You cannot name a legal minor as a beneficiary. This applies to almost all legal documents, most notably wills and life insurance policies. The significant exception to this rule is trusts. You can name a legal minor as the beneficiary of a trust. That’s particularly important because, if you want to leave assets to a minor, a trust is how you’ll do it. Here’s what you need to know. However, you may want to consult with a financial advisor or lawyer before moving forward.
Every State Has Its Own Laws
As a threshold matter, it’s important to understand that property and estate laws are highly state specific. Every jurisdiction will have its own laws that apply to issues such as property rights, insurance and estate laws. Even the age at which someone is a legal minor changes from state to state.
Most states will use a version of these laws, but each will have its own specific rules. In some cases, a state’s laws may be entirely different from another state’s laws. Make sure to consult with a local attorney before you make any decisions regarding your own money and estate planning.
What Is a Beneficiary?
Several different legal documents can name someone as the beneficiary of any underlying assets. A beneficiary is the third party who receives some benefit from the document, typically in the form of financial or other property assets. While many documents can name a beneficiary, they’re most common in estate law. This is chiefly because beneficiaries are third-party recipients named in some documents and estate law is entirely concerned with making distributions from the deceased to third parties.
There are four main types of documents that can name a beneficiary when it comes to estate planning:
Wills: In a last will and testament, a beneficiary is someone who the will names to receive assets from your estate.
Life Insurance: In a life insurance policy, a beneficiary is someone who receives a payment from the life insurance policy after the death of the policyholder.
Retirement Accounts: In a retirement account, a beneficiary is someone who receives the assets in the account after the death of the account holder.
Trusts: In a trust, a beneficiary is someone who receives assets from the account based on the terms of the trust and the trustee’s management.
Can a Minor Be a Beneficiary?
Under most circumstances, a minor cannot receive assets as a beneficiary. The major exception to this, as discussed below, is trusts.
Legal minors are defined as children who have not yet reached their state’s age of majority. Most states set the age of majority at 18, although in a handful of states, this age can reach as high as 19 or 21. Legal minors cannot take legally binding actions. Among other things, this means that they cannot sign enforceable contracts and they cannot participate in financial transactions.
Because minors cannot participate in financial transactions or handle their own legal matters, they cannot receive assets through contracts and legal documents. This means that they cannot directly inherit through a will, nor can they receive assets through a contract such as a life insurance policy or a retirement account.
However, minors can be named as beneficiaries of a trust. This is because the beneficiaries of a trust do not participate in contractual or financial transactions. A trustee manages the assets in the trust and then distributes them on the beneficiary’s behalf as directed in the terms of the trust. This can range from making payments, for example paying the mortgage on a home or a college tuition, to sending assets to the beneficiary in a simple property transfer.
What Happens If a Minor Is a Beneficiary?
You can name a legal minor as a beneficiary to any document. Many people do this when they name their children on documents like their will or life insurance policy, counting on the idea that those children will age into adulthood before receiving any assets. As long as the named party is a legal adult when they actually receive the assets, they can do so with no problem.
However, even if they are properly named in the document, legal minors cannot receive assets as a beneficiary under a will, a life insurance policy or a retirement account if they are a minor at the time of the transfer. If this happens, the assets are instead distributed to an entity that can legally receive the property and hold it on the minor’s behalf until they reach the age of majority. Typically this involves three possible situations:
Legal Guardian: In this case, the minor’s legal guardian receives the assets and holds them on the minor’s behalf until they reach the age of majority. This is common for children who have a parent or legal guardian. In almost all cases, a probate court will approve the handoff of assets to the guardian.
Custodial Account: In this case, the assets are placed into an account and a legal adult is appointed to manage the assets until the minor reaches the age of majority. The details of this process vary widely based on the nature of the assets and the custodian. For example, if the legal child has a parent or guardian that guardian will typically act as custodian. If they do not, a court will typically name a custodian to manage the assets. In almost all cases, a probate court oversees the creation of a custodial account.
Trust: In this case, the assets are placed in trust on behalf of the legal minor. A legal adult is named as the trustee to manage the trust with the legal minor named as the beneficiary to the fund. In almost all cases a probate court oversees the creation of this trust fund and it will distribute all of the assets once the child reaches legal majority.
IRA/Retirement Accounts
Some retirement accounts, specifically IRA accounts, work slightly differently. Under the SECURE Act, a minor beneficiary cannot take out assets from an IRA after the accountholder’s death. They must leave the money in place until they turn 18.
Once the minor beneficiary reaches age 18 they take all of the assets out of the account within 10 years. They can transfer these assets to another portfolio or they can sell the portfolio for cash.
Naming Minor Beneficiaries With Trusts
The court process can take time, sometimes a lot of time. And court-appointed custodians and trustees are often very expensive. But what if your children are still under the age of 18 and you would still like to name them as beneficiaries of your will or life insurance policy? Generally, the best thing to do is to establish a trust.
You can establish a trust in the terms of your will or you can do so during your life, essentially creating the fund and setting it aside unless needed. When you create the trust you will name the trustee who will manage the fund, either a trusted adult who will work for free or a professional entity who will charge for their services. You then set the terms of the trust. These terms define how the trustee will manage its assets and how it will distribute those assets to and on behalf of the beneficiary.
Finally, you will name the trust as the beneficiary on documents like your will and life insurance policy. As a legal entity, the trust can receive these assets.
If you die, the trust will directly take the assets to which it is a beneficiary. The trustee will manage the assets and distribute them as necessary for the child’s welfare, per your instructions. Then, once the child is old enough, the trust can wind up and pass along its principal to the beneficiary, again if you have set it up to do so.
When your heirs and beneficiaries reach the age of majority, you can change your estate planning to name them directly, removing the trust once it’s no longer necessary. This allows you to care for minors despite the fact that you cannot leave them their money directly.
The Bottom Line
Minors cannot receive assets as a beneficiary under documents like a will or a life insurance policy. Instead, the best option is to leave this money in a trust until they reach adulthood. It’s important to consult with a financial advisor for full estate planning in order to make sure your individual needs are met.
Trust Planning Tips
Here’s the even better news, you don’t have to figure this out on your own. A professional financial advisor can help you analyze your situation and make the right moves for your estate. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
The best way to prepare a trust in advance is with a living trust. Let’s review how you can set up a living trust and why you might want to do so.
Eric Reed
Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
Purchasing a home is an exciting life milestone and is a huge decision with so many factors to consider. Finding the right property can be a challenge for growing families. What may seem like a good fit now may not be the best choice for your family in the long run.
Here are our 5 best tips when buying a home for your growing family:
Neighborhood – Do your research before looking at homes in neighborhoods that aren’t convenient for young families. Look into school districts, local parks, neighbors and proximity to doctors and hospitals. Consider the length of your commute to work so that you can maximize the amount of time you have to spend with your family.
Space – How many kids do you want to have? Simple things like sharing a bathroom or closet space can become a hassle in the long run. Families with small children might want to look into an open-concept floor plan for safety reasons. A designated playroom might be a smart idea for your family, or maybe you’d prefer two levels instead of three. List out what your priorities before making the move.
Affordability – Now that you know what you’re looking for, the next step is figuring out what type of home you can afford. A review of your income, savings, monthly expenses and debt will be necessary. Use our Affordability Calculator!
Offer – Once you’ve found your ideal house, it’s time to get started with the financial and contractual side of the purchase. Let your CENTURY 21® real estate professional guide you through this process. Purchase contracts vary in length and terms from state to state, and sometimes within a state. Multiple offers on the same home are not uncommon, so you may only get one chance to make an offer that the seller will consider. That’s why it’s important to think carefully about your strategy. In most cases it is better to have your real estate professional present the offer. Learn more here!
Inspection – Once you’ve made an offer, hire a professional home inspector to give the house a standard inspection and make sure that it is a safe home for your family.
Agents affiliated with the CENTURY 21 System are ready to make a commitment to help you capitalize on current market opportunities and assist you in making an informed decision. A CENTURY 21 Agent can help ensure you make the right choice for the long term, get a better understanding of different neighborhoods, schools, and market conditions, find a mortgage specialist, and more. Find an agent today!
The simplest options strategies, and safest for beginners, include purchasing calls and/or puts — typically called “going long.” For the bearish investor who believes an asset will see price declines over a well-defined period of time, the simplest strategy is to purchase puts on those assets, i.e., pursue a long put strategy.
What Is a Long Put?
The term “Long Put” describes the strategy of buying put options as well as the options contract itself. The investor who purchases a put has purchased the right to sell an underlying security at a specific price over a specific time period. Being the buyer and holder of any options makes you “long” that option contract.
Because the contract in question is a put, the investor is long the put and bullish on the put option as they expect the put options price to rise. The put option holder is bearish on the underlying asset as they expect its price of the asset to go down.
Since the investor has not sold the underlying asset or its options, the investor does not hold a short position.
💡 Recommended: Options Trading Strategies for Beginners
Maximum Loss
In comparison to other options strategies, long puts are low risk due to their limited and well-defined downside. The maximum amount an investor can lose is the premium paid at the initiation of the transaction.
Maximum Loss = Premium Paid
Because different trading platforms have different commission structures, (some may even provide commission-free trading) commissions are typically omitted from profit and loss calculations.
Maximum Profit
The maximum gain for a long put strategy occurs when the underlying asset drops to zero. While this gain is also limited and defined, it is typically far greater than the potential downside. The maximum gain on a long put strategy is defined as the strike price of the put less the premium paid.
Maximum Profit = Strike Price – Premium Paid
Breakeven Price
The breakeven price on a long put strategy occurs at the strike price less the premium. Note that the formula for the maximum gain and the breakeven price is the same but the two formulas are measuring different things.
The breakeven price is the point at which the investor begins to make a profit. As the price drops past breakeven toward zero, hopefully, the investor can realize the maximum gain possible.
