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May 8, 2021

Stock Market Today: Dow Ekes Out Record, Nasdaq Retreats Again

The Dow Jones Industrial Average managed to set an all-time high amid, for a third straight day, a palpable investor preference for the reopening trade.

Payroll provider ADP on Wednesday reported that American private-sector employers added 742,000 jobs last month – below consensus expectations for 800,000 jobs, but a massive improvement from March’s 565,000.

Meanwhile, the Institute for Supply Management showed a services index reading of 62.7 in April; while anything above 50 suggests expansion, the reading missed forecasts and was down a point from March.

“April’s print is very strong any way you slice it, with the reading still at its second-highest level, and accompanied by an even more robust 64.7 print for the Markit service sector PMI,” says Barclays economist Jonathan Millar. “Hence, we see little reason to infer anything but positive signals from today’s report, which points to a sustained acceleration in service sector activity with ongoing progress in the vaccination campaign and measures by many states and municipalities to ease social distancing restrictions.”

Both data points still represented signs of growth, which was enough to bolster energy stocks such as Exxon Mobil (XOM, +3.0%) and Chevron (CVX, +2.7%) on a slightly down day for oil prices, and jolt materials plays such as Dow (DOW, +2.8%) and gases firm Linde (LIN, +3.0%).

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Other notable movers were General Motors (GM, +4.1%), which gained on a wide Q1 earnings beat ($2.25 per share vs. estimates for $1.04), and Peloton Interactive (PTON, -14.6%), whose shares cratered after announcing voluntary recalls of all Tread and Tread+ treadmills, which have caused one death and several injuries.

While early gains fizzled late, the Dow once again led the major indexes with a modest 0.3% gain to a record 34,230. The S&P 500 (up marginally to 4,167) inched ahead, while the Nasdaq Composite (-0.4% to 13,582) suffered its fourth consecutive decline.

Other action in the stock market today:

Facebook (FB, 1.1%) was in focus today, after the company’s oversight committee said it was right to ban former President Donald Trump from its platform following the Jan. 6 attack on the U.S. Capitol citing a “clear, immediate risk of harm,” but it was not justified in making the ban indefinite. “The reaction on both sides to Facebook’s Oversight Board statement on former President Trump’s suspension speaks to how central these social media platforms have become for interpersonal communication,” says David Keller, Chief Market Strategist at StockCharts.com. Facebook now has six months to decide if the ban will be permanent.
Jessica Alba’s Honest (HNST, +43.8%) surged in its market debut, after the initial public offering (IPO) last night was priced at $16 per share. HNST stock opened today at $21.22, climbed as high as $23.88, and closed at $23.00.
The small-cap Russell 2000 was off by 0.3% to 2,241.
U.S. crude oil futures slipped marginally to end at $65.63 per barrel.
Gold futures gained 0.5% to settle at $1,784.30 an ounce.
The CBOE Volatility Index (VIX) declined by 2.1% to 19.08.
Bitcoin prices rebounded 4.5% to $57,105.99. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)

How to Get Out of This Holding Pattern

Even with the Dow at new highs, the broader market has been mired in mostly sideways action for weeks. Fortunately, investors looking to liven up their portfolios have quite a few options at their disposal.

Longer-term, you can find difference makers by looking at companies that are shaping the future via innovative technologies that could be with us for years to come. You can find a host of these among Argus Research’s best “innovator” picks.

In the shorter term, you can join in the reopening trade via oil stocks, travel plays and other clear beneficiaries of ramped-up vaccinations and looser COVID restrictions. But you can also do well by listening closely for the sound of sabers rattling.

Activist investors – Wall Street’s well-known (and often productive) malcontents – have made a name for themselves by taking significant stakes in underperforming companies and rallying shareholder votes to implement measures they believe will drive up their stocks’ value. Their mere involvement can put a charge into shares, and occasionally their successes do end up translating into stronger operations … and stronger returns.

Read on as we check out 13 such stocks that are currently getting the full-court press from Wall Street activists.

Source: kiplinger.com

May 7, 2021

How to Use Your Health Savings Account (HSA) for Retirement Investing

Saving for retirement is difficult, but it’s an important part of everyone’s financial life. There are a number of ways to make saving for retirement easier, such as using tax-advantaged accounts like individual retirement accounts (IRAs) and 401(k) plans.

One special type of tax-advantaged account, the health savings account (HSA), isn’t specifically designed to help people save for their retirement. However, its unique benefits make it one of the most powerful tax-advantaged accounts out there.

If you have access to an HSA, it can be one of the best ways to set money aside for retirement.

What Is an HSA?

A health savings account (HSA) is a special type of account that is designed to help people save money to pay for medical bills. HSAs are only available to people who have certain types of health insurance plans called high-deductible health plans (HDHPs).

Like retirement accounts, HSAs offer tax advantages that make it easier to set aside money to pay for medical bills. If your employer offers eligible insurance plans, they may also make contributions to your HSA on your behalf, similar to 401(k) matching.

The unique tax benefits of HSAs are what make them potent vehicles for saving for both medical expenses and retirement.

Pro tip: If you’re thinking about opening an HSA, you can get started through Lively. There are no hidden fees and you’ll be able to set up recurring contributions.

How Do HSAs Work?

Understanding how HSAs work is essential to making the most of them when it comes to saving for both health care and your retirement. You risk paying penalties if you fail to follow the rules.

Insurance Requirements

First, not everyone can open an HSA. They’re only available to people who have a qualifying high-deductible health plan.

An insurance plan’s deductible is the amount that you pay before your insurance kicks and starts covering costs. For example, if you have a $2,000 deductible, you have to pay $2,000 toward your health care expenses before your insurance pays any of the cost.

For an insurance policy to qualify as an HDHP, it must meet the following requirements:

It charges a higher annual deductible than typical health plans (for 2020, the minimum is $1,400 for individuals and $2,800 for families).
It has a maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses (for 2020, the maximum is $6,750 for individuals and $13,500 for families).
It may, but is not required to, provide preventative care without a deductible or with a lower deductible.

Other Qualifications

The exact requirements for qualifying for an HSA are:

You are covered by an HDHP.
You have no other health insurance coverage, with the following exceptions:
- Liabilities incurred under workers’ compensation laws, tort liabilities, or liabilities related to ownership or use of property.
- A specific disease or illness.
- A fixed amount per day (or other period) of hospitalization.
- Coverage for accidents, disability, dental care, vision care, and long-term care.
You aren’t enrolled in Medicare.
You aren’t claimed as a dependent on anyone else’s tax return.

If you meet the requirements, you can open an HSA.

Contribution Limits

Like other tax-advantaged accounts, you cannot make unlimited contributions to an HSA. There is a limit on how much you can contribute each year.

For 2020, the limit is $3,550 for individual plans and $7,100 for family plans.

Some employers that offer HDHPs make contributions to their employees’ HSAs as an employee benefit. Employer contributions count toward these limits, so make sure you don’t exceed the contribution limit with your contributions and your employer’s contributions combined.

Tax Advantages

The primary reason that people use HSA for savings is the tax advantages. Like traditional IRAs and 401(k)s, the money you contribute to an HSA is contributed before tax. That means you can deduct the amount you add to the account from your income when filing your taxes.

If you have a taxable income of $50,000 and put $5,000 in your HSA, you can report your taxable income as just $45,000. That will save you about $1,100 on your tax bill, meaning your $5,000 contribution only costs you $3,900 out of pocket.

With a traditional IRA or 401(k), you pay income tax on the money that you withdraw from the account. HSAs are different. If you use the money in the account for qualified health expenses, you pay no taxes on the withdrawals either. This makes them doubly tax-advantaged.

If you have extra money in your HSA after you turn 65, you can begin making withdrawals from the account for nonmedical expenses too. If you do, you pay income tax on the amount you withdraw, but no penalties, just like a retirement account.

Penalties

Typically, you can only withdraw money from an HSA for qualified medical expenses. The IRS outlines all qualified expenses in its Publication 502, but it includes most things you’d expect, including:

Ambulance fees
Birth control
Body scans like MRIs or X-rays
Contact lenses
Dental treatment
Drug addiction care
Eye exams
Hearing aids
Hospital services
Physical exams
Prescriptions
Surgery

If you withdraw money from an HSA for a nonmedical expense and you are under age 65, you pay a 20% penalty on the amount withdrawn. You also have to pay income tax on your withdrawal, meaning you are doubly punished for using the money for nonmedical expenses when you’re under 65.

Once you reach age 65, however, you can use HSA funds for nonmedical expenses penalty-free, but will still have to pay income tax on the amount withdrawn.

Although you generally don’t have to prove that you’ve used your HSA money for qualified medical expenses when you file your taxes, you should always save your receipts so that you can show how much you spent compared to how much you withdraw. The receipts will come in handy if you wind up getting audited.

How to Use an HSA for Retirement Savings

HSAs are useful for saving for health care expenses, but they’re one of the most powerful retirement accounts available to Americans. If you want to use your HSA to save for retirement, these tips can help.

1. Contribute as Much as You Can

If you want to use your HSA for retirement savings, the first thing to do is contribute as much as you can to the account.

