If you’re within six months or so of retirement, there are certain things you need to do now to help prepare yourself for the transition into retirement.
Throughout this retirement preparation process, there will be times when you feel as though you are making a series of rapid-fire micro decisions as you work through Social Security benefits, Medicare options, pension elections and retirement account distributions.
The decisions to be made are many, and understanding the long-term ramifications of those decisions is paramount, considering that your retirement years could be as many as those spent working.
The numerous options you will face can become a labyrinth of choices leading many people to attend YouTube university in search for answers, while leaning on friends and co-workers to fill in the missing pieces. The truth is, people underestimate the complexities that exist with preparing for retirement and find themselves over their head.
Unfortunately, without understanding the long-term effects of one decision over another, a retiree may be well into their retirement before problems begin to surface. For instance,
Inflation will erode your income over time.
Longevity may require your money to last longer than you thought.
Market volatility can deplete your resources.
Heath care expenses can potentially absorb most of what you have.
By the time these risks are exposed, retirees find themselves stuck. That is why retirement planning shouldn’t be viewed as a rapid-fire micro decision-making process but rather a time to design a master plan focused on what you can control and protecting yourself from what you can’t.
Think of it like building a home … you wouldn’t begin construction without first having blueprints drawn up. Your retirement plan is the blueprint for your retirement, while Social Security benefits, Medicare options, pension elections and retirement account distributions are your building materials.
6 Things You Can Do for a Sustainable Retirement
Going back to the home construction metaphor, to ensure you have your bases covered and are retirement ready, first consider the cost of the project. It is better to estimate the cost of your retirement now to uncover potential problems before actually retiring. Start by carefully evaluating your current thinking about your situation.
1. Develop an income plan detailing exactly how much income you will need each year to fund your retirement lifestyle
Now, before skipping over this you should consider that your lifestyle will change — along with your tax situation — which means that the amount you need now to live on will not be the same when you retire. You may need to budget even more for your early years of retirement, when you’ll be enjoying the good life. So, it is not a good idea to make general assumptions about your future income needs based on how things are while you’re working.
Carefully consider what will change and what will stay the same once you retire, adding into the mix such things as travel, health care costs and other variable expenses. You can learn more about this topic in my article, “What is Cash Flow?”
2. Identify your income sources and determine exactly how much income will be generated from each source to satisfy your annual income needs
No generalizations here … you should seek to know exactly how much you can expect from each resource you have.
This is where most people begin to struggle, because there is often a disconnect between their mindset around their assets and the need they have from them. There are generally two camps with this:
Those who focus on protecting their principal by holding cash.
And others who hold on to their investment portfolios in hopes for long-term growth.
Both camps are focused on growing or preserving their money, making it difficult for them to adjust for their need to receive consistent income from the assets.
You can learn more about how to generate income from your assets by listening to my Common Sense Financial Podcast episode titled “The #1 Thing That The Most Successful Investors Are Doing With Their Money That The Average Investor Isn’t Even Thinking About.”
3. Map your assets out and separate them by their purpose
What I find is that most people have money sitting in bank accounts, large amounts of equity in their home and money combined together in their investment portfolios.
And while this may seem an ideal arrangement, it is important to point out that cash in the bank is not earning anything, equity in a home is not earning anything and money in the stock market has varying levels of risk … none of which translates to having consistent income in retirement.
In most instances, the assets you have are either going to be spent or used for income now or in the future.
So, a good place to begin would be identifying which assets fall into these categories.
4. Have an income replacement plan in place for your spouse to cover the loss of Social Security or pension income if you were to predecease them
Developing an income strategy for retirement most often means you are relying on a husband and wife’s benefits, but those benefits are only received while both are living (in most cases).
Many people are misled into believing that as you get older your need for life insurance diminishes, and while this may be true for some, for others the need for it may actually rise.
It is a good idea to know the specifics for how benefits will adjust when a death occurs and have a plan in place to replace lost income if it is needed.
5. Have (updated) legal documents in place designating financial power of attorney, medical directives, wills and trusts
Most people kick this can down the road with the idea they will have time to get this done later. (Later meaning when they need it.)
Here is the deal: If you wait until you need these documents it will be too late to get them.
6. Have a contingency plan in place to cover health care costs if you were to find yourself needing long-term nursing care
This is an area that so many people ignore, crossing their fingers and hoping nothing happens to them that would require this level of care. However, considering the cost of nursing care, it is not something to ignore. You need to know how this cost will be covered if you find yourself needing care.
The cheapest way to cover this risk is through insurance, but some may choose to spend down a portion of their assets to cover the costs. Either way, it is a good idea to have this mapped out and know how you plan to cover the cost if incurred.
Wherever you are in your thinking, there is an opportunity to improve your probability for a successful retirement. To get started, figure out where you are, know where you’re going and then identify what obstacles stand in your way.
You can download my Successful Retirement Checklist™ for free and begin using it to score yourself in these areas by clicking here.
Securities offered through Kalos Capital, Inc., Member FINRA/SIPC/MSRB and investment advisory services offered through Kalos Management, Inc., an SEC registered Investment Advisor, both located at11525 Park Wood Circle, Alpharetta, GA 30005. Kalos Capital, Inc. and Kalos Management, Inc. do not provide tax or legal advice. Skrobonja Financial Group, LLC and Skrobonja Insurance Services, LLC are not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.
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.
Founder & President, Skrobonja Financial Group LLC
Brian Skrobonja is an author, blogger, podcaster and speaker. He is the founder of St. Louis Mo.-based wealth management firm Skrobonja Financial Group LLC. His goal is to help his audience discover the root of their beliefs about money and challenge them to think differently. Brian is the author of three books, and his Common Sense podcast was named one of the Top 10 by Forbes. In 2017, 2019 and 2020 Brian was awarded Best Wealth Manager and the Future 50 in 2018 from St. Louis Small Business.
Over the past few decades, innovation in health care has been incredible. If you had said 20 or 30 years ago that HIV and hepatitis C soon wouldn’t be death sentences, no one would have believed you. The same goes for various types of cancers, epilepsy, and several other ailments.
The driver in the development of new therapeutic options is the same driver behind evolutions in entertainment, shopping, and more: technology. Technological innovation is changing the way we live our lives, and nowhere is that fact more clear than in the field of medicine.
In fact, technology has played such a major role in the innovation of new therapies that an entirely new market — known as the biotech market — has emerged.
The emergence of the biotech industry led to extended lifespans and better quality of life for countless patients over the past few decades. It has also led to tremendous growth in revenue, profits, and investor interest in the stocks that represent the companies making novel medicines and treatments. Investment opportunities are being created in the space consistently, making the biotech sector one of significant interest for stock market participants.
What Are Biotech Stocks?
Biotech stocks represent companies in the biotech sector. These are companies that are focused on the development of new medicines, vaccines, or medical devices through the use of innovative technologies and advanced medical science.
These companies are working to bring an end to some of the world’s most devastating health conditions, including cancer, heart disease, and several rare diseases that most people can’t even pronounce.
These medical science efforts have been so successful that experts such as the Legacy Research Group suggest that we are entering an age of a biotechnology renaissance.
Biotech stocks include familiar pharmaceutical names like Johnson & Johnson, Gilead Sciences, and Merck, along with a host of yet-unknown companies with products in early-stage development.
Pro Tip: Are you looking for the next great investment but don’t have time to do the research yourself? The Motley Fool Stock Advisor, one of the most successful stock picking services, will send you two stock recommendations each month. Netflix, a past recommendation, is up more than 21,000%. Learn more about Motley Fool Stock Advisor.
Biotech Stock Pros and Cons
Investments in biotechnology companies can lead to massive gains and make you feel good. However, when things go wrong, they can go very wrong. As with any investment, these investments come with their fair share of pros and cons.
Biotech Stock Pros
There are several benefits to making the right investments in the sector. Some of the most important of these benefits include:
1. Potential for Massive Profits
Investing in the biotechnology industry can prove to be overwhelmingly lucrative. Most clinical-stage stocks in this sector trade at prices under $5 per share. However, the successful launch of a new treatment option can send the stock soaring in many multiples. If there’s ever a sector that creates millionaires, biotechnology is it.
2. The Feel-Good Effect
These days, investors make investments for more than profit. In fact, there’s a trend of socially responsible investing sweeping the globe. With socially responsible investing, you look for and invest in companies that are making positive change in the world.
Some socially responsible investors look toward solar stocks for environmental change or financial-literacy stocks designed to remove the wealth divide. Others invest in the biotech sector, helping to fund the development of life-saving and life-changing treatment options. That’s something to feel good about.
3. Better Understanding of Medicine
When investing in any stock in any sector, it’s important to do your research. When doing this due diligence in the biotech industry, you’ll learn quite a bit about the human body, medicine, and the various ailments medicines are being designed to treat and cure.
There’s value in knowing why your ticker ticks and how to keep it ticking for the long run. Investing in biotech stocks could lead to lifestyle decisions that don’t only improve your financial health, but your medical health as well.
Pro tip: Before you add any biotech stocks to your portfolio, make sure you’re choosing the best possible companies. Stock screeners like Trade Ideas can help you narrow down the choices to companies that meet your individual requirements. Learn more about our favorite stock screeners.
Biotech Stock Cons
There are plenty of benefits to investing in biotech, but every darling has a blemish. There are some drawbacks to investing in this space as well.
1. Clinical Failure
Any company can fail. In the biotechnology industry, failure can come much easier. A failed clinical trial means the loss of millions of dollars and years in research, generally leading to dramatic losses.
2. Commercial Failures
Taking a new medical product to market takes quite a bit of work and capital. Even if that product seems as though it will be met with high consumer demand, failure can happen. These failures prove to be extremely costly when they occur, both for the biotech company and its investors.
3. One-Hit Wonders
Once products are created and commercialized, biotech companies only have a limited amount of market exclusivity. After a period of several years, competitors will launch generics. If the company doesn’t have other products to fall back on, generic treatments could lead to dramatic declines in share values.
4. Poor Financial Foundations
There are an elite few companies in this sector that have created a blockbuster product, brought it to market, made billions, and continued to innovate, growing out a multibillion-dollar, stable company in medicine. The vast majority of biotech companies are in clinical stages and produce no revenue. With poor financial foundations, these companies are at the mercy of the investing community and lenders to stay afloat.
Biotech Stock Stages
There are multiple stages of a biotechnology business. The stage of a company’s product development tells you a lot about the potential risk and reward associated with an investment in that particular company.
1. Research-and-Discovery-Stage Biotech Stocks
Research-and-discovery-stage stocks are the most risky plays you can make in the sector. In fact, they are so risky that most of them trade on the over-the-counter (OTC) market because they do not meet key requirements set by major exchanges like the NASDAQ or New York Stock Exchange.
These companies have a plan, but no product. They are currently researching to discover the basic foundations of what will become an experimental vaccine, therapy, or device.
There are several major risks to consider when thinking about an investment in a research-and-discovery-stage company. Among the most important are:
Research That Doesn’t Produce Results. The best scientists in the world may look for ways to deliver an effective treatment. That doesn’t mean they’re going to find them. Ultimately, these companies are rooted in research, which doesn’t always yield a viable product.
Capital Requirements. Research in the field of medicine is a highly capital-intensive process. Not only do companies have to pay high salaries, but they also have to pay high costs associated with equipment, regulatory matters, and more. Without a product, research-and-discovery companies don’t generate any revenue. So, this capital must come from debt, grants, or the investing community, neither of which is good for current investors.
Fraudsters. While most research-and-discovery biotech companies are looking for ways to improve quality and length of life in patient populations, there are also plenty of companies out there designed for nothing more than creating a payday for the founders. These companies say they want to perform research, but need to raise capital to do so. That capital goes to paying executive salaries and perks, and the research never happens. This is a common scam in the biotech sector, and investors should be highly diligent in looking for it in these early-stage companies.
2. Preclinical-Stage Biotech Stocks
Preclinical-stage biotech companies are a bit further along than research-and-discovery-stage companies. These companies have done the research that has led to the development of an experimental product.
