If you’re new to investing, the idea of getting started can be daunting. After all, you probably don’t have tens of thousands of dollars lying around to build a portfolio and feel like you can’t make much of a difference with the disposable cash you do have.
Luckily, though, you can start your investment journey for a lot less–even if you only have $100 to begin.
The most important part of investing is getting started as early as possible. Rather than waiting until you have a large sum of money saved up, you can get started today and begin growing your savings. Before you know it, you’ll be well on your way to building a healthy portfolio that earns you interest and sets you up for financial success for as little as $100.
Let’s look at a few fun (and low-cost) ways that anyone can start building an investment portfolio today.
Overview: Where and How to Invest $100
Investment Type
Best For
High-yield savings accounts
Emergency funds and money that needs to be accessible
Certificates of deposit (CDs)
Those who don’t need to touch their funds right away
Company retirement accounts
Easy contributions, company matching, and investment diversification
Investment apps
On-the-go recommendations that are easy to access and often free
Robo-advisors
A hands-off approach with a diversified portfolio
Peer-to-peer lending
High risks but also high rewards
1. Start with High-Interest Savings Accounts
The easiest and most flexible way to begin your investment adventure is actually to start saving your money in a high-yield savings account. While your returns will be more limited than they would be on the stock market, it will also be a safer investment–and you can withdraw your funds at any time without penalty.
If you don’t already have a sufficient emergency savings account established (ideally, six months’ worth of expenses), this is a must. Even if you do have some money saved away, a savings account can be a great way to keep a smaller amount of funds safe and secure, yet accessible.
The savings accounts of today won’t earn you as much as they would have ten or twenty years ago. However, there are some online banks offering as much as 1.80% on high-yield savings accounts right now, and the interest rate climbs all the time. This makes them a great introduction to the world of interest-bearing funds.
Some of our favorite banks for high-yield savings accounts include CIT Bank, Ally Bank, and Capital One 360. All three are online banks, charge no fees for savings accounts, and offer some of the highest interest rates on the market today.
Want to see even more of the best interest rates and the banks offering them? Check out our list here.
2. Earn With A CD
If you want your money to grow a bit more than it would with a high-yield savings account but still need the funds to be secure against market drops, then you can look into a certificate of deposit, or CD. These savings vehicles offer a guaranteed rate of return on your investment in exchange for locking your money away for a specified period of time.
As long as you leave the funds alone until the end of the CD term, you will receive your full investment amount plus the agreed-upon interest. It’s a safe, easy way to earn extra cash on your savings!
CDs come in a number of different flavors. For instance, there are CDs ranging in term from as little as three months to as many as five or six years. The longer the term, the higher interest rate you’ll be offered. Plus, many of them have low minimum deposit requirements, meaning that you can get started even if you only have $100 to tuck away.
As long as you know for certain that you won’t need to withdraw your funds early (which usually involves a painful early-withdrawal penalty), putting cash into a CD is a safe and easy way to invest.
3. Invest in Your Retirement Through Work
Interested in tax-advantaged retirement funds that will help you invest in your future? Then look into starting (and fully funding) an IRA in addition to your 401(k), through your employer.
If your employer offers to match contributions toward your 401(k), you should always take advantage of this. Even if you only contribute enough to collect the full employer match, that’s fine; failing to do so is essentially leaving free money on the table, though. Plus, your 401(k) contributions are tax-deductible and will grow over time, providing you with a healthy retirement nest egg for your future.
IRAs are also excellent long-term investment vehicles, primarily for the tax benefits. If you open a traditional IRA, your contributions will be tax-deductible up to the annual maximum. If you qualify for a Roth IRA, your contributions won’t be tax-deductible now, but your withdrawals will be when the time comes to utilize those funds.
Saving for retirement is the second-most-important priority (behind establishing a healthy emergency savings account). Before worrying about building a stock market investment portfolio, be sure that you are setting your older self up for success.
4. Utilize an Investment App
Ready to dabble in the stock market, but don’t quite know where to start? Or maybe you don’t think that you have enough investable funds to warrant a stock brokerage? Well, then an investment app might be the perfect introduction for you and your money.
There are a number of intro-to-investing apps on the market today, but one of our favorites is called Stash. After answering a few questions to determine your investment style (do you want to be super conservative with your money or risk more in order to potentially make more?), Stash will curate the perfect recommendations for you.
To start using Stash, you only need $5, making it one of the most flexible and affordable investment options around. Plus, if your account balance is below $5,000, your monthly service fee for using the app is a single dollar.
Yep, for only $3, you can get curated investment options as well as a wealth of advice and resources. This makes Stash truly ideal for beginner investors who don’t really know where to start or aren’t ready for a financial advisor just yet.
Sign up for Stash and get a $5 bonus after funding your account with $5.
To read our complete review of Stash and learn more about the app, see our write-up here.
Alternatively, Acorns uses your spare change to make thoughtful investments across a diverse portfolio. It starts the process by siphoning off the change from your spending. If you buy a drink for $4.75, the app pays the vendor the correct amount and puts the remaining $0.25 in an account ready for investing.
The app is essentially a robo-advisor that automatically invests money you wouldn’t otherwise miss. Your portfolio can easily be spread across thousands of individual securities using just a small amount of funds. Read more in our Acorns Review.
Related: The Best Investment Apps
Another app we love is Public. Public is unique because it makes the stock market social. You can follow your friends and other investors and have conversations about companies and trends to build your financial literacy over time. There are even a few famous faces on the app, like Girlboss founder Sophia Amoruso, Adobe Chief Product Officer Scott Belsky, and NBA legend, Shaq.
In addition to the social piece, Public offers fractional shares for thousands of public companies and even popular ETFs from Fidelity and BlackRock. This makes it possible to build a portfolio with just $100, because you can invest with dollar amounts (e.g. $1 worth of Amazon stock, if you like).
Public also has a fun Themes tab where you can discover and learn about companies based on your values and interests. The Growing Diversity theme spotlights companies with high marks for diversity and inclusion. Infinity and Beyond curates companies involved in space travel. Made in the USA spotlights companies who support job creation domestically.
You won’t pay any commissions for standard stock and ETF trades with Public. It’s also one of the first free trading apps to announce that it will no longer participate in payment for order flow (PFOF). This decision removes any conflict of interest from its business model. Public also added an optional Tipping feature on trades and hopes that community support will help to offset the revenue it will lose by forgoing the PFOF model.
Read our review of Public
Related: How to Invest in the Stock Market: A Guide
If you’re looking to diversify your portfolio, you could try Masterworks. Masterworks enables you to buy shares in blue-chip artwork pieces by household names like Van Gogh and Andy Warhol. While the value of art is inherently subjective and therefore a high-risk investment blue-chip works like these have historically outperformed the stock market by a significant margin.
Masterworks looks to buy a new work every 1-2 months, and pieces typically sell after 5-10 years, making it a long-term play. Works can only be sold when all owners agree to do so with no owner permitted a greater than 20 percent share, so as not to give them undue influence. As such, it is an illiquid asset, but long-term value investing is no bad strategy.
Aside from shared ownership of blue-chip art, Masterworks big innovation is using blockchain to both reliably value the art, and maintain accurate ownership records of all pieces. Plus, they’re planning to open a free-to-access gallery where you can visit your investment.
Read our full review of Masterworks or visit Masterworks.
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5. Robo-Advisors Might Be the Answer
There is a growing number of robo-advisors on the market today, most of which offer you automated investment options for an affordable price tag. This makes them a great option for beginners or hands-off investors who want their money to grow without constant oversight.
Companies like Betterment offer easy-to-use platforms that make investing as simple as using a savings account. Simply add the money you want to invest (as much or as little as you can afford each month) to your account and watch Betterment work its magic by investing your funds in ETFs (exchange traded funds).
Robo-advisors will help you rebalance your portfolio over time, can reinvest your dividends, and will even help you with tax-loss harvesting. The fees are a bit higher than you would find if you invested your funds directly with a company, but the added expense may be well worth it to you for the convenience of a hands-off approach.
You can also opt for a robo-advisor such as Ally Invest or M1. Ally’s trading platform is free for stocks and ETF’s, and charges less than $10 per trade for mutual funds. With M1, there are no fees to worry about as long as you meet low investment minimums on the platform.
6. Check Out Peer-to-Peer Lending
Looking for a quick return on your funds, whether you’re investing $25 or $2,500? Then look into peer-to-peer lending.
Platforms like Lending Club and Prosper allow approved investors to put up funds in denominations as low as $25. You’ll be able to choose the peer loans that you’re most interested in, lending money directly to borrowers and enjoying return rates ranging from 5% to as high as 33% in some cases.
Peer-to-peer (P2P) lending comes with additional risks, but with great risk comes great rewards namely in the form of interest rates higher than you’re guaranteed to find elsewhere.
FAQs
Curious how you can grow your investments if you’re starting out with only $100? Here are a few common questions from others who are just as curious.
How much interest will I earn on $100?
It’s impossible to say how much interest you can earn from $100 because there are a few key variables in play. First, it’ll depend on where you put that money — are you investing it in the stock market or letting it sit in a savings account? Then, it’ll depend on the timeframe — are you interested in how much that money will grow in a year or where it’ll stand come retirement? Just for perspective, though: if you had bought $100 worth of Amazon shares in 1997, you’d have enjoyed more than a $120,000 growth in value by 2018. On the other hand, if you put that $100 in a high-yield savings account today, you could earn a few extra bucks by year’s end.
How should I invest $100 to make $10k?
Again, where are you investing and how much risk are you willing to take on? The riskier the investment, the faster and more aggressive the growth. Short of perfectly timing a surprise stock or buying a winning lottery ticket, turning $100 into $10,000 will take some time. If you’re determined to grow a $100 investment to $10,000, though, you may want to consider high-risk stocks or something like peer-to-peer lending.
How can I invest $100 wisely?
The wisest investment is the one you can best live with. If you don’t really have $100 to spare in the first place, investing it in a mutual fund probably isn’t wise. If you can’t afford to lose that money, using a p2p platform to offer loans with it also isn’t wise. If you can comfortably take on that risk, though, go for it. Otherwise, wise investments include savings accounts and CDs, and you’ll want to be sure to calculate how long you realistically want to invest those funds.
What’s the best way to invest $100 short term?
If you need your money available sooner rather than later, you’ll be trading off growth for convenience. With that said, short-term investments may be the best choice for those who just want to earn a little extra money and then have their funds available when they need them. This means putting it away in a CD with a smaller time frame or letting it grow in a savings account.
Bottom Line
Investing doesn’t only mean spending tens of thousands of dollars on stocks and building a Wall Street portfolio. It simply means making your money work for you, and you can get started for as little as a few bucks.
There are plenty of options to begin building your first portfolio, letting your money earn interest and grow over time. Whether you choose a high-yield savings account or go the high-risk/high-return route of the stock market, the important thing is to start early.
Also read: What to Do with Your Money When Interest Rates Are Low
Be sure to also watch your progress over time, too, and revisit whether you are making efforts in the right places. No, you don’t need to watch your investments daily or obsess over normal market fluctuations. However, using a platform like Empower to track not only your investments and savings accounts but overall net worth can be invaluable along the way.
Robo-advisors have barely been around for 10 years, but in the past couple of years several have been steadily expanding their investment menus, and even offering valuable add-on services. One of the leaders in this regard is Wealthfront. The robo-advisor has been growing its investment capability in every direction but is now even offering financial planning. The platform now bills itself as offering High-Interest Cash, Financial Planning & Robo-Investing for Millennials. If you’re looking for more than just investing, Wealthfront has it. And as has become their trademark, it’s all available at a low cost.
What is Wealthfront?
Based in Palo Alto, California, and founded in 2011, Wealthfront has about $25 billion in assets under management. It’s the second-largest independent robo-advisor, after Betterment. And while dozens of robo-advisors have arrived in recent years, Wealthfront stands out as one of the very best. There isn’t any one thing Wealthfront does especially well, but many. And they’re adding to their menu of services all the time.
Their primary business of course is automated online investing. You can open an account with as little as $500, and the platform will design a portfolio for you, then manage it continuously. Your money will be invested in a globally diversified portfolio of ETFs–just like most other robo-advisors. But Wealthfront takes it a step further, and also adds real estate and natural resources.
