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According to the staff economists at Bank of America, the market is pricing in an 80% chance of QE3 by the Fed, which is by far the highest predicted percentage I have seen published so far.
The BofA economists point to not only the rising stock market and rising yields, but even more importantly to the TIPS market. The expectation of higher inflation is showing up in the TIPS pricing.
The presumed increase in inflation is expected to be caused by the influx of cheap money from the Fed through a QE3 program (or through a major asset purchase program whether you want to call it QE3 or not).
I am a little more suspicious. I think the Fed wants to avoid QE3 at all costs. I think they especially want to avoid it in an election year. But the Fed mandate is bigger than any election, so they certainly could take action if the data warrants it.
But I believe the Fed is on the fence because of very mixed economic data. For example, despite the poor jobs numbers, earnings season was actually decent. The actual earnings from last quarter were solid.
However, forward guidance was not very encouraging. So, I think the Fed will continue to watch the economy much closer before taking this move – including earnings.
What is QE3?
QE3 is like a bridge loan. It doesn’t solve your problem; it only works to help you get to the other side. To get to the other side, you have to generate enough earnings to pay for the interest expense and repay the principal.
In other words, it is a Band-Aid. It won’t fix the underlying problem; it just pushes the problem off for a bit. Plus, if earnings are solid, then who exactly needs the bridge loan?
The Fed will be watching earnings very closely in the coming quarter, but earnings season is still way off.
Will QE3 Improve Unemployment?
The disconnect is the improvement in earnings compared to the employment numbers. Hiring has not improved to the level that politicians prefer, so they want to use QE3 to buoy the economy and markets.
I think we have already seen that QE3 only helps with the confidence of the investor community – not so much the corporate executive suite. So, I expect QE3 to help keep the S&P 500 around $1400 in the short-term but not create a lot of new jobs.
What does that mean for the markets?
In the short-term, I think it means the markets will remain ‘buoyed’ by the possibility of a near-term (September?) QE3 event. The economist community carries real weight with investors.
However, I think the market has had all of the run that QE3 could generate. The market can only be lifted up so far by the chance of QE3. It looks like the market is running in to resistance.
How would I trade this?
I would be selling out-of-the-money calls in near months on all of my positions leading up to the potential September announcement. If the market already had its run thanks to the expectation of QE3, then the calls should expire worthless.
If the market dips before the announcement, make sure to close the calls early and pocket your profit. At my firm, Buy & Hedge, we sell calls to pay for hedges anyway – so sell at will!
“The Market is Betting on QE3, but Is That the Right Bet?” was provided by Minyanville.com.
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I bought my first rental property in 2010 when the market was much different! I bought a single-family home for $97k that rented for $1,050 a month. I know many people would love to go back to those days but the reality is prices will most likely never be that low again in most markets. While I bought a single-family home for my first rental, there are many other types of rentals and I have since bought multifamily, commercial, and mixed-use rental properties. The type of property that is best for beginners in today’s market with high-interest rates and high prices will depend on many factors.
What was my first rental property?
The first property I bought was a 3 bedroom, 2 bath, 2 story house with a 2 car attached garage. The home was built in 2005 and did not need a lot of work. I bought it in Greeley, Colorado and while prices were much lower back then, I still got a great deal. I took my time looking for properties and this was an estate sale. The home needed some paint and that was about it. It was a fantastic property for my first rental. I used Bank of America to get a 25% down investor loan which was not easy but luckily the seller was patient! While properties were cheaper then, it was much tougher to finance them and there were much fewer options for investors.
I later sold that property for $275,000 in 2019 and used a 1031 exchange to buy a commercial property for $600,000. I think buying a single-family rental was an awesome choice for me at that time. However, this property would not be a very good rental now as it is worth around $350,000 and would only rent for $1,700 to $1,800.
Are single-family rentals good for beginning investors?
I think single-family rentals are great for beginners if the numbers work out. However, with high rates and high prices, the numbers simply don’t work in many areas. There are areas of the country that have cheaper houses that are great for single-family rentals but we aren’t all in those places. Here are some of the pros and cons of single-family rentals:
Pros
Large buyer pool if you need to sell: Single-family homes are attractive to investors and owner-occupants. When buying a rental as a beginner it is smart to have an exit strategy. Maybe the property is not as good as you thought it was or you decide you hate rentals. Can you sell the property? If you need to sell a single-family home you can sell to other investors or owner-occupants. Owner-occupants will often pay more than investors and they are always buying homes even when interest rates are high. Investors may slow down their buying when rates are high.
Easy to rent and manage: Single-family homes appeal to many renters and are usually easy to rent. Tenants also have a tendency to stay in the property longer and take care of it. I have had the same renters for 10 years in some of my single-family rentals. Many tenants will even make minor repairs themselves (not always a good thing) and maintain the yards, perform snow removal, etc.
Easier to find a good deal: In most areas, there are more single-family homes than other types of rentals. Because there are more of them there are usually more for sale and you might be able to get a better deal than on multifamily or commercial where there are much fewer properties.
Easier to finance: Lenders love to finance houses, even as rentals. It is much easier to get a loan on a house than a commercial property, multifamily, or mixed-used property.
More diversification: If your plan is to buy a lot of houses, like my plan to buy 100, it can be a little safer than buying a few big properties. Each house will be in a different area, with different tenants, and one horrible situation won’t destroy all your houses.
You can house hack a single-family home which means you buy as an owner-occupant and rent out part of it while you live there or live there a year and then rent out the whole thing. Owner-occupants get much cheaper loans with less money down.
Cons
Harder to cash flow: The big con with single-family rentals, especially right now is they can be very expensive compared to the rent they bring in. The more expensive the property, the worse the rent-to-value ratio tends to be.
Houses are expensive right now: Most properties are expensive but in some markets, houses are very expensive, and the higher the price, the more money you will need to invest in them.
Tougher to scale: It is tougher to scale when you need to buy a lot of houses to meet your goals. Each purchase takes work to find the deal, finance it, and possibly make repairs. If you buy larger multifamily or commercial it can be easier to scale.
More expensive to repair: It might be more expensive to repair single-family homes than a larger building because a larger building has one roof, possibly one heating system, etc. However, that roof and heating system on the big property will be much more expensive to repair and you will need a lot more money at once, than if you are repairing houses here and there.
Are small multifamily rentals good for beginning investors?
Multifamily rentals have more than one unit. You could invest in a duplex or a fourplex or a 100 unit property. Multifamily properties can make it easier to scale because you have more units under one roof and the rent-to-value ratios may be better. These pros and cons are for smaller 2 to 4-unit multifamily properties.
Pros
Can have much better cash flow: Multifamily properties are usually valued based on the income they produce. The prices are not driven up by owner-occupants who do not care what a property will rent for.
Somewhat easy to sell: 2 to 4-unit properties are fairly easy to sell still although not as easy as single-family homes. You can still house hack a 2 to 4-unit property which means owner-occupants can buy them. There are not a lot of people looking to house hack but you can still sell to investors and owner-occupants.
Easy to finance: Again, 2 to 4-unit properties are fairly easy to finance but not quite as easy as single-family homes. You can buy as an owner-occupant or get an investor loan with many banks.
Easy to get a good deal on: There are a lot of 2 to 4-unit properties in most markets although not as many as there are single-family homes. It can be easier to get a great deal, although not as easy as houses.
Cons
Harder to manage and rent: 2 to 4-unit properties take more management and usually have more tenant turnover than single-family homes. Tenants tend to move more often, the rents are usually lower, and tenants rarely think of a multifamily as a permanent place to live.
