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The Real Cost of Impulsive Investing

Worried man watching stock drop as he makes an investing mistake
pathdoc / Shutterstock.com

It seems to happen every fall. The stock market is rolling right along, hitting new highs every week or so. And then by September or October something spooks the markets.

Investors who have been ignoring economic warning signs all year suddenly start paying attention. Sometimes when the S&P 500 drops by 5% or so, they make a snap judgment to sell, ignoring the double-digit gains it’s posted so far.

They rely on CNBC to guide their next move. They spend every waking minute agonizing over whether to hang on or bail out.

Millions of people invest this way, on impulse. They worry whenever there is any sign of market turbulence and give in to their fears and then get burned.

We’ve all seen this movie and know how it ends. And who benefits the most? The huge institutional traders on Wall Street.

They profit by capitalizing on the impulsive behavior of Main Street investors. Motivated by the twin fears of “I can’t afford to lose” and “I don’t want to lose out,” these investors routinely buy high and sell low.

And Wall Street cashes in by selling high and buying low. Time after time, year after year.

The inevitable results of these David vs. Goliath trading interactions are so predictable that Wall Street has a euphemism for it: exploiting market inefficiencies. The big traders can predict with razor-sharp precision when regular investors will give in to their fears or greed.

Their analysts get access to the information they need to buy or sell shares of stock at the best price long before this same information percolates down to regular investors.

Here is how to understand and avoid self-defeating behavior.

Self-defeating behavior

Upset senior on a laptop
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Emotions are the enemy of investing. When you’re plagued by doubt, you’re more likely to embrace certain thought patterns or superstitions that result in bad decisions. When you’re emotionally biased, you’re less willing to listen to views that could keep you from going down with the ship.

Psychologists have developed a whole field of study to identify these kinds of self-defeating thought processes: behavioral finance.

Numerous studies have shown that anxious investors often see and react to trading patterns that don’t really exist. They develop biases that aren’t easily shaken. And they fail to see the financial forest for the trees.

While hundreds of these behaviors have been researched and catalogued, there are a few that even the most experienced investors will recognize as applying to themselves at one time or another.

Loss aversion

Worried man holds up hands in a stop or halt motion
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Research has shown that investors are much more upset when their portfolio has dropped 5% in value than they are happy when it rises by 10%.

They’re more likely to hold on to a stock whose price is falling in the hope that it will bounce back. And they’re much more likely to sell a stock whose price has risen long before it’s reached its peak.

Framing

Woman with picture frame
pathdoc / Shutterstock.com

Even though we consciously understand that a diversified portfolio helps to offset the falling price of one stock with the rising value of another, we still tend to obsess on the outsized profits or losses of individual stocks, regardless of how little overall impact one security has on our portfolio as a whole.

Anchoring

An investor panics over a market crash
Gearstd / Shutterstock.com

The way certain kinds of information are presented can influence our thinking. For example, when the stock market drops by 10% or more, the media has conditioned us into thinking of it as a market correction, with all of its associated doomsday fearmongering.

But that 10% is just an arbitrary numerical signpost that is no better at predicting a bear market than a 5% drop.

Availability bias

An older man scratches his head and wrinkles his nose while thinking
Aaron Amat / Shutterstock.com

People who have experienced a recent major event tend to believe that a similar event will occur when certain situations preceding the event have occurred.

A good example is the belief that rising rates of COVID-19 infections are likely to trigger a major stock selloff similar to the three-month bear market of 2020.

Conservatism bias

Aaron Amat / Shutterstock.com

When investors have a strong belief in a certain company they’ve invested in, they tend to cling to their faith even when the company hits a bad patch. The fall of Enron in the early 2000s is a textbook example.

Even when news about the company’s scandals came to light, too many investors believed Enron would emerge unscathed — and ultimately lost their entire investment.

So how do you avoid financial misbehavior?

Monkey Business Images / Shutterstock.com

It’s critical to increase your financial self-awareness. Recognize the beliefs and fears that drive these behaviors and make a determined effort to think before you act.

Start by diagnosing your financial health. If you feel confident that you’re on track toward saving enough for retirement, your children’s higher education, or other goals, then you’ll be less likely to engage in behaviors that could derail your investment plan.

This can be difficult to do on your own, which is why you might want to seek out the services of a qualified, fee-only fiduciary financial planner.

This professional can help you address your fears, overcome your inertia, and conquer your biases by helping you figure out exactly where you are financially today and what you may need to get back on track. And if you hire them to manage your investment portfolio, you can sleep easier knowing that your financial future is in good hands.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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Source: moneytalksnews.com

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How Risky is Investing in Rental Properties?

I am trying to buy as many rental properties as possible because of the great returns they provide. I am also trying to help other investors discover the fantastic world of investing in long-term rentals through my blog. However, I run into a lot of feedback from people who are worried about how risky it is to invest in rental properties. I hear: “my friend went broke investing in real estate” or “my parents had a rental and it was a money pit up until the day they were forced to sell it.” There are many horror stories involving real estate, but I have no doubt whatsoever long-term rentals are a great investment if you do your homework and buy properties right. Most of those horror stories come from people who did not do their homework, turned a personal residence into a rental out of necessity, or were hoping for appreciation. What are the real risks of rental properties and how can you mitigate these risks?

What are the main risks of investing in rental properties?

There are real risks with investing in rental properties. Many people felt the wrath of these risks in the last housing crash. Housing values plummeted and in some areas rents plummeted as well. Interestingly enough, not every area saw lower rental rates. Some areas saw rents increase because there were so many more renters (people who lost their houses) and the demand pushed rents up.

The investors who were hurt the most in the housing crash were those who were breaking even on their properties or losing money each month and hoping prices would increase to make money. When the bottom dropped out, they now had a property that was losing money each month and was worth less than they had bought it for. Many investors allowed these homes to go into foreclosure because they didn’t think they were worth keeping.

Other risks come from rentals when people buy a property and do not have enough cash to maintain the property or hold it when it is vacant. Most banks will require a certain amount of reserves when you get a loan on an investment property. But as soon as the property is purchased there is nothing stopping the owners from spending that reserve money. When you own a rental there will be times when the tenants move out, there can be evictions, and rarely a tenant can destroy a property. We see these situations occur quite often because people love to see drama but for the most part our tenants take care of our rentals and are awesome.

Why invest in rentals with these risks?

Rental properties have made me a ton of money over the last decade. Prices have increased significantly, which is great, but the properties also make money every month, and I always get a great deal on everything I buy which means I build equity on day one. There are many ways to mitigate the risks of rentals and the money I have made from my properties more than makes the risks worth it!

A lot of people will assume that when you are investing in large value assets like real estate and there can be huge returns, that the risk must be through the roof. There are types of real estate that can be very risky. We flip houses as well, and that is a much riskier venture than owning rental properties in my opinion. Development can also be much riskier but again come with huge rewards as well.

I also was an REO broker during the housing crash and I talked to many investors who lost homes. I was able to see why they lost their homes, what they could have done differently, and what happened after they lost their homes. For the most part, they bought houses that did not cash flow or make money every month and when things went bad they lost the motivation to keep paying into them. Losing the houses was also not the end of the world for these investors. Many of them had put little money down thanks to the crazy lending that was happening prior to that last crash. They were also able to keep those houses for quite a while after they stopped making payments. Many investors kept collecting rent during this time period which may or may not have been legal, but it did happen.

Many of those investors got right back in the real estate game after recovering and invested the right way with cash flow!

How can you mitigate the risk from rentals?

Buy below market value

One key to a low-risk rental strategy or any successful real estate strategy is to buy property below market value. Buying a property below market enables you to create instant equity, increase your net worth, and protects against a downturn in the market. One of the investors who was hurt badly during the crash was buying brand new houses and turning them into rentals. The houses were in great shape, but he paid full retail value for them.

When I buy rentals I want to pay at least 20% less than they are worth after considering any repairs are needed. For example:

  • A home needs $20,000 in repairs and will be worth $200,000 after those repairs. I want to pay $140,000 or less for that property ($200,000 x .80 – $20k). If I am flipping houses, I need to get an even better deal!

I also usually put about 20% down when I buy rentals which means after the property is repaired I have a loan around $110,000 and a property worth $200,000. Even if prices lost 30%, which is about how much they dropped across the county I am fine.

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Cash flow

I consider cash flow the most important factor in my long-term rental strategy. I want every property to make money each month after paying all expenses. Finding these properties that are also a great deal is not easy, but if you want to change your life with massive returns, it is not easy! When I invest I look for a return of 15% cash on cash. That means I make 15% on the money I have invested into the property. These are very high returns and not everyone needs to make this much but it is what I shoot for.

When you have cash flow coming in every month, it does not matter if values decrease because you do not need to sell the property. While it is true that rents can decrease and lower your cash flow, that is very rare and was even very rare in the last housing crash. There were some areas like Florida and Arizona that were massively overbuilt that saw lower rents, but the nation as a whole barely saw any drop.

My cash flow calculator can help you figure the real income on rentals.

Type of property

The older the property, the better the chance of a major repair needing to be done. I have enough cash flow coming in to account for major repairs, but homes over 100 years old can have issues come up that could wipe out all equity. It is rare, but a foundation or structural problem can make a property uninhabitable and cost tens of thousands of dollars to repair. By purchasing newer properties, I lessen the chances of running into repairs that could wipe out my profit for a year or even two.

Multifamily and commercial real estate can also carry more risk. Those types of properties are more complicated and have fewer buyers. I also buy multifamily and commercial properties but I am very careful what I buy and understand there will most likely be way more costs and exposure if the market changes.

If you buy properties that need a ton of work that can add to the risk as well. On my flips and rentals, the worst deals I have done were properties that needed massive remodels. It takes so much time, so many resources, and there is so much that can go wrong. It can also be risky trying to do all of that work yourself!

Cash reserves

One of the most important things to have when investing in real estate is cash! If you buy rentals or flips that can be expensive at times. It is very important to set aside cash to take care of the problems that might come up. When I figure my cash flow I set aside money for vacancies and repairs. You need to have cash set aside in case something goes wrong and this is one of the biggest mistakes landlords make is not having cash around.

Ironically, getting a loan allows investors to have more cash in many cases. Paying down the mortgage early or trying to pay it off with all your extra cash can leave you in a bad situation. If you do pay a property off and need to access that money in an emergency it can be hard to get to without selling.

Good management

Another way to have problems with your rentals is to manage them poorly. Many people have no idea how to manage a rental but decide they can do it on their own. They choose a bad tenant after not screening them, then never check on the property, and are surprised when it gets trashed. If you are going to manage rentals on your own you have to take the time to learn how to manage them. You have to screen tenants, and keep tabs on the properties!

If you don’t want to manage them yourself, you can hire a property manager as well. It takes time to find a good property manager and this is where it takes from work from the landlord as well. Again, no one said owning rentals was easy, but there are many ways to make them a great investment if you are willing to put in the work.

Liability and damage

Another risk that comes with rental properties is natural disasters or liability from accidents. People can get hurt and can sue tenants or tornados can wipe your property off the earth. Both instances are rare, but they happen. To mitigate the liability side you can put your properties in an LLC or make sure you have the property insurance coverage like a landlord and umbrella policy. With these policies, if you have a tenant destroy property or need to be evicted, they can help cover those costs as well! Putting a property in an LLC can help with getting sued but is not foolproof.

It is important to make sure your insurance agent knows you are using the property as a rental so you have the right coverage. It might be cheaper to leave homeowners insurance on the property if you used to live there but that can cause problems down the road.

Risks that are tough to mitigate

There are some cases where a landlord does everything right but still has a massive loss. These are rare but can happen and just about any investment or simply living life comes with risks.

  • Meth or drug house: If someone is cooking meth or using meth in your house it can cause damage that insurance will not cover. You may have to make major repairs depending on how bad it is. These risks can be alleviated by good tenant screening and checking on the properties often. It is not always the case, but many drug houses we see have cameras all over. That can be a sign to check the house out more if you see cameras on your rental.
  • Floods: Not all floods are covered by insurance. You often need an additional rider or flood coverage. If you are in a flood zone the lender will require the additional coverage but if you pay cash or use private money you may not be required to have it. There is also the risk of a flood outside a flood zone. If the property has a risk of flooding it is important to talk to your insurance agent about additional coverage.

Why does everyone say rentals are risky?

