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Apache is functioning normally

September 29, 2023 by Brett Tams

A bear market is defined as a broad market decline of 20% or more from recent highs, which lasts for at least two months. Although bear markets make for dramatic headlines, the truth is that bull markets tend to last much longer — the average bear market typically ends within a year.

While most investors know the difference between a bull and a bear market, it’s important to know some of the characteristics of bear markets in order to understand how different market conditions may impact your portfolio and your investment choices.

What Is a Bear Market?

Investors and market watchers generally define a bear market as a drop of 20% or more from market highs. So when investors refer to a bear market, it usually means that multiple broad market indexes, such as the Standard & Poors 500 Index (S&P 500), Dow Jones Industrial Average (DJIA), and others, fell by 20% or more over at least two months.

To be sure, 20% is a somewhat arbitrary barometer, but it’s a common enough standard throughout the financial world.

The term bear market can also be used to describe a specific security. For example, when a particular stock drops 20% in a short time, it can be said that the stock has entered a bear market.

Bear markets are usually associated with economic recessions, although this isn’t always the case. As economic activity slows, people lose jobs, consumer spending falls, and business earnings decline. As a result, many companies may see their share prices tumble or stagnate as investors pull back.

Why Is It Called a Bear Market?

There are a variety of explanations for why “bear” and “bull” have come to describe specific market conditions. Some say a market slump is like a bear going into hibernation, versus a bull market that keeps charging upward.

The origins of the term bear market may also have come from the so-called bearskin market in the 18th century or earlier. There was a proverb that said it is unwise to sell a bear’s skin before one has caught the bear. Over time the term bearskin, and then bear, became used to describe the selling of assets.

Characteristics of a Bear Market

There are two different types of bear markets:

• Regular bear market or cyclical bear market: The market declines and takes a few months to a year to recover.

• Secular bear market: This type of bear market lasts longer and is driven more by long-term market trends than short-term consumer sentiment. A cyclical bear market can happen within a secular bear market.

History of Bear Markets

The most recent U.S. bear market began in June 2022, largely sparked by rising interest rates and inflation. The bear market officially ended on June 8, 2023, lasting about 248 trading days, according to Dow Jones Market Data, and resulting in a market drop of about 25.4%.

Including the most recent bear market, the S&P 500 Index posted 12 declines of more than 20% since World War II. The table below shows the S&P 500’s returns from the highest point to the lowest point in a downturn. Bear markets average a decline of 34%, and generally last a little more than a year: about 400 days.

Recommended: What Is a Financial Crisis?

Bear markets have occurred as close together as two years and as far apart as nearly 12 years. A secular bear market refers to a longer period of lower-than-average returns; this could last 10 years or more. A secular bear market may include minor rallies, but these don’t take hold.

A cyclical bear market is more likely to last a few weeks to a few months and is more a function of market volatility.

Peak (Start)	Trough (End)	Return	Length (in days)
May 29, 1946	May 17, 1947	-28.78%	353
June 15, 1948	June 13, 1949	-20.57%	363
August 2, 1956	October 22, 1957	-21.63%	446
December 12, 1961	June 26, 1962	-27.97%	196
February 9, 1966	October 7, 1966	-22.18%	240
November 29, 1968	May 26, 1970	-36.06%	543
January 11, 1973	October 3, 1974	-48.20%	630
November 28, 1980	August 12, 1982	-27.11%	622
August 25, 1987	December 4, 1987	-33.51%	101
March 27, 2000	Sept. 21, 2001	-36.77%	545
Jan. 4, 2002	Oct. 9, 2002	-33.75%	278
October 9, 2007	Nov. 10, 2008	-51.93%	408
Jan. 6, 2009	March 9, 2009	-27.62%	62
February 19, 2020	March 23, 2020	-34%	33
June 2022	June 8, 2023	-25%	248
Average		-34%	401

Source: Seeking Alpha/Dow Jones Market Data as of June 8, 2023.

What Causes a Bear Market?

Usually bear markets are caused by a loss of consumer, investor, and business confidence. Various factors can contribute to the loss of consumer confidence, such as changes to interest rates, global events, falling housing prices, or changes in the economy.

When the market reaches a high, people may feel that certain assets are overvalued. In that instance, people are less likely to buy those assets and more likely to start selling them, which can make prices fall.

When other investors see that prices are falling, they may anticipate that the market has reached a peak and will start declining, so they may also sell off their assets to try and profit on them before the decline. In some cases panic can set in, leading to a mass sell-off and a stock market crash (but this is rare).

Is a Recession the Same as a Bear Market?

No. Bear market conditions can lead to recessions if the market slump lasts long enough. But this isn’t always the case. According to the National Bureau of Economic Research as reported in The New York Times, the U.S. has been in a recession only 14% of the time since World War II.

What Is a Bear Market Rally

Things can get tricky if there is a bear market rally. This happens when the market goes back up for a number of days or weeks, but the rise is only temporary. Investors may think that the market decline has ended and start buying, but it may in fact continue to decline after the rally. Sometimes the market does recover and go back into a bull market, but this is hard to predict.

If the bear market continues on long enough then it becomes a recession, which can go on for months or years. That said, it’s not always the case that a bear market means there will be a recession.

Once asset prices have decreased as much as they possibly can, consumer confidence begins to rise again, and people start buying. This reverses the bear market trend into a bull market, and the market starts to recover and grow again.

Example of a Bear Market

The most recent bear market occurred in June of 2022, when the S&P 500 closed 21.8% lower than its high on Jan. 3, 2022.

While the Nasdaq and the Dow showed a similar pattern in early 2022, the decline of those markets didn’t cross the 20% mark that signals official bear market territory.

Bear Market vs Bull Market

A bull market is essentially the opposite of a bear market. As consumer confidence increases, money goes into the markets and they go up.

A bull market is defined as a 20% rise from the low that the market hit in a bear market. However, the parameters of a bull market are not as clearly defined as they are for a bear market. Once the bottom of the bear market has been reached, people generally feel that a bull market has started.

Investing Tips During a Bear Market

There are a few different bear market investing strategies one can use to both prepare for a bear market and navigate through one.

1. Reduce Risky Investments

When preparing for a bear market, it’s a good idea to reduce riskier holdings such as growth stocks and speculative assets. One can move money into cash, gold, bonds, or other ‘safe’ investments to reduce the risk of losses if the market goes down.

These safe investments tend to perform better than stocks during a bear market. Types of stocks that tend to weather bear markets well include consumer staples and healthcare companies.

2. Diversify

Another investing strategy is diversification. Rather than having all of one’s money in stocks, distribute your investments across asset classes, e.g. precious metals, bonds, crypto, real estate, or other types of investments.

This way, if one type of asset goes down a lot, the others might not go down as much. Similarly, one asset may increase a lot in value, but it’s hard to predict which one, so diversifying increases the chances that one will be exposed to the upward trend, and you’ll see a gain.

3. Save Capital and Reduce Losses

During a bear market, a common strategy is to shift from growing capital into saving it and reducing losses. It may be tempting to try and pick where the market has hit the bottom and start buying growth assets again, but this is very hard to do. It’s safer to invest small amounts of money over time using a dollar-cost averaging strategy so that one’s investments all average out, rather than trying to predict market highs and lows.

4. Find Opportunities for Future Growth

However, in a broad sense if the market is at a high and assets are clearly overvalued, this may not be the best time to buy. And vice versa if assets are clearly undervalued it may be a good time to buy and grow one’s portfolio. A bear market can be a good time to identify assets that might grow in the next bull market and start investing in them.

5. Short Selling

A very risky strategy that some investors take is short selling in anticipation of a bear market. This involves borrowing shares and selling them, then hoping to buy them back at a lower price. It’s risky because there is no guarantee that the price of the shares will fall, and since the shares are borrowed, typically using a margin account, they may end up owing the broker money if their trade doesn’t work out as they hope.

Overall, it’s best to create a long-term investing strategy rather than focusing on short-term trends and making reactive decisions to market changes. It can be scary to watch one’s portfolio go down, especially if it happens fast, but selling off assets because the market is crashing generally doesn’t turn out well for investors.

The Takeaway

Bear markets can be scary times for investors, but even a prolonged drop of 20% or more isn’t likely to last more than a few months, according to historical data. In some cases, bear markets present opportunities to buy stocks at a discount (meaning, when prices are low), in the hope they might rise.

Also there are strategies you can use to reduce losses and prepare for the next bull market, including different types of asset allocation. The point is that whether the markets are considered bearish or bullish, any time can be a good time to invest.

If you’re looking to build a portfolio, no matter what the market, it’s easy when you set up an Active Invest account with SoFi Invest. The secure investing app lets you research, track, buy and sell stocks, ETFs, crypto, and other assets right from your phone or computer. You can easily move between different types of assets and you can set automated recurring investments if you want to put in a certain dollar amount each week or month. All you need is a few dollars to get started.

Start building a portfolio today.

FAQ

How long do bear markets last?

Bear markets may last a few months to a year or more, but most bear markets end within a year’s time. If they go on longer than that they typically become recessions. And while a bear market can end in a few months, it can take longer for the market to regain lost ground.

When was the last bear market?

The most recent bear market started in June of 2022, when the S&P 500 fell from record highs in January for more than two months.

Photo credit: iStock/Morsa Images

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Apache is functioning normally

September 28, 2023 by Brett Tams

Having your Social Security number or card stolen isn’t exactly like getting your bank account information taken. You can easily get a new bank account number and have your bank freeze your accounts. On the other hand, it’s a bit more difficult to get a new Social Security number from the Social Security Administration.

What Is a Social Security Number?

The Social Security Administration loosely defines a Social Security number as a nine-digit number for identity-tracking purposes. It’s also used to track wages earned during someone’s lifetime for Social Security benefits.

As of 2011, the selection of this number is randomized. Whenever you start a new job or apply for government benefits, you need your Social Security number. It’s used to verify your identity and keep track of Social Security earnings.

You can locate your Social Security number on your Social Security card. If you can’t find your card, make sure you reach out to the Social Security Administration directly.

What Can You Do with a Social Security Number?

Since the government uses your social security number as a unique identifier, you can use it to do the following.

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Apply for jobs
Open a bank account
Sign up for a credit card
Apply for a passport
File taxes
Enroll in health insurance
Get a driver’s license

How Social Security Number Theft Occurs: What Happens If Someone Gets Your Social Security Number?

There are a lot of ways someone can steal your identity or Social Security number. Thieves could swipe your Social Security number by exploiting data breaches, going through the trash for personal documents or using any number of other approaches. Thieves can then sell your identity or pretend to be you to open various accounts in your name, access medical care, file fraudulent tax returns or, at worst, commit crimes.

