of education at a private college starting now-ish and saving until the kid finishes school. They would need to save around $8,000 per year. Obviously, that’s a lot of money to contribute to a 529 account, no less for a kid who isn’t your own. And this is why 529s are often just part of the picture when it comes to paying for college, which usually includes some combination of scholarships, grants and loans and generous gifts from family friends.
Sara Rathner:
That is definitely more than a hundy a month.
Sean Pyles:
Yeah, that’s for sure.
All right, so all of that math out of the way, I want to talk about the other part of our listener’s question. They seem to be concerned about how much they should contribute and also how to talk about this with their friends. I am not a parent, so I would love to hear from both of you who are parents, how you would approach the situation if you had such a generous friend. Would you welcome the money, or say get out of my business? Or if you are going to accept this money, if you want to have this conversation with your friend, how would you want them to communicate that with you?
Elizabeth Ayoola:
Honestly, I would welcome the money, especially because I’m a single mama. So as a matter of fact, my friends always contribute to my son’s savings account in London for his birthdays or holidays and I really, really appreciate it. It can be a better gift to me than toys that stab me in the foot within a few days.
Sean Pyles:
Elizabeth Ayoola:
I would also appreciate a friend asking me what my savings goals are, so they know how to support that goal. However, I do think, for the sake of boundaries, I would like my friend to ask me my comfort level with the topic before they dive in and start trying to give advice.
I think it’s also important to note that not everyone is comfortable discussing money or financial goals. But with that said, here’s an example of maybe how somebody could say it. So you may say, “Hey, I want to help you reach John’s college savings goal. Are you comfortable discussing that target number you have in mind, and can you tell me how I can support that?” Or another option could be you saying, “Hey, would you like to do the math yourself and then let me know how I can support that goal?” So those are just a couple of options.
Sara Rathner:
Yeah, I mean, I’m not going to look a gift horse in the mouth. College is expensive now, and it’s only going to become even more expensive in the future. Even in-state tuition, where I live in Virginia, is often over $20,000 a year. That used to be the economical way to get a four-year degree, and now it’s also very, very expensive. So what’s it going to be like by the time my kid’s in college? I don’t know. A lot.
Sean Pyles:
I think we can confidently say more money.
Sara Rathner:
Confidently, we can say a whole lot more money.
I would want my friends to decide for themselves what they feel comfortable giving, because I don’t feel comfortable telling another person how they should allot their money because they have other competing financial goals and obligations. And I never want to tell another person what they can do with their money unless they specifically ask me to tell them what to do with their money, which nobody ever asks me.
Sean Pyles:
And you also don’t want to give the impression that your friends can’t look after their own family’s finances, right? That’s a bit of the awkwardness underlying the question, is you want to help someone that you care about and this child that you’re seeing grow up in the world, but you don’t want to impose your will upon them. It seems like our listener is being very thoughtful about that. And you don’t want to make it seem like you think they aren’t doing enough.
Sara Rathner:
Right, or you think their kids should go to a four-year private university because that’s what you value, but maybe the parents have other values that they want to impart upon their child as the kid grows up, and then the kid will go off and do their own thing as a young adult.
In my case, we have a 529 for our son. We have family members who’ve contributed money. They’ve just written checks to us, and then we deposit it into our account that is tied to our 529 and then deposit the money into the 529.
Ultimately, when you contribute, you do go through the account owners, and that’s oftentimes parent or guardians. You are going to have to communicate with them because they’re ultimately the gatekeeper of that account. They are the owners, and then the child is the beneficiary.
Sean Pyles:
That actually brings up something that I wanted to talk about, which is who would own this account? The listener could in theory open up a 529 account on their own for this kid. But long-term, it’s probably going to be easier if the parents are the owners of the account, because that way when the kid is eventually ready to go to college or trade school or what have you, the parent can be the one managing those distributions.
Personally, I know as a friend, as much as I love my friends and my friends’ kids, I don’t want to have to manage that down the road. So that’s something else that they should think about when they’re talking about this with their friends.
Sara Rathner:
I definitely agree with talking to the parents and ultimately contributing to an account that the parents or guardians are in charge of.
Sean Pyles:
Well, Elizabeth, do you have any final thoughts around 529s and helping your friend’s kids afford college?
Elizabeth Ayoola:
I think we have given some very juicy tips here and only two more things come to mind, which is one, while it’s noble to contribute to your friend’s kids or loved one’s kids’ 529 account, please take advantage of any state income tax deductions that you might be eligible for. The rules around this can be muddy. And I know the original listener who asked this question lives in a different state than where he’s contributing, but sometimes you’re able to get a deduction depending on the state that you live in. So if you can get money back, I mean, why not?
My second thing that I’ll say is that if your loved one doesn’t have a number in mind, guide them to a college savings calculator or run the numbers together over coffee if they’re open to doing that.
Sean Pyles:
Great. Well, thank you so much for coming on and talking with us.
Elizabeth Ayoola:
I loved it. Thank you for having me.
Sean Pyles:
And that is all we have for this episode. If you have a money question of your own, turn to the Nerds and call or text us your question at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected].
Visit nerdwallet.com/podcast for more info on this episode. And remember to follow, rate, and review us wherever you’re getting this podcast.
Sara Rathner:
This episode was produced by Sean Pyles and myself. Kevin Berry and Tess Vigeland helped with editing. Sara Brink mixed our audio. And a big thank you to NerdWallet’s editors for all of their help.
And here’s our brief disclaimer:
We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sean Pyles:
And with that said, until next time, turn to the Nerds.
Understanding how interest works is crucial for managing your personal finances effectively. In this article, we will dive into the two main types of interest—simple and compound interest—and explore their differences, advantages, and disadvantages. We will also provide real-life examples and tips for maximizing your interest earnings.
What is simple interest?
Simple Interest Definition and Formula
Simple interest is calculated using only the initial principal balance. The formula for calculating simple interest is:
Simple Interest = Principal x Interest Rate x Time
Principal: The initial amount of money borrowed or invested.
Interest rate: The annual percentage rate (APR) applied to the principal.
Time: The duration for which the interest is calculated, typically measured in years.
Real-life Examples of Simple Interest
Car Loan
Let’s assume you take out a car loan for $10,000 at an annual interest rate of 5% for a 3-year term. Using the simple interest formula, you can calculate the total interest payable over the loan term:
Simple Interest = Principal x Interest Rate x Time
Simple Interest = $10,000 x 0.05 x 3
Simple Interest = $1,500
In this case, the total interest you’ll pay over the 3-year term is $1,500, making the total amount payable (principal + interest) $11,500.
Certificates of Deposit (CDs)
CDs are time-bound savings products offered by banks. They typically use simple interest, with the interest payments made at regular intervals or at maturity. For example, if you invest $5,000 in a 1-year CD with an annual interest rate of 3%, you would earn:
Simple Interest = Principal x Interest Rate x Time
Simple Interest = $5,000 x 0.03 x 1
Simple Interest = $150
At the end of the 1-year term, your investment would be worth $5,150, including the initial principal and earned interest.
Advantages and Disadvantages of Simple Interest
Advantages
Easier to calculate: The simple interest formula is relatively straightforward, making it easy to understand and apply in various financial situations.
Predictable payments: For borrowers, loans with simple interest usually result in predictable and consistent payments, making it easier to budget and manage finances.
Lower interest expense for short-term borrowing: For short-term loans, the total interest paid with simple interest is typically lower than with compound interest.
Disadvantages
Less growth potential: Compared to compound interest, simple interest doesn’t account for accumulated interest, resulting in lower overall returns for long-term investments.
Limited applicability: Simple interest is less commonly used in modern financial products, making it less relevant for most individuals’ financial planning and decision-making.
What is compound interest?
Compound Interest Definition and Formula
Compound interest is calculated on both the principal balance and the interest accrued from previous periods. The compound interest formula is:
Compound Interest = Principal x (1 + Interest Rate / Number of Compounding Periods) ^ (Number of Compounding Periods x Time)
Principal: The initial amount of money borrowed or invested.
Interest rate: The annual interest rate applied to the principal.
Time: The duration for which the interest is calculated, typically measured in years.
Number of compounding periods: The frequency at which interest is compounded, such as annually, quarterly, or monthly.
Real-life Examples of Compound Interest
Savings Account
Suppose you deposit $5,000 in a high-yield savings account with an annual interest rate of 2%, compounded monthly. To calculate the future value of your savings after 5 years, you can use the compound interest formula:
Step
Calculation
Result
1
Principal x (1 + Interest Rate / Compounding Periods)
1.0016667
2
(Result from Step 1) ^ (Compounding Periods x Time)
1.0016667 ^ 60
3
Principal x (Result from Step 2)
$5,000 × 1.1047
4
Final Compound Interest
≈ $5,520.53
In this example, after 5 years, your initial $5,000 deposit would grow to approximately $5,520.53, thanks to the power of compound interest.
Retirement Account
Consider a retirement account, like a 401(k) or IRA, with an initial investment of $10,000 and an average annual return of 7%, compounded annually. After 30 years, using the following formula, your investment would be worth:
Step
Calculation
Result
1
Principal x (1 + Interest Rate)
1.07
2
(Result from Step 1) ^ Time
1.07 ^ 30
3
Principal x (Result from Step 2)
$10,000 × 7.6123
4
Final Compound Interest
≈ $76,123.29
In this case, the power of compound interest has turned your initial $10,000 investment into $76,123.29 over 30 years.
Advantages and Disadvantages of Compound Interest
Advantages
Exponential growth potential: Compound interest allows your investment or savings to grow exponentially, as interest is continually added to the principal balance and earns interest itself.
Rewards long-term investing and saving: Compound interest takes the time value of money into account, encouraging long-term investing and saving strategies.
Disadvantages
Higher interest expense for borrowers: When borrowing money, compound interest can result in higher interest expenses compared to simple interest, especially for long-term loans.
More complex calculations: Compound interest calculations can be more complex than simple interest calculations, particularly when involving varying compounding frequencies or irregular payment schedules.
Comparing Simple and Compound Interest
Visualizing the Difference
One of the most effective ways to understand the difference between simple and compound interest is to visualize their growth over time. You can create graphs or charts to compare the accumulation of interest for both types in different scenarios, such as varying principal amounts, interest rates, and time horizons.
Factors to Consider When Choosing Between Simple and Compound Interest
When deciding between simple and compound interest, consider the following factors:
Time horizon: The duration of your investment or loan term will impact which type of interest is more suitable. Generally, compounded interest is more advantageous for long-term investments, while simple interest is preferable for short-term loans or investments.
Risk tolerance: Your risk tolerance should play a role in your choice. While compound interest offers greater growth potential, it may involve more risk, depending on the underlying investment.
Financial goals: Align your choice with your specific financial goals, such as saving for retirement, buying a home, or building an emergency fund.
Tips for Maximizing Interest Earnings
Choosing the Right Financial Products
To make the most of your interest earnings, consider the following financial products:
High-yield Savings Accounts
High-yield savings accounts offer competitive interest rates and use compound interest, making them an excellent choice for growing your savings over time.
Money Market Accounts
Money market accounts typically offer higher interest rates than traditional savings accounts and also use compound interest. However, they may have higher minimum balance requirements.
CDs
CDs can be a useful option for earning a higher fixed interest rate over a specified term. They often use simple interest, making them suitable for short-term investments with predictable returns.
