Starting a Roth IRA is one of the easiest — and best — steps you can take to save for retirement. But you should understand the Roth IRA rules before investing in them.
I know I’ve written a lot about the Roth IRA in the past, but I still get questions all the time. People find them intimidating. For example, Lynn wrote last week:
I’m a 36-year-old single mother of two. I want to start investing for my future, but I am so overwhelmed by all the information. I was wondering if you could give me some advice on my best options for a Roth IRA. I am a school teacher and earn $41,000 per year.
I am going to do more research, but I would appreciate some advice from someone who already has expertise in this area. I am not sure what I need to start a Roth IRA, or who I should go with. I don’t know much about mutual funds or anything of that sort, so any help and advice would be appreciated.
Let’s clear things up: A Roth IRA does not need to be confusing. In fact, a Roth IRA is actually fairly easy to understand.
Note: This post is going to keep things basic. For more detailed info, see the resources at the end of this article, or consult a financial planner.
Roth IRA Basics
The Roth IRA is an individual retirement arrangement: It lets you save and invest for your future. An IRA is simply a holding account. It’s a label. When you own a Roth IRA, it contains nothing. It’s like a bucket, a place for you to put things. (Most people think of an IRA as an individual retirement account, which is fine, but it’s actually an “arrangement.”)
The things you put in your bucket are investments. You might, for example, buy a stock to put in your retirement account. Or maybe government bonds. Or certificates of deposit. The important thing to understand is that a Roth IRA is not an investment — it’s a place to put investments.
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With many retirement accounts — such as 401(k)s and traditional IRAs — you contribute pre-tax money and are taxed when you take the money out during retirement. Because they work with after-tax money, earnings from a Roth IRA can be withdrawn tax-free at retirement.
Roth IRA Rules and Requirements
Because Roth IRAs are meant to encourage ordinary people to save for retirement, not everyone qualifies for them. If you do qualify, you can contribute up to $5,000 to your Roth IRA every year. If you’re 50 or over, you can contribute $6,000.
Who qualifies? Nearly everyone. However:
If your tax filing status is single and you earn more than $105,000 per year, your contributions are restricted.
If you’re married filing jointly, your contributions are limited if your household earns more than $160,000 per year.
You can use a Roth IRA even if you have a 401(k) or other retirement plan, but you must make your contributions by the tax deadline each year.
The rules are a little more complex than that, but those are the basics. If you need more info, take a look at the resources listed at the end of this article.
Where to Open a Roth IRA
Deciding where to start your Roth IRA is the most difficult part of the process. Many financial institutions offer IRAs. Each has its own strengths and weaknesses. Don’t fret about finding the perfect match — find a good match and then get started.
To make things simple, here are four big companies that provide Roth IRAs (though these are by no means your only options):
Fidelity Investments offers a no-fee IRA. There’s a $2,500 minimum initial investment, but this is waived if you commit to $200/month automatic contributions. They offer 4,600 mutual funds, about a quarter of which have no transaction fee. In short, you can open a no-cost IRA at Fidelity with a $200 starting investment if you invest in mutual funds and you agree to contribute $200/month. Apply for a Roth IRA with Fidelity.
It’s also possible to open a no-cost Roth IRA at The Vanguard Groupif you elect to receive electronic statements. Otherwise, a $20 annual fee is charged until your Roth IRA balance is over $10,000. Your minimum to get started is $3,000 — except that you can start with just $1,000 in the company’s STAR fund. (The STAR fund is an mutual fund of mutual funds, a safe choice for beginners.) Additional contributions require a minimum of $100 unless you use their Automatic Investment Plan, in which case the minimum is $50. There are no fees to purchase the STAR fund. Start a Roth IRA at Vanguard.
T. Rowe Price charges $10/year for Roth IRA accounts until you have a balance above $5,000, after which there is no fee. You need $1,000 to open your IRA, but this minimum goes away if you sign up to contribute at least $50/month with the Automatic Asset Builder. There are no sales fees or commissions to invest this money in T. Rowe Price mutual funds. Open an IRA at T. Rowe Price.
Scottrade resists charging its customers set-up, annual or maintenance fees for its online trading services and also offers them the opportunity to get a refund of up to $100 in transfer fees from other brokers for bringing their Roth IRA to Scottrade. Scottrade’s pricing on trades is fairly simple: $7 for stocks $1 and above for online market and limit equity orders. You might also consider a Scottrade checking, savings or money market account. These can be joined with a trading account to help easily fund transactions.
Opening a Roth IRA is easy. You’ll need some minimal bank account info and about 30-60 minutes of free time. If you’ve ever filled out a job application or applied for a credit card, you can certainly open a Roth IRA. Once you’ve completed your application, you can transfer money to the account. It might have to sit in a money market fund until you have enough saved to buy your first mutual fund, but that’s okay. You’re developing the saving habit!
Note: I’m a big fan of automatic investment plans. Most of these companies offer some sort of program that will pull money from your bank account every month to invest in stocks or mutual funds that you designate. By setting aside $50 or $100 or $500 in this way, saving becomes a habit.
Which Investments to Choose
Here’s where I cop out. I’m not a financial adviser. I don’t know your goals or risk tolerance. I can’t tell you were to invest.
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And to be honest, where you invest doesn’t matter nearly as much as the fact that you do invest. To get some ideas, browse through the investing archives here at Get Rich Slowly. (Maybe start with these “lazy portfolios.”)
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If you’re really stressed, pick a target-date fund that most closely matches the year you’ll retire. This probably isn’t the best option, but it’s fine. Just use it while you get in the habit of making contributions. You can always switch the money to something more appropriate later.
Related >> Choosing a Target-Date Fund
Learning More About the Roth IRA
In 2007, I ran a four-part series exploring the benefits of a Roth IRA. If you need more info about these accounts — or if you have questions — you should start here first:
I’ve revised these articles and compiled them into a free e-book called The Get Rich Slowly Guide to Roth IRAs (518kb PDF). (Note that this e-book was produced in April 2008, so some of the info is a little out of date, especially about Zecco.) And if you want the official word on the subject, check out IRS publication 590, which is all about IRAs.
Now’s the part where you can tell Lynn how easy it is to set up a Roth IRA. (And share what sort of things you’ve invested in.) My own Roth IRA started with stupid stock picks (Countrywide, The Sharper Image) and has moved toward index funds. I’m all about making things easy right now!
Like many other investors, J.D. and I are fans of taking the slow, sure path to wealth. We invest much of our money in index funds. An index fund is a low-maintenance, low-cost mutual fund designed to follow the price fluctuations of a broader index, such as the S&P 500 or the Wilshire 5000. They’re boring investments, but they work. (If you’re investing for the excitement, you’re doing it for the wrong reason.)
Because of their low costs, index funds have been shown over and over to dominate the majority of their competition. Yet many investors shy away from index funds with the reasoning that “the stock market is too risky for me.”
People seem to think that index funds are simply mutual funds that track the U.S. stock market. And that’s not particularly surprising given that S&P 500 index funds are:
the largest index funds,
the index funds mentioned most frequently by the media, and
the index funds most likely to show up as an choice in your 401(k).
But there are all kinds of index funds aside from those that track the S&P 500. There are bond index funds, real estate index funds, commodities index funds, international stock index funds, and so on.
In other words, you can create a thoroughly diversified portfolio using nothing but index funds.
In fact, I’d suggest doing exactly that. By created a diversified, all-index fund portfolio, you’ll achieve a list of benefits relative to other types of portfolios.
Lower Risk Which sounds safer: Having the stock portion of your portfolio invested in 10 different companies, or having the stock portion of your portfolio invested in several thousand companies from more than 10 different countries? I know some people disagree, but to me it’s a no-brainer.
By constructing your portfolio from index funds, you’ll achieve far greater diversification (and therefore be exposed to less risk) than you would if you constructed your portfolio from individual stocks and bonds.
Lower Costs Both common sense and historical data tell us that one of the best ways to improve investment returns is to reduce costs. Conveniently, index funds carry significantly lower costs than actively managed mutual funds. For example:
Vanguard’s Total Bond Market Index Fund has an expense ratio of 0.22%. That’s less than one-fourth of the average expense ratio among bond funds (1.04%, according to Morningstar’s Fund Screener tool).
Vanguard’s REIT Index Fund has an expense ratio of 0.26%, or less than one-fifth that of the average real estate fund (1.45%).
It’s quite possible that you could cut your total costs by 1% or more. And while 1% per year may not sound like much, it can really add up over an extended period.
Lower Taxes Index funds have much lower portfolio turnover than other mutual funds. (That is, they buy and sell investments within their portfolios far less frequently than actively managed funds do.) This makes them more tax efficient than other mutual funds for two reasons:
The capital gains they distribute are primarily long-term in nature (and thereby taxed at a lower rate than short-term capital gains), and
Their capital gains distributions are minimized, meaning that you get to defer a significant portion of taxes until you sell the fund.