ExtraCredit’s Guard It feature offers dark web monitoring and proactive alerts if it discovers that your Social Security number or other personal information has been compromised or shared online. In addition to alerts, Guard It offers $1 million identity theft insurance to help you with costs associated with identity restoration, legal expenses, and lost wages. Sign up now!

What Can Someone Do with Your Social Security Number?

Once an identity thief has your Social Security number, they can commit all sorts of financial fraud, potentially leaving you on the hook for their misconduct. Social Security numbers are wrapped up in most aspects of Americans’ lives—employment, medical history, taxes, education and bank accounts, to name a few. Below is a list of just a few things someone can do with your SSN if they get their hands on it.

1. Open Financial Accounts

Your Social Security number is the most important piece of personal information a bank needs when extending you credit or opening an account. With that number, a thief can get credit cards or loans. And when it’s time to repay them, they won’t, which will damage your credit score. Those missed payments are tied to your Social Security number, so they’ll end up on your credit report and could impact your ability to apply for any type of loan or new account in the future.

Once you spot suspicious transactions, you can use your credit scores and credit reports to detect fraud and put an end to it. Unfortunately, it could take years for the fraudulent information to be removed from your credit report and, as a result, for your credit scores to recover.

Can Someone Access My Bank Account with My Social Security Number?

Thieves might have a difficult time accessing your bank account if they only knew your Social Security number. Most of the time, to either access an existing account or open up a new bank account, the bank would require additional forms of identification, such as your physical Social Security card, Real ID or passport.

Also, many banks have implemented additional security measures to prevent this, such as requiring security questions to access your bank account.

2. Get Medical Care

Someone using your Social Security number could also undergo medical treatment, effectively tainting your medical records. Inaccurate medical records can have deadly consequences. For example, imagine what could happen if you received treatment based on a false history listing the wrong blood type. Additionally, thieves can poach your health insurance coverage, which could leave you in a bind when you need it.

3. File a Fraudulent Tax Refund

Taxpayer identity theft continues to be a problem in the United States, although theIRS reported in 2018 that incidents were on the general decline, noting a 40% decrease in taxpayer reports of identity theft since 2016. However, in 2017, the IRS still received 242,000 reports of identity theft from taxpayers.

Identity thieves use stolen Social Security numbers to get a fraudulent refund, which then delays any refund the victim is rightfully owed.

So, the sooner you file your taxes, the more likely you’ll get your refund before an identity thief has an opportunity to take advantage of your stolen identity. You’ll know someone stole your identity if your return is rejected as a duplicate. Then, you get to start the process of resolving the fraud and, if necessary, getting the refund you deserve.

4. Commit Crimes

Getting your Social Security number might just be a fraction of the thief’s crimes. If the identity thief gets arrested for another crime and gives your Social Security number to law enforcement, you can become tangled in their criminal history. Their criminal record could prevent you from getting jobs or interfere with anything else that requires a criminal background check.

5. Steal Your Benefits

A thief could also use your Social Security number to file for unemployment or Social Security benefits, depleting those resources and preventing you from accessing that assistance when you need it later on.

How to Find Out If Your Social Security Number Has Been Stolen

Thieves can operate under your identity for years without discovery, and some of these crimes are very difficult to detect. One of the best things you can do is regularly check your credit report from Credit.com’s credit report card. Review your credit report thoroughly for unauthorized accounts or public records not related to you. These red flags could indicate clerical errors or identity theft. Either way, you want to watch out for it and act as soon as you see something suspicious.

If you sign up for an ExtraCredit account, our dark web monitoring feature will alert you of suspicious activity right away. When you get an alert, you’ll know it’s time to check your report and take preventative actions.

You can also go to IdentityTheft.gov, a website run by the Federal Trade Commission, or call its hotline at 877-ID-THEFT.

Source: credit.com

Apache is functioning normally

September 28, 2023 by Brett Tams

Some investment terms and definitions may seem complex, but a little research can take the mystery out of most common investing terminology. That can help investors feel even more confident about starting their investing journey. It’s more or less the same as starting any new endeavor — from rock climbing to investing — at first, you need to get familiar with new words and phrases.

Given the girth of the investment space, the sheer amount of investment terminology investors need to know can be intimidating. But the more you read, invest, and envelope yourself in it, the easier it’ll become. If you’re just starting out, though, it may be helpful to get a big rundown of some of the more common investing terms.
💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Investment Terminology Every Beginner Investor Needs to Know

Here are a slew of common investing terms and definitions (in alphabetical order) that investors may benefit from committing to memory.

1. Alpha

Alpha is used to gauge the success of an investment strategy, portfolio, portfolio manager, or trader compared with a relevant benchmark. You may also hear alpha defined as “excess return” in that it refers to returns that can be attributed to active management, over and above market returns.

2. Assets

An asset is anything that holds value that can be converted to cash. Personal assets might include your home, a car, other valuables. Business assets might include machinery, patents. When it comes to investing, assets are typically the securities you invest in.

3. Asset Class

An asset class is a group of investments with similar characteristics that is likely to perform differently in the market than another asset class. Types of asset classes include stocks, bonds, real estate, currencies, and more. Given the same market conditions, stocks and bonds often move in opposite directions. Most financial advisors typically recommend you invest in multiple asset classes in order to have a well-diversified portfolio and minimize risk.

4. Asset Allocation Fund

An asset allocation fund is a diversified portfolio consisting of various asset classes. Most asset allocation funds have a mix of stocks, bonds, and cash equivalents. These types of funds can be popular as some advisors stress the importance of having diverse portfolios to minimize potential losses.

5. Beta

Beta refers to how risky or volatile a security or portfolio is compared with the market overall. Calculating the beta of the stocks in your portfolio can help you determine how your portfolio might respond to market volatility. You can also gauge the beta of a stock to help determine how much risk it might add to your portfolio.

6. Bear Market

A bear market occurs when the market declines, typically when broad market indexes fall 20% or more in two months or less. Bear markets can accompany a recession, but not always. They often signal that investors feel pessimistic about their investments’ ability to make money and the market’s ability to rebound.

7. Bull Market

A bull market is the opposite of a bear market, meaning prices are rising or are expected to rise for extended periods of time. Bull markets usually mean security prices are rising for months or even years at a time.

8. Blue Chip

Blue chip companies are generally thought to be well-established, financially sound, and therefore high-quality investments. Blue chip stocks are typically large companies, and many of them are household names. In some cases, blue chips may be more expensive to invest in since they can be considered relatively stable and likely to grow.

9. Bonds

When governments or corporations need to borrow money they issue bonds. Investors who buy the bonds are effectively loaning that entity cash, which will be repaid according to the terms of the bond (e.g. a 10-year bond with an interest rate of 3%). Bonds are often considered to be relatively stable, lower-risk investments compared with stocks.

10. Broker

An investment broker, whether a person or a firm, acts as a middleman to help investors buy and sell securities. Brokers may be necessary because some securities exchanges only allow members of that exchange to make an investment order. A broker’s primary function is to help clients place trades, although many brokers also help clients with market research and investment planning.

11. Diversification

You’ve probably heard that you should aim to have a diversified portfolio. That means investing in a range of asset classes that are likely to behave differently under different market conditions, in order to mitigate risk. A portfolio of only stocks, for instance, could be more vulnerable to market volatility than a portfolio that also included bonds, real estate, commodities, and so on.

12. Dividends

When a company shares their profits with investors, these are called dividends. Dividends are often paid in cash (although they can be paid in stocks). Some companies — e.g. many blue chip firms — pay dividends, but not all companies do. Ordinary dividends are taxed differently than qualified dividends, so you may want to consult a tax professional if you own dividend-paying stocks.

13. Dollar Based Investing

Also called fractional share investing, dollar based investing is a way for investors to buy partial shares of stocks. Instead of buying shares of a company, you instead invest a dollar amount. Dollar based investing is a great way for smaller investors to buy into popular companies that they may otherwise be priced out of.

14. EBITDA

EBITDA is a way to evaluate a company’s performance that is considered more precise than simply looking at net income. EBITDA stands for: earnings before interest, taxes, depreciation, and amortization. To calculate EBITDA, use the following formula: Net Income + Interest + Taxes + Depreciation + Amortization.

15. EBIT

EBIT is a simpler way to calculate a company’s profits than EBITDA, as it’s only one part of the EBITDA equation (literally!). It stands for “earnings before interest and taxes.” It’s calculated using this formula: Net Income + Interest + Taxes.

16. EPS

EPS stands for earnings per share, which is a common way investors measure how well a stock is performing. EPS is calculated by finding a company’s quarterly or annual net income and dividing it by the company’s outstanding shares of stock. Increases in EPS can be a sign that the company’s profit performance is on the upswing, whereas a decrease can be a red flag for investors.

17. ETF

Exchange-traded funds, or ETFs, are similar to mutual funds in that the fund’s portfolio can include dozens or even hundreds of different securities, and investors buy shares of the fund. Unlike mutual funds, ETF shares can be traded like stocks throughout the day (mutual fund shares are traded once a day). Most ETFs are considered lower-cost, passive investments because they track an index, although there are actively managed ETFs.

18. Expense Ratio

An expense ratio is an annual fee investors pay to cover the operating costs of mutual funds, index funds, ETFs and other types of funds. Fees are typically deducted from your investments automatically (you don’t pay a separate charge), and they can reduce your returns over time so it’s wise to shop around for lower fees. Expense ratios are calculated using this formula: Total Funds Costs / Total Fund Assets Under Management.

19. FCF

Free cash flow is the money a company has after it has paid its expenses. This number is important to investors because it can show them how likely it is that a company could have extra cash for dividends or share buybacks. A continuous decrease in free cash flow over a few years can also be a red flag to investors.

20. Growth Stock

Growth stocks are shares in a company that’s growing faster than its competitors, typically showing potential for higher revenue or sales. Growth stock companies may be considered leaders in their industry.

21. Hedge Fund

Hedge funds are usually managed by an LLC or limited partnership that invests in securities and other assets using money from multiple investors. Hedge funds tend to be more risky and expensive than mutual funds or ETFs, which often makes them accessible to more wealthy investors.

22. Index Fund

Index funds are a type of mutual fund that invest in securities that mirror a particular index, such as the S&P 500 Index or the MSCI World Index. Indexes track many different sectors, from smaller U.S. companies to big global companies to various kinds of bonds. Each index acts as a proxy for how that market sector is performing; the corresponding index funds reflect that performance.

23. Interest Rate

The interest rate is the amount a lender charges to borrow money — and it can also mean the amount your cash earns in a savings, money market or CD account. The baseline interest rate in the U.S. is set by the Federal Reserve. This rate in turn influences savings rates, mortgage rates, credit card rates, and more. Generally, when the Federal Reserve lowers interest rates, the stock market tends to rise.