Bonds
Investing in bonds can provide a steady stream of interest income, with some bonds offering either simple or compound interest, depending on their terms.
Diversification
Diversifying your investment portfolio helps to balance risk and return. Consider a mix of assets, such as stocks, bonds, and real estate, to optimize your interest earnings and capitalize on the power of compound interest.
Regular Contributions
Making regular contributions to your investment or savings accounts can help you maximize your interest earnings. By consistently adding to your principal balance, you can benefit from the exponential growth of compound interest.
Reinvesting Interest
Reinvesting the interest earned from your investments can significantly boost your overall returns. By allowing the interest to compound, you can accelerate the growth of your investments.
Simple Interest vs. Compound Interest: Common Misconceptions
Misconception 1: Simple Interest is Always Cheaper for Borrowers
While simple interest can lead to lower interest expenses for short-term loans, it’s essential to evaluate each loan on a case-by-case basis. Factors such as fees, loan terms, and additional charges can influence the overall cost of borrowing.
Misconception 2: Compound Interest Always Provides Higher Returns for Investors
Although compound interest can offer exponential growth potential, the underlying investment’s performance and risk factors must be considered. It’s also crucial to consider the historical performance, fees, and management of the investment before making a decision.
Impact of Different Compounding Frequencies
The frequency at which interest is compounded can have a significant impact on your investment’s growth or your loan’s interest expense. Generally, the more frequently interest is compounded, the higher the overall returns or costs.
Daily compounding: Interest is calculated and added to the principal balance every day.
Monthly compounding: Interest is calculated and added to the principal balance every month.
Quarterly compounding: Interest is calculated and added to the principal balance every three months.
Annual compounding: Interest is calculated and added to the principal balance once a year.
Historical Perspective
Simple and compound interest have played a vital role in the development of modern financial systems. The concept of interest dates back thousands of years, with civilizations such as the Babylonians, Greeks, and Romans using different forms of interest to facilitate trade and commerce.
The idea of compound interest gained prominence during the Renaissance, with mathematicians like Leonardo Fibonacci developing formulas to calculate compound interest. Over time, compound interest became a cornerstone of modern finance, shaping the way investments and loans are structured today.
Interest Rates and Economic Conditions
Interest rates are influenced by various economic factors, including inflation, unemployment, and central bank policies. Understanding the relationship between interest rates, economic conditions, and the performance of financial products that rely on simple or compound interest is crucial for making informed financial decisions.
Debt Management Strategies
Understanding the difference between simple and compound interest can help borrowers create effective debt management strategies, such as:
Pay off high-interest debts first: Focus on repaying loans with the highest interest rates, as they can quickly accumulate interest and increase your overall debt burden.
Refinancing loans: Consider refinancing high-interest loans to secure lower interest rates or more favorable terms, potentially saving you money in the long run.
Debt consolidation: Combining multiple high-interest debts into a single loan with a lower interest rate can simplify repayments and reduce overall interest expenses.
By understanding the differences between simple and compound interest, you can make more informed financial decisions and work towards achieving your financial goals.
Tips for Borrowers
When borrowing money, it’s essential to understand the implications of simple vs. compound interest on your loan. Here are some tips for borrowers:
Shop around: Compare loans with different interest structures and rates before committing to one. Don’t just look at the interest rate; consider the overall cost of borrowing, including fees, repayment terms, and penalties.
Negotiate: In some cases, you may be able to negotiate your loan’s interest rate, particularly if you have a strong credit score and a good relationship with your lender. Lower interest rates can save you money over the life of the loan.
Extra payments: Making additional or larger payments can help reduce your loan’s principal balance, lowering the total interest you’ll pay over time. However, be sure to check if your loan has any prepayment penalties.
Monitor interest rates: Keep an eye on interest rates in the broader market, as they can impact the cost of borrowing. If rates drop significantly, you may want to consider refinancing your loan to secure a lower interest rate.
Understand loan terms: Read and understand your loan agreement’s terms and conditions, including any interest rate adjustments, payment schedules, and fees. This will help you better manage your loan and avoid surprises down the line.
Conclusion
Simple and compound interest are fundamental concepts in personal finance, influencing everything from saving and investing to borrowing money. By understanding the differences between the two, you can make smarter financial decisions and work towards achieving your financial goals.
In summary:
Simple interest is calculated on the initial principal balance only, while compound interest is calculated on both the principal balance and any accumulated interest from previous periods.
Simple interest is generally easier to calculate and results in predictable payments for borrowers, while compound interest offers exponential growth potential for investors.
Choosing between simple and compound interest depends on various factors, such as your time horizon, risk tolerance, and financial goals.
To maximize your interest earnings, consider high-yield savings accounts, money market accounts, CDs, and bonds, along with regular contributions and reinvesting interest.
Understanding the impact of different compounding frequencies and the relationship between interest rates and economic conditions can help you make more informed financial decisions.
For borrowers, managing debt effectively involves comparing loan options, negotiating interest rates, making extra payments, and understanding loan terms.
By keeping these principles in mind, you’ll be well-equipped to manage your finances and make the most of your financial journey.
Singapore Airlines is known for providing exceptional service, regardless of which cabin you fly. That excellent service starts at the check-in counter with a generous baggage allowance for all travelers — even those who book the cheaper “Lite” or “Value” fares. However, Singapore Airlines baggage policies vary based on the fare you purchase and even where you’re flying.
Let’s review what you need to know about Singapore Airlines baggage allowance.
Singapore Airlines’ baggage policies
To/from the U.S. and Canada
All Singapore Airlines passengers on flights to or from the U.S. and Canada can check two bags for free.
In economy and premium economy classes, checked bags can weigh up to 50 pounds (23 kilograms) each.
Business class, first class and Singapore Suites passengers can check bags that weigh up to 70 pounds (32 kilograms) each.
Elite status members get extra bags on top of this base allowance. KrisFlyer Elite Gold and Star Alliance Gold members (e.g. United Airlines Premier Gold and above) get an additional free checked bag for a total of three free checked bags. Singapore Airlines PPS Club members get two additional checked bags for a total of four complimentary bags.
Let’s run through a couple of examples to clarify how Singapore Airlines baggage allowance works for U.S. flights:
Non-elite economy passenger: Two bags up to 50 pounds (23 kilograms) each.
Star Alliance Gold (United Premier Gold or higher) elite in economy: Three bags up to 50 pounds (23 kilograms) each.
Star Alliance Gold (United Premier Gold or higher) elite in business class: Three bags up to 70 pounds (32 kilograms) each.
PPS Club elite flying in premium economy: Four bags up to 50 pounds (23 kilograms) each.
Regardless of the cabin, checked bag dimensions need to measure less than 62 inches (158 centimeters).
🤓Nerdy Tip
Your baggage allowance may vary if you’re using another airline first — such as flying United Airlines to connect to your Singapore Airlines flight. Check your ticket to be sure of your checked baggage allowance.
Other destinations
On Singapore Airlines flights that don’t travel to the U.S. or Canada, the airline uses a weight allowance system. Instead of limiting the number of bags you can check, you’re instead limited by a weight. Passengers can check as many bags as they’d like so long as the total weight is under the allowance.
In short, all passengers get at least 55 pounds (25 kilograms) of baggage allowance. Higher allowances are granted for passengers who book higher fares and elite status members.
Here’s the Singapore Airlines baggage allowance by fare type:
Lite and Value: 55 pounds (25 kilograms).
Standard and Flexi: 66 pounds (30 kilograms).
Premium economy: 77 pounds (35 kilograms).
Business class: 88 pounds (40 kilograms).
Suites and first class: 110 pounds (50 kilograms).
KrisFlyer Elite Gold and Star Alliance Gold elites get an additional 44 pounds (20 kilograms) of baggage allowance. PPS Club members get to double the base baggage allowance.
Baggage allowance for infants
Infants are entitled to their own baggage allowance on Singapore Airlines.
For U.S. and Canada flights, the infant baggage allowance is one piece weighing up to 50 pounds (23 kilograms) for economy and premium economy tickets or 70 pounds (32 kilograms) for business and first class tickets.
On all other flights, infants get up to 22 pounds (10 kilograms) of checked baggage allowance.
Parents traveling with an infant can also check the following:
Fully collapsible stroller or pushchair.
Carry-cot or car seat.
If you need to check more than your baggage allowance when flying Singapore, it’s going to cost you. However, it’ll cost less if you plan ahead. By purchasing your extra baggage allowance in advance, you can save up to 25% off the rate you’d pay at the airport.
Singapore Airlines’ convoluted extra baggage fee charts charge fees that vary based on the following three factors:
How far in advance you purchase the extra baggage allowance.
Whether you’re flying on Singapore Airlines flights to/from the U.S. or another region.
The distance of your flight.
You’ll get the biggest discount when purchasing excess baggage allowance more than 48 hours before your scheduled departure time. Or purchase between six and 48 hours before departure for a 10% discount.
Singapore Airlines generally doesn’t accept checked bags weighing more than 70 pounds (32 kilograms). If you need to check a bag heavier than that, the airline directs you to call your local Singapore Airlines office.
More restrictive carry-on policies
In addition to your checked baggage allowance, passengers can carry at least one piece of baggage onboard. However, the size and weight limitations for Singapore Airlines’ carry-on bags is less than what many U.S. travelers may be accustomed to.
Regardless of the cabin, your carry-on bag cannot weigh more than 15 pounds (7 kilograms), and the dimensions cannot exceed 45 inches (115 centimeters). For reference, an Away Original Carry-On suitcase barely fits these limitations, measuring a combined 44.4 inches (112.8 centimeters).
Economy and premium economy passengers can carry one bag on board. Business class, first class and Singapore Suites passengers can carry on up to two bags — subject to the same size and weight limitations.
Singapore Airlines baggage policies recapped
The baggage allowance on Singapore Airlines depends on your cabin and where you’re flying. For flights going to or from the U.S. or Canada, all passengers can check up to two bags weighing up to 50 pounds (23 kilograms) and carry on one bag weighing up to 15 pounds (7 kilograms).
On flights not touching the U.S. and Canada, passengers get at least 55 pounds (25 kilograms) of checked baggage allowance plus one carry-on bag weighing up to 15 pounds (7 kilograms).
Star Alliance Gold elites — which includes United Premier Gold and above — get an additional free checked bag or extra baggage weight allowance, depending on the type of flight. Plus, business and first class passengers can carry a second bag onboard.
How to maximize your rewards
You want a travel credit card that prioritizes what’s important to you. Here are our picks for the best travel credit cards of 2024, including those best for:
Looking for the best summer jobs for teachers? Teachers, just like students, really enjoy the summer break. It’s a great time for them to relax and feel refreshed. But, this break can also be a chance for teachers to make extra money and even start a new business. I know many, many teachers who have…
Looking for the best summer jobs for teachers?
Teachers, just like students, really enjoy the summer break. It’s a great time for them to relax and feel refreshed. But, this break can also be a chance for teachers to make extra money and even start a new business.
I know many, many teachers who have side hustles in the summer. From part-time gigs to full-time summer businesses, there are many side jobs for teachers that you may want to try out.