More risk of major loss of income: If you have a few houses and one tenant decides to cook meth in the house it can destroy the house and cause major problems as well as lost rent for months. You still have the other houses to bring in income. If you have a multifamily property and that happens the whole property may need to be vacated for an extended period of time. If you have just one of each, then the risk is about the same.
More expenses: The tenant usually pays all of the utilities and performs the yard maintenance and snow removal on single-family homes. On multifamily homes, the landlord often pays for the maintenance and some of the utilities if not all of them. You may be able to charge higher rent since the landlord is paying those expenses but make sure you account for them.
More fluctuations in value: Multifamily properties are valued based on the income of the property and the expenses. If inters rates go up as they have been, they may be harder to sell or sell for less because investors have to pay less to get the same return. However, when rates go up, rents often increase as well so that could offset a decrease in value (rents would go up on houses as well).
Are large multifamily properties good for new investors?
A lot of new investors want to invest in large multifamily properties. Grant Cardone now tells people to only invest in properties with at least 32 units although he used to encourage house hacking with FHA loans. Large multifamily properties can make a lot of money but they can also be very difficult to buy due to their price and lending is much tougher.
Pros
Easy to scale: You can bring in a lot of rent with one property and add a lot of value with the right deal.
Rent to value ratios: The rent to value ratio may be better on big properties because only investors are buying them and they expect a certain return. The bigger the property the better the numbers may look because very few buyers are looking at those deals.
The maintenance costs can be lower: The costs versus the rent may be lower because you have large buildings under one roof that share the same systems.
Cons
Much harder to finance: The everyday person cannot get a loan for a large apartment building. One of the factors lenders consider is experience and they are wary of lending to new investors on big deals even if you have the down payment.
Less diversification: If there is a disaster at a large complex, you may have a huge problem with no rent coming in for months. Again, these are rare but can happen. You also may have chosen the wrong location and the property doesn’t perform as you thought (I did this with an 8-plex).
Harder to sell: There are few buyers for large complexes and they can take a long time to sell. Interest rates also impact them greatly.
The expenses come in huge chunks: While the overall maintenance costs may be lower based on the investment, they can be huge when they do come. You could spend hundreds of thousands of dollars on a roof. Having one roof is not always better. There could be more expenses as well like parking lot repaving, landscaping, common areas, etc.
They are expensive: It takes many people years to save up the money needed for a large complex. The purchase may be worth it, but while you are waiting why not buy smaller deals that build experience and a track record for lenders. The right deals will also bring you cash flow and equity which could make it easier to buy that big deal sooner.
More headaches: Large multifamily properties tend to have the most turnover, the most repairs needed, and the craziest situations. They take much more management and can have more headaches.
Are commercial properties good for beginner investors?
I bought my first commercial property in 2017 and it cash flowed much better than single-family or multifamily properties in my area and was cheaper. A lot of people see my commercial properties and want to invest in that sector right away. However, they come with more risk and are much more complicated.
Pros
Can be cheaper with better returns: In some areas, commercial properties are cheaper and have better returns but they also could be more expensive depending on the area. Small commercial properties are often cheaper than single-family homes.
Can add a lot of value: If you can add a tenant on a long term lease it can add a ton of value., I recently bought a commercial property for $865k that was vacant, then added 4 tenants. That property is now worth $1.5 million but it was not for the beginner.
Long term tenants: Many commercial tenants will stay for years and have leases that run for years. This is great of you have the right tenant but it takes longer to find those tenants. Many of the leases have built in rent increases as well.
Fewer expenses: Some commercial leases are NNN which means the tenants pay almost every expense. These can be fantastic for the landlord but not every commercial lease is set up this way.
Less headaches: Commercial tenants tend to be less needy than residential. They often take care of the property themselves and make sure it looks nice for their business. They expect the rent to increase each year and usually don’t get upset about it.
Owner occupied financing available: Yes you can owner occupy a commercial property. You do not live there, but you run a business out of the property. If you use more than 50% of the space you might be able to get an SBA government loan with 10% down.
Cons
Much more complicated: It takes time top to learn how the lease work, and the differences between NNN and gross. Properties are valued using cap rates which can be difficult to figure out because they vary based on the lease, the tenant, the property, the location, and more.
Harder to finance: Commercial properties are usually the hardest to finance. They come with risk if you lose a tenant and the lenders know this. They have shorter term loans that must be renewed every five or ten years. The lenders will want to see buyers with experience before they lend them money as well. Even the agents and sellers may not take a buyer serious if they don’t have any experience.
More expensive costs: If you have to make repairs it can cost a lot more money as rooftop HVAC, roofs, parking lots, and commercial construction often cost more than residential. The city may require more as well like fire sprinkler systems. Appraisals and inspections are more expensive as well.
Harder to sell: Just like multifamily properties, commercial properties can be much harder to sell because there is a smaller buyer pool.
Environmental issues: A big concern with commercial properties are past or current environmental issues. You may need to get an environmental report that shows there were no hazardous materials on the property or gas tanks, etc. To clean up problem properties it can takes tens of thousands of dollars or more.
Tenants might expect TI: TI stands for tenant finishes and many tenants expect the landlord to fix up the space for them. This can cost a lot of money but also add a lot of value.
If you are buying small commercial properties you may be able to avoid many of these issues but it is still good to be aware of them and especially talk to your lender about them! On some of my smaller commercial deals, I am able to get a local bank to finance them without an appraisal which is awesome.
Are mixed-use properties good for beginning investors?
Mixed-use properties can also be put in the commercial category. Mixed-use means the property can be used for residential and commercial or have both at the same time. I have a few mixed-use properties and love them but they can be tough to finance like commercial. The one benefit is you can live in part of it and work out of part of it. You may be able to get low down payment SBA loans because of this.
What is best for a beginning investor?
There are many different options for beginning investors to buy their first rental. I would be wary of jumping into huge projects without a lot of help from someone with experience. It will be almost impossible to do so unless you have a lot of cash. Personally, if single-family homes cash flow, I think those are the safest and best bet, but small multifamily can work as well.
If you want to dive into how to do all of this I have a book on residential rentals and commercial rentals as well!
Day traders may hold stocks for a few hours, while buy-and-hold investors may hold onto a stock for decades. There is no single formula that works for everyone when it comes to deciding how long to hold stocks.
Rather, the decision to hold stocks or sell them must include a number of factors that may be unique to each investor. These can include everything from company fundamentals to industry trends to the investor’s own goals.
In a perfect world, an investor would hold onto stocks until they made a profit. But how much of a gain, and how long that might take — and what to do if the stock loses value? — is more complicated than it seems. Here are some variables to consider.
Why Hold Onto Stocks for the Long Term?
Here are some reasons for an investor to hold on to a stock: They only feel compelled to sell it because of that stock’s most recent performance in the markets. But selling a stock because of a sudden drop in value could be considered timing the market — a strategy that, at times, can hurt investors.
What happens today in the markets doesn’t necessarily reflect longer trends, therefore holding onto stocks despite a dip may give your shares time to recover.
A study done by Dalbar illustrates how investors who attempt to time the market often turn into their own worst enemies. During the 20-year period studied, the S&P 500 had an average annual return of approximately 10%. During the same time period, the average investor achieved a return of just 2.5%, due to the frequent changing of their investment holdings (often mutual funds).
Sure, in the moment, it can be tempting to sell a stock based on a dramatic price change. But, calculating stock profit or loss alone may not be particularly helpful. Stocks that enjoy long-term growth take on some dips in price. And, similarly, dud stocks may have some brief moments in the sun.
Buying and Holding for the Long Game
What’s the ideal holding period for a stock? Some investors might say forever. (Or, at least until the money is needed — like, for income when you’ve reached your target retirement date.)