Like other robo-advisors, Wealthfront uses Modern Portfolio Theory (MPT) in the creation of portfolios. They first determine your investment goals, time horizon, and risk tolerance, then build a portfolio designed to work within those parameters. MPT emphasizes proper asset allocation to both maximize returns, and minimize losses.
But in a major departure from other robo-advisors, Wealthfront now offers the ability to customize your portfolio and get access to a variety of investment methodologies and portfolios, including Smart Beta, Risk Parity and Stock-Level Tax-Loss Harvesting. And more recently, they’ve also stepped into the financial planning arena. They now offer several financial planning packages, customized to very specific needs, including retirement planning and college planning.
If you haven’t checked out Wealthfront in the past year or so, you definitely need to give it a second look. This is a robo-advisor platform where things are happening–fast!
How Wealthfront Works
When you sign up with Wealthfront, they first have you complete a questionnaire. Your answers will determine your investment goals, time horizon, and risk tolerance. A portfolio invested in multiple asset classes will be constructed, with an exchange-traded fund (ETF) representing each.
The advantage of ETFs is that they are low-cost, and enable the platform to expose your portfolio to literally hundreds of different companies in each asset class. With your portfolio invested in multiple asset classes, it will literally contain the stocks and bonds of thousands of companies and institutions, both here in the U.S. and abroad.
Wealthfront offers tax-loss harvesting on all portfolio levels. But they’ve also added portfolio options for larger investors, that include stocks as well as ETFs. The inclusion of stocks gives Wealthfront the ability to be more precise and aggressive with tax-loss harvesting.
Each portfolio also comes with periodic rebalancing, to maintain target asset allocations, as well as automatic dividend reinvestment. As is typical with robo-advisors, all you need to do is fund your account–Wealthfront handles 100% of the investment management for you.
More recently, Wealthfront has also added external account support. The platform can now incorporate investment accounts that are not directly managed by the robo-advisor. This will provide a high-altitude view of your entire financial situation, helping you explore what’s possible and providing guidance to optimize your finances.
And much like many large investment brokers, Wealthfront now offers a portfolio line of credit. It’s available only to investors with $25,000 or more in a taxable account, but if you qualify you can borrow money against your investment account and set your own repayment terms in the process
Wealthfront Features and Benefits
Minimum initial investment: $500
Account types offered: Individual and joint taxable accounts; traditional, Roth, rollover and SEP IRAs; trusts and 529 college accounts
Account access: Available in web and mobile apps. Compatible with Android devices (5.0 and up), and available for download at Google Play. Also compatible with iOS (11.0 and later) devices at The App Store. Compatible with iPhone, iPad and iPod touch devices.
Account custodian: Account funds are held in a brokerage account in your name through Wealthfront Brokerage Corporation, which has partnered with RBC Correspondent Services for clearing functions, such as trade settlement. IRA accounts are held with Forge Trust.
Customer service: Available by phone and email, Monday through Friday, from 7:00 AM to 5:00 PM, Pacific time.
Wealthfront security: Your funds invested with Wealthfront are covered by SIPC, which insures your account against broker failure for up to $500,000 in cash and securities, including up to $250,000 in cash.
Wealthfront uses third-party providers to maintain secure, read-only links to your account. The providers specialize in tracking financial data, as well as employ robust, bank-grade security, and in general, they follow data protection best practices. In addition, Wealthfront does not store your account password.
Wealthfront Investment Methodology
For regular investment accounts, Wealthfront constructs portfolios from a combination of 10 different specific asset classes. This includes four stock funds, four bond funds, a real estate fund, and a natural resources fund.
Each portfolio will contain various allocations of each asset class, based on your investor profile as determined by your answers to the questionnaire. The one exception is municipal bonds. That allocation will appear only in taxable accounts. IRAs don’t include them since the accounts are already tax-sheltered.
Notice in the table below that most asset classes have two ETFs listed. This is part of Wealthfront’s tax-loss harvesting strategy. In each case, the two ETFs are very similar. To facilitate tax-loss harvesting, one fund position will be sold, then the second will be purchased at least 30 days later, to restore the asset class. (We’ll cover tax-loss harvesting in a bit more detail a little further down.)
The ETFs used for each asset class are as follows, as of December 29, 2018:
Specific Asset ClassGeneral Asset ClassPrimary ETFSecondary ETF
US Stocks
Stocks
Vanguard CRSP US Total Market Index (VTI)
Schwab DJ Broad US Market (SCHB)
Foreign Stocks
Stocks
Vanguard FTSE Developed All Cap ex-US Index (VEA)
Schwab FTSE Dev ex-US (SCHF)
Emerging Markets
Stocks
Vanguard FTSE Emerging Markets All Cap China A Inclusion Index (VWO)
iShares MSCI EM (IEMG)
Real Estate
Real Estate
Vanguard MSCI US REIT (VNQ)
Schwab DJ REIT (SCHH)
Natural Resources
Natural Resources
State Street S&P Energy Select Sector Index (XLE)
Vanguard MSCI Energy (VDE)
US Government Bonds
Bonds
Vanguard Barclays Aggregate Bonds (BND)
Vanguard Barclays 5-10 Gov/Credit (BIV)
TIPS
Bonds
Schwab Barclays Capital US TIPS (SCHP)
Vanguard Barclays Capital US TIPS 0-5 Years (VTIP)
Municipal Bonds (taxable accounts only)
Bonds
Vanguard S&P National Municipal (VTEB)
State Street Barclays Capital Municipal (TFI)
Dividend Stocks
Bonds
Vanguard Dividend Achievers Select (VIG)
Schwab Dow Jones US Dividend 100 (SCHD)
Wealthfront’s historical returns are as follows (through 1/31/2019). But keep in mind these numbers are general. Since the portfolios designed for each investor are unique, your returns will vary.
Specialized Wealthfront Portfolios
As mentioned in the introduction, Wealthfront has rolled out several different investment options, in addition to its regular robo-advisor portfolios. Each represents a specific, and generally more specialized investment strategy, and is typically available to those with larger investment accounts.
Smart Beta: You’ll need at least $500,000 to be eligible for this portfolio. Smart beta departs from traditional index-based investing, which relies on market capitalization. For example, since Apple is one of the most highly capitalized S&P 500 stocks, it has a disproportionate weight in strict S&P 500 index funds. In a smart beta portfolio, the position in Apple will be reduced based on other factors.
In general, under smart beta, the weighing of stocks in the fund uses a variety of factors that are less dependent on market capitalization. There’s some evidence this investment methodology produces higher returns. This portfolio is available at no additional fee.
Wealthfront Risk Parity Fund: This is actually a mutual fund–the first offered by Wealthfront. It involves the use of leverage with some positions within the portfolio. It attempts to achieve higher long-term returns by equalizing the risk contributions of each asset class. It’s based on the Bridgewater Hedge Fund, and requires a minimum of $100,000, with an additional annual fee of 0.25% (0.50% total). This is the only Wealthfront portfolio that charges a fee over and above the regular advisory fee.
Socially responsible investing (SRI): Wealthfront just recently began to offer a specific SRI portfolio option. Once you sign up, you’ll be able to customize your portfolio and add socially responsible ETFs.
Sector-specific ETFs: If you want to invest in a particular portion of the market, such as technology or healthcare, Wealthfront gives you the option to build a portfolio that focuses on certain industries to portions of the stock market.
Customized Wealthfront Portfolios:
Wealthfront also lets investors build their own portfolios, which is somewhat uncommon among robo-advisors.
Most robo-advisors will build your portfolio automatically based on your risk tolerance and goals. If you like that service, Wealthfront can do it. However, more hands-on investors are free to make tweaks to the automatically designed portfolio by adding or removing ETFs.
You can also build a portfolio entirely from scratch if you’d rather. You can choose which ETFs to invest in and how much you want to invest in them. You can then let Wealthfront handle things like rebalancing and tax-loss harvesting while maintaining the portfolio you desire.
Wealthfront Tax-loss Harvesting
If there’s one investment category where Wealthfront stands above other robo-advisors, it’s tax-loss harvesting. Not only do they offer it on all regular taxable accounts (but not IRAs, since they’re already tax-sheltered), but they also offer specialized portfolios that take it to an even higher degree.
Wealthfront starts with a tax location strategy. That involves holding interest and dividend-earning asset classes in IRA accounts, where the predictable returns will be sheltered from income tax. Capital appreciation assets, like stocks, are held in taxable accounts, where they can get the benefit of lower long-term capital gains tax rates.
But for larger portfolios, Wealthfront offers Stock-level Tax-Loss Harvesting. Three specialized portfolios are available, using a mix of both ETFs and individual stocks. The purpose of the stocks is to provide more specific tax-loss harvesting opportunities. For example, it may be more advantageous to sell a handful of stocks to generate tax losses, than to close out an entire ETF.
Given that Wealthfront puts such heavy emphasis on tax-loss harvesting, it’s not surprising they’ve published one of the most respected white papers on the subject on the internet. If you want to know more about this topic, it’s well worth a read. The paper concludes that tax-loss harvesting can significantly increase the return on investment of a typical portfolio.
US Direct Indexing
US Direct Indexing is an enhanced level of tax-loss harvesting that Wealthfront offers to people with account balances exceeding $100,000.
Instead of building a portfolio of ETFs, Wealthfront will use your money to directly purchase shares in 100, 500, or 1,000 US companies. By buying shares in so many companies, Wealthfront can emulate an index fund in your portfolio while owning individual shares in the businesses.
Owning individual shares in hundreds of companies makes tax-loss harvesting easier as it lets Wealthfront’s algorithm trade based on movements in individual stocks rather than in funds. This can increase the number of tax losses that Wealthfront harvests each year, reducing your income tax bill.
Other Wealthfront Features
Wealthfront Cash Account
Wealthfront offers acash account where you can safely and securely store your money for anything–emergencies, a down payment for a home, or to later invest. By working with what they call Program Banks, Wealthfront has quadrupled the normal FDIC insurance on this account, so you’re protected for up to $5 million.
There’s also no market risk since it’s not an investment account and the money isn’t being invested anywhere. You can make as many transfers in and out of the account as you’d like, and it only takes $1 to start.
So what’s the catch?
There really isn’t one. Wealthfront will skim a little off the top to make some money before giving you an industry-leading 4.30% APY, but other than that, you’re just giving them more financial data. Since we’re doing this all the time with technology anyway, it shouldn’t make that big of a difference.
I see no downside, especially if you’re already a client of Wealthfront.
They’re really making a play to be your all-in-one financial services provider, too.
A new feature, just launched, is the ability to use your cash account as a checking account. This includes the ability to access your paycheck up to two days early when you set up a direct deposit. Additionally, you can invest in the market within minutes using your Wealthfront Cash account. Put the two together and you give yourself the ability to invest more than 100 days more in the market. The account also allows you to auto-pay bills and use apps like Venmo and PayPal to send money to friends or family. Account-holders also get a debit card to make purchases and get cash from ATMs. And you can use the account to organize your cash into savings buckets – like an emergency fund, down payment on a house, or other large purchase – and use Wealthfront’s Self-Driving Money offering to automate your savings into those buckets.
If you have cash that’s getting rusty in a traditional bank account and you want to earn more, the Wealthfront Cash Accountis a great place to keep it.
Read more about the cash account in our Wealthfront Cash Account full review.
Wealthfront Portfolio Line of Credit
This feature is available if you have at least $25,000 in your Wealthfront account. It allows you to borrow up to 30% of your account value, and currently charges interest rates between 3.15% and 4.40% APR depending on account size. You can make repayments on your own timetable, since you’re essentially borrowing from yourself. And since the credit line is secured by your account, you don’t need to credit qualify to access it.
Wealthfront Free Financial Planning
This is Wealthfront’s entry into financial planning. But like everything else with Wealthfront, this is an automated service. There are no in-person meetings or phone calls with a certified financial planner. Instead, technology is used to help you explore your financial goals, and to provide guidance to help you reach them. And since the service is technology-based, there is no fee for using it.
The service can be used to help you plan for homeownership, college, early retirement, or even to help you plan to take some time off to travel, like an entire year!
Simply choose your financial objective, enter your financial information, and Wealthfront will direct you on how to plan and prepare.