Best Summer Jobs for Teachers
There are many summer jobs for teachers listed below. If you want to skip the list, here are some jobs that you may want to start learning more about first:
Flexible way to freelance – Proofreading
Side job for teachers from home – Blogging
How to make passive income as a teacher – Sell printables
Work as much or as little as you want – Flea market flipping
Creative job idea – Dog treat baker
Side job for teachers in summer – Grocery shopper
Camp counselor – If you love the outdoors, being a camp educator can be both rewarding and enjoyable, combining teaching with adventure activities.
Summer school teacher – Many schools have summer classes where you can continue teaching.
1. Teach summer school
One clear way for teachers to earn extra money in the summer is by teaching summer school.
It’s a good way to use your teaching abilities and make some additional income. The best part is that summer school happens during your summer break (big surprise, right?!), so it fits well with your schedule when you’re already off from regular school.
To start, check with your local school districts. A lot of them have summer school programs, and they usually share job opportunities on their websites or local education job boards.
2. Sell educational printables
Selling educational printables is a way for teachers to earn extra money. It’s especially good for those who want to make passive income as a teacher.
Your materials, like worksheets, lesson plans, and activities, are helpful to other teachers and parents looking for high-quality educational content.
Some places to sell your educational printables include:
Teachers Pay Teachers(TPT) – This is a popular site where millions of teachers buy and sell original educational resources.
Etsy – This site is known for handmade items, but also is a great place for selling educational materials and printables.
Educational printables include things like math problems, vocabulary cards, and science experiments. They’re useful for different grades, age groups, and learning goals, making it simple to improve regular teaching or homeschooling. You can share these resources online or print them for in-person classes too.
Recommended reading: How I Make $400,000 Per Year Selling Educational Printables.
Do you want to make money selling printables online? This free training will give you great ideas on what you can sell, how to get started, the costs, and how to make sales.
3. Flip used items for resale
Trying your hand at flipping items from flea markets and thrift shops can be a fun and money-making summer job for you as a teacher.
Flippers are people who find items at flea markets, yard sales, and thrift stores that are priced lower than their actual value. They then sell these items for a profit.
The summer is a great time to do this because there are typically a lot of yard sales, flea markets, and people just in general decluttering more (so you may find more things that people are giving away), where you can find items to resell.
Some items that you can buy and resell include clothing, antique furniture, collectible toys, sports equipment, electronics, rare books, jewelry, and more.
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This free workshop will teach you how to get into the flipping business. It will teach you how to resell furniture, electronics, appliances, and anything else you can find.
4. Tutor
During the summer, your teaching skills are still needed. Tutoring can be a flexible and fulfilling summer job that lets you work with students one-on-one either online or in person.
You may be able to tutor on subjects like math, foreign language, science, and more. You also may be tutoring kids, teenagers, or even adults.
To begin, you can look for tutoring jobs on online tutoring sites like Tutor.com. You can also sell in-person local tutoring sessions by reaching out to tutoring companies nearby or advertising your services on social media or in local Facebook parent groups for your area.
5. Camp counselor
Becoming a camp counselor could be a rewarding experience for you in the summer. In this job, you’d guide groups of children through indoor and outdoor activities, as well as educational programs at summer camps.
Your daily tasks would include keeping campers safe, organizing games, and giving both educational and emotional support.
Summer camps come in different types, ranging from general adventure camps to specialized ones focusing on sports, arts, or science.
6. Freelance bookkeeping gigs
If you like numbers and you’re a teacher, online bookkeeping can be a way to spend your summer.
A bookkeeper is someone who assists in managing and tracking the financial aspects of a business. They usually keep records of sales, track expenses, and generate financial reports.
People with virtual bookkeeping jobs work from home, handling their responsibilities remotely. Virtual bookkeeping is a great choice for remote work as all tasks can be completed online or with computer software, eliminating the need to go into an office physically.
Recommended reading: How To Find Online Bookkeeping Jobs
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This free training will teach you what you need to know to become a virtual bookkeeper and make money from home.
7. Swim instructor
If you’re a teacher who loves the water, becoming a swim instructor for the summer could be the perfect seasonal job for you. Your educational background gives you the ability to communicate and manage classes, which are important skills for teaching swimming.
To find swim instructor jobs:
Look on websites like Craigslist or Facebook for listings, including summer-specific roles.
Check out local community centers, pools, and summer camps.
Networking can help, so let friends and professional contacts know you’re looking.
Another job similar to this would be to become a lifeguard at a local pool.
8. Tour guide for local attractions
As a teacher, your ability to tell stories and lead can be very useful for a summer job as a tour guide. Your skill in explaining things well makes you a great choice to share history and local stories with visitors.
Check out jobs at museums, historical places, or become an ambassador for your city by guiding people to discover hidden treasures.
9. Pet care jobs
If you’re a teacher who loves animals, you may want to look into summer jobs in pet care, like being a dog walker or pet sitter. Your caring skills can easily transition to taking good care of furry friends while students are on break.
Rover is a website that connects pet owners with pet sitters and dog walkers. You can choose to do this job on weekends throughout the year or only open your schedule during the summer months – it’s your choice.
Starting on Rover is simple – you create a profile sharing your experience with pets and the services you can offer, such as dog walking, pet sitting, and house sitting.
After that, customers will send you requests, and you can discuss pricing. Rover handles the payment process, and you’ll get paid directly into your account.
Recommended reading: 7 Best Dog Walking Apps To Make Extra Money
10. Test prep instructor
As a teacher, your knowledge of academic subjects is very helpful, especially in the summer. Becoming a test prep instructor can be a great chance to help students in getting ready for their exams and earn extra money.
Test prep instructor jobs include subjects like math and English, and they cater to different education levels, from elementary school to college.
11. Sell your lesson plans
Teachers Pay Teachers (TPT) is a website made just for educators to buy and sell educational items, and it’s a well-liked side hustle for teachers. If you’ve created lesson plans, worksheets, or other teaching tools for your class, you can share them on TPT and make some extra income.
The school year may be over for you, but that doesn’t mean that you can’t create and sell lesson plans – these are bought year-round!
You can sell:
Lesson plans and unit studies
Worksheets and printable activities
PowerPoint presentations and interactive notebooks
Posters, charts, and visual aids
On Teachers Pay Teachers, the typical teacher can earn around an extra $300 to $500. However, some teachers make hundreds of thousands of dollars extra each year.
12. Coach a school sport
If you love sports and you’re a teacher, coaching a school sport during the summer might be a great match for your skills and interests.
Coaching a school sport is a great option within your own school district, as many schools need help with their sports teams. You can try coaching sports like soccer, basketball, volleyball, and track and field. Additionally, there are opportunities with after-school clubs such as yearbook, chess, choir, and more that can be a teacher’s side hustle.
13. Run a dog bakery
Beginning a dog bakery can be an enjoyable side job for teachers who adore both dogs and baking. By creating treats for dogs such as cupcakes, cookies, cakes, and more, you can earn an additional $500 to $1,000, or even more, each month.
Recommended reading: How I Make $4,000 Per Month Baking Dog Treats (With Zero Baking Experience!).
14. Sell handmade goods on Etsy
Etsy is a popular online marketplace that connects makers and shoppers looking for unique handmade goods. If you’re a teacher with a creative side, this could be a great site for you to showcase and sell your crafts during the summer months.
Some examples of what you can sell on Etsy that are related to school include:
Educational games and activities
Educational materials like lesson planners and printable worksheets
Handcrafted classroom decorations or educational games
Personalized items such as bookmarks, nameplates, or tote bags
But, you don’t have to only sell teaching-related items. You can sell many other things such as furniture, clothing, jewelry, soap, home decor, and more.
15. Work at a restaurant
Many teachers work part-time or full-time at a restaurant during the summer as servers, hosts, bartenders, and kitchen staff.
Working in restaurants can fit teachers well since they have flexible hours that can match your open summer schedule, and you can leave the job easily once school resumes in the fall.
I know many, many people who have done this, and I would say this is one of the top summer jobs for teachers.
16. Proofread
As a teacher, you likely excel at proofreading and can easily catch mistakes. Using these skills, proofreading can be a fantastic side job. By proofreading, you can help authors, website owners, students, and others in their writing while earning extra income.
Even the best writers can overlook errors in grammar, punctuation, and spelling. That’s why having a proofreader can be helpful for nearly everyone.
You can usually set your own hours, which is perfect for the irregular schedules you might have.
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This free 76-minute workshop answers all of the most common questions about how to become a proofreader, and even talks about the 5 signs that proofreading could be a perfect fit for you.
17. House sit
House sitting is a good option for teachers looking to make extra income during the summer months because a lot of people take vacations in the summer. As a house sitter, you are typically responsible for maintaining someone’s home while they are away. This can include watering plants, collecting mail, and making sure the house remains secure.
People hire house sitters to make sure their homes aren’t left empty, as a visible presence can discourage potential thefts.
To begin house sitting, you can join house-sitting websites to find gigs in your area or ask for referrals from friends and family. Starting with people you know for house-sitting and then using their references can expand your job search.
18. Blog
Blogging can be an enjoyable way for you, as a teacher, to earn extra money from home. Many teachers run blogs, and it makes sense – you can blog when you have free time, without sticking to a strict schedule.
To start your blog, first, pick a topic you’re passionate about, maybe something related to your teaching field or a hobby you enjoy. There are plenty of different niche ideas such as personal finance, travel, food, home, pets, and so much more.
You can earn money as a blogger through ways like:
Affiliate marketing – Share links to products or services related to your blog topic and earn a commission for sales made through your referral links.
Advertising – Add display ads or sponsored posts on your blog.
Courses and ebooks – Create courses or ebooks in your expertise area and sell them through your blog.
Learn more at How To Start A Blog FREE Course.
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Want to see how I built a $5,000,000 blog?
In this free course, I show you how to create a blog, from the technical side to earning your first income and attracting readers.
19. Freelance writing
If you’re looking for remote summer jobs for teachers, then becoming a freelance writer can be a great option.
Freelance writers create content for blogs, websites, magazines, newspapers, advertising companies, and more. You can find writing jobs on platforms like Upwork and Fiverr. Also, you can find clients independently by reaching out to websites you are interested in writing for.
I have been a freelance writer for years, and it all started as a side hustle. This is a great side hustle because you can choose to work as much or as little as you want, such as if you are only looking to do freelance writing in the summer months when you are not teaching at a school.
Recommended reading: 14 Places To Find Beginner Freelance Writing Jobs
20. Transcribe
An online transcriptionist’s role involves listening to video or audio files and typing out the content they hear. Various types of transcriptionists exist, including legal, general, and medical transcriptionists.
This job demands solid typing and listening skills, and the flexibility to work from home on your schedule. Transcriptionists typically earn an average of $15 to $30 per hour.
This is another great side hustle because you can choose to work as much or as little as you want, such as if you are only looking to make extra money during the summer months.
I recommend signing up for FREE Workshop: Is a Career in Transcription Right for You? You’ll learn how to get started as a transcriptionist, how you can find transcription work, and more.
Recommended reading: 18 Best Beginner Online Transcription Jobs To Make $2,000 Monthly
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In this free training, you will learn what transcription is, why it’s a highly in-demand skill, who hires transcriptionists, how to become a transcriptionist, and more.
21. Rent out an unused room in your home
If you have a spare room in your house, you might want to try renting it out over the summer. Platforms such as Airbnb or Vrbo make it easy for you.
I have rented out rooms to others in the past, and it has been a great way to make extra money. If you live in a touristy area, this could even be a gig that you only do in the summers and earn enough to cover your bills or at least pay for some of them.