I won’t tell you it is impossible to lose money investing in long-term rentals. It can easily happen if you don’t have a plan, have reserves, or are impatient. It is not easy to buy properties below market value with great cash flow. If it were easy investing in long-term rentals, everyone would be investing in real estate.

The reason so many people think rentals are risky is that they hear anecdotal stories. Stories are good for entertainment and drama but they don’t give the entire picture. “my cousins, aunts, friend, lost all their money when their rental was trashed!” They failed to tell us the person self-managed a property they used to live in from 4 states away and never once talked to the tenant in 3 years. Then they were surprised it was trashed. There are all kinds of stories but usually, you can find one of the main reasons above for why people lose money on rentals. Overall, real estate is one of the best ways to build wealth!

Don’t be scared to invest in rental properties

There are many people who have gotten rich and retired early by investing in long-term rentals. There is a lot of opportunity and many advantages to investing in real estate. Just because you can have some great rewards does not mean there is a massive risk. Some risk? Yes of course and the less you pay attention to your investment the riskier it will get!

Categories Rental Properties

Source: investfourmore.com

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How Much Auto Insurance Do I Really Need?

Figuring out just how much car insurance you really need can be a challenge.

At minimum, you’ll want to make sure you have enough car insurance to meet the requirements of your state or the lender who’s financing your car. Beyond that, there’s coverage you might want to add to those required amounts. These policies will help ensure that you’re adequately protecting yourself, your family, and your assets. And then there’s the coverage that actually fits within your budget.

We know it may not be a fun topic to think about what would happen if you were involved in a car accident, but given that well over five million drivers are involved in one every year, it’s a priority to get coverage. Finding a car insurance policy that checks all those boxes may take a bit of research — and possibly some compromise. Here are some of the most important factors to consider.

How Much Car Insurance Is Required by Your State?

A good launching pad for researching how much car insurance you need is to check what your state requires by law. Only two states do not require a car owner to carry some amount of insurance: New Hampshire and Virginia. If you live elsewhere, find out how much and what types of coverage a policyholder must have. Typically, there are options available. Once you’ve found this information, consider it the bare minimum to purchase.

Types of Car Insurance Coverage

As you dig into the topic, you’ll hear a lot of different terms used to describe the various kinds of coverage that are offered. Let’s take a closer look here:

Liability Coverage

Most states require drivers to carry auto liability insurance. What it does: It helps pay the cost of damages to others involved in an accident if it’s determined you were at fault. Let’s say you were to cause an accident, whether that means rear-ending a car or backing into your neighbor’s fence while pulling out of a shared driveway. Your insurance would pay for the other driver’s repairs, medical bills, lost wages, and other related costs. What it wouldn’t pay for: Your costs or the costs relating to passengers in your car.

Each state sets its own minimum requirements for this liability coverage. For example, in California, drivers must carry at least $15,000 in coverage for the injury/death of one person, $30,000 for injury/death to more than one person, and $5,000 for damage to property. The shorthand for this, in terms of shopping for car insurance, would be that you have 15/30/5 coverage.

But in Maryland, the amounts are much higher: $30,000 in bodily injury liability per person, $60,000 in bodily injury liability per accident (if there are multiple injuries), and $15,000 in property damage liability per accident. (That would be 30/60/15 coverage.)

And some may want to go beyond what the state requires. If you carry $15,000 worth of property damage liability coverage, for example, and you get in an accident that causes $25,000 worth of damage to someone else’s car, your insurance company will only pay the $15,000 policy limit. You’d be expected to come up with the remaining $10,000.

Generally, recommendations suggest you purchase as much as you could lose if a lawsuit were filed against you and you lost. In California, some say that you may want 250/500/100 in coverage – much more than the 15/30/5 mandated by law.

Recommended: What Does Liability Auto Insurance Typically Cover?

Collision Coverage

Collision insurance pays to repair or replace your vehicle if it’s damaged in an accident with another car that was your fault. It will also help pay for repairs if, say, you hit an inanimate object, be it a fence, tree, guardrail, building, dumpster, pothole, or anything else.

If you have a car loan or lease, you’ll need collision coverage. If, however, your car is paid off or isn’t worth much, you may decide you don’t need collision coverage. For instance, if your car is old and its value is quite low, is it worth paying for this kind of premium, which can certainly add up over the years?

But if you depend on your vehicle and you can’t afford to replace it, or you can’t afford to pay out of pocket for damages, collision coverage may well be worth having. You also may want to keep your personal risk tolerance in mind when considering collision coverage. If the cost of even a minor fender bender makes you nervous, this kind of insurance could help you feel a lot more comfortable when you get behind the wheel.

Comprehensive Coverage

When you drive, you know that unexpected events happen. A pebble can hit your windshield as you drive on the highway and cause a crack. A tree branch can go flying in a storm and put a major dent in your car. Comprehensive insurance covers these events and more. It’s a policy that pays for physical damage to your car that doesn’t happen in a collision, including theft, vandalism, a broken window, weather damage, or even hitting a deer or some other animal.

If you finance or lease your car, your lender will probably require it. But even if you own your car outright, you may want to consider comprehensive coverage. The cost of including it in your policy could be relatively small compared to what it would take to repair or replace your car if it’s damaged or stolen.

Personal Injury Protection and Medical Payments Coverage

Several states require Personal Injury Protection (PIP) or Medical Payments coverage (MedPay for short). This is typically part of the state’s no-fault auto insurance laws, which say that if a policyholder is injured in a crash, that person’s insurance pays for their medical care, regardless of who caused the accident.

While these two types of medical coverage help pay for medical expenses that you and any passengers in your car sustain in an accident, there is a difference. MedPay pays for medical expenses only, and is often available only in small increments, up to $5,000. PIP may also cover loss of income, funeral expenses, and other costs. The amount required varies hugely depending on where you live. For instance, in Utah, it’s $3,000 per person coverage; in New York, it’s $50,000 per person.

Uninsured/Underinsured Motorist Coverage

Despite the fact that the vast majority of states require car insurance, there are lots of uninsured drivers out there. The number of them on the road can range from one in eight to one in five! In addition, there are people on the road who have the bare minimum of coverage, which may not be adequate when accidents occur.

For these reasons, you may want to take out Uninsured Motorist (UM) or Underinsured Motorist (UIM) coverage Many states require these policies, which are designed to protect you if you’re in an accident with a motorist who has little or no insurance. In states that require this type of coverage, the minimums are generally set at about $25,000 per person and $50,000 per accident. But the exact amounts vary from state to state. And you may choose to carry this coverage even if it isn’t required in your state.

If you’re seriously injured in an accident caused by a driver who doesn’t carry liability car insurance, uninsured motorist coverage could help you and your passengers avoid paying some scary-high medical bills.

Let’s take a quick look at some terms you may see if you shop for this kind of coverage:

Uninsured motorist bodily injury coverage (UMBI)

This kind of policy covers your medical bills, lost wages, as well as pain and suffering after an accident when the other driver is not insured. Additionally, it provides coverage for those costs if any passengers were in your vehicle when the accident occurred.

Uninsured motorist property damage coverage (UMPD)

With this kind of policy, your insurer will pay for repairs to your car plus other property if someone who doesn’t carry insurance is responsible for an accident. Some policies in certain states may also provide coverage if you’re involved in a hit-and-run incident.

Underinsured motorist coverage (UIM)

Let’s say you and a passenger get into an accident that’s the other driver’s fault, and the medical bills total $20,000…but the person responsible is only insured for $15,000. A UIM policy would step in and pay the difference to help you out.

Recommended: How to Pay for Medical Bills You Can’t Afford

Guaranteed Auto Protection (GAP) Insurance

Here’s another kind of insurance to consider: GAP insurance, which recognizes that cars can quickly depreciate in value and helps you manage that. For example, if your car were stolen or totaled in an accident (though we hope that never happens), GAP coverage will pay the difference between what its actual value is (say, $5,000) and what you still owe on your auto loan or lease (for example, $10,000).

GAP insurance is optional and generally requires that you add it onto a full coverage auto insurance policy. In some instances, this coverage may be rolled in with an auto lease.

Non-Owner Coverage

You may think you don’t need car insurance if you don’t own a car. (Maybe you take public transportation or ride your bike most of the time.) But if you still plan to drive occasionally — when you travel and rent a car, for example, or you sometimes borrow a friend’s car — a non-owner policy can provide liability coverage for any bodily injury or property damage you cause.

The insurance policy on the car you’re driving will probably be considered the “primary” coverage, which means it will kick in first. Then your non-owner policy could be used for costs that are over the limits of the primary policy.

Rideshare Coverage?

If you drive for a ridesharing service like Uber or Lyft, you may want to consider adding rideshare coverage to your personal automobile policy.

Rideshare companies are required by law in some states to provide commercial insurance for drivers who are using their personal cars — but that coverage could be limited. (For example, it may not cover the time when a driver is waiting for a ride request but hasn’t actually picked up a passenger.) This coverage could fill the gaps between your personal insurance policy and any insurance provided by the ridesharing service. Whether you are behind the wheel occasionally or full-time, it’s probably worth exploring.

Recommended: Which Insurance Types Do You Really Need?

Why You Need Car Insurance

Car insurance is an important layer of protection; it helps safeguard your financial wellbeing in the case of an accident. Given how much most Americans drive – around 14,000 miles or more a year – it’s likely a valuable investment.

What If You Don’t Have Car Insurance?

There can be serious penalties for driving a car without valid insurance. Let’s take a look at a few scenarios: If an officer pulls you over and you can’t prove you have the minimum coverage required in your state, you could get a ticket. Your license could be suspended. What’s more, the officer might have your car towed away from the scene.

That’s a relatively minor inconvenience. Consider that if you’re in a car accident, the penalties for driving without insurance could be far more significant. If you caused the incident, you may be held personally responsible for paying any damages to others involved; one recent report found the average bodily injury claim totaled more than $20,000. And even if you didn’t cause the accident, the amount you can recover from the at-fault driver may be restricted.

If that convinces you of the value of auto insurance (and we hope it does), you may see big discrepancies in the amounts of coverage. For example, there may be a tremendous difference between the amount you have to have, how much you think you should have to feel secure, and what you can afford.

That’s why it can help to know what your state and your lender might require as a starting point. Keep in mind that having car insurance isn’t just about getting your car — or someone else’s — fixed or replaced. (Although that — and the fact that it’s illegal to not have insurance — may be motivation enough to at least get basic coverage.)

Having the appropriate levels of coverage can also help you protect all your other assets — your home, business, savings, etc. — if you’re in a catastrophic accident and the other parties involved decide to sue you to pay their bills. And let us emphasize: Your state’s minimum liability requirements may not be enough to cover those costs — and you could end up paying the difference out of pocket, which could have a huge impact on your finances.

Finding the Best Car Insurance for You

If you’re convinced of the value of getting car insurance, the next step is to decide on the right policy for you. Often, the question on people’s minds is, “How can I balance getting the right coverage at an affordable price?”

What’s the Right Amount of Car Insurance Coverage for You?

To get a ballpark figure in mind, consider these numbers:

Type of Coverage Basic Good Excellent
Liability Your state’s minimum •   $100,000/person for bodily injury liability

◦   $300,000/ accident for bodily injury liability

◦   $100,000 for property damage

 •   $250,000/person for bodily injury liability

◦   $500,000/ accident for bodily injury liability

◦   $250,000 for property damage
Collision Not required Recommended Recommended
Comprehensive Not required Recommended Recommended
Personal Injury Protection (PIP) Your state’s minimum $40,000 Your state’s maximum
Uninsured and Underinsured Motorist (UM, UIM) Coverage Your state’s minimum •   $100,000/person for bodily injury liability

◦   $300,000/ accident for bodily injury liability

 •   $250,000/person for bodily injury liability

◦   $500,000/ accident for bodily injury liability

Here are some points to consider that will help you get the best policy for you.

Designing a Policy that Works for You

Your insurance company will probably offer several coverage options, and you may be able to build a policy around what you need based on your lifestyle. For example, if your car is paid off and worth only a few thousand dollars, you may choose to opt out of collision insurance in order to get more liability coverage.

Choosing a Deductible

Your deductible is the amount you might have to pay out personally before your insurance company begins paying any damages. Let’s say your car insurance policy has a $500 deductible, and you hit a guardrail on the highway when you swerve to avoid a collision. If the damage was $2,500, you would pay the $500 deductible and your insurer would pay for the other $2,000 in repairs. (Worth noting: You may have two different deductibles when you hold an auto insurance policy — one for comprehensive coverage and one for collision.)