Typically, you want to contribute to your 401(k) until you max out the amount that your employer will match. Getting employer matching contributions is like getting a raise, so it’s worth getting as much in matching funds as possible.

After that, you can focus on putting money in your HSA until you max it out.

2. Invest Your Balance

The name “health savings account” might make you think that your HSA is a simple savings account. Savings accounts pay interest, but they’re not great for long-term wealth building because you usually wind up losing spending power to inflation.

Depending on your HSA provider, you likely have the option to invest your HSA in the stock market. That means that you can use the money in your HSA to build an investment portfolio like you do in your retirement and taxable brokerage accounts. Building a portfolio of low-cost index funds is a great way to help your HSA’s balance grow.

Just remember to keep some of the money in cash if you plan on using the HSA to cover health expenses as well.

3. Wait Until You’re 65

Once you’ve opened your HSA, made contributions, and invested your money, all you have to do is wait. Once you turn 65, you can withdraw money from the account as if it were a 401(k) or IRA. There’s no requirement that you use the money for health care expenses.

The only downside of this strategy is that IRAs and 401(k)s are slightly more flexible when it comes to withdrawals. You can start taking money from those accounts, penalty-free, when you turn 59 ½.

4. Save Your Receipts

Even if you don’t plan to use your HSA to cover health care expenses, you should make sure that you save every medical-related receipt that you get.

The reason to save every receipt is that there is no time limit for withdrawing money from your HSA after you incur a qualified medical expense.

Consider this example: you injure your leg while out for a run and have to go to the hospital for surgery. After you recover, you get the hospital bill and have to pay $5,000.

You can withdraw money from the HSA now to pay the bill, or you can pay the bill out of pocket, leaving your money in the HSA to grow, tax-free. You decide to pay the bill out of pocket.

Because there’s no time limit on withdrawals, you can take $5,000 out of your HSA, tax-free and penalty-free, any time you want. You can make the withdrawal tomorrow, next year, 10 years from now, or when you retire.

This is better than simply waiting until you turn 65 because withdrawals for nonmedical expenses still incur income taxes. If you pay for medical expenses out of pocket but save your receipts, you can withdraw from your HSA without paying any tax at all, up to the total amount of your qualified medical expenses that you’ve incurred over the years.

This makes HSAs more powerful than standard retirement accounts because you pay no tax on contributions or qualified distributions.

The full list of qualifying medical expenses is long, and some might surprise you. Over time, you’ll likely build up plenty of qualified expenses, which will make it easy for you to make tax-free withdrawals when you need to.

Advantages of Using an HSA for Retirement Savings

HSAs are one of the most powerful tax-advantaged accounts when used properly, so there are a lot of perks to using one for retirement savings.

1. Tax Benefits Add Up

One of the primary reasons to use an HSA for retirement savings is the tax benefits. If you use the account properly and save your medical receipts you can ultimately pay no tax on any of the money you contribute or withdraw from the account.

Even if you don’t have enough medical expenses to withdraw the entire amount tax-free, you have the backup plan of paying taxes on penalty-free withdrawals after you turn 65, effectively making the account into a second IRA or 401(k). Over the long term, the amount that you save in taxes can be huge.

If you’re in the 22% tax bracket — single earners making $39,476 to $84,200 and couples making $78,951 to $168,400 — and withdraw $10,000 per year from your HSA tax-free, you save $2,200 per year in taxes. That means needing to save about $55,000 less for retirement if you’re using the 4% rule to determine how much of your portfolio to withdraw each year.

2. HSA Contributions Don’t Count Against Retirement Contribution Limits

Using an HSA for retirement savings also increases the amount of tax-advantaged saving “cap space” you have for other retirement vehicles. IRAs and 401(k)s limit your contributions (to $6,500 per year and $19,500 per year, respectively). HSA contributions don’t count against those caps.

If you’re maxing out your tax-advantaged retirement contributions and looking for other ways to reduce your tax bill, HSAs can be an attractive option.

Disadvantages of Using an HSA for Retirement Savings

Just because you can use an HSA to save for retirement doesn’t mean that doing so is a good idea. Here are the disadvantages to consider.

1. You Might Need the Money for Medical Expenses

One reason not to use your HSA for retirement savings is the possibility that you might wind up needing that money to pay for health care expenses. Odds are good that you’ll wind up with a big medical bill at some point in your life.

If you have a high-deductible health plan, the out-of-pocket expense could be significant, and unless you have a strong emergency fund in savings, you might need to tap your HSA account to pay the bill.

If your HSA is one of your primary methods of saving for retirement, you might have to dip into your nest egg to cover a medical emergency, which is never ideal.

2. HSAs Aren’t Designed for Retirement Investing

Another drawback is that HSAs aren’t designed for retirement saving. The tax rules surrounding HSAs make them a great way to save for retirement, but that isn’t their intended purpose. HSA accounts aren’t necessarily optimized for long-term investing.

Some HSA providers might not offer the option to invest your balance at all, or might offer options that charge hefty fees for the privilege. Some HSAs limit your investment options to expensive mutual funds whose fees can eat away at your balance over the long term, meaning your savings will grow much more slowly in an HSA than a specifically designed retirement account.

By contrast, many true retirement plans have specially designed investment options, such as target-date funds, that make saving for retirement easy.

3. The Rules for HSAs Could Change

Finally, just because HSAs are great for retirement savings now doesn’t mean that they will be 20, 30, or 40 years from now. The government could change the rules for how you can use the money in the account. For example, the IRS may add a time limit for withdrawing funds after you incur a medical expense.

Future changes may make it harder to use the money you have in the account or alter the tax implications, which could limit its usefulness as a retirement savings vehicle.

Final Word

HSAs can be a good way to save for retirement, but you need to have a high-deductible health plan to be eligible for one. Furthermore, you must be able to cover out-of-pocket medical expenses by other means in order to make the most of these accounts as retirement savings vehicles.

For most people, 401(k)s and IRAs will be the main methods of saving for retirement. Don’t forget that you can also benefit from opening a taxable brokerage account if you want to invest for long-term goals beyond retirement.

Source: moneycrashers.com

May 7, 2021

What’s Your Strategy for Maximizing Your Social Security Benefits?

Deciding when to take social security is a bit like playing chess. You’ll need to strategize and think a few moves ahead to maximize your benefit because age and timing matter. Applying at the youngest age possible, 62, reduces a monthly benefit 25% to 30% for the rest of your life than if you had waited until full retirement age. Delay until the latest age possible, 70, and that monthly benefit increases 8% each year you wait past your full retirement age, a bonus of 24% to 32% depending on your birth year.

Your birth year matters because the full retirement age is rising — from 66 for people born between 1943 and 1954, to 67 for those born in 1960 or later. If your birth year falls between 1955 and 1959, the full retirement age rises two months every year.

The retirement age isn’t the only thing that’s changing. The rules for claiming Social Security are different for those born after Jan. 1, 1954. This includes the majority of people filing for benefits today, and the changes especially affect married, two-earner couples.

First, the basics: Individuals pay into Social Security their entire working life in order to receive a steady stream of income in the form of a monthly benefit once they retire. The benefits are based on the person’s 35 highest years of earnings. If you don’t have 35 years of earnings, then zeroes are entered for the remaining years, reducing the monthly benefit.

As pensions disappear and life expectancies rise, a guaranteed lifelong income that isn’t tied to the stock market has tremendous value. “Social Security is the best deal out there,” says Diane M. Wilson, a claiming strategist and founding partner of My Social Security Analyst in Shawnee, Kan. “It’s an annuity that lasts a lifetime, and it’s indexed to inflation.”

Maximizing that benefit has produced a cottage industry of claiming strategists to help retirees determine the best time to start taking benefits, but it’s not a simple calculus. “In the end, it’s a longevity decision,” says Kurt Czarnowski, who counsels clients about Social Security at Czarnowski Consulting in Norfolk, Mass. “If you knew when you were going to die, all this would be a snap.” Instead, people should understand their choices and make an informed decision, he says.

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The Differences Between Restricted Filing and Deemed Filing

For married couples, that decision involves accounting for two people’s earnings and benefits, as well as the likelihood of one spouse outliving the other. Spouses are not only entitled to the benefit based on their own work history, but they also may be eligible for additional money when the spousal benefit is factored in, what Wilson calls “add-ons.” The spousal benefit equals 50% of the higher-earning spouse’s benefit if the lower-earning spouse takes it at full retirement age. The amount is reduced when taken early, and you can’t claim the spousal benefit until your spouse begins taking Social Security. To be clear, you do not get to take two benefits, but rather Social Security increases your benefit to equal half of your spouse’s if the one based on your own work history is smaller.

People born on or before Jan 1, 1954, can maximize benefits while still receiving some Social Security. By taking whichever benefit is lower — their own or a spouse’s — when they first apply, they let the larger benefit grow before switching to it at a later age. That option, known as “restricted filing,” isn’t available for people born after Jan. 1, 1954. For them, there’s no choice. Social Security simply bestows their own benefit and any add-ons the person is eligible for when they file for benefits, a practice known as “deemed filing.”