However, preclinical-stage companies are still quite young in terms of development. In the preclinical stage, companies are looking to prove their concept. For example, if a preclinical-stage company is developing a drug for lung cancer, it may treat mice that have lung cancer with the new drug, looking for signs of the treatment’s efficacy and safety.
Although mice are quite different from humans, our bodies work in many of the same ways. Therefore, a treatment that works in mice has a better likelihood of working in humans than one that doesn’t.
In order to move into human studies, these companies have to show regulatory authorities that there is a strong likelihood that a treatment will work and be safe to use in humans. The preclinical stage is centered around doing just that.
At this point, there are still several risks to consider. The most important of these risks include:
Preclinical Failure. If a new treatment is given to a mouse, and the mouse dies as a result of the treatment, it will be difficult to bring that treatment to human studies. As such, if a company at this stage announces a preclinical failure, it could send the stock tumbling.
Capital Requirements. As biotech companies move through the process of developing new therapies, costs only grow. Like research-and-discovery-stage companies, preclinical-stage biotech companies don’t have products on the market and are unable to generate revenue. As a result, they will need to look for funding elsewhere. While some of this funding may come from grants, the vast majority of preclinical companies are funded through transactions — such as public offerings of common stock — that ultimately dilute the long-term value of shares currently held by investors.
Regulatory Hurdles. For a company to go from preclinical to the clinical stages, it will have to receive investigational new drug approval from regulatory authorities. This approval gives the company the ability to test a new drug in humans. All the preclinical data may look positive to the average investor, but the U.S. Food and Drug Administration (FDA) may use a different measuring stick. If the company’s investigational new drug application is declined, its stock will fall.
3. Early-Clinical-Stage Biotech Stocks
Early-clinical-stage biotech companies have a tangible product that is being developed. Moreover, this product has been given the green light by regulatory authorities for experimental testing in humans.
There are three main phases of clinical studies in this experimental process. Companies in the midst of the first two phases are considered early-clinical-stage companies.
Phase One Clinical Studies
Phase One clinical studies are the earliest studies in which human subjects are used. These studies generally consist of small patient populations. In most cases, all volunteers involved in the Phase One clinical studies are healthy adults. The idea of Phase One studies is to slowly escalate the dose of a treatment to find the maximum tolerable dose in the human body.
While Phase One studies will show signs of the treatment’s effectiveness, the main focus of these studies is safety and tolerability. These trials usually aim to answer the following questions:
Are there side effects?
Are the side effects tolerable?
Is the new therapy or other medical product safe to use?
What dose is needed?
Is there a glimmer of efficacy?
Phase Two Clinical Trials
Phase Two clinical trials are generally proof-of-concept trials. Knowing the maximum tolerable dose for healthy adults, early-clinical-stage companies will open a new trial, enrolling actual patients who are dealing with the ailment the new treatment or device aims to improve or eradicate. During these studies, companies aim to answer the following questions:
Is the medical product safe to use in a sick-patient population?
Does the experimental medical product produce positive results by reducing the symptoms or eradicating the illness in a small patient population?
Early-clinical-stage stocks come with similar risks to preclinical-stage stocks:
Clinical Failure. Although preclinical data must be solid to get to this point, there is no guarantee that results in mice and petri dishes will equate to results in humans. Although there’s a stronger chance of positive outcomes in clinical stages than there is in preclinical stages, there is still a chance of failure. Clinical failures mean the loss of millions of dollars and years of research and can lead to a substantial loss of value in the stock that represents the company in charge of the trial.
Capital Requirements. Even at this stage, the companies don’t have products on the market and face the same capital challenges seen by research-and-discovery and preclinical companies. The difference here is that with a tangible product in development with FDA approval for experimental use in humans, the risk to lenders and institutional investors is lower, often leading to better fundraising opportunities. Nonetheless, these transactions can still cost investors in the long run.
4. Late-Clinical-Stage Biotech Stocks
Late-clinical-stage biotech companies are at the final step before submitting the applications that allow them to bring new medical products to market.
These companies are in the midst of Phase Three clinical development. In Phase Three clinical studies, late-clinical-stage companies enroll large populations of patients that have confirmed cases of the illness they are attempting to treat. In the enrollment process, the company will attempt to hit every corner of the patient population, ensuring a wide diversity in age, race, and (often) severity of the condition.
Late-stage biotech companies already have a good understanding of the safety and tolerability profile of their treatment and believe it to be effective. Now, it’s time to prove that it is safe, tolerable, and effective across the vast patient population that would use it once approved and marketed.
If there is a current standard of care for the ailment being addressed — that is, the standard treatment you would expect with what’s currently available — late-stage companies will generally treat a percentage of the patient population with the experimental drug and another percentage with the standard of care. The goal of these head-to-head clinical studies is to prove that the experimental drug performs better than the current standard of care.
As with all other stages of biotech stocks, late-stage stocks come with their own risks:
Clinical Failure. As you begin to invest in biotech, you’ll see that clinical failure, even in late stages, happens all too often. By this stage, companies have spent incredible amounts of money on research, preclinical testing, and early trials. The process has likely taken several years, if not a decade or more. A failure at this stage is extremely painful, and that’s seen in the stock’s price when it happens.
Capital Requirements. Phase Three clinical trials are expensive. Also, to move out of the clinical stage and into commercial stages, there is a large cost involved in regulatory approvals. If capital hasn’t already been worked out at this point, companies may be forced to move forward with transactions that aren’t in the best interest of investors in order to raise the capital needed to go through the final stages of development and work toward commercialization.
5. Commercial-Stage Biotech Stock
In the world of biotech, commercial stages are the big leagues. At this point, companies have been through the clinical development process and have either brought or are bringing a product to market.
This is the point at which companies will need to market properly to bring their treatment to the masses. If all works out, revenue will start to pour in and shareholders will enjoy the fruits of their investments. However, even commercial-stage biotech stocks come with risk:
Commercial Failure. Even if a new drug seems like it provides far more benefits than other options, it can fail in the market. A great example of this is MannKind’s Afrezza. The inhaled mealtime insulin treatment frees diabetics from the needle. However, when it hit the market, sales were slow. While the product is still sold, it was nowhere near as successful as many expected it to be. As a result, MannKind stock has fallen from a value of more than $50 per share following the drug’s approval to under $5 per share today.
Early Commercial Capital Requirements. At the point of commercialization, biotech companies have the ability to generate revenue through product sales. However, the marketing and distribution of these products can be extremely expensive. If there is not a commercialization partner involved, the producer of the new medical product will have to pay the costs. Early in the process, this can lead to capital issues that ultimately end in loss of value for investors.
Exclusivity. Patents and exclusivity for a new medicine are only temporary. After the exclusivity period — often five to 12 years — generic options may hit the market at a much lower price than the brand-name drug. This can deeply cut into profits of companies with products that have been on the market for a while.
How Much Should You Invest in Biotech Stocks?
No single asset or single class of assets should make up 100% of your investing portfolio. Diversification is an important tool to protect you from extreme losses.
There is no one-size-fits-all allocation strategy. However, there are some factors to consider when determining your asset allocation.
Never Forget Bonds
Although stocks are the darling of the investing community, you shouldn’t discount the value of bonds. Sure, bonds will generally grow at a slower rate than stocks, but they offer a level of protection that should not be ignored.
If you don’t already have a bond allocation strategy and are not sure how much of your portfolio should be in bonds, simply use your age. For example, if you’re 32 years old, 32% of your investing dollars should be invested in bonds. This rule of thumb and its many variations provide a solid level of volatility protection that increases as you age.
The 5% Rule
Considering that most biotech companies are in clinical, preclinical, or discovery stages, investments in the industry can be highly speculative and therefore carry a high risk. If these are the types of biotech stocks you’re interested in, consider the less-than-five rule: less than 5% of your portfolio should be used in these high-risk investments. That way, if the high-risk investment fails, no more than 5% of your money is subject to the losses you will face.
If you have other high-risk investments, consider how much of your 5% high-risk cap you want to allocate to biotech plays and what percentage you will allocate to other more speculative investments.
Lower-Risk Biotech Stock Allocation
Of course, if you’re more interested in established stocks in the sector, such as Gilead Sciences, Pfizer, Bristol-Myers Squibb, AbbVie, and several others with massive market caps, the risks are far lower. The less-than-five rule wouldn’t play into your decision to invest in these more established companies. However, these stocks have already made their dramatic runs and don’t offer the same potential for profit that the higher-risk, late-clinical-stage or early-commercial-stage biotech stocks do.
Nonetheless, they do make attractive investments for some investors. Big pharmaceutical companies, also known as big-pharma companies, are known for producing slow but steady gains over time while offering decent dividends.
However, even under these terms, your exposure to a single stock should never be more than 5% of your investment dollars. Again, this is to protect you should a decision to buy one of these stocks result in a turn for the worst.
Take the time to look into revenue growth, profit growth, continued innovation, dividends, and exclusivity periods for any company you’re considering to get a good idea of the quality of the investment you’re making. From there, decide if it’s worth risking 5% of your investment dollars. Continue to assess in this way until you’ve gone through all of the quality blue-chip biotech stocks you’re interested in.
Consider Investing in Biotech Funds
Investing in stocks that represent biotech and biopharmaceutical companies can be rewarding. Not only will your investments potentially generate profits, they’ll help improve the lives of patients with debilitating conditions like Alzheimer’s disease, AIDS, and various cancers under the oncology umbrella.
However, individual stocks aren’t the only way to get involved.
If you want to invest in the industry but don’t have the time, know-how, or desire to do the research it takes to pick and maintain a portfolio of the best stocks in the space, you may want to consider exchange-traded funds (ETFs).
ETFs pool money from a large group of investors that’s used to invest in a diversified portfolio of stocks based on the fund’s prospectus, and there are plenty of biotech ETFs out there to choose from.
If you decide to go this route, make sure to look at the fund’s historic performance, expense ratio, and prospectus before you dive in. This will help to ensure that the funds you invest in have a high probability of producing competitive returns while keeping expenses to a minimum.
Final Word
The biotech industry can be a great place to invest. It can also generate extreme losses if things go wrong. Considering this, there are a few rules to follow when investing in biotech stocks:
Never Overallocate. No matter how good an investment in biotech seems, unless you’re an investing pro, never spend more than 5% of your investing dollars on a single stock. Also, never spend more than 5% of your investing dollars across all high-risk investments.
Never Stop Researching. An educated investment decision has far better potential to be a winner than a dumb-money investment. Research the biotech stocks you plan to invest in very deeply before making your initial investment. Once you’ve made your investment, keep a close eye on what the company is doing to ensure that your money is well-invested through the long term.
Always Remember the Risks. The biotech industry can lead to huge profits, but stocks can also lose the vast majority of their value if things go wrong. Always consider the risks before making any investment.
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.
The federal government has put federal student loan repayment on hold until Jan. 31, 2022, due to the ongoing coronavirus pandemic. But the current administration has announced that will be the final extension. Moreover, if you’ve got private student loan debt, your payments haven’t been on hold.
Whether you’re dreading the impending deadline on your federal loans or are living paycheck to paycheck and can’t pay your private loans, you may be wondering how to postpone your payments. That’s especially true if you’re facing a period of unemployment or reduced income and can’t find a way to lower your monthly student loan payment.
If you only need to pause your monthly payment temporarily, you have two primary options: deferment and forbearance. While people often use the terms interchangeably, there are some key differences. And knowing what these are could impact how costly your student loan becomes.
What Is Student Loan Deferment?
A deferment allows you to temporarily suspend making payments on your student loans for reasons specified by your lender. Exactly how it works differs based on whether your loans are federal or private student loans.
Federal Student Loans
Deferment is available on all federal student loans, which are loans from the United States Department of Education (ED). In addition to allowing you to suspend making payments, interest doesn’t accrue on any of your direct subsidized loans, the subsidized portion of direct consolidated loans, subsidized federal direct Stafford loans, the subsidized portion of FFEL (Federal Family Education Loan program) consolidation loans, and federal Perkins loans.