22. Rent your garage space
If you have available storage space like a garage, driveway, closet, basement, or attic, you might consider renting it out to make extra money. This can be a profitable side hustle without requiring much of your spare time.
Neighbor is a platform where you can list your extra space for rent and potentially earn up to $15,000 per year.
This is a gig that may take up more than just your summer because typically people may store their stuff more long-term. But, you may find some people who only need to store things a few months at a time or perhaps you can also try to turn this into a year-round side hustle.
Recommended reading: Neighbor Review: Make Money Renting Your Storage Space
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You can use this website to list your unused space for rent and make up to $15,000 per year by doing so. With Neighbor, you can rent out your garage, driveway, basement, parking lot, shed, warehouse, carport, attic, street parking, or even a closet.
23. Teach English as a second language
If you’re a teacher looking for a seasonal opportunity, teaching English as a second language (ESL) during the summer can be a rewarding experience.
Many institutions are looking to hire for ESL teaching jobs, ranging from local schools to international language camps and online platforms. Here’s how you can get started and what you might expect:
Typically, ESL teachers need a bachelor’s degree and a teaching credential like TEFL (teaching English as a foreign language) certification. Some positions abroad might have additional requirements.
24. Answer online surveys
If you’re looking for a flexible way to earn extra cash during the summer, answering online surveys could be a great fit. Companies are always in search of genuine feedback to improve their products or services, and your opinions are valuable.
Now, this won’t be a full-time job, but you share your thoughts and can make extra money or free gift cards on your own schedule.
The survey companies I recommend are:
Swagbucks
User Interviews – These are the highest paying surveys with the average being around $60 for an hour of your time.
Branded Surveys
American Consumer Opinion
Pinecone Research
PrizeRebel
InboxDollars
Recommended reading: 18 Best Paid Survey Sites To Make $100+ Per Month
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User Interviews pays very well for market research studies and these are some of the highest paying online surveys, with each paying $50 to $100 or more. The average pays over $60.
25. Mystery shop
Companies hire mystery shoppers to gain insights into their customers’ experiences. They seek genuine opinions on products, feedback on customer treatment, evaluations of phone call interactions, and more. Mystery shoppers play a key role in providing valuable feedback to companies.
This is a great summer side hustle for teachers because you can simply pick up mystery shopping jobs when you need them. So, it’s completely okay and normal to only accept jobs during the summer.
Here’s what mystery shoppers do:
Visit businesses anonymously.
Complete specific tasks, such as purchasing a product or asking questions.
Record your observations.
Provide a detailed report on your experience.
I have done many secret shopping jobs over the years, and I often got mystery shops that provided me with $100 to cover a free dinner.
Recommended reading: How To Become A Mystery Shopper
26. Find gigs on Craigslist
Craigslist can be a goldmine for finding great summer jobs for teachers. It’s a site where individuals and businesses post quick jobs to make extra money.
You can find these gigs by going to the Craigslist website for your city or area. Right on the home page, you’ll spot a section labeled “Gigs.” This is where short-term job offers are posted, ranging from labor-intensive tasks to more skill-specific roles.
Here are some jobs I have found in the past on Craigslist:
Moving boxes to a new house
Deep cleaning a home
Putting together new furniture out of a box
Taking down a shed in a backyard
Handyman
Movie extra
Event parking help
27. Deliver groceries with Instacart
If you’re a teacher looking for flexible summer jobs for teachers, try delivering groceries with Instacart.
Grocery delivery services, like Instacart, are in demand as more people prefer having someone else do their grocery shopping.
Becoming a personal grocery shopper with services like Instacart can earn you an average of $15 to $20 per hour for delivering groceries. You’re paid per order, and you get to keep 100% of your tips. The flexibility allows teachers to choose their schedules, working in the evenings, on weekends, or even exclusively during the summer.
Recommended reading: Instacart Shopper Review: How much do Instacart Shoppers earn?
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Instacart is a popular website for people looking to earn extra money shopping for and delivering groceries. Instacart gives you the option to turn your free time into a chance to make some extra money.
28. Real estate agent
If you’re a teacher looking for a productive way to spend your summer months, you may consider becoming a real estate agent.
Some teachers work as real estate agents alongside their full-time teaching jobs. This is possible because you can list and sell homes during weekends, breaks, evenings, and over the summer.
However, selling homes may have some challenges, as clients may occasionally require your full attention during the day, and you might be occupied with teaching. This is something to consider before getting into real estate as a side job.
29. Virtual assistant
If you’re a teacher looking for a flexible summer job that pays well, becoming a virtual assistant (VA) could be a perfect fit. As a VA, you can use your organizational skills and attention to detail to help businesses and entrepreneurs from the comfort of your home.
Some examples of what a VA does include:
Email management – Keep inboxes organized and respond to emails on behalf of your clients.
Scheduling – Manage calendars, arrange meetings, and send reminders.
File organization – Keep digital files in order using online tools like Google Drive or Dropbox.
Recommended reading: Best Ways To Find Virtual Assistant Jobs
30. Drive for Uber or Lyft
Driving for Uber or Lyft can give you a flexible way to earn money during your summer break.
You get to set your own hours and work as much or as little as you desire, meaning you can align this job with your summer plans.
31. Library assistant
As a teacher, your skills are a natural fit for a summer position as a library assistant. Libraries often seek additional staff during the summer months, providing a great opportunity for you to engage in a role that supports literacy and learning in a calm environment.
Your job may include doing things such as:
Organizing books – Keeping the library orderly and materials easy to access
Circulation desk duties – Checking books in and out for people
Helping library users – Helping visitors find books and resources, and answering inquiries
You can simply contact libraries near you to see if they are hiring.
32. Driver’s ed teacher
Teaching driving lessons to teenagers and adults is a popular side hustle for teachers. If you’re interested, you can check if the high school near you needs a teacher for this subject. Alternatively, reach out to a local driving school to inquire about potential teaching opportunities.
Driving instructors make around $20 an hour more or less, depending on where you live.
Back when I was in high school, I actually took my driver’s ed course at my high school in the summer. It was an easy summer credit, and I also got a discount on my car insurance. One of the teachers taught this course and it seemed fairly easy (other than having to deal with a bunch of us high school students over the summer who were wanting to learn how to drive, ha!).
33. Babysitting
Babysitting can be a side job for teachers, and depending on your location, you might earn around $15 to $25 per hour. Parents tend to prefer hiring teachers as babysitters due to their extensive experience with children.
Becoming a babysitter can be a great way to make extra money in the summer as well, as you can choose to sign up for babysitting jobs that are only during this time.
Plus, many families need extra help during the summer because school is not in session, but the parents still have to work. That is where you come in!
Another job similar to this would be elderly companion care.
Frequently Asked Questions
Below are answers to common questions about finding summer jobs for teachers.
Do teachers still make money during the summer?
Yes, many teachers do receive income during the summer, especially if their annual salary is distributed over 12 months. However, if you’re paid only for the months you work, looking for summer employment can supplement your income during this period. Not all teachers have summer gigs, but those who want to make income in addition to their teacher salaries may try to find something in the summer.
What is the best summer job for a teacher?
The best summer job for a teacher often capitalizes on their skill set. Positions like tutoring, educational program coordination, or teaching summer school are highly relevant options. Teachers might also consider roles in curriculum development or educational content creation.
What jobs exist for substitute teachers looking for summer employment?
Substitute teachers can find summer jobs in other educational roles, such as tutoring, mentoring, or working in summer camps. Many community centers and educational institutions also look for qualified professionals to lead summer workshops or help with childcare programs.
What are some summer jobs for teachers from home?
Teachers looking for summer jobs from home can find opportunities such as online tutoring or virtual summer school teaching. Other side gig ideas include writing content for websites, blogging, transcribing, and more.
Best Summer Jobs for Teachers – Summary
I hope you enjoyed this article on the best summer jobs for teachers.
As you can see, there are many ways to make extra money over your summer vacation.
Teachers have lots of options during the summer. They can stick with education by teaching summer school or tutoring. Or, they can try something new like being a camp counselor or giving local tours.
Teachers who like trying out new things might sell educational printables, sell things for profit, or sell services like pet care or freelance writing.
What do you think are the best jobs for teachers in the summer?
Why should lenders and vendors care about servicing? (STRATMOR’s current blog is titled, “It’s 2024: Do You Know Where Your Servicing Is?”) Not only do servicing values fluctuate, which impacts the prices that borrowers see, but servicing is a huge touchpoint with consumers and therefore garners the attention of regulators like the CFPB, headlines, and the courts. The latest example is a California couple suing Specialized Loan Servicing, LLC for negligence that led to a “lost home and destroyed life.” Of course, anyone can sue anyone at any time, but the multi-count lawsuit against Specialized Loan Servicing, LLC alleges breach of contract, theft, and several other counts, accusing SLS of negligence as the mortgage servicer added a quarter of a million dollars to the couple’s mortgage, leading to their “financial and personal ruin.” (Today’s Commentary podcast can be found here and this week’s is sponsored by Lender Toolkit and its AI-powered AI Underwriter and Prism borrower income automation tools. By providing lightning-fast underwriting decisions, your market reputation with borrowers and Realtors will soar, which means more repeat and referral business. Hear an interview with Jeremy Potter and Marvin Chang on broader and more flexible tools for homeowners to navigate our fast-paced and modern economy.)
Lender and Broker Software, Products, and Services
What’s better than a free consultation from a mortgage tech expert? Getting the advice of six. That’s what’s in store if you join “Strategies to Master the Market Now with the Right Mortgage Technology,” next Wednesday, Feb. 21 at 2 pm ET. This free webinar, co-sponsored by Floify and Truv, Christy Soukhamneut, chief lending officer at UFCU; Raven Johnson, VP business systems at Legacy Mutual Mortgage; Craig Ungaro, COO AnnieMac Home Mortgage; features Jodi Hall, founder & CEO of DandaRoad, LLC; Richard Grieser, vice president of marketing at Truv; and Sofia Rossato, president & GM of Floify. Click here to register.
Shake it up + flashback to the 80s with Sagent at MBA Servicing! Be part of the most EPIC MBA Servicing party and shake it up with Sagent on Wed. 2/21 at 7PM ET at Jo Jo’s Shake Bar. Join the team and top industry players for some boozy milkshakes + throwback jams, where you’ll be dancing ‘All Night Long’… Don’t forget to pack your best 80s attire (think Member’s Only jackets, parachute pants) because this party is one you don’t want to miss. Click the link here reserve your spot and we’ll see you there!
“Tired of messy or late closings? LOs know that even if they provide the most amazing customer service, it won’t mean anything if there are delays in getting their borrower’s mortgage approved and closed. The biggest lenders are offering same-day approvals, and so can you. Lender Toolkit’s AI-powered AI Underwriter™ and Prism™ income automation help streamline underwriting so that you can get loans approved faster than ever. By providing almost-instantaneous underwriting decisions, your market reputation with borrowers and Realtors will soar, which means more repeat and referral business. Notes Mark Workens, CEO Mortgage 1: “My company’s ability to be profitable in any market condition is largely due to Lender Toolkit’s Maas™ Platform, including AI Underwriter and Prism.” So why get left behind? Schedule a demo here, or meet us in person for a live demo at EXP24 next month by booking here. We can’t wait to show you what’s possible with our high-tech solutions.”
