In Best Low-Risk Investments for 2023, I provided a comprehensive list of low-risk investments with predictable returns. But it’s precisely because those returns are low-risk that they also provide relatively low returns.
In this article, we’re going to look at high-yield investments, many of which involve a higher degree of risk but are also likely to provide higher returns.
True enough, low-risk investments are the right investment solution for anyone who’s looking to preserve capital and still earn some income.
But if you’re more interested in the income side of an investment, accepting a bit of risk can produce significantly higher returns. And at the same time, these investments will generally be less risky than growth stocks and other high-risk/high-reward investments.
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Determine How Much Risk You’re Willing to Take On
The risk we’re talking about with these high-yield investments is the potential for you to lose money. As is true when investing in any asset, you need to begin by determining how much you’re willing to risk in the pursuit of higher returns.
Chasing “high-yield returns” will make you broke if you don’t have clear financial goals you’re working towards.
I’m going to present a large number of high-yield investments, each with its own degree of risk. The purpose is to help you evaluate the risk/reward potential of these investments when selecting the ones that will be right for you.
If you’re looking for investments that are completely safe, you should favor one or more of the highly liquid, low-yield vehicles covered in Best Low-Risk Investments for 2023. In this article, we’re going to be going for something a little bit different. As such, please note that this is not in any way a blanket recommendation of any particular investment.
Best High-Yield Investments for 2023
Table of Contents
Below is my list of the 18 best high-yield investments for 2023. They’re not ranked or listed in order of importance. That’s because each is a unique investment class that you will need to carefully evaluate for suitability within your own portfolio.
Be sure that any investment you do choose will be likely to provide the return you expect at an acceptable risk level for your own personal risk tolerance.
1. Treasury Inflation-Protected Securities (TIPS)
Let’s start with this one, if only because it’s on just about every list of high-yield investments, especially in the current environment of rising inflation. It may not actually be the best high-yield investment, but it does have its virtues and shouldn’t be overlooked.
Basically, TIPS are securities issued by the U.S. Treasury that are designed to accommodate inflation. They do pay regular interest, though it’s typically lower than the rate paid on ordinary Treasury securities of similar terms. The bonds are available with a minimum investment of $100, in terms of five, 10, and 30 years. And since they’re fully backed by the U.S. government, you are assured of receiving the full principal value if you hold a security until maturity.
But the real benefit—and the primary advantage—of these securities is the inflation principal additions. Each year, the Treasury will add an amount to the bond principal that’s commensurate with changes in the Consumer Price Index (CPI).
Fortunately, while the principal will be added when the CPI rises (as it nearly always does), none will be deducted if the index goes negative.
You can purchase TIPS through the U.S. Treasury’s investment portal, Treasury Direct. You can also hold the securities as well as redeem them on the same platform. There are no commissions or fees when buying securities.
On the downside, TIPS are purely a play on inflation since the base rates are fairly low. And while the principal additions will keep you even with inflation, you should know that they are taxable in the year received.
Still, TIPS are an excellent low-risk, high-yield investment during times of rising inflation—like now.
2. I Bonds
If you’re looking for a true low-risk, high-yield investment, look no further than Series I bonds. With the current surge in inflation, these bonds have become incredibly popular, though they are limited.
I bonds are currently paying 6.89%. They can be purchased electronically in denominations as little as $25. However, you are limited to purchasing no more than $10,000 in I bonds per calendar year. Since they are issued by the U.S. Treasury, they’re fully protected by the U.S. government. You can purchase them through the Treasury Department’s investment portal, TreasuryDirect.gov.
“The cash in my savings account is on fire,” groans Scott Lieberman, Founder of Touchdown Money. “Inflation has my money in flames, each month incinerating more and more. To defend against this, I purchased an I bond. When I decide to get my money back, the I bond will have been protected against inflation by being worth more than what I bought it for. I highly recommend getting yourself a super safe Series I bond with money you can stash away for at least one year.”
You may not be able to put your entire bond portfolio into Series I bonds. But just a small investment, at nearly 10%, can increase the overall return on your bond allocation.
3. Corporate Bonds
The average rate of return on a bank savings account is 0.33%. The average rate on a money market account is 0.09%, and 0.25% on a 12-month CD.
Now, there are some banks paying higher rates, but generally only in the 1%-plus range.
If you want higher returns on your fixed income portfolio, and you’re willing to accept a moderate level of risk, you can invest in corporate bonds. Not only do they pay higher rates than banks, but you can lock in those higher rates for many years.
For example, the average current yield on a AAA-rated corporate bond is 4.55%. Now that’s the rate for AAA bonds, which are the highest-rated securities. You can get even higher rates on bonds with lower ratings, which we will cover in the next section.
Corporate bonds sell in face amounts of $1,000, though the price may be higher or lower depending on where interest rates are. If you choose to buy individual corporate bonds, expect to buy them in lots of ten. That means you’ll likely need to invest $10,000 in a single issue. Brokers will typically charge a small per-bond fee on purchase and sale.
An alternative may be to take advantage of corporate bond funds. That will give you an opportunity to invest in a portfolio of bonds for as little as the price of one share of an ETF. And because they are ETFs, they can usually be bought and sold commission free.
You can typically purchase corporate bonds and bond funds through popular stock brokers, like Zacks Trade, TD Ameritrade.
Corporate Bond Risk
Be aware that the value of corporate bonds, particularly those with maturities greater than 10 years, can fall if interest rates rise. Conversely, the value of the bonds can rise if interest rates fall.
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4. High-Yield Bonds
In the previous section we talked about how interest rates on corporate bonds vary based on each bond issue’s rating. A AAA bond, being the safest, has the lowest yield. But a riskier bond, such as one rated BBB, will provide a higher rate of return.
If you’re looking to earn higher interest than you can with investment-grade corporate bonds, you can get those returns with so-called high-yield bonds. Because they have a lower rating, they pay higher interest, sometimes much higher.
The average yield on high-yield bonds is 8.29%. But that’s just an average. The yield on a bond rated B will be higher than one rated BB.
You should also be aware that, in addition to potential market value declines due to rising interest rates, high-yield bonds are more likely to default than investment-grade bonds. That’s why they pay higher interest rates. (They used to call these bonds “junk bonds,” but that kind of description is a marketing disaster.) Because of those twin risks, junk bonds should occupy only a small corner of your fixed-income portfolio.
High Yield Bond Risk
In a rapidly rising interest rate environment, high-yield bonds are more likely to default.
High-yield bonds can be purchased under similar terms and in the same places where you can trade corporate bonds. There are also ETFs that specialize in high-yield bonds and will be a better choice for most investors, since they will include diversification across many different bond issues.
5. Municipal Bonds
Just as corporations and the U.S. Treasury issue bonds, so do state and local governments. These are referred to as municipal bonds. They work much like other bond types, particularly corporates. They can be purchased in similar denominations through online brokers.
The main advantage enjoyed by municipal bonds is their tax-exempt status for federal income tax purposes. And if you purchase a municipal bond issued by your home state, or a municipality within that state, the interest will also be tax-exempt for state income tax purposes.
That makes municipal bonds an excellent source of tax-exempt income in a nonretirement account. (Because retirement accounts are tax-sheltered, it makes little sense to include municipal bonds in those accounts.)
Municipal bond rates are currently hovering just above 3% for AAA-rated bonds. And while that’s an impressive return by itself, it masks an even higher yield.
Because of their tax-exempt status, the effective yield on municipal bonds will be higher than the note rate. For example, if your combined federal and state marginal income tax rates are 25%, the effective yield on a municipal bond paying 3% will be 4%. That gives an effective rate comparable with AAA-rated corporate bonds.
Municipal bonds, like other bonds, are subject to market value fluctuations due to interest rate changes. And while it’s rare, there have been occasional defaults on these bonds.
Like corporate bonds, municipal bonds carry ratings that affect the interest rates they pay. You can investigate bond ratings through sources like Standard & Poor’s, Moody’s, and Fitch.
Fund
Symbol
Type
Current Yield
5 Average Annual Return
Vanguard Inflation-Protected Securities Fund
VIPSX
TIPS
0.06%
3.02%
SPDR® Portfolio Interm Term Corp Bond ETF
SPIB
Corporate
4.38%
1.44%
iShares Interest Rate Hedged High Yield Bond ETF
HYGH
High-Yield
5.19%
2.02%
Invesco VRDO Tax-Free ETF (PVI)
PVI
Municipal
0.53%
0.56%
6. Longer Term Certificates of Deposit (CDs)
This is another investment that falls under the low risk/relatively high return classification. As interest rates have risen in recent months, rates have crept up on certificates of deposit. Unlike just one year ago, CDs now merit consideration.
But the key is to invest in certificates with longer terms.
“Another lower-risk option is to consider a Certificate of Deposit (CD),” advises Lance C. Steiner, CFP at Buckingham Advisors. “Banks, credit unions, and many other financial institutions offer CDs with maturities ranging from 6 months to 60 months. Currently, a 6-month CD may pay between 0.75% and 1.25% where a 24-month CD may pay between 2.20% and 3.00%. We suggest considering a short-term ladder since interest rates are expected to continue rising.” (Stated interest rates for the high-yield savings and CDs were obtained at bankrate.com.)
Most banks offer certificates of deposit with terms as long as five years. Those typically have the highest yields.
But the longer term does involve at least a moderate level of risk. If you invest in a CD for five years that’s currently paying 3%, the risk is that interest rates will continue rising. If they do, you’ll miss out on the higher returns available on newer certificates. But the risk is still low overall since the bank guarantees to repay 100% of your principle upon certificate maturity.
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7. Peer-to-Peer (P2P) Lending
Do you know how banks borrow from you—at 1% interest—then loan the same money to your neighbor at rates sometimes as high as 20%? It’s quite a racket, and a profitable one at that.
But do you also know that you have the same opportunity as a bank? It’s an investing process known as peer-to-peer lending, or P2P for short.
P2P lending essentially eliminates the bank. As an investor, you’ll provide the funds for borrowers on a P2P platform. Most of these loans will be in the form of personal loans for a variety of purposes. But some can also be business loans, medical loans, and for other more specific purposes.
As an investor/lender, you get to keep more of the interest rate return on those loans. You can invest easily through online P2P platforms.
One popular example is Prosper. They offer primarily personal loans in amounts ranging between $2,000 and $40,000. You can invest in small slivers of these loans, referred to as “notes.” Notes can be purchased for as little as $25.
That small denomination will make it possible to diversify your investment across many different loans. You can even choose the loans you will invest in based on borrower credit scores, income, loan terms, and purposes.
Prosper, which has managed $20 billion in P2P loans since 2005, claims a historical average return of 5.7%. That’s a high rate of return on what is essentially a fixed-income investment. But that’s because there exists the possibility of loss due to borrower default.
However, you can minimize the likelihood of default by carefully choosing borrower loan quality. That means focusing on borrowers with higher credit scores, incomes, and more conservative loan purposes (like debt consolidation).
8. Real Estate Investment Trusts (REITs)
REITs are an excellent way to participate in real estate investment, and the return it provides, without large amounts of capital or the need to manage properties. They’re publicly traded, closed-end investment funds that can be bought and sold on major stock exchanges. They invest primarily in commercial real estate, like office buildings, retail space, and large apartment complexes.
If you’re planning to invest in a REIT, you should be aware that there are three different types.
“Equity REITs purchase commercial, industrial, or residential real estate properties,” reports Robert R. Johnson, PhD, CFA, CAIA, Professor of Finance, Heider College of Business, Creighton University and co-author of several books, including The Tools and Techniques Of Investment Planning, Strategic Value Investing and Investment Banking for Dummies. “Income is derived primarily from the rental on the properties, as well as from the sale of properties that have increased in value. Mortgage REITs invest in property mortgages. The income is primarily from the interest they earn on the mortgage loans. Hybrid REITs invest both directly in property and in mortgages on properties.”
Johnson also cautions:
“Investors should understand that equity REITs are more like stocks and mortgage REITs are more like bonds. Hybrid REITs are like a mix of stocks and bonds.”
Mortgage REITs, in particular, are an excellent way to earn steady dividend income without being closely tied to the stock market.
Examples of specific REITs are listed in the table below (source: Kiplinger):
REIT
Equity or Mortgage
Property Type
Dividend Yield
12 Month Return
Rexford Industrial Realty
REXR
Industrial warehouse space
2.02%
2.21%
Sun Communities
SUI
Manufactured housing, RVs, resorts, marinas
2.19%
-14.71%
American Tower
AMT
Multi-tenant cell towers
2.13%
-9.00%
Prologis
PLD
Industrial real estate
2.49%
-0.77%
Camden Property Trust
CPT
Apartment complexes
2.77%
-7.74%
Alexandria Real Estate Equities
ARE
Research Properties
3.14%
-23.72%
Digital Realty Trust
DLR
Data centers
3.83%
-17.72%
9. Real Estate Crowdfunding
If you prefer direct investment in a property of your choice, rather than a portfolio, you can invest in real estate crowdfunding. You invest your money, but management of the property will be handled by professionals. With real estate crowdfunding, you can pick out individual properties, or invest in nonpublic REITs that invest in very specific portfolios.