All your unsubsidized loans continue to accrue interest. And any unpaid interest that accumulated during the deferment may be capitalized (added to the principal balance) at the end of the deferment period. Loan servicers (the companies who manage your loans for the government) only capitalize unpaid interest on direct loans and FFEL loans, never on Perkins loans. You can pay the interest during deferment to prevent capitalization.
You can defer federal student loans for a variety of reasons. The length of allowable deferment varies, depending on the reason for the deferment.
Deferment options include:
In-School Deferment. You can defer making payments for an unlimited amount of time as long as you’re enrolled at least half-time at an eligible college or career school. And if you’re a graduate or professional student who borrowed a PLUS loan, you qualify for an additional six months of deferment after you graduate or drop below half-time enrollment. In-school deferment is typically automatic. If it doesn’t happen automatically, complete an in-school deferment request form.
Parent PLUSBorrower Deferment. If you’re a parent and took out loans for your child’s education, you can defer those loans while they’re attending school at least half-time. As with in-school deferment, there’s no limit on the length of deferment as long as the student remains enrolled.
Graduate Fellowship Deferment. You can defer payments for the total amount of time you’re enrolled in a graduate fellowship program. To qualify, you must be enrolled in an approved fellowship program. There’s no limit on the length of deferment as long as you remain in the fellowship.
Economic Hardship Deferment. You can only receive this deferment for up to three years if you’re experiencing financial hardship. To qualify, you must work full time but earn income below 150% of the poverty guidelines for a family of your size in your state of residence. Or you must be receiving a means-tested benefit like welfare.
Unemployment Deferment. You can defer making payments up to three years if you’re unemployed, receiving unemployment benefits, or looking for full-time employment.
Active-Duty Military Service Deferment. You can use military deferment as many times as applicable. You must be on active duty in connection with a war, military operation, or national emergency. The military deferment ends when you resume enrollment in school at least half-time after active duty (but it switches to in-school deferment). Or it ends 13 months after active duty and any applicable grace period.
Cancer Treatment Deferment. You can defer making payments for the total amount of time you’re in treatment and up to six months after treatment.
Rehabilitation Training Deferment. You can defer making payments for the total amount of time you’re enrolled in a rehabilitation training program for alcohol or drug abuse or for a program intended to provide mental health or vocational treatment.
Unlike private loans, federal loans let you use as many deferment conditions as you qualify for. For example, you could defer making payments for four years while in college, another three years for economic hardship, an additional two years to get a master’s degree, and another year for cancer treatment. And then you could go back to school to get a doctorate and defer again for another four to eight years.
Private Student Loans
Deferment with private lenders is substantially different from the ED’s offerings. While deferment does suspend payments, most private lenders don’t suspend interest.
As with federal student loans, the conditions for deferment could include school enrollment, participation in a medical residency, military deployment, or economic hardship. But there are often fewer conditions for deferment with private lenders, and the conditions vary by lender.
Additionally, private lenders typically have less generous caps on the amount of time you can defer payments over the life of your loan. For example, your loan might specify a cap of 12 months of total allowable deferment, including in-school deferment.
Generally, the deferments for private lenders are also aggregate — meaning if you defer your loan for 12 months while in school, you use up all your allotted deferment time. You can’t later defer for another three months if you experience economic hardship.
But private lenders’ terms vary. Some of the better private student loan companies have deferment conditions that aren’t aggregate. Always read the fine print before you accept any period of deferment so you know what you’re agreeing to.
What Is Student Loan Forbearance?
As with deferment, forbearance allows you to suspend making payments for a set period. But there are some slight differences between the two. One particular difference makes deferment the better option if you can qualify for it: the way the options handle interest.
Federal Student Loans
Both deferment and forbearance allow you to stop making payments on your federal student loans temporarily. But only deferment suspends the interest on your subsidized student loans.
Thus, even though you don’t have to make payments during a forbearance, interest continues to accrue on all your federal loans, both subsidized and unsubsidized. And the loan servicer will capitalize it on all direct loans and FFEL loans (not Perkins loans) at the end of the forbearance period. That means you end up owing a higher balance after the forbearance.
You can prevent that by making interest payments during the forbearance, although it’s not required.
There are two types of forbearance: general forbearance and mandatory forbearance. General forbearance is at the discretion of your loan servicer, but your servicer must grant mandatory forbearance.
If you don’t qualify for a deferment but need to suspend your monthly student loan payments temporarily, you can request a general forbearance under the following circumstances:
You’re experiencing financial hardship
You have excessive medical expenses
You’ve experienced a change in employment
You’re experiencing any other circumstance that makes it temporarily difficult to repay your loan, which your servicer accepts as a reason to grant the forbearance
Because a general forbearance is at the discretion of your loan servicer, it’s ultimately up to them whether to grant it. However, it also provides the servicer with a lot of leeway, meaning they can grant you a temporary suspension of payments for nearly any reason as long as it seems reasonable.
You can only receive a general forbearance for 12 months at a time. At the end of 12 months, if you’re still experiencing financial hardship, you can request another forbearance. However, you can’t forbear your loans under a general forbearance for more than three years in total.
Your servicer must grant mandatory forbearance under the following conditions:
AmeriCorps. You’re serving in an AmeriCorps volunteer position for which you’ve received a national service award. Visit AmeriCorps for more information.
Student Loan Debt Burden. You have such an excessive amount of student loan debt that the total amount you owe each month on all your federal student loans exceeds 20% of your monthly gross income. Apply using the student loan debt burden forbearance request form.
Medical or Dental Residency. You’re serving in a medical or dental residency. Apply using the service-based forbearance request form.
National Guard Duty. You’re a member of the National Guard and have been activated by the governor but don’t qualify for military service deferment. Apply using the service-based forbearance request form.
Department of Defense Loan Repayment Assistance Program. You qualify for partial repayment of your student loans through the U.S. Department of Defense’s student loan repayment program. Apply using the service-based forbearance request form.
Teacher Loan Forgiveness. If you’re working toward qualifying for teacher loan forgiveness, you can forbear your loans during that time. Apply using the teacher loan forgiveness forbearance form.
Like general forbearances, you can only receive mandatory forbearances for up to 12 months at a time. At the end of 12 months, you can request another forbearance as long as you continue to meet the eligibility requirements. Unlike general forbearance, there’s no cumulative limit on most mandatory forbearances. The exception is the student loan debt burden forbearance, which you can only receive up to a cumulative maximum of three years.
Private Student Loans
A private student loan forbearance operates similarly to a deferment. Since few private lenders suspend interest on student loans for deferments, the difference with forbearance is primarily in the name. But it’s worthwhile to check your lender’s fine print to see if there are any differences in terms.
Occasionally, lenders have different qualification conditions for deferments versus forbearances or different mandatory term lengths. For example, a lender might specify that your loan provides 12 months of deferment, but forbearance is available upon request. So if you use up all your allotted deferment, you may still be able to request forbearance if you experience financial hardship.
Should You Postpone Your Student Loan Payments?
If you’re experiencing temporary financial hardship, deferment or forbearance is a quick and convenient solution. But if your situation is long term, deferment and forbearance aren’t ideal solutions. In fact, sometimes, they’re not ideal even in temporary circumstances.
That’s because the longer you defer or forbear, the more interest accrues on certain loan types. Then, when the loan servicer capitalizes the interest, your balance is even higher and you start racking up interest on the higher balance, meaning you’re now paying interest on top of interest.
Additionally, with the exception of economic hardship deferment, any time your federal student loans spend in deferment or forbearance, they aren’t earning credit toward forgiveness.
So multiple years of deferments and forbearances could easily cause a manageable amount of student loan debt to spiral into an overwhelming debt burden.
Thus, you’re better off looking for an alternative that better suits your individual needs in most situations. That could include:
For more information on these options, read our article on your options for paying back federal student loans.
Final Word
Many lenders, from the ED to private institutions, give you a lot of discretion when it comes to postponing repaying your loans. But that doesn’t mean you always should. Deferring or forbearing your loans can be costly due to the accumulation of interest.
However, sometimes unexpected financial emergencies occur that make it difficult or impossible to make your monthly payments. Always contact your student loan servicer immediately if you’re having trouble paying your student loans. Never just stop making payments, as there’s almost always a solution to help you avoid defaulting on your student loans.
Default comes with serious consequences, including wage garnishment. The federal government can garnish your wages and capture your taxes or Social Security to repay your student loans, interest, and fees without having to sue you first.
Additionally, you generally won’t be able to defer or forbear your loans if you’ve defaulted on previous payments.
Be aware that you must continue to make payments on your student loans until your servicer notifies you it has granted the deferment or forbearance, which could take 30 days. If you stop paying, your loans could become delinquent. And you may go into default.
For federal student loans, you’re in default if you haven’t paid on your loans for more than nine months. But private student loans could go into default if you miss as few as one payment.
So to avoid negative consequences, reach out to your loan servicer as soon as you need to miss a payment.
Sarah Graves, Ph.D. is a freelance writer specializing in personal finance, parenting, education, and creative entrepreneurship. She’s also a college instructor of English and humanities. When not busy writing or teaching her students the proper use of a semicolon, you can find her hanging out with her awesome husband and adorable son watching way too many superhero movies.
Utilities are an important part of developed societies. Imagine life without access to electricity, clean water, or garbage pickup services. Things just wouldn’t be the same.
Utilities companies have capitalized on the fact that simple consumer comforts like electricity and running water are overwhelmingly valuable. Some are among the largest companies in the world, generating stable revenues and consistent growth.
No wonder so many investors want to get involved in utilities stocks.
What Are Utilities Stocks?
Utilities stocks represent utilities companies that provide basic utility services and infrastructure. These companies provide electricity, water, sewage, natural gas, dams, waste management, or a mix of these services.
The basis of the utilities industry is that there will always be a demand for basic comfort services. As such, by building and maintaining the infrastructure associated with providing these basic comforts, consumers will sign up and profits will come. Utilities are one of the only sectors for which the “if you build it, they will come” notion still holds true.
Pro tip: You can earn up to a $2,500 bonus when you open and fund a new trading account from M1 Finance. With M1 Finance, you can customize your portfolio with stocks and ETFs, plus you can invest in fractional shares. Sign up for M1 Finance.
Utilities Stock Pros and Cons
Any time you make an investment, you should weigh the pros and cons. Every investment you make has potential risks and benefits. In terms of utilities stocks, here are the most pressing pros and cons to consider.
Utilities Stock Pros
Investing in a product or service that everybody wants has its perks. Some of the biggest benefits to look forward to when investing in utilities stocks include:
1. Strong Dividend Payments
Utilities companies are part of a highly regulated industry and cash flows are highly predictable. This makes the payment of generous dividends possible. As a result, it’s not hard to find utilities companies that have dividend payout ratios well above 50%.
Stocks that pay strong dividends become great income plays. Every time the company earns money, investors receive a paycheck.
However, it’s important to remember that not all stocks are created equal in any sector. So, if you’re in these stocks for dividend payments, make sure to research a company’s history of paying and increasing its dividend before making an investment.
2. Only One Way to Go: Up!
Experts hate it when someone says that a stock can only go one way. No matter what stock you’re invested in within any sector, there’s always a chance that you will experience declines. Nonetheless, if there’s one sector in which the strong players are most likely to see gains ahead, it’s the utilities sector.
Companies in the utilities sector serve the most basic consumer needs. Nobody wants to sit in heat all day in the summer or freeze all night during the winter. Everybody needs electricity, water, sewage, and other basic utility services.
As a result, the companies in the sector that have built the strongest infrastructure, and continue to expand their infrastructure, will likely continue to grow based solely on the fact that the human population grows every day.
According to Google, the U.S. population grows at a rate of just over half a percent per year. As a result, utilities companies in the U.S. watch as their target audience increases by more than half a percent each year. This audience increase helps to build revenues. At the same time, continued work in operational efficiencies across the utilities sector will reduce costs, only serving to expand profits.
The argument for positive movement among the top players in the utility sector is a compelling one, suggesting that the right moves in the space can lead to strong, yet stable growth.