New: Maxwell’s Q4 2023 Mortgage Lending Report Shows Signs of Market Recovery. Wondering what to expect from 2024’s market? Maxwell’s brand new Q4 2023 Lending Report shows powerful signs of market recovery. In a major reversal, loan volume in Q4 grew year-over-year for the first time since 2021. Plus, the report reveals areas where lenders are finding opportunity, such as through outside-the-box offerings like HELOCs. To gain exclusive data, charts, and advice on how to get ahead of the market reset, click here to download Maxwell’s Q4 2023 Mortgage Lending Report.
Get a Sweetheart Deal with Loan Stream’s February Specials on FHA/VA and Non-QM Price Improvements! Get 37.5 BPS Price Improvement on all FHA and VA, Low Balance, and High Balance >=680 FICO, excludes DPA and 25 BPS Price Improvement on FHA Streamlines/IRRRLS. Plus, a Non-QM Price improvement of 50 BPS on all Non-QM, not including Closed End Seconds and Select Programs. Valid for loans locked 2/1/2024 through 2/29/2024. Terms/Conditions apply see our site and talk with your Account Executive. Don’t miss this month’s webinar on Closed End Seconds and how to Prepare for the CalHFA Dream for All. Register now!
Lenders and borrowers deserve technology that improves the mortgage process, saves time and money, and is intuitive. As both a startup and a company with decades of technology experience, Dark Matter Technologies (DMT) has a unique vantage point for identifying how to improve value for customers, and how to work with an ecosystem of like-minded partners to bring many of those ideas to fruition. In its latest podcast episode, The Spotlight, we meet Chief Product Officer Stephanie Durflinger, the 15-year industry veteran now guiding DMT’s product development team. Stephanie formerly held key positions at both ICE Mortgage Technology and Ellie Mae and brings her unique perspective and discerning eye to guiding the future of Empower and other DMT products. The podcast is hosted by DMT Vice President of Marketing Wes Horbatuck. Listen to the interview now.
Picture this… it’s Saturday afternoon and your borrower finds out they were out-bid and have a small window to decide if they want to offer more on their dream home. You’re at your kid’s soccer game and they’re in panic mode… how much does the payment increase? How much more cash will I need? When can I get an updated pre-approval letter? Fortunately, it’s 2024 and lenders using QuickQual never have to worry about this. Borrowers AND Realtors AND Loan Officers can run accurate payment and closing cost scenarios from their phones and they can generate updated pre-approval letters within guardrails set by the loan officer. Crisis averted with QuickQual.
Technology and operations leaders who care about making sure their technology and operations are competitive for today’s market, as well as learning what’s possible when you push the limits, you don’t want to miss this live event! On February 15, at 1PM CT come join Jonathan Spinetto, COO and Co-Founder of NFTYDoor, Janelle Lindseth, Senior Product Manager of Docutech, and Richard Grieser, Vice President of Marketing of TRUV, as they unpack how Jonathan and his team launched the business with zero loan volume, and in just 2 years, NFTYDoor debuted its digital home equity loan platform, was acquired by Homebridge, and is now on track to reach 3,000 loans per month in 2024, making them a major player in the market. Their technology is built from the ground up and processes everything from credit, KYC, valuations, disclosures, closing (RON), and payments, and all in full regulatory compliance. This is a success story as Jonathan and his team pushed the limits and accepted the risk, but those lessons learned can be immediately applied by you. Come and see the future of lending technology.
Capital Markets
The link between interest rates, mortgage rates, and borrower behavior is always changing. Although the Federal Reserve is apparently “on hold” until its May meeting, it is still important to see and understand what will cause interest rates to move higher and lower over time. Mortgage rates have stayed close to where they started the year, despite swings in Treasury yields because of slowing inflation offset by stronger than expected readings on the job and the housing markets.
The U.S. Federal Reserve is keenly aware of inflation. No news was good news when it came to inflation revision data to close last week, with the Consumer Price Index revised downward slightly in December and the fourth quarter left unchanged at 3.3 percent. A year ago, revisions to the November and December 2022 reports showed higher core inflation than what was initially reported, sending bond yields higher as investors prepared for a “higher for longer” interest rate environment. Dallas Fed President Logan said that disinflation progress has been “tremendous,” but the central bank is in no rush to start lowering interest rates.
The CPI revisions likely give the Federal Reserve further breathing room while allaying any concerns traders might have had about progress on inflation. The revisions were also in sharp contrast to last year’s, in which CPI was revised significantly higher. It’s not at the “magic” 2 percent level, but there is progress. Easing inflation data, a resilient economy and a solid earnings season so far have sparked this year’s stock market rally, which has seen the three major averages tallying their fifth straight weekly gains, and this adds to consumer confidence.
The narrative of late has been a resilient U.S. economy, with low unemployment, inflation largely under control, and the Fed’s fabled soft landing very much in sight. Focus now shifts to January’s CPI tomorrow and if price pressures continue to recede, it may pave the way for the Fed to begin cutting interest rates sooner rather than later.
We also learned last week that January’s ISM Services Index rose to 53.4 from 50.5 in December. The expansion in the services sector of the economy exceeded economists’ expectations as consumers return to pre-pandemic spending behaviors. The prices paid subindex jumped from 56.7 to 64.0, a sign that inflationary pressures remain. This was the largest monthly percentage gain since August 2012.
Consumer spending remains strong and despite higher interest rates, expanded to a record $5.1 trillion in December, although the pace of consumer credit expansion declined from 7.6 percent in 2022 to 2.4 percent in 2023. Rising incomes due to a strong labor market are expected to support the pace of consumer spending as a meaningful slowdown in the job market has yet to materialize. Jobless claims fell to 218,000 during the week ending February 3 and continuing claims declined to 1.87 million, suggesting that those who do find themselves in the job market do not remain there for long.
This week sees the return of “first tier” data including updates on CPI, retail sales, industrial production / capacity utilization, PPI, and Michigan sentiment. Other data includes regional Fed surveys, import prices, factory orders, NAHB HMI, and housing starts. Fed speakers are currently limited to a few Fed presidents, while Treasury supply will consist of just bills. Regarding MBS, Class B and C 48-hours are tomorrow and Thursday, respectively.
Today’s lone data point is the January budget statement, due out this afternoon, with the CBO forecasting a deficit of $21 billion, compared with $38.8 billion in the prior fiscal year. Markets will also receive remarks from Minneapolis Fed President Kashkari. We begin Monday with Agency MBS prices a few 32nds (ticks) better than Friday afternoon, the 10-year yielding 4.16 after closing last week at 4.19 percent, and the 2-year is at 4.46.
Jobs
“Hey, mortgage sales professionals DO NOT join radius financial group for our amazing culture, president club trips, best workplace accolades, 100 percent 401K match or because of our shared success program which grants phantom stock to ALL employees. Join radius to grow your business, mortgage team and wealth. Over the past 23 years, radius has become the best at what we do by caring intensely about the career growth of our team members and investing in technology that simplifies and automates our process. We are a world-class customer obsessed team focused on our loan officers’ growth and success. So, if you want real opportunities to grow, the ability to make a positive impact starting on day one and the freedom to chart the career you’ve always wanted, at radius, you can! For confidential inquires please contact Carla Herrera and visit us at radius financial group inc., Mortgage Lending Careers.
The Money Store has announced that Coleen Bogle has joined the mortgage lender as its Chief Marketing Officer. Bogle has more than 15 years of experience leading marketing departments in the home financing industry, and in her new role, she will focus on enhancing the brand, expanding marketing services, and attracting top-tier mortgage origination talent to the organization.
Private mortgage insurance companies are hiring: MGIC, National MI, Arch MI, Radian, Essent, and Enact (in no particular order). And while’s we’re at it, Fannie Mae and Freddie Mac. And my cat Myrtle’s friend the CFPB has career opportunities.
Don’t forget that anyone can post a resume, for free, at www.lendernews.com for potential employers to view for a nominal charge of $75 for several months.
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People have been screaming about a housing bubble crash on social media sites for over 12 years. The truth is, U.S. housing credit looks very different than in 2005, 2006, 2007 or 2008. Homeowners have actually never looked better and the data from the Federal Reserve‘s Quarterly Report on Household Debt and Credit shows why.
Homeowners are not the people we need to be concerned about this time. Renters, younger renter households and those with lower FICO scores are the ones showing credit stress today. Homeowners, on the other hand, are sitting pretty and are the envy of the world.
Bankruptcies and foreclosures
After 2010, the qualified mortgage laws came into play and all the exotic loan debt structures in the system, especially in the run-up in demand from 2002 to 2005, disappeared. This means housing should only show financial stress when people lose their jobs and cannot pay their mortgages — not because the loan structures are a ticking time bomb.
As shown below, we saw massive credit stress in the data from 2005 to 2008, all before the job loss recession happened. It was there for everyone to see and read. Now, that same chart shows that homeowners don’t have credit stress. So, for those still saying housing is in a bubble: Where’s the beef?
From the report: About 40,000 individuals had new foreclosure notations on their credit reports, mostly unchanged from the previous quarter. New foreclosures have stayed very low since the CARES Act moratorium was lifted.
FICO score and cash flow
When I speak at events around the country and put up this chart, I always say, what a beautiful-looking chart! That’s because after 2010, people got 30-year fixed mortgages and every year, as their wages rose, their cash flow versus the debt cost of their home got better. Then add three refinancing waves in 2012, 2016 and 2020-2021, and you can see why homeowners are in a good spot.
During inflationary periods, wages grow faster than usual, so housing debt costs much less. Also, people live in their homes longer and longer as they age and their yearly income lowers their housing costs. One note on this subject: we had an explosion of households with FICO scores of 740+ during COVID-19. A lot of rookie economists said this was FICO score inflation. But the data has been the same since 2010: we just originated more loans during this time — purchases and refinances — so the data didn’t get better, it stayed roughly the same.
From the report: The median credit score for newly originated mortgages was flat at 770, while the median credit score of newly originated auto loans was one point higher than last quarter at 720.
Delinquency status
When the next job loss recession hits, we should all expect credit stress in housing to start rising. Every month, people get fired and can’t find work right away. This is why jobless claims are never zero and we have a constant amount of 30-60 days late every month. However, since we are working from near record lows in credit delinquency data and the homeowners’ households are in such good financial shape, the credit stress data won’t be like what we saw in 2008.
Over 40% of homes in America don’t even have a mortgage, and we have a lot of nested equity, so if worst comes to worst, many homeowners who bought homes from 2010-2020 have a ton of equity and can sell. Remember, the foreclosure process typically will take 9-18 months from start to finish, meaning that homes come to market as market supply due to the legal process we have in-housing. This is very unlike 2008, where we had four years of credit stress building up in the system.
From the report: Early delinquency transition rates for mortgages increased by 0.2 percentage point yet remain low by historic standards.
Hopefully, between the charts and the explanations, you can see why it’s not housing 2008. However, we do see credit stress in the data for younger households and those with lower FICO scores. The people that Jerome Powell says he wants to help at each meeting are showing credit stress.
The Fed missed the housing bubble credit stress when it was apparent in the run-up to 2008, and now they’re turning a blind eye to those who aren’t homeowners by keeping policy too restrictive, due to some devotion to a 1970s inflation model that doesn’t exist today. Or, as I’ve said since 2022, they’re old and slow. It’s the nature of the beast.