There are several allures of holding stocks for a long time. First, spending ample time in the market reduces the risk of short-term market volatility. Ups and downs in value are an inevitable part of investing in the stock market, whether through a single stock or a fund. Especially in the short-term, the market could move in any direction.
The bear market between 2007 and 2009 was a prime example of this, as the U.S. stock market lost more than 50% of its value then. This wasn’t an ideal time to be holding stocks — but it was an even worse time to sell. With a buy-and-hold strategy, investors can keep their eyes fixed on the potential for a recovery. The stock market hasn’t yet experienced a dip that it did not bounce back from.
What Is Index Investing?
This is why some investors prefer passive investing strategies. Index funds hold a representative sample of the entire stock market, in an attempt to achieve the market’s average returns. Instead of betting on just one company stock’s performance, index funds invest in the entire engine of the economy. Research has shown that over time, market returns may exceed the returns of active strategies.
Since the great recession of 2008, the stock market has more than made back its losses. This is why buy-and-hold is a strategy that is popular with index fund investors.
Holding Stocks for Future Profitability
Let’s say that a company’s stock has performed well. Perhaps, it’s even hit an investor’s profitability target. Is growth, alone, a good reason to sell? Some investors might think no.
At any moment in time, what makes an investment worth holding on to is the belief that it will be profitable in the future. Therefore, what has happened in the recent past may or may not be relevant to the future.
In investing parlance, this notion is called fundamental analysis. Here are just a few big factors that an investor might chew on when adopting this type of market analysis:
An investor wants to hold on to the stock of a company that continues to increase its sales over time, with a forward-looking forecast that indicates growth. Perhaps the company continues to beat Wall Street’s expectations on earnings.
Maybe, the company has strong management that continues to improve profit margins without sacrificing innovation. Or, perhaps the company continues to develop products that increasingly capture market share, making the company a stronger industry competitor.
While none of the above scenarios outright guarantee a company’s stock will continue to perform well into the future, keeping an eye trained to the days ahead — instead of the past — may be a useful skill for investors to develop.
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Reasons to Sell Stocks
Some investors and traders, however, are not interested in long-term holding strategies. Instead, they set certain profit thresholds, selling once those requirements are met.
Selling Once a Stock Hits a Profit Requirement
Here’s one scenario:
A trader may want to sell once a stock reaches 10% or 20% in profit. Similarly, a stock could be sold once it hits a preselected price target — usually based on a stock’s per-share price. Price-target selling can be set up automatically, through what’s called a limit order.
For example, an investor buys a stock for $50. They want to sell this stock if (and only if) the price reaches $65. A limit order can be set to sell when the stock hits this target price. If it never reaches $65, then order is not filled (and the stock remains held).
Selling for Personal Reasons
Although it is not, generally, recommended that an investment strategy change in response to the market’s ups and downs, there are plenty of personal reasons why a person may opt to sell stock investments.
Certain life events may create a shift in an investor’s ability to tolerate the risk of stocks. For instance, a divorce, family death, the birth of a child, or a big move may cause a person to want to keep more of their overall investment portfolio in easy-to-access cash (or other less volatile investments).
Similarly, a person might just want to build up their cash savings. For financial goals with a more immediate timeline, it may make little sense to subject that money to the volatility of the stock market. Instead, savers may prefer to sell stocks to keep that money liquid and ready to be used.
Changes in personal investment strategy can also drive an individual to sell stocks. Shifts along these lines may have nothing to do with a stock’s recent performance or that of the market. Investors approaching retirement, for example, could want to shift towards more conservative investments, like cash or bond holdings.
Selling to Diversify Assets
Many investors opt to put a mix of stocks, bonds, and cash in their long-term investment portfolios. For example, an investor may choose a mix of 70% stocks and 30% bonds to balance out investment goals and risk tolerance.
But, when diversifying assets, one type of investment may outperform the other. Because of the potential for this uneven growth, an investor’s asset allocation could get thrown out of balance.
Let’s imagine a large spurt of growth in the stock market coupled with more lackluster growth in the bond market. Remember the investor from above, with a 70/30 mix? Maybe, now. they’re left with a portfolio that’s closer to 80% stocks and 20% bonds.
That mix may carry more risk than the investor deems appropriate. So, in this scenario, rebalancing the portfolio requires selling some stock holdings and then moving the funds into less volatile bonds.
Understanding Short-Term Holdings
Investors debating how long to hold their stocks will likely want to consider taxes. There’s no minimum amount of time when an investor needs to hold on to stock.
But, investments that are sold at a gain are taxed at a capital gains tax rate. This rate changes, depending on whether the investor held onto the stock for more or less than one year.
For a holding period of less than one year, any gains will be taxed at a person’s marginal income tax rate. By holding onto a stock for more than one year, an investor will likely lower their tax burden. It can be helpful for investors to speak with a certified tax professional before adopting any tax strategy.
The Takeaway
Even though investors typically put a great deal of thought into selecting stocks and other securities, with the hope that those securities will appreciate in value, there is no guarantee they will. And there is no crystal ball that can tell any investor how long to hold onto a stock.
Sometimes it’s the stock itself that determines how long you’ll hold it. But sometimes your investing strategy determines your stock selection. If you’re planning to sell quickly with a gain in mind, that’s one approach. But if you expect to hold onto a stock for the long haul, that can also influence which stocks you think have staying power.
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My Lending Club account has continued to show good returns despite the fact that this month I had another loan go late. My net annualized return is still above 12% (which was my goal to reach a year or so ago), and thankfully the loans that have gone late have already repaid more than 3/4 of their loan principal, so I wouldn’t be losing as much as some other loans if they do in fact default.
Lending Club has continued their growth and they have now issued $775,060,475 in loans to date. Others have mentioned that they think they will have originated in excess of 1 billion in loans by the end of the year. I think that might be possible.
So just what are people using the loans from Lending Club for? Mainly for debt consolidation, as over 70% of people are reporting that they are using the loans to pay off debt or consolidate credit cards. I can get behind a goal of paying off debt or credit cards – as long as people are actually getting their situations under control.
Returns Down Slightly At 12.02%
Over the past month or so since my last Lending Club report, where I surpassed 12% net annualized returns for the first time, I’ve seen my returns show a slight dip from 12.06% to 12.02%. The reason? I think it’s because I’ve had another loan go late, and the two loans already late are still working out payment options. Hopefully they’ll get back on track.
Net Annualized Return of 12.02%: Down from 12.06% in June, but still up from 11.98% in May, 11.61% in early April, all the way back to 10.53% in July of last year. My returns remain above 12% as I add new higher risk loans to my portfolio.
Number of defaults.. one, with 3 new late: I’ve got one charged off loan on my account. Over the past couple of months I’ve had two loans that have been a bit behind, a grade A loan, and the other a grade D loan. They’re still late this month but have made arrangements for payments. Unfortunately there is one more new late loan this month, a grade B loan. Once again the few issues I’ve had have tended to be on higher graded loans. Go figure.
Thirty two loans have been paid off early: Eleven were A grade loans, ten were grade B loans, seven were C grade, three grade E and one F. Looks like grade A and B loans are more likely to get paid back early, reducing returns. Another reason why I’ve started investing in more higher grade loans.
My account balance increasing, re-investing returns: I currently have $2,851.14 in my account, with $80.15 of that ready to re-invest.
I’m diversified by investing small amounts across multiple loans: I’ve had 185 loans since joining (148 issued and current loans, 32 paid off), with no more than $25 in each loan. In other words, I’m diversified across a decent amount of loans, lessening my risk from any one loan going into default or getting charged off. Of course to be fully diversified I believe Lending Club recommends 800 or more notes. I’m not there yet.