Just as with your health insurance, your insurance company will likely offer you a lower premium if you choose to go with a higher deductible ($1,000 instead of $500, for example). Also, you typically pay this deductible every time you file a claim. It’s not like the situation with some health insurance policies, in which you satisfy a deductible once a year.

If you have savings or some other source of money you could use for repairs, you might be able to go with a higher deductible and save on your insurance payments. But if you aren’t sure where the money would come from in a pinch, it may make sense to opt for a lower deductible.

Recommended: Different Types of Insurance Deductibles

Checking the Costs of Added Coverage

As you assess how much coverage to get, here’s some good news: Buying twice as much liability coverage won’t necessarily double the price of your premium. You may be able to manage more coverage than you think. Before settling for a bare-bones policy, it can help to check on what it might cost to increase your coverage. This information is often easily available online, via calculator tools, rather than by spending time on the phone with a salesperson.

Finding Discounts that Could Help You Save

Some insurers (including SoFi Protect) reward safe drivers or “good drivers” with lower premiums. If you have a clean driving record, free of accidents and claims, you are a low risk for your insurer and they may extend you a discount.

Another way to save: Bundling car and home insurance is another way to cut costs. Look for any discounts or packages that would help you save.

The Takeaway

Buying car insurance is an important step in protecting yourself in case of an accident or theft. It’s not just about repairing or replacing your vehicle. It’s also about ensuring that medical fees and lost wages are protected – and securing your assets if there were ever a lawsuit filed against you. These are potentially life-altering situations, so it’s worth spending a bit of time on the few key steps that will help you get the right coverage at the right price. It begins with knowing what your state or your car-loan lender requires. Then, you’ll review the different kinds of policies and premiums available. Put these pieces together, and you’ll find the insurance that best suits your needs and budget.

A Simple Way to Get Great Car Insurance

Feeling uncertain about how much auto insurance you really need or what kind of premium you might have to pay to get what you want? Check out SoFi Protect, which uses the Root mobile app to measure your driving habits. The better you drive, the more you can save.

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Titan Invest Review – Advanced Strategies for Everyday Investors

At a glance

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Our rating

  • What It Is: Titan Invest is a set-it-and-forget-it investment platform designed to give the average investor a simplified way to invest with a hedge fund-like style.
  • Advantages: The platform offers an aggressive investment style capable of yielding market-beating returns, an insured and secure investing experience, an intuitive mobile app, and multiple account types.
  • Disadvantages: Investors are sometimes turned off by the high cost compared to robo-advisors, relatively high account minimum requirements, and a lack of financial planning tools.
  • Price: Titan Invest charges a monthly or annual fee depending on your account balance. If you have under $10,000 invested, you’ll be charged a $5 monthly advisory fee, while accounts with a value of $10,000 or more are charged a 1% annual fee.

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Additional Resources

Created by Clayton Gardner, Joe Percoco, and Max Bernardy, Titan Invest is a platform designed to give the average investor the ability to follow a hedge fund-like investment strategy without having to manage their portfolios on their own. 

Gardner — the CEO of Titan whose long list of credentials includes a history as a financial analyst for a hedge fund — and his team of investment advisors, analysts, and traders manage your portfolio for you. 

The goal is to give you the upper hand in the stock market, regardless of whether you’re an accredited investor or not. Although Titan Invest is young, it is already building a history of compelling performance. 

Key Features of Titan Invest

Titan Invest is quickly becoming a popular option among the investing community, and for several good reasons. Some of the platform’s most important feature are:

Aggressive Investment Style

The number one reason to consider investing with Titan is the sheer scale of returns the firm has generated for its customers. In 2020, even in the face of the COVID market crash, the firm delivered a 44.42% rate of return, outpacing the S&P 500’s 18.39% and the average robo-advisor return of 14.90% by a wide margin.

On an annualized basis, the company’s investment portfolio has generated 22.4% growth since inception. That’s more than double the long-term average return of the stock market. 

Titan generates these returns through an aggressive investment style that’s focused on picking high quality individual stocks and using inverse exchange-traded funds (ETFs) for hedging.  

When you sign up, a percentage of your assets is placed in the equities side of the portfolio. The remainder of your portfolio value is invested in inverse ETFs, acting as a personalized hedge. From there, you can either watch your money grow or make regular contributions to increase your earnings potential, leaving the legwork to the pros at Titan Invest.

Three Portfolio Options

When you sign up, you’ll have the option to choose from three different portfolio styles. These include:

  • Titan Flagship. The company’s Flagship portfolio invests in a small group of large-cap domestic stocks. The average market cap in the portfolio is around $500 billion, with stocks being chosen for their potential to beat the returns of the S&P 500. 
  • Titan Opportunities. The company’s Opportunities portfolio provides access to domestic small- and mid-cap stocks. The average market cap in the fund is about $9 billion, and stocks are chosen for their ability to provide exceptional returns. After all, small-cap stocks have a long history of outperforming their large-cap counterparts. However, for access to the Opportunities portfolio, you’ll need to maintain a minimum account balance of $10,000. 
  • Titan Offshore. The Titan Offshore portfolio gives you access to a select list of international stocks outside the U.S. in both developed and emerging markets. As with the Opportunities portfolio, the stocks are chosen based on their potential to deliver exceptional returns. 

Safety Is a Top Priority

When deciding where you’re going to invest your money, safety should be a consideration. As technology becomes more sophisticated, hackers and con artists do too. So it’s important that no matter where you park your money, it’s both safe and insured. 

All Titan investment accounts are covered by Securities Investor Protection Corporation (SIPC) insurance on balances up to $500,000. So, if your money becomes lost for any reason other than general losses in the stock market, you can rest assured that you’re covered. 

All Titan accounts are held and cleared with APEX Clearing. APEX is one of the largest financial technology companies in the world, with a history of providing the tech necessary for the safe clearing of stock market transactions. 

Finally, on Titan’s website, your information will be safeguarded by several layers of security. Titan uses an SSL connection with 256-bit encryption and a firewall to ensure the safety of your data.  

User-Friendly Mobile App

Everything happens on the go these days, and the same is true when it comes to investing. 

If you enjoy having on-the-go access to your investing accounts, you won’t be disappointed. The Titan Invest mobile app is intuitive and user friendly, offering everything you get when you log in to the platform on a desktop. 

Multiple Account Types

Titan offers multiple account types. Whether you’re simply investing for the sake of investing or you’re building a retirement account, there’s an option available for you. The available account types include individual taxable brokerage accounts, traditional IRAs, and Roth IRAs. 

Popularity

While a fund or investment service’s popularity should never be the determining factor as to whether you’ll invest in it, it is nice to see that the platform is popular. After all, if investors were losing money, it would be hard to build a buzz around the opportunity. 

Titan Invest has already attracted more than $600 million in assets under management (AUM), which is impressive when you think about the fact that the company just launched in 2017.

Advantages of Titan Invest

Considering the fact that so many investors are flocking toward Titan’s services, there’s obviously plenty to be excited about. Here are the biggest advantages to working with the firm:

  1. Low Cost Compared to Typical Hedge Funds. Hedge funds and other active investment managers generally charge performance fees. Sometimes, these fees can be as high as 20% of the profits earned. Compared to these funds, Titan’s 1% per year and $5 monthly fees are far easier to swallow. 
  2. Not Just Available to Accredited Investors. Aggressive strategies that lead to gains that significantly outpace the market are typically only accessible by high net worth individuals and other big-money investors. The Titan Invest platform makes these exclusive returns available to the masses. 
  3. Compelling Performance. Titan has only been around a few years, but in that time it has generated multiples of the average market returns. The potential to consistently and significantly outperform the market is very appealing to investors. 
  4. Referral Program. Titan offers an opportunity to get rid of fees entirely and unlock the Titan Opportunities portfolio without the $10,000 minimum investment through its referral program. Refer two members and you’ll have access to the Opportunities portfolio with a minimum investment of $100. Refer four new members and you’ll get rid of your advisory fees entirely. Even if you only refer one person to the platform, you’ll enjoy a 25-basis-point (0.25%) reduction in your annual fee. 

Disadvantages of Titan Invest

So far Titan may seem like a platform built of sunshine and rainbows, but there are some dark clouds in the sky to consider too. 

  1. High Risk. The strategies used by the pros at Titan Invest are high-risk/high-reward strategies. Without the use of fixed-income investments and heavy diversification, conservative investors with a low risk tolerance or investors with a short time horizon who can’t afford to absorb market downturns will find the volatility associated with the strategy to be a turnoff. 
  2. High Cost Compared to Robo-Advisors. While there are no performance fees, investing with Titan is more expensive than the average robo-advisor. For example, Betterment charges a management fee of 0.25% per year, which makes 1% seem like an exorbitantly high fee. For smaller accounts, $5 per month can actually be pretty pricey. To put it into perspective, if you have a $500 starting balance, $5 per month works out to annual fees of 12%. (Once you have between $6,000 and $10,000, $5 per month works out to an annual fee of 1% or less.)
  3. Account Minimums. All Titan accounts have a $100 minimum investment, which isn’t a big deal. However, if you want access to the Opportunities portfolio, you’ll need to maintain a minimum balance of $10,000, which is too high for some investors. 
  4. Lacks Additional Features. Titan Invest doesn’t offer tax-loss harvesting, financial advisors, or financial planning, all of which are generally available when working with the company’s competitors.  

You Should Invest With Titan Invest If…

There’s no such thing as a one-size-fits-all investing product. Everyone has different goals, a different risk tolerance, and different amounts of capital to put into the investing process. These factors make an investor a perfect fit for the Titan platform:

  • You Have $6,000 or More to Invest. With balances under $6,000, the fees you’re charged will work out to be more than 1% annually. That’s an expensive pill to swallow, and chances are that you’ll find better opportunities elsewhere. 
  • You Have a High Risk Tolerance. Only investors with a healthy appetite for risk should ever consider an aggressive investing strategy that’s solely focused on investments in stocks. Risk-averse investors should consider other opportunities. 
  • You Are Young. Due to the high risk associated with the Titan Invest strategies, younger people are the best candidates for this investing style. The younger you are, the more risk you can accept because you’ll have more time to recover should a significant drawdown take place. Investors nearing retirement or with short-term time horizons simply don’t have the time to recover from significant losses and should consider investing in a product or assets with limited volatility. 

Final Word

All told, the Titan Invest platform is a great option for the audience it was designed to serve. Young investors with a high risk appetite will benefit greatly from the firm’s aggressive investment strategies. 

Regardless of your age, it’s important to keep a sizable balance in your account if you’re going to use Titan to ensure that fees don’t eat into too much of your profits. 

On the other hand, if you’re not a young investor or don’t have a healthy appetite for risk, it’s likely best to look into low-cost, highly diversified ETFs and choose an asset allocation that fits your investing goals and timeline. Also, it won’t hurt to mix some fixed-income assets in to further shield your portfolio from volatility. 

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The Verdict

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Our rating

Titan Invest is a great option for investors with $6,000 or more to start with who are willing to accept increased risk for an opportunity to beat the market. Offering up a hedge-fund investment style with a history of compelling performance, the platform has become a popular option for individual investors.

The platform offers compelling returns on stocks, but that’s about it. Without fixed-income allocation and financial planning features, the platform leaves much to be desired for the average investor.

Editorial Note:
The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.
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What Is Mark to Market and How Does It Work?

Mark to market or mark-to-market is an accounting method that’s used to measure the value of assets based on current market conditions. Mark to market accounting seeks to determine the real value of assets based on what they could be sold for right now.

That can be useful in a business setting when a company is trying to gauge its financial health or get a valuation estimate ahead of a merger or acquisition. Aside from accounting, mark to market also has applications in investing when trading stocks, futures contracts, and mutual funds.

But what does mark to market mean and how is it useful to investors? If you trade futures contracts or trade stocks on margin, it’s important to understand how this concept works.

Mark to Market Defined

What is mark-to-market accounting? In simple terms, mark to market or MTM is an accounting method that’s used to calculate the current or real value of a company’s assets. Mark-to-market can tell you what an asset is worth based on its fair market value.

