By Peter Anderson5 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 18, 2021.
A week or two ago I wrote a review of Betterment.com, an investing website and online brokerage that allows people to automatically invest their money on a regular basis, and have their money be automatically and regularly re-allocated to their correct percentage of stocks and bonds. Basically, it’s an easy and simple way to invest for people who don’t want to deal with all the nitty-gritty details of investing.
I’ve been pretty impressed with the site, and with how it makes investing more accessible to regular folks who might have otherwise not had the time or inclination to invest. It’s a point-and-click solution that will take you 5-10 minutes to get up and running.
Now that they’ve announced this week that you’ll also get a signup bonus when you open your account, I think now is a good time to sign up for an account. After all, you’re already making a return before you start!
Details Of Signing Up For Betterment
Signing up for Betterment is about as simple as a process can get. I went through it a couple of weeks ago when signing up for my own account. It will take you about 5 minutes to enter all your information. You’ll need the following to get started:
Contact information, date of birth, and social security number
Employment information
Checking account information
I had opened my account and linked my checking account in less than 5 minutes, and then I just had to wait for Betterment’s trial deposits into my account, which took about 1-2 days to happen. Next I transferred my money over to my account and I was ready to invest!
Using Betterment Once You’ve Signed Up
Betterment keeps everything extremely simple when it comes to investing your money, and really you’re only going to have to make choices on a few things.
Choose how much to put into your account.
Choose your allocation of stocks vs. bonds. (They’ll help you with this if you’re not sure)
Decide if you want to do automatic investments.
Here’s a video from Betterment talking about the site, the signup process, and how their tools work.
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What Investments Make Up The Account?
Curious about just which investments make up your account? They divide up your holdings into a few different diversified ETFs so your money will basically track market performance.
Stock ETFs:
10% SPDR Dow Jones Industrial Average ETF (DIA)
20% iShares S&P 500 Value Index ETF (IVE)
20% iShares S&P 1000 Value Index ETF (IWD)
15% iShares Russell 2000 Value Index ETF (IWN)
15% iShares Russell Midcap Value Index ETF (IWS)
20% Vanguard Total Stock Market ETF (VTI)
Treasury Bonds:
50% iShares Barclays 1-3 Year Treasury Bond Fund (SHY)
50% iShares Barclays TIPS Bond Fund (TIP).
So there is your diversified portfolio! Piece of cake!
Track Your Betterment Account In Mint.com
If you’re a fan and user of Mint.com personal finance manager like I am, once you’re signed up for your Betterment account you can also track your portfolio’s performance in your Mint.com account. To add your new account just log in, and click on the “add account” link in the left sidebar. On the page that comes up search for Betterment when it asks for your bank name. It will bring up the login screen where you’ll just put in your login info for betterment. Your account will then be added to the “Investments” section of your accounts.
If you’ve set up automatic investments already with Betterment, you can now just track your performance in Mint without having to regularly log in to Betterment. It will show you historical performance charts, allocations, and lots more. Talk about easy.
Sign Up Now To Get Your Account Fee Free For A Limited Time!
I’ve been using Betterment for a couple of weeks now, and I’m really enjoying using the site because it just makes everything so easy. Add money, allocate, invest. That’s how simple investing should be!
Since they now have a limited-time account bonus that will give you your account fee-free for a time, you’ll be ahead of the game right out of the gate. There’s no reason not to invest, especially if you were thinking about jumping in anyway! Sign up through the link below.
Signup Bonus When You Open A Betterment account. Click here.
We often hear stocks and bonds mentioned together as if they’re pretty much the same thing.
But are they? Not really.
In fact, it might even be that most people understand stocks even better than bonds. After all, relatively few people own bonds individually.
So, what is a bond, and how may it fit in your overall investment portfolio?
So, What Is A Bond, Exactly?
Bonds are securities representing debt obligations, usually issued by either corporations or governments.
They’re normally issued in denominations of $1,000 and pay interest twice each year. What’s more, the interest rate is fixed for the duration of the bond.
And if the bond is held to maturity, the investor will be paid the full face amount of the security.
As an example, if you purchase a bond for $1,000, with an interest rate of 4% and a term of 20 years, you will be paid $40 per year – $20 every 6 months – until the bond is paid in full 20 years later.
Bonds are much like certificates of deposit, except that they are issued by institutions other than banks, and have much longer terms. They also lack the FDIC insurance coverage that comes with bank-issued CDs.
Bonds are long-term securities, with terms greater than 10 years.
However, investors often lump any type of fixed income investment into the bonds category.
That can include securities with a term of anywhere from a few months to 30 years.
What Types of Bonds are There?
There are 3 primary types of bonds:
Corporate
US Treasuries
Municipal Bonds
Let’s take a look at each.
Corporate Bonds
These are bonds issued by publicly traded corporations and often listed on public exchanges. They can be used for a variety of business purposes, including paying off old debt, expanding operations, raising extra cash, or even acquiring competitors.
They’re generally considered less safe than US Treasuries and pay a higher rate of interest as a result.
Exactly how much interest they’ll pay will depend upon their bond rating, as issued by large bond rating services, such as Moody’s or Standard & Poor’s.
Bonds with ratings of BBB through AAA are considered the safest and rated as investment grade.
Lower rated bonds once referred to as “junk bonds”, are now called “high yield bonds”, and pay much higher rates of interest. Naturally, such bonds are also more likely to default and considered riskier.
Corporate bonds can generally be purchased through investment brokerage firms. They’re typically bought in denominations of $1,000, but you may have to buy a minimum of 10 bonds, or $10,000. Both purchase and sale will generally involve a small commission.
US Treasury Securities
US Treasury Securities come in a wide variety of terms. Technically speaking, only one security is actually a bond, which is the US Treasury bond. But just to clear up any confusion, we’ll discuss the various types of US Treasury securities that are available.
US Treasury Bonds. These are the longest term treasuries, with a maturity of 30 years. They are available in denominations of as little as $100 and pay interest every six months.
US Treasury Bills. These are the shortest term treasuries, with maturities ranging from a few days up to 52 weeks.
They can be purchased in denominations of $100, but are bought at a discount.
For example, you might purchase a Treasury bill for $99, which you will redeem at maturity for $100. The additional $1 paid represents interest paid on the security.
US Treasury Notes. Notes have maturities of 2, 3, 5, 7, and 10 years. They pay interest every six months and are available in denominations of $100.
Treasury Inflation-Protected Securities (TIPS). These are interest bearing treasuries that also increase your principal based on changes in the consumer price index (CPI). They come with maturities of 5, 10, and 30 years. The interest paid is lower than Treasury securities with comparable terms, but the principal additions are meant to keep the value of the security up with inflation.
US Savings Bonds. Available as EE and E savings bonds, they are available in denominations of $25 and earn interest for up to 30 years. There is also the I Savings Bond, which like TIPS, increases the principal value of the security based on changes in the CPI.
Where to Buy US Treasury Securities
All US Treasury Securities can be purchased, held, and redeemed through the US Treasury department’s web portal, Treasury Direct. They can also be purchased through investment brokerage firms, though there may be a nominal fee for both purchase and sale.
Municipal Bonds
These are bonds issued by local governments, including states, counties, municipalities, and their various agencies.
They have the advantage of not being subject to federal income tax. And if you are a resident of the same state where the bonds are issued, the interest will also be free from state income tax.
However, if you live in a different state, the interest will be taxable in your state of residence, if it has an income tax.
Municipal bonds can generally be purchased through investment brokerage firms, and once again for a small commission on both purchase and sale.
For those looking to get started in bond-investing, Worthy Peer Capital is a good place to start.
What are the Benefits of Bonds?
Bonds have two basic benefits, at least compared to stocks.
The first is relative safety. While stock prices fluctuate, bonds are repaid at the full face value if they are held to maturity. This makes them a solid diversification away from stocks.
Holding a certain percentage of your portfolio in bonds can reduce the overall volatility and has been shown to improve long-term investment results.
The second benefit is steady income.
The interest paid on bonds is a contractual obligation. Unlike dividends, which can be either reduced or eliminated by the issuing institution, the interest rate set on a bond upon issue is guaranteed until maturity.
This provides the bondholder with a steady source of income, even while stocks may be fluctuating in value.
There’s a third benefit bonds have in common with stocks, and that’s the potential for capital appreciation. It has to do with changes in interest rates.
Let’s say you purchased $10,000 of a certain bond with a 5% interest rate.
Two years later, prevailing interest rates fall to 4%. The value of your bond increases to $12,500, which gives it a 4% yield.
You then sell the bonds and collect a $2,500 capital gain on the transaction.
What are the Risks of Bonds?
Despite the advantages of holding bonds, they’re not without risks. There are two primary risks.
Issuer default. This is a bigger concern with corporate bonds. A company can fall on hard times, and default on its debts. Not only would you lose the interest income, but the principal as well. There are different ways this can play out. In a corporate bankruptcy situation, you may receive partial value of the bonds.
But in an extreme situation, the bonds may be declared completely worthless.