Self-Driving Money
One of the biggest and largely unrecognized obstacles for most investors is something known as cash drag. That’s when you have too much of your portfolio sitting in cash, which may earn interest, but it doesn’t provide the investment returns you can get in a diversified investment portfolio.
Wealthfront has addressed the cash drag dilemma with their newly released Self-Driving Money features. It’s a free service offered by the robo-advisor that essentially automates your savings strategy. It does this by automatically moving excess cash to help meet your goals, including into investment accounts where it will earn higher returns. And in the process, it eliminates the need to make manual cash transfers, and the judgment needed to decide exactly when to make that happen.
Our vision of Self-Driving Money is going to be a complete game-changer for people’s finances, said Chris Hutchins, Head of Financial Automation at Wealthfront. We want to completely remove the burden of managing your money so you can focus on your career, your family or whatever is most important to you.
You can take advantage of Self-Driving Money from the Wealthfront Cash Account. You’ll set a maximum balance for the connected account, which should be an amount that’s more than you expect to spend or withdraw on a monthly basis.
How It Works
When Wealthfront determines you’re over your maximum balance by at least $100 it will schedule an automatic transfer of the excess cash based on your goals. For example, you can tell Wealthfront you want to save $10,000 in an emergency fund, then max out your Roth IRA, then put the rest toward saving for a down payment on a house. Once you set the strategy, Wealthfront will automate the rest.
And before it happens, you’ll receive an email alert, then always have 24 hours to cancel the transfer if you need to cover unexpected expenses. You’ll also be able to turn on and off your Self-Driving Money plan at any time.
It’s usually possible to set up automated transfers from external accounts into most investment accounts. But what sets Wealthfront apart is the fact that it will make those transfers automatically. They will make sure you always have enough cash to pay your bills, then automatically transfer any excess into your savings buckets or investment accounts to improve the return on your money.
The strategy is designed to optimize your money across spending, savings, and investments, and to make it all flow with no effort on your part. You can simply have your paycheck direct deposited into your external checking account or Wealthfront Cash Account, cover your expected monthly spending, then have excess funds automatically transferred into the Wealthfront account of your choice.
By delivering on its Self-Driving Money vision, Wealthfront is taking the robo-advisor concept to a whole new level. Not only do you not need to concern yourself with managing your investments, but now even funding those investments will happen automatically. The result will be near complete freedom from the financial stresses that plague so many individuals.
Wealthfront Fees
Wealthfront has a single fee structure of just 0.25% per year for their advisory fee. That means you can have a $100,000 portfolio managed for just $250, or only a little bit more than $20 per month.
The one exception is the Wealthfront Risk Parity Fund, which has a total fee of 0.50% per year.
How to Sign Up with Wealthfront
To open an account with Wealthfront, you’ll need to be at least 18 years old, and a U.S. citizen.
You’ll need to provide the following information:
Your name
Address
Email address
Social Security number
Date of birth
Citizenship/residency status
Employment status
As is the case with all investment accounts, you’ll also be required to supply documentation verifying your identity. This is usually accomplished by supplying a driver’s license or other state-issued identification.
As mentioned earlier, you complete a questionnaire that will be used to determine your investment goals, time horizon, and risk tolerance. Your portfolio will be based on your answers to that questionnaire, and will be presented to you upon completion of the questionnaire.
For funding, you can use ACH transfers from a linked bank account. You will also have the option to schedule recurring deposits, on a weekly, biweekly, or monthly basis. The platform can even enable you to set up dollar-cost averaging deposits.
If you already have a brokerage account with another company, Wealthfront makes it easy to transfer your funds to your new account. If you’re invested in ETFs that Wealthfront supports, Wealthfront will assist with an in-kind transfer.
That means that you won’t have to sell your shares before transferring funds, which lets you avoid capital gains taxes that would be triggered by a sale.
Wealthfront Alternatives
Wealthfront’s closest competitor, and the robo-advisor that offers the most comparable services, is Betterment. They also have an annual advisory fee of 0.25%, but require no minimum initial investment. That could make it the perfect robo-advisor for someone with no money, who plans to fund their account with monthly deposits. Read the full Betterment review here.
Related: Wealthfront vs. Betterment
Another alternative is M1. Also a robo-advisor, M1 enables you to invest your money in what they call “pies”. These are miniature investment portfolios comprised of both stocks and ETFs. You can invest in existing pies, or create and populate pies of your own design. Once you invest in one or more pies, the platform will automatically manage it going forward. What’s more, M1 is free to use. Read more about M1 here.
Related: Wealthfront vs. Vanguard
Read More: The Best Robo Advisors – Find out which one matches your investment needs.
Wealthfront Pros and Cons
Investment options: Wealthfront offers more investment options than just about any other robo-advisor, particularly for investors with at least $100,000.
Reasonably priced: The annual fee of 0.25% is extremely reasonable, especially when you consider the degree of sophistication offered by Wealthfront’s investment methodology.
Tax-loss harvesting: This is available on all accounts, and Wealthfront is probably better at this investment strategy than any other robo-advisor.
Portfolio credit line: Gives you the ability to borrow against your portfolio with ease, and represents a form of margin investing.
Financial planning feature: The financial planning service is free to use and is available to all investors.
Limited access for smaller investors: Some of the more advanced investment portfolios and services are available only to investors with $100,000 or more to invest.
$500 minimum initial investment: It’s a minor issue, though some competitors require no funds to open an account.
FAQs
[faqs-content id=”MXKBSNXLNBBI5PDCYD4XJTU4PM” /]
Should You Sign Up for Wealthfront?
In a word, absolutely! Wealthfront is one of the very top robo-advisors, and you can’t go wrong with this one. Not only do they offer far more services than most other robo-advisors, but they also allow you to grow along the way. For example, as your account increases in value, you can take advantage of more sophisticated investment strategies, including advanced tax-loss harvesting.
That Wealthfront offers its portfolio line of credit and free financial planning services only makes the platform a bit more attractive, But the real benefit is the actual investment service. Wealthfront’s investment service comes extremely close to that of traditional human investment advisors, but at only a fraction of the annual cost.
College life is all about getting a great education, getting to know your roommates and classmates, exploring interests and activities, and forging your own adult identity. But it’s also a perfect time to establish some good money habits that will set the scene for success today and tomorrow.
From developing a budget to opening bank accounts, you’ll have ways to make your money work harder for you and grow over time so you can achieve your goals. And it can be pretty simple, too, so it won’t interfere with study sessions or hanging out at the student center.
Learn the 10 best strategies for good money management here.
10 Tips for Managing Your Money As a College Student
Here are 10 money management tips that help you spend less and save more both during and after college.
1. Setting up a Basic Budget
Budgeting may sound complicated, but making a budget is simply a matter of figuring how much is coming into your bank account each month and how much is going out, and making sure the latter doesn’t exceed the former.
To get started, you’ll want to list all of your sources of income, such as from a job or family contributions.
If you are going to be living off a fixed amount of money for each semester, say from summer earnings or money from your family, you may want to divide this lump sum by the number of months you need to make this money last.
Once you know how much you have to live on each month, you’ll want to make a list of fixed expenses that you will be responsible for paying, such as cell phone or car payment, or maybe even rent if you live off campus.
Next, you’ll want to subtract your fixed expense from your monthly spending allotment. This will give you the amount you have left over to cover variable expenses, such as eating out, buying clothes, and entertainment. You can then come up with target spending amounts for each category.
Doing your best to stay within these spending limits can help ensure that your money lasts until the end of the semester, and help you avoid running up costly credit card debt.
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2. Opening up a Savings Account
You might feel like you don’t have enough income to start saving money yet, but even just putting a small amount away each month can add up over time.
For example, if you’re able to set aside $50 a month now, you may soon have a decent nest egg that can help pay for something fun, like a road trip over the next school break.
What’s more, being diligent about saving money each month can help cultivate a habit that will serve you later when you can afford to save more in your nest egg and also for retirement.
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3. Buying Used Textbooks (and Selling Yours When Done)
Textbooks can be so expensive! Fortunately, there are a number of ways to save money here.
One option is to buy used whenever you can. You’ll want to be sure, however, that you are getting the version the professor wants. If you have an earlier edition, you might struggle to find the content if the book has since been modified. Getting the digital version of a book can also yield savings.
Another option is to rent what you need from a third-party bookseller, such as Amazon or Chegg. You can often rent textbooks for an entire semester for significantly less than buying new, and may even be able to highlight them.
For books that you purchase (new or used) that you won’t need to refer to in the future, consider selling them when you’re done to recoup some of the expense.
4. Using Credit Cards Sparingly
Credit card companies love college students, and many may try to lure you into applying for cards. You’ll want to proceed with caution, however.
While having a credit card as a student can be a good idea–for convenience, as a backup for emergencies, and to start building credit history (more on that below), you’ll want to be careful that you don’t run up credit card debt.
If you charge more than you can afford to pay off at the end of the month, you can end up paying a high-interest rate on the balance, which can make it even hard to pay off.
As a result, it can be easy for college students to find themselves digging a debt hole that can be hard to climb out of.
If you choose to sign up for a new card, you may want to look for a rewards credit card. These can let you rack up points you can use to get products or travel perks, but only charge what you can afford to pay back quickly.
If you choose to sign up for a new card, you may want to look for a rewards credit card that will let you rack up points you can use to get products or travel perks–and only charge what you can afford to pay back quickly.
5. Establishing Your Credit Score
A credit score is a three-digit number, typically between 300 and 850, designed to represent your credit risk, or the likelihood you will pay your bills on time.
Building your credit history might not seem like a priority when you’re still in school, but you’ll need it in the future if you want to finance a car, buy a house, or qualify for the best credit card offers. Your credit can even affect your job prospects and your ability to rent an apartment.
One good strategy is to use your credit card judiciously. If you make small purchases and regularly pay the balance off in full, you can avoid racking up interest charges but still get that boost to your credit score.
If you have student loans, you may also want to consider making small payments (even just $25 to $50) while you’re still in school to start paying down interest and have some positive repayment history on record.
If you start building a solid credit history now, you will likely be able to get better deals on lending products like mortgages, car loans, and credit cards in the future.
💡 Quick Tip: Are you paying pointless bank fees? Open a checking account with no account fees and avoid monthly charges (and likely earn a higher rate, too).
6. Finding Free Stuff
One highly effective way to stretch your money is to find freebies.
Facebook has groups where people can post items they no longer want. You might be able to score free clothes, furniture, or room decor.
Freecycle and NextDoor also have listings for things that people are giving away. You can also find free items on Craigslist (you’ll find the “Free” section under the “For Sale” heading on the main page for your city).
7. Learning to Cook and Eating out Less
You may find you get tired of cafeteria fare and ramen. At the same time, you may not want to don’t blow your budget on eating in restaurants every weekend.
If you have access to a kitchen, you might want to consider purchasing ingredients from your local supermarket and putting together some simple, tasty meals, instead of eating out. This can be a major way to save money on food.
If you’re not much of a cook, you may want to go to some food blogs and recipe sites like Allrecipes or Serious Eats to find some easy recipes and watch a few how-to videos. You could also find tons of cooking videos on YouTube.
Having some go-to recipes in your arsenal can pay off now, and also down the line when you’re working and living on your own (and don’t have to rely on expensive take-out or unhealthy fast food for dinner every night).
8. Starting an Emergency Fund
Starting an emergency fund or back-up savings fund is an important part of anyone’s long-term financial health.
Life can be unpredictable, and your emergency fund serves as a safety net that you can fall back on for those “rainy days” where you find yourself facing an unexpected expense or other financial setbacks.
Having an emergency fund can also help keep you from having to rely on credit cards to get through a financial challenge.
How much you should put aside for emergencies each month is up to you and your financial situation. The key is to start saving something each month, no matter how small the amount may initially seem.
When starting your emergency fund, it’s a good idea to fund the account regularly. Consider setting up an automatic transfer to your savings so you do not have to think about it.
Ideally, your emergency fund should also be set up in a separate savings account so you won’t be tempted to spend the money on something else.
9. Getting the Most out of Your Student ID
You may only think of your ID card as a form of identification and a way to get into college sporting events. But there are actually a number of additional benefits that come with a student ID, and many can help you save money.