Mark to market accounting is meant to create an accurate estimate of a company’s financial status and value year over year. This accounting method can tell you whether a company’s assets have increased or declined in value. When liabilities are factored in, mark to market can give you an idea of a company’s net worth.

How Mark to Market Works

Mark to market accounting works by adjusting the value of assets based on current market conditions. The idea is to determine how much an asset — whether it be a piece of equipment or an investment — could be worth if you were to sell it now.

If a company were in a cash crunch, for example, and wanted to sell off some of its assets, mark-to-market accounting could give an idea of how much capital it might be able to raise. The company would try to determine as accurately as possible what its marketable assets are worth.

In stock trading, mark-to-market value is determined for securities by looking at volatility and market performance. Specifically, you’re looking at a security’s current trading price then making adjustments to value based on the trading price at the end of the trading day.

There are other ways mark to market can be used beyond valuing company assets or securities. In insurance, for example, the mark-to-market method is used to calculate the replacement value of personal property. Calculating net worth, an important personal finance ratio, is also a simple form of mark-to-market accounting.

Pros and Cons of Mark-to-Market Accounting

Mark-to-market accounting can be useful when evaluating how much a company’s assets are worth or determining value when trading securities. But it’s not an entirely foolproof accounting method.

Mark to Market Pros Mark to Market Cons

•   Can help establish accurate valuations when companies need to liquidate assets

•   Useful for value investors when making investment decisions

•   May make it easier for lenders to establish the value of collateral when extending loans

•   Valuations are not always 100% accurate since they’re based on current market conditions

•   Increased volatility may skew valuations of company assets

•   Companies may devalue their assets in an economic downturn, which can result in losses

Pros of Mark-to-Market Accounting

There are a few advantages of mark-to-market accounting:

•   It can help generate an accurate valuation of company assets. This may be important if a company needs to liquidate assets or it’s attempting to secure financing. Lenders can use the mark to market value of assets to determine whether a company has sufficient collateral to secure a loan.

•   It can help mitigate risk. If a value investor is looking for new companies to invest in, for example, having an accurate valuation is critical for avoiding value traps. Investors who rely on a fundamental approach can also take mark-to-market value into account when examining key financial ratios, such as price to earnings (P/E) or return on equity (ROE).

•   It may make it easier for lenders to establish the value of collateral when extending loans. Mark-to-market may provide more accurate guidance in terms of collateral value.

Cons of Mark-to-Market Accounting

There are also some potential disadvantages of using mark-to-market accounting:

•   It may not be 100% accurate. Fair market value is determined based on what you expect someone to pay for an asset that you have to sell. That doesn’t necessarily guarantee you would get that amount if you were to sell the asset.

•   It can be problematic during periods of increased economic volatility. It may be more difficult to estimate the value of a company’s assets or net worth when the market is experiencing uncertainty or overall momentum is trending toward an economic downturn.

•   Companies may inadvertently devalue their assets in a downturn. If the market’s perception of a company, industry, or sector turns negative, it could spur a sell-off of assets. Companies may end up devaluing their assets if they’re liquidating in a panic. This can have a boomerang effect and drive further economic decline, as it did in the 1930s when banks marked down assets following the 1929 stock market crash.

Mark-to-Market in Investing

In investing, mark to market is used to measure the current value of securities, portfolios or trading accounts. This is most often used in instances where investors are trading futures or other securities in margin accounts.

Futures are derivative financial contracts, in which there’s an agreement to buy or sell a particular security at a specific price on a future date. Margin trading involves borrowing money from a brokerage in order to increase purchasing power.

Understanding mark to market is important for meeting margin requirements to continue trading. Investors typically have to deposit cash or have marginable securities of $2,000 or 50% of the securities purchased. The maintenance margin reflects the amount that must be in the margin account at all times to avoid a margin call.

In simple terms, margin calls are requests for more money. FINRA rules require the maintenance margin to be at least 25% of the total value of margin securities. If an investor is subject to a margin call, they’ll have to sell assets or deposit more money to reach their maintenance margin and continue trading.

In futures trading, mark to market is used to price contracts at the end of the trading day. Adjustments are made to reflect the day’s profits or losses, based on the closing price at settlement. These adjustments affect the cash balance showing in a futures account, which in turn may affect an investor’s ability to meet margin maintenance requirements.

Mark-to-Market Example

Futures markets follow an official daily settlement price that’s established by the exchange. In a futures contract transaction you have a long trader and a short trader. The amount of value gained or lost in the futures contract at the end of the day is reflected in the values of the accounts belonging to the short and long trader.

So, assume a farmer takes a short position in 10 soybean futures contracts to hedge against the possibility of falling commodities prices. Each contract represents 5,000 bushels of soybeans and is priced at $5 each. The farmer’s account balance is $250,000. This account balance will change daily as the mark to market value is recalculated. Here’s what that might look like over a five-day period.

Day Futures Price Change in Value Gain/Loss Cumulative Gain/Loss Account Balance
1 $5 $250,00
2 $5.05 +0.05 -2,500 -2,500 $247,500
3 $5.03 -0.02 +1,000 -1,500 $248,500
4 $4.97 -0.06 +3,000 +1,500 $251,500
5 $4.90 -0.07 +3,500 +5,000 $255,000

Since the farmer took a short position, a decline in the value of the futures contract results in a positive gain for their account value. This daily pattern of mark to market will continue until the futures contract expires.

Conversely, the trader who holds a long position in the same contract will see their account balance move in the opposite direction as each new gain or loss is posted.

Mark to Market in Recent History

Mark-to-market accounting can become problematic if an asset’s market value and true value are out of sync. During the financial crisis of 2008-09, for example, mortgage-backed securities (MBS) became a trouble spot for banks. As the housing market soared, banks raised valuations for mortgage-backed securities. To increase borrowing and sell more loans, credit standards were relaxed. This meant banks were carrying a substantial amount of subprime loans.

As asset prices began to fall, banks began pulling back on loans to keep their liabilities in balance with assets. The end result was a housing bubble which sparked a housing crisis. During this time, the U.S. economy would enter one of the worst recessions in recent history.

The U.S. Financial Accounting Standards Board (FASB) eased rules regarding the use of mark-to-market accounting in 2009. This permitted banks to keep the values of mortgage-backed securities on their balance sheets when the value of those securities had dropped significantly. The measure meant banks were not forced to mark the value of those securities down.

Can You Mark Assets to Market?

The FASB oversees mark-to-market accounting standards. These standards, along with other accounting and financial reporting rules, apply to corporate entities and nonprofit organizations in the U.S. But it’s possible to use mark to market principles when making trades.

If you’re trading futures contracts, for instance, mark-to-market adjustments are made to your cash balance daily, based on the settlement price of the securities you hold. Your cash balance will increase or decrease based on the gains or losses reported for that day.

If the market moves in your favor, your account’s value would increase. But if the market moves against you and your futures contracts drop in value, your cash balance would adjust accordingly. You’d have to pay attention to maintenance margin requirements in order to avoid a margin call.

Which Assets Are Marked to Market?

Generally, the types of assets that are marked to market are ones that are bought and sold for cash relatively quickly — otherwise known as marketable securities. Assets that can be marked to market include stocks, futures, and mutual funds. These are assets for which it’s possible to determine a fair market value based on current market conditions.

When measuring the value of tangible and intangible assets, companies may not use the mark-to-market method. In the case of equipment, for example, they may use historical cost accounting which considers the original price paid for an asset and its subsequent depreciation. Meanwhile, different valuation methods may be necessary to determine the worth of intellectual property or a company’s brand reputation, which are intangible assets.

Mark-to-Market Losses

Mark-to-market losses occur when the value of an asset falls from one day to the next. A mark-to-market loss is unrealized since it only reflects the change in valuation of asset, not any capital losses associated with the sale of an asset for less than its purchase price. The loss happens when the value of the asset or security in question is adjusted to reflect its new market value.

Mark-to-Market Losses During Crises

Mark-to-market losses can be amplified during a financial crisis when it’s difficult to accurately determine the fair market value of an asset or security. When the stock market crashed, for instance, in 1929, banks were moved to devalue assets based on mark to market accounting rules. This helped turn what could have been a temporary recession into the Great Depression, one of the most significant economic events in stock market history.

Mark-to-Market Losses in 2008

During the 2008 financial crisis, mark-to-market accounting practices were a target of criticism as the housing market crashed. The market for mortgage-backed securities vanished, meaning the value of those securities took a nosedive.

Banks couldn’t sell those assets, and under mark-to-market accounting rules they had to be revalued. As a result banks collectively reported around $2 trillion in total mark-to-market losses.

The Takeaway

Mark-to-market is a helpful principle to understand, especially if you’re interested in futures trading. When trading futures or trading on margin, it’s important to understand how mark to market calculations could affect your returns and your potential to be subject to a margin call.

If you’re ready to invest in stocks, exchange-traded funds, or IPOs, a SoFi Invest® brokerage account can help you get started.

Find out how to open an account with SoFi Invest.

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The information provided is not meant to provide investment or financial advice. 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.
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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.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
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Does Cryptocurrency Have Trading Hours?

Good news for those who simply can’t peel themselves away from studying cryptocurrency charts or watching the crypto markets: Crypto trading hours are much more expansive than those of the traditional stock market.

In fact, crypto trading hours are 24-7 — the market never closes. There are some caveats, of course, depending on your individual cryptocurrency exchange of choice. This article will dive deep into crypto trading, when it happens, and how to get in on it.

How Crypto Trading Works

If you’ve had any experience with other market types, even the stock exchange, you likely already have a good grasp of how crypto trading works. Most people access the market through a crypto exchange, where buyers and sellers can meet and transact assets.

For those buyers and sellers, the exchanges simplify the trading process by showing real-time values for various cryptocurrencies (the actual cryptos on a given exchange will vary), and allow traders and investors to buy, sell, and trade. Of course investors can still spend hours poring over crypto charts, but an exchange streamlines the trading process.

For most end users, it’s pretty much the same process as buying or selling stocks in an online brokerage account.

Recommended: How to Invest in Cryptocurrency

Are There Time Limitations on Crypto Trading Networks?

Though crypto exchanges are similar to services that allow users to buy or trade stocks and other assets, there are some differences. One of the most important differences is time limitations — or, the hours of the day during which transactions can be executed.

If you’re trading assets like stocks, bonds, and ETFs, transactions are executed during the market’s open hours, and to a lesser extent, the after-hours market. That’s generally 9:30 am ET to 4 pm ET, Monday through Friday, and 4 pm ET to 8 pm ET for after-hours trading.

But some assets can be traded 24 hours per day. The foreign exchange(forex) market is an example—traders can swap currencies all day between Monday and Friday. The crypto markets are likewise much looser with trading hours, in that the crypto markets never actually close.

Cryptocurrency Trading Hours vs Stock Market Trading Hours

The stock market has set operating hours, from 9:30 am ET until 4 pm ET, Monday through Friday. The markets are closed during weekends and holidays.

Conversely, the crypto markets operate non-stop. That doesn’t necessarily mean that there aren’t certain days or times that are better to trade, of course, since the numbers of traders and overall level of liquidity in the markets can vary. But access to the crypto markets is always open.

So, you can get real-time updates on crypto prices, add some coin to your portfolio, or fine-tune your crypto day-trading strategies at odd hours, on weekends, and on holidays.

Pros and Cons of Crypto Always Being Tradeable

There are some pros and cons to the fact that there are no defined crypto market hours.

For instance, during times when fewer traders are on the market, it can affect crypto exchange liquidity, and make values more volatile (read more about the volatility of Bitcoin). Conversely, the open-ended hours of the market can make it easier to research and execute trades at your convenience.

Pros of 24-7 Crypto Trading

There are some advantages to the crypto markets always being open. These are the top benefits:

•   Convenience for traders

•   Higher potential returns due to bigger market and liquidity

•   Access to markets anytime, anywhere

Cons of 24-7 Crypto Trading

Of course, there are also potential downsides to crypto’s non-stop market:

•   Some exchanges and platforms may limit market access to certain times

•   Higher risks and volatility on certain days and times

•   Lack of regulated market hours means traders could miss big market movements

How Non-Stop Crypto Trading Impacts Institutions

There are some ways in which the non-stop crypto market affects institutions — banks and exchanges, in particular.

