Finance

4 Personal Finance Tips for Young Adults

by James Flores|Posted on February 11, 2021 | 2 minute read | Advertiser notice

As a young adult, most of us earn only enough to get by with day-to-day expenses. Any thought of saving doesn’t even cross our minds because of the sheer impossibility of it.

However, if we play our cards rights, even little savings can make a world of difference in the long run. Here are some foolproof tips for young adults to manage their finances:

1. Invest in Your Education

If there’s one expense you want to splurge in, make sure it is your education. Calling it an expense is illogical. Investing in your education can help you earn a lifetime of income. At this point in your age, think of specialized courses that will increase your worth as an employee and open doors of opportunities for you.

2. Start a Saving Fund

In our finances, we often forget to pay ourselves. Paying for the house rent, transport, college debts, necessities do not count as paying yourself. Every month, take any amount that you can spare and piggy bank it away.

This saving fund will feel like an absolute blessing when you’ll find yourself in an unexpected situation in the future.

3. Think Every Purchase Through

This is one of the best tips to follow when you are saving money for a better future. Every time you are going to buy something, ask yourself, ‘do I need it?’

4. Gift Yourself

To young folks, material possessions appear extra appealing. To dissuade yourself from impulsive buying, allow yourself to purchase just one thing within a budget each month. This way, you’d think long and hard before making a purchase.

Saving money doesn’t mean you can’t have fun; it just doesn’t necessarily have to involve spending money. You can always read books at the library, try amazing new recipes at home, and enjoy the outdoors. Look out for free or low-cost fun activities and follow these saving tips to build a financially secured future for yourself.

Image Credits

Photo by Alexander Mils on Unsplash

Finance, Money

Financial Planning And Strategies For Your Elderly Parents

by Benjamin Roussey|Posted on January 12, 2021 | 3 minute read | Advertiser notice

The 65-and-older population has seen rapid growth since 2010, as baby boomers born in the two decades after the second world war begin to gray. Based on the US Census Bureau reports, the country had more than 54 million residents aged 65 years and older as of July 1^st, 2019.

The day may not be far when your aging parents are unable to take care of their own financial duties. Your parents might go through a deterioration of their cognitive abilities as well as a risk of falling prey to scammers looking to swindle them out of their hard-earned savings.

The financial responsibilities of your elderly parents need careful planning on your part.

Here we discuss some of the steps you can take to manage your parents’ finances.

Start the Conversation with Your Parents

Your parents may not need your help right now, but that should not stop you from starting a dialogue. As per the National Institute on Aging guidelines, you will need your parents’ written consent in advance to discuss their personal financial and medical matters with financial representatives, doctors, and Medicare executives.

Starting a conversation now will give a better idea of the degree of involvement expected from you, over time. Moreover, privacy laws may inhibit such conversations later.

Make Gradual Changes

They might need your help, but maybe hesitant to ask for it. The onus will be on you to be sensitive and work with them in a manner that takes care of their needs without making them uncomfortable.

Be wary of rushing in to take charge of your parents’ finances. Instead, extend your support only when needed at first, and then increase it gradually, so that it gives them time to be comfortable with the new arrangements.

Compile all the Important Documents

Take inventory of your parent’s account numbers, contacts, and legal documents. Prepare a list of insurance policies, certificates, deeds, and wills; and make sure that everything is up to date, and valid. While compiling this data, ensure the safety of all sensitive information and the security of the storage location.

Execute a Power of Attorney

A capable adult can sign a power of attorney to assign powers to another person to exercise choices and act on their behalf. A power of attorney can have a limited or broad scope, utility, or duration, and cover general, medical, or financial decisions.

A power of attorney on behalf of your parents provides you the legal authority to make the necessary decisions when your parents are not able to do so. An attorney conversant with elder law can help you to draft a power of attorney document according to your needs. These are the three documents you might need, to begin with:

A Durable Power of Attorney

This document appoints someone your parents can trust to look after their financial responsibilities should they be no longer capable to do so themselves.

A Health Care Proxy

Your parents can assign powers to a trusted individual to make medical decisions when they are incapable to do so.

A Will

This legal document includes your parents’ wishes related to the division of their assets once they pass.

Executing these documents can be emotionally taxing, but you will need legal documentation if there is a sudden deterioration of your parent’s health, making them incapacitated to carry out these tasks.