Let’s say the higher-earning spouse is the husband and the lower-earning spouse is the wife. Under deemed filing, when the wife applies for Social Security at her full retirement age, she is given the highest amount she is eligible for, which in this instance is 50% of her husband’s benefit, assuming he started taking it. If he hasn’t, she will be given only the benefit based on her own work history. Once her husband applies for his benefits, Social Security will increase hers so that it equals half of his. If the wife was the higher earner and her benefit was more than 50% of his, she won’t get any additional money when he starts claiming Social Security. She will simply continue collecting her own higher work benefit.

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Maximizing Social Security Benefits for Married Couples

Deemed filers may have fewer options, but there are other strategies to consider, such as when to start claiming and which spouse should file for Social Security first. Those decisions can change cumulative lifetime benefits substantially, sometimes by as much as six figures, says Wilson. When she advises couples affected by the new rules, she generally recommends the higher earner to delay as long as possible, ideally until age 70, while the lower earner can file, giving the retired couple some income.

The couple’s age difference matters, particularly if the younger spouse is also the lower earner, says Jim Blair, co-owner of Premier Social Security Consulting in Cincinnati. In that case, “if they’re five years or more apart in age, you want the younger person filing as early as possible, at 62, and the older person delaying as long as possible,” he says. “Odds are the younger person is going to receive a survivor benefit before they reach their breakeven point, which is about 12 years past retirement age.” The breakeven point is the age when the total value of cumulative benefits, whether taken early or later, is roughly the same.

If the situation is reversed and the younger spouse is the higher earner, “we’ll look at what the younger individual will need in retirement,” Blair says. “If taking that benefit early at age 62 means a 25% reduction, they’re going to have to live with that for the rest of their life.” There will need to be other income to compensate for the reduction, he adds.

Couples who straddle the 1954 birth year, with one spouse falling under the old rules and the other under the new, have more ways to move the pieces on the Social Security chess board. For instance, if the wife is the younger, lower earner, she may want to apply early, taking her own reduced benefit. That would allow the husband, who was born before the 1954 cutoff date, to use a restricted application and request only a spousal benefit. Meanwhile, his benefit based on his own work history continues to grow 8% per year from his full retirement age until he turns 70. He can switch to his own higher benefit later, whether at 70 or sooner.

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Understanding Social Security Survivor Benefits

Couples should try to postpone taking whichever spouse’s benefit is higher to ensure a larger survivor benefit. This is particularly important when the lower earning spouse is younger and likely to outlive the higher earner by many years. “You want that higher benefit to take care of the survivor,” says Wilson, who warns clients of expenses, like home health aides, that someone living alone will almost certainly have.

A spousal benefit turns into a survivor benefit when a spouse dies, but the benefits are not the same. A surviving spouse who is at least full retirement age can receive 100% of the deceased spouse’s benefit, as opposed to 50% for a spousal benefit. The amount is reduced if the surviving spouse claims the benefit before full retirement age. You can claim a survivor benefit as early as age 60 (50 if you are disabled). But you don’t have to take it early, and you may not want to if you’re still working.

Social Security imposes an annual earnings limit for anyone younger than full retirement age who collects benefits, a rule that also applies to surviving spouses. For every $2 earned above the limit, which is currently $18,960, Social Security will deduct $1 in benefits, with the money restored later in the form of a higher benefit when you reach full retirement age. The earnings rule is more generous the year you reach full retirement age with Social Security deducting $1 for every $3 in earnings above $50,520. There’s no limit on earnings once you are full retirement age.

A widow who is, say, 60 when her husband passes away could hold off and take the survivor benefit when she reaches her full retirement age and stops working. There’s no reason to wait beyond that age because the survivor benefit won’t increase.

A survivor benefit is also not subject to the deemed filing rule. Someone born after the 1954 cutoff date can choose to take either their own or the survivor benefit when applying for Social Security. That opens a whole new avenue of claiming strategies. A widower, for example, could take the survivor benefit first if he needs the income and let his own larger benefit continue accruing delayed retirement credits before switching to it at age 70. If his own benefit is smaller, he could take that early and switch to the larger survivor benefit when he reaches full retirement age. The survivor benefit won’t be reduced because he took his own benefit early. The survivor benefit is only reduced if he takes it before his full retirement age.

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How Death, Divorce and Remarriage Affect Social Security Benefits

A divorced spouse is also eligible for benefits based on a former spouse’s earnings history. If your ex is still alive and both of you are at least age 62, you can collect a spousal benefit even if your ex hasn’t started collecting, provided that the marriage lasted at least 10 continuous years, the divorce was two or more years ago, and you haven’t remarried. Your ex won’t know you’re taking the benefit. A divorced spouse who is full retirement age can get 50% of the former spouse’s benefit; it’s reduced if taken early. Deemed filing rules still apply if you were born after New Year’s Day 1954, with only the highest benefit amount given to you.

If your ex has passed away, you can collect a survivor benefit as early as age 60, but the other requirements — a marriage that lasted at least 10 years and a divorce that was finalized two years ago — remain. You also can’t have remarried before age 60.

If you remarry after age 60, you are allowed to keep the survivor benefit from a former spouse whether you were divorced or not, but timing is everything. Wilson had a client, a widower, who was two months away from turning 60 and collecting a survivor benefit. He was also about to remarry. “I told him about the rule, and he said, ‘I can’t reschedule this now.'” He went ahead with the wedding as planned, sacrificing the survivor benefit at the altar. Wilson points out that her client could collect a survivor benefit from his first marriage if the second one ends for any reason.

As with any survivor benefit, there’s no deemed filing. A divorced spouse has the option of choosing which benefit to take first — their own or the survivor benefit — and let whichever is larger continue to grow before switching to it later on.

Remarriage brings other claiming strategies, such as applying for a spousal benefit based on the new spouse’s work record, but there is a waiting period. To collect a spousal benefit, you generally need to be married one year, Czarnowski says. An exception is made for someone who is already collecting a Social Security benefit and remarries. Then the waiting period is waived, he says. For example, a widow over age 60 who is collecting a survivor benefit and remarries is “immediately eligible to collect 50% of the new husband’s benefit, assuming he is collecting his benefit,” Czarnowski says. You will need to choose which benefit you want — the survivor benefit from an earlier marriage or the new spousal benefit.

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When Singles Should File for Social Security Benefits

For single people who never married, there’s no survivor to consider so the decision of when to claim is based on the need for income and how much they’ll get at any given age between 62 and 70. “It’s really which point along this continuum makes sense,” Czarnowski says. You can get an idea of how much your benefit will be at different ages based on your current earnings by using Social Security’s quick calculator. You can also enter your earnings history for a more precise figure.

Most of Wilson’s single clients start claiming at full retirement age so that their benefits aren’t reduced. Should they wait until age 70 to get the highest possible benefit? “They may want to if they’re still working and they don’t need Social Security,” Blair says. “The flip side is when they pass away, the benefits end. If they pass away at 72, they didn’t collect very long.”

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You Can Pause Your Social Security Benefits

Someone pushes a red button that is labeled "No!"

Social Security also gives people who regret taking a benefit early the chance to reverse that decision. If you change your mind within the first 12 months of claiming your benefit, you can withdraw the application. All the benefits you received will need to be repaid, including any spousal benefits based on your work record, but you’ll get a higher monthly benefit when you restart later on.

The second way is to suspend your benefit, which you can only do once you reach full retirement age. You won’t need to repay the benefits you’ve received, and you earn delayed retirement credits of 8% per year until age 70, enabling you to reverse some of the damage from claiming early. Keep in mind, however, that when you suspend a benefit, you also suspend any other benefits based on your work record, such as a spousal benefit. If your spouse was getting $1,500 per month and $500 was based on your work record, she’ll only get her own $1,000 benefit when you suspend.

Source: kiplinger.com

May 7, 2021

What Is a Bond Mutual Fund – Risks & Different Types of This Investment

Investing is an important part of saving for the future, but many people are wary of putting their money into the stock market. Stocks can be volatile, with prices that change every day. If you can’t handle the volatility and risk of stocks or want to diversify your portfolio into a less risky investment, bonds are a good way to do so.

As with many types of investments, you can invest in bonds through a mutual fund, which gives you easy diversification and professional portfolio management — for a fee.

Are bond mutual funds a good addition to your portfolio? Here are the basics of these investment vehicles.

What Is a Bond?

A bond is a type of debt security. When organizations such as national and local governments, government agencies, or companies want to borrow money, one of the ways they can get the loan they need is by issuing a bond.

Investors purchase bonds from the organizations issuing them. Typically, bonds come with an interest rate and a maturity. For example, a company might sell bonds with an interest rate of 5% and a maturity of 20 years.

The investor would pay the company $1,000 for a $1,000 bond. Each year, that investor receives an interest payment of $50 (5% of $1,000). After 20 years, the investor receives a final interest payment plus the $1,000 they paid to buy the bond.

What Is a Mutual Fund?

A mutual fund is a way for investors to invest in a diverse portfolio while only having to purchase a single security.