Added Bonus: You’ll understand what you own. With an actively managed mutual fund, you never know exactly what the fund manager is investing in. With index funds, it’s all out in the open.
Do you (like both me and J.D.) have a portfolio made up primarily of index funds? If not, why? Is there a particular concern that’s holding you back?
High above the Las Vegas Strip, solar panels blanketed the roof of Mandalay Bay Convention Center — 26,000 of them, rippling across an area larger than 20 football fields.
From this vantage point, the sun-dappled Mandalay Bay and Delano hotels dominated the horizon, emerging like comically large golden scepters from the glittering black panels.Snow-tipped mountains rose to the west.
It was a cold winter morning in the Mojave Desert. But there was plenty of sunlight to supply the solar array.
“This is really an ideal location,” said Michael Gulich, vice president of sustainability at MGM Resorts International.
The same goes for the rest of Las Vegas and its sprawling suburbs.
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Sin City already has more solar panels per person than any major U.S. metropolis outside Hawaii, according to one analysis. And the city is bursting with single-family homes, warehouses and parking lots untouched by solar.
L.A. Times energy reporter Sammy Roth heads to the Las Vegas Valley, where giant solar fields are beginning to carpet the desert. But what is the environmental cost? (Video by Jessica Q. Chen, Maggie Beidelman / Los Angeles Times)
There’s enormous opportunity to lower household utility bills and cut climate pollution — without damaging wildlife habitat or disrupting treasured landscapes.
But that hasn’t stopped corporations from making plans to carpet the desert surrounding Las Vegas with dozens of giant solar fields — some of them designed to supply power to California. The Biden administration has fueled that growth, taking steps to encourage solar and wind energy development across vast stretches of public lands in Nevada and other Western states.
Those energy generators could imperil rare plants and slow-footed tortoises already threatened by rising temperatures.
They could also lessen the death and suffering from the worsening heat waves, fires, droughts and storms of the climate crisis.
Researchers have found there’s not nearly enough space on rooftops to supply all U.S. electricity — especially as more people drive electric cars. Even an analysis funded by rooftop solar advocates and installers found that the most cost-effective route to phasing out fossil fuels involves six times more power from big solar and wind farms than from smaller local solar systems.
But the exact balance has yet to be determined. And Nevada is ground zero for figuring it out.
The outcome could be determined, in part, by billionaire investor Warren Buffett.
The so-called Oracle of Omaha owns NV Energy, the monopoly utility that supplies electricity to most Nevadans. NV Energy and its investor-owned utility brethren across the country can earn huge amounts of money paving over public lands with solar and wind farms and building long-distance transmission lines to cities.
But by regulatory design, those companies don’t profit off rooftop solar. And in many cases, they’ve fought to limit rooftop solar — which can reduce the need for large-scale infrastructure and result in lower returns for investors.
Mike Troncoso remembers the exact date of Nevada’s rooftop solar reckoning.
It was Dec. 23, 2015, and he was working for SolarCity. The rooftop installer abruptly ceased operations in the Silver State after NV Energy helped persuade officials to slash a program that pays solar customers for energy they send to the power grid.
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“I was out in the field working, and we got a call: ‘Stop everything you’re doing, don’t finish the project, come to the warehouse,’” Troncoso said. “It was right before Christmas, and they said, ‘Hey, guys, unfortunately we’re getting shut down.’”
After a public outcry, Nevada lawmakers partly reversed the reductions to rooftop solar incentives. Since then, NV Energy and the rooftop solar industry have maintained an uneasy political ceasefire. Installations now exceed pre-2015 levels.
Today, Troncoso is Nevada branch manager for Sunrun, the nation’s largest rooftop solar installer. The company has enough work in the state to support a dozen crews, each named for a different casino. On a chilly winter morning before sunrise, they prepared for the day ahead — laying out steel rails, hooking up microinverters and loading panels onto powder-blue trucks.
But even if Sunrun’s business continues to grow, it won’t eliminate the need for large solar farms in the desert.
Some habitat destruction is unavoidable — at least if we want to break our fossil fuel addiction. The key questions are: How many big solar farms are needed, and where should they be built? Can they be engineered to coexist with animals and plants?
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And if not, should Americans be willing to sacrifice a few endangered species in the name of tackling climate change?
To answer those questions, Los Angeles Times journalists spent a week in southern Nevada, touring solar construction sites, hiking up sand dunes and off-roading through the Mojave. We spoke with NV Energy executives, conservation activists battling Buffett’s company and desert rats who don’t want to see their favorite off-highway vehicle trails cut off by solar farms.
Odds are, no one will get everything they want.
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The tortoise in the coal mine
Biologist Bre Moyle easily spotted the small yellow flag affixed to a scraggly creosote bush — one of many hardy plants sprouting from the caliche soil, surrounded by rows of gleaming steel trusses that would soon hoist solar panels toward the sky.
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Moyle leaned down for a closer look, gently pulling aside branches to reveal a football-sized hole in the ground. It was the entrance to a desert tortoise burrow — one of thousands catalogued by her employer, Primergy Solar, during construction of one of the nation’s largest solar farms on public lands outside Las Vegas.
“I wouldn’t stand on this side of it,” Moyle advised us. “If you walk back there, you could collapse it, potentially.”
I’d seen plenty of solar construction sites in my decade reporting on energy. But none like this.
Instead of tearing out every cactus and other plant and leveling the land flat — the “blade and grade” method — Primergy had left much of the native vegetation in place and installed trusses of different heights to match the ground’s natural contours. The company had temporarily relocated more than 1,600 plants to an on-site nursery, with plans to put them back later.
The Oakland-based developer also went to great lengths to safeguard desert tortoises — an iconic reptile protected under the federal Endangered Species Act, and the biggest environmental roadblock to building solar in the Mojave.
Desert tortoises are sensitive to global warming, residential sprawl and other human encroachment on their habitat. The U.S. Fish and Wildlife Service has estimated tortoise populations fell by more than one-third between 2004 and 2014.
Scientists consider much of the Primergy site high-quality tortoise habitat. It also straddles a connectivity corridor that could help the reptiles seek safer haven as hotter weather and more extreme droughts make their current homes increasingly unlivable.
Before Primergy started building, the company scoured the site and removed 167 tortoises, with plans to let them return and live among the solar panels once the heavy lifting is over. Two-thirds of the project site will be repopulated with tortoises.
Workers removed more tortoises during construction. As of January, the company knew of just two tortoises killed — one that may have been hit by a car, and another that may have been entombed in its burrow by roadwork, then eaten by a kit fox.
Primergy Vice President Thomas Regenhard acknowledged the company can’t build solar here without doing any harm to the ecosystem — or spurring opposition from conservation activists. But as he watched union construction workers lift panels onto trusses, he said Primergy is “making the best of the worst-case situation” for solar opponents.
“What we’re trying to do is make it the least impactful on the environment and natural resources,” he said. “What we’re also doing is we’re sharing that knowledge, so that these projects can be built in a better way moving forward.”
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The company isn’t saving tortoises out of the goodness of its profit-seeking heart.
The U.S. Bureau of Land Management conditioned its approval of the solar farm, called Gemini, on a long list of environmental protection measures — and only after some bureau staffers seemingly contemplated rejecting the project entirely.
Documents obtained under the Freedom of Information Act by the conservation group Defenders of Wildlife show the bureau’s Las Vegas field office drafted several versions of a “record of decision” that would have denied the permit application for Gemini. The drafts listed several objections, including harm to desert tortoises, loss of space for off-road vehicle drivers and disturbance of the Old Spanish National Historic Trail, which runs through the project site.
Separately, Primergy reached a legal settlement with conservationists — who challenged the project’s federal approval in court — in which the company agreed to additional steps to protect tortoises and a plant known as the three-corner milkvetch.
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The company estimates just 2.5% of the project site will be permanently disturbed — far less than the 33% allowed by Primergy’s federal permit. Regenhard is hopeful the lessons learned here will inform future solar development on public lands.
“This is something new. So we’re refining a lot of the processes,” he said. “We’re not perfect. We’re still learning.”
By the time construction wraps this fall, 1.8 million panels will cover nearly 4,000 football fields’ worth of land, just off the 15 Freeway. They’ll be able to produce 690 megawatts of power — as much as 115,000 typical home solar systems. And they’ll be paired with batteries, to store energy and help NV Energy customers keep running their air conditioners after sundown.
Unlike many solar fields, Gemini is close to the population it will serve — just a few dozen miles from the Strip. And the affected landscape is far from visually stunning, with none of the red-rock majesty found at nearby Valley of Fire State Park.
But desert tortoises don’t care if a place looks cool to humans. They care if it’s good tortoise habitat.
