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May 23, 2024 by Brett Tams

Investing can feel like riding a rollercoaster, especially when you’re trying to keep up with market fluctuations. One popular technique that long-term investors use to smooth out this ride is dollar-cost averaging (DCA).

This investment strategy offers a methodical approach to investing that can eliminate the guesswork and stress of trying to time the market. Let’s dive into the world of DCA and see how it might serve your personal finance goals.

Basics of Dollar-Cost Averaging

Dollar-cost averaging is a simple but effective investment strategy. The basic idea is to invest a fixed dollar amount at regular intervals into a particular investment, such as a stock or mutual fund, regardless of its share price. Over time, this approach can result in a lower average price per share compared to making a lump sum investment at a higher price.

Here’s how to dollar-cost average: Suppose you decide to invest $500 into an index fund every month. The share price of the fund fluctuates from month to month, sometimes high, sometimes low. By investing regularly, you buy more shares when the price is low and fewer shares when the price is high. Over time, this can lead to a lower average purchase price.

A Deeper Dive Into How Dollar-Cost Averaging Works

One way to get a better grasp of how dollar-cost averaging works is to look at a hypothetical scenario. Suppose you decide to invest $200 in a mutual fund every month. In January, the share price is $20, so you buy 10 shares.

In February, the share price drops to $10, so your $200 buys you 20 shares. In March, the price goes up to $25, so you can only afford 8 shares. Despite the market’s fluctuations, your regular investment allowed you to purchase more shares when the price was low and fewer shares when the price was high, resulting in a lower average purchase price.

Benefits of Dollar-Cost Averaging

The key advantage of the dollar-cost averaging approach is that it mitigates market volatility. Instead of trying to time the market and potentially making ill-timed investment decisions, DCA allows you to follow a fixed schedule and make regular investments.

This strategy can be especially beneficial in declining markets. When stock prices fall, your fixed dollar amount can purchase more shares. If the stock market recovers, you would have bought those shares at lower prices, potentially leading to gains. This way, DCA can turn market declines into opportunities.

Another benefit of dollar-cost averaging is that it can promote disciplined investing. By investing a fixed amount at regular intervals, you are more likely to stick with your investing strategy, even when the market is turbulent.

The Psychology Behind Dollar-Cost Averaging

Dollar-cost averaging isn’t just about mathematical probabilities and financial strategy—it’s also deeply intertwined with investor psychology. Investing can be an emotional roller coaster, especially during periods of significant market volatility. When stock prices swing wildly, investors often let their emotions guide their decisions, which can lead to costly mistakes.

For instance, a sudden market downturn might provoke feelings of fear and uncertainty. In response to these emotions, some investors may resort to panic selling, hastily offloading their investments to stave off further losses. This can be detrimental to their long-term financial goals because they might miss out on potential gains when the market eventually rebounds.

On the flip side, during a bullish market when prices are high, feelings of greed and fear of missing out (FOMO) might take over. These emotions can lead to impulsive buying, where investors pour money into the market hoping to ride the wave. But if the market corrects or crashes, these investors stand to lose a significant portion of their investment.

This is where the dollar-cost averaging approach comes into play. The discipline of investing a fixed amount at regular intervals removes the need to time the market and reduces the influence of emotions on investment decisions. It provides a systematic investment plan that is followed regardless of whether the market is up or down. This disciplined approach can prevent impulsive decisions, providing a level of emotional comfort and stability.

Limitations and Risks of Dollar-Cost Averaging

While dollar-cost averaging offers many benefits, it’s not without its potential drawbacks. One potential downside is that if the market consistently rises, a dollar-cost averaging strategy could yield lower returns compared to lump sum investing. In bullish markets, a lump sum invested early would have more time to grow.

Another risk is that despite the potential to achieve a lower average price per share, DCA doesn’t guarantee profits or protect against losses. If the market continually declines, you may lose money, especially if you need to withdraw your investment before the market has a chance to recover.

Finally, for dollar-cost averaging to work effectively, it requires regular and continuous investments. This may pose a challenge if you have a tight budget or unpredictable cash flow.

Dollar-Cost Averaging vs. Lump Sum Investing

Lump sum investing is another common strategy where an investor puts a large sum of money into the market at once. This approach can yield higher returns during a bull market because your entire investment is exposed to the market’s growth from the beginning.

However, timing the lump sum investment correctly can be challenging, even for professional investors. Misjudging the market can lead to buying high, which could result in lower returns or even losses. It’s also worth noting that investing a large sum all at once can be a significant risk if the market takes a downturn shortly after.

Choosing between dollar-cost averaging and lump sum investing largely depends on factors like your risk tolerance, investment horizon, and the amount of money you have to invest.

Implementing Dollar-Cost Averaging in Your Investment Strategy

If you’re interested in implementing a dollar-cost averaging strategy, you’ll need to consider several factors:

Choosing an investment: First, choose a suitable investment option. This could be individual stocks, mutual funds, or exchange-traded funds (ETFs). It’s wise to diversify across different asset classes to reduce risk.
Budget: Decide how much money you can invest regularly. This could be a fixed dollar amount you set aside from your paycheck every month. The key is to ensure it’s an amount you can commit to over time.
Frequency: Determine how often you want to invest. This could be monthly, quarterly, or any interval that fits your financial situation. The main point is to stick to a regular schedule.
Duration: Consider how long you plan to keep investing. This would typically be linked to your financial goals. Are you saving for retirement, a down payment on a home, or your child’s college education? Your end goal can help you determine how long you dollar-cost average.

Dollar-Cost Averaging in Different Market Conditions

Dollar-cost averaging can prove beneficial in various market conditions:

Bullish markets: In a steadily rising market, a DCA strategy may underperform a lump sum investing approach. However, the benefit is that you’re not risking a large sum of money at once and aren’t trying to time the market.
Bearish markets: In declining markets, DCA comes into its own by allowing you to buy more shares at lower prices. This can reduce the average cost of your investment over time.
Volatile markets: Market volatility can make it difficult to time your investments. With DCA, you’re investing at regular intervals, which means you’re less likely to be swayed by short-term market swings.

Dollar-Cost Averaging With Robo-Advisors and Investment Apps

Nowadays, you don’t need to manually make investments at regular intervals. Many financial institutions offer automatic trading plans, and several robo-advisors and investment apps also provide automated DCA services.

These tools can automatically deduct a set amount from your bank or brokerage account and invest it according to your preferences, making DCA even more straightforward.

Conclusion

Dollar-cost averaging helps you manage fluctuations in the market, mitigate the risks of market timing, and potentially lower your average purchase price. It offers a systematic and disciplined approach to investing. However, like any investment strategy, it’s not without risks. Always consider your financial goals, risk tolerance, and investment horizon before deciding to implement DCA.

Remember, past performance is not indicative of future results, and it’s important to evaluate your investment options carefully. While this article provides a thorough understanding of how dollar-cost averaging works, it does not provide investment advice. You should consider seeking advice from professional advisory or brokerage services that can provide personalized advice based on your circumstances.

Frequently Asked Questions

Can I use dollar-cost averaging in my retirement account?

Yes, DCA fits perfectly in retirement accounts like 401(k)s or IRAs. You’re typically contributing a set amount regularly, which is DCA in practice. Over time, this can help smooth out the impact of market volatility on your retirement savings.

Do I need a large sum of money to start dollar-cost averaging?

No, the advantage of DCA is that it allows you to start investing with any amount you’re comfortable with. You simply invest a fixed amount at regular intervals, which could be as little as a few dollars every month.

How does dollar-cost averaging help me build wealth over time?

DCA can contribute to wealth building by potentially lowering the average cost of your investments over time. By buying more shares when prices are low and fewer when they’re high, you might lower your average cost per share, setting the stage for potential gains in the long run.

Can dollar-cost averaging protect me from all investment losses?

While DCA can help mitigate the effects of volatile markets, it does not guarantee protection from all investment losses. The value of your investments can still go down, particularly if the entire market is in a prolonged downturn. It’s important to have a diversified portfolio and a strategy that aligns with your risk tolerance.

Is dollar-cost averaging only suitable for stocks?

Not at all. While often associated with buying stocks, you can apply dollar-cost averaging to other types of investments as well, like mutual funds, index funds, exchange-traded funds (ETFs), or even Bitcoin. The key is that the asset’s price changes over time.

How often should I make investments if I’m using a dollar-cost averaging strategy?

The frequency of investments in a DCA strategy can vary based on your personal finance situation and goals. Common intervals include monthly and bi-weekly, often aligned with pay periods. The key is to be consistent and stick to your predetermined schedule.

Source: crediful.com

Apache is functioning normally

May 23, 2024 by Brett Tams

MCLEAN, VA – JULY 10: A Freddie Mac sign sits in front of its headquarters July 10, 2008 in … [+] McClean, Virginia. Shares in Fannie Mae and Freddie Mac have dropped to their lowest levels in 17 years. (Photo by Chip Somodevilla/Getty Images)

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Last week, I submitted a very brief comment letter on the Biden administration’s proposal to allow Freddie Mac to start purchasing second mortgages. It makes the very narrow point that the proposal doesn’t address safety and soundness, a legal requirement enacted by the Housing and Economic Recovery Act of 2008.

That flaw should disqualify the proposal on technical grounds, but the proposal is terrible housing finance policy even if it meets all the legal requirements.

Like most federal housing finance policies enacted during the last few decades, this one will do nothing to increase home ownership or to make housing more affordable. If anything, it will increase Americans’ debt levels and put upward pressure on prices (not just housing prices).

If policymakers want to make housing more affordable, they must do something very different: Start shrinking the federal government’s role in housing finance. That approach, of course, would be the polar opposite of the direction taken during the last few decades.

In 1990, Fannie’s and Freddie’s combined share of outstanding residential mortgage debt was just 25.7 percent. But that share soon started climbing, and by 2010 it was up to 47 percent, where it remains. (For a reminder: Both GSEs are still under government conservatorship because they imploded in 2008.)

Separately, in 2023, the Federal Housing Administration insured 16 percent of the single family mortgage market (see table 3). Combined with Fannie and Freddie, that’s a federal share of 63 percent.

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In the secondary mortgage market, privately issued mortgage-backed securities are practically an imperceptible share of the total, and that’s not a new occurrence. From 2009 to 2023, the combined federal share (Fannie, Freddie, and Ginnie Mae) of the MBS market averaged 93 percent per year.

One interesting problem with this arrangement is that it violates the spirit of how and why Congress set up Fannie and Freddie. These GSEs were not supposed to dominate the market, and Congress said so. Fannie’s and Freddie’s charters require “the volume of the Corporation’s lending activities” to be small enough to “reasonably prevent excessive use of the Corporation’s facilities.”

Nobody in the administration (or Congress) seems to care, but the FHFA has never promulgated a rule so that it might enforce this excessive use provision. The current lack of enforcement is bad enough, but the new proposal explicitly authorizes Freddie to purchase even more mortgages.