Mutual funds pool money from many investors and use that money to buy bonds, stocks, and other securities. Each investor in the fund effectively owns a portion of the fund’s portfolio, so an investor can buy shares in one mutual fund to get exposure to hundreds of stocks or bonds.

This makes it easy for investors to diversify their portfolios.

Mutual fund managers make sure the fund’s portfolio follows their stated strategy and work towards the fund’s stated goal. Mutual funds charge a fee, called an expense ratio, for their services, which is important for investors to keep in mind when comparing funds.

Pro tip: Most mutual funds can be purchased through the individual fund family or through an online broker like Robinhood or Public.

Types of Bond Mutual Funds

There are many types of bond mutual funds that people can invest in.

1. Government

Government bond funds invest most of their money into bonds issued by different governments. Most American government bond funds invest primarily in bonds issued by the U.S. Treasury.

U.S. government debt is seen as some of the safest debt available. There is very little chance that the United States will default on its payments. That security can be appealing for investors, but also translates to lower interest rates than other bonds.

2. Corporate

Corporate bond funds invest most of their assets into bonds issued by companies.

Just like individuals, businesses receive credit ratings that affect how much interest they have to pay to lenders — in this case, investors looking to buy their bonds. Most corporate bond funds buy “investment-grade” bonds, which include the highest-rated bonds from the most creditworthy companies.

The lower a bond’s credit rating, the higher the interest rate it will pay. However, lower credit ratings also translate to a higher risk of default, so corporate bond funds will hold a mixture of bonds from a variety of companies to help diversify their risks.

3. Municipal

Municipal bonds are bonds issued by state and local governments, as well as government agencies.

Like businesses, different municipalities can have different credit ratings, which impacts the interest they must pay to sell their bonds. Municipal bond funds own a mixture of different bonds to help reduce the risk of any one issuer defaulting on its payments.

One unique perk of municipal bonds is that some or all of the interest that investors earn can be tax-free. The tax treatment of the returns depends on the precise holdings of the fund and where the investor lives.

Some mutual fund companies design special municipal bond funds for different states, giving investors from those states an option that provides completely tax-free yields.

The tax advantages municipal bond funds offer can make their effective yields higher than other bond funds that don’t offer tax-free yields. For example, someone in the 24% tax bracket would need to earn just under 4% on a taxable bond fund to get the equivalent return of a tax-free municipal bond fund offering 3%.

4. High-Yield

High-yield bond funds invest in bonds that offer higher interest rates than other bonds, like municipal bonds and government bonds.

Typically, this means buying bonds from issuers with lower credit ratings than investment-grade bonds. These bonds are sometimes called junk bonds. Their name comes from the fact that they are significantly riskier than other types of bonds, so there’s a higher chance that the issuer defaults and stops making interest payments.

Bond mutual funds diversify by buying bonds from hundreds of different issuers, which can help reduce this risk, but there’s still a good chance that some of the bonds in the fund’s portfolio will go into default, which can drag down the fund’s performance.

5. International

Foreign governments and companies need to borrow money just like American companies and governments. There’s nothing stopping Americans from investing in foreign bonds, so there are some mutual funds that focus on buying international bonds.

Each country and company has a credit rating that impacts the interest rate it has to pay. Many stable governments are seen as highly safe, much like the United States, but smaller or less economically developed nations sometimes have lower credit ratings, leading them to pay higher interest rates.

Another factor to keep in mind with international bonds is the currency they’re denominated in.

With American bonds, you buy the bond in dollars and get interest payments in dollars. If you buy a British bond, you might have to convert your dollars to pounds to buy the bond and receive your interest payments in pounds. This adds some currency risk to the equation, which can make investing in international bond funds more complex.

6. Mixed

Some bond mutual funds don’t specialize in any single type of bond. Instead, they hold a variety of bonds, foreign and domestic, government and corporate. This lets the fund managers focus on buying high-quality bonds with solid yields instead of restricting themselves to a specific class of bonds.

Why Invest in Bond Mutual Funds?

There are a few reasons for investors to consider investing in bond mutual funds.

Reduce Portfolio Risk and Volatility

One advantage of investing in bonds is that they tend to be much less risky and volatile than stocks.

Investing in stocks or mutual funds that hold stocks is an effective way to grow your investment portfolio. The S&P 500, for example, has averaged returns of almost 10% per year over the past century. However, in some years, the index has moved almost 40% upward or downward.

Over the long term, it’s easier to handle the volatility of stocks, but some people don’t have long-term investing goals. For example, people in retirement are more concerned with producing income and maintaining their spending power.

Putting some of your portfolio into bonds can reduce the impact of volatile stocks on your portfolio. This can be good for more risk-averse investors or those who have shorter time horizons for their investments.

There are some mutual funds, called target-date mutual funds, that hold a mix of stocks and bonds and increase their bond holdings over time, reducing risk as the target date nears.

Income

Bonds make regular interest payments to their holders and the majority of bond funds use some of the money they receive to make payments to their investors. This makes bond mutual funds popular among investors who want to make their investment portfolio a source of passive income.

You can look at different bond mutual funds and their annual yields to get an idea of how much income they’ll provide each year. For example, if a mutual fund offers a yield of 2.5%, investors can expect to receive $250 each year for every $10,000 they invest in the fund.

Pro tip: Have you considered hiring a financial advisor but don’t want to pay the high fees? Enter Vanguard Personal Advisor Services. When you sign up you’ll work closely with an advisor to create a custom investment plan that can help you meet your financial goals. Read our Vanguard Personal Advisor Services review.

Risks of Bond Funds

Before investing in bonds or bond mutual funds, you should consider the risks of investing in bonds.

Interest Rate Risk

One of the primary risks of fixed-income investing — whether you’re investing in bonds or bond funds — is interest rate risk.

Investors can buy and sell most bonds on the open market in addition to buying newly issued bonds directly from the issuing company or government. The market value of a bond will change with market interest rates.

In general, if market rates rise, the value of existing bonds falls. Conversely, if market rates fall, the value of existing bonds rises.

To understand why this happens, consider this example. Say you purchased a BBB-rated corporate bond with an interest rate of 2% for $1,000. Since you bought the bond, market rates have increased, so now BBB-rated companies now have to pay 3% to convince investors to buy their bonds.

If someone can buy a new $1,000 bond paying 3% interest, why would they pay you the same amount for your $1,000 bond paying 2% interest? If you want to sell your bond, you’ll have to sell it at a discount because investors can get a better deal on newly issued bonds.

Of course, the opposite is true if interest rates fall. In the above example, if market rates fell to 1%, you could command a premium for your bond paying 2% because investors can’t find new bonds of the same quality that pay that much anymore.

Interest rate risk applies to bond funds just as it applies to individual bonds. As rates rise, the share price of the fund tends to fall and vice versa.

Generally, the longer the bond’s maturity, the greater the effect a change in market interest rates will have on the bond’s value. Short-term bonds have much less interest rate risk than long-term bonds. Bond funds usually list the average time to maturity of bonds in their portfolio, which can help you assess a fund’s interest rate risk.

Credit Risk

Bonds are debt securities, meaning they’re reliant on the bond issuer being able to pay its debts.

Just like people, companies and governments can go bankrupt or default on their loan payments. If this happens, the people who own those bonds won’t get the money they lent back.

Bond mutual funds hold thousands of bonds, but if one of the issuers defaults, some of the fund’s bonds become worthless, reducing the value of the investors’ shares in the fund.

Bonds issued by organizations with higher credit ratings are generally less risky than those with poor credit ratings. For example, most people would consider U.S. government bonds to have a very low credit risk. A junk bond fund would have much more credit risk.

Foreign Exchange Risk

If you’re buying shares in a bond fund that invests in foreign bonds, you should consider foreign exchange risk.

Currencies constantly fluctuate in value. Over the past five years, $1 could buy anywhere between 0.80 and 0.96 euros.

To maximize returns, investors want to buy foreign bonds when the dollar is strong and receive interest payments and return of principal when the dollar is weak.

However, it’s incredibly hard to predict how currencies’ values will change over time, so investors in foreign bonds should consider how changing currency values will affect their returns.

Some bond funds use different strategies to hedge against this risk, using tools like currency futures or buying dollar-denominated bonds from foreign entities.

Fees

Mutual funds charge fees, which they commonly express as an expense ratio.

A fund’s expense ratio is the percentage of your invested assets that you pay each year. For example, someone who invests $10,000 in a mutual fund with a 1% expense ratio will pay $100 in fees each year.

Expense ratio fees are included when calculating the fund’s share price each day, so you don’t have to worry about having cash on hand to pay the fee. The fees are taken directly out of the fund’s share price, almost imperceptibly. Still, it’s important to understand the impact fees have on your overall returns.

If you invest $10,000 in a fund that produces an annual return of 5% and has a 0.25% expense ratio, after 20 years you’ll have $25,297.68. If that same fund had an expense ratio of 0.50%, you’d finish the 20 years with $24,117.14 instead.

In this example, a difference of 0.25% in fees would cost you more than $1,000.

If you find two bond funds with similar holdings and strategies, the one with the lower fees tends to be the better choice.