NOTE: 83.17% of Lending Club investors with 100+ Notes earn returns between 6% and 18%. 100 Notes can be purchased with a minimum investment of $2,500.
What’s Your Actual ROI?
When you’re looking at the numbers on the Lending Club and Prosper sites, it has been pointed out time and again that their numbers are overly rosy view of what your actual return on investment will be. The ways that they calculate the ROI isn’t really standardized, and they don’t take into account how old your loans are, possible future default rates, or other things that may become a factor. The numbers they show are just something you have to take or leave.
A site that I discovered a while ago that gives what I think is a better picture of the actual ROI you can expect is Nickel Steamroller’s Lending Club portfolio analyzer. Basically the analysis tool with give you an estimated ROI after you download all your notes from your Lending Club account and upload the .csv file. It will go through you notes and give sell recommendations, show duplicate notes and highlight notes that are below Lending Club’s average return (so you can sell them on the secondary platform). It will even give you a fun little map showing where your loans are (see mine above).
In looking at my returns on the analyzer, my actual return according to the site will be closer to 10.96%. It also gives me quite a few sell recommendations, particularly on some of my older lower interest loans that I did when first starting out. Those particular loans tend to be grade A or B, and have interest below 8%.
Evolving Lending Club Strategy
Here’s the basic strategy I’ve been using with Lending Club since I started investing. The strategy has changed a little bit over time to include more low grade loans and a few loans with higher balances.
Less than $10,000: I believe I’ll still be sticking with mostly loans below $10,000. Lower amounts mean higher likelihood of payback of the loan.
Zero delinquencies: Again, I may fudge slightly on this one, but I still want it to be very few or zero delinquencies.
Debt to income ratio below 20-25%: I like to invest in loans where the borrowers have a lower DTI ratio, and preferably have higher incomes. I’ll try to keep this as is.
Good employment history: I like loans with a decent employment history of at least 2 years, and a decent income.
So that’s what I’m doing with my Lending Club portfolio right now, and how I’m investing.
Not ready to invest, but looking to consolidate debt or pay off a high interest credit card? You might want to consider borrowing from Lending Club. Check out my post on borrowing from Lending Club.
Are you currently investing in Lending Club? How are your returns looking? Tell us in the comments!
One would think that short-term goals are pretty easy to accomplish. Oh, really?
Think again. Short-term goals can be easily put off for a plethora of reasons. Research suggests this as 91% of people fail on their New Years’ resolutions.
When it comes down to getting short-term goals done, including short-term financial goals, one must implement some strategies to stay on task and on schedule.
Let’s start out by discussing some strategies for achieving important short-term goals and then move onto some short-term financial goals that are worth your time and effort.
Grab your notepad, you’re going need it!
What’s the Difference Between Short-Term and Long-Term Goals?
Goals can have different timelines attached to them. For example, a short-term goal may take months or even years to achieve, whereas a long-term goal may take 5-10 years or more to reach. It’s important to be realistic about how much time you need and plan accordingly in order to make sure you can stay on track with your objectives.
Additionally, breaking down each goal into smaller steps can help make the goals feel more achievable. It may also be helpful to track your progress and celebrate successes along the way! More on that in a sec.,,
How to Achieve Important Short-Term Goals
A short-term goal is a goal that shouldn’t take you long to complete. Generally, I would define a short-term goal as a goal that takes roughly less than a year to complete. Many times, these goals only take a month or a few weeks. They could only take a day or two.
Short-term goals usually have a very clear path toward their completion. You know exactly how you’ll accomplish your goal – every step you’ll need to take. You can break the goal down into smaller pieces and then track your progress along the way.
It’s crucial that each of your short-term goals follow the “SMART” goal format.
What Are Smart Goals?
Setting goals can be daunting, but with the SMART framework, you can turn your aspirations into achievable objectives that will help you make meaningful progress towards your dreams! SMART stands for Specific, Measurable, Achievable, Relevant, and Time-bound.
Think of SMART as your goal-setting BFF! When you have a SMART goal in mind, you know exactly what you want to achieve, how you will measure your progress, and when you will achieve it. Whether you want to improve your finances, health, or personal growth, SMART goals can help you stay focused, motivated, and accountable.
SMART Goals
Stands For:
Specific
Clear and well-defined objectives
Measurable
Goals that have quantifiable targets
Achievable
Goals that are realistic and feasible
Relevant
Objectives that align with your values
Time-bound
Goals with specific deadlines
Unfortunately, even when you know exactly how you’ll accomplish your goal, there are a number of circumstances that can get in the way. Let’s explore how to push through these difficulties and find success.
1. Find your daily energy peak and schedule accordingly.
Unless you’re like The Rock and have seemingly unending energy and strength, your productivity will rise and fall during the course of a day. I know, you didn’t like me telling you that, but someone had to, right?
Short-term goals are best made progress on during the times of day you have high to moderate energy. If you’re saving these goals for the times of day when you’re in a slump, let’s face it: you’re probably not going to get ‘er done. Save the low energy times for leisurely activities.
Okay, so how do you find your daily energy peak? Here’s what I recommend . . . .
Set a recurring alarm when you first wake up for every 30 minutes. Every time the alarm goes off, rate your energy level on a scale of 0 (being no energy) to 10 (being high energy) in a notepad or on graph paper. You can do this for one day or you can do it for a week and average out the results.
This will allow you to see how your energy level changes throughout the day and will allow you to make better decisions regarding how you allocate your time and tasks.
I would recommend working on your short-term goals during the times of day that your energy level is a “5” or higher.
I remember when I first started this blog I was a night owl and had the most energy as the sun was going down. Today, I find mornings work better for me. The lesson? Make sure you adjust your tasks to your changing energy levels. Who knows, you might make a radical shift like me over time.
2. Work on one short-term goal at a time.
I have no idea why multitasking is so praised in our culture. Multitasking, in my opinion, slows people down and produces poor results. It’s much better to work on one short-term goal at a time.
Besides, these are short-term goals – not long-term ones. You’ll be able to get them done pretty quickly and move on to other tasks in short order.
Of your short-term financial goals, it might be worthwhile to work on the quickest short-term goals first – the ones that take the least amount of time. This will give you a few quick wins, which should motivate you to press on.
3. Eliminate distractions soldier!
During my time in the Army National Guard, I learned how to focus. In battle, there’s nothing worse than not keeping your head in the game. When enemies are nearby, it’s critical that you stay on task and don’t daydream. There are plenty of distractions in battle – some of which are set by the enemy – and they need to be avoided.
When you’re working on your short-term goals – including financial goals – you should eliminate any distractions.
When you’re working at home, there are plenty of distractions. If you have kids, you know what I mean. Now, kids are a great distraction, but you should be very careful to make sure they don’t pull you away from your other obligations.
For example, let’s say you have a monthly budget meeting with your spouse. Instead of having the meeting when the kids are running around throwing toys at you, it’s probably best to wait until they go to bed.
Other potential distractions include technology. Yes, while technology can help you accomplish your financial goals – like analyzing your investments with Betterment or Personal Capital – it can also send you alerts that aren’t relevant to the task at hand (like text notifications from your second great aunt Martha).
How do you eliminate technological distractions? Well, if you have Apple devices, it’s pretty easy to do so. On your iPhone, turn on Do Not Disturb. You can do the same thing on your Mac. This way, you can focus in peace and get some work done!
4. Dig deep to find your motivation.
Just like when you’re working on long-term goals, you need to dig deep to find your motivation for short-term goals.
Why do you want to start a budget, for example? If you don’t have a good enough reason or reasons, trust me, the number-crunching will get old fast and you’ll probably give up before you develop a working budget.