Separate Your Finances

Avoid mixing your parents’ finances with your own, even if it seems convenient at the time. It is important to keep your funds and assets separate and not put your own financial and retirement goals in jeopardy while helping your parents.

Keep Your Loved Ones Informed

It’s vital to communicate with the other members of the family, especially siblings, yours as well as your parents’. This can reduce any chances of misunderstanding apart from the fact that relatives can extend their support in managing some of the responsibilities.

Additional Practical Suggestions

Try to curtail your parents’ vulnerability to fraudsters by placing their phone number on the Do Not Call registry

Ensure the safety and security of all legal and financial documents

Keep copies of all financial transactions handled by you on your parents’ behalf

Make a budget and open a savings account

Consult an investment advisor for the assessment of your parents’ investments

Seek advice on when your parents should start withdrawals from their social security payments

Finance, Money

Checklist For a Perfect Year-End Financial Planning

by Benjamin Roussey|Posted on November 8, 2020 | 3 minute read | Advertiser notice

An unprecedented year with far-reaching economic consequences is coming to an end. It has had an impact on everyone’s personal finances in one way or another, and you need to reassess goals and firm up your year-end financial strategy more than ever before. Here are some useful tips and a checklist to assist you with that.

Managing Income and Investments

To offset capital gains, it is prudent to sell losing investment positions near the end of the year. But it may be sensible to wait this year, with the prospect of higher taxes in 2021.

Short-term losses are best at offsetting capital gains. Wait a minimum of 31 days before buying back a holding sold for a loss to avoid the IRS wash sale rule.

It may also make sense to accumulate and declare income in 2020 and defer declaring expenses into 2021, with the prospect of higher taxes in 2021.

Appraise if you need to defer buying mutual fund shares until 2021 to avert capital gains on brand new investments.

Bunch your itemized medical expenses within the same year so as to meet the required maximum percentage of your adjusted gross income in order to claim deductions.

In December, make your January mortgage payment (i.e., the payment due no later than January 15^th) so you can claim deduction of the interest on your 2020 income tax return.

If possible, make sure that you maximize contributions to 401Ks, IRAs (not due until April 15^th), SEPs (due April 15^th or extension deadline), Simple IRAs (April 15^th deadline), or other qualified accounts.

Retirement Planning

A Roth IRA allows for assets to grow tax-free and also for distribution to be taken that aren’t subject to taxation (certain restrictions apply). At times, when either your income or the value of your account is lower, are especially good for converting a traditional IRA to a Roth IRA.

Roll over unspecified 401(k) accounts from a previous employer.

2020 was an RMD (Required Minimum Distribution) holiday. You can re-contribute any RMDs taken in this calendar year and save on taxes if you plough it back.

Charitable Gifting Strategy

A DAF (Donor Advised Fund) is a low-cost, effective strategy that provides the opportunity for annual charitable gifting and allows the donor to take a full tax deduction in a single year. For tax filers who file an itemized return, the normal maximum deduction for a cash charitable donation is limited to 60% of Adjusted Gross Income (AGI), yet the CARES Act allows for a deduction of up to 100% of AGI in 2020.

You can still do Qualified Charitable Contributions (QCDs) from IRAs if you’re over age 70½, up to $100,000.

Money already in the DAF can be used to make gifts, in case there are cash flow constraints this year due to issues related to the pandemic. You can also use your IRA to make QCDs.

Estate Planning

Beneficiary designations on IRAs and 401k accounts supersede your will, so confirm to review and update appropriately but we know that surviving this Wuhan virus situation is paramount as well.

The annual gift tax exclusion is $15,000 for 2020. Those with large estates might want to revisit their estate planning tax strategy keeping in mind that the higher than normal exclusion for estate, gift, and generation-skipping taxes is set to expire in 2026, or possibly earlier.

Review the Basics

April is the tax deadline to make an HSA (Health Savings Account) contribution, which is strongly recommended, given the account’s triple tax benefits.

Consume the Flexible Savings Account (FSA) remaining balances. If you don’t utilize the balance in the account by December 31^st, you lose out on the chance to spend that money.

If you got a partial refund for tuition owing to an extended spring break, and if that money came from a 529 plan, you need to put it back in there or be prepared to pay penalties and tax on that non-qualified distribution.

Check with your CPA to see if you’re on track with your payroll withholding. If you didn’t withhold enough throughout the year from your paycheck, you’ll be subject to an underpayment penalty.