Moyle, Primergy’s environmental services manager, pointed to a small black structure at the bottom of a fence along the site’s edge — a shade shelter for tortoises. Workers installed them every 800 feet, so that if any relocated reptiles try to return to the solar farm too early, they don’t die pacing along the fence in the heat.
“They have a really, really good sense of direction,” Moyle said. “They know where their homes are. They want to come back.”
Primergy will study what happens when tortoises do come back. Will they benefit from the shade of the solar panels? Or will they struggle to survive on the industrialized landscape?
And looming over those uncertainties, a more existential query: With global warming beginning to devastate human and animal life around the world, should we really be slowing or stopping solar development to save a single type of reptile?
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Moyle was ready with an answer: Tortoises are a keystone species. If they’re doing well, it’s a good sign of a healthy ecosystem in which other desert creatures — such as burrowing owls, kit foxes and American badgers — are positioned to thrive, too.
And as the COVID-19 pandemic has demonstrated, human survival is inextricably linked with a healthy natural world.
“We take one thing out, we don’t know what sort of disastrous effect it’s going to have on everything else,” Moyle said.
We do, however, know the consequences of relying on fossil fuels: entire towns burning to the ground, Lake Mead three-quarters empty, elderly Americans baking to death in their overheated homes. With worse to come.
The shifting sands of time
A few miles south, another solar project was rising in the desert. This one looked different.
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A fleet of bulldozers, scrapers, excavators and graders was nearly done flattening the land — a beige moonscape devoid of cacti and creosote. The solar panel support trusses were all the same height, forming an eerily rigid silver sea.
When I asked Carl Glass — construction manager for DEPCOM Power, the contractor building this project for Buffett’s NV Energy — why workers couldn’t leave vegetation in place like at Gemini, he offered a simple answer: drainage. Allowing the land to retain its natural contours, he said, would make it difficult to move stormwater off the site during summer monsoons.
Safety was another consideration, said Dani Strain, NV Energy’s senior manager for the project. Blading and grading the land meant workers wouldn’t have to carry solar panels and equipment across ground studded with tripping hazards.
“It’s nicer for the environment not to do it,” Strain said. “But it creates other problems. You can’t have everything.”
This kind of solar project has typified development in the Mojave Desert.
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And it helps explain why the Center for Biological Diversity’s Patrick Donnelly has fought so hard to limit that development.
The morning after touring the solar construction sites, we joined Donnelly for a hike up Big Dune, a giant pile of sand covering five square miles and towering 500 feet above the desert floor, 90 miles northwest of Las Vegas. The sun was just beginning its ascent over the Mojave, bathing the sand in a smooth umber glow beneath pockets of wispy cloud.
On weekends, Donnelly said, the dune can be overrun by thousands of off-road vehicles. But on this day, it was quiet.
Energy companies have proposed more than a dozen solar farms on public lands surrounding Big Dune — some with overlapping footprints. Donnelly doesn’t oppose all of them. But he thinks federal agencies should limit solar to the least ecologically sensitive parts of Nevada, instead of letting companies pitch projects almost anywhere they choose.
“Developers are looking at this as low-hanging fruit,” he said. “The idea is, this is where California can build all of its solar.”
We trekked slowly up the dune, our bodies casting long shadows in the early morning light. When we took a breather and looked back down, a trail of footprints marked our path. Donnelly assured us a windy day would wipe them away.
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“This is why I live here, man,” he said. “It’s the most beautiful place on Earth, in my mind.”
Donnelly broke his back in a rock-climbing accident, so he used a walking stick to scale the dune. He lives not far from here, at the edge of Death Valley National Park, and works as the nonprofit Center for Biological Diversity’s Great Basin director.
As we resumed our journey, the wind blowing hard, I asked Donnelly to rank the top human threats to the Mojave. He was quick to answer: The climate crisis was No. 1, followed by housing sprawl, solar development and off-road vehicles.
“There’s no good solar project in the desert. But there’s less bad,” he said. “And we’re at a point now where we have to settle for less bad, because the alternatives are more bad: more coal, more gas, climate apocalypse.”
That hasn’t stopped Donnelly and his colleagues from fighting renewable energy projects they fear would wipe out entire species — even little-known plants and animals with tiny ranges, such as Tiehm’s buckwheat and the Dixie Valley toad.
“I’m not a religious guy,” Donnelly said. “But all God’s creatures great and small.”
After a steep stretch of sand, we stopped along a ridge with sweeping views. To our west were the Funeral Mountains, across the California state line in Death Valley National Park — and far beyond them Mt. Whitney, its snow-covered facade just barely visible. To our east was Highway 95, cutting across the Amargosa Valley en route from Las Vegas to Reno.
It’s along this highway that so many developers want to build.
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“We would be in a sea of solar right now,” Donnelly said.
Having heard plenty of rural residents say they don’t want to look at such a sea, I asked Donnelly if this was a bad spot for solar because it would ruin the glorious views. He told me he never makes that argument, “because honestly, views aren’t really the primary concern at this moment. The primary concern is stopping the biodiversity crisis and the climate crisis.”
“There are certain places where we shouldn’t put solar because it’s a wild and undisturbed landscape,” he said.
As far as he’s concerned, though, the Amargosa Valley isn’t one of those landscapes, what with Highway 95 running through it. The same goes for Dry Lake Valley, where NV Energy’s solar construction site is already surrounded by energy infrastructure.
What Donnelly would like to see is better planning.
He pointed to California, where state and federal officials spent eight years crafting a desert conservation plan that allows solar and wind farms across a few hundred thousand acres while setting aside millions more for protection. He thinks a similar process is crucial in Nevada, where four-fifths of the land area is owned by the federal government — more than any other state.
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If Donnelly had his way, regulators would put the kibosh on solar farms immediately adjacent to Big Dune. He’s worried they could alter the movement of sand across the desert floor, affecting several rare beetles that call the dune home.
But if the feds want to allow solar projects along the highway to the south, near the Area 51 Alien Center?
“Might not be the end the world,” Donnelly said.
He shot me a grin.
“You know, one thing I like to do …”
Without warning, he took off racing down the dune, carried by momentum and love for the desert. He laughed as he reached a natural stopping point, calling for us to join him. His voice sounded free and full of possibility.
Some solar panels on the horizon wouldn’t have changed that.
Shout it from the rooftops
Laura Cunningham and Kevin Emmerich were a match made in Mojave Desert heaven.
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Cunningham was a wildlife biologist, Emmerich a park ranger when they met nearly 30 years ago at Death Valley. She studied tortoises for government agencies and later a private contractor. He worked with bighorn sheep and gave interpretive talks. They got married, bought property along the Amargosa River and started their own conservation group, Basin and Range Watch.
And they’ve been fighting solar development ever since.
That’s how we ended up in the back of their SUV, pulling open a rickety cattle gate off Highway 95 and driving past wild burros on a dirt road through Nevada’s Bullfrog Hills, 100 miles northwest of Las Vegas.
They had told us Sarcobatus Flat was stunning, but I was still surprised by how stunning. I got my first look as we crested a ridge. The gently sloping valley spilled down toward Death Valley National Park, whose snowy mountain peaks towered over a landscape dotted with thousands of Joshua trees.
“Everything we’re looking at is proposed for solar development,” Cunningham said.
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Most environmentalists agree we need at least some large solar farms. Cunningham and Emmerich are different. They’re at the vanguard of a harder-core desert protection movement that sees all large-scale solar farms on public lands as bad news.
Why had so many companies converged on Sarcobatus Flat?
The main answer is transmission. NV Energy is seeking federal approval to build the 358-mile Greenlink West electric line, which would carry thousands of megawatts of renewable power between Reno and Las Vegas along the Highway 95 corridor.
The dirt road curved around a small hill, and suddenly we found ourselves on the valley floor, surrounded by Joshua trees. Some looked healthy; others had bark that had been chewed by rodents seeking water, a sign of drought stress. Scientists estimate the Joshua tree’s western subspecies could lose 90% of its range as the world gets hotter and droughts get more intense.
But asked whether climate change or solar posed a bigger threat to Sarcobatus Flat, Cunningham didn’t hesitate.
“Oh, solar development hands down,” she said.
Nearly 20 years ago, she said, she helped relocate desert tortoises to make way for a test track in California. One of them tried to return home, walking 20 miles before hitting a fence. It paced back and forth and eventually died of heat exhaustion.
Solar farms, she said, pose a similar threat to tortoises. And at Sarcobatus Flat, they would cover a high-elevation area that could otherwise serve as a climate refuge for Joshua trees, giving them a relatively cool place to reproduce as the planet heats up.
“It makes no sense to me that we’re going to bulldoze them down and throw them into trash piles. It’s just crazy,” she said.
