Chances are you’ve gotten your third stimulus check by now, but you may still be waiting on that other chunk of change the IRS owes you: your tax refund.
The IRS is sitting on a backlog of 29 million returns that require manual processing, which basically means that a human needs to review it.
To be clear, most taxpayers who e-file have their returns processed and receive their refunds within 21 days, according to the IRS. But if you’re still waiting and wondering “where is my tax refund?”, here’s what’s going on and how you can track it.
Why You Haven’t Received Your Tax Refund
The 2020 tax season has been an especially complicated one for IRS staff and accountants.
As of March, the IRS still had a backlog of more than 2 million returns from 2019. Most of them are leftover returns filed by mail that piled up last year when most IRS offices were temporarily shuttered due to COVID-19.
But on top of that, there are a number of complexities created by the three stimulus bills, the most recent of which passed in the middle of tax season. On top of the usual tax season mayhem, the IRS was tasked with delivering the third stimulus check. Plus, tax season started 16 days later than usual this year. These challenges prompted the IRS to extend the tax deadline to May 17.
For example, people who typically qualify for the Earned Income Tax Credit, a credit for low- and middle-income working families, may not have been eligible in 2020 due to expanded unemployment benefits. The $900 billion stimulus package that passed in December changed the rules to allow families to use 2019 income to qualify instead of 2020 income.
However, the IRS didn’t have time to update its programs to reflect this change, so if you’re seeking the Earned Income Tax Credit based on 2019’s income, an IRS employee will need to manually review it.
The same applies if you qualify for stimulus money from the first two checks based on your 2020 return that you didn’t qualify for based on your 2019 or 2018 return. For example, if your 2019 income was higher than your 2020 income, you may qualify for more stimulus money. Or if you had a child in 2020, you’d get stimulus credits on their behalf. These situations also require a manual review.
But your tax refund could also be delayed for all the reasons that would apply in a normal year. For example, if your refund was sent to a bank account that you’ve since closed, the IRS will eventually cut you a paper check, but that adds to the wait time. If someone fraudulently filed a tax return in your name to steal your refund, the IRS will think that you’ve already filed and reject it. Your refund will also be delayed if you made an error or your return was incomplete.
If you owe certain types of debt like child support or back taxes, the IRS could take your refund and use it to offset what you owe.
Paper returns require manual processing, so if you’ve filed by paper, expect a long wait, even if there are no issues with your return. The IRS is urging taxpayers who have yet to submit their returns to file online instead of by mail.
If you made an error that requires an amended return, your tax season will be even more prolonged. The IRS will notify you of the error by mail, and you’ll have to send in Form 1040X. There’s only one way to do this: by mail. Then, your amended return will be added to the 29 million-plus unprocessed returns.
What to Do if You’re Still Waiting
The first step is to make sure the IRS has actually received your return.
You can track your return using the Where’s My Refund feature on the IRS website or the IRS2Go app. You’ll need to provide your Social Security number, filing status and your exact refund amount.
But these tools have limited usefulness. If your return has been processed, they tell you when your refund is scheduled for deposit, but they don’t provide information about why a return is still being processed or whether you need to provide additional information, which prompted recent criticism from the Taxpayer Advocate Service.
If you filed electronically, you should be able to see whether the IRS has accepted your return within 24 hours. If the IRS has accepted your return, that just means it has confirmed it received it. The IRS still has to process it.
If you sent a paper return, you can expect a long wait before you can confirm that the IRS even has your return. Even in normal circumstances, tracking a paper return can take about four weeks.
The IRS says its staff will help you research the status of your refund only if you filed electronically more than three weeks ago or sent it by mail at least six weeks ago, or if Where’s My Refund tells you to get in touch.
Considering that the IRS has only answered about 7% of individual taxpayer phone calls to date, it’s pretty tough to talk to a human. Even if you’re one of the lucky ones who gets through to a human, they probably won’t be able to give you much information. The IRS systems don’t tell employees who handle phone calls why a return required manual processing. But if you want to try, the number for checking the status of a refund is 800-829-1954.
What to Do if You Haven’t Filed Yet
The big takeaway if you haven’t filed yet: Filing electronically is the way to go. There are plenty of easy-to-use tax software options, many of which have free versions.
Not only will you get your refund faster, but you’re also less likely to make errors that could result in further delays because the software is doing the math for you. Additionally, filing electronically is more secure than putting all that personal information in an envelope.
And of course, the sooner you file, the better. It usually takes longer to get your refund as Tax Day approaches, so stop delaying and block off time for a date with your tax software of choice.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected]
The brilliant city of Philadelphia is a wonderful place to work and play. But city living isn’t the life for everyone.
Fortunately, the region – known as the Delaware Valley — has a slew of options for incredible boroughs, towns and cities near Philadelphia in which to live. These spots offer a wide range of entertainment, dining, nightlife, recreation and comfortable apartments.
Of all the incredible places to live within easy commuting distance of Philadelphia, it’s hard to narrow down to a top 10. But we are sure you’ll find these 10 cities near Philadelphia — all within five to 25 miles of Center City and listed by distance from the city — perfect places to call home.
Haddon Township, NJ
King of Prussia, PA
West Chester, PA
Distance from downtown: 7.0 miles
One-bedroom average rent: $1,530 (down 3.38 percent since last year)
Two-bedroom average rent: $1,713 (down 13.88 percent since last year)
In New Jersey, townships are full-fledged municipalities, and Haddon Township is one of the region’s best cities near Philadelphia. Just 10 or so minutes from the Ben Franklin Bridge to Center City Philadelphia, the township offers both the quiet of a suburb and a main street that rivals any in the state for drinking and dining options.
Bustling Haddon Avenue in the downtown Westmont section is a mile-long stretch featuring some bakeries, cheesesteak joints, pasta shops, pizza places, taquerias, bars and taverns. Farther out, chain dining and big box stores line White and Black Horse pikes.
Haddon also offers plenty of green space, from Cooper River Park in the north along the lake to Newton Lake Park and Saddler’s Woods on the south.
Public transportation into Philly is a snap with Westmont Station a direct link via PATCO with park-and-ride facilities.
Find apartments for rent in Haddon Township Buy a house in Haddon Township
Photo source: Apartment Guide / One Ardmore Place
Distance from downtown: 7.7 miles
One-bedroom average rent: $1,357 (down 61.90 percent since last year)
Two-bedroom average rent: $2,552 (down 35.50 percent since last year)
Among swanky locales like Bryn Mawr, Villanova and Gladwyne, Ardmore is the iconic Philadelphia Main Line’s most accessible city to everyday folk.
Ardmore’s median income comes in at a tenth that of some of the region’s richest communities and is a much cheaper home value. But Ardmore is also less insular. The city is a destination for visitors and day-trippers from across the Delaware Valley.
Ardmore splits down the middle between Montgomery and Delaware Counties and Haverford and Lower Merion Townships. Its backbone is busy Lancaster Avenue that offers retail shopping, trendy restaurants and the 500-capacity Ardmore Music Hall, one of the area’s top concert clubs.
While other Main Line towns shun outsiders, the hum of Lancaster Avenue feels welcoming to all.
And on the north end of town is one of the region’s best spots for retail therapy or even just window shopping. Suburban Square is a six-square-block upscale outdoor shopping plaza. Dating back to the 1920s, the square is one of the nation’s oldest planned shopping centers.
Find apartments for rent in Ardmore Buy a house in Ardmore
Photo source: Conshohocken Borough / Facebook
Distance from downtown: 12.6 miles
One-bedroom average rent: $1,705 (down 7.82 percent since last year)
Two-bedroom average rent: $2,265 (up 7.69 percent since last year)
Throughout its history, Conshohocken has always held an important geographic location. Sitting at one of the largest bends of the Schuylkill River, the land was originally a large milling region along rail and shipping lines.
As interstates went up, the region morphed into a factory industrial center. As manufacturing declined, it was those same highways that turned “Conshy” into one of the most desirable suburban-chic and cosmopolitan residential commuter communities in the city.
Conshohocken lies between the I-476 Blue Route and I-76 Schuylkill Expressway at the “Conshohocken Curve.” As industry left, easy access to the region’s two major highways transformed it into a hub for upper-middle-class commuters into the city, especially as apartment complexes and mid-priced high-rise rental towers rose.
And as the population increased, so did the enclave which features shopping and dining spots and many glittering hotels.
The shoreline also features a section of the running and biking Schuylkill River Trail path.
Nearby, Conshohocken’s Fayette Street main street is popular among its young professional population, with a median age of 32 with 63 percent single. The downtown strip offers a selection of quaint boutiques, eateries and cafes, as well as a variety of notable bars.
Find apartments for rent in Conshohocken Buy a house in Conshohocken
Two-bedroom average rent: $1,695 (up 9.18 percent since last year)
Eastern Montgomery County has just a few towns with true main streets, but one of the best of the bunch is Hatboro. The borough sits along the Bucks County border, a suburban town settled among some residential communities.
Hatboro is known for its plethora of parks and green spaces, including the popular Hatboro Memorial Park and Memorial Pool. But its growing notoriety as a suburban craft beer lovers’ destination is what’s gaining prominence.
In the heart of the Craft Beer Trail of Greater Philadelphia, Hatboro offers Crooked Eye Brewery and Artifact Brewing, both opened within the last several years.
The breweries sit along York Road, Hatboro’s main street. The corridor also offers many bars and gastropubs, vintage clothing stores, hoagie shops and produce grocers, cafés and popular bakeries and Daddypops diner, a favorite of Food Network’s Guy Fieri.