24. Large Cap

A large-cap company has $10 billion or more in market capitalization. These companies are often considered industry leaders, and are relatively conservative, low-risk, and safe investments. A company’s stock may be considered large cap, mid cap, or small cap.

25. Market Cap

Market capitalization, or market cap, is the value of a company’s total outstanding shares. It’s often used to measure a company’s value and build a diversified portfolio. You can calculate market cap by multiplying the number of outstanding shares by the current price per share. Companies with lower market caps usually have more room to grow and usually are associated with newer companies, meaning they can also be riskier.

26. Mid Cap

Mid-cap companies are usually between $2 billion to $10 billion in market capitalization, putting them somewhere between small- and large-cap companies. Many mid-cap companies are in a growth phase, making them attractive to some investors who believe the company may grow into a large-cap over time, although this is not guaranteed to happen.

27. Mega Cap

Mega-cap companies are the largest companies you can invest in, with a market value of $1 trillion or more. Mega-cap stocks are typically industry leaders and household name brands.

28. Mutual Fund

Mutual funds may invest in stocks, bonds, and other securities — or a combination of these (e.g. a blended fund). Mutual funds can also be industry-specific (such as a mutual fund consisting only of energy stocks, green bonds, or tech companies, and so on).

29. Net Income

When talking about investing, net income usually refers to how much a company makes (or its total losses) after it has paid all its expenses. Net income is therefore usually calculated by subtracting a company’s expenses from its revenue. Investors may want to know a company’s net income because it can help determine how profitable the company is, although EBITDA (defined above) is another measure.

30. Over-the-Counter Stocks

Not all stocks are publicly traded. These “private” stocks, often called over-the-counter stocks, usually have to be traded through a broker. Companies may offer OTC stocks if they don’t meet the requirements to be traded publicly. Such companies are often startups or other small companies. So, while these companies may eventually grow to be able to trade publicly, investing in them also carries the risk that they may fold or even engage in fraudulent activity since the market is far less regulated than publicly traded markets are.

31. Price-to-Earnings Ratio

Investors commonly use P/E, or price-to-earnings ratios, to gain insight into how profitable a company is compared to its stock price. In other words, price-to-earnings ratios can help investors decide if the price of a stock is worth it when compared to how much a company is making.

32. Prime Interest Rate

Banks are likely to offer their best customers — those with the best credit histories and the lowest risk of defaulting — a prime interest rate for a loan. The prime interest rate is generally the lowest rate the bank will offer. A bank’s criteria for determining their prime interest rate may vary, but most banks consider the federal funds rate when setting any interest rate.

33. Portfolio Management

Portfolio management simply refers to how you select and manage the investments in your portfolio. There are many different management styles, such as active or passive, growth or value. Additionally, you can elect to manage your own portfolio or hire an individual or group to manage it for you.

34. Preferred Stock

A preferred stock means investors own shares in a company and get scheduled dividends, similar to how bond interest payments work. Preferred socks may not fluctuate in price like common stocks do, meaning they are often less volatile and risky.

35. Profit & Loss Statement

You probably know what profit and losses are, but do you know how to read a company’s P&L, or profit & loss statement? It can help you determine a company’s bottom line, as it can show you how well a company is doing compared to its peers in the same industry. If you’ve never read one before, this article about profit & loss statements could give you some tips on what to look for.

36. Prospectus

Companies that offer stocks, bonds, and mutual funds to investors are required to file a prospectus with the Securities and Exchange Commission that provides details about the investment they are offering (e.g. the expense ratio, the constituents of a fund, and more). Investors can use the prospectus to better understand a given security and how it might fit in their portfolio, or not.

37. Recession

A recession is a period of economic contraction. The National Bureau of Economic Research (NBER) defines a recession further as a decline in monthly employment, personal income, and industrial production. As an investor, a recession may indicate a drop in the value of your portfolio, although this may be temporary: When looking at the history of U.S. recessions, the stock market has always rebounded, sooner or later, after recessions.

38. REIT

Real estate investment trusts (REITs) are a way that investors can further diversify their portfolios. Instead of having the responsibility of managing an investment property yourself, you can invest in REITs, which are generally large-scale real estate projects that investors can help fund in exchange for partial ownership. Most REITs are publicly traded and pay dividends to investors.

39. Retained Earnings

When looking for a company’s net income statement, you may come across the term “retained earnings,” also sometimes called unappropriated profit, uncovered loss, member capital, earnings surplus, or accumulated earnings. In general, retained earnings is the amount of money a company keeps and potentially reinvests after it gives its investors a dividend payout.

As an investor, knowing whether a company had positive retained earnings can help you determine how much money it has to continue growing. If its retained earnings are negative, that could be a sign the company is in debt and may not be a good investment.

40. Return on Equity

Return on equity, sometimes called return on net worth, can help investors compare how well companies are managing their stockholders’ contributions. You can calculate it using this formula: Net income/Average shareholder equity. A higher return on equity can signal to investors that a company is managing its money efficiently.

41. ROI

Return on investment (ROI) is just that: the return you get after making an investment in a stock, bond, mutual fund, and so forth. Investors generally hope for a positive ROI, meaning that their investment has made a profit. While a good ROI will vary depending on the type of investments you’re making, some investors look to the historic return of the stock market (about 7% annually) as a barometer.

42. Small Cap

A small-cap company usually has a market cap of $250 million to $2 billion. Investors may be attracted to a small-cap company because they believe it has growth potential or may be undervalued.

43. SPAC

SPAC stands for special purpose acquisition company. SPACs are shell companies that list shares on an exchange to raise money so they can merge with a privately held company. Once the merger between the public SPAC and the private company is complete, that company is now in effect a public company — which is why a SPAC is sometimes called a backdoor IPO. Many companies may elect to use SPACs instead of traditional IPOs because they are often faster and less expensive.

44. Stocks

If you’ve made it this far, you probably know what a stock is. To review, a stock is a way to buy a piece of ownership into a company. You can buy and sell your stocks depending on whether you anticipate your stocks will decrease or increase in value.

45. Stock Exchange

A stock exchange is the place where you buy, sell, or trade stocks. Common U.S. stock exchanges are the New York Stock Exchange (NYSE) and the Nasdaq.

46. Stop-Loss Order

A stop-loss order can help investors have more control over their stocks. When a stock reaches a certain price that you choose, your broker will sell, buy, or trade that stock. Having a stop-loss order can help you limit how much money you make or lose in the stock market.

47. Target Date Fund

A target date fund is a type of mutual fund that includes a mix of asset classes to provide investors with a portfolio that adjusts over time to become more conservative as they age. Target date funds are often used to help investors plan their retirements. Target funds are typically constructed around various target retirement years (e.g. 2030, 2040, 2050) so investors can pick a date that corresponds with their hoped-for retirement.

48. Value Stock

A value stock is a stock that investors believe is undervalued and/or inexpensive compared to its past prices on the stock market or with its competitors. Investors may consider a stock’s price-to-earnings ratio to help them determine if something is a value stock.

49. Venture Capital

Venture capital is money a startup uses to grow its business. This money usually comes from private investors or venture capital firms. Investors may elect to invest venture capital into startups they believe have the potential to be profitable with time.

50. Yield

Yield is another way of referring to the return of an investment over a set period of time, expressed as a percentage. You may hear the term in relation to bonds (e.g. high-yield bonds), but yield is more accurately a measure of the cash flow an investor gets on the amount they invested in a security during that time period, and is different from total return.
💡 Quick Tip: The best stock trading app? That’s a personal preference, of course. Generally speaking, though, a great app is one with an intuitive interface and powerful features to help make trades quickly and easily.

The Takeaway

Getting familiar with a few key investing words and phrases can go a long way in helping you gain confidence when you’re new to investing. Getting fluent with investing terminology is like any other pursuit — there’s a learning curve at first, but the terms will feel more natural as you move forward and start investing regularly.

Learning key investing terms and definitions is only the beginning, though. Putting your knowledge into practice is another thing entirely. Although, it is helpful to know the lingo before diving into investing.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

What are the main investment types?

There are many types of investments, but perhaps the main investment types would include stocks, bonds, funds (mutual funds, index funds, exchange-traded funds), and options, though there are more.

What is the basic rule of investing?

There are many guidelines investors might want to follow, but the basic rule of investing is that you shouldn’t invest more than you’re comfortable losing – which is associated with an investor’s risk tolerance.

Photo credit: iStock/akinbostanci

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Source: sofi.com

Apache is functioning normally

September 27, 2023 by Brett Tams

But here’s the big takeaway: That money is yours, and those savings stay with you whenever you quit a job.

If you have less than $1,000 in your 401(k)

If your 401(k) has less than $1,000 when you quit a job, the IRS allows the plan administrator to automatically withdraw your money and send you a check, minus 20% in taxes, per the IRS.

You can also initiate a rollover: a direct transfer of your money from a 401(k) account to another tax-advantaged retirement account. (More on rollover deadlines and tax implications later.) The easiest way to roll over your money is to contact your 401(k) administrator and have them handle it.

Communicate your preferences quickly, though — if your 401(k) account has a low balance, most companies won’t delay closing the account and cutting you a check, according to CNBC.

If you have between $1,000 and $5,000 in your 401(k)

If your 401(k) has between $1,000 and $5,000 when you quit, your employer may move your money into an individual retirement account, or IRA, according to the IRS.

If you don’t have an IRA, some employers will automatically open an account for you and deposit your funds into the account. If you do have an IRA, you initiate the rollover by contacting your 401(k) administrator.

You can also withdraw your money, but you’ll pay 20% in federal income tax, as well as a 10% early withdrawal penalty (unless you’re at least 59 ½ years old), according to the IRS.

🤓Nerdy Tip

An IRA is a tax-advantaged retirement account that an individual typically sets up, unlike a 401(k) account, which an employer sets up.

If you have at least $5,000 in your 401(k)

If your 401(k) account has at least $5,000 when you quit a job, your employer isn’t allowed to move your money without your consent. What happens next is up to you. There are a few things you can do with your money, according to the investment advisor Vanguard:

Roll over your money into a new retirement account
Leave your money in your old 401(k)
Cash out your 401(k) — and potentially pay a 10% federal penalty tax

Let’s dig into those options.

Rolling your money into a new 401(k) or IRA

What is a rollover?

Reminder: A 401(k) rollover is the process of moving money from your 401(k) account into another retirement account.

So, say you’re leaving your job for a different position, and your new employer offers a 401(k) plan. You can roll over your old 401(k)’s funds into a new 401(k) account, if your new employer allows this, according to the IRS.