In Cunningham and Emmerich’s view, every sun-baked parking lot in L.A. and Vegas and Phoenix should have a solar canopy, every warehouse and single-family home a solar roof. It’s a common argument among desert defenders: Why sacrifice sensitive ecosystems when there’s an easy alternative for fighting climate change? Especially when rooftop solar can reduce strain on an overtaxed electric grid and — when paired with batteries — help people keep their lights on during blackouts?
The answer isn’t especially satisfying to conservationists.
For all the virtues of rooftop solar, it’s an expensive way to generate clean power — and keeping energy costs low is crucial to ensure that lower-income families can afford electric cars, another key climate solution. A recent report from investment bank Lazard pegged the cost of rooftop solar at 11.7 cents per kilowatt-hour on the low end, compared with 2.4 cents for utility solar.
Even when factoring in pricey long-distance electric lines, utility-scale solar is typically cheaper, several experts told me.
“It’s three to six times more expensive to put solar on your roof than to put it in a large-scale project,” said Jesse Jenkins, an energy systems researcher at Princeton University. “There may be some added value to having solar in the Los Angeles Basin instead of the middle of the Mojave Desert. But is it 300% to 600% more value? Probably not. It’s probably not even close.”
There’s a practical challenge, too.
The National Renewable Energy Laboratory has estimated U.S. rooftops could generate 1,432 terawatt-hours of electricity per year — just 13% of the power America will need to replace most of its coal, oil and gas, according to research led by Jenkins.
Add in parking lots and other areas within cities, and urban solar systems might conceivably supply one-quarter or even one-third of U.S. power, several experts told The Times — in an unlikely scenario where they’re installed in every suitable spot.
Energy researcher Chris Clack’s consulting firm has found that dramatic growth in rooftop and other small-scale solar installations could reduce the costs of slashing climate pollution by half a trillion dollars. But even Clack said rooftops alone won’t cut it.
“Realistically, 80% is going to end up being utility grid no matter what,” he said.
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All those industrial renewable energy projects will have to go somewhere.
Sarcobatus Flat may not be the answer. Federal officials classified all three solar proposals there as “low priority,” citing their proximity to Death Valley and potential harm to tortoise habitat. One developer withdrew its application last year.
Before leaving the area, Cunningham pointed to a wooden marker, one of at least half a dozen stretching out in a line. I walked over to take a closer look and discovered it was a mining claim for lithium — a main ingredient in electric-car batteries.
If solar development didn’t upend this valley, lithium extraction might.
On the beaten track
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The four-wheeler jerked violently as Erica Muxlow pressed her foot to the gas, sending us flying down a rough dirt road with no end in sight but the distant mountains. Five-point safety straps were the only things stopping us from flying out of our seats, the vehicle leaping through the air as we reached speeds of 40 mph, then 50 mph, the wind whipping our faces.
It was like riding Disneyland’s Matterhorn Bobsleds — just without the Yeti.
Ahead of us, Muxlow’s neighbor Jimmy Lewis led the way on an electric blue motorcycle, kicking up a stream of sand. He wanted us to see thousands of acres of public lands outside his adopted hometown of Pahrump, in Nevada’s Nye County, that could soon be blocked by solar projects — cutting off access to off-highway vehicle enthusiasts such as himself.
“You could build an apartment complex or a shopping mall here, and it would be the same thing to me,” he said.
To progressive-minded Angelenos or San Franciscans, preserving large chunks of public land for gas-guzzling, environmentally destructive dirt bikes might sound like a terrible reason not to build solar farms that would lessen the climate crisis.
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But here’s the reality: Rural Westerners such as Lewis will play a key role in determining how much clean energy gets built.
Not long before our Nevada trip, Nye County placed a six-month pause on new renewable energy projects, citing local concerns about loss of off-road vehicle trails. Similar fears have stymied development across the U.S., with rural residents attacking solar and wind farms as industrial intrusions on their way of life — and local governments throwing up roadblocks.
For Lewis, the conflict is deeply personal.
He moved here from Southern California more than a decade ago, trading life by the beach for a five-acre plot where he runs an off-roading school and test-drives motorcycles for manufacturers. His warehouse was packed with dozens of dirt bikes.
“This is my life. Motorcycles, motorcycles, motorcycles,” he said, laughing.
Lewis has worked to stir up opposition to three local solar farm proposals. So far, his efforts have been in vain.
One project is already under construction. Peering through a fence, we saw row after row of trusses, waiting for their photovoltaic panels. It’s called Yellow Pine, and it’s being built by Florida-based NextEra Energy to supply power to California.
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Lewis learned about Yellow Pine when he was riding one of his favorite trails and was surprised to find it cut off. He compared the experience to riding the best roller-coaster at a theme park, only to have it grind to a halt three-quarters of the way through.
“I don’t want my playground taken away from me,” he said.
“Me neither!” a voice called out from behind us.
We turned and were greeted by Shannon Salter, an activist who had previously spent nine months camping near the Yellow Pine site to protest the habitat destruction. She and Lewis had never met, but they quickly realized they had common cause.
“It’s the opposite of green!” Salter said.
“On my roof, not my backyard,” Lewis agreed.
Never mind that conservationists have long decried the ecological damage from desert off-roading. Salter and Lewis both cared about these lands. Neither wanted to see the solar industry lay claim to them. They talked about staying in touch.
It’s easy to imagine similar alliances forming across the West, the clean energy transition bringing together environmentalists and rural residents in a battle to defend their lifestyles, their landscapes and animals that can’t fight for themselves.
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It’s also easy to imagine major cities that badly need lots of solar and wind power — Los Angeles, Las Vegas, Phoenix — brushing off those complaints as insignificant compared with the climate emergency, or as fueled by right-wing misinformation.
But many of concerns raised by critics are legitimate. And their voices are only getting louder.
As night fell over the Mojave, Lewis shared his idea that any city buying electricity from a desert solar farm should be required to install a certain amount of rooftop solar back home first — on government buildings, at least. It only seemed fair.
“Some people see the desert as just a wasteland,” Lewis said. “I think it’s beautiful.”
The view from Black Mountain
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So how do we build enough renewable energy to replace fossil fuels without destroying too many ecosystems, or stoking too much political opposition from rural towns, or moving too slowly to save the planet?
Few people could do more to ease those tensions than Buffett.
Our conversation kept returning to the legendary investor as we hiked Black Mountain, just outside Vegas, on our last morning in the Silver State. We were joined by Jaina Moan, director of external affairs for the Nature Conservancy’s Nevada chapter. She had promised a view of massive solar fields from the peak — but only after a 3.5-mile trek with 2,000 feet of elevation gain.
“It’ll be a little StairMaster at the end,” she warned us.
The homes and hotels and casinos of the Las Vegas Valley retreated behind us as we climbed, looking ever smaller and more insignificant against the vast open desert. It was an illusion that will prove increasingly difficult to maintain as Sin City and its suburbs continue their march into the Mojave. Nevada politicians from both parties are pushing for legislation that would let federal officials auction off additional public lands for residential and commercial development.
Vegas and other Western cities could limit the need for more suburbs — and sprawling solar farms — by growing smarter, Moan said. Urban areas could embrace density, to help people drive fewer miles and reduce the demand for new power supplies to fuel electric vehicles. They could invest in electric buses and trains — and use less water, which would save a lot of energy.
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“As our spaces become more crowded, we’re going to have to come up with more creative ideas,” Moan said.
That’s where Buffett could make things easier.
The billionaire’s Berkshire Hathaway company owns electric utilities that serve millions of people, from California to Nevada to Illinois. Those utilities, Moan said, could buck the industry trend of urging policymakers to reduce financial incentives for rooftop solar and instead encourage the technology — along with other small-scale clean energy solutions, such as local microgrids.
That would limit the need for big solar farms — at least somewhat.
Berkshire and other energy giants could also build solar on lands already altered by humans, such as abandoned mines, toxic Superfund sites, reservoirs, landfills, agricultural areas, highway corridors and canals that carry water to farms and cities.
The costs are typically higher than building on undisturbed public lands. And in many cases there are technical challenges yet to be resolved. But those kinds of “creative solutions” could at least lessen the loss of biodiversity, Moan said.
“There’s money to be made there, and there’s good to be done,” she said.
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It’s hard to know what Buffett thinks. A Berkshire spokesperson declined my request to interview him.
Tony Sanchez, NV Energy’s executive vice president for business development and external relations, was more forthcoming.
“The problem for us with rooftop solar,” he said, is that it’s “not controlled at all by us.” As a result, NV Energy can’t decide when and how rooftop solar power is used — and can’t rely on that power to help balance supply and demand on the grid.
Over time, Sanchez predicted, a lot more rooftop solar will get built. But he couldn’t say how much.
Rooftop solar faces a similarly uncertain future in California, where state officials voted last year to slash incentive payments, calling them an unfair subsidy. Industry leaders have warned of a dramatic decline in installations.