The borough is also convenient for commuters, with Hatboro station along the Warminster Line to Center City just off York Road.
Find apartments for rent in Hatboro Buy a house in Hatboro
Distance from downtown: 16.9 miles
One-bedroom average rent: $2,204 (up 5.44 percent since last year)
Two-bedroom average rent: $2,544 (up 0.81 percent since last year)
To speak like a true Philadelphian, pronounce the name of the city of King of Prussia the proper way, “Kingaprusha.”
If you’re familiar with the western Montgomery County city, it’s most likely for one thing: its megamall. The King of Prussia mall is massive, at 2.8 million square feet and 450 stores. It’s the third-largest mall in the nation behind only the Mall of America and the new American Dream in New Jersey.
This central town nestles right along the Schuylkill River — between four major thoroughfares: the Pennsylvania Turnpike, I-76 Schuylkill Expressway, and U.S. Routes 202 and 422. Sitting between renowned Valley Forge Historical Park and county seat Norristown, King of Prussia is both a popular commuter city and an important edge city in its own right.
One key location in KOP is the King of Prussia Town Center. Opened in 2016, the large planned lifestyle development has become a hub of residential activity in town. Acting as the city’s downtown, Town Center offers a bevy of apartments and townhouses at Village at Valley Forge with mixed-use and office space, upscale department stores and a Wegman’s grocery, retail shops and several new restaurants and bars.
Nearby are several office parks, Upper Merion High School and the Valley Forge Casino Resort.
The area is growing so quickly, local transportation authority SEPTA is developing a $2 billion regional rail line to directly connect King of Prussia with University City and Center City Philly.
Find apartments for rent in King of Prussia Buy a house in King of Prussia
Distance from downtown: 22.0 miles
One-bedroom average rent: $1,413 (down 1.55 percent since last year)
Two-bedroom average rent: $1,691 (up 6.72 percent since last year)
One thing you can have living in the suburbs that you usually don’t in the middle of a city is an amusement park down the street. That’s one of the features of living in the borough of Langhorne and adjoining Middletown Township. Here you’ll find Sesame Place, the Sea World-owned young children’s Sesame Street theme park.
Langhorne borough proper and surrounding Middletown Township are collectively referred to as Langhorne.
The area is an important business and shopping center along Neshaminy Creek in charming Bucks County. Along with numerous national chains and big box stores, a myriad of service centers, retail shops and old-school restaurants line Pine Street and Maple Avenue.
In addition, the borough features a quaint historic district dating back to the 19th century. Sitting just off the I-295 beltway, Langhorne is a popular bedroom community for commuters to Trenton as well as Philadelphia.
The expansive Middletown Country Club splits the borough, with the multistory Oxford Valley Mall out in the Township. And surrounding Lake Luxembourg is the expansive 1,200-acre Core Creek Park. The region offers a variety of housing options, from affordable apartments to large suburban mansions.
Several locations still offer 1950s style tract housing leftover from the expansion of the nearby Levittown planned community.
Find apartments for rent in Langhorne Buy a house in Langhorne
Photo source: Borough of Phoenixville / Facebook
Distance from downtown: 23.9 miles
One-bedroom average rent: $1,229 (down 14.82 percent since last year)
Two-bedroom average rent: $1,426 (down 12.71 percent since last year)
In 1958, a large gelatinous alien creature was let loose and devoured dozens of residents of Phoenixville, Pennsylvania. That of course only happened on screen, in the Steve McQueen horror classic “The Blob,” which filmed and took place in the Chester County suburb.
The movie features a famous scene where terrified residents flee the alien out the Colonial Theater’s doors. That real-life theater is the centerpiece of Phoenixville’s Bridge Street main street as well as the annual Blobfest which celebrates the landmark film.
But as important as the film is, younger residents will tell you it’s the craft beer scene that makes Phoenixville special. After languishing for years as a rundown mill town, a revitalization plan included a call for brewers to set up shop. Today the city of just 17,000 offers 10 craft breweries.
On Bridge Street alone are four breweries, along with a tap house, a distillery and three winery tasting rooms. That collection gives downtown Phoenixville the distinction of having the most breweries per square foot of any place in the nation.
For residents, Phoenixville is more than just beer and blobs. Its absolutely teeming downtown along Bridge Street has boomed with pizzerias and bistros, coffee and smoke shops and boutiques and galleries.
Phoenixville Area High School offers a high ranking and a 15:1 student-teacher ratio. And many parks and green spaces dot the region, including the large Black Rock Sanctuary wildlife refuge along the Schuylkill River bend that also features Basin Trail for hiking and biking. The Schuylkill River Trail also crosses the borough, along French Creek.
Find apartments for rent in Phoenixville Buy a house in Phoenixville
Distance from downtown: 25.0 miles
One-bedroom average rent: $1,631 (down 1.23 percent since last year)
Two-bedroom average rent: $2,095 (up 7.54 percent since last year)
A little under 25 miles from Center City, West Chester is a more affordable alternative to the nearby Main Line. The seat of Chester County offers a selection of bars, restaurants and shops in its surprising downtown along Gay and Market streets.
Local businesses are accessible, catering to the borough’s young, affluent residents as well as budget-conscious clientele. Need proof? West Chester’s downtown sits on the top-three list of “Great American Main Streets.”
West Chester is a more affordable, younger enclave surrounded by old-money communities like Malvern, Kennett Square and Chadds Ford, with swaths of an urban-rural buffer.
The borough offers high-ranked schools and an average age of just 24.9 years old. A vibrant part of that young community is West Chester University, ranked a Top 10 Public Regional University by U.S. News.
Why is West Chester attractive to young professionals? Perhaps it’s the borough’s title as “Most Exciting Place” in all of eastern Pennsylvania. It’s a locale to meet new people, as the state’s second-most densely populated city, fifth-best for nightlife and fifth-best spot to lead an active lifestyle.
Or maybe it’s because it’s the world headquarters of the QVC shopping network.
Find apartments for rent in West Chester Buy a house in West Chester
Distance from downtown: 26.2 miles
One-bedroom average rent: $1,186 (down 14.08 percent since last year)
Two-bedroom average rent: $1,477 (up 1.09 percent since last year)
Look behind Pennsylvania and New Jersey to find the best cities near Philadelphia — don’t forget about Delaware!
Wilmington is certainly having a moment. While the previous president spent his weekends at swanky Mar-a-Lago or Bedminster golf club, the current chief executive has been taking his off weekends back in his home state of Delaware. President Biden famously grew up in and around Wilmington and is known to have commuted back to his residence weekly dating back to his earliest days as the Diamond State’s senator.
Wilmington, despite being the largest city in a completely different state, is just a half-hour drive from Center City Philly. But it’s the finance industry that fuels the economy of the Corporate City.
The 1980s Financial Center Development Act liberalized financial regulations in Delaware, removing usury laws and interest rate caps. This caused financial and insurance corporations from around the world to set up shops in Wilmington.
An attractive city to big money employers is an attractive city to its white-collar workers. And one of the favorite locals is the Christina River waterfront. Popular waterfront spots include the Blue Rocks’ Frawley Stadium, the Delaware Children’s Museum, a convention center, a movie theater, parks, trails, hotels and a slew of cafes, restaurants and bars.
And for those concerned about Wilmington’s less-than-stellar crime safety record, there is good news. The city reports being “safer now than it’s ever been.” The city is noting its lowest crime rate in recent history.
Find apartments for rent in Wilmington Buy a house in Wilmington
Photo source: Doylestown Township / Facebook
Distance from downtown: 27.2 miles
One-bedroom average rent: $1,408 (up 25.06 percent since last year)
Two-bedroom average rent: $1,999 (up 9.93 percent since last year)
Gateway to the colonial-estate-and-covered-bridge tourism lands of Upper Bucks, Doylestown is the charming exurban seat of Bucks County.
The borough offers a slew of cultural and entertainment options not usually found in a town of under 9,000, about an hour commute from Center City by either train or car.
Doylestown has one of the densest gatherings of museums out of all of the cities near Philadelphia. James Michener Art Museum (named for the native son author), the Moravian Pottery and Tile Works, the Mercer Museum and Oscar Hammerstein II Farm (the final residence of its namesake) can all be found here.
Just off the center of town is the historic art deco movie house County Theater which shows blockbusters and arthouse films alike.
Elsewhere in Doylestown’s downtown along State and Main streets are quaint thrift shops, big city-worthy restaurants, bookstores, coffee shops and brewpubs.
For those seeking a more natural setting, just as appealing is the natural beauty of rural Bucks County just outside of town, packed with hiking trails, bike paths, water recreation and nature watching. Favorite spots include urban 108-acre Central Park and wooded 1,500-acre Peace Valley Park.
Find apartments for rent in Doylestown Rent a house in Doylestown
Make one of these cities near Philadelphia your next home
No matter where you decide to call home, you can’t go wrong with any of the amazing cities near Philadelphia you might choose.
Whether in Bucks, Montgomery, Chester or Delaware Counties, across the river in South Jersey or down I-95 in Delaware, you’ll have tons to do all within a short commute into the city.
Rent prices are based on a rolling weighted average from Apartment Guide and Rent.com’s multifamily rental property inventory of one-bedroom apartments in April 2021. Our team uses a weighted average formula that more accurately represents price availability for each individual unit type and reduces the influence of seasonality on rent prices in specific markets.
The rent information included in this article is used for illustrative purposes only. The data contained herein do not constitute financial advice or a pricing guarantee for any apartment.