Breakeven Price = Strike Price – Premium Paid
Why Investors Use Long Puts
Investors utilize a long put strategy for three main reasons:
• Speculation: The investor identifies an asset they believe will decrease in price over a defined time period. Buying a long put allows the investor to profit from this forecasted price decrease if it happens.
• Hedging: Sometimes an investor already holds an asset like a stock or exchange-traded fund (ETF) and is concerned that the price of the asset may drop in the short term, but still wants to hold the asset for the long term.
By purchasing a long put, the investor can offset any short-term losses through gains on the put and keep control of the underlying asset. For most assets, this hedging strategy provides cheap insurance.
• Combination strategies: For experienced investors, long puts can be part of complicated multi-leg strategies involving the sale or purchase of other options, both calls and puts, to pursue different investment objectives.
Long Put vs Short Put
In contrast, a short put options strategy occurs when the investor sells a put. Being the seller of a put means the options contract seller is obligated by the options contract to sell shares in an underlying security to the option buyer at the buyer’s discretion.
Everything about short puts is the opposite to long puts:
Long Puts
Short Puts
Investor role
Buyer
Seller
Investor responsibility
Right/Discretion
Obligation
Investor outlook — Asset
Bearish
Neutral to Bullish
Risk
Premium
(Strike Price – Premium)
Reward
(Strike Price – Premium)
Premium
Long Put Option Example
An investor has been watching XYZ stock, which is trading at $100 per share. The investor believes the $100 share price for XYZ is excessive and believes the share price will fall over the next 30 days.
The investor purchases a long put with a strike price of $95 per share for a premium of $5 and an expiration date of 60 days from today. Because options contracts are sold based on 100 share lots, the price for this contract will be $5 x 100 = $500.
The options contract gives the investor the right to sell 100 shares of XYZ at $95 for the next 60 days.
The breakeven price on this investment is:
Breakeven Price = Strike Price – Premium Paid
Breakeven Price = $95 – $5 = $90
Should XYZ be trading below $90 at expiration, the option trade will be profitable.
If XYZ stock should fall to $0 at expiration, the investor will realize their maximum possible profit:
Maximum Profit = Strike Price – Premium Paid
Maximum Profit = $95 – $5 = $90 profit per share or $9,000 per put option
However, if XYZ stock should stay above $90 at expiration, the investor will realize their maximum possible loss and the option will expire worthless:
Maximum Loss = Premium Paid
Maximum Loss = $5 per share or $500 per put option
Even if XYZ rose above the $100 price at purchase, the investor’s loss would still be limited to $500.
The Takeaway
Long put options provide an excellent entry point for newly minted options investors to dip their toes into the market. The trading strategy offers significant profit potential if investors make the right call on the underlying security’s future performance while providing limited downside risk.
If you’re ready to try your hand at options trading, You can set up an Active Invest account and trade options online from the SoFi mobile app or through the web platform.
And if you have any questions, SoFi offers educational resources about options to learn more. SoFi doesn’t charge commissions, and members have access to complimentary financial advice from a professional.
With SoFi, user-friendly options trading is finally here.
Photo credit: iStock/Paul Bradbury
SoFi Invest® The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results. Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three 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—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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 prequalification for any loan product offered by SoFi Bank, N.A. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes. Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected] Please read the prospectus carefully prior to investing. Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences. SOIN223451
Building projects are facing longer timelines due to a shortage of supplies such as appliances, flooring materials, hardware and lumber, and builders are finding some clever ways to pass the associated costs onto home buyers.
Builders have reported difficulty in securing appliances such as air conditioners, refrigerators and washing machines for new homes due to supply chain disruptions resulting from the COVID-19 pandemic, and prices are rising because of that, BUILDER reported.
In a survey by Meyers Research in July, almost half of all builders said they faced disruptions to their supply lines, and 80% of 300 division presidents in a survey in August said those challenges are likely to impact their sales plans in 2021.
“When flooring is delayed, we have to rework our schedules to allow for other things to progress, or we have to put the home on hold and wait for the material or reselect something that is available at the time,” Jon McReynolds, Garman Homes division president in Raleigh, N.C., told BUILDER.
Meanwhile, the increase in the cost of lumber has added approximately $16,000 to the cost of building a single-family home since April, the National Association of Home Builders says. In response to this McReynolds said Garman has adjusted the price of its new homes at the community level, while lot premiums now also cost more.
Some builders have resorted to using the escalation clauses in their contracts, so that customers will have to pay the additional costs if prices rise by a certain percentage.
Other builders have smarter ideas to offset the rising costs for buyers. For example Meritage Homes is offering to scale back on upgrades for new homes, so buyers can choose from just a few product collections at the same price point, instead of paying more. It used to offer 56 different dishwashers for instance, but now only provides a choice of six models that are well-stocked.
“We’re going to have a lot more success in being able to procure those dishwashers, for example, than we are some of [Whirlpool’s] slower-selling, more expensive models,” Steve Hilton, chairman and CEO of Meritage Homes, told BUILDER. “That goes on and on for every component of the house, whether it’s door locks, plumbing, fixtures, carpeting, or tile.”
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected]
Cenlar FSB, the second-largest mortgage servicer and largest subservicer in the U.S., announced on Tuesday the promotion of two leaders in its wholesale bank division.
Keith Austin has been promoted to director of asset management and valuation services. With over 25 years of experience in portfolio management, he brings to the role an extensive expertise in default mortgage servicing.
Austin, who joined Cenlar in 2005, will be responsible for managing and mitigating default costs for the wholesale bank’s loans and mortgage servicing rights (MSR) portfolio. He will also continue to oversee the valuation team, which handles valuation requests from operations and ensures compliance with regulatory requirements.
Austin previously held the positions of senior asset manager and manager of the valuation team at Cenlar.
Tristan Watson has been promoted to the role of director of subservicing pricing and will oversee all revenue pricing generated by the subservicing business. This includes setting pricing for prospective clients, managing pricing for existing clients as they renew their contracts, and identifying other opportunities to support Cenlar’s clients and their homeowners.
Watson, who has been with Cenlar since 2016, previously held the role of senior pricing analyst and is a graduate of the Cenlar Leadership Development Program.
“I am proud to promote these two outstanding leaders who deliver the very best service to our clients and their homeowners,” said Michael Conway, senior vice president of the wholesale bank division at Cenlar. “On behalf of the entire Cenlar team, I would like to congratulate them on their promotions and look forward to their continued success and contributions to the company.”
Headquartered in Ewing, NJ, Cenlar FSB is a subservicer that caters to clients in all 50 states and U.S. territories. Its client base includes banks, credit unions, and mortgage bankers.
This content was generated using AI, and was edited and fact-checked by HousingWire’s editors.
Looking for ways to work in the luxury real estate market? Listen to today’s podcast with luxury real estate agent Sarah Knauer and learn how to win listings at a higher price point. In addition to covering the luxury niche, Sarah shares systems for staying in touch with your sphere, how to keep it simple with CRMs, and what to do when deals fall apart. Sarah and Aaron also cover the benefits of joining a real estate team and locking in a daily schedule for success.
Listen to today’s show and learn:
Sarah Knauer’s start in real estate [3:25]
The pros and cons of being a salaried real estate assistant [4:49]
The benefits of joining a real estate team [6:57]
Finding the right fit for your personality [9:14]
Real estate is a long-term game [10:18]
Systems for staying in touch with potential and past clients [13:30]
Keeping it simple with CRMs [18:31]
Niching down without turning down opportunities [19:49]
Finding your real estate focus [23:41]
Sarah’s daily schedule for success [27:06]
Leveraging who you know for listing leads [29:16]
What to do when deals fall apart [33:04]
Upgrades that matter in a luxury real estate market [39:13]
How to convince your client to agree to staging [42:23]
Where to find and follow Sarah Knauer [44:45]
Sarah Knauer
There’s hardly an area of Los Angeles that agent, Sarah Knauer, isn’t familiar with. From the San Fernando Valley to the Westside, this native has lived in or explored many of the city’s regions and knows what makes each one unique. Assisting all types of clients from first-timers to investors to international multi-home buyers, Sarah is deeply passionate about helping each find their perfect home in her favorite city in the world.
Sarah obtained her real estate license in her senior year of college while pursuing a liberal arts degree at Pepperdine University. Not surprising, given her lifelong love of home and design and the fact that both her parents were residential and commercial real estate owners. A leisurely weekend for Sarah was attending open houses, and the Los Angeles backdrop made the experience even more special. Having lived in areas such as Westlake Village, Malibu, and Brentwood, and with her expertise in contracts, negotiations, and marketing, Sarah knows how to find and add significant value to the amazing real estate opportunities the city has to offer. This passion and expertise has also landed Sarah on NAR’s 30 Under 30 List. She is also currently working on obtaining her broker’s license.
Sarah currently lives in Santa Monica and enjoys hiking as well as discovering new restaurants and venues from Malibu to Downtown LA. She is also very involved in her community, which includes the Make-A-Wish Foundation and Pacific Palisades Chamber of Commerce: she is currently its youngest Chair and also sits on the board of The People Concern.
Related Links and Resources:
It might go without saying, but I’m going to say it anyway: We really value listeners like you. We’re constantly working to improve the show, so why not leave us a review? If you love the content and can’t stand the thought of missing the nuggets our Rockstar guests share every week, please subscribe; it’ll get you instant access to our latest episodes and is the best way to support your favorite real estate podcast. Have questions? Suggestions? Want to say hi? Shoot me a message via Twitter, Instagram, Facebook, or Email.
Higher education is rapidly becoming a necessity. Degree holders have better odds in the job market, and the right degree is a great way to follow a passion and make yourself marketable at the same time.
But the costs of college and graduate school are only climbing upward. In order to afford your dreams, you may have to join the 45 million Americans who have student loans.