One of the best examples of real estate crowdfunding is Fundrise. That’s because you can invest with as little as $500 or create a customized portfolio with no more than $1,000. Not only does Fundrise charge low fees, but they also have multiple investment options. You can start small in managed investments, and eventually trade up to investing in individual deals.
One thing to be aware of with real estate crowdfunding is that many require accredited investor status. That means being high income, high net worth, or both. If you are an accredited investor, you’ll have many more choices in the real estate crowdfunding space.
If you are not an accredited investor, that doesn’t mean you’ll be prevented from investing in this asset class. Part of the reason why Fundrise is so popular is that they don’t require accredited investor status. There are other real estate crowdfunding platforms that do the same.
Just be careful if you want to invest in real estate through real estate crowdfunding platforms. You will be expected to tie your money up for several years, and early redemption is often not possible. And like most investments, there is the possibility of losing some or all your investment principal.
Low minimum investment – $10
Diversified real estate portfolio
Portfolio Transparency
10. Physical Real Estate
We’ve talked about investing in real estate through REITs and real estate crowdfunding. But you can also invest directly in physical property, including residential property or even commercial.
Owning real estate outright means you have complete control over the investment. And since real estate is a large-dollar investment, the potential returns are also large.
For starters, average annual returns on real estate are impressive. They’re even comparable to stocks. Residential real estate has generated average returns of 10.6%, while commercial property has returned an average of 9.5%.
Next, real estate has the potential to generate income from two directions, from rental income and capital gains. But because of high property values in many markets around the country, it will be difficult to purchase real estate that will produce a positive cash flow, at least in the first few years.
Generally speaking, capital gains are where the richest returns come from. Property purchased today could double or even triple in 20 years, creating a huge windfall. And this will be a long-term capital gain, to get the benefit of a lower tax bite.
Finally, there’s the leverage factor. You can typically purchase an investment property with a 20% down payment. That means you can purchase a $500,000 property with $100,000 out-of-pocket.
By calculating your capital gains on your upfront investment, the returns are truly staggering. If the $500,000 property doubles to $1 million in 20 years, the $500,000 profit generated will produce a 500% gain on your $100,000 investment.
On the negative side, real estate is certainly a very long-term investment. It also comes with high transaction fees, often as high as 10% of the sale price. And not only will it require a large down payment up front, but also substantial investment of time managing the property.
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11. High Dividend Stocks
“The best high-yield investment is dividend stocks,” declares Harry Turner, Founder at The Sovereign Investor. “While there is no guaranteed return with stocks, over the long term stocks have outperformed other investments such as bonds and real estate. Among stocks, dividend-paying stocks have outperformed non-dividend paying stocks by more than 2 percentage points per year on average over the last century. In addition, dividend stocks tend to be less volatile than non-dividend paying stocks, meaning they are less likely to lose value in downturns.”
You can certainly invest in individual stocks that pay high dividends. But a less risky way to do it, and one that will avoid individual stock selection, is to invest through a fund.
One of the most popular is the ProShares S&P 500 Dividend Aristocrat ETF (NOBL). It has provided a return of 1.67% in the 12 months ending May 31, and an average of 12.33% per year since the fund began in October 2013. The fund currently has a 1.92% dividend yield.
The so-called Dividend Aristocrats are popular because they represent 60+ S&P 500 companies, with a history of increasing their dividends for at least the past 25 years.
“Dividend Stocks are an excellent way to earn some quality yield on your investments while simultaneously keeping inflation at bay,” advises Lyle Solomon, Principal Attorney at Oak View Law Group, one of the largest law firms in America. “Dividends are usually paid out by well-established and successful companies that no longer need to reinvest all of the profits back into the business.”
It gets better. “These companies and their stocks are safer to invest in owing to their stature, large customer base, and hold over the markets,” adds Solomon. “The best part about dividend stocks is that many of these companies increase dividends year on year.”
The table below shows some popular dividend-paying stocks. Each is a so-called “Dividend Aristocrat”, which means it’s part of the S&P 500 and has increased its dividend in each of at least the past 25 years.
Company
Symbol
Dividend
Dividend Yield
AbbVie
ABBV
$5.64
3.80%
Armcor PLC
AMCR
$0.48
3.81%
Chevron
CVX
$5.68
3.94%
ExxonMobil
XOM
$3.52
4.04%
IBM
IBM
$6.60
5.15%
Realty Income Corp
O
$2.97
4.16%
Walgreen Boots Alliance
WBA
$1.92
4.97%
12. Preferred Stocks
Preferred stocks are a very specific type of dividend stock. Just like common stock, preferred stock represents an interest in a publicly traded company. They’re often thought of as something of a hybrid between stocks and bonds because they contain elements of both.
Though common stocks can pay dividends, they don’t always. Preferred stocks on the other hand, always pay dividends. Those dividends can be either a fixed amount or based on a variable dividend formula. For example, a company can base the dividend payout on a recognized index, like the LIBOR (London Inter-Bank Offered Rate). The percentage of dividend payout will then change as the index rate does.
Preferred stocks have two major advantages over common stock. First, as “preferred” securities, they have a priority on dividend payments. A company is required to pay their preferred shareholders dividends ahead of common stockholders. Second, preferred stocks have higher dividend yields than common stocks in the same company.
You can purchase preferred stock through online brokers, some of which are listed under “Growth Stocks” below.
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Preferred Stock Caveats
The disadvantage of preferred stocks is that they don’t entitle the holder to vote in corporate elections. But some preferred stocks offer a conversion option. You can exchange your preferred shares for a specific number of common stock shares in the company. Since the conversion will likely be exercised when the price of the common shares takes a big jump, there’s the potential for large capital gains—in addition to the higher dividend.
Be aware that preferred stocks can also be callable. That means the company can authorize the repurchase of the stock at its discretion. Most will likely do that at a time when interest rates are falling, and they no longer want to pay a higher dividend on the preferred stock.
Preferred stock may also have a maturity date, which is typically 30–40 years after its original issuance. The company will typically redeem the shares at the original issue price, eliminating the possibility of capital gains.
Not all companies issue preferred stock. If you choose this investment, be sure it’s with a company that’s well-established and has strong financials. You should also pay close attention to the details of the issuance, including and especially any callability provisions, dividend formulas, and maturity dates.
13. Growth Stocks
This sector is likely the highest risk investment on this list. But it also may be the one with the highest yield, at least over the long term. That’s why we’re including it on this list.
Based on the S&P 500 index, stocks have returned an average of 10% per year for the past 50 years. But it is important to realize that’s only an average. The market may rise 40% one year, then fall 20% the next. To be successful with this investment, you must be committed for the long haul, up to and including several decades.
And because of the potential wide swings, growth stocks are not recommended for funds that will be needed within the next few years. In general, growth stocks work best for retirement plans. That’s where they’ll have the necessary decades to build and compound.
Since most of the return on growth stocks is from capital gains, you’ll get the benefit of lower long-term capital gains tax rates, at least with securities held in a taxable account. (The better news is capital gains on investments held in retirement accounts are tax-deferred until retirement.)
You can choose to invest in individual stocks, but that’s a fairly high-maintenance undertaking. A better way may be to simply invest in ETFs tied to popular indexes. For example, ETFs based on the S&P 500 are very popular among investors.
You can purchase growth stocks and growth stock ETFs commission free with brokers like M1 Finance, Zacks Trade, Wealthsimple.
14. Annuities
Annuities are something like creating your own private pension. It’s an investment contract you take with an insurance company, in which you invest a certain amount of money in exchange for a specific income stream. They can be an excellent source of high yields because the return is locked in by the contract.
Annuities come in many different varieties. Two major classifications are immediate and deferred annuities. As the name implies, immediate annuities begin paying an income stream shortly after the contract begins.
Deferred annuities work something like retirement plans. You may deposit a fixed amount of money with the insurance company upfront or make regular installments. In either case, income payments will begin at a specified point in the future.
With deferred annuities, the income earned within the plan is tax-deferred and paid upon withdrawal. But unlike retirement accounts, annuity contributions are not tax-deductible. Investment returns can either be fixed-rate or variable-rate, depending on the specific annuity setup.
While annuities are an excellent idea and concept, the wide variety of plans as well as the many insurance companies and agents offering them, make them a potential minefield. For example, many annuities are riddled with high fees and are subject to limited withdrawal options.
Because they contain so many moving parts, any annuity contracts you plan to enter into should be carefully reviewed. Pay close attention to all the details, including the small ones. It is, after all, a contract, and therefore legally binding. For that reason, you may want to have a potential annuity reviewed by an attorney before finalizing the deal.
15. Alternative Investments
Alternative investments cover a lot of territory. Examples include precious metals, commodities, private equity, art and collectibles, and digital assets. These fall more in the category of high risk/potential high reward, and you should proceed very carefully and with only the smallest slice of your portfolio.
To simplify the process of selecting alternative assets, you can invest through platforms such as Yieldstreet. With a single cash investment, you can invest in multiple alternatives.
“Investors can purchase real estate directly on Yieldstreet, through fractionalized investments in single deals,” offers Milind Mehere, Founder & Chief Executive Officer at Yieldstreet. “Investors can access private equity and private credit at high minimums by investing in a private market fund (think Blackstone or KKR, for instance). On Yieldstreet, they can have access to third-party funds at a fraction of the previously required minimums. Yieldstreet also offers venture capital (fractionalized) exposure directly. Buying a piece of blue-chip art can be expensive, and prohibitive for most investors, which is why Yieldstreet offers fractionalized assets to diversified art portfolios.”
Yieldstreet also provides access to digital asset investments, with the benefit of allocating to established professional funds, such as Pantera or Osprey Fund. The platform does not currently offer commodities but plans to do so in the future.
Access to wide array of alternative asset classes
Access to ultra-wealthy investments
Can invest for income or growth
Learn More Now
Alternative investments largely require thinking out-of-the-box. Some of the best investment opportunities are also the most unusual.
“The price of meat continues to rise, while agriculture remains a recession-proof investment as consumer demand for food is largely inelastic,” reports Chris Rawley, CEO of Harvest Returns, a platform for investing in private agriculture companies. “Consequently, investors are seeing solid returns from high-yield, grass-fed cattle notes.”
16. Interest Bearing Crypto Accounts
Though the primary appeal of investing in cryptocurrency has been the meteoric rises in price, now that the trend seems to be in reverse, the better play may be in interest-bearing crypto accounts. A select group of crypto exchanges pays high interest on your crypto balance.
One example is Gemini. Not only do they provide an opportunity to buy, sell, and store more than 100 cryptocurrencies—plus non-fungible tokens (NFTs)—but they are currently paying 8.05% APY on your crypto balance through Gemini Earn.
In another variation of being able to earn money on crypto, Crypto.com pays rewards of up to 14.5% on crypto held on the platform. That’s the maximum rate, as rewards vary by crypto. For example, rewards on Bitcoin and Ethereum are paid at 6%, while stablecoins can earn 8.5%.
It’s important to be aware that when investing in cryptocurrency, you will not enjoy the benefit of FDIC insurance. That means you can lose money on your investment. But that’s why crypto exchanges pay such high rates of return, whether it’s in the form of interest or rewards.
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17. Crypto Staking
Another way to play cryptocurrency is a process known as crypto staking. This is where the crypto exchange pays you a certain percentage as compensation or rewards for monitoring a specific cryptocurrency. This is not like crypto mining, which brings crypto into existence. Instead, you’ll participate in writing that particular blockchain and monitoring its security.
“Crypto staking is a concept wherein you can buy and lock a cryptocurrency in a protocol, and you will earn rewards for the amount and time you have locked the cryptocurrency,” reports Oak View Law Group’s Lyle Solomon.
“The big downside to staking crypto is the value of cryptocurrencies, in general, is extremely volatile, and the value of your staked crypto may reduce drastically,” Solomon continues, “However, you can stake stable currencies like USDC, which have their value pegged to the U.S. dollar, and would imply you earn staked rewards without a massive decrease in the value of your investment.”
Much like earning interest and rewards on crypto, staking takes place on crypto exchanges. Two exchanges that feature staking include Coinbase and Kraken. These are two of the largest crypto exchanges in the industry, and they provide a wide range of crypto opportunities, in addition to staking.
Invest in Startup Businesses and Companies
Have you ever heard the term “angel investor”? That’s a private investor, usually, a high net worth individual, who provides capital to small businesses, often startups. That capital is in the form of equity. The angel investor invests money in a small business, becomes a part owner of the company, and is entitled to a share of the company’s earnings.
In most cases, the angel investor acts as a silent partner. That means he or she receives dividend distributions on the equity invested but doesn’t actually get involved in the management of the company.
It’s a potentially lucrative investment opportunity because small businesses have a way of becoming big businesses. As they grow, both your equity and your income from the business also grow. And if the business ever goes public, you could be looking at a life-changing windfall!
Easy Ways to Invest in Startup Businesses
Mainvest is a simple, easy way to invest in small businesses. It’s an online investment platform where you can get access to returns as high as 25%, with an investment of just $100. Mainvest offers vetted businesses (the acceptance rate is just 5% of business that apply) for you to invest in.