Since they are issued by the US government, Treasury securities are considered immune from default. Municipal bonds do have a slight possibility of default, but in fact, defaults have been very rare on these securities historically.
Interest rate risk. In the last section, we talked about the possibility of bonds providing capital gains if you purchase a bond then sell it into a market with lower interest rates. But the opposite can happen if interest rates rise.
Let’s reverse the example given earlier. You purchase $10,000 in bonds paying 4%. Two years later the prevailing rate on bonds is 5%. You sell the bonds at $8,000, which is the principal value that will produce a 5% return. In the process, you take a $2,000 capital loss.
This is referred to as interest rate risk – the risk that the value of your bonds will fall if interest rates rise.
The major disadvantage with bonds is that they have an inverse relationship with interest rates. Rising rates equal falling values while falling rates equal rising values.
You should also be aware that US Treasury bonds are also subject to interest rate risk, even though the principal value of the bonds is guaranteed at maturity.
So far we’ve been talking about purchasing individual bonds.
But you can also invest in bonds through bond funds. Bonds are sold through funds, just the way stocks are. Each is a portfolio of bonds held in a single investment unit. The fund may hold hundreds of different bond issues and will be run by an investment manager.
It’s important to understand that there is a wide variety of bond funds. In fact, you can choose a fund based on your own investment preferences.
For example, you can invest in a bond fund that holds only US Treasuries, municipal bonds, or corporate bonds. You can also invest in funds that hold foreign bonds.
Some very specialized bond funds invest only in securities with limited terms.
For example, a bond fund may hold sureties due to mature within 5 years.
That can include five year Treasury notes, but it can also include 20 year corporate bonds due to mature within 5 years. Investors often choose shorter-term bond funds to minimize or eliminate interest rate risk.
You can also invest in bond funds that hold only non-investment grade bonds (bonds with ratings below BBB). These funds are riskier than the ones that hold higher-quality bonds, but they provide higher interest rate returns.
An investor may take a small position in a high-interest bond fund to increase overall yield on a larger bond portfolio.
Bond funds offer professional management, as well as greater diversification.
However, they typically charge commissions, known as “load fees”, that can range between 1% and 3% of the fund value.
You can invest in bond funds through investment brokers, or through large mutual fund companies like Vanguard and Fidelity.
How Much of Your Portfolio Should You Hold in Bonds?
Virtually everyone who invests should have at least some money invested in fixed income investments, including bonds.
They provide greater stability in an investment portfolio and are particularly valuable during downturns in the stock market. Not only are they more likely to retain their value in a market decline, but they’ll also pay interest income along the way.
But there’s much debate about exactly how much you should hold in bonds. Different factors have to be considered, including your age, your investment time horizon, and your market risk tolerance.
But there are some formulas that reduce the allocation percentage to a mathematical equation.
One that’s grown popular in recent years is 120 minus your age. For example, If you’re 40 years old, 80% (120 minus 40) of your portfolio should be held in stocks, while 20% should be held in bonds.
If you’re 60, then 60% (120 minus 60) should be held in stocks and the remaining 40% in bonds.
The formula might not be entirely fool-proof, but it at least accounts for your age and investment time horizon.
For example, notice that as you get older, the bond portfolio percentage increases.
This is consistent with what investment managers typically recommend. The closer you get to retirement, the lower your stock exposure should be.
It doesn’t really take risk tolerance into account, but you can use the formula as a starting point, then adjust the allocations based on your own personal tolerance.
Final Thoughts on What is a Bond
So there you have a high altitude view of bonds.
As you can see, bonds are probably more complicated than most people believe. They come in different shapes and sizes and are issued by various entities. Each has its own strengths and limitations.
Armed with just a general understanding of bonds, you should be able to appreciate the need to hold at least some part of your portfolio in them. Most investors don’t hold individual bonds since it’s difficult to adequately diversify.
Bond funds are usually the better choice for small investors, particularly if you’re interested in specialized bonds, like municipal bonds or high yield bonds.
One final word on bonds…if you’re looking for an asset that’s totally safe, bonds may not qualify.
They are subject to the risks discussed above, despite being less risky than stocks.
But if you want complete safety for at least part of your portfolio, then you’ll need to look at CDs, money markets, and high yield savings accounts.
When you think of the common profile of someone buying term life insurance, you generally think of a young family, either a newlywed or a family that has young children. Typically, you’re looking to protect their family financially in the event of a tragic loss of the breadwinner.
You don’t typically think of someone over the age of 60, or even 70, wanting to buy term life insurance but believe it or not, it’s more common than you think.
However, you’re probably wondering why would somebody in their golden years want to buy a term life insurance, aren’t they already self-insured?
Well, typically that is the case. There are some instances where over 60 year-olds need to buy term life insurance. Here’s a few recent instances that I experienced:
Pension Protection
Recently I took a phone call from a gentleman who is in his mid-60s and was contemplating retirement. He had worked at his job for a number of years and had a very nice pension. As with any pension, the only downside was what happened if he were to die prematurely? His spouse would be left with far less than he was taking. He could always take 100% of the pension on him and his spouse’s life but then that in turn, made his monthly benefit much lower than he liked.
So what was the alternative?
What are his options?
One option is to buy a term life insurance policy in the event that he was to pass away prematurely. Now you’re probably wondering what type of insurance carrier is going to approve someone for a term policy for x number of years. Believe it or not, there are a few but it does depend on your age, obviously, your health, obviously, and also the state that you reside in, not so obvious.
In this particular case, Transamerica was going to write him for a term policy for the amount that he was seeking. Another option that he had, which actually ended up being a little cheaper, was buying a level term policy. In this case, you buy a guaranteed universal life policy set at a determined age. When we compared the two, it was actually cheaper to buy the guaranteed universal life policy than the standard term.
This is just another prime example of working with an independent insurance agent that can explore multiple options to get you the best and cheapest term life coverage you deserve.
A Second Marriage
Recently I had two instances where I had a 60-year-old and a 70-year-old that were both wanting to buy term life insurance. While they’re ages differed by a decade, the one thing they had in common was they had both remarried. Both wanted to have some type of life insurance protection for their new spouse.
In one case, the gentleman was healthy and had no major heath conditions while the other did have a high-risk condition that had us do some more research to find the right carrier. In both cases, we were able to get the life insurance coverage even thought you wouldn’t think it would be easy to get life insurance for a 60-year-old or even life insurance for a 70-year-old. It’s just a constant reminder that there’re typically always options when you work with an independent life insurance agent.
If you are a senior looking for cheap term life insurance, don’t give up. We’ve been able to get seniors approved for life insurance from those rated Preferred Best to those having previous health conditions that even though the rate is Standard, at least they got the coverage that they were seeking.
Sample Term Life Insurance Quotes for Over 60 Year-Olds
Here’s a look at two sample quotes for someone in their 60’s. The first is a 20 year $250,000 term life policy for a 60 year-old.
Here’s a sample quote for a 60 year wanting to buy a $250,000 30 year term policy. Yes, even a 60 year-old can buy a 30 year term policy!
Are you over the age of 60 and in need of a term life policy? Let us help! We work with all the best life insurance companies in the industry today. We specialize in getting life insurance policies for anyone looking for life insurance who is over 50. This allows us to know that age group and their specific needs. While we have complete guides for life insurance by age, we have specific information on this site for people who are:
61 Years Old 62 Years Old
63 Years Old 64 Years Old
65 Years Old 66 Years Old
67 Years Old 68 Years Old
Because every insurance company is different, you could get drastically different rates depending on which company to get the quotes from. Some insurance companies specialize in insuring applicants over the age of 60, while other companies are automatically going to decline you for insurance coverage.
Most people over the age of 60 assume that they no longer need a life insurance plan, but your age doesn’t determine your life insurance needs. Don’t assume just because you’re getting close to retirement means you don’t need insurance.
Ads by Money. We may be compensated if you click this ad.Ad
Now you need to calculate your insurance needs, because you’re in a later stage of life, your needs are very different from other applicants. First, look at is any debts that you would leave behind. You may not have a lot of debt, which means that you can consider getting a smaller life insurance plan.
Another factor that you should look at is if anyone currently relies on your salary to pay for basic expenses. If you’re in a stage of life where nobody relies on your paycheck, you can get a much smaller insurance plan.
Even if you’ve been turned down for coverage in the past, we can give you several options for affordable life insurance coverage. If you’re in poor health or have several pre-existing conditions, there are life insurance options. One choice is to go with a no exam life insurance plan.
No exam life insurance is more expensive, but it’s worth the extra cash to have insurance protection. Shopping around for a cheaper insurance company can help you save money on no exam plans, but regardless of the company, it’s going to be more expensive.
Also, no exam plans have ceilings on how much insurance you can buy. Each company caps its plans at different limits, but most are around $250,000.
Save more, spend smarter, and make your money go further
Let’s do a little investment simulation. Don’t worry—I’ll do the math.
Jane has a $5000 consumer loan and a $20,000 stock portfolio. Her net worth is $15,000. (Ah, the simple life of a person in a word problem.)