The stock market takes a break every day, and every weekend. That gives all the players in the market —individual investors and institutions — a chance to assess and reposition their assets for their next moves. But since crypto trades all the time, there are stretches during the 24-hour day when banks and exchanges are effectively closed, and money isn’t being moved around as quickly or efficiently as it would during business hours.

This can cause lags — if a crypto trader is trying to deposit money into their crypto exchange account to execute a trade at, say, 2 am ET on a Sunday night, that money won’t actually move until the next day. That has the potential to cause some friction in the markets.

In short, there’s a mismatch between the standard business hours of many institutions and the 24-hour nature of the crypto markets, which may have an effect on the markets.

How Do Weekends Affect Crypto?

The crypto markets are volatile, and even more so on the weekends. In fact, crypto values often crash during the weekends for a few key reasons:

•   Less trading volume: A lot of people take the weekends off, and that includes from crypto trading. As such, the volume of trades takes a dip. With lower volume, the trades that are executed (especially big ones) can have an outsized effect on the markets — more so than during times with higher trading volume.

•   Margin trading: Many traders trade crypto “on margin,” meaning that they borrow money to execute trades. And when prices drop, it may trigger a “margin call,” which means those margin traders must repay their loans. That forces traders to try and move some money around, but with banks closed on the weekends, it can make things more difficult, and in effect, potentially cause crypto values to fall further.

•   Hourly mismatches and liquidity: With banks closed on weekends but the crypto markets firing away at all hours, traders may have trouble getting more money into their crypto exchange accounts. This can limit market liquidity, potentially adding yet another systemic and chaotic element to weekend crypto trading.

Are Some Days Or Times Better to Trade Crypto?

There are times and days that are generally more favorable to crypto traders to execute trades. The best times and days to trade crypto is generally “whenever works for you” but research shows that professional traders tend to be more active during weekdays.

Monday tends to be the day when traders historically see the biggest returns when trading, followed by Friday and Saturday. And as for which hours of the day are the most fruitful? Data shows that the markets are busiest around 12 pm ET.

But as with any investing, past performance and trends are no guarantee of future outcomes. There’s no promise that trading during these days or times will translate to bigger returns (or any returns) for an individual trader or investor. It’s also worth keeping in mind that these trends are likely to change with time.

The Takeaway

The crypto markets are a wild, non-stop ride. And because they’re so volatile, it’s best to take a measured approach to trading and investing in crypto. But that said, you won’t be limited by crypto market hours, as you might when trading stocks or bonds, because cryptocurrency trading can occur 24/7, every day of the year.

If you’re looking to invest in cryptocurrency, you can trade cryptocurrency on more than two dozen coins with SoFi Invest®, including Bitcoin, Chainlink, Ethereum, Dogecoin, Solana, Bitcoin, Litecoin, Cardano, and Enjin Coin.

Find out how to get started with SoFi Invest.

Photo credit: iStock/Stefan Tomic

SoFi Invest®
The information provided is not meant to provide investment or financial advice. 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 pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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What Is the Put/Call Ratio?

The put to call ratio (PCR) is a mathematical indicator that investors use to determine market sentiment. The ratio reflects the volume of put options and call options placed on a particular market index. Analysts interpret this information into either a bullish (positive) or bearish (negative) near-term market outlook.

The idea is simple: the ratio of how many people are betting against the market versus how many people are betting in favor of the market, should provide a gauge of the general mood investors are in.

A high put-call ratio is thought to be bearish (because more investors are taking short positions) while a low put-call ratio is thought to be bullish (because more investors are taking long positions). Investor Martin Zweig invented the put-call ratio and used it to forecast the 1987 stock market crash.

What are Puts and Calls?

Puts and calls are the most basic types of options contracts. Options contracts give holders the right, but not the obligation, to buy or sell a specific number of shares of a given security by a certain date (the expiration date) at an agreed upon price (the strike price). For both puts and calls, one options contract is usually for 100 shares of the underlying security.

The seller of an option is also sometimes called the writer. Options writers receive a fee, called a premium, in exchange for the risk of having to buy or sell shares when the holder of the option chooses to exercise their contract.

There are many factors that influence an option’s premium, and many ways to calculate the value and the risk of options, including the Black-Sholes, trinomial, and Monte Carlo simulations.

Those interested in trading calls and puts and other options strategies may want to research the details further with our options trading guide.

For now, we’re concerned with the basics of call vs. put options so we can better understand the put-call ratio and what it means.

Puts

A put option (or “put”) gives its owner the right to sell a certain number of shares at a predetermined price by a certain date. Investors may also refer to puts as “short positions” because they represent bearish bets on a security’s future.

An investor who buys a put has the option to sell the stock at some point leading up to the expiration date of the contract. Investors may use puts in a variety of ways within the portfolio. For example, a protective put allows an investor who already owns the underlying asset to benefit even if the price of that stock asset goes down.

Calls

A call gives its owner the right to buy a certain number of shares at a predetermined price by a certain date. Calls are also referred to as long positions because they represent bullish bets on a security’s future.

An investor who buys a call has the option to buy the stock at some point leading up to the expiration date.

Recommended: Popular Options Trading Terminology to Know

What Is Put Call Ratio?

The put-call ratio is a measurement of the number of puts versus the number of calls traded on a given security over a certain timeframe. The ratio is expressed as a simple numerical value.

The higher the number, the more puts there are on a security, which shows that investors are betting in favor of future price declines. The lower the number, the more calls there are on a security, indicating that investors are betting in favor of future price increases.

Analysts most often apply this metric to broad market indexes to get a feel for overall market sentiment in conjunction with other data point. For example, the Chicago Board Options Exchange put-to-call ratio is one of seven factors used to calculate the Fear & Greed Index by CNN Business.

The put-call ratio can also be applied to individual stocks by looking at the volume of puts and calls on a stock over a certain period.

Recommended: Buying Options vs Stocks: Trading Differences to Know

How to Calculate the Put-Call Ratio

The put-call ratio equals the total volume of puts for a given time period on a certain market index or security divided by the total volume of calls for the same time period on that same index or security. The CBOE put call ratio is this calculation for all options traded on that exchange.

There can also be variations of this. For example, total put open interest could be divided by total call open interest. This would provide a ratio for the number of outstanding puts versus the number of outstanding calls. Another variation is a weighted put-call ratio, which calculates the dollar value of puts versus calls, rather than the number.

Looking at a put call ratio chart can show you how that ratio has changed over time.

Put-Call Ratio Example

Suppose an investor is trying to assess the overall sentiment for a stock. The stock showed the following volume of puts and calls on a recent trading day:

Number of puts = 1,400

Number of calls = 1,800

The put call ratio for this stock would be 1,400 / 1,800 = 0.77.

How to Interpret the Put-Call Ratio

A specific PCR value can broadly be defined as follows:

•   A PCR of less than 1 implies that investors are expecting upward price movement, as they’re buying more call options than put options.

•   A PCR of more than 1 implies that investors are expecting downward price movement, as they’re buying more put options than call options.

•   A PCR equal to 1 indicates investors expect a neutral trend, as purchases of both types of options are at the same level.

However, while PCR has a specific, mathematical root, it is still open to interpretation, depending on your options trading strategy. Different investors might take the same value to have different meanings.

Contrarian investors, for example, typically believe that the majority is wrong. The best move is to act contrary to what others are doing, in this view. If everyone else is buying something, contrarians believe it might be a good time to sell, or vice-versa. A contrarian investor might therefore perceive a high put/call ratio to be bullish because it suggests that most people believe prices will be heading downward soon.

Momentum investors believe in trying to capitalize on prevailing market trends. “The trend is your friend,” they might say. If the price of something is going up, it could be best to capitalize on that momentum by buying, in this view. A momentum investor could believe the opposite, and that a high PCR should be seen as bearish because prices could be trending downward soon.

To take things a step further, a momentum investor might short a security with a high put-call ratio, hoping that since most investors appear to already be short, this will be the right move. On the other hand, a contrarian investor could do the opposite and establish a long position, based on the idea that what most people expect to happen is the opposite of what’s actually coming.

The Takeaway

The put-call ratio is a simple metric used to gauge market sentiment. While often used on broad market indexes, investors may also apply the PCR to specific securities. Calculating it only involves dividing the volume of puts by the volume of calls on the market for a security.

The put-call ratio is one factor you might consider as you build your portfolio, even if you’re not investing in options. A great way to do that is by opening a brokerage account on SoFi Invest, which allows you to purchase company stocks, exchange-traded funds, and fractional shares through its app.

Photo credit: iStock/PeopleImages

SoFi Invest®
The information provided is not meant to provide investment or financial advice. 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 pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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Source: sofi.com

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6 Ways to Boost Your Retirement Savings in the New Year

If you’re feeling shaky about your retirement savings, you’re not alone.

According to a February 2021 research report by the National Institute on Retirement Security, 56% of respondents said they’re worried about achieving a financially secure retirement.

If your savings fell short in 2021, the new year is a great time to get back on track and reach your retirement goals.

We’ve rounded up a few tips to help get you there.

6 Ways to Boost Your Retirement Savings in 2022

There was a lot going on this year. We get it.

Maybe you started a new job or picked up a side hustle. Maybe you exited the workforce for a while to take care of your family.

Putting aside money for retirement may have been the last thing on your mind.

Following these steps can help transform saving for retirement from a scary to-do list item into a wealth-building reality.

1. Stash Money in Your 401(k) Before 2021 is Over

Stepping up your retirement savings now — before 2021 ends — could give you a nice tax gift next year.

That’s because contributions made to your 401(k) before Dec. 31 help lower your yearly taxable income.

It’s not a tax credit or deduction, but by lowering your taxable income you could save money at tax time — or even boost your refund.

The maximum you can contribute to a 401(k) in 2021 is $19,500 — or $26,000 if you’re 50 or older — by the end of the year.

2. Don’t Have a 401(k) at Work? Open an IRA With a Robo-Advisor

Not everyone has access to a 401(k).

In fact, 33% of all private industry workers lacked access to any sort of employer-provided retirement plan in 2020, according to the Bureau of Labor Statistics.

If that’s your situation, you can still save for retirement on your own. And we promise, it’s not as scary as it sounds.

Robo-advisors are online companies that use computer algorithms and advanced software to build and manage your investment portfolio.

They take the guesswork out of investing by picking stocks and bonds that align with your risk tolerance and financial goals.

The best robo-advisors on the market give you access to tax-advantaged individual retirement accounts (IRAs). You can set one up in less than 20 minutes without ever picking up the phone or speaking with an actual person.

Companies like Wealthfront and Betterment give you the option to open either a traditional IRA or a Roth IRA when you create your account.

Both accounts let you contribute up to $6,000 a year in 2022, or $7,000 for people 50 and older.

Roth and traditional IRAs also come with sweet tax perks. But how and when you get a tax break is different.

As a quick reminder:

Traditional IRA

  • Taxes aren’t withheld when you put money in and your contributions lower your yearly taxable income (like a traditional 401(k) does). However, you’ll get a tax bite on the backend when you withdraw money in retirement. If you tap your account funds before age 59.5, you’ll pay a 10% IRS penalty.

Roth IRA

  • The government takes out taxes when you fund your account and contributions don’t help lower your yearly taxable income. But you won’t pay any taxes when you withdraw money in retirement. Plus you can withdraw your contributions at any time with no taxes or penalties.

Using a robo-advisor is a super easy way to start saving for retirement because it can help you decide if a traditional or Roth option is better for you. The robo-advisor will fill your IRA with diversified, long-term investments and offer easy-to-use online tools that make retirement planning interactive and accessible.

Unlike a traditional 401(k), your IRA contribution deadline is April 15, 2022. If you don’t hit the $6,000 contribution cap this year and you’re worried about a 2022 tax bite, you can add money to your traditional IRA no later than April 15.

Likewise, if you meant to start an IRA this year but forgot, you can still open an account and fund it in 2022 — but count the contributions toward 2021.

3. Gig Workers and Self-Employed People: Consider One of These Accounts

If you’re a gig worker or self-employed, the word retirement might make you laugh.

Retire? Who can afford to retire?

You don’t get the option of opening a standard 401(k) at work so it may be difficult to know where to start.

Thankfully, there are five different retirement accounts for small business owners, self-employed people and individual contractors.

  • Traditional IRA
  • Roth IRA
  • Solo 401(k)
  • SEP IRA
  • Simple IRA

A solo 401(k) is an individual 401(k) specifically designed for a business owner with no employees.