You may find that businesses, especially those near universities, will offer students discounts when they show a student ID card.
Next time you go to the movies, shop for school supplies, or get a new haircut, it can be a good idea to ask if they offer any discounts for local college students.
In addition, many national and online retailers, including major clothing, sneaker, and computer brands, offer discounts to college students.
You may also be able to use your student ID to get a better deal on your cell phone plan and streaming services.
10. Getting Started with Investing
Investing when you’re young is one of the best ways to help your money grow over time.
That’s thanks to compound earnings, which means that any returns you earn are reinvested to earn additional returns. The earlier you start investing, the more benefit you gain from compounding.
Investing in the stock market also isn’t as complicated as you may think. You can open a retirement account, like a traditional or Roth IRA, or a brokerage account (for nonretirement investing) online, often with a minimal amount of money.
You may also be able to schedule automatic withdrawals from your bank account to your investment account each month.
It’s important to keep in mind, however, that all investments have some level of risk because the market moves up and down over time.
The Takeaway
College can provide a great opportunity to develop the money skills you’ll need after you graduate. By learning some basic money management techniques now, you can feel confident about your ability to handle your finances well after graduation.
In 10 years, you will likely thank yourself for putting in the effort to learn how to set and stick to a monthly budget, use credit cards wisely, save money, and build your credit score.
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Eight times every year, the Federal Reserve’s Federal Open Market Committee (FOMC) meets to discuss and possibly alter their position on monetary policy.
There are several different courses of action they could take, the most common being quantitative easing, buying and selling government securities, and raising or lowering the federal funds rate.
Most recently, the fed’s tool of choice has been adjusting the federal funds rate.
What is the federal funds rate?
The federal funds rate is the rate at which depository institutions (banks and credit unions) charge each other for overnight deposits.
Why would they need to lend each other money? All banks are required to have a certain amount of funds in their reserves (usually 10%), and sometimes customers withdraw enough money from the bank that the bank’s reserves are below the requirement. They now have two options: to borrow money from the fed or from another bank. The federal funds rate determines how much interest a bank will have to pay for that loan.
Click here for today’s mortgage rates.
How the federal funds rate affects the economy
The federal funds rate is an important base rate that has trickle down effects on the entire economy. After all, if the federal funds rate goes up and banks have to pay more for overnight loans, then it goes to reason that they are going to have to make up the higher cost by raising their own rates. Conversely, if the federal funds rate is lowered, banks can pass lower interest rates on to their borrowers.
With the benchmark federal funds rate lowered, rates on credit cards and business loans also decline, encouraging lending for both businesses and consumers. Businesses are able invest in infrastructure and hire more employees, while consumers make more payments on credit knowing that they don’t get charged as much on the interest.
This results in more financial transactions, ultimately contributing to economic growth of the nation at large. That’s why when the Fed wants to promote economic growth they lower the federal funds rate, and when they think the economy can handle it, they raise the federal funds rate.
Mortgage rates and the Federal Reserve
Understanding mortgage rates can be tricky. The way the situation with the Fed raising and lowering rates is portrayed in the news leads many people to believe that the Fed controls mortgage rates. This is not true—the Fed does not directly set mortgage rates at all. However, that’s not to say that it has no influence over mortgage rates.
Fedspeak
At the Federal Reserve, the forward guidance “fedspeak” that officials offer up to the markets is one of the most powerful tools they have. It’s actually a little bit of the opposite of that old saying that “Actions speak louder than words.”
Generally, when a fed official comes out and gives even the slightest hint that they are in favor of rising rates, investors move away from “safe” government bonds and into riskier assets like stocks. That’s good for the economy, but it causes mortgage rates to rise.
As we’ve seen several times this year, the fed can create a buzz about raising the fed funds rate (which can drive up mortgage rates), but then retreat back from that position and not raise rates (causing rates to fall back down).
It’s this cat and mouse game of talking and not delivering that has landed the Fed in hot water, with some critics claiming the Fed has a credibility problem. Regardless of whether or not you agree with them, it’s undeniable that what the Fed says can influence markets.
Click here for today’s mortgage rates.
How mortgage rates are actually set
If the Federal Reserve doesn’t set mortgage rates, who does?
Good question.
Just as is the case with many other aspects of the economy, market forces are to thank (or blame). Most of the action takes place on the secondary market, where mortgage-backed-securities (MBS) are bought and sold.
These mortgage bonds have prices and yields that move up and down just like stocks and bonds do. If the economy is performing well, investors expect higher yields, and vice versa when the economy is under-performing. So in a way, mortgage rates are a reflection of how well the economy is doing. Specifically, the three major drivers of mortgage rates are:
Stock prices
The labor market
Inflation
As stated, when stock prices are going up, so are mortgage rates. That’s because mortgage-backed-securities are traded as bonds, and conventional wisdom says that when investors are moving money into stocks, they’re taking money out of bonds.
With a decrease in demand for bonds, prices drop and yields rise–pushing rates higher. In the event that investors flood back into bonds, the opposite will happen, causing mortgage rates to drop.
It’s not a perfect relationship, but it’s generally how the market behaves. The relationship between bonds and mortgage rates is best illustrated by the yield on the U.S. 10-year treasury note, which is the best market indicator of where mortgage rates are going.
On any given day, looking at the 10-year yield will give you a fairly accurate picture of where mortgage rates are headed. If the yield is rising, mortgage rates most likely are too, and vice versa.
With the labor market, it’s all about how high unemployment is. The Bureau of Labor Statistics (BLS) releases a monthly employment situation report that is the most-watched report on the matter. If the U.S. economy added fewer jobs than expected and the unemployment rate rises, that’s bad news for the stock market, which as we now know pushes mortgage rates lower.
Most people understand inflation as a rise in the cost of living. That’s true, but what’s really happening is the devaluing of the dollar. As the value of the dollar declines, the purchasing power of the dollar diminishes, causing prices to rise.
Mortgage-backed-securities, like every other bond, are denominated in U.S. dollars. Since investors don’t want to own assets that are losing their value over time, they move away from MBS in times of high inflation. With a decrease in demand for MBS, the yields rise, driving mortgage rates higher.
Bottom line
When you’re trying to understand mortgage rates, remember: the Federal Reserve and the federal funds rate do not control mortgage rates. There are several other economic factors at play that anyone trying to track and predict where mortgage rates are going should pay attention to.
That being said, the Federal Reserve does play a major role by influencing how the economy functions, and it’s always important to keep an ear out for what they’re saying.
1. chart via wikipedia
Carter Wessman
Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.
This article originally appeared on The Financially Independent Millennial and was republished with permission.
If investing is of interest to you, then you’ve probably heard about stocks vs. options. How can you make the best choice when deciding which investment strategy to use?
After all, investing comes with risk attached – learning how to navigate that risk and make sound investment decisions is the key to building a good investment portfolio.
Knowing as much as you can about options and stocks will mean you can make better investment choices. In this comprehensive guide, I’ll explain the differences between stocks vs. options in detail. Armed with this knowledge, you should be better prepared to achieve your financial targets.
What Are Stocks?
A stock means you own part of a company that has sold shares on an exchange. These shares that you can buy are known as stocks. When you buy shares, you’re then a shareholder of that company.
Every company has a certain number of shares available on the stock market. Those stocks can be bought and sold on the stock exchange. Each company decides how many shares can get bought and can raise or lower how many shares are available on the exchange at any time.
The stock market can rapidly change from one moment to the next based on many factors. Anyone trading in stocks must remain aware of how their stock is performing to minimize the risk of a loss.
Benefits of Stocks
The first benefit of investing in blue chip stocks (unlike options) is that most investors will build wealth, as stocks nearly always rise over a long period. Individual stock prices fluctuate daily, but investing in companies with a proven track record of growth and investments means in the long-term, your wealth will grow.
Investing in stocks is extremely easy these days, thanks to modern technology. You can get started with just a mobile phone and an internet connection with many apps doing a lot of the hard work for you. This ease of access makes stock trading appealing for many beginner investors.
It also means you can often start trading using small amounts. Learning to trade for a few dollars a month is a great way to build confidence and understand how it all works. Once you’re established, then you can gradually invest more!
Stocks are good assets to have as they are considered liquid. Liquid means they can be converted to cash quickly, unlike other assets such as real estate. And, this may good if a situation arose that required you to get cash fast.
Drawbacks of Stocks
Investing in stocks comes with risk attached. The biggest one is that the price could drop dramatically, and you lose all your investment. Stocks can vary wildly from one day to another. Therefore, experts recommend stocks as a long-term investment strategy, and you should plan to keep the money invested for at least five years.
Another way to avoid losing all your investment is by diversifying your portfolio. Don’t put all your money into one stock. Invest in a variety of stocks to spread the risk.
Other drawbacks of trading in stocks include fees, capital gains taxes, and commissions. Commissions and fees vary. Some brokers don’t charge any at all. Make sure to shop around before opening a brokerage account to find the best deals for you.
While investors can’t avoid taxes, the rate you pay does vary depending on several factors. How much profit you’ve made, your income, and how long you’ve held the stock affects Rates. Generally, any investments held for less than a year attract a higher rate—another good reason to own stocks long-term.
What Are Options?
An option is when you purchase the right to buy or sell an asset (typically a stock) for an agreed price and at an agreed time. The seller has no choice but to allow you to exercise the option. The buyer pays for the right (but not the obligation) to have the option to buy or sell an underlying security for an agreed price on or before an agreed date.
There are two types of options – call options, and put options.
Call Options
Call options are the most common. Investors who buy call options expect the stock price to end up above the strike price before the expiration. Profit gets made when investors can either sell the stocks on the open market for a higher amount than they paid or sell the option they originally bought for a profit.
Call Option Example
An investor may buy a call option on AAPL with a $120 strike price that expires 9/17/2021. The investor pays $6 for the call option (Options get sold in lots of 100, so the total is $600). If at expiration (9/17/2021) AAPL is trading at $130, the investor can either:
1 – Exercise the option by buying 100 shares of AAPL for $120 each and then sell them to the open market for $130 each making a net profit of $400 ($10/share gross profit – $6 premium * 100).
2 – Sell “to close” the call option before expiration for a profit.
Put Options
Investors buy put options as a way to insure against a downturn. For example, investors can sell an asset at a specific price within an agreed time (expiration). These options work the opposite way to a call option. Investors buy put options hoping the stock price will drop. Profit gets made when investors sell the underlying security at a higher price than it’s worth.
Related read: How to Sell Covered Calls for Monthly Income
Put Option Example
You buy put option on AAPL with a strike price of $100, expiring 9/17/2021. The cost of this put option is $20 ($0.20 * 100 shares). On expiration, if AAPL is trading at $95:
You can exercise the option and sell AAPL to the Put option seller for $100 each. Doing so will earn you $5 minus the original $0.20 premium, times 100 (net total $480).
Or
You can sell the put option at a higher price than you originally paid for it.
Benefits of Options
Investing in options usually costs less upfront than stock trading. And, this can be appealing if you’re starting to invest and don’t have much capital. You could get more for your money trading in options.
Trading in options can be more flexible than stocks. That’s because you’ve got several moves you can make when deciding how to play out your investment strategy.
You can exercise the option and buy the shares to add to your investment portfolio. Another option is to exercise the option and either buy or sell the shares at a profit. There are also various points through the process where you could sell the options contract to another investor.
One of the critical benefits of options is that the underlying stocks strike price is fixed. For the agreed period, the stock price agreed is the price you can buy or sell the stocks for up to the expiration date.
Drawbacks of Options
Options trading can be much more time-consuming than investing in stocks. You might want to exercise the option before expiration, which means keeping a close eye on the stock price. To help with this, you can set up alerts with most online brokers.
Some options strategies carry more risk than others. Some strategies are so risky that only experienced traders should attempt them. You must understand what you’re doing before making the trade. Make sure to do your research and don’t trade in anything you don’t fully understand.
Commissions, fees, and capital gains taxes can also be higher than the cost of trading in stocks. Keep in mind that the more you trade, the more your costs are going to be. Taxes are also higher on investments held less than a year, in some countries.
Stocks vs. Options: Making a Decision
When thinking about stocks vs. options, it’s entirely your choice as to which you prefer. Everyone has their investing style and appetite for risk that will drive their decision.