Final Word

Bond mutual funds are a popular way for investors to get exposure to bonds in their portfolios. Just as there are many different types of stocks, there are many types of bonds, each with advantages and disadvantages.

If you don’t want to pick and choose bonds to invest in, bond funds offer instant diversification and professional management. If you want an even more hands-off investing experience, working with a financial advisor or robo-advisor that handles your entire portfolio may be worth considering.

Source: moneycrashers.com

May 6, 2021

5 Mind-Altering Wealth Strategies for Successful Business Owners

I’m an entrepreneur and just so happen to be in the business of providing other entrepreneurs with financial advice. But I don’t typically offer up the usual status quo advice that tells you to do things that aren’t always in alignment with growing your business.

My views originate from my experiences and at times are contrarian to what’s being recommended by the usual tax preparer and other financial advisers, because I am in the trenches running a business just like you. I know what it takes to grow a business, make payroll, deal with IRS notices and manage cash flow.

The truth is that being an entrepreneur can be isolating at times as a result of being wrapped up in the day-to-day of running your business. When you are hyper-focused on your business, it is difficult to also be an expert at managing the profits of the company. You may be great at making money, but once it’s made, what do you do with it?

Thinking differently about your company and how you will use it to build wealth is the key to true financial success.

In this article, I’ll outline five ways you can shift your mindset about money to transform how you define and operate your business and approach your financial decisions. It will help you identify what you really want to achieve: A Self-Managing Company®, a term coined by Dan Sullivan of Strategic Coach.

Mind Shift No. 1: Understand that Retirement Savings Plans Don’t ‘Lower’ Your Tax Bill

As a business owner, you are probably time-starved and used to making fast decisions. And you may be tempted to make fast decisions at tax time, especially when your tax preparer suggests that tax-deferred investments are the answer to lower your tax bill and save some money for retirement. Easy enough, right?

This is what I like to call a half-truth. It’s true that you’ll get the deduction for that year’s taxes. But the other half of the story uncovers the problem with the use of SEP IRAs, 401(k)s and other tax-deferred options to “lower” your tax bill. The reality is that you are taking money from your business where you have some level of control and redirecting those dollars into the stock market where you have absolutely no control. The money is tied up until you are 59½ years old and face potentially higher tax liabilities than you previously owed with no access to your cash if it is needed for growing or sustaining your business.

When you own a business, the half-truths you hear from many finance professionals and the mainstream media can at times negatively impact your ability to grow your business and protect your interests. I have found there are other, more productive ways to build wealth outside of your business, beyond the base-level concepts of investing or putting money in an IRA or 401(k).

Mind Shift No. 2: View Your Company Not as Your Job, but as a Tool for Building Your Wealth

If you run a healthy business, you have a long-term strategy. You know what the end-goal is. You think about the business as a whole, rather than focusing on simply the day-to-day tasks.

We’ve all heard the old adage: Work on your business, not in your business. That’s because if you’re working in your business all the time, you’ve only created a job for yourself. The goal is to build systems and develop people to slowly work yourself out of the role you have and allow the business to run on its own. The sooner you shift your mindset to this way of thinking, the sooner you can begin to experience the results.

First, carve out the time in your day to think about your business. Many business owners I talk to don’t do this, because they are buried in the work. Take time to talk to your future self about what you want your life to look like in the future. What would your future self say to you about the decisions and choices you are making? It helps to outline your thinking time, keep a journal of your discoveries, meditate to de-stress, and use the time to reflect on what you are trying to accomplish in the business.

Next, think about your business as a piece of your financial plan. How much time and capital are you investing into the business, and what are you getting out of it? What is your ROI? I’ve found that a business can offer the biggest opportunity to build wealth, and in many cases — depending on your results — it can offer more than what you might get from investing in the market.

Finally, think with the end in mind. At the end of the day, what are you trying to get out of your company? To build wealth through your business, you must identify what will build its value.

Building value revolves around creating a self-managing company, one that runs without you and has a strategy to sustain itself into the future. This allows you to sell it for maximum value, or even create a passive income stream without actually having to work in the business.

Shifting your mindset is important, because you probably didn’t start your business that way. Many business owners don’t, and that’s OK while you’re getting things up and running. But it’s important to remember that what got you started will not get you to the next level and will not build the wealth needed to successfully exit the business.

Mind Shift No. 3: Master Your Cash Flow

I tend to bust a lot of myths when it comes to financial matters, and one of them has to do with cash flow. This is especially important to understand as an entrepreneur. Your cash flow is not there to simply pay your bills. Yes, you must pay your bills of course, but there is more to it than simply making payroll.

Cash flow is a tool to help you build wealth and the value of your company. Healthy cash flow allows for you to control your money, and there are strategies you can explore to help you maximize it.

I recently spoke with a partner of a business who was earning a W-2 salary of $400,000 per year. In working with his CPA, we were able to rework his partnership agreement, removing him as an employee and adding him as a consultant of his own LLC. While this simple strategy reduced his tax liability by $20,000, implementing this strategy was about more than just lowering taxes. This was about cash flow – everything is always about cash flow. By making this little tweak, he increased his cash flow by $1,666 per month.

I’m not a CPA and don’t provide tax advice, but I ask a lot of questions and propose many scenarios for the tax professionals to consider – scenarios that can increase cash flow for business owners. Increasing and optimizing your cash flow should be a top priority for your business.

Mind Shift No. 4: Be Your Own Bank

Companies with cash are able to do many things without having to rely on a bank or other source of funding. In essence, they can be their own bank. Think about it. When you have cash, you can use it to work on your wealth-building strategy. You could buy a company, invest in equipment, hire more people (maybe even a replacement for yourself who can run the company while you collect passive income), buy property, or take advantage of any other opportunity that may come your way.

But there is another way you can be your own bank. Maybe you’ve heard of the concept of “BUILD Banking™,” a cash flow strategy using a specially designed life insurance contract. It’s a strategy that I use personally and with many of my clients who want to have greater control of their cash flow. It frees them from dependence on banks for capital infusions and avoids government red tape when they need to access their money.

For more information about BUILD Banking™, visit www.buildbanking.com.

This strategy enables business owners to grow assets tax-free and have access to those funds whenever they’re needed. In essence, you’re accessing cash when it is needed while having uninterrupted compounding growth for your future.

Mind Shift No. 5: Understand Your Legal Exposures and Protect Yourself

You likely have some form, or forms, of insurance in place for your business. And you may believe that these policies have you covered. Well, they may, and they may not. The coverage you need goes far beyond liability, even extending into punitive damages.

It’s important to work with an insurance professional who specializes in business coverage to ensure that you have the right type of policies and the proper level of protection for your specific business.

There are also certain types of insurance policies (including the BUILD Banking strategy I’ve described above) that can serve a strategic purpose for your business. It’s common, and valuable, for business owners to have a life insurance contract as part of their succession plan, acting as a funding mechanism for the beneficiary to purchase the deceased owner’s share of the business.

Again, you will want to have a collaborating team of insurance professionals who have expertise in their vertical and who understand your business, your goals and what you are trying to accomplish. It’s also a good idea to include your CPA, attorney and financial planner in on those discussions.

These five financial planning tips and mindset shifts will help you use your business as a tool to start building wealth (or build greater wealth). They may be things you’ve never thought about, or things you’ve considered but haven’t been able to implement. Putting these ideas to work can get you on the path to true business success.

Results may vary. Any descriptions involving life insurance policies and their use as an alternative form of financing or risk management techniques are provided for illustration purposes only, will not apply in all situations, may not be fully indicative of any present or future investments, and may be changed at the discretion of the insurance carrier, General Partner and/or Manager and are not intended to reflect guarantees on securities performance. Benefits and guarantees are based on the claims paying ability of the insurance company.

The terms BUILD Banking™, private banking alternatives or specially designed life insurance contracts (SDLIC) are not meant to insinuate that the issuer is creating a real bank for its clients or communicating that life insurance companies are the same as traditional banking institutions.

This material is educational in nature and should not be deemed as a solicitation of any specific product or service. BUILD Banking™ is offered by Skrobonja Insurance Services LLC only and is not offered by Kalos Capital Inc. nor Kalos Management.

BUILD Banking™ is a DBA of Skrobonja Insurance Services LLC. Skrobonja Insurance Services LLC does not provide tax or legal advice. The opinions and views expressed here are for informational purposes only. Please consult with your tax and/or legal adviser for such guidance.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Founder & President, Skrobonja Financial Group LLC

Brian Skrobonja is an author, blogger, podcaster and speaker. He is the founder of St. Louis Missouri-based wealth management firm Skrobonja Financial Group LLC. His goal is to help his audience discover the root of their beliefs about money and challenge them to think differently to reach their goals. Brian is the author of three books, the Common Sense podcast and blog. In 2017 and 2019 Brian received the award for Best Wealth Manager and in 2018 the Future 50 St. Louis Small Business.

Source: kiplinger.com

May 6, 2021

4 Things You Can Spend Money on That Will Actually Make You Richer

Saving money is great, but it won’t make you rich.

No matter how many dollars you put into a savings account, the national average .05% interest you’d earn won’t expedite your millionaire status.