I’m an entrepreneur and just so happen to be in the business of providing other entrepreneurs with financial advice. But I don’t typically offer up the usual status quo advice that tells you to do things that aren’t always in alignment with growing your business.
My views originate from my experiences and at times are contrarian to what’s being recommended by the usual tax preparer and other financial advisers, because I am in the trenches running a business just like you. I know what it takes to grow a business, make payroll, deal with IRS notices and manage cash flow.
The truth is that being an entrepreneur can be isolating at times as a result of being wrapped up in the day-to-day of running your business. When you are hyper-focused on your business, it is difficult to also be an expert at managing the profits of the company. You may be great at making money, but once it’s made, what do you do with it?
Thinking differently about your company and how you will use it to build wealth is the key to true financial success.
In this article, I’ll outline five ways you can shift your mindset about money to transform how you define and operate your business and approach your financial decisions. It will help you identify what you really want to achieve: A Self-Managing Company®, a term coined by Dan Sullivan of Strategic Coach.
Mind Shift No. 1: Understand that Retirement Savings Plans Don’t ‘Lower’ Your Tax Bill
As a business owner, you are probably time-starved and used to making fast decisions. And you may be tempted to make fast decisions at tax time, especially when your tax preparer suggests that tax-deferred investments are the answer to lower your tax bill and save some money for retirement. Easy enough, right?
This is what I like to call a half-truth. It’s true that you’ll get the deduction for that year’s taxes. But the other half of the story uncovers the problem with the use of SEP IRAs, 401(k)s and other tax-deferred options to “lower” your tax bill. The reality is that you are taking money from your business where you have some level of control and redirecting those dollars into the stock market where you have absolutely no control. The money is tied up until you are 59½ years old and face potentially higher tax liabilities than you previously owed with no access to your cash if it is needed for growing or sustaining your business.
When you own a business, the half-truths you hear from many finance professionals and the mainstream media can at times negatively impact your ability to grow your business and protect your interests. I have found there are other, more productive ways to build wealth outside of your business, beyond the base-level concepts of investing or putting money in an IRA or 401(k).
Mind Shift No. 2: View Your Company Not as Your Job, but as a Tool for Building Your Wealth
If you run a healthy business, you have a long-term strategy. You know what the end-goal is. You think about the business as a whole, rather than focusing on simply the day-to-day tasks.
We’ve all heard the old adage: Work on your business, not in your business. That’s because if you’re working in your business all the time, you’ve only created a job for yourself. The goal is to build systems and develop people to slowly work yourself out of the role you have and allow the business to run on its own. The sooner you shift your mindset to this way of thinking, the sooner you can begin to experience the results.
First, carve out the time in your day to think about your business. Many business owners I talk to don’t do this, because they are buried in the work. Take time to talk to your future self about what you want your life to look like in the future. What would your future self say to you about the decisions and choices you are making? It helps to outline your thinking time, keep a journal of your discoveries, meditate to de-stress, and use the time to reflect on what you are trying to accomplish in the business.
Next, think about your business as a piece of your financial plan. How much time and capital are you investing into the business, and what are you getting out of it? What is your ROI? I’ve found that a business can offer the biggest opportunity to build wealth, and in many cases — depending on your results — it can offer more than what you might get from investing in the market.
Finally, think with the end in mind. At the end of the day, what are you trying to get out of your company? To build wealth through your business, you must identify what will build its value.
Building value revolves around creating a self-managing company, one that runs without you and has a strategy to sustain itself into the future. This allows you to sell it for maximum value, or even create a passive income stream without actually having to work in the business.
Shifting your mindset is important, because you probably didn’t start your business that way. Many business owners don’t, and that’s OK while you’re getting things up and running. But it’s important to remember that what got you started will not get you to the next level and will not build the wealth needed to successfully exit the business.
Mind Shift No. 3: Master Your Cash Flow
I tend to bust a lot of myths when it comes to financial matters, and one of them has to do with cash flow. This is especially important to understand as an entrepreneur. Your cash flow is not there to simply pay your bills. Yes, you must pay your bills of course, but there is more to it than simply making payroll.
Cash flow is a tool to help you build wealth and the value of your company. Healthy cash flow allows for you to control your money, and there are strategies you can explore to help you maximize it.
I recently spoke with a partner of a business who was earning a W-2 salary of $400,000 per year. In working with his CPA, we were able to rework his partnership agreement, removing him as an employee and adding him as a consultant of his own LLC. While this simple strategy reduced his tax liability by $20,000, implementing this strategy was about more than just lowering taxes. This was about cash flow – everything is always about cash flow. By making this little tweak, he increased his cash flow by $1,666 per month.
I’m not a CPA and don’t provide tax advice, but I ask a lot of questions and propose many scenarios for the tax professionals to consider – scenarios that can increase cash flow for business owners. Increasing and optimizing your cash flow should be a top priority for your business.
Mind Shift No. 4: Be Your Own Bank
Companies with cash are able to do many things without having to rely on a bank or other source of funding. In essence, they can be their own bank. Think about it. When you have cash, you can use it to work on your wealth-building strategy. You could buy a company, invest in equipment, hire more people (maybe even a replacement for yourself who can run the company while you collect passive income), buy property, or take advantage of any other opportunity that may come your way.
But there is another way you can be your own bank. Maybe you’ve heard of the concept of “BUILD Banking™,” a cash flow strategy using a specially designed life insurance contract. It’s a strategy that I use personally and with many of my clients who want to have greater control of their cash flow. It frees them from dependence on banks for capital infusions and avoids government red tape when they need to access their money.
For more information about BUILD Banking™, visit www.buildbanking.com.
This strategy enables business owners to grow assets tax-free and have access to those funds whenever they’re needed. In essence, you’re accessing cash when it is needed while having uninterrupted compounding growth for your future.
Mind Shift No. 5: Understand Your Legal Exposures and Protect Yourself
You likely have some form, or forms, of insurance in place for your business. And you may believe that these policies have you covered. Well, they may, and they may not. The coverage you need goes far beyond liability, even extending into punitive damages.
It’s important to work with an insurance professional who specializes in business coverage to ensure that you have the right type of policies and the proper level of protection for your specific business.
There are also certain types of insurance policies (including the BUILD Banking strategy I’ve described above) that can serve a strategic purpose for your business. It’s common, and valuable, for business owners to have a life insurance contract as part of their succession plan, acting as a funding mechanism for the beneficiary to purchase the deceased owner’s share of the business.
Again, you will want to have a collaborating team of insurance professionals who have expertise in their vertical and who understand your business, your goals and what you are trying to accomplish. It’s also a good idea to include your CPA, attorney and financial planner in on those discussions.
These five financial planning tips and mindset shifts will help you use your business as a tool to start building wealth (or build greater wealth). They may be things you’ve never thought about, or things you’ve considered but haven’t been able to implement. Putting these ideas to work can get you on the path to true business success.
Results may vary. Any descriptions involving life insurance policies and their use as an alternative form of financing or risk management techniques are provided for illustration purposes only, will not apply in all situations, may not be fully indicative of any present or future investments, and may be changed at the discretion of the insurance carrier, General Partner and/or Manager and are not intended to reflect guarantees on securities performance. Benefits and guarantees are based on the claims paying ability of the insurance company.
The terms BUILD Banking™, private banking alternatives or specially designed life insurance contracts (SDLIC) are not meant to insinuate that the issuer is creating a real bank for its clients or communicating that life insurance companies are the same as traditional banking institutions.
This material is educational in nature and should not be deemed as a solicitation of any specific product or service. BUILD Banking™ is offered by Skrobonja Insurance Services LLC only and is not offered by Kalos Capital Inc. nor Kalos Management.
BUILD Banking™ is a DBA of Skrobonja Insurance Services LLC. Skrobonja Insurance Services LLC does not provide tax or legal advice. The opinions and views expressed here are for informational purposes only. Please consult with your tax and/or legal adviser for such guidance.
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 Missouri-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 to reach their goals. Brian is the author of three books, the Common Sense podcast and blog. In 2017 and 2019 Brian received the award for Best Wealth Manager and in 2018 the Future 50 St. Louis Small Business.
Market speculation is seemingly everywhere. From new SPACs being issued, to the prevalence of Reddit stocks such as GameStop to the popularity of electric vehicle stocks and the rise of cryptocurrency – speculation is alive and well in the markets today.
“Mania” is a good word to describe the energy surrounding these types of investments. Dramatic daily swings are the new normal in these holdings. Hollywood elites and business moguls are attaching their names to crypto and the latest SPAC investments.
The top mania investment areas are electric vehicles, cryptocurrency, Reddit stocks, space, SPACs, precious metals and pot stocks. The dictionary definition of mania describes “excessive or unreasonable enthusiasm.” That seems about right. The result has been a meteoric rise in value not tied to business fundamentals but tied to hype, expectations or projections.
Investors looking to boost performance often wonder how much exposure to these types of investments should they have. With strong appreciation in some of the holdings, it is tempting to get into the game. Here are our top eight tips for mania investing.
1 of 8
1. Admit that it is a mania
Have some honest reflection about the investment environment you are in. Mania investing can be fun, it can be thrilling and, ultimately, it can be painful. But mania investing is not your conventional long-term investing strategy. Admit you are being swept up in a mania and acknowledge what that might mean regarding your tactics. It’s impossible to explain to yourself or your friends the fundamentals of a company with no earnings, so stop trying to make sense of it. It is a mania, not an investment based on fundamentals.
2 of 8
2. Have an exit strategy & set a price target
How far are you willing to watch your investment drop before you pull out? Set a price target and stick to it. Some of the biggest mistakes happen with investors who fall in love with a company or a product and hold it while closing their eyes. Mania investments are not typically long-term plays, and you must plan for how much risk you are willing to take. Set a target to get out and limit your downside exposure.