Lessons Learned from 2020

Save money to fund your emergency account and put aside more for the future. Invest in insurance to protect your and your family’s financial future. Ensure that you have medical and financial power of attorney in place. Finally, work on building alternative income streams even in a lower tax environment.

Finance, Money

Six Strategies to Attain a Credit Score of 800+

by Benjamin Roussey|Posted on October 5, 2020 | 3 minute read | Advertiser notice

Credit scores are used by landlords, employers, phone service providers, mortgage lenders, insurance companies, and everyone else in between to determine an individual’s financial status and creditworthiness. Credit scores are rated from 300 to 850. An average credit score is 687 in the US.

You would be seen as a high-risk consumer if your credit score is around 300 to 500. Low risk consumers are those with credit scores above 700. Loan applications tend to get approved quickly with 800+ credit scores. You could also qualify for a lower mortgage rate.

Achieving 800+ Credit Score

These strategies should help you achieve 800+ credit score and maintain it.

1. Always Pay Bills on Time

One of the most important factors determining your credit score is your payment history. Your score could be affected horribly if you are in the habit of making late payments. No bill amount is too small when it comes to improving your credit score.

You need to clear all bills, whether they are for magazine subscriptions, utility, or cable. It doesn’t matter whether the bill is a $10 subscription fee or a $1,000 mortgage payment you need to make sure you are never late on settling dues.

2. Focus on Creating a Long Credit History

Another important factor contributing to your overall credit score is the length of your credit history. Longer credit histories usually translate to higher credit scores.

People with a short credit history are viewed as high-risk. Most lenders are antsy dealing with people that don’t have a financial history to show. It is recommended that you keep your old accounts open for as long as you can and to use them as much as possible.

3. Never Max Out Credit Cards

Maxing out credit cards is a rookie mistake in credit score 101. This is especially true if you use the card to pay all your bills in full. There are two reasons why carrying over a large credit balance to the next month is a bad idea. Your credit score will be negatively affected which can be disastrous in the long run. Also, you may have to pay thousands in interest.

The best way to prevent this from happening is to always maintain your credit utilization ratio at 30% or less. This is a healthy figure which can be calculated by dividing the complete debt by available credit limit. Multiply it with 100 to achieve a percentage figure.

For instance, if your credit balance is $1,800 and your credit limit is set at $10,000, your credit utilization ratio is 18%. This is a healthy credit utilization ratio which should ideally be between 10% and 30% of the total credit limit. You should also make it a point to pay off all your bills every month in full without any leftover balance.

4. Don’t Keep Several Credit Cards

While it’s okay to keep two credit cards, you need to stop at five. Having several credit cards makes it difficult to keep track of your spending. You may inadvertently end up carrying a large balance rollover. Also, when you apply for several credit cards in a short span of time, it adversely impacts your credit score.

5. Practice Diversification

Accounts diversification can help in improving your credit rating to some extent. You should consider products, such as credit cards, retail accounts, student loans, auto loans, and mortgage. However, don’t take out unnecessary loans for the purpose of diversifying. The only time you should get a loan is if you need it and know that you can pay it back.

6. Avoid Adding to Your Liability Burden

Co-signing for other people and becoming liable for their debt is a bad idea. You are already liable for your own bills. Nobody needs the additional burden of liability. You become responsible as the co-signor to pay off the loan if the primary borrower manages to default.

Your credit score can be severely affected if you become a guarantor or a co-signor to someone’s loan and they are unable to repay it. This is especially true if the amount is large.

Importance of Protecting Your Credit Score

You need to understand that your credit rating is fluid and tends to change depending on the financial decisions you take. Until we adopt a better way in determining someone’s financial responsibility this is the system we are stuck with. Moreover, your payment history, spending habits, and numerous other factors account for your present credit score.

You should give serious consideration to hiring a credit score monitoring service to consistently maintain a credit score of 800+. The monitoring service can keep a check on your credit rating and notify you immediately when things begin to slip. This will give you enough time to take steps to get your score back on track.

There are risks to having a perfect credit score too. You are at a serious risk of identity theft. Identity protection service can help you secure your identity and send alerts in case of any suspicious activity.

Finance, Money

Should You Invest Your Money or Save it?

by Benjamin Roussey|Posted on September 17, 2020 | 3 minute read | Advertiser notice

It can be difficult to pick between investing your surplus income and saving it. This is true for people that have just started working on their finances and those that have been investing for years. Ultimately, you need to decide the best course of action that will help you attain your financial goals. This can be through saving tools, investing options, or a combination of both.