Or you can roll over your old 401(k) to an IRA. This type of account typically offers more investment options than a 401(k), says Christopher Manske, a certified financial planner and the president and founder of Manske Wealth Management in Houston.

“In your individual retirement account, you’re going to have a lot more flexibility to tailor the investments to the wide world of what’s available out there,” Manske says.

Whether you roll over your retirement savings into an IRA or new 401(k), moving your money to a single fund can make it easier to manage your money and keep track of your retirement savings.

That’s as opposed to simply keeping your old 401(k) open, which becomes one more account to manage. (We’ll dive into that option in a bit.)

How to roll over funds — and avoid tax missteps

If a rollover sounds like a solid option, contact the administrators of both your old 401(k) and the other retirement account — either your new 401(k) or an IRA. Tell them you’d like to roll over your funds.

They’ll collect information from you and initiate a direct rollover, which means one institution directly transfers funds to another institution, according to Fidelity.

This is as opposed to an indirect rollover, meaning your 401(k) plan administrator sends you a check, and you personally deposit the 401(k) funds into another retirement account. In that case, your plan administrator would likely withhold 20% of your 401(k) funds for taxes.

With this indirect rollover, you then have 60 days to deposit the complete 401(k) account balance — including the amount kept for taxes — into the new account. So to deposit the full amount, you would need to come up with the 20% portion yourself. Then you’d get a refund for that amount come tax time.

If you miss the 60-day deadline, you’d likely get penalized for early withdrawal and have to pay income taxes on the distribution, according to Capitalize, a 401(k) rollover resource.

One last important note: Whether you choose a direct or indirect rollover, if you move money from your old 401(k) account to a Roth IRA — a specific kind of IRA — you’ll have to pay income tax on that transfer, according to the IRS. (This doesn’t apply if you’re rolling over your funds from a Roth 401(k), though.)

Leaving your money in your old 401(k)

Another option? Do nothing.

Your 401(k) account isn’t going to disappear once you quit a job; that money will always be there. But once you leave the job that set up the 401(k) account, you can’t make any more deposits, per Vanguard.

While leaving your 401(k) on autopilot is the simplest option, it may not be in your best interest. Assuming you’ll continue investing in another account or have a new 401(k) at your next employer, it will be harder to track your finances in more places.

And some 401(k) plan providers may charge you fees if you’re no longer an active employee, according to Charles Schwab, the financial services firm.

“I can’t think of any pros of leaving it there,” Manske says. “You’re not really connected formally to that company anymore, so why would you keep your money there? They don’t have a reason to keep you happy.”

Cash out your 401(k) — which is rarely recommended

Yes, you can withdraw the cash from your 401(k) whenever you want. But there are significant downsides to this option.

Pulling out money from your 401(k) before retirement can trigger hefty taxes, says Joe Buhrmann, certified financial planner and senior financial planning consultant at Fidelity’s eMoney Advisor.

Any withdrawals from a 401(k) before you reach the age of 59 ½ are considered early withdrawals and are slapped with a 10% penalty tax, per the IRS. That’s in addition to federal income taxes and, depending on where you live, state income taxes.

“Hypothetically, on a $50,000 401(k), you might lose as much as $20,000 to taxes and penalties and be left with $30,000,” Buhrmann says.

If you urgently need cash, that might be a reason to withdraw some money from your 401(k). But doing so should be regarded as a last resort, Manske says.

There are other ways to get money quickly that don’t come with taxes and penalties, such as community loans, gig work, and more.

Buhrmann encourages individuals to not just consider the immediate losses that come with withdrawing your 401(k), but also the long-term earnings they’re missing out on.

“They’re not just having to pay some taxes and pay some penalties,” Manske says.

Source: nerdwallet.com

Apache is functioning normally

September 26, 2023 by Brett Tams

So, you’re considering purchasing a home? There’s a lot to think about—there’s lots of mortgage buzzwords and industry lingo to decipher. It can all be very overwhelming, especially for first-time home buyers.

One of the main decisions you need to make regarding your mortgage is selecting a fixed-rate or an adjustable-rate mortgage. Fixed-rate mortgages charge the same fixed interest rate for the duration of the loan. Adjustable-rate mortgages, on the other hand, have rates that fluctuate over time.

It’s important to understand how each type of mortgage works and how interest rates can impact your mortgage payments. Keep reading to learn more.

Key Takeaways

Interest rates for fixed-rate mortgages remain constant over the life of the loan.
ARM mortgages start with a lower fixed-rate period before switching to variable rates that are assessed regularly.
Deciding if an ARM or fixed-rate mortgage is right for you depends on your specific situation.

In This Piece

How Adjustable-Rate Mortgages (ARM) Work

Interest rates with an adjustable-rate mortgage, also referred to as an ARM, are variable—meaning they can change over time. Typically, ARMs start with a fixed-rate period, such as one, three, five, seven, or 10 years. After this initial period, interest rates adjust annually based on the current index. Your mortgage agreement details these terms.

When shopping for an ARM, you’ll notice that many types are listed as a ratio, such as 1/1, 3/1, 5/1, 7/1, 10/1 and more. The first number represents the number of years the mortgage will remain at the fixed-rate amount. In the example above, this would be one, three, five, seven, or 10 years.

The second number indicates how often the rates are adjusted after the initial fixed-rate phase is over. In most cases, this number is one, to represent one year. This means that rates are adjusted annually for most adjustable-rate loans.

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Fortunately, many ARM agreements also include a cap for interest rates. For instance, one of the most common types of ARM is 5/1 with a 2/6 cap. This notation means the mortgage has a five-year fixed-rate period, after which the rates will reset every year. Interest rates, however, can’t increase more than 2% in any given year and not more than 6% in total over the life of the mortgage.

During the initial fixed-rate period of your mortgage, your monthly payments remain exactly the same. However, once this period is over, your monthly mortgage payments are likely to change from year to year depending on interest rates.

How Fixed-Rate Mortgages Work

Unlike an adjustable-rate mortgage, interest rates with a fixed-rate mortgage remain constant throughout the life of the mortgage. One of the best benefits of a fixed-rate mortgage is that your monthly payments remain exactly the same until the loan is paid in full. However, the amount of principal paid each month may fluctuate.

A disadvantage of fixed-rate mortgages is the potential for interest rates to decrease dramatically over the course of the loan. However, you can choose to refinance your mortgage, if you qualify, to take advantage of these lower rates.

ARM vs. Fixed-Rate Mortgage: Example Mortgage Payments

The table below can help you better understand the difference between mortgage payments for ARMs and fixed-rate loans.

Type of loan	5/1 ARM	30-year Fixed-Rate Loan
Mortgage amount	$400,000	$400,000
Interest rates	6.86%	7.66%
Monthly payments	$2,623.71 per month during the initial five-year fixed-rate period (payments will adjust annually thereafter)	$2,840.81

As you can see, initial interest rates are typically much lower for ARMs than for fixed-rate loans. However, after this initial phase, these rates can increase, which will also increase monthly payments. Use our convenient mortgage calculator to determine how much you can expect your monthly payments to be per month for an ARM and a fixed-rate mortgage.

Is an ARM or Fixed-Rate Mortgage Better?

There are advantages and disadvantages to both adjustable-rate and fixed-rate mortgages. For example, fixed-rate mortgages are easier to budget because monthly payments remain the same throughout the life of the mortgage. This can be a huge advantage for homeowners who are concerned about increasing rates.

However, if interest rates decline over the course of your loan, you’ll be stuck paying a higher amount. It may be possible to refinance your mortgage to take advantage of these lower rates. However, you must still have the right credit score to buy a home.

On the other hand, a great advantage of ARMs is that they typically offer lower initial interest rates. Oftentimes, homeowners have lower monthly payments during this initial phase vs. those opting for fixed-rate loans. The disadvantage is that interest rates could spike during the fixed-rate phase. If this happens, homeowners could face significantly higher mortgage payments at the end of the initial fixed-rate period.

Why Would You Choose an Adjustable Rate Over a Fixed Rate?

Adjustable-rate mortgages are an attractive offer for many first-time home buyers. First, they offer lower interest rates for the first several years, which results in lower monthly payments. Secondly, many first-time home buyers only plan to stay in their homes for several years before upgrading to larger houses.

In these cases, an ARM loan can be an ideal option because they’re likely to move before the end of the fixed-rate phase or soon after. This option allows them to enjoy lower interest rates until they’re ready to upgrade.

Tips for Choosing

Ultimately, selecting an ARM or a fixed-rate mortgage is a personal decision that depends on your specific situation. However, if you’re trying to choose between these two options, here are some factors to consider.

How Long Will You Be in the Home?

The first thing you want to consider is how long you plan to stay in your new home. If your plans are to remain in the home for only several years, an ARM may be the best option. For instance, if you plan to stay in your home for less than seven years, a 7/1 ARM will allow you to take advantage of lower interest rates until you sell the home.

If, on the other hand, this is your forever home, and you have no plans on moving in the near future, a fixed-rate mortgage that offers consistent monthly payments may be the better option.

How Frequently Does the ARM Adjust?

You also want to check the details of the loan and determine how often ARM rates will adjust. For example, a 7/1 ARM offers 7 years of ARM rates at the fixed rate, then the interest rates readjust every year afterward. Rates on a 7/6 ARM will readjust every six months. If this is too much fluctuation for your budget, you may want to consider a fixed-rate mortgage.

What Are Interest Rates Like?

Another thing you want to consider is the current state of interest rates and predictions for future increases or decreases. When interest rates are low, investing in a fixed-rate mortgage can help you lock in these lower rates. Alternatively, when interest rates are high or rising, it may make more sense to select an ARM, with hopes that these rates will come back down before the initial fixed-rate period ends.

How Much Can You Afford Now?

ARMs typically offer lower monthly payments during the first few years. This can be an attractive option for those just beginning their careers and planning to increase their earnings in the future. An adjustable-rate mortgage allows you to take advantage of lower monthly payments now and risk possible higher payments when you have more wealth.

Can You Afford a Payment Increase?

It’s important to recognize that as interest rates with an ARM adjust, so will your monthly payments. Make sure you can budget these shifts. Even if ARM caps are in place, monthly payments can increase quickly, especially with a six-month adjustment frequency. If you’re uncertain of your ability to maintain higher monthly payments, you may want to choose a fixed-rate mortgage.

Understand Your Options

Fixed-rate and adjustable-rate mortgages are both good options for home buyers. The important thing is to understand the difference between these two choices and to evaluate your specific situation. When you factor in these issues, you can better determine which option is right for you.

Source: credit.com

Apache is functioning normally

September 25, 2023 by Brett Tams

With hundreds of stores across more than 15 Southeastern states, Belk is a beloved brand among Southerners who appreciate the department store’s excellent customer service, reasonable prices, and wide selection of apparel, home goods, cosmetics, and more.