Imagine the benefits, for example, of creating a working budget. How will it improve your relationship with your spouse? How will it keep you on track with your long-term financial goals? You’d be surprised by how many motivations you can find for even the most seemingly mundane short-term financial goals.
Important Short-Term Financial Goals
Alright, you’re all geared up. You have some strategies for achieving your short-term financial goals, but which goals are worth your while? That’s what we’re going to talk about next, partner.
1. Create a budget.
Surprise! Just kidding. You probably guessed this one.
The truth is that a working budget is the cornerstone of any good financial plan. A proactive budget not only tells you what you’ve spent, but it tells you what you should and should not spend – that’s huge.
Over time, by working your budget, you’ll find ways to cut your expenses and discover new motivations for raising your income.
2. Create a system to pay your bills on time.
Thanks to technology, there are all kinds of ways to pay your bills. You might pay through your bank’s online bill-pay feature, you might pay through the merchants’ websites, you might pay using your debit or credit card, you might pay with checks – or you might pay with your smartphone!
Chances are, you’re using a variety of methods to pay your bills. But do you have a solid system in place? How will you know if your credit card expired and a merchant can’t pull money through auto-pay? Are you trusting the banks and merchants to let you know when your card is about to expire?
Sure, that might work. But perhaps it would be better to put everything into a spreadsheet so you can keep track of all of your bills and how they’re paid. You can also create reminders to pay in your favorite app!
3. Get appropriate insurance policies for your family.
Do you have life insurance? Disability insurance? Umbrella insurance? How about renters insurance? These policies are commonly overlooked.
Find the best insurance and make sure you’re covered.
Short-Term Goal Examples
If you’re looking for real life short-term goal examples, you’re in luck! I polled some fans on the Good Financial Cents Facebook page and here’s some of the best ones:
Joseph Hogue from PeerFinance101.com shares his goals:
Launch 4 short-format investing books as series in December
Publish three posts per week to each blog
Financial goals
Rebalance my portfolio allocation heading into my 40s. Still a year off (and I don’t generally try timing) but after almost 7 years of a bull market, will rebalance a year earlier and shift to new allocation
Buy and renovate another rental property (in Medellin, Colombia)
Life goals
Use social media more for personal connections and less for business (I realize the irony as I post this under my blog account)
reconnect with a couple of high school friends
start a hobby that isn’t related to personal finance or crowd-funding
Kate Dore from Cashville Skyline offers:
Reach $200K net worth by the end of 2025.
Renovate my basement to rent on Airbnb.
Earn $10K side income before next year’s FinCon.
Lose 20 pounds 🙂
Jacob Wade from iHeartBudgets.com shares his ambitious short-term goals:
Finish Kitchen Remodel by end of 2022
Pay Off Student Loans by end of 2022
Launch online course for blog in March/April 2023
MAX out Roth IRA for my wife and I in 2023
Remodel Master bath in 2023
Build deck/patio in backyard in spring 2023
Build raised bed gardens in side yard in April 2023
Get my butt into shape! Start in T-25 workout plan again
Those are some good examples of short-term goals. Here are some other examples you can use to kickstart your own short-term goal ideas:
Financial Goal
Specific
Measurable
Achievable
Relevant
Time-bound
Emergency fund
Save $10,000 in a high-yield savings account
Yes
Yes
Yes
By age 30
Retirement savings
Contribute at least 10% of your annual income to a 401(k) or IRA account, aim for $100,000 in retirement savings
Yes
Yes
Yes
By age 30
High-interest debt
Pay off $5,000 of credit card debt
Yes
Yes
Yes
By age 30
Credit score
Improve credit score to 750 or higher
Yes
Yes
Yes
By age 30
Budgeting
Create a monthly budget, track spending, and save $5,000
Yes
Yes
Yes
By age 30
Education and career
Invest in education or career development
Yes
Yes
Yes
By age 30
Investing
Invest $5,000 in stocks, mutual funds, or other investments
Yes
Yes
Yes
By age 30
Home down payment
Save $20,000 for a down payment on a home
Yes
Yes
Yes
By age 30
Estate plan
Create a will and estate plan
Yes
Yes
Yes
By age 30
Living below your means
Reduce expenses by 10%, increase savings rate by 5%
Yes
Yes
Yes
By age 30
How I Keep Track of Short-Term Goals
My short-term goals fall into two categories: Quarterly (90 day goals) and weekly goals. Each quarter I list out my goals and then make sure my weekly goals stay on point to achieving those goals.
One easy way I’ve recently implemented of staying on point is creating my weekly goals Sunday night. I’l create a note on my iPhone, but that’s only the half of it.
I then take a picture (screenshot) of my weekly goals and make that the lock screen on my phone. That way every time I turn my phone on I see the top 4-5 goals I need to accomplish that week. Here’s how it looks on my phone:
You’ll also notice I list my daily reminders of my Success Habits I do each day.
These include doing The Love Habits with my wife, writing in my Five Minute Journal, knocking out 50 push-ups, praying, and completing my Crush Your Day PDF (from my 10x Goals Accelerator course) before I go to bed.
I’ve taken achieving my short-term goals to the next level because of this powerful combination.
The Bottom Line – Short-Term Goal Examples
So, there you have it! Setting short-term goals is an excellent way to achieve your long-term vision, improve your skills, and build momentum towards success.
By following the SMART framework, you can turn your aspirations into actionable steps that will help you make meaningful progress towards your dreams. Remember, short-term goals don’t have to be boring!
Whether you’re learning a new skill, connecting with new people, or saving up for a fun adventure, short-term goals can be exciting and fulfilling.
So, what are you waiting for? Grab a pen and paper and start setting some short-term goals today!
FAQs – Short-Term Goals
Why are short-term goals important?
Short-term goals are essential for several reasons. They provide a clear direction and purpose, help you break down larger goals into smaller, manageable steps, build confidence and self-efficacy, and improve your overall productivity and performance.
How do short-term goals relate to long-term goals?
Short-term goals are an essential component of achieving long-term goals. They help you break down larger objectives into smaller, more manageable steps and build momentum towards achieving your long-term vision. By setting and achieving short-term goals, you can stay motivated and focused, improve your skills and habits, and make progress towards your ultimate goals.
How do you prioritize short-term goals?
Prioritizing short-term goals depends on your personal preferences, needs, and circumstances. Consider which goals are most urgent, important, or aligned with your long-term vision. Prioritizing goals helps you focus your time, energy, and resources on the most critical objectives and avoid getting overwhelmed or distracted.
How many short-term goals should you have at once?
The number of short-term goals you should have at once depends on your capacity and workload. It’s generally best to focus on a few goals at a time to avoid getting overwhelmed or losing focus. Prioritize your goals based on their urgency, importance, and relevance to your long-term vision.
By Peter Anderson9 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited November 17, 2017.
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My Lending Club account has been kind of hands off the last couple of months, with no new loans being bought or sold. The good news is that my returns are continuing to improve. My returns are now up to 11.93%, getting close to the 12% I said I was looking for a while back. By moving away from purchasing only A and B grade loans, and selectively choosing more C, D and F grade loans I’ve been able to boost my returns significantly. Hopefully next month I’ll be over that 12% hump.
Lending Club continues their steady growth, as they added an another 42.1 million in new loans for April 2012. From SocialLending.net
When you look at the numbers Lending Club issued almost $42.1 million in new loans this month. The total number of new loans was up substantially (over 10%) from last month with 3,230 loans issued. This meant for the second month in a row their average loan size reduced – in April it was $13,019. The total loans issued since inception is now around $612 million and with eight months left in the year it is clear that Lending Club will cross over $1 billion in total loans before the end of the year.