Saving vs. Investing

Saving is generally regarded the safer route since your deposits do not decrease unless you make a withdrawal. This cannot be said for investments that depend on market fluctuations. Your stock option may go up today only to decline tomorrow.

However, savings will not allow your money to grow as you would like. In some cases, the interest offered barely matches the inflation rate.

This means that money parked in savings options tend to lose purchasing power over a longer period of time. Investing is a great option when you want to beat inflation and receive higher returns. However, you should know that investments are subject to market risks and you may not always get the return you hoped for. Sometimes, investments end up being worthless after a market crash.

Pros and Cons of Savings

There are several advantages of parking your money in a savings tool, such as savings accounts, savings bonds, certificates of deposits, or money market accounts. The biggest advantage is that there is no immediate risk to your dollar amount in the savings option.

Your money won’t reduce as long as you don’t make a withdrawal. You can reach your goals in time with minimal risk. You can also plan your finances better since you know exactly the kind of money you need to save each month to hit the goal.

However, that doesn’t mean that savings is not without its drawbacks. For instance, your money may not increase in value at par with the inflation rate. Basically, the amount of money you have parked in your savings option may lose value each year even if the dollar amount is not reduced.

Another downside to this is a decrease in purchasing power which may be possible in 2021 if there are more tax cuts but this is another topic. You need to set aside a higher percentage of your income each month than what you would need to if you got higher returns by investing.

Pros and Cons of Investing

Investing is an excellent option if you want to save money and see it grow. However, you need to be ready to bear the risks of market fluctuations. The potential of interest in investing is far greater than savings. Whether you invest in traditional stock options or use smart options, like investing apps and robo-advisors, you could stand to receive higher returns.

Another benefit of investing is that returns generally compound. This means that your investment earnings are put to work earning more money for you. You may enjoy better purchasing power since you won’t have to set aside nearly as much as you would need to do in the case of savings.

However, investing is not always the right option. You could find yourself in a financial bind if the investment rates bottom out right before you need the money. You may need to put off your plans for a better market day in such a scenario.

Follow Your Goals

It can be difficult deciding whether to invest or save. You should start by determining your goals before you decide. Goals are usually short term or long term and require being planned for differently.

1. Save for short term goals

You should not hesitate to open a savings account or purchase a CD if you want money by a certain date. There is zero risk of your money amount decreasing in this option.

2. Investing works in the long term

Investments tend to grow better and offer higher returns. You should consider investing if you don’t need the money by a specific date and are flexible in your approach. You should choose this option only if can afford to delay your monetary need by a few years in case the market takes a downward turn.

3. Comprehensive approach

You can follow a customized plan that combines investing with saving. You can divide any surplus cash you have each month in savings for short term goals and investments for the rest.

Finance

Factors You Should Consider Before Taking Out a Personal Loan

by Benjamin Roussey|Posted on August 17, 2020 | 3 minute read | Advertiser notice

Taking out a personal loan can save the day for many. With debt levels rising significantly and emergency savings not always being available, more and more people are turning to personal loans when they are in a pickle.

Maybe you are considering getting a loan to consolidate your credit card debt, pay for emergency medical bills, or even start a small business.

And since almost every lender in the country is now offering personal loans, you can compare the offers and choose the best deal. A 0.25% difference in interest rate might not seem a big deal but it can help you save hundreds of dollars.

So, in this post, we have put together a list of key factors you need to keep in mind when choosing a personal loan.

Are You Okay With Paying High Interest Rates?

If you’re considering taking out a personal loan, interest rate is one of the most important things to think about.

Interest rate means the percentage of interest charged by the bank (lender) on the principal amount. You can either choose a variable interest rate loan or a fixed interest rate loan, depending on your preference.

If you take out a fixed interest loan, the bank will charge the same amount of interest throughout the course of your loan regardless of the market situation. In other words, your monthly installments will remain the same come the Wuhan virus or high water.

If your credit utilization ratio, debt-to-income ratio, and credit score are all good you can easily qualify for a lower rate of interest with most banks.

On the other hand, if you take out a variable interest loan, your bank can decrease or increase the rate of interest according to market changes. This means your monthly installments can also go up or down from time to time.