Introducing the NEW HousingWire Mortgage Rates Center, a resource for housing professionals to access real-time mortgage rates data and the insights that fuel understanding and decision-making.
HousingWire is dedicated to providing housing professionals with the full picture, and while there are many places to find rates information, the Mortgages Rates Center takes a nuanced approach – coupling data with context. Each day HousingWire will help explain what’s happening in the world of mortgage rates with a quick explainer of current market drivers and a video that goes into more depth on today’s market dynamics – led by HousingWire Lead Analyst Logan Mohtashami.
Feb. 6: “Mortgage pricing should be a bit better today. The 10-year yield is slightly lower, but yesterday, the spreads were terrible, so just some improvement in that can lead to slightly better pricing today.”
–Logan Mohtashami, HousingWire Lead Analyst
To create this experience for users, HousingWire tapped the pricing expertise of Polly to power the rates data. Polly’s advanced data science capabilities and diverse data sets enable HousingWire to deliver the most accurate representation of rates across the entirety of the mortgage market. This data set is modeled using real-time locked rates with consumers nationwide.
“The new Mortgage Rates Center is without question the best resource to gather detail on economic and market data that can impact mortgage pricing,” says HousingWire Lead Analyst Logan Mohtashami. “Especially in today’s environment, lenders have to stay informed on what is happening as it happens, and particularly how the 10-year yield ties to current mortgage rates. When business can be won or lost in a matter of minutes based on intraday shifts, this information is power.”
The Mortgage Rates Center also includes charting capabilities that empower users to analyze rate trends over different time series and products. The dynamic charts are downloadable and shareable for housing professionals to leverage in sales conversations, marketing collateral and on social media.
In a statement about the Mortgage Rates Center, Polly CEO Adam Carmel shared “I’ve been an avid HousingWire reader since I began my career in mortgage more than a decade ago, and the publication remains the go-to source for relevant and timely industry information.”
“We are ecstatic to partner with them as their trusted data provider. Our teams share a mutual passion for providing lenders and other industry participants with granular data, understanding that it is pivotal to keep a pulse on what is happening in the current housing market, and to ensure profitability as the industry continues to evolve.”
Data from the Mortgage Rates Center also flows to the HousingWire homepage, where the 30-year fixed mortgage rates will be presented in a new Market Glimpse module. In addition to real-time mortgage rates, we launched the Market Glimpse with housing inventory data powered by Altos Research. We will incorporate additional data modules to support decision-making for housing professionals in the near-future.
Investing in a private company means acquiring equity in a company that doesn’t sell shares on public stock markets. Broadly speaking, there are two types of companies: public and private. And while you are likely more familiar with public-company investments — stocks traded on stock exchanges — there are also investment opportunities to be had with private companies.
There can be benefits that come with investing in privately held companies. Depending on your current circumstances, risk tolerance, and financial goals, you will likely approach the types of companies you consider investing in differently. And it’s important to understand that there are significant risks involved, and develop your expectations accordingly.
Understanding Private Companies
A private company is one that has not or does not sell shares of itself on public exchanges. Conversely, a public company has undergone an initial public offering (IPO), which means that it has publicly issued stock in hopes of raising more capital and making more shares available for purchase by the public.
As a general rule of thumb, until a company has an IPO, it’s considered private.
Classification of Private Companies
Again, private companies are those that are not publicly traded.
Unlike the world of public investing, private investing happens off of Wall Street and takes place anywhere new, buzzy ventures are cropping up.
Public companies, especially ones that are bigger, are more easily bought and sold on the stock market, and individuals are able to invest in them. These companies are also regulated by organizations like the Securities and Exchange Commission (SEC).
The SEC is a government body that makes sure these businesses stay accountable to their investors and shareholders, and it requires publicly traded companies to share how they are doing, based on their revenue and other financial metrics.
In contrast, a privately held company is owned by either a small number of shareholders or employees and does not trade its shares on the stock market. Instead, company shares are owned, traded, or exchanged in private.
The landscape of investing in private companies can sometimes be mystifying, in part because private stock transactions happen behind closed doors. But even though private companies may be less visible than their public counterparts, they still play an important role in the economy and can be a worthwhile investment.
Investing in a private company can also be incredibly risky, and it’s important to understand some of the pros and cons of investing in this landscape.
The Growth Journey: Startups to Unicorns
Generally speaking, the goal of a startup (a small business with aims to grow quickly and possibly go public) is to become a “unicorn.” A “unicorn” company is a private company that’s valued at more than $1 billion. Very few companies become unicorns, and for investors, a primary goal is to find and invest in companies that will become unicorns.
Strategic Pathways to Private Investments
There are several ways to invest in private companies, though not all of them will be available to every investor.
Early Stage Investments and Angel Investing
Early-stage investing, often called “angel investing,” involves making an investment in a very small-stage company in exchange for ownership of that company. This tends to be the riskiest stage to invest, as companies at this stage are small, young, and often unproven.
Joining Private Equity Firms
Investors can also get involved in private company investing through private equity. Private equity firms invest in private companies, like angel investors, in hopes that the equity they acquire will one day be much more valuable. Again, this is likely not an option for the average investor, as private equity is usually an area reserved for high-net-worth individuals. 💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.
Investing in Pre-IPO Companies
Some investors attempt to invest in companies before they go public to take advantage of any post-IPO spikes in share value. There are a few ways to invest in pre-IPO companies.
Leveraging Pre-IPO Investing Platforms
There are certain platforms that allow investors to make investments in pre-IPO companies. An internet search will yield some of them. Those platforms tend to work in one of a few ways, usually by offering investors access to specialized brokers who work with private equity firms, or by directly connecting investors with companies, allowing them to make direct purchases of stock.
You’ll need to dig in and do your own research into these platforms if this is a route you plan to pursue, but also know that there are significant risks with these types of investments.
The Accredited Investor’s Guide
For some private company investments, investors will need to be “accredited.” An accredited investor is an individual or entity that meets certain criteria, and can thus invest in hedge funds, private equity, and more.
Qualifications and Opportunities
For individuals to qualify as accredited investors, the SEC says that they need to have a net worth of more than $1 million (excluding primary residence), and income of more than $200,000 individually, or $300,000 with a spouse or partner for the prior two years.
There are also professional criteria which may be met, which includes being an investment professional in good standing and holding certain licenses. There are a few other potential qualifications, but those are the most broad.
Exclusive Markets for the Accredited Investor
Becoming an accredited investor basically means that you can invest in markets shut off from other investors. This includes private companies, and private equity. Effectively, being “accredited” comes along with the assumption that the investor has enough capital to be able to make riskier investments, and that they’re likely sophisticated enough to be able to know their way around private markets.
The Pros and Cons of Private Company Investments
There are pros and cons to investing in private companies that investors should be aware of.
Advantages of Private Market Engagement
Because private companies are often smaller businesses, they may offer investors an opportunity to get more involved behind the scenes. This might mean that an investor could play a role in operational decisions and have a more integrated relationship with the business than they could if they were investing in a large, public company.
In an ideal scenario, if you invest in a private company, you’ll get in earlier than you would when a company goes public. (Note: This is the ideal scenario.) And getting in early can potentially produce impressive results — if you’ve made a sound investment decision.
Another possible benefit of investing in a private company is that there is generally less competition for equity than with a public company. This means you could end up with a bigger slice of the pie.
Investing in a private company might also mean that you are able to set up an exit provision for your investment — meaning you could set conditions under which your investment will be repaid at an agreed upon rate of return by a certain date.
Generally speaking, investing in a private company can have some strong benefits, including increased potential for financial gain and the opportunity to become more involved in the future of a business.
Risks and Considerations
One of the biggest risks involved in investing in a private company is that you may have less access to information as an investor. Not only is it more challenging to get hold of data in order to understand how the company performance compares to the rest of the industry, private companies are also not held to the same standards as publicly-traded ones.
For example, because of SEC oversight, public companies are held to rigorous transparency and accounting standards. In contrast, private companies generally are not. From an investor’s standpoint, this means that you may sometimes be in the dark about how the business is doing.
In addition to this, many private companies may lack access to the capital they need to grow. And even though there may be an opportunity to set up an exit provision as an investor in a private company, unless you make such a provision, it could be a huge challenge to get out of your investment. 💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.
Critical Steps for Investing in Private Companies
Just like investing in the public stock exchanges, there are some steps that investors may want to follow as a sort of best-practices approach to investing in private companies.
Conducting Thorough Research
Always do your homework — or, as much research as you can before investing in a private company. As noted, this may be difficult, as there’s going to be less available information about private companies versus public ones. You also won’t be able to research charts and look at stock performance to get a sense of what a company’s future holds.
Identifying and Assessing Potential Deals
Through the research you are able to do (perhaps as a part of a private equity or hedge fund), you’ll want to do your best to zero-in on some potential investment opportunities. Like investing in stocks, you’ll be looking for companies that appear healthy, are competitive, and that you think have a good chance of surviving the years ahead.
There’s no magic formula, of course, but investors should do as much due diligence as possible.
The Transaction: Making Your First Private Investment
Depending on how you choose to invest, making your first private company investment may be as simple as hitting a button — such as on a private crowdfunding website or something similar. Or, if you’re directly investing with the company, it may be more involved. Just know that it’ll probably be a bit different than buying stocks or shares on an exchange.
Post-Investment Vigilance
As with any investment — public, or private — investors will want to keep an eye on their holdings.
Monitoring Your Investment
Monitoring your investment in a private company is not going to be the same as monitoring the stocks in your portfolio. You won’t be able to go on a financial news website and look at the day’s share prices. Instead, you’ll likely need to be in touch with the company directly (or through intermediaries), reading status reports and financial statements, and doing your best to learn how business is operating.
It’ll be a bit opaque, and the process will vary from company to company. So, keep that in mind.
Exit Strategies and Liquidity Events
When an investor “exits” an investment in a private company, it means that they sell their shares or equity and effectively “cash out.” If an investor bought in at an early stage and the company gained a lot of value over the years, the investor can “exit” with a big return. But returns vary, of course.
Liquidity events present themselves as times to exit investments, and for many private investors, the time to exit is when a company ultimately goes public and IPOs. But there may be other times that are more favorable to investors, if they present themselves.
Investment Myths Debunked
As with any type of investment, there may be myths or misunderstandings related to private company investments.
Setting Realistic Expectations
A good rule of thumb for investors is to keep their expectations in check. In all likelihood, you’re not going to stumble upon the next Mark Zuckerberg or Jeff Bezos, desperately looking for cash to fund their scrappy startup. Instead, you may be more likely to find a company that has good growth potential but no guarantee of survival. For that reason, it’s important to always keep the risks in mind, as well as what you actually expect from an investment.
Common Misconceptions
Some further misconceptions about private investing include that it’s only for the ultra-rich (not necessarily true, but may often be the case), that every investment may offer high returns (along with high risks), and that profits will come quickly. An investment may take years to ultimately pay off — if it does at all.
Ready to Invest? Questions to Ask Yourself
If you feel comfortable with the idea of investing in private companies and are ready to take the next step, be sure to know your own preferences before making any moves.
Assessing Your Risk Tolerance
Are you okay with taking on a lot of risk? Because you’ll probably need a high risk tolerance to be able to stomach private company investing. So, be sure to take stock of how much risk you can realistically handle, as the importance of knowing your risk tolerance will become abundantly clear as you progress in your investing journey.