For beginner investors, or anyone preferring straightforward investing, stocks are usually the best choice. Options may become more appealing as you become a more experienced investor or if you prefer an investment that requires more active participation.
Don’t forget that you don’t have to stick with one or the other. There is no reason you can’t invest in both stocks and options should you want to. Just make sure you have a thorough understanding of any investment before going ahead with it.
Stocks vs. Options: Further Considerations
When considering stocks vs. options, keep in mind that they are intricately linked. You can hold both stocks and options for the same company. Plus, option prices get calculated based on the difference of the strike price and the current stock price, the implied volatility (IV), and the amount of time before expiration.
When planning your investment strategy, there are some questions you should ask yourself to determine how to proceed. What is your appetite for risk? Do you want to make long-term or short-term investments? Do you want to make a mix of investments? Where will you get the best return for the money you have available to invest?
Think about your answers to these questions. Don’t forget to keep in mind your financial goals and your current situation when making your decisions.
Ultimately, only you can decide which investment opportunities are best for you.
Importance of a Balanced Portfolio
Having a diverse and balanced portfolio is essential for achieving your financial goals and, ultimately, growing your wealth.
The best strategy balances the need for long-term returns while absorbing any economic shocks. For example, if all your money is in bank stocks and there’s a financial crisis, you could lose all your money. However, having a balanced portfolio means that although the asset values diminished, your other investments can help balance that loss until the market recovers.
Conclusion
Now that you understand the difference between stocks vs. options, you can make better financial decisions. Making the right choices now makes it much easier to reach your financial goals in the future!
At last glance, the 30-year fixed mortgage was back above 7%, depending on the data source.
Prior to late July and early August, the popular loan product could be had for closer to 6.5%. Or even in the high 5s if paying points.
And forecasts from prominent economists pointed to rates making their way back to the 5s, or even the 4s by next year.
Then rates suddenly reserved course and continued their upward climb, challenging the high levels seen last November.
The question is, why are mortgage rates so high? And why aren’t they coming down if the Fed is done hiking and inflation is abating?
Blame the Resilient Economy for High Mortgage Rates
As a quick refresher, good economic news tends to lead to higher interest rates.
And bad economic news typically results in lower interest rates.
The general logic is a hot economy requires higher borrowing costs to slow spending, otherwise you get inflation.
Meanwhile, a cool economy may require a rate cut to spur more lending and get consumers spending.
Unfortunately, the economy continues to defy expectations, in spite of the many Fed rate cuts already in the books.
Since March of 2022, the Fed has raised their key fed funds rate 11 times, from near-zero to a range of 5.25-5.50%.
This was deemed necessary to battle inflation, which had spiraled out of control, causing the prices of everything, including single-family homes, to skyrocket.
While the Fed has more or less signaled that it’s now in a wait-and-see holding pattern, mortgage rates have continued to march higher.
The reason is hot economic data, whether it’s the CPI report, jobs report, retail sales, etc.
Sure, some of these reports have come in better than expected recently, but it’s never convincing enough to result in a mortgage rate rally.
On top of that, Fitch recently downgraded the credit rating of the United States, citing “expected fiscal deterioration over the next three years,” along with growing government debt.
Nobody Believes the Inflation Fight Is Over
While the Fed doesn’t set mortgage rates, its own fed funds rate does dictate the general direction of long-term interest rates such as those tied to home loans.
As such, rates on the 30-year fixed (and every other type of mortgage loan) increased markedly since early 2022.
Those 11 rate hikes translated to a more than doubling of the 30-year fixed, from around 3% to 7% currently, as seen in the illustration above from Optimal Blue.
It was further exacerbated by a widening of mortgage rate spreads relative to the 10-year Treasury.
And while the Fed appears to be satisfied with its rate hikes, they’re still watching the data come in each month.
Without getting too convoluted here, nothing has convinced Fed watchers that a rate cut is in the cards anytime soon.
Simply put, this means mortgage rates may need to stay higher for longer, even if the Fed is done hiking.
Compounding this higher-for-longer narrative is the U.S. deficit and their larger-than-anticipated borrowing costs, which will require selling more bonds.
This puts additional pressure on interest rates as the supply of bonds grows and their associated rates increase.
But that’s just the latest sideshow. The overarching theme is that the economy remains too hot, unemployment too low, and consumer behavior not much changed.
Despite much higher borrowing costs, whether it’s a mortgage, a credit card, a HELOC (whose rates are up about 5% from 2022 thanks to the increase in the prime rate), the economy keeps chugging along.
There has yet to be a recession and the stock market has been resilient. In other words, there’s really no reason to lower interest rates and reduce borrowing costs.
Why would the Fed do that now, only to risk another surge in inflation? Or another home buying frenzy.
What Would Lower Mortgage Rates Mean for the Housing Market Today?
Let’s consider if mortgage rates finally did trend lower in a meaningful way.
Despite some short-term victories over the past year, they’re pretty much back near their 20-year highs.
If they did happen to fall back to say the 5% range, what would what mean for the housing market?
In case you haven’t heard, Zillow expects home prices to rise 5.5% this year after beginning the year with a decidedly bleaker -0.7% forecast.
This figure is “roughly in line with a normal year,” despite those 7% mortgage rates.
But what would happen if rates came down to 5%? Would we see a return to bidding wars and offers well over-asking?
Would home price appreciation reaccelerate to unhealthy levels again?
The answer is most likely yes. And this kind of sums up why the Fed isn’t going to just start cutting its own rate anytime soon.
All their hard work would be in vain if inflation notched higher again and their so-called housing market reset became awash.
Even if a rate cut does come as early as 2024, it might only be a 0.25% or something relatively insignificant, which may not move the dial on mortgage rates much.
Like the Fed, mortgage lenders (and MBS investors) are defensive as well. This explains why it has been really hard to see a meaningful mortgage rate rally in 2023.
Even when a jobs report or CPI report comes in cooler than expected, it quickly gets overshadowed by something else.
And that’s just the nature of the trend right now, which isn’t a friend to mortgage rates.
This will eventually change, but it could take longer than expected for mortgage rates to finally reverse course.
Similar to how they stayed low for so long, they may remain elevated well beyond the rosy forecasts indicate.
This article originally appeared on Spark Rental and has been republished here with permission.
The views and opinions expressed in this article are those of the author only and are not endorsed by Credit.com.
What Is the Purpose of Bonds in Your Portfolio?
Bonds have historically served as a counterweight to stocks, as investors approach retirement.
For all their advantages, stocks come with one enormous disadvantage: volatility. When you first retire, you face something called sequence risk: the risk of a stock market crash early in your retirement, before your stock portfolio has compounded enough to withstand a deep drop.
Here’s how bonds protect you from sequence risk, and the role they play in your retirement portfolio.
1. Low Risk
Bonds are interest-only debts. When you buy a bond, the issuer (the borrower) agrees to pay you interest at a set rate for a certain period of time. At the end of that period, the bond matures and you get your principal investment back.
Bonds come with two risks. First, and most relevantly to retirees, the bond issuer could default. That rarely happens, at least outside of the junk bond market. The other risk is that interest rates rise, so the value of your existing bonds goes down on the secondary market. But this risk doesn’t really apply to retirees simply looking for ongoing interest income rather than looking to trade bonds.
The low risk of bond default counterbalances the real risk of stock market corrections and crashes. Retirees can lean on their bond income if the stock market crashes, and (hopefully) avoid selling while stock prices are low.
2. Low Correlation with Stocks
Bonds provide diversification for investors. Bond returns have a low correlation with stock returns: they rarely crash at the same time as stock markets. In fact, bond prices normally rise when stocks crash, as investors flee stocks for the safety of bonds.
Once again, this protects retirees from the risk of a stock market crash.
3. Stable Income
Retirees need passive income to live on, in the absence of a paycheck. Interest payments from bonds can provide that steady income.
The same can’t be said for stocks. Not all stocks pay dividends, and even those that do can change their dividend payment at any time. They could lower or eliminate their dividend entirely, leaving retirees without income. The retiree could sell their stocks to generate income of course, but that reduces their net worth.
Can Real Estate Fill the Role of Bonds in Your Portfolio?
The short answer: yes, if you know what you’re doing. Which, of course, not everyone does.
Real estate investments can earn you ongoing income, with low risk and low correlation to the stock market. So they can serve the same purpose as bonds in your retirement portfolio, at a higher return. In fact, one study reviewing all asset classes for the last 145 years found that rental properties offered higher returns than stocks, with far lower risk.
Still, some types of real estate investments require work on your part. You could invest in publicly-traded REITs, bought and sold on stock exchanges and just as passive as stocks, but they tend to share a high correlation with stock markets. That gives them little diversification value.
But there are many types of real estate investments, each with their own pros and cons. Real estate will never be completely risk-free like Treasury bonds, but it can offer strong returns at low risk, especially if you diversify.
Ways to Invest in Real Estate as a Bond Alternative
The permanent environment of low interest rates in the 21st century have made bonds unappealing and real estate far more appealing. Investors can use leverage to buy real estate with other people’s money, at low interest.
Or not–many of the real estate investing options below don’t involve leverage at all.
Consider the following ways to invest in real estate as options to replace bonds in your investment portfolio.
1. Crowdfunded Private REITs
Publicly-traded REITs come with several downsides, beyond high correlation with stock markets. They’re volatile, with prices bouncing up and down similarly to stocks. But they’re also required by the SEC to distribute at least 90% of their profits each to shareholders, in the form of dividends. That gives them high dividend yields, but it also makes it hard for REITs to invest money in new properties to grow their share price.
Private, crowdfunded REITs such as Fundrise, Streitwise, and Diversyfund don’t have the same restriction. They can grow the value of their fund share prices by reinvesting profits into new properties.
Even so, many do still offer high dividend yields that rival or even beat public REITs. Fundrise pays dividend yields in the 4-7% range, while Streitwise pays dividends in the 8-9% range.
Crowdfunded REITs represent one of the easiest and most passive ways to invest in real estate. No mailings or labor to find good deals on properties, no tenant screening or rent collection hassles, just buy shares and sit back.
2. Crowdfunded Investment Property Loans
Hard money lenders issue short-term loans to investors who fix and flip properties, or refinance them after renovating them (the BRRRR method). But where do hard money lenders get their funds to lend?
From you, in some cases. For example, GroundFloor lends short-term investment property loans for buying and renovating, and they raise the money from retail investors.
You get to pick and choose which loans you want to fund, and you can lend as little as $10 per loan. Which means anyone with $10 in their pocket can invest in real estate, at least indirectly through property-secured loans.
If the borrower defaults, the lender forecloses, and you get your money back that way. Since hard money lenders fund at a relatively low LTV, that provides strong protection against default. Read: relatively low risk.
Related Read: Thinking of Getting into Retail Investing? Here Are 7 Things to Consider
3. Rental Properties
You can also buy rental properties, of course.
Direct real estate investing comes with plenty of advantages. You can leverage other people’s money by using an investment property loan to fund 75-80% of the cost. Investors get spectacular tax benefits, from rental property tax deductions to property depreciation. And rental income in retirement doesn’t expire or diminish — quite the opposite. Rental cash flow rises over time, as rents rise and provide a hedge against inflation.
Is rental income good for retirement? Absolutely, but it does come with a few caveats. As noted above, buying and managing rental properties takes work. Even if you hire a property manager, you still have to manage the manager.
Rental income is predictable as a long-term average, so you can forecast returns with a rental income calculator. But net rental cash flow each month varies wildly, as you experience vacancies, turnover, or repairs. That means retirees need to budget accordingly with an emergency fund, and not depend on a steady paycheck from every property, every month.
4. House Hacking
Want free housing? Explore options for house hacking, or finding ways for other people to cover your housing expenses.
The traditional model involved multifamily house hacking: typically buying a duplex or triplex, moving into one unit, and renting out the neighboring unit(s). The rents from your neighbors cover your mortgage payment and ideally your maintenance costs as well.
But that’s not the only way to house hack. You can also bring in housemates, or rent rooms or units on Airbnb, or rent out storage space on Neighbor.com.
By eliminating–or at least greatly reducing–your housing payment, you don’t require nearly as much passive income from your investments to live on in retirement.