It lets you serve as both an employer and an employee — and make contributions in both capacities.

The contribution limit is very high: $61,000 in combined employee and employer contributions in 2022.

Solo 401(k)s also come in both Roth and traditional forms, so you’ll have your choice on tax savings.

Another option is a SEP IRA. Unlike a solo 401(k), you can add a few employees to a SEP IRA. Or you can use it just for yourself.

For a self-employed person, you can contribute up to 25% of your net earnings to a SEP IRA, up to a max of $61,000 in 2022.

As always, don’t contribute more than you can afford. Look at your cash flow and business expenses for the year to decide how much you can comfortably put away each month.

4. Don’t Panic Sell or Withdraw Money Early

Selling investments is literally one of the worst things you can do with your 401(k) when the market drops.

Many people learned this lesson around March 2020 when the stock market nosedived — only to rebound a month or two later.

Remember this: The losses you see inside your retirement account aren’t actual losses until you sell. If you simply wait for the market to recover, your investments will go back up.

A single day — or even a few weeks — of volatility shouldn’t change your long-term savings plan.

A down market is not a time to panic. In fact, smart investors see it as a time to buy.

Cullen Roche, a Wall Street pro and founder of Orcam Financial Group, summarized it nicely:

“The stock market is the only market where things go on sale and all the customers run out of the store.”

If there’s a crash in 2022 and you have extra cash on hand, consider transferring some to your retirement account. This lets you buy additional shares when prices are low.

Then again, timing the market is tricky. A better long-term strategy is dollar-cost averaging, where you invest on a regular schedule no matter what’s happening in the stock market.

If you have money automatically deducted from your paycheck and deposited into your 401(k) or IRA, you’re already practicing dollar-cost averaging. You’re investing on a regular schedule (each time you get paid).

No matter what strategy you choose, don’t withdraw money from traditional retirement accounts early unless it’s a true emergency.

5. Use Some of Your 2022 Tax Return to Buy I Bonds

Inflation ramped up in 2021 — and it might stick around for a while in 2022.

Investors tend to shy away from bonds when inflation is high. But some bonds, like Series I bonds from the U.S. Treasury, offer interest rates indexed to inflation. That means their interest payments increase as inflation increases.

In November 2021, the government set an eye-popping interest rate of 7.12% on I bonds purchased now through April 2022.

That 7.12% interest rate won’t last forever. The Treasury will calculate a new I bond rate May 1, 2021.

If inflation continues to heat up, you could get even more interest on your bonds. If it cools off, your interest rate declines — although you can’t lose money with I bonds. You just might not earn much interest for six months.

There are a couple ways I bonds can help boost your retirement savings.

If you’re a young, risk-taking investor with a stock-heavy portfolio, you can diversify with a safe asset like I bonds.

Or if you’re an older investor planning to retire in the next two to 10 years, I bonds provide a risk-free place to stash cash while earning a much higher return than CDs or savings accounts.

You can’t buy I bonds through your 401(k) plan or an online broker. You have to purchase them online from the U.S. Treasury Direct website. You can also choose to receive part of your tax refund in paper I bonds.

You can buy up to $10,000 worth of I bonds each year — but you have to wait at least a year after purchase to cash them in. If you decide to buy, make sure you absolutely don’t need access to the money until at least 2023.

6. Stop With the Excuses and Get Started, No Matter Your Age

It may never feel like the right time to get started saving for retirement. It might be confusing and intimidating to open your first 401(k) or IRA. But the only way to overcome those fears is to jump in and get started.

We have easy-to-follow strategies for how to save for retirement whether you’re in your 20s or your 60s.

Boosting your retirement savings doesn’t need to be dramatic or life-altering. If you received a raise at work this year, for example, use a percentage of it to fund your future.

Even setting aside $10 or $20 more from each paycheck next year can make a huge difference.

The worst thing you can do is nothing. Ditch the excuses in 2022 and start contributing what you can reasonably afford to your retirement.

You’ll thank yourself later.

Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.

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Should You Take Pension Payments or a Lump Sum? A How-To Guide

Your employer doesn’t want to be in the pension business. It’s too expensive. Low interest rates force employers to beef up their pension contributions or invest in riskier assets to meet their plans’ assumed rates of returns.

For this reason, employers offer lump-sum buyouts. The company wants you to take the buyout so they can exit the pension business and save money. You can take the pension lump sum and roll it tax-free into an IRA.

But how do you evaluate a one-time lump-sum offer against the possibility of lifetime payments that a pension offers?

Should you take it or leave it? Here is one approach I use when evaluating a client’s pension offer:

Step 1. Run the numbers

Start by calculating the internal rate of return (IRR) of the pension. The IRR tells you the rate of return you would need to beat by investing your lump sum in order for it to make sense to take one. Here are the steps in Excel:

  1. In Column A enter the year in every row, 1-30 for example. In Column B enter your age in every row till life expectancy. See Figure 1.
  2. In Column C, enter the lump sum as a negative number in the year the lump sum is paid out. Don’t worry, it’s only negative because that’s representing a cash outflow.
  3. Below the lump sum value in Column C, copy and paste the annual pension payout into every row for each year you live, till your life expectancy used in step 1.
  4. In Column D, at your life expectancy, enter this formula: =IRR(C1:C24) and then press Enter. If the answer that appears is a whole number, chances are you need to allow for a few more decimal places. Right click on the cell, click on “Format Cells” and then set your decimal places to two places.
  5. If all else fails, there are many free online IRR calculators. Remember to enter the lump sum as a negative cash flow and the pension payout as positive cash flow. Use the joint life payout if you are married and the straight life if you are single.

To see how this all works, let’s look at an example. In Figure 1, I compare a lump-sum offer of $500K to the 100% joint survivor pension option, which is $25K a year. Single investors use the single-life pension payout. The formula in this case results in an internal rate of return of 1.20%. 

What does this IRR of 1.2% mean? It means that if you lived to age 86, then you’d have to generate a return of 1.2% on your lump sum each year in order to match what your pension would pay over the course of that same time period.

A screenshot of an Excel spreadsheet shows the pension calculation.A screenshot of an Excel spreadsheet shows the pension calculation.

To see the IRR at different life expectancies, try typing the formula in Column D into different rows. Be sure the cell range in the IRR formula always starts with the lump-sum cell in Column C and ends with the age you want. For example, =IRR(C1:C18) would be the formula used at age 80 in Column D. 

The longer you live, the greater the return your pension would be delivering — and the higher the return you’d need to generate on your own with your lump sum to match it. This makes sense, because you are getting more money returned to you over time with your pension payments. In my example, the true IRR is a little higher since we technically can’t take the lump-sum till 65, not 64, but the way we set it up here makes it easier for you to view.

Two more ways to do the math: Another approach is to figure the Pension Income Ratio (PIR). The PIR is the annual withdraw divided by the lump sum. A PIR greater than 5% may be hard to replicate in an IRA.

Finally, know the break-even point. If you took the pension option, how long would it take to get the full lump sum amount? In this example, at $25K a year it takes 20 years to get back the $500K lump sum amount. Twenty years for a 65-year-old is a long time to wait to get all your money.

Step 2. Ask yourself: Can I beat the payout?

In our example, at age 86, the return is 1.20%. With that low of a return, I’d rather take the lump-sum and invest in a diversified portfolio of stocks and bonds. This is the case with most pensions I review.

Some retirees are more conservative. Conservative investors may not trust the stock market. Others may feel they have enough assets at risk with their 401(k) and they may not want to take risk with the pension. Those investors put a higher value on the annual pension income stream and may not want to try to beat the IRR of the pension.

Step 3. Analyze the trade-offs

Loss of purchasing power

In my opinion, taking the traditional joint and survivor pension income only looks good in year one, then loses its luster, because after that, inflation takes hold. Pension income is typically level: You steadily lose purchasing power over time as prices increase. In our example, the $25K of pension income in year one is roughly worth only $15K in 25 years, assuming a 2% inflation rate. The loss of purchasing power is an important trade-off to understand. Your future self may regret taking the annual pension payout if it doesn’t keep up with your standard of living.

On the other hand, your spending may decrease later in life. If you are less active, you may need less income. (Unless a severe health event like long-term care is needed, which is a large expense.) If you have other assets growing in the stock market that can make up for the loss in pension purchasing power that helps too. Some pensions provide inflation-adjusted income, which is highly valuable.

No access to principal

If you elect to take the pension income, you can’t take more or less money in any given year. If you take the lump sum, you can. If you elect to take the lump sum you can skip a withdraw or take out more for a vacation or an emergency. You have more control over a lump sum.

Of course, more control can mean more trouble. Will you use the lump sum to buy a boat, a lavish vacation each year, or simply spend it all too soon? As Shakespeare wrote, “To thine own self be true.” You must be honest with yourself. Spendthrifts may be better off taking the pension or buying an annuity with the lump sum if it helps with monthly budgeting. A financial adviser can help too. Having an arm’s length relationship with your money may be all you need to prevent you using the lump sum as an ATM.

No inheritance

The final trade-off is how much do you value leaving the pension asset to your family? Most retirees I speak with think it is important, but it is not the sole driver in their decision making. Still, just about everyone I speak with agrees it is a tragedy if Mom and Dad pass at the same time in the proverbial plane crash three years into retirement, leaving the kids nothing because the pension income stops. At least with moving the lump sum to an IRA your kids can inherit the balance.

Another solution is pension maximization. Pension maximization is buying life insurance with the straight-life pension payout. The straight-life pension payout provides the most income, but the income stops at death. Pension maximization uses the extra payments from the straight-life pension to buy life insurance. The life insurance death benefit “replaces” the lost pension income at death. The math works best for those who are younger and healthy, because life insurance rates are based on age and health history.

Pension income has merits — don’t get me wrong. Studies have shown retirees who have a guaranteed source of income in retirement report less worry and greater retirement satisfaction. However, you must understand the math in Figure 1 and the trade-offs listed above to make a wise decision.

Which is the better choice?

It really depends on your situation and the pension numbers. Figure 2 is a helpful way to get you started:

Figure 2: To thine own self be true  

Circle one item in Column A or B that identifies you.

Column A

Column B

I value access to principal

I value certainty of income

I want to leave something to the kids

The kids are fine, or they are getting enough elsewhere.

I value the potential growth on the IRA, understanding losses may be incurred along the way.

I am not OK with risk taking in retirement. It makes me uncomfortable to see my account balance go down.

I value the ability to take more income in good years of the stock market, knowing I should take less if the account goes down.

I value guaranteed income regardless of what the stock and bond markets do. 

The pension is a small amount relative to my net worth.

The pension is all I have.

I have other sources of reliable income (rents, royalties, spouse’s pension)

I have no or very little guaranteed income in retirement.

I generally am OK with taking risk, knowing I may get rewarded.

I am as conservative investor as they come!

If you circled more in Column B than Column A, you value the pension income over investing the lump sum. That is OK, there is no right or wrong decision, this is a personal choice! If you circled more in Column A, then you are comfortable with risk and probably already have a diversified portfolio in the stock market. Column A people should consider taking the lump-sum option and build out an investment portfolio that will hopefully outlast them.

If you are somewhere in between Column A and Column B, then you might want to evaluate using the lump sum to purchase an annuity in an IRA. Certain annuities provide a steady monthly income stream that may mirror the pension payout, but still allow for access to principal. That’s a win-win, for those who value guaranteed income but still want to leave the balance to the kids. There is much more to consider on whether an annuity strategy is right for you. I encourage you to speak to a qualified, independent financial planner.

Final thoughts

The decision on how to take a pension — straight life, joint payout or lump-sum — is not easy. Each pension, like each person’s situation, is unique. And the choice you make you are stuck with. It is irrevocable, affecting your retirement and your spouse’s. No pressure!

Given the weight of the decision, in my opinion, the decision on whether to take a pension or a lump sum requires a careful and thorough analysis of the various trade-offs, risks and opportunities. I suggest seeking guidance from an independent financial adviser who has fiduciary responsibility to you and is experienced in this field. Call me if you need me.