And cutting your costs can only go so far, explains Certified Financial Planner Robin Hartill (who is also an editor and financial advice columnist here at The Penny Hoarder).

It can definitely help with your short term goals, she says, but if you want to be truly richer, sometimes you need to spend money to make money. By diverting some of your cash into these assets, you’ll be on a faster path to your financial goals.

1. Spend $1 to Own a Piece of Amazon, Google or Other Companies

Investing is a smart way to make you richer. “Spending money by investing it in the stock market and earning returns can compound into even more money,” Hartill says.

While the stock market does go up and down over days, weeks and months, over time, the returns tend to rise.

If you haven’t started investing and have some money to spare, you can start small, then build your way up. In fact, you can get started with as little as $1 with an app called Stash.

We like Stash because it lets you choose from hundreds of stocks and funds to build your own investment portfolio. But it makes it simple by breaking them down into categories based on your personal goals. Want to invest conservatively right now? Totally get it! Want to dip in with moderate or aggressive risk? Do what you feel.

Plus, with Stash, you’re able to invest in fractions of shares, which means you can invest in funds you wouldn’t normally be able to afford.

It takes two minutes to sign up, and it’s totally secure. With Stash, all your investments are protected by the Securities Investor Protection Corporation (SIPC) — that’s industry talk for, “Your money’s safe.”2

Plus, when you use the link above, Stash will give you a $5 sign-up bonus once you deposit $5 into your account.*

2. Spend as Little as $16/Month to Secure Up to $1 Million in Life Insurance For Your Family

This is one of those occasions when spending a little bit of money each month can pay off later.

Have you thought about how your family would manage without your income after you’re gone? How they’d pay the bills? Send the kids through school? Now’s a good time to start planning for the future by looking into a term life insurance policy.

You’re probably thinking: I don’t have the time or money for that. But your application can take minutes — and you could leave your family up to $1 million with a company called Bestow.

Rates start at just $16 a month. The peace of mind knowing your family is taken care of is priceless.

If you’re under the age of 54 and want to get a fast life insurance quote without a medical exam or even getting up from the couch, get a free quote from Bestow.

3. Invest in Your 401(k) — But Use This Company’s Money, Instead

Setting aside money from your paycheck to put into your 401(k) is literally one of the smartest things you can do for your future. And if your employer matches each contribution, that could mean hundreds of thousands of extra dollars in your account when you retire. It’s free money!

But if you can’t take advantage of this employer benefit because you need all of your paycheck every month, a company called Lendtable will give you the cash.

We know it sounds too good to be true. But if your employer has a 401(k) match program, this is money they already have earmarked for you. By using Lendtable, you’ll be able to unlock that free cash.

Let’s say you make $50k a year and your employer matches your 401(k) contribution up to 4%. If you put $0 in your retirement account this year, you get $0 from your boss. If Lendtable lends you the 4% of your salary your employer is willing to match, you get $2,000 from your boss, minus Lendtable’s fee. (This comes from the extra money you’ve earned, so there’s no sacrifice on your part.)

It takes three minutes to answer a few questions about your eligibility and sign up for an account.

Once you’ve gotten your full match amount from your employer, LendTable will take the money they lent you back, plus a small share of your profit. If there’s a penalty from your retirement account provider for taking money out, Lendtable will cover that, too.

The risk for you is basically nonexistent, so not taking advantage of your employer match with Lendtable’s offer would make Future Millionaire You bow your head in shame. Get started here.

4. Pay Off Your Credit Card Debt Faster — But Cheaper

To stay out of debt, you need to spend less than you earn, but if you’re already battling credit card balances, Hartill says a debt-consolidation loan can help you shed that debt faster.

You might be wondering how it makes sense to get a loan when you already have out-of-control credit card balances. The answer lies in lower interest rates — way lower than the 36% some credit cards charge — and a website called AmOne wants to help.

If you owe your credit card companies $50,000 or less, AmOne will match you with a low-interest loan you can use to pay off every single one of your balances.

The benefit? You’ll be left with one bill to pay each month. And because personal loans have lower interest rates (AmOne rates start at 3.49% APR), you’ll get out of debt that much faster. Plus: No credit card payment this month.

AmOne won’t make you stand in line or call your bank, either. And if you’re worried you won’t qualify, it’s free to check online. It takes just two minutes, and it could help you pay off your debt years faster.

Kari Faber is a staff writer at The Penny Hoarder.

1Not all stocks pay out dividends, and there is no guarantee that dividends will be paid each year.

2To note, SIPC coverage does not insure against the potential loss of market value.

For Securities priced over $1,000, purchase of fractional shares starts at $0.05.

*Offer is subject to Promotion Terms and Conditions. To be eligible to participate in this Promotion and receive the bonus, you must successfully open an individual brokerage account in good standing, link a funding account to your Invest account AND deposit $5.00 into your Invest account.

The Penny Hoarder is a Paid Affiliate/partner of Stash.

Investment advisory services offered by Stash Investments LLC, an SEC registered investment adviser. This material has been distributed for informational and educational purposes only, and is not intended as investment, legal, accounting, or tax advice. Investing involves risk.

Source: thepennyhoarder.com

May 5, 2021

Digit Review – A Great Tool to Automate Your Savings

I’m in favor of anything that makes it easier to add to my savings account balance, and Digit definitely fits that bill. It’s a free-to-join, automatic savings tool that ties into your checking account, uses a sophisticated algorithm to analyze your income and spending habits, and then makes regular transfers to your FDIC-insured Digit savings account and Digit investment accounts, typically every week or every few days.

What Is Digit?

You don’t have to direct or schedule your Digit transfers in any way. In fact, you don’t even know in advance how much Digit will transfer. With its automated, hands-off saving algorithm, pretty much all you have to do is sit back and watch your savings account balance grow over time. If you’re unsatisfied with the pace of Digit’s automatic withdrawals, you can tell it to save more or less with each withdrawal.

Digit isn’t the first online tool designed to simplify and incentivize savings. There are plenty of bank-run programs, such as Bank of America’s Keep the Change, which both allow for recurring checking-to-savings transfers and small, automatic savings deposits when you make a debit card purchase. And, of course, you can set up recurring checking-to-savings transfers at banks — including online banks such as Ally Bank and Capital One Bank — without formal savings incentive programs.

The difference is that Digit is the first completely automated savings app for iOS and Android. When it first launched, the Digit app was functionally unique, although it has since spawned imitators. Digit has added features over the years, including a handy new tool that analyzes your cash flow and tells you exactly how much you can safely spend every day, and now boasts taxable and tax-advantaged investment account options too.

Digit is free to join and use for 30 days. After that, it carries a $5 monthly fee. A 0.10% annualized yield — or “Savings Bonus,” in Digit’s parlance — offsets this monthly charge, although Digit only pays out once every three months. There’s no minimum balance required at any time and no minimums required to earn the interest rate.

All told, this savings app has some useful advantages over any other program, account, or service on the market, plus a few drawbacks that may hamper your experience.

How It Works

Here’s how Digit works. Below, we cover the sign-up process, basic account management practices, and procedures for transfers and withdrawals.

Sign-Up for New Users

To get started with Digit, you need to provide some basic personal information and contact details. You’ll then be asked to securely link your bank account with your new Digit account. You won’t need to provide your account number or routing number, and the link usually happens near-instantaneously.

Account Management and Automated Savings

Once you’re set up with your FDIC-insured Digit savings account, the app goes to work. It uses its proprietary algorithm to get a sense of your spending (debit transactions and ATM withdrawals), income (paychecks), and recurring obligations (monthly bills).

To get the most out of Digit, you should make sure that all important bills are included in your checking account’s bill pay system — or otherwise paid out of the tied checking account — so Digit’s algorithm can see them. The same goes for paychecks and other income sources. Digit doesn’t know what goes on outside the tied checking account, so you need to make sure it has as much information as possible.

Inbound Transfers

Based on your income, spending patterns, and obligations, Digit begins making transfers from your checking account to your savings account, the first typically coming within a week of sign-up. These transfers are entirely automated; you never have to set an amount or frequency. Digit’s algorithm only allows for transfers it thinks you can afford, so there’s little chance of an overdraft or cash crunch. After the first one, transfers usually happen every two or three days in relatively small amounts.

Bear in mind that you may not receive a notification of each withdrawal. However, if Digit determines at any point that you really don’t have the funds to save money right then, it simply stops making withdrawals until you can afford them again. In the meantime, Digit keeps a rolling tally of your discretionary income and tells you exactly how much you can safely spend on any given day.

Withdrawals

You can withdraw funds held in your Digit account whenever you wish, with no daily or monthly limit, and have the money in your checking account the following business day. You can also manually override Digit’s automatic transfer algorithm and make manual deposits into your Digit account at any point, provided you have enough money in your linked account to support the transfer.

Key Features

Here’s a closer look at some of Digit’s key features, including Digit’s investing and retirement platforms, Digit’s savings goals feature, and the Digit Pay bill payment feature.