Borrowing to pay for an education is a definite financial risk, but it can be affordable and manageable if you do it wisely. Ultimately only you can make a decision —and preferably a highly considered decision — about whether you should go into debt to advance your education.
What’s Ahead:
What Are Student Loans?
Student loans are sums of money you borrow for your education and then pay back over time — in most cases, with interest.
Loans will often be part of your financial aid offer from the school you attend. Look for grants and scholarships first, since those don’t have to be repaid. But if you don’t get a full ride, loans can make up the difference.
Types of Student Loans
In the U.S., there are two categories of student loans: federal and private.
How Do Federal Student Loans Work?
Federal student loans are offered by the federal government, and they account for about 92% of student loan debt in the United States.
There are different types of federal student loans available to different types of students, with varying loan terms.
Direct Subsidized Loans
With a subsidized loan, the government pays the interest while you’re in school and during any periods of deferment (“subsidizing” your education by offsetting the cost). Subsidized loans are available only to undergraduates with demonstrated financial need. The amount is capped to only cover your financial need, as determined by the FAFSA.
Direct Unsubsidized Loans
With an unsubsidized loan, the borrower is responsible for any interest that accrues while they’re in school and afterward. Unsubsidized loans are available to any undergraduate or graduate student. The amount is determined by the cost of attendance at your school and any other aid you’re receiving.
You may hear Direct Subsidized and Unsubsidized Loans referred to as Stafford Loans.
Read more: Subsidized vs. Unsubsidized Loans
Direct PLUS Loans
The U.S. Department of Education offers Direct PLUS Loans to graduate or professional students. They require a credit check and decent credit history. The amount is intended to cover any expenses other aid does not cover.
Direct Consolidation Loans
If you have multiple federal loans, you can combine them into a single loan from a single servicer. The new loan is known as a Direct Consolidation Loan.
Some Facts About Federal Loans:
In most cases, you won’t need a co-signer.
Unless you’re taking out a PLUS loan, you won’t need a credit check.
Interest rates are usually fixed (they stay the same over the life of the loan).
Interest is tax deductible.
How Do Private Student Loans Work?
Private student loans come from lenders not affiliated with the government, such as a bank, a credit union, a school, or a state organization. The amount you can take out and the options for repayment are up to the lender.
Federal loans are typically a better option than private loans since private loans offer much less flexibility.
Some Facts About Private Loans:
You may have to begin payments while still in school.
The loans may require a credit check and a co-signer.
The interest rates can be variable (fluctuating with the financial market).
Some private loan interest rates can be as high as 15%.
Interest might not be tax deductible.
How Do You Apply for Student Loans?
While you’re applying to schools, you’ll fill out a FAFSA, or Free Application for Federal Student Aid. Pay attention to the FAFSA deadlines, which change each year (the deadline is June 30, 2023 for the 2022-23 Academic Year). Usually, the FAFSA will be available starting in the fall for the next fall’s school year.
Read more: Guide to Filling Out the FAFSA
Applying for Federal Student Loans
The federal student aid website has a forecaster tool to predict what level of federal student aid you’ll be eligible for, and what your Expected Family Contribution (EFC) might be. This can give you an idea of how much you’ll likely need to pay out of pocket for your education, and it might also influence the schools you apply to.
When the time comes to fill out the FAFSA itself, gather your tax returns for the previous tax year, current bank and investment account statements, and pay stubs or employment info. If you’re a dependent student, use your parents’ or guardians’ financial information. If you’re an independent student, use your own.
If you’re admitted to a program, your school will send a financial aid offer that may include federal loans. Before receiving federal loan funds, you will:
Complete entrance counseling either in person or online with a financial counselor. You’ll learn your rights and responsibilities as a borrower.
Sign a Promissory Note or Master Promissory Note. This is a legally binding document that lists the terms and conditions under which you will repay the loan. Keep a copy of this document! You’ll need it later.
Applying for Private Student Loans
You can apply for a private student loan directly with the lender, and you don’t need to fill out a FAFSA. Because private student loan interest rates can vary widely, it’s a good idea to compare a number of different lenders before applying.
You can compare multiple private loans simultaneously via a loan marketplace like Credible. With a loan marketplace you enter some of your personal information and you’ll be matched with a list of lenders that are likely to approve your loan. The whole process takes just a few minutes, and it’s a convenient way to check private lenders’ interest rates and loan terms side by side.
Some private lenders, like Stride Funding, offer ISAs (Income Share Agreements) to students rather than traditional interest-based loans. With an ISA you agree to pay your lender a set percentage of your income after graduation for a specific period of time. It’s a good idea to check ISA options if the interest rates you’re quoted for traditional private student loans are exorbitantly high.
Read more: Best Private Student Loans of 2022
What Is the Maximum Student Loan Amount?
Private loan amounts typically won’t exceed your school’s total cost of attendance. Your individual loan amount will be influenced by your credit score, existing debt levels, professional prospects in your field of study, and the financial strength of your cosigner.
Federal loan maximums vary as follows:
Undergrads
Direct Subsidized Loans and Direct Unsubsidized Loans
Undergraduate students can borrow between $5,500 and $12,500 per year, up to an aggregate limit of $31,000 to $57,500.
Specific maximums vary depending on the year of schooling and the student’s status as dependent or independent.
Grad Students
Direct Unsubsidized Loans
Graduate students can borrow up to $20,500 annually and $138,500 aggregate.
Direct PLUS Loans
PLUS loans can cover the remainder of your college costs (the cost of attendance) not already covered by financial aid.
What’s the Maximum Amount You Should Actually Borrow?
Just because you can borrow the maximum amount doesn’t mean you should.
The financial aid offer will estimate your living expenses, and you can turn down a loan or request a lower amount if you feel their estimate is too high. Borrow only what you need. It’s a good idea to calculate your estimated living expenses yourself, with a cushion for the unexpected.
One rule of thumb is not to take out more loans than the anticipated first year’s salary in your field. You can check out our list of the best salary information websites to get a ballpark salary expectation for your profession.
Remember, you’ll still be expected to pay back the loan even if you can’t find work in your field, or if your plans change.
What Can Student Loans Be Used For?
Many students operate under the assumption that their loans can be used to pay for any living expense incurred while they are an enrolled student. They might be surprised to find out that the Federal Student Aid handbook technically limits the use of federal student loans to covering a student’s ‘cost of attendance.’ Permitted expenses include:
Tuition.
Books and other course supplies.
Purchase or rental costs for educational equipment, like a computer.
Exam and portfolio evaluation fees.
On or off-campus housing expenses, like rent or utilities.
Food, like a college meal plan or groceries.
Dependent care expenses, e.g., daycare expenses for your kids while you’re in class.
Licenses or certifications required for coursework.
Study abroad costs, like student visas.
Disability-related expenses.
Public transit expenses to and from school, like bus passes or train tickets.
Operation and maintenance expenses for a vehicle used to transport students to and from school (*not including* car payments or other costs for purchasing a vehicle).
Most private loan contracts include spending guidelines similar to the above.
Of course, your lender is unlikely to monitor how you utilize your student loan disbursements. But treating student loans as a free-for-all is a recipe for overspending and overborrowing.
You can minimize the amount of debt you incur while studying if you use your loans only for bonafide educational necessities. So hold off on that Cancun vacation until after you’ve graduated and landed a high-paying job.
How Does Student Loan Interest Work?
Remember calculating interest rates in middle or high school math classes? Fortunately, you don’t need to dust off your SAT prep book before taking out a loan, but you should know how interest rates affect your finances before you borrow.
Interest is money paid to a lender at a particular rate in exchange for borrowing a given sum. An interest rate is calculated as a percentage of your unpaid loan amount, also known as the principal. You are responsible for paying interest on any unsubsidized loans.
Federal Student Loan Interest Rates
The interest rates for federal loans are fixed, meaning the rates won’t change over the life of the loan. The rates are determined by Congress, and they vary depending on when the loan was first disbursed.
Below are the rates for loans disbursed after July 1, 2022, and before July 1, 2023.
Direct Subsidized and Unsubsidized Loans for undergraduates: 4.99%.
Direct Unsubsidized Loans for graduate and professional students: 6.54%.
Direct PLUS Loans: 7.54%.
Private Student Loan Interest Rates
Private loan interest rates are determined by the lender, and they may be fixed or variable. With a variable interest rate, the rate may change over the life of the loan.
Private student loan interest rates may range from 1% to 15%, depending on the borrower’s credit score. As of July 25, 2022, Credible reports that 5-year variable-rate private student loans average 4.78% interest. 10-year fixed-rate private student loans average 7.22% interest.
How to Calculate Student Loan Interest
To calculate the amount of interest that accrues on your student loan, divide the loan’s interest rate by 365.25 — the number of days in the year, including Leap Year. This number is the interest rate factor, or the daily rate on your loan.
For instance, a loan with a 5% interest rate (.05 divided by 365.25) would have a daily rate of 0.00013689253.
You can use the interest rate factor to calculate how much interest accrues on your loan from month to month. Use the daily interest formula:
Outstanding principal balance (how much of the loan remains unpaid) x the number of days since your last payment x the interest rate factor you figured out above = interest amount.
You can also use MU30’s loan calculator to determine how much interest a given loan will accrue.
When Does Student Loan Repayment Start?
Repayment options are flexible (especially for federal loans) and can change as your life situation changes.
You can apply for deferment or forbearance — a period of time where you don’t have to pay back the loan — on federal loans and some private loans. If you have an unsubsidized loan, the interest will keep accumulating during deferment.
Paying Back Federal Student Loans
If you have federal loans, you won’t need to pay them back as long as you’re in school at least half time. You can start paying back early if you choose. There are no prepayment penalties.
After graduation, you’ll usually have a six-month grace period before your repayment schedule begins. Then your lender will ask you to choose a repayment option.