As we neared the top of Black Mountain, the solar farms on the other side came into view. They stretched across the Eldorado Valley far below — black rectangles that could help save life on Earth while also destroying bits and pieces of it.
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Moan believes the key to balancing clean energy and conservation is “go slow to go fast.” Government agencies, she said, should work with conservation activists, small-town residents and Native American tribes to study and map out the best places for clean energy, then reward companies that agree to build in those areas with faster approvals. Solar and wind development would slow down in the short term but speed up in the long run, with quicker environmental reviews and less risk of lawsuits.
It’s a tantalizing concept — but I confessed to Moan that I worried it would backfire.
What if the sparring factions couldn’t agree on the best spots to build solar and wind farms, and instead wasted years arguing? Or what if they did manage to hammer out some compromises, only for a handful of unhappy people or groups to take them to court, gumming up the works? Couldn’t “go slow to go fast” end up becoming “go slow to go slow”?
In other words, should we really bet our collective future on human beings working together, rather than fighting?
Moan was sympathetic to my fears. She also didn’t see another way forward.
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“We really need to think holistically about saving everything,” she said.
The sad truth is, not everything can be saved. Not if we want to keep the world livable for people and animals alike.
Some beloved landscapes will be left unrecognizable. Some families will be stuck paying high energy bills to monopoly utilities, even as some utility investors make less money. Some tortoises will probably die, pacing along fences in the heat.
The alternative is worse.
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The HousingWire award spotlight series highlights the individuals and organizations that have been recognized through our Editors’ Choice Awards. Nominations for HousingWire’s 2023 HW Vanguards are open until July 28, 2023. Click here to nominate someone from your organization today.
The 2023 HW Vanguard awards are now open for nominations! This prestigious award recognizes the c-suite executives making an unmistakable impact on the housing ecosystem. These leaders are inspiring their organizations and moving markets forward, each and every day.
One common thread among all of the HW Vanguard honorees is outstanding leadership abilities. HousingWire reached out to the 2022 HW Vanguard honorees to hear more about their leadership strategies and asked: In your opinion, what trait or behavior that makes an effective leader?
Take a look below at what we heard from two of last year’s winners:
“Asking for help and being ready to say ‘yes’ when asked for help. Saying you believe that it ‘takes a village’ and actually acting on that belief are two different things; actively engaging in the marketplace of mutual help has served me extremely well in leadership roles.” — Alex Lofton, co-founder and CEO of Landed
“I believe the one trait that makes an effective leader outside of integrity is the ability to always be able to pivot immediately from problems to solutions. Great leaders never dwell on obstacles, but always find opportunities.” — Dale Vermillion, founder and CEO of Mortgage Champions
Don’t miss the chance to nominate an industry executive for the 2023 HW Vanguards award! Nominations close Friday, July 28, 2023.
I find predictions, and the people who make them, fascinating for a few reasons. First, I — like everyone — would love to get a hint of what’s coming up.
But successful forecasting is pretty difficult. Which brings us to the second reason why I like predictions: It’s entertaining to see how different the world turned out from how people expected. Here are several memorable predictions of yore:
“Radio has no future. Heavier-than-air flying machines are impossible. X-rays will prove to be a hoax.” William Thomson, Lord Kelvin, British scientist, 1899
“Television won’t last because people will soon get tired of staring at a plywood box every night.” Darryl Zanuck of 20th Century Fox, 1946
“They couldn’t hit an elephant at that distance.” Final words of Union General John Sedgwick, 1864
“Atomic energy might be as good as our present-day explosives, but it is unlikely to produce anything very much more dangerous.” Winston Churchill, 1939
“Who the hell wants to hear actors talk?” H. M. Warner, Warner Brothers, 1927
“It will be years — not in my time — before a woman will become Prime Minister.” Margaret Thatcher, 1969
“We don’t like their sound, and guitar music is on the way out.” Decca Records, when rejecting the Beatles in 1962
“The abdomen, the chest, and the brain will forever be shut from the intrusion of the wise and humane surgeon.” British surgeon Sir John Eric Ericksen, 1873
“I think there is a world market for maybe five computers.” Thomas Watson, president of IBM, 1943
“This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.” Western Union internal memo, 1876
“I’m just glad it’ll be Clark Gable who’s falling on his face and not Gary Cooper.” Gary Cooper, on turning down the lead role in Gone With the Wind
Good stuff.
The blind leading the blind But we don’t have to go back decades to find instances of people (some of them pretty smart) being wrong about the future. Let’s flip through the cyber-pages of the Dec. 20, 2007, issue of BusinessWeek, which featured one of those year-end, “where the Dow will be a year from now” types of articles.
So where did six Wall Street experts think the Dow would be at the end of 2008? Dumb roll, please…
Leo Grohowski, BNY Mellon Wealth Management: 14,800
Thomas McManus, Banc of America Securities: 14,700
David Bianco, UBS Investment Research: 15,250
You may recall that the Dow was quite a bit lower than each of those predictions on Dec. 31, 2008 — approximately 40% lower, in fact, at 8,776.
Okay, so those people aren’t really dumb. In fact, they’re likely in possession of above-average intelligence, and work with teams of analysts who also have above-average brains. And they also likely have access to the most data, the fastest computers, and the best software.
And they still were very, very wrong.
Boy, it would be great if we could consistently predict which investments would be the winners and which would be the losers. But it’s very difficult; in the short term, it’s impossible.
Dr. Doom Want more proof? By now, you likely have heard and seen Dr. Nouriel Roubini, the NYU professor known as “Dr. Doom” for his pessimistic outlook. He gained a lot of fame for predicting the housing crash and resultant deep recession. Good for him.
In December 2008, Fortune magazine asked Roubini for his predictions for 2009. Here’s what he wrote:
For the next 12 months I would stay away from risky assets. I would stay away from the stock market. I would stay away from commodities. I would stay away from credit, both high-yield and high-grade. I would stay in cash or cash-like instruments such as short-term or longer-term government bonds. It’s better to stay in things with low returns rather than to lose 50% of your wealth.
Well, you know how good that advice was. The assets that Roubini warned against posted huge double-digit returns in 2009. As for the investments he recommended, the Vanguard Short-Term Treasury Fund (VFISX) returned just 1.4%, and the Vanguard Long-Term Treasury Fund (VUSTX) lost 12.1%.
As Yogi Berra once said, “It’s tough to make predictions, especially about the future.”
On my CAPS blog, I occasionally summarize predictions I’ve run across from the previous week or two. I always break them up into two groups: Those who predict good things for the economy or stocks, and those predict ill. Invariably, the people I quote are all smart, thorough, well-educated people. And they look into their crystal balls and see vastly different things.
J.D.’s note: CAPS is the free Motley Fool website where you can try your hand at picking individual stocks, track your performance, compare your performance to other CAPS players, and see what investments the best CAPS players are picking. GRS first mentioned it about two years ago. I’m no longer one for picking stocks, but if you are, CAPS is worth checking out.
But isn’t picking stocks the same thing as making predictions? If the future is so hard to forecast, why even try?
Ay, there’s the rub. If you’re putting money in an IRA or 401(k), you have to choose which investments to buy with that money. And investing, by its nature, is a predictions game; you put your money into the things that you think will be worth more in the future than they are worth today.
So what to do?
The power of diversification As I’ve written before, having a well-diversified portfolio is the way to go for most people, because there’s no crystal ball required. You own lots and lots of investments, so that something will do well in just about any scenario. You own domestic and international investments; large, mid, and small stocks; index and actively managed funds; and if you own fixed-income investments, then diversify across corporate bonds, Treasuries, and inflation-adjusted bonds.
If you’re investing in individual stocks, keep yourself honest by tracking your results. If, after all the time you spend researching and monitoring your stocks, you underperform the market, then perhaps you’d be better off in a mutual fund of some kind. Motley Fool CAPS is a great way to see if you have what it takes to be a stock-picker before you commit too much of your nest egg.
In summary, my fellow Americans (and the Canadians who are reading — darn you and your gold-winning hockey team! — though you put on a great Olympics), unless you put all your money under your mattress, you have to make some guesses about what the future will bring. But do so with great humility and honesty. And beware of any “expert” who is very confident about what will happen. Chances are, if you examine his record, you’ll find plenty of reasons he shouldn’t be so confident.
Average mortgage rates fell just a little last Friday. But last Thursday’s massive jump means they finished that week — and last month — higher than when they started them.
First thing, it was looking as if mortgage rates today might again barely budge. But that could change as the hours pass.
Markets will be closed tomorrow for the Independence Day holiday. And we’ll be back on Wednesday morning. Enjoy your celebrations!