Digit Investing

Digit’s investing feature allows you to put your money to work in the stock market without assuming unwise levels of risk or setting aside more than you can afford to lose. Like Digit’s savings tool, this feature automatically transfers funds that you can safely invest into a diversified portfolio that can grow over time. Digit takes the long view, looking for sustainable, long-term opportunities rather than short-term gains.

Digit Retirement

Digit’s retirement feature matches you with the right tax-advantaged investment account for your income level and automatically reserves a portion of your savings for your retirement goals. Once per month, Digit invests those savings in a diversified portfolio. With no account minimums or deposit requirements, it’s easy to kick-start your retirement planning with Digit.

Savings Goals

Digit lets you set savings goals for just about anything, from your next date night to a down payment on a house to an emergency fund for unexpected expenses or financial setbacks. Simply follow the prompts in the app.

Digit Pay

Digit Pay is a free bill pay service designed specifically to help you pay down credit card debt. You can activate it when you set a “credit card debt” savings goal in the app.

No Overdraft Guarantee

Because Digit’s algorithms are designed only to withdraw what you can afford, the likelihood of a checking overdraft due to a Digit withdrawal is low. However, should Digit ever cause an overdraft, the company guarantees reimbursement of any applicable fees.

Customer Support

You can contact Digit directly using the onsite ticketing system. Queries typically produce responses within one to two business days.

Advantages

Digit has some key advantages, including next-business-day transfers, set-it-and-forget-it automation, and unlimited savings withdrawals.

1. Next-Business-Day Transfers

If you need to withdraw from your Digit savings balance, you can have the funds in your checking account on the next business day. By comparison, transfers from savings accounts — especially from online banks such as Ally — to external accounts can take two or three business days. If you need funds fast, that can be an inconvenient time frame.

2. Set It and Forget It

Digit is unique among savings tools in that it’s completely automated. It measures your spending and income daily and uses a sophisticated algorithm to determine how much you can save without affecting your lifestyle. If you earn more and spend less, Digit automatically increases your savings. If you earn less and spend more, Digit automatically saves less.

As long as you’re satisfied with the amount you’re saving, you never have to manually transfer funds to your savings account, although you do have that option to fall back on. This setup is superior both to recurring bank transfers (which need to be manually adjusted to account for changes in income and spending) and budgeting tools such as Mint (which aren’t truly automated).

3. Unlimited Savings Withdrawals

You can make unlimited withdrawals from your Digit savings account — one per day if you like, or even multiple times per day. Savings accounts at traditional banks and credit unions, including those tied to a recurring savings plan, typically limit withdrawals to six per month. Tax-advantages savings accounts (IRAs) can be even more restrictive.

4. No Overdraft Fees

In the unlikely event that a Digit transfer results in an overdraft from your checking account, the company promises to pay any associated fees and charges. However, it doesn’t specify if there’s a limit to what it pays in this case. If your balance remains negative for many days on end, you could stretch the limits of this guarantee.

Regardless, you get no such protection from banks such as Capital One Bank, Ally, or brick-and-mortar institutions such as U.S. Bank. These charge daily or interest-based overdraft fees that can amount to $10, $20, $30, or more per day.

5. No Balance Requirements

Digit savings accounts don’t have balance requirements, allowing you to start off saving small amounts of money. That isn’t always true of comparable services offered by big banks such as U.S. Bank and Bank of America.

6. Earn a 0.10% Quarterly Savings Bonus

Digit savings accounts don’t accrue interest in the traditional sense, but they do have de facto yields: 0.10% APY, paid quarterly as a Savings Bonus. To qualify for each quarter’s Savings Bonus, you must maintain your Digit savings account for the entire three months prior. The bonus is annualized, meaning you earn 0.025% of the balance in your account at the end of each quarter.

Disadvantages

Digit’s downsides include a monthly maintenance fee and no transaction-based withdrawals.

1. $5 Monthly Maintenance Fee

Digit has a 30-day fee-free introductory period. Eventually, however, the bill comes due. After the intro period ends, you’re automatically charged $5 per month. When you’re just starting out and your balance is low, this charge is likely to swamp your Savings Bonus.

2. You Need to Give Your Bank Account Information to a Third Party

To work properly, Digit requires your external checking account number. That’s a problem if you’re bothered by the thought of providing sensitive financial information to yet another third party and thus increasing your risk of exposure to a data breach. Safer options include bank-run savings incentive programs with checking and savings accounts under the same roof.

3. No Option for Transaction-Based Withdrawals

Digit doesn’t let you tie automatic checking-savings transfers to a debit card transaction, which is another way to make easy savings deposits — sometimes multiple deposits per day — without dramatically reducing your checking account balance. Bank of America’s Keep the Change program lets you round up debit card purchases to the next dollar and deposit the difference in your savings account.

Final Word

According to CareerBuilder, nearly 80% of Americans live paycheck to paycheck. That means about 4 in 5 of us don’t save money at all. In that light, Digit’s couldn’t-be-easier savings automation tool is welcome news.

However, Digit isn’t a panacea. It only squirrels away funds on your behalf if you consistently demonstrate that you spend less than you earn. It can’t force you to rein in your spending habits or live within your means. For that, a strict personal budget and lifetime savings plan are still your best options.

Source: moneycrashers.com

May 4, 2021

Stock Market Today: Dow Leads in a Mixed May Start for Stocks

The Dow Jones Industrial Average kicked off the month with a 0.7% gain to 34,113 on Monday that came despite a weaker-than-expected Institute of Supply Management manufacturing report.

Supply bottlenecks resulted in an April reading of 60.7 – a slower rate of expansion than March’s 64.7 reading indicated, but expansion nonetheless.

“Although the composite was a fair bit below expectations (Barclays 64.5; consensus 65.0), the decline comes off of a robust March reading that was the highest since 1983,” says Barclays economist Jonathan Millar. “Indeed, components of the composite continue to point to very strong growth, which comes as no surprise, given highly favorable demand conditions amid fiscal stimulus, easing of social distancing restrictions, and ongoing progress in vaccinations.”

We’re glad to see that at least some investors heeded our advice to ignore the urge to “sell in May and go away.” But stocks weren’t exactly up across the board. The Nasdaq Composite (-0.5% to 13,895) struggled, thanks to weakness in mega-cap tech and tech-esque names such as Tesla (TSLA, -3.5%), Amazon.com (AMZN, -2.3%) and Salesforce.com (CRM, -2.9%).

“For the first time in a while there is a clear value/cyclical bias while growth/tech is under pressure,” says Michael Reinking, senior market strategist for the New York Stock Exchange. “Tech wobbled last week despite blowout numbers from the mega-cap stocks. This is especially concerning as the rate environment remains in check.”

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Other action in the stock market today:

The S&P 500 gained 0.3% to 4,192.
The small-cap Russell 2000 also finished in the black, up 0.5% to 2,277.
Berkshire Hathaway (BRK.B, +1.7%) held its 2021 annual shareholder meeting this weekend. Chairman and CEO Warren Buffett and Executive Vice Chairman Charlie Munger addressed a number of topics, including trimming Berkshire’s stake in Apple (AAPL) in Q4 2020. “It was probably a mistake,” said Buffett, adding that AAPL’s stock price is a “huge, huge bargain” given how “indispensable” the company’s products are to people. Also of note: Berkshire grew fourth-quarter operating income by 20%, to $5.9 billion, while cash grew 5% to $145.4 billion.
Domino’s Pizza (DPZ, +2.6%) was a notable winner today. The pizza chain revealed an accelerated stock buyback program, saying in a regulatory filing that it will pay Barclays $1 billion in cash for roughly 2 million DPZ shares.
U.S. crude oil futures jumped 1.4% to end at $64.49 per barrel.
Gold futures snapped a four-day losing streak, adding 1.4% to settle at $1,791.80 an ounce.
The CBOE Volatility Index (VIX) declined 2.3% to 18.18.
Bitcoin prices improved by 1.1% to $57,530.32. More impressive was the 18.6% improvement in Ethereum, to $3,300.64 (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)

Another Big Week of Reports … And Dividends

What should investors be looking forward to this week?

On Thursday and Friday, we’ll get the latest weekly unemployment filings and April jobs data, respectively, but throughout the week, another heaping helping of earnings reports, anchored by the likes of General Motors (GM), Pfizer (PFE), Under Armour (UAA) and PayPal (PYPL).

And given that many companies tend to synchronize their dividend and buyback actions with their earnings reports, you also can expect plenty of news on the dividend-growth front.

In some cases, those raises might be token upticks meant to secure current or future membership in the Dividend Aristocrats. But others are bound to compete with this year’s most explosive payout hikes – improvements of 15%, 20% or even 30% that drastically change the income aspect of current shareholders’ investments. Ideally, of course, investors want the best of both worlds: income longevity and generosity.

These 10 dividend stocks just might fit the bill. This group of mostly blue-chip household names offer a strong history of payout increases, a sharp level of recent hikes compared to their peers, and the operational quality to continue affording these annual raises.

Kyle Woodley was long AMZN, CRM, PYPL and Ethereum as of this writing.