Aligning Investments with Personal Goals
Also think about how your investments in private markets relate or mesh with your overall investing goals. That’s to say that you don’t necessarily want to invest in private companies just for the sake of investing in private companies — instead, think about how these investments fit into your larger portfolio.
The Takeaway
Investing in private companies entails buying or acquiring equity in companies that are not publicly traded, meaning you can’t buy shares on the public stock exchanges. This often involves investing in small companies with high growth potential — but not always, and not necessarily. Because this is a risky type of investing, there tends to be high potential rewards, too.
Investing in private companies is not for everyone, and there may be stipulations involved that prevent some investors from doing it. If you’re interested, it may be best to speak with a financial professional before making any moves.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.
FAQ
How much capital is needed to start?
There isn’t a limit to how much capital needed to invest in private companies, but to be an accredited investor, there are income and net worth limits that may apply.
What are the time commitments and expectations?
There are no hard and fast time commitments or expectations of private investors, in a general sense. But that may differ on a case by case basis, especially if an investor takes a broader role with managing a company they’re investing in.
SoFi Invest® SoFi Invest refers to the two investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
Home Equity Appraisal, Market Research Tools; Planet Home Stats; Agency Changes
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Home Equity Appraisal, Market Research Tools; Planet Home Stats; Agency Changes
By: Rob Chrisman
Wed, Jan 31 2024, 10:56 AM
I could tell that my cat Myrtle was miffed. Not only had the work on her “2024 Vision Board Statement” languished, but either there was no line-caught halibut in her bowl, or the laser pointer’s battery was dead. It turned out that it was neither. Instead, it was news that the CFPB was not meeting its goals. the Office of Inspector General of the Federal Reserve Board released a report assessing the CFPB’s process for conducting enforcement investigations and making two recommendations. First, noting that the CFPB has not met its stated goal to file or settle 65 percent of its enforcement actions within two years, the OIG recommended that the CFPB Office of Enforcement incorporates the timing expectations for key steps in the enforcement process into the tracking and monitoring of matters. The OIG also recommended improvements to enforcement staff training on document maintenance and retention requirements for the CFPB’s matter management system. The report states that the recommendations were accepted by the CFPB, with a follow-up to ensure full implementation. Today’s Commentary podcast can be found here and this week’s is sponsored by Calque. With The Trade-In Mortgage powered by Calque, lenders help their clients negotiate a lower purchase price, reduce their interest payments, and eliminate PMI. Hear an interview with Broker Action Coalition’s Katie Sweeney on her transition from leading the Association of Independent Mortgage Experts (AIME) to leading the Broker Action Coalition and the Political Action Committee that she started with AIME.
Lender and Broker Software, Products, and Services
Are you looking to source new third-party originators (TPOs) for your wholesale and/or correspondent channels in 2024? If so, be sure to start by considering important factors such as production volume, branch total, number of loan officers, and product types. While it can be overwhelming to manage all these factors, Optimal Blue’s Comergence Prospect Marketing solution makes it easy. As the most comprehensive prospect marketing and data analysis tool in the industry, Comergence simplifies how you research the marketplace, understand client volume and trends, identify and develop new business opportunities, and empower your field sales staff. Plus, production numbers are updated every week. Contact Optimal Blue to take the first step toward more effective TPO sourcing with Comergence Prospect Marketing.
Make your general ledger profitable and run your business more efficiently with Loan Vision and LV-PAM. Instead of “staying alive until ‘25”, with Loan Vision, a software built BY the mortgage industry FOR the mortgage industry, you can “produce more in 24!” Customers on Loan Vision see improvements of 30 precent+ decrease in days to close the books, 20 percent+ reduction in accounting headcount, complete LOS to G/L automation, and improved reporting and visibility. Interested in learning how Loan Vision can help you run a more efficient and profitable company? Contact Carl Wooloff to schedule a call today.
HELOCs, AVMs, PCRs… when it comes to home equity lending and its corresponding appraisal solutions, it can start to look like alphabet soup. Thankfully, Class Valuation put together your one-stop shop for all home equity appraisal solutions, specifically for brokers. The Home Equity Playbook by Class Valuation is a must-have guide for navigating the intricacies of home equity valuations. It provides essential insights and detailed explanations, ensuring you’re equipped with the knowledge necessary for accurate and efficient appraisals. This guide is more than just a resource; it’s a roadmap to understanding various appraisal methodologies and their use cases in HELOC lending. When you download the playbook, you’ll find everything you need to know about AVMs, evals and more, including what they are, what they’re used for, and how Class’ solutions may differ from others. You’ll find that navigating home equity appraisal solutions is no longer a daunting task, but a streamlined, manageable process. Download it here.
Want to make it easy for your borrowers to opt out of pre-screened credit offers to keep them from being bombarded by your competition when their credit is pulled? Your POS can do that. Well, maybe not yours, but LiteSpeed by LenderLogix can!
You need more than just a license to make money as a Loan Officer, but you probably already knew that. For starters, you’ll need to know three things to be successful: how to talk to your clients, how to process a loan application and how to seal the deal. At Madison Chase Academy we teach Loan Officers how to become successful in a short period of time. There are so many mistakes to avoid and I’m here to teach you how to do things the right way… the first time! 6 Months to 6 Figures. I will walk you through exactly what is necessary for you to build a profitable Loan Officer business. For more information contact Tanya Blanchard (770-851-9334).
Fannie and Freddie Updates
When a lender originates a conventional loan, the usual next step is to sell it to Freddie Mac or Fannie Mae, and retain the servicing, sell it to them and sell the servicing, or sell the loan servicing released. Or the servicing can be sold in bulk transactions later. Who’s buying the servicing that many lenders are selling to stay afloat? Well, among others, AmeriHome, Pennymac, Carrington, Newrez, and… Planet Home. During 2023, Planet Financial Group, LLC, parent of national mortgage lender and servicer Planet Home Lending, LLC and Planet Management Group, LLC, Owned Mortgage Servicing Rights (OMSR) portfolio rose to $92.48 billion at yearend 2023, up 47 percent from yearend 2022. 2023 origination volume hit $25 billion, down only 5 percent versus 2022. The company reached and estimated #2 government correspondent lender and the #3 correspondent lender overall, and acquired $14 billion of MSR’s through bulk and Co-Issue channels.
Planet’s servicing portfolio ended 2023 at $104.69 billion, up 42 percent from $73.64 billion in December 2022. At yearend, Planet was the 9th largest Ginnie Mae servicer, according to Inside Mortgage Finance data. Sub-servicing volume ended the year at $10.95 billion overall, up 68 percent from $6.5 billion at yearend 2022. Planet’s residential origination volume ended at $25 billion, down just 5 percent from 2022. Correspondent volume held steady in 2023, ending at $23.78 billion, off 1 percent from 2022 volume. Planet’s correspondent market share rose from 4.2 percent at yearend 2022 to 6.4 percent at Q3 2023, according to the latest data available from Inside Mortgage Finance. At yearend 2023, Planet was the #3 correspondent lender, up from #5 at yearend 2022 and the #2 government correspondent lender, up from #3, according to data from Refinitiv.
On January 23, Freddie Mac and Fannie Mae (the “Enterprises”) announced an updated Single-Family Social MBS and Corporate Debt Bonds Framework, and updates to mortgage-backed securities (“MBS”) disclosures. As part of the framework updates, the Enterprises will rename the Social Index to the “Mission Index” in February. Additionally, Fannie Mae will update the formulation of the index in February, and Freddie Mac will update the formulation of the index in May. The Mission Index offers MBS investors insights into the Enterprises’ mission-oriented lending initiatives, enabling investors to allocate capital towards those activities. The revised Mission Index will apply to pools issued by Fannie Mae starting in March and for Freddie Mac starting in June.
The updated frameworks define criteria beginning in June for the Enterprises’ mortgage collateral that may be pooled, issued, and labeled “Social MBS.” That label is applied when the Mission Index score of the underlying pool exceeds a specified threshold. The Enterprises also announced they plan to provide impact reporting annually beginning in 2025, “which will help the market understand the associated impact of the loans underlying their investments.”
Fannie Mae is implementing two enhancements for the HomeReady® mortgage product. For creditworthy very low-income purchase (VLIP) borrowers, Fannie’s Mae is offering a new temporary $2,500 credit for use towards down payment and closing costs. Along with this enhancement for borrowers, lenders who take HomeReady product commitments in Pricing & Execution-Whole Loan® (PE-Whole Loan®) can now reduce hedging costs and lock in margins with an enhanced best-efforts commitment. Fannie Mae Lender Letter (LL-2024-01).
Fannie Mae’s Press Release announced Single-Family Social Bond Framework. The updated Social Bond Framework describes the Fannie Mae mortgage collateral eligible to be pooled, issued, and labeled as Single-Family “Social MBS.”
Fannie Mae posted the January Appraiser Quality Monitoring (AQM) list.
Leverage key learnings and observations from calibrations to enhance your quality control (QC) program. This Fannie Mae Quality Insider features opportunities and tips aggregated from QC calibration exercises across a larger segment of lenders.
Freddie Mac published Guide Bulletin 2023-24 announced several changes, including updates to 10-day PCV types and occupancy requirements for a cash-out refinance to require all borrowers to occupy the mortgaged premises if occupied as a primary residence. See AmeriHome Mortgage Announcement Number 20240109-CL for more information.
Capital Markets
Credit conditions loosened as Treasury yields and mortgage rates decreased, so businesses and individuals are taking advantage of the borrowing opportunity. The Wall Street Journal has examined eight charts that detail the state of credit, from an increase in corporate bond issuance and consumer borrowing to a decrease in secured bond issuance. Despite long-standing concerns about a recession, some indicators suggest the economy and credit markets are at the beginning of a cycle of growth! Of course, with too much growth comes higher rates.
In supply and demand news, the Treasury Department has pared its borrowing estimate for the first quarter to $760 billion from the $816 billion projected in October. “Experts” had predicted the opposite, but Treasury officials say less borrowing is needed because of improving fiscal flows and higher-than-expected cash on hand.
Speaking of predictions that did not come to fruition, the U.S. economy is healthier than what economists expected a year ago. But some Federal Reserve officials emphasize a need for caution as they determine how to proceed with monetary policy. Per Fed Governor Waller, “Inflation of 2 percent is our goal. But that goal cannot be achieved for just a moment in time. It must be sustained.”
With the items above as a backdrop, in news of interest to the mortgage market, the latest home price data from S&P/Case-Shiller for November was another reminder that affordability remains challenging for home buyers. Despite the U.S. National and 20-City Composite Indexes recording their first month-over-month declines since January 2023, November’s year-over-year gain saw the largest growth in U.S. home prices in 2023, with the National Composite rising 5.1 percent and the 10-city index rising 6.2 percent. Rates falling around 100 basis points since October could support further annual gains in home prices.
Today’s highlight is the FOMC statement followed by the post-meeting press conference with Chair Powell, but the economic calendar kicked off with mortgage applications decreasing 7.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending January 26. Last week’s results included an adjustment to account for the MLK holiday. Prior to the Fed, we’ve also received ADP employment for January (107k, much lower than expected), and the Q4 employment cost index. Later today brings the Quarterly Refunding announcement, then January Chicago PMI. No change in the fed funds target rate range is expected with the release of the latest FOMC policy statement, but the market will be eager to hear if there is any softening in the hawkish rhetoric. We begin the day with Agency MBS prices better by .125-.250, the 10-year yielding 4.01 after closing yesterday at 4.06 percent, and the 2-year at 4.30.