3. Utilities Stocks Provide Economic Shields
Economic hardship happens. According to the Federal Reserve Bank of San Francisco, economic recessions take place about every five-and-a-half years and last for just under a year on average.
During economic recessions, market performance is generally poor. Concerns about economic growth lead to consumers saving more money and spending faltering. Corporations see reductions in revenue and investors look for safe-haven investing options, generally leading to a sharp decline in the values of stocks across the market.
Although utilities will see slight dips here and there, they are generally resilient in recessions. Once again, these are companies that provide basic human comforts that are in demand by every single human being on the face of the earth.
When economic conditions are concerning, consumers tend to stay home. This leads to increasing use of electricity, water, natural gas, and other home utilities. As a result, utilities stocks tend to take some of the smallest dips during economic downturns and tend to recover faster than stocks in any other sector.
4. Tax Advantages
High dividend sectors like utilities come with tax advantages. In particular, if you hold a utility stock for at least 60 days following the ex-dividend date of the stock, you are eligible for your dividends earned to be taxed as “qualified dividends,” offering up a lower tax rate.
Because utilities stocks are dividend plays, investors who invest heavily in these stocks will enjoy lower capital gains tax rates.
Pro tip: If you’re going to add utilities stocks to your portfolio, make sure you choose the best possible companies. Stock screeners can help you narrow down the choices to companies that meet your requirements. Learn more about our favorite stock screeners.
Utilities Stocks Cons
Utilities stocks have impressive upsides and are worthy of being considered by most every investor. However, it’s not all butterflies and rainbows here. As with any sector, investing in the utilities sector has its drawbacks.
1. Relatively Slow Growth
Large blue chip utilities companies do have a strong history of stable value growth, producing strong long-term gains for investors. However, this growth is slow.
The best investments in the utilities sector are made in large, well-established companies. Growth in the values of these companies depends on increasing demand and the revenue generated from that demand.
There’s no doubt that demand is increasing, but the human population only grows so fast. While the development of a new technology, medicine, or consumer goods could lead to dramatic gains for some companies in a short period of time, these types of opportunities don’t usually take place in the utilities sector.
If you’re looking for rapid growth opportunities, the utilities sector isn’t for you.
2. Losses Do Occur
Utilities stocks are touted as stable investments that provide dividend income alongside strong long-run growth. However, there’s no such thing as an investment that’s 100% safe. Whenever your money is not in your hands, it can be lost.
Not a believer? Consider one of the most well-known former names in energy and utilities: Enron.
The company is now known as the biggest mistake made by investors in history. The company fraudulently said they were making loads of money when they were in fact losing so much that bankruptcy was imminent. As a result, thousands of investors lost millions upon millions of dollars.
Oftentimes, investors jump into the utilities sector under the guise that any investment they make in the sector will be safe. That notion couldn’t be further from the truth. Even when investing in utilities stocks, losses can happen, and investors need to do their research before shelling out their hard-earned money.
How Much of Your Portfolio Should You Invest in Utilities Stocks?
No single stock or sector should represent 100% of most investment portfolios. When you start investing, you hear a lot about diversification, and for good reason. Diversification protects your portfolio from significant losses, should one of the investments you make take a dive in value.
How much of your portfolio should be invested in utilities?
Answering this question with a blanket statement wouldn’t be fair to you. Allocation is an intimate process that takes unique aspects of your financial life and circumstances into account. Much of it depends on your investing style, your goals, and your appetite for risk.
Here are a few factors to consider when building your allocation strategy.
Your Exposure to Bonds
A properly diversified portfolio will generally have a mix of stocks and bonds. Bonds provide a lower-risk avenue for modest growth while stocks provide a higher growth potential with more volatility. Before you can dive into stock allocation, it’s important to consider how much of your portfolio will be invested in bonds so you know how much is left to allocate to stocks.
The amount of your portfolio that you allocate to bonds will depend on your appetite for risk. Higher-risk portfolios have lower exposure to bonds while lower-risk portfolios have higher exposure to bonds.
A good starting point to decide how much exposure you will have to bonds is to consider your age. If you’re 35 years old, allocating 35% of your investment portfolio to bonds is a relatively centered approach. If you’re looking for higher potential rewards and willing to accept larger risks, adjust the bond allocation down by up to 10 percentage points. If you’d like to take on less risk than the average Joe, adjust the bond allocation upward by up to 20 percentage points.
Your Goals as an Investor
Every investor enters the market with the same overall goal: to make money. However, the reason for your drive to make money may differ from that of your neighbor. You may be interested in creating a long-term retirement income while your neighbor wants to capitalize on the short-term momentum seen in some stocks. Both of you will go about investing in different ways.
If your goals as an investor are to create steady, long-term growth that comes with dividend income, utilities stocks should represent a sizable portion of your stock allocation. If your goals are to generate large profits in a short-term setting, utilities stocks shouldn’t make up much of your portfolio at all.
Of course, your goals may differ from the examples above. The key to remember here is if your goals consist of less risk and long-term rewards, high-dividend utility stocks are attractive. If you’re in it for quick trades or short-term investments in hopes of capitalizing on a momentous move in value, utility stocks aren’t your play.
The 5% Rule
When determining your stock allocation strategy, whether you’re investing in utilities or any other sector, the 5% rule is a good rule of thumb for beginners to follow. The rule suggests that you should never invest more than 5% of your portfolio into a single stock, or into any group of high-risk speculative investments.
This means that if you’re interested in the relatively low-risk utilities sector, no more than 5% of your total portfolio value should be invested in a single utility stock. However, you don’t have to max out the full 5% allocation on all the utilities stocks you own.
For example, say you’re interested in utilities stocks A, B, and C. You believe that stock A is a sure bet, stock B is a close second, and stock C comes with some risk but it’s an interesting play that you’d like to be part of. In this case, your allocation might look like this:
Stock A. Because you have such strong, research-driven convictions that stock A is going to be a sure winner, you invest the entire 5% allocation in this stock.
Stock B. You’re interested, and you’re pretty sure things are going to work out, but you don’t want to risk the full 5% of your portfolio on this company. So, you invest 3% of your portfolio to provide a decent level of exposure but offset for perceived risks.
Stock C. You’re on the fence with stock C. It could go either way, but you believe that if it moves up, it will see gains that outperform the sector as a whole and you don’t want to miss it. In this case, you might invest 1% of your portfolio value to provide exposure to the company while keeping in mind that the stock isn’t worth risking much more.
The 5% rule has diversification at its core. While no investment portfolio is 100% risk-free, by following the 5% rule, you will greatly reduce your exposure to significant losses regardless of the sector you’re investing in.
Final Word
Utilities stocks are a great option for the right investor. These stocks are known for providing slow, steady growth and returning value to investors by way of dividend payments.
Although there are plenty of benefits, utilities stocks are not for everyone. Due to the slow-and-steady nature of their growth, these stocks are not a good choice for investors with a heavy risk appetite who are looking for stocks that offer more momentum — unless utilities stocks are used as a safer play to balance risk in these high-risk portfolios.
It’s also important to keep in mind that whatever sectors you decide to invest in, including the utilities sector, there will always be risk. It’s important to take time to research and understand the risks you take on when making investments and balance these risks against your goals before you pony up your hard-earned greenbacks.
Do you invest in utilities stocks? What are your favorite names in the utilities sector?
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.
Sign-Up Bonus: Earn 60,000 bonus points (good for up to 8 free nights) after spending $1,000 on purchases in the first 90 days. Earn an additional 30,000 bonus points (worth up to 4 free nights) after you spend at least $2,000 total within six months of account opening.
Rewards: Unlimited 6 points per $1 spent at eligible Wyndham hotel and resort properties and on eligible gas purchases; Unlimited 4 points per $1 spent on dining and grocery store purchases (excluding Target and Walmart); Unlimited 1 point per $1 spent on all other eligible purchases
Benefits: 7,500 bonus points each year on your cardmember anniversary
Intro APR: 0% APR for six months on all Wyndham timeshare purchases; 0% APR on balance transfers for 15 months
The Wyndham Rewards Earner® Plus Card is a hotel rewards credit card with a $75 annual fee. It has a relatively simple rewards program that favors cardholders who frequently stay at Wyndham hotel and resort properties.
Although it’s not necessarily as well known as competitors such as Hilton and Marriott, Wyndham is a huge hospitality company with more than a dozen brands represented across thousands of hotel and resort properties. Popular Wyndham names include Microtel, Howard Johnson, Travelodge, Super 8, Wyndham Grand, TRYP, and Dolce.
Whenever you swipe your Wyndham Rewards Earner Plus Card, you earn Wyndham Rewards points, Wyndham’s loyalty currency. You generally need at least 7,500 points to redeem for a completely free night at the most budget-friendly Wyndham properties. However, if you’re willing to fork over some cash to make up the difference, you cash redeem for discounted stays with just 1,000 Wyndham Rewards points.
Wyndham offers other redemption options, including airfare and merchandise, but at lower point values than redemptions at Wyndham properties. And, like many travel rewards cards, Wyndham Rewards Earner Plus has a fairly generous sign-up bonus worth up to four free nights.
Key Features
These are the key features of the Wyndham Rewards Earner Plus card.
Sign-Up Bonus
This card’s two-part sign-up bonus offers up to 90,000 bonus Wyndham Rewards points. That’s good for up to 12 free nights at participating Wyndham properties.
Here’s how it works:
Earn 60,000 bonus points after spending $1,000 on purchases in the first 90 days.
Earn 30,000 additional bonus points after spending a total of $2,000 on purchases in the first six months.
Earning Wyndham Rewards
Wyndham Rewards Earner Plus earns unlimited 6 Wyndham Rewards points for every $1 spent at Wyndham hotel and resort properties, and on qualifying gas purchases as well.
Eligible dining and grocery store purchases earn unlimited 4 points per $1 spent. Purchases made at Target and Walmart aren’t included in this category.
All other eligible purchases earn 1 point per $1 spent, excluding Wyndham Timeshare resort down payments.
Redeeming Wyndham Rewards
Wyndham Rewards points can be redeemed for free nights (Go Free awards) at any participating Wyndham property — virtually every property in the portfolio, save for a handful of extremely high-end resort properties.
Wyndham has three redemption tiers for full award night redemptions: 7,500 points, 15,000 points, and 30,000 points to earn a free room night. Higher-quality properties generally occupy the two higher rungs of the redemption ladder.
Importantly, Wyndham Rewards Earner Plus cardholders always qualify for a 10% redemption credit on Go Free award nights. That means a 15,000-point redemption requires just 13,500 net points.
To redeem points even faster, you can combine 1,000 points and a variable amount of cash (Go Fast awards) for a free night at participating Wyndham properties. Low-end properties such as Days Inn and Super 8 require less cash, while high-end properties such as Wyndham Grand and the company’s all-inclusive resorts require upwards of $150 per night.
Non-Wyndham Redemption Options
Wyndham Rewards Earner Plus cardholders can also take advantage of some non-Wyndham redemption options. These include general merchandise, airfare, gift cards, magazines, and rental cars. Redemption minimums vary widely by redemption type and may not be available at all times.
Automatic Wyndham Rewards Platinum Membership
Cardholders in good standing automatically qualify for Wyndham Rewards Platinum Membership, whose benefits include a higher point-earning rate on paid stays, early check-in, late checkout, preferred room selection where available, and upgrades on Avis and Budget car rentals.
Anniversary Bonus
As long as your account remains open and in good standing, you receive 7,500 Wyndham Rewards points after your cardmember anniversary. That’s enough for one free night at participating Wyndham properties.
Introductory APR
Wyndham Rewards Earner Plus cardholders enjoy 0% APR on Wyndham timeshare purchases made within six months of account opening. However, there is no intro APR on regular purchases.
Additionally, cardholders who complete balance transfers within 45 days of account opening pay no interest for 15 months from account opening.
Additional Travel Benefits
Wyndham Rewards Earner Plus has some additional travel benefits, including complimentary rental car insurance, travel emergency assistance for travelers stranded far from home, and the best available rate on bookings with participating Wyndham properties.