Current mortgage and refinance rates
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.129%
7.158%
Unchanged
Conventional 15-year fixed
6.638%
6.651%
Unchanged
Conventional 20-year fixed
7.506%
7.558%
Unchanged
Conventional 10-year fixed
6.997%
7.115%
Unchanged
30-year fixed FHA
6.672%
7.303%
Unchanged
15-year fixed FHA
6.763%
7.237%
Unchanged
30-year fixed VA
6.729%
6.937%
Unchanged
15-year fixed VA
6.625%
6.965%
Unchanged
5/1 ARM Conventional
6.75%
7.266%
Unchanged
5/1 ARM FHA
6.75%
7.532%
+0.11
5/1 ARM VA
6.75%
7.532%
+0.11
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions See our rate assumptions here.
Should you lock a mortgage rate today?
Recent reporting in the financial media makes me think mortgage rates are unlikely to see any significant and sustained falls until at least the fourth (Oct.-Dec.) quarter of 2023 and probably not until 2024.
And that’s why my personal rate lock recommendations remain:
LOCK if closing in 7 days
LOCK if closing in 15 days
LOCK if closing in 30 days
LOCK if closing in 45 days
LOCK if closing in 60days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data, compared with roughly the same time last Friday, were:
The yield on 10-year Treasury notes edged down to 3.82% from 3.85%. (Good for mortgage rates.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were mostly lower. (Good for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
Oil prices inched up to $70.61 from $70.25 a barrel. (Neutral for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices rose to $1,930 from $1,919 an ounce. (Neutral for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — climbed to 84 from 80 out of 100. (Bad for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic and the Federal Reserve’s interventions in the mortgage market, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today might again hold steady or close to steady. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Important notes on today’s mortgage rates
Here are some things you need to know:
Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
What’s driving mortgage rates today?
Currently
To see sustained lower mortgage rates we need to see the inflation rate halving, the economy weakening, and the Federal Reserve stopping hiking general interest rates. And none of those looks likely anytime soon.
Some progress is being made on inflation. But not enough.
And the economy is showing extraordinary resilience. Last week’s gross domestic product (GDP) headline figure was 50% higher than many expected.
Meanwhile, the Fed seems highly likely to hike general interest rates by 25 basis points (0.25%) on Jul. 26. And there may well be at least one more increase after that in 2023.
Recession
As I’ve written before, our best hope for lower mortgage rates is a recession. That should weaken the economy, reduce inflation and perhaps cause the Fed to at least hold general rates steady.
Economists have been predicting an imminent recession for ages. And, not so long ago, I bought that line and was expecting one at any moment.
But, now, many big hitters aren’t expecting a recession until 2024. Yesterday, CNN Business listed a few of those making that prediction:
Bank of America CEO Brian Moynihan
Vanguard economists
JPMorgan Chase economists
Of course, others disagree, as economists always do. Some think a recession will still land later this year. And others believe there will be no recession at all.
This week
There are a few reports this week that could send mortgage rates up or down a bit. But Friday’s jobs report is the one most likely to have a decisive impact.
The consensus among economists is that the report will show 240,000 new jobs created in June compared with 339,000 in May. Anything lower than 240,000 might see mortgage rates tumble, which would be great.
However, we’ve witnessed economists making similar predictions for employment several times over recent months. And, nearly every time, their forecasts have greatly underestimated the resilience of the American labor market and therefore the American economy.
Of course, they might be right this time. Let’s hope so. But I shouldn’t hold my breath if I were you.
Please read the weekend edition of this daily report for more background on what’s happening to mortgage rates.
Recent trends
According to Freddie Mac’s archives, the weekly all-time low for mortgage rates was set on Jan. 7, 2021, when it stood at 2.65% for conventional, 30-year, fixed-rate mortgages.
Freddie’s Jun. 29 report put that same weekly average at 6.71%, up from the previous week’s 6.67%. But Freddie is almost always out of date by the time it announces its weekly figures.
In November, Freddie stopped including discount points in its forecasts. It has also delayed until later in the day the time at which it publishes its Thursday reports. Andwe now update this section on Fridays.
Expert mortgage rate forecasts
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the current quarter (Q2/23) and the following three quarters (Q3/23, Q4/23 and Q1/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were published on May 23 and the MBA’s on Jun. 21.
In the past, we included Freddie Mac’s forecasts. But it seems to have given up on publishing those.
Forecaster
Q2/23
Q3/23
Q4/23
Q1/24
Fannie Mae
6.4%
6.2%
6.0%
5.8%
MBA
6.5%
6.2%
5.8%
5.6%
Of course, given so many unknowables, the whole current crop of forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Find your lowest rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
Interest rate
Annual percentage rate (APR)
Monthly mortgage payment
Loan origination fees
Rate lock fees
Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change, unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
For the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
Conventional home loans — minimum 620 credit score
FHA loans — minimum 500 credit score (with a 10% down payment) or 580 (with a 3.5% down payment)
VA loans — no minimum credit score, but 620 is common
USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
In fact, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
Conventional home loans require a down payment between 3% and 5%
FHA loans require 3.5% down
VA and USDA loans allow zero down payment
Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. This gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements, or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders — and it could save you thousands in the long run.
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
So, you find the lazy way to invest very appealing: You like the simplicity and the long-term results. But you don’t want to bother with building your own lazy portfolio of index funds and adjusting it as you get older (same as creating your own target-date fund). At this point in your life, you just want a set-it-and-forget-it solution, at least until you feel more comfortable building your own investment portfolio. Target-date funds seem perfect for the job, but which one is right for you? Let’s walk through choosing a target date fund.
Related >> Investing 101: An Introduction to Index Funds and Passive Investing
Choosing the Fund Family
The first step is to choose the fund family (Fidelity, Vanguard, etc.). This decision cannot be overlooked since each company manages its funds differently; a 2040 target-date fund from T. Rowe Price will be different from a 2040 target-date fund at Fidelity. Each company has its own philosophy and methodology. Let’s compare the three biggest players in this market: Fidelity Freedom Funds, T Rowe Price Retirement Funds, and Vanguard Target Retirement Funds.
Related >> a href=”https://www.getrichslowly.org/the-lazy-way-to-investment-success/”>The Passive Way to Investment Success
The first criteria you can use to compare the fund families is cost, specifically the expense ratio (the total annual cost for things like advertising and managing the fund). As an example, let’s look at the 2040 funds:
Fund Family
Expense Ratio
Fidelity
0.79%
T Rowe Price
0.79%
Vanguard
0.20%
Amazingly, Vanguard’s expenses are roughly a quarter of the other two. This is largely due to the use of actively-managed mutual funds by Fidelity and T Rowe Price; Vanguard only uses low-cost index funds in their target-date funds. If you think 0.59% a year is a pretty small difference, remember that the rough rule-of-thumb for withdrawing money in retirement is only 4% a year. That “small” difference in expense ratios is almost 15% of your potential retirement income!
Another important criteria to consider is the asset allocation used by the target-date fund — how much is invested in stocks, and how much is invested in bonds and other instruments. In particular, you want to look at how that allocation is expected to change as you get older. Investing geeks like me call that the “glide path.”
Choosing Your Target Date
Once you select the fund family, you need to decide on the specific fund to buy. Target-date funds are labeled by retirement year, generally assumed to be when you turn 65. So the 2040 fund is designed for the “typical” person who’s currently 35 and is expected to retire in 2040.
Obviously, no one is forcing you to buy the fund that corresponds to the year you turn 65. There are at least two very good reasons to adjust your target date:
If you plan on retiring much earlier or later than 65, you should consider adjusting your target date. Let’s say you’re 35 and want to retire at 55. Should you buy the target-date fund for 2030, since that’s when you’d retire? Not necessarily. Although the 2030 fund fits your retirement plans, it also assumes people retire around age 65, so your life expectancy is probably much longer than the target audience for the fund. A good compromise might be the 2035 fund, which respects both your early retirement plans and your longer life expectancy relative to others you retire with.
Even if you expect to retire at 65, the amount of risk you want to take is probably not “typical”. An easy way to reduce risk is by selecting a fund with a target date that is five to ten years before when you turn 65. (So, if you plan to retire near 2040, you might choose a 2030 target-date fund.) This lowers the level of risk by holding less in stocks while still considering your investment horizon. And if you want more risk, you can select a target date that is five to ten years past when you turn 65. (If you plan to retire around 2030, you could increase risk by choosing a 2040 target-date fund.)
Even though they’ve received some bad press lately due to their poor performance during the recent stock market crash, target-date funds are still useful investments for many people. They’re certainly better than other strategies commonly used by beginning investors: equal-weighting all funds within a 401(k) plan, picking stocks, or just leaving everything in a money market fund.
If you already use target-date funds, which funds do you own and how did you choose?