Employment, and Transitions
Stronghill Capital, LLC, an Austin, TX-based Wholesale and Correspondent lender, is hiring across the country! If you’re a relationship-focused Account Executive with experience in Non-QM and Investor Financing, including multi-family and mixed-use properties, we’d love to speak with you! Stronghill’s Account Executives enjoy open territories, multi-channel opportunities to work with clients as correspondents or brokers, and consistent communication and collaboration with the Executive Leadership team. Stronghill Capital is a non-bank, balance-sheet lender specializing in commercial and investment property loans. We can help your clients meet their needs. If you’re looking to join a rapidly-growing, dynamic organization with a focused commitment to growth and expansion in Non-QM, reach out to our SVP of Sales, Matt Brammer, or 440.382.3183 to learn more.
Cenlar FSB announced the promotion of several senior leaders and the appointment of one Vice President: Owen Amster, to Vice President and Controller, Nick Brett, to Senior Vice President of Client Management, Mike Day, to Vice President of Executive Client Management, Trevor Friel, to Vice President of Workforce Management, and Rena Madia, to Vice President of Customer Interaction. Heidi Carter is now the Vice President, Business Information Officer, serving as the dedicated Business Information Officer (BIO) lead for our corporate functions across the enterprise.
Dark Matter Technologies announced that Tony Fox as its chief of client engagement responsible for directing the company’s account management and client success teams and will report to Sean Dugan, chief revenue officer at Dark Matter.
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If you are new to trading stocks, the sheer volume of stock market terms can be off-putting. But learning some basic stock trading terminology is a great place to begin before investing any money. For any new investor just getting into trading, getting a grasp on some basic stock market terms can be extremely helpful.
The Significance of Knowing Stock Market Terminology
It’s important to have at least a grasp of some basic stock market terms if you plan on trading or investing. If you don’t do a bit of homework beforehand, you may find yourself feeling in over your head, and grasping for help from family members, friends, or a financial professional.
While there are a multitude of different stock market terms out there, it isn’t terribly difficult to develop an understanding of the basics. Yes, it’ll take some time and practice, but like learning anything else, once you get the hang of it, it should become easier as you move along in your investment journey. 💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.
Fundamental Terms
To get a fundamental understanding of the stock market, it can be helpful to start with some relatively basic terms, including the following.
Asset Allocation
Asset allocation involves investing across asset classes in a portfolio in order to balance the different potential risks and returns, and there are three main asset classes, which are typically stocks, bonds, and cash. Asset allocation is closely tied with portfolio diversification.
Asset Classes
There are several asset classes, or types of assets, that investors can invest in. This can include, but is not limited to, stocks, bonds, money market accounts, cash, real estate, commodities, and more. You can also think of certain assets as equities, debt securities, and more.
Bid
Bid, in the context of bid-ask spread, refers to the “bid price” that an investor is willing to pay for a security or investment.
Ask
Ask, in the context of bid-ask spread, is the opposite of bid, and is the lowest price that investors are willing to sell a security for.
Bid-Ask Spread
The bid-ask spread is the difference between the bid and ask price, and can be a measure of liquidity. When the bid and ask prices match, a sale takes place, on a first-come basis if there is more than one buyer. The bid-ask spread is the difference between the highest price a buyer is willing to bid, and the lowest price a seller is willing to ask.
Market Phrases
There are a number of market phrases, or types of jargon that may be used in and around the stock market, too. Here are some examples.
Bull Market
A bull market describes market conditions when a market index rises by at least 20% over two months or more, and is often used to describe high levels of confidence and optimism among investors.
Bear Market
A bear market describes a 20% fall in a market index, and is the opposite of a bull market. It can signal overall pessimism among investors.
Market Volatility
Market volatility refers to how much a market index’s value increases or decreases within a specific period of time. Volatility can occur for a number of reasons.
Investment Vehicles
There are many specific investment vehicles that investors should know about, too, including different types of stocks, bonds, and more.
Bonds
Bonds are a type of debt security, which effectively means that investors are loaning money to the issuer. There are many types of bonds, and they’re often considered to be a less-risky investment alternative to, say, stocks.
Common Stock
Common stock, also known as shares or equity, is like owning a piece of a company. You purchase stock in a company, and receive a proportional part of that corporation’s assets and earnings. The price of stock is different for each company and fluctuates over time.
Preferred Stock
Preferred stock is similar to common stock, but usually grants shareholders some sort of preferential treatment, such as advanced dividend payments, and more.
ETFs
ETFs, or “exchange-traded funds,” are types of funds that trade on exchanges like stocks. Investors can purchase shares of ETFs, which incorporate numerous different types of securities (like a “basket” of different investments), and may offer built-in diversification as an advantage for investors.
Mutual Funds
Mutual funds are companies or entities that pool money from numerous different investors and then invest it on their behalf. A manager oversees a mutual fund, and actively manages it. Investors can purchase shares of mutual funds, which are similar to ETFs in many ways.
Stock Analysis Terms
Analyzing the stock market incorporates its own set of terminology, and it can be helpful for investors to know a bit of the vernacular.
Earnings Per Share (EPS)
Earnings per share, often shortened as “EPS,” is a ratio that helps determine a company’s ability to drive profits for shareholders. It’s a common and oft-cited business metric for investors.
Dividends
A dividend is a payment made from a company to its shareholders, often drawn from earnings. Usually, these are made in cash, but sometimes they are paid out as additional stock shares. They are typically paid on an annual or quarterly basis, and typically only come from more established companies, not startups.
Dividend Yield
Dividend yield refers to how much a company pays out to shareholders on an annual basis relative to its share price. It’s a ratio that’s calculated by dividing the company’s dividend by its share price.
The Price-to-earnings (P/E) Ratio
The price-to-earnings ratio (often written as the P/E ratio, PER, or P/E) is a ratio of a company’s current share price relative to the company’s earnings per share. It can be used to compare performances of different companies. 💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.
Price Movements and Pattern Terms
There are also a number of movement and pattern terms that investors may want to familiarize themselves with.
Trading Volume
Trading volume refers to how much trading is happening on an exchange. For a stock trading on a stock exchange, the stock volume is typically reported as the number of shares that changed hands during any given day. It’s important to note that even with an increasing price, if it’s paired with a decreasing volume, that can mean a lack of interest in a stock. A price increase or drop on a larger volume day (i.e., a bigger trading day) is a potential signal that the stock has changed dramatically.
Volume-weighted Average Price (VWAP)
Volume-weighted average price, or VWAP, is a short-term price trend indicator used when analyzing intraday, or same-day, stock charts. It’s a type of technical analysis indicator.
Trading Order Types and Execution
Investors need to know the types of orders that they’re likely to use throughout their investing journey. Those include market orders, limit orders, and stop-loss orders.
Market Order
A market order is the most common type of order, and it means that an investor wants to buy or sell a security as soon as possible at the current market price.
Limit Order
Limit orders are another common type of order, and involve an investor placing an order to buy or sell a security at a specific price or within a specific time frame. There are two types: Buy limit orders, and sell limit orders.
Stop-loss Orders
Stop-loss orders, or sometimes called stop orders, are orders that specify a security to be sold at a certain price.
Day Trading Terms
For the prospective day-trader, there are a slate of terms to know as well.
Day Trading
Day trading involves an investor making short-term trades on a daily or weekly basis in an effort to generate returns off of price fluctuations in the market. There are numerous day trading strategies that investors can utilize.
Pattern Day Trader
A pattern day trader is a designation created by FINRA, and refers to traders who trade securities four or more times within five days. There are rules and stipulations that pattern day traders, and their chosen trading platforms, must follow.
Trading Halt
A trading halt can refer to a specific stock or the entire market, and involves a halt to all trading activity for an indefinite period of time.
Long-term Investment Terms
The opposite of day trading, long-term investing also ropes in its own jargon.
Averaging Down
Averaging down involves a scenario in which an investor already owns some stock but then purchases additional stock after the price has dropped. It results in a decrease in the overall average price for which you purchased the company stock. Investors can profit if the company’s price subsequently recovers.
Diversification
Diversification refers to investing in a wide range of assets and asset classes, as opposed to concentrating investments in a specific area or class.
Dollar-cost Averaging
Dollar-cost averaging is a strategy to manage volatility in a portfolio, and involves regularly investing in the same security at different times, but with the identical amount. Effectively, the cost of those investments will average out over time.
Derivatives and Market Predictors
Getting into the weeds now — derivatives and market predictors are more high-level market elements, but it can be helpful to know some of the terminology.
Futures
Futures, or futures contracts, are a form of derivatives that are a contract between two traders, agreeing to buy or sell an asset at a specific price at a future date.
Options Trading
Options trading involves buying and selling options contracts, of which there are many types.
Arbitrage
Arbitrage refers to price differences in the same asset on different markets. Traders may be able to take advantage of those differences to generate returns.
Financial Health Indicators
We’re not done yet — these terms involve financial health indicators.
Debt-to-equity (D/E)
Debt-to-equity is a financial metric that helps investors determine risks with a specific stock, and is calculated by dividing a company’s equity by its debts.
Liquidity
Market liquidity is essentially how easily shares of stock can be converted to cash. The market for a stock is “liquid” if its shares can be sold quickly, and the act of selling only minimally impacts the stock price.
Profit Margin
Profit margin refers to how much profit is generated from a trade when expenses are considered. Lowering related expenses can increase profit margin, all else being equal.
Economic Terms
Knowing some key economic terms can be helpful when trying to size up larger economic and market trends.
Volatility
Volatility refers to the range of a stock price’s change over time. If the price stays stable, then the stock has low volatility. If the price jumps from high to low and then back to high often, it would be considered more of a high-volatility stock.
Economic Bubbles
Economic bubbles or market bubbles are often created by widespread speculative trading, and involve a runup or buildup of prices for a given asset, which can be detached from its actual value. Eventually, the bubble tends to burst and investors may incur a loss.
Recession
A recession is a period of economic contraction, and is usually accompanied by higher unemployment rates, business failures, and lower gross domestic product figures. Recessions are officially declared by the Business Cycle Dating Committee at the National Bureau of Economic Research.
Adaptation and Risk Management
For particularly savvy investors, knowing some terms relating to adaptation and risk management can also be helpful when navigating the markets.
Sector Rotation
Sector rotation involves investing in different sectors of the economy at different times, and rotating holdings between those sectors in an effort to generate the biggest returns.
Hedging
Hedging is an investment strategy that involves limiting risk exposure within different parts of a portfolio, and there are many methods or strategies for doing so.
The Takeaway
Learning some basic stock market terms can go a long way toward helping an investor navigate the markets, and there are a lot of terms and jargon to get familiar with. But doing a bit of homework early on can be enormously helpful so that you’re not trying to figure things out on the fly as an investor.
While you’re not going to learn everything right off the bat, if you start to spend a lot of time investing and trading, you’re likely to quickly catch on to certain terms, while others will come with time. As always, if you have questions, you can reach out to a financial professional for help — or do a bit more research on your own.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.
SoFi Invest® SoFi Invest refers to the two investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.