3 of 8
3. Limit your overall portfolio exposure
If you are going to be a mania investor, maybe you limit your exposure to 3%, 5% or 10% of your total portfolio. Understand it is the high-risk portion of your portfolio and do not allocate more than you are willing to lose. The older you are and the closer to retirement, the less you can afford to lose. The younger you are, the more you might be willing to allocate to more aggressive strategies.
4 of 8
4. Diversify your manias
Maybe you like cryptocurrency — go ahead and invest in it, but buy into three different types, instead of just one, to diversify. Maybe you like electric vehicles. If so, consider adding some exposure to space or precious metals as well. Even in your mania investing, you do not want to concentrate all that allocation to just one mania strategy. Diversification can help reduce risk even in a risky space. Although, be careful of too much diversification. In a world like electric vehicles, there is a possibility of there being few winners and many losers.
5 of 8
5. Understand performance in context
The S&P 500 10-year average over the past 100 years is around a 10% return per year. Warren Buffett has averaged about 15% per year. If your mania investments have made 100% in a year, understand how rare that is and that the odds of duplicating that performance year after year are incredibly remote. Part of good investment performance is not just making money in good times, but also weathering losses during challenging times.
6 of 8
5. Know the difference between investing and speculating
Investing for the long term carries its own set of disciplines and rules and expectations. Mania investing is more akin to speculating or even gambling. It often has dramatic movements in price over a short period of time. It might include hype in the media, memes on social networks and inexperienced people giving investment advice. Be careful and realize speculating is a high-risk game — it is not the same as sound investment on fundamentals.
7 of 8
6. Take some winnings off the table
Maybe you own one of the stock names that have doubled or tripled in value over the past year. Consider selling some of the holdings and locking in your gains. Maybe reduce your exposure by 50%. Keep some of the holdings a bit longer, but diversify into something more stable or consistent. Setting a price target on the upside can be just as important as setting one on the downside.
8 of 8
7. Do not gamble the farm
A smart gambler, if they go to Vegas, will set their own personal limit on what they are willing to lose. Whether that is $100, or $10,000 — set a limit when it comes to mania investing. Also, do not raid all your retirement money on a whim to chase manias. While a portion could make sense, the lion’s share of your retirement should be focused on fundamental investment strategies that are consistent. Pulling all your retirement money to buy into different manias would likely be a crazy idea, just like putting your house keys in the pot of a poker table would be ill advised.
Investing in some of these sexy stocks and industries has appeal, and there is money to be made. But there is also money to be lost, and it is important to have a rule set for investing even if you are investing in mania stocks. Finally, know how risk taking can fit in your overall financial plan and realize that the risk you are willing to tolerate is likely to be different from someone else.
Investing carries an inherent element of risk, and it is possible to lose principal and interest when investing in securities. Strategies are used to assist in the management of your account. Even with these strategies applied to the account, it is possible to lose money. No strategy can guarantee a profit or prevent against a loss. There may be times when the strategy switches between equities or fixed income at an inopportune time, causing the account to forfeit potential gains.
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.
CEO – Senior Wealth Adviser, Sterling Wealth Partners
Scot Landborg has over 17 years of experience advising clients on retirement planning strategies. Scot is CEO and Senior Wealth Adviser for Sterling Wealth Partners. He is host of the retirement planning podcast Retire Eyes Wide Open. Scot is a regular contributor to Kiplinger.com and has been quoted in “U.S. News & World Report,” Market Watch, Yahoo Finance, Nasdaq and Investopedia. He also formally hosted the nationally syndicated radio show “Smart Money Talk Radio.”
Investment Adviser Representative of USA Financial Securities. Member FINRA/SIPC A Registered Investment Advisor. CA license # 0G89727 https://brokercheck.finra.org/
Buying a fixer-upper is sometimes romanticized by pop culture. While it’s fun to dream, the reality of home renovation is that it can be laborious and draining, especially if the home needs serious help.
Repair work requires energy and resources, and it can be difficult to secure a loan to cover both the value of the home and the cost of repairs—especially if the home is currently uninhabitable. Most lenders won’t take that sort of chance.
But if you have your heart set on buying a fixer upper, an FHA 203(k) loan can help.
The Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development (HUD), insures loans for the purchase and substantial rehab of homes. It is also possible to take out an FHA 203(k) loan for home repairs only, though it might not be your best option if that’s all you need.
If you have the vision to revive a dreary house, here’s info about FHA 203(k) loans and other home improvement loan options.
What Is an FHA 203(k) home loan?
Section 203(k) insurance lets buyers finance both the purchase of a house and its rehabilitation costs through a single long-term, fixed- or adjustable-rate loan.
Before the availability of FHA 203(k) loans, borrowers often had to secure multiple loans to obtain a mortgage and a home improvement loan.
The loans are provided through HUD-approved mortgage lenders and insured by the FHA. The government is interested in rejuvenating neighborhoods and expanding homeownership opportunities.
Because the loans are backed by the federal government, you may be able to secure one even if you don’t have stellar credit. Rates are generally competitive but may not be the best, because a home with major flaws is a risk to the lender.
The FHA 203(k) process also requires more coordination, paperwork, and work on behalf of the lender, which can drive the interest rate up slightly. Lenders also may charge a supplemental origination fee, fees to cover review of the rehabilitation plan, and a higher appraisal fee.
The loan will require an upfront mortgage insurance payment of 1.75% of the total loan amount (it can be wrapped into the financing) and then a monthly mortgage insurance premium.
Applications must be submitted through an approved lender .
What Can FHA 203(k) Loans Be Used For?
Purchase and Repairs
Other than the cost of acquiring a property, rehabilitation may range from minor repairs (though exceeding $5,000 worth) to virtual reconstruction.
If a home needs a new bathroom or new siding, for example, the loan will include the projected cost of those renovations in addition to the value of the existing home. An FHA 203(k) loan, however, will not cover “luxury” upgrades like a pool, tennis court, or gazebo (so close!).
If you’re buying a condo, 203(k) loans are generally only issued for interior improvements. However, you can use a 203(k) loan to convert a property into a two- to four-unit dwelling.
Your loan amount is determined by project estimates done by the lender or the FHA. The loan process is paperwork-heavy. Working with contractors who are familiar with the way the program works and will not underbid will be important.
Contractors will also need to be efficient: The work must begin within 30 days of closing and be finished within six months.
If the home is indeed unlivable, the 203(k) loan can include a provision to provide you with up to six months of temporary housing costs or existing mortgage payments.
Who Is Eligible for an FHA 203(k) Loan?
Individuals and nonprofit organizations can use an FHA 203(k) loan, but investors cannot.
Most of the eligibility guidelines for regular FHA loans apply to 203(k) loans. They include a minimum credit score of 580 and at least a 3.5% down payment.
Applicants with a score as low as 500 will typically need to put 10% down.
Your debt-to-income ratio typically can’t exceed 43%. And you must be able to qualify for the costs of the renovations and the purchase price.
Again, to apply for any FHA loan, you have to use an approved lender. (It’s a good idea to get multiple quotes.)
Home Improvement Loan Options
The FHA 203(k) provides the most comprehensive solution for buyers who need a loan for both a home and substantial repairs. However, if you need a loan only for home improvements, there are other options to consider.
Depending on the improvements you have planned, your timeline, and your personal financial situation, one of the following could be a better fit.
Other Government-Backed Loans
In addition to the standard FHA 203(k) program, there is a limited FHA 203(k) loan of up to $35,000. Homebuyers and homeowners can use the funding to repair or upgrade a home.
Then there are FHA Title 1 loans for improvements that “substantially protect or improve the basic livability or utility of the property.” The fixed-rate loans may be used in tandem with a 203(k) rehabilitation mortgage.
The owner of a single-family home can apply to borrow up to $25,000 with a secured Title 1 loan.
With Fannie Mae’s HomeStyle® Renovation Mortgage, homebuyers and homeowners can combine their home purchase or refinance with renovation funding in a single mortgage. There’s also a Freddie Mac renovation mortgage, but standard credit score guidelines apply.
If you have an existing mortgage and equity in the home, and want to take out a loan for home improvements, a cash-out refinance from a private lender may be worth looking into.
You usually must have at least 20% equity in your home to be eligible, meaning a maximum 80% loan-to-value (LTV) ratio of the home’s current value. (To calculate LTV, divide your mortgage balance by the home’s appraised value. Let’s say your mortgage balance is $225,000 and the home’s appraised value is $350,000. Your LTV is 64%, which indicates 36% equity in the home.)
A cash-out refi could also be an opportunity to improve your mortgage interest rate and change the length of the loan.
For green improvements to your home, such as solar panels or an energy-efficient heating system, you might be eligible for a PACE loan .
The nonprofit organization PACENation promotes property-assessed clean energy (or PACE) financing for homeowners and commercial property owners, to be repaid over a period of up to 30 years.
Home Improvement Loan
A home improvement loan is an unsecured personal loan—meaning the house isn’t used as collateral to secure the loan. Approval is based on personal financial factors that will vary from lender to lender.
Lenders offer a wide range of loan sizes, so you can invest in minor updates to major renovations.
Home Equity Line of Credit
If you need a loan only for repairs but don’t have great credit, a HELOC may provide a lower rate. Be aware that if you can’t make payments on the borrowed funding, which is secured by your home, the lender can seize your home.