If the stock market goes up 10%, Jane makes $2,000 and her net worth goes up to $17,000 ($22,000 in the portfolio, minus the $5000 loan).
If the market goes down 10%, Jane loses $2000. Are you with me so far?
Jane decides to pay off the loan. Her net worth is still $15,000, but now it’s $15,000 in stocks and no debt. Then the stock market goes down 10%, and Jane only loses $1500. By paying off the loan (a financial nerd would call it “deleveraging”), Jane’s portfolio got less risky: The same change in the market caused a smaller change in her portfolio, even though her net worth stayed the same.
It doesn’t matter that Jane borrowed the money for a dining room set. As long as she owes the money, she’s taking on more investment risk than if she didn’t owe it. Her net worth fluctuates more with each day’s stock returns because of the debt. That’s not necessarily good or bad (maybe Jane wants to take on more risk in the hope of getting a bigger return) but it’s a mathematical fact.
This is all grade school math, right? But if we replace “consumer loan” with “mortgage,” somehow it makes otherwise intelligent people, investors and financial planners alike, forget basic arithmetic.
“Investing on mortgage”
I’ll include myself among the mathematical amnesiacs, because I only came to understand this principle because of a recent blog post by Michael Kitces, director of research for Pinnacle Advisory Group, who writes the Nerd’s Eye View blog.
The post is written with financial planners in mind, not consumers, so I’m going to summarize it as follows: If you have both a mortgage and an investment portfolio, you’re probably making a big mistake. A big, fat, Greek default-style mistake.
Let’s go back to Jane. Now she has a $100,000 mortgage, a $100,000 house, and a $200,000 stock portfolio. Her net worth is $200,000 (the portfolio plus the house, minus the mortgage). When the stock market goes up 10%, Jane makes $20,000. When it goes down 10%, she loses $20,000.
Say Jane takes $100,000 from her portfolio and pays off the house. Her net worth is still $200,000, but her portfolio has dropped to $100,000. Now when the stock market goes down 10%, Jane only loses $10,000. Her portfolio got less risky, but her net worth stayed the same. (Yes, we’re assuming remarkable stability in the real estate market.)
Jane would tell you that she wasn’t borrowing money to invest in stocks, she was borrowing money to buy a house. Well, her portfolio and her bank don’t give a hoot. As long as she owes money, her investment performance has a bigger effect on her bottom line than if she didn’t owe.
After paying off her mortgage, Jane comes to you for financial advice. She’s thinking of taking out a new fixed-rate home equity loan to plump her portfolio back up to $200,000. What is she, insane? If she’d decided not pay off her mortgage in the first place, she’d be in exactly the same position, with the blessing of most financial planners and, until recently, me.
Whether Jane knows it or not, she is borrowing against her house to invest in the stock market, and she should understand the risks.
So what?
That sounded like a lot of academic drivel, I know. But if you’re a homeowner with a mortgage, it has real implications for your financial health. Assuming you’re in a position to save money beyond your mortgage payment, you are making a scaled down version of Jane’s decision every month: Pay down the mortgage, invest for retirement, or both?
“Each and every year I get to make a conscious decision about whether I want to implicitly buy stocks on mortgage by keeping the mortgage and buying stocks,” says Kitces. Or bonds, for that matter. Look at what you’re really doing:
Using borrowed money to buy bonds is stupid. Sure, mortgage rates are low. Bond rates are lower. Would you take out a 4% mortgage to buy bonds paying 2%? Me neither.
Using borrowed money to buy stocks is dangerous. Stocks are risky. Stocks bought with borrowed money are more risky. If you walk into a reputable financial planner’s office and tell them your financial plan is to borrow a bunch of money to invest in stocks, they will sit you down and give you a parental lecture about imprudent risk-taking. But if you’re using mortgage money to juice up your portfolio, somehow that’s okay?
Implicit in the idea that it’s okay to buy stocks “on mortgage,” as Kitces puts it, is the belief that stocks will definitely outperform in the long run. Jorie Johnson, a certified financial planner in Manasquan, New Jersey, doesn’t take a client’s mortgage into account when setting up their investment portfolio for this reason. “As long as you have a reasonable expectation of doing better in the market than your mortgage interest rate, you should be putting the money in the market,” she says.
However, this a point both technical and practical. If your goal is to shoot for the moon in your retirement portfolio by ratcheting up the risk with borrowed money, there’s a cheaper way to do the same thing by maintaining a smaller, but riskier, portfolio: Pay down the mortgage, but own more stocks and fewer bonds. You’ll lower your risk of ending up with negative home equity, save on mortgage interest, and achieve the same level of portfolio risk, with the same expected returns.
“Taking on more portfolio risk is the equivalent of having less portfolio risk but more leverage,” says Don St. Clair, a certified financial planner in Roseville, California. “If you’re not willing to take some of your portfolio and pay off your debt and jack the risk of your portfolio back up, then you shouldn’t be willing to keep the same portfolio and not pay off your debt.”
The good old days
So, if you shouldn’t use borrowed money to buy stocks or bonds, what should you use it for?
Kitces just bought a house, and here’s his answer. “I’m really going to spend the bulk of the next ten years knocking this mortgage down to zero,” he says. “We are radically ratcheting down savings into investment accounts and really ratcheting up payments toward the mortgage.”
This feels intuitively wrong, doesn’t it? Everybody knows you should make retirement saving a habit and do it faithfully, month after month. Accelerating mortgage payments so you end up with a paid-off house and very little in other assets beyond an emergency fund and your 401(k) match can’t be a good idea, can it?
Just a couple of decades ago, it wasn’t just a good idea; it was conventional wisdom. “It was really straightforward: You built a giant down payment, you took on as little debt as possible, and whatever you did take on in debt, you knocked it out as quickly as possible,” says Kitces. “And when you actually got it done, you literally held a party and burned the mortgage note in your fireplace.”
Can anyone really say that isn’t still good advice? Oh, don’t explain it to me. Explain it to the Las Vegas homeowner who is $100,000 underwater. Nobody needs to be told how toxic negative equity is in 2011, right? If anything, positive home equity offers more flexibility than a 401(k) balance. “They have home equity line of credit options, the ability to move, the ability to relocate, and the financial freedom to make decisions,” says Kitces.
My money is trapped!
Now, wait a minute. Presumably, your investment portfolio is inside a 401(k) or IRA or some other box with “do not open until retirement” stamped on it. It would be crazy to pay the 10% penalty and a huge wad of taxes just to knock off a chunk of your mortgage.
I agree. So while you have a mortgage, what do you do with this money? You invest it in a way that reflects the fact that you’re playing with borrowed money. In other words, Johnny Mortgage’s portfolio should be invested heavily in bonds and cash. Remember that they’re not really bonds and cash. They’re stocks wearing disguises, because a portfolio of low-risk assets bought on leverage is still high-risk.
Even though it doesn’t often feel like it, a mortgage has an end. Later, when the mortgage is nothing but fireplace ashes, you can direct 100% of your former mortgage payment into your retirement savings.
But mortgages are special
Mortgages are weird. Nowhere else in the world of finance can you get a 30-year fixed-rate loan with tax-deductible interest and the option to refinance if rates drop. Of all the kinds of debt, I’d probably agree that this is the best one to use to invest on leverage.
That still doesn’t make mortgage debt cute and cuddly. As the 23% of homeowners who are underwater know, mortgage debt can still bite you right where it hurts. Nearly all of those homeowners would have been better off paying down the mortgage rather than investing, or just keeping their investments in cash. (Yes, I know plenty of them did neither, which compounds the injury.)
Oh, there is one last wrinkle. In most states, you can walk away from a mortgage. The bank will take your house but can’t come after your other assets. As a forward-looking strategy, however, strategic default sucks. (Sorry for the parent lecture.) “Is your strategy for wealth creation really that you should buy real estate with as much debt as you can, because if it goes badly you can stick it to the bank?” says Kitces. “I don’t think that’s really how we’re telling people to build wealth.”
What do you think? Is there any defensible reason to buy stocks or bonds “on mortgage”? Or has everyone already forgotten 2008?
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Then and Now: The European Debt Crisis
Mortgage interest rates moved in different directions this week, according to data compiled by Bankrate. Read on for a detailed breakdown of how different loan types moved.
The Federal Reserve has lifted rates 10 times in a row, most recently at its May 3 meeting. Rates now are at a 15-year high, but the consensus is that inflation is finally cooling and the central bank might halt raising rates.
”Mortgage rates have settled into a new normal of around 6.5 percent on a 30-year fixed-rate loan,” says Lisa Sturtevant, chief economist at Bright MLS, a large multiple listing service in the Middle Atlantic region. ”With growing recession risks, we could see mortgage rates dip lower, but we will not be returning to the 3 percent level seen during the height of the pandemic.”
Rates accurate as of May 12, 2023.
The rates listed above are averages based on the assumptions shown here. Actual rates available across the site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Friday, May 12th, 2023 at 7:30 a.m.