That being said, interest rates on personal loans are generally higher than, say, a mortgage loan. This is because a personal loan is unsecured and you have no physical asset to back it up. You don’t have to put any collateral up which increases bank’s risk.

Do You Have A Good Credit Score (And Credit History)?

Since a personal loan doesn’t involve any collateral, your credit score must be in good standing. A bad credit score will mean that the lender can significantly increase your interest rate. They do this to cover your risk of default.

So, if you’re considering a personal loan, pay attention to your credit score and try to improve it.

Do You know the Exact Terms of the Loan Including APR and Hidden Fees?

Before you sign the papers, make sure you completely understand the terms of your personal loan. You must know the total cost you will pay for the loan as well as all the fees you could/will incur throughout the loan.

APR or the annual percentage rate is the total cost of a personal loan and it’s applied on an annual basis. It includes the loan origination fees, interest, application fees, and several other charges which thankfully are not as debilitating in a low tax environment which we are in now.

Here is a quick rundown of some of the typical charges that aren’t always openly discussed when you apply for a loan:

Loan processing or origination fee: This is when the bank charges you to process your application. Some loan providers will charge you to process your personal loan application. For example, some banks charge 1% of the loan’s value as the processing fee.

We recommend you avoid all loans that come with a processing or origination fees – or ask the bank to waive it if possible.

Late payment fee: If you make your payment even a day late, most lenders will charge you a late payment fee. But this can really hurt your credit score so be very careful with your monthly payments. In some cases, you can ask the lender to waive this fee as a one-time courtesy.

Prepayment penalty: If you pay your personal loan early, then your lender may charge a prepayment penalty. Lenders use this tactic to get the full amount of interest from those who have taken out the loan. So, make sure you choose a loan that has no such penalty.

Failed payment fee: If you don’t have the money in your account to cover a payment you’ve made, some banks will charge you for it.

The Bottom Line

The decision of taking out a loan is a big financial responsibility and shouldn’t be taken lightly. Knowing about the above factors will help you choose the right lender with the most flexible terms. And remember, you can negotiate with lenders for more favorable terms – and you should, especially if you have a respectable credit score.

Finance

5 Golden Steps to Upgrade Your Financial Position

by Benjamin Roussey|Posted on July 17, 2020 | 3 minute read | Advertiser notice

Personal financial management is one of the most important, yet ignored topics that need more attention. It is primarily because it is an intimidating topic that most people refrain from going in-depth. What you do with your money today decides your tomorrow.

Financial or retirement goals cannot be achieved unless there is a strategy backing it. While you might be doing a few things right, there might be scope for improvement. Unless you analyze your present financial status, it would be difficult to develop a plan that paves the way for a better financial future. It is what brings us to the first of five golden steps you can take to upgrade your financial position.

Technically Analyze Your Financial Status

In other words, take out time from your schedule and do the math. Make a list of your assets and liabilities to know your net worth. If you don’t know how to decipher net worth, simply subtract the liabilities from assets (valuation). The figure you arrive at after subtraction is your net worth. It helps you identify the problem areas in your financial activities as well as lifestyle.

Doing a yearly budget would help you note your growth year after year and keep things in perspective as far as finances go. One of the crucial aspects of analyzing financial status is budgeting. It plays an instrumental role in achieving your short-term and long-term financial goals.

Budgeting depends on financial projections of income and expenses. If the income exceeds expenses, you’ve surplus money that you can save or invest. If expenses are on the higher side, it requires you to revisit your lifestyle and expenses and see where further cost-cutting can be done.

Keep Lifestyle Inflation in Check

We spend more when we earn more. It seems like a natural progression, but it isn’t. It is a phenomenon that is widely termed in financial circles as “lifestyle inflation.” As you evolve professionally and personally, there can be certain changes like hiring more help at home or a chauffeur or a yearly overseas vacation.

However, do not jump into the bandwagon to match the lifestyle of others around you and spend on things you can’t really afford. Stick to your financial strategy, and don’t let peer pressure ruin your financial future.

Start Saving Early

Spending mindfully means understanding the differences between needs and desires. You might need a new car to commute to and from office, but spending mindfully means buying a car that fits your budget vs. buying a car that disturbs your entire year’s finances which is easier to do in this low tax environment and will be even easier to do when we have a vaccine for the Wuhan virus. Don’t spend on what you want but focus on what you need when pulling out your wallet or signing on that dotted line.