If you have your eye on a fixer-upper that you just know can be polished into a jewel, an FHA 203(k) loan could be the ticket, but options may make more sense to other homebuyers and homeowners.
SoFi offers cash-out refinancing, turning your home equity into renovation money.
Or maybe a home improvement loan of $5,000 to $100,000 seems like a better way to turn your home into a haven.
Check your rate today.
SoFi Loan Products SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal. SoFi Home Loans Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information. Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners. External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement. Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The information provided on this website does not, and is not intended to, actas legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
When things get lean, it’s natural to want to tighten your belt and save money wherever possible. But should you stop investing completely? It’s an entirely personal decision. Get some facts and insights about investing during a recession below to help you determine what will work for you.
Is It a Good Idea to Invest During a Recession?
It depends on a few factors, including what you’re referring to when you say “investing.” If you’re talking about funding a 401(k), you probably want to continue doing so unless you would be unable to pay your necessary bills and living expenses.
But if investing means the stock market or other similar options, you should seriously consider your financial situation. If you already have emergency savings and have disposable income to risk, investing can be an option. This is especially true if you won’t be touching your portfolio for a while, so you have time to weather the ups and downs associated with a recession economy.
But you do want to be aware of the bear market trap so you don’t fall into it. Bear traps occur when a lot of investors have bought into certain stock. This increases the selling pressure, which just means that there are buyers for the stock but not a lot of stock to be had.
Institutions that want the stock to move higher may push prices lower via short sales or other strategies, making it appear as if the prices are falling. That can scare people into selling the stock. In the long run, however, the stock maintains its price or increases in value, so selling early can mean losing out on future gains. This is just one reason you might want to work with a professional advisor when investing.
7 Tips for Investing During a Recession
1. Be Patient and Think Long-Term
Buying and selling stocks rapidly to turn huge profits is mostly an event seen in movies and television. And while it’s not impossible for pros to luck into a big win, this is not typically how individuals should look at investing. It may take time for your investments to pay off, especially if the economy as a whole is struggling, so it’s important to avoid being guided by emotions and rely on logic and sound financial advice.
2. Commit to a Personal Investment Plan
A personal investment plan is a written document that includes your financial goals and what types of limitations you might have, such as what you can afford to spend on investing. Creating such a document ensures you have a logical, well-thought-out guide to turn to when things do get tricky. If you feel tempted by a seemingly perfect investment, for example, your plan can remind you what you can realistically put into this new investment.
3. Use the Dollar-Cost Averaging Strategy
Dollar-cost averaging is a strategy used by many investors, including some professionals. Its goal is to potentially reduce the volatile nature of a single purchase. The DCA strategy works like this:
You decide how much you’re going to invest in certain assets within a set period
You divide that budget over that time and make periodic purchases of the asset
You do this despite the price of the asset at any given time
The goal is to build up the investment for a long-term gain strategy. This is actually how most 401(k) investments are managed.
4. Focus on Quality Over Quantity
But don’t think that you have to buy tons of assets to be investing for the future. If you have limited funds to invest with, it can be tempting to buy up stock that is cheap just to get some quantity. But cheap stock isn’t always a great investment, and it might be better to buy a smaller number of shares in a well-trusted company with a history of strong stock performance.
5. Consider Funds Instead of Individual Stocks
Another option is to consider funds, which spread your investment over numerous stocks. You’ve probably heard that you have to diversify your portfolio. That just means investing in numerous types of assets so that if one doesn’t perform well, you have other gains to make up for the loss.
A mutual fund is an investment option that’s already diversified, for example. Plus, it’s a convenient way to add numerous assets to your equity portfolio without buying and managing numerous stocks yourself.
6. Rebalance When Necessary
While investing is a long-term strategy, active investing can’t be a set-and-forget strategy. You have to make efforts to rebalance your portfolio—or ensure someone is doing that for you—from time to time.
Rebalancing just means aligning your assets with your target goals. For example, you might have a goal of 60% in stocks and 40% in other assets. But if your stocks gain rapidly during a few years, outpacing the gains of your other assets, you could have a 70/30 split. If your goal is still 60/40, you would rebalance by selling stock, purchasing other assets or both.
7. Invest in Recession-Resistant Industries
Recession-resistant industries are those that don’t tend to succumb to downturns in the economy, often because they’re necessary. Examples of industries that have historically weathered recessions well include healthcare, technology, beauty, retail, construction and pet products.
Note that because a company is in a recession-resistant industry doesn’t mean that company itself is necessarily resistant. It’s always important to be discerning about which stocks you invest in. For example, if the company doesn’t have strong financial leadership or has known money problems, it may not matter what industry it’s in.
Review Your Finances and Decide What’s Best for You
Ultimately, only you can decide whether investing during a recession is right for you. Start by reviewing your own finances. Some things you might want to look at include:
What kind of savings you have. Having emergency savings is important, especially in a recession. Before you start investing, you may want to build yours.
Your income and expenses. You need disposable income before you can invest. That means that your income should be more than your expenses.
Your credit history. Buying stocks and investing typically doesn’t rely on you having good credit. But before you start building wealth, get a good look at your credit reports to ensure there’s nothing lurking that you might need to attend to. If you find any surprises, consider reaching out to Lexington Law for help disputing inaccurate items and working to make a positive impact on your credit.
And if you do decide to invest—during a recession or otherwise—consider working with a financial advisor to help you navigate the complexities of managing your portfolio.
Reviewed by John Heath, Directing Attorney of Lexington Law Firm. Written by Lexington Law.
Born and raised in Salt Lake City, John Heath earned his BA from the University of Utah and his Juris Doctor from Ohio Northern University. John has been the Directing Attorney of Lexington Law Firm since 2004. The firm focuses primarily on consumer credit report repair, but also practices family law, criminal law, general consumer litigation and collection defense on behalf of consumer debtors. John is admitted to practice law in Utah, Colorado, Washington D. C., Georgia, Texas and New York.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Securities are one of the most important assets to understand when you’re starting to invest. Almost every investment you can make involves securities, so knowing about the different types of securities and how they fit in your portfolio can help you design a portfolio that fits with your investing goals.
What Is a Security?
A security is a financial instrument investors can easily buy and sell. The precise definition varies with where you live, but in the United States, it refers to any kind of tradable financial asset.
Securities may be represented by a physical item, such as a certificate. Securities can also be purely electronic, with no physical representation of their ownership. The owner of a security, whether it is physical or digital, receives certain rights based on that ownership.
For example, the owner of a bond is entitled to receive interest payments from the issuer of that bond.
Types of Securities
There are many different types of securities, each with unique characteristics and a different role to play in your portfolio.
A stock is a security that represents ownership of a company.
When a business wants to raise money — for example, to invest in expanding the business — it can issue stock to investors. Investors give the business money and receive an ownership interest in the company in exchange.
The number of shares that exist in a company determine how much ownership each individual share confers. For example, someone who owns one share in a company with 100 shares outstanding owns 1% of the company. If that business instead had 100,000 shares outstanding, a single share would represent ownership of just 0.001% of the business.
Investors can easily buy and sell shares in publicly traded companies through the stock market. Shares regularly change in value, letting investors buy them and sell them for either a loss or a profit. Owning stock also entitles the shareholder to a share of the company’s earnings in the form of dividends if the company chooses to pay them, and the right to vote in certain decisions the company must make.
A bond is a type of debt security that represents an investor’s loan to a company, organization, or government.
When a business or other group wants to raise money but doesn’t want to give away ownership, it can instead borrow money. Individuals typically borrow money from a bank, but companies and larger organizations often borrow money by issuing bonds.
When an organization needs to borrow money, it chooses an interest rate and the amount that it wants to borrow. It then offers to sell bonds to investors until it sells enough bonds to get the amount of money it wishes to borrow.
For example, a company may decide to issue $10 million worth of bonds at an interest rate of 5%. It will sell bonds in varying amounts, usually with a minimum purchase requirement, until it raises $10 million. Then, the company stops selling the bonds.
With most bonds, the issuing organization will make regular interest payments to the person who owns the bond. The payments are based on the interest rate and the value of the bond purchased. For a $1,000 bond at an interest rate of 5%, the issuer might make two annual payments of $25.
The bonds also come with a maturity date. Once the maturity date arrives, the bond issuer returns the money it raised to the bondholders and stops making interest payments. For example, when it matures, the holder of the $1,000 bond might receive a final interest payment of $25 plus the $1,000 they initially paid to buy the bond.
Interest payments and returned principal go to the person who holds a bond on the payment date, not necessarily the original purchaser. This means that people who own bonds can sell them to other investors who want to receive interest payments. The value of a bond will depend on how much time is left until it matures, the bond’s interest rate, the current interest rate market, and the bond’s principal value.
Money Market Securities
Money market securities are incredibly short-term debt securities. These types of securities are similar to bonds, but their maturities are generally measured in weeks instead of years.
Because of their short maturities and their safety, investors often see money market securities and investments in money market funds as equivalent to cash.
Mutual Funds and ETFs
Mutual funds and exchange-traded funds (ETFs) are both securities that purchase and hold other securities. They make it easier for investors to diversify their portfolios and offer hands-off management for investors.
For example, a mutual fund may purchase shares in many different companies. Investors can purchase shares in that mutual fund, which gives them an ownership stake in the different shares that the fund holds. By buying shares in one security — the mutual fund — the investor gets exposure to many securities at once.
The primary difference between mutual funds and ETFs is how investors buy and sell them. With mutual funds, investors place orders that settle at the end of the trading day. That makes mutual funds best for long-term, passive investment. ETFs are traded on the open market, so investors can buy them from or sell them to other investors whenever the market is open. This means ETFs can be used as part of an active trading strategy.