You can save thousands of dollars over the life of your mortgage by getting at least three rate quotes. Comparing mortgage offers from multiple lenders is always a smart move, but shopping around grew especially critical during the interest rate run-up of 2022, according to research by mortgage giant Freddie Mac. It found the payoff for bargain-huntng borrowers doubled last year.
“All too often, some homeowners take the path of least resistance when seeking a mortgage, in part because the process of buying a home can be stressful, complicated and time-consuming,” says Mark Hamrick, senior economic analyst for Bankrate. “But when we’re talking about the potential of saving a lot of money, seeking the best deal on a mortgage has an excellent return on investment. Why leave that money on the table when all it takes is a bit more effort to shop around for the best rate, or lowest cost, on a mortgage?”
The average rate for a 30-year fixed mortgage is 6.84 percent, an increase of 5 basis points over the last seven days. A month ago, the average rate on a 30-year fixed mortgage was higher, at 6.89 percent.
At the current average rate, you’ll pay a combined $654.59 per month in principal and interest for every $100k you borrow. That’s an increase of $3.33 over what you would have paid last week.
15-year fixed mortgage rate moves down,-0.02%
The average rate you’ll pay for a 15-year fixed mortgage is 6.13 percent, down 2 basis points since the same time last week.
Monthly payments on a 15-year fixed mortgage at that rate will cost roughly $851 per $100k borrowed. That’s obviously much higher than the monthly payment would be on a 30-year mortgage at that rate, but it comes with some big advantages: You’ll save thousands of dollars over the life of the loan in total interest paid and build equity much more rapidly.
5/1 adjustable rate mortgage eases, -0.01%
The average rate on a 5/1 adjustable rate mortgage is 5.79 percent, down 1 basis point over the last week.
Adjustable-rate mortgages, or ARMs, are mortgage loans that come with a floating interest rate. To put it another way, the interest rate can change periodically throughout the life of the loan, unlike fixed-rate mortgages. These loan types are best for people who expect to refinance or sell before the first or second adjustment. Rates could be materially higher when the loan first adjusts, and thereafter.
While borrowers shunned ARMs during the pandemic days of super-low rates, this type of loan has made a comeback as mortgage rates have risen.
Monthly payments on a 5/1 ARM at 5.79 percent would cost about $586 for each $100,000 borrowed over the initial five years, but could ratchet higher by hundreds of dollars afterward, depending on the loan’s terms.
Jumbo loan interest rate goes up, +0.02%
The average jumbo mortgage rate is 6.87 percent, an increase of 2 basis points over the last seven days. A month ago, the average rate on a jumbo mortgage was above that, at 6.96 percent.
At today’s average rate, you’ll pay principal and interest of $656.59 for every $100,000 you borrow. Compared to last week, that’s $1.33 higher.
Rate review: How interest rates have moved over the past week
30-year fixed mortgage rate: 6.84%, up from 6.79% last week, +0.05
15-year fixed mortgage rate: 6.13%, down from 6.15% last week, -0.02
5/1 ARM mortgage rate: 5.79%, down from 5.80% last week, -0.01
Jumbo mortgage rate: 6.87%, up from 6.85% last week, +0.02
Interested in refinancing? See rates for home refinance
The average 30-year fixed-refinance rate is 6.98 percent, up 10 basis points since the same time last week. A month ago, the average rate on a 30-year fixed refinance was higher, at 7.01 percent.
At the current average rate, you’ll pay $663.96 per month in principal and interest for every $100,000 you borrow. That’s up $6.70 from what it would have been last week.
Rate trends: Where are mortgage rates headed?
The days of sub-3 percent mortgage interest on the 30-year fixed are behind us, and rates have so far risen beyond 7 percent in 2022.
“Low interest rates were the medicine for economic recovery following the financial crisis, but it was a slow recovery so rates never went up very far,” says McBride. “The rebound in the economy, and especially inflation, in the late pandemic stages has been very pronounced, and we now have a backdrop of mortgage rates rising at the fastest pace in decades.”
Comparing mortgage options
The 30-year fixed-rate mortgage is the most popular loan for homeowners. This mortgage has a number of advantages. Among them:
Lower monthly payment: Compared to a shorter term, such as 15 years, the 30-year mortgage offers lower payments spread over time.
Stability: With a 30-year mortgage, you lock in a consistent principal and interest payment. Because of the predictability, you can plan your housing expenses for the long term. Remember: Your monthly housing payment can change if your homeowners insurance and property taxes go up or, less likely, down.
Buying power: With lower payments, you can qualify for a larger loan amount and a more expensive home.
Flexibility: Lower monthly payments can free up some of your monthly budget for other goals, like saving for emergencies, retirement, college tuition or home repairs and maintenance.
Strategic use of debt: Some argue that Americans focus too much on paying down their mortgages rather than adding to their retirement accounts. A 30-year fixed mortgage with a smaller monthly payment can allow you to save more for retirement.
That said, shorter-term loans have gained popularity as rates have been historically low. Although they have higher monthly payments compared to 30-year mortgages, there are some big benefits if you can afford the upfront costs. Shorter-term loans can help you achieve:
Greatly reduced interest costs: Because you pay off the loan faster, you’ll be able to pay less interest overall.
Lower interest rate: On top of less time for that interest to compound, most lenders price shorter-term mortgages with lower rates.
Build equity faster: The faster you pay off your mortgage, the faster you’ll own value in your home outright. That’s especially handy if you want to borrow against your property to fund other spending.
Debt-free sooner: A shorter-term mortgage means you’ll own your house free and clear sooner than you would with a longer-term loan.
What factors determine my mortgage rate?
Lenders consider several items when pricing your interest rate:
Flexible spending accounts, or FSAs, are special savings accounts offered through some employer benefit plans. They allow the account holder to pay for certain out-of-pocket medical and dependent care costs with tax-free money.
However, FSAs come with some rules and regulations. For instance, FSA rules cap the amount of money that can be placed in the account each year ($3,050 for 2023), and also dictate which types of expenses qualify for an FSA distribution.
Still, FSAs can be a powerful tool for covering unavoidable medical costs that could otherwise wreak havoc on finances.
Flexible Spending Account Explained
FSAs are savings programs offered through employers — which means that self-employed people aren’t eligible. Those who are self-employed may be covered through an employed spouse’s plan, or they may choose to open an HSA, if they qualify.
FSAs are also sometimes called flexible spending arrangements, and they can cover you, your spouse, and your dependents. There are also a few sub-types of FSAs, such as dependent care FSAs (DCFSAs) and limited purpose FSAs (LPFSAs).
Recommended: Benefits of Health Savings Accounts
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Flexible Spending Account Rules: An Overview
FSA contributions work similarly to employer-sponsored retirement plans like 401(k)s: a certain amount of wages is withheld each pay period and contributed to the account.
The account holder elects how much to withhold at the beginning of the plan year — and, importantly, they may not be able to change it unless there’s a change in employment or family status. That means it’s important to think the decision through carefully.
But unlike a 401(k), the funds placed into an FSA aren’t just tax-deferred — they’re actually tax-free. That means they aren’t included in the account holder’s total taxable income, nor are taxes due when distributions are made.
Recommended: Tax Credits vs. Tax Deductions: What’s the Difference?
How Much Can I Contribute to My FSA?
In 2023, account holders may contribute up to a maximum of $3,050 per year to their FSAs. Employers may also place limits on the amount an employee can elect to be contributed, up to this federal cap.
Unused Funds: FSA Rollover and Reimbursement Rules
Another rule regarding FSAs is the fact that, generally speaking, unused FSA funds are forfeited.
In other words, FSAs are “use it or lose it” accounts; the money that isn’t used for qualified expenses by the end of the plan year can’t be rolled over into the next.
Thus, account holders may want to be cautious to avoid over-contributing to the plan and carefully estimate how much they think they’ll need to spend on out-of-pocket health expenses. Setting up a budget may help with this.
However, there are some exceptions that may be accessible, depending on the employer’s policy choice. They may allow for a “grace period” or a carry-over option — one or the other, but not both, and they’re not legally required to offer either.
• The grace period option allows account holders to use their FSA funds for an additional two and a half months after the plan year to pay for qualified medical expenses.
• The carry-over option allows account holders to roll over up to $610 of unused funds into the account for use the next plan year, though the employer may specify a lower dollar figure. Carryover doesn’t affect the maximum allowable contribution for the next year’s plan.
Recommended: How to Negotiate Medical Bills
What Can a Flexible Spending Account Be Used For?
Given the contribution limits and forfeiture rules of flexible spending accounts, FSA account holders usually want to be careful about calculating how much money they might be able to use — otherwise, significant amounts of their paycheck might end up right back in their employers’ hands.
And although many medical expenses qualify, not all of them do, or especially rules apply. For instance, non-prescription medications are covered only with a doctor’s prescription. The exception is insulin, which is covered without a prescription.
FSA funds are also ineligible to be used for health insurance premiums (though you can use them for deductibles and copays) or long-term care coverage and expenses, which may affect those with chronic illnesses or disabilities.