General Benefits
This card has some useful nontravel benefits. These include:
Purchase protection, which provides cardholders with redress — usually replacement or reimbursement — for lost, stolen, and damaged purchases
Return protection, which compensates cardholders when merchants refuse to accept returned items
Important Fees
This card has a $75 annual fee. There is no foreign transaction fee.
Credit Required
This card requires good to excellent credit.
Advantages
These are the top advantages of the Wyndham Rewards Earner Plus card.
Good Intro Deal for Balance Transfers. The Wyndham Rewards Earner Plus card has an unusually generous 0% APR balance transfer promotion. It’s good for 15 months from account opening. That’s longer than virtually any other travel card’s balance transfer promotion. In fact, most travel rewards cards lack balance transfer promotions altogether. If you’re in the market for a card that gets you closer to free hotel stays and helps with existing high-interest credit card balances, this is one to watch.
Solid Sign-Up Bonus. Wyndham Rewards Earner Plus’ sign-up bonus totals 90,000 points, enough for up to 12 Go Free award nights. It’s also super attainable, with just $2,000 in total spending required during the first six months.
Straightforward Rewards Program. Compared to many hotel rewards programs, which can have confusing tiers and restrictions, Wyndham Rewards is pretty easy to grasp. You always need at least 7,500 points for a totally free night, no matter where you’re redeeming. This makes it a lot easier to plan free and paid travel ahead of time.
Automatic Wyndham Rewards Platinum Membership. Wyndham Rewards Earner Plus cardholders automatically qualify for Platinum status, whose benefits include a higher point-earning rate on paid stays, early check-in, late checkout, preferred room selection where available, and upgrades on Avis and Budget car rentals.
Excellent Value on High-End Hotel Redemptions. Wyndham Rewards offers excellent redemption values at higher-end and all-inclusive properties, whose nightly rates can easily exceed $300 and often range much higher. By contrast, most other hotel credit cards require vastly more points for high-end room redemptions — sometimes 10 or 20 times as many — relative to their cheapest options. That can severely impact their points’ redemption value. With a little foresight, you can increase the value of your Wyndham Rewards — and offset this card’s annual fee — by earning points at low-end properties and redeeming at pricier hotels and resorts.
Wyndham Has Tons of Participating Properties. Wyndham’s portfolio has nearly 8,000 properties. That’s more than some competitors with superior name recognition, such as Marriott. With so many properties in the Wyndham arsenal, you’re likely to find plenty of choices — and plenty of earning and redemption options — wherever you go.
Anniversary Bonus Offers a Nice Boost Each Year. This card’s 7,500-point anniversary bonus is enough to cover the entire cost (in points) of a free night award at the lowest-tier Wyndham properties. Many competing cards don’t bother with anniversary bonuses at all.
Wyndham Rewards Points Don’t Expire Under Normal Circumstances. As long as you earn or redeem points within an 18-month period, your points remain active indefinitely.
No Penalty APR. Wyndham Rewards Earner Plus never charges penalty interest. If you sometimes miss payments due to liquidity issues, this is a big relief. Most penalty APRs remain in effect indefinitely. Note that missing payments may still hurt your credit score.
Disadvantages
These are the most noteworthy drawbacks of the Wyndham Rewards Earner Plus card.
Annual Fee. This card has a $75 annual fee. For frugal and infrequent travelers, that’s a big drawback relative to the no-annual-fee version of this card — which offers similar but less generous benefits — as well as to fee-free travel rewards cards such as the Expedia+ Card from Citi.
Non-Wyndham Redemptions Have Poor Value. There’s little reason to redeem your Wyndham Rewards points for anything other than free or reduced nights at Wyndham properties, unless you’ve accumulated more points than you can realistically use. However, if that’s the case, this might not be the best card for you anyway. Non-Wyndham redemptions generally value points at less than $0.005 apiece, far lower than typical Wyndham redemption values. What’s more, many competing cards, including Chase Sapphire Preferred, let you transfer your accumulated points to other travel loyalty programs at 1-to-1 ratios. That lets you shop around for points and redemption options that maximize the value of your travel spending.
Final Word
The Wyndham Rewards Earner® Plus Card is a reasonably priced travel rewards card made for people who regularly stay at hotels and resorts in the Wyndham family.
If you can earn enough points to offset the $75 annual fee and travel frequently enough to at least redeem your 7,500-point anniversary bonus each year, you’ll find this card a solid addition to your travel spending repertoire.
The Wyndham Rewards Earner® Plus Card is a great card for frequent Wyndham guests who earn rewards quickly enough to offset the annual fee and can redeem their accumulated points at higher-end Wyndham properties. It’s among the best travel rewards cards for balance transfer candidates, not to mention people who can’t be bothered with trying to “hack” complex travel rewards programs.
On the other hand, this isn’t a great card for cardholders seeking luxurious and convenient hotel or travel perks, nor those interested in a wide range of competitively valued redemption options outside the Wyndham portfolio.
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.
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.
From the moment you walked in, the house was calling to you. That chef’s kitchen! The ballroom-size playroom! Wait a second, is that a fireplace in the master? Done and done. This is your perfect home…
That is, until you recheck the price and discover it’s just a bit out of your price range. Cruel, cruel world!
There are precious few things in life more exciting than finding your true dream home—and not many things more soul-crushing than realizing you can’t afford it. Or, can you? If you’re determined to stretch your budget the way certain presidential candidates stretch the concept of “sarcasm,” there are ways to pull off this monetary magic without becoming completely house poor.
We’ll show you how to make your budget mesh with your fantasy. For real.
Budget saver No. 1: Negotiate the price
“Everything is always negotiable,” says Chantay Bridges with TruLine Realty in Los Angeles. “You’d be surprised at what sellers, agents, and buyers alike will compromise on.”
You might not get what you want, but you never know—the seller may be extremely motivated because of a move, work relocation, or divorce, for example.
“They may just be looking for a fair offer and would be willing to sell to you for a little less if they can close faster as a result.”
You’d be amazed by how many people make no effort to parley on price. Smart haggling can get you far! Do it.
Budget saver No. 2: Work the programs
There are a wide variety of programs, particularly down payment assistance programs, that help people achieve their dream of homeownership. And contrary to popular belief, you don’t necessarily have to be low-income to quality.
“You may discover a first-time home buyers program that can make your home of choice more affordable by providing assistance with the closing costs or the down payment,” says Bridges. Check with your lender on programs available in your county, since they change frequently. (You can also review some of the state-by-state options.)
What’s that you say? The home is a dream in terms of neighborhood and square footage, but a nightmare on the inside?
If you’re considering a fixer-upper, you can look into financing it with a renovation loan, suggests Sarah Valentini, president and co-founder of Radius Financial Group. “This will enable a home buyer to make desired improvements and have them financed into the mortgage.”
Budget saver No. 3: Massage that mortgage
“The biggest mistake I see a majority of people make is blindly asking for a 30-year fixed mortgage,” Valentini says. Many home buyers, especially millennials, would be better off if they considered other options such as a five-, seven-, or 10-year adjustable-rate mortgage, she says.
“We live in a much more transient society than we did 20 years ago, and people all too often pay for the ‘security’ of a 30-year fixed loan when, in fact, they will likely be selling or refinancing in less than 10 years,” she adds. Looking into a different loan type can translate into lower payments upfront.
Home buyers can also look into creative options for their private mortgage insurance (e.g., having it paid by the lender or seller), which can help you achieve a lower monthly payment.
Budget saver No. 4: Check for ways this home itself could save you money
Sometimes that more expensive house payment will allow you to save in other areas. For example, maybe it makes your commute shorter and less expensive, or it’s in a better school district so you no longer have to foot expensive private school tuition, says Realtor® Jose Tijam with Grand Avenue Realty & Lending in Anaheim, CA.
Another possibility: The energy efficiency of a newer home can reduce your utility bills and might make up some of the cost difference of an older home.
“Sometimes a higher-priced home can actually cost the same as a lower-priced one when you do the math on other factors,” Valentini says.
Budget saver No. 5: Put the decision into perspective
On the one hand, you don’t want to be dumb. “If a home is truly out of my clients’ budget, I would emphatically advise them to continue looking,” Valentini says. However, she adds that while it is never advisable to buy more than you can afford, it is important to consider all factors before passing on a dream home.
“Buying a home is not something to take lightly,” she says. “You will likely live there for quite some time, so it is important not to just settle,” especially if there are ways to get creative and make it work.
Please, Mr. Postman
Send me news, tips, and promos from realtor.com® and Move.
Tijam notes that if your dream house is, say, $25,000 over your ideal budget, it may seem like a huge chunk of money. However, the sting is lessened when you imagine that amount spread over the life of the mortgage.
“When you do that math on a 30-year mortgage, it ends up being only roughly a $70 monthly increase, and often my clients find they can make adjustments to accommodate the difference.”
While he respects the initial budget that his clients have set, he says, he can relate to his clients who have fallen in love with their dream home but find it unaffordable.
“My family and I found a home we adored, but it was slightly over our budget,” he recalls. “We hesitated—and once we figured out that we could probably make it work, another buyer had made an offer. It’s something we still think about from time to time, and I share this experience with the people I help.”
Americans are shopping online more than ever before. According to the United States Census Bureau, online retailers in the U.S. took in about $759 billion in 2020. That’s more than 13% of all retail sales in the country.
As we spend more online, we’ve become more interested in finding ways to save online. We use sites to compare prices across multiple sites and search for coupon codes that provide deals like discounts or free shipping. Tricks like that can save you money, but they take extra time — sometimes more than it’s worth to save a dollar or two.
Fortunately, there’s an easier way to save when you shop online. All you have to do is install a browser extension, a plug-in that extends the capabilities of a Web browser such as Chrome, Firefox, or Safari. But to leverage the online savings, you need to choose the best browser extension for your shopping needs.
Several money-saving browser extensions can do the work of online bargain-hunting for you. Some compare prices, some find and apply coupon codes, and some help you cash in on cash-back deals. And the best of the bunch can do all three.
1. Capital One Shopping
The Capital One Shopping add-on is an online shopping assistant that uses real-time data from its millions of users to find you better deals. As more people use Capital One Shopping, it gets better at finding low prices and coupon codes that work.
Capital One Shopping combines several of the features of other browser add-ons in one. These include:
Price Checking. When you search for a product online or scan a bar code in a store, Capital One Shopping searches for better prices elsewhere. It displays all the prices it finds from Amazon sellers and other top retailers on a single page.
Coupon Checking. When you add something to your online shopping cart, Capital One Shopping goes into coupon-checking mode. It checks multiple coupon codes to see which ones have worked for other Capital One Shopping users and automatically applies the one that gives you the bigger discount.
Price Tracking. If you decide not to make a purchase, Capital One Shopping continues to track prices for the product. If it goes on sale, the app notifies you so you can jump on the bargain.
Shopping Rewards. Capital One Shopping also functions as a rewards app. When you shop through the extension, you earn rewards credits at its partner stores, including eBay and Walmart. You can cash in your credits for gift cards at these same stores at Capital One Shopping’s website.
Capital One Shopping is available for Chrome, Firefox, Microsoft Edge, and Safari. There’s also a Capital One Shopping mobile app for iOS and Android.
Read our Capital One Shopping review for more information.
Add Capital One Shopping Extention
Capital One Shopping compensates us when you sign up for Capital One Shopping using the links we provided.
2. Honey
Of all the money-saving extensions you can add to your browser, none get more rave reviews than Honey by PayPal. This free add-on saves you money in various ways:
Coupon Codes. Honey automatically seeks out promo codes for over 30,000 online retailers, including Amazon, Macy’s, Target, and even eateries such as Pizza Hut. The extension compares all the available codes for the site you’re shopping and automatically applies the one that gives you the biggest discount.
AmazonPrice Comparison. When you shop on Amazon, Honey tells you which of the site’s many sellers offers the best final price on a product, including sales tax and shipping. If you’re an Amazon Prime member, Honey factors that in when calculating shipping costs.
Price History. Honey also tracks price changes on Amazon. It can show you how a product’s price has changed over the last 30, 60, 90, or 120 days. If you don’t like the current price, you can add the product to your Droplist and have Honey notify you when the price drops.