Lending Club has continued to show strong growth, and should be able to cross $1 billion in total loans by the end of the year. I think that goes to show that they aren’t just a flash in the pan. Peer to peer lending is here for the long haul! Prosper has also continued to show growth as well, and may be worth a second look by investors.
Social Lending Video Course
Also this month Peter Renton of SocialLending.net has relaunched his peer to peer lending training video course. The course goes over the social lending sphere in depth, talks about how to maximize returns and gives some of Peter’s best investment strategies to help you succeed. The course is well worth the cost, and worth a look if you’re interested in maximizing your returns with P2P Lending.
More Details + Video Overview Of Peer to Peer Lending Wealth System
Returns Now At 11.93%
A week or two ago I started looking at my Lending Club account for 2011 tax purposes. Trying to figure out your taxes when it comes to Lending club can be extremely confusing as the reporting processes can vary depending on how much you’re investing in each loan, how your interest income will be reported, etc. If you’re as confused as i was when I started looking at it, check out my post on Lending Club and taxes.
A couple of months ago I had my first charged off loan. It was disappointing to see my perfect record of no charged off loans go down the tubes, but it wasn’t completely unexpected. With as long as I’ve been investing with Lending Club I would have expected at least 1 or 2 charged off loans a while ago. Here’s a look at my account to date:
Net Annualized Return of 11.93%: Up from 11.61% in early April, 11.44% in February, all the way back to 10.53% in July of last year. It continues showing progress.
Number of defaults.. one, with 2 new late: A few months ago now I had my first charged off loan, a Grade B loan. It’s interesting that the loans I’ve had either go late or get charged off have mostly been the higher grade loans. I’ve now got two more late loans, one of them a grade A loan, and the other a Grade D loan. The grade A loan is thankfully almost all paid off already, so even if it gets charged off my losses would be minimal. The grade D loan that’s late is about 1/2 paid off by now, and is already on a payment schedule to hopefully get them back on track. We’ll see.
Twenty seven loans have been paid off early: Ten were A grade loans, eight were grade B loans, six were C grade, two grade E and one F. Looks like grade A and B loans are more likely to get paid back early, reducing returns. Another reason why I’ve started investing in more higher grade loans.
My account balance increasing, re-investing returns: I currently have $2,777.11 in my account, with $170.87 of that ready to invest. I’ll get around to re-investing that money soon.
I’m still diversified by investing across a large number of loans: I’ve had 169 loans, with no more than $25 in each loan. In other words, I’m diversified across a large number of loans, lessening my risk from any one loan going into default or getting charged off.
NOTE: Did you know that 100% of investors who have invested in 800 notes or more had positive returns. Not too shabby, not everyone in the stock market can say that!
What’s Your Actual ROI?
When you’re looking at the numbers on the Lending Club and Prosper sites, it has been pointed out time and again that their numbers are overly rosy view of what your actual return on investment will be. The ways that they calculate the ROI isn’t really standardized, and they don’t take into account how old your loans are, possible future default rates, or other things that may become a factor. The numbers they show are just something you have to take or leave.
A site that I discovered a while ago that gives what I think is a better picture of the actual ROI you can expect is Nickel Steamroller’s Lending Club portfolio analyzer. Basically the analysis tool with give you an estimated ROI after you download all your notes from your Lending Club account and upload the .csv file. It will go through you notes and give sell recommendations, show duplicate notes and highlight notes that are below Lending Club’s average return (so you can sell them on the secondary platform). It will even give you a fun little map showing where your loans are (see mine above).
In looking at my returns on the analyzer, my actual return according to the site will be closer to 10.74%. It also gives me quite a few sell recommendations, particularly on some of my older lower interest loans that I did when first starting out. Those particular loans tend to be grade A or B, and have interest below 8%.
Evolving Lending Club Strategy
Here’s the basic strategy I’ve been using with Lending Club since I started investing. The strategy has changed a little bit over time to include more low grade loans and a few loans with higher balances.
Less than $10,000: I believe I’ll still be sticking with mostly loans below $10,000. Lower amounts mean higher likelihood of payback of the loan.
Zero delinquencies: Again, I may fudge slightly on this one, but I still want it to be very few or zero delinquencies.
Debt to income ratio below 20-25%: I like to invest in loans where the borrowers have a lower DTI ratio, and preferably have higher incomes. I’ll try to keep this as is.
Good employment history: I like loans with a decent employment history of at least 2 years, and a decent income.
So that’s what I’m doing with my Lending Club portfolio right now, and how I’m investing.
Not ready to invest, but looking to consolidate debt or pay off a high interest credit card? You might want to consider borrowing from Lending Club. Check out my post on borrowing from Lending Club.
Are you currently investing in Lending Club? How are your returns looking? Tell us in the comments!
Editor’s Note: Lending Club no longer offers peer-to-peer lending on it’s platform.
Peer Lending Server is a completely automated investment solution for peer-to-peer (P2P) loan investing. It works with only one of the P2P lending sites, Lending Club, and runs on Windows, Mac or Linux. At least part of what makes Peer Lending Server unique is the focus on loan underwriting. This process can be done in a fraction of the second as soon as new loans are listed.
How Peer Lending Server Works
You can download and install the Peer Lending Server Virtual Box that is designed for your operating system. You start by installing Peer Lending Server, and only then do you add your Lending Club API information and program options. From there, you can create filters that you want to use to help you in selecting loans to invest in.
The system will filter current notes, allowing you to download and browse the latest notes on Lending Club that will match your filters. With the click of a button, you can automatically invest in any and all listed loans that match your filter criteria. Any notes that you are already invested in through Peer Lending Server will of course be excluded. You can then schedule the service to automatically start filtering loans at times that you select.
The platform enables you to choose the amount that you want to invest each note, as well as the maximum notes per order. You can also choose to maintain a minimum cash level in your account.
You can also set a maximum percent of available notes to be allowed per filter, and the service will enable you to rank filter notes by a given field. This will give a higher priority to notes that meet the criteria of the highest ranking filters.
Peer Lending Server makes use of external data, which includes additional data points to determine the creditworthiness of any loan. They use statistical models that include macroeconomic data to help increase return on investment, while significantly reducing risk.
Through the use of artificial intelligence, you are able to underwrite loans quickly. Artificial intelligence deciphers complex relationships, improves efficiency and avoids errors.
The service is set to run on Pacific Standard Time, and changing your time zone is not supported or recommended. Peer Lending Server is also designed to run as a service that is always “on” , and for that reason it should be installed on a computer that will always be left on, and where sleep mode is disabled. This means you will be more likely to install it on a home-based desktop computer, rather than a laptop, since the latter is shut down frequently.
One of the major advantages of using Peer Lending Server is that since it runs through your home computer (for the reason given in the paragraph above), your password and API can be maintained privately. There is no need to share your credentials with third parties, or to wait on shared resources. The application runs on your own computer, allowing you to be “first in line” when looking for loans and notes to invest in.
Peer Lending Server offers a large number of tools and features that could improve your success as an investor on Lending Club.
Automated investing. Peer Lending Server is a complete “turn-key” investment application for Lending Club, and is Lending Club API compliant. It offers low detection, execution of saved Lending Club filters, the ability to schedule service times, and a detailed log of each transaction. It also provides configurable maximum loans per order, as well as configurable investment dollar amounts and a configurable option to disable order submission. It can enable you to maintain a minimum cash level of your choice, and to configure based on a maximum percent of notes per order allowed.
Machine learning. The system provides a sophisticated gradient hosted model for mature loan classification, as well as rapid loan prediction. Analytics provide your projected return on investment, and no technical knowledge is required.