5. Private Notes
A “note” is the legal document that you sign when you borrow money. For example, when you took out your last mortgage, the most important document you signed was the promissory note.
You can lend money privately to other real estate investors, having them sign a private note. You set the terms of the loan, including the interest rate, any fees, loan term, and any other factors.
Beware, however, that lending money to other investors largely comes down to trust. Unless you file a lien against their property, you have little recourse if they default on you. Only lend money to experienced investors you know well and trust implicitly to pay you back.
Get it right, and you can earn high returns completely passively.
6. Land Notes
There’s a lot to love about land investing.
To begin with, land offers low risk and high returns. It also doesn’t necessarily require much cash to invest. Best of all, you don’t have to hassle with contractors or tenants, which means low stress and far fewer complications. No repairs or renovations, no chasing tenants for rent collection, no property damage by uncaring renters.
For all that, land investing requires you to approach it like a business. You can eventually automate that business to run in the background with only an hour or so required each week from you, but it takes time and labor to get to that point. Many retirees (and employees for that matter) don’t want to launch a side hustle.
7. Real Estate Syndications
Syndications offer another way to invest in real estate for high potential returns. But unlike land investing or rental properties, syndications are largely passive investments.
They work like this: an experienced real estate investor goes out and finds a (hopefully) great deal that costs more than they can afford to buy on their own. So they bring in outside investors to partner with them on the deal, on exchange for a deal-finder fee or bonus.
The outside investors become partial owners of the property and share in its cash flow and profits upon sale. But we surrender most management decisions to the syndicator, the person who found and continues to oversee the deal.
We get to invest fractionally in a large real estate project, such as an apartment building, that we would never be able to buy individually. And an experienced real estate investor does all the work for us.
Of course, no investment is perfect. To begin with, most syndication deals only allow accredited investors to participate. The SEC makes the regulation too onerous to allow retail investors to partner on these deals. Along similar lines, syndications typically require a high minimum investment, often in the $50,000-$100,000 range.
And like any managed investment, you place your trust in the manager–in this case, the syndicator. You need to do your due diligence on both the property and the syndicator if you want peace of mind in your investments.
As any long-term investor in the market can attest, stocks rise and fall — influenced by a mix of economic trends and supply and demand.
Given the inherent volatility of stock values, there are periods when the market is down, and times when it’s gaining steam. So, how low can a stock go? Well, in some cases, stock prices can fall all the way to zero.
What happens when a stock goes to zero? Watching a stock in free fall can induce fear and panic in investors, causing some to sell their holdings. While most every investor aims to buy low and sell high, timing the stock market is very challenging and doesn’t guarantee that investors will see gains.
Sometimes when a stock goes down in value it can present an investment opportunity, but in other cases the stock could fall to zero and never recover. In the latter case, it may benefit investors to sell before the stock price falls all the way down to zero.
What Causes a Stock to Fall to Zero?
When a stock falls to zero, it doesn’t mean that the company is worth nothing. Some companies with very low stock values are still earning money or possess assets. And, some investors buy penny stocks that have extremely low prices.
What happens to a company when stock prices fall to zero? If a company continuously spends more money than it earns, and investors sell off the stock, ultimately, that can lead to the company going bankrupt. Most companies file for either Chapter 7 or Chapter 11 bankruptcy before their stock reaches $0.00.
Chapter 7 Bankruptcy
With a Chapter 7 bankruptcy filing, the company must sell off its assets until it can repay lenders and creditors. The order that stakeholders get paid is: creditors, bondholders, preferred stockholders, common stockholders.
This means that if the asset sale doesn’t bring in enough money to pay everyone, it’s likely that common shareholders won’t receive a dime. In this case, stockholders lose all the money they had invested in that stock.
Under Chapter 7, stock trading and all business activities must be put on hold.
Chapter 11 Bankruptcy
Under a Chapter 11 bankruptcy, the company negotiates loan terms with its creditors in order to avoid selling off assets. With Chapter 11, companies can still conduct business and their stock can be traded.
Once a company files for Chapter 11, it is likely that the stock will continue to fall, since many investors won’t have much faith in the business. Sometimes shares are canceled with a Chapter 11 filing. In that case, investors lose all the money they had put into the stock.
Even if a company files for bankruptcy before its stock falls to zero, their attempts to salvage the business may ultimately fail and the stock could become worthless. However, it can take a strong team and business model to go public and get listed on stock exchanges in the first place, so some bankrupt companies may have the potential to make a comeback.
Some companies with very low stock prices get acquired by larger companies before their stock falls to zero. Even a company with a low stock might have a promising product or service that a larger company is able to sell successfully. One example of this is when Alphabet acquired FitBit in 2021. 💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.
What Happens to a Company When Stock Prices Fall to Zero?
Some stock exchanges delist stocks if they fall below a certain level. For example, the New York Stock Exchange will remove a stock if its share price falls below $1 for 30 days in a row.
And, as mentioned above, if a company files for Chapter 7 bankruptcy, its stock will be delisted temporarily.
Can a stock go negative? Fortunately, it is not possible for a stock’s price to go into the negative territory — under zero dollars in value, that is.
Still, if an investor short sells or uses margin trading, they may lose more than they invested. For this reason, margin trading and short selling are risky investment strategies.
Short selling is when an investor predicts that a stock is going to decrease in value. So, rather than buying the stock, they ‘bet’ that it will go down. If the stock does in fact go down, they make money.
But, if the stock ends up increasing in value, they lose money. Potentially, an investor in this scenario could lose more money than they put into the initial short sell.
Margin trading is when an investor borrows money from the brokerage firm to trade stocks. If the investor makes a trade that doesn’t go in their favor, they can end up owing the brokerage firm money.
How Low Can a Stock Go?
Stock prices can fall all the way down to zero. That means the stock loses all of its value and a shareholder’s earnings are typically worthless. In this case, the investor loses what they invested in the stock.
Reasons for a Stock Losing Value Down to Zero
What makes a stock fall to zero? The are a number of reasons that may come into play, including:
• Losses in the company’s revenue or earnings, especially if the losses are persistent
• A perception in the market that the stock is overvalued
• Management issues, shake-ups in the company’s leadership positions, scandal, fraud — in short, anything that can make investor sentiment turn negative
For investors, these are all signs a stock is underperforming and red flags to watch out for.
Types of Stocks Likely to Fall to Zero
What is a stock that falls to zero? Every stock comes with risks, but some are more risky than others. Besides companies on the brink of bankruptcy, there are certain types of businesses that have a higher chance of becoming worthless.
Knowing what to look for and researching and evaluating stocks before buying is key to building a resilient portfolio. Some of these higher risk stocks might include:
Companies With Weak Business Models
Even if a stock is currently performing well, it may fall in the future if the business model is fundamentally flawed. For this reason, many investors prefer to research a company’s practices, team composition, and business model before investing in its stock.
Penny Stocks
Stocks that trade below $5 are known as penny stocks. These low price stocks tend to be very volatile, as the companies that issue them have low or no profit.
Sometimes penny stocks can even turn out to be scams.
Buying the Dip
Rather than selling stocks when the market declines, some investors believe it can be a good idea to buy while the market is low. By buying the dip, as it’s known, investors pay less for stocks.
And, since these stocks still have the potential to go up in value as the market recovers after the decline, they can be preferred by long-term investors who may have more time to let their portfolio go back up in value.
However, if a company is going bankrupt or otherwise likely to fall to zero, it’s unlikely to offer a strong return on investment.
It’s also very difficult to time the market, so a trader might buy in when they think the market has hit bottom, only to watch it continue to go down.
Generally, building a diversified portfolio can offer higher returns on average over time than trying to time the market based on shorter-term trends or dips.
Examples of Stocks That Fell to Zero
There are two particularly infamous examples of stocks that fell to zero:
Enron
In the 1990s, Enron, an energy company, hid massive losses by using accounting tricks. At one point, its stock price was over $90. In 2001, analysts and investors became suspicious and began asking questions. That same year, the company reported huge losses, and its stock plummeted to $0.26 right before it declared bankruptcy.
World Com
This telecom company falsely inflated its cash flow and net income by listing expenses as investments to hide losses. Its stock price fell from more than $60 a share to less than $1 before the company declared bankruptcy in 2002. 💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.
How to Prevent Holding a Stock that’s Falling Lower
While it’s true that the market is impossible to predict, there are some measures that investors can take to protect themselves from losses — especially in the case of a stock spiraling towards zero. Below are some common preventative investment measures.
Stop Losses
Knowing when to sell a stock is important. Investors can set up a trade to automatically sell shares if a stock reaches a specific price. This type of trade is called a stop loss. It’s a strategy that could help prevent losses in the case of an individual stock or overall market drop.
There are multiple types of stop losses, including trailing stops and hard stops. Trailing stops move the stop level up as the stock rises in value, but stay in place if the stock falls. Hard stops are fixed at a specific price and will execute if the stock falls to that price.
Limit Orders
Limit orders allow investors to set the price at which they want to buy a stock. An investor selects the price and the number of shares they wish to buy. In practice, the order only executes if the stock then hits that price.
This is one way for traders to step away without worrying that they’ll be buying in at a price they didn’t want.
Put Options
A put option is a type of order that gives traders the option to sell or short-sell a specific amount of stock at a specific price, within a certain time frame. If a stock decreases in value in this case, the trader can still sell it at a higher price than it previously held.
Diversifying Asset Holdings
In an effort to prevent losses, investors may want to diversify their portfolios into a mix of non-correlated assets — dividing their holdings between assets at a higher and lower risk of fluctuating in value.
In a diversified portfolio, if one asset class decreases in value, the other types may not. Over time, the ups and downs of each asset could possibly balance the losses in each.
Setting Up a Stock Portfolio
By researching companies and setting up a portfolio according to one’s personal risk tolerance, and then keeping tabs on the assets in that portfolio to monitor their performance, it may be possible to help hedge against a stock sinking down to zero.
FAQ
At what point does a stock become worthless?
A stock becomes worthless when it falls to zero and has no value. In this case, an investor loses the money they invested in the stock.
How low can a stock go before being removed?
Some stock exchanges delist stocks if they fall below a certain level. The New York Stock Exchange will remove a stock if its share price falls below $1 for 30 days in a row, for instance.
Do you owe money if a stock goes negative?
No. A stock price can’t go negative, or, that is, fall below zero. So an investor does not owe anyone money. They will, however, lose whatever money they invested in the stock if the stock falls to zero.
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At first glance, the headline doesn’t make a lot of sense. Why would all-cash home sales increase if mortgage rates were hitting new lows for the year?
Not only that, but why would all-cash sales rise when distressed homes sales are down and institutional buying is lower?
Two separate reports came out today with the same basic message, that cash is still king despite the low rates and lack of investor activity.
The National Association of Realtors noted today that all-cash purchases increased to 33% in the first quarter of 2014, up from 31% in 2013 to 29% in 2012.
More than half of all homes purchased in Florida were paid for with cash, while roughly four out of 10 sales in Arizona, Nevada, and West Virginia were all-cash transactions.
At the same time, the distressed home sale share fell to just 15% in the first quarter, down from 17% in 2013 and 26% in 2012.
Over at RealtyTrac, all-cash sales hit a record high of 42.7% of all residential property sales in the first quarter, up from 37.8% in the fourth quarter and 19.1% from a year earlier.
That coincided with a large drop in institutional investor purchases, which fell to the lowest level since the first quarter of 2012.
Such buyers, which are defined as those who purchased at least 10 properties in a calendar year, accounted for just 5.6% of residential sales in Q1, down from 6.8% a quarter earlier and seven percent a year ago.
In large metros, all-cash sales made up more than half of all transactions in Atlanta, Detroit, Las Vegas, Miami, and New York.
The highest percentage of all-cash sales in cities with a population of at least 500,000 were all in Florida:
Additionally, 15% of all-cash purchases in the first quarter were in the foreclosure process, while 10% were bank-owned properties.
Interestingly, these numbers were released on the same day rates on the 30-year fixed-rate mortgage hit 4.21%, which is the lowest point it has been all year. And not really that far off from record lows seen in late 2012.
Why Are There So Many Cash Buyers If Rates Are Still Very Low?