The Belk credit card, issued by Synchrony Bank, offers impressive rewards rates, ranging from 4% to 7% back in rewards, depending on your level of spending each year.

Even so, if you’re an infrequent Belk shopper — or if there’s any chance you’ll carry a balance on your Belk spending — you may be better off with a more straightforward cash-back credit card.

🤓Nerdy Tip

Though Belk offers frequent coupons to email subscribers, the brand doesn’t have a traditional store rewards program for noncardholders. Carrying and using a Belk credit card is the only way to earn and redeem store rewards.

Here are five things you should know about the Belk credit card.

1. There are two versions of the card

With a single application for the Belk credit card, you’ll actually be considered for two versions of the card. Ultimately, the card you’re offered will depend on your financial record and credit scores. These are the two cards you’ll be considered for:

The Belk Rewards+ card is a “closed-loop” credit card, meaning it can be used to make purchases only inside Belk stores and salons, as well as on Belk.com.
The Belk Rewards+ Mastercard is an “open-loop” credit card, meaning you can use it anywhere Mastercards are accepted.

Both cards offer the same in-store earnings and benefits, but the Belk Rewards+ Mastercard offers rewards on eligible purchases outside of Belk — more on that below.

Who doesn’t want to be rewarded?

Create a NerdWallet account for personalized recommendations, and find the card that rewards you the most for your spending.

2. Big spenders earn rewards at higher rates

Like most store cards, the Belk credit card is designed to reward brand loyalists, offering elevated rewards when you spend more on the card at Belk. Here’s how much you’ll earn at each spending tier, regardless of which version of the Belk card you have:

Spend $299.99 or less per calendar year on the card at Belk: You reach Belk’s “Insider” tier, and your card earns 4 points per $1 spent at Belk, equivalent to 4% back in store rewards.
Spend between $300 and $999 on the card in a calendar year at Belk: You hit the “Premier” level, and your card earns 5 points per $1 spent at Belk, equivalent to 5% back in store rewards.
Spend $1,000 or more in a calendar year at Belk: You reach “Elite” status, and your card earns 7 points per $1 spent at Belk, equivalent to 7% back in store rewards.

Beyond that, the open-loop Belk Rewards+ Mastercard version also offers 2 points per $1 spent on gas and grocery purchases, along with 1 point per $1 spent on all other non-Belk purchases.

With either card, once you reach the spending threshold for a new status tier at Belk, you’ll start earning rewards at that status beginning with the next billing cycle, and you can maintain that status until the end of the following year. If, for example, you earned Elite status in September 2023, you would keep that status until Dec. 31, 2024.

Note, however, that qualifying purchases necessary to reach a status tier will reset each January. So in the example above, while you’d enjoy Elite status until the end of 2024, your purchases from October to December 2023 wouldn’t count toward your status in 2025.

3. Rewards can’t be saved for a big splurge

This is another area where the Belk credit card isn’t the best deal for just occasional visitors. Each time you earn 500 points through your Belk credit card, those points are automatically converted to a certificate for $5 in Belk Rewards Dollars. Certificates are sent via email or through your paper credit card statement and typically expire within 90 days of issuance.

You can apply up to $200 in Belk Rewards Dollars to a single transaction. But with such a short expiration window, all but the most frequent Belk shoppers may struggle to save up rewards for a significant purchase.

To help maximize savings, you can stack Belk Rewards Dollars with the store’s frequent online, in-app and paper coupons.

🤓Nerdy Tip

Both versions of the Belk credit card are also accepted inside Belk salons, and payments for salon services apply toward your rewards tier. However, payments for salon services don’t earn points toward store rewards, and you can’t use Belk Rewards Dollars to pay for salon services.

4. Financing plans are available, but they come with terms

As of this writing, the Belk credit card offers a variety of financing plans to help shoppers spread the cost of large purchases over time:

The Table Top Special Payment Plan can be applied to Conn’s x Belk purchases or guild products (including china, crystal, silver and table linens) with an initial purchase of $300.
The Fine Jewelry Special Payment Plan is available with an initial in-store purchase of $500 or more on eligible fine jewelry. Once established, the plan can also be applied to future in-store fine jewelry purchases of $150 or more.
The Belk Rewards+ Flex Pay Plan is available upon request for Premier and Elite level cardholders. Once activated, this plan is automatically applied to all purchase types until cardholders request to cancel Flex Pay.

These options function much like some buy now, pay later plans. They allow you to finance a Belk purchase on your card without interest — as long as you pay the agreed-upon minimum amount each month under the terms of the plan. If you don’t meet these requirements, you may be subject to interest or late fees.

Also, note that purchases made with these financing plans don’t earn rewards, nor do they count toward your Rewards+ status for future calendar years. So if you need to finance a large Belk purchase over time, you might be better off with a traditional 0% intro APR credit card.

5. You won’t want to carry a balance

As of September 2023, both the Belk Rewards+ credit card and the Belk Rewards+ Mastercard carry a variable APR approaching 30%. That’s not an uncommon figure among store credit cards, but it is higher than average.

That means to actually save money through the Belk credit card’s elevated rewards, it’s essential that you pay your balance in full each month. If you don’t, chances are high that the interest you accrue on the card will outweigh any rewards you‘ve earned.

Source: nerdwallet.com

Apache is functioning normally

September 23, 2023 by Brett Tams

Getting a credit card is like taking a step toward financial adulthood. It brings you into the world of building credit and paying bills, which almost everyone has to deal with at some point, so it can help to get started as soon as possible.

But the “firsts” of adulthood aren’t always easy, and that includes getting your first credit card. A Credit.com reader recently asked where to start:

Hi, I am 18 years of age, I have no credit history, and I have low income. I’m wanting to get my own place, and would love some help finding a good credit card to build my credit that will accept my low income.

There are three main things that will affect whether or not someone like our commenter could get a credit card: the person’s age, the fact that they have no credit and the amount of money they make.

1. Can You Get a Credit Card at 18?

Let’s start with age. Per the Credit CARD Act of 2009, consumers younger than 21 must have proof of independent income or a co-signer in order to get a credit card. It makes sense: If you’re going to get a credit card, you need to be able to show that you can pay your balance.

Why Would I Want to Have a Credit Card at 18?

Having a credit card at 18 can help you to start building your credit early. It also allows you to make purchases that may require a credit card, such as a car rental.

2. Do You Make Enough Money?

That brings us to income. Since this commenter referenced wanting to live independently, it seems unlikely that they’d opt for a co-signer. That means this person would need to provide proof of their income. We don’t know exactly what our commenter means by “my low income” — even if it’s not a lot, it isn’t necessarily a credit card deal-breaker. You could always try to ask a credit card issuer what sort of income they’re looking for among card applicants, but you may not get an adequate answer, given that there’s more that goes into getting approved for a credit card than income.

3. Consider Becoming an Authorized User

If you’re wondering how to get a credit card at 18, becoming an authorized user may be your best solution. An authorized user has permission from the cardholder to use their account to make credit card purchases. Typically, you receive a credit card with your name on it, but there might be limitations as to how much you can spend.

If the credit card company reports authorized users to the credit bureaus and the cardholder makes on-time payments, this option could help boost your credit. As an authorized user, you’re not directly responsible for making monthly credit card payments. Instead, you should make a payment agreement with the cardholder to ensure your bills are paid on time.

4. Get a Secured Credit Card

At 18, it’s likely you have little to no credit history. This factor could prevent you from obtaining a traditional credit card. Despite your lack of credit history, you could qualify for a secured credit card. This type of card requires you to pay a cash security deposit to open the account.

For example, you might need to pay a cash security deposit of $500 to open a credit card with a $500 credit limit. With secured credit cards, monthly payments are typically reported to credit reporting agencies. In many cases, you can increase your credit limit without an additional cash security deposit after several months of making on-time payments.

Get a Student Credit Card

If you’re a college student, you may qualify for a student credit card. These cards are specifically for full- and part-time students at higher education colleges or universities. Credit requirements are typically lower for student credit cards, especially when it comes to the length of credit history.

If you have little to no credit, you may have a better chance of securing a student credit card than a traditional credit card. Keep in mind that credit card companies must still adhere to the regulations of the Credit CARD Act of 2009. So, you still need to have a cosigner, have proof of income or meet other requirements for a student credit card.

5. Ask Someone to Cosign for You

Another option for obtaining a credit card at 18 is asking someone you trust to be a cosigner on the account. This method can help if your cosigner has a good credit score. Both you and the cosigner are responsible for making payments.

How to apply for a credit card at 18 with a cosigner? Unfortunately, none of the major credit card companies allow for cosigners. If you can’t find a credit card you like that allows for a cosigner, you could opt for a joint credit card account. With this type of account, both parties remain responsible for making payments, but it’s likely your cosigner will be listed as the primary cardholder on the account.

Tips to Help You Manage Your Card

Obtaining your first credit card can be exciting, but it also comes with great responsibility. How you handle your credit card purchases and payments can impact your credit score for years to come. It’s important to set up good practices now to protect your future finances.

Set Up Automatic Payments

Setting up automatic payments is a great way to ensure your bills are paid on time. You can use your credit card to pay your bills and then pay your credit card bill by the due date. This process can help you build a strong payment history, which accounts for 35% of your credit score.

Build a Budget

The best way to avoid overspending is to build a budget. Start by tracking your spending for a month and use that information to develop an accurate budget. Be sure to set some money aside each month in a savings account in case of an emergency.

Pay More Than the Minimum Payment Every Month

One of the most important things when it comes to having a credit card is to be sure you’re making at least the minimum payment every month. If possible, you can pay more than the minimum balance to avoid paying interest.

Only Buy Things You Know You Can Pay Off

When you have a credit card, it can be tempting to make large purchases that you might not be able to afford without the credit card. Avoid this temptation. If you buy things you can’t afford, you run the risk of not being able to make your monthly payments.

Late payments can have a negative impact on your credit score. Using up all of your available credit can also reduce your credit score.

Be on Top of Your Statements

It’s crucial that you take having a credit card seriously. Just as you do with your bank account, be sure to check your credit card statements carefully. Take note of how much available credit you have left to avoid going over your credit limit. You also want to make sure you make all your monthly payments on time.

Other Ways to Build Credit

There are several things you can do right now to start the path to building your credit.