Each option requires you to pay a different amount per month. The more you can pay per month, the less you’ll pay overall.
Remember the daily interest formula above — if you make larger payments, you’re chipping away faster at the unpaid principal, which results in less accrued interest. By the same token, if you make smaller payments, you’re likely to pay more money overall, since the interest will add up.
The repayment plans below apply to every federal loan except Perkins Loans. If you have a Perkins Loan, the school (your lender) should inform you about repayment options, which will vary.
Standard Repayment Plan
You pay a fixed monthly amount with the goal of paying your loan off in 10 years (30 years for a Direct Consolidation Loan, which tends to be larger).
Graduated Repayment Plan
You start out with smaller payments, which then increase every two years — again, with the goal of paying off the loan in 10 years (30 years for a Direct Consolidation Loan).
Extended Repayment Plan
You pay monthly on a fixed or graduated plan with the goal of paying the loan in 25 years. This option is only available to borrowers with $30,000 or more in debt.
Revised Pay As You Earn Plan (REPAYE)
Your payments are capped at 10% of your discretionary income. Discretionary income is the difference between your income and 150% of the poverty guidelines for your state and family size.
Income-Based Repayment Plan (IBR)
You pay, monthly, either 10% or 15% of discretionary income, based on the date you received your first loans. You’ll never pay more than what you would have paid under the standard plan.
With this plan, the amount of your payments is reassessed every year based on how your income and household have changed. After 20-25 years, any outstanding balance on your loans will be forgiven.
Income-Contingent Repayment Plan
Each month, you’ll pay the lesser of20% of your discretionary income or the amount you’d pay monthly with a fixed payment over 12 years. Payments are recalculated each year based on your income and family size. Any amount not repaid in 25 years will be forgiven.
Income-Sensitive Repayment Plan
You make monthly payments based on your annual income for up to 10 years.
If you find you can’t afford your payments, get in touch with your loan servicer and see if you can switch to a more affordable plan. Nonpayment will hurt your credit and may eventually lead to default.
Paying Back Private Student Loans
Immediate Repayment Plans
Some private loans may require payment while you’re in school, but this isn’t cut and dried. You may find that you can pay interest only or make a reduced payment during the time you’re in school. Some private loans require that you make the same full payments whether you’re still in college or not.
Deferred Repayment Plans
Many private lenders now let you delay payment until graduation. You may even find they give you a grace period of six months or longer after graduation to start making payments. This can help take some of the pressure off while you’re looking for that first job.
Flexible Deferment Plans
With some lenders, you can occasionally skip a payment or put off paying for a while when you’re going through a tough time.Another benefit you may get with some private loans is the ability to renegotiate (refinance) a high variable interest rate.
Refinancing Student Loans
Refinancing a loan is when you replace your current loan with a new loan that offers more favorable terms. Whether you have a private or federal student loan, refinancing is always an option.
Refinancing is particularly attractive when your new loan offers a significantly lower interest rate than your existing loan. But it can also be a good idea if you have multiple loans that you want to combine into one, as it’s easier to stay on top of only one payment.
When considering refinancing, it’s important to take a close look at any fees you’ll be charged. While you can save on interest by refinancing, hefty origination fees might eat into those savings considerably.
Read more: Student Loan Refinancing Options
Summary
As tuition skyrockets and a college degree becomes more necessary for a middle-class life, student loans play a bigger and bigger part in most people’s financial lives.
Student loans can be scary, overwhelming, and painfully tedious to contemplate. But knowing what you’re getting into — in terms of interest rates and repayment plans — can take some of the terror out of borrowing large sums to finance your future.
NFTs or non-fungible tokens have gained a lot of momentum in the last few months. Whether it’s because of the digital art, the technology behind them, the money-making potential, or a simple case of FOMO, people can’t get enough of them.
Each day, we wake up to stories of artists and celebrities buying and selling NFTs for insane amounts. Case and point? Eminem recently shelled out 123.45 Ethereum (currently worth over $400K) for a Bored Ape NFT — and that’s not even the most expensive one in the market.
As someone who’s crawling herself out of student debt and on a budget, paying six figures for a digital asset is simply out of the question.
But are all NFTs that expensive? Or is there a way to start small?
I talked to NFT trader investor, consultant, advisor, and founder Ish Verduzco to find out, and, to my surprise, his answers were very promising.
What’s Ahead:
Do you have to be rich to invest in NFTs?
Last March, digital artist Mike Winkelmann, better known as “Beeple,” made headlines when an NFT of his work was sold for a record-breaking $69 million.
Then, we saw Snoop Dogg and Grimes buying and selling NFTs for six and seven figures, while Paris Hilton joined forces with Bill Ackman to back a $300 million NFT Foundation.
With figures like that, it’s easy to think that NFTs are some sort of exclusive investment that only the rich can afford. However, that couldn’t be further from the truth — at least that’s what both Verduzco and the data say. Verduzco says:
“Yes, there is some level of barrier to entry at the moment. But I wouldn’t say that they’re for the ultra-rich either…I think there’s an opportunity to get in.”
What makes NFTs more expensive than your average investment is that most of them are minted through smart contracts that live in the Ethereum blockchain, which Verduzco says is one of the most expensive ones, partly due to the gas fees.
Gas fees are basically the transaction fees of the Ethereum network. These fees are non-refundable, and must be charged to cover the costs of the energy used by the computers when validating and recording each NFT transaction. Verduzco says:
“To give you a very quick overview, it can cost like $50 to a few $100 just to transact, plus the cost of the NFT itself.”
So, how much money do you need to start investing in NFTs?
A recent study by Canadian concept artist Kimberly Parker, which analyzed public API data from sales on popular NFT marketplaces, like OpenSea, Nifty Gateway, Rarible, SuperRare, and MakersPlace, found that most NFTs are actually sold for under $200.
That’s right, you don’t need six figures — not even four figures, to own an NFT.
Verduzco says that a good amount to get started would be $500, which isn’t outrageous. After all, popular investment firms, like Wealthfront and E*TRADE, require minimum deposits of that same amount for you to start investing in their automated portfolios.
Read more: What Is An NFT? – How Nyan Cat Was Sold For $600,000
Why now may be a good time to get into NFTs
Many crypto and NFT experts — Verduzco included, think that the blockchain and smart contract technology behind NFTs will spread like wildfire across multiple industries, changing the world as we know it.
“It’s going to be integrated into almost everything we do,” Verduzco says.
“It’s not just going to be just art, it’s going to go into music, it’s going to go into film, it’s going to go into transacting things like deeds to houses, and anything that has to do with verification of ownership.”
Here’s a quick example of how this could work:
When you’re buying a house, the bank needs to make sure that the title is free and clear before closing on the loan. This process alone can take two weeks, and you’ll have to pay additional fees to the third-party company conducting the search.
But if the house was registered and sold as an NFT, for example, each transaction pertaining to that property would’ve been accounted for and recorded in the blockchain. So, clearing the title would only take a couple of hours instead of weeks, and you’d be able to get rid of the middleman and unnecessary fees.
Although the concept of NFTs is still in its early stages, Verduzco says that “it’s better to be ahead,” and — if possible — invest in it, so you learn the inner workings firsthand.
This will allow you “to spot more opportunities to make money, or find other people that are in this space who compliment your strengths and weaknesses in order to build projects based on needs.”
How to start investing in NFTs when you’re on a budget
As part of my convo with Verduzco, we bounced off some ideas on how you can get into the NFT game without breaking the bank. These are a few of them.
Read more: How To Create And Sell NFTs – The New Way To Sell Your Art
Explore NFT projects that use cheaper cryptocurrencies
If you visit OpenSea, which is currently the world’s largest NFT market, you’ll see that the vast majority of NFTs listed there use the Ethereum network (aka the most expensive NFT blockchain).
But just because most NFTs use this blockchain, that doesn’t mean that there aren’t other options.
Blockchains like Solana and Polygon (which was created as an efficient solution to the Ethereum network and is compatible with it) use cryptocurrencies that are much cheaper than ether, which is Ethereum’s currency.
Here’s an example:
At the moment this article was written, one SOL, which is Solana’s cryptocurrency, was worth $0.26, while one MATIC, which is Polygon’s cryptocurrency, was worth $2.13. But, if you wanted to purchase one ether, which is Ethereum’s cryptocurrency, you’d need $3,121.93 to do so.
So, yeah, there’s a huge difference there.
These alternative blockchains are also rising in popularity. JPMorgan recently released a report in which it states that the Ethereum blockchain is losing a chunk of its market share to Solana, as the blockchain is less congested (aka faster) and cheaper to invest in than Ethereum.
If you’re interested in buying NFT projects that use the Solana network, you can check out marketplaces like Solsea and Solanart, to find them.
When it comes to projects that use Polygon, you can find them just by visiting OpenSea. To see all the NFTs you can place bids on or buy using this network, simply click on the “Chains” option on the left panel, and select “Polygon.”
Mint a project
When you mint a project, you’re basically investing in it before it actually goes live. So, you could think of it as the Kickstarter of an NFT project. Verduzco says:
“The initial mint is usually like 0.05 Ethereum, which is a relatively small amount. If you happen to make it in that initial mint, then you pay only 0.05 Ethereum, versus if the project goes up in value, and then it costs 0.7, or much higher.”
One good example of an NFT project that is currently in its minting phase, and that I happen to like a lot is the Lucky Goat. You can currently mint this project for 0.0777 Ethereum ($243.43).
What has me rooting for the Lucky Goat (besides the art, of course) is that they donate some of their profits to Heifer International, which is a nonprofit whose mission is to help eradicate hunger and poverty.
So, how do you find projects to mint?
Twitter. If you enter “#mint” or “#NFT” on Twitter’s search bar, you’ll find countless threads of founders and artists sharing their upcoming NFT projects.