There are many different types of mutual funds and ETFs, each with its own investing strategy. Some mutual funds aim to track a specific index of stocks. Others actively trade securities to try to beat the market. Some funds hold a mix of stocks and bonds.
Mutual funds and ETFs are not free to invest in. Most charge fees, called expense ratios, that investors pay each year. For example, a fund with an expense ratio of 0.25% charges 0.25% of the investor’s assets each year. Fees vary depending on the fund provider and the fund strategy.
Preferred shares or preferred stock are a special kind of shares in a company, which have different characteristics than shares of common stock.
Compared to common stock, preferred shares typically:
Have priority for dividends over common stock
Receive compensation before common shares if a company is liquidated
Can be converted to common stock
Do not have voting rights
Derivatives are securities that derive their value from other securities rather than any value inherent to themselves.
One of the most common types of derivatives is an option, which gives the holder the right — but not the requirement — to buy or sell shares in a specific company at a set price. Derivatives are more complex financial instruments than generally aren’t suitable for beginners because they can be confusing and come with elevated risk.
How Securities Fit in Your Portfolio
Most investors use securities to build the majority of their investment portfolios. While some people may choose to invest solely in assets like real estate rather than securities like stocks and bonds, securities are highly popular because they make it easy for people to build diversified portfolios.
The mix of investments you choose is called asset allocation. Each type of security fits into an investment portfolio in different ways.
The Role of Stocks
For example, stocks generally offer high volatility and some risk, but higher rewards than fixed-income securities like bonds. People with long-term investing plans and the risk tolerance to weather some volatility may want to invest in stocks.
Within stocks, investors often hold a mixture of large-cap (large, well-known companies) and small-caps (smaller, newer businesses). Typically, larger companies are more stable but offer lower returns. Small-caps can be risky but offer greater rewards.
Large-caps often pay dividends, which are regular payments to shareholders. This makes them popular for people who want to produce an income from their portfolio but who don’t want to shift too heavily into safer, but less lucrative investments like bonds.
Pro tip: Earn a $30 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.
The Role of Bonds
By contrast, bonds are good for people who want to reduce volatility in their portfolios. A retiree or someone who wants to preserve their portfolio’s value instead of growing it might use bonds.
Bonds experience much less volatility than stocks, with their values changing primarily with changes in interest rates. If rates rise, bond values fall. If rates fall, bond values rise.
If you hold individual bonds and don’t sell them, you can only lose value from the bonds if the issuer defaults and stops making payments. That means that bonds can provide a predictable return, assuming you can hold them to maturity.
Bonds also make regular interest payments, often twice annually, making them very popular for income-focused investors.
The Role of Mutual Funds
A huge number of everyday investors opt to invest in mutual funds and ETFs instead of buying individual stocks and bonds. These funds hold dozens or hundreds of different stocks and bonds, making it easy for investors to diversify their portfolios. There are also many different funds that follow different investing strategies, meaning that almost everyone can find a mutual fund that meets their needs.
One of the most popular types of mutual funds is the target-date fund. These funds reduce their stock holdings and increase their bond holdings as time passes and gets closer to the target date. This makes them an easy way for investors to reduce risk and volatility in their portfolio as they get closer to needing the money,
For example, someone who wants to retire in 2062 might invest their money in a target date 2060 or 2065 fund. In 2020, the fund might hold a 90/10 or 80/20 split of stocks and bonds. By 2060, the fund will have reduced its stock holdings and increased its bond holdings so that its portfolio is a 40/60 split between stocks and bonds.
The Role of Derivatives
Derivatives are designed for advanced investors who want to use more complex strategies, such as using options to hedge their portfolio’s risk or to leverage their capital to produce greater gains.
For example, a trader could use options to short a stock. Shorting a stock is like betting against it, meaning the trader earns a profit if the share price falls. On the other hand, if the share price increases, the trader will lose money.
These are best used by advanced investors who know what they’re doing. Derivatives can be more volatile than even the riskiest stocks and can make it easy to lose a lot of money. However, if they’re used properly, they can be a safe way to produce income from a portfolio or a hedge to reduce risk.
A security is the basic building block of an investment portfolio. Most assets that people invest in — like stocks, bonds, and mutual funds — are securities. Each type of security has different features and plays a different role in an investor’s portfolio.
Many investors succeed by investing in mutual funds or ETFs, which give them exposure to a variety of securities at once. If you want an even more hands-off investing experience, working with a robo-advisor or financial advisor can help you choose the best securities to invest in.
Starting a business is an opportunity to be your own boss, make money and grow your skill set.
There are also the not-so-great, somewhat messy and complicated parts about operating a business. If you start off solo or small, you’ll be tackling a lot of tasks yourself.
But don’t worry. In this article, we’re going to address something relatively simple in the business world: the best business checking accounts.
We’ll go into why you need one, what you should look for and several of the best ones available, both in-person and online-only.
Wait, Do I Really Need a Business Checking Account?
The purpose of a business checking account is to keep your business finances separate from your personal finances.
Technically, you might not need one depending on the legal structure of your business.
For example, if you’re a freelance writer who established a sole proprietorship and is starting slowly, you could use your personal checking account to get off the ground. But you’ll want to be extremely organized about keeping track of your business money for tax time. (Nothing will damper your momentum like getting audited.)
The type of business you’re running makes a difference here. If it’s transaction-heavy — or a particular legal structure, like a limited liability company — you might need a business checking account, full stop.
But if you’re starting any kind of business, it’s probably in your best interest to open one.
Business checking accounts make it easier to track profits, expenses and deductions, and help establish your operation if you file for business credit cards or loans down the line.
What You Need to Open a Business Checking Account
To open an account, you’ll typically need the following:
Social security number (SSN) or employee identification number (EIN)
Valid driver’s license or state ID
An initial deposit
How easy it is to open a business checking account will depend on your business. If you’re a sole proprietor, the process might feel similar to opening a personal checking account. If you have a different legal business structure, you’ll likely have to provide additional documentation (like your articles of incorporation). Requirements will vary from bank to bank.
What You Should Look for in a Business Checking Account
Before you peruse accounts, get a handle on your business needs and wants. For instance, do you make a lot of transactions? Do you want a business credit card ASAP? Do you prefer a big bank where you can pop into a different branch every half mile?
There are other considerations. Do you want your bank, credit union or financial institution to…
Offer free bank statements?
Have an app?
Offer free online banking and/or bill pay?
Have in-person locations?
Offer comprehensive customer service, i.e., allow you to talk to someone online and on the phone 24/7?
Have integration with tools, like invoicing software?
Offer multiple products, such as business credit cards, small-business loans, etc.?
There are lots of banks for small businesses to choose from, but you want one that will give you the most options. And ideally, save you some money and headaches in the process.
To choose the best business checking accounts, we focused on accounts that:
Require a low minimum initial deposit ($1,000 or less — most require only $25).
Offer a certain number of transactions for free.
Either have no monthly service fee or make it easy to have the fee waived.
We also focused on checking accounts for small and medium businesses. If you’re looking for accounts to manage a higher volume, many of the traditional institutions on our list have them, too.
Check out our current list of bank promotions for a chance to gain a monetary bonus when signing up for a new business checking account.
The 5 Best Business Checking Accounts for May 2021
We chose five institutions and a couple of different checking account options for each where available.
1. Chase: Best for 24/7 Customer Service and Overall Accessibility
Chase is a well-known brand with many physical branches and flexible options for business owners. It’s a good choice if you want to be able to find a chain easily and talk to someone in person. Chase also offers 24/7 support, so you can call and email them anytime of day. From personal experience, if you send them a secured online message, they typically follow up within 24 hours. To learn more, read our Chase Bank review.
Number of branches: Approximately 4,700
Number of ATMs: 16,000
Here’s the lowdown on Chase Business Complete Banking and Chase Performance Business Checking.
Chase Business Complete Banking
Chase Business Complete Banking (for small businesses) at a glance:
Sign-up bonus: $300 for new customers who meet certain criteria
Minimum initial deposit: $25
Monthly service fee: $15; waived if you maintain a minimum daily balance of $2,000 or link a qualifying Chase account
Cash deposits per month: Up to $5,000 without an additional fee
Free transactions per month: 100
Access to Chase online and mobile banking
Get same-day deposits on card payments at no additional cost
Chase Performance Business Checking
Chase Performance Business Checking (for medium-sized businesses) at a glance:
Sign-up bonus: None specified
Minimum initial deposit: $25
Monthly service fee: $30; waived if you maintain a minimum daily balance of $35,000 or more in qualifying accounts
Cash deposits per month: Up to $20,000 without an additional fee
Free transactions per month: 250
No charge for all incoming wires and two outgoing domestic wires per statement cycle
Interest-bearing option availableChase has business saving account, lending and credit card options, too. Chase offers several small-business credit cards, all with new card member bonuses, which include $750 cash back to 100,000 bonus points depending on the card.
2. Wells Fargo: Best for Small Business Owners Just Getting Started
Wells Fargo is another strong choice for your business checking account needs. It has many branch locations and you can call them 24/7. Its website is also easy to navigate and lets you find answers to your questions without clicking on a ton of links. Check out our Wells Fargo Bank review for more information.
Number of branches: Approximately 7,200
Number of ATMs: Over 13,000
Wells Fargo Initiate Business Checking
Initiate Business Checking (for new and small businesses) at a glance:
Sign-up bonus: None specified
Minimum initial deposit: $25
Monthly service fee: $10; waived by having a minimum daily balance of $500
Cash deposits per month: Up to $5,000 for free
Free transactions per month: 100
Customized business debit card
24/7 fraud monitoring
If you’re just getting started with your small business and don’t expect to scale right away, Initiate Business Checking is a solid, affordable account to open.