Cash Back. Shopping with Honey earns you cash back, or Honey Gold, at over 4,500 participating sites, including Macy’s, Groupon, and Walmart. Just click a browser button to activate your rewards, and Honey applies them while searching for coupons at checkout. You can cash in Honey Gold for gift cards from participating stores.
Referral Bonuses. You can also earn bonuses for referring your friends to Honey. You send them a link, and when they sign up and make their first purchase, you earn 500 Honey Gold — the equivalent of $5.
Honey works with Chrome, Edge, Firefox, Opera, and Safari browsers.
Honey also offers a rewards app for iOS versions 13 and up called the Honey Smart Shopping Assistant. Like the browser add-on, it can automatically find and apply coupon codes and deals, but it has an extra perk: You can access all your favorite stores at once through the app. That allows you to find the best deal and cash in without having to visit multiple sites.
Read our Honey review for more information.
Add Honey Extension
3. Rakuten Cash Back Button
The rewards site Rakuten (formerly known as Ebates) offers a browser extension called the Cash Back Button. It gives you access to both cash back and coupon codes at over 2,500 stores.
The extension displays a pop-up message to tell you when there’s cash back available at a store you’re shopping. If there is, you can just click to activate it. Rakuten can even show you which sites have cash-back offers directly in your search results on Google, Yahoo, or Bing. You can compare cash-back offers across multiple stores and choose the best deal.
The money you earn goes into your Rakuten account, and you can cash it in once per quarter for a check or PayPal credit. You can also choose to use the Cash Back for Change feature to donate some of your credit to charity. Rakuten rounds your check or credit down to the nearest dollar and divides the change among three worthy charities.
The Cash Back Button also seeks out coupon codes when you shop. Just click “Apply Coupon” at checkout, and the extension automatically applies the coupon or promo code that gives you the best discount. It can even let you know when there’s a Groupon offer available at a local business you search for on Yelp or Google Maps.
The Rakuten Cash Back Button is free to install. It’s available for Google Chrome, Safari, Firefox, and Microsoft Edge.
Read our Rakuten review for more information.
Add Rakuten Extension
4. CouponCabin Sidekick
CouponCabin Sidekick is a free browser extension from the rewards site CouponCabin. It has two primary features: coupon codes and cash-back offers.
To get cash back from CouponCabin Sidekick, you must log in to your CouponCabin account before shopping (you can’t receive cash back if you added a product to your cart before logging in). Click through from your account to one of CouponCabin’s 3,500 partner stores to see how much cash back you can earn there.
There are a few limitations when shopping with Sidekick. You can’t earn cash back on orders through a store’s mobile app or those placed online and picked up in-store. You can’t use the extension with a firewall or ad-blocking software. And you can’t combine cash-back offers from Sidekick with any coupon that’s not from CouponCabin, even one from the store itself.
On the plus side, CouponCabin Sidekick lists the available offers both when you shop and when you search on Google. For instance, let’s say you’re searching for a DVD set. Right in your search results above the name of each store that offers the DVD set, the extension displays a little cabin icon showing what discounts and cash-back offers are available at that particular store.
CouponCabin Sidekick is available for Chrome, Edge, Firefox, and Safari.
Add CouponCabin Sidekick Extension
5. Ibotta
Ibotta, a popular mobile coupon app, is also now available as a Firefox or Chrome extension. To use the Ibotta extension, you must first set up an Ibotta account if you don’t already have one. The Ibotta extension requires you to log in to your account before shopping to earn rewards.
It works with over 1,000 online retailers, including Overstock, Petco, and Bed Bath & Beyond. When you purchase through one of these sites, the app displays a button showing how much cash back you can earn. Click it to activate rewards, then shop and pay as usual.
This browser add-on also works with online grocery delivery services like Instacart. When you shop through these services, the extension highlights cash-back offers with a pink box around the cash-back-eligible product. Click to buy, and the cash shows up in your Ibotta account within 24 hours.
As soon as you have at least $20 in your account, you can log into the Ibotta app on your mobile device to cash in your earnings. You can opt for a bank transfer, PayPal deposit, or gift card.
Reach out Ibotta review for more information.
Add Ibotta Extension
6. Earny
If you like lotteries and sweepstakes, Earny is for you. This Chrome extension earns you cash back on your online purchases and enters you into a prize drawing with every action you take on the app. The more tickets you earn, the higher your chances of winning prizes such as cash, prepaid Visa cards, and free Amazon gift cards.
Other features of Earny include:
Cash back on up to 5,000 brands
Extra cash back when you share links with friends
Price tracking and price drop alerts for goods on your Amazon wish lists
Up to 90 days of price protection on purchases at more than 15 major retailers
Notifications when an Amazon package arrives late so you can request compensation
Add Earny Extension
7. The Camelizer
Frequent Amazon shoppers already know about the website CamelCamelCamel, which tracks the prices of millions of Amazon products over time. Since prices on Amazon change daily (sometimes even minute by minute), being able to see a product’s price history helps you figure out whether the current price is a good deal or not.
CamelCamelCamel also offers a free browser extension called The Camelizer for Chrome, Edge, Firefox, Opera, and Safari. This add-on lets you see a product’s price history directly from Amazon without having to visit a separate page. And like the website, it can also import your Amazon wish list and alert you when the price of any product on it drops.
Currently, The Camelizer only tracks Amazon prices. But it has covered a couple of other retailers in the past and could do so again in the future.
Add The Camelizer Extension
8. PriceBlink
The free PriceBlink extension for Chrome, Firefox, and Safari helps you find the best price for a product. But instead of tracking prices over time on just one site like The Camelizer does, PriceBlink compares prices across thousands of sites and lets you know when there’s a better deal elsewhere.
For instance, let’s say you’re looking at a pair of boots Amazon sells for $100. PriceBlink recognizes the brand and style and instantly searches more than 4,000 other sites to see if any other retailer carries the same boots for less. If it finds one, the lower price pops up on the PriceBlink toolbar, and you can simply click to view the listing.
PriceBlink can also help you find coupon codes. When you visit a retail site, the PriceBlink toolbar shows you a list of the best coupons available on that site. Click on an offer to copy the coupon code to your clipboard. Then, paste it into the appropriate field at checkout.
If you’re not sure what product you want to buy, PriceBlink can help you there too. When looking at a product on a retail site, you can click “Ratings” in the PriceBlink toolbar to see how users rated the product on other sites. That gives you a better overall picture of users’ opinions than the ratings on just one site.
If that sounds like a lot of information to have cluttering up your screen, don’t worry. The PriceBlink toolbar stays hidden most of the time and only pops up when it finds you a deal on a particular product you’re viewing.
Add PriceBlink Extension
9. Fakespot
Comparing online product reviews through PriceBlink is handy, but there’s one problem: You can’t be sure those reviews are authentic. Sometimes, sellers on Amazon and other sites hire people to post good reviews for their products. You can’t always tell if a product has a 5-star overall rating because it’s a fantastic product or because the company paid lots of people to say it is.
That’s where Fakespot comes in. This free plug-in for Firefox or Chrome (also available as an iOS or Android app) analyzes reviews on Amazon, Walmart, Best Buy, TripAdvisor, Sephora, Steam, or Yelp. It looks for suspicious patterns that suggest the reviews are fake. It then gives the product a grade from A to F to indicate how trustworthy the reviews are.
If you want, you can click on this grade to see a more detailed analysis showing which phrases reviewers are using most often and what percentage of the reviews appear to be legit. It also highlights the most important points made in the legitimate reviews.
Fakespot also checks ratings for eBay and third-party sellers on Amazon. If the reviews suggest a seller is unreliable, the extension recommends an alternative seller for the same product.
Fakespot has several options to make it easier to use. For example, it can show Fakespot grades on Amazon product pages and listing pages so you can simply skip over products with a bunch of bogus reviews. It can also sort and filter Google search results based on Fakespot grades. But you can turn these features off if you don’t want to use them.
To use Fakespot, you must either have a Google account or create a Fakespot account. If you choose the latter option, Fakespot tracks your product searches and sends you product updates and offers from its partners.
Add PriceBlink Extension
10. InvisibleHand
InvisibleHand compares prices when you shop and links to the lowest price on a product you’re viewing. But InvisibleHand works with fewer retailers than PriceBlink: Sears, Lowe’s, Best Buy, and Newegg.
The primary use of InvisibleHand is for finding travel deals. When you search for flights on an airline’s website, InvisibleHand lets you know if there’s a cheaper flight available to the same destination and gives you a link directly to the lowest price. It can also find deals on hotels and rental cars.
Another unique feature of InvisibleHand is that it can find hidden prices on retail sites. Some retailers don’t reveal the price of merchandise until you put it in your shopping cart. Typically, they do that because they’re not allowed to advertise the product for less than a certain minimum price. InvisibleHand gets around that limitation, ferreting out and showing you the real price of the product.
InvisibleHand is available for Chrome, Firefox, and Edge.
Add InvisibleHand Extension
11. Piggy
The Piggy extension for Chrome, Firefox, and Safari is primarily a coupon finder. It works with thousands of online stores, including major retailers like Macy’s and Walmart, hotel chains like Hilton, car rental services like Hertz, and deal sites like Groupon. When you shop on these sites, Piggy seeks out and tests every coupon code available for that site and applies the one that gives you the most savings.
However, Piggy has a perk other coupon apps don’t have: It can find you special deals at hotels, including rates hotels haven’t officially published online. That makes Piggy an excellent choice for frequent travelers.
Piggy also has a cash-back feature. In addition to looking for coupons when you check out, it lets you earn cash back at more than 6,000 stores. When the earnings in your Piggy account reach $25, it automatically sends you a check.
Add Piggy Extension
Final Word
Each of these browser extensions can save you money on its own. However, there’s no need to limit yourself to just one.
For instance, if you’re shopping on Amazon, you can use Fakespot to see if the reviews are legit. If it looks good, you can consult The Camelizer to see how Amazon’s price for the product looks today and whether you should wait for a better deal. And finally, you can check PriceBlink to see if there’s a better price available on another site.
Even when two different add-ons have similar benefits — for instance, finding coupon codes and cash-back offers — it can’t hurt to have both installed. The list of retail sites that work with Honey isn’t necessarily identical to the list for Rakuten or CouponCabin Sidekick, so installing all three increases your chances of finding a deal.
You can’t earn cash back from more than one extension for the same purchase. However, you can sometimes use a coupon code from one and earn cash back from another. By having an assortment of browser add-ons to choose from, you can ensure you always get the best possible combination of deals.
Amy Livingston is a freelance writer who can actually answer yes to the question, “And from that you make a living?” She has written about personal finance and shopping strategies for a variety of publications, including ConsumerSearch.com, ShopSmart.com, and the Dollar Stretcher newsletter. She also maintains a personal blog, Ecofrugal Living, on ways to save money and live green at the same time.
Investors looking for big gains in the stock market know some of the biggest success stories of the past decade. Fast-growing stocks of some of this century’s most iconic companies have captured a lot of investor attention — so much so that they’ve been given their own classification: so-called FAANG stocks.
What exactly are FAANG stocks and why should investors pay attention to them? And are they worth investing in today?
Pro Tip: Are you looking for the next great investment but don’t have time to do the research yourself? The Motley Fool Stock Advisor, one of the most successful stock picking services, will send you two stock recommendations each month. Netflix, a past recommendation, is up more than 21,000%. Learn more about Motley Fool Stock Advisor.
What Are FAANG Stocks?
The term FAANG was coined by television personality and investor Jim Cramer as an acronym representing some of the largest technology stocks listed on the stock market today. The acronym breaks down as follows:
Facebook (NASDAQ: FB) is a massive social network boasting nearly 3 billion active users. Subscribers connect with friends and family, look for jobs, buy and sell products, and more on the massive platform. This activity has driven the company to trade with a market cap of more than $1 trillion and helped it to solidify its place as one of the top 10 largest companies in the world.