Discord. In case you don’t know what Discord is, it is a group-chatting app, where users join servers (aka private groups) to chat about a specific topic. Many NFT founders use this app to talk about their upcoming NFT projects, to get both support and feedback from users.
rarity.tools.Although this website is mostly used by NFT traders to vet projects and find rankings based on their rarity or unique traits, it also has an Upcoming NFT Sales section, where you can check projects to mint.
OpenSea’s homepage. They often share new mints, and you can easily browse through their huge NFT market.
But be careful…
Before minting a project, Verduzo says it’s super important to ensure its legitimacy, so you don’t get rugged (NFT lingo for “scammed”). Sadly, just like in any space, there are always bad players that are just there to do a quick cash grab and disappear.
To avoid this, make sure you research the project thoroughly by finding out all you can about its community, founders, and mission, as well as how long they’ve been around in this space.
Why?
If the project disappears into the mist, your NFT most likely will lose all its value, unless someone else decides to take over the project.
Time your purchase
Unlike the stock market, which is open for transactions Monday through Friday, from 9:30 a.m. to 4:00 p.m. ET, the NFT market is a global market that is open 24/7.
“So, it’s not just you and everybody else in the United States that you’re transacting with, it’s everybody in the entire world who has access to the Internet,” Verduzco says.
And, the more people that are trying to conduct transactions on the Ethereum network, the more congested it will be, which automatically translates to higher gas fees. This will hopefully be improved once Ethereum 2.0 (also known as the consensus layer) is fully rolled out.
One way to spend less money when buying NFTs is to ensure you conduct your transactions during the time of the day when the network is less congested.
Verduzco says that 11:00 a.m. to 1:00 p.m. PST is probably the worst time of the day to buy NFTs because that’s when most people around the world are awake. He suggests timing your transactions to random hours when most people are sleeping, like 2:00 a.m. or 5:00 a.m. PST. Though not always practical, it can help save a good amount of money.
You can also track gas prices by visiting the ETH Gas Station.
Become an NFT expert
Since NFTs are still an emerging concept, Verduzco says that one way you can make money in this space, without being an investor, is by learning all you can about them.
“It doesn’t always have to be investing in an NFT collection, in order to get a return,” Verduzco says.
“Understanding everything about the NFT space and becoming very good on one specific skill set, whether it’s social media marketing, community management, creating Discords, branding, or content creation, is going to provide value because, all of a sudden, you open yourself up to many job opportunities.”
In other words, you’ll be able to profit from your NFT knowledge as this technology becomes more widespread, and companies start searching for people who know their way around this space.
Before investing in NFTs…
Make sure your finances are in order
Investing in NFTs represents a higher risk than investing in traditional stocks or bonds, as their value is determined by speculation, so it fluctuates more than with your average investment.
Besides that, once you purchase an NFT, the transaction is final, and flipping them or reselling them could take a while. That’s why it’s so important you only invest money you have to spare, and not money you’re going to need short-term, as this could result in a financial disaster.
Learn as much as you can
“I would suggest investing your time and energy on learning before putting your money up,” Verduzco says.
“Find really cool projects that you like, and then join the Discords, listen to conversations, ask questions, watch a bunch of videos, read a bunch of blogs before you even think about putting Ethereum in your wallet to spend.”
Learning as much as you can about NFTs will give you a realistic idea of what to expect, plus determine whether you’re ready to take the plunge, or if you should wait a little longer before investing in this space.
If you’re curious about learning, you can check out podcasts, like a16z, which has extensive information on this topic, as well as reading books, like The NFT Handbook: How to Create, Sell and Buy Non-Fungible Token, to get started.
Additionally, Verduzco’s Twitter account is like a gold mine of NFT info, as he frequently shares projects, articles, and tips to help people learn more about this space.
Summary
You don’t have to be a millionaire to invest in NFTs, however, there’s a learning curve to be successful in this space.
The most important thing is to learn as much as you can about it, vet projects carefully, understand the risks associated with investing in such a volatile space, and make sure you don’t use money you’re gonna need. This will allow you to make the most out of your experience.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
If you have been trading for a while, then there is a good chance that you have made some trading mistakes along the way.
Unfortunately, it is part of learning how to trade.
After all, trading is a skill that takes time to learn.
Trading mistakes are part of the learning process. I know that sucks to hear, but it is the truth.
The outcome goal is to learn from those trading mistakes.
Then, you can realize what you did wrong so you do not repeat those same mistakes.
However, more than not, it is more common to repeat the same mistake over and over again.
If you are ready to recognize trading errors and learn how to overcome them, then keep digging in. Take notes and adjust your trading plan accordingly.
We will cover emotional trading mistakes, technical trading errors, and option trading mistakes.
What Are Trading Mistakes?
Trading mistakes are errors made by traders when you enter trades, either to purchase stocks or options.
More than likely, you will see the same type of trading error happening over and over again.
Trading mistakes are very common, but they do not have to lead to complete panic.
In order to minimize the chances of making a costly mistake, traders should adhere to their trading strategy. Additionally, traders should always trade with a clear head and stay disciplined.
There are plenty of trading mistakes you can avoid by being smart and adjusting your trading plan where needed.
Why Understanding Trading Mistakes Is Important for Long-term Success
Trading mistakes are the result of traders taking losing trades, which can result in poor overall performance.
Mistakes that occur during trading often include not paying attention to the market, not understanding risk, not having a well-thought out trading strategy, and being bad at managing the trade.
Whatever the reason, trading errors occur and it is how we react to them that matters.
Long-term success in trading is not a goal that can be accomplished overnight.
Achieving long-term success with active trading requires patience, discipline, and practice.
It is easy to get caught up in day-to-day successes and forget to commit to a long-term plan. As traders, it is important to be able to recognize our mistakes so that we can learn from them and move forward.
Top 5 Trading Mistakes
As you will see, we compiled a long list of trading mistakes. Each trader will see some of those trading errors in themselves. Some are small trading mistakes while others are detrimental.
First, we are going to focus on the top five trading mistakes first. This will make or break your success as a trader.
The following are five common trading mistakes that traders make and how to avoid them.
#1 – No Trading Plan
Trading without a plan means you enter a trade without knowing your next step.
No trading plan means that traders are not able to set clear goals, establish risk-reward ratios, and avoid common pitfalls that can occur during a trade. This makes it difficult for traders to know when they should be buying, selling, or holding.
Trading without a plan is risky because it can lead to losses that are much higher than they need to be.
When starting out in trading, it is important to remember that we can only focus on what we can control. This means that we should not worry about things we cannot change, such as the past or the behavior of other traders. Instead, we should form a trading plan and stick to it so that we can succeed in the long run.
Creating your trading plan will happen with many revisions. The goal of the trading plan is to set your overall strategy for trading.
Also, you need to have a specific trading strategy for each trade you enter.
Avoid by: Spending time to develop a trading plan. Revise as needed. Stick to it.
#2 – Risk Management Plan is Missing
A risk management plan is essential for traders and it should be included in any trading plan.
Without a risk management plan, traders are more likely to make emotional decisions that can lead to costly mistakes. For many traders, this is the hardest thing for them to manage.
It is possible to create a risk management plan as your overall trading plan.
In your risk management plan, you must decide (in advance) how much money you are willing to lose based on the amount of profit you perceive to make. For instance, you are willing to risk $300 in order to make $1000.
Many day traders focus on a 2:1 reward-to-risk ratio. Personally, I look for stronger reward-to-risk ratios greater than 3:1.
Avoid by: Understand how risk is a part of making a profit. Set your risk tolerance and do not deviate from it.
#3 – Not Keeping a Trading Journal
One of the most important aspects of successful trading is keeping a journal.
This not only helps you keep track of your trades and performance, but it can also help you remember what worked and what did not. Journaling is so helpful and such an overlooked task.
Your trading journal is the perfect place to take notes, keep track of your wins and losses, and record market movements so that you can learn from past mistakes.
At the end of every trading session, you should take some time to analyze your trades.
What went well?
What didn’t go well?
Why did you make that particular trade?
What was your entry strategy?
What was your exit strategy?
Where was the overall market momentum?
Did you control your emotions?
What grade would you give yourself?
This analysis is important so that you can learn from your mistakes and improve your trading skills. Stay motivated to continue learning about trading and keep more profit.
Avoid by: Start journaling. Spend time after exiting a trade and the market day to understand what happen and why you did a certain trade.
#4 – Watching Too Many Stocks
Watching too many stocks can lead to a decrease in returns and overall confusion on what is happening with your watchlist.
As a result, it is important to be selective.
The same can be said of stock scanners. If you are watching too many variables and possibilities, you can quickly become overwhelmed.
When you develop your trading plan, you need to decide how you find stocks.
Personally, I prefer to focus on a handful of stocks and a few key metrics. Then, watch them closely and trade accordingly.
As a new trader, I would pick about 5-10 stocks to analyze.
Avoid by: Revise your watchlist to half what you are currently watching.
#5 – Actually Exiting Trade as Planned
Above we talked about creating a trading plan and having a trading strategy for each trade taken.
But, the trading mistake happens when you do not exit the trade as planned.
This could be because of “hopemium” that the stock price will recover and you will get back your loss.
Our “hopemium” is that the stock price keeps rising and you will make more money.
Either one can be damaging to your trading account.
You created a plan. As a disciplined trader, you must follow your plan either to maximize your current profit or protect your risk against further losses.
Avoid by: Exiting at your set targets. Period.
12 Typical Emotional Trading Errors
Trading is 80% mental and 20% execution. Okay, I am not sure that there is an official study to back it up. But, I do know as a trader that emotions play heavily into your overall profit.
The typical emotional trading errors that traders make when they are in a trade are overconfidence, jumping into trades before the proper analysis is completed, and inability to take losses.