Even in the absence of the excessive use provisions, it would be hard to defend this new proposal on the grounds that it might help increase homeownership. In fact, it’s so difficult that the FHFA isn’t even trying. Instead, the proposal explicitly states “the primary goal of this proposed new product is to provide borrowers a lower cost alternative to a cash-out refinance in higher interest rate environments.”

So now the express purpose of the GSEs is to help homeowners take on even more debt, above and beyond what they need to purchase a home.

The FHFA will insist that the new proposal is in the public interest, but the proposal should be disqualified on that basis for several reasons.

First, private markets do provide home equity lines of credit. In 2023, they provided almost $370 billion. There is no natural market barrier to overcome, and if the MBS market is any indication, the new program will stifle competition.

And if the product does spur additional low equity debt for underserved markets, that means federal policies are saddling the most vulnerable borrowers with higher debt, putting any equity they have managed to build up at even further risk. And, of course, the more successful this program becomes, the more risk it poses to the overall financial system.

Obviously, none of this is very surprising coming from the Biden administration, especially given its recent proposal to make housing more affordable with yet more subsidies. Chances are, though, that an administration from either political party would have introduced the same new proposal for Freddie and pitched it as a way to increase competition and make homes more affordable.

The truth is housing will always be somewhat supply constrained, depending on the location, and many of the reforms that can ease those constraints and improve affordability have to occur at the state and local level. If federal policymakers want to make housing more affordable, they must pare back federal subsidies of all kinds.

One very easy place to start is by enforcing the excessive use provisions in the GSEs’ charters. Another is to restrict the GSEs to buying only primary mortgages for owner-occupied homes. These should be the lowest hanging fruit for policy reform.

Source: forbes.com

Apache is functioning normally

May 22, 2024 by Brett Tams

Inside: Making money is one thing, but saving it is another. Learn how to save 10000 in a year using the following steps. Plus download your free printable!

The number of people who do not save money is growing at a rapid pace. The economy has changed and many families are struggling to make ends meet, even with two incomes.

That is why saving $10,000 in one year can seem like an impossible goal for some people.

You can save $10,000 in a year.

This has been proven over and over here at Money Bliss.

This has happened because my readers dedicated themselves to one of our money savings challenges.

A lot of people are interested in saving more money right now, but not everyone can afford to save a lot of money. You do not need a ton of income to be successful, you just need to dedicate yourself to new habits of saving.

The thing is – money doesn’t grow on trees, and I wouldn’t recommend waiting for one either if you want your savings plan to be successful.

Are you ready to be the next Money Bliss success story to save 10000 dollars in a year?

If so, then you are in the right place. Let’s create your 10000 saving plan.

How to Save $10000 in One Year

It’s not as difficult to save $10,000 in one year as you may think. All it takes is a few small changes, creating a plan, and some careful budgeting.

The first step is to start saving money.

This can be done by paying yourself first. Decide on the amount you want to save each pay period. Then, you prioritize your savings before all of your expenses and money runs out

Next, you have to decide where to save your money.

Will you put the money into an online savings account where the temptation goes away?
Or invest in your future with a Roth IRA and/or 401k?
Where can you grow your savings over time?

Do not underestimate the power of your employer match contribution. If they offer this option for retirement savings or another type of investment account like Roth IRA or 401K, take advantage by contributing the maximum your plan allows each pay period.

Finally, you have to make sure you are living below your means with your increased saving rate.

These are all the fine details to make sure you learn how to save $10,000 in one year with cutting expenses.

Don’t forget to set up automatic transfers for all of your savings so they’ll be taken care of even when you don’t do it!

Shortly, you will find savings tips to help you save $10,000. The exact steps you need to do to save your first $10K or whether you want to do it again.

Breakdown How to Save 10000 Dollars in a Year:

But, first how much do you have to save to hit that 10K milestone in a year?

To save $10,000 in one year, you must set aside an average of $833.33 per month for 12 months.

Don’t quit reading now and walk away! You are reading this post for a reason. So, you will reach your saving challenge goal.

Let’s break that monthly number down into bit-size chunks.

Daily:	$27.40
Weekly:	$192.31
Bi-Weekly:	$384.62
Monthly:	$833.33
Bi-Monthly:	$416.67
Quarterly:	$2,500.00

Places to Save $10K in a Year

Your goal for the year is to save $10,000.

First, decide where you want to put this dollar bump in savings.

Everyone is at a stage in their financial journey, so what you choose will be completely different than someone else.

Here are some ideas:

Also, you may likely divide up your $10K savings into more than one bucket!

What are the ways you plan on saving $10,000?

Tips to help you Save $10000

According to the Federal Reserve, only half of Americans have retirement accounts.₁

This means that most people will retire broke. Yikes!

The only way to achieve a comfortable lifestyle is by saving, investing, and planning for your future.

You can save $10,000 in one year if you make a goal and try your best. It will take some effort as it is not easy to do so, but the rewards are worth it.

If there’s anything that we know for certain about living life well, then this is: “you must be willing to work hard.”

So, what are some practical steps that you can take to save money? Let’s start with the first one.

1. Mindset

The purpose of this personal challenge is to help you save $10,000 in one year.

To save $10,000, you probably cannot continue doing what you are already doing when it comes to saving money.

You need to change your money mindset and your money habits.

There are a few key steps you need to take in order to save money. The first step is to have a proper mindset towards your savings – figure out where all of your money is going, then figure out whether or to what degree you’re living as you can afford it.

The next step is you believe that you are capable of saving money. That is the bigger part of the battle for most. It is believing that are incapable of saving that much money.

If you haven’t heard of a vision board, then you must create one ASAP. And don’t forget those money affirmations.

2. Automate Savings

Automating savings is a great way to save money.

It can be done by setting up automatic transfers from your checking account or even transferring funds from your paycheck into an emergency fund that you will never touch.

This allows for more freedom in spending without having to think about if you saved your goal for that pay period.

With direct deposit, you will save money automatically and the temptation to spend drastically goes down.

If direct deposit is unavailable, you could set up an automatic transfer with your bank.

3. Focus on Saving Goal

All of your money decisions revolve around your goal of saving 10000 dollars.

That is the smart financial goal you have created for yourself. Now, that is your #1 focus.

Here is how to believe you will save $10k before you start:

Tell yourself over and over that you will save $10K by (insert your date).
Post reminders about your goal.
Put a sticky note on your debit or credit cards and/or cash envelopes.
Find an accountability partner.
Review your habits that make saving more different.

All in all, you have to stay dedicated and commit to your saving goal.

4. Budgeting

Budgeting allows you to save money and reduce stress.

It is important to take the time and create a budget that works for your needs to minimize spending and maximize savings.

When you sit down and take a hard look at your budget, it is easier to make cuts and prioritize what needs the most attention.

In this case, your goal for the next year is to save 10000 dollars!

Don’t skip this step! You must pay yourself first to reach your 10k goal.

5. Biggest Expenses

We are talking about your biggest fixed expenses – housing, transportation, and food.

Big moves are difficult, but they produce big results. Downsizing or moving to a cheaper place is drastic, but it can save you thousands of dollars in the long run.

Other options include renting out space in your home on Airbnb, negotiating with your landlord, and taking other measures to reduce housing expenses.

Although it is now more uncommon for families to have only one car, that is a great way to save money on a depreciating asset and ongoing maintenance costs.

Refinancing a car payment or trading in your set of wheels for an affordable ride will help you keep up with the latest trends without breaking the bank. You could also save on gas by doing your own maintenance.

In order to save some money, you should start meal planning and save money on food. You can also eat out less and use coupons or cash back apps for your grocery shopping.

Buying in bulk is a great way to get cheaper prices on certain items, but it might be too much of a hassle if you’re unsure about what kind of foods work best with each other–and there’s always the possibility that they’ll go bad before their expiration date!!

6. Increase Your Income

When you increase your income, the sky is virtually your limit. There are various ways to accomplish this goal but each way comes with its own set of risks and rewards.

The best way to increase your income is by taking on a second job. Even better, negotiate or find a new job that pays more and increases your income.

The next possible way to make money is from a side hustle or an online business, such as Amazon FBA, Etsy, eBay flipper, Rover, or affiliate marketing. This will allow you to be your own boss and work from home.

Check out the best ways to make money online for beginners.

People who want to save $10,000 in a year should increase their income. To do that, you must find ways to earn more money.

Don’t forget that you always want your money to make money! This is called passive income.

It is possible to make more money on your business than you make more money in your current job or career.

7. Track Progress

It’s important to track progress with goals. This will help you see the journey and milestones of your savings.

To track progress, download our free $10000 printable and check off boxes as you hit milestones.

Before you can reach $10,000 in savings, you must first reach smaller amounts such as $500, $1,000, or $5,000.

8. Celebrate Milestones

You can decide what to reward yourself with, but it’s important to celebrate each win by rewarding yourself somehow.

Plan your milestones and rewards in advance.

That way you have the motivation to keep going and know that you can afford your milestone.

Some examples:

$500 = Ice cream treat out
$1000 = Take out from your favorite place
$2500 = Something you want, but haven’t wanted to splurge.
$5000 = Halfway point! Celebrate with dinner out.
$7500 = Plan an experience gift like ziplining or rock climbing.
$10000 = A hotel night and dinner to celebrate with your significant other or friends.

Now, come out with your own milestones and rewards that match your lifestyle and desires.

Bonus Tip – Get Out of Debt

Saving money becomes way easier once you have paid off all debts (excluding mortgage).

This can be accomplished by prioritizing your loans, paying down the highest-interest loan, and then moving on to the next one.

Once you’re free from debts, it’s time for some simple adjustments in your spending habits that will help save thousands over a year.

Debt will always hold you back on your financial journey until you enjoy a debt free life!

How to save $10000 fast

So, you want to save $10,000 in a year?

Many of the methods listed above will help you save $10,000. But, let’s add ways to get your results faster!

You can do it!

At first glance, this might seem like an impossible task but with these tips and tricks, it’s not too hard to set your budget up so that you’ll be able to afford everything from a vacation abroad in your future.

The key is finding ways around spending money on things such as coffee, clothes, and other small luxuries so you can save the most money.

Here is a list of ways to save $10,000 in one year:

Cut your spending on coffee by 90%
Eliminate cable TV from your life for a month
Stop using taxis or public transportation when possible
Avoiding credit card debt.
Living with roommates instead of buying a house.
Get rid of all unnecessary subscriptions
Stop buying coffee at Starbucks or other coffee shops
Don’t buy anything with coupons unless it’s something you really need
Stop eating out
Cook your own food at home
Figure out what you spend the most on in a month and cut back by 20%
Sell any unused items you have in your home
Spend $5 per meal. Frugal meals are good!
Creates grocery list to limit eating out
Live like a thrifty person
Try a no spend challenge
Compare what is happening with your savings goals
Eliminate fees
Be careful with your money. Stop buying things that you don’t need and start living more simply. Do you really need that new iPhone?
Think about purchases over $25, specifically whether or not it’s worth it
Save for a set purchase instead of buying things as you go
Limit all impulse buys
For more ideas, check out our 200+ Frugal Living Tips.