Apple (NASDAQ: AAPL) is the technology giant behind the iPhone, iPad, and a long line of other products. The company’s state-of-the-art technology and ability to create a complete ecosystem around its products has made it a goliath. In fact, with a market cap of more than $2.4 billion, it’s the largest company in the world.
Amazon (NASDAQ: AMZN) got its start as an e-commerce platform, accepting low margins to appeal to the masses. Well, that bet paid off. Today, it’s one of the largest retailers in the world. It’s also a major player in the world of cloud computing, artificial intelligence, and nearly all things tech. The company has a market cap of more than $1.6 trillion, making it one of the top five largest companies in the world.
Netflix (NASDAQ: NFLX) is somewhat smaller than the companies listed above, but placed in the top 40 largest companies in the world, it’s nothing to shake a stick at. The streaming service offering original content and syndicated content from other sources has grown to trade with a more than $242 billion market cap.
Google. Finally, Alphabet (NASDAQ: GOOG | GOOGL) is the parent company to Google, the world’s most popular search engine. While the company is best known for its search and advertising business, it has become a major player in tech, with its hands in everything from self-driving cars to cloud computing. Today, Alphabet is the fourth largest company in the world with a market cap of more than $1.8 trillion.
In some cases, investors associate Microsoft (NASDAQ: MSFT) with this group of stocks, and for good reason. Microsoft is one of the largest tech companies (and companies in general) in the world, trading with a market cap of more than $2.2 trillion and second in size only to Apple. When Microsoft is included, some people change the acronym to “FANMAG.”
There are a few similarities you’ll notice among these companies. They are all major players in tech, are all incredibly high-value companies, and all are household names.
Moreover, every stock on the list qualifies as a growth stock because they’re known for generating significant revenue, earnings, and share price growth on a consistent basis.
Interestingly, while this class of stock represents only 0.01% of the number of stocks listed on the S&P 500, they represent about 15% of the total value of the index. As a result, any changes to the stock prices of this handful of stocks can result in significant movements in the major market indexes.
Pro tip: Before you add any FAANG stocks to your portfolio, make sure you’re choosing the best possible companies. Stock screeners like Trade Ideas can help you narrow down the choices to companies that meet your individual requirements. Learn more about our favorite stock screeners.
Why Are Investors So Excited About FAANG Stocks?
There are plenty of reasons why these stocks are so popular. Some of the most significant being:
Name Recognition
Every name in this class of stock represents a popular company that’s a staple in the United States. Think about it — is there a single name listed above that you haven’t heard of?
At the end of the day, investors like investing in what they know. Stocks of household names will always have demand on Wall Street.
Institutional Popularity
Retail investors often follow the moves made by big-money investors, and for good reason. The big money knows where the deals lie. Each of these stocks is a common staple found in a wide variety of exchange-traded funds (ETFs), mutual funds, and index funds, making them prime picks among the institutional crowd.
Compelling Historic Growth
If you look at the historic performance of any stock in this group, chances are you’ll be impressed. Not only have these companies experienced consistent growth in revenue and earnings, their stock price appreciation has been mind-blowing.
Company5-Year Change in Stock Price
Facebook +158.42%
Apple +397.41%
Amazon +287.34%
Netflix +505.70%
Google (Alphabet) +253.91%
Exciting Technology
For most people, there’s an allure surrounding new technology that you just don’t find anywhere else. Potentially life-changing new products and services are interesting topics of discussion, often leading to deeper research among investors than they would be inclined to do on, say, a traditional energy company or consumer staples stock.
After all, the most profitable decisions in the stock market also tend to be the most educated decisions. Investors tend to be more effective when they’re researching the types of companies and products they’re personally interested in.
Because research is more enjoyable, a larger group of investors is interested in technology plays than other sectors. And because the FAANG category represents the biggest players in tech, it only makes sense that it’s overwhelmingly popular.
Is There a FAANG Stock Bubble?
Whether high-flying FAANG stocks are in a bubble is the question of the century, and if anyone tells you they have their answer, chances are they’re wrong. Nonetheless, it is a major debate worth considering.
Following the enormous growth in the FAANG category outlined above, stocks in this category have climbed to significant valuations. Many argue that the tech sector as a whole — especially the FAANG stocks — are in bubble territory.
Bubbles happen when investors accept increased risk to invest in a specific category of stock, knowing that the stocks within the category are overvalued. Oftentimes, investors pile money into stocks in bubbling sectors with little research, driven by the fear of missing out, or FOMO.
One of the metrics most commonly used to gauge the valuation of stocks is the price-to-earnings (P/E) ratio. The P/E ratio compares the price of a single share of a company to the earnings per share the company generates over the course of a year. Comparing a company’s P/E ratio with other companies in the industry gives you a sense of whether the stock is overvalued or undervalued relative to its peers.
On average, tech companies trade with a P/E ratio of around 34 (current average as of August 2021). Here’s how stocks in the FAANG category stack up:
Facebook. Facebook currently trades with a P/E ratio of around 26, which is substantially lower than the broader technology sector.
Apple. Apple trades with a P/E ratio of around 28, which is also substantially lower than the technology sector average.
Amazon. Amazon.com currently trades with a P/E ratio of around 56, which is substantially higher than the average in the technology sector.
Netflix. Netflix also trades with a P/E ratio of around 56, suggesting that the stock is significantly overvalued when compared to the rest of the technology sector.
Alphabet (Google). Alphabet trades with a P/E ratio of about 29, which is lower than the tech sector average.
Comparing these stocks to the tech sector as a whole, three could be considered undervalued and two overvalued, which doesn’t quite look like a bubble.
However, the entire technology sector’s valuations have been on the rise for quite some time, which is what you tend to see in a bubbling sector. When the sector is growing at a normal pace, you can expect to see P/E ratios closer to the 20 range. Based on this, just about every stock in the FAANG category is overvalued, but so too are just about all tech companies.
While there’s an argument to be made that the technology sector is overvalued, there’s also an argument that the higher valuations are largely justified. Over the past several years, there have been good reasons for gains in the value of stocks that focus on technology. Increasing uses of technology have led to strong consumer uptake, growth in sales, and growth in revenue.
These factors often equate to stock price appreciation.
Although the sector may look like it’s bubbling at first glance, and even may be in the midst of a bubble, the alarm bells aren’t quite ringing yet. Profits across the sector continue to grow at a compelling pace that helps to justify the higher valuations.
Pros & Cons of Investing in FAANG Stocks
As with any other category of stocks, before you decide to invest in FAANG, it’s important to consider the pros and cons.
FAANG Stock Pros
FAANG stocks are overwhelmingly popular, and there are several major benefits to investing in this category. Most importantly:
1. Investing in What You Know
There are clear benefits to investing in companies you’re already familiar with, especially for beginners. Because FAANG stocks all represent household names, when you invest in them, there’s a strong chance you already know exactly what they do and understand the value proposition they offer.
2. Compelling Growth
Every stock in this category has a proven history of compelling growth in revenue, profitability, and share prices. While some suggest the shares are overvalued, the vast majority of experts expect these big tech companies to continue growing.
3. Institutional Backing
While it’s never a good idea to blindly follow any other investor or expert, it is nice to know that institutional investors are interested in the stocks you’re buying. Due to their strong growth characteristics and significant share of most widely accepted market indexes, FAANG stocks enjoy substantial interest from the institutional investing community.
4. Enjoyable Research
Most people enjoy learning about the technology that makes self-driving cars, next-generation smartphones, and touchless thermometers possible. Since research is the foundation of any strong investment decision, the fact that these companies are interesting to research is a major plus.
FAANG Stock Cons
Sure, there are plenty of reasons to be excited about investing in FAANG, but it’s also important to keep in mind that every rose has its thorns. When it comes to this class of stock, the most significant drawbacks to consider include:
1. High Valuations
As a whole, tech stocks are experiencing incredibly high valuations. If valuations continue to grow, they may become too expensive to continue to be appealing to the investing community, which could lead to a sell-off.
2. Volatility
The tech category is also volatile. When market and economic conditions are positive, consumers are willing to spend more money on the latest and greatest technology, leading these stocks on a tear upward. However, any negative shift in economic data could be a signal that tech spending will decline, which will lead to declines in the values of these stocks.
3. Saturated Markets
Some investors don’t like investing in the largest companies in the world due to their market saturation. These companies have already tapped into the vast majority of their target market, which has the potential to limit their growth if they stop innovating and giving their audience something new worth buying on a regular basis.
Should You Invest in FAANG Stocks?
For most people, FAANG stocks are a welcomed addition to a well diversified investment portfolio. Representing some of the largest companies in the world, these stocks are more stable than smaller tech companies. And with a strong history of growth, there’s a high probability that an investment will yield a compelling return.
However, stocks in the FAANG category aren’t a wise choice for all investors.
The tech sector generally is riddled with volatility, meaning that when things are good, they’re great — and when things are bad, they’re horrible. As a result, these stocks make sense for an investor with a long time horizon, but aren’t a good fit for older investors who are at or nearing retirement, or for other investors with similarly short-term investing goals.
If the bottom fell out of these highly volatile stocks, investors with short time horizons or who rely on selling stocks to fund their living expenses simply wouldn’t have the time necessary to recover from the drawdowns, which could be detrimental to a retirement portfolio nearing maturity.
Final Word
FAANG stocks are exciting investing opportunities. After all, nobody can discount the tremendous gains experienced by these stocks over the past five years.
While you may be ready to dive right into these names, keep in mind that research is the foundation of any wise investment decision. Even if you know the company well, take the time to look into what the company’s doing to continue on its path of growth prior to risking your hard-earned money.
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.
Child care is notoriously expensive in the United States. According to a 2021 study by Care.com, 85% of parents paying for child care have to budget 10% or more of their household income to cover it. Near 6 in 10 (59%) pay more than $10,000 per year toward child care, which means they pay more than the average cost of in-state college tuition ($9,410 per College Board).
It’s enough to make many parents stay at home for a few years, dropping to a single-income household. And child care is just the tip of the iceberg, a more obvious expense that says nothing of the hidden costs of raising children.
What’s a middle-class family to do? First and foremost, make sure you understand the costs, options, and factors affecting the cost.
Analyzing Day Care Costs
A 2021 study by the Center for American Progress found that it cost an average of $1,324 per month to send an infant to a child care center. That’s nearly $16,000 per year.
Meanwhile, according to the Census Bureau, the median gross household income in the U.S. was $67,521 in 2020. That means infant care cost 23.5% of the median household income, which is more than many people spend on housing.
But the median family didn’t take home all $67,521. Between local, state, and federal income taxes, they ended up with perhaps $50,000 in net take-home pay. And that says nothing of property taxes, sales taxes, excise taxes, and the myriad other tax burdens in the U.S.
As a percentage of take-home pay, a median family could pay 30% of their income toward child care. If that’s the median family, just imagine how far out of reach that would be for a family below the poverty line.
Of course, nationwide averages don’t tell the whole story. One 2018 study by the Business Broker Network (BBN) found vast differences in infant and toddler child care costs across states. On the low end, Mississippi clocked in at $665 per month ($7,981 per year). The dubious honor of highest child care costs goes to Washington, D.C., where it costs $2,982 per month ($35,782 per year).
That’s roughly the median personal income in the U.S. ($35,805 per the Census Bureau).
In most states, the BBN study found child care also costs more than the average rent for a two-bedroom apartment. Only five states had lower average rents than average infant and toddler child care costs.
Granted, child care for older children costs less than for infants and toddlers. But that’s little consolation for parents with a 6-month-old, a 2-year-old, and a 4-year-old who all need full-time care.
Factors Affecting Child Care Costs
Nationwide and state averages highlight the daunting costs of child care but shed little light on the factors affecting your personal needs and expected costs.
Type of Day Care You Need. Some day care centers are all-day-only, while others have part-time options. A drop-in center that allows parents to drop off and pick up their child flexibly typically charges more per hour, while a daily center may require you to lock in a rate with a signed contract.
Scope of Care. If you want care, meals, education, and developmental play, you can expect to pay more for those services. A broader scope of care usually costs more, which is why day care centers generally charge more for younger children who require more attention.