This is where most of the trading mistakes are made.
When first starting out in trading, it is easy to get caught up in the prospect of making a lot of money quickly. However, most traders find that trading is not easy to do and make common emotional trading errors.
Let’s dig into these emotional mistakes first and then we will follow up on the technical trading mistakes.
1. Letting emotions impair decision making
Emotions are an important part of decision-making, but it can be dangerous to allow them to influence our decisions. We should also take into account that emotions can often lead us astray.
It is clear that emotional trading can lead to bad decision making and, ultimately, financial losses.
When investors let their emotions take over, they are not thinking logically and may make impulsive decisions. For example, they may sell stocks when the market is down in order to avoid further losses, even though the stock may rebound soon after.
In order to be successful traders, it is important to stay calm and rational when making decisions.
Overcome by: Stick to your trading plan and take emotion out of the equation.
2. Unrealistic Profit Expectations
You go into every single trade expecting a home run! Enough money to achieve your dreams overnight!
These types of profit expectations will have you throwing your risk management plan out of the window and set you up for failure with greed, overconfidence, and impatience.
Be realistic about your expectations with trading activity.
Overcome by: Go for base hits. Small consistent wins.
3. Greed
Greed is a deep-seated need for more profit without regard to the chart or market conditions.
The common rationale is hopefully the stock will go up. Typically, you hold your position too long and end up losing some of your gains.
Greed can manifest in many different ways, and people with greed often neglect their own needs in order to attain more.
Overcome by: Set an OCO bracket to exit the trade at your specified level. Take you out of the equation.
4. Fear of Missing Out (FOMO)
You fear that you missed out on a trade, so you decide to jump in. As a result, you are risking more than you should.
This trading mistake is common, especially with online trading communities.
As a result, you may buy at the high and watch the stock reverse.
Overcome by: Realize that there will be missed opportunities. That is part of the game. There will always be another chance.
5. Fear
In many cases, fear is a reaction to why or why not we enter a trade.
For any trader, they may become frozen unable able to make a decision as their mind is wrapped in fear. At the same time, they are either missing out on potential profits or unable to exit a trade due to mounting losses.
Overcome by: This is a real emotion that you must overcome. Take the time and read resources to help you overcome being paralyzed by fear.
6. Overconfidence after a profitable trade
The overconfidence that comes with success can lead to a loss of profits.
When a trader has a winning position, they may become overconfident and make bad decisions because of the previously profitable trade.
For example, they may not take their profits off the table when there is an opportunity to do so or increase their position size when they should be taking profits. This could lead to them losing all of their winnings and more.
Overcome by: Take a break from trading for a few days or a week after a big win.
7. Entering a Trade Based on Your Gut
The process of entering a trade based on your gut is, essentially, following your “gut feeling” and buying or selling shares after the market opens. This is seen as a more risky and less profitable strategy than following a more traditional market timing approach.
Trading is all about making calculated decisions and sticking to a plan.
Trading based on your gut feeling or emotions will only lead to costly mistakes.
Overcome by: Before entering into any trade, make sure you have a solid strategy in place and know all the rules. Only then should you start trading.
8. Not reviewing trades
Not reviewing trades is a common problem for many traders. Traders who don’t review their trades tend to be more likely to make mistakes in their trading and over-trade, which can result in losses.
You will make the same mistake over and over again until you realize the root of the problem.
This is how you move from a losing average to a winning percentage.
Overcome by: Let your journal be your friend. Document everything including your emotions.
9. Following the Herd
Many people enjoy following the herd with stock trading, especially online platforms on Reddit, Discord, or Twitter.
You may decide to follow a certain group of people in order to be fed stock picks or updates.
This can be risky because there is no sound foundation to base your trade upon.
Overcome by: Trade your style and let that fit you.
10. The Danger of Over-Confidence
The “beginner’s luck” experienced by some novice traders may lead them to believe that trading is the proverbial road to quick riches.
Over-confidence is the belief that one’s abilities, knowledge, or qualities are better than average.
This over-confidence is a risk factor for certain types of mistakes and other negative outcomes as it leads to complacency, a lack of preparation, and an overestimation of one’s abilities.
Overcome by: Realize your limitations and watch for overconfidence to appear.
11. The Importance of Accepting Losses
Losses are always a part of trading life, but they can be overwhelming when they occur.
It is important to recognize that losses are in fact an inevitable part of growth and development as a trader.
Overcome by: Journal all of your losses. Look for patterns to appear. Adjust your trading strategy as appropriate.
12. Quit Your Job Too Fast
Quitting your job too fast is not a good idea, as it will force you to place trades that may not be the best set-ups.
Day trading can be a very risky venture, and it is possible to lose everything you have invested.
It is important to be aware of the risks before getting started. More importantly, do not quit your job too fast. This can lead to losses in your investments and could potentially put you in a worse financial situation than you were before.
Overcome by: Keep trading as a side hustle. Hone your trading skills and build up a reserve fund that will cover your monthly expenses. You will know when you are prepared to leave your 9-5.
Common Mistakes in Stock Trading
According to a study by the U.S. Securities and Exchange Commission, technical trading mistakes are actually fairly common among individual investors.
Mistakes in technical trading can be two-fold, either due to lack of knowledge or poor execution.
The most common mistakes are buying at the top and selling at the bottom, overtrading, and not taking the time to properly understand how trading works.
Now, let’s dig into all of the common trading mistakes I see.
1. Overtrading
Let’s start by talking about overtrading. This is a mistake that I see many people make. It is also a mistake that could have been easily prevented if you had just done your research before placing the trade.
Overtrading or placing more orders than you should do is the most common mistake.
Many new traders will simply open up their platform, look at the market, and place a trade. They are often chasing after the last couple of candles or they see an opportunity to get in “on the cheap”.
The problem with this approach is that you have no idea if this is a good trade or not. You are simply taking a shot in the dark and hoping for the best.
Overcome by: Only place the A+ setups that you like. Once you have traded so many times per day or week, stop trading.
2. Buying High and Selling Low
We all have heard the saying, “buy high and sell low.” However, too many novice traders do the complete opposite.
This trend happens with one of the emotional mistakes of FOMO; we already dived into that concept earlier.
Overcome by: Follow your trading plan on when to enter and exit the trade. Practice your strategy in a simulated account and master it.
3. Lack of Trading Knowledge
The lack of trading knowledge is a problem for many traders who are not familiar with how the stock market works. This can cause them to make mistakes when buying and selling stocks, which could result in losing a lot of money.
Just because you made a profit once on one stock does not mean that is a repeatable action.
In order to be successful in trading, it is important to have a good understanding of the markets and the strategies involved.
Without proper training, you are likely to make costly mistakes that can cost you money. Trading courses and tutorials are available online and through other resources to help you gain this knowledge and become a successful trader.
Overcome by: Take an investing course. Spend money on your education and not your losses. Here is a review of my favorite day trading course.
4. Following Too Many Strategies
Following too many strategies is a common problem in the investing world, which can lead to poor performance and more costly mistakes.
There are a million and one different approaches on how to trade the stock market, which indicators to use, whose advice you should follow, so on and so forth.
And then, many traders try and couple the strategies together only to quickly learn they may cause more losses than profits.
One way to avoid following too many strategies is by using a set of rules to decide which strategies are appropriate for investing.
Overcome by: Develop your trading plan. Outline the investing strategies you will use. Test any new strategies in SIM first.
5. Do Your Research
The solution to this problem is simple: do your research!
Before you enter a trade, take the time to do some analysis on the asset you are looking at. Look at past price action, news events, and any other relevant information that you can find.
Understand why the market might move in your favor and be able to build a case for it. The more data points you have supporting your position, the better off you will be.
If you are able to build a strong case for why the asset will move in your favor, then you can enter with confidence. This is because if the market does not move in your favor, you will know that it isn’t because of a lack of research on your part.
When you enter with confidence, this will make it easier to hold through the inevitable volatility and price swings.
Overcome by: If you enter without knowing why something is likely to move in your favor, then you are setting yourself up for failure. Do your research.
6. Not Using Stop-Loss Orders
Stop orders come in several varieties and can limit losses due to adverse movement in a stock or the market as a whole.
Tight stop losses generally mean that losses are capped before they become sizeable. However, you may have your stop loss too tight and get stopped out before your stock has room to move.
A corollary to this common trading mistake is when a trader cancels a stop order on a losing trade just before it can be triggered because they believe that the price trend will reverse.
Overcome by: Plan your stop loss in advance. Stick to it as it is part of an overall risk management strategy.
7. Letting Losses Grow
Active traders can be harmed by refusing to take quick action to close a losing trade.
It is important to take small losses quickly and limit your risk in order to stay profitable.
Stop losses can help you avoid larger losses.
While the stock may come back to your buy price, you have increased your risk far beyond what you planned. If your planned loss was $300 and now you are down over $500, it will take that much longer to overcome that growing loss.
Cut your losses. Review the chart. See what a better entry point may be.
Overcome by: If the stock moves past your pre-determined stop, then exit the trade. Don’t trade on hope.
8. Chasing After Performance
Many day traders are tempted to chase stocks, which is a bad reputation in the day trading world.
This happens when they see a stock that has had a large price increase and they think that it will continue to go up. In reality, this is not usually the case, and chasing stocks can lead to big losses.
What goes up must come down, right?
Overcome by: Wait for a better time to enter the trade according to your trading plan.
9. Avoiding Your Homework
It is important to do your homework. If you avoid doing your homework, then don’t expect fast results
Many new traders often do not do their homework before making any investment decisions.
This can lead to costly mistakes that can be avoided by doing some basic research. Trading is a complex process and should not be taken lightly – make sure you are fully prepared before risking your hard-earned money.
Overcome by: If you have not enrolled in an investing course, do that. Set daily goals on how to improve your trading performance that is not based on profit or loss.