For help in analyzing your pension options email me or subscribe to my blog for more retirement planning insights.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

CFP®, Summit Financial, LLC

Michael Aloi is a CERTIFIED FINANCIAL PLANNER™ Practitioner and Accredited Wealth Management Advisor℠ with Summit Financial, LLC.  With 21 years of experience, Michael specializes in working with executives, professionals and retirees. Since he joined Summit Financial, LLC, Michael has built a process that emphasizes the integration of various facets of financial planning. Supported by a team of in-house estate and income tax specialists, Michael offers his clients coordinated solutions to scattered problems.

Investment advisory and financial planning services are offered through Summit Financial LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666. This material is for your information and guidance and is not intended as legal or tax advice. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. Past performance is not a guarantee of future results. The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. Links to third-party websites are provided for your convenience and informational purposes only. Summit is not responsible for the information contained on third-party websites. The Summit financial planning design team admitted attorneys and/or CPAs, who act exclusively in a non-representative capacity with respect to Summit’s clients. Neither they nor Summit provide tax or legal advice to clients.  Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local taxes.

Source: kiplinger.com

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11 Best Travel Rewards Credit Cards – Reviews & Comparison

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Travel rewards credit cards are not one-size-fits-all. They fall into several broad categories.

These categories include airline rewards credit cards designed to reward spending with specific airlines or airline partnerships, hotel credit cards that focus their rewards firepower on hotel stays and related expenses, and even cash back credit cards that offer accelerated cash back earnings on travel-related purchase categories like gasoline, airfare, and restaurant purchases.

If you’re a frequent traveler, you likely stand to benefit from all of these card types. And if you own your own business, you can count on many consumer travel credit cards having small business credit card counterparts, often with additional features and benefits for small business owners.

Best Travel Rewards Credit Cards

Here’s a look at today’s best travel rewards credit cards.

Pay close attention to these cards’ annual fees, redemption options and point or mile values for each, travel credits, and potentially valuable fringe benefits, such as complimentary airport lounge memberships or hotel credits.

Best Overall: Chase Sapphire Preferred® Card

Sapphire Preferred Card Art 8 17 21

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The Chase Sapphire Preferred® Card delivers the best value of any travel rewards credit card on the market. 

The $50 annual credit against hotel purchases made through Chase Travel offsets about half the $95 annual fee. It’s backed up by an excellent rewards program:

  • 5x Points on Chase Travel Purchases: 5x total points on eligible travel purchases made through Chase Travel after the $50 annual Ultimate Rewards hotel credit is exhausted. Through March 2022, 5x points on qualifying Lyft rides and eligible Peloton equipment and accessory purchases (up to 25,000 total bonus points earned on Peloton purchases).
  • Unlimited 3x Categories: 3x points on eligible restaurant dining purchases, select streaming service purchases, and online grocery purchases.
  • Unlimited 2x Categories: 2x points on other eligible travel purchases. 
  • Base Rewards: Unlimited 1x point on most other eligible purchases.

Sapphire Preferred has some additional features worth noting:

  • Sign-up Bonus: Spend $3,000 in eligible purchases within the first 120 days of account opening to earn 50,000 bonus points.
  • Key Fees: $95 annual fee after the first year; no foreign transaction fee.

Learn more about this card and find out how to apply here.

Best Sign-up Bonus: IHG Rewards Club Premier Credit Card

Ihg Rewards Club Premier 9 30

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The IHG Rewards Club Premier Credit Card has the best offer for new cardmembers right now:

  • Earn 125,000 bonus points when you spend at least $3,000 on eligible purchases during the first 3 months your account is open. 
  • This bonus is worth more than 12 full award nights at lower-priced IHG properties. IHG operates nearly 6,000 hotels and resorts in about 100 countries.

Additional features:

  • Up to 25x Total Points on IHG Purchases: Up to 25x IHG points on all eligible purchases at IHG properties: 10x bonus points per $1 spent with your card and 15x base points per $1 spent as an IHG Rewards Club member.
  • Unlimited 2x Categories: 2x points on eligible purchases at restaurants, gas stations, and grocery stores.
  • Base Rewards: Unlimited 1x point on most other eligible purchases.
  • Key Fees: $89 annual fee; no foreign transaction fee.
  • Enjoy Platinum Elite status as long as your account remains in good standing.
  • Claim 1 complimentary award night each year at select IHG hotels.

Find out how to apply for this card here.

Best Annual Travel Credit: Chase Sapphire Reserve® Card

Chase Sapphire Reserve Card

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The Chase Sapphire Reserve® Card has a $300 annual travel credit that applies to eligible travel purchases: hotels, airfare, car rentals, and more. When fully utilized, it effectively reduces Sapphire Reserve’s $550 annual fee down to $250.

Additional features:

  • Sign-up Bonus: Spend at least $4,000 in qualifying purchases within 3 months to earn 50,000 bonus Ultimate Rewards points, worth $750 in eligible Chase Travel redemptions.
  • 10x Categories: 10x total points on eligible hotel and car rental purchases made through Chase Travel.
  • 5x Category: 5x total points on eligible airfare purchases through Chase Travel.
  • Unlimited 3x Categories: 3x total points on eligible dining purchases and most travel purchases (after exhausting the $300 travel credit).
  • Base Rewards: Unlimited 1x point on all other eligible purchases.
  • Key Fees: $550 annual fee; $75 annual authorized user fee per user, per card; no foreign transaction fee.
  • Transfer Ultimate Rewards points 1-for-1 to 10+ travel loyalty partners.
  • Get complimentary access to 1,000+ airport lounges worldwide through Priority Pass Select.
  • Get a free year’s subscription to Lyft Pink ($199 value).
  • Earn a $100 statement credit against your TSA PreCheck or Global Entry application fee

Find out how to apply for this card here.

Best Bonus Categories: Citi Premier® Card

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The Citi Premier® Card is one of the few travel rewards credit cards that includes gas and gas station purchases in its travel tier, which earns 3x points per $1 spent. That makes it an ideal choice for travelers driving to or around their destinations.

Citi Premier also adds two broad nontravel categories to its 3x points category: restaurants and supermarkets. That’s a great value-add for anyone who eats.

Additional features:

  • Sign-up Bonus: Earn 60,000 bonus ThankYou points after you make $4,000 in purchases with your card in the first 3 months.
  • Base Rewards: Unlimited 1x point on all other eligible purchases.
  • Key Fees: $95 annual fee; no foreign transaction fee.
  • Earn a $100 hotel credit once per year on eligible hotel stays where you spend $500 or more.
  • Transfer ThankYou points to 10+ travel loyalty partners, mostly 1-for-1.

Learn more about this card and find out how to apply here.

Best for Frequent Flyers: Delta SkyMiles® Reserve American Express Card

Delta Skymiles Reserve American Express

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The Delta SkyMiles® Reserve American Express Card offers a slew of valuable benefits for Delta loyalists — a better mix than any other airline credit card. They include:

  • Complimentary Delta Sky Club membership (free airport lounge access).
  • A complimentary companion certificate (free airfare, less taxes and fees, for a companion with your paid fare) once per year.
  • Accelerated progress toward Delta Medallion status with possible benefits like complimentary first class and Comfort+ upgrades, complimentary upgrades for ticketed companions, discounted CLEAR® membership (terms apply and enrollment is required for all these benefits).
  • General frequent flyer benefits like priority wait list, baggage fee waivers, and priority check-in and boarding.

Additional features:

  • 3x SkyMiles Category: Earn 3x SkyMiles on eligible Delta purchases.
  • Base Rewards: 1x SkyMiles on all other eligible purchases.
  • Status Boost: Get 15,000 bonus Medallion Qualification Miles (MQMs) with Status Boost after you spend $30,000 on your card, up to 4 times per year. Terms apply.
  • Key Fees: $550 annual fee; no foreign transaction fee.

Learn more about this card and find out how to apply here.

Best for Elite Status: Marriott Bonvoy Brilliant™ American Express® Card

Bonvoy Brilliant Card Art 10 15 20

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The Marriott Bonvoy Brilliant™ American Express® Card promises automatic Gold Elite Status in the Marriott Bonvoy loyalty program as long as your account remains in good standing. That’s enough to make it our top credit card pick for complimentary elite status at hotels.

Gold Elite Status benefits include:

  • 25% bonus on base point earnings at participating Marriott properties
  • Complimentary room upgrades where available, including select suites
  • Flexible late checkout (up to 2pm)

Spend $75,000 on your card in a cardmember anniversary year to unlock an upgrade to Platinum Elite Status. Platinum Elite benefits include a 50% bonus on base point earnings, complimentary hotel lounge access where available, and super-flexible late checkout (4pm).

Additional features:

  • Welcome Offer: Earn 75,000 Marriott Bonvoy bonus points after you use your new card to make $3,000 in eligible purchases within the first 3 months of card membership. Plus, earn up to $200 in statement credits on eligible purchases at U.S. restaurants within the first 6 months of card membership. Resort fees may apply. Terms apply.
  • 6x Rewards Category: 6x points at participating Marriott hotels.
  • 3x Rewards Categories: 3x points at U.S. restaurants and on flights booked directly with airlines.
  • Base Rewards: 2x points on all other eligible purchases.
  • Key Fees: $450 annual fee; no foreign transaction fee (see rates and fees).
  • $300 Marriott Bonvoy statement credit each year for eligible purchases at participating hotels.
  • 1 free night award per year at participating Bonvoy properties.
  • Complimentary airport lounge access at more than 1,000 locations worldwide (enrollment required).
  • $100 annual Marriott Bonvoy property credit at participating properties.

Learn more about this card and find out how you can apply here.

Best for Luxury Perks: The Platinum Card® from American Express

Amex Platinum Card Art 2 4 21

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The Platinum Card® from American Express has the most generous travel perks lineup of any card on this list. Highlights include:

  • A $200 airline fee credit each year with the airline of your choice (enrollment required)
  • Credits worth up to $200 per year on Uber rides (enrollment required).
  • Complimentary Gold Status with Hilton Honors and Gold Elite Status with Marriott Bonvoy (enrollment required).
  • Complimentary access to 1,300+ airport lounges in the American Express Global Lounge Collection (enrollment required).
  • Up to $550 (on average) in exclusive benefits like room upgrades and complimentary breakfast at Fine Hotels & Resorts Collection properties.
  • Up to $100 off your Global Entry or TSA PreCheck application fee (enrollment required).

Additional features:

  • Welcome Offer: 100,000 bonus Membership Rewards points when you spend at least $6,000 within 6 months of opening your account. Plus, earn 10 points per $1 spent on eligible purchases at restaurants worldwide and when you Shop Small in the U.S. during the first 6 months your account is open (up to $25,000 in combined purchases).
  • 5x Rewards Categories: 5x Membership Rewards points on eligible travel purchases, including flights booked directly with airlines, flights booked through American Express Travel, and prepaid hotels booked through American Express Travel. Airfare earnings capped at 500,000 points per year.
  • Key Fees: $695 annual fee; no authorized user fee or foreign transaction fee; late and returned payments cost up to $40 (see rates and fees).

Find out how you can apply for this card here.

Best for Business Travelers: The Business Platinum Card® from American Express

Amex Business Platinum Card Art 7 1 21

The Business Platinum Card® from American Express is a lot like its consumer cousin, the Platinum Card® from American Express. It’s built specially for business travelers seeking the optimal combination of luxury and convenience, with benefits like:

  • A 35% bonus when you use Membership Rewards® points to book travel with your selected qualifying airline (up to 500,000 bonus Membership Rewards® points each calendar year)
  • A $200 annual statement credit against purchases made with an airline of your choice (enrollment required)
  • Complimentary access to more than 1,300 airport lounges worldwide (enrollment required)
  • Reimbursement for TSA Precheck and Global Entry application fees (up to $100)

Additional features:

  • Welcome Offer: 120,000 Membership Rewards® points after you spend at least $15,000 in eligible purchases within 3 months of opening your account.
  • 5x Rewards Categories: 5x Membership Rewards points on eligible travel purchases, including flights booked directly with airlines, flights booked through American Express Travel, and prepaid hotels booked through American Express Travel. 
  • 1.5x Rewards Categories: 1.5x points on purchases in key business spending categories and all other purchases greater than $5,000 (cap applies).
  • Introductory APR: 0% introductory APR for 12 months from account opening on purchases eligible for Pay Over Time. After that, your APR will be 14.24% to 22.24% APR, depending on your creditworthiness and other factors as determined at time of account opening. Terms apply.
  • Key Fees: $595 annual fee ($695 if your application is received on or after Jan. 13, 2022); no foreign transaction fee.
  • Up to $400 in annual purchase credits for U.S. purchases with Dell (terms apply; enrollment required)

See our American Express Business Platinum Card Review for more information. Find out how to apply for this card here.