There are, however, a wide range of procedures and healthcare services that FSA funds can be used to cover, including dental expenses.
In basic terms, any treatment that would qualify for a medical expense tax deduction can be covered by FSA funds; the full list of which can be found in IRS Publication 502 .
From acupuncture and alcoholism to birth control pills and psychological counseling, many services do count as qualified medical expenses.
Along with being the right kind of medical expense, services paid through FSA funds must be applied to the right people in order to be covered. Eligible beneficiaries include:
• The account holder
• Their spouse
• Dependents claimed on their tax return
• Children age 26 and under
Keep in mind, too, that FSAs generally work in conjunction with other types of health benefits and coverage, and funds can’t be used to reimburse services that are covered under other health plans.
It might be a valuable exercise to write out all of the expected medical expenses you’ll face as a family at the beginning of the plan year in order to decide how much to contribute, including additional coverages, in order to avoid over-contribution. While nobody can predict the future, some routine expenses can be foreseen — and a little bit of planning might save a lot of forfeited funds in the end.
Recommended: 15 Creative Ways to Save Money
Taking Distributions from an FSA
The process for taking distributions from an FSA may vary based on the plan. In some cases, distributions are made from an FSA to reimburse the account holder for medical expenses they’ve incurred. Some FSAs also have a debit, credit, or stored value card that can be used to pay directly for qualifying expenses.
In order to take a distribution, the account holder may have to provide a written statement from the doctor or medical service provider that specifies the medical expense incurred, as well as a statement documenting that the expense hasn’t been covered by any other health plan. In other situations, a receipt may be sufficient documentation in order to be reimbursed.
FSA reimbursements are only available for verifiable medical expenses that have already been incurred, rather than expenses the account holder plans to incur in the future. (In other words, you can’t write to the FSA and tell them you’re going to the doctor next month.)
Finally — and importantly — FSA participants must be able to use the entire benefit (that is, the total amount of money they pledged to contribute to the plan) even if those monies haven’t yet been contributed. There is some opportunity for roll-over, depending on the plan rules. Some FSAs allow account holders to carry over up to $610.
For example, if you decide to contribute $2,000, but get hurt midway through the year when only $1,000 has been deducted from your pay, you’ll still be able to use up to $2,000 worth of tax-free FSA coverage for qualified expenses. Pretty cool, huh?
Is a Flexible Spending Account Worth It?
A flexible spending account can be a helpful tool, but it’s not the only option for footing medical bills.
For one thing, $3,050 might not even scratch the surface of some common medical procedures, such as childbirth.
Furthermore, although the tax-free nature of FSAs is attractive, the prospect of forfeiting parts of a paycheck is definitely not — and there are other ways to save cash for medical expenses and other emergencies which offer not just flexibility, but growth.
For example, you could open an online bank account with a high-yield and earn more than 4% APY (annual percentage yield) in interest. That could be an option to explore.
Another idea is to create an emergency fund to help pay medical expenses. However, if you think you’ll use all the funds in an FSA, going that route instead may be worth more to you.
The Takeaway
The tax benefits of the FSA can make them an appealing and useful tool, especially for those who know they’ll spend a decent amount out of pocket on healthcare.
But if you’re not sure you’ll use the funds saved in an FSA, a SoFi Checking and Savings account could be an alternative solution. You’ll earn a competitive APY and you’ll pay no account fees. You could even use a SoFi Checking and Savings account as a complementary tool, along with your FSA, to work toward other saving goals.
Got medical expenses? Let SoFi Checking and Savings help you save for your healthcare needs.
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SoFi members with direct deposit can earn up to 4.20% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 4/25/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice. Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances. Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners. External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement. SOBK0523012U
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Over the past week or so I’ve been hearing rumblings from various talking heads that the government should consider, or has considered, changing the rules when it comes to the Roth IRA and their tax free withdrawals at retirement. In some scenarios some people would just like to do away with the accounts altogether. The reasoning? They allow for too much tax revenue to be lost, and with government entitlements growing every day, they’re going to need more tax revenue.
While even a year or two ago I would have dismissed this type of thinking as it would represent a significant betrayal of savers and investors, the more I see our government spending, the more I’m inclined to not rule out the idea that the Roth IRAs as we know them may not always be around. They’re just too tempting of a target for our politicians and their big spending ways.
So what are some of the ways that people are predicting that Roth IRAs could change in the future?
Roth IRA Become Taxable At Retirement For Some?
One of the ways that folks are suggesting that Roth IRAs could change in the future is that politicians could institute a tax of some sort on taxpayers over a certain income threshold, or those with what one writer in the New York Times calls an “excessive balance”.
So in one scenario, say you make over $250,000, you’d be taxed 5% on your Roth withdrawals. Or they could do something like charging tax on earnings through a capital gains tax of some sort. The possibilities are endless.
At the most extreme end, the federal government might try to tax the earnings on a Roth after all, say through the capital gains tax, which is currently at 15 percent for long-term gains but could go up in the next few years. Or it might levy some sort of an excise tax on excessive balances, however those might be defined.
Roths are especially useful for estate planning purposes. Regular I.R.A. holders have to start taking money out once they reach the age of 70 and a half, but Roth owners don’t have to take money out during their lifetimes. Heirs of Roth holders, meanwhile, pay no income taxes when they cash out of the inherited account and can spread those distributions over an entire lifetime, allowing for decades more of tax-free growth thanks to the wonders of compound interest. Some part of this could certainly change.
So the author seems to thinks that some of the other benefits of a Roth IRA, including no required minimum distributions and inheritance provisions, could be phased out – or changed to include some sort of tax.
Forced Withdrawals From Roth IRA
Some say that the Roth IRA is a drag on the economy because the money can sit in the account indefinitely with no required minimum distribution. An article in the LA Times yesterday says as much:
All of which makes Roths a perfect “fiscal Frankenstein.” In return for little more than ordinary upfront taxes, Congress waived untold billions in future Treasury receipts. Then, too, Roths could be a drag on the U.S. economy. Since no withdrawals are required, assets can lie idle indefinitely.
I can’t say I agree with that idea that because the money is in someone’s investment account growing – that somehow they’re a drag on the economy. To me it speaks to the mindset that far too many have that somehow the government owns everything and is only being gracious and allowing us to have a little taste of our own money. I also don’t agree that having money site idle in the private sector is somehow worse for the economy than allowing the public sector to spend it all for us. In the end most will be withdrawing it, and I think having the money in the private sector to actually have people purchasing things, creating jobs, and creating more tax revenue that way is the better way to go.
Include Roth IRA Withdrawals In Calculating Tax On Social Security Benefits
Another idea that some have put forth is the idea that the government could change it to that people would have to include their Roth IRA withdrawals in retirement as regular income when coming up with the tax due on their Social Security checks. Of course this again would mean more taxes to the government.
Will You Continue Using The Roth IRA?
So with all this speculation out there, do you think that the government would ever go down this road of making Roth IRAs taxable at withdrawal, through capital gains taxes or by including it in social security income? Does it give you pause when thinking about investing in a Roth, or will you continue to invest there anyway because it’s all just speculation?
Tell us your thoughts on the Roth IRA and if they’ll ever end up making changes to make them taxable at the front end and back.
Mortgage interest rates sunk on all loan terms from a week ago, according to data compiled by Bankrate. Rates for 30-year fixed, 15-year fixed, 5/1 ARMs and jumbo loans all dropped.
The Federal Reserve has lifted rates 10 times in a row, most recently at its May 3 meeting. Rates now are at a 15-year high, but the consensus is that inflation is finally cooling and the central bank might halt raising rates.
”Mortgage rates have settled into a new normal of around 6.5 percent on a 30-year fixed-rate loan,” says Lisa Sturtevant, chief economist at Bright MLS, a large multiple listing service in the Middle Atlantic region. ”With growing recession risks, we could see mortgage rates dip lower, but we will not be returning to the 3 percent level seen during the height of the pandemic.”
Rates as of May 9, 2023.
These rates are marketplace averages based on the assumptions indicated here. Actual rates displayed across the site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Tuesday, May 9th, 2023 at 7:30 a.m.
>>See historical mortgage rate trends, from the 70s to today
You can save thousands of dollars over the life of your mortgage by getting at least three rate quotes. Comparing mortgage offers from multiple lenders is always a smart move, but shopping around grew especially critical during the interest rate run-up of 2022, according to research by mortgage giant Freddie Mac. It found the payoff for bargain-huntng borrowers doubled last year.
“All too often, some homeowners take the path of least resistance when seeking a mortgage, in part because the process of buying a home can be stressful, complicated and time-consuming,” says Mark Hamrick, senior economic analyst for Bankrate. “But when we’re talking about the potential of saving a lot of money, seeking the best deal on a mortgage has an excellent return on investment. Why leave that money on the table when all it takes is a bit more effort to shop around for the best rate, or lowest cost, on a mortgage?”
Mortgage rates
Today’s 30-year mortgage rate dips, -0.01%
The average rate for a 30-year fixed mortgage is 6.87 percent, down 1 basis point over the last week. This time a month ago, the average rate on a 30-year fixed mortgage was unchanged, at 6.87 percent.