10. Trading Difficult and Unclear Patterns
It is important to stick with the patterns and indicators that are clear and unmistakable so you don’t get caught up in any ambiguous or unclear trading signals.
With a little bit of research and understanding, these market patterns can become quite clear.
By forcing a chart to fit in what you want, then you are putting your trading capital at risk.
Overcome by: If you cannot read a clear chart or pattern, then quickly move to the next stock.
11. Poor Reward to Risk ratios
The most common mistake made by traders is poor risk management. This usually means taking on too much risk in relation to the potential rewards, which can lead to heavy losses if the trade goes wrong.
It is important to always have a solid plan for how much you are willing to lose on any given trade and never deviate from it.
What is the Reward to Risk ratio you look for:
1:1 Reward to Risk
2:1 Reward to Risk
3:1 Reward to Risk
Many beginner traders do not want to take on as much risk because their appetite for potential rewards may be lower. It is important for beginners to consider their trading strategies and risk management plans so that they can make the most informed decisions possible.
Risk-to-reward ratios are an important part of trading, and experienced traders are typically more open to risk in order to maximize their potential rewards. This means that they may be more likely to make high-risk, high-reward trades.
Overcome by: Stick to Risk to reward ratios that fit your trading plan.
12. Ignoring volatility
Volatility is the fear and unknown in the market.
The most important thing to remember about investing is that the stock market can be volatile.
A measure of volatility is from the VIX.
Overcome by: Decide how you will trade when the VIX is high and the news is negative.
13. Too Many Open Positions
Entering too many positions is one of the most common mistakes investors make. A portfolio should consist of a handful of top-performing investments that have proven to be good bets over time.
It is unwise to open too many positions in a short amount of time because it could lead to confusion.
This can be risky because if one or two of the positions go south, the entire portfolio can suffer. For this reason, it is important to carefully consider each position before opening it and make sure that all positions are contributing positively to the overall goal.
Overcome by: As an active trader, stick to under 5 open positions. As a long-term investor, look to build a portfolio of 25 stocks over time.
14. Buying With Too Much Margin
Most brokers offer 2:1 or 4:1 margin to cash. While this is tempting to use, it can also give you a margin call.
Margin can help you make more money by increasing your position size, but it can also exaggerate your losses.
Exaggerated gains and losses that accompany small movements in price can spell disaster for a new trader using margin excessively.
Overcome by: Use your cash only. Stay away from using margin.
15. Following Meme Stocks
These are the stocks made popular by many Reddit personal finance groups.
You have probably heard of Gamestop, Blackberry, AMC, or Bed Bath and Beyond as a meme stock.
While these stocks have risen to crazy highs, they have also fallen just as fast. Chasing the high may leave you with a big and painful loss.
Overcome by: Stick to your stock watchlist.
16. Buying Stocks With No Volume
Buying stocks with no volume is a risky idea that involves placing an order on a stock without knowing how much interest there will be in the shares. This can result in losing money if there are no buyers for the shares.
It is important to validate the price of a stock by looking at volume. The volume shows how much interest there is in a stock and can be indicative of future price movement.
When volume is low, it’s best to stay away from buying stocks as it could be a sign that the stock price is not stable.
Overcome by: Trade stocks with a volume of at least 500,000 or higher.
17. Ignoring Indicators
Indicators are things that tell us the market is going up or down. Examples of indicators would be the stock market at a particular point in time, a company’s performance with regards to earnings, the price of a product or service.
Every trader has their own set of indicators they use.
If you have outlined indicators you use in your trading, make sure to follow them regardless if it is against the way you want the stock to move.
Overcome by: Stick to your trading plan for each stock individually.
18. Trading Too Large Position Sizes
Trading too large position sizes is a risk that traders may run into when they hold positions in their portfolios for extended periods of time.
Position size is the amount of money placed on a trade, and the risk is that a trader may lose more than their capital on the trade if it does not go well.
Overcome by: Base your position size on the amount you are willing to lose. Not how much you want to make.
19. Inexperienced Day Trading
In order to be successful in trading, it is important to have a good understanding of the markets and the strategies you are using. Without proper training, it is easy to make costly mistakes.
Too many day traders turn trading into an unnecessary risky game.
To be successful, a day trader must have a solid foundation in how to invest in stocks for beginners.
Overcome by: Practice in a simulated account and make all of your mistakes there before moving to live money.
20. Inconsistent trading size
Inconsistent trading size is when traders are unable to predict what their position size should be in order to meet the trader’s desired profit goal.
Trading size is one of the most crucial aspects of a trading strategy and should be considered carefully. Larger trade sizes come with an increased risk, so it’s important to be aware of your position size when making trades.
Overcome by: Don’t risk too much on one trade. Stick to your risk management plan.
21. Trading on numerous markets
Trading on numerous markets is when a trader invests in stocks, bonds, commodities, crypto, and other securities.
Every type of market moves differently and takes time to understand how to be profitable.
Overcome by: Find your niche and stick to it.
22. Over-leveraging
Leverage is a powerful tool that can be used to magnify gains and losses in a trade. It is important to be aware of the amount of leverage being used in order to effectively manage risk.
Brokers play an important role in protecting their customers by providing margin calls and other risk management tools.
Overcome by: If you feel over-leveraged, sell some positions before your broker gets involved.
23. Overexposing a position
Overexposure is a term used in the investment world to describe the risk that comes with exposing your position too much in the market. When you have overexposed your position, you are putting yourself at risk of losing money if the stock or security you are invested in falls in value.
You are taking on too much risk.
Overcome by: Stick to your risk management plan. Always have cash reverse on hand in case the market reverses.
24. Lack of time horizon
There are different time horizons for various types of trading strategies. It is important to think about the time horizon you are comfortable with before investing in any type of investment.
If you are a day trader, you plan to close your trades before the end of the trading session. As a swing trader, you typically hold trades for a couple of days maybe up to a month. As a long-term investor, you plan to hold your stocks for longer than a year.
Overcome by: Match the time horizon of that investment purchase with your investing goals.
25. Over-reliance on software
Although some trading software can be highly beneficial to traders, it is important not to over-rely on it.
Automated trading systems are becoming so advanced that they could revolutionize the markets. As a result, human traders need to be aware of the potential for these systems to make mistakes and use them in conjunction with their own judgment.
Overcome by: Set alerts before you want to enter or exit a trade. Then, review if the move still follows your trading strategy.
Top Options Trading Mistakes Beginner Traders Make
These options trading mistakes are specific to option trading.
Trading options is an advanced strategy. If you have losses trading stocks, wait before you start trading options.
1. Not having a Trading Plan
Every trader needs a trading plan that outlines strategies, game plans, and trade metrics.
When you are trading without a plan, you are essentially gambling and hoping for the best.
This is not a recipe for success in the world of stock trading and is especially true for options traders.
A good trading plan should include chart analysis so that you can make informed decisions about when to buy and sell stocks. If you are using HOPE instead of a trading plan, then you need to find out the right way to interpret the chart because that will give you a better idea of what is happening in the market and how likely it is that your investment will succeed.
Overcome by: Create a specific trading plan based on your option strategy.
2. Not properly Researching Option Contracts
Learning to trade options is like going to school for a whole different trade.
There are way too many technical aspects to discuss in this mistake.
Spend time learning what criteria you want from an options contract to be successful.
Overcome by: Learn how options work and practice trading options in the simulator before going live.
3. Trading without an understanding of the underlying asset
Before you start trading options, trade with stocks.
Every stock moves at its own beat. You need to learn how it moves.
Jumping into options prior to knowing the stock can cause extreme losses. Learn how the underlying asset moves first. Be successful in trading stocks before moving to options.
Overcome by: Learn to trade the stock with shares first. Then, practice in a simulator. Once familiar, then trade live with options.
4. Buying Out-of-the-Money (OTM) Call Options
Options trading is a risk-based strategy. It’s important to know which strategies are right for you and what the risks of each option type are before putting on an option trade.
One common mistake that many traders make when it comes to option trades is buying out-of-the-money (OTM) call options.
This is because OTM call options are inexpensive and have a range of around 100,000 to 1 million. To avoid this mistake, it’s important to know what the risks of buying OTM call options are and which option strategies are appropriate for you.
Overcome by: Focus on trading In-the-money (ITM) call contracts. Know your strategy.
5. Not Knowing What to Do When Assigned
When you enter into an options contract, you are essentially agreeing to buy or sell the underlying asset at a specific price on or before a certain date.
If the market moves in a way that benefits the buyer of the option (the person who contracts to buy the asset), they can choose to exercise their option and purchase the asset at the agreed-upon price. However, if the market moves in a way that benefits the seller of the option (the person who contracts to sell), then they may “assign” their contract to someone else – meaning that they no longer want to buy/sell the asset, but would like someone else to take on that responsibility.
This can be jarring if you haven’t factored it into your decision-making when trading options, so it is important to be aware of the possibility.
This is why traders need a higher trading level to sell options contracts or verticals.
Overcome by: Be okay with buying the shares if you are assigned. That is a part of your trading plan.
6. Legging Into Spreads
It is a common mistake for traders to get legged into spreads by entering positions when the market price has moved away from their position. They may have gotten caught up in the belief that they are being a “smart” trader by trying to profit from the spread.
The problem is that they are not taking into account that their cost basis must go up in order to maintain the position. If the market price of the underlying goes up, their cost basis must go up as well.
Overcome by: If you are not comfortable with this advanced strategy, then exit your options contract and place a new one.
7. Trading Illiquid Options
Trading illiquid options is a mistake because traders are taking on too much risk, with potentially disastrous consequences.
Illiquid means that the option cannot be bought or sold at the given time.
In other words, the option is not tradable. When traders trade illiquid options, they are taking a risk that their trades will not be executed because there is no liquidity in the market at that time. They have to hope that the market will become liquid again, and they can then sell their position or buy back their option at a lower price.