That’s something you hear a lot these days, and with good reason. The Standard & Poor’s 500 sits at around 1060, a threshold it first crossed in the beginning of 1998. In other words, that index of stocks in 500 industry-leading American companies — companies like ExxonMobil, Johnson & Johnson, Coke, and McDonald’s — has gone up and down a lot over the past 12 or so years, but has ended up in the same place where it started.
So you might think that if you invested $10,000 in the S&P 500 through something like the Vanguard 500 index fund back in the spring of 1998, you might still have just $10,000. But actually, you’d have approximately $12,000 — not great, but better than nothing.
How is that possible? Permit me to explain with a metaphor.
If money grew on trees Let’s imagine that you could buy a plant that grew money. That would be one valuable shrub, so it wouldn’t come cheap. In fact, let’s say a plant that produced $2 a year costs a hundred bucks. Still, you buy a whole bunch of them because:
Each one produces $2 today and will provide a little more money each year as the plant grows, perhaps $4 in a decade, and
In the future, another gardener might pay you more than $100 each for these plants.
What do you do with the cash your plants are providing? Buy more money-growing flora, so you can use the greenbacks they produce to buy, yes, more plants. When the market decides that they’re worth more than $100, you get fewer of them. When the market thinks they’re worth less, you’ll be able to buy more.
By the time you retire, you’ll own a whole lot of plants and, as they mature, they’ll each produce more money each year — perhaps $10 or more apiece. You may opt to sell some when the market catches on and offers a price higher than what you paid. But even when you retire, you should still own many of these shrubs because you’ll need to harvest the cash to pay your bills.
Stalks for the long run Okay, we all know that money doesn’t grow on trees. But most stocks pay dividends; plus, historically, over the long term those dividends increase. When you reinvest those dividends — as most people do — you’re automatically dollar-cost averaging (that is, buying more shares when prices are low and fewer when prices are high). You gradually accumulate more shares, which gradually pay bigger dividends, which are used to buy more shares, which pay bigger dividends…and so on.
The same goes for mutual funds that invest in stocks. In fact, let’s look at the real-life example of the aforementioned Vanguard 500, which attempts to mimic the performance of the S&P 500 at very low costs. (I own the fund myself.) Not every company in the S&P 500 pays dividends, but this will provide an illustration of how dividend reinvestment can pay off.
Had you invested $10,000 in the Vanguard 500 Fund on 31 March 1998, you’d have bought 97.84 shares, according to numbers provided to me by Vanguard. Over the subsequent year, the fund paid out $1.06 per share in dividend distributions.
Technical note: Mutual fund shares also pay out capital-gains distributions, but not as consistently. So, for simplicity’s sake, we’ll focus mostly on dividends.
Fast-forward to July 2010. You now have 121.15 shares — almost 24% more than you started with. That’s because you were accumulating more shares with all those fund distributions. But the news gets a little bit better. For the past year, the Vanguard 500 paid out $2.08 in dividend distributions. Over the past 12 years, the dividend almost doubled. Plus, you have 24% more shares paying that bigger dividend, which will buy more shares…well, you know the drill.
“Big deal!” I know what you’re saying: “Making a 20% total return over 12 years is lame! I know this blog is called Get Rich Slowly, but that’s ridiculous.”
I agree. As I said in the title of this post, investing in stocks hasn’t been quite as bad — but it’s still been bad. In fact, the last decade or so has been the worst period for blue-chip U.S. stocks since 1926, including the period encompassing the Great Depression (according to data from Ibbotson Associates).
I bring all this up to illustrate a few points:
Indexes can be misleading. Stock barometers such as the S&P 500 and the Dow Jones Industrial average are price indexes; they just measure the change in prices of the underlying stocks, and don’t factor in dividends or their reinvestment. That’s unfortunate, because…
Over the long term, dividends matter. Historically, dividend reinvestment has accounted for approximately one-third of the total return of stocks. That said, yields on stocks are pretty low these days, which means stocks aren’t a great bargain. But for my long-term money (I don’t plan to retire for another 30 years) I’m betting that the 2% to 3% yield on a broadly diversified portfolio of stocks — along with some capital appreciation — will beat the alternatives, namely, low-yielding cash and bonds (though I own some of each for diversification’s sake). This brings us to our third, final, and perhaps most important point…
Don’t invest in just one type of plant stock. Over the past decade or so, large-cap U.S. stocks — the type you find in the S&P 500 — have been the just about the worst type of investment to own. Name another type of stock (small-cap stocks, international stocks, real estate investment trusts) and chances are, as a group, they beat the S&P 500. As I explained in this video (just in case you’re dying to hear my nasally voice or see my hair while it still exists) and touched on in this previous GRS article, a properly diversified portfolio holds stocks of all types, sizes, nationalities, and flavors, with bonds or cash thrown in to suit your risk tolerance or financial needs (e.g., a retiree should have five years’ worth of income that is expected to be covered by saving sequestered from stocks and in something super-safe, like cash, CDs, or short-term bonds).
I have no crystal ball. I don’t know whether U.S. stocks or international stocks or cash or plants will be the best-performing asset class over the next decade or few. If you think the stock market is a sucker’s bet, I’m not here to argue with you. Just taking a look at the Japanese stock market — which is still down 70% from its 1989 peak, despite being the second-biggest economy in the world — should make anyone appreciate the risks of stock investing.
But if you’ve decided to make stocks a part of your long-term portfolio, I think that understanding the role dividend reinvestment plays will give you a little more confidence to hang in there.
J.D.’s note: Robert’s “stalks for the long run” pun above made me die laughing. I realize it’s an esoteric personal-finance writer joke, but it’s a funny one all the same.
The other day, a dear friend of mine in her mid-20s told me she was saving up to buy a house in her 30s.
Her plan for amassing a down payment was to simply make a big withdrawal from her 401(k) when the time was right.
When I reminded her that the combined taxes and penalties could be as much as 30% (meaning she’d lose $15,000 out of a $50,000 withdrawal), she frowned.
“Well, I can’t just put the money in a savings account. Interest rates suck these days – the highest I’ve seen is 1%, and that doesn’t even cover inflation!”
She had a point. So why not invest the money, I asked?
“Well, I don’t know much about stocks, I don’t have the patience for real estate, and crypto scares me.”
That’s when I told her she was the perfect candidate for a lazy portfolio.
“A what? Look, buster…”
Once I backpedaled and explained the concept, she understood that I wasn’t calling her a bum, but rather, keying her into a lesser-known but highly effective investment strategy.
In this piece, I’m going to clue you in, too!
What’s Ahead:
What is a “lazy portfolio”?
A lazy portfolio is a bundle of stock market investments that requires little to no active maintenance by you. They’re most commonly made up of between one and five index funds, which are like big bundles of stocks, bonds, and other investments that you can buy just like shares of a regular stock (more on those later).
Aside from the occasional deposit or gentle asset reallocation, lazy portfolios don’t require any work.
You can buy $5,000 or $10,000 worth of index funds today and literally do nothing but watch them for 10 years. Doing this means you’ll have a successful lazy portfolio that will, hopefully, generate good rates of return.
But wait – don’t you have to be constantly buying and selling stocks to make money in the stock market?
Not at all – in fact, it’s better if you don’t. Unlike with day trading, you don’t mess with your lazy portfolio – through thick and thin, you let it sit and generate compound interest for years.
You can think of a lazy portfolio like a baby 401(k) that you design yourself and withdraw from much earlier.
Here’s why being “lazy” is a good thing
I love the movie The Wolf of Wall Street and the investing madhouse r/WallStreetBets, but both entities continue to perpetuate a common myth about the stock market: that you need to day trade to make money.
Nothing could be further from the truth.
In truth, multiple academic studies have found that the overwhelming majority of retail investors end up losing money.
“Don’t be misled with false claims of easy profits from day trading,” Burton Malkiel, Princeton professor and Chief Investment Officer of Wealthfront, told CNBC.
The harsh reality of investing in the stock market is that unless you’re a highly trained wealth manager with decades of experience and a team of analysts, you’re probably going to lose money day trading (and even they tend to struggle to pick winning stocks).
That’s why it’s better not to day trade, and be lazy instead. Rather than researching, buying, and selling stocks every day for the next 10 years, you’ll be better off buying index funds in the next 30 minutes and going about your day (or decade).
What are lazy portfolios made up of?
Lazy portfolios are most commonly made up of a small mix of index funds. Here’s a breakdown of what those are and why they’re so effective for passive investing.
Index funds: the building block of lazy portfolios
Index funds are a form of ETF, or exchange-traded fund, which are like big bundles of stock and other investable assets. When you buy shares of an ETF, you’re effectively buying up shares of dozens or hundreds of companies at once.
Each ETF must be individually approved by the SEC and have an appealing “theme” to it. For example, there are blockchain ETFs; ETFs that track the oil industry; and even quirky, unique ETFs that contain shares of companies trying to appeal to Millennials.