Filters. You can use preset filters, and custom filters to match your investment strategy. Filters include artificial intelligence fields for return on investment projections. There is also extensive help included with each field – again you don’t need to be a technical genius in order to operate the system.
Peer Lending Server analytics. This includes the ability to test custom filters, instant and projected return on investment, extended return metrics, and loan status including paid, default, and late statistics. It also comes with bar charts and pie charts, as well as common field categories from multiple perspectives and views.
Ease of use. Peer Lending Server is setup to operate on a “set and forget” basis. It takes just a few steps to configure, filter and run automated investing, and you can be up and running in a matter of minutes.
Speed. Peer Lending Server describes itself as “blazingly fast”, using search and modeling technology that takes place in a small fraction of the second. This gives you the ability to make educated investment decisions while capturing the most popular investment opportunities.
Peer Lending Server Forum. The forum is actually hosted by LendAcademy.com, and has hundreds of discussions relating to both the technical aspects of Peer Lending Server as well as investment strategies to best take advantage of the system.
The platform also has a blog, however there are only about a half-dozen articles, so this feature will have very limited utility.
Peer Lending Server is Free to Use. We saved the best for last. You can’t beat the price of Peer Lending Server, because it’s absolutely free to use.
Should You Try Peer Lending Server
Peer Lending Server is one of several P2P automated investment services – robo advisors for P2P platforms. The service is completely free, so you have nothing to lose by at least trying the service. If you are an active investor on Lending Club, then you almost certainly will need to use some sort of automated investment service, and Peer Lending Server offers the full package.
Perhaps the major downside of Peer Lending Server is that it can be used only in conjunction with Lending Club and not with any other P2P platforms. But apart from that limitation, it is a full-service platform, that offers a higher level of security and quicker access to new loans, due to the fact that it is downloaded to your home computer. This gives you the advantage of immediate access to new loans, as well as eliminating the necessity to share your credentials with third parties.
Is it the best P2P automated investment service? That’s probably more a matter of preference than anything else. Each investor has to find the service that works best for him or her, and which that will be will depend upon the preferred tools and features offered by each. But given that Peer Lending Server is free, you owe it to yourself to at least give it a test run.
Save more, spend smarter, and make your money go further
Do you want to invest better? Who doesn’t? Today, September 25, is Invest Better Day, a day of investor education dreamed up by the jester-hatted money mavens at the Motley Fool.
Any conversation about investments tends to get bogged down by excruciating details, jargon, and ideology. “My portfolio is outperforming your portfolio” is the petty grownup version of “my dad can beat up your dad.”
Fortunately, most of what it takes to invest better has nothing to do with choosing the right mutual fund. I’ve put together my top five investment tips, and only one of them involves choosing the right kind of fund (and it’s plenty vague).
This is good news and bad: choosing a mutual fund is easy. You can do it online in five minutes. But investing better is more about managing human psychology and less about managing money — it’s also about avoiding big mistakes, not about choosing the single best investment.
Enough backstory. Let’s get to the list.
What’s the most important factor that determines how much money you’ll retire with?
It’s not which investments you choose — it’s how much you’ve saved along the way. A recent study by Putnam Investments confirmed this, and the math is simple: save pennies, and no amount of great stock-picking will let you retire with a boat.
Save a high percentage of your salary (especially in your highest-earning years), and you can make plenty of investment mistakes and still come out okay.
Avoid high-interest debt
As Burton Malkiel and Charles Ellis put it in my favorite investing book, Elements of Investing, “There are few, if any, absolute rules in saving and investing, but here’s ours: never, never, never take on credit card debt.”
Credit cards, installment loans, lines of credit, unsubsidized student loans: all of these are the opposite of investing. When you invest, you turn your money over to someone else and hope they’ll do something smart with it and hand back more money later.
When you borrow at a high rate, someone else is doing the same with you, minus the “smart” part. Other than getting a 401(k) match, it doesn’t make sense to save for retirement while carrying an 18% credit card balance.
Everyone is so tired of being told to get a 401(k) match that I’m not even putting it on the list. Fewer people, however, understand the massive tax savings you get from using tax-advantaged accounts like the 401(k), traditional or Roth IRA, health savings account, or 529 college savings plan.
Every time you put a dollar in one of these accounts, it’s like getting a match from Uncle Sam. Unless you’re saving for a specific near-term goal or an emergency fund, saving in a taxable account while you still have space available in a tax-advantaged account means paying unnecessary taxes. Yuck.
Automate
How do you achieve the high savings rate from tip #1? Only one way: automation. Unless you’re self-employed, your federal taxes come out of your paycheck automatically.
Why does the IRS require you to pay taxes this way? Because if people were required to set aside taxes on their own and pay once a year, most of us would spend it before April.
Indeed, the self-employed get into this mess all the time.
Take advantage of what the IRS knows and automate your own savings as much as possible: set up automatic paycheck deduction or an automatic checking account transfer (or both) to your retirement account.
Pay less, get more
Mutual funds charge you a fee for investing your money, but the fee is invisible: it comes out of your returns before you ever see it. The fee is called an “expense ratio” and it’s expressed as a percentage, usually between 0.1% and 2%.
If a fund charges 1%, that means you pay 1% of whatever money you have in the fund every year. That sounds like a small fee but it’s not. The world’s biggest and most diversified mutual funds and ETFs charge less than .2%. Low expenses are an excellent predictor of better returns.
This goes for your 401(k), too. In addition to the expense ratio for each fund, your 401(k) may pile on other management expenses.
New rules this year require 401(k)s to disclose all fees. Read your statement, and if you’re paying more than a small fraction of 1%, call your benefits office, team up with your fellow employees, make protest signs — whatever you need to do. It’s your money.
So there you are: five ways to invest better, and none of them involve picking stocks, reading annual reports, or any other form of nerding out.
Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.
Save more, spend smarter, and make your money go further
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Homebuyers with good credit scores will soon be facing higher mortgage fees as the Biden administration seeks to close the racial homeownership gap and get more first-time and low-income buyers through the door.
A new federal rule could raise the monthly mortgage payments of buyers with good credit scores by over $60 a month, while riskier borrowers will get more favorable terms because their fees will be reduced.
Starting in May, the current structure of the Loan-Level Price Adjustment (LLPA) matrix will be upended by the Federal Housing Finance Agency (FHFA) in the hope of addressing housing affordability challenges in the U.S.
But there have been complaints that the rule change is unfair and potentially ineffective.
“In the short term, this may increase homeownership among the targeted group, but I’m afraid it could decrease homeownership among the middle class,” Jerry Howard, CEO of the National Association of Home Builders, told Newsweek. “I’m not sure that we’re not robbing Peter to pay Paul here.”
Only about 25 percent of homebuyers with Federal Housing Administration loans are people of color, according to the White House. Black and Hispanic people, on average, have fewer savings to use as a down payment on a home and tend to have lower credit scores, according to David Stevens, former CEO of the Mortgage Bankers Association (MBA) and a former FHA commissioner during the Obama administration. The current policy is being rolled out by the FHFA.
He told Newsweek that this can be attributed to factors like distrust in the banking system or being a first-generation American. He added that low credit scores can be a significant barrier to homeownership.
But in order for the FHFA to close the gap by bringing down LLPAs for those borrowers, the agency will compensate for the reduction in borrowing fees by raising the LLPAs of borrowers with higher credit scores, who tend to be white.
The average credit score in white communities was 727 in 2021, compared with 667 in Hispanic communities and 627 in Black communities, according to data analyzed by FinMasters, a personal finance blog.
The effort to get more low-income Americans and Americans of color into homeownership is essentially being subsidized by borrowers who have better credit scores and can contribute more to their down payment, Michael Borodinsky, a vice president at Caliber Home Loans, told Newsweek.