There are some faster methods above that will get the job done quicker than just saving for 12 months.

Saving money isn’t as hard as you think it is. All it takes is some creativity and a little bit of willpower.

How to Save $10000 in a Year with Envelopes

Envelopes are a great way to save money. They allow you to collect interest on the cash you have saved in your account. Envelopes make it easy for people without much financial knowledge to save.

Since you are saving such a large amount of money, it is best to use an online budgeting app that works well with the envelope method.

To save money, you need to know how much you have saved with the 10k in 100 days challenge.

Tracking your progress is a good way of doing this and can be done by using envelopes with the amount inside that corresponds to what total savings count towards each goal.

Download Your 10000 Dollars Printable

Saving up $10,000 can be difficult and it’s not easy to know what to do. The tricky part is learning how to sustain those savings for the long run.

To help you show you how to save on a consistent basis, you can download one of our free $10000 printables.

When you sign up, you will have access to these free money saving challenge printables!

How to Save 10000 in 6 Months

Okay, you are determined to speed up your $10k savings!

That is awesome!

All you have to do is double how much you are saving each pay period.

To save $10,000 in 6 months, you must set aside an average of $1,666.67 per month for 6 months.

Daily:	$54.65
Weekly:	$384.62
Bi-Weekly:	$769.23
Monthly:	$1,666.67
Bi-Monthly:	$833.33
Quarterly:	$5,000.00

How to Save $10000 in 3 Months

Saving $10,000 in 3 months is a difficult task but not impossible. Here are some suggestions:

-Start saving money as soon as you can and work your way up to $10,000.

-House hacking is a must. Buy a house and rent out the rooms for extra income. Live with parents. Another great option is house sit and be paid for your housing!

-Rent out your car (or sell it) in order to save on gas costs.

If your goal is to aggressively save $10000 in three months, then you must drastically reduce all expenses.

To save $10,000 in three months, you must set aside an average of $3,33.33 per month for three months or in a period of 90 days.

Daily:	$111.11
Weekly:	$833.33
Bi-Weekly:	$1,666.67
Monthly:	$3,333.33
Bi-Monthly:	$1,666.67
Quarterly:	$10,000.00

How to Save $10000 in 2 Years

Saving 10000 dollars in a year is a little more aggressive than you believe possible. That is completely okay.

It does not matter how long it takes you to save $10000 as long as you complete the saving money challenge!

To save $10,000 in two years, you should start by saving at least 10% of your income every month. Then you can invest that money into index funds or other investment options to maximize your wealth.

To save $10,000 in 2 years you must set aside an average of $416.67 per month for two years or $5000 per year.

Daily:	$13.70
Weekly:	$96.15
Bi-Weekly:	$192.31
Monthly:	$416.67
Bi-Monthly:	$208.33
Quarterly:	$1,250.00

Are you Ready to Save 10000 Dollars?

A money saving challenge is a competition with the goal of finding ways to save money.

The best way to save money is through baby steps.

To start, you can take a look at your current financial situation and identify the areas of opportunity for savings. For example, if you’re struggling with debt or have an expensive monthly budget, then it’s time to find ways to reduce spending in these areas.

Once you’ve identified some opportunities for savings and created a plan accordingly, make sure that your progress doesn’t slow down by using tools like automatic saving plans and paperless billing.

Money saved in the long run will be worth it and you should participate in any of our money saving challenges.

The key point about saving money is not having too many goals as it will make it difficult to prioritize which ones are more important than others when trying to save more.

This is a simple guide for saving money, and it’s designed to help you save $10,000 in a year. Next up, is learning how to save 20000 in a year.

We have included tips on how to save money, but more importantly, change your finances for the long term.

Related Money Saving Challenges:

Source

Federal Reserve. “Changes in U.S. Family Finances from 2019 to 2022.” https://www.federalreserve.gov/publications/october-2023-changes-in-us-family-finances-from-2019-to-2022.htm. Accessed January 22, 2024.

Did the post resonate with you?

More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!

Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.

Source: moneybliss.org

Apache is functioning normally

May 22, 2024 by Brett Tams

“MOASS,” or, the “Mother of All Short Squeezes,” was largely unknown to investors prior to 2021. But a saga involving so-called “meme stocks,” most notably GameStop stock, changed that, and MOASS entered the investing lexicon. In short, that specific scenario, bringing the Mother of All Short Squeezes, as a strategy, to investors’ attention, involved a rag-tag band of day traders taking on the hedge fund giants, with a short-sale “squeeze” that greatly impacted some of those giants.

Meme stocks, including GameStop and AMC Theatres, saw further short squeeze action in mid-May 2024, too. But the episode in 2021 shined a light on investors, short-sales, trading squeeze strategies, and digital trading on a massive scale, all of which fell under the MOASS umbrella.

Key Points

• MOASS stands for “Mother of All Short Squeezes,” a phenomenon where stock prices skyrocket due to mass buying.

• It gained prominence with the GameStop stock saga, where day traders challenged large hedge funds.

• The strategy involves a high volume of purchases to drive up stock prices, countering short sellers.

• Effective execution of MOASS can lead to significant profits for traders who initiate the squeeze.

• The approach carries high risks, especially for those who join late or cannot sell off at peak prices.

Table of Contents

Short Squeeze Basics

A short squeeze is an orchestrated effort to drive up shares of a stock that’s being heavily shorted. MOASS, meaning the Mother of All Short Squeezes, as noted, is a trading strategy in which a high volume of buyers drive up shares of stocks that were being “shorted” by other investors.

A short squeeze trading strategy needs two components to work — a short seller or, more preferably, several short sellers on one side and a group of disciplined contrarian investors who unroll a short squeeze and buy shares of the stock being shorted.

💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

How the MOASS Works

In order to understand how a short squeeze — or a massive short squeeze — works, you first need to understand short selling.

Short sellers aim to profit from the fall in a stock’s price. They do so by borrowing and selling shares of a stock that they believe will decline in value. Then, when the stock price falls, a short seller buys the stock at the reduced price, returns the shares, and pockets the profit.

If the short seller makes the right call, meaning the price does fall, they earn the difference between the price when they entered the short position and the lower stock price at which they bought to cover.

If the short seller makes the wrong call, and the price goes up, the investor must buy the stock at a price higher than when they entered the short position, thereby losing money — and negating any potential for a profit.

As short sellers wind up leaving their short positions when they execute a buy order on the stock, those “short-squeeze” buy positions get noticed by other day traders, who also jump in to purchase the stock. That, in turn, drives the stock’s price even higher, since there are fewer shares of the stocks available to purchase.

Short-sellers, highly alarmed by the rising share price, also issue buy orders on the stock to exit the short sale strategy and reduce their investment risk, which completes the cycle and puts the short squeeze in full effect. This can result in the short sales losing money and the MOASS day traders making a profit on the rising stock price.

Recommended: Understanding Low Float Stocks

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GameStop: The Prime Example of MOASS

Perhaps the best example of MOASS in action is the GameStop saga in early 2021. At the time, several hedge fund firms had “shorted” GameStop stock, which essentially meant betting the share price of the stock would decline. That didn’t happen with GameStop shares. Some context is important to understand, too, as many retail stocks, like GameStop, had been heavily affected by the pandemic at the time.

But GameStop shares bucked the trend.

A group of day traders hanging out on a Reddit investing forum called “Wallstreetbets” banded together and started buying up shares of GameStop stock. The gambit worked, with GameStop shares skyrocketing from $19 per share to around $350 per share. The retail investors had successfully “squeezed” the short sellers, causing several hedge funds to lose hundreds of millions of dollars on their short positions on GameStop.

If the short squeeze works, the share price will continue to rise and the short investors, many of whom have fixed deadlines built into their short sales positions, will have to sell their shares and cut their losses, thereby driving the stock price even higher. That rewards the short squeeze investor, who profits from the rising share price, especially as other buyers enter the fray and drive the share price up even higher.

Once victory was declared with the GameStop short squeeze, the Reddit traders turned their attention to other so-called meme stocks where short selling activity was particularly high. That group included AMC Entertainment Holdings, Koss Corporation, and Blackberry, which all saw share volumes rise after the MOASS traders entered the fray.

Thus, a series of short squeezes that target more and more short sellers is really what MOASS is all about: squeezing enough short-sellers to achieve critical mass in the trading markets, and making huge profits in the process.

Also, as mentioned, a similar situation played out in May 2024, when certain stocks (including GameStop and AMC Theatres) were at the center of another short squeeze, though smaller in scale than the 2021 events.

Recommended: Pros and Cons of Momentum Trading

MOASS Trading Tips

Investors who want to participate in the next short squeeze effort should be careful. So-called “meme” stock trading can be fraught with risk, especially if you’re left holding the bag after other short-squeezers sell out of their positions before you do.

Take these risk considerations with you before participating in a mass short squeeze play.

Consider Minimal Purchases to Limit Losses

While the adrenaline level can be high when participating in a short squeeze trading event, tamp down emotions by limiting the amount of money you invest in a GameStop-type situation. As the old gambling adage says, never risk money you can’t afford to lose. That goes double when chasing the thrill of a MOASS scenario.

Should You Expect to Lose Money?

There’s a significant chance that you’ll lose money at some point with a short squeeze play.

Nothing is guaranteed in the stock market and that’s especially the case as short-sellers have learned their lesson after meme-stock related events in recent years, and grow more cautious about their investing habits. MOASS trading patterns can be something of a roller coaster ride for investors, and the odds that your ride will dip along the way are high. That can translate into days or even weeks of your short-squeeze buying strategy where your investment returns are written in red ink.

💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

MOASS Tip: Have a Plan to Sell Quickly

Short squeeze investing isn’t exactly an orderly process and you need to put your interest first ahead of other MOASS investors. Why? Because volatility can be high and prices can swing at a moment’s notice when trading MOASS-themed stocks. Additionally, nobody really has any idea how high a price can go with a short squeeze in play, and nobody really knows if a stock will rise higher at all.

That’s why it’s a good idea to have a fixed “sell price” in mind when engaging in a short squeeze situation — a stop loss order to automatically sell the stock at a specific price can be a good idea in this scenario.

If you buy a targeted MOASS stock at $50 and it goes to $70, there’s no way of knowing if the stock will go any higher — it might and it might not. Worse, the price could slide back to $30 when buyers lose interest in the stock.

Having a good investment exit strategy in a short squeeze scenario, can help minimize investment losses and capitalize on a stock increase when and if it happens.

The Takeaway

“MOASS” means the “Mother of All Short Squeezes,” and perhaps the best example of it in action involved so-called “meme stocks” in 2021. Short squeeze trading strategies can bring a great deal of portfolio-shaking volatility to the investment table, and there are plenty of heavily shorted stocks that could be the next MOASS, but it’s impossible to know which one could trigger a squeeze.