It collects revenue, which will be paid to you quarterly. And because the minimum required investment is so small, you can invest in several small businesses at the same time. One of the big advantages with Mainvest is that you are not required to be an accredited investor.
Still another opportunity is through Fundrise Innovation Fund. I’ve already covered how Fundrise is an excellent real estate crowdfunding platform. But through their recently launched Innovaton Fund, you’ll have opportunity to invest in high-growth private technology companies. As a fund, you’ll invest in a portfolio of late-stage tech companies, as well as some public equities.
The purpose of the fund is to provide high growth, and the fund is currently offering shares with a net asset value of $10. These are long-term investments, so you should expect to remain invested for at least five years. But you may receive dividends in the meantime.
Like Mainvest, the Fundrise Innovation Fund does not require you to be an accredited investor.
Low minimum investment – $10
Diversified real estate portfolio
Portfolio Transparency
Final Thoughts on High Yield Investing
Notice that I’ve included a mix of investments based on a combination of risk and return. The greater the risk associated with the investment, the higher the stated or expected return will be.
It’s important when choosing any of these investments that you thoroughly assess the risk involved with each, and not focus primarily on return. These are not 100% safe investments, like short-term CDs, short-term Treasury securities, savings accounts, or bank money market accounts.
Because there is risk associated with each, most are not suitable as short-term investments. They make most sense for long-term investment accounts, particularly retirement accounts.
For example, growth stocks—and most stocks, for that matter—should generally be in a retirement account. While there will be years when you will suffer losses in your position, you’ll have enough years to offset those losses between now and retirement.
Also, if you don’t understand any of the above investments, it will be best to avoid making them. And for more complicated investments, like annuities, you should consult with a professional to evaluate the suitability and all the provisions it contains.
FAQ’s on High Yield Investment Options
What investment has the highest yield?
The investment with the highest yield will vary depending on a number of factors, including current market conditions and the amount of risk an investor is willing to take on. Generally speaking, investments with the potential for high yields also come with a higher level of risk, so it’s important for investors to carefully consider their options and choose investments that align with their financial goals and risk tolerance.
Some examples of high-yield investments include:
1. Stocks: Some stocks may offer high dividend yields, which is the annual dividend payment a company makes to its shareholders, expressed as a percentage of the stock’s current market price.
2. Real estate: Investing in real estate, either directly by purchasing property or indirectly through a real estate investment trust (REIT), can potentially generate high returns in the form of rental income and appreciation of the property value.
3. High-yield bonds: High-yield bonds, also known as junk bonds, are bonds that are issued by companies with lower credit ratings and thus offer higher yields to compensate for the added risk.
4. Private lending: Investing in private loans, such as through peer-to-peer lending platforms, can potentially offer high yields, but it also carries a higher level of risk.
5. Commodities: Investing in commodities, such as precious metals or oil, can potentially generate high returns if the prices of those commodities rise. However, the prices of commodities can also be volatile and subject to market fluctuations.
It’s important to note that these are just examples and not recommendations. As with any investment, it’s crucial to carefully research and consider all the potential risks and rewards before making a decision.
Where can I invest my money to get high returns?
There are a number of places you can invest your money to get high returns. One option is to invest in stocks, which typically offer higher returns than other investment options. Another option is to invest in bonds, which are considered a relatively safe investment option.
You could also invest in real estate, which has the potential to provide high returns if done correctly. Finally, you could also invest in commodities, such as gold or silver, which can be a risky investment but can also offer high returns.
What investments can I make a 10% return?
It’s difficult to predict exactly what investments will generate a 10% return, as investment returns can vary depending on a number of factors, including market conditions and the performance of the specific investment. Some investments, such as stocks and real estate, have the potential to generate returns in excess of 10%, but they also come with a higher level of risk. It’s important to remember that past performance is not necessarily indicative of future results, and that all investments carry some degree of risk
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Real estate offers myriad investment choices, from single-family homes to data centers. The ideal asset for you depends on factors such as your investment size and strategy. Over the past several decades, investors have diversified their portfolios by capitalizing on emerging market opportunities like self-storage.
Self-storage facilities serve as secure storage solutions for individuals and businesses, accommodating various products, materials and more. Given the high demand for spaces to store household belongings and business equipment, self-storage facilities have become indispensable nationwide.
For help figuring out your personal investing strategy, consider working with a financial advisor.
Self-Storage Investing Basics
Self-storage investing means investing in storage units that individuals and businesses use to stow their spare belongings and assets. For example, a homeowner might need room for seasonal lawn equipment. For businesses, storage units can be used for surplus inventory instead of throwing it away. In either case, they’ll pay a storage facility a monthly fee to place their items in a secure unit. As an investor, you can own and operate a storage facility or purchase shares in a facility.
Self-storage is a solid investment for several reasons investors find attractive. First, the asset has high earning potential. Storage units cost less than residential real estate and other forms of commercial buildings, meaning more money in your pocket. For example, IBISWorld reported that the profit margin for storage units is 41%. In addition, storage revenue has increased by 2.1% over the past five years, making the industry worth over $29 billion.
Second, demand for self-storage continues to grow as baby boomers downsize and businesses shrink their workspaces.
Resultingly, the risk of investing in self-storage is low because of high profit margins and continuous demand. Customers need storage whether the economy is strong or a market downturn occurs. Therefore, the industry is a viable way to diversify your portfolio.
The Self-Storage Market
Here’s how the self-storage business works: the storage property owner (you) charges customers to use the space for storing their belongings. These storage spaces are available for rent every month and come in different sizes according to the customers’ needs.
The specific type of storage unit you will promote depends on your client base. For example, if your ideal customers are sports enthusiasts, they may prefer padding, shelving and slat walls to store their equipment. On the other hand, a family moving across town might only need a bare unit to store their belongings temporarily. Therefore, understanding your target customers is vital in determining the type of units you purchase or build.
In addition, the lease contract terms are the backbone of the business, and you can adjust them monthly. This feature allows you to adjust prices from one month to another, unlike traditional real estate contracts, which do not apply to the self-storage market. As a result, you can change with the market and cater to your customers’ needs.
Fortunately, investors of all scopes and financial backgrounds can invest in storage units. For example, suppose you want to experiment with a modest investment in the self-storage industry. In that case, you can purchase shares in self-storage facilities. So, you can actively invest in self-storage (through ownership of a facility) or take the route of less commitment and risk through passive investment (shares in a company).
Types of Self-Storage Facilities
Self-storage facilities can be classified based on their purpose and capacity. Each type of facility has its advantages and disadvantages.
Climate-Controlled Storage
Certain items and materials are susceptible to damage from heat, cold or extreme humidity. For example, art, furniture and musical instruments benefit from climate control. To safeguard these items, climate-controlled storage units are available.
As a result, a regulated environment and security are top priorities when storing fragile possessions. Because climate-controlled storage units cater to various market needs, they are more expensive, and investors can charge higher prices for their specialized services.
Drive-Up & Outdoor Storage
Outdoor or drive-up storage is the most widespread type. It consists of rows of units resembling garages. By pulling up the door, the customer has complete access to their storage unit. These facilities are the most affordable option available.
One of the benefits of outdoor storage facilities is that they require minimal maintenance and employees. In addition, they are user-friendly, making them popular among individuals needing storage space. Lastly, these storage centers can bolster their security through cameras, electronic gates and security guards.
Mixed-Use Storage
The self-storage industry serves a diverse range of customers with varying needs. To meet these niche demands, many storage facilities combine different services, resulting in mixed-use storage facilities.
A significant advantage of mixed-use storage facilities is the ability to cater to various needs. For example, a self-storage facility strategically located in an urban setting can help nearby residents with extra belongings while serving local businesses. As a result, mixed-use storage facilities are flexible assets, offering solutions to a wide customer base.
Vehicle Storage
Self-storage facilities also help customers with vehicles such as cars, boats or RVs. Vehicle storage is an ideal solution for those seeking a sheltered, locked parking spot.
Vehicle storage often offers additional services, such as temperature-controlled units to ensure the preservation of classic cars. As a result, customers turn to these facilities annually to protect their vehicles, especially near high-demand spots such as airports and harbors.
How to Invest In Self-Storage
There are four primary ways you can get involved in a self-storage venture:
1. Purchase Shares in a Real Estate Investment Trust (REIT)
If you aren’t comfortable owning and operating an entire facility, you can invest in a real estate investment trust (REIT) instead. These companies spread investors’ money across various sectors and can have a particular focus. So, finding a REIT specializing in storage units can give you exposure to this profitable industry.
2. Invest in a Publicly Traded Storage Business
Similarly, you can buy shares in corporate storage companies on the stock market. If the company does well and the stock price increases, you can sell your shares for a profit.
3. Buy an Existing Facility
You can get more involved by purchasing a self-storage facility of your own. This option means running the business (or hiring workers to do so) and collecting monthly payments from your customers. As a result, you have higher earning potential than investing in a REIT.
4. Develop Your Own Facility
If there aren’t any facilities for sale near you, building one yourself is another option. Remember, you must purchase a suitable plot of land and manage the facility’s construction. While doing so takes additional time and money, it’s a way into owning a storage facility and enjoying the profits.
Drawbacks of Investing in Self Storage
Despite the advantages of investing in self-storage, it’s essential to understand the potential challenges in this type of venture. Depending on your business model, financial circumstances and location, you’ll face different obstacles. Fortunately, you can adjust your approach as needed to overcome such hurdles.
First, clients can be demanding, requiring a composed demeanor and a focused strategy. For instance, a customer who just lost their job and housing can come in, desperate for help and lacking the resources for a monthly payment. As the owner, you’ll have to decide how to go about the situation and risk losing money.
Furthermore, when competing against rivals who offer affordable storage spaces in prime locations like the city center, it’s best to research the local market. Then, you can evaluate your position compared to the competition and modify your approach to enhance your business.
Is Investing in Self-Storage Right For You?
With all the preceding information in mind, you can decide how self-storage would fit into your portfolio. If you’re interested in real estate, self-storage is an excellent method because it is less expensive than typical commercial real estate. In addition, it requires less upkeep than residential buildings and can provide a steady cash flow every month.
Remember, a lump sum (usually tens or hundreds of thousands of dollars) is needed up front to invest in self-storage. You’ll purchase partial or full ownership of a facility or construct a facility from scratch. So, you must save up the required money or borrow it from a lender. Either way, these startup costs can be prohibitive to investors without the cash.
Lastly, you can take a less intense approach by investing in a REIT. If you like the self-storage business but don’t want to run a company, you can still enjoy the industry’s robust profit margin by putting money into shares in a self-storage business.
The Bottom Line
Investing in self-storage means purchasing a business or shares in a business that protects people’s possessions. Because this industry has a low overhead and charges monthly rent, investors can make substantial gains. To get a foothold in the business, you’ll need to select which type of storage you want to invest in, analyze your local market and find a need unmet by the competition. On the other hand, a self-storage REIT is a solid choice for those who prefer a less hands-on approach.
Tips for Investing in Storage Units
Self-storage units are excellent assets for a financial plan. However, it can be challenging to know how much cash to allocate toward it versus your other investments and priorities. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Self-storage is just one method for real estate investing. To explore the topic more deeply, here are three more ways to add real estate to your portfolio.
Ashley Kilroy
Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
Sometimes it can seem like banks always put profits over the people they serve, but several U.S. banks are committed to doing just the opposite.
I found 15 banks that shape their business models around community support and environmental sustainability. Many of them even qualify as B Corporations, which have to abide by legal requirements such as a diverse workforce, sustainable practices, and more.
What’s Ahead:
Overview of the best socially responsible banks
Bank or credit union
Best for
Are they a Certified B Corporation?
Unique feature
National Cooperative Bank
Cooperatives
No
Real estate mortgages for homeowners with low to moderate income
Southern Bancorp
Those who live in rural areas
No
Free financial education center
Amalgamated Bank
Those who support sustainable business
Yes
Donate your spare change with their “Donate the Change” program
Ando Savings
Tracking the effect of your investment
Yes
Auto-save by rounding up debit card purchases
BankPurely
Investing in planting trees
No
One tree is planted for every SavingPurely account opened
Aspiration Bank
Knowing how your spending stacks up to your values
Yes
Investment accounts with fossil fuel-free portfolios
Clearwater Credit Union
Montana small businesses
No
All-in-one banking options
Verity Credit Union
Entrepreneurs in underserved communities
No
Microloans
Virginia Community Capital (VCC)
Real estate entrepreneurs taking on eco-friendly construction projects
Yes
The Revolving Loan Fund that fills financial gaps for investors who can’t afford commercial financing
Central Bank of Kansas City
Tax help and Missouri residents
No
Incentives to invest in economically disadvantaged areas
Carver Federal Savings Bank
Those looking to help support the Black community
No
They donate to local communities
First Green Bank
Those in economically disadvantages areas
No
A loan plan for homeowners who wish to install solar panels
Mascoma Bank
Those living in low-income cities in New England
Yes
Loans for energy-efficient renovations
City First Bank
Those who want to support the development of low-income communities
Yes
Through CDARS, customers can make larger, FDIC-insured deposits
Beneficial State Bank
Those with less than perfect credit
Yes
Underwriters consider factors other than credit score
Best national banks for socially responsible banking
These banks have brick-and-mortar branches, but they’re large enough to have seamless online and mobile account services, as well as multiple resources for customers and borrowers.