Wells Fargo Navigate Business Checking
Navigate Business Checking (for small- to medium-sized businesses) at a glance:
Sign-up bonus: None specified
Minimum initial deposit: $25
Monthly service fee: $25; waived by having a minimum daily balance of $10,000 or an average combined business deposit balance of $15,000
Cash deposits per month: Up to $20,000 for free
Free transactions per month: 250
Customized business debit card
24/7 fraud monitoring
Wells Fargo also offers small-business lending and credit card options.
3. U.S. Bank: Best for Simple, Fee-Free Banking
While primarily located in the Midwest, this chain has lots of locations across the country. That’s great news if you’re a small-business owner looking for a simple checking account.
U.S. Bank has no monthly service fees for its Silver account, so no worries about meeting certain criteria to have the fee waived. You can also go to its website and take a short quiz to determine which account would work best for your needs.
Number of branches: 3,106
Number of ATMs: 4,842
U.S. Bank offers Silver, Gold, Platinum and Premium business checking accounts, and we’re going to outline the first two.
U.S. Bank Silver Business Checking
Silver Business Checking (best for newer or smaller businesses) at a glance:
Sign-up bonus: None specified
Minimum initial deposit: $100
Monthly service fee: $0
Cash deposits per month: 25 for free
Free transactions per month: 120 per statement cycle; 50 cents per excess transaction
U.S. Bank will charge you $5 for paper statements, so stick with online ones to save money and the planet.
Online and mobile banking
Discount on first check order
Small Business Visa credit card
Card payment processing
U.S. Bank Gold Business Checking
Gold Business Checking (for businesses with moderate transaction levels) at a glance:
Sign-up bonus: None specified
Minimum initial deposit: $100
Monthly service fee: $20; waived by satisfying one of several criteria listed on its website
Cash deposits per month: 100 for free
Free transactions per month: 300 per statement cycle; 45 cents per excess transaction
Online and mobile banking
Remote check deposits
Discount on first check order
Small Business Visa credit card
Card payment processing
Silver and Gold are good options for small businesses looking for free business checking accounts (as long as you stay within the limits). And in general, Chase, Wells Fargo and U.S. Bank are all good options for an LLC.
4. BlueVine: Best for Fee-Free, Online-Only Banking
Want to open an account on your phone and manage it entirely online? Welcome to 2021… and to BlueVine.
BlueVine boasts no hidden fees and unlimited transactions. Members can pay vendors, schedule one-time and recurring payments, and earn an impressive 1.0% on their checking account balance up to $100,000. Deposits are FDIC-insured (up to $250,000) through The Bancorp Bank.
Number of branches: 0
Number of ATMs: Users can withdraw cash fee-free at over 38,000 MoneyPass® locations in the U.S.
BlueVine at a glance:
Sign-up bonus: None specified
Minimum initial deposit: $0
Monthly service fee: $0
Cash deposits per month: Unlimited. You can deposit cash at close to 100,000 retail locations through a partnership with Green Dot. A $4.95 fee, per deposit, applies.
Free transactions per month: Unlimited
A BlueVine Business Debit Mastercard®
Access to a business line of credit
Two free checkbooks
Phone and email customer support
5. Axos Bank: Best for Business Interest Checking
Axos Bank is another online-only bank. In addition to business checking accounts that earn interest, customers can take advantage of surcharge-free ATMs across the U.S.
Number of branches: 0
Number of ATMs: You can use any ATM in the U.S. and you’ll be reimbursed for the fees
Axos Bank offers Basic Business Checking, Business Interest Checking and Analyzed Business Checking. We’re going to look at the first two.
Axos Basic Business Checking
Basic Business Checking at a glance:
Sign-up bonus: $!00 if you incorporated after June 1, 2020
Minimum initial deposit: $1,000
Monthly service fee: $0
Cash deposits per month: Up to 60 items with remote deposit
Free transactions per month: 200; afterward, 30 cents each
Pay bills with no charge through the app
First set of 50 checks is free
Compatible with QuickBooks
Axos Business Interest Checking
Business Interest Checking at a glance:
Sign-up bonus: $100 if you incorporated after June 1, 2020
Minimum initial deposit: $100
Monthly service fee: $10; waived if there’s an average daily balance of $5,000
Cash deposits per month: Up to 60 with remote deposit
Free transactions per month: 50; afterward, 50 cents each
Earn up to 0.81% APY
First set of 50 checks for free
Axos Bank also offers saving accounts and Business CDs, but no credit cards.
Regional Business Checking Account Options
Here’s a glance at three smaller, regional options for business checking accounts. If your area isn’t listed, you can research credit unions and banks near you.
America First Credit Union
This institution has branches in Nevada and Utah. America First offers four types of business checking accounts: Basic, Premier, High-Yield and Non-Profit.
The Basic Business Checking offers 250 free monthly transactions, free online bill pay, access to money market savings, lines of credit and Business Visa credit card.
This bank has branches in Tennessee, Florida, North Carolina, South Carolina, Virginia and Texas. First Horizon offers BizEssentials Checking (Value, Basic, Standard and Interest) and Business Interest Checking Account, which combines the benefits of a checking and interest-earning savings account.
The Business Interest Checking Account has no minimum balance requirements, plus you’ll earn interest on your balance and have access to a Visa Business debit card.
SunTrust, Now Truist
This bank has branches in Alabama, Arkansas, Washington, D.C., Florida, Georgia, Maryland, Mississippi, North Carolina, South Carolina, Tennessee and Virginia. SunTrust offers three types of business checking accounts: Simple Business Checking, SunTrust Primary Business Checking and SunTrust Business Advantage Plus Checking.
SunTrust Primary Business Checking has a $15 monthly fee that’s waived in the first two statement cycles and after that when you have a $1,000 minimum daily balance. Each month, you’ll get 150 free transactions and $5,000 cash processing.
What’s the Right Business Checking Account for You?
The best business checking account for you will depend on your business and needs. Whether you’re just starting out or looking to level up, there are plenty of options out there, online and off. Start your search now, so your future self — and CPA, come tax time — will thank you later.
Contributor Kathleen Garvin (@itskgarvin) is a personal finance writer based in St. Petersburg, Florida, and former editor and marketer at The Penny Hoarder. She owns a content-writing business and her work has appeared in U.S. News, Clark.com and Well Kept Wallet.
Today’s retirees face many obstacles, from an unpredictable market to a lack of guaranteed income in retirement. While these are important challenges to address, they would be remiss to ignore their future tax burdens. We’ll likely see increased taxes in the future, and this will affect today’s retirees more than tax increases have affected retirees in the past.
Retirement Then vs. Now
Today’s retirees are the first IRA generation: Whereas previous generations could primarily rely on Social Security benefits and pensions to cover their retirement expenses, many of today’s retirees find themselves having to fund a much larger portion of their retirement through their own pre-tax retirement accounts. And while retirement accounts such as 401(k)s and IRAs have significant benefits, they also come with downsides, namely that all of the withdrawals in retirement are taxable as ordinary income at the current tax rates in our country.
This means that if tax rates were to rise, the retiree living off of IRAs will have to pay more in taxes and therefore live off of less after-tax income. Previous generations saved their money in after-tax accounts, meaning if tax rates were to rise, it would not affect them the same way it will for this IRA generation. When we look at the history of taxes and the Biden administration’s tax-increasing proposals, it’s clear that retirees need to have a tax-minimization plan.
Could We See Taxes Increase?
We need to plan for the tax rates of the future, not the present. Previously, tax increases primarily affected wage earners. The Social Security payroll tax and income tax increases had little effect on Social Security beneficiaries and retirees who saved in after-tax accounts. However, those who take distributions from a tax-deferred retirement account and who invest in the market are affected by both income tax increases and new taxes.
These could include:
The possible elimination of the favorable long-term capital gains taxes rates for the wealthiest investors. This could mean those with incomes of $1 million or more might pay up to 39.5% on their gains, rather than the current top rate of 20%.
Lowering of the current standard deduction. Many retirees don’t itemize their deductions and rely on the standard deduction. Therefore, if the current standard deduction is lowered, people’s taxes could go up.
Imposing the Social Security payroll tax on workers or households earning over $400,000 annually. This tax — in which employers and employees each pay 6.2% and the self-employed pay the full 12.4% — helps pay for Social Security benefits.
Lowering the federal estate tax exemption amount, which could affect estates above about $5 million.
Retirees should note that we may be experiencing tax rates at 100-year lows now, and that this could end in light of recent increased government spending. Our already large national debt increased during the pandemic, with the CARES Act of 2020 costing $2.2 trillion and the American Rescue Plan Act of 2021 costing $1.9 trillion. We will have to pay for this eventually, and retirees with large tax-deferred IRAs could be the ones to do it.
When we look at history, we see that after a period of increased government spending during World War II, income tax rates in the following decades were much higher than they are now. In 1944, the top rate peaked at 94%, and by 1964 it had only gone down to 70%. This doesn’t mean that an individual’s tax bracket will go from 22% to 70%, but there is a lot of room in between where retirees could feel the effects.
When running a financial plan, retirees need to calculate how much taxable income they will have and how much of that will be left after taxes. If tax rates rise, retirees could need to withdraw more from their taxable retirement accounts to be left with the same amount of income, ultimately drawing down their savings faster.