Student loans: Student loans can do more than just help you pay college tuition. They can also help you build credit. The important thing is to make sure you start paying on these loans as soon as you’re required to do so.
Emergency fund: You’re never too young to start an emergency fund. Be sure to put a portion of your earnings into a savings account. This strategy can help you in the event of a financial emergency.
Track your credit score: Whether you’re 18 or 80, it’s important to frequently track your credit score. Credit.com offers free credit scores from Experian that are updated every 2 weeks.
Get a job: The easiest way to secure a credit card when you’re only 18 is to maintain a job. If you’re able to prove you can financially handle having a credit card, it’s easier to obtain approval.

Source: credit.com

Apache is functioning normally

September 22, 2023 by Brett Tams

Day trading is a type of active trading where an investor buys and sells stocks or other assets based on short-term price movements. Day trading is often thought to differ from a buy-and-hold strategy typically used by long-term investors.

With day trading, the investor is not necessarily looking for assets that will make money over the long-term. Instead, a day trader seeks to generate short-term gains.

Investors should know, though, that day trading is an incredibly risky strategy and there’s a high chance of losing money.

What Is Day Trading?

Day trading incorporates short-term trades on a daily or weekly basis in an effort to generate returns. The Securities and Exchange Commission (SEC) says that “day traders buy, sell and short-sell stocks throughout the day in the hope that the stocks continue climbing or falling in value for the seconds or minutes they hold the shares, allowing them to lock in quick profits.”

A long-term investor, conversely, may buy a stock because they think that the company will grow its revenue and earnings, creating value for itself and the economy. Long-term investors believe that that growth will ultimately benefit shareholders, whether through share-price appreciation or dividend payouts.

A day trader, on the other hand, likely gives little credence to whether a company represents “good” or “bad” value. Instead, they are concerned with how price volatility will push an asset like a stock higher in the near-term.

Day trading is a form of self-directed active investing, whereby an investor attempts to manage their investments and outperform or “beat” the stock market.

Recommended: A User’s Guide to Day Trading Terminology

Best Securities For Day Trading

Day traders can work across asset classes and securities: company stocks, fractional shares, ETFs, bonds, fiat currencies, cryptocurrencies, or commodities like oil and precious metals. They can also trade options or futures — different types of derivatives contracts.

But there are some commonalities that day-trading markets tend to have, including liquidity, volatility, and volume.

Liquidity

Liquidity refers to how quickly an asset can be bought and sold without causing a significant change in its price. In other words, how smoothly can a trader make a trade?

Liquidity is important to day traders because they need to move in and out of positions quickly without having prices move against them. That means prices don’t move higher when day traders are buying, or move down when they’re starting to sell.

Volatility

Market volatility can often be considered a negative thing in investing. However, for day traders, volatility can be essential because they need big price swings to potentially capture profits.

Of course, volatility could mean big losses for day traders too, but a slow-moving market typically doesn’t offer much opportunity for day traders.

Volume

High stock volume may indicate that there is a lot of interest in a security, while low volume can indicate the opposite. Elevated interest means there’s a greater likelihood of more liquidity and volatility — which are, as discussed, two other characteristics that day traders look for.
💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

Day Trading Basics — How to Get Started

Before starting to day trade, some investors set aside a dollar amount they’re comfortable investing — and potentially losing. They need to figure out their personal risk tolerance, in other words.

Getting the hang of day trading can take some time, so newbie day traders may want to start with a small handful of stocks. This will be more manageable and give traders time to hone their skills.

Recommended: How Many Stocks Should I Own?

Good day traders can benefit from staying informed about events that may cause big price shifts. These can range from economic and geopolitical news to specific company developments.

Here’s also a list of important concepts or terms every prospective day trader should know.

1. Trading Costs

If you’re utilizing day trading strategies, it’s wise to consider the cost. Many major brokerage firms accommodate day trading, but some charge a fee for each trade. This is called a transaction cost, commission, mark up, mark down, or a trading fee. Some firms also charge various other fees for day trading or trading penny stocks.

Some platforms are specifically designed for day trading, offering low-cost or even zero-cost trades and a variety of features to help traders research and track markets.

2. Pattern Day Trader

A pattern day trader is a designation created by the Financial Industry Regulatory Authority (FINRA). A brokerage or investing platform will classify investors as pattern day traders if they day trade a security four or more times in five business days, and the number of day trades accounts for more than 6% of their total trading activity for that same five-day period.

When investors get identified as pattern day traders, they must have at least $25,000 in their trading account. Otherwise, the account could get restricted per FINRA’s day-trading margin requirement rules.

3. Freeriding

In a cash account, an investor must pay for the purchase of a security before selling it. Freeriding occurs when an investor buys and then sells a security without first paying for it.

This is not allowed under the Federal Reserve Board’s Regulation T. In cases where freeriding occurs, the investor’s account may be frozen by the broker for a 90-day period. During the freeze, an investor is still able to make trades or purchases but must pay for them fully on the date of the trade.

4. Tax Implications of Trader vs Investor

The IRS makes a distinction between a trader and an investor. Generally, an investor is someone who buys and sells securities for personal investment. A trader on the other hand is considered by the law to be in business. The tax implications are different for each.

According to the IRS, a trader must meet the following requirements below. If an individual does not meet these guidelines, they are considered an investor.

• “You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation;

• Your activity must be substantial; and

• You must carry on the activity with continuity and regularity.”

5. Capital Gains Taxes

Another important tax implication to note is that the IRS differentiates between short-term and long-term investments for capital gains tax rates. Generally, investments held for over a year are considered long-term and those held for under a year are short-term.

While long-term capital gains may benefit from a lower tax rate, short-term capital gains are taxed at the same rate as ordinary income.

A capital loss occurs when an investment loses value. In certain circumstances, when a capital loss exceeds a capital gain, the difference could potentially be applied as a tax deduction. Some brokerages may also offer automated tax loss harvesting as a way to strategically offset investment profits.

6. Wash Sale Rule

While capital losses can sometimes be taken as a tax deduction, there are certain regulations in place to prevent investors from abusing those benefits. One such regulation is the wash sale rule, which says that investors cannot benefit from selling a security at a loss and then buy a substantially identical security within the next 30 days.

A wash sale also occurs if you sell a security and then your spouse or a corporation you control buys a substantially identical security within the next 30 days.

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.

**Customer must fund their Active Invest account with at least $10 within 30 days of opening the account.
Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

7 Common Day Trading Strategies

Some common types of day trading strategies that you may want to research include technical analysis, scalping, momentum, swing trading, margin and so on. Here’s a closer look at them.

1. Technical Analysis

Technical analysis is a type of trading method that uses price patterns to forecast future movement. A general rule of thumb in investing is that past performance never guarantees future results. However, technical analysts believe that because of market psychology, history tends to repeat itself.

Support and resistance are price levels that traders look at when they’re applying technical analysis. “Support” is where the price of an asset tends to stop falling and “resistance” is where the price tends to stop climbing. So, for instance, if an asset falls to a support level, some may believe that buyers are likely to swoop in at that point.

2. Swing Trading

Swing trading is a type of stock market trading that attempts to capitalize on short-term price momentum in the market. The swings can be to the upside or to the downside and typically from a couple days to roughly two weeks.

Generally, a swing trader uses a mix of fundamental and technical analysis to identify short- and mid-term trends in the market. They can go both long and short in market positions, and use stocks, ETFs, and other market instruments that exhibit volatility.

3. Momentum Trading

Momentum trading is a type of short-term, high-risk trading strategy. While momentum trades can be held for longer periods when trends continue, the term generally refers to trades that are held for a day or several days, on average.

Momentum traders strive to chase the market by identifying the trend in price action of a specific security and extract profit by predicting its near-term future movement. Looking for a good entry point when prices fall and then determining a profitable exit point is the method to momentum trading.

4. Scalp Trading

In scalp trading, or scalping, the goal of this trading style is to make profits off of small changes in asset prices. Generally, this means buying a stock, waiting for it to increase in value by a small amount, then selling it. The theory behind it is that many small gains can add up to a significant profit over time.

5. Penny Stocks

Penny stocks — shares priced at pennies to up to $5 apiece — are often popular among day traders. However, they can be difficult to trade because many are illiquid. Penny stocks aren’t typically traded on the major exchanges, further increasing potential difficulties with trading. Typically, penny stocks sell in over-the-counter (OTC) markets.

6. Limit and Market Orders

There are types of orders that day traders quickly become familiar with. A limit order is when an investor sets the price at which they’d like to buy or sell a stock. For example, you only want to buy a stock if it falls below $40 per share, or sell it if the price rises to over $60. A limit order guarantees a particular price but does not guarantee execution.

With a market order, you are guaranteed execution but not necessarily price. Investors get the next price available at that time. This price may be slightly different than what is quoted, as the price of that underlying security changes while the order goes through.

7. Margin Trading

Margin accounts are a type of brokerage account that allows the investor to borrow money from the broker-dealer to purchase securities. The account acts as collateral for the loan. The interest rate on the borrowed money is determined by the brokerage firm.

Trading with this borrowed money — called margin trading — increases an investor’s purchasing power, but comes with much higher risk. If the securities lose value, an investor could be left losing more cash than they originally invested.

In the case that the investor’s holdings decline, the brokerage firm might require them to deposit additional cash or securities into their account, or sell the securities to cover the loss. This is known as a margin call. A brokerage firm can deliver a margin call without advance notice and can even decide which of the investor’s holdings are sold.

Which Day Trading Strategy Is Best for Beginners?

There’s no single answer that’s going to be correct for every trader. But investors might want to stick to the simpler strategies to get a hang of day trading. For instance, they could take a try at technical analysis to try and determine which trades may end up being profitable. Or, they could stick with swing trades to test the waters, too.

Perhaps the most important thing to keep in mind is that day trading is, as mentioned, incredibly risky.
💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Best Times to Day Trade

As mentioned, day traders seek high liquidity, volatility and volumes. That’s why when it comes to stocks, the first 15 minutes of the trading day, after the equity market opens at 9:30am, may be one of the active stretches for day traders.

The stock market tends to be more volatile during this time, as traders and investors try to figure out the market’s direction and prices react to company reports or economic data that was released before the opening bell. Volume also tends to pick up before the closing bell at 4pm.

For futures, commodities and currencies trading, markets are open 24 hours so day traders can be active around the clock. However, they may find less liquidity at night when most investors and traders in the U.S. aren’t as active.

Day Trading Risk Management

The SEC issued a stern warning regarding day trading in 2005, and that message still holds value today. They noted that most people do not have the wealth, time, or temperament to be successful in day trading.

If an individual isn’t comfortable with the risks associated with day trading, they shouldn’t delve into the practice. But if someone is curious, here are some steps they can take to manage the risks that stem from day trading:

1. Try not to invest more than you can afford. This is particularly important with options and margin trading. It’s crucial for investors to understand how leverage works in such trading accounts and that they can lose more than they originally invested.