Proximity to Your Work. In dense urban areas, everything costs more money, from real estate to food to labor, all of which trickles into child care costs. Prepare to pay more for a location convenient to your work if you physically commute to an urban office. However, convenience does bring inherent value, allowing you to pop by on your lunch break, pick up your child if they’re sick, or (if you’re still pumping or nursing) come to the center throughout the day for feeding.
Recommendations and Desirability. You don’t want to find just any day care center — you want one that comes highly recommended from other parents. You’re entrusting your child to another adult, and if you feel more comfortable with one child care service over a less expensive option, that peace of mind comes with its own value.
Increased Illness. The Centers for Disease Control and Prevention reports that up to 26,000 kids under the age of 5 are hospitalized because of the flu alone each year, saying nothing of the countless other diseases children catch. Younger kids in day care are especially susceptible to illness because of their immature immune systems and proximity to other children. However, illness doesn’t just affect your children — you may be required to take time off yourself to care for them or if they pass their illness on to you. For freelancers, the self-employed, and workers without paid sick leave, not working means not getting paid. Private child care through a nanny or au pair, for example, could mean less exposure to other children and adults and a lower frequency of illness.
Food Costs. Does the child care center provide food, and if so, at what kind of upcharge? You may need to pay for a food package at your chosen child care facility or purchase and assemble lunches for your kids at home.
Possible Low-Income Assistance. Depending on your income level and the programs available in your state, you may be able to obtain financial assistance to help make day care more affordable. While each state’s income requirements and subsidies vary, you can usually find out more by visiting your state’s Department of Human Services website. For example, in some states, you can qualify for subsidies if you earn less than 200% of the state poverty line.
Ways to Make Child Care More Affordable
If you’ve assessed the true costs of day care and decided to go for it, there are several ways to make sure it doesn’t eat up all your monthly income. By doing your homework, you can avoid overpaying while still getting the best facilities and caregivers for your little ones.
1. Shop Around
Ask your friends, colleagues, family members, neighbors, dentist, and third cousin twice removed about their child care experiences. Ask what they’re paying, how they like their day care centers, and whether they’d recommend them.
Then take your search online. Go on local social media groups for parents and ask for even more recommendations. Visit websites like Care.com to search and compare day care centers, nannies, and other child care providers.
After collecting as many referrals as possible, start the vetting process. Visit the facilities and speak with staff to gauge the value for the price. Start with the following questions when considering a potential day care center:
What is the child-to-worker ratio, and is it within your state’s day care regulations?
Are you licensed by the state?
Can I see the center?
What types of activities are available?
What is the schedule for a typical day at the center?
Do you allow parents to visit their children throughout the day?
What are your meal plans like? Can you accommodate special diets? Do we have the option to bring our own food?
Do children have naps at this center? Is there a dedicated area for rest?
How do you handle discipline?
Do you go outside? Is there a safe play area, and may I see it?
Do you have references for past and current parents whose children have used this center?
Consider looking beyond traditional day care centers. Regulated and registered home-based day care can prove just as reputable as center-based care, but with lower operating costs. In some cases, they make for more personal child care, with more attention from adults.
Community centers and even schools may offer day care services for limited hours as well, so familiarize yourself with all the options before committing.
2. Trim Costs
Some facilities tack on additional fees that make child care more expensive, including a meal plan, late pickup charges, and costlier day care models such as Montessori-based programs. A good day care center should provide you with a transparent fee schedule for all add-ons and fees that can drive up costs, so be sure to ask for it and confirm which fees are necessary and which are optional.
For example, you may be able to negotiate a better rate if you provide your own food or opt out of field trips. You may also be able to get a better deal by entering a long-term agreement, such as an annual or month-to-month contract, rather than paying a drop-in rate.
Of course, the rate and contract you choose depend on the nature of your career. Those with full-time positions may find that longer-term contracts make more sense than those with side gigs or part-time or shift work with irregular hours.
3. Ask for a Sibling Discount
If you have more than one child who needs care, the cost can be overwhelming. One way to help your bottom line is to ask facilities if they offer sibling discounts — many offer reduced rates for a second and third child.
Not all child care facilities volunteer that information, though, so be sure to ask while interviewing them.
4. Consider Nannies & Au Pairs
Many parents dismiss hiring an individual nanny or au pair as more expensive than day care. But that may not be the case, depending on a few factors.
But before exploring those, it’s worth pausing to differentiate between a nanny and an au pair. A nanny tends to be a local domestic employee who hires out their time, like a maid or a cook. In contrast, au pairs travel from overseas to temporarily work and live in a new country.
The employing family acts as a host of sorts, providing room and board, helping them learn the local language, and generally helping the au pair get the cultural experience they want out of spending a year or two in the country. Because the employer provides room and board, they typically pay less than they would to local nannies who work solely for a wage.
My friends hosted a Polish au pair who spent several years living with them before their son qualified for preschool. They paid her $900 per month in addition to providing room and board, and she quickly felt like part of the family. She provided excellent one-on-one care and helped with domestic chores, and my friends were sad to see her go when she returned to Poland.
If you have multiple kids, you still generally only need one nanny or au pair. That fixes the cost of child care, regardless of whether you have one or three children, and creates an economy of scale for more prolific parents.
But day care services charge by the child.
You may also be able to save money through a nanny share with neighbors or friends. One nanny can watch several children, after all. Consider pooling resources for your own private at-home day care.
Pro tip: When looking for a nanny, start your search with Sittercity. You’ll have access to dozens of nannies in your area. Each comes with reviews and references. Plus, you’ll have access to background checks before hiring. Sign up with Sittercity.
5. Take a Year Off
Depending on the parental leave packages offered by your place of employment, it may make more sense to have one parent take a year off to care for a new baby. Don’t forget day care costs are based on the child’s age. Child care for infants and toddlers costs more because they require more labor and potentially increase the number of employees needed to satisfy your state’s worker-to-infant ratio regulations.
Infant day care can easily negate a lower- or middle-income parent’s entire paycheck. Waiting until your baby graduates from toddlerhood can offer more baby bonding time and more money in the bank.
But as you explore this option, look at more than just your bottom line paycheck. Also consider employee benefits like health insurance and employer matching for retirement contributions.
Finally, don’t overlook the cost to your career. The longer you take off, the further behind you’ll fall compared to your colleagues who continued working. While data on the careerlong cost of an extended hiatus is scarce, a 2018 British study reported by HR Review found that workers who took a career break suffered a growing average annual salary loss the more prolonged the gap in their resume.
Those with a nine-month gap earned an average of 1,449 pounds (US$1,934) less per year, 3,864 pounds (US$5,158) less for a two-year break, and a whopping 9,660 pounds (US$12,894) less after a five-year hiatus.
6. Explore Flex Spending Accounts & Child Care Tax Credits
If your employer is willing to assist with day care expenses, a flexible spending account — sometimes part of an employee benefits package — can help offset costs. You or your spouse can also explore funding a dependent care flex spending account (DCFSA or FSA) with up to $5,000 tax-free each year per couple. You can then use those funds to reimburse your day care costs.
Just be sure to use it before the end of the year so you don’t lose the money in the account. You only want to fund your DCFSA with as much as you plan to spend.
Bear in mind you cannot use a DCFSA and claim the child care tax credit, so you need to decide which makes more sense for you. The child care tax credit returns a percentage of your child care expenses, depending on your income, with a cap of $3,000 per qualifying child ($6,000 for two or more children).
Speak with an accountant before opening a DCFSA, especially if you have more than one qualifying child, to determine which option makes the most sense for you.
7. Ask for Family Help
Not everyone has the luxury of available family members nearby, but if you do, they can help ease the burden with regular babysitting. While Grandma doesn’t need to be your child’s sole caregiver, you may be able to reduce day care hours if family members are willing to pitch in and help.
You can offer to pay them and still likely come out ahead.
8. Work From Home
In the wake of the 2020 coronavirus pandemic, millions more Americans found themselves able to work from home. It means continuing to generate income while creating far more flexibility to keep an eye on your kids.
If your job doesn’t currently allow telecommuting, one option is negotiating a flexible or remote work option as a benefit. Alternatively, you can explore new jobs or even a new career that lets you work from anywhere. You could even branch out on your own and work as a freelancer.
Just remember that working from home still involves working. While it adds flexibility to step in and care for your child when needed, you can’t work productively and care for an infant or toddler at the same time.
As a test run, take a week to work from home and see how productive you are. Some people “practice” working from home for a few weeks beforehand to ensure they can actually stay organized and effective. It helps if you have some strategies for balancing work and child care and are prepared to find ways to keep your kids busy while you work.
9. Adjust Your Schedule
If you can juggle your schedule to better align with your spouse or other family members’ availability, your child can spend less time in day care, and you can spend less money. If your or your spouse’s boss is flexible, see if you can rework your schedule to reduce costs.
For example, if you have family members who could watch your child in the mornings but not afternoons, you could potentially start your work earlier to end work on time.
You can also adjust your schedule with your spouse to save money. Working opposite schedules may require only minimal child care each week, helping you keep more of your take-home pay. Just make sure the constant balance between work and home life doesn’t overwhelm you and your spouse — with little time together as a couple and even less leisure time to yourselves, your marriage and sanity may be put to the test.
10. Consider Part-Time Employment
Depending on your career, you may be able to switch to part-time work, reducing the need for child care.
Part-time employment also allows more flexibility in your schedule. If you don’t like the idea of leaving your little one during waking hours, you could choose a late-night or early-morning shift to maximize your time at home. While you still may require some day care, it could be more feasible for family to pitch in, and a drop-in center is always an option.
Bear in mind that by choosing to work fewer hours, you could miss out on benefits like health insurance and paid vacation time (although some part-time jobs do offer health insurance). However, if your spouse qualifies for benefits through full-time employment, taking a part-time position may mean lower day care costs without having to sacrifice benefits.
In some cases, scaling back on work could actually help you come out ahead in the long run. Add up how much you can make in part-time wages and subtract what you’d pay in child care costs as well as any taxes you would owe. Then, compare that to working full time and paying for more child care. While you might technically make less with part-time hours, you could keep more in your bank account if you can scale back on your child care needs.
11. Move for More Affordable Child Care
As reported by the BBN, child care costs 4.5 times as much in Washington, D.C. ($35,782) as it does in Mississippi ($7,981). For that matter, housing costs around 5 times more in D.C. as well, according to Business Insider.
But the increasing number of Americans who can work from anywhere don’t need to put up with excessive costs of living to continue earning a substantial salary. A moderate salary goes a lot further in a low-cost-of-living area.
For instance, I earn income in U.S. dollars, but I live in Brazil, where each dollar stretches much further. I pay the equivalent of around $500 per month for a full-time nanny, who not only watches my daughter but also cleans our apartment, cooks meals, and goes grocery shopping for us. If the expat lifestyle appeals to you, check out these 10 countries where you can live comfortably on $2,000 per month.
But moving doesn’t only come down to your cost of living. You may decide to move closer to your parents or other family members so they can provide more child care support.
12. Pool Day Care Costs With Your Employer or Co-Workers
Do you work in an office with plenty of other parents with children below school age? Your employer may be open to offering day care as an employee benefit to attract and keep top talent.
If they’re not willing to pay for all of it, they may be willing to put something toward it. Even if they refuse, you could still potentially pool resources with your co-workers to hire a full-time shared child care provider near your workplace. Even sharing a nanny with one or two other co-workers could cut your costs in half or lower.
Final Word
Ultimately, only you and your partner know what’s right for your family, whether that means working full time, staying home full time, opting for a modified work schedule, or changing jobs or homes entirely. Day care is expensive, but you have plenty of child care options at your disposal to reduce costs.
Consider the issue from all angles and decide what works best for your kids and your career. There’s no single right answer, and everyone’s approach should differ based on their personal needs and desires.
G. Brian Davis is a real estate investor, personal finance writer, and travel addict mildly obsessed with FIRE. He spends nine months of the year in Abu Dhabi, and splits the rest of the year between his hometown of Baltimore and traveling the world.