At the current average rate, you’ll pay principal and interest of $656.59 for every $100k you borrow. That’s $0.67 lower, compared with last week.
How do I view personalized 30-year mortgage rates?
Use the loan widgets on this page or head to our primary rates page to see what kind of rates are available in your situation. You just need to give us a little information about your finances and where you live. With that data, Bankrate can show you real-time estimates of mortgages available to you from a number of providers.
15-year mortgage falls,-0.03%
The average rate for the benchmark 15-year fixed mortgage is 6.23 percent, down 3 basis points over the last seven days.
Monthly payments on a 15-year fixed mortgage at that rate will cost roughly $856 per $100k borrowed. Yes, that payment is much bigger than it would be on a 30-year mortgage, but it comes with some big advantages: You’ll come out several thousand dollars ahead over the life of the loan in total interest paid and build equity much more rapidly.
5/1 ARM rate eases, -0.01%
The average rate on a 5/1 adjustable rate mortgage is 5.79 percent, sliding 1 basis point since the same time last week.
Adjustable-rate mortgages, or ARMs, are mortgage terms that come with a floating interest rate. In other words, the interest rate can change periodically throughout the life of the loan, unlike fixed-rate loans. These types of loans are best for those who expect to refinance or sell before the first or second adjustment. Rates could be considerably higher when the loan first adjusts, and thereafter.
While borrowers shunned ARMs during the pandemic days of super-low rates, this type of loan has made a comeback as mortgage rates have risen.
Monthly payments on a 5/1 ARM at 5.79 percent would cost about $586 for each $100,000 borrowed over the initial five years, but could climb hundreds of dollars higher afterward, depending on the loan’s terms.
Current jumbo mortgage rate moves lower, -0.02%
The average jumbo mortgage rate today is 6.94 percent, a decrease of 2 basis points over the last seven days. This time a month ago, the average rate on a jumbo mortgage was unchanged, at 6.94 percent.
At the average rate today for a jumbo loan, you’ll pay $661.28 per month in principal and interest for every $100,000 you borrow. That’s a decline of $1.34 from last week.
Summary: How interest rates have shifted over the past week
30-year fixed mortgage rate: 6.87%, down from 6.88% last week, -0.01
15-year fixed mortgage rate: 6.23%, down from 6.26% last week, -0.03
5/1 ARM mortgage rate: 5.79%, down from 5.80% last week, -0.01
Jumbo mortgage rate: 6.94%, down from 6.96% last week, -0.02
Interested in refinancing? See rates for home refinance
The average 30-year fixed-refinance rate is 7.01 percent, up 2 basis points over the last seven days. A month ago, the average rate on a 30-year fixed refinance was lower, at 6.97 percent.
At the current average rate, you’ll pay $665.97 per month in principal and interest for every $100,000 you borrow. That’s an increase of $1.34 over what you would have paid last week.
Where are mortgage rates headed?
The days of sub-3 percent mortgage interest on the 30-year fixed are behind us, and rates have so far risen beyond 7 percent in 2022.
“Low interest rates were the medicine for economic recovery following the financial crisis, but it was a slow recovery so rates never went up very far,” says McBride. “The rebound in the economy, and especially inflation, in the late pandemic stages has been very pronounced, and we now have a backdrop of mortgage rates rising at the fastest pace in decades.”
Comparing different mortgage terms
The 30-year fixed mortgage is the most popular loan for homeowners. This type of loan has a number of advantages, including:
Lower monthly payment: Compared to a shorter term, such as 15 years, the 30-year mortgage offers lower payments spread over time.
Stability: With a 30-year mortgage, you lock in a consistent principal and interest payment. Because of the predictability, you can plan your housing expenses for the long term. Remember: Your monthly housing payment can change if your homeowners insurance and property taxes go up or, less likely, down.
Buying power: With lower payments, you can qualify for a larger loan amount and a more expensive home.
Flexibility: Lower monthly payments can free up some of your monthly budget for other goals, like saving for emergencies, retirement, college tuition or home repairs and maintenance.
Strategic use of debt: Some argue that Americans focus too much on paying down their mortgages rather than adding to their retirement accounts. A 30-year fixed mortgage with a smaller monthly payment can allow you to save more for retirement.
That said, shorter-term loans have gained popularity as rates have been historically low. Although they have higher monthly payments compared to 30-year mortgages, there are some big benefits if you can afford the upfront costs. Shorter-term loans can help you achieve:
Greatly reduced interest costs: Because you pay off the loan faster, you’ll be able to pay less interest overall.
Lower interest rate: On top of less time for that interest to compound, most lenders price shorter-term mortgages with lower rates.
Build equity faster: The faster you pay off your mortgage, the faster you’ll own value in your home outright. That’s especially handy if you want to borrow against your property to fund other spending.
Debt-free sooner: A shorter-term mortgage means you’ll own your house free and clear sooner than you would with a longer-term loan.
Are mortgage rates going up?
Throughout 2021, mortgage rates are expected to begin rising again. The National Association of Realtors expects rates to average 3.1% and the Mortgage Bankers Association (MBA) says mortgage rates will average 3.3% in 2021. These rate estimates are both up from the 3.0% mortgage rate average in 2020 but lower than 2019’s average rates. Many experts say it could be years before mortgage rates return to their pre-pandemic levels.
Sources:
National Association of Real Estate Editors
Freddie Mac Federal Home Loan Mortgage Corporation
When we decided that we were going to start investing more in 2013, I didn’t know where we would find the money in our budget. My personality embraces risk… as long as all our other savings goals are met and our bills are paid. So, because I wanted to have fun investing (and not lose sleep at night), I knew I could not cut our retirement contributions or our savings deposits. What I hoped was that I would find “invisible” money in our budget; money that we spent mindlessly that would now have an investing job.
Our spending record showed me the money
I have recorded our spending for brief periods of time, especially when money was very tight, but I had never done it for a year. I knew it was a good thing to do, but it’s a pain. In 2012, however, I created a spreadsheet and faithfully entered every dollar that we made or were given. I tallied every purchase made by check, debit or credit card and most of the ones made with cash.
I’ll spare you most of the gory details, but we weren’t as smart with our money as we thought we were. Granted, there were things out of our control: Our septic system needed to be replaced, and we had some unexpected medical bills. Most things, though, were in our control, including the ridiculous $36.75 I spent at the vending machine. Even though that’s not a lot of money, it’s more than I thought I spent on Wild Cherry Pepsi.
The numbers didn’t lie. When I said, “We don’t eat out much,” it said, Oh yeah? Well, why don’t you take a look at this little category called “food”? Trim a little from this category and you might trim a lot from your waistline AND have leftovers to invest.
Every minute staring at that spreadsheet was worth it. Just by spending consciously, I can afford to invest $50 each month. I do have some invisible money. So that’s my first tip to you. Keep a record of all the money coming in and all the money going out.
Cut expenses
I still have a landline. Actually, while I’m confessing, I may as well tell you that I still have a rotary phone with something called a cord. It doubles as entertainment for the kids who visit. Can anyone tell me why I am still paying for a phone I don’t answer? Yeah, I don’t know either. Canceling that service leaves me $30 a month to invest. And that’s my second tip. Stop spending money on something that isn’t necessary or isn’t important to you.
Extra money
When I tried to find extra money to invest, I didn’t want to tap my income from my two side gigs, my husband’s side gigs, or either one of our day jobs. We may be able to use those income sources in the future, but 2013 is bringing big changes to our family income and expenses. I’m waiting to see what happens there before we make any investing decisions with that money.
Because that income was safe from this new investing venture, I focused on other income. It was easy to find because, as I said, I kept track of every dime that came into our house. Our random bits of income included things like:
monetary gifts (my Grandparents give us money as our Christmas present)
cash back credit card rewards
cash back rewards from Ebates
mileage reimbursement from work
rebate checks
proceeds from selling stuff
a bonus for opening a new ING checking account
interest on our savings accounts
I never considered the significance of this source of income, because I assumed it was so small.
And each check or deposit was small. But when I added them up at the end of the year, the sum felt greater than its parts. The $10 rebate check, the $45 from Ebates and all the other little checks added up to over $1,200. If you dedicate the tiny income streams in your budget to investing, you’ll probably find more money than you expected, too.
Using money we already have
Our accounts, both our savings and our mortgage, were the last place I looked. Did I have extra money sitting somewhere, money that was not fulfilling a purpose?
Each month, I round up and pay an extra $82 on our mortgage. Given our low interest rate and that we’re ahead on our payments, I could make our minimum payment and invest the $82 instead. I’m still thinking about that.
As you know, my dislike of car loans inspires a $300 monthly contribution to our replacement car savings account. Many of you supported financing a car, because the rates are low and it frees up cash. Stopping that contribution would free up another $300 a month to invest. I’m not ready for this, either. Not yet.