2. Investors and traders often benefit from tracking and monitoring volatility. One way to do this is by finding one’s portfolio beta, or the sensitivity to swings in the broader market. Adjusting one’s portfolio so it’s not too sensitive to sweeping volatility may be helpful.

3. Day traders often benefit from picking a trading strategy and sticking with it. One struggle many day traders contend with is avoiding getting swept up by the moment and deviating from a plan, only to lock in losses.

4. Don’t let your emotions take the driver’s seat. Fear and greed can dominate investing and sway decisions. But in investing, it can be better to keep a cool head and avoid reactionary behavior.

Is It Difficult To Make Money Day Trading?

While it may feel like it’s easy to make a couple of lucky moves and turn a profit from some trades, it isn’t easy to make money day trading. Again, it’s very, very risky, and new traders would do well not to assume they’re going to make any money at all. That said, there are professional traders out there, but they use professional-grade tools and experience to help inform their decisions. New traders shouldn’t expect to emulate a professional trader’s success.

The Takeaway

Day trading involves making short-term stock trades in an effort to generate returns. It can be lucrative, but is extremely risky, and prospective traders would likely do well to practice and learn some tools of the trade before giving it a shot. They’ll also want to closely consider their risk tolerance, too.

Again, while stock investing can be an important way to build wealth for individuals, it’s crucial however to know that the consequences of risky day trading can be catastrophic. Investors need to be disciplined, cautious and put in the time and effort before delving into day trading strategies.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

What is day trading and how does it differ from other trading strategies?

Day trading involves making short-term trades with stocks or other securities in an effort to make a profit. Other strategies may involve longer-term investments, which are not bought and sold on a daily or weekly (or monthly) basis.

Are there any risk management techniques specific to day trading strategies?

Traders can do many things to try and limit their risks, and that can include working with different brokers or platforms, incorporating thinking patterns or rituals before making trades, setting up stop-losses, and diversifying their portfolios.

Are day trading strategies suitable for all types of markets, such as stocks, forex, or cryptocurrencies?

Day trading can be done in many asset classes and markets, which can include stocks, forex, and even crypto. But each asset is different, and the markets may not behave the same ways, either. As such, traders may want to do some homework before jumping in.

How much capital is typically required to implement day trading strategies?

It’s generally recommended that traders start with at least $25,000 in their brokerage accounts before day trading.

Are there any specific timeframes or market conditions that are more favorable for day trading strategies?

Perhaps the best times of the day for day traders are immediately after the markets open, and shortly before they close. There may also be more market action on certain days of the week (Mondays, for instance) which create good conditions for day traders.

SOIN0723118

Source: sofi.com

Apache is functioning normally

September 22, 2023 by Brett Tams

For most people, the Chase Sapphire Preferred® Card is a better starting point in the travel rewards market. (There’s a reason NerdWallet describes it as “nearly a must-have for travelers.”) It offers higher rewards earnings on everyday purchases, and those rewards carry a 25% higher redemption value when used to book travel through the Chase travel portal. That’s a lot of value for a modest annual fee of $95.

The Platinum Card® from American Express is marketed as a premium travel card. Its rewards earning rates focus on select travel spending, and it carries more luxury benefits, including lounge access, high-end fitness, shopping and hotel credits. However, those premium benefits come with a premium annual fee of $695 — a hard cost to justify for many people.

Here’s a side-by-side comparison so you can decide which card is right for you.

How the cards compare

Chase Sapphire Preferred® Card

on Chase’s website

The Platinum Card® from American Express

Annual Fee

Welcome offer

Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That’s $750 toward travel when you redeem through Chase Ultimate Rewards®.

Earn 80,000 Membership Rewards® Points after you spend $8,000 on purchases on your new Card in your first 6 months of Card Membership.

Terms apply.

Rewards

5 points per $1 spent on all travel purchased through Chase Ultimate Rewards®.
3 points per $1 spent on dining (including eligible delivery services and takeout).
3 points per $1 spent on select streaming services.
3 points per $1 spent on online grocery purchases (not including Target, Walmart and wholesale clubs).
2 points per $1 spent on travel not purchased through Chase Ultimate Rewards®.
1 point per $1 spent on other purchases.
Through March 2025: 5 points per $1 spent on Lyft.

Points are worth 1.25 cents apiece when redeemed for travel through Chase Ultimate Rewards®.

5 Membership Rewards points per $1 spent on flights booked directly with airlines or with American Express Travel.
5 points per $1 spent on prepaid hotels booked through American Express Travel.
2 points per $1 spent on other eligible travel booked through AmEx.
1 point per $1 spent on all other purchases.

Other benefits

A $50 annual credit on hotel stays purchased through Ultimate Rewards®.
Each account anniversary, cardmembers will earn bonus points equal to 10% of total purchases made the previous year.
1:1 transfer partners, including United, Southwest, JetBlue, Marriott and Hyatt.

$200 annually for airline incidentals, like bag fees, on one designated airline when you enroll.
$200 annually for prepaid hotel bookings through American Express Travel at more than 2,000 hotels. (Fine Hotels and Resorts or The Hotel Collection properties.)
$189 annually for Clear membership.
$100 statement credit every 4 years for a Global Entry application fee or a statement credit up to $85 every 4.5 years for a TSA PreCheck when charged to your card.
1:1 transfer partners, including Air Canada, Air France, British Airways, Delta and Virgin Atlantic.
Terms apply.

Lounge access

Access for you and 2 guests to over 1,400 lounges worldwide from partners including Priority Pass and Plaza Premium Group. Terms apply.
Access to over 40 American Express Centurion and Escape lounges. Terms apply. Fees may apply for guest access.

Foreign transaction fee

Still not sure?

Why the Chase Sapphire Preferred® Card is better for most people

Lower annual fee

The Chase Sapphire Preferred® Card packs a lot of punch in terms of travel rewards value, all with a manageable $95 annual fee. Compare that with The Platinum Card® from American Express’s eye-popping $695 annual fee — an intimidating figure for many travelers. While the Amex Platinum does advertise a wide range of travel and shopping credits to offset that fee, taking full advantage of those benefits can be burdensome.

More value, more dometic transfer partners

When using your points to book travel through the issuer’s portal, Chase Ultimate Rewards® are more valuable. Points earned from the Chase Sapphire Preferred® Card are worth an impressive 1.25 cents per point. That’s an outsized value compared with the American Express travel portal, where Membership Rewards points are redeemed at one cent per point on flights and certain hotel bookings. Other hotel bookings made through AmEx carry a value of 0.7 cent per point.

Plus, Chase’s transfer partners include several well-known domestic airlines and hotel brands, offering easy accessibility for points redemption. American Express offers more transfer options than Chase, and savvy travelers can find outsized value for their points. But AmEx’s transfer partners are primarily foreign airlines, making Membership Rewards points more challenging to transfer for U.S.-based domestic travelers.

Full list of Chase transfer partners

Aer Lingus (1:1 ratio).
Air Canada (1:1 ratio).
Air France-KLM (1:1 ratio).
British Airways (1:1 ratio).
Emirates (1:1 ratio).
Iberia (1:1 ratio).
JetBlue (1:1 ratio).
Singapore (1:1 ratio).
Southwest (1:1 ratio).
United (1:1 ratio).
Virgin Atlantic (1:1 ratio).

Hyatt (1:1 ratio).
InterContinental Hotels Group (1:1 ratio).
Marriott (1:1 ratio).

Full list of AmEx transfer partners

Aer Lingus (1:1 ratio).
AeroMexico (1:1.6 ratio).
Air Canada. (1:1 ratio).
Air France/KLM (1:1 ratio).
ANA (1:1 ratio).
Avianca (1:1 ratio).
British Airways (1:1 ratio).
Cathay Pacific (1:1 ratio)
Delta Air Lines (1:1 ratio).
Emirates (1:1 ratio).
Etihad Airways (1:1 ratio).
Hawaiian Airlines (1:1 ratio).
Iberia Plus (1:1 ratio).
JetBlue Airways (2.5:2 ratio).
Qantas (1:1 ratio).
Qatar Airways (1:1 ratio).
Singapore Airlines (1:1 ratio).
Virgin Atlantic Airways (1:1 ratio).

Choice Hotels (1:1 ratio).
Hilton Hotels & Resorts (1:2 ratio).
Marriott Hotels & Resorts (1:1 ratio).

Better earnings rates on everyday spending

Both cards earn 5x per $1 spent on travel booked through their travel portals, but the Chase Sapphire Preferred® Card is the clear winner for everyday spending. It earns 3x on dining, streaming services, and online grocery purchases (excluding Walmart, Target and wholesale clubs), while the Amex Platinum earns 1x in each of those categories. Terms apply.

Get a card that takes you farther

Sign up with NerdWallet to get a full picture of your spending and personalized recommendations for cards that will help you see the world.

Why you might want The Platinum Card® from American Express

Lounge access

In this category, there’s no competition. If airport lounge access is a high priority, you’ll be best served by The Platinum Card® from American Express.

Where the Chase Sapphire Preferred® Card offers no lounge access, the AmEx Platinum is known for its top-notch airport lounge benefits, including access to over 1,400 lounges in more than 500 airports worldwide. Those include more than 40 American Express Centurion and Escape lounges, and additional access through partners like Priority Pass and Plaza Premium Group. Terms apply.

Booking with the airline

When it comes to booking flights, experienced travelers know that the way you book can make a big difference in the ease of changing or canceling your plans. So while both the Chase Sapphire Preferred® Card and Amex Platinum offer 5 points per dollar spent on flights booked through their respective travel portals, The Platinum Card® from American Express has a leg up in offering that same earnings rate for flights booked directly through the airline. Terms apply.

The Sapphire Preferred, on the other hand, offers the 5x points rate only if you book your flights through the Chase travel portal. That can pose a problem in the event of a weather delay, cancellation, or any other trip interruption.

The prestige factor

Both cards are metal, but The Platinum Card® from American Express carries a certain luxury gravitas that the Chase Sapphire Preferred® Card can’t compete with — and doesn’t try. That prestige has some cash value, too. When used correctly, the card’s luxury perks add up quickly to help offset its eye-popping annual fee. When you enroll, those include statement credits of up to $300 per year toward an Equinox gym membership, $50 twice per year at Saks Fifth Avenue, $200 per year in Uber cash ($15 per month plus an extra $20 in December), and $200 a year for prepaid hotel bookings through The Hotel Collection or Fine Hotels + Resorts properties, just to name a few. Terms apply.

However, if these benefits don’t match your lifestyle, you’ll be paying mostly for the cachet of pulling the famous platinum card out of your wallet. Only you can decide how much that prestige is worth.

Which card should you get?