National Cooperative Bank
The National Cooperative Bank began as a lender to business cooperatives that meet community needs, including grocery stores, health centers, nonprofits, housing co-ops, credit unions, and more.
Cooperatives remain their main lending focus, but NCB also specializes in real estate, mortgages for homeowners with low or moderate incomes, and loans for solar energy installation. They’ve branched into personal banking as well, and personal or commercial accounts can be opened online from anywhere in the United States.
Like many socially responsible banks, NCB prioritizes investments in renewable energy projects, and they don’t invest in fossil fuels.
Some of their standout features include:
Member of the Global Alliance of Banking on Values (GABV), a worldwide banking network with a commitment to economic and environmental sustainability.
Personal checking and savings accounts come with up to 0.50% Annual Percentage Yield (APY).
Retirement accounts include IRAs, Roth IRAs, and IRA rollovers.
Learn more about the National Cooperative Bank.
Southern Bancorp
Southern Bancorp is a huge organization with banking, lending, community development, and more services under its $1.1 billion-asset umbrella, but don’t let the size fool you — this bank provides big solutions for small communities, with a commitment to expanding opportunity in rural areas.
In addition to the basics like checking, savings, and lending, Southern Bancorp has a robust public policy advocacy division where they work to promote laws that have positive financial impacts on working families. There’s also a free financial education center with credit counseling and tax prep services.
Since Southern Bancorp is headquartered, and specializes in, the Arkansas and Mississippi Delta regions, physical branches are mostly in this region. But customers from anywhere in the U.S. can open personal or business accounts online.
The bank’s leadership demographic reflects the community it serves; the CEO and 50% of the board members are Black.
Their unique features include:
A Community Development Financial Institution (CDFI).
Certified B-Corporation or B-Corp — a designation reserved for organizations committed to responsible practices.
Personal checking and savings accounts, including accounts designed for specific financial goals.
Online banking is available anywhere with internet access.
Home, auto, and personal loans.
Learn more about Southern Bancorp.
Amalgamated Bank
Headquartered in New York and Washington D.C., Amalgamated Bank extends online checking and savings account access across the United States. They’re committed to sustainable business practices within their own walls. Employees earn a minimum hourly wage of $20/hour, above the federal minimum, and over 30% of employees are union members. The business strives to be 100% carbon-neutral in its operations.
Amalgamated makes its lending priorities clear from the start. They don’t lend to fossil fuel companies, weapons manufacturers, or private prison operators. Instead, they focus on lending to companies in the solar energy or sustainable food industries. If you invest with Amalgamated, you can opt for a portfolio that’s fossil-fuel-free.
And they’re the first major U.S. bank to endorse HR 40, the bill calling for a national commission to establish reparation payments for Black Americans.
Their standout features include:
Certified B Corp and member of the GABV.
Online personal checking and savings accounts with 0.10%-0.40% APYs.
Restart Checking accounts available for customers with poor credit.
Give-Back savings accounts donate half your interest (0.30% APY) to an organization of your choice.
An optional “Donate the Change” program rounds up your purchases and donates the change to a cause the bank selects.
Over 40,000 free in-network ATMs for customers outside NY and D.C.
Learn more about Amalgamated Bank.
Ando Savings
Ando is another bank that puts the environment front and center. They’ve pledged 100% of their investments to initiatives supporting sustainable practices, like agriculture and public transit.
Investors can track the effect of their own investment dollars in the Ando mobile app’s Impact Center, which traces financial impact across five categories including clean energy, sustainable transportation, and green buildings.
You’ll find the following with Ando:
Spending and savings accounts, as well as a Visa debit card, are available to anyone in the U.S.
Accounts have no fees or minimum balances.
Ando’s Count the Change program helps you “auto-save” by rounding up debit card purchases to the nearest dollar and moving the difference from spending to savings.
Learn more about Ando.
Best online banks for socially responsible banking
These banks are fully digital — not only is the all-mobile bank trendy and convenient, but its format also allows the bank to live a little lighter on the earth, with no energy use from physical branches.
BankPurely
BankPurely is the digital arm of NYC-based Flushing Bank, a bank that invests most of its money in community initiatives. As a fully online operation, BankPurely has formal PayItGreen approval for reducing its paper waste and carbon footprint.
They’re currently partnering with Plant-It 2020 to plant indigenous trees in New York State. Ando is one of many socially progressive banks that works with a tree-planting organization, taking a small but important step to counteract climate change.
A few great features include:
Checking, savings, and money market accounts available, with up to 0.25% APY on savings accounts and 0.5% on money market accounts.
CDs are available with 0.55% APY, and Ando will plant a tree for every CD you open.
Learn more about BankPurely.
Aspiration
Aspiration is one of the best-known socially responsible online banks, with multiple account options for the conscious customer. Their “pay what’s fair” fee model for a basic checking account is a rare offering even for the most flexible banks (and yes, paying $0 in fees is an option).
Both the free and fee-based “Aspiration Plus” checking accounts give you a personal impact score to see how your spending stacks up against your values. Accountholders get 3%-10% cash back when they buy anything from Aspiration’s Conscience Coalition partner vendors — an incentive to shop for the greater good.
The bank is currently rolling out a credit card that will reward shoppers who make carbon-friendly financial choices.
Here are a few key features:
Certified B Corp and member of global environmental organization 1% for the Planet.
Aspiration Plus savings accounts ($5.99/month) offer up to 5.00% APY.
Investment accounts available with fossil fuel-free portfolios.
IRA retirement accounts.
As a donor, Aspiration prioritizes funding microloans for low-income recipients.
Learn more about Aspiration or read our full review.
Best regional banks and credit unions for socially responsible banking
Some regional banks offer online accounts to residents elsewhere in the U.S., while others are only open to residents of a certain state or region. Here’s a cross-section of ethical standouts across the country.
Clearwater Credit Union – Montana residents
As Montana’s largest CDFI and a member of Inclusiv, an organization serving residents in low-income communities, Clearwater Credit Union is making its mark nationally but keeping a local focus.
They loan primarily to local businesses and offer a solid selection of financial services to customers.
Here are a couple of great features they offer:
Checking and savings accounts are available.
Health savings accounts (HSAs), traditional IRAs, and Roth IRAs.
Personal, student, and car loans for borrowers.
Learn more about Clearwater Credit Union.
Verity Credit Union – Washington state residents
Verity is active in the local microloan business — one project they’ve funded is the Business Impact Northwest loan program, which gives a financial boost to entrepreneurs in underserved communities.
As an environmentally conscious credit union, they’ve hopped on board the solar installation funding train as well, providing loans to homeowners installing solar panels.
Some especially helpful features include:
Open an account online or through their branch locations.
Accounts can be managed online.
IRAs and 401(k) rollovers are available.
Learn more about Verity Credit Union.
Virginia Community Capital (VCC) – Virginia residents
VCC is the community development arm of VCC Bank, a state bank that’s also a certified B Corp. Food access is a VCC funding priority, and they work with businesses providing healthy, local groceries across the state.
As a real estate funder, VCC has a Clean Energy Financing loan program for entrepreneurs taking on environmentally friendly construction projects.
Some helpful features include:
The Revolving Loan Fund fills financial gaps for investors who can’t afford commercial financing.
Personal savings accounts have low $25 opening deposit minimums.
Checking accounts, CDs, and Roth IRAs are available.
Learn more about VCC.
Central Bank of Kansas City – Missouri residents; online banking for all U.S. residents
Based in Kansas City, Missouri, Central Bank of Kansas City focuses most of its efforts on the local economy. Their lending programs include New Market Tax Credits — incentives to invest in economically disadvantaged areas — and tax credits for developers building low-income housing.
Some exciting features are:
Checking, savings, and money market accounts have fully online options for non-local customers.
Personal accounts earn between 0.05% – 0.15% APY.
Brick-and-mortar banks forMissouri locals.
Learn more about the Central Bank of Kansas City.
Carver Federal Savings Bank – NYC, New England, and Mid-Atlantic residents
Carver Federal Savings Bank was founded in Harlem, NYC, and designed to strengthen Black communities, and the bank’s stayed true to this mission since 1948.
As a CDFI, they focus their donations on local initiatives, and they don’t invest in fossil fuels. Residents of eight states — CT, DE, MA, MD, NY, NJ, RI, and VA, as well as Washington, D.C., and Philadelphia, PA — can open accounts with Carver.
Their key features are:
Interest-bearing checking and savings accounts.
A mobile banking app makes Carver accounts easy to access online.
Account fees are waived with minimum monthly balances.
Learn more about Carver Federal Savings Bank.
First Green Bank – Florida residents
First Green Bank is a local leader in “green” investments. They fund commercial and residential projects that meet environmental standards, and community initiatives that support sustainable development in areas like water and agriculture. They have a loan plan specifically for homeowners who want to install solar panels.
Here are some exciting features:
Florida residents have checking and savings account options, including interest-bearing sustainable savings.
HSAs, IRAs, and youth savings accounts are available.
Learn more about First Green Bank.
Mascoma Bank – New Hampshire, Vermont, and Maine residents
Mascoma finances projects designed to revitalize low-income communities in Northern New England.
Local residents can take advantage of their suite of financial services, from the basic checking and savings accounts to mortgages and homeowner loans for solar or energy-efficient renovations.
Some key features include:
Three tiers of checking accounts are offered, and two earn interest.
Home equity loans and lines of credit, as well as traditional mortgages.
Emergency flood loans are available to cover storm-related damages.
Learn more about Mascoma Bank.
City First Bank – Washington, D.C. area residents
For individuals, nonprofits, and other businesses in or near Washington, D.C., City First Bank is a CDFI worth checking out. They give 80% of their loan funds to projects in low-income communities, and they’ve financed thousands of affordable housing units in a city where the cost of living is rising quickly. City First has even branched out to finance nonprofits across the Mid-Atlantic.
Some top-of-the-line features include:
Personal checking and savings accounts havecompetitive interest rates.
Customers can make larger, FDIC-insured deposits through CDARS (Certificate of Deposit Registry Service) and money market accounts.
Learn more about City First Bank.
Beneficial State Bank – Oregon, Washington, and California residents
Beneficial State Bank funds renewable energy, affordable housing, and other community projects across the Pacific Northwest. Their nonprofit Beneficial State Foundation is a vocal public policy advocate for progressive change in the banking system.
As a lender, Beneficial uses a nontraditional underwriting model that considers factors other than credit scores. They’re also a trustworthy stop for auto loans if you’re a Pacific Northwest resident with subpar credit.
Here are some of their features:
Checking and savings accounts are fully mobile.
Money market accounts and IRAs are available.
California residents can finance an electric or hybrid vehicle at affordable rates through Beneficial’s Clean Vehicle Assistance program.
Learn more about Beneficial State Bank.
Why choose a socially responsible bank?
A bank or credit union account might seem like a convenience-based choice, not a values-based one. But when you entrust a bank with your money, you’re implicitly supporting the projects the bank funds.
You can make a difference
As a consumer, you have the power to make choices that sway banks’ overall priorities. Banks want your business, and if more customers opt for banks that support community development or environmental causes (or avoid fossil fuel funding that contributes to climate change), the industry will take note that people want socially responsible banking.
It is safer in their hands
Your money’s also in safe hands — just because these banks have a “people over profit” focus doesn’t mean they don’t make a profit.
Along with the standard FDIC insurance protection guarantees, socially responsible banks are just as profitable (if not more so) than their competition, according to research by the GABV.
What makes a bank socially responsible?
The primary barometers of social responsibility for banks are their lending and investment choices.
Read more: Ethical Banking: What You Should Know About Socially Responsible Banks
Charitable donations and community service
Many, if not most, banks advertise their charitable donations and community services, but they may still fund projects that contribute to climate change or displace low-income residents. If you go beyond a bank’s self-promotion materials to their lending practices, you’ll get a sense of the bank’s true priorities.
Transparency about their investment donation
Another indicator of responsibility is the bank’s transparency about their investment and donation choices — ethical banks take their accountability to the public seriously. And many socially responsible institutions are working for economic equity, with programs designed to help low-income residents or borrowers from underserved communities.
Public commitment to social good
Some large national and regional banks have received accolades for public commitments to the social good. The Ethisphere Institute, a think tank that examines corporate responsibility, has rewarded U.S. Bank on their list of the World’s Most Ethical Companies for seven straight years. Though awards from an outside organization don’t necessarily indicate a bank is truly making impactful, ethical choices, they can be a sign the institution is on the right track.
If you’re holding banks to the highest standard, however, you’ll look for certifications that indicate a deeper commitment. Every bank or credit union on this list is either a certified B Corp, a certified CDFI, or a member of the GABV.