Ask yourself, can I live without spending on this? If the answer is yes, then it falls in the category of ‘wants,’ and you might need to reconsider your decision to spend on it. When you don’t spend mindfully, you spend more than required on wants and may fall short for what you need. It pushes you into the vicious circle of debt.

Start Saving Early

It can’t be pressed enough how important it is to start saving early. While it is never too late to start saving, sooner you start, better are your chances of achieving your long-term financial or retirement goals comfortably. People who start saving much later into their life may find it difficult to plan their retirement as no matter how much they save.

It doesn’t add up to a figure that offers peace of mind within the limited time they have before retirement. It then requires uncomfortable lifestyle compromises to secure your future that ruins your present as well. Start saving early to create a financial buffer that cushions your retirement plans and gives wings to your long-term financial goals.

Create an Emergency Fun

Life is uncertain, and an emergency can strike anytime. Whether it is a medical emergency or if your car needs immediate repairs, the situation requires you to spend money that wasn’t part of the plan or your budget. An emergency fund is created to meet such unforeseen events without letting it disturb your financial equilibrium.

It would be ideal that you keep at least six months’ worth of living expenses in an emergency fund, but you should try to add more whenever possible. Restraining yourself from touching this fund for lifestyle expenses or wants can be an ongoing struggle, but you need to train yourself to make the right decisions with your money.

Final Word

Discipline and commitment are two pillars that would help you achieve your financial goals and pave the way for a financially fulfilling life. Building habits that ensure you stay away from unwanted expenses and constantly look for ways to add to your savings and investments is what will bring you closer to living your dream life. A penny saved is a penny earned is a mantra to live by when it comes to upgrading your financial position.

Finance, Money

Six Strategies That Can Help You Emerge a Winner in a Bear Market

by Benjamin Roussey|Posted on June 12, 2020 | 3 minute read | Advertiser notice

New or inexperienced retail investors often believe that a bull market means an opportunity to make money and a bear market is synonymous with losing money. Although the market’s trajectory can make your investment fluctuate in value, it does not necessarily mean that you cannot make profits during a bear market.

In fact, for the discerning investor, there can be excellent potential opportunities to invest during a bear market. Astute investment choices during a bear phase can bring enormous profits after the market rebounds.

This post discusses six useful strategies that you can employ during a bear market to make profits.

Maximize your Roth IRA and 401(k)

Consistently purchasing index funds through your Roth IRA and 401(k) can be a smart way to develop an investment portfolio with a high potential for profit. The stocks you purchase during a bear market would then get back up in value as the market recovers.

In the long run, maximizing your 401(k) contributions is highly profitable, especially if your contributions are matched in part or full by your employer. The money in your account can then be used to invest in a large variety of stocks and you can enjoy the rewards after the market climbs up.

Choose Dividend-Paying Stocks

Dividend-paying stocks can keep a steady income stream coming during recessionary economic conditions. This is one of many reasons why they can be a prudent investment choice during a bear market. While stock valuations of a company can be decided mostly by market buying and selling trends, the company profits usually determine the dividend payments.

Large businesses that are strong in their fundamentals are more likely to be immune to market conditions and will keep paying dividends to shareholders consistently. This means that your income stream is maintained even if a downturn causes the stock market values to plummet. The stock price increases after the market recovery, thereby also increasing the value of your portfolio.

Invest in Businesses that are Profitable and Reliable

When a recession or market downturn causes the stock valuations of highly profitable companies to go down due to high levels of selling, it can present a compelling investment opportunity for you.

Panic can cause many casual investors to quickly sell their stocks when a recession seems impending. The selling frenzy that results can drastically bring down the value of companies, including the financially stable ones with robust potential for growth. These stocks can then be purchased at very low prices and you can wait for the market to recover for your rewards.

So, how do you find the right stocks to purchase during a bear market? Here are some important factors you can look at:

Good financial ratings (rated A or above by independent agencies)
Good bond ratings (rated A, AA, and AAA)
Excellent sales figures
A strong growth outlook
Optimum debt-to-assets ratio

Choose Stocks that Historically Perform in Bear Markets

Bull and bear markets do not have the same kind of effect on all sectors of the economy. Quite a few sectors, including automobile, home improvement, machinery, and technology industries, tend to perform well in bull periods. However, some sectors show healthy performance during bear periods as well. These usually consist of industries that support basic human needs, including utilities, food and beverages, and pharmaceuticals.