The Chase Sapphire Preferred® Card and The Platinum Card® from American Express are two of the best travel rewards cards on the market, but they have different strengths and weaknesses. Chase Sapphire Preferred® Card is a great choice for travelers who want a card with a low annual fee and great rewards for everyday spending. The Amex Platinum may be the better choice for frequent travelers who value lounge access and luxury benefits — but given the card’s steep $695 annual fee, it’s important to make sure you can take full advantage of all those benefits before you sign up.

To view rates and fees of The Platinum Card® from American Express, see this page.

Source: nerdwallet.com

Apache is functioning normally

September 21, 2023 by Brett Tams

By Evlin DuBose · Tuesday, 19 September 2023
· 3 min read

Fact Checked

Advertiser disclosure

House prices in Australia have been daunting for a while, but while soaring values are good for investors and owners building home equity, they’re bad news for first-home buyers.

According to Mozo’s analysis, Australians nationwide now need at least six figures in savings to afford the 20% home loan deposit required for the average mortgage. For many home buyers, this could mean saving two and a half times their yearly income.

“Despite rising interest rates historically leading to a drop in housing prices, the cost of buying a home in Australia is becoming increasingly unaffordable,” says Mozo banking and rates expert Peter Marshall.

“Borrowers are now searching for more than $100,000 to cover a 20% deposit.”

So what’s the average deposit size in Australian states and territories? And is buying with a small deposit worth it?

Average home loan deposit size by Australian state and territory

Unsurprisingly, New South Wales has the steepest home loan deposit costs. Housing markets like Sydney have significantly skewed the savings needed just to get in, and now NSW buyers need $233,500 in savings to afford a 20% deposit.

According to data from the Australian Bureau of Statistics, a deposit of this size is 245% of the average NSW annual income.

State	Average dwelling value	20% home loan deposit	Average annual income	% Average annual income
NSW	$1,167,500	$233,500	$95,259	245%
VIC	$904,800	$180,960	$95,311	189%
QLD	$781,600	$156,320	$93,132	168%
SA	$684,700	$136,940	$87,246	157%
WA	$671,000	$134,200	$106,044	127%
TAS	$662,200	$132,440	$84,204	157%
NT	$521,700	$104,340	$92,347	113%
ACT	$947,900	$189,580	$105,191	180%

But the place with the cheapest property, the Northern Territory, isn’t much better. The average property price in NT is $521,700, meaning a 20% deposit is $104,340, which is still over 110% of the average yearly earnings in the territory.

Why is the standard home loan deposit 20%?

The purpose of a 20% home loan deposit is to establish your loan-to-value ratio (LVR) and give you a financial stake in your home. The deposit pays part of the upfront property price.

If you have a 20% deposit, you own 20% of your home. A home loan covers the remainder, giving you 80% LVR.

This LVR tier is where borrowers get the most competitive interest rates. An LVR higher than 80% is financially risky in the lender’s eyes since the borrower could struggle to afford their home loan repayments.

To offset the financial risk, lenders slap buyers with smaller deposits with additional fees, such as higher interest rates and Lenders Mortgage Insurance (LMI), which can add thousands of dollars to mortgage repayments.

Lower LVRs, on the other hand, receive lower interest rates because the risk to the lender is smaller. They also don’t have to pay LMI.

You can see this play out in the latest averages for owner-occupied home loans tracked in the Mozo database. The difference below 80% is less severe. Above 80%? The interest rate skyrockets.

Average home loan interest rate by LVR tier – (19 September 2023)

LVR Tier	Average interest rate
60%	6.52% p.a.
70%	6.57% p.a.
80%	6.60% p.a.
90%	6.92% p.a.
95%	7.16% p.a.

Borrowers buying with a small deposit (< 20%) could just decide to pay the higher interest rates. However, their home loan applications will be run through serviceability tests, meaning lenders will see if they can afford principal & interest repayments at a rate up to 3% higher than the one they apply for. A 7% interest rate may be fine, but could you theoretically afford a 10% one?

Given that saving for the deposit can be a stretch, this interest rate may be a tall order – especially with average Australian incomes only ranging between $84k and $106k.

Is it a good idea to buy with a small home loan deposit?

Government schemes such as the Family Home Guarantee can help bridge the deposit gap for a select few borrowers, usually first-home buyers.

There are other options available for buying with a smaller deposit, too, such as:

Having a guarantor.
Accepting the deposit from a family or friend as a cash gift.
Using a deposit boost loan, such as through OwnHome.

The viability of these pathways will depend on your financial situation. However, there are risks to consider with each, warns Marshall.

“A [small] deposit may seem enticing, but a loan with a lower deposit will cost more in interest over the term of the loan,” Marshall explains.

“With smaller deposits, it’s also very easy for a negative equity situation to arise, so it’s crucial to get professional advice from a broker before being enticed by the low deposit amount.”

Until then, housing affordability will require governmental reform.

Can you afford a $600,000 or $750,000 home? How about $900,000? Crunch the numbers with Mozo’s home loan calculators.

Compare low-deposit home loans in the table below.

Compare low deposit home loans

– last updated 19 September 2023

Search promoted home loans below or do a full Mozo database search . Advertiser disclosure

Featured Product

Unloan Variable

Owner Occupier, Refinance Only, LVR <80%

interest rate

comparison rate

Initial monthly repayment

5.74% p.a. variable

5.65% p.a.

For refinancers only. Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply in as little as 10 minutes.

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Unloan Variable

For refinancers only. Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply in as little as 10 minutes.

interest rate

5.74% p.a. variable

comparison rate

5.65% p.a.

Ongoing fees

$0.00

Discharge Fee

$0.00

Extra repayments

yes – free

Redraw facility

yes – free

Offset account

no

Maximum loan to value ratio

80.00%

minimum borrowing amount

$10,000

maximum borrowing amount

$10,000,000

type of mortgage

Variable

Repayment types

Principal & Interest

Availability

Owner Occupier

Repayment options

Weekly, Fortnightly, Monthly

Special Offers

–
Own Home Loan

Owner Occupier, Principal & Interest, LVR <80%

interest rate

comparison rate

Initial monthly repayment

5.94% p.a. variable

6.18% p.a.

Competitive variable rate. Multiple offset accounts available. Borrowers can also make extra repayments. Redraw facility available. Simple online application process.

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Own Home Loan

Competitive variable rate. Multiple offset accounts available. Borrowers can also make extra repayments. Redraw facility available. Simple online application process.

interest rate

5.94% p.a. variable

comparison rate

6.18% p.a.

Ongoing fees

$250.00 yearly

Discharge Fee

$300.00

Extra repayments

yes – free

Redraw facility

yes – free

Offset account

yes

Maximum loan to value ratio

80.00%

minimum borrowing amount

–

maximum borrowing amount

–

type of mortgage

Variable

Repayment types

Principal & Interest

Availability

Owner Occupier

Repayment options

Weekly, Fortnightly, Monthly

Special Offers

–
Express Home Loan

Owner Occupier, Principal & Interest, LVR <90%

interest rate

comparison rate

Initial monthly repayment

5.72% p.a. variable

5.87% p.a.

Get fast online approval from the award-winning Bendigo Bank Express Home Loan. Multiple offset accounts and redraw available. 100% offset on variable rate loans and partial offset on fixed rate. Flexible repayment options. New home loans only.

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Express Home Loan

Get fast online approval from the award-winning Bendigo Bank Express Home Loan. Multiple offset accounts and redraw available. 100% offset on variable rate loans and partial offset on fixed rate. Flexible repayment options. New home loans only.

interest rate

5.72% p.a. variable

comparison rate

5.87% p.a.

Ongoing fees

$10.00 monthly

Discharge Fee

$350.00

Extra repayments

yes – free

Redraw facility

yes – free

Offset account

yes

Maximum loan to value ratio

90.00%

minimum borrowing amount

$5,000

maximum borrowing amount

$3,000,000

type of mortgage

Variable

Repayment types

Principal & Interest

Availability

Owner Occupier

Repayment options

Weekly, Fortnightly, Monthly

Special Offers

–
Variable Home Loan 90

Principal and Interest, LVR <90%

interest rate

comparison rate

Initial monthly repayment

5.79% p.a. variable

5.81% p.a.

Affordable home loan rate for buyers or refinancers.. No monthly or ongoing fees. Option to add an offset for 0.10%. Access to savings with unlimited redraws available. Minimum 10% deposit required.

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Variable Home Loan 90

Affordable home loan rate for buyers or refinancers.. No monthly or ongoing fees. Option to add an offset for 0.10%. Access to savings with unlimited redraws available. Minimum 10% deposit required.

interest rate

5.79% p.a. variable

comparison rate

5.81% p.a.

Ongoing fees

$0.00

Discharge Fee

$0.00

Extra repayments

yes – free

Redraw facility

yes – free

Offset account

yes

Maximum loan to value ratio

90.00%

minimum borrowing amount

$50,000

maximum borrowing amount

$2,000,000

type of mortgage

Variable

Repayment types

Principal & Interest

Availability

Owner Occupier

Repayment options

Weekly, Fortnightly, Monthly

Special Offers

–
Home Variable Rate

Owner Occupier, Principal & Interest, Refinance Only

interest rate

comparison rate

Initial monthly repayment

5.90% p.a. variable

5.90% p.a.

Enjoy a competitive variable interest rate from Up. No application, monthly, annual, redraw, or discharge fees to pay. Up to 50 free offset accounts available. Up home loans are only available to owner-occupiers buying or refinancing in major Australian cities. Up is 100% owned by Bendigo Bank. New joiners get $10 by signing up to the app using code UPHOMEMOZO. (T&Cs apply) Mozo Experts Choice award winner.

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Home Variable Rate

Enjoy a competitive variable interest rate from Up. No application, monthly, annual, redraw, or discharge fees to pay. Up to 50 free offset accounts available. Up home loans are only available to owner-occupiers buying or refinancing in major Australian cities. Up is 100% owned by Bendigo Bank. New joiners get $10 by signing up to the app using code UPHOMEMOZO. (T&Cs apply) Mozo Experts Choice award winner.

interest rate

5.90% p.a. variable

comparison rate

5.90% p.a.

Ongoing fees

$0.00

Discharge Fee

$0.00

Extra repayments

yes – up to $30,000

Redraw facility

yes – free

Offset account

yes

Maximum loan to value ratio

90.00%

minimum borrowing amount

$50,000

maximum borrowing amount

$10,000,000

type of mortgage

Variable

Repayment types

Principal & Interest

Availability

Owner Occupier

Repayment options

Monthly

Special Offers

–

^*
WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

^**
Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

Mozo provides general product information. We don’t consider your personal objectives, financial situation or needs and we aren’t recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don’t cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.

Source: mozo.com.au