Certified B Corporations
B Corporations have a legal obligation to meet certain requirements, including a diverse staff, a well-paid workforce, environmentally sustainable in-house practices, and more.
The B Corp certification needs to be renewed every two years and can be lost if the company changes its practices to focus more on profit than customers.
Global Alliance for Banking on Values (GABV)
The GABV is a small but impactful network of about 50 worldwide banks. Each bank has pledged to invest in its community, be transparent about its practices, and establish long-term client relationships.
Like B Corps, GABV members have to score well on a regular, detailed assessment of their ethical practices.
Community Development Financial Institutions (CDFIs)
CDFIs may be banks or credit unions, but they earn their U.S. Treasury CDFI certification by financing projects in low- or moderate-income or traditionally underserved communities. This may mean lending to nonprofits, supporting affordable housing, or offering mortgages to aspiring homeowners denied by other lenders.
How to find a socially responsible bank
This list is a start, but there are many, many more banks and credit unions on the local level that have socially responsible goals.
Mighty Deposits is a great site for finding out how banks are spending their money — just type in your bank(s) and/or credit union(s) and find out what percentage of the bank’s funds get invested in community projects.
Mighty Deposits includes detailed spending breakdowns in categories for each bank. You can also search for a bank that doesn’t fund fossil fuels, a CDFI, or a bank owned by Black Americans.
The independent site Better Banking Options is another way to find community-focused banks.
If you want to know more about a bank’s political donations, including any national and local candidates the bank supports, Open Secrets has data on most large banks (and several of the smaller ones, too).
Summary
If you’re thinking about a bank switch, consider a bank that’s dedicated to socially responsible causes. With the variety of checking, savings, and investment features these banks offer, you’re likely to find a spot that meets your needs.
This Personal Capital review goes over the Personal Capital app, which is something that you need! This free financial app will allow you to manage your money better.
Do you understand your money? Are you properly managing it? Today, in this Personal Capital review, I am going to go over my favorite personal finance tool, and explain how it will help you improve your financial life.
Over 3,400,000 people use Personal Capital, and I am one of those people!
Personal Capital provides free personal finance software that is somewhat similar to Mint.com, but better. If you like using Mint, I highly recommend checking out Personal Capital.
I recommend that everyone sign up for Personal Capital, whether you’ve been investing for years or if you haven’t even started yet. There is something for everyone when it comes to this free financial software, and it is extremely beneficial. Plus, it is free, so there is nothing to lose.
Quick summary of what Personal Capital is – their free personal finance software allows anyone to better manage their finances by allowing users to aggregate their financial accounts. You can connect accounts, such as your mortgage, bank, credit cards, investment portfolio, retirement, and more, and it is all FREE. You can track your cash flow, your spending, how much you’re saving, how your investments are doing, and more. With their free financial software, you can easily see all of your accounts in one place so that you can manage everything efficiently.
I’ll say it again. It’s free, and there’s no catch!
As you know, I’m all about making your finances as simple as possible so that you can focus on other areas of your life. Personal Capital allows you to manage all areas of your financial situation in one convenient place.
You can use Personal Capital via your computer, tablet, cell phone, and even a smart watch, which makes it great because you can stay up to date on your finances no matter where you are.
Personal Capital review.
Background information before we get into this Personal Capital review.
Personal Capital is growing in popularity, so I thought it was a great time to publish a Personal Capital review just in case any of you are interested in trying out their free personal finance software.
Personal Capital currently has over 3,400,000 registered users and over $20.5 billion assets under management.
If you’re interested in signing up for Personal Capital for free, please click here.
What can you do with Personal Capital?
With the Personal Capital app, there are many tools such as:
Net worth calculator
To protect my privacy, these images are not mine – they were all provided by Personal Capital.
You can track your net worth and measure your progress. This will help you reach your financial goals and see how you are doing. This allows you to track changes, make educated decisions, and monitor and reduce your debt.
Cash flow
You can manage your cash flow, view your income, analyze your spending, view your bills, and more with the free Personal Capital app. You can also view your transactions so that you can see where your money is going, which helps you see what areas you need to work on when it comes to your spending.
Retirement planner
You can track your investment portfolio all in one place so that you can easily track your performance, see your investment allocations, and easily analyze everything related to your investments. The Personal Capital Retirement Planner will also tell you if you have saved enough for retirement.
401k Fee analyzer
Do you know how much you are paying in fees for your various investments, such as with your 401k? There are often many fees that people pay for with portfolio management, but there are much cheaper options when it comes to investing your money.
With Personal Capital, you can easily see what fees you are paying, and Personal Capital shows you how this may be impacting your retirement plan.
Free investment checkup
You can receive a free investment checkup as well. You can see how your investments are performing, receive a free examination of your portfolio, and hear great advice so that you can improve your investment and retirement situation.
Their Investment Checkup tool creates a personal financial plan so that you can analyze your risk assessment and see how prepared you are for retirement.
How does Personal Capital make money?
So, after reading about all of the benefits in my Personal Capital review, I’m sure you’re probably wondering what the catch is and what the Personal Capital fees are.
Their core service, which is the Personal Capital platform, is free. If you choose to use their personalized investment strategy, they earn an income from their management fees, which are less than 1%. However, you don’t have to enroll in that service if you don’t want to. The free Personal Capital platform is all that I use, and it is a great service!
Again, you don’t have to pay for Personal Capital if you do not want to. All of the services I mentioned above are completely free. However, they are hoping that if you enjoy their services, you will eventually go a little further and let them manage your investments.
I just use their free version, and you can do the same to have access to all of their amazing free personal finance software. There’s no catch at all, it’s seriously free, and there are no hidden fees.
You can sign up for the free Personal Capital here.
Personal Capital security – Is Personal Capital safe?
The security of your financial information is very important, so, of course, I want to talk about this topic in my Personal Capital review.
Your information is very safe with Personal Capital. Here’s what Personal Capital says about their security:
“Data is encrypted with AES-256 with multi-layer key management, including rotating user-specific keys and salts. Strict internal access controls – no individual at Personal Capital has access to your credentials.”
Also, with Personal Capital, you can’t actually move any of your money through their system, and no one else can, so your information and money are safe in this way as well.
What’s my opinion on Personal Capital?
There are many pros of Personal Capital, which is why I decided to create this Personal Capital review. Some of the positives include:
It’s free. What’s better than free?
They have high-quality financial tools. Not only is it free, but the tools included with the free version of Personal Capital help you manage your money.
Personal Capital is easy to use. You simply link your accounts, and Personal Capital does all of the analyzing for you. Personal Capital helps in so many different areas, and anyone can benefit from its easy to use platform.
The variety of platforms makes it easy to use anywhere. You can access Personal Capital from your laptop, cell phone, or smart watch, which makes it easy to check in on your financial situation.
Personal Capital is a great service that I definitely recommend signing up for, and I wouldn’t write a Personal Capital review if I didn’t think so. Like I said, it’s free, and the financial tools are great.
You can sign up for Personal Capital here.
How do I use Personal Capital?
Signing up and using Personal Capital is very easy. After you create your account, you will be asked to link various financial accounts. Then, you can start using their free personal finance software right away. It’s really that easy!
Click here to sign up for Personal Capital.
Is Personal Capital worth using?
Yes, I think that Personal Capital is worth using. There are many investors, households, and people all over who enjoy using this tool.
The dashboard and platform are so very easy to use, and they also have advisory services that you can take advantage of. If you have investment accounts or are interested in starting to save for retirement, Personal Capital is a no-brainer tool.
Personal Capital works well for so many different types of people, whether you are brand new to saving or if you have been saving and investing for years.
The free financial tools that Personal Capital provides make it very easy to see how you are doing. They even have a mobile app so that you can check in whenever you’d like.
I hope you enjoyed my Personal Capital review! Please let me know if you have any questions about their money management tool.
What Percentage of Your Income Should Safely Go to a Mortgage? – SmartAsset
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Buying a home is one of the biggest financial decisions many people will ever make. And it can also be one of the most complex. Even the simple question of what percentage of your income should safely go to a mortgage doesn’t have a single clear answer that applies equally to every situation.
A financial advisor can help you find ways to help you achieve your financial goals.
Mortgage Payments and Income
The people and organizations that make home loans naturally are interested in lending money only to people who have the means to repay the mortgage. To make this determination, they use a variety of methods, particularly debt-to-income ratios.
These metrics are well-suited to creating mortgages that can be packaged and sold to investors. And borrowers have to keep them in mind when they are applying for a loan. However, they aren’t always as useful to someone who is primarily concerned with their personal financial well-being.
People deciding how much of their own income they can safely devote to a mortgage payment can take a variety of approaches to making that important determination. Here are some of the approaches many have found useful.
Safe Mortgage Principles
There’s more than one way of calculating the safe percentage of your income you can plan to commit to making your mortgage payment. Some approaches are good for certain circumstances, while others fit different situations best.
Evaluate your own position and, if possible, use more than one of the following techniques in deciding how much of your income you can safely spend on a house payment. Here are some of the options:
Debt-to-income ratio (DTI)
Your lender generally will calculate your debt-to-income ratio (DTI) and look for a certain result to reassure themselves and the investors who will buy your mortgage that you can cover the payments while also staying current on car loans, student loans, credit cards and other debt payments.
After adding up all your monthly loan payments, including the mortgage, lenders typically want the total to be no more than 43% of your gross monthly income.
For example, say you have a $500 car payment, must pay a $175 minimum monthly toward your credit card, owe $225 a month toward a student loan and want to buy a home with a $2,000 mortgage payment. You will typically need approximately $6,744 in monthly gross income to qualify for a loan at most lenders.
To figure this out, add up all your debt payments like this: $500 + $175 + $225 + $2,000 = $2,900.
Now, divide that by 43: $2,900 / 43 = $6.74419. Multiply that result by 100 to get the required monthly gross income, $6,744.19, for a 43% DTI.
The 30% Rule
Another way to calculate the amount of your income you can devote to a mortgage is to simply multiply your gross income by 30%. This will produce a number that you can hypothetically afford to pay toward your mortgage every month.
For instance, if you make $5,000 per month, 30% of that is $1,500. The calculation looks like this $5,000 x 0.3 = $1,500.
This rule may also be stated as the 28% rule and calculated the same way. It differs from the DTI because it doesn’t specifically account for other debt payments you may have.
Income Divided by Two and a Half
You’ll get a slightly different number if you assume that your mortgage payment can be two and a half times your gross income. To do this, start with your gross income and divide it by 2.5.
For instance, if you make $5,000 per month, the calculation would be $5,000 x 2.5 = $2,000. This suggests that $2,000 is a safe amount you can commit to your monthly mortgage payment.
This is clearly a more liberal method than the 30% principle and, like it, may not adequately account for other payments you must make.
Limitations of Safe Mortgage Calculations
Every borrower and every mortgage are a little bit different. While these techniques for calculating the percentage of your income you should spend on a monthly mortgage payment are helpful heuristics, to generate a more reliable figure, you’ll need to account for some other variables.
Other important factors include the size of the down payment you make, the amount of closing costs, the type of mortgage, the interest rate, your credit score and other costs including homeowner’s association or condo fees, hazard insurance and property taxes.
It’s usually wise to bear in mind that the amount of money a lender will loan to you may be more than you can safely borrow.
Bottom Line
You can use more than one method to determine how much of your income you should devote to a mortgage. Lenders will often be satisfied with a certain debt-to-income ratio, but this doesn’t mean you will be comfortable making the payment. Typically, it’s advisable to use more than one approach to making this calculation and make an effort to include as many aspects of your personal situation as you can.
Mortgage Tips
You may want to consider talking to a financial advisor making highly consequential decisions such as buying a home. SmartAsset’s free tool matches you with up to three vetted financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
After deciding how much of your income you can devote to a mortgage it’s necessary to figure out what the mortgage payment on a given property is likely to be. You can do this with the help of SmartAsset’s Mortgage Calculator.
Mark Henricks
Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
Empower Personal Wealth, LLC (“EPW”) compensates Money Bliss for new leads. Money Bliss is not an investment client of Personal Capital Advisors Corporation or Empower Advisory Group, LLC.
You are looking for the best investment app to help you save money, but all of them seem too complicated. You want something that is simple, easy to use, helpful, and even better if the app is free.
Empower is an online service for tracking your finances. Before a merger, the company began in 2009, and to this day it has been growing exponentially with a user base of over two million people.
Personal Capital is now Empower.
The app works on desktop as well as mobile devices, giving users the ability to track their spending easily wherever they go.
Empower also offers a suite of tools that help you get out more information about how you are using your money so that you can make better financial decisions.
On this Empower review, we will focus on what they do well, how it works for those who use it, and where Empower could improve.
Don’t forget… here is a list of all of the budgeting apps on the market.
If you are looking for an easier way to monitor your financials and see how healthy your finances really are, then you may want to check out what Empower has to offer.
What is Empower?
Empower is an online tool for tracking your finances.
It has been called the best financial app out there, and I agree with that statement. But, I personally use it as one of the money management tools to help guide our financial decisions.
I have used Empower to track my investments for over six years now, which probably makes me a bit of an expert on this topic because I use it on a regular basis.