For one, inventory is still tight, so paying with cash is the best way to get your offer accepted, even if you can qualify for a mortgage. Think bidding war.
But NAR also noted that mortgage lending standards remain too restrictive, though they always say that, and would say that even if you could get a mortgage with no money down with just your credit report.
They also pointed to cash sales coming from aging baby boomers, who are trading down or using retirement cash and/or years of home equity to get the job done.
Then there are foreign investors, who tend to use cash, and a recent trend of pulling money from the stock market (now near record highs) to put into real estate. Simply put, it has become an attractive investment again.
RealtyTrac attributed the trend to strict lending standards as well, coupled with low inventory, which gives cash buyers the upper hand when making an offer.
They looked at the brighter side of things, highlighting the fact that individual investors, second-home buyers, and owner-occupants have quickly filled the void left by institutional investors.
Because of that, home prices have continued to appreciate fairly rapidly, though at a slower pace than a year ago.
However, it is somewhat unfortunate that most home buyers can’t even take advantage of the low mortgage rates because they can’t get an offer accepted when competing with a cash buyer. Go figure.
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How can I make a lot of money in hours?
Making income in a matter of hours for a woman is entirely feasible with a blend of freelancing, leveraging gig economy platforms, and capitalizing on your skills or assets. Here’s a quick guide for you:
Consider freelancing: Establish your writing, graphic design, or programming services on platforms like Fiverr or Upwork.
Dive into the gig economy: Sign up for TaskRabbit, Airbnb, or Turo to start earning.
Try online tutoring or content selling: Proficient in any subject or have strong graphic design skills? Go for tutoring or sell your content.
Indulge in buying & selling: If you’re good at purchasing low and selling high, then swap clothes or furniture, or even stocks.
Take online surveys or join market research groups on sites like Swagbucks for a rapid source of income.
Remember, time management is crucial for balancing multiple streams at once. Don’t forget to schedule wisely!
How to Make Money Fast as a Woman
No matter who you are, making money can be tough. But if you’re a woman, it can feel impossible.
From getting paid less than men for the same job to having a harder time getting promoted, the deck is often stacked against us.
Just so you know that making quick money in one day won’t happen overnight.
So, I’m going to tell you the best ways to make money fast as a woman.
1. Sell Services
Selling your skills or expertise is a fast, viable way to earn money. It’s all about utilizing what you already know to provide value to others.
Identify your marketable skills, such as cake baking, freelance writing, bookkeeping or even organizing spaces.
Brainstorm which of these services people could pay for.
Remember, you can tap into both physical tasks, like house cleaning or pet-sitting, and digital ones, like creating digital printables or offering consulting in your field of expertise.
Expert Tip: Launch your service with a few testimonials, helping to build trust with potential customers from the get-go.
2. Freelance
Freelancing is a savvy way for women to stack up earnings fast, offering flexibility and complete control over the workload. It’s a ticket to dodge conventional office politics and punch above your earning potential.
Start by identifying your freelance niche. You can be a writer, graphic designer, or anything you’re skilled at. Many people use their transferable 9-5 skills to side hustle.
Then, create your profile on platforms like Fiverr, Upwork or Guru – be sure to showcase your accolades.
Set your rates, then start connecting with clients looking for your talent.
Remember, success in freelancing is driven by quality and consistency. So, sharpen your skills and always exceed your client’s expectations.
Freelancing may start as a side gig, but with dedication, it can grow into a full-time job.
3. Become a Product Reviewer
Being a product reviewer is an intriguing job opportunity for those who enjoy sharing candid feedback about their experiences with various products.
As a product reviewer, you are required to assess products often sent to you from diverse companies.
Your role involves providing a comprehensive review that could range from making an unboxing video to writing a detailed article about the product’s features and performance.
This kind of job requires an unbiased perspective and the capacity to articulate your thoughts and experience in a detailed, user-friendly manner.
Companies value this form of direct feedback as it provides them with significant data about their product’s strengths and weaknesses as perceived by an end-user.
4. Virtual Assistants
As a woman, becoming a virtual assistant could be your fast lane to earning a substantial income.
This is especially a great option if you’re excellent in organization and time management along with the need for flexibility.
For many becoming a virtual assistant with no experience is possible. And very lucrative.
Finally, for your best shot at success in this field, taking a course to improve your learning curve is extremely helpful.
Potential to earn up to $43,000 per year.
5. Sell Your Crafts
Ladies, have you thought of turning your love for crafts into a profitable venture?
Find out what crafts are in demand. The higher the demand, the more profitable it would be to make and sell these crafts.
Remember, profitability hinges on what you sell and how much you sell. Happy crafting!
While you are limited on what you can earn by what you can make, it is possible to make money doing something you absolutely enjoy.
6. Stock Trading
Stock trading may seem daunting but it can be a quick route to financial independence, especially for women.
With the right tools, information, and mindset, you can swiftly navigate the market and amplify your earnings. In fact, this is something Teri Ijeoma did herself.
Educate yourself on the basics before you invest. This is exactly what I did and my investment has paid off.
Always be aware of the risks involved in stock trading and proceed cautiously. However, building up an investing education is a wise decision.
Learn how fast can you make money in stocks.
7. Babysit
Babysitting is a versatile side hustle offering flexible hours and good earning potential.
It’s an ideal opportunity if you’re seeking quick, extra income and enjoy children.
Obtain optional certifications like CPR and first aid to enhance your appeal. Visit platforms like Care.com, Sittercity, or Urbansitter to create your profile and connect with clients.
8. Transcriber
One field that remains highly overlooked is transcription.
A transcriptionist listens to audio files and converts them into written documents.
Gain a thorough understanding of the industry. Check out this free webinar to get the basics right.
Consider specializing in legal or medical transcription. These niches often fetch higher wages.
You could easily make $3000-$4000 monthly, working on your own schedule.
Remember, practice and precision can help you achieve a lucrative transcription rate.
9. House Cleaning
Cleaning can be a rewarding gig, especially if you like tidying spaces.
Despite recognizing the need for a clean home, many people often struggle to find the time or energy to routinely clean their homes. This is where the prospect of a housecleaning business arises.
Busy homeowners, parents juggling work and childcare, elderly individuals needing assistance, and even businesses needing regular cleaning services are all potential clients for a housecleaning business. This demand provides a consistent income flow for those offering cleaning services.
In fact, individuals transitioning into this field of work can negotiate their wages with clients, potentially earning more than $15 an hour based on the complexity and demands of the job.
10. Sell Printables on Etsy
Selling printables is an effective and lucrative method to generate passive income.
Once printables such as planners, calendars, and journals are designed, created, and listed for sale on platforms like Shopify or Etsy, they can consistently produce income without requiring continual input or maintenance.
According to several experts, one of the keys to making substantial profits from printables is to differentiate your products.
Building upon this idea of making money from printables, the free Printables Workshop by Gold City Ventures offers comprehensive insights into the process of creating and selling aesthetically pleasing printable products online. This accessible course can be an excellent starting point for beginners looking to navigate the printables market.
Selling printables on Etsy might be the perfect venture for you!
11. Dog Walking
Looking for a fun-filled way to make some quick bucks?
Dog walking could be the right side hustle for you, especially if you’re an animal lover.
Easy to find jobs for dog walking.
Suitable for people with flexible schedules.
Offers an active way to earn money.
Option to select your rates with platforms like Rover.
High demand especially due to increasing pet adoptions and busy pet owners.
You can work when you need to and not take clients when you don’t want too.
12. Make Money Blogging
Blogging is a popular and prevalent way to earn money. Many blog owners are women who want the flexibility to earn significant money at their own pace and schedule.
Earning money through blogging allows you to focus on something you’re passionate about. Any topic that can provide value to an audience can be blogged about. Targeting a niche that has been overlooked by existing blogs can increase your blog’s potential earnings.
Starting a blog doesn’t require formal training, but it does require a willingness and ability to write effectively for an audience.
By employing monetizing avenues, like affiliate marketing and advertising, a blogger can boost their earning significantly.
Despite the vast number of existing blogs, the industry is very accommodating toward new voices, especially female voices. Thus, knowing how to monetize a blog can offer women many opportunities.
Remember, blogging is not just about earning fast bucks, it also needs consistent efforts. It’s rewarding but can start slow.
13. Ride-Sharing
Ridesharing is an excellent opportunity for women looking to make fast money. With apps like Uber and Lyft, you can earn an income simply by offering transportation services.
Here are a few tips to increase your earnings:
Consider driving during peak hours, weekends, or during special events to cash in on higher demand.
Choose busy locations such as city centers and nightlife spots to increase your chances of getting rides.
Maintain good customer service and ensure safe driving to uphold your rating and receive more ride requests.
14. Office Cleaning
Considering the hustle and bustle of the daily grind, office cleaning can be an untapped treasure trove for women seeking quick cash. Given the high demand and flexible hours, it’s an ideal source of extra income.
You must identify office premises needing cleaning services. Reach out to the owners or management, and propose your services.
Think about offering your services to offices in your local area. It’s a fast way to make extra money while managing your other commitments.
15. eBay Arbitrage
Looking to earn some quick money? eBay Arbitrage could be the game-changer you need.
Aimed mostly at women who love shopping, it’s about buying products cheaply and selling them on eBay for a profit.
First, hunt for bargains in thrift stores, sales, or online markets.
Go with high-demand items; electronics, collectibles, or brand sneakers are a good start.
Then, create your eBay store and list your finds at a competitive but profitable price.
Track each item’s demand through keyword research and buyers’ reviews.
Remember to calculate potential profits inclusive of shipping costs and eBay fees.
Armed with the right strategies, you can start earning with eBay in no time!
16. Freelance Writing
Did you know your writing passion can become a quick buck-making engine? That’s right, freelance writing is a gold mine you ought to tap.
First, identify a writing niche you love. It’s easier to excel when you’re passionate about your work.
Continually hone your writing skills. The more you practice, the better you become and the more valuable your skills. Finally, don’t be shy to market your skills. Reach out to small businesses and startups—they often need freelance writers.
Remember, quality over quantity will earn you a solid reputation in the long run. Now, go turn those wordy wonders into wealth!
17. Online Surveys
Curious about making a quick buck? Engaging in online surveys can be a fast money-making method just for you!
You don’t earn a huge amount per survey but when taking multiple surveys, it will add up fast.
Here are the top legit survey platforms:
Use your free time wisely. Take surveys during work breaks or leisure hours.
Redeem points for PayPal cash or gift cards.
18. YouTube Channel Building
Building a YouTube channel can be an interesting and rewarding venture.
It provides an incredible platform to share your content, express your creativity, and engage with a global audience. Whether you want to showcase your talents, teach something unique or simply entertain, having a YouTube channel opens up many opportunities.
Effective engagement with your audience is vital.
Last but not least, patience is something you will need in abundance. Building a successful YouTube channel takes time, so don’t lose hope if you’re not seeing immediate results.
Remember, there’s no limit to what you can achieve with your YouTube channel. It all comes down to how creatively you can use this platform to engage with your audience and grow your presence.
19. Bookkeeper
In our increasingly digital age, online bookkeepers are in high demand, with more businesses choosing to move their financial operations to the online platform. This shift in business operations has created a robust opportunity for those trained in bookkeeping to tap into the market and earn income while working from the comfort of their homes.
To be successful as web-based bookkeeper, you need to be well-organized and have previous experience dealing with numbers. However, even without a formal accounting education, individuals can take advantage of online learning platforms like Bookkeepers.com to learn and sharpen their bookkeeping skills for free.
Becoming a virtual bookkeeper is not just a fantastic full-time job opportunity; it’s also an excellent side hustle for women and mothers proficient with numbers. It provides flexible hours and allows the freedom to work from anywhere, making it ideal for those juggling multiple responsibilities.
The financial compensation for an online virtual bookkeeper is quite significant. On average, bookkeepers can earn at least $50000 a year helping business owners manage their finance and bookkeeping online.
20. Start a Dropshipping Store
Dropshipping is a viable option with low startup costs that lets you run an online store without handling any physical products.
There is still plenty of time to get into the dropshipping business.
Start by deciding what products to sell. Find a niche you’re passionate about for a higher chance of success.
Remember, a successful dropshipping venture involves effective marketing as well. So invest time and effort into perfecting your advertising tactics.