But I am ready to invest money from another account. I opened a Sharebuilder account almost three years ago when I did a little bit of mindless investing which didn’t work out so well. I still wanted to invest, but – unsure how to do it – I set up an automatic $25 contribution to the account. And the money sat there. By now, the account balance is $800. Nothing huge, but it illustrates the effects of small change + time = more money than you imagined. And that’s my last tip. Even if you can’t save/invest as much as you think you should, still do something.
By trimming our budget, practicing conscious spending and keeping track of the little bits of income, I can access $205 a month for investing. I could increase that because it doesn’t even include the $82 extra mortgage payment per month. Or the $800 currently in the Sharebuilder account. Or our regular income and side jobs. At the minimum, it’s about $175 more than I expected.
Even though it is more than I expected, the amount is – no question – small. I am limited with my investment options.
But this exercise had indirect benefits, too. I used to practice conscious spending, but after we paid off our non-mortgage debt, I got a little lazy. Now I have a focus. I could spend this money on x. Or I could invest it. I may find, depending on how this goes, that I have even more to invest.
What do you do with random bits of income? How do you find money to invest?
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If you’re looking to make a big difference with your money, then read on.
You might be thinking that it’s unlikely for anyone to generate $100k in revenue on their first go.
But we have good news: You don’t need to – people can earn more than 10x the amount they had initially invested into them!
This is possible because there are so many ways to make money today that cost less than what most would consider “big-ticket” investments like a car or a house.
Today, you will learn from this article provides tips on how to turn $10k into more money in 2022.
The goal is to learn how to make your money work for you.
We have included 20 different ways to make quick and easy money.
The methods included are varied and include things like investing in stocks, starting a business, and finding work that pays well. This guide will help you get started on making extra cash quickly and easily!
What can I do with my 10K to make money?
There are many ways to make money with your 10K. You can use it to invest, save, or spend.
You can also use it to purchase items that will generate income such as rental properties, stocks, and businesses.
The most important thing is to find something that you enjoy and that will help you grow financially. Making passive income is even better!
How can I grow 10K to 100K?
The goal is to find the method that works best for you and makes the most money. That is who you will grow 10K to 100K this year.
There are many options available below to help you grow your money, so choose what will work best for you.
You don’t need expensive equipment or special skills to start making your money multiply. In fact, learning how to invest $100 to make $1000 a day is a common question answered here by Money Bliss.
You can start with simple methods and add on as you get better at it.
What are some fast ways to invest 10k to make 100k?
While it is difficult to make a living from one job, the ability to work multiple jobs has been shown in many studies as an effective way of generating income.
More and more people today, are focusing on ways to build passive income to grow their wealth.
Setting a goal of how to turn $10k into $100k is a great way to multiply your money.
Option #1 – Stock market investing
The goal of investing in the stock market is to earn profits by buying and selling stocks at a higher price than what was paid for them.
There are several ways to invest in the stock market, but the simplest way is to buy and sell individual stocks. You can also purchase mutual funds, which are collections of different stocks that are managed by an investment company or ETFs. Other investors prefer to look at dividend stocks.
Investments in the stock market can be risky, but if you do it correctly, you could see significant returns over time.
Related Learning: How To Invest In Stocks For Beginners: Investing Made Easy
Option #2 – Invest with Retirement Accounts
Investing in retirement accounts can help you turn 10K into 100K over time. By investing in a 401k, IRA, or other retirement accounts, you will have access to growing assets that can help you reach your financial goals.
When you invest money in a retirement account, the funds are held by the company and grow over time. This means that even if the stock market experiences tough times, your 401k or IRA will still be growing steadily. This is important because it allows you to delay taking major financial risks and focus on long-term planning instead.
By investing early in your career, you can build up a sizable nest egg that will provide security for yourself and your loved ones when you retire.
Option #3 – Invest in Rental Property
Investing in rental property can be a great way to make money. Rental properties often have high yields (the percentage of income returned to investors), and there’s never been a better time to invest in this type of property.
Rental properties are an attractive investment because they tend to have stable yields, which means you can count on making a certain amount of money every year.
In addition, rental properties are usually less risky than other types of investments, so you can feel confident about your returns even if the market goes down.
There are many ways to buy and sell rental properties, so you can find one that’s right for your financial situation. And since rents always go up (to some degree), investing in rental property is a guaranteed way to grow your money over time.
Option # 5 – Flip Stuff To Make Money
Flipping is the process of buying and selling assets in order to generate profits. It can be done through stocks, bonds, real estate, furniture, art, sports equipment, or any other type of material item.
There are a few ways to flip stuff for money. One way is to buy assets and then sell them at a higher price later.
For example, you might buy stock in a company and then sell it two months later for a higher price. This technique is called “swing trading.” Others do the buying and selling within the same day for “day trading.”
Another way to flip stuff is to wait until the asset has reached its peak value and then sell it. For example, you might buy property in downtown Chicago for $100,000 and wait six months until the market reaches its peak value of $200,000 before selling it for $200,000 minus commission.
On a smaller scale, many people flip items found at Flea Markets and easily make $100k with a few transactions. If that sounds like you, then take a free flippers class!
Option # 6 – Start An Online Business
Starting an online business is a great way to make money. There are a variety of ways to do this, and the sky is the limit!
Some people start their own businesses to create something they’re passionate about, and others start businesses in order to make extra money. Whatever your reasons for starting an online business, there are plenty of ways to do it fast.
In fact, learning how to make money online for beginners is a hot topic!
Option #7 – Start a Side Hustle
Not willing to start a full-fledged online business yet? Then, look at a side hustle. This is an extra job or business you do on the side to make money.
It is flexible, easy to start, and doesn’t require much time commitment. You can work part-time or full-time, as long as you’re able to devote enough time each week to it. And since it’s your own gig, you have complete control over its success!
There are plenty of resources available online that will help guide you through the process (including this blog post on best gig economy jobs). Just remember: don’t give up on your side hustle until it becomes profitable and meaningful to you – because once it does, that’ll be worth double the effort!
Option #8 – Invest In Cryptocurrency
Cryptocurrencies are digital tokens that use cryptography to secure their transactions and control the creation of new units. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control.
Many people view cryptocurrencies as a way to make money online. Bitcoin, for example, has increased in value by over 1,000% since its inception in 2009! While there is a lot of speculation involved with cryptocurrencies, if you’re patient, you can find opportunities to invest in them as well.
There are two main ways you can invest in cryptocurrencies: buying them on an exchange and mining them. Buying cryptocurrencies on an exchange allows you to quickly and easily trade them for other currencies or assets. Mining coins involves trying to solve complex mathematical problems that reward participants with cryptocurrency tokens.
While it’s important to do your own research before investing in any type of cryptocurrency, these fast ways could help you double your money within just a few short weeks!
Option #9 – Peer-to-peer lending (P2P)
P2P lending is a type of online lending where individuals lend money to other individuals, usually without any collateral.
P2P lending has become increasingly popular in recent years because it offers borrowers and lenders an alternative to traditional banking products. Borrowers can borrow money from multiple lenders at once, which gives them more options and access to financing. Lenders can earn interest on their loans while also taking advantage of the high demand for P2P lending products.
Because P2P lending is a new product category, there are still some risks associated with it. For example, borrowers may not be able to repay their loans, and lenders may not be able to collect on the loans they have lent out. However, the growth of P2P lending indicates that there is room for this type of financing in the marketplaces.
Peer-to-Peer Lending Options:
Option #10 – Invest in Yourself with Education
The fastest way to turn $10,000 into $100,000 is to invest in yourself. This is very often overlooked, but one of the best returns on investment that you can have.
Consider taking courses to improve your skillset or investing in real estate or stocks.
My favorite online courses to improve your income:
With hard work and dedication, you can make your money work for you and achieve your financial goals.
Option #11 – Day Trade (or Swing Trade) in the Stock Market
Investing in the stock market is a way to make money by buying and selling shares of companies.
There are two main ways to make money through investing: buying and holding (also known as long-term investing), and active trading (also known as short-term investing).
Many people in this popular investing course choose to become active investors by day trading or swing trading for income. In fact, many people have made the $1000 in a day club.
Option #12 – Trading Stock Options
Option traders can make money by predicting which direction prices will move and then trading on those predictions.
Trading options is risky because it’s possible for prices to change after you’ve bought or sold them – so your profits (or losses) may depend on how well you guess what’ll happen.
But if you do manage to make money by trading options, it can be very lucrative – especially over short periods of time (days or weeks).
First, before trading stock options, you must learn how to trade the underlying stocks first. Learn how to trade options with this VIP investing course.
Option #13 – Invest in an Initial Public Offering (IPO)
Wouldn’t you love to invest in Amazon (AMZN) or Google (GOOGL) when they first went public??
If you invested $500 into AMZN, it would be worth $855,505 (as of August 2022) – source)
If you invested $500 into GOOGL, it would be worth $27,502 (as of August 2022) – source)
An IPO is a type of stock market transaction in which a company sells shares to the public. An IPO offers businesses the opportunity to expand their reach and raise money quickly.
IPOs are popular because they provide investors with access to new companies at an early stage. As such, IPOs can be a great winner or a great loser of your capital. Thus, do your research.