That means MOASS may not be the best strategy for long-term investors or those with an aversion to risk. A short squeeze takes a significant amount of discipline, patience, and attention on the part of the investors, with continual risk in play until the squeeze is played out.

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Apache is functioning normally

May 22, 2024 by Brett Tams

Do you want to learn how to turn $10,000 into $100,000? Growing $10,000 into $100,000 might seem kind of impossible or far-fetched, but with the right mindset and plans, it could be a reality. Whether you want to make extra income, run a full-time business, or if you are just looking to learn how to…

Do you want to learn how to turn $10,000 into $100,000?

Growing $10,000 into $100,000 might seem kind of impossible or far-fetched, but with the right mindset and plans, it could be a reality.

Whether you want to make extra income, run a full-time business, or if you are just looking to learn how to turn your $10K into $100K quickly, there are many options that may interest you.

Best Ways To Turn $10,000 Into $100,000

Below are the best ways to turn $10,000 into $100,000.

Recommended reading: How To Turn $1,000 Into $10,000

1. Start an online business

Starting an online business could be a game-changer in growing your $10,000 to $100,000.

I started an online business years ago, and it has paid me well over $100,000 over the years, so I know that this is possible.

Here are some ideas for online businesses:

Here are some ideas for in-person businesses that you advertise for online but still get to work from home or on your own schedule:

Sell dog treats – Sell baked dog treats that you make. Learn more at How I Earned Up to $4,000 Per Month Baking Dog Treats (With Zero Baking Experience!).
Car detailing – Sell a mobile car-cleaning service where you go to the customer.
Meal prep – Help people eat healthily with pre-prepared meals that you deliver or they pick up.
Lawn care – Sell gardening or landscape services.
Dog walking – Take care of pets for busy owners. Learn more at 7 Best Dog Walking Apps To Make Extra Money.
Tutoring – Share your knowledge in a subject and teach others online or in person.
Local tour guide – Use your local knowledge to guide visitors around your town.

Starting a business doesn’t have to be expensive either. Typically, all you need for most of the businesses listed above is small affordable pieces of equipment or a few supplies (like a laptop or cleaning tools).

2. Start a blog

Starting a blog can be a great option if you’re looking to grow your $10,000 into $100,000.

A blog is a website where you can share your thoughts, knowledge, or experiences. You write posts that people can read, interact with, and share. And yes, you can make money from blogging!

I make money online by blogging, and I actually didn’t spend any money to start. It took me about 2 years to begin earning $10,000 every month.

And, I have now earned over $5,000,000 with my blog over the years.

I began my website, Making Sense of Cents, in 2011, and I started my blog without much planning, just wanting to share my own money journey, not even realizing that people could make money with websites.

So, how do you earn money through a blog? Here are some ways:

Ad revenue – Place ads on your blog and earn every time a reader clicks or views the ad.
Affiliate marketing – Recommend products and earn a commission if your readers buy through your links.
Selling products – Create and sell your ebooks or courses.
Services – Sell your expertise as a service such as consulting or coaching.

Blogging is a process that requires patience, but with consistent effort, making $100,000 from your blog may be possible.

You can learn how to start a blog with my free How To Start a Blog Course (sign up by clicking here).

3. Invest in real estate

There are many ways to turn $10,000 into $100,000 in real estate.

I’ve done some real estate side hustles myself, and I know many others who do too. Getting into real estate doesn’t have to cost a lot, and there are several side hustles in real estate that you can start even if you’re new or have limited money to work with.

These include:

House hacking – Buy a home, live in part of it, and rent out the rest. This could include renting out a duplex (and living in the other half) or even just a spare room in your house. This way, the rent you receive helps pay your mortgage. Look for multi-unit properties where you can live in one part and rent out the others.
Long-term rental property – You could buy a property and rent it out to long-term renters, such as for a year or longer.
REITs (Real Estate Investment Trusts) – Invest in REITs, which are companies that own and manage real estate properties. By investing in REITs, you can spread your money across different properties without having to manage them yourself.
Airbnb rentals – Rent out a spare room or your entire place to travelers through Airbnb. Make your space cozy and welcoming to attract guests. Make sure to check local laws about renting out your place and set a competitive price.
Rent out storage space – Rent out any unused land or space for storage. Whether it’s a parking spot, closet, basement, attic, or any unused area, people are willing to pay for storage. List your space on platforms like Neighbor to earn extra income.
Flip homes – While flipping homes usually requires more than $10,000 to start, it’s a popular way to turn a small investment into a larger profit. If you’re skilled and enjoy renovation projects, buy a house, fix it up, and sell it for a higher price.

Recommended reading: 23 Best Real Estate Side Hustles To Make Extra Money

4. Invest in the stock market

Investing in stocks means buying a piece of a company like Walmart, Apple, or Amazon. The price of individual stocks can go up or down, and if it goes up, you might turn $10,000 into $100,000.

I, for example, prefer long-term investing. I diversify my investment portfolio, meaning I spread it out across different companies. This way, if one company doesn’t do well, I don’t lose all my money.

One way to diversify is by investing in funds like exchange-traded funds or mutual funds. These are collections of stocks bundled together, which can lower your risk compared to investing in individual stocks.

How quickly you can turn $10,000 into $100,000 depends on the market and the stocks or funds you choose. It could take a year or decades. Patience is key.

This is a screenshot I took from Investor.gov of their compound interest calculator.

If you are wanting to invest in the stock market, with an average return of 8%, it might take about 30 years to reach $100,000 without additional contributions. You may be able to shave some years off that by automatically reinvesting dividends, though (if you are invested in dividend stocks). This is great, though, and shows the power of compound interest.

Note: Some people choose short-term investing to make money quickly in the stock market. However, this approach requires thorough research on your investment decisions, understanding various fees, knowing your risk tolerance, and more before opening a brokerage account. While the right strategy can sometimes lead to profits, the wrong one can mean that you lose a lot of money.

Recommended reading: How To Start Investing For Beginners With Little Money

5. Flip items for resale

Turning $10,000 into $100,000 might seem impossible, but one way to work toward this goal is by flipping items for profit. You can start by looking around your home for things you no longer use or even items that people are trying to get rid of.

You might be surprised by how much money you can make by selling items like old phones, laptops, clothes, and even furniture that you no longer need.

I’ve personally flipped many items for resale over the years, and it can be a good way to earn extra cash!

Here are some ideas:

Sell electronics and furniture – Websites like Craigslist and Facebook Marketplace are great for selling bigger items like furniture because you can arrange easy local pickups.
Fashion and accessories – Platforms like eBay or Facebook Marketplace are good for selling clothes, especially if they’re branded. These sites help you reach a wide audience and make shipping easy. For jewelry you don’t wear, sites like Worthy can help you find them a new home.
Yard sales – Yard sales can be a fast way to earn money, especially if you have many items to sell. While you might not make as much money for each item, the total can still add up nicely!

If you want to take it a step further, you can start buying items to flip for a profit. Look for furniture that needs a bit of cleaning, high-end clothing that needs repair, or appliances that need new parts. Fix them up and sell them for a higher price.

I have a friend who does this for a living, and some of their best flips include:

Buying an item for $10 and selling it for $200 just 6 minutes later.
Purchasing a security tower for $6,200 and selling it for $25,000 just one month later.
Buying a prosthetic leg for $30 at a flea market and selling it for $1,000 on eBay the next day.

They’ve even found a free chair and eventually did so many flips directly from that free chair and made over $100,000! You can learn more at How We’ve Turned A Free Chair Into $103,000.

This free workshop will teach you how to get into the flipping business. It will teach you how to resell furniture, electronics, appliances, and anything else you can find.

6. Buy an established business

One way to possibly turn $10,000 into $100,000 is by buying a business.

Investing $10,000 in buying an existing business could potentially grow your investment to $100,000. When you buy a business, you’re entering into an established cash flow and you don’t have to start from scratch because the business already has customers, a recognized name, and ongoing operations.

And, you might find a business where you can see clear ways to improve it, which means that you can improve your investment.

This is actually close to the line of work I was in before I started Making Sense of Cents – I was an investment analyst and valued businesses (among other investments) for a living. So, I saw a lot of businesses be bought and sold over the years.

Here are some steps to start with when it comes to buying a business:

Look around – Search for businesses on sale.
Ask questions – Why is the owner selling?
Research – Look for businesses that match your interests and talents. You will do better in a business you like!
Talk money – See if the numbers make sense.
Get help – A business adviser can help you understand the details.
Make a deal – If it looks good, start the buying process.

Buying a business is a BIG decision, but with the right one, your $10,000 investment could turn into $100,000. I do highly recommend getting professional advice from a financial advisor before making a business or asset purchase to make sure you make a smart choice.

Recommended reading: Are Laundromats Profitable? How Much Do Laundromats Make?

7. Sell on Etsy

Etsy can be a great place for you to turn your $10,000 into $100,000 by selling items online.

You can start your own Etsy store with products you make or find. People love buying unique things like handmade crafts, vintage items, and custom art.

Selling digital products is one of my favorite ways to make money because it requires much less than $10,000 to start. Creating digital products is a way to possibly even earn passive income. By designing products that people can download and use, you enter a market with very low overhead costs.

Some digital product ideas include templates for social media branding, weekly routine printables, printable wall art, and more.

Do you want to make money selling printables online? This free training will give you great ideas on what you can sell, how to get started, the costs, and how to make sales.

8. Peer-to-peer lending

When you have $10,000 that you want to grow, you might want to consider peer-to-peer (P2P) lending. This is when you lend your money online and receive it back with interest. It’s similar to being a bank, but you’re lending to individual people instead.

Starting with peer-to-peer lending works like this:

Find a reputable P2P platform that suits your needs.
Deposit your $10,000 to fund loans.
Before committing, make sure to read and understand all terms and conditions, such as the potential earnings, risks, and interest rates.
The interest you earn from these peer-to-peer loans becomes your profit over time.

Remember, investing involves risks, and loans may not be repaid, which can affect your return.

9. Invest in crypto

Cryptocurrency, like Bitcoin, is not something that I personally invest in, but it can be a way to possibly grow your money.

Remember:

To use money you’re okay with risking
That there’s no guaranteed win
To always play it safe with your hard-earned cash

This digital money can sometimes be like a roller coaster – sometimes it goes up, sometimes it goes down. But if you make wise decisions, it could help grow your cash.

10. Flip websites for profit

Flipping websites can be a way to increase your $10,000 into a much larger amount. It’s similar to renovating and selling houses, but it’s done online.

I know several people who have bought websites with the goal to flip too!

You can start by searching for a website to purchase, such as by searching listings on Flippa. Look for sites with potential but require improvement. They should cover a solid topic but may need improvements in things like content, design, or improving page views.

Recommended reading: How I’ve Made $80,000 Selling Blogs

11. Start a YouTube channel

Starting a YouTube channel can be a fun and creative method to grow your $10,000 investment. It will most likely cost you less than $10,000 to start a YouTube channel, but there are ways to spend that amount of money to get started faster (such as buying a course on YouTube or buying expensive camera equipment).