Overall, Empower is a financial planning and wealth management tool that users can use to manage their net worth. The product offers tools for managing investments, retirement, debt payoff, and other personal finance goals.
How does it work?
First of all, Empower is a FREE app that helps you keep track of all your accounts. It can help you to invest better and did we mention… it is free to use!
To get the most out of this app, you’ll have to link each of your financial accounts one by one so that Empower can learn how you spend money.
It takes a couple of minutes to create an account and verify your identity.
The longest step is linking accounts to the Empower app. Just make sure you do this step within 7 days to get the most out of the app.
Features of Empower
The features of Empower include the ability to visualize your overall financial picture, keep track of your investments in a dashboard, and see which companies you are invested in.
Most people associate Empower as one of the best tools to help with investing, like a stock screener and an investment calculator.
But, there are many great features available for free including:
Net Worth Planner
Retirement Planner
Fee Analyzer
Cash Flow Management
Savings Planner
Budgeting
College Savings Planner
Investment Checkup
Pros and Cons of Empower
First of all, Empower is free to use. So, you might as well test drive the system and check out if the Empower app fits what you are looking for.
Just like any of the Empower reviews will tell you, there are positives and negatives with every type of money management app available.
You just have to decide the most important features for you. As well as what you are willing to pay.
Pros of Empower:
Free portfolio management tool.
Good for new investors who want a free-to-use tool with minimal features.
Easy to use and can be accessed on multiple platforms.
Can track investments across multiple accounts.
Tracks over 23,000 securities and over 1,000 mutual funds. – check
Offers a free app for on-the-go access.
Offers in-depth analysis and investment research on stocks, bonds, and ETFs.
Cloud-based platform
Free to use!
Cons of Empower:
Sales call from staff
Wealth management service is more expensive than a traditional advisor or simply investing in index funds.
High wealth management fee
Unable to reconcile your bank statements with Empower, but since they are coming from your bank directly, they should already be in sync.
No credit health information
Budgeting Tool needs improvement
Limited transaction management and budgeting
No import option for transactions from any platform including YNAB, Quicken or Mint
Cloud-based platform
Many people report that the Empower app requires $100,000 in investment assets to be eligible. That is untrue. In fact, it works best for those who have at least $100k in some form of investments – 401k, IRA, brokerage accounts, or even cash!
Empoweris incredibly easy to use and has helpful financial planning tools.
Overall, it is one of the many great tools to help further push you to financial freedom.
Empower Pricing
While Empower is free to access personal finance tools, it does come at a small price of annoyance.
Empower is free
Empower is a free online portfolio platform that helps people save and invest their money. It offers tools to track net worth, create investment plans, compare retirement accounts, view savings goals and cash flow, and more.
This is the great part of using this app!
The downside is to make these dashboards free is they are trying to entice you to move to their wealth management services.
You do not need to invest your money with Empower to use this platform.
It is best to keep everything invested where it currently is and use their free tools to analyze and make the necessary changes.
As such, once you sign up, you will receive calls on a reoccurring basis offering you a free analysis. There is no pressure to do this. Once you have said no enough times, they will stop calling you.
For those under $1 million in investable assets, their fee is 0.89%.
As you can read in this book, there are many ways to invest yourself without paying that fee.
In fact, this is my favorite book explaining how much harder and longer you have to work by paying someone a 1% wealth management fee.
However, for a small percentage of people, this may be a more cost-effective way of receiving professional advice, as it eliminates hidden costs from this type of service.
Empower Tools
Empower is a financial management platform that provides tools to help individuals manage their personal finances. The platform offers tools for portfolio tracking, performance analysis, and retirement planning. The company also provides its users with educational resources on financial topics.
Under their free dashboard, these are the tools you can use for free.
Net Worth Calculator
This simple tool will keep track of your net worth. Very simple and always available.
Know where you stand, by downloading the free app to see your true net worth in real-time.
Understanding your personal financial statement is important.
Savings Planner
One of the most asked questions is how much I need to save for:
Retirement
Emergency Fund
To Pay Down Debt
Calculate how much to save each year with a 70% chance of reaching your retirement goals. Learn how much you are currently savings and how much you need to start saving.
Cash Flow
Cash flow is the amount of cash available for expenses at a certain time. This term used in personal finance describes the rate at which one’s income and expenses change over time.
The Cash Flow tool is easy to use because Empower automatically tracks deposits and spending. The time saver feature allows users to see their cash flow, balance sheet, net worth, asset allocation over a period of time.
Cash flow is a budgeting tool that offers limited information on spending. It provides a second check when using another program that gives you more details like Quicken or Simplfi.
Retirement Planner
This is the #1 reason I recommend Empower especially if you are looking to stay away from a financial planner.
Trying to figure out how much you need for retirement by yourself seems like picking a random number from the sky.
The retirement planner is used by millions of people to figure out how on track they are for retirement. Plus get tips on what they can do to improve their chances of success.
Budgeting
Budgeting is a method of allocating financial resources by identifying and evaluating needs, prioritizing them in order to meet goals, and monitoring the achievement of those goals.
Empower includes a budgeting section to help you set monthly spending targets and track your spending. They automatically import the information from linked accounts such as checking, savings, and credit card statements.
Using their free online financial dashboard, allows you to track your spending and investments. There are interactive charts, graphs, pie-charts, and even widgets. All to make sure your budgeting is on track.
Investment Checkup
This portfolio analysis is the process of measuring performance and risk in order to develop a strategy for capital allocation. The goal of portfolio analysis is to improve return on investment, which can be achieved by increasing return on assets, decreasing the risk of losses, or reducing the variance.
The Empower app lets you explore your entire portfolio visually. It also provides asset allocation tools and tax optimization tools to help manage a person’s financial life.
Fee Analyzer
A fee analyzer helps people to determine the annual fees they are paying in their retirement plan.
401K Analyzer also calculates how much your retirement is costing you and provides a breakdown of any hidden fees that may be present within mutual funds with which it has been linked. This Retirement Planner tool uses assumptions about account holdings and investment behavior for calculating expenses against an estimated portfolio value.
Consequently, these fees add up over time and will drastically put a drag on your portfolio and reduce your retirement savings.
Empower Dashboard is Free
Just remember, you do not need to hire an advisor to use the platform.
Empower is a free tool for individual investors.
Empower provides users with access to all of the above-mentioned advanced tools for free. In addition, they offer free financial advice through their blog and social media pages.
It allows users to track their investments and get a personalized financial plan. The service also offers apps for iOS and Android devices, which makes it easy to manage finances on the go.
Empower Wealth Management Review of Services
In addition to offering free financial tools, Empower provides wealth management services.
You get to work one-on-one with an advisor who will give you personalized advice based on your situation.
They help you to invest, save money and track your financial goals.
Their advisors start by determining your risk tolerance and goals in order to construct the best personal financial plan for you.
If you are interested in getting a better understanding of your financial situation, Empower is an excellent option. It gives users the tools to understand their investments, budgets, and cash flow all with one app.
All it requires is that you sign up for free without any obligations or commitments from them whatsoever. You do not have to agree to use their wealth management program.
Personally, I cannot comment on an Empower advisor review as I have not used this service personally.
Empower Investment Strategy
The Empower investment strategy is a simple way to invest your money for the long-term.
This means that you will be able to retire and live a comfortable life without any concern about how you will be able to live.
They employ the tactic called Smart Weighting because they invest equally across all sectors and industries, which can provide diverse returns with minimal risk. The best part of this strategy is it’s easy to use as Empower has created an interface that makes portfolio management simple for users on any device or platform.
Empower’s software is able to identify tax-loss harvesting opportunities (opportunities where the investor sells an investment after it has fallen in value and pays fewer taxes than if the sale had occurred earlier) than investing on their own.
In addition, Empower invests passively for cost efficiency which means that they don’t take any active management into account.
The best part about Empower and one of the key areas I prefer, is they include socially responsible investments as well as an investment strategy to fit any budget.
They identify which companies are doing good work for society and invest in them accordingly. This feature makes personal finance much more interesting and easier than ever before!
Wealth Management Tiers
Many people invest in various financial services and products, such as mutual funds or stocks. They are promised that these investments will generate a good return, but they do not always make the best choice. Wealth management services are a way to help people manage their personal investments. They may charge fees for their service, but that is not always the case.
Depending on your level of assets, will determine the amount of services you will receive.
Investment Services:
This is the most basic level to receive financial and retirement planning guidance from their team of experts.
$100K in investment assets
Unlimited advice from any of the available financial advisors
Managed ETF portfolio
Wealth Management:
This is where you can receive more personalized services and dedicated support to manage your money as you move through new financial challenges.
$200K minimum in investment assets
Two dedicated financial advisors
Access to specialists in real estate, stock options, and more
Regular reviews on your customized portfolio
Tax optimization
Private Client :
This is the most exclusive level at Empower to help you receive comprehensive financial planning. They will help build a customized investment plan to reach your lifestyle goals.
over $1 million in investment assets
Two dedicated financial advisors
Priority access to specialists
In-depth retirement and wealth planning
Wealth Management Fee Structure
Empower charges only an all-inclusive annual management fee at a fraction of the cost of traditional financial institutions. In addition, they do not charge hidden fees, trailing fees, or trade commissions.
First $1 million = .89%
First $3 million = .79%
Next $2 million = .69%
Next $5 million = .59%
Over $10 million = .49%
Overall, if you want a financial advisor or a second opinion, using Empower wealth management services may be for you.
Even if you don’t join, you can still use the tools for free, no questions asked.
My Empower Review from Experience
I have had a lot of experience using Empower in the past. They provide snapshot financial pictures of your personal situation that are very informative.
Plus it is a free tool to use, which is always a bonus.
Empower is one of my favorite online tools to see all your finances in one place.
It is eye-opening to see the overall picture. Also, tracking investments across multiple accounts can be overwhelming, but they make the process seamless and help you stay on top of things.
Personally, my favorite tools are the net worth, fee analyzer, and retirement planner.
I use Empower in conjunction with Quicken. Read my Quicken review.
My Empower dashboard is my overall financial picture whereas Quicken tracks all of my day-to-day spending and helps me remember when we purchased something for a return.
The app has a convenient interface that makes managing your personal financial situation easy, even if you’re not familiar with finance jargon or investing terminology. With this tool at hand, keeping track of where everything stands financially becomes easier than ever before!
Just to note… to get the best financial picture, you must include all of your accounts. The more time you spend in the Empower dashboard, the more helpful analysis you will get from the tool.
Empower Alternatives
In addition to Empower, there are other financial apps that can help you allocate your portfolio.
These include Betterment with Wealthfront also being a viable option for those who want the best of both worlds by tracking their investments in stocks and bonds. However, these alternatives have much higher fees than what is charged by Empower which makes it an appealing alternative if the fee does not bother you.
Also, if you are looking for budgeting capabilities you may want to look at Quicken, Mint, YNAB, or Simplifi.
At the end of the day, you have to decide what your goals are and what you are looking for.
From all of the free and paid budgeting apps, here are our top budgeting apps to check out!
This section may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. Please read the full disclosure below.
Personal Capital Advisors Corporation (“PCAC”) compensates Money Bliss (“Company”) for new leads. (“Company”) is not an investment client of PCAC.
Personal finance and money management software allows you to manage spending, create monthly budgets, track investments, retirement and more.
Save 40% off on new memberships.
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Change your relationship with money!
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Personal Capital is wealth management for the Internet Age. The online platform combines digital technology with highly personalized service to provide a holistic view of a unique financial picture (AKA your net worth).
Make sure to connect all of your accounts within 7 days to set up your Personal Financial dashboard.
Tiller is the only tool that automatically updates Google Sheets and Microsoft Excel with your spending, transactions, and balances each day.
Start your free trial.
Automate your financial plan with set-and-forget money tools that fit right into your daily life.
That’s why Qapital puts your goals front and center, then helps you plan your spending, saving, and investing around them.
Manage your money less in 5 minutes each week. Reach your money goals with confidence! The personal finance app gives you something to look forward to.
“The easiest, most comprehensive way to both see where your money is going and plan for future expenses.”
Your automated financial assistant and budget tracker are designed to put you back in control of your money.
Stay on top of your spending, easily track bills, cancel unwanted subscriptions, and find ways to improve!
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HoneyMoney increases your awareness about your money habits. Being fully aware of your money naturally changes how you spend it.
Great way to use cash flow budgeting. Plus uses “envelopes” to budget.
Start your free trial.
Moneyspire is user-friendly personal finance and small business accounting software that brings your entire finances together in one place.
Have total control over your financial life in one click.
Is Empower right for you?
Empower is a company that offers tools for personal finance management. This app has more than one hundred different tools to help you with your finances, including monthly budgeting and investing tracking.
Empower also helps people manage their credit card debt, establish emergency funds, track retirement savings progressions, calculate their net worth, and much more!
The smartphone app integrates locations, bank accounts, and credit scores which allows users to access current information on their financial situation.
The online portal allows for comparing available investment options.
This tool allows people to plan out the future of their money as well as provides them with valuable financial information in an easy-to-read format so they can make informed decisions.