Source: kiplinger.com

May 3, 2021

SoFi Money Review 2021 – The Simple Dollar

SoFi Money is a good fit for someone who wants simple online banking and the ability to earn interest without having a separate savings account. Fees are low, and annual percentage yields tend to be higher than average, even amongst online banks. People who keep a lower checking account balance or who don’t have enough extra cash available for a separate savings account may appreciate this combination of factors.

Min. Deposit

J.D. Power Rating

N/A

Overdraft Protection

SimpleScore

4.3 / 5.0

SimpleScore SoFi 4.3

Min. Deposit 5

Overdraft Protection 3

Customer Satisfaction N/A

Additional Accounts 4

SoFi Money is an online-only bank, so it doesn’t have any brick-and-mortar banking locations. Sofi Money’s online banking platform allows it to diversify its lending offerings, including student loan refinancing, student loans, refinancing for medical residents, loans for grad school, loans for the parents of students to pay for their school, mortgages and more. SoFi also has an investing platform called SoFi Invest, budget tracking called SoFi Relay and different insurances — including life, renters, and auto — through SoFi Protect.

Please Note: As of 7/1/2020, accounts with recurring monthly deposits of $500 or more each month, will earn interest at 0.25% APY. All other accounts will earn interest at 0.01% APY. Interest rates are variable and subject to change at our discretion at any time. Accounts opened prior to June 9, 2020, will continue to earn interest at 0.25% APY irrespective of deposit activity.

SoFi Money at a glance

What we like about it

SoFi Money pays a high-interest yield on its accounts when you compare it to traditional banks. It is roughly on par with other online banks. SoFi also has a significant benefit in that there are no overdraft fees. If you do not have enough money in your account to cover a debt, SoFi just cancels it. This could be an essential perk if you are living paycheck to paycheck. Likewise, SoFi Money doesn’t have account fees or require minimum balances. This could give you the flexibility you need to make ends meet. SoFi Money also offers a variety of member benefits, including a rate discount on SoFi loans, career services, unemployment protection, financial advisors and member experiences.

Things to consider

SoFi Money is online, so there are no brick-and-mortar locations. Keep this in mind if you prefer using a teller for your transactions. Also, the company is part of a massive network of ATMs and offers reimbursement for the fees that sometimes come with using specific machines. However, many ATMs are not part of this network, so make sure you have one near you before committing. SoFi also charges foreign transaction fees when converting foreign currency.

Finally, SoFi offers a ton of different products, but there isn’t much linking between them. SoFi Money is a standalone product. While you may be able to import your information to SoFi Relay, for instance, there may be extra steps involved that would not be there with some other banking solutions.

SoFi checking & savings accounts

SoFi Money is an all-in-one product that is a hybrid checking and savings account. There are no account fees or minimum balance requirements, so you can bank freely. Because SoFi Money is all online, you deposit checks from your phone and pay bills online. You can also use SoFi Money to transfer and receive money, like paying the babysitter or covering your share of dinner when the bill comes — but it is still not a checking account because you cannot write checks from the account. The most notable perk of SoFi Money is that all cash in your account earns 0.01%–0.25% APY, which is quite high and even beats traditional banks’ high-yield savings accounts.

The combined checking and savings account solution doesn’t have any fees. People who live paycheck to paycheck — like many people with student loans or other debt — may appreciate the simple structure and the ability to earn interest. SoFi Money also includes an interest rate reduction for its members, so opening an account could be smart for that reason alone.

SoFi money market accounts

SoFi Money doesn’t offer money market accounts, so you’ll want to look elsewhere. Consider a bank like State Farm, which offers a Money Market Savings Account that pays a relatively high interest rate. This account also lets users write checks or withdraw funds via an ATM, and you just need a $1,000 deposit to get started.

SoFi CDs

SoFi Money doesn’t offer CDs either, so if you want a CD, you could choose another bank for this type of account. Some popular choices include Marcus by Goldman Sachs, Ally Bank and Barclays. You usually do not need to have another account at the issuing bank to open a CD. Marcus by Goldman Sachs offers a high-yield CD at 0.55% APY for 12 months. The only requirement is a $500 deposit.

SoFi IRA accounts

SoFi Money does not offer IRA accounts, but many online banks do. Charles Schwab, E*TRADE, and are all options. Check out our Best IRA Accounts for more ideas. SoFi also has an investment division called SoFi Invest.

SoFi credit cards

SoFi Money does not offer credit cards. Instead, they provide personal loans. SoFi personal loans can be used to pay for medical procedures or finance home improvements. Members can also use these small loans to consolidate credit cards, help pay for relocation, pay for a wedding, or finance another big purchase. SoFi Money lets you borrow amounts large and small. For people who like to use credit cards to finance large purchases, this may be a viable alternative to credit cards.

If you want to open a credit card, check out our list of the Best Credit Cards.

SoFi investing

SoFi Money doesn’t offer investment options, but SoFi Invest does. Owned by the same company, SoFi Invest is just as simplified as SoFi Money. Customers can start investing as little as $1 and put it into anything from stocks to ETFs and cryptocurrency, all without paying any fees. SoFi Invest also has a feature called Stock Bits which allows its customers to invest in a company without buying a full share. Many people decide to use non-traditional banks to participate on the stock market, and some have seen decent returns. With automated investing, SoFi Invest will manage your money on the market for you, without you chasing down investor speculation or worrying about which stocks are performing the best.

Compare top bank accounts

Too long, didn’t read?

SoFi built its reputation on offering low-interest and low-fee student loans for both parents and students. SoFi Money came later. It does not have many of the bells and whistles of other banks, but that doesn’t mean it may not work well for your needs. The interest rate that the bank pays is enough reason for a closer look.

Source: thesimpledollar.com

May 2, 2021

Stock Market Today: Stocks Sag Despite Slew of Earnings Beats

Wall Street finished the week on a down note Friday, ignoring even more sterling first-quarter earnings reports.

John Butters, senior earnings analyst for FactSet, says that 60% of the S&P 500’s components have reported Q1 earnings, and, so far, 86% of those companies have reported a positive earnings-per-share surprise.

“If 86% is the final percentage, it will mark the highest percentage of S&P 500 companies reporting positive EPS surprises since FactSet began tracking this metric in 2008,” he says.

Estimates have been strong, too. “The second quarter marked the second-highest increase in the bottom-up EPS estimate during the first month of a quarter since FactSet began tracking this metric in 2002, trailing only Q1 2018 (+4.9%),” Butters adds.

Amazon.com (AMZN, -0.1%) was the latest to beat expectations, reporting profits of $15.79 per share that clobbered estimates for $9.45 and announcing a 44% surge in sales. Twitter (TWTR, -15.2%) earnings beat the Street as well, but shares plunged on disappointing numbers of “monetizable daily users” and Q2 revenue forecasts.

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The Dow Jones Industrial Average (-0.5% to 33,874), S&P 500 (-0.7% to 4,181) and Nasdaq Composite (-0.9% to 13,962) all finished in the red – and have effectively been flat over the past two weeks.

Ally Invest president Lule Demmissie suggests that investors are increasingly getting anxious. “The mindset has switched from ‘what could go right?’ to ‘what could go wrong?'” she says.

Other action in the stock market today:

Chevron (CVX, -3.6%) skidded after reporting first-quarter earnings. While Chevron beat on the bottom line, revenue fell short of expectations.
Fellow oil giant Exxon Mobil (XOM, -2.9%) also retreated today, as weakness in the energy sector overshadowed the company’s first profitable quarter in a year on stronger-than-expected revenue.
Skyworks Solutions (SWKS, -8.4%) was another post-earnings loser. The semiconductor name reported profit and revenue above estimates for its fiscal second quarter, but a tepid current-quarter outlook was the likely weight on shares.
The small-cap Russell 2000 dropped 1.3% to 2,266.
U.S. crude oil futures slumped 2.2% to settle at $63.58 per barrel.
Gold futures finished fractionally lower at $1,767.70 an ounce.
The CBOE Volatility Index (VIX) jumped 5.4% to 18.56.
Bitcoin prices plunged 4.5% to $55,470. $52,951. $57,031.60 (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)

And a quick reminder to Warren Buffett faithful that Berkshire Hathaway’s (BRK.B) annual meeting, which we preview here, will take place Saturday.

A Boffo 100 Days for Biden

Despite Friday’s losses, President Joe Biden has now presided over one of the best market performances ever during an American president’s first 100 days in office.

For instance, the 8.6% gain for the Dow since inauguration is the best 100-day rally for any president since Lyndon Johnson, who was inaugurated in November 1963 and enjoyed a 9.2% run after 100 days. Many individual-share gains have been far more generous; 25 stocks have popped between 39% and 97% in Biden’s first few months.

And the S&P 500’s performance, on an annualized basis, puts Biden among the best presidents for investors of all time at this early stage.

Will that hold up throughout his presidency? We simply have no way of knowing. But what we do know is that Biden has clearly telegraphed his various policy proposals, from the stimulus package that cleared Congress in March to his recently proposed American Jobs Plan, and that allows investors to identify potential winners should the votes go the president’s way.

Read on as we take a fresh look at many stocks (and a couple of funds) that should continue to benefit if Biden continues to score policy wins.

Source: kiplinger.com