Overcome by: Check option volume and open interest at your strike place. Verify you have interest in moving your contract.
8. No Exit Plan
It is important to have a plan in case your trading strategy doesn’t pan out as planned.
This will give you the peace of mind that you won’t be left high and dry without an exit strategy.
With options is it more difficult to limit your risk to reward. As a result, you must decide your exit plan in advance.
Overcome by: Develop your trading strategy and include how and when you will exit the option contract.
Ready to Avoid these Trading Mistakes?
Investors are often their own worst enemy when it comes to trading.
They make emotional decisions instead of logical ones, and this leads to them making costly mistakes. Plus there are many technical errors new and seasoned traders are still making.
In order to be successful in the markets, investors must first learn to accept their losses and move on. Only then can they put that mistake behind them and focus on making profitable trades in the future.
In this post, I shared some of the more common trading mistakes that people make and how to avoid them.
Now, you have to work to avoid these trading mistakes and be profitable.
Know someone else that needs this, too? Then, please share!!
The word timeshare is often associated with the same sneaky, slimy vibes that emanate from the backrooms of the car dealership during sales negotiations. They both are thought to involve high-pressure sales tactics, a big loss in value the second the purchase is made and rash decision-making you may regret later.
I don’t dispute those things are often quite true, but my timeshare purchase involved no salespeople, no pressure and (so far) no regrets.
And before you discount me as someone who has no clue what I’m talking about or that’s in denial, I travel on points and miles a lot of the time, am pretty adept at hunting travel deals and used math to decide that this purchase was a good one for us.
Here’s why buying a timeshare made sense for me, even though it absolutely won’t — and shouldn’t — make sense for everyone.
Related: 5 things to know about renting a timeshare
Buying a timeshare that doesn’t call itself a timeshare
We bought two contracts in the Disney Vacation Club, which is Mickey’s version of a timeshare … even though that nine-letter word isn’t one Disney uses on its public branding. But make no mistake, what we bought is indeed a timeshare — or two, to be more accurate.
With the Disney Vacation Club, you purchase a set number of points tied to a specific resort to use each year through the end of the contract. An agreement at a new property, such as the new villas at the Disneyland Hotel, is valid for 50 years, while getting a contract at existing properties usually means a shorter time frame, with some being as short as 19 years, ending in 2042.
The two smaller contracts we bought are for Disney’s Aulani resort in Hawaii (expiring in 2062) and the Polynesian Village Resort at Walt Disney World (expiring in 2066), for a total of 155 annual points in the Disney Vacation Club program. While you have priority booking 11 months from the date of travel at your home resort where you “own,” you can use the points within seven months of travel at any Disney Vacation Club resort with availability — with some caveats that we’ll mostly leave for this guide we have on how the Disney Vacation Club works.
Both of our contacts were purchased on the resale market, which means we are paying significantly less than what Disney would want for a direct DVC membership. A downside of buying resale is you can only pick through existing contracts instead of crafting exactly what you might want to design from scratch. You also don’t get some of the discounts and perks that come from owning at least 150 DVC points directly from Disney (such as access to the DVC lounges in the parks and being eligible for some less expensive annual pass types).
Sign up for our daily newsletter
I’ll get more into the numbers below, but we have a long track record of taking a variety of Disney vacations year after year, so I feel pretty confident that will continue for the foreseeable future. And I know what we often spend to stay at Disney resorts, which makes the math against the price to own easier. And there is a bustling market for renting DVC points that very much has my attention.
Related: How to rent Disney Vacation Club points to save money on Disney stays
Why now was the time to buy
While I’ve had a mild curiosity about becoming a Disney Vacation Club member for a few years — and have rented DVC points numerous times — there are a few reasons now was the time to purchase.
Disney has the first right of refusal to buy back all of its Disney Vacation Club contract resales. Once the buyer and the seller agree on a price, Disney then has 30 days to buy the contract back at that price itself, thus taking it away from its intended buyer. And historically, Disney really would exercise that right some of the time, especially on contracts where prices were low.
For example, according to the DVC Resale Market, a site that lists some DVC contracts for sale, by March 2022, Disney had already exercised its buy-back clause on 244 contracts that company had helped to sell by March that year. In contrast, by March this year, that buy-back number for the year was just four — and all of those were from January, with none shown since then.
With almost no Disney buybacks happening in the last few months, some contracts are selling at cheaper prices than historically was possible. With prices trending down, inventory trending up and Mickey not swooping in to buy back the best deals at a normal clip, now was the time for us to buy.
The math behind my timeshare purchase
Before I share our numbers, let me emphasize one more time that this isn’t for everyone — it’s not even right for most Disney aficionados. Smaller contracts also cost more per point than larger contracts, so you can get better deals on a per-point basis if you are willing to buy more points. We wanted to minimize risk by staying small, so we paid a bit more per point as a result. Here’s how it broke down for us.
For our Polynesian Village contract, we bought 55 points for $156 per point at a total cost (with dues, closing costs, etc.) of just over $9,300. For our Aulani contract, we bought 100 points for $108.50 per point for an all-in cost of just over $12,600. And yes, it is totally normal for some resorts to cost much more than others, as you see with our Aulani and Polynesian purchases. This is due to the cost of annual dues at each property, the desirability of booking further in advance at that property and the number of years left on the contract.
1 of 3
Disney’s Polynesian Village Resort. SUMMER HULL/THE POINTS GUY
So for about $22,000, we now have 155 Disney Vacation Club points to use each year until the contracts expire. That cost may sound nuts by itself. But remember that at current rates, we also will owe $914 per year for dues on our Aulani points and $437.25 for our Polynesian points, and those numbers will likely only increase over time. So that means $1,351.25 per year just to own the points based on this year’s prices.
But here’s why it’s not as crazy as it likely initially sounds.
Right now, it is very realistic to rent your DVC points out for stays as an individual at $20 per point, with some getting higher or lower amounts. If we rented all 155 points out at that $20 rate in a year, that would mean getting $3,100, which way more than covers the dues. In fact, using current rates to rent out points and for dues (knowing both will likely increase as the years go by), we’d recoup the cost we spent to buy the contracts if we did that for 13 of the 39 years we will own both contracts — including covering the cost of the dues in the years we fully rent the points out.
Now, I’m not saying that’s my plan, but that’s the math. For those curious, per the terms, you can expressly rent out points, but not in a pattern that constitutes a commercial enterprise.
So now let’s talk about math when using the points, which we absolutely will do.
You can use the points to stay at Disney resorts starting at just 7 points per night at Deluxe resorts such as Disney’s Animal Kingdom Lodge. By owning 155 per year, we have the opportunity to cover numerous nights at Disney with the points we now own if we are strategic about how and when we cash them in. But for now, let’s be extra conservative and say our stays in studio villas will average 20 points a night. With that math, we get between seven and eight nights a year out of our points.
1 of 3
Disney’s Animal Kingdom Lodge. SUMMER HULL/THE POINTS GUY
If, for the 39 years that we own both contracts, we used all the points ourselves and got an average of 7.75 nights at high-end Disney resorts from our points using a 20-point per-night average, that’s a total of 302 hotel nights (not even counting the additional four years of stays on our Polynesian points).
Not counting annual dues, that comes to a “cost” of $72.85 per resort night from the all-in original purchase price. Using today’s cost of dues, then counting annual dues, that cost jumps to paying $247.35 per night. This amount will go up, but likely so will the average cost of hotel stays booked directly, so using today’s dollars for both should give an apples-to-apples idea of the cost.
That’s not a cheap nightly rate for a hotel, but if you take a look at the going nightly rate for a night at Disney’s Polynesian Village Resort, Aulani Resort, Disney’s Grand Floridian Resort & Spa and other spots we like to stay, rates are often $500-$700. And compared to that, $247.35 per night starts to look more like a deal. And remember, this was using a conservative average nightly points rate compared to where nightly points rates start, so the more nights we redeem for lower points, the lower the average rate we are “paying” per night.
When you then factor in that there are other options for the points in the years that you may not want to go to Disney, such as gifting family and friends or even renting them out a stay, the math — for us — starts to look less and less outrageous.
Related: These are the best hotels at Disney World
What happens if we don’t want it anymore — or die?
If it turns out that eventually, we don’t want to own one or both of these Disney Vacation Club memberships anymore before the deeds expire, we can put them up for resale.
The good news is we bought at resale prices, so while no one knows what the future market is for these contracts, hopefully, we’d be able to get out of the memberships without getting too upside down since we didn’t pay retail. So far, someone has always been willing to buy a DVC membership as long as the price is right, so it’s not a question currently of if you could sell, but for how much.
But if no one bought them, we’d continue to be on the hook for the dues until we could offload them somehow. This is one reason we kept our purchase on the smaller side.
Since my husband and I are both on the deeds, if one of us dies while the deed is active, the other of us keeps on trucking with it. If we both die before the time is up on the deeds, then they become a piece of deeded real estate subjected to your will(s), those getting your inheritance, the probate process, etc.
Once our kids are adults, we could also add them to the deed(s) if it seems Disney is going to continue to be a part of their lives. Some people approach these purchases with a trust in mind as the owner. Naturally, there are implications to all of the proceeding options that would need to be worked out with lawyers and the like, so don’t take my word too seriously on any of that, but know that there are some implications of owning a deeded timeshare beyond just the cost to own.
Bottom line
Should any rational person spend $22,000 buying timeshares on the resale market — and still be on the hook for over $1,000 in annual dues for the next several decades for Disney resort stays? Maybe not. Probably not.
But on the other hand, after running the numbers many times and looking at our track record of vacations spanning more than the last decade, it started to feel absurd not to give this a try. And if it all goes south, then future me will hope that there’s someone out there like current me that thinks this is worth giving a try.