As stated before, Empower is a financial app that can help you manage your investment assets. It has many features and it’s not perfect, but it’s the best out there in terms of value for money.
You can always test drive it and see what you learn about your personal finance situation.
Now you can try it free (no credit card required!)
Know someone else that needs this, too? Then, please share!!
A cash management account (CMA) combines many of the best aspects of checking and savings accounts. It lets you earn strong interest rates while keeping it easy to access and spend your cash. While CMAs can’t do everything a dedicated checking or savings account can do, many people find CMAs sufficient for their financial needs.
Financial companies target CMAs at consumers who have large cash balances they need to insure. People who want the easy access a checking account provides – without sacrificing the interest rate savings accounts offer – also use them.
But so many companies offer CMAs it can be hard to choose the best one. Which one is right for you depends on how much money you plan to deposit and whether your primary goal is earning interest or easy access to your money.
Best Cash Management Accounts
There are plenty of top options for CMAs to choose from, no matter your financial goals. Many are associated with investment brokerages or robo-advisor platforms, which automatically allocate and manage your funds based on your personal risk tolerance and objectives.
Betterment
Our Rating
Earn up to 4.35% APY and pay no monthly fees on your cash. Plus, get access to Betterment’s low-cost robo-advisor platform with instant transfers between accounts.
Monthly Fee
$0, but Betterment may charge investing fees
Deposit Insurance
Up to $4 million
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Betterment is an automated investing platform with a built-in cash management account (Cash Reserve) that has one of the best yields and highest deposit insurance limits in the space.
Betterment’s yield is comparable to the top high-yield savings accounts, and its FDIC insurance limit is at least eight times the industry standard. Open a joint account with your spouse or domestic partner to double your FDIC insurance coverage.
And if you’re looking for a day-to-day spending account, open a Betterment Checking account. It has a debit card, no monthly maintenance fees or minimum balance requirements, and a direct link to your other Betterment accounts.
Annual percentage yield (variable) is as of 05/08/2023. Cash Reserve is only available to clients of Betterment LLC, which is not a bank, and cash transfers to program banks are conducted through the clients’ brokerage accounts at Betterment Securities.
Apply NowRead the Review
Wealthfront
Our Rating
Earn 4.55% APY on all balances with no minimums or fees. Plus, enjoy category-leading FDIC deposit insurance coverage up to $5 million.
Monthly Fee
$0, but Wealthfront may charge investment fees
Deposit Insurance
Up to $5 million
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Wealthfront is an automated investing platform that charges a low asset-based fee on all balances (0.25% AUM). Its cash management account, the aptly named Wealthfront Cash Account, charges no fees at all.
The Wealthfront Cash Account has more in common with a checking account than a savings account. Notable features include unlimited withdrawals, a debit card that works at nearly 20,000 ATMs, direct deposit, and integrations with popular peer-to-peer transfer apps like Venmo and PayPal.
The Wealthfront Cash Account’s Self-Driving Money™, feature is even more useful than a standard checking account. It’s a money management automation tool that automatically allocates incoming deposits to cover near-term bills and expenses, add to your emergency savings, fund other savings goals as per your personalized savings plan, and divide the remainder between your investment accounts — all with minimal input from you.
Apply NowRead the Review
Empower
Our Rating
Earn 4.25% Interest; No Minimum Balance; No Monthly Fees; Up to $1.5 Million in FDIC Insurance
Monthly Fee
Deposit Insurance
Up to $2 million
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Formerly known as Personal Capital, Empower is a digital financial advisor and wealth manager geared toward affluent younger folks. You don’t need a ton of money to use its Empower Cash cash management solution though — it’s totally free and doesn’t require a separate minimum balance.
Empower Cash stands out for the same reasons many other great cash management accounts do: a high yield, generous FDIC coverage, and no minimums. It adds some more unique benefits too, including direct access to human wealth managers and a sophisticated budgeting tool that securely syncs with your external financial accounts and provides a comprehensive all-in-one view of your finances.
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Aspiration
Our Rating
Earn up to 3.00% APY on the first $10,000 in your Save account. Plus, your deposits never fund fossil fuels.
Up to 3.00% APY
Monthly Fee
$0 to $7.99
Deposit Insurance
Up to $2.25 million
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Aspiration is a socially conscious financial firm that offers retirement, investing, and charitable giving services. Aspiration doesn’t invest customer funds in businesses that pollute the environment. It has a growing lineup of Conscience Coalition partners where purchases earn up to 10% cash back. And it helps you gauge your own social responsibility, giving you a spending-habits report card showing how much you’ve supported green companies.
Aspiration’s cash management solution isn’t as generous as some others, with a lower yield that applies only to the first $10,000 in the account and requires a monthly fee to attain. But if you’re drawn to Aspiration’s mission, you can probably live with the financial drawbacks.
Fidelity
Our Rating
Earn 2.47% APY on all balances with no minimums, no fees, and variable deposit insurance up to multiples of the statutory limit.
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Deposit Insurance
Variable, but at least $250,000
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Fidelity is a full-service financial firm that offers banking, financial advising, and investment services. It’s fully capable of being your only financial institution, and the Fidelity Cash Management Account is a big reason why.
The Fidelity Cash Management Account is a checking-like platform (complete with a debit card and unlimited ATM fee reimbursements) that offers savings-like yields. It offers a nice blend of old and new too, with free paper checks alongside mobile check deposit and fast person-to-person transfers. And if you’re not ready to branch out into stocks and bonds and all the rest, you don’t have to use Fidelity’s investing platform just because you have a Fidelity Cash Management Account.
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Methodology: How We Select the Best Cash Management Accounts
Our most important considerations when evaluating cash management accounts are:
How much they earn (interest rate)
How much they protect (deposit insurance coverage)
How easy they make it to access your money (linked accounts, debit cards, and so on)
How much they cost (fees and expenses)
How they fit into a larger financial ecosystem (connection to other accounts offered by the same company)
Interest on Balances
“What’s the interest rate?” is the first question most people ask when shopping for cash management accounts. The best accounts pay interest on par with the top high-yield savings accounts, which as of mid-2023 typically yield between 4% and 5% APY.
Deposit Insurance Coverage & Limits
Generous deposit insurance coverage is a defining feature of cash management accounts. The best accounts protect multiples of the standard FDIC deposit insurance limit of $250,000, which is what you get with most ordinary checking, savings, and money market accounts.
Some go up to $5 million or even higher. The higher, the better.
Access to Balances
Cash management accounts are sort of like checking-savings hybrids, but in terms of access to your cash, many are more like savings accounts. They don’t have debit cards, peer-to-peer transfer capabilities, or instant transfers to external accounts.
Good cash management accounts tend to be more liberal on this front. Some even have debit cards that you can use at any merchants that accept Visa or Mastercard.
Fees
The best cash management accounts have no monthly maintenance fees and low (or no) fees otherwise. However, most are associated with investment accounts that do charge management or trading fees. We look for accounts with reasonable fee schedules in any case.
Connection to Investment & Other Account Types
Cash management accounts usually don’t exist by themselves. They’re often associated with investment or wealth management accounts that offer a much broader range of services than standard deposit accounts can. We prefer these types of accounts because they’re more suitable as one-stop shops for banking and investments.
Cash Management Account FAQs
If you understand how checking and savings accounts work, you have a basic understanding of cash management accounts too. But they have a few differences and oddities worth drilling down into.
What Is a Cash Management Account?
A cash management account is a deposit account that blends features of checking and savings accounts.
Like a checking account, a cash management account usually has no limit on withdrawals. Some come with debit cards and other checking-like features, such as instant person-to-person transfers.
Like a savings account, a cash management account typically has a high interest rate on balances. It often has a higher deposit insurance limit as well, a feature it shares with some certificates of deposit.
Is a Cash Management Account a Brokerage Account?
A cash management account is not a brokerage account, but many cash management accounts are associated with brokerage accounts. Either the account is housed within the brokerage account itself and receives proceeds from securities sales through a process known as cash sweeping, or it’s a separate account linked to the brokerage account for speedy transfers.
Are Cash Management Accounts Better Than Savings Accounts?
It depends on your financial situation and what you hope to get out of the account.
If your personal cash reserve is well under the standard FDIC deposit insurance limit, your best bet is to look for the highest possible yield, which you may or may not find in a cash management account. If you have more cash, it might be worth it to use a cash management account with a higher deposit insurance limit, even if its yield isn’t quite on par with the top savings accounts.
If you plan to use your cash (or some of it) to buy stocks or other securities, keeping it in a cash management account is more convenient than a standard savings account not associated with a brokerage account.
What’s the Difference Between a Cash Management Account and a Money Market Account?
Cash management accounts have a lot in common with money market accounts, which are also often described as checking-savings hybrids.
The biggest differences: a money market account is more likely to come with core checking features like a debit card and paper checks, and less likely to be directly associated with a brokerage account. Also, money market accounts often (but not always) have lower yields than savings accounts and cash management accounts.
Do You Have to Buy Stocks If You Have a Cash Management Account?
No, you can keep all your money as cash in a cash management account even if the cash management account is directly associated with a brokerage account. If you worry you’ll be tempted to purchase risky securities out of a brokerage-linked cash management account, consider holding your funds in a separate external bank account.
Final Word
Cash management accounts provide a useful mix of savings and checking accounts with the extra perk of huge FDIC insurance limits. If you’re in the market for a CMA, look for the account that offers the level of accessibility you need and the best interest rate possible.
If you don’t need debit card access to your money, you can choose an account with other features that benefit you, like high interest rates or additional FDIC insurance.
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TJ is a Boston-based writer who focuses on credit cards, credit, and bank accounts. When he’s not writing about all things personal finance, he enjoys cooking, esports, soccer, hockey, and games of the video and board varieties.
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Retiring at 40 may sound like a pipe dream. But it’s entirely within reach if you save $1 million while working. The key elements for achieving this feat are sticking to a budget and implementing a comprehensive retirement strategy. But with rising expenses, is $1 million enough? To answer this question, you must identify your expenses, including taxes and monthly debt obligations and compare them to your sources of income. Here’s how investing and budgeting can set you on the path to early retirement.
A financial advisor can also work with you to get a realistic estimate of when you may be prepared to retire.
Can I Retire at 40 With $1 Million?
Retiring a quarter-century before the standard retirement age requires careful planning. However, one rule persists for retirement no matter what age it begins: Your savings must generate enough income to cover your living expenses for the rest of your life.
With this principle in mind, retiring at 40 means you can’t rely on traditional retirement vehicles such as individual retirement accounts (IRAs) or 401(k) accounts.
These accounts are not accessible until you reach the age of 59.5. Therefore, you must research alternative retirement savings instruments to create the income you can use once you stop working.
Smartasset’s retirement calculator helps you assess how your financial situation matches your retirement objectives. You’ll enter information such as your rate of return, Social Security benefit and location to evaluate your ability to retire at 40.
How to Determine How Much You Need to Retire
Retirement always requires evaluating how taxes, expenses and income work together for you. Retiring young means having all your ducks in a row to avoid surprises or financial hardships later on. Here’s how to assess how much you need to retire:
Calculate Your Costs in Retirement
Your expenses are an essential piece of information in a retirement plan. In other words, your cost of living provides the necessary context for how you’ll retire. For example, a yacht club membership can significantly alter your budget.
Likewise, your state of residence impacts how far your dollars go each year. For example, a recent study from the U.S. Department of Commerce shows that in Nevada, a popular retirement state, the overall cost of living is 95.5% of the national average.
As a result, retirees will get a discount on living expenses (plus zero state income taxes!) for living in the state. On the other hand, Hawaii’s costs are 113.2% of the national average, meaning that retirement there will cost more.
Determine Your Income
Your tax rate decides how much income stays in your pocket. Retirees often prefer living in a tax-friendly state like Georgia or Florida because of the absence of state income taxes.
That said, your forms of income will also influence your tax status. For example, rental income from real estate incurs regular income taxes, while selling stocks for a profit incurs capital gains taxes.
In addition, healthcare expenses are a growing cost for retirees. Specifically, HealthView Services data reporting shows that a couple retiring at 65 in good health will spend about $662,00 on healthcare throughout their lives.
As a result, it’s best to plan for several hundred thousand dollars of medical expenses during retirement. Furthermore, retiring at 40 means addressing an additional 25 years of medical costs.
To do so, experts advise designating 15% of your annual income for healthcare costs. However, this amount may be higher if you have a chronic health condition.
And having children at home is expensive, whether you’re retired or not. For instance, The Washington Post states the average annual cost of child-rearing is about $17,000 per child. Therefore, it’s crucial to add this item to your budget for an accurate idea of your finances.
Identify Retirement Income Streams
With expenses accurately laid out, you can turn to your income streams. For retirement to be feasible, the $1 million nest egg must return enough income to cover your expenses. So, if you invest $1 million for a 5% return, your annual income is $50,000.
Remember, stocks are riskier than other assets, such as certificates of deposits (CDs), so diversifying your investments is critical. Otherwise, a stock portfolio that is successful this year might tank the next year, leaving you without income. In addition, you have little margin for error with $1 million; every dollar needs to provide a return.