Buy Top-Rated Bonds

Equity investments can go down in value during a recession or downturn. Bonds and bond funds present an investment that can be safer than equities and can provide guaranteed returns, allowing a means to offset your short-term losses. Municipal bonds, treasury bonds, and other corporate bonds rated AA or AAA can be stellar options. Exchange-traded funds that invest in these bonds and fixed-income investments of different kinds can also be viable options.

Purchase Stocks on Margin

Your brokerage firm can provide you a margin loan to purchase depreciated stocks. After the recovery, you can sell these stocks, pay the loan back, and still end up with a profit. Seasoned investors use this strategy frequently in bear markets.

However, it is important to exercise caution. If the stock value does not appreciate after recovery, you would have to take a loss and repay the loan out of pocket. Only stocks with a notable decline in value and a high chance of appreciation post-recovery should be considered.

Final Considerations

With these tips, short and long-term gains can be possible during a recession or downturn. Trying to “time the market” can be disastrous. Instead, invest regularly and treat market crashes as a unique investment opportunity if you have the financial capacity to ‘buy and hold’ for the long term.

Finance

7 Tips to Protect Yourself Financially After a Forced Retirement

by Benjamin Roussey|Posted on May 15, 2020 | 3 minute read | Advertiser notice

As the economy continues to grapple with the effects of Covid-19 or the Wuhan virus, many American workers are being forced to retire early. Early retirement can lead to financial struggle and you may find it hard to meet your living expenses. Here are seven useful tips that will help you and your family in this difficult situation.

Reduce Your Expenses

The first step after an unexpected early retirement should be to cut down your spending. Focus only the essential purchases, and make changes to your lifestyle so that you have sufficient monthly funds available to pay for the critical outgoing expenses such as insurance and mortgage payments.

Avoid the Temptation of Using Your Retirement Money

Your first instinct may be to dip into your 401k account, but that is almost always a bad idea in a forced early retirement. The first reason is that you may not have crossed the age of 59½, which means you will face a 10 percent penalty on the amount withdrawn.

Secondly, cash withdrawals that occur earlier than planned will hurt the compounding effect of your savings, and your overall retirement income will considerably reduce.

Move 401k Funds to a Rollover IRA

Rather than withdraw money from your 401k, it may be better to start a rollover IRA with your broker or bank and move your 401k funds into this account. You will receive all the tax benefits, which are greater because of the 2017 tax cuts, of 401k with a rollover IRA, and the early withdrawal limitations are also the same.

However, a key difference is that a rollover IRA will open a plethora of investment options for you. Depending on the prevailing market opportunities, you may invest in stocks, mutual funds, bonds, ETFs, REITs, or other securities to multiply your money.

Utilize State Sponsored and Employer Benefits

Employers often provide insurance coverage, which also covers the spouse. If your spouse’s employer is offering this coverage, utilize it to the maximum. If your forced retirement occurred because a disability, you could be eligible to receive social security disability payments.

If you have been laid off from your current job, but you want to continue working, you should apply for unemployment benefits while you search for a new job and there is going to be tens of thousands of jobs returning from China by the end of this year.

Buyout Package

Employers sometimes offer a voluntary retirement buyout package, which typically includes a severance pay, lifetime annuities, paid insurance, and some other benefits.

If your employer has offered you such a package, you may consider accepting it, if you believe that a layoff may still eventually happen if you don’t accept the offer. The money you receive through this package can be invested in a debt mutual fund or annuity in order to create a monthly income.

Evaluate Your Pension

If you are eligible for a pension, you should evaluate whether receiving it in monthly installments or as a lump sum would suit your interests more. If you have a trusted financial advisor by your side, or you are sufficiently experienced in making direct market investments, you may benefit more from a lump sum payment.

You can strengthen your financial asset base with smart investments. On the other hand, if you prefer a more consistent monthly income, you may choose to accept the installments option. In any case, you should be aware that if even partial funding of your pension was done using pre-tax dollars, your pension income will be partially taxable.

Keep this point in mind as you try to make withdrawals from multiple accounts while minimizing your tax liability.

Assess How Long Your Savings will Last

Make an objective estimate of all your available funds and income to understand how long your money will sustain based on your current budget and expenses. This will give you an idea of where you need to moderate your expenses and how it will impact your lifestyle.