Option #14 – Flip Websites
Flipping websites is a quick and easy way to make money. All you need is the right software and some knowledge of how the internet works.
Flipping websites means buying a website, fixing up the code, improving the SEO, and selling it to another owner or business. This process can be done quickly and easily with the help of some simple tools. By flipping websites, you can earn a profit while also increasing your web traffic.
Flipping websites is a great way to make money on the side and supplement your income. It’s also an excellent way to learn more about online marketing and build your own business skills.
Option #15 – Start Affiliate Marketing to Turn 10k into 100k
Affiliate marketing is a great way to turn 10,000 into 100,000 by earning money through promoting other people’s products. This is also known as an influencer. And you don’t have to carry inventory yourself!
There are a few different ways to get started with affiliate marketing, and the most important thing is to find an affiliate program that aligns with your goals and interests.
Once you’ve registered with an affiliate program, it’s time to start promoting! There are a variety of tools and resources available online that can help you build an effective affiliate campaign through social media or blog traffic.
Option #16 – Invest in REITs with Real Estate Market
Real estate investment trusts (REITs) are a type of investment that allows you to invest in real estate without having to own the property. This is done by investing in a portfolio of properties that are owned and managed by the REIT.
REITs offer investors several advantages over other types of real estate investments. These advantages include:
Low risk – REITs are typically less risky than other real estate investments, such as buying and holding single family homes or properties.
Lower fees – Unlike buying and holding individual properties, REITs pay relatively low management fees, which means your money is more likely to be returned to you quickly.
Liquidity – As long as there is demand for REIT shares, the prices will generally continue to rise, giving you an opportunity to make significant profits over time.
Investing in REITS can be a great way to diversify your real estate portfolio and achieve higher returns while avoiding some of the risks associated with other types of real estate investments.
My favorite REIT platforms are:
Option #17 – Invest in penny stocks
Penny stocks are a type of investment that is usually considered to be risky but can offer high returns if the right investments are made.
Penny stocks are small companies that trade on the stock market for under $2-10 per share. Because these companies are relatively new and often have little financial stability, penny stocks can be volatile – meaning they can rise or fall in price quickly while low or high volume.
Because penny stocks are so risky, it’s important to do your investigation before investing in them. However, if you make the right choices and invest in carefully chosen penny stocks, you could see high returns over time.
Option #18 – Make Money With Retail Arbitrage or Flipping
Retail arbitrage is the practice of buying products in one market and selling them in another market to earn a profit. Many do this with dropshipping.
There are a few fast ways to get started with retail arbitrage. The first is by using online tools like eBay, Facebook Marketplace or Amazon’s Selling Manager. These platforms make it easy to find specific items that you want to buy and sell at a profit.
All in all, you are looking for low price items and selling them for a profit.
By taking advantage of flipping methods like these, you can quickly increase your income without having to spend too much time researching each opportunity. Learn more withthis FREE webinar.
Option #19 – Start A Service-Based Business
Starting a service-based business can be a great way to make money by finding clients willing to pay for your services. There are many different types of service businesses, and each offers its own unique opportunities and challenges.
Service businesses can be profitable in a number of different ways. You may be able to charge high prices for your services or offer them at a discount in order to attract customers.
There are several advantages to starting a service-based business.
First, you have control over your own schedule and work environment.
Second, you can set your own hours and earn a flexible income.
Finally, service businesses tend to be more recession-proof than other types of businesses because they don’t rely as much on consumer spending habits.
Option #20 – Buy a business
Buying a business is a great way to increase your wealth and expand your empire. There are many different types of businesses available for purchase, so it’s important to choose the right one for you.
There are two main reasons why buying a business can be beneficial. First, buying a business gives you access to valuable assets that you couldn’t otherwise own – like cash flow, customer lists, and intellectual property. Second, buying a business can help you build a dynasty by passing on the company name and legacy to future generations.
There are many different factors to consider when purchasing a business, so it’s important to consult with an experienced advisor and do your due diligence.
How to Turn 10K Into 100K FAQs
Obviously, you probably have a lot of questions when trying to decide on which investment opportunities are best for you. While affiliate programs may work for some, you may want to use your stock market knowledge. Maybe even a dog walking business?
Ultimately, you have $10k in investment capital to start with, now you have to make some decisions.
What are the best ways to turn $10k into $100k?
A lot of people have been asking themselves this question lately and wondering what they could do with their money in order to make a big difference in their lives and achieve financial freedom.
In addition, you probably have questions before you make this a reality.
How Can I Get Rich With 10K?
One of the best ways to get rich is to start with a small sum of money and grow it over time by being consistent in your actions.
Learn the best ways to invest 10k.
It’s not about getting lucky, but rather developing habits that will help you achieve your goals. With hard work and dedication, anyone can become wealthy over time.
How to Turn 10k into 100k in 1 year?
There are a few key things you need to do in order to turn 10k into 100k in 1 year.
You need to look for a business to start that has a lot of potential for growth and profit. Don’t forget, that you must be willing to work hard and put in the time and effort required to make your business successful.
You need to be passionate (and adamant) about turning 10000 dollars into 100000. If you are wanting a 900% return on investment, then you must be willing to put in the effort to make that happen.
How to turn 10k into 100k in a month?
For most people, it will take more than just one month to turn 10k into 100k.
Regardless of the path you choose, it will take time to get the education and experience needed to achieve such a high return.
The best options for faster success include: starting an online business, becoming an active stock market trader, or investing in real estate. There are many options available, but it is important to do your research and find what works best for you.
How Can I Turn $10k into $100k Passively?
The key right here is … passive income!
You want to find ways to make money passively – also known as making money while you sleep.
The most common way is through passive income streams, which include investments, real estate, and online businesses. Whichever route you decide to take, the key is to be patient and let the money grow over time.
Many people want to make 10k a month – passive income is even better!
How Do I Convert 10K Into 100K With Stocks?
There are a few different ways to convert 10,000 into 100,000 with stocks.
Buy and hold: This is the simplest option and can be effective for those who are looking to invest for the long term. By buying stock in a company and holding on to it, you will eventually see your investment grow over time.
Day trading: This involves buying and selling stocks quickly in order to make money based on the movements of the market. While this can be very exciting, it is also risky because you could lose all of your money if the market goes down.
Investing in Options: Options allow you to buy or sell a security at a set price within a certain period of time. This type of investing is often considered conservative because you don’t have to worry about losing your investment if the market goes down – you only risk losing money if the option doesn’t expire or hits its expiration date without being exercised (sold).
Dividend stocks reinvestment: When companies pay out cash dividends each quarter, many investors choose to reinvest that money back into more shares of stock – which increases their total ownership stake in the company over time.
Trade shares for assets: Some people choose to trade their shares of stock for other types of assets, such as real estate or precious metals. This allows them to diversify their portfolio and increase their chances of making a profit.
What are some risks associated with these methods?
As always, there are risks with any method of looking for a high rate of return. You must do your due diligence first to make sure the investment is worthwhile and not a scam.
When looking to make a high return on investment, it is important to be aware of the risks involved. Sometimes, these investments are not as secure as low-return options and can result in losing the original investment. It is, therefore, crucial to do your homework before investing in anything.
What are some other things to keep in mind when trying to double your money?
There are a few other things to keep in mind when trying to find a way to double $10k quickly.
Though it can be difficult to turn 10k into 100k, there are ways to make this happen. For example, by investing in stocks or real estate, one can see an increase in their original investment. Additionally, starting a business can also lead to a doubling of one’s money. However, it is important to keep in mind the risks associated with these ventures.
When you are trying to double your money, make sure you are looking at smart investments, saving wisely, and increasing your income. Additionally, don’t forget about enjoying life while you’re working towards this goal!
Be cautious about get-rich-quick schemes
There are a lot of get-rich-quick schemes out there that promise you can make money quickly by following a certain plan or investing in a certain product. While these schemes may seem promising at first, they’re often nothing more than scams.
The reality is that most get-rich-quick schemes don’t work the way they’re supposed to. In fact, many of them actually lead to losses for the people who try them. This is because most of these schemes involve high-risk investments or unproven methods.
So if you’re thinking about trying one of these schemes, be sure to do your research first. You might be able to find a better way to make money without risking everything you have.
What Skills Will Help You Make 100k Fast
The goal of this article is to help you turn $10k into $100K by the end of this year. No need for a fancy MBA or years’ worth of experience, just some simple skills that will help you.
More than likely, you will have to invest in an online course or even a few books to help you along your journey. For instance, I purchased a blogging course to jumpstart my entrepreneurship. Also, I dived straight into an investing course to further my stock market knowledge.
When you are growing your liquid net worth, you are looking somewhere to have your money make more money. The strategy you choose will be different than the person reading this same post. Buy, you have to show patience and know that you will reach your target based on your timeline.
There is a lot of content available to help you along your path.
As we discussed above, there are many different ways to make 10K to 100K this year, so choose the one that works best for you and gets results!
Know someone else that needs this, too? Then, please share!!