Let’s simplify the process into easy steps:

Choose a topic – Pick something you love or know a lot about.
Create your channel – Sign up on YouTube and set up a channel for free.
Make videos – Use a camera or smartphone to record your videos.
Grow your channel – Post regularly, share your videos on social media, and more.
Monetize your channel – When you get 1,000 subscribers and 4,000 hours of watch time, you can apply for the YouTube Partner Program.

Recommended reading: 22 Ways To Make Money Online Without Paying Anything

12. Turn $10K into $100K through education

One great way to turn your money into more is to learn through higher education, whether that be college, a certificate, or learn a trade.

You can start by looking for jobs with a strong outlook and high salaries, and even by using online resources or talking to a career advisor to find the best fit for you.

Then, you’ll want to pick a reputable college or trade school. You’ll want to factor in the cost and the potential return on your investment. Community colleges or public schools can be more affordable, for example.

Now, there are many costs when it comes to going back to school. There is tuition, books, lab fees, parking, and more. It most likely may end up costing you more than $10,000 to go back to school, but if you choose a solid career path and are smart with your college costs, then it could be a wise step.

Frequently Asked Questions

Below are answers to common questions about how to turn $10,000 into $100,000.

How long does it take to turn $10,000 into $100,000?

The time it takes to turn $10,000 into $100,000 depends on your investment strategy and the rate of return. If you are wanting to invest in the stock market, with an average return of 8%, it might take about 30 years to reach $100,000 without additional contributions. But, if you buy an existing business, go back to school and get a higher-paying career, or start your own business, then you may be able to turn $10,000 into $100,000 even quicker.

What is the fastest way to turn $10K into $100K?

The fastest way to multiply your money could be high-risk investments like day trading stocks or real estate flipping. Remember, high rewards come with high risks, so be careful with any fast-growing strategies.

How to turn $10K into $100K in a month?

Turning $10K into $100K in a month is extremely risky and unlikely. Most investments that promise such quick returns are highly speculative, so you could lose your money just as fast. I highly recommend that you be careful if someone tells you that they can help you turn $10,000 into $100,000 in one month.

How to turn $10K into $100K in a year?

Turning $10K into $100K within a year involves high risk and aggressive investment approaches as well, but it is possible. This may include buying an existing business and really putting in some hard work to improve it.

How to turn $10K into $100K in 2 years?

Yes, you can be able to turn $10,000 into $100,000 in 2 years. This could be through ways such as starting your own online business (such as by selling digital products or a blog), buying an existing business, or even going back to school to get a higher-paying job.

How to turn $10K into $100K in 5 years?

Yes, you can potentially turn $10,000 into $100,000 in 5 years. This could be achieved through different methods such as starting your own online business (like selling digital products or creating a blog), purchasing an existing business, or even furthering your education to find a higher-paying job.

Can you turn $10K into a million?

Yes, you may be able to turn $10,000 into $1,000,000, but this will most likely take a lot of time. So, patience is key!

How to Turn $10,000 into $100,000 – Summary

I hope you enjoyed this article on how to turn $10,000 into $100,000.

To make more money from your $10,000 investment, you may want to think about using the internet to start a business. Websites like Etsy can help you sell handmade items, or you can make money from a blog or YouTube channel. You can also try traditional ways of investing, like buying stocks or real estate. You can be very involved, like flipping houses, or less involved, like putting money into peer-to-peer lending or high-interest savings accounts.

As you can see, there are many different investment options and business models depending on your financial goals and risk tolerance.

Why do you want to turn $10,000 into $100,000?

Recommended reading:

Source: makingsenseofcents.com

Apache is functioning normally

May 22, 2024 by Brett Tams

Key Takeaways:

Interest rates are fees that you pay while borrowing money until you completely repay a loan.
Interest rates are calculated with the formula A=P(1+rt), which can help you find the total interest on a loan.
Having a higher credit score can help you qualify for lower interest rates.

In essence, interest rates work by determining how much a borrower must pay a lender while using a loan. Learning about things like interest and APR can help you understand how much you’ll have to pay for a loan in total—and how much you can charge when lending your funds to someone else.

This guide will explore how interest rates are calculated and how they apply to different types of loans. We’ll also share some of Credit.com’s helpful financial tools, including our interactive calculators.

What Is Interest?

When borrowers lend their money to another person or organization, they charge interest until the loan is repaid in full. The precise amount of interest that you’ll pay for a loan depends on several factors, including the total amount you initially borrow and the time it takes you to repay the loan.

When it comes to money in savings accounts, interest works to your benefit—financial institutions will pay you for the privilege of using your funds.

How Are Interest Rates Calculated?

Simple interest and compound interest are two common methods that lenders use when charging borrowers.

You can find out how much simple interest you might have to pay on a loan with the formula A = P (1 + rt).

A – the total amount that a loan costs when fees are taken into account
P – the principal amount that you initially borrow when you take out a loan
r – the rate of interest that a lender charges annually
t – the overall time it takes you to repay a loan. This is calculated in years

Here’s an example of the formula at play:

The principal amount you borrow is $5,000.
The bank sets your interest rate at 3%.
It takes you five years to pay back the loan.
In this case, A is $5,750.

Using this information, the formula should be $5,750 = $5,000 x (1 + 0.03 x 5).

Compound interest calculates interest growth (like in a savings account) based on the principal amount and all previous interest payments over a set period. The formula to find compound interest is CI = P( 1 + r/n)^nt.

CI – your total compound interest
P – the principal amount
r – the annual interest rate
n – the number of times your interest compounds in a year—this can be daily (365), monthly (12), or annually (1)
t – the total amount of time that passes on a loan or investment

Compound interest on a loan can be exponentially costly, while compound interest on an investment or savings account can generate great profit over time.

Here’s an example of how compound interest can build income in a savings account:

The principal amount you invest is $5,000.
Your interest rate is 4%, or 0.04 in decimal form.
The interest on your account is compounded annually (1).
You commit to a 10-year investment plan.

Plug those numbers into the formula, and you’ll get $5,000 ( 1 + 0.04/1) x ^{1 x 10}, which will equal $7,401.22 in compound interest.

Keep in mind that we didn’t factor in additional contributions with this example. Investors who add more funds to their accounts each month can increase their earnings from compound interest.

What Is the Difference Between APR and APY?

APR represents your annual percentage rate, though people may simply say interest instead of using this term. This works for credit cards but not all types of loans. For most loans, APR also includes fees that are slightly more costly than the base interest rate.

Annual percentage yield (APY) refers to the amount of interest you’ll earn on an investment each year. When shopping around for compound interest savings accounts, the APY is your estimated rate of return.

How Is APR Calculated?

Similar to simple interest, there’s a formula to calculate APR:

APR = ((Interest + Fees / Principal amount) / Number of days in your loan term)) x 365 x 100.

When calculating APR, it’s important to add interest and fees together before you divide your principal amount. After that, you’d divide the resulting amount by the number of days in your loan term, then you’d multiply the resulting number by 365 (to represent each day of the year) by 100.

How Is Your Interest Rate Determined When You Borrow Money?

Your credit history, the lender’s unique policies, and the base rate influenced by the Federal Reserve determine how much interest you’ll initially receive.

Market factors influence your base rate. This includes economic trends and changes made by the Federal Reserve.
Each bank sets lending rates and policies that apply to all of its patrons.
If you have a higher credit score, you have a better chance of earning a lower interest rate.

Why Is Your Credit Score Important?

Lenders use credit scores to gauge which applicants will most likely repay a loan. Having a good or excellent credit score shows lenders that you tend to repay your loans on time and that you don’t borrow more than you can afford to repay.

Poor credit, however, can cause lenders to doubt your ability to repay any funds that they give you. To make up for this doubt, lenders might give you higher interest rates to discourage you from borrowing too much money or being late with your payments.

Different Types of Interest Rates

Interest rates have different nuances depending on the type of loan they’re tied to. For example, home mortgage rates factor in fees and taxes, while interest rates for credit cards are a bit more straightforward. Below, we’ve tallied up several examples.

Credit Card Interest Rates

Credit card interest is calculated based on factors like the balance on your card and the transaction you’re initiating. Moreover, lenders might charge penalty APR if a cardholder repeatedly misses payments or exceeds their credit limit.

The best way to figure out how interest affects your credit card is by learning your account’s daily periodic rate (DPR). You can find your DPR by taking your APR, converting it into a decimal, and then dividing by 365.

Mortgage Interest Rates

A works differently than a credit card’s interest rate largely due to the various items that factor into it. Mortgage insurance, property taxes, and realtor fees can all influence the APR on your home.

It’s best to check your credit score and report before buying a home, as your credit health will greatly affect your mortgage APR. Other factors that impact your rate include:

The state you live in
What type of property you want to buy
How much you’re putting down
The type of lending you qualify for

Auto Loan Interest Rates

It’s helpful to make sure you understand all of the common terms about auto loans before you sign any documents. Most auto loans also follow the simple interest formula we explored earlier. However, the fine print can include items like paperwork fees and title fees that can result in surprise expenses.

It’s possible to negotiate some of the fees that dealerships present before signing any paperwork. Arming yourself with knowledge, a sizeable down payment, and a strong credit score all grant valuable bargaining power during the negotiation process.

Fixed Interest Rates vs. Variable Interest Rates

Banks may offer fixed interest rates or variable interest rates on their loans and credit cards. With a fixed interest rate, the APR on your loan can’t change unless your financial institution notifies you and then adjusts it.

Variable interest rates can fluctuate based on changes to the economy and the “prime rate” the Federal Reserve sets for financial institutions. Fixed interest rates are more predictable, but they can occasionally cost more than the prime rate. Variable rates ebb and flow, but they can occasionally be lower than the prime rate.

Get Better Interest Rates With Credit.com

Your credit score can help you secure fantastic loans with low interest rates. Seeking personal finance advice before you apply can greatly improve your chances of scoring low-interest loans and phenomenal promotional opportunities.

Sign up with Credit.com—we’ll provide you your Vantage 3.0 credit score and a breakdown of how it works. There are also tools to help you plan what areas of your credit you would like to work on.

Source: credit.com

Apache is functioning normally

May 21, 2024 by Brett Tams

Pet owners spent an average of $491 on veterinary care for their fur kids in 2021, the most recent year for which data was available, according to the U.S. Bureau of Labor Statistics

. But if your pet requires surgery or emergency treatment, vet bills can cost thousands of dollars. Buying pet insurance can help defray these expenses. Your first step is to get pet insurance quotes.

How to get pet insurance quotes

You can get quotes from the best pet insurance companies online, though most companies also give you the option to speak with a human. Note that we’re focusing on how to get pet insurance quotes for dogs and cats in this article. If you want insurance for your iguana, guinea pig, bird or ferret, you’ll need to work with an insurance company that specializes in exotic pets, such as Nationwide.