Borodinsky said while the plan was designed to help people who have historically faced obstacles to homeownership, it comes at the cost of negatively affecting buyers who worked hard to save enough money for a larger down payment and maintain a strong credit rating, especially since those buyers can “be of all demographics.”
“This new rule unfairly penalizes Americans for having good credit and rewards those who accrue debt and don’t pay their bills with cheaper loans,” GOP Representative Michael Lawler of New York told Newsweek. “The way to expand access to housing isn’t to reward bad credit—it’s to bring down inflation, reduce property taxes, cut energy costs and invest in critical infrastructure.”
Although the new rule, which takes effect May 1, is designed to assist low-income and minority borrowers by encouraging homeownership, industry experts have expressed concern that the plan fails to meet that goal.
Stevens said that while the generational limitations on homeownership among racial groups in the U.S. need to be addressed, FHFA director Sandra Thompson’s actions weren’t enough to lower borrowing costs to the point it will “make a difference.”
“We just went through to this completely convoluted discipline around risk-based pricing in the hopes of accomplishing something that isn’t going to be accomplished,” he said.
However, in a statement shared with Newsweek, the FHFA defended the changes. It called the recalibration of its pricing framework “minimal” and stressed that the agency’s goal of making sure that the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac “fulfill their role in any market condition.”
But former National Economic Council director Larry Kudlow said those GSEs have never “penalized” people who don’t need government programs to help them own homes, calling the Biden administration’s new rule a “middle-class tax hike.”
“We learned the hard way [in 2008] that if you can’t afford a home, just getting a subsidy one time to get a mortgage, you won’t be able to carry it,” Kudlow told Fox News on Thursday.
A spokesperson for the National Association of Realtors (NAR) told Newsweek that a GSE could still incentivize homeowners without punishing others and stressed that such a move is “especially needed” at a time when there is limited affordable housing “in all areas of the market.”
“NAR urges the FHFA to eliminate the fee increase on strong credit borrowers,” the spokesperson said.
Newsweek reached out to the White House for comment via email.
The timing of the upcoming LLPA changes is also “not ideal,” given the spring buying season and low inventory, an MBA spokesperson told Newsweek. But the MBA is more concerned about another mortgage change: the addition of an LLPA for loans with a debt-to-income (DTI) ratio greater than 40 percent, which Borodinsky stressed is often a “moving target.”
The DTI is calculated by taking a person’s monthly debts, including minimum payments on credit cards and loans, and dividing it by that individual’s income. The result is used to assess a person’s ability to make the necessary monthly payments on a loan.
In a March 15 statement, MBA president and CEO Bob Broeksmit warned that because the DTI often fluctuates throughout the mortgage application and underwriting process, the new fees will further vary those estimates, thus “increas[ing] compliance costs and confus[ing] borrowers.”
“[It] makes for a ‘no win situation,'” Borodinsky said. “Especially because the borrower will feel that they were taken advantage of by the lender due to these changed circumstances.”
After the MBA asked the FHFA to remove the DTI adjustment, the agency delayed the DTI ratio-based fee to August 1. But the MBA expressed disappointment that the FHFA is not considering alternatives to the new fees, which “simply are not workable for lenders and borrowers alike.”
Stevens agrees and said: “This would just make things really difficult for the lending community and for potential homebuyers.” He added that he’s “hopeful” Thompson will gut the adjustment before it goes into effect during the summer.
Update, 04/24/2023, 5:10 p.m. ET: This story was updated to clarify which federal agency is behind the mortgage fee policy change.
Try spending a night in your own guest room. What seems like an abstract problem quickly turns very tangible, and you’ll see what’s missing or inadequate. To help make sure your guest room is up to snuff, here are ten items every guest room needs:
1. Space in the room and closet for clothing and luggage
Even a small carry-on needs space to avoid getting in the way. Make sure there’s a space for the carry-on to sit out of the way, while still being accessible, especially if you have no dresser or closet space for them.
If possible, though, offer them closet or dresser space. A small set of hangers (5-6 per person) and a couple drawers in a dresser should be more than enough. It’s a bit of an investment, but the payoff is making your guest feel truly welcome, not forcing them to live out of their suitcase.
2. A comfortable bed with lots of pillows and bed covers
You can’t put your old squeaky bed frame into the guest room and expect any couple to get a good night’s sleep. When one of them moves, the squeak awakens them both. Ditto for a comfortable mattress. You can invest in a nice firm mattress during a sale (January is typically hot for mattress sales) and then add a soft, inviting topper.
Don’t stop at the mattress. Add an assortment of different pillows and pillowcases to help set up whatever arrangement is most comfortable for them.
The same goes for bed covers. A heavy down comforter will cater to anyone who likes it warm and offering a variety of quilts and blankets will help let your guest get the bed exactly the temperature they like.
3. A bedside table and reading light
Everyone likes having some things near them when they sleep: a glass of water, a book, or their glasses, to name a few. Guests won’t want to leave them on the floor, so a bedside table is an inexpensive way to make sure they’re easily accessible.
A lamp is another great, inexpensive addition to the bedside table. A lamp with a three-way bulb accomplishes everything a guest might need: soothing bedside light to read by at night and a brighter light to dress by in the morning.
4. Wastebasket
There are a lot of little things you need to throw away and having an obvious place for them to go just helps to smooth things over. Yes, they could just throw out the trash in the bathroom or the kitchen, but saving your guests the hassle of having to leave the room to take care of something so basic will pay off greatly.
5. Convenient power outlets for phones and tablets
Nearly everyone has a cellphone and other devices they need to charge overnight. Give them an easy way to do so, without having to move furniture or crawl around on their hands and knees. Extension cords on either side of the bed will be well received. If possible, find out what type of devices they have ahead of time, and have the correct chargers ready and plugged in ahead of time.
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6. Towels and basic toiletries
Most people bring their own items, but everyone forgets from time to time. Having extra soap, shampoo, conditioner, toothpaste, hair dryer, and the like will help cut down on those last-minute trips to the nearest drug store.
Towels might already be in the bathroom, but if it’s a shared bathroom, it’s a good gesture to set out towels separately in the room, to avoid confusion later.
7. Water bottles or drinking glasses
Offer guests a way to have a middle-of-the-night drink. Bottled water on the bed stand is a real nicety, but if your tap water tastes great, a clean drinking glass works just as well.
8. TV channel guide & remote instructions
If your guestroom has a television, spend a few minutes creating a channel guide. Include networks, news and sports channels, special interest channels (History, Smithsonian, Nature, Travel, DIY, Bravo) and movie channels. If your TV has Netflix access, list that too.
Be sure to include directions for turning on the TV, as each remote is different. Test your remote to make sure it’s working and doesn’t need batteries.
Hot Tip: After creating your channel guide, consider laminating it so it lasts a long time and won’t get destroyed by a spilled drink or a tear.
9. A nightlight
A simple low-wattage nightlight lights the way to the bathroom in the middle of the night. You don’t want your guests to bump their shins or ram their toes while they’re in unfamiliar surroundings.
10. A full-length mirror
You probably have guests over for a reason, and that reason is likely an event where appearance is important. A full-length mirror is an obvious help for anyone who needs to dress up for a special occasion. This is especially helpful if there isn’t a bathroom attached to the guest room where they could get dressed.
Bonus Items: Local magazines and map
Okay, we confess, this isn’t a necessity . . . but it certainly makes for a nice welcome, especially for out-of-state guests. You can even use sticky notes in the magazine to point out places you’d like your friends or family to see. Highlight your home on the map with a star. Make sure the magazines are no older than a year.
Hot Tip: If you have grandkids coming to visit, put some age-appropriate magazines into the room.
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