21. Do Clerical Work
Clerical work offers flexible, remote opportunities for women to make quick money.
With adequate admin experience and internet access, you can explore roles like Virtual Assistant, Online Data Entry Professional, or Court Transcriptionist.
This is one of the best non phone work from home jobs.
Experts tip: Perfection and punctuality are key. Attention to detail and meeting deadlines can make you stand out.
22. Resell Clothes
Reselling clothes online is a savvy way to turn your clutter into cash, especially if you love digging for hidden gems.
It’s a popular method for fast cash flow, with Poshmark and Facebook Marketplace being perfect platforms. One of my friends is very successful with this!
Begin with your own closet, and sell kids clothes they have outgrown too.
Reinvest your earnings, by buying second-hand clothing to resell can boost your profits.
Don’t forget quality. Run a quick check for authenticity and brand labels.
Visuals sell. Stage items and capture high-res photographs.
Providing a great customer experience is key, ensuring prompt shipping and maintaining politeness.
Play your cards right, you could earn anywhere between $100 to $1,000 a month or even reach a six-figure yearly income.
23. Do Home-Based Child Care
Home-based child care is a viable option to earn money, leveraging the natural maternal instincts and caregiving skills of many women. It can be a lucrative side hustle and a means to financial independence.
This is especially a great avenue to pursue when you are already at home raising your own children.
Make sure to follow any state regulations about running a daycare out of your home.
Begin by determining the number of children you can handle at a time, taking care not to overbook.
24. Podcasting
Podcasting is a wonderful opportunity for delivering narratives. It enables you to weave compelling stories while inspiring, instructing, or simply entertaining your listeners.
The unique format of podcasting lets you connect with your audience on a personal level. They listen to your voice, engage with your thoughts, and feel a stronger connection to you.
By starting a podcast, you are joining an increasingly popular trend, with the global number of podcast listeners has grown to 464.7 million listeners in 2022 (source).
Podcasting also opens up doors for networking and collaboration. You can invite experts, artists, or like-minded individuals as guests on your show, thus expanding your network.
There’s a potential to earn from podcasting. With affiliate marketing, sponsorships, and advertising, the commercial possibilities of podcasting are extensive.
25. Merch by Amazon
“Merch by Amazon” is a print-on-demand service that allows you to design and sell your merchandise.
It’s a great money-making alternative as it offers massive exposure and doesn’t require any upfront costs.
One of the significant advantages of using Merch by Amazon for passive income is that you are not required to maintain inventory or deal with shipping. Amazon handles these aspects, allowing you to focus on the creation process and customer satisfaction.
Amazon’s royalty system ensures that you get paid instantly whenever your merchandise is purchased. This allows you to earn money passively with every sale.
When your designs meet the current market trends and the preferences of your customers, they are more likely to be popular, leading to an increase in sales, hence, higher passive income.
26. Become an Influencer
Becoming an influencer is a smart, quick way for women to make money. While most people just stumble upon becoming an influencer, you can decide to pursue this avenue.
With earning potential that is unlimited, this opportunity is flourishing, requiring no specific degree or job experience.
Remember, platforms like TikTok, Instagram and YouTube reward new, engaging creators.
Dedication and consistency could lead you to major earnings where you make thousands for each post.
27. Work as a Translator
Having mastery in more than one language opens up a world of opportunities, particularly in the realm of translation services. The ability to translate language effectively and accurately is a skill that’s in high demand in the current globalized world.
A top benefit of being a freelance online translator is the flexible work environment. You have the freedom to choose when, where, and how much you want to work. This flexibility for work-life balance is more appealing now than ever, especially in the unsteady job market.
Freelance translators also have access to a wider client base. Unlike full-time translators who work for specific organizations or agencies, freelance translators can work with various clients from all over the world, widening their potential income streams.
The need for translators is projected to grow substantially. In the United States alone, the U.S. Bureau of Labor Statistics reports that employment for interpreters and translators will increase by 20% from 2021 through 2031, which is much faster than the average for all occupations.
Among other freelance professions, translation can often provide a more stable income.
As most sectors including education, legal, business, medical, and technological firms continue to globalize, they regularly need translators to bridge the language gap, making freelance translation services a steady income source.
31. Become a Flipper
Becoming a flipper is a high-return, low-investment way to make money fast. It involves buying low and selling high, perfect for those wanting a profitable side hustle.
Here are actionable steps to kickstart your flipping journey:
Identify items to flip: Popular options include toys, clothes, electronics, books, and furniture. Pro-tip: Sell things you have around your house to start risk free.
Choose a selling platform: Sell locally via Facebook groups or Craigslist, use reselling apps like Decluttr, or open an online store on eBay.
Price it right: Pricing items competitively garners buyer interest and maximizes profit.
Learn more: Free webinars, like Flipper University and the Flea Market Flipper, offer insights for a successful flipping business.
Remember, flipping can be more than just a side hustle; it’s a potential full-time career.
32. Micro-Tasking
Micro-tasking offers a quick way for you to earn money by completing short and simple tasks.
As its popularity grows, so does the list of platforms where you can find micro-jobs. Here are the popular platforms.
This allows your the flexibility to work whenever you want. Plus no special skills or degrees are needed.
Just note… This is not a stable income source
Tips for Finding the Best Way for You to Make Money
As you can see, there are many different ways to make money fast as a woman.
You can find the best way for you by considering your skills, interests, and the amount of time you have available.
Here are some helpful tips to make sure you are earning money quickly.
1. Identify Your Skills and Offerings
You’re already gifted, let’s transform those skills into fast cash.
Make a list of your skills, passions, and expertise; you can tap into anything from programming to knitting.
That is where you want to start.
From personal experience, I can tell you it is way easier to work on a side hustle or business when you are passionate about the topic.
Remember, the digital world is your playground, so play, innovate and cash-in.
2. Research the Best Ways to Make Money
Now, that you know the skills and experience, look at the list above and determine which ones match up.
You will need to spend time watching a free webinar to learn more.
Compare different money-making ideas. From part-time jobs to freelancing, there’s a plethora of options. You need to pick what works best for you.
Remember, generating a consistent income requires effective strategies and the right mindset. So choose wisely!
3. Try Different Ways to Make Money – Not Just 9-5 Jobs
It’s vital to explore different money-making strategies as a woman for financial stability and independence.
Just because one avenue didn’t work out doesn’t mean you should throw in the towel.
Remember, the key to success is perseverance, so pick something you’re passionate about and stick to it. Try not to jump from one idea to another out of impatience; success takes time.
Also, as your revenue increases, start building a lifestyle business for passive income.
4. Focus on the Things You Are Good at
Unlock your financial potential by recognizing and utilizing things you’re excellent at.
To cash in fast:
Identify your standout skills. These could range from writing, fine arts, math, e-commerce to digital marketing or even passions such as sports and hobbies.
Assess the viability of earning via your skills. Research shows that the digital economy is filled with opportunities.
Exploit platforms that cater to your expertise. For freelance gigs, you can try platforms like Upwork, Fiverr, or Guru.
There are so many ways to make money online as a beginner. So, indulge in the digital playground, embrace exploration and innovation, and let your skills earn for you.
5. Find Opportunities That Allow You to Work Flexibly
You can choose when to work and when not to, rather than being constrained by a 9 to 5 workday. The flexibility to create your schedule means you can operate at your most productive times, whether that’s early in the morning or late at night.
Working from home or any location across the globe enables a better work-life balance, reducing stress and improving productivity. This is particularly beneficial for those who have families or are committed to other obligations.
When working for yourself, you may have the potential to earn more than traditional salaried roles.
Lastly, making a living from your passion is huge!
You are being paid to do what you love anywhere, anytime which is rare and precious.
6. Consider Specializing in a Niche Subject
Specializing in a niche subject can elevate your earning potential quickly, owing to smaller competition and a personalized audience.
Being a subject matter expert in a specific area can provide you with an edge over your competitors.
Specializing in a niche can help you stand out and garner a dedicated audience, ultimately leading to faster earnings.
Remember, the key to making money faster in your specialized area is persistence and patience. It may take time to build a strong following, but once you do, the financial rewards can be substantial.
Stick to your chosen area, continuously learn and improve, and consistently deliver high-quality content to make your mark in your chosen niche.
7. Take Advantage of Trending Opportunities
Jumping on trending opportunities can be a gold mine, especially for women who want to make money fast from home. These ever-evolving trends tap into various skill sets, interests, and experiences, potentially translating into a lucrative gig.
For many, it may have been TikTok when the company first started.
Remember, the digital world holds limitless potential. Just needing to innovate and execute your ideas!
8. Invest in the Right Tools and Equipment
The key to making money, either online or offline, is making an informed investment of your time into the right tools, equipment, and learning resources.
While this can initially seem like an expenditure rather than a money-making step, it is, in fact, a cornerstone of your financial growth strategy.
Investing time in learning and increasing your knowledge base is vital. This could mean spending your time reading about new insights in your area of work, attending webinars, or enrolling in online courses. The ROI of this proactive learning is immense.
Consider this an opportunity or a catalyst that speeds up your journey toward substantial income generation and financial freedom.
9. Commit to Consistent Efforts
Commitment to consistent efforts is the cornerstone of any successful endeavor, more so when running your own side hustle.
One of the fundamental principles for making money is the dedication to keep improving your craft, always learning, and always evolving.
This continual effort involves a long-term commitment to staying updated with the latest writing trends, styles, and industry standards.
With persistence and patience, the fruition of your investments will lead you toward the fulfillment of your financial dreams.
10. Utilize Social Media Platforms to Promote Your Business
Social media platforms are powerful tools for business promotion, and when used strategically, they can lead to fast monetary gains.
Understanding how to effectively utilize these platforms can drastically enhance your chances of making quick bucks.
Start by creating a robust online presence for your business on various social media platforms. Remember, consistency is key to building your brand.
Engage with your audience frequently and respond to their comments. This boosts engagement on your posts.
Post content that is engaging, relevant, and aligns with your business values.
Always monitor your performance using social media analytics to understand what works best for your audience.
Which side hustles for women have you tried?
Personally, here are the side hustles I have done or currently do:
Stock Trading as a swing trader
Online Content Creation
Social Media Influencer
Online Consulting
Pet Sitting or House Sitting
Teaching Dance Lessons
Personal Organizer
However, I know many people that have tried the ones listed above.
So ladies, which of these enticing hustles appeals to your skills and schedule the most?
FAQ
Stay-at-home moms have numerous opportunities to earn money from the comfort of their homes. Plus being able to bump up your household income while juggling parenthood is the perfect combination.
Find the best jobs for moms specifically!
Any of these opportunities requires dedication and consistent effort, but with time they can all yield substantial returns.
Thankfully, there are many ways for women to make money online.
Above we covered all of the interesting ways and many are online.
Remember, opt for an avenue that suits your skills, interests, and time availability.
Well. the answer to this will depend on who you speak with.
Personally, I find ways to build passive income with your side hustle as the best option. Then you aren’t trading your time for money.
As a woman, many opportunities are right at your fingertips. The most popular and profitable include:
Start a blog: With consistent readership, you can make thousands from ad revenue and sponsored content.
Virtual assistant: Services can fetch around $10-30/hour.
Social Media Management: Businesses are willing to pay up to $1000-2000 per month for proficient managers.
Bookkeeping: On average, freelance bookkeepers earn around $34/hour.
Selling products online: Sites like Etsy, Amazon FBA, or your own platform can earn you a substantial income with a successful shop.
Trading Stocks or Options: by improving your investing knowledge, you can quickly increase your net worth.
Remember – it all starts with a step. Your side hustle could turn into a full-time passion!
This is How to Make Money from Home as a Woman
In conclusion, as a woman, there are plenty of genius and fast ways for you to make money.
The article underlines the significance of grabbing the reins of your financial future.
Through the strategies shared – including investing in stocks, working from home, or using budgeting hacks, you can boost your income significantly.
One of the concepts, I’m big on is making sure you know how to make your money work for you.
With wise decisions and being open to possibilities, your financial independence is within reach.
Remember – the ball is in your court, so make sure to take that shot and score your financial goals. It’s high time to cash in on your potential!
Know someone else that needs this, too? Then, please share!!