Taxes on retirement income can become more burdensome starting at age 72. Most retirees must take RMDs (required minimum distributions) from their traditional retirement accounts starting at age 72, and the amount they must withdraw is based on their age and account balance.
RMDs could force someone to withdraw more than they normally would from their tax-deferred retirement account, causing them to jump into a higher tax bracket. Retirees under the age 72 should look to do careful planning that may minimize this effect by the time they reach this age. (Keep reading for an idea on how to help do that below.)
Taxes and Your Legacy Goals
RMDs can also potentially increase a beneficiary’s tax burden due to the SECURE Act passed in 2019. It ended the “stretch IRA,” which allowed beneficiaries to stretch out distributions from an inherited retirement account over their lifetimes. Now, most non-spouse beneficiaries must empty traditional accounts within 10 years of the original owner’s death.
Those who want to pass on their retirement accounts should consider tax minimization strategies when creating an estate plan. One possibility is a charitable remainder trust.
What Can Retirees Do Now to Prepare for Higher Taxes Later?
Those who will draw a significant portion of their retirement income from taxable retirement account should take note, and work to minimize their overall tax burden. There are many strategies they can employ, including converting part or all of their traditional 401(k) or IRA to a Roth IRA. This involves paying tax on the amount converted and eventually withdrawing it from the Roth tax-free. If we see taxes increase in the future, a Roth conversion at today’s rates could potentially be a good strategy for those whose tax burden won’t substantially decrease in retirement.
In addition to providing tax-free income, a Roth is also exempt from RMDs. This means that the money in a Roth IRA can continue to grow throughout the owner’s lifetime tax-free. When it’s inherited, the beneficiary will have to drain the account in 10 years, as with a traditional IRA. However, distributions from traditional IRAs, distributions from Roth IRAs are not taxable and will not incur an early withdrawal penalty as long as the account is at least five years old.
The Bottom Line for Retirees
Retirees who have both traditional and Roth IRAs can strategically withdraw from each to avoid going into a higher tax bracket, continue to reap the tax-advantage benefits of a retirement account after age 72, and pass on potentially tax-free wealth to their beneficiaries. Those who think tax hikes are on the horizon and who don’t plan to live on significantly less income in retirement should consider tax-minimization strategies such as a Roth conversion.
Investment Advisory Services offered through Epstein and White Financial LLC, an SEC Registered Investment Advisor. Epstein & White Retirement Income Solutions, LLC is a licensed insurance agency with the state of California Department of Insurance (#0K53785). As of March 31, 2021, Epstein and White is now a part of Mercer Global Advisors Inc. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an Investment Adviser with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. The information, suggestions and recommendations included in this material is for informational purposes only and cannot be relied upon for any financial, legal, tax, accounting, or insurance purposes. Epstein and White Financial is not a certified public accounting firm, and no portion of its services should be construed as legal or accounting advice. Please consult with your own accountant and financial planning professional to determine how tax changes affect your unique financial situation. A copy of Epstein & White Financial LLC’s current written disclosure statement discussing advisory services and fees is available for review upon request or at www.adviserinfo.sec.gov.
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 and CEO, Epstein and White Retirement Income Solutions
Bradley White is founder and CEO of Epstein and White. He’s a Certified Financial Planner™ and has a bachelor’s degree in finance from San Diego State University. He’s an Investment Advisor Representative (IAR) and an insurance professional.
You may not know what the future holds, but you know there’ll be a meal involved. A good meal or grocery trip is not only a necessity for survival, it can also be part of an investment strategy.
While restaurants and grocery stores may come to mind, the world of food stocks is larger than one might think, encompassing everything from a grain of wheat to the latest on-demand app.
Food stocks and the industries surrounding them have long been a part of investors’ portfolios. The most recent figures show that Americans dedicate close to 10% of their disposable income on food, a level that’s been consistent for about two decades. Roughly half that is spent for food at home, and the other half is on dining out.
But some types of food stocks can hold more risk than others. Read on to learn the history of food stocks in the market, the types of food stocks, and the overall risk profile of these investments.
Are Food Companies Consumer Staples or Discretionary Stocks?
Looking at the market as a whole, food stocks are part of the “consumer staples” industry, which is considered to be a “defensive” sector in investing. Defensive sectors are those less closely tied to the economy. That means even if the economy is in a recession, consumer staples are seen as less risky and more stable than other industries.
However, no stock is recession-proof. And not all food stocks are actually consumer staples. For instance, restaurant companies typically fall into the consumer discretionary category, which consist of “cyclical stocks,” or those tied to how well the economy is doing. That’s because of how people tend to dine out when they have more income to spend in their pockets.
Recommended: Investing With the Business Cycle
When deciding whether to invest in a food stock, beginner investors might want to research which industry the company falls under: consumer staples or consumer discretionary.
Different Types of Food Stocks
Food stocks include more than just memorable brands. It’s more encompassing than just consumer-facing brands or restaurants. Anything that helps food get to your plate can be considered part of the food supply chain.
Food stocks generally fall under these seven sub-industries:
Food stock investing can start at the granular level–investing in raw agricultural commodities like soy, rice, wheat, and corn. Farming stocks can also include the ancillary companies that foster that growth–companies that create and distribute insecticide and herbicide or build the industrial-size farm equipment to help harvest goods.
While one might think investing in farming stock would be actual farms, the reality is the opposite. About 98% of farms in the U.S. are family-owned and therefore, not publicly traded. So investing in farming stock primarily means the chemicals and machinery that help harvest the raw product.
Farming stocks can waver based on things like the weather and current events. It can be challenging to predict the next rainy season or drought, sometimes making it hard to track and predict value. In addition, tariffs and trade agreements can influence the performance of these stocks, making them more volatile.
Recommended: Understanding Stock Volatility
Companies that work in food processing buy raw ingredients that are combined to make items in the grocery store aisles or on restaurant menus.
Some names and brands in the food processing sector might not be familiar to the casual investor. More often than not, these companies are behind the scenes, operating at a large scale to provide the world oils and sweeteners.
Food processing stocks have their own quirks when it comes to investing. Unlike farming, they’re less influenced by the whims of weather or season, but they still have an associated set of risks. The costs associated with this industry vertical are vast, and price competition across brands can lead to drops or jumps in the market.
Stocks of Food Producers
Further up the supply chain comes food producers, where novice investors are more likely to know these brands and companies from daily life and dietary habits. Food producers take the raw ingredients provided by processors and create the items found on store shelves.
Break this vertical down further to find “diversified” and “specialized” producers.
As the name suggests, diversified food producers are companies that create a ton of different products under the same name umbrella, like Nestlé, which makes everything from baby food to ice cream.
Then there are specialized producers. They make consumer products as well, but these companies often cater to a narrower audience, producing only a few items, often within the same vertical.
In times of recession, luxury or expensive food processing stocks might take a dip. Additionally, consumer trends can influence the market. Take the alternative meat craze–a popular investment trend in recent years. Investors saw larger-than-average returns for the industry due to interest in the trend.
Distribution companies have little to do with consumption or production and focus more on logistics and transport. These companies send products across the country and world.
Distribution companies range from very large, reaching national distribution, to fairly small, where they connect specialty retailers. The distribution market might have its long-term players, but investing in it comes with its own risks.
Grocery stores have become big business in the investment game. The next link in the chain, grocery stores are where the products end up once a distributor drops them off.
Grocery store investments are hardly recession-proof, but the necessity of groceries as a staple for consumers suggests these investments take a lesser hit in a market downturn.
Recommended: Investing During a Recession
Restaurants are an additional resting place for food distributors. In economic downturns, discretionary restaurant spending is usually the first to go, making this industry within food investing slightly less stable than the others. Additionally, this arena might be most susceptible to trends.
Food-Delivery Service Stocks
The newest addition in food stocks is more about tech than good eats. Online delivery services have burst onto the scene, and with a limited history of performance, are considered to be riskier than the traditional food stocks outlined above.
Right now, delivery service companies are still duking it out across the country, expanding to new cities and slashing the price of services to entice customers.
Pros and Cons of Investing in Food Stocks
With all the ingredients in order, it’s time to highlight a few of the basic pros and cons of investing in food stocks.
• Pro: Food stocks, particularly those that are consumer staples, can perform consistently. Food stocks can be a relatively safe, recession-resistant investment (but remember all stocks have inherent risk). • Con: Food stocks perform consistently. For an investor looking for a higher-risk investment, the steady year-over-year earnings might not be as enticing for someone trying to build a high-return portfolio. • Pro: Familiarity with brands. Many food stocks are also commonly found in investors’ pantries and refrigerators. For someone new to investing, buying stocks in the brands they trust and use could be a great way to dip their toes in the market. • Con: Not all food stocks are immune to ups and downs in the economy. Some companies, particularly restaurant groups or those that produce higher-priced products, may be hurt if discretionary spending by consumers pulls back.
Investing in food companies can actually lead to investing in a wide range of different companies–those that are defensive and more immune to economic shifts, those that are cyclical and rise when the economy is hot.
It can also involve wagering on stocks that have long been a part of the food supply chain, as well as startup unicorn companies that are using innovative mobile technology to deliver meals to consumers.
For individuals who want to try their hand at picking food stocks, SoFi’s Active Investing platform may be a good option. Investors can buy traditional stocks, exchange-traded funds (ETFs), or even fractional shares of some companies. For those who need help, the Automated Investing service builds portfolios for SoFi Members and Certified Financial Planners can answer questions on investing.
Get started with SoFi Invest today.
SoFi Invest® The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below. 1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates. Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners. Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances. SOIN19218