First look at the major expenses, such as healthcare and housing. Thereafter, move on to assess other expense items, such as utilities, food, clothing, personal care, and entertainment. Compare the monthly household costs to the total amount you may be drawing from your retirement accounts and social security.

With this comparison in place, factor in your life expectancy to estimate how long your funds are going to last at your planned withdrawal rate. If you worry that you may come up short, you will need to review your current expenses or look at additional ways to generate income. You could create a new income either through part-time work or through income or dividend producing investments.

Finance

4 Personal Finance Mistakes to Avoid During Covid-19 And Beyond

by Benjamin Roussey|Posted on April 18, 2020 | 3 minute read | Advertiser notice

The Covid-19 pandemic has caused widespread economic disruption and chaos, both at a macro and micro level. With millions of Americans losing jobs or shuttering down their businesses, it is challenging for households to manage their lifestyle.

Managing your personal finances in these times is definitely not going to be easy. But there are certain mistakes in personal finance that can exacerbate the problem. Whether it is indulging in excessive spending beyond your means through online shopping during these times, or making misplaced investment decisions considering the high market volatilities, it’s vital to minimize your errors.

Although some of the personal finance mistakes can be course-corrected quickly, others may not be so easy to reverse and may prove to be damaging to your net worth over time.

Here are four key personal finance mistakes to avoid at present during the coronavirus crisis, and beyond.

Not Maintaining an Emergency Fund

If you rank among the low or middle income segments, not maintaining an emergency fund can be disastrous when the tough times come, such as now. If you need money in this situation for some serious medical, house repair, or another item, you will have very limited choices left with you when you cannot dip into your emergency fund.

You may either have to sell an asset at a distress price or borrow money at a high interest rate. Both are poor decisions under any circumstances, and it can take long time to recover from them. Therefore, your best bet would be to start building an emergency fund the moment the current period of uncertainty created by Covid-19 starts to clear up.

Not Having Sufficient Insurance

In your household, if you are the primary earning member, it is prudent to get yourself adequately insured. Otherwise, during a personal health emergency, an accident, or in a crisis such as the Covid-19 or Wuhan virus, if you are temporarily incapacitated or unable to work, you and your family may have to struggle to survive financially.

In addition to medical insurance for you and other family members, you must have adequate life insurance that will pay your family if you are no longer there. It is also sensible to have disability insurance, which can replace your income to some extent if you become fully or partially disabled. Consider having long-term care insurance that will protect you from extended medical costs in the event you develop a critical or chronic illness.

Compare the offers from different insurance companies to choose the best coverage for your needs. Insurance providers usually enable you to purchase one insurance policy, where you can add riders for long-term care and disability.

Ignoring Automatic Savings Plans

For most people, it is difficult to save a certain amount of money from their income consistently every month and this Wuhan virus situation is certainly proving that so since it seems so many Americans have been caught off guard (and states like California, Washington State, and New York which have been hit the hardest because they did not have any contingency planning done). Some expense or the other keeps coming up, and when you have cash in hand, it is easy to spend it fast. This can create a lifestyle where you are living from paycheck to paycheck, and not have a strong financial security for emergencies or for your retirement.

The surest way to address this situation is to invest in an automatic savings plan, which will force you to save a certain amount from your income every month during good times, so that you can fall back on those savings during times of difficulty.

You may arrange for automatic deduction of the monthly savings amount from your pay itself after talking to your employer. Discuss with a financial advisor (Charles Schwab is said by many to have a dishonest website so Fidelity, Edward Jones, and so on could be salient choices) for the right automatic savings plan that suits your needs.

Indulging in Impulse Purchases

Shopping can turn into an addiction if you do not exercise self-restraint, and you may end up spending all your savings on impulse purchases that you really did not need (don’t be like Madonna – the Material Girl!). Attractive discount offers and special deals are often available on non-essential products that could easily avoid.

But the special offers can be tempting and can compel you to indulge in an expensive purchase. Credit cards and online shopping make it easier to spend money on impulse buying at the click of a button. Set rules for yourself and your family to stay away from the habit of excessive shopping, and inculcate the good habit of saving.

Don’t spend money like Jesse Pinkman did in Breaking Bad!

If you keep a careful track of all your expenses, such as how much you are spending each month on groceries, entertainment and dining out, credit card bills and mortgage payments, it will be easier to curb the habit of impulse buying.