Key terms in this article

Deductible	The amount of your pet’s veterinary bill that you’ll need to pay before pet insurance kicks in.
Reimbursement level	The percentage of your vet’s bill that insurance will cover after you’ve met the deductible.
Annual limit	The maximum dollar amount your pet insurance company will pay for covered care in a year.

To get a pet insurance quote, you’ll generally need to provide your ZIP code and the following information about your animal:

Species (dog or cat).
Weight (for mixed-breed dogs).

Once you’ve entered your pet’s basic information, you may have the option to customize your quote. For example, if you want to save money on monthly premiums, you could increase your deductible. Or if you’re willing to pay more each month for increased coverage, you could raise the policy’s annual limit or reimbursement level.

Can I insure multiple pets on the same policy?

Some pet insurance companies let you cover multiple animals on the same plan. You may have a single deductible for all covered animals or pay a separate deductible for each pet, depending on the policy.

Even if the insurer doesn’t allow more than one pet to be covered on a policy, you may get a multipet discount if you enroll more than one animal. Many pet insurance companies offer multipet discounts of 5% to 10%.

Types of pet insurance plans

When you get pet insurance quotes, you may be able to choose either an accident-only plan or an accident and illness plan. You may also be able to add a wellness plan to your pet insurance to cover routine vet care. Note that not all carriers offer all types of plans.

Accident and illness plan

An accident and illness plan helps with costs if your animal companion gets sick or injured. It can reimburse you for part of your vet bills if your pet is hurt in an accident or develops an illness such as cancer, thyroid problems or arthritis.

An accident and illness plan usually doesn’t cover pre-existing conditions, which are health issues that showed symptoms before your pet insurance took effect. However, some insurers may help with costs related to a hereditary condition or birth defect if the symptoms didn’t surface until later in life. Other policies offer this coverage as an add-on.

Accident-only pet insurance

An accident-only plan helps you pay for your pet’s care if they’re injured in an accident, but it won’t cover treatment related to an illness. For example, if your furry pal gets hit by a car, is bitten by another animal or swallows a toy, your insurer would typically foot part of the bill. But there’s no coverage if your pet is diagnosed with a condition like hip dysplasia, cancer or a metabolic disorder.

Though the coverage is limited, it’s usually cheaper than more comprehensive plans. Some companies offer accident-only plans to animals that may not otherwise qualify for coverage due to their age.

Wellness plans

Pet insurance covers unexpected veterinary expenses your dog or cat may incur, but a wellness plan helps you pay the expected costs of keeping your pet healthy. Usually purchased as a separate plan or add-on, you can use a wellness plan to help pay for routine care like checkups, vaccinations, dental cleanings, spaying and neutering and microchipping.

🤓Nerdy Tip

Wellness plans may help you budget better for veterinary expenses by spreading them out over a 12-month period, but they may not actually save you money. Before buying wellness coverage, compare the cost of the plan to the cost of the covered services you’ll use in a given year.

What factors affect your pet insurance price?

The type of plan you choose will affect your pet insurance price. Accident-only plans are usually cheaper than more comprehensive accident and illness plans. Other factors that determine how much pet insurance costs include:

Cat vs. dog: Cats live longer than dogs on average, but they tend to have fewer health problems over their lifespans. Many felines are indoor-only cats, so they’re less exposed to accidents and illnesses compared with dogs. Dogs are also more likely to have hereditary problems.
Breed: Purebred animals are often pricier to insure because they’re more prone to breed-specific illnesses than mixed-breed pets. Pet insurance for larger dogs tends to be more expensive than coverage for small dogs, as large-breed dogs have shorter life expectancies and frequently develop more health problems in a shorter timespan.
Age: Older pets are at higher risk of developing health issues, so as your dog or cat ages, you’ll probably pay more for pet insurance.
Location: Where you live affects the cost of pet insurance because veterinary costs vary widely by location. Since most pet policies reimburse a percentage of vet bills, you can expect your pet premiums to be higher if you live in an area where pet health care is pricey.
Deductibles, reimbursement level and annual limit: If you have a high deductible and a low reimbursement level and annual limit, you’ll pay less in premiums. However, your out-of-pocket costs for vet bills will be higher. Conversely, a low deductible combined with a high reimbursement level and annual limit increases your premiums, but your out-of-pocket expenses will be lower if your pet gets sick or injured.

🤓Nerdy Tip

Pet insurance generally doesn’t cover pre-existing conditions. Your pet’s risk of developing a health issue increases as they get older, so buying a policy early can up the odds that future conditions will be covered.

How to compare pet insurance quotes

Your monthly premium isn’t the only factor to consider when comparing pet insurance quotes. You’ll also need to evaluate how much you’ll pay out of pocket when your pet needs care, as well as what services are covered. Here are some things every pet parent should know before choosing a policy.

Deductibles

You’ll need to pay an out-of-pocket pet insurance deductible before your insurer will cover part of your vet bill. If your policy has an annual deductible, your policy will cover care after you’ve hit the deductible for the year. However, some policies have a per-incident or per-condition deductible that applies when your pet develops a new health condition.

Say you hit your per-condition deductible when your pet developed a bladder infection. If you took them back to the vet a few weeks later for allergy treatment, another deductible would apply since it’s a new condition.

Generally, you’ll pay higher premiums if you choose a low deductible.

Reimbursement rates

Your reimbursement rate is the percentage of covered services your insurer will pay for. But this amount is often applied before the deductible. For instance, suppose you have a policy with an 80% reimbursement level and a $250 deductible. If your pet incurred a $1,000 vet bill, here’s how your pet insurance reimbursement rate might factor in:

$1,000 (vet bill) x 0.8 (80% reimbursement rate) = $800.
$800 – $250 (deductible) = $550 (covered by pet insurance).
$1,000 – $550 = $450 (your out-of-pocket cost).

Annual limits

The annual limit is the maximum amount the policy will pay during a 12-month period. Once you reach the annual limit, you’ll need to pay out of pocket for veterinary care. Many insurers offer an unlimited option.

Waiting periods

A waiting period is a specified amount of time that must elapse before pet insurance kicks in. Many policies have a two-day waiting period for accidents and a 14-day waiting period for injuries. Some specific conditions like orthopedic problems and cruciate ligament issues may have longer waiting periods.

What’s included

Before you buy insurance, make sure you understand what your pet insurance policy covers. Find out how your policy defines pre-existing conditions and whether it pays for things like hereditary conditions and behavioral issues.

How to save money on pet insurance

Pet insurance doesn’t have to break your budget. To save money on pet insurance costs, follow these tips:

Compare quotes. To make sure you’re getting a competitive rate, get quotes from several insurance companies.
Look for discounts. You may qualify for discounts if you’re a member of certain groups, like AAA or the AARP, or if you’re a military member or veteran.
Find out if your employer offers pet insurance as a voluntary benefit. Some employers partner with pet insurance providers to offer discounted plans for workers who are pet parents.
Bundle policies. You may be able to save by bundling policies, e.g., a pet policy and an auto policy, with the same insurer.
Increase your deductible. If you’re willing to pay more out of pocket for an unexpected veterinary bill, increasing your plan’s deductible can save you money on premiums.
Think carefully about wellness plans. If your pet is healthy, has already been spayed or neutered and microchipped, and is up to date on their vaccines, a wellness plan may cost more than you’d pay out of pocket at the vet.

Frequently asked questions

How much does pet insurance cost?

The average pet insurance premium for an accident and illness plan in the U.S. was about $676 for dogs and $383 for cats in 2023, according to the North American Pet Health Insurance Association. That breaks down to a monthly premium of $56 for dogs and $32 for cats.

What’s the best pet insurance company?

Metlife, Embrace and Pets Best are at the top of NerdWallet’s list of the best pet insurance companies. However, be sure to compare several pet insurance companies to find the best policy for your animal’s needs.

What information do you need for a pet insurance quote?

You’ll typically need to provide your pet’s name, sex, species, breed (including size if it’s a mixed-breed dog), age and ZIP code to get a pet insurance quote.

Source: nerdwallet.com

Apache is functioning normally

May 21, 2024 by Brett Tams

Debt can be both beneficial and harmful. It can help you buy a home, pursue higher education, or start a business. However, excessive debt can lead to financial stress and mental health issues like depression and anxiety. This article will help you distinguish between good and bad debt to make informed financial decisions.

Key Takeaways

Good debt helps improve your financial future by investing in appreciating assets or enhancing your earning potential, such as through education, real estate, or starting a business.
Bad debt finances depreciating assets or unnecessary luxuries, such as cars, clothes, and other consumer goods, leading to financial strain due to high-interest rates and reduced value over time.
Some debts fall into a gray area and can be beneficial or detrimental depending on how they are managed, such as consolidating high-interest debt into a lower-interest loan or borrowing to invest with calculated risk.

Good Debt vs. Bad Debt

Good debt typically involves borrowing for investments that grow in value or generate income over time, like education or real estate. Bad debt usually involves borrowing for depreciating assets or unnecessary expenses, like luxury items or cars. However, accumulating too much debt, even if it starts as good debt, can become a problem if your monthly debt payments become unmanageable.

Isn’t all debt bad?

Not all debt is bad. Debt becomes problematic when it’s unnecessary or avoidable. The mindset of trying to ‘keep up with the Joneses’ or believing ‘only the best will do’ can lead to unwise borrowing.

However, some types of debt can provide significant benefits, such as financing a home or investing in education. These types of debt can offer a good return on investment and help you improve your financial situation. It’s crucial to understand the difference between beneficial and harmful debt.

What is good debt?

Good debt is debt that helps you make money or have a home to live in. It could be beneficial In a literal sense (a return on investment) or figuratively (enhancing your skills and earning potential). Either way, good debt allows you to invest in yourself and your future.

Here are a few examples of good debt.

Education

Investing in your education is a strategic move that can enhance your future success. By gaining knowledge and skills, you increase your chances of securing better jobs and advancing in your career.

Many people experience a return on their educational investment within a few years, though this varies by industry. Before committing to a college or secondary education, thoroughly research the field you wish to enter. Consider average salaries, potential for career advancement, and typical career ceilings.

The value of student loan debt hinges on the earning potential associated with the degree you pursue. Make informed decisions to ensure your educational investment pays off.

Starting a Business

It takes money to make money, and starting a business is a prime example of this principle. Most businesses require an initial investment, and often it’s substantial. You can use a loan to launch your business and facilitate its growth.

Starting a business involves risks, just like any other investment. Conduct thorough research on your industry to understand what strategies have succeeded or failed for others. Evaluate the risks and decide if taking out a loan is a wise choice for your situation.

Be cautious of high-interest loans, such as payday loans or unsecured personal loans, as they can lead to financial strain due to their high repayment costs. It’s important to know how much you’re borrowing. Loans come with an annual percentage rate (APR), which represents the interest rate as a percentage of the principal amount borrowed. This rate determines how much you will pay for the borrowed money over time.