Next, Social Security is a form of income that you’ll encounter a few decades into retirement. Because you won’t collect Social Security benefits until 62 or older, retiring at 40 means waiting 22 years to receive your first check.
So, while Social Security will be a boon in the second half of your retirement, you’ll have to get yourself there with the income you create independently.
Look at the Numbers
So, let’s look at an example combining costs and income streams. Let’s say you want to retire at 40 with one child in the house. Your life expectancy is 80, so you plan a 40-year retirement. In addition, you’ll retire in Nevada, which has no state income taxes. Here are your annual expenses:
$22,000 for housing
$15,000 for healthcare
$5,000 for utilities and property taxes
$7,000 for food
$6,000 for entertainment, phone and internet
$3,000 for auto upkeep and insurance
Your total annual expenses are $58,000, or $4,833 monthly.
To meet these expenses, you collect income from multiple sources: First, you purchase two rental properties for $500,000 total, which generate $4,000 of monthly income ($48,000 per year).
You also have a $250,000 savings account with a 4% interest rate ($10,000 per year) and a $500,000 brokerage account with an average return of 5% ($25,000 per year). So, your investments provide $83,000 of annual income.
Next, your income and single filing status place you in the 12% tax bracket, leaving you with about $51,040 of your real estate and savings account income after taxes. In addition, you’ll pay 15% for long-term capital gains taxes on your brokerage account.
So, your total monthly income after taxes is $72,290 annually. Fortunately, this figure is about $14,300 above your expenses, leaving a margin for when investments underperform or surprise expenses crop up.
That said, your income and expenses won’t remain static throughout retirement. Instead, inflation will drive up your cost of living each year at an average rate of 3%.
The expenses of $58,000 this year will grow by thousands of dollars after five years because of economic trends. Overall, it’s best to sock away surplus income to prepare for higher expenses in the future.
Remember, you’ll age into Social Security at 62 and receive an income bump at that time. For example, the Social Security Administration’s 2022 Statistical Supplement estimates the average 62-year-old’s monthly check to be $2,364.
Depending on your circumstances, you can decide when you reach 62 whether to start collecting this benefit or delay it for higher future income.
How to Boost Your Retirement Income
The example above demonstrates a path for retirement at 40 with $1 million. However, you must adhere to a tight budget to do so. On the other hand, you can give yourself more financial flexibility by increasing your income with these tactics:
Delay Social Security Benefits
Social Security isn’t automatic. Instead, you apply for it when you want to start collecting it. As a result, you can choose any age starting at 62 to begin collecting this benefit.
Increase Your Interest Rate
The interest rates of savings accounts and certificates of deposit (CDs) are constantly shifting to attract customers. For example, the typical high-yield savings account has an interest rate of between 0.5% to 4.15%.
So, moving money out of a conventional savings or checking account can provide more annual income. Plus, your deposits have FDIC insurance up to $250,000, meaning they have shelter from market downturns.
Understand Your Income Tax Implications
Your tax situation is unique to you, and failing to grasp the details can incur additional fees. For instance, say you want to sell some stock through your brokerage account after holding it for 364 days.
Doing so will incur short-term capital gains taxes, which are identical to regular income taxes. On the other hand, waiting a few days will put you in the long-term capital gains timeframe, increasing your taxes by 3%. So, staying on top of these transactions can help lower your tax burden.
How to Make Your Savings Go Further in Retirement
Likewise, you can maximize your savings potential to make early retirement easier. Here’s how to make your savings work for you:
Use a Budget
Although the word ‘budget’ might make your stomach churn, it’s one of your most powerful financial tools. Budgeting helps you gain control of your finances by providing a clear overview of your income and expenses.
Budgeting lets you track where your money is coming from and where it is going, enabling you to make informed decisions about your spending and saving habits.
Additionally, a budget also helps you set financial goals and work towards them. In this case, it’s your roadmap to retiring at 40. So, you can allocate resources wisely and prioritize what matters most.
Choose Low-Fee Investments
Management fees can be the death of otherwise successful portfolios. This characteristic applies to brokerage accounts, which can invest in mutual funds, exchange-traded funds, real estate investment trusts (REITs) and other funds that can have exorbitant administrative fees.
Evaluating an account’s fee structure before investing money is crucial to keeping more of your money.
Care for Your Health
Healthcare is paramount for retirement planning. It’s undeniable that every retiree will require healthcare services at some point in their journey. However, by taking proactive measures, you can determine the timing and way you receive such care.
In particular, regular check-ups and engaging in physical exercise serve as preventive measures that can substantially diminish the frequency of hospital visits, fostering physical well-being and financial stability.
Work Part-Time
Additionally, embracing part-time employment can bolster your finances upon early retirement. Pursuing this option can augment your income and counteract rising inflation. Moreover, this approach possesses the added advantage of enabling a prolonged deferral of Social Security, which ultimately translates into higher benefits later on.
Pay Off Debt
Lastly, it’s critical to recognize the dangerous grip that debt can exert upon your financial liberty. For instance, the burdensome nature of credit card balances and personal loans comes from their exponential interest rates. This predicament imposes sizable obstacles on the path toward retiring at 40.
Remember, the gains from investments seldom surpass the annual percentage yield (APY) that debts impose. Therefore, prioritizing the repayment of high-interest debts promotes financial health, whether during the prime of your career or your golden years.
Bottom Line
Retiring at 40 with $1 million requires a strategic investment approach. Specifically, you must create a well-thought-out plan that includes various types of assets, such as brokerage accounts, savings accounts and real estate.
In addition, calculating your expenses meticulously and ensuring that your income covers them effectively is crucial. In this scenario, $1 million must last for several decades until you become eligible for Social Security. So, thinking creatively about generating income during that time is essential.
Tips for Retiring at 40 with $1 Million
Investing $1 million for retirement means maximizing the return of every dollar during your career. Working for two decades or less means you can’t afford a mistake when investing. Fortunately, a financial advisor can help you find assets with low fees and substantial returns. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Ideally, retiring at 40 means starting off your golden years while you’re relatively young and healthy. However, your future health is unknown, especially after you become a senior citizen. So, you can prepare for this possibility by budgeting for the cost of independent living.
Ashley Kilroy
Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
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Stock markets and major commodities such as oil and gold seem to get most of the mainstream financial market headlines these days. Despite being the largest and most liquid trading markets in the world, the global currency markets do not nearly get the same attention.
There are a few key reasons for this – the lack of a true central currency exchange, the relatively small daily price changes and the seemingly opaque reasons for changes in currencies.
However, the value of our nation’s currency can have a strong affect on the stock market and the commodities markets as well as have a real affect on our lives. Our currency’s value is a basic fundamental component of our wealth and our ability to purchase goods – especially in this age of globalization. If we pay attention to the currency market trends, we can benefit by using this information to plan ahead for a vacation, search out deals on foreign products or take this knowledge into account when making our investment decisions.
For businesses, the value of a local currency can be even more important. A strong currency will make our exports more expensive to foreign buyers while possibly making imports downright cheap for us to buy.
As a currency trader, I can tell you that there are many economic factors to take into consideration when it comes to evaluating a currency’s strength. Some economic factors can have more influence at different times and for different countries.
Below, I touch upon four factors that I believe to be among the most important economic indicators anyone can follow by reading the news.
1. Interest Rates
The first factor contributing to the general strength or weakness of a currency is a country’s interest rate. Simply, interest rates are the amount it costs to borrow money. The interest rate level is moved higher or lower by a country’s central bank to either stimulate or slow down an economy. Higher interest rates impose a more costly fee to borrow money while lower interest rates lessen the fee and usually spur more borrowing (or access to cheap credit) in an economy.
When it comes to demand for a particular currency, however, the higher the interest rate usually means the higher the demand for that currency. Lower interest rates usually decrease the demand for a currency. The reason investors look to buy currencies with higher interest rates is it creates an additional rate of return on their currency exchange. A trader is compensated by the interest rate differential when the trader buys the currency with the higher interest rate compared to the lower interest rate currency. There is a popular currency trading strategy called the “carry trade” that seeks to exploit the differences in country’s interest rates (see more on the carry trade here).
The mechanics behind this can take some time and effort to fully comprehend, but the general take away is: Higher interest rates make a currency more attractive.
2. Inflation
Inflation is next in our economic factors list and is defined by the rise in prices of goods and services. When a product rises in price, it signals that there is an underlying demand for that product. Higher prices may not seem good to a consumer, but it is generally considered healthy for a country to have a moderate increase in inflation in a growing economy. Many central banks have a target inflation rate for their economy of around 2 percent a year.
When an economy sees too much inflation, the central bank will try to cool off rising prices and access to cheap credit with an increase in interest rates. This brings us back to number one in our list, where we see that higher interest rates make a currency more attractive. So in a growing economic environment, rising inflation rates will tend to increase expectations that interest rates will rise, which will in turn make traders have a positive outlook for the rise of the currency.
There are also downsides to inflation when not accompanied by a growing economy called stagflation (high unemployment, low growth, high inflation) and the dreaded deflation, which is when prices are in decline. This is usually a drag on an economy as prices of goods are falling, leading to declining wages in worker paychecks and less money workers will have to buy goods.
3. Economic Growth
The strength of an economy can go a long way to boosting the strength of the nation’s currency. A strong growth rate in a country will see a growing demand for products and services with better job prospects for workers as well as being an attractive destination for capital and investments.
The easiest way to watch a country’s economic standing is to pay attention to the gross domestic product (GDP). A strong GDP reading is growth of 3 percent or more in many cases, while growth close to zero percent or a negative reading shows that the economy could be headed for a recession. A typical definition of a recession is two consecutive quarters of negative GDP growth.
In an economy like the United States, which is driven by consumer spending, expanding growth that produces more jobs and better wages will allow workers to feel wealthier and help to further stimulate the economy through domestic consumption. More growth can bring higher inflation rates and the expectations for interest rate increases. Foreign investment and demand from companies abroad can also play an important factor in boosting the local currency of a strong economy.
4. Current Account Balance
The last on our list is the current account balance. It is considered to be the most extensive gauge of cross-border transactions of a country. Simply put, it is the total amount of goods, services, income and current transfers of a country against all of its trading partners. A positive current account balance signals that a country lends more to its trading partners than it borrows, and a deficit current account balance shows that the country borrows more from its trading partners than it lends.
This total amount of trade can influence the country’s exchange rate positively if there is more demand for that country’s goods (and currency) from other countries. A deficit or borrower country will see less demand for its own local goods and currency overall.
Conclusion
Economics and currency forecasting are both very much inexact sciences. Price movements can seem volatile and hard to understand, but for those seeking basic insight into currency trends, these important economic factors can go a long way.
Zachary Storella is the CEO of currency news website CountingPips.com.
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President Joe Biden has championed a substantial financial proposal in the latter half of his term: increasing taxes on businesses engaging in stock buybacks. This initiative aims to redirect corporate funds toward business expansion and job creation, instead of primarily benefiting executives who typically reap the rewards of such programs. However, despite its intended benefits, the proposal has encountered noteworthy resistance, even from traditionally supportive voices within the Democratic camp.
For help managing your own financial portfolio, consider working with a financial advisor.
Biden’s Plan
Currently, businesses pay a 1% tax on stock buybacks, a charge created when the Democrats passed the Inflation Reduction Act in 2022. In the State of the Union in January, though, Biden pushed raising the rate to 4%. Per a Morningstar report, he specifically called out the oil industry, noting that “Big Oil … invested too little of [their] profit to increase production and keep gas prices down. Instead, they used those record profits to buy back their own stock, rewarding their CEOs and shareholders.”
Biden also notes that this tax will increase federal revenue, which is important if he wants to continue pushing for progressive domestic policy in a potential second term.
The Pushback
One of the voices speaking out against Biden’s plan is a billionaire who would normally be on his side: Warren Buffet, who has publicly supported the Democratic Party for some time.
“When you are told that all repurchases are harmful to shareholders or the country, or particularly beneficial to CEOs, you are listening either to an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” Buffet wrote in a note to shareholders of his company, Berkshire Hathaway.
More likely opponents of Biden’s have also chimed in. Writing in the Wall Street Journal opinion section in February, economist Burton Malkiel claims the tax won’t hurt just CEOs but average investors.
“While direct ownership of shares isn’t common among low-income people, indirect ownership through retirement plans exists across the income distribution,” he wrote. “Most common stock is held by the mutual (and exchange-traded) fund industry and by a variety of public and private pension plans,” he writes. “These institutions usually reinvest the proceeds from buybacks, and they rely on returns from the stock market to preserve the viability of their programs.”
The Bottom Line
President Biden is keen on increasing the tax on stock buybacks from 1% to 4%. While Biden and his supporters claim this would force companies to reinvest money in their business rather than enrich executives — while also increasing federal revenue — there are critics from both sides of the aisle who are pushing back.
Financial Planning Tips
If you need help planning your own stock market plan, consider working with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Use SmartAsset’s asset allocation calculator to get a sense of what your portfolio should look like.
Ben Geier, CEPF®
Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, Mic.com and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance (CEPF®). When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.