Best Flat-Rate Card: Capital One Venture Rewards Credit Card

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The Capital One Venture Rewards Credit Card’s rewards program couldn’t be simpler. With the exception of hotel and car rental purchases made through Capital One Travel, all eligible purchases earn unlimited 2 miles per $1 spent. That’s an effective 2% rate of return on all spending.

  • Early Spend Bonus: 60,000 bonus miles when you spend $3,000 or more during the first 3 months. That’s worth $600 at redemption.
  • 5x Bonus Category: 5x miles on hotel and car rental purchases made through Capital One Travel.
  • Unlimited 2x Rewards: Unlimited 2x miles on all other eligible purchases. 
  • Transfer points to participating travel loyalty partners at favorable rates.
  • Get a $100 credit against your TSA PreCheck or Global Entry application fee.

Find out how you can apply for this card here.

Best for Driving Vacations: U.S. Bank Altitude® Connect Visa Signature® Card

U.s. Bank Altitude Connect Card Art 9 8 21

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The U.S. Bank Altitude® Connect Visa Signature® Card is a cash back credit card that earns 4x points on eligible gas station and car rental purchases. That’s enough to make it the best travel card for road trips. (See rates & fees.)

Additional features:

  • 4x Travel Categories: 4x points on eligible travel purchases, including airfare, hotels, and car rentals.
  • 2x Rewards Categories: 2x points on streaming, restaurant dining, and grocery store and grocery delivery purchases.
  • Base Rewards: 1x point on all other eligible purchases.
  • Sign-up Bonus: Spend $3,000 in eligible purchases within the first 120 days of account opening to earn 50,000 bonus points.
  • Key Fees: $95 annual fee; no foreign transaction fee.
  • Up to $600 in cell phone protection coverage per incident (less $25 deductible).
  • Up to $30 in annual statement credits for eligible streaming services, including Netflix and Spotify®.
  • Up to $100 to offset your TSA PreCheck® or Global Entry® application fee.

Terms and conditions apply; see rates & fees.

Best for Hotel Stays: Marriott Bonvoy Boundless® Credit Card from Chase

Marriott Bonvoy Boundless Credit Card

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The Marriott Bonvoy Boundless® Credit Card from Chase offers tremendous value for Marriott loyalists. Benefits include:

  • Up to 17x Bonvoy points per $1 spent on all eligible purchases at participating Marriott properties.
  • 1 free night’s stay at participating properties with redemption thresholds up to 35,000 points per night.
  • Automatic Silver Elite Status with benefits including 10% points bonus on eligible Marriott spend.
  • Upgrade to Gold Elite Status with $35,000 annual card spend (benefits include a 25% points bonus on eligible Marriott spend).

Additional features:

  • Sign-up Bonus: Earn 3 bonus free night awards (each valued up to 50,000 points) after qualifying purchases. Plus, earn 10x points total on eligible purchases in select categories.
  • Base Rewards: Unlimited 2x points on all other eligible purchases.
  • Key Fees: $95 annual fee; no foreign transaction fee.

Find out how to apply for this card here.

Methodology: How We Select the Best Travel Credit Cards

We evaluate travel credit cards using 10 key metrics that matter to frequent travelers. 

Some relate to the structure of the card itself, like whether it has a welcome offer for new cardholders (and if so, how generous it is) and the type of rewards it earns (cash back, points, miles). 

Others tie back to the card’s intended user: road trippers, frequent flyers, people who prefer a particular hotel brand, and so on. 

Here’s why they’re important.

Sign-up Bonuses

Depending on the issuer, you might see these advertised as “welcome offers,” “early spend bonuses,” or “new cardmember offers/bonuses”.

But no matter what we call them, we can agree on one thing: The travel credit card category is famous for extending ridiculously generous offers to new cardholders able to meet often-hefty spend requirements. With our top travel sign-up bonus pick, the IHG Rewards Club Premier Credit Card, you can fund well over a week of free accommodations at select InterContinental Hotel Group properties.

Travel Credit

When is an annual fee not really an annual fee?

When it’s reduced dollar-for-dollar by an annual travel credit. As long as you spend enough on eligible travel purchases to earn the full credit value each cardmember anniversary year, you’ll lower your effective annual fee by a corresponding amount.

A $200 travel credit turns a $500 annual fee into a $300 annual fee, a $300 travel credit turns a $550 annual fee into a $250 annual fee, and so on.

Nontravel Bonus Categories

Many travel credit cards reward nontravel spending over and above the baseline rewards rate. Some cards do this better than others, however. Our top pick, the Citi Premier® Card, pays 3x points on purchases in five categories:

  • Air travel
  • Hotels
  • Restaurants
  • Supermarkets
  • Gas stations

Of these, two are very clearly not travel-related (restaurants and supermarkets) and one straddles the line between travel and nontravel (gas stations). All three nontravel or travel-adjacent categories are broad and popular.

Rewards and Benefits for Frequent Flyers

Few frequent travelers get around exclusively on the ground. It takes too long and it’s more dangerous than flying besides. 

Accordingly, we give deference to cards that offer frequent flyer benefits like elite status with co-branded airlines, in-flight and pre-flight perks (like priority boarding), and value-adds like complimentary airport lounge access. 

Rewards and Benefits for Frequent Hotel Guests

Unless you’re truly committed to the short-term rental game or have an extensive network of family and friends in every city you visit, you’re going to want a travel credit card that rewards you for staying in hotels.

On this measure, the top travel credit cards offer some or all of the following:

  • Automatic elite status or accelerated progress toward elite status
  • Bonus points on eligible purchases at participating hotels
  • One or more award nights (free night’s stay) after your cardmember anniversary and/or meeting qualifying annual spend
  • An automatic award night tacked onto the end of a minimum-length stay, often four or five consecutive nights at the same property

Rewards and Benefits for Road Warriors

Whether your travel driving consists entirely of tooling a rental car around your destination or you prefer road tripping from start to finish, you’ll want a travel card that delivers solid value on gas spending and offers driver-friendly benefits like complimentary rental car insurance coverage and 24/7 roadside assistance.

Elite Status 

Because its potential value is so great for frequent travelers loyal to specific brands, elite status is worth calling out in its own category. The best travel cards for elite status are generally super-premium cards with annual fees north of $400, but that expense can easily pay for itself if you’re on the road as often as you’re home.

Luxury Perks and Benefits

Even travel cards that defy easy categorization as “airline cards” or “hotel cards” can distinguish themselves with grab-bags of high-value perks and benefits for frequent flyers and hotel guests. When evaluating these cards, pay attention to “below the fold” benefits that can be worth hundreds or even thousands of dollars annually when fully exploited.

Rewards and Benefits for Business Travelers

Some of the best cards for business travelers have close cousins on the consumer side. The Business Platinum Card® from American Express, our top pick in this category and near-twin to The Platinum Card® from American Express, comes to mind. 

Type of Rewards

Many travel credit cards earn points or miles best redeemed for travel purchases. Their rewards programs revolve around specific spending categories or tiers — often travel-related — in which cardholders earn at accelerated rates.

Some travel cards break this mold though. They might be cash back credit cards that favor travel purchases, earning honorary distinction as travel cards, or more traditional travel rewards cards that apply one flat rewards rate to all spending. Both types of alternative cards appeal to casual travelers and so deserve a place on this list.

Become a Travel Credit Card Expert: Your Travel Rewards Questions Answered

You have questions about travel credit cards and travel rewards. We’ve got answers.

What Are the Different Types of Travel Credit Cards?

There are two main types of travel credit cards: general-purpose travel cards and co-branded travel cards.

General-purpose travel cards earn points or miles that can be redeemed through the issuer’s loyalty program. For example, the Chase Sapphire Reserve and Chase Sapphire Preferred Card both earn Chase Ultimate Rewards points. You can redeem Ultimate Rewards points in the Chase Travel portal for airfare, hotel stays, and other travel services from a variety of travel merchants, or transfer your points to participating travel loyalty programs and redeem directly with them.

Co-branded travel cards earn loyalty points or miles issued by a particular travel merchant, such as Delta or Marriott. The best way to redeem this type of loyalty currency is for free or discounted travel services (award travel) from the issuing merchant. Co-branded cards often but not always offer better redemption value than general-purpose cards.

A general-purpose travel card is a better fit for you if you’re not loyal to one particular travel brand. A co-branded card makes more sense if you are loyal to a particular brand and want to maximize your rewards’ value within their loyalty program.

Can You Get a Travel Credit Card With Bad Credit?

With difficulty, maybe. Credit card companies prefer to market travel rewards cards to applicants with good to excellent credit and ample spending power. There’s not much of a market for subprime travel credit cards.

If you have impaired credit or limited credit and hope to get your hands on a travel card in the near future, do the following:

  • Apply for a general-purpose secured credit card or credit-builder credit card right now
  • Use it responsibly, keeping your credit utilization rate low and making timely payments
  • Make sure the card issuer reports your payment behavior and card utilization to the three major credit reporting bureaus
  • Closely monitor your credit score

With responsible use and no black marks elsewhere, your credit score should increase over time. Eventually, you’ll have a credit profile strong enough to qualify for one of the cards on this list.

Is the Annual Fee Worth It for Travel Credit Cards?

It depends on the card, but the answer is often “yes.” The best travel rewards credit cards justify sometimes-hefty annual fees with perks and value-adds like:

  • Annual Travel Credits. If you spend enough on travel each year, your card’s travel credit acts as a one-for-one offset for the annual fee. For example, the Chase Sapphire Reserve Card’s $300 annual travel credit reduces its $550 annual fee down to $250 on net.
  • Elite Status. Permanent elite status can be extremely valuable for travelers loyal to specific hotel or airline brands.
  • Airport Lounge Access. Airport lounges typically charge $60 per person at the door. If your long-haul travels involve layovers long enough to get comfortable at a lounge (and enjoy what’s often an all-you-can-eat-and-drink refreshments table), you’ll quickly earn back your annual fee and then some.
  • Discounts and Privileges With Participating Travel Partners. Really high-end travel cards often partner with similarly high-end hotels and resorts (often boutique properties) to offer discounts and perks worth hundreds of dollars per stay. These vary from card to card and property to property, and you sometimes have to work to claim them, but they’re totally worth it if you can.

Should You Get More Than One Travel Card?

It depends on a number of factors, including:

  • How often you travel
  • How much you spend on travel
  • How you typically travel — for example, do you prefer to stay in nice hotels, crash on a friend’s couch, or nest in a short-term rental?
  • Whether you’re loyal to specific travel merchants or simply seek the most affordable, convenient options

If you’re an occasional traveler who doesn’t spend much when you leave home, a single general-purpose travel credit card is adequate. Ideally, this card would have no annual fee, or you’d be able to extract enough value from it to offset the hopefully modest charge.

If you’re a frequent traveler who enjoys the finer things and/or spends a good amount of money on the road, you’ll want at least two cards. 

One should be a high-end general-purpose card that affords maximum flexibility when you travel and ensures you’re maximizing your travel spend. Another should be a co-branded card backed by the travel brand with which you spend the most money year in and year out. And if you have more than one preferred travel merchant, perhaps one favorite airline and one favorite hotel, you’ll want a co-branded card for each.

Fun Facts About Travel Credit Cards

  • The first recognizable travel rewards card was the Air Travel Card. Starting in the 1930s, upscale travelers used the Air Travel Card to purchase discounted airfare from participating airlines on a promise to pay later.
  • Bank of America was the first major card issuer to allow travelers (and others) to carry a balance from month to month using its BankAmericard account.
  • The Continental TravelBank Gold MasterCard debuted in 1986 as the first co-branded airline credit card. It was a partnership between Continental Airlines (now part of United Airlines) and Marine Midland Bank (now part of HSBC).
  • American Express rolled out the first transferable general-purpose travel loyalty currency, Membership Miles, in 1991. The currency lives on today as Amex’s Membership Rewards points.

For rates and fees of the Platinum Card® from American Express, please visit this rates and fees page.

For rates and fees of the Business Platinum Card® from American Express, please visit this rates and fees page.

For rates and fees of the Delta SkyMiles® Reserve Business American Express Card, please visit this rates and fees page.

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Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.
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