Real Estate

A great example of good debt vs. bad debt is real estate because you’ll see a return on your investment directly. Borrowing money to invest in real estate earns you equity in the property. Equity is the difference between the property’s value and how much you owe in debt.

Typically, real estate appreciates, but there’s always the risk of losing value, such as what occurred during the 2008 housing crisis. As long as you pay down your mortgage as planned or even ahead of schedule, you’ll build equity faster.

Investing in real estate can be for personal use, such as a primary residence, or for investment purposes, such as commercial or rental properties.

Like any investment, do your research and make sure you’re making a good choice before taking on real estate debt. Investing in an area where the property values don’t appreciate or buying a rental home in an area that isn’t rented often can lead to bad real estate debt.

What is bad debt?

People tend to assume that all debt is bad, but bad debt specifically refers to debt used to finance depreciating assets. Unlike investments in appreciating assets, this type of debt involves spending on items that lose value over time.

Here are a few examples of bad debt:

Cars

You need a car to get from Point A to Point B. That’s a given. However, you don’t need a luxury car or a car you can’t afford to pay for without financing. It’s best to pay cash for a car if you can because it’s a depreciating asset.

When you borrow money to buy a car, you pay interest on the loan and lose money on the value of the car. Most cars lose 20% of their value during the first year after you drive them off the lot.

When you don’t have the money to buy a car outright or your money isn’t enough to buy a reliable car, look for the best financing terms. Many manufacturers offer low interest rates or 0% APR for borrowers with great credit.

If you anticipate buying a car soon, it’s time to work on your credit before taking out a car loan to get the best deal. Auto loans require you to factor in different things before taking them.

Clothes and Other Necessities

Buying clothes is a necessity, but borrowing money for them is not advisable. Clothes often have inflated prices and do not increase in value, meaning you pay more than their actual worth. Consider shopping at overstock sales or second-hand stores, where items are often much cheaper than in retail stores.

Borrowing money for everyday expenses like food, household goods, and other consumer items is also not a wise financial decision. Using a credit card for convenience is fine, but it’s important to pay off the balance in full each month. Failing to do so can lead to accumulating high-interest debt, making it difficult to escape the debt cycle.

Luxury

You should not borrow money to purchase luxury items. Why not? Just look at the name—luxury. You don’t ‘need’ these items, but you buy them anyway.

There’s nothing wrong with spoiling yourself occasionally, but not at the expense of your future. Rather than racking up credit card debt to buy luxurious items, determine what you want and save for it. Set a timeline and divide the amount you’ll need by the number of months until you potentially buy it. Save that amount of money each month, and you should reach your goal within your desired timeline.

Yes, this requires a great deal of patience. But, when you purchase luxury items with debt, you rack up interest charges and end up paying much more for them than they’re worth.

What debts fall in the gray area?

Some debts don’t fit neatly into ‘good’ or ‘bad’ categories and depend on the circumstances. Here are a couple of examples.

Borrowing to Pay Off Debt

Paying off high-interest credit card debt with a low-interest loan can be a good idea, but here’s when it becomes a bad debt. If you consolidate your debt into a 0% or low-interest rate loan but do not allocate the “extra” money saved towards your debt, you’ll end up in the same situation.

The key is to pay the same amount of money to the debt but with a lower set monthly payment and interest rate. More of your payment will go towards the loan’s principal, paying it down faster. This means you’ll pay less interest over the life of the loan and have more money in your pocket in the future.

If you continue to make the minimum payments using your “saved” money, then it’s a bad debt, as it won’t benefit you.

Borrowing to Invest

Investing on margin may be possible for experienced investors with the right credentials. While leveraging in this way can be profitable, it’s not guaranteed. If the investment fails, you’ll lose more than you borrowed, resulting in significant debt.

However, if your investment performs well and generates profit after repaying the margin, then borrowing to invest can be considered a successful financial strategy.

Final Thoughts

Recognize the difference between good and bad debt. Use debt wisely by investing in appreciating assets, making timely payments, and avoiding high-interest loans. Develop a financial plan to manage debt and achieve your goals.

Managing debt wisely is essential for financial success. Prioritize timely payments, avoid high-interest loans, and focus on investments that enhance your financial health. By understanding and differentiating between good and bad debt, you can make informed decisions and achieve your financial goals.

Frequently Asked Questions

How can I determine if my education loan is good debt?

Education loans can be considered good debt if they lead to a degree or certification that significantly enhances your earning potential. Before taking out a loan, research the average salaries in your chosen field and the employment rates for graduates. If the potential income increase outweighs the cost of the loan, it can be considered good debt.

Are there any strategies for managing bad debt?

Yes, there are several strategies to manage bad debt. These include creating a budget to track and limit spending, consolidating high-interest debts into a lower-interest loan, prioritizing paying off high-interest debt first, and avoiding accumulating additional debt by making smarter spending choices.

What are some warning signs that my debt is becoming unmanageable?

Warning signs that debt is becoming unmanageable include missing payments, using one credit card to pay off another, maxing out credit cards, being unable to save money, and experiencing stress or anxiety about finances. If you notice these signs, it might be time to seek financial advice or consider debt counseling.

Can consolidating debt improve my credit score?

Consolidating debt can improve your credit score if it helps you make timely payments and reduces your overall credit utilization ratio. However, it’s essential to avoid accumulating new debt and to use the consolidation loan responsibly by sticking to a repayment plan.

Is it ever a good idea to borrow money for luxury items?

Borrowing money for luxury items is generally not advisable as it leads to bad debt. Luxury items do not appreciate in value and often result in high-interest payments if financed through credit cards or loans. It’s better to save up for luxury purchases and pay in cash to avoid unnecessary debt and interest charges.

How can I ensure that borrowing to start a business is good debt?

To ensure that borrowing to start a business is good debt, conduct thorough market research, create a detailed business plan, and have a clear understanding of your industry. Assess the potential return on investment and ensure that you can make loan payments without compromising your financial stability. Consider seeking advice from financial advisors or mentors in your industry.

What steps can I take to avoid falling into bad debt?

To avoid falling into bad debt, create and stick to a budget, live within your means, save for purchases instead of using credit, and avoid high-interest loans. Additionally, focus on building an emergency fund to cover unexpected expenses and regularly review your financial situation to make adjustments as needed.

Source: crediful.com

Apache is functioning normally

May 21, 2024 by Brett Tams

Part of teaching your kids to be more independent is giving them money as part of an allowance. It can be an exciting time for your child — remember when you first got your hands on some cash? It can also be fraught with some bumps along the way as your child learns sound money management skills.

That’s not to say it’s not worth it. Rather, deciding on how to give them money and helping them budget their allowance can take time, but your kids will thank you for it. Read on for ways that you may handle this part of parenthood and help your child build financial literacy.

What Is an Allowance?

An allowance for kids is a predetermined amount of money you give them on a consistent basis, most commonly on a weekly or monthly cadence. You can choose to have your child earn their allowance by completing chores or “jobs” or do none at all. The idea is that with an allowance, your child can learn the value of work (if you have them do chores), gain experience handling money, and learn responsibility.

The decision to give an allowance is up to the family. The same holds true regarding whether the allowance is earned by completing chores. Depending on the age, some parents may feel more comfortable with giving their kids cash. Some may feel older kids can handle their own debit card and a children’s checking account — with some limits, of course.

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Types of Allowances

The type of allowance you give your child is based on your preferences, what you want your child to learn, and their needs. Here are some options for how an allowance can work.

Chore-Based Allowance

The chore-based allowance tends to be the most common, where a child is given some household tasks and offered a certain amount once these tasks are complete.

• Tasks typically will depend on your child’s age and their readiness to handle certain types of responsibilities.

• It can be wise to assign tasks your child can realistically accomplish so that they don’t wind up feeling discouraged.

For example, say your nine-year-old wants to start doing chores regularly to receive allowance money, which they plan to save up to buy a new science kit. Based on what they’ve demonstrated to you in the past, you believe they’re able to load the dishwasher and help put the laundry away. You discuss this with your child, and you both agree that you’ll give them a weekly allowance if they complete all their assigned chores.

Pure Allowance

Some parents would rather teach their child money management skills without connecting this to some sort of labor. Instead of asking your child to complete chores, parents agree to give them an allowance — typically a consistent amount in cash or perhaps put on a debit card connected to a bank account. While your child may still do chores around the house, the allowance isn’t contingent upon its completion.

Hybrid Approach to Allowance

Parents who want to teach their kids about reaching a goal (and also how money is tied to work) can take the hybrid approach. Here, you’ll give your child a regular allowance that isn’t contingent on any chores. However, you give them an opportunity to earn more money by taking on extra chores around the house. In that way, they’d get more experience in allowance management.

• For example, your child receives $5 a week, but they want to earn more so they can head to the local arcade for their friend’s birthday party or see their savings grow.

• Based on their age and ability, you have them do a chore or two (pulling weeds in the yard or taking out garbage). Once the tasks are complete, you give your child the amount you agreed upon.

How Much Allowance Should You Give Out?

The amount you should give your child will depend on several factors. Ultimately, it will depend on your budget and what you can afford to give your child. One popular formula is to give a child $1 or $2 per week for every year of age, which would mean $8 or $16 for an eight-year-old and $16 or $32 for a 16-year-old.

You might consider not just the age of your child but also how challenging or time-consuming the task is. A couple of other pointers:

• If you’re unsure what’s a good amount, you can ask some of your trusted parent friends or family members about what they’re giving their child.

• If your child reaches the age where they can get a part-time job, you may even consider lowering the amount or not giving an allowance at all since they can earn their own pocket money.

Whatever the amount you choose to give, make sure you set clear expectations. This means spelling out the chores in detail (is the child making their bed every day or just on weekdays, for instance?). It also means determining how much money will be paid, when, and how, as well as what (if anything) they will receive if a task is not fully completed. This can result in headaches down the road.

Advantages of Giving an Allowance

There are plenty of upsides to giving an allowance. Consider the following:

Teaching Money Management

Giving an allowance, whether tied to chores or now, gives your child an opportunity to understand how money works. Plus, it can teach them that the items they want to purchase or activities they want to do cost money. It gives them hands-on experience earning, saving, and spending, providing a valuable lesson in money management for kids.

They’ll learn about what it takes to purchase something, such as looking at price tags in the store.

• To go a step further, you can even teach the concept of saving and investing money and why that can help them as well.

• If you open a children’s or teen’s bank account for your child’s allowance money, that will teach valuable basic banking and financial literacy skills too. They might see how interest compounds and grows their savings, for instance.

• The same holds true if they get a debit card (typically one where you can view and possibly approve their spending).

Teaching Responsibility

An allowance can teach your child what it means to be responsible with money. They can learn not to spend their earnings on snacks if they’re saving for, say, a video game. They can learn to safely store their funds, be patient until their next paycheck rolls around, and earn extra money if they’re eager to accumulate a certain amount.

Building Confidence

Giving kids an allowance can help boost their confidence because it can show them you believe they’re ready to earn and manage their own money. They may also feel proud of their ability to make cash and spend it as they see fit, whether that means buying themselves new clothes or making a donation to a favorite charity.