So, while stocks let you invest in a company, ETFs let you invest in an entire industry, concept, or strategy.
Now, what makes index funds as unique as ETFs is that they’re designed to reflect the performance of an entire market index, such as the S&P 500 or the U.S. bond market. To illustrate, here are two of the most popular index funds for building lazy portfolios:
The Vanguard Total Bond Market Index Fund (BND), which reflects the performance of the total U.S. bond market.
The Vanguard Total Stock Market ETF (VTI), which, big surprise, reflects the performance of the overall stock market.
So by buying shares of VTI and BND, you’re essentially investing in “the stock market” and “the bond market.” I know – the idea of investing in the whole stock market all at once sounds meta and maybe a little ridiculous, but bear with me.
Index funds are extremely popular for one simple reason
If you’re new to the stock market, you should know that pretty much every investor dabbles in index funds. Everyone from Warren Buffet to your grandparents has a stake in them – in fact, here’s how Mr. Buffet himself feels about index funds:
“In my view, for most people, the best thing to do is owning the S&P 500 index fund,” he told CNBC.
Index funds are popular among amateurs and pros alike for one simple reason: they reliably produce around 3% to 10% APY year after year. Index funds that track the S&P 500 are particularly high-performing, which is why many actively-managed mutual funds will say they “beat the S&P 500” as a benchmark for success.
Between 3% and 10% APY may not sound like a ton of interest but lemme tell ya, it’s plenty. Compound interest is a powerful ally, after all. Take a look at MU30’s Compound Interest calculator below to get a sense for yourself:
So to illustrate, let’s take a look at what happens if you opened a “one-fund lazy portfolio” today by buying $10,000 shares of the Vanguard S&P 500 ETF (VOO).
How much money would your lazy portfolio be worth in 10 years?
The answer is about $40,000. As I said, it literally pays to be lazy!
Now, most investors choose to put multiple index funds in their lazy portfolios for added diversity, but even one-fund lazy portfolios like 100% VOO are common and highly effective (clearly).
Why index funds are better than mutual funds or robo-advisors for building lazy portfolios
To start, mutual funds and robo-advisors are both excellent tools for smart investing. I’m not knocking them, but there’s a reason many investors don’t use them for lazy portfolios.
For the uninitiated, mutual funds are like ETFs, but they’re actively managed – there’s a team of professionals constantly mixing up the assets in the fund in an attempt to maximize returns for investors.
Similarly, robo-advisors are AI programs that take your money and build a portfolio for you, which, depending on your risk parameters, may contain a mix of ETFs, mutual funds, stocks, bonds, and more.
But lazy portfolio builders tend not to use either resource for one simple reason: fees.
Both mutual funds and robo-advisors will charge you a fee of between 0.25% and 2% to cover their costs of managing the fund – and since lazy portfolios are fire-and-forget, many passive investors would rather pick the index funds themselves and just avoid the fees.
To be clear, index funds and ETFs in general charge fees as well, but they’re typically less than a fifth of what a mutual fund charges (usually under 0.40%).
How to Build The Right Portfoilio – 3 popular lazy portfolios to consider
There’s a saying in the personal fitness community that there are 100,000 personal trainers with 100,000 “perfect” workout regimens.
The same applies to lazy portfolios in the investing world – there are (at least) 100,000 institutional investors with 100,000+ ideas on how to build the right lazy portfolio. After all, there’s a lot of flexibility in designing lazy portfolios – they may only contain a few index funds at most, but there are over 1,700 index funds to choose from!
Before you get overwhelmed, here are three solid examples to consider:
1. The basics: Rick Ferri’s Lazy Three Fund Portfolio
Author and CFA Rick Ferri literally wrote the book on index funds and publishes simple, yet effective, lazy portfolios for amateur investors to use. Here’s his bread-and-butter, the Lazy Three Fund Portfolio:
40% Vanguard Total Bond Market Index Fund (BND).
40% Vanguard Total Stock Market Index Fund (VTI).
20% Vanguard Total International Stock Index Fund (VXUS).
2. For a little more diversity: David Weliver’s Fidelity Portfolio
For a little added diversity, MU30’s very own David Weliver designed an everything-but-the-kitchen-sink portfolio touching four different markets:
20% iShares Core S&P Total US Stock Market (ITOT).
20% iShares S&P Small Cap 600 Value (IJS).
40% iShares Core MSCI Total International Stock (IXUS).
20% iShares Core US Aggregate Bond (AGG).
3. If it ain’t broke: Warren Buffet’s 90/10 Portfolio
For maximum gains and minimum effort (you know, the very essence of a lazy portfolio) you really can’t go wrong copying the best. Warren Buffet’s 90/10 portfolio is one of the highest-performing, yet simplest, lazy portfolios in existence.
But perhaps the best part of the 90/10 portfolio is that Buffet specifically designed it to stick it to fund managers who charge high management fees.
According to author and investor Rob Berger, Buffet claimed this fund…
“will be superior to those attained by most investors – whether pension funds, institutions, or individuals – who employ high-fee managers.”
And the portfolio has outperformed those actively managed funds, year after year. If you need any final endorsements, Buffet advised his trustees to place his and his wife’s money into this portfolio after his death.
90% Vanguard S&P 500 ETF (VOO).
10% Vanguard Short-Term Treasury Index Fund ETF (VGSH).
What platform should I use to build a lazy portfolio?
You can build and monitor a lazy portfolio on pretty much any trading platform that lets you buy ETFs, but some are better suited for hosting lazy portfolios than others.
Here are just two options:
M1
Unlike most popular trading apps, M1 is tailor-made for passive investing. It’s easy to buy a few ETFs, build a lazy portfolio, and monitor it over time without the temptation of selling or day trading. If you choose to lean on robo-advisor support, it’s also available.
But the best part about M1 is the community. There are thousands of passive investors on the M1 subreddit ready to lend their strategies and support.
Webull
Many investors like to keep their active and passive investing portfolios on separate apps so they don’t accidentally or impulsively sell their index fund holdings – but if you’re confident you can juggle both on one platform, check out Webull.
Unlike its rivals, Webull offers an advanced trading dashboard and detailed analytics for free. Plus, you’ll get complimentary shares just for joining, making it a great landing pad for short- and long-term investors.
Summary
Lazy portfolios are made up of a handful of index funds that you buy once and let sit and mature for at least 10 years. The healthy and consistent annual performance of index funds like Vanguard S&P 500 ETF (VOO) makes lazy portfolios a 100% viable investing strategy, one used by amateur and institutional investors alike.
If you’re looking for a way to invest money so you can buy a house or pay off your student loans in 10 years, don’t overthink it: get lazy.
Need to empower the leadership at your organization? Want to increase efficiency in your mortgage business? Or, seeking guidance for mentoring new employees? Suzy Lindblom will speak to all of these topics when she takes the stage at HW Annual. Register for HW Annual today to catch Lindblom on stage alongside other powerful women of influence.
Serving as chief operating officer at Arc Home, Lindblom is also a HousingWire Vanguard award winner and a two-time Women of Influence Honoree.
Lindblom will be joined on stage by moderator Michelle Kryczkowski, vice president and division performance executive at Cardinal Financial. Tapping into their time in the industry, they will discuss how to navigate your career in a down market. These leaders will also discuss what you should keep in mind when your career takes a turn you didn’t expect. As a leader who has been in charge throughout the highs and lows of the housing market, Lindblom has guided some of the biggest rising stars on how to own your career journey. She has some big ideas for disrupting the pattern of leadership at your mortgage business.
“Make sure you have leaders, not managers, and take care of your staff,” Lindbolm said. This focus on leadership, not management, fosters a community of support and mentorship in any organization. Especially in a tight market, where every mortgage deal earned is a milestone, employees and teams need the right leaders at the helm.
As a C-suite mortgage leader who has an expansive knowledge on the mortgage industry, Lindblom is the best-guiding light to help you set up your business for success in any market. In 2024, Lindblom believes the focus of the housing industry will be on, “purchase activity and first-time homebuyers.” Capitalize on that purchase activity — and set yourself up for success — by strategically planning your business based on Lindblom’s expertise.
Her predictions are solid, after several decades in the mortgage industry, Lindblom has seen several housing market cycles come and go. Her experience includes leadership positions at Planet Home Lending, Stearns Lending and Bank of America.
HousingWire Annual
HW Annual is HousingWire’s capstone mortgage event, connecting leading professionals from the housing economy seeking to grow, innovate and win market share. This is where strategies are formed, deals are inked and lifelong relationships are solidified. Remember, HW+ members receive special perks like 50% off your admission to HW Annual. Go here to become a member. Haven’t received a discount code yet? Reach out to us at [email protected] Join us in Austin, Texas October 10-12 for community, content and commerce.