Creating a Safe Space to Learn

Instead of having kids learn about money and other types of responsibilities when they’re grown, giving an allowance can give them a bit of a head start. You can help guide them to make their own decisions, which can include making money mistakes without huge consequences. Any errors they make can be an opportunity for you to teach your kid about what they can do differently next time.

Recommended: Guide to Opening a Bank Account for a Minor

The Takeaway

If you choose to give your child an allowance, whether it depends on chores or not, it can be a good way for them to learn how to manage a bit of money responsibly. You might have them work for the money, not work at all, or have them earn a bonus for doing additional chores.

Whatever amount you give, showing your child how to save their money in a savings account is a great teaching opportunity.

Currently SoFi Bank does not offer accounts to minors. But while you’re thinking about money management, why not take a fresh look at your own banking needs?

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FAQ

What is a fair allowance for kids?

A fair allowance for kids should be based on age and what you feel is appropriate. Many parents provide $1 or $2 per week for each year of the child’s age (meaning, if a child is 10, they get $10 or $20 per week). You might survey other parents in your circle and see what they give their kids as a way of coming up with a ballpark figure.

Are allowances bad for kids?

In most cases, allowances can have several advantages for kids, such as learning how to handle money and becoming more responsible. However, some parents may believe that allowances aren’t appropriate and should in no way feel obligated to give one.

How do parents give allowance?

Parents can give an allowance in a weekly, biweekly, or monthly cadence (or whatever other frequency suits them). They can also give a consistent amount or vary it depending upon tasks completed. In addition, an allowance can be paid as cash, on a debit card for older kids, or deposited into children’s bank account or an account that their parent holds for them.

Photo credit: iStock/SbytovaMN

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The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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Source: sofi.com

Apache is functioning normally

May 20, 2024 by Brett Tams

Mutual funds provide a collection of many investments in a single basket, while stocks allow you to own shares in individual companies.

Either type of asset can help you reach your investing goals — and of course it’s possible to own mutual funds shares as well as stocks. But there are advantages and disadvantages to mutual funds vs. stocks.

Key Points

• Mutual funds offer a diversified portfolio in a single investment, whereas stocks are shares in individual companies.

• Mutual funds can be actively or passively managed, with some tracking market indexes.

• Stocks provide direct ownership in a company, offering potential for higher returns and greater risk.

• Mutual funds are managed by professionals, making them a good option for those who prefer not to manage their investments.

• The choice between mutual funds and stocks depends on individual financial goals, risk tolerance, and investment strategy.

What’s the Difference Between Mutual Funds and Stocks?

The biggest difference between a mutual fund and a stock lies in what you own: a mutual fund is a type of pooled investment fund, and a stock refers to shares of ownership in a single company.

Mutual funds can hold multiple investments in a single vehicle (e.g. stocks, bonds, or other assets). Sometimes a mutual fund can hold a mix of stocks, bonds, and short-term debt; these are called blended funds.

Different Types of Mutual Funds

Another difference between mutual funds vs. stocks: Mutual funds can be structured in a variety of ways. Often, a mutual fund manager is responsible for choosing the investments the fund holds, according to the fund’s objectives and investment strategy. But not all funds are actively managed funds; some are passively managed and track a market index (see bleow).

Some types of mutual funds include:

• Equity funds: These funds can hold the stocks of hundreds of companies. An equity fund typically has a specific focus, e.g. large-cap companies, tech companies, and so on.

• Bond funds: These provide access to various types of bonds. Similar to equity funds, bond funds can offer exposure to different sectors, e.g. green bonds, short-term bonds, corporate bonds, etc.

• Target-date funds: Often used in retirement plans, target-date funds use algorithms to adjust their holdings over time to become more conservative.

• Index funds: Index funds are designed to track or mirror a specific market index, e.g. the S&P 500, the Russell 2000, and so on. These are considered passive vehicles vs. mutual funds that are led by a team of portfolio managers.

• Exchange-traded funds (ETFs): ETFs are similar to mutual funds in that they hold a variety of different securities, but shares of these funds trade throughout the day on an exchange similar to stocks.

What Are Stocks?

Simply put, a stock represents an ownership share in a single company. There’s no fund manager here; you decide which stocks you want to buy or which ones you want to sell, often using a brokerage account. You might buy 10 shares of one company, 50 shares of a second, and 100 shares of a third — it’s up to you.

Just as there are different types of mutual funds, there are different types of stocks that reflect the underlying company. For example, your portfolio might include:

• Value stocks: Companies that are trading lower than their potential value, based on fundamentals.

• Growth stocks: Companies with a track record of steady growth.

• Dividend stocks: Companies that payout a portion of their earnings to shareholders in the form of dividends. Note that value stocks often pay dividends, but growth stocks tend to reinvest their profits (per their name) toward growth and expansion.

Here’s another way to think of the differences between mutual funds and stocks. If a mutual fund is a carton of eggs, a stock is one egg in that carton.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, auto investing, IRAs, and more. Get started in just a few minutes.

Pros and Cons of Mutual Funds

Investing in mutual funds can be a good option for beginners who are ready to wade into the market but aren’t savvy about individual stocks just yet. There are, however, some downsides to keep in mind.

Pros	Cons
Diversification is simplified	Some funds may underperform
Easy access to the markets	Higher minimum investments
May be cheaper than stocks	Not all funds are low-cost

Pros of Mutual Funds:

• Mutual funds make portfolio diversification easier. Diversifying your portfolio can help manage risk. When you buy a mutual fund, you get immediate diversification since the fund may hold a variety of securities or alternative investments.

• Someone else makes the decisions. Choosing the right investments for a portfolio can be complicated for many investors, but a mutual fund takes care of the selection process. In the case of an active fund, the fund manager is in charge of buying or selling investments within the fund. A passive fund tracks an index, as mentioned above. Either way, all you have to do is invest your money.

• Costs may be lower. When you invest in mutual funds, you’ll pay what’s called an expense ratio. This is a fee that represents the cost of owning the fund annually. While some funds are more expensive than others, there are plenty of low-cost options which means you get to keep more of your investment earnings.

Cons of Mutual Funds:

• Performance isn’t guaranteed. While some actively managed mutual funds attempt to beat the market, others are structured to match the performance of an index. The main thing to know, however, is that results are never guaranteed, and your fund investments may fall short of expectations.

• Minimum investments may be high. Some mutual funds have a low barrier to entry, and you can get started with a relatively small amount of money, especially if you invest via automatic deposits. Others, however, may require you to have a high minimum investment requirement (e.g. $5,000), which could be challenging if you’re a beginner. With stocks, on the other hand, it’s possible to buy fractional shares with as little as $1.

• Potentially higher costs. Mutual fund expense ratios can vary widely, and some can be much more expensive than others. In general, active funds charge higher fees. In addition, some brokerages charge load fees to buy or sell funds which can add to your overall costs. It’s important to understand what you’re paying for your investments, as fees can eat into returns over time.

Pros and Cons of Individual Stocks

Investing in stocks might appeal to you if you’d like more control over where your money goes. But just as with mutual funds, there are some potential drawbacks to consider.

Pros	Cons
High return potential	Higher risk
Greater flexibility	More difficult to diversify
Low costs	More time-consuming

Pros of Individual Stocks:

• Potentially earn higher returns. Owning individual stocks could lead to better results in your portfolio compared with mutual funds. It’s important to remember, however, that not all stocks offer the same rate of return, and performance of any stock (or any investment) is never guaranteed.

• You’re in control. Investing in stocks means you have total control of what to buy and sell, and when to make trades. You’re not relying on a fund manager to make decisions for you. That’s something you might appreciate if you prefer a DIY or active approach to investing.

• Trading costs may be low. When you buy and sell stocks, your brokerage can charge a commission fee each time. However, more brokerages are moving to a $0 commission-fee model for stock trades which can cut your investing costs down dramatically.

Cons of Individual Stocks:

• Stocks are volatile. Mutual funds are often viewed as being less risky than stocks since you’re diversified across a range of securities. If you’re putting a large chunk of your portfolio into a smaller pool of stocks or just one company, you could be at risk of a major loss if volatility hits that part of the market.

• Diversification is harder. When you invest in individual stocks, you may have to buy more of them to create a diversified portfolio. With a mutual fund, you don’t have to do that since you’re getting exposure to multiple investments in one fund.

• Stock trading can be time intensive. Taking a buy-and-hold approach to stocks means you don’t have to pay as much attention to your portfolio. You can buy stocks, and then hang onto them for the long term. However, if you’re more interested in active trading then you’ll need to spend more of your day keeping up with stock trends and monitoring the markets so you don’t miss any opportunities to make gains.

💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

Choosing Between Mutual Funds and Stocks

There’s no rule that says you must choose between mutual funds vs. stocks. Deciding which one to invest in can depend on your time horizon for investing, risk tolerance, and goals. And you might decide that both make sense in your portfolio.

Here’s a simple breakdown of how to compare the two when deciding where to invest.

Consider mutual funds if you…	Consider stocks if you…
Want a simple way to build a portfolio under the guidance of an experienced fund manager who knows the market.	Prefer to have more control of which companies you invest in, and when you buy or sell those investments.
Are more comfortable with the idea of generating returns over time vs. chasing the highest rewards of the moment.	Want to leverage investments to produce the highest returns possible, even if it means taking a little more risk in your portfolio.
Don’t have the time or inclination to spend hours researching different investments or conducting in-depth market analyses.	Are comfortable researching stocks on your own, and understand how to apply different types of technical analysis to evaluate them.

The Takeaway

Investing is one way to build wealth, but both mutual funds and stocks can help investors realize their financial goals — but in different ways. Weighing the pros and cons of mutual funds vs. stocks as well as your personal preferences for investing can help you decide how to build a portfolio that meets your needs.

Ready to expand your portfolio’s growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi’s easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it’s important to consider your portfolio goals and risk tolerance to determine if they’re right for you.

Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

Which is riskier, stocks or mutual funds?

Both stocks and mutual funds expose investors to the risk of loss, though the degree of risk can vary by investment. Mutual funds may help to distribute risk thanks to a diverse mix of underlying investments, while individual stocks can concentrate risk. However, it’s important to remember that you can lose money with either.

Which investment is best for beginners, mutual funds or stocks?

Mutual funds can be a good place for beginning investors to get started since they offer basic diversification. The key to choosing a mutual fund as a beginner is to consider the underlying investments in light of your own asset allocation, the fund’s track record, and the fees you’ll pay.

Are mutual funds worth it?

Mutual funds can be a worthwhile investment because they provide a cost-effective way to access a range of sectors that may align with your goals. For example, if you want to invest in big companies in the U.S., you can buy shares of a large-cap fund. If you want to invest in the environment, you can invest in a green bond fund or green tech equity fund.

Photo credit: iStock/Eva-Katalin

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor’s risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.

1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.

2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.

For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.

Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.